<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
ESENJAY EXPLORATION, INC.
-------------------------
(Name of issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of class of securities)
296426109
--------------------------------------
(CUSIP number)
David B. Christofferson
500 Dallas Street, Suite 2920
Houston, Texas 77002
(713) 739-7100
(Name, address and telephone number of person
authorized to receive notices and communications)
May 14, 1998
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box. / /
Page 1 of 6 Pages
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SCHEDULE 13D
CUSIP No. 296426109
- ---------------------------------
1) NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Michael E. Johnson
- --------------------------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
- --------------------------------------------------------------------------------
3) SEC USE ONLY
- --------------------------------------------------------------------------------
4) SOURCE OF FUNDS
00
- --------------------------------------------------------------------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) / /
- --------------------------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
NUMBER OF 7) SOLE VOTING POWER: 0
SHARES ------------------------------------------------------------
BENEFICIALLY 8) SHARED VOTING POWER: 5,177,760
OWNED BY ------------------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER: 0
REPORTING ------------------------------------------------------------
PERSON WITH 10) SHARED DISPOSITIVE POWER: 5,177,760
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 5,177,760
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
- --------------------------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 43.97%
- --------------------------------------------------------------------------------
14) TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
Page 2 of 6 Pages
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Item 1. SECURITY AND ISSUER.
The equity securities to which this statement on Schedule 13D relates is
the common stock, par value $.01 per share ("Common Stock"), of Esenjay
Exploration, Inc., a Delaware corporation (the "Company"). The principal
executive offices of the Company are located at 1100 CCNB Center South,
500 Water Street, Suite 1100, Corpus Christi, Texas 78471.
Item 2. IDENTITY AND BACKGROUND.
(a) Michael E. Johnson ("Johnson")
(b) Business Address: 1100 CCNB Center South
500 Water Street, Suite 1100
Corpus Christi, Texas 78471.
(c) Principal Business Activity: Oil and gas exploration
(d) - (e) During the last five years, Johnson has neither been convicted
in a criminal proceeding (excluding traffic violations and
similar misdemeanors) nor been a party to a civil proceeding of
a judicial or administrative body of competent jurisdiction
which, as a result of such proceeding, rendered him subject to a
judgment, decree or final order enjoining future violations of,
or prohibiting or mandating activities subject to, Federal or
state securities laws or finding any violation with respect to
such laws.
(f) United States
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
All of the 5,177,760 shares of Common Stock covered by this Statement are
owned by Esenjay Petroleum Corporation ("EPC"). Of such shares,
5,165,260 shares were issued pursuant to an Acquisition Agreement and Plan of
Exchange dated as of January 13, 1998 among the Company, EPC and Aspect
Resources LLC (the "Acquisition Agreement"), a copy of which is attached hereto
as Exhibit A, and 12,500 shares are issuable upon the exercise of warrants
issued to EPC in connection with certain financing transactions. The shares of
Common Stock issued pursuant to the Acquisition Agreement were issued in
exchange for interests in oil and gas exploration projects.
Item 4. PURPOSE OF TRANSACTION.
EPC acquired its Common Stock in connection with the Acquisition Agreement
and the transfer to the Company of interests in certain oil and gas exploration
projects.
EPC and Johnson have no plans or proposals that would result in any of the
events or outcomes listed in (a) through (j) of this Item 4. However, as a
result of the consummation of the transactions contemplated by the Acquisition
Agreement, the following events or results have occurred:
(a) Not Applicable;
(b) The Company changed its state of incorporation from Oklahoma to
Delaware through a merger of the Company into a wholly owned Delaware
subsidiary;
(c) Not Applicable;
Page 3 of 6 Pages
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(d) The Company held a special meeting of its shareholders (the "Special
Meeting") on May 14, 1998 at which seven directors were elected. Such
directors are David W. Berry, Alex M. Cranberg, Michael E. Johnson,
Charles J. Smith, Alex P. Campbell, William D. Dodge and Jack P.
Randall. In addition, at the board of directors meeting following the
Special Meeting, the board of directors filled a vacancy in the board
with Hobart A. Smith;
(e) At the Special Meeting, the shareholders approved a 1 for 6 reverse
stock split. In addition, the Company called its outstanding
12% Cumulative Convertible Preferred Stock (the "Preferred Stock") for
redemption. Such redemption applies to shareholders of record as of
May 20, 1998 and will be effective on June 15, 1998;
(f) Not Applicable;
(g) In connection with the Company's reincorporation in the State of
Delaware, the Company adopted a new Certificate of Incorporation and
Bylaws, which have substantially the same terms as those that the
Company had before the reincorporation;
(h) The Company has called its Preferred Stock for redemption. The
Preferred Stock is traded on the Nasdaq Small-Cap Market, but will be
removed from trading upon the redemption;
(i) Not Applicable;
(j) Not Applicable.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) EPC beneficially owns an aggregate of 5,177,760 shares of Common
Stock, representing approximately 43.97%, of the issued and outstanding common
Stock;
(b) The board of directors of EPC has the sole power to vote or direct the
vote and dispose or direct the disposition of the Common Stock EPC owns.
Michael E. Johnson owns 50% of the issued and outstanding Common Stock of EPC.
Mr. Johnson and Charles J. Smith are the only directors and executive officers
of EPC. By reason of his stock ownership in EPC, Johnson may be deemed to
possess, indirectly, sole or shared power to vote and dispose of the Common
Stock. Mr. Johnson may be deemed to be a beneficial owner of such shares by
virtue of owning 50% of the stock of EPC and by being a director and executive
officer of EPC; however, Mr. Johnson disclaims such beneficial ownership The
filing of this Statement on Schedule 13D shall not be construed as an admission
that, for purposes of Section 13(d) or 13(g) of the Securities Exchange Act
of 1934, as amended, any person other than EPC has beneficial ownership of the
Common Stock;
(c) Other than the transactions contemplated by the Acquisition Agreement,
there have been no transactions in the Common Stock that were effected during
the last 60 days by EPC;
(d) Not Applicable;
(e) Not Applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS, OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
The Company has entered into a registration rights agreement (the
"Registration Rights Agreement") with EPC (among others), a copy of which is
attached hereto as Exhibit B. Subject to certain conditions, EPC has three
demand registration rights exercisable at any time after June 30, 1998. In
addition, the Registration Rights Agreement affords to EPC the right to
participate in registrations initiated by the Company or, under certain
conditions, another party.
Page 4 of 6 Pages
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Item 7. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT A: Acquisition Agreement and Plan of Exchange dated as of
January 13, 1998 between the Company, EPC and Aspect
Resources LLC.
EXHIBIT B: Registration Rights Agreement dated May 14, 1998 by and
among the Company, EPC and Aspect Resources LLC.
Page 5 of 6 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: May 23, 1998
---------------
/s/ Michael E. Johnson
----------------------------------------
(Signature)
Michael E. Johnson
----------------------------------------
(Name/Title)
Page 6 of 6 Pages
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ACQUISITION AGREEMENT
AND
PLAN OF EXCHANGE
REGARDING
THE ACQUISITION OF CERTAIN ASSETS OF
ESENJAY PETROLEUM CORPORATION
AND
ASPECT RESOURCES LLC
BY
FRONTIER NATURAL GAS CORPORATION
JANUARY 19, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1
1.02 References and Titles. . . . . . . . . . . . . . . . . . .11
1.03 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . .12
1.04 Adequacy of Disclosure . . . . . . . . . . . . . . . . . .12
1.05 Supplemental Property Schedules. . . . . . . . . . . . . .12
ARTICLE II
ACQUISITION OF ESENJAY ASSETS . . . . . . . . . . . . . . . . . . . . .13
2.01 Contribution of Esenjay Assets . . . . . . . . . . . . . .13
2.02 Assumed Liabilities. . . . . . . . . . . . . . . . . . . .13
2.03 Esenjay Employees. . . . . . . . . . . . . . . . . . . . .15
2.04 Non-Assignable Rights. . . . . . . . . . . . . . . . . . .15
ARTICLE III
ACQUISITION OF ASPECT ASSETS. . . . . . . . . . . . . . . . . . . . . .15
3.01 Contribution of Aspect Assets. . . . . . . . . . . . . . .15
3.02 Assumed Liabilities; Permitted Asset Sales; Adjustments. .16
3.03 Non-Assignable Rights. . . . . . . . . . . . . . . . . . .18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO FRONTIER . . . . . . . .18
4.01 Organization, Standing and Qualification . . . . . . . . .18
4.02 Execution, Delivery and Performance of
Agreement; Authority . . . . . . . . . . . . . . . . . .18
4.03 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . .19
4.04 SEC Documents; Financial Statements; Liabilities . . . . .19
4.05 Capitalization . . . . . . . . . . . . . . . . . . . . . .21
4.06 Accounts Receivable, Payable . . . . . . . . . . . . . . .21
4.07 Absence of Events. . . . . . . . . . . . . . . . . . . . .22
4.08 Contracts. . . . . . . . . . . . . . . . . . . . . . . . .23
4.09 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . .26
4.11 Compliance with Laws, Material Agreements and Permits. . .26
4.12 Tax Representations. . . . . . . . . . . . . . . . . . . .26
4.13 Environmental Matters. . . . . . . . . . . . . . . . . . .27
4.14 Books and Records. . . . . . . . . . . . . . . . . . . . .28
4.15 Gas Imbalances . . . . . . . . . . . . . . . . . . . . . .29
4.16 Title to Assets other than Oil and Gas Interests . . . . .29
4.17 Title to Oil and Gas Interests . . . . . . . . . . . . . .29
4.18 Oil and Gas Operations . . . . . . . . . . . . . . . . . .30
4.19 No Guarantees. . . . . . . . . . . . . . . . . . . . . . .30
4.20 Employee Matters . . . . . . . . . . . . . . . . . . . . .30
4.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . .30
4.22 Broker/Finders . . . . . . . . . . . . . . . . . . . . . .33
4.23 Royalties. . . . . . . . . . . . . . . . . . . . . . . . .33
4.24 Plugging and Abandonment Liabilities . . . . . . . . . . .34
i
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4.25 Prepayments. . . . . . . . . . . . . . . . . . . . . . . .34
4.26 Hedging Activities . . . . . . . . . . . . . . . . . . . .34
4.27 Transactions With Related Parties. . . . . . . . . . . . .34
4.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE V
FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . .35
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ESENJAY . . . . . . . . . . . . . . .35
6.01 Organization, Standing and Qualification . . . . . . . . .35
6.02 Execution, Delivery and Performance of
Agreement; Authority . . . . . . . . . . . . . . . . . .35
6.03 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . .35
6.04 Capitalization . . . . . . . . . . . . . . . . . . . . . .36
6.05 Financial Statements. . . . . . . . . . . . . . . . . . ..36
6.06 Absence of Undisclosed Liabilities . . . . . . . . . . . .36
6.07 Absence of Events. . . . . . . . . . . . . . . . . . . . .37
6.08 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . .39
6.10 Compliance with Laws, Material Agreements and Permits. . .39
6.11 Environmental Matters. . . . . . . . . . . . . . . . . . .39
6.12 Title to Assets other than Oil and Gas Interests . . . . .41
6.13 Title to Oil and Gas Interests . . . . . . . . . . . . . .41
6.14 Broker/Finders . . . . . . . . . . . . . . . . . . . . . .41
6.15 Royalties. . . . . . . . . . . . . . . . . . . . . . . . .42
6.16 Gas Imbalances . . . . . . . . . . . . . . . . . . . . . .42
6.17 Hedging Activities . . . . . . . . . . . . . . . . . . . .42
6.18 Certain Business Relationships or Transactions
with Affiliates. . . . . . . . . . . . . . . . . . . . .42
6.19 No Guarantees. . . . . . . . . . . . . . . . . . . . . . .42
6.20 Employee Matters . . . . . . . . . . . . . . . . . . . . .43
6.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . .43
6.22 Plugging and Abandonment Liabilities . . . . . . . . . . .45
6.23 Prepayments. . . . . . . . . . . . . . . . . . . . . . . .46
6.24 Calls on Production. . . . . . . . . . . . . . . . . . . .46
6.25 Oil and Gas Operations . . . . . . . . . . . . . . . . . .46
6.26 Tax Representations. . . . . . . . . . . . . . . . . . . .46
6.27 Disclosure . . . . . . . . . . . . . . . . . . . . . . . .47
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF ASPECT. . . . . . . . . . . . . . . .47
7.01 Organization, Standing and Qualification . . . . . . . . .48
7.02 Execution, Delivery and Performance of
Agreement; Authority . . . . . . . . . . . . . . . . . .48
7.03 Conflicts. . . . . . . . . . . . . . . . . . . . . . . . .48
7.04 Aspect Assets. . . . . . . . . . . . . . . . . . . . . . .48
7.05 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .48
7.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . .49
7.07 Compliance with Laws, Material Agreements and Permits. . .49
7.08 Environmental Matters. . . . . . . . . . . . . . . . . . .50
7.09 Title to Assets other than Oil and Gas Interests . . . . .51
7.10 Title to Oil and Gas Interests . . . . . . . . . . . . . .51
ii
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7.11 Broker/Finders . . . . . . . . . . . . . . . . . . . . . .52
7.12 Tax Representations. . . . . . . . . . . . . . . . . . . .52
7.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . .53
ARTICLE VIII
COVENANTS AND OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . .53
8.01 Access to Records and Properties . . . . . . . . . . . . .53
8.02 Operation of the Business. . . . . . . . . . . . . . . . .54
8.03 Consents . . . . . . . . . . . . . . . . . . . . . . . . .55
8.04 Announcements. . . . . . . . . . . . . . . . . . . . . . .55
8.05 No Solicitations . . . . . . . . . . . . . . . . . . . . .56
8.06 Notification of Certain Matters. . . . . . . . . . . . . .57
8.07 Financing Covenants. . . . . . . . . . . . . . . . . . . .57
8.08 Public Equity Transaction. . . . . . . . . . . . . . . . .58
8.09 Reconstituted Frontier Board of Directors. . . . . . . . .58
8.10 Management of Frontier . . . . . . . . . . . . . . . . . .58
8.11 Registration Statement and Proxy Statement/Prospectus;
Frontier Stockholders' Meeting . . . . . . . . . . . . .59
8.12 Tax Cooperation. . . . . . . . . . . . . . . . . . . . . .61
8.13 Name Change. . . . . . . . . . . . . . . . . . . . . . . .61
8.14 Frontier Ownership Dilution. . . . . . . . . . . . . . . .61
8.15 Liabilities and Obligations of Esenjay and Aspect. . . . .62
8.16 Esenjay Wind-down. . . . . . . . . . . . . . . . . . . . .62
ARTICLE IX
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
9.01 Conditions to Obligations of Esenjay and Aspect. . . . . .62
9.02 Conditions to Obligations of Frontier. . . . . . . . . . .63
9.03 Conditions to Obligations of All Parties . . . . . . . . .64
ARTICLE X
DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
10.01 Deliveries by Frontier . . . . . . . . . . . . . . . . . .65
10.02 Deliveries by Esenjay. . . . . . . . . . . . . . . . . . .67
10.03 Deliveries by Aspect . . . . . . . . . . . . . . . . . . .68
ARTICLE XI
VALUATION ADJUSTMENTS FOR TITLE DEFECTS . . . . . . . . . . . . . . . .70
11.01 Buyer and Seller . . . . . . . . . . . . . . . . . . . . .70
11.02 Allocated Value of Oil and Gas Interests . . . . . . . . .70
11.03 Notice of Title Defects. . . . . . . . . . . . . . . . . .70
11.04 Adjustments. . . . . . . . . . . . . . . . . . . . . . . .70
11.05 Casualty Loss. . . . . . . . . . . . . . . . . . . . . . .70
11.06 Dispute Resolution . . . . . . . . . . . . . . . . . . . .71
11.07 Preferential Rights and Consents . . . . . . . . . . . . .71
ARTICLE XII
VALUATION ADJUSTMENT FOR ENVIRONMENTAL DEFECTS. . . . . . . . . . . . .73
12.01 Environmental Liabilities and Obligations. . . . . . . . .73
12.02 Environmental Defect Notice. . . . . . . . . . . . . . . .73
12.03 Remedies . . . . . . . . . . . . . . . . . . . . . . . . .73
iii
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12.04 Contested Environmental Defects. . . . . . . . . . . . . .74
12.05 Exclusive Remedies . . . . . . . . . . . . . . . . . . . .74
ARTICLE XIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
13.01 Termination of Agreement . . . . . . . . . . . . . . . . .74
13.02 Obligations Upon Termination . . . . . . . . . . . . . . .75
13.03 Breakup Fee. . . . . . . . . . . . . . . . . . . . . . . .76
ARTICLE XIV
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
14.01 Time and Place . . . . . . . . . . . . . . . . . . . . . .76
14.02 Further Assurances . . . . . . . . . . . . . . . . . . . .76
14.03 Concurrent Conditions. . . . . . . . . . . . . . . . . . .76
ARTICLE XV
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
15.01 Indemnification by Frontier. . . . . . . . . . . . . . . .77
15.02 Indemnification by Esenjay . . . . . . . . . . . . . . . .77
15.03 Indemnification by Aspect. . . . . . . . . . . . . . . . .77
15.04 Indemnification Limitations. . . . . . . . . . . . . . . .78
15.05 Notice and Resolution of Claim . . . . . . . . . . . . . .78
15.06 Defense of Third Party Claim . . . . . . . . . . . . . . .78
15.07 Payment. . . . . . . . . . . . . . . . . . . . . . . . . .79
ARTICLE XVI
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .79
16.01 Effect of Due Diligence. . . . . . . . . . . . . . . . . .79
16.02 Further Assurances . . . . . . . . . . . . . . . . . . . .79
16.03 Survival of Representations, Warranties and Covenants. . .79
16.04 Entire Agreement; Amendment and Waiver . . . . . . . . . .79
16.05 Severability . . . . . . . . . . . . . . . . . . . . . . .80
16.06 Applicable Law . . . . . . . . . . . . . . . . . . . . . .80
16.07 Assignment . . . . . . . . . . . . . . . . . . . . . . . .80
16.08 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .80
16.09 Incorporation of Exhibits and Schedules by Reference . . .82
16.10 Binding Effect . . . . . . . . . . . . . . . . . . . . . .82
16.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . .82
16.12 Gender and Number. . . . . . . . . . . . . . . . . . . . .82
16.13 Multiple Counterparts. . . . . . . . . . . . . . . . . . .82
16.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . .82
iv
<PAGE>
ATTACHMENTS
EXHIBITS:
Exhibit "A" - Bridge Financing Agreement
Exhibit "B" - Registration Rights Agreement
Exhibit "C" - Assignment, Bill of Sale and Conveyance Agreement (Aspect
Assets)
Exhibit "D" - Assignment, Bill of Sale and Conveyance Agreement (Esenjay
Assets)
Exhibit "E" - [Intentionally Omitted]
Exhibit "F" - Opinion of Porter & Hedges, L.L.P.
Exhibit "G" - [Intentionally Omitted]
Exhibit "H" - Letter regarding limited guaranty by Esenjay Shareholders
Exhibit "I" - Opinion of Pollicoff, Smith, Myres & Remels, L.L.P.
Exhibit "J" - Letter regarding limited guaranty by Aspect Members
Exhibit "K" - Opinion of Davis, Graham & Stubbs LLP
Exhibit "L" - Prospect Areas
SCHEDULES:
Disclosure Schedule - Aspect
Disclosure Schedule - Esenjay
Disclosure Schedule - Frontier
Schedule 2.01 Esenjay Assets
Schedule 2.02 Assumed Agreements
Schedule 2.04 Esenjay Seismic Agreements
Schedule 3.01 Aspect Assets
Schedule 4.05(a) Frontier Option and Warrant Agreements
Schedule 4.05(b) Frontier Subsidiaries
Schedule 4.06 Frontier Accounts Receivable and Accounts Payable
Schedule 4.07 Frontier Absence of Events
Schedule 4.15 Frontier Gas Imbalances
Schedule 4.17 Frontier Oil and Gas Interests
Schedule 4.18 Frontier Reserve Reports
Schedule 5.01 Agreement with Gaines Berland, Inc.
v
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF EXCHANGE
This Acquisition Agreement and Plan of Exchange ("Agreement") is
executed and delivered as of January 19, 1998, by and among Frontier Natural
Gas Corporation, an Oklahoma corporation ("Frontier"), Esenjay Petroleum
Corporation, a Texas corporation ("Esenjay"), and Aspect Resources LLC, a
Colorado limited liability company ("Aspect"), with respect to the following:
R E C I T A L S:
A. Frontier, Esenjay and Aspect have determined to engage in a
strategic business combination (the "Exchange") pursuant to which certain
assets of Esenjay and certain assets of Aspect shall be transferred to
Frontier in exchange for capital stock of Frontier, in a transaction intended
to qualify under Section 351 of the Code (as hereinafter defined); and
B. The parties desire to evidence the terms, provisions,
representations, warranties and conditions upon which such Exchange will be
consummated by this binding Agreement.
NOW, THEREFORE, in consideration of the foregoing and the benefits to be
derived from the mutual observance of the terms and conditions set forth
below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Defined Terms. For purposes of this Agreement, in addition to
the terms defined elsewhere herein, the following terms shall have the
meanings set forth in this Article I or in the Section referred to below:
"Accounting Firm" has the meaning set forth in Section 11.06.
"Acquisition Proposal" has the meaning set forth in Section 8.05.
"Agreed Group B Amount" has the meaning set forth in Section 3.02(d).
"Agreement" means this Acquisition Agreement and Plan of Exchange
and the Exhibits and Schedules attached hereto and by this reference made
a part hereof for all purposes.
"Allocated Value" has the meaning set forth in Section 11.02.
"Aspect" has the meaning set forth in the preface above.
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"Aspect Assets" shall mean the Oil and Gas Interests and other
assets of Aspect identified on Schedule 3.01 and the Exhibits thereto; it
being understood that (a) such Oil and Gas Interests and other assets
represent less than 100% of Aspect's interest in the properties identified
due to partial interests being retained by Aspect, and (b) Aspect retains
and reserves unto itself all Working Interests and Net Revenue Interests
in the Oil and Gas Interests located in the Prospect Areas and other
assets not specifically identified on Schedule 3.01, including any Net
Revenue Interest available from the Working Interest conveyed to Frontier
after applicable (i) royalties, (ii) overriding royalties, (iii) other
burdens out of production, and (iv) the Net Revenue Interest contributed
to Frontier; provided, however, that all Oil and Gas Interests located
in the Prospect Areas acquired hereafter and/or not listed on Schedule
3.01 shall be owned in the same pro rata percentages as the properties
currently listed in Schedule 3.01.
"Aspect Employees" means certain of the employees of Aspect in its
Houston office who have received an overriding royalty interest in certain
of the Oil and Gas Interests included in the Aspect Assets.
"Aspect Members" means Alex Cranberg, an individual and a resident of
Colorado, Antrim Resources, Inc., a Nevada corporation, and CWS Limited-
Liability Company, a Delaware limited liability company.
"Aspect Participation Agreement" means that certain Participation
Agreement, dated April 24, 1997, by and between Aspect and Esenjay,
covering the Identfied Esenjay Assets.
"Aspect Permits" has the meaning set forth in Section 7.07.
"Assumed Agreements" has the meaning set forth in Section 2.02(d).
"Benefit Arrangement" means any employment, severance or similar
contract, or any other contract, plan, policy or arrangement (whether or
not written) providing for compensation, bonus, profit-sharing, stock
option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including
any self-insured arrangement), health or medical benefits, disability
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance
benefits), other than the Employee Plans, that (a) is maintained,
administered or contributed to by Esenjay or any member of the Frontier
Group, as the case may be, and (b) covers any employee or former employee
of any such person.
"Bridge Financing Agreement" shall be that agreement as set forth as
Exhibit "A" attached hereto which is incorporated herein by reference.
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"Casualty Loss" has the meaning set forth in Section 11.05.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any successor statutes and any
regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System List.
"Closing" means the taking of the actions contemplated by Article XIV
of this Agreement in order to consummate the Exchange.
"Closing Date" means the date on which the Closing occurs as set
forth in Section 14.01 hereof.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" means the Internal Revenue Code of 1986 as in effect on the
date hereof and as may be amended from time to time.
"Damages" has the meaning set forth in Section 15.01.
"Defect Limit" has the meaning set forth in Section 11.04.
"Defensible Title" means such right, title and interest that is
evidenced by an instrument or instruments whether or not filed of record
in accordance with the conveyance and recording laws of the applicable
jurisdiction to the extent necessary to prevail against competing claims
of bona fide purchasers for value without notice such that: (a) the
titled party shall be entitled to receive from its ownership interest in
each of the titled party's Oil and Gas Interests not less than the
interest shown as the Net Revenue Interest for such Oil and Gas Interest
listed in such titled party's Property Schedule attached hereto in all
Hydrocarbons produced, saved and marketed from each of such Oil and Gas
Interests without reduction, suspension or termination throughout the life
of each of such Oil and Gas Interests, except pursuant to the agreements
set forth on such titled party's Property Schedule; (b) the titled party is
obligated to bear a percentage of the costs and expenses relating to
operations on and the maintenance or development of each of the titled
party's Oil and Gas Interests listed in the Property Schedule of such
party not greater than the interest shown as the Working Interest for each
of such Oil and Gas Interests in the titled party's Property Schedule
without increase throughout the life of each of such Oil and Gas
Interests, except pursuant to the agreements set forth on such titled
party's Property Schedule; and (c) the interest of the titled party in
each of the titled party's Oil and Gas Interests is free and clear of all
Liens, claims, infringements, burdens or other defects of any kind
whatsoever, except for Permitted
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Encumbrances, which do not materially interfere with the occupation, use
and enjoyment of such properties in the normal course of business as
presently conducted, or materially impair the use or value thereof for
such business. Defensible Title concerning an Option Contract shall apply
to the ownership of the Option Contract and not the minerals described
therein.
"Disclosure Schedule" means a Disclosure Schedule attached hereto and
any documents listed on such Disclosure Schedule and expressly incorporated
therein by reference.
"Disputed Matters" has the meaning set forth in Section 11.06.
"DOL" means the Department of Labor.
"Effective Date" shall be November 1, 1997.
"Employee Plan" means a plan or arrangement as defined in Section
3(3) of ERISA, that (a) is subject to any provision of ERISA, (b) is
maintained, administered or contributed to by Esenjay or any member of the
Frontier Group, as the case may be, and (c) covers any employee or former
employee of any such person.
"Environmental Defect" means a condition in, on, or under the Oil and
Gas Interests (including air, land, soil, surface, subsurface strata,
surface water, groundwater or sediments) that causes an Oil and Gas
Interest to be in violation of, or subject to remediation under, any
Environmental Law.
"Environmental Defect Notice" has the meaning set forth in Section
12.02.
"Environmental Defect Value" has the meaning set forth in Section
12.04.
"Environmental Law" means any federal, state, local or foreign
statute, code, ordinance, rule, regulation, policy, guideline, permit,
consent, approval, license, judgment, order, writ, decree, common law,
injunction or other authorization in effect on the date hereof or at a
previous time applicable to the operations of, as the context requires,
relating to (a) emissions, discharges, releases or threatened releases
of Hazardous Materials into the natural environment, including into
ambient air, soil, sediments, land surface or subsurface, buildings
facilities, surface water, groundwater, publicly-owned treatment works,
septic systems or land; (b) the generation, treatment, storage, disposal,
use, handling, manufacturing, transportation or shipment of Hazardous
Materials; (c) occupational health and safety; or (d) otherwise relating
to the pollution of the environment, solid waste handling treatment or
disposal, or operation or reclamation of oil and gas operations or mines.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Esenjay" has the meaning set forth in the preface above.
"Esenjay Assets" shall mean the Oil and Gas Interests and other
assets of Esenjay identified on Schedule 2.01 and the Exhibits thereto;
it being understood that (a) such Oil and Gas Interests and other assets
represent less than 100% of Esenjay's interest in the properties
identified due to partial interests being retained by Esenjay, and (b)
Esenjay retains and reserves unto itself all Working Interests and Net
Revenue Interests in the Oil and Gas Interests located in the Prospect
Areas and other assets not specifically identified on Schedule 2.01,
including any Net Revenue Interest available from the Working Interest
conveyed to Frontier after applicable (i) royalties, (ii) overriding
royalties, (iii) other burdens out of production, and (iv) the Net Revenue
Interest contributed to Frontier; provided, however, that all Oil and
Gas Interests located in the Prospect Areas acquired hereafter and/or not
listed on Schedule 2.01 shall be owned in the same pro rata percentages as
the properties currently listed in Schedule 2.01.
"Esenjay Permits" has the meaning set forth in Section 6.10.
"Esenjay Shareholders" means Michael E. Johnson, an individual and a
Texas resident, and Charles J. Smith, an individual and a Texas resident,
each of whom owns 50% of the issued and outstanding equity securities of
Esenjay and who collectively own all of the outstanding equity securities
of Esenjay.
"Exchange" has the meaning set forth in the recitals above.
"Exchange Act" means the Securities Exchange Act of 1934 as in effect
on the date hereof and as the same may be amended from time to time.
"Frontier" has the meaning set forth in the preface above and shall
include, unless otherwise expressly stated, Frontier Natural Gas
Corporation and its wholly-owned (directly or indirectly) subsidiaries:
(a) Frontier Acquisition Corporation, an Oklahoma corporation, (b)
Frontier, Inc., an Oklahoma corporation, (c) Frontier Exploration &
Production Corporation, an Oklahoma corporation, and (d) Petroleum
Acquisition Corporation, a Delaware corporation.
"Frontier Common Stock" means the shares of common stock, par value
$0.01 per share, of Frontier Natural Gas Corporation.
"Frontier Financial Statements" has the meaning set forth in Section
4.04.
"Frontier Group" has the meaning set forth in Section 4.09.
"Frontier Interim Financial Statements" has the meaning set forth in
Section 4.04.
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"Frontier Material Agreement(s)" means any written or oral agreement,
contract, commitment or understanding to which Frontier is a party, by
which Frontier is directly or indirectly bound, or to which any asset of
any of Frontier may be subject, involving total value or consideration in
excess of $100,000.
"Frontier Option Plan" has the meaning set forth in Section 8.14.
"Frontier Permits" has the meaning set forth in Section 4.11.
"Frontier Preferred Stock" has the meaning set forth in Section 4.05.
"Frontier Stockholders' Meeting" has the meaning set forth in
Section 8.11.
"GAAP" means generally accepted accounting principles as recognized
by the U.S. Financial Accounting Standards Board.
"GBI" means Gaines Berland, Inc.
"Governmental Action" means any authorization, application, approval,
consent, exemption, filing, license, notice, registration, permit or other
requirement of, to or with any Governmental Authority.
"Governmental Authority" means any national, state, county or
municipal government, domestic or foreign, and any agency, board, bureau,
commission, court, department or other instrumentality of any such
government, or any arbitrator in any case that has jurisdiction over any
of the parties hereto or their assets, tangible or intangible.
"Group A Aspect Assets" shall mean those Aspect Assets identified on
Exhibit C to Schedule 3.01 under the heading "Group A Assets."
"Group B Aspect Assets" shall mean those Aspect Assets identified on
Exhibit C to Schedule 3.01 under the heading "Group B Assets."
"Hazardous Material" means (a) any "hazardous substance," as defined
by CERCLA; (b) any "hazardous waste" or "solid waste," in either case as
defined by the Resource Conservation and Recovery Act, as amended; (c) any
solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law;
(d) any radioactive material, including any naturally occurring radioactive
material, and any source, special or byproduct material as defined in 42
U.S.C. 2011 et seq. and any amendments thereof; (e) any asbestos-containing
materials in any form or condition; (f) any polychlorinated biphenyl in
any form or condition; or (g) any Hydrocarbons, or any fraction or
byproducts thereof.
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"Hydrocarbons" means crude oil, natural gas, casinghead gas, and
other liquid or gaseous hydrocarbons.
"Identified Esenjay Assets" means those properties identified in
Schedule 2.01 as: Tidehaven, El Maton, Midfield, Wolf Point, Hall Ranch,
Hordes Creek, Mikeska, Pile Driver, Houston Endowment, Lipsmacker and
Blessing.
"Initial Bridge Facility" has the meaning set forth in Section 8.07.
"IRS" means the Internal Revenue Service.
"JEDI" has the meaning set forth in Section 3.02(a).
"Lien" means any lien, mortgage, security interest, pledge, charge,
deposit, production payment, restriction, burden, encumbrance, rights of a
vendor under any title retention or conditional sale agreement, or lease,
license or other arrangement substantially equivalent thereto, other than
preferential purchase rights and consents to assignment.
"Material Adverse Effect" means with respect to a party, an event,
change or occurrence which, individually or together with any other event,
change or occurrence has a material adverse impact on (a) the financial
position, business, prospects or results of operations of such party and
its Subsidiaries, taken as a whole, or (b) the ability of such party to
perform its obligations under this Agreement or to consummate the Exchange
or the other transactions contemplated hereby; provided that "material
adverse impact" shall be deemed not to include the impact of (i) changes
resulting from force majeure events beyond the control of a party, (ii)
actions or omissions of a party or any of its Subsidiaries taken with the
prior informed written consent of the other parties, (iii) the drilling of
any successful or unsuccessful well on the Oil and Gas Interests of any of
the parties hereto, (iv) changes in the prices of oil or natural gas, or
(v) in the case of Frontier, its operating results from September 30, 1997
through the Closing Date provided that such operating results are
consistent with the financial results reflected in the SEC Reports. An
event, change or occurrence shall be deemed to have a "material adverse
impact," individually or together with any other event, change or
occurrence if it results in a liability, claim, obligation, encumbrance or
Lien against a party or its assets or results in a change of financial
position, business, prospects or results of operations of $50,000 in the
case of Frontier and $100,000 in the case of either Aspect or Esenjay.
"Multiemployer Plan" means a plan or arrangement as defined in
Section 4001(a)(3) and 3(37) of ERISA.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation system.
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"Net Casualty Loss" has the meaning set forth in Section 11.05.
"Net Revenue Interest" means the interest in all Hydrocarbons
produced from a well, lease or any unit of which a lease is a part which
is attributable to: (a) the Working Interests therein after payment of
applicable lessor royalties, overriding royalties, production payments and
other payments out of or measured by the production of Hydrocarbons from
the well or property covered by the leases or any unit of which a lease is
a part, (b) any overriding royalty interest therein, or (c) any royalty
interest therein.
"New Debt" has the meaning set forth in Section 8.07.
"Notice of Title Defects" has the meaning set forth in Section 11.03.
"OGCA" means the Oklahoma General Corporation Act.
"Oil and Gas Interest(s)" means, as to a party hereto, (a) all
interests in and rights with respect to oil, gas, mineral and related
properties and assets of any kind and nature, direct or indirect, including
working, royalty and overriding royalty interests, production payments,
operating rights, net profits interests, fee minerals, fee royalties, other
non-working interests and non-operating interests; (b) interests in and
rights with respect to Hydrocarbons and other minerals or revenues
therefrom and contracts in connection therewith and claims and rights
thereto (including oil and gas leases, operating agreements, unitization
and pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and processing
contracts and agreements and, in each case, interests thereunder), surface
interests, fee interests, reversionary interests, reservations and
concessions; (c) easements, rights of way, licenses, permits, leases, and
other interests associated with, appurtenant to, or necessary for the
operation of any of the foregoing; (d) interests in equipment and machinery
(including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing
plants, refineries and other tangible personal property and fixtures
associated with, appurtenant to, or necessary for the operation of any of
the foregoing; and (e) subject to the provisions of Sections 2.04 and
3.03, all rights to geological or geophysical data or information
(including rights under seismic, geophysical exploration, data license or
similar agreements) related to the oil, gas, mineral or other properties
which the party owns or to which the party has any rights, including any
processing, reprocessing and third party interpretation of such data.
"Operating Costs" means all third party, out-of-pocket costs incurred
for or in connection with (a) in the case of the Group B Aspect Assets, the
acquisition of Oil and Gas Interests, (b) the acquisition of oil and gas
leases within the Prospect Areas after the date hereof, but only with the
written consent of the parties hereto, and (c) in the case of all
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properties, the maintenance, development and/or operation of Oil and Gas
Interests, including geological and geophysical costs, land and associated
costs, legal, and tangible and intangible drilling costs.
"Option Contract" means an executed document by which the owner of
such document has the legal right to lease minerals in the future on
pre-agreed terms.
"Permitted Encumbrances" means (a) Liens securing indebtedness that
is described in the Disclosure Schedule of such party; (b) Liens for Taxes
which are not yet delinquent or which are being contested in good faith
and for which adequate reserves have been established as may be required
by GAAP; (c) Liens under operating agreements, unitization agreements,
pooling orders and mechanic's and materialman's liens incurred in the
ordinary course of business relating to the party's Oil and Gas Interests,
which obligations are not yet due and pursuant to which the party is not
in default; provided, the effect thereof on such Oil and Gas Interest of
such party has been properly reflected on the Property Schedule in the Net
Revenue Interest and Working Interest attributable to such Oil and Gas
Interest; (d) all rights to consent by, required notices to, filings with,
or other actions of Governmental Authorities to the extent customarily
obtained subsequent to closing; (e) other Liens described in the
Disclosure Schedule of such party; (f) preferential rights to purchase
described in the Property Schedule of such party; (g) consent to transfer
requirements of any person other than a party hereto or any Governmental
Authority which consents to transfer will be obtained on or before the
Closing Date; and (h) Liens in the ordinary course of business consisting
of minor defects and minor irregularities in title and other minor
restrictions (whether created by or arising out of operating agreements,
farm-out agreements, leases and assignments, contracts for purchases of
Hydrocarbons or similar agreements, or otherwise in the ordinary course of
business) that are of a nature customarily accepted by prudent purchasers
of oil and gas properties and that do not materially impair the ability of
the obligor to use any such property in its operations and provided that
the effect thereof on the Oil and Gas Interest of such party has been
properly reflected on the Property Schedule for such party. For purposes
of clause (h) of the preceding sentence, a title defect or irregularity or
other restriction shall be considered minor if such items in the aggregate
do not impair the value of the affected property by more than $10,000.
"Post Effective Date Costs" shall mean net Operating Costs (i.e.,
net of any resulting revenues) incurred by or for the account of (a)
Esenjay on the Oil and Gas Interests included in the Esenjay Assets and
attributable to the period of time after the Effective Date and prior
to the Closing Date and (b) Aspect on the Oil and Gas Interests
included in the Group A Aspect Assets and attributable to the period of
time after the Effective Date and prior to the Closing Date. The term
"Post Effective Date Costs" shall not include any costs related to the
Houston Endowment No. 1 well (which well has been plugged and
abandoned) and the Scott Hall No. 1 well (which well has been
temporarily abandoned).
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"Property Schedule" means (a) in the case of Frontier, Schedule
4.17, (b) in the case of Esenjay, Schedule 2.01 and (c) in the case of
Aspect, Schedule 3.01.
"Prospect Areas" means those properties or prospects identified in
the Property Schedules of Aspect and/or Esenjay and the areas of mutual
interest described in the maps attached hereto as Exhibit "L".
"Proxy Statement/Prospectus" shall mean (a) the proxy statement of
Frontier to be included in the Registration Statement for the purpose
of obtaining the approval of Frontier's stockholders of this Agreement
and the Exchange, and (b) the prospectus of Frontier to be included in
the Registration Statement registering the shares of Frontier Common
Stock to be issued to Aspect and Esenjay upon consummation of the
Exchange.
"Public Equity Transaction" has the meaning set forth in Section
8.08.
"Registration Statement" shall mean the registration statement on
Form S-4 to be filed by Frontier with the SEC for the purpose, among
other things, of registering the Frontier Common Stock which will be
issued to Aspect and Esenjay upon consummation of the Exchange.
"Rejection Notice" has the meaning set forth in Section 12.04.
"Related Documents" means the other instruments and agreements to
be delivered by the parties at the Closing.
"Responsible Officers" means the chief executive officer,
president and any vice president of such corporation and, with respect
to any limited liability company, such officers of the manager of such
company.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 4.04.
"SEC Reports" has the meaning set forth in Section 4.04.
"Securities Act" means the Securities Act of 1933 as in effect on
the date hereof and as the same may be amended from time to time.
"Subsidiary" of a corporation or other entity means a corporation,
partnership or other business entity, the voting securities of which
are owned or otherwise controlled directly or indirectly by such
corporation or other person in an amount sufficient to elect at least a
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majority of the board of directors or other managers of such
corporation, partnership or other entity.
"Superior Proposal" has the meaning set forth in Section 8.05.
"Tax" means any federal, state, or local gross receipts, license,
payroll, employment, excise, severance, income, franchise, property,
transfer, valued added, ad valorem, sales and use or other tax of any
kind, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto.
"Title Defect" means any encumbrance, encroachment, irregularity,
defect in or objection to real property title to the Oil and Gas
Interests, excluding Permitted Encumbrances, that alone or in
combination with other defects renders title to a particular Oil and
Gas Interest less than Defensible Title.
"Title Defect Value" has the meaning set forth in Section 11.03.
"Undisclosed Liabilities" has the meaning set forth in Section
4.04.
"Working Interest" means an interest in a well, lease or unit
which entitles the owner thereof, at its own expense, to explore for,
produce and sell oil, gas and other minerals from the lands covered
thereby subject to the payment of all costs associated with the
interest owned and the payment of the landowner's royalty and any
overriding royalty, production payment or other similar burden to which
the well, lease or unit has been made subject.
1.02 References and Titles. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections,
subsections and other subdivisions of or to this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any Articles,
Sections, subsections or other subdivisions of this Agreement are for
convenience only, do not constitute any part of this Agreement, and shall be
disregarded in construing the language hereof. The words "this agreement,"
"herein," "hereby," "hereunder" and "hereof," and words of similar import,
refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The words "this article," "this section" and
"this subsection," and words of similar import, refer only to the Article,
Section or Subsection hereof in which such words occur. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation." Pronouns in masculine, feminine or neuter genders shall
be construed to state and include any other gender, and words, terms and
titles (including terms defined herein) in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
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1.03 Knowledge. As used in the representations and warranties
contained in this Agreement, the phrase "to the knowledge" or "to the best
knowledge" of the representing party shall mean that the Responsible Officers of
such representing party, individually or collectively, either (a) know that the
matter being represented and warranted is true and accurate or (b) have no
reason, after reasonable inquiry of persons who are likely to have information
about the matter to which the representation or warranty relates, to believe
that the matter being represented and warranted is not true and accurate.
1.04 Adequacy of Disclosure; Construction. In preparing the Disclosure
Schedules to this Agreement, the parties will use their reasonable best efforts
to identify the section or subsection, as the case may be, of this Agreement to
which an exception relates. Nothing in the Disclosure Schedules hereto shall be
deemed adequate to disclose an exception to a representation or warranty made
herein unless the Disclosure Schedule identifies the exception in adequate
detail for a reasonably prudent person to be able to identify that portion of
the representation or warranty to which the exception relates; the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose, an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other items itself). The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.
1.05 Supplemental Property Schedules. In the case of those Oil and Gas
Interests included within the Esenjay Assets or the Aspect Assets, the parties
acknowledge and agree that the all of the agreements, rights and interests
related to the Oil and Gas Interests included within the Esenjay Assets or the
Aspect Assets, proportionately reduced for the percentage interests identified
in the Property Schedules, are being conveyed hereunder (subject to the
provisions of Sections 2.04 and 3.03) and that, if necessary to accurately
reflect the interests being conveyed, the Property Schedules of Aspect and/or
Esenjay will be amended accordingly. If any party amends its Property Schedule
prior to the Closing Date and the effect of such amendment is to decrease the
Oil and Gas Interests being conveyed to Frontier hereunder, such amendment shall
be treated as a Title Defect, which shall be cured in accordance with the
provisions of Section 11.04(a)(ii) (without regard to the notice requirements of
Section 11.03 or the Defect Limit specified in Section 11.04).
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ARTICLE II
ACQUISITION OF ESENJAY ASSETS
2.01 Contribution of Esenjay Assets.
(a) Subject to the terms and conditions of this Agreement,
Esenjay shall assign, transfer, convey, contribute to the capital of, and
deliver to, Frontier, and Frontier shall acquire and receive from Esenjay,
at the Closing, all right, title and interest of Esenjay in and to the
Esenjay Assets. The Esenjay Assets shall be free and clear of all
liabilities, obligations, or Liens whatsoever, except for (a) Permitted
Encumbrances, and (b) liabilities assumed by Frontier pursuant to Section
2.02 hereof. In exchange for the Esenjay Assets, Frontier shall issue and
deliver to Esenjay 30,991,563 shares of Frontier Common Stock.
(b) The parties acknowledge and agree that the Identified
Esenjay Assets shall be contributed by Esenjay and acquired by Frontier on
terms and conditions identical to those set forth in the Aspect
Participation Agreement; provided however, that (i) the effective date
shall be as set out in this Agreement, (ii) Frontier shall not be obligated
for Esenjay's Carried Interest (as such term is defined in the Aspect
Participation Agreement), (iii) there shall be no security interest
retained by Esenjay in the Esenjay Assets, (iv) the Expense Date (as such
term is defined in the Aspect Participation Agreement) shall be the
Effective Date, and (v) there shall be no cash consideration paid to
Esenjay.
(c) In all oil, gas and mineral leases taken in a Prospect Area
after the date hereof, other than those included as an Identified Esenjay
Asset, Esenjay shall be entitled to an overriding royalty interest as set
out in Schedule 2.01.
2.02 Assumed Liabilities.
(a) Debt Assumption. The Esenjay Assets shall be subject to
liabilities, other than liabilities for Post Effective Date Costs, in the
amount of $1,000,000 and Frontier agrees to assume and discharge such debt.
(b) Aspect Debt. In addition to any other amounts assumed
hereby, the parties acknowledge and agree that Esenjay has an outstanding
liability to Aspect in the principal amount of $564,337.50 and that the
Esenjay Assets shall be contributed subject to such liability.(1)
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(1) The offset to this liability is Aspect's agreement to pay certain
intangible drilling and development costs, which costs will benefit certain
of the Oil and Gas Interests included in the
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(c) Certain Costs. All Post Effective Date Costs relating to
the Esenjay Assets and paid by Esenjay on or before the Closing Date shall
be invoiced by Esenjay to Frontier within sixty (60) days of the Closing
Date and, subject to Esenjay's adequate verification of such costs at
Frontier's request, shall be paid by Frontier to Esenjay not later than
(i) one hundred eighty (180) days from the Closing Date, or (ii) ten days
from Frontier's receipt of funds from the Public Equity Transaction,
whichever is earlier. All Post Effective Date Costs relating to the
Esenjay Assets that are not paid by Esenjay on or before the Closing Date
shall be assumed by Frontier and Frontier agrees to timely discharge
Esenjay's obligations with respect to such costs. After the date hereof,
Esenjay shall provide Aspect and Frontier with monthly reports as to the
Post Effective Date Costs accrued and/or paid with respect to the Esenjay
Assets.
(d) Assumed Agreements. As of the Closing Date, Frontier shall
assume and agrees to discharge the obligations of Esenjay under the office
lease, equipment leases and other agreements set forth on Schedule 2.02
(the "Assumed Agreements")(2); provided, however, that Frontier is not
hereby assuming (i) any obligations arising under the Assumed Agreements
on or before the Closing Date, or (ii) any liability arising out of a
violation, breach or default (including any event which with notice or
lapse of time or both will give rise to a default) by Esenjay prior to the
Closing Date under any Assumed Agreement. There shall be prorated between
Esenjay and Frontier as of the Closing Date all accrued rent, royalties
and other payments due under the Assumed Agreements.
(e) Accrued Vacation and Sick Leave. As of the Closing Date,
Frontier shall assume the accrued vacation and sick leave obligations of
Esenjay for those employees of Esenjay who accept employment with Frontier;
provided, however that Frontier's maximum liability under this Section
2.02(e) shall not exceed $102,043.62, in the aggregate.
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Esenjay Assets. Esenjay will contribute its rights under its agreement with
Aspect to Frontier, limited to the amount of the liability assumed and paid
under this Section 2.02(b) (I.E., Esenjay will retain the excess), but with a
minimum amount equal to the debt being guaranteed (I.E., if the amount
Frontier receives from Aspect under Esenjay's agreement with Aspect is less
than the debt assumed by Frontier, Esenjay will pay Frontier the difference).
The agreement will be identified on an Exhibit to Schedule 2.01 and will be
treated as an Esenjay Asset for purposes of this Agreement.
(1) The Assumed Leases and Esenjay's rights in the underlying equipment
or office space should be included on an Exhibit to Schedule 2.01 and will be
considered an Esenjay Asset for purposes of this Agreement.
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(f) Other. All liabilities and obligations arising under or
related to the Esenjay Assets and attributable to the period of time after
the Closing Date.
(g) Esenjay Employees. In conjunction with the acquisition by
Frontier of the Esenjay Assets it is agreed by the parties hereto that Frontier
shall, concurrent with Closing, offer employment to each of the current Esenjay
employees. The Esenjay employees who accept employment with Frontier shall be
compensated on terms determined by the Board of Directors of Frontier; it being
intended, without creating any rights in favor of such employees, that such
compensation terms will be comparable to those of similarly situated employees
for similarly situated companies and that, for purposes of any benefit plans
maintained by Frontier and to the extent permitted by such plans, the Esenjay
employees employed by Frontier shall be credited with their years of service to
Esenjay.
2.04 Non-Assignable Rights. Notwithstanding that the definition of
Esenjay Assets includes Esenjay's rights to the geological and geophysical data
and information attributable to the Oil and Gas Interests identified on
Esenjay's Property Schedule (including those seismic agreements identified on
Schedule 2.04), the parties hereto acknowledge and understand that some or all
of Esenjay's rights to such data or information may not be assignable by
Esenjay. To the extent that any rights to geological or geophysical data to be
assigned to Frontier by Esenjay hereunder are not assignable without the consent
of another party or the payment of any amounts to such party, this Agreement
shall not constitute an assignment or an attempted assignment of such data.
Esenjay agrees to use its commercially reasonable best efforts to obtain the
consent of each party whose consent is required for the transfer of the data in
consideration for such assignment; provided, however, that Esenjay shall not be
required to pay any amounts to the assigning party; and provided, further that
it shall not be a breach of this Agreement if such consent is not obtained. If
such consent is not obtained at or prior to the Closing Date, Esenjay agrees (a)
to cooperate with Frontier in seeking such consent after the Closing Date,
provided that Esenjay shall not be required to pay any amounts to the assigning
party in consideration for such assignment and (b) to the extent legally
possible and without breaching Esenjay's obligations under any agreement
relating to such data, enter into any reasonable arrangement designed to provide
Fronter with the benefits of such data.
ARTICLE III
ACQUISITION OF ASPECT ASSETS
3.01 Contribution of Aspect Assets. Subject to the terms and
conditions of this Agreement, Aspect shall assign, transfer, convey, contribute
to the capital of, and deliver to, Frontier, and Frontier shall acquire and
receive from Aspect, at the Closing, all right, title and interest of Aspect in
and to the Aspect Assets. The Aspect Assets shall be free and clear of all
liabilities, obligations, liens and encumbrances whatsoever, except for
(a) Permitted Encumbrances, and (b) liabilities assumed by Frontier pursuant to
Section 3.02 hereof. In exchange for the Aspect Assets, Frontier shall issue
and
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deliver to Aspect 29,648,636 shares of Frontier Common Stock, subject to
adjustment pursuant to Sections 3.02(a) and 3.02(f) hereof, if applicable.
3.02 Assumed Liabilities; Permitted Asset Sales; Adjustments.
(a) Assumed Debt. The parties acknowledge and agree that, as of
the date hereof, the Aspect Assets are pledged to Joint Energy Development
Investments Limited Partnership ("JEDI") as collateral for a loan by JEDI
to Aspect. At the option of Aspect and subject to the mutual agreement of
the parties hereto, the Aspect Assets may be contributed to Frontier
subject to a liability to JEDI in the amount of $3.8 million and, in such
event, Frontier shall assume such debt to JEDI and agrees to discharge the
liability associated therewith. In the event that the Aspect Assets are
contributed to Frontier subject to the debt to JEDI, the number of shares
of Frontier Common Stock to be delivered to Aspect pursuant to Section 3.01
hereof shall be reduced by 4,050,000 shares.
(b) Sale of Aspect Assets. With the prior written consent of
the parties hereto, Aspect shall be permitted to sell certain of the Aspect
Assets prior to the Closing Date. At the Closing, Aspect shall contribute
and pay over to Frontier (i) the net proceeds from any such sale of the
Aspect Assets, LESS (ii) in an amount not to exceed the amount pursuant to
clause (i), the Post Effective Date Costs relating to the Group A Aspect
Assets which are incurred and paid after the Effective Date, and LESS (iii)
in an amount not to exceed the amount pursuant to clause (i) reduced by the
amount applied pursuant to clause (c), the Operating Costs attributable to
the Group B Aspect Assets that have been paid by Aspect as of the Closing
Date and that exceed the Agreed Group B Amount.
(c) Group A Costs. All Post Effective Date Costs relating to
the Group A Aspect Assets and incurred and paid after the Effective Date
(reduced by any amounts applied pursuant to Section 3.02(b)(ii)) shall be
invoiced by Aspect to Frontier within sixty (60) days of the Closing Date
and, subject to Aspect's adequate verification of such costs at the request
of Frontier, shall be paid by Frontier to Aspect not later than (i) one
hundred eighty (180) days from the Closing Date, or (ii) ten days from
Frontier's receipt of funds from the Public Equity Transaction, whichever
is earlier. All Post Effective Date Costs incurred after the Effective
Date relating to the Aspect Assets that are not paid by Aspect on or before
the Closing Date shall be assumed by Frontier and Frontier agrees to timely
discharge Aspect's obligations with respect to such costs. After the date
hereof, Aspect shall provide Esenjay and Frontier with monthly reports as
to the Post Effective Date Costs accrued and/or paid with respect to the
Group A Asset Assets.
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(d) Group B Costs. The parties acknowledge and agree that, in
determining the value of the Group B Aspect Assets, such value assumes that
Aspect has or will pay Operating Costs with respect to such Group B Aspect
Assets of $5,989,000 (the "Agreed Group B Amount"). If, as of the Closing
Date, Aspect has not paid Operating Costs with respect to the Group B
Aspect Assets equal in amount to the Agreed Group B Amount, Aspect shall,
notwithstanding the conveyance of the Group B Aspect Assets to Frontier,
continue to be liable for the Operating Costs with respect to the Group B
Aspect Assets until the aggregate expenditures by Aspect are equal to the
Agreed Group B Amount. If Aspect has any continuing liability hereunder,
Frontier shall submit invoices to Aspect for the Operating Costs
attributable to the Group B Aspect Assets and such invoices shall be paid
by Aspect (i) within ten days of receipt of the invoice or (ii) on or
before the relevant vendor's due date for the payment of such Operating
Cost, whichever is later. At such time as Aspect has paid Operating Costs
attributable to the Group B Aspect Assets equal to the Agreed Group B
Amount (whether before or after the Closing Date), Frontier shall be liable
for all Operating Costs with respect to the Group B Aspect Assets in excess
of the Agreed Group B Amount, regardless of when such Operating Costs were
or are incurred, and Frontier agrees to assume and timely pay such
Operating Costs. If, as of the Closing Date, Aspect has paid Operating
Costs attributable to the Group B Aspect Assets in excess of the Agreed
Group B Amount, such excess (reduced by any amounts applied pursuant to
Section 3.02(b)(iii)) shall be invoiced by Aspect to Frontier within sixty
(60) days of the Closing Date and, subject to Aspect's adequate
verification of such costs at the request of Frontier, shall be paid by
Frontier to Aspect not later than (y) one hundred eighty (180) days from
the Closing Date, or (z) ten days from Frontier's receipt of funds from the
Public Equity Transaction, whichever is earlier. After the date hereof,
Aspect shall provide Esenjay and Frontier with monthly reports as to the
amount of Operating Costs attributable to the Group B Aspect Assets that
exceed the Agreed Group B Amount.
(e) Other. All liabilities and obligations arising under or
related to the Aspect Assets and attributable to the period of time after
the Closing Date.
(f) Adjustments. The Aspect Employees own an overriding royalty
interest in certain of the Oil and Gas Interests included in the Aspect
Assets. On or before the Closing Date, (i) Aspect will (A) purchase such
overriding royalty interests from the Aspect Employees such that the Aspect
Assets are not encumbered by such overriding royalty interests at the time
of the conveyances contemplated hereby, or (B) elect to treat the value of
the overriding royalty interests held by the Aspect Employees as a Title
Defect, which shall be cured on or before the Closing Date in accordance
with the provisions of Section 11.04(a)(ii) (without regard to the notice
requirements of Section 11.03 of the Defect Limit specified in Section
11.04), or (ii) on the Closing Date, the Aspect Employees will contribute
their overriding royalty
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interests to Frontier in exchange for Frontier Common Stock, which
contributions will be on terms and conditions mutually acceptable to
Frontier, Aspect and the Aspect Employees and any shares issued to the
Aspect Employees will reduce the number of shares issuable to Aspect
under Section 3.01.
3.03 Non-Assignable Rights. Notwithstanding that the definition of
Aspect Assets includes Aspect's rights to the geological and geophysical data
and information attributable to the Oil and Gas Interests identified on Aspect's
Property Schedule, the parties hereto acknowledge and understand that some or
all of Aspect's rights to such data or information may not be assignable by
Aspect. To the extent that any rights to geological or geophysical data to be
assigned to Frontier by Aspect hereunder are not assignable without the consent
of another party or the payment of any amounts to such party, this Agreement
shall not constitute an assignment or an attempted assignment of such data.
Aspect agrees to use its commercially reasonable best efforts to obtain the
consent of each party whose consent is required for the transfer of the data;
provided, however, that Aspect shall not be required to pay any amounts to the
assigning party in consideration for such assignment; and provided, further that
it shall not be a breach of this Agreement if such consent is not obtained. If
such consent is not obtained at or prior to the Closing Date, Aspect agrees (a)
to cooperate with Frontier in seeking such consent after the Closing Date,
provided that Aspect shall not be required to pay any amounts to the assigning
party in consideration for such assignment and (b) to the extent legally
possible and without breaching Aspect's obligations under any agreement relating
to such data, to enter into any reasonable arrangement designed to provide
Fronter with the benefits of such data.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO FRONTIER
As a material part of the consideration for this Agreement, Frontier
represents and warrants to each of Aspect and Esenjay as of the date of this
Agreement and as of the Closing Date as follows:
4.01 Organization, Standing and Qualification. Frontier is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma. Frontier has all requisite corporate power and
authority to carry on its business as now being conducted and to own, lease or
operate its properties as and in the places where such business is now conducted
and such properties are now owned, leased or operated. Frontier is qualified
and in good standing to do business in all states in which the Esenjay Assets
and the Aspect Assets are located and in which the nature of its business
requires it to be qualified.
4.02 Execution, Delivery and Performance of Agreement; Authority.
Frontier has full corporate power and authority to enter into this Agreement and
the Related Documents to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Frontier of this
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Agreement and the Related Documents to which it is a party have been duly and
validly approved by all necessary corporate action and no other actions or
proceeding on the part of Frontier are necessary to authorize this Agreement and
the Related Documents to which it is a party and the transactions contemplated
hereby and thereby; provided, however, that, solely for purposes of the making
of this representation as of the date of this Agreement (and not as of the
Closing Date), the requisite approval of this Agreement and the transactions
contemplated hereby by Frontier's shareholders has not been obtained by
Frontier. Except for (a) the filing of the Proxy Statement/Prospectus included
in the Registration Statement with the SEC and the declaration of effectiveness
thereof by the SEC and the filing of other SEC required documents and compliance
with the Securities Act and the Exchange Act and state securities or blue sky
laws, (b) the filing of an amendment to Frontier's listing application with the
NASDAQ, and (c) the consent of Bank of America Illinois (which consent will be
obtained prior to the Closing Date), no consent, waiver, approval or
authorization of, or filing, registration or qualification with, or notice to,
any Governmental Authority or any other entity or person is required to be made,
obtained, or given by Frontier in connection with the execution, delivery and
performance of this Agreement and the Related Documents to which it is a party.
This Agreement constitutes, and the Related Documents to which it is a party
when executed will constitute, legal, valid and binding obligations of Frontier,
enforceable against Frontier in accordance with their respective terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect that affect the enforcement
of creditors' rights generally and by equitable limitations on the availability
of specific remedies.
4.03 Conflicts. The execution, delivery and performance by Frontier
of this Agreement and the Related Documents to which it is a party do not and
will not, with or without the giving of notice or the passage of time, or both,
violate or result in a breach of, conflict with, default, right to accelerate or
loss of rights under, or result in the creation of any Lien pursuant to, any
provision of Frontier's organizational documents or bylaws, or, except as set
forth on Disclosure Schedule-Frontier, any mortgage, deed of trust, lease,
license, agreement, or understanding, to which Frontier is a party or any of
Frontier's assets is subject, or any order, judgment or decree to which Frontier
is a party or by which Frontier or its assets may be bound or affected, or to
Frontier's knowledge, any law ordinance, rule or regulation to which Frontier or
its assets is subject.
4.04 SEC Documents; Financial Statements; Liabilities.
(a) Frontier has made available to Esenjay and Aspect true and
complete copies of its Annual Report on Form 10-KSB for the year ended
December 31, 1996 and its Quarterly Reports on Form 10-QSB for each of the
quarterly periods ended March 31, 1997, June 30, 1997 and September 30,
1997 (collectively, the "SEC Reports"), each in the form (including
exhibits and any amendments thereto) required to be filed with the SEC.
Since January 1, 1995, Frontier has timely filed (or has cured any failures
to timely file to the satisfaction of the SEC staff) all reports,
schedules, forms, statements and other documents (excluding any prospectus
or
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registration statement filed by Frontier) required to be filed with the
SEC (the "SEC Documents"). As of their respective dates, each of the SEC
Documents (i) complied in all material respects with all applicable
requirements of the Exchange Act, and the rules and regulations promulgated
thereunder, respectively, and (ii) did not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were
made, not misleading. As of their respective dates, each prospectus and
each registration statement filed by Frontier with the SEC (y) complied in
all material respects with all applicable requirements of the Securities
Act, and the rules and regulations promulgated thereunder, respectively,
and (z) did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(b) The Frontier audited financial statements included in the
SEC Documents (the "Frontier Financial Statements") have been audited by
Deloitte & Touche LLP, independent accountants, or the independent
accounting firm specified therein, in accordance with generally accepted
auditing standards, have been prepared in accordance with GAAP applied on a
basis consistent with prior periods except as required by changes in GAAP,
and present fairly the financial position of Frontier at such dates and the
results of operations and cash flows for the periods then ended. The
Frontier interim financial statements included in the SEC Reports (the
"Frontier Interim Financial Statements") fairly present the financial
position of Frontier as at the dates thereof and the results of its
operations and changes in financial position for the periods then ended,
except that (i) the notes to the financial statements included therein are
in summary form and therefore not complete and (ii) such financial
statements are subject to normal year-end non-cash adjustments. Except as
set forth in the Disclosure Schedule-Frontier, neither Frontier nor any of
its assets is subject to any liability, commitment, debt or obligation (of
any kind whatsoever whether absolute or contingent, accrued, fixed, known,
unknown, matured or unmatured) ("Undisclosed Liabilities"), except (A) as
and to the extent reflected on the most recent Frontier Financial
Statements and Frontier Interim Financial Statements, or (B) as reflected
in the SEC Reports, or (C) as may have been incurred or may have arisen
since the date of the most recent Frontier Interim Financial Statements in
the ordinary course of business and that are not reasonably likely to have
a Material Adverse Effect on Frontier.
(c) The most recent Frontier Financial Statements include
appropriate reserves for all Taxes and other liabilities incurred as of
such date but not yet payable.
(d) Except as set forth in the Disclosure Schedule-Frontier,
since the date of the most recent Frontier Financial Statements, no event
or condition (financial or
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otherwise) has occurred that has had or is likely to have a Material
Adverse Effect on Frontier.
(e) Except as set forth in the Disclosure Schedule-Frontier, the
statements of income included in the most recent Frontier Interim Financial
Statements do not contain any income or revenue realized from operations
that Frontier would be prohibited or restricted from conducting after the
Closing Date pursuant to any covenant or provision in any contract to which
Frontier is a party.
4.05 Capitalization.
(a) Frontier. The authorized capital stock of Frontier Natural
Gas Corporation consists of 40,000,000 shares of Frontier Common Stock, of
which 9,890,906 shares are issued and outstanding as of the date hereof,
and 5,000,000 shares of preferred stock, $.01 par value per share
("Frontier Preferred Stock"), of which 85,961 shares of preferred stock are
issued and outstanding as of the date hereof. Other than the option and/or
warrant agreements identified on Schedule 4.05(a) attached hereto (which
Schedule includes the number of options or warrants outstanding under such
agreements and the strike price for each such option or warrant), there are
no outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities or other agreements or arrangements of
any character or nature whatsoever under which Frontier may become
obligated to issue, assign, transfer or repurchase any shares of the
capital stock or other equity interest in Frontier. Except as set forth on
Schedule 4.05(a), the Exchange will not cause or require any adjustments
under the option and/or warrant agreements identified on Schedule 4.05(a).
All of the outstanding shares of Frontier Common Stock and Frontier
Preferred Stock have been validly issued and are fully paid and
nonassessable and were issued in full compliance with all applicable
securities laws. The shares of Frontier Common Stock issuable to Esenjay
and Aspect hereunder, when issued in accordance with the provisions of this
Agreement, will be duly and validly authorized and issued and will be fully
paid and nonassessable free and clear of any preemptive right of any
security holder of Frontier.
(b) Other Entities. Except for the Subsidiaries of Frontier
identified on Schedule 4.05(b) (all of which Subsidiaries are wholly-owned,
directly or indirectly, by Frontier Natural Gas Corporation), Frontier has
no interest, direct or indirect, and has no commitment to purchase any
interest, direct or indirect, in any other corporation or in any
partnership or other business entity.
4.06 Accounts Receivable, Payable. All of the accounts receivable and
accounts payable reflected on the most recent Frontier Financial Statements or
arising thereafter as reflected on the books of Frontier have arisen only from
bona fide transactions in the ordinary course of business,
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represent valid obligations owing to or from, as the case may be, Frontier
and have been accrued and recorded in accordance with GAAP. Schedule 4.06
sets forth as of October 31, 1997, the accounts receivable and accounts
payable balances of Frontier, together with an aging schedule of such
balances as of such date.
4.07 Absence of Events. Since September 30, 1997, Frontier has not,
except as set forth on Schedule 4.07 or pursuant to this Agreement, done any of
the following:
(a) mortgaged, pledged or subjected its properties or assets to
any Lien other than a Permitted Encumbrance;
(b) purchased, sold, leased, transferred or otherwise disposed
of (i) any Oil and Gas Interests that, individually or in the aggregate,
had a fair market value of $50,000 or more; or (ii) any other assets except
in the ordinary course of business and consistent with prior practice;
(c) other than in the ordinary course of business and consistent
with prior practice, made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or paid
or agreed or orally promised to pay, conditionally or otherwise, any bonus,
extra compensation, reimbursement, pension or severance or vacation pay, to
any shareholder, partner, director, officer, employee or agent;
(d) issued or sold any shares of capital stock or other
securities, or issued, granted or sold any options, rights or warrants with
respect thereto;
(e) paid or declared any dividends or distributions, purchased,
redeemed, acquired or retired any indebtedness, equity interest or other
securities from its equity owners or other security holders (other than
note payments made in accordance with the underlying loan or credit
agreements and consistent with past practices), made any loans or advances
or guaranteed any loans or advances to any person, or otherwise incurred or
suffered to exist any liabilities or obligations of any nature (other than
current liabilities incurred in the ordinary course of business and
consistent with past practices);
(f) canceled, waived or released any rights or claims against,
or indebtedness owed by, third parties;
(g) amended its certificate or articles of incorporation,
by-laws, or similar documents;
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(h) entered into any transaction, contract or commitment other
than in the ordinary course of business and consistent with prior practice;
(i) made any capital expenditure or commitment therefor, except
in the ordinary course of business;
(j) adopted any employee benefit plan or made any change in any
existing employee benefit plans or made any bonus or profit sharing
distribution or granted any stock options;
(k) increased indebtedness for borrowed money, or made any loan
to any person, other than in the ordinary course of business;
(l) made any change affecting any banking, safe deposit or power
of attorney arrangements;
(m) made any change in any accounting principle or practice or
method or application thereof;
(n) suffered the termination, suspension or revocation of any
license or permit necessary for the operation of its business;
(o) entered into any transaction other than on an arm's length
basis;
(p) received any notice of default or termination of any
contract, lease or other agreement or suffered any damage, destruction,
loss (whether or not covered by insurance) or any other changes, event or
condition which in any case or in the aggregate, has had or may have a
Material Adverse Effect on Frontier;
(q) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body;
(r) entered into any swap, hedging or similar arrangements,
forward sale of production or production sales contract; or
(s) entered into any agreement, whether or not in writing, or
made any commitment to take any of the types of actions described in
paragraphs (a) through (r) above.
4.08 Contracts. The Disclosure Schedule-Frontier lists each of the
following instruments, documents or agreements to which Frontier is a party and
that is currently in effect or under which Frontier has any obligations:
(a) collective bargaining agreement; (b) employment or other agreement
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or contract with or commitment to any salaried employee, except for unwritten
agreements or agreements or arrangements terminable at will or upon
statutorily required notice; (c) agreement, contract or commitment containing
any covenant (other than covenants entered into in the ordinary course of
business relating to the confidential or proprietary information of another
person) limiting Frontier's freedom to engage in any line of business or to
compete with any person; (d) obligation of guaranty or indemnification
arising from any agreement, contract or commitment, except as provided in its
certificate of incorporation; (e) joint venture, partnership, franchise or
similar contract involving a sharing of profits or expenses, other than
agreements relating to Frontier's Oil and Gas Interests (which have been made
available to Aspect and Esenjay); (f) non disclosure agreement, non
competition agreement, non solicitation agreement, any agreement with an
officer, director or employee of Frontier, tax indemnity, tax sharing or tax
allocation agreement or severance, bonus or commission agreement; (g)
agreement or contract under which Frontier is the licensee of computer
software or other intellectual property with a per unit cost greater than
$10,000; (h) contract between Frontier and any of its affiliates, other than
those referred to in the SEC Reports; (i) indenture, mortgage, loan, credit,
sale leaseback or similar contract under which Frontier has borrowed in
excess of $25,000 or issued any note, bond or other evidence of indebtedness
for borrowed money or guaranteed indebtedness for money borrowed by others in
excess of $25,000; (j) hedge, swap, exchange, futures or similar agreements
or contracts in an amount in excess of $25,000; (k) any Registration Rights
Agreements or other agreements under which Frontier has any obligations to
register shares of Frontier Common Stock; or (l) other agreement, contract or
commitment that has had or may have a Material Adverse Effect on Frontier.
Frontier is not a party to any oral agreements of any nature, other than
those terminable at will without penalty or default and the termination of
which would not have a Material Adverse Effect on Frontier. There is no
existing breach by Frontier of, nor is there any pending or, to the knowledge
of Frontier, threatened claim that Frontier has breached any of the terms or
conditions of any of its material agreements, contracts or commitments and,
to the knowledge of Frontier, no other parties to such agreements, contracts
or commitments have breached any of their terms or conditions.
4.09 Taxes. Except as set forth in the Disclosure Schedule-Frontier,
each of the following is true with respect to Frontier Natural Gas Corporation
and each subsidiary of Frontier Natural Gas Corporation with which Frontier
Natural Gas Corporation files consolidated or combined federal or state income
tax returns, in each case as listed on Schedule 4.05(b) attached hereto
(collectively the "Frontier Group"):
(a) all Tax Returns required to be filed by each member of the
Frontier Group have been filed when due, including legal periods permitted
by extensions, in accordance with all applicable laws; all material Taxes
shown on such Tax Returns have been timely paid when due; the Tax Returns
have been properly completed in compliance in all material respects with
all applicable laws and regulations and completely and accurately reflect
the facts regarding the income, expenses, properties, businesses and
operations required to be shown thereon;
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(b) each member of the Frontier Group has paid all material
Taxes required to be paid by it (whether or not shown on a Tax Return) or
for which it is liable, whether to taxing authorities or to other persons
under tax allocation agreements, and the charges, accruals, and reserves
for Taxes due, or accrued but not yet due, relating to its income,
properties, transactions or operations for any periods prior to the Closing
Date as reflected on its books (including the latest Frontier Financial
Statement) are adequate in the aggregate to cover such Taxes;
(c) there are no agreements or consents currently in effect for
the extension or waiver of the time (i) to file any Tax Return or (ii) for
assessment or collection of any Taxes relating to the income, properties or
operations of any member of the Frontier Group for any period ending on or
before the Closing Date and no member the Frontier Group has been requested
to enter into any such agreement or consent;
(d) there are no Tax liens (other than for current Taxes not yet
delinquent) upon the assets of any member of the Frontier Group;
(e) all material Taxes that the Frontier Group is required by
law to withhold or collect have been duly withheld or collected, and have
been timely paid over to the appropriate governmental authorities to the
extent due and payable;
(f) no member of the Frontier Group is a party to any agreement,
contract, arrangement or plan that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Code Section 280G;
(g) no member of the Frontier Group has agreed, nor is it
required, to make any adjustment under Code Section 481(a) (or any
comparable provision of state or local law) by reason of a change in
accounting method or otherwise;
(h) no member of the Frontier Group has filed a consent pursuant
to the collapsible corporation provisions of Code Section 341(f) (or any
corresponding provision of state, local or foreign income law) or agreed to
have Code Section 341(f)(2) (or any corresponding provision of state, local
or foreign income law) apply to any disposition of any asset owned by it;
(i) neither Frontier nor any member of the Frontier Group has
been a member of an affiliated group (used herein as defined in Code
Section 1504) other than an affiliated group of which Frontier Natural Gas
Corporation is the parent corporation; and
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(j) except as set forth on the Disclosure Schedule-Frontier,
neither Frontier nor any member of the Frontier Group is (or has ever been)
a party to any tax sharing agreement nor has any such member assumed the
tax liability of any other person under contract.
4.10 Litigation. There is no legal, administrative, arbitration
other proceeding (other than routine oil and gas field regulatory orders),
governmental investigation, order, decree or judgment in progress, in effect,
pending or, to the best knowledge of Frontier, threatened against Frontier
except as set forth on the Disclosure Schedule-Frontier.
4.11 Compliance with Laws, Material Agreements and Permits. Frontier
is not in violation of, or in default under, and no event has occurred that
(with notice or the lapse of time or both) would constitute a violation of or
default under, (a) its articles of incorporation or by-laws, (b) any applicable
law, rule, regulation, order, writ, decree or judgment of any Governmental
Authority, or (c) any agreement to which Frontier is a party or to which any of
its assets is subject or bound, except (in the case of clause (b) or (c) above)
for any violation or default that would not, individually or in the aggregate,
have a Material Adverse Effect on Frontier. Frontier has obtained and holds all
permits, licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets
("Frontier Permits"), except for Frontier Permits which the failure to obtain or
hold would not, individually or in the aggregate, have a Material Adverse Effect
on Frontier. Frontier is in compliance with the terms of its Frontier Permits,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on Frontier. No investigation or review by any
Governmental Authority with respect to Frontier is pending or, to the knowledge
of Frontier, threatened, other than those the outcome of which would not,
individually or in the aggregate, have a Material Adverse Effect on Frontier.
4.12 Tax Representations. To the knowledge of Frontier, each of the
following representations are true, correct and complete and will continue to be
true, correct and complete as of the Closing Date:
(a) no Frontier Common Stock issued pursuant to this Agreement
will be issued in satisfaction of an indebtedness of Frontier or of
interest on indebtedness of Frontier;
(b) other than as set forth in this Agreement and the Exhibits
and Schedules hereto, the transfers of the Aspect Assets and the Esenjay
Assets to Frontier are not the result of the solicitation of a promoter,
broker, or investment house;
(c) other than as expressly set forth in this Agreement, there
is no indebtedness between Frontier and Esenjay or Frontier and Aspect, and
there will be
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no indebtedness of Frontier created in favor of either Esenjay or Aspect
as a result of or in connection with the Exchange.
(d) taking into account the issuance of the Frontier Common
Stock pursuant to this Agreement and any Frontier Common Stock issued to
the Aspect Employees (as such term in defined in the Section 351 Plan of
Exchange attached hereto as Exhibit "E") and disregarding for these
purposes the Frontier Preferred Stock issued and outstanding as of the date
hereof, at or in connection with the Closing, Aspect, Esenjay and the
Aspect Employees, collectively, will own stock in Frontier possessing at
least 80% of the total combined voting power of all classes of stock
entitled to vote and at least 80% of the total number of shares of all
other classes of stock of Frontier.
(e) Aspect and Esenjay will receive, at the Closing, Frontier
Common Stock approximately equal to the net fair market value of the assets
transferred to Frontier by Aspect and Esenjay, respectively;
(f) other than as set forth in this Agreement, each of the
parties to the Exchange will pay its or his own expenses, if any, incurred
in connection with the Exchange.
4.13 Environmental Matters. Consistent with its status as operator or
non-operator, as the case may be,
(a) Frontier has conducted its business and operated its assets,
and is conducting its business and operating its assets, in material
compliance with all Environmental Laws;
(b) Frontier has not been notified by any Governmental Authority
or other third party that any of the operations or assets of Frontier is
the subject of any investigation or inquiry by any Governmental Authority
or other third party evaluating whether any remedial action is needed to
respond to a release or threatened release of any Hazardous Material or to
the improper treatment, storage or disposal (including treatment, storage
or disposal at offsite locations) of any Hazardous Material;
(c) Neither Frontier nor any other person has filed any notice
under any federal, state or local law indicating that (i) Frontier is
responsible for the improper release into the environment, or the improper
treatment, storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly treated, stored or disposed of upon any
property of Frontier;
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(d) Frontier has no contingent liability in connection with
(i) the release or threatened release into the environment at, beneath or
on any property now or previously owned or leased by Frontier, (ii) the
treatment, storage or disposal of any Hazardous Material, or (iii) any
other claims (including common law claims) with respect to damage to
health, safety or the environment;
(e) Frontier has not received any claim, complaint, notice,
inquiry or request for information involving any matter which remains
unresolved as of the date hereof with respect to any alleged violation of
any Environmental Law or regarding potential liability under any
Environmental Law or relating to any other claims (including common law
claims) with respect to damage to health, safety or the environment
relating to operations or conditions of any facilities or property
(including off-site treatment, storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned,
leased or operated by Frontier;
(f) No property now or previously owned, leased or operated by
Frontier is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) Frontier is not directly transporting, has not directly
transported, is not directly arranging for the transportation of, and has
not directly arranged for the transportation of, any Hazardous Material to
any location which is listed on the National Priorities List pursuant to
CERCLA, on the CERCLIS, or on any similar federal or state list or which is
the subject of federal, state or local enforcement actions or other
investigations that may lead to material claims against such company for
response costs, damage to natural resources or personal injury, including
claims under CERCLA;
(h) There are no sites, locations or operations at which
Frontier is currently undertaking, or has completed, any remedial or
response action relating to any release or threatened release of Hazardous
Materials, as required by Environmental Laws or in response to a common law
claim or a potential common law claim under Environmental Law; and
(i) All underground and aboveground storage tanks and solid
waste disposal facilities owned or operated by Frontier are used and
operated in material compliance with Environmental Laws.
4.14 Books and Records. All books, records and files of Frontier
(including those pertaining to Frontier's Oil and Gas Interests, wells and other
assets, those pertaining to the production, gathering, transportation and sale
of Hydrocarbons, and corporate, accounting, financial and employee records)
(a) have been prepared, assembled and maintained in accordance with usual
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and customary policies and procedures and (b) reflect in all material
respects the ownership, use, enjoyment and operation by Frontier of its
assets. True and correct copies of all such books, records and files have
been made available to Aspect and Esenjay.
4.15 Gas Imbalances. Other than as set forth at Schedule 4.15 hereto,
Frontier has not received any payments under gas contracts for which any party
has a right to take make up gas from Frontier, and has not Frontier received any
payments for production which are subject to refund or recoupment out of future
production. There is no Oil and Gas Interest with respect to which Frontier and
its predecessors in title to the Oil and Gas Interest have collectively taken
more (referred to herein as "over-produced") or less (referred to herein as
"under-produced") production from such well than the ownership of Frontier and
such predecessors would entitle Frontier and such predecessors (absent any gas
balancing agreement or arrangement) to receive. There exist no gas balancing
arrangements or agreements whereby over-production from wells other than Oil and
Gas Interests can be balanced with production from the Oil and Gas Interests.
None of the Oil and Gas Interests is subject to having allowable production
after the date hereof reduced below the full and regular allowable (including
the maximum permissible tolerance) because of any over-production (whether or
not the same was permissible at the time) prior to the date hereof. A breach of
this representation and warranty shall be treated as a Title Defect (as
hereinafter defined) and an adjustment shall be made in accordance with the
provisions of clause (b) of Section 11.04.
4.16 Title to Assets other than Oil and Gas Interests. Except for Oil
and Gas Interests of Frontier (which are covered by Section 4.17 hereof),
Frontier has good and marketable title to, or valid leasehold interests in, all
of the properties and assets used in its business, including, but not limited
to, the computer hardware and software and the exclusive right to use in its
trade areas its name and any other trademark or servicemark currently utilized
by such entity. Except for any Permitted Encumbrance, none of such properties
and assets are subject to any Lien, easement, liability or adverse claim of any
nature whatsoever, direct or indirect, whether accrued, absolute, contingent or
otherwise. All of such properties and assets owned or leased are in good
operating condition and repair (normal wear and tear excepted).
4.17 Title to Oil and Gas Interests. Schedule 4.17 contains a
complete and accurate list of Frontier's Oil and Gas Interests and sets forth
(i) the Working Interests of Frontier therein, and (ii) sufficient detail to
determine the Net Revenue Interests of Frontier therein. Except as set forth in
the Disclosure Schedule-Frontier:
(a) Frontier (individually or collectively) has Defensible Title
to Frontier's Oil and Gas Interests;
(b) the leases and related agreements forming any part of
Frontier's Oil and Gas Interests are in full force and effect and are valid
and legally binding agreements among the parties thereto, their successors
and assigns, enforceable in accordance with their terms in all material
respects except for applicable bankruptcy and
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insolvency laws. All rentals, royalties and other payments due and
payable under any such leases and other contracts and agreements forming
a part of Frontier's Oil and Gas Interests have been properly and timely
paid and all other obligations under such leases and related agreements
attendant to the ownership of Frontier's Oil and Gas Interests have been
met; and
(c) there are no back-in, reversionary or similar interests (the
vesting of which is subject to future production) held by third parties
which would reduce the interests of Frontier in Frontier's Oil and Gas
Interests from that shown on the Property Schedule.
4.18 Oil and Gas Operations. To the best knowledge of Frontier, all
wells included in the Oil and Gas Interests of Frontier have been drilled and
completed (if applicable), operated and produced in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable leases and applicable laws, rules and regulations, except where
any failure or violation could not reasonably be expected to have a Material
Adverse Effect on Frontier. Proceeds from the sale of Hydrocarbons produced
from Frontier's Oil and Gas Interests are being received by Frontier in a timely
manner and are not being held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $25,000 and held in suspense
in the ordinary course of business). None of Frontier's Oil and Gas Interests
are subject to production curtailments, and, to the knowledge of Frontier, no
such production curtailment is pending or threatened. Schedule 4.18 sets forth
a true and correct copy of Frontier's latest independent third party report
regarding its proved developed reserves and all internal reports prepared by
Frontier since the date of such third party report.
4.19 No Guarantees. Frontier has not directly or indirectly
guaranteed the obligations or liabilities of any other person, firm or
corporation.
4.20 Employee Matters. Frontier has provided to each of Aspect and
Esenjay a true and correct list detailing the name, current annual compensation
rate (including bonus and commissions), current base salary rate, accrued bonus,
accrued sick leave, accrued severance pay and accrued vacation benefits of each
salaried employee of Frontier. There are no charges of, formal, informal or
internal complaints of, or proceeding involving, discrimination or harassment
(including discrimination or harassment based upon sex, age, marital status,
race, religion, color, creed, national origin, sexual preference, handicap or
veteran status) pending or, to the knowledge of Frontier, threatened; nor is
there any investigation pending or, to the knowledge of Frontier, threatened,
including investigations before the Equal Employment Opportunity Commission or
any federal, state or local agency or court with respect to any current or
former employee of Frontier.
4.21 Employee Benefit Plans. With respect to any member of the
Frontier Group:
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(a) The Disclosure Schedule-Frontier lists each Employee Plan
that each member of the Frontier Group maintains, administers, contributes
to, or has any contingent liability with respect thereto. Frontier has
provided to Aspect and Esenjay a true and complete copy of each such
Employee Plan, current summary plan description, (and, if applicable,
related trust documents) and all amendments thereto, together with (i) the
three most recent annual reports, if any, prepared in connection with each
such Employee Plan (Form 5500 including, if applicable, Schedule B
thereto); (ii) the most recent actuarial report, if any, and trust reports
prepared in connection with each Employee Plan; (iii) all material
communications received from or sent to the IRS or the DOL within the last
two years (including a written description of any material oral
communications relating to the IRS Voluntary Compliance Resolution or
Closing Agreement Programs); (iv) the most recent IRS determination letter
with respect to each Employee Plan and the most recent application for a
determination letter, both as applicable; (v) all insurance contracts or
other funding arrangements, currently in force; and (vi) an actuarial study
of any post-employment life or medical benefits provided, if any.
(b) The Disclosure Schedule-Frontier identifies each Benefit
Arrangement that each member of the Frontier Group maintains, administers,
contributes to, or has any contingent liability with respect thereto. Each
Benefit Arrangement has been maintained and administered in substantial
compliance with its terms and with the requirements (including reporting
requirements, if any) prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement.
(c) Benefits under any Employee Plan or Benefit Arrangement are
as represented in said documents and have not been increased or modified
(whether written or not written) subsequent to the dates of such documents.
To the knowledge of Frontier, no member of the Frontier Group has
communicated to any employee or former employee any intention or commitment
to modify any Employee Plan or Benefit Arrangement or to establish or
implement any other employee or retiree benefit or compensation
arrangement.
(d) No Employee Plan is (i) a Multiemployer Plan, (ii) an
Employee Plan, other than any Multiemployer Plan, subject to Title IV of
ERISA, (iii) maintained in connection with any trust described in
Section 501(c)(9) of the Code or (iv) a plan to which Section 412 of the
Code applies. No current or former member of the Frontier Group has ever
maintained or become obligated to contribute to any employee benefit plan
(i) that is subject to Title IV of ERISA, (ii) to which Section 412 of the
Code applies, or (iii) that is a Multiemployer Plan or (iv) that is
maintained in connection with any trust described in Section 501(c)(9) of
the Code. No member of the Frontier Group has within the last five years
engaged in, or is a successor corporation to an
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entity that has engaged in, a transaction described in Section 4069 of
ERISA. No member of the Frontier Group is subject to withdrawal liability
(whether asserted or unasserted) under Section 4201, et seq. of ERISA.
(e) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and no event has occurred since such
adoption that would adversely affect such qualification and each trust
created in connection with each such Employee Plan forming a part thereof
is exempt from tax pursuant to Section 501(a) of the Code. A favorable
determination letter has been issued by the IRS as to the qualification of
each such Employee Plan for which a determination is available under the
Code and to the effect that each such trust is exempt from taxation under
Section 501(a) of the Code. Each Employee Plan has been maintained and
administered in substantial compliance with its terms and with the
requirements (including reporting requirements, if any) prescribed by any
and all applicable statutes, orders, rules and regulations, including ERISA
and the Code.
(f) Full payment has been made of all amounts which any member
of the Frontier Group is or has been required to have paid as contributions
to or benefits due under any Employee Plan or Benefit Arrangement under
applicable law or under the terms of any such plan or any arrangement.
(g) No member of the Frontier Group, or any of their respective
directors, officers or employees has engaged in any transaction with
respect to an Employee Plan that could subject Frontier to a tax, penalty
or liability for a prohibited transaction, as defined in Section 406 of
ERISA or Section 4975 of the Code. None of the assets of any Employee Plan
are invested in employer securities or employer real property.
(h) To the knowledge of Frontier, there are no facts or
circumstances that might give rise to any liability under Title I of ERISA.
(i) No member of the Frontier Group has any current or projected
liability in respect of post-retirement or post-employment welfare benefits
for retired, current or former employees, except as required to avoid
excise tax under Section 4980B of the Code, relating to COBRA.
(j) There is no litigation, administrative or arbitration
proceeding or other dispute pending or, to the knowledge of Frontier,
threatened that involves any Employee Plan or Benefit Arrangement.
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(k) No employee or former employee of any member of the Frontier
Group will become entitled to any bonus, retirement, severance, job
security or similar benefit or enhanced benefit (including acceleration of
an award, vesting or exercise of an incentive award) or any fee or payment
of any kind solely as a result of any of the transactions contemplated
hereby, except as disclosed on the Disclosure Schedule-Frontier and no
such disclosed payment constitutes a parachute payment described in
Section 280G of the Code, except as disclosed in the Disclosure Schedule-
Frontier.
(l) To the knowledge of Frontier, all group health plans (as
defined in Code Section 5000(b)(1) and as defined in ERISA Section 607(i))
of any member of the Frontier Group have at all times fully complied with
all applicable notification and continuation coverage requirements of
Section 4980B(f) of the Code and Section 601 of ERISA, and the regulations
promulgated thereunder. Further, no Employee Plan provides health,
medical, death or survivor benefits to any stockholders or directors who
are not employees, former employees or beneficiaries thereof, except to the
extent otherwise required by the continuation requirements of
Section 4980B(f) of the Code and Section 601 of ERISA, and to the knowledge
of Frontier there are no claims by terminated employees with respect
thereto.
(m) Except as set forth in the Disclosure Schedule-Frontier, no
employee or former employee, officer or director of any member of the
Frontier Group is or will become entitled to receive any award under any
discretionary or other bonus plans.
(n) All obligations under any Employee Plans and/or Benefit
Arrangements have been in the aggregate, accrued on the Frontier Financial
Statements to the extent required (including items relating to vesting via
passage of time or as a result of the transaction contemplated by this
Agreement).
4.22 Broker/Finders. Except as set forth on the Disclosure Schedule-
Frontier, no broker, finder, investment banker or other person is or will be, in
connection with the Exchange, entitled to any brokerage or investment bankers
fees, commissions or finders fees based on any arrangement made by or on behalf
of Frontier for which any party hereto will have any liability or obligation.
4.23 Royalties. To the knowledge of Frontier, all royalties,
overriding royalties, compensatory royalties and other payments due from or in
respect of production with respect to Frontier's Oil and Gas Interests, have
been or will be, prior to the Closing Date, properly and correctly paid or
provided for in all material respects, except for those for which Frontier has a
valid right to suspend. Frontier has not received any written notice of default
from any party alleging that Frontier is in default under the terms of any lease
or other agreement relating to its Oil and Gas Interests, or that any such lease
or other agreement is invalid.
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4.24 Plugging and Abandonment Liabilities. To the best knowledge of
Frontier, Frontier has no obligation under any contract, statute or regulation
to plug and/or dismantle any shut-in or non-producing well.
4.25 Prepayments. No prepayment for Hydrocarbon sales has been
received by Frontier for Hydrocarbons which have not been delivered as of the
date hereof.
4.26 Hedging Activities. Except as set forth in the Disclosure
Schedule-Frontier, Frontier does not participate in any hedging activities.
4.27 Transactions With Related Parties.
(a) The SEC Documents describe all transactions required to be
described therein of the types detailed in Items 402 and 404 of
Regulation S-B of the SEC, and the Disclosure Schedule-Frontier lists all
transactions between January 1, 1993 and the date of this Agreement or with
respect to activities that pre-date January 1, 1993, which currently
require payments in excess of $10,000 by Frontier or for the benefit of
Frontier, on the one hand, and any director or officer of Frontier of any
affiliate of such officer or director, on the other hand, including,
(i) any debtor or creditor relationship, (ii) any transfer or lease of real
or personal property, (iii) wages, salaries, commissions, bonuses and
agreements relating to employment and (iv) purchases or sales of products
or services.
(b) The Disclosure Schedule-Frontier lists (i) all claims of any
nature that any officer or director of Frontier or any affiliate of such
officer or director has against Frontier as of the date of this Agreement
that are not reflected in the most recent Frontier Financial Statements and
(ii) all claims of any nature that Frontier has against any officer or
director of Frontier or any affiliate of such officer or director as of the
date of this Agreement that are not reflected in the most recent Frontier
Financial Statements.
4.28 Disclosure. The representations, warranties and statements made
by Frontier in this Agreement, and in the certificates and other documents
delivered pursuant hereto, do not contain any untrue statement of a material
fact, and, when taken together, do no omit to state any material fact necessary
to make such representations, warranties and statements, in light of the
circumstances under which they are made, not misleading. Since the date of the
most recent SEC Report, there have not been any events, changes or developments
relating to Frontier that are reasonably likely to have a Material Adverse
Effect on Frontier.
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ARTICLE V
FINANCIAL ADVISOR
5.01 Frontier has been and shall be advised in regard to the Exchange
by GBI. A copy of its engagement of GBI is set forth at Schedule 5.01 hereto,
and Aspect and Esenjay acknowledge same as a valid obligation and contract of
Frontier, and further agree to cooperate fully with GBI in GBI's preparation of
a fairness opinion in regards to this Agreement. It is specifically
acknowledged and agreed to by Frontier, Aspect and Esenjay that the delivery of
said fairness opinion, in form and substance satisfactory to counsel of
Frontier, expressing that the terms and provisions of this Agreement are fair to
the shareholders of Frontier is a condition precedent to Closing of the
Exchange.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ESENJAY
As a material part of the consideration for this Agreement, Esenjay
represents and warrants to each of Aspect and Frontier as of the date of this
Agreement and as of the Closing Date as follows:
6.01 Organization, Standing and Qualification. Esenjay is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. Esenjay has all requisite corporate power and authority
to carry on its business as now being conducted and to own, lease or operate its
properties as and in the places where such business is now conducted and such
properties are now owned, leased or operated. Esenjay is qualified and in good
standing to do business in all states in which the nature of its business
requires it to be qualified.
6.02 Execution, Delivery and Performance of Agreement; Authority.
Esenjay has full corporate power and authority to enter into this Agreement and
the Related Documents to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Esenjay of this
Agreement and the Related Documents to which it is a party have been duly and
validly approved by all necessary corporate action and no other actions or
proceeding on the part of Esenjay are necessary to authorize this Agreement and
the Related Documents to which it is a party and the transactions contemplated
hereby and thereby. This Agreement constitutes, and the Related Documents to
which it is a party when executed will constitute, legal, valid and binding
obligations of Esenjay, enforceable against Esenjay in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in effect
that affect the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies.
6.03 Conflicts. The execution, delivery and performance of this
Agreement and the Related Documents to which it is a party by Esenjay do not and
will not, with or without the giving of notice
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or the passage of time, or both, violate or result in a breach of, conflict
with, default, right to accelerate or loss of rights under, or result in the
creation of any Lien pursuant to, any provision of Esenjay's organizational
documents or bylaws, or any mortgage, deed of trust, lease, license,
agreement, or understanding, to which Esenjay is a party or any of Esenjay's
assets is subject, or any order, judgment or decree to which Esenjay is a
party or by which Esenjay or its assets may be bound or affected, or to
Esenjay's knowledge, any law ordinance, rule or regulation to which Esenjay or
its assets is subject.
6.04 Capitalization.
(a) Esenjay. The authorized capital stock of Esenjay consists
of 100,000 shares of common stock, of which 100,000 shares are issued and
outstanding as of the date hereof. All of the issued and outstanding
shares of common stock of Esenjay are owned by the Esenjay Shareholders.
There are no outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other agreements
or arrangements of any character or nature whatsoever under which Esenjay
may become obligated to issue, assign, transfer or repurchase any shares of
the capital stock or other equity interest in Esenjay. All of the
outstanding shares of Esenjay common stock have been validly issued and are
fully paid and nonassessable.
(b) Other Entities. Except as set forth on Disclosure Schedule-
Esenjay, Esenjay has no interest, direct or indirect, and has no commitment
to purchase any interest, direct or indirect, in any other corporation or
in any partnership or other business entity.
6.05 Financial Statements. Esenjay has furnished or made available to
Frontier and Aspect its financial statements for the twelve month period ending
December 31, 1996, including an unaudited, internally prepared balance sheet as
of the end of such twelve month period and unaudited, internally prepared
statements of income and shareholders' equity for such twelve month period
(collectively, the "Esenjay Financial Statements"). The Esenjay Financial
Statements which are incorporated into this Agreement for all purposes are
complete and correct in all material respects, and present fairly the financial
condition of Esenjay as at the dates thereof and the results of their operations
for the periods covered thereby.
6.06 Absence of Undisclosed Liabilities. Esenjay has no liabilities
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including liabilities for Taxes), except for
(a) liabilities set forth on the face of the Esenjay Financial Statements,
(b) liabilities which have arisen after the date of the Esenjay Financial
Statements in the ordinary course of business and consistent with past
experience and practice, and (c) liabilities under this Agreement.
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6.07 Absence of Events. Except as set forth on the Disclosure
Schedule-Esenjay, since December 31, 1996, no event has occurred that could have
a Material Adverse Effect on Esenjay and Esenjay has not done any of the
following:
(a) mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction any Esenjay Assets, other
than Permitted Encumbrances;
(b) sold, transferred or otherwise disposed of any Esenjay
Assets;
(c) other than in the ordinary course of business and consistent
with prior practice, made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or paid
or agreed or orally promised to pay, conditionally or otherwise, any bonus,
extra compensation, reimbursement, pension or severance or vacation pay, to
any shareholder, partner, director, officer, employee or agent;
(d) issued or sold any shares of capital stock or partnership
interest or other securities, or issued, granted or sold any options,
rights or warrants with respect thereto;
(e) paid or declared any dividends or distributions, purchased,
redeemed, acquired or retired any indebtedness, equity interest or other
securities from its equity owners or other security holders, made any loans
or advances or guaranteed any loans or advances to any person, or otherwise
incurred or suffered to exist any liabilities (other than current
liabilities incurred in the ordinary course of business and consistent with
past practices);
(f) amended its certificate or articles of incorporation,
by-laws, or similar documents;
(g) entered into any transaction, contract or commitment other
than in the ordinary course of business and consistent with prior practice;
(h) adopted any employee benefit plan or made any change in any
existing employee benefit plans or made any bonus or profit sharing
distribution or granted any stock options;
(i) received any notice of default or termination or suffered
any damage, destruction, loss (whether or not covered by insurance) or any
other change, event or
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condition which in any case or in the aggregate, has had or may have a
Material Adverse Effect on Esenjay;
(j) entered into any agreement or made any commitment to take
any of the types of actions described in paragraphs (a) through (i) or that
could have a Material Adverse Effect on Esenjay.
6.08 Taxes. Except as set forth in the Disclosure Schedule-Esenjay,
each of the following is true with respect to Esenjay:
(a) To the best of Esenjay's knowledge, Esenjay has paid all
material Taxes required to be paid by it (whether or not shown on a Tax
Return) or for which it is liable, whether to taxing authorities or to
other persons under tax allocation agreements;
(b) there are no agreements or consents currently in effect for
the extension or waiver of the time (i) to file any Tax Return or (ii) for
assessment or collection of any Taxes relating to the income, properties or
operations of Esenjay for any period ending on or before the Closing Date
and Esenjay has not been requested to enter into any such agreement or
consent;
(c) there are no Tax liens (other than for current Taxes not yet
delinquent) upon the assets of Esenjay;
(d) all material Taxes that Esenjay is required by law to
withhold or collect have been duly withheld or collected, and have been
timely paid over to the appropriate governmental authorities to the extent
due and payable;
(e) Esenjay is not a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Code
Section 280G;
(f) Esenjay has not agreed, nor is it required, to make any
adjustment under Code Section 481(a) (or any comparable provision of state
or local law) by reason of a change in accounting method or otherwise;
(g) Esenjay has not filed a consent pursuant to the collapsible
corporation provisions of Code Section 341(f) (or any corresponding
provision of state, local or foreign income law) or agreed to have Code
Section 341(f)(2) (or any corresponding provision of state, local or
foreign income law) apply to any disposition of any asset owned by it;
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(h) Esenjay has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code and is not
subject to any Tax liability of any other person, including any liability
arising from the application of U.S. Treasury Regulation Section 1.1502-6
or any analogous provisions of state, local or foreign law; and
(i) Esenjay is not (and never has been) a party to any tax
sharing agreement and has not assumed the tax liability of any other person
under contract.
6.09 Litigation. There is no legal, administrative, arbitration
other proceeding (other than routine oil and gas field regulatory orders),
governmental investigation, order, decree or judgment in progress, in effect,
pending or, to the best knowledge of Esenjay, threatened against Esenjay except
as set forth on the Disclosure Schedule-Esenjay.
6.10 Compliance with Laws, Material Agreements and Permits. With
respect to the Esenjay Assets, Esenjay is not in violation of, or in default
under, and no event has occurred that (with notice or the lapse of time or both)
would constitute a violation of or default under, (a) its articles of
incorporation or by-laws, (b) any applicable law, rule, regulation, order, writ,
decree or judgment of any Governmental Authority, or (c) any agreement to which
Esenjay is a party or to which any of its assets is subject or bound. Esenjay
has obtained and holds all permits, licenses, variances, exemptions, orders,
franchises, approvals and authorizations of all Governmental Authorities
necessary for the lawful conduct of its business or the lawful ownership, use
and operation of its assets ("Esenjay Permits"), except for Esenjay Permits
which the failure to obtain or hold would not, individually or in the aggregate,
have a Material Adverse Effect on Esenjay. Esenjay is in compliance with the
terms of its Esenjay Permits, except where the failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on Esenjay. No
investigation or review by any Governmental Authority with respect to Esenjay is
pending or, to the knowledge of Esenjay, threatened, other than those the
outcome of which would not, individually or in the aggregate, have a Material
Adverse Effect on Esenjay. To the knowledge of Esenjay, no party to any
material agreement affecting the Esenjay Assets or by which the Esenjay Assets
are bound is in breach of any of the material terms, provisions or conditions of
such agreement.
6.11 Environmental Matters. With respect to the Esenjay Assets,
consistent with its status as operator or non-operator, as the case may be:
(a) Esenjay has conducted its business and operated its assets,
and is conducting its business and operating its assets, in material
compliance with all Environmental Laws;
(b) Esenjay has not been notified by any Governmental Authority
or other third party that any of the operations or assets of Esenjay is the
subject of any investigation or inquiry by any Governmental Authority or
other third party evaluating
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whether any remedial action is needed to respond to a release or threatened
release of any Hazardous Material or to the improper treatment, storage or
disposal (including treatment, storage or disposal at offsite locations) of
any Hazardous Material;
(c) Neither Esenjay nor any other person has filed any notice
under any federal, state or local law indicating that (i) Esenjay is
responsible for the improper release into the environment, or the improper
treatment, storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly treated, stored or disposed of upon any
property of Esenjay;
(d) Esenjay has no contingent liability in connection with
(i) the release or threatened release into the environment at, beneath or
on any property now or previously owned or leased by Esenjay, (ii) the
treatment, storage or disposal of any Hazardous Material, or (iii) any
other claims (including common law claims) with respect to damage to
health, safety or the environment;
(e) Esenjay has not received any claim, complaint, notice,
inquiry or request for information involving any matter which remains
unresolved as of the date hereof with respect to any alleged violation of
any Environmental Law or regarding potential liability under any
Environmental Law or relating to any other claims (including common law
claims) with respect to damage to health, safety or the environment
relating to operations or conditions of any facilities or property
(including off-site treatment, storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned,
leased or operated by Esenjay;
(f) No property now or previously owned, leased or operated by
Esenjay is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) Esenjay is not directly transporting, has not directly
transported, is not directly arranging for the transportation of, and has
not directly arranged for the transportation of, any Hazardous Material to
any location which is listed on the National Priorities List pursuant to
CERCLA, on the CERCLIS, or on any similar federal or state list or which is
the subject of federal, state or local enforcement actions or other
investigations that may lead to material claims against such company for
response costs, damage to natural resources or personal injury, including
claims under CERCLA;
(h) There are no sites, locations or operations at which Esenjay
is currently undertaking, or has completed, any remedial or response action
relating to any release or threatened release of Hazardous Materials, as
required by
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Environmental Laws or in response to a common law claim or a potential
common law claim under Environmental Law; and
(i) All underground and aboveground storage tanks and solid
waste disposal facilities owned or operated by Esenjay are used and
operated in material compliance with Environmental Laws.
6.12 Title to Assets other than Oil and Gas Interests. Except for Oil
and Gas Interests (which are covered by Section 6.13 hereof), Esenjay has good
and marketable title to, or valid leasehold interests in, all of the properties
and assets that are included in the Esenjay Assets. Except for any Permitted
Encumbrance, none of such properties and assets are subject to any Lien,
easement, liability or adverse claim of any nature whatsoever, direct or
indirect, whether accrued, absolute, contingent or otherwise. All of such
properties and assets owned or leased are in good operating condition and repair
(normal wear and tear excepted).
6.13 Title to Oil and Gas Interests. Schedule 2.01 contains a
complete and accurate list of Esenjay's Oil and Gas Interests that are being
conveyed pursuant to the Exchange and sets forth (i) the Working Interests of
Esenjay therein to the extent being conveyed hereby, and (ii) sufficient detail
to determine the Net Revenue Interests of Esenjay therein to the extent being
conveyed hereby. Except as set forth in the Disclosure Schedule-Esenjay and
solely with respect to the Oil and Gas Interests that are included in the
Esenjay Assets:
(a) Esenjay (individually or collectively) has Defensible Title
to Esenjay's Oil and Gas Interests;
(b) the leases and related agreements forming any part of
Esenjay's Oil and Gas Interests are in full force and effect and are valid
and legally binding agreements among the parties thereto, their successors
and assigns, enforceable in accordance with their terms in all material
respects except for applicable bankruptcy and insolvency laws. All
rentals, royalties and other payments due and payable under any such leases
and other contracts and agreements forming a part of Esenjay's Oil and Gas
Interests have been properly and timely paid and all other obligations
under such leases and related agreements attendant to the ownership of
Esenjay's Oil and Gas Interests have been met; and
(c) there are no back-in, reversionary or similar interests (the
vesting of which is subject to future production) held by third parties
which would reduce the interests of Esenjay in Esenjay's Oil and Gas
Interests from that shown on the Property Schedule.
6.14 Broker/Finders. No broker, finder, investment banker other than
as set forth in Disclosure Schedule-Esenjay, or other person is or will be, in
connection with the Exchange, entitled
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to any brokerage or investment bankers fees, commissions or finders fees based
on any arrangement made by or on behalf of Esenjay and for which any party
hereto will have any liability or obligation.
6.15 Royalties. To the knowledge of Esenjay, all royalties,
overriding royalties, compensatory royalties and other payments due from or in
respect of production with respect to Oil and Gas Interests included in the
Esenjay Assets, have been or will be, prior to the Closing Date, properly and
correctly paid or provided for in all material respects, except for those for
which Esenjay has a valid right to suspend. Esenjay has not received any
written notice of default from any party alleging that Esenjay is in default
under the terms of any lease or other agreement relating to the Oil and Gas
Interests included in the Esenjay Assets, or that any such lease or other
agreement is invalid.
6.16 Gas Imbalances. Except as identified on the Disclosure Schedule-
Esenjay, Esenjay has not received any deficiency payments under gas contracts
for which any party has a right to take deficiency gas from Esenjay, nor has
Esenjay received any payments for production which are subject to refund or
recoupment out of future production. There is no Oil and Gas Interest with
respect to which Esenjay and its predecessors in title to the Esenjay Oil and
Gas Interests have collectively taken more (referred to herein as "over-
produced") or less (referred to herein as "under-produced") production from such
well than the ownership would entitle Esenjay and such predecessors to receive
(absent any gas balancing agreement or arrangement). There exist no gas
balancing arrangements or agreements whereby over-production from wells other
than Esenjay Oil and Gas Interests can be balanced with production from the Oil
and Gas Interests. None of the Esenjay Oil and Gas Interests is subject to
having allowable production after the date hereof reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any
over-production (whether or not the same was permissible at the time) prior to
the date hereof. With respect to the Esenjay Assets, a breach of this
representation and warranty shall be treated as a Title Defect and an adjustment
shall be made in accordance with the provisions of clause (b) of Section 11.04.
6.17 Hedging Activities. Except as set forth in the Disclosure
Schedule-Esenjay, Esenjay does not participate in any hedging activities.
6.18 Certain Business Relationships or Transactions with Affiliates.
The Disclosure Schedule-Esenjay sets forth a complete and accurate list of any
agreement, contract, arrangement or understanding to which Esenjay is a party
for the direct or indirect benefit of any of the Esenjay Shareholders (or, as
the case may be, their family members, directors, officers or employees, or
other affiliates). None of the Esenjay Shareholders (or, as the case may be,
their family members, directors, officers or employees, or other affiliates)
owns any material asset, tangible or intangible, which is used in the business
of Esenjay.
6.19 No Guarantees. Esenjay has not directly or indirectly guaranteed
the obligations of or liabilities of any other person, firm or corporation.
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6.20 Employee Matters. Esenjay has provided to each of Aspect and
Frontier a true and correct list detailing the following information for each
Esenjay employee: the name, current annual compensation and base salary rate
(including bonuses and commissions and any increases in compensation or base
salary since December 31, 1996), accrued bonus, accrued sick leave, accrued
severance pay and accrued vacation benefits. The liability of Esenjay for
accrued sick leave and accrued vacation benefits of the Esenjay employees
does not exceed $102,043.62, in the aggregate. There are no charges of,
formal, informal or internal complaints of, or proceeding involving,
discrimination or harassment (including discrimination or harassment based
upon sex, age, marital status, race, religion, color, creed, national origin,
sexual preference, handicap or veteran status) pending or, to the knowledge
of Esenjay, threatened; nor is there any investigation pending or, to the
knowledge of Esenjay, threatened, including investigations before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court with respect to any current or former employee of Esenjay.
6.21 Employee Benefit Plans. With respect to Esenjay:
(a) The Disclosure Schedule-Esenjay lists each Employee Plan
that Esenjay maintains, administers, contributes to, or has any contingent
liability with respect thereto. Esenjay has provided to Aspect and
Frontier a true and complete copy of each such written Employee Plan and
each material oral Employee Plan, current summary plan description, (and,
if applicable, related trust documents) and all amendments thereto,
together with (i) the three most recent annual reports, if any, prepared in
connection with each such Employee Plan (Form 5500 including, if
applicable, Schedule B thereto); (ii) the most recent actuarial report, if
any, and trust reports prepared in connection with each Employee Plan;
(iii) all material communications received from or sent to the IRS or the
DOL within the last two years (including a written description of any
material oral communications relating to the IRS Voluntary Compliance
Resolution or Closing Agreement Programs); (iv) the most recent IRS
determination letter with respect to each Employee Plan and the most recent
application for a determination letter, both as applicable; (v) all
insurance contracts or other funding arrangements, currently in force; and
(vi) an actuarial study of any post-employment life or medical benefits
provided, if any.
(b) The Disclosure Schedule-Esenjay identifies each Benefit
Arrangement that Esenjay maintains, administers, contributes to, or has any
contingent liability with respect thereto. Each Benefit Arrangement has
been maintained and administered in substantial compliance with its terms
and with the requirements (including reporting requirements, if any)
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement.
(c) Benefits under any Employee Plan or Benefit Arrangement are
as represented in said documents and have not been increased or modified
(whether
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written or not written) subsequent to the dates of such documents. To
the knowledge of Esenjay, except as set forth on the Disclosure
Schedule-Esenjay, Esenjay has not communicated to any employee or former
employee any intention or commitment to modify any Employee Plan or Benefit
Arrangement or to establish or implement any other employee or retiree
benefit or compensation arrangement.
(d) No Employee Plan is (i) a Multiemployer Plan, (ii) an
Employee Plan, other than any Multiemployer Plan, subject to Title IV of
ERISA, (iii) maintained in connection with any trust described in
Section 501(c)(9) of the Code or (iv) a plan to which Section 412 of the
Code applies. Esenjay has never maintained or become obligated to
contribute to any employee benefit plan (i) that is subject to Title IV of
ERISA, (ii) to which Section 412 of the Code applies, or (iii) that is a
Multiemployer Plan or (iv) that is maintained in connection with any trust
described in Section 501(c)(9) of the Code. Esenjay has not within the
last five years engaged in, or is a successor corporation to an entity that
has engaged in, a transaction described in Section 4069 of ERISA. Esenjay
is not subject to withdrawal liability (whether asserted or unasserted)
under Section 4201, et seq. of ERISA.
(e) Each Employee Plan which is intended to be qualified under
Section 40l(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and no event has occurred since such
adoption that would adversely affect such qualification and each trust
created in connection with each such Employee Plan forming a part thereof
is exempt from tax pursuant to Section 501(a) of the Code. A favorable
determination letter has been issued by the IRS as to the qualification of
each such Employee Plan for which a determination is available under the
Code and to the effect that each such trust is exempt from taxation under
Section 501(a) of the Code. Each Employee Plan has been maintained and
administered in substantial compliance with its terms and with the
requirements (including reporting requirements, if any) prescribed by any
and all applicable statutes, orders, rules and regulations, including ERISA
and the Code.
(f) Full payment has been made of all amounts which Esenjay is
or has been required to have paid as contributions to or benefits due under
any Employee Plan or Benefit Arrangement under applicable law or under the
terms of any such plan or any arrangement.
(g) Neither Esenjay nor any of its respective directors,
officers or employees has engaged in any transaction with respect to an
Employee Plan that could subject Esenjay to a tax, penalty or liability for
a prohibited transaction, as defined in Section 406 of ERISA or
Section 4975 of the Code. None of the assets of any Employee Plan are
invested in employer securities or employer real property.
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(h) To the knowledge of Esenjay, there are no facts or
circumstances that might give rise to any liability under Title I of ERISA.
(i) Esenjay has no current or projected liability in respect of
post-retirement or post-employment welfare benefits for retired, current or
former employees, except as required to avoid excise tax under
Section 4980B of the Code, relating to COBRA.
(j) There is no litigation, administrative or arbitration
proceeding or other dispute pending or, to the knowledge of Esenjay,
threatened that involves any Employee Plan or Benefit Arrangement.
(k) No employee or former employee of Esenjay will become
entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced benefit (including acceleration of an award, vesting or
exercise of an incentive award) or any fee or payment of any kind solely as
a result of any of the transactions contemplated hereby, except as
disclosed on the Disclosure Schedule-Esenjay and no such disclosed payment
constitutes a parachute payment described in Section 280G of the Code,
except as disclosed in the Disclosure Schedule-Esenjay.
(l) To the knowledge of Esenjay, all group health plans (as
defined in Code Section 5000(b)(1) and as defined in ERISA Section 607(i))
of Esenjay have at all times fully complied with all applicable
notification and continuation coverage requirements of Section 4980B(f) of
the Code and Section 601 of ERISA, and the regulations promulgated
thereunder. Further, no Employee Plan provides health, medical, death or
survivor benefits to any stockholders or directors who are not employees,
former employees or beneficiaries thereof, except to the extent otherwise
required by the continuation requirements of Section 4980B(f) of the Code
and Section 601 of ERISA, and to the knowledge of Esenjay there are no
claims by terminated employees with respect thereto.
(m) Except as set forth in the Disclosure Schedule-Esenjay, no
employee or former employee, officer or director of Esenjay is or will
become entitled to receive any award under any discretionary or other bonus
plans.
(n) All obligations under any Employee Plans and/or Benefit
Arrangements have been in the aggregate, accrued on the Esenjay Financial
Statements to the extent required (including items relating to vesting via
passage of time or as a result of the transaction contemplated by this
Agreement).
6.22 Plugging and Abandonment Liabilities. To the best knowledge
of Esenjay, except as reflected in the Esenjay Financial Statements or in the
Disclosure Schedule-Esenjay, Esenjay has no
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obligation, in relation to the Esenjay Assets, under applicable contract,
statute or regulation to plug and dismantle any well.
6.23 Prepayments. No prepayment for Hydrocarbon sales has been
received by Esenjay for Hydrocarbons which have not been delivered as of the
date hereof.
6.24 Calls on Production. To the best knowledge of Esenjay, except
as set forth in the Disclosure Schedule-Esenjay, no party has a call or a
preferential right to purchase production from Esenjay's Oil and Gas
Interests.
6.25 Oil and Gas Operations. To the best knowledge of Esenjay, all
wells included in the Esenjay Assets have been drilled and completed (if
applicable), operated and produced in accordance with generally accepted oil
and gas field practices and in compliance in all material respects with
applicable leases and applicable laws, rules and regulations, except where
any failure or violation could not reasonably be expected to have a Material
Adverse Effect on the Esenjay Assets. Proceeds from the sale of Hydrocarbons
produced from Oil and Gas Interests included in the Esenjay Assets are being
received by Esenjay in a timely manner and are not being held in suspense for
any reason (except for amounts, individually or in the aggregate, not in
excess of $25,000 and held in suspense in the ordinary course of business).
None of the Oil and Gas Interests included in the Esenjay Assets are subject
to production curtailments, and, to the knowledge of the Esenjay, no such
production curtailment is pending or threatened.
6.26 Tax Representations. To the knowledge of Esenjay, each of the
following representations are true, correct and complete and will continue to
be true, correct and complete as of the Closing Date:
(a) the Frontier Common Stock to be issued to Esenjay at the
Closing will not be issued in satisfaction of an indebtedness of Frontier
or interest on indebtedness of Frontier;
(b) other than as set forth in this Agreement and the Exhibits
and Schedules hereto, the transfers of the Esenjay Assets to Frontier are
not the result of the solicitation of a promoter, broker, or investment
house;
(c) Frontier will not, other than specifically set forth in this
Agreement, assume any liabilities of Esenjay in connection with the
Exchange;
(d) other than as expressly set forth in this Agreement and
other than any liabilities arising under the New Debt agreement, there is
no indebtedness between Esenjay and Frontier and there will be no
indebtedness created by Frontier in favor of Esenjay or the Esenjay
Shareholders as a result of the Exchange;
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(e) Esenjay will receive Frontier Common Stock at the Closing
approximately equal to the net fair market value of the Esenjay Assets
transferred by Esenjay to Frontier;
(f) other than as set forth in this Agreement, Esenjay will pay
its own expenses, if any, incurred in connection with the Exchange;
(g) Esenjay is not under the jurisdiction of a court in a title
11 or similar case (within the meaning of Section 368(a)(3)(A) of the Code)
and the Frontier Common Stock to be received in the Exchange will not be
used to satisfy any indebtedness of such party;
(h) All of the Frontier Common Stock that Esenjay will receive
as part of the Exchange will be received in exchange for the property
transferred by Esenjay to Frontier pursuant to this Agreement, and none of
such common stock will constitute separate consideration for, or be
allocable to, any employment, consulting or other services provided to (or
that will be provided to) Frontier by Esenjay or the Esenjay Shareholders
(or any other person) either in connection with the Exchange or otherwise;
(i) Except as set forth on Schedule 2.01, Esenjay will not
retain any rights or interests in the property transferred to Frontier as
part of the Exchange; and
(j) Esenjay has no plan or intention to sell, exchange, or
otherwise dispose of any of the Frontier Common Stock to be received by
Esenjay pursuant hereto.
6.27 Disclosure. The representations, warranties and statements
made by Esenjay in this Agreement, and in the certificates and other
documents delivered pursuant hereto, do not contain any untrue statement of a
material fact, and, when taken together, do no omit to state any material
fact necessary to make such representations, warranties and statements, in
light of the circumstances under which they are made, not misleading. Since
the date of the most recent Esenjay Financial Statement, there have not been
any events, changes or developments relating to Esenjay that are reasonably
likely to have a Material Adverse Effect on Esenjay.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF ASPECT
As a material part of the consideration for this Agreement, Aspect
represents and warrants to Esenjay and Frontier as of the date of this
Agreement and as of the Closing Date as follows:
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7.01 Organization, Standing and Qualification. Aspect is a limited
liability corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado. Aspect has all requisite limited
liability company power and authority to carry on its business as now being
conducted and to own, lease or operate its properties, if any, as and in the
places where such business is now conducted and such properties, if any, are
now owned, leased or operated. Aspect is qualified and in good standing to
do business in all states in which the nature of its business requires it to
be qualified.
7.02 Execution, Delivery and Performance of Agreement; Authority.
Aspect has full limited liability company power and authority to enter into
this Agreement and the Related Documents to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Aspect of this Agreement and the Related Documents to which it is a party
have been duly and validly approved by all necessary limited liability
company action and no other actions or proceeding on the part of Aspect are
necessary to authorize this Agreement and the Related Documents to which it
is a party and the transactions contemplated hereby and thereby. This
Agreement constitutes, and the Related Documents to which it is a party when
executed will constitute, legal, valid and binding obligations of Aspect,
enforceable against Aspect in accordance with their respective terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect that affect the
enforcement of creditors' rights generally and by equitable limitations on
the availability of specific remedies.
7.03 Conflicts. The execution, delivery and performance of this
Agreement and the Related Documents to which it is a party by Aspect do not
and will not, with or without the giving of notice or the passage of time, or
both, violate or result in a breach of, conflict with, default, right to
accelerate or loss of rights under, or result in the creation of any Lien
pursuant to, any provision of Aspect's articles of organization or operating
agreement, or any mortgage, deed of trust, lease, license, agreement, or
understanding, to which Aspect is a party or any of Aspect's assets is
subject, or any order, judgment or decree to which Aspect is a party or by
which Aspect or its assets may be bound or affected, or to Aspect's
knowledge, any law ordinance, rule or regulation to which Aspect or its
assets is subject.
7.04 Aspect Assets. The Aspect Assets represent no more than fifty
percent (50%) of the Aspect's net asset value.
7.05 Taxes. Except as set forth in the Disclosure Schedule-Aspect,
each of the following is true with respect to Aspect:
(a) all Tax Returns required to be filed by Aspect have been
filed when due, including legal periods permitted by extensions, in
accordance with all applicable laws; all material Taxes shown on such Tax
Returns have been timely paid when due; the Tax Returns have been properly
completed in compliance in all material respects
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with all applicable laws and regulations and completely and accurately
reflect the facts regarding the income, expenses, properties, businesses
and operations required to be shown thereon;
(b) Aspect has paid all material Taxes required to be paid by it
(whether or not shown on a Tax Return) or for which it is liable, whether
to taxing authorities or to other persons under tax allocation agreements;
(c) there are no agreements or consents currently in effect for
the extension or waiver of the time (i) to file any Tax Return or (ii) for
assessment or collection of any Taxes relating to the income, properties or
operations of Aspect for any period ending on or before the Closing Date
and Aspect has not been requested to enter into any such agreement or
consent;
(d) there are no Tax liens (other than for current Taxes not yet
delinquent) upon the assets of Aspect; and
(e) all material Taxes that the Aspect is required by law to
withhold or collect have been duly withheld or collected, and have been
timely paid over to the appropriate governmental authorities to the extent
due and payable.
7.06 Litigation. There is no legal, administrative, arbitration
other proceeding (other than routine oil and gas field regulatory orders),
governmental investigation, order, decree or judgment in progress, in effect,
pending or, to the best knowledge of Aspect, threatened against Aspect and
relating to the Aspect Assets.
7.07 Compliance with Laws, Material Agreements and Permits. With
respect to the Aspect Assets, Aspect is not in violation of, or in default
under, and no event has occurred that (with notice or the lapse of time or
both) would constitute a violation of or default under, (i) its articles of
incorporation, or by-laws, (ii) any applicable law, rule, regulation, order,
writ, decree or judgment of any Governmental Authority, or (iii) any
agreement to which Aspect is a party or to which any of its assets is subject
or bound. Aspect has obtained and holds all permits, licenses, variances,
exemptions, orders, franchises, approvals and authorizations of all
Governmental Authorities necessary for the lawful conduct of its business or
the lawful ownership, use and operation of its assets ("Aspect Permits"),
except for Aspect Permits which the failure to obtain or hold would not,
individually or in the aggregate, have a Material Adverse Effect on Aspect.
Aspect is in compliance with the terms of its Aspect Permits, except where
the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect on Aspect. No investigation or review by any
Governmental Authority with respect to Aspect is pending or, to the knowledge
of Aspect, threatened, other than those the outcome of which would not,
individually or in the aggregate, have a Material Adverse Effect on Aspect.
To the knowledge of Aspect, no party to any material
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agreement affecting the Aspect Assets or by which the Aspect Assets are bound
is in breach of any of the material terms, provisions or conditions of such
agreement.
7.08 Environmental Matters. With respect to the Aspect Assets,
consistent with its status as operator or non-operator, as the case may be:
(a) Aspect has conducted its business and operated its assets,
and is conducting its business and operating its assets, in material
compliance with all Environmental Laws;
(b) Aspect has not been notified by any Governmental Authority
or other third party that any of the operations or assets of Aspect is the
subject of any investigation or inquiry by any Governmental Authority or
other third party evaluating whether any remedial action is needed to
respond to a release or threatened release of any Hazardous Material or to
the improper treatment, storage or disposal (including treatment, storage
or disposal at offsite locations) of any Hazardous Material;
(c) Neither Aspect nor any other person has filed any notice
under any federal, state or local law indicating that (i) Aspect is
responsible for the improper release into the environment, or the improper
treatment, storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly treated, stored or disposed of upon any
property of Aspect;
(d) Aspect has no contingent liability in connection with
(i) the release or threatened release into the environment at, beneath or
on any property now or previously owned or leased by Aspect, (ii) the
treatment, storage or disposal of any Hazardous Material, or (iii) any
other claims (including common law claims) with respect to damage to
health, safety or the environment;
(e) Aspect has not received any claim, complaint, notice,
inquiry or request for information involving any matter which remains
unresolved as of the date hereof with respect to any alleged violation of
any Environmental Law or regarding potential liability under any
Environmental Law or relating to any other claims (including common law
claims) with respect to damage to health, safety or the environment
relating to operations or conditions of any facilities or property
(including off-site treatment, storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned,
leased or operated by Aspect;
(f) No property now or previously owned, leased or operated by
Aspect is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
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(g) Aspect is not directly transporting, has not directly
transported, is not directly arranging for the transportation of, and has
not directly arranged for the transportation of, any Hazardous Material to
any location which is listed on the National Priorities List pursuant to
CERCLA, on the CERCLIS, or on any similar federal or state list or which is
the subject of federal, state or local enforcement actions or other
investigations that may lead to material claims against such company for
response costs, damage to natural resources or personal injury, including
claims under CERCLA;
(h) There are no sites, locations or operations at which Aspect
is currently undertaking, or has completed, any remedial or response action
relating to any release or threatened release of Hazardous Materials, as
required by Environmental Laws or in response to a common law claim or a
potential common law claim under Environmental Law; and
(i) All underground and aboveground storage tanks and solid
waste disposal facilities owned or operated by Aspect are used and operated
in material compliance with Environmental Laws.
7.09 Title to Assets other than Oil and Gas Interests. Except for
Oil and Gas Interests (which are covered by Section 7.09 hereof), Aspect has
good and marketable title to, or valid leasehold interests in, all of the
properties and assets that are included in the Aspect Assets. Except for any
Permitted Encumbrance, none of such properties and assets are subject to any
Lien, easement, liability or adverse claim of any nature whatsoever, direct
or indirect, whether accrued, absolute, contingent or otherwise. All of such
properties and assets owned or leased are in good operating condition and
repair (normal wear and tear excepted).
7.10 Title to Oil and Gas Interests. Schedule 3.01 contains a
complete and accurate list of Aspect's Oil and Gas Interests that are being
conveyed pursuant to the Exchange and sets forth (i) the Working Interests of
Aspect therein to the extent being conveyed hereby, and (ii) sufficient
detail to determine the Net Revenue Interests of Aspect therein to the extent
being conveyed hereby. Except as set forth in the Disclosure
Schedule-Aspect and solely with respect to the Oil and Gas Interest that are
included in the Aspect Assets:
(a) Aspect (individually or collectively) has Defensible Title
to Aspect's Oil and Gas Interests;
(b) the leases and related agreements forming any part of
Aspect's Oil and Gas Interests are in full force and effect and are valid
and legally binding agreements among the parties thereto, their successors
and assigns, enforceable in accordance with their terms in all material
respects except for applicable bankruptcy and
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insolvency laws. All rentals, royalties and other payments due and
payable under any such leases and other contracts and agreements forming a
part of Aspect's Oil and Gas Interests have been properly and timely paid
and all other obligations under such leases and related agreements
attendant to the ownership of Aspect's Oil and Gas Interests have been
met; and
(c) there are no back-in, reversionary or similar interests (the
vesting of which is subject to future production) held by third parties
which would reduce the interests of Aspect in Aspect's Oil and Gas
Interests from that shown on the Property Schedule.
7.11 Broker/Finders. No broker, finder, investment banker other
than as set forth in Disclosure Schedule-Aspect, or other person is or will
be, in connection with the Exchange, entitled to any brokerage or investment
bankers fees, commissions or finders fees based on any arrangement made by or
on behalf of Aspect and for which any party hereto will have any liability or
obligation.
7.12 Tax Representations. To the knowledge of Aspect, each of the
following representations are true, correct and complete and will continue to
be true, correct and complete as of the Closing Date:
(a) the Frontier Common Stock to be issued to Aspect at the
Closing will not be issued in satisfaction of an indebtedness of Frontier
or interest on indebtedness of Frontier;
(b) other than as set forth in this Agreement and the Exhibits
and Schedules hereto, the transfers of the Aspect Assets to Frontier are
not the result of the solicitation of a promoter, broker, or investment
house;
(c) Frontier will not, other than specifically set forth in this
Agreement, assume any liabilities of Aspect in connection with the
Exchange;
(d) other than as expressly set forth in this Agreement and the
Exhibits hereto, there is no indebtedness between Aspect and Frontier and
there will be no indebtedness created by Frontier in favor of Aspect or the
Aspect Members as a result of the Exchange;
(e) Aspect will receive Frontier Common Stock at the Closing
approximately equal to the fair market value of the Aspect Assets
transferred by Aspect to Frontier;
(f) other than as set forth in this Agreement, Aspect will pay
its own expenses, if any, incurred in connection with the Exchange;
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(g) Aspect is not under the jurisdiction of a court in a title
11 or similar case (within the meaning of Section 368(a)(3)(A) of the Code)
and the Frontier Common Stock to be received in the Exchange will not be
used to satisfy any indebtedness of such party;
(h) All of the Frontier Common Stock that Aspect will receive as
part of the Exchange will be received in exchange for the property
transferred by Aspect to Frontier pursuant to this Agreement, and none of
such common stock will constitute separate consideration for, or be
allocable to, any employment, consulting or other services provided to (or
that will be provided to) Frontier by Aspect or the Aspect Members (or any
other person) either in connection with the Exchange or otherwise;
(i) Except as set forth on Schedule 3.01, Aspect will not retain
any rights or interests in the property transferred to Frontier as part of
the Exchange; and
(j) Aspect has no plan or intention to sell, exchange, or
otherwise dispose of any of the Frontier Common Stock to be received by
Aspect pursuant hereto.
7.13 Disclosure. The representations, warranties and statements
made by Aspect in this Agreement, and in the certificates and other documents
delivered pursuant hereto, do not contain any untrue statement of a material
fact, and, when taken together, do no omit to state any material fact
necessary to make such representations, warranties and statements, in light
of the circumstances under which they are made, not misleading.
ARTICLE VIII
COVENANTS AND OTHER AGREEMENTS
8.01 Access to Records and Properties. Except to the extent
limited by agreement with third parties, between the date of this Agreement
and the Closing Date, Frontier, Esenjay and Aspect shall give each other full
access to all their respective premises, properties and books and records and
will cause their respective employees, agents and representatives to furnish
financial and operating data and other information with respect to each other
party as the other from time to time reasonably requests; provided, however,
that any such investigation shall be conducted in such a manner as not to
interfere unreasonably with the operation of the providing parties business.
Any such furnishing of such information to the parties or any investigation
by the parties, shall not affect each party's right to rely on any
representations and warranties made in this Agreement. Except as required by
law, all information furnished pursuant hereto shall not be disclosed and
shall be kept confidential from all third parties unless the party who
furnished such information consents in writing to the disclosure of all or
part of such information. In the event of any termination of this Agreement,
each party will return all documents, work papers and other materials
(including all copies thereof) obtained pursuant
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hereto and in connection with the Exchange, and for a period of one year after
such termination (i) will use all reasonable efforts to keep confidential any
information obtained pursuant to this Agreement, except to the extent required
by law or unless such information is readily ascertainable from public or
published information or trade sources, and (ii) will not use any of the
information obtained in connection with the Exchange, except in connection
therewith.
8.02 Operation of the Business.
(a) Frontier. From the date hereof to the Closing Date, except
to the extent that Esenjay and Aspect shall otherwise consent, Frontier
shall operate its respective businesses substantially as presently operated
and only in the ordinary course, and, consistent with such operation, shall
use its best efforts to preserve intact its respective present business
organizations and relationships with persons having dealings with them. In
addition, Frontier shall promptly notify Esenjay and Aspect of (i) the
receipt by Frontier of any notice or claim, written or oral, of default or
breach by Frontier, or of any modification, termination or cancellation, or
threat of termination or cancellation, of any Frontier Material Agreement;
(ii) any loss of, damage to, or disposition of any of Frontier's Oil and
Gas Interests that is reasonably likely to have a Material Adverse Effect
on Frontier; and (iii) after receipt of notice thereof by Frontier,
Frontier shall give notice to Esenjay and Aspect of any claim or
litigation, threatened or instituted, against Frontier, or of any other
event or circumstance that has or may have a Material Adverse Effect on
Frontier. Without the written consent of Esenjay and Aspect, Frontier
(individually or in the aggregate) shall be prohibited from (w) entering
into any single contract, commitment, indebtedness or liability in excess
of $50,000; (x) making any change in the outstanding equity interests of
Frontier Natural Gas Corporation or any of its Subsidiaries, granting any
options, rights, calls or any other similar commitment or agreement with
respect to the equity interest of such entities, from declaring any
dividend or other distribution in respect of the equity interest of such
entities or from repurchasing any outstanding equity interest;
(y) increasing the compensation payable or to become payable by any such
entities to any of its officers, directors, employees or other agents,
other than in the ordinary course of business; and (z) committing or
omitting any act which act or omission would cause a breach of any covenant
contained in this Agreement or would cause any representation or warranty
contained in this Agreement to become untrue, as if each such
representation and warranty were continuously made from and after the date
hereof.
(b) Esenjay. From the date hereof to the Closing Date, except
to the extent Frontier and Aspect shall otherwise consent, Esenjay shall
operate the business of Esenjay substantially as presently operated and
only in the ordinary course and, consistent with such operation, shall use
its best efforts to preserve intact its business organization and
relationships. In addition, Esenjay shall promptly notify Frontier and
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Aspect of (i) the receipt by Esenjay of any notice or claim, written or
oral, of default or breach by Esenjay, or of any modification, termination
or cancellation, or threat of termination or cancellation, of any material
agreement of Esenjay; (ii) any loss of, damage to, or disposition of any of
the Esenjay Assets; and (iii) after receipt of notice thereof by Esenjay,
give notice to Frontier and Aspect of any claim or litigation, threatened
or instituted, against Esenjay, or of any other event or circumstance that
has or may have a Material Adverse Effect on Esenjay. Without consent of
Frontier and Aspect, Esenjay shall be prohibited (individually or in the
aggregate) from (x) entering into any single contract, commitment,
indebtedness or liability in excess of $100,000 which contract commitment,
indebtedness or liability affects the ownership rights to the Esenjay
Assets; (y) increasing the compensation payable or to become payable by any
such entities to any of its officers, directors, employees or other agents,
other than in the ordinary course of business and other than increases in
compensation reflected on the employee list delivered to Frontier and
Aspect pursuant to Section 6.20 hereof; and (z) committing or omitting any
act which act or omission would cause a breach of any covenant contained in
this Agreement or would cause any representation or warranty contained in
this Agreement to become untrue, as if each such representation and
warranty were continuously made from and after the date hereof.
(c) Aspect. From the date hereof to the Closing Date, except to
the extent Frontier and Esenjay shall otherwise consent, Aspect shall
operate the business of Aspect as it relates to the Aspect Assets
substantially as presently operated and only in the ordinary course. In
addition, Aspect shall promptly notify Frontier and Esenjay of (i) the
receipt by Aspect of any notice or claim, written or oral, of default or
breach by Aspect, or of any modification, termination or cancellation, or
threat of termination or cancellation, of any material agreement relative
to the Aspect Assets; (ii) any loss of, damage to, or disposition of any of
the Aspect Assets; and (iii) after receipt of notice thereof by Aspect,
give notice to Frontier and Esenjay of any claim or litigation, threatened
or instituted, against Aspect and relating to the Aspect Assets.
(d) All Parties. Each of the parties shall obtain the consent
of the other parties prior to drilling any new wells on the Oil and Gas
Interests of Frontier or the Oil and Gas Interests included in the Esenjay
Assets and the Aspect Assets.
8.03 Consents. The parties shall each use their best efforts to
obtain the consent or approval of each person or Governmental Authority whose
consent or approval shall be required in order to permit consummation of the
Exchange.
8.04 Announcements. All pre-Closing and post-Closing press releases,
and other public announcements with respect to this Agreement and the Exchange
shall be approved by Frontier prior to the issuance thereof; provided, however,
any pre-Closing press release of Frontier with respect to
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this Agreement also shall be presented prior to the issuance thereof to
Aspect and Esenjay for their comments. Frontier shall, within the confines
of its fiduciary and regulatory obligations, use its reasonable best efforts
to incorporate the comments of Aspect and Esenjay but will not be required to
do so.
8.05 No Solicitations.
(a) Frontier shall not directly or indirectly, through any
officer, director, employee, representative or agent, solicit or encourage
the initiation or submission of any inquiries, proposals or offers
regarding any acquisition, merger, take-over bid, sale of all or
substantially all of the assets of, or sales of shares of capital stock of
Frontier, whether or not in writing and whether or not delivered to the
stockholders of Frontier generally (including by way of a tender offer), or
similar transactions involving Frontier (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal"). Nothing
contained in this Section 8.05 or any other provision of this Agreement
shall prevent the Board of Directors of Frontier from considering or
negotiating an unsolicited bona fide Acquisition Proposal. If the Board of
Directors of Frontier, after duly considering advice, written or otherwise,
of outside counsel and financial advisors to Frontier, determines in good
faith that it would be consistent with its fiduciary responsibilities to
approve or recommend (and in connection therewith withdraw or modify its
approval or recommendation of this Agreement, and the transactions
contemplated hereby or thereby) a Superior Proposal (as defined below),
then, notwithstanding any such approval or recommendation (x) Frontier
shall not enter into any agreement with respect to the Superior Proposal
and (y) any other obligation of Frontier under this Agreement shall not be
affected, unless this Agreement is terminated pursuant to Section 13.01(f)
hereof prior to or simultaneously with the grant of such approval or the
making of such recommendation. As used herein the term "Superior Proposal"
means a bona fide proposal made by a third party to acquire Frontier
pursuant to a tender or exchange offer, a merger, a sale of all or
substantially all of its assets or otherwise that the Board of Directors
determines in its good faith judgment to be more favorable to Frontier's
stockholders than the transactions contemplated by this Agreement (after
considering the advice, written or otherwise, of Frontier's professional
advisors).
(b) Frontier shall promptly notify Aspect and Esenjay after
receipt of any formal, informal, written or oral Acquisition Proposal or
any request for nonpublic information relating to Frontier in connection
with an Acquisition Proposal or for access to the properties, books or
records of Frontier that informs the Board of Directors of Frontier that
the proposer is considering making, or has made, an Acquisition Proposal.
Such notice to Aspect and Esenjay shall be made orally and in writing and
shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.
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(c) If the Board of Directors of Frontier receives a request for
material nonpublic information by a person who makes or who states in
writing that it intends, subject to satisfactory review of such nonpublic
information, to make, a bona fide Acquisition Proposal, Frontier may,
subject to the execution of a confidentiality agreement substantially
similar to that then in effect between Frontier, Aspect and Esenjay,
provide such person with access to information regarding Frontier.
(d) Nothing contained in this Section 8.05 shall prevent
Frontier from complying with Rule 14e-2(a) or Rule 14d-9 promulgated under
the Exchange Act, if applicable, with regard to an Acquisition Proposal
made in the form of a tender offer by a third party.
8.06 Notification of Certain Matters. Each of the parties hereto
shall give prompt notice to the others of (a) any representation or warranty
contained herein and made by such party or parties being untrue or inaccurate
when made, (b) the occurrence of any event or development that would cause (or
could reasonably be expected to cause) any representation or warranty of such
party or parties contained herein to be untrue or inaccurate on the Closing
Date, or (c) any failure of a party or of the parties to comply with or satisfy
any covenant, condition, or agreement to be complied with or satisfied by it or
them hereunder.
8.07 Financing Covenants.
(a) Bridge Financing Agreement. As a part of the prior
agreements between the parties, Aspect has committed to loan to Frontier
amounts of up to $1,800,000 which commitment shall survive the execution of
this Agreement and the Closing under this Agreement. The terms and
provisions of this commitment are included in the Bridge Financing
Agreement attached as Exhibit "A" hereto and which shall be referred to
herein as the "Initial Bridge Facility". Aspect shall not be committed or
obligated in any manner to advance more than $1,800,000 under the Initial
Bridge Facility or to otherwise amend or extend the Initial Bridge Facility
if Frontier fails to secure the New Debt (as hereinafter defined) or to
complete the Public Equity Transaction (as hereinafter defined) or for any
other reason whatsoever.
(b) New Debt Financing. In addition to the Initial Bridge
Facility, Aspect, Esenjay and Frontier are negotiating with commercial
banks and other independent third parties for a secured, revolving credit
facility in amounts projected to finance certain exploration and 3-D
seismic costs, leasehold acquisition and development of oil and gas
properties, and for general corporate purposes (the "New Debt"). It is
contemplated that such New Debt may be in addition to the Initial Bridge
Facility and will be used in part to provide working capital for Esenjay
prior to the Closing Date. Aspect, Esenjay and Frontier agree to work in
conjunction with one another in order
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to secure an appropriate commitment or commitments for such New Debt;
provided, however, that no party shall be required to advance any
amounts to any other party in connection with such efforts to secure an
appropriate commitment or commitments. No agreement with respect to the
New Debt shall be entered into without the mutual agreement of the parties
hereto. The New Debt may be structured to include the Initial Bridge
Facility, in which case any advances under the Bridge Financing Agreement
shall be repaid, and the commitments of Aspect under the Bridge Financing
Agreement terminated, if and only if the New Debt has terms at least as
favorable to Frontier as those under the Bridge Financing Agreement and is
sufficient in amount to cover the working capital expenses of Frontier and
Esenjay through the Closing Date. It is, however, agreed to by each party
hereto that a commitment for the New Debt is not a condition precedent to
funding of the Bridge Financing Agreement or to Closing.
8.08 Public Equity Transaction. The parties acknowledge that
Frontier, following the Closing, intends, to evaluate the public offer and sale
of equity securities of Frontier in a firm-commitment underwritten transaction
registered under the Securities Act and, subject to such evaluation, intends to
accomplish such transaction prior to June of 1998 ("Public Equity Transaction").
8.09 Reconstituted Frontier Board of Directors. The following slate
of individuals shall be nominated to the Board of Directors of Frontier and
shall be vote on pursuant to the Proxy Statement/Prospectus:
(a) For a term expiring at Frontier's annual shareholder meeting
in 2000, Alex M. Cranberg, Michael E. Johnson and an independent director.
(b) For a term expiring at Frontier's annual shareholder meeting
in 1999, Alex B. Campbell, Charles J. Smith and David W. Berry.
(c) For a term expiring at Frontier's annual shareholder meeting
in 1998, Esenjay designee and an independent director.
8.10 Management of Frontier. Immediately after the Closing, the
executive officers of Frontier will be as follows: David W. Berry shall be
Chairman of the Board of Directors, Michael E. Johnson shall be President,
Charles J. Smith shall be Chairman of the Executive Committee of the Board of
Directors, Alex M. Cranberg shall be Vice Chairman of the Board of Directors and
Chairman of the Audit Committee thereof (to be established), and David B.
Christofferson shall be General Counsel and an executive officer with a title to
be determined by Frontier's Board of Directors. Nothing in this Section 8.10 is
intended (a) to prevent the Board of Directors from changing the executive
officers of Frontier from time to time at its discretion or (b) to provide any
guarantees or assurances of continued employment of any of the foregoing
individuals by Frontier.
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8.11 Registration Statement and Proxy Statement/Prospectus; Frontier
Stockholders' Meeting.
(a) As promptly as practical, after the execution of this
Agreement, Frontier shall prepare and file with the SEC the Proxy
Statement/Prospectus to be sent to its stockholders in connection with the
meeting of Frontier's stockholders (the "Frontier Stockholders' Meeting")
to consider the Exchange and Frontier shall prepare and file with the SEC
the Registration Statement in which the Proxy Statement/Prospectus will be
included as a prospectus. Frontier shall use all commercially reasonable
efforts to cause the Registration Statement to become effective as soon
after such filing as is practical. The Proxy Statement/Prospectus shall
include the recommendation of the Board of Directors of Frontier in favor
of this Agreement and the Exchange. Frontier shall make all other
necessary filings with respect to the Exchange and the issuance of Frontier
Common Stock required under the Securities Act and the Exchange Act.
(b) Aspect and Esenjay will cooperate in the preparation of the
Registration Statement and the Proxy Statement/Prospectus and will as
promptly as practicable after the date hereof furnish all such data and
information relating to it as Frontier may reasonably request for the
purpose of including such data and information in the Registration
Statement and Proxy Statement/Prospectus. Frontier shall notify Aspect and
Esenjay of the receipt of any comments of the SEC with respect to the
Registration Statement or the Proxy Statement/Prospectus and of any
requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to the other promptly copies of
all correspondence to and from the SEC with respect to the Registration
Statement or the Proxy Statement/Prospectus. Frontier shall give Aspect
and Esenjay and their counsel the opportunity to review the Registration
Statement and the Proxy Statement/Prospectus and all responses to requests
for additional information by and replies to comments of the SEC before
their being filed with, or sent to, the SEC. Frontier agrees to use its
commercially reasonable efforts, after consultation with Aspect and Esenjay
to respond promptly to all such comments of and requests by the SEC and to
cause (i) the Registration Statement to be declared effective by the SEC at
the earliest practicable time and to be kept effective for as long as is
necessary to consummate the Exchange, and (ii) the Proxy Statement/
Prospectus to be mailed to the holders of Frontier Common Stock and the
Frontier Preferred Stock entitled to vote at the Frontier Stockholders'
Meeting at the earliest practicable time. No amendment or supplement to
the Registration Statement or the Proxy Statement/Prospectus shall be made
by Frontier without first providing Aspect and Esenjay with reasonable
opportunity to review such amendment or supplement. Frontier shall, within
the confines of its fiduciary and regulatory obligations, use its
reasonable best efforts to
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incorporate or otherwise address the comments of Aspect and/or Esenjay
after their review of such documents.
(c) Frontier shall, as soon as practicable following
effectiveness of the Registration Statement, take all action necessary
under the OGCA and its Certificate of Incorporation and Bylaws to convene
the Frontier Stockholders' Meeting of its stockholders for the purpose of
approving the Exchange, among other things. Included in the issues
required to be approved by the Shareholders of Frontier shall be
(i) closing of the acquisition of the Aspect Assets, (ii) closing of the
acquisition of the Esenjay Assets, (iii) an amendment to Frontier's
Certificate of Incorporation authorizing the issuance of additional shares
of Frontier Common Stock sufficient in amount to provide Frontier with
authorized, but unissued and unreserved, shares of Frontier Common Stock,
adequate to satisfy its obligations under this Agreement and any
contemplated stock issuances under the Public Equity Transaction,
(iv) authorizing the change of Frontier's state of incorporation from
Oklahoma to Delaware, (v) election of the slate of nominees for the Board
of Directors as set forth in Section 8.09 of this Agreement, and (vi) any
other provision hereof its counsel advises Frontier requires specific
approval in order to fully implement the provisions of this Agreement.
Frontier shall use commercially reasonable efforts to cause the Frontier
Stockholders' Meeting to be held as soon as practicable after the date
hereof.
(d) Frontier shall take such action as may be necessary to
insure that (i) the information included in the Registration Statement
shall not at the time the Registration Statement is declared effective by
the SEC contain any untrue statement of a material fact or omit to state
any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading, and
(ii) the information included in the Proxy Statement/Prospectus shall not,
on the date the Proxy Statement/Prospectus is first mailed to stockholders
of Frontier, at the time of the Frontier Stockholders' Meeting, and at the
Closing Date, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary
in order to make the statements made in the Proxy Statement/Prospectus not
false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Frontier Stockholders' Meeting which has
become false or misleading.
(e) Aspect and Esenjay shall take such action as may be
necessary to insure that any information or data provided by them to
Frontier in connection with the Proxy Statement/Prospectus does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in the Proxy
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Statement/Prospectus or necessary to make the statements in the Proxy
Statement/Prospectus, in light of the circumstances under which they
were made, not misleading.
8.12 Tax Cooperation. Subject to the terms and conditions of this
Agreement, the parties hereto shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any gains, sales, use, transfer, value added, stock transfer and stamp taxes,
any transfer, recording, registration and other fees, and any similar taxes or
fees which become payable in connection with the Exchange. Each of the parties
shall not take or fail to take any action if such action or omission would cause
any of the parties or their shareholders or members to recognize gain or loss
for federal income tax purposes as a result of the exchange of Frontier Common
Stock for the Esenjay Assets or the Aspect Assets. Aspect and Esenjay shall,
and shall cause their members or shareholders to, reasonably cooperate in the
preparation and delivery to Frontier and its counsel of tax certificates or
similar documents that may be necessary or appropriate in connection with the
preparation of tax opinions or other items regarding the tax matters associated
with this Agreement and the Exchange.
8.13 Name Change. Within three (3) days of Closing, Frontier shall
take all steps necessary or appropriate to change its name from "Frontier
Natural Gas Corporation" to "Esenjay Resources Corporation" or a similar name as
is legally available and as may be agreed to among the parties hereto prior to
Closing and Esenjay shall consent to the use of such name and execute any
documents reasonably requested by Frontier to evidence such consent. In the
event that Esenjay retains the name "Esenjay Petroleum Corporation," Esenjay
agrees not to assign the rights to such name to any person or entity other than
Frontier.
8.14 Frontier Ownership Dilution.
(a) Frontier Option Plan. At or prior to Closing, Frontier
shall adopt a long-term incentive plan for its officers, directors,
employees and consultants that is mutually acceptable to Esenjay, Aspect
and Frontier ("Frontier Option Plan"). The Frontier Option Plan shall
provide for grants of stock and stock-oriented awards, including stock
options and similar arrangements with respect to Frontier Common Stock. In
addition, the parties agree initially that an amount equal to approximately
fifteen percent (15%) of the shares of the outstanding Frontier Common
Stock after giving effect to Closing, and any existing Frontier option
plans, shall be authorized for awards under the Frontier Option Plan. The
parties agree to seek the approval of Frontier's shareholders for such
incentive plan at Frontier's next annual shareholders meeting following the
Closing.
(b) Public Equity Transaction. The Public Equity Transaction
may dilute the interests of all holders of Frontier Common Stock.
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8.15 Liabilities and Obligations of Esenjay and Aspect.
(a) Esenjay. With respect to the Esenjay Assets, Esenjay agrees
to retain and to release and hold the other parties harmless from all
claims, costs, expenses, liabilities and obligations attributable to the
period of time prior to the Effective Date.
(b) Aspect. With respect to the Aspect Assets, Aspect agrees to
retain and to release and hold the other parties harmless from all claims,
costs, expenses, liabilities and obligations attributable to the period of
time prior to the Effective Date or, in the case of Post Effective Date
Costs, from the period of time prior to January 1, 1998.
8.16 Esenjay Wind-down. Subsequent to the closing of the Exchange,
Esenjay shall continue to operate, but shall do so only in a wind-down mode.
Esenjay shall not compete with Frontier in connection with the business of
Frontier, provided, however, Esenjay shall be legally entitled to take all steps
reasonably necessary to maximize the value of the oil and gas properties
retained by Esenjay subsequent to the closing of the Exchange, including, but
not limited to, drilling wells, recompleting existing wells, farming out its
interest and selling oil and natural gas. After the Closing, Esenjay may
utilize the services of Frontier's employees to facilitate its winding down,
provided that such utilization does not interfere with the ability of such
employees to satisfy or complete their duties or responsibilities to Frontier
and provided further that Esenjay shall reimburse Frontier for such services to
the extent such services exceed $5,000 per month (based upon criteria determined
by Frontier's Board of Directors in its reasonable discretion).
ARTICLE IX
CONDITIONS
9.01 Conditions to Obligations of Esenjay and Aspect. All obligations
of Esenjay and Aspect at the Closing are subject to the fulfillment of each of
the following conditions precedent at or prior to the Closing, any of which may
be waived in whole or in part by mutual agreement:
(a) Representations and Warranties. All representations and
warranties of Esenjay and Frontier, in the case of Aspect, and Aspect and
Frontier, in the case of Esenjay, contained herein or in any document
delivered pursuant hereto which are qualified by materiality thresholds
shall be true and correct in all respects when made and as of the Closing,
and the representations and warranties which are not qualified by
materiality thresholds shall be true and correct in all material respects,
except for the representations and warranties set forth in Section 4.05
which shall be true and correct in all respects. For purposes of this
Section 9.01(a) only, a representation shall be false or inaccurate if the
factual matter that is the subject of the representation
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is false or inaccurate notwithstanding any lack of knowledge of or notice
to the warrantor.
(b) Covenants, Agreements and Obligations. All covenants,
agreements and obligations required by the terms of this Agreement to be
performed by Frontier, Esenjay or Aspect at or before the Closing shall
have been properly performed and complied with in all respects.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect with
respect to (i) Frontier in the case of Aspect and Esenjay, (ii) the Esenjay
Assets in the case of Aspect only, or (iii) the Aspect Assets in the case
of Esenjay only.
(d) Delivery of Documents. All documents, certificates or other
instruments required to be delivered to Aspect, Esenjay and Frontier at or
prior to the Closing shall have been so delivered.
(e) Bank of America Consent. Bank of America Illinois shall
have consented to the Exchange and waived any existing defaults under
Frontier's credit agreement with Bank of America Illinois.
(f) Preferred Stock Redemption. All of the issued and
outstanding Frontier Preferred Stock as of the date hereof shall have been
called for redemption by Frontier and Frontier shall have deposited in an
escrow account funds sufficient to pay the holders of the Frontier
Preferred Stock all amounts such holders are entitled to receive in
connection with the redemption of the Frontier Preferred Stock.
(g) Esenjay Financial Statements. Esenjay shall deliver to
Frontier and Aspect (i) on or before January 31, 1998, financial statements
for its fiscal year ending March 31, 1997 and (ii) on or before
February 10, 1998, financial statements for the nine month period ending
December 31, 1997. The financial statements delivered hereunder shall be
unaudited and internally prepared, but shall be prepared in accordance with
GAAP (including any footnotes required thereby) and shall consist of a
balance sheet, a statement of income, a statement of cash flows and a
statement of shareholders' equity. This condition shall not be a condition
of Esenjay to Closing.
9.02 Conditions to Obligations of Frontier. All obligations of
Frontier hereunder are subject, at the option of Frontier, to the fulfillment of
each of the following conditions precedent at or prior to the Closing, any of
which may be waived in whole or in part by Frontier:
(a) Representations and Warranties. All representations and
warranties of Aspect and Esenjay contained herein or in any document
delivered pursuant hereto
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which are qualified by materiality thresholds shall be true and correct in
all respects when made and as of the Closing, and the representations and
warranties which are not qualified by materiality thresholds shall be true
and correct in all material respects. For purposes of this Section 9.02(a)
only, a representation shall be false or inaccurate if the factual matter
that is the subject of the representation is false or inaccurate
notwithstanding any lack of knowledge of or notice to the warrantor.
(b) Covenants, Agreements and Obligations. All covenants,
agreements and obligations required by the terms of this Agreement to be
performed by Aspect or Esenjay at or before the Closing shall have been
properly performed and complied with in all respects.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall not have occurred any Material Adverse Effect with
respect to the Aspect Assets or to Esenjay or to the Esenjay Assets.
(d) Delivery of Documents. All documents, certificates or other
instruments required to be delivered to Frontier at or prior to the Closing
shall have been so delivered.
(e) Compliance. Aspect shall be in full compliance with its
obligations pursuant to the Bridge Financing Agreement.
(f) Esenjay Financial Statements. Esenjay shall deliver to
Frontier (i) on or before January 31, 1998, financial statements for its
fiscal year ending March 31, 1997 and (ii) on or before February 10, 1998,
financial statements for the nine month period ending December 31, 1997.
The financial statements delivered hereunder shall be unaudited and
internally prepared, but shall be prepared in accordance with GAAP
(including any footnotes required thereby) and shall consist of a balance
sheet, a statement of income, a statement of cash flows and a statement of
shareholders' equity.
9.03 Conditions to Obligations of All Parties. The respective
obligations of each party are subject to the fulfillment of each of the
following conditions precedent at or prior to the Closing:
(a) Shareholder Approval. The shareholders of Frontier shall
have duly and validly approved Frontier's execution of this Agreement and
the consummation of the Exchange.
(b) Other Consents and Approvals. All consents, approvals,
permits and authorizations required to be obtained prior to the Closing
from any Governmental Authority or other person in connection with the
consummation of the Exchange, and
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any preferential right to purchase an interest in any Oil and Gas Interest
included in the Aspect Assets or Esenjay Assets as a result of the
Exchange, shall have been obtained, made or waived, except where such
failure to obtain such consents, approvals, permits, authorizations or
waiver would not be reasonably likely to result in a Material Adverse
Effect on Frontier (assuming the Exchange is consummated).
(c) Pending Actions. None of the parties shall be subject to
any writ, order, decree or injunction of a court of competent jurisdiction
which prohibits or restricts the consummation of the Exchange or any
pending or threatened action seeking such relief or seeking damages as a
result thereof.
(d) Officers of Frontier. Consistent with Section 8.10, the
principal officers of Frontier shall be designated in writing at the
Closing to take office effective immediately after the Closing.
(e) Fairness Opinion. The fairness opinion of GBI described in
Article V hereof, in form and substance satisfactory to counsel for
Frontier, shall have been delivered to Frontier and copies thereof shall be
delivered to Aspect and Esenjay.
(f) Operating Agreement. Frontier, Aspect and Esenjay shall
approve a form of operating agreement, mutually acceptable to each of them,
that addresses the operation of the Oil and Gas Interests jointly owned by
Frontier and Aspect and/or Esenjay. Following the Closing, the parties
agree to execute such form of operating agreement in the case of any
operations on such Oil and Gas Interests which are not already subject to
an operating agreement.
ARTICLE X
DELIVERIES
10.01 Deliveries by Frontier. Subject to the written waiver of Aspect
and Esenjay, Frontier shall execute, as appropriate, and deliver at the Closing
all of the following documents and instruments:
(a) stock certificates of Frontier Natural Gas Corporation, in
each case duly endorsed, properly authenticated and in proper form,
necessary to issue to Aspect and Esenjay the shares of Frontier Common
Stock issuable pursuant to this Agreement and the Related Documents;
(b) a certificate dated the Closing Date signed by an
appropriate executive officer of Frontier certifying that, as of the
Closing Date, the representations and
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warranties of Frontier are accurate, true and correct with the same force
and effect as though made on the Closing Date;
(c) certificates dated the Closing Date signed by an appropriate
executive officer of Frontier certifying, among other things, Frontier's
By-laws and the resolutions of Frontier's Board of Directors and
shareholders approving this Agreement and the Related Documents to which it
is a party and the transactions contemplated hereby and thereby (together
with an incumbency and signature certificate regarding the officer(s)
signing on its behalf);
(d) a copy of Frontier's articles of incorporation which have
been filed with the Secretary of State of its State of incorporation,
certified as of a recent date by the Secretary of State of its State of
incorporation;
(e) the Registration Rights Agreement substantially in the form
of Exhibit "B";
(f) a certificate of good standing with respect to Frontier,
issued not earlier than 10 days prior to the Closing Date by the Secretary
of State of its State of incorporation;
(g) an Assignment, Bill of Sale and Conveyance Agreement with
respect to the Aspect Assets substantially in the form of Exhibit "C";
(h) an Assignment, Bill of Sale and Conveyance Agreement with
respect to the Esenjay Assets substantially in the form of Exhibit "D";
(i) the Technical Services Agreements with Esenjay and Aspect,
in form mutually acceptable to the parties thereto;
(j) the Land Consulting Services Agreements with Esenjay and
Aspect, in form mutually acceptable to the parties thereto;
(k) a Section 351 Plan of Exchange, in form and substance
mutually acceptable to the parties hereto;
(l) the written opinion of Porter & Hedges, L.L.P., counsel to
Frontier, substantially in the form of Exhibit "F";
(m) an opinion of Chamberlain, Hrdlicka, White, Williams &
Martin, tax counsel to Frontier (or other counsel to Frontier which is
reasonably acceptable to Aspect and Esenjay), acceptable in form and
substance to counsel for Aspect and
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Esenjay stating that the Exchange satisfies the requirements of Section
351 of the Code and will be tax-free to Aspect and Esenjay;
(n) the written resignation of each member of the Board of
Directors of Frontier, other than David W. Berry;
(o) the fairness opinion of GBI described in Article V hereof;
(p) evidence satisfactory to Aspect and Esenjay that Frontier's
state of incorporation has been changed from Oklahoma to Delaware;
(q) such verified tax lien, Uniform Commercial Code and judgment
searches relating to Frontier as may be reasonably required by Aspect or
Esenjay; and
(r) without limitation by specific enumeration of the foregoing,
all other documents and instruments reasonably required or requested by
Aspect or Esenjay to consummate the Exchange.
10.02 Deliveries by Esenjay. Subject to the written waiver by Frontier
and Aspect, Esenjay shall execute, as appropriate, and deliver at the Closing
all of the following documents and instruments:
(a) a certificate dated the Closing Date signed by an
appropriate executive officer of Esenjay certifying that, as of the Closing
Date, the representations and warranties of Esenjay are accurate, true and
correct with the same force and effect as though made on the Closing Date;
(b) certificates dated the Closing Date signed by an appropriate
executive officer of Esenjay certifying, among other things, Esenjay's
By-laws and the resolutions of Esenjay's Board of Directors and
shareholders approving this Agreement and the Related Documents to which it
is a party and the transactions contemplated hereby and thereby (together
with an incumbency and signature certificate regarding the officer(s)
signing on its behalf);
(c) a copy of Esenjay's articles of incorporation which have
been filed with the Secretary of State of its State of incorporation,
certified as of a recent date by the Secretary of State of its State of
incorporation;
(d) the Registration Rights Agreement substantially in the form
of Exhibit "B";
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(e) a certificate of good standing with respect to Esenjay,
issued not earlier than 10 days prior to the Closing Date by the Secretary
of State of its State of incorporation;
(f) an Assignment, Bill of Sale and Conveyance Agreement with
respect to the Esenjay Assets substantially in the form of Exhibit "D";
(g) [Intentionally omitted];
(h) the Technical Services Agreement between Esenjay and
Frontier, in form mutually acceptable to the parties thereto;
(i) the Land Consulting Services Agreement between Esenjay and
Frontier, in form mutually acceptable to the parties thereto;
(j) a Section 351 Plan of Exchange, in form and substance
mutually acceptable to the parties hereto;
(k) a letter regarding the limited guaranty of the Esenjay
Shareholders substantially in the form of Exhibit "H";
(l) the written opinion of Pollicoff, Smith, Myres & Remels,
L.L.P., counsel to Esenjay, substantially in the form of Exhibit "I";
(m) such verified tax lien, Uniform Commercial Code and judgment
searches relating to Esenjay as may be reasonably required by Aspect or
Frontier; and
(n) without limitation by specific enumeration of the foregoing,
all other documents and instruments reasonably required or requested by
Aspect or Frontier to consummate the Exchange.
10.03 Deliveries by Aspect. Subject to the written waiver by Frontier
and Esenjay, Aspect shall execute, as appropriate, and deliver at the Closing
all of the following documents and instruments:
(a) a certificate dated the Closing Date signed by a manager of
Aspect certifying that, as of the Closing Date, the representations and
warranties of Aspect are accurate, true and correct with the same force and
effect as though made on the Closing Date;
(b) certificates dated the Closing Date signed by a manager of
Aspect certifying, among other things, Aspect's Operating Agreement and the
resolutions of
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Aspect's managers and members approving this Agreement and the Related
Documents to which it is a party and the transactions contemplated hereby
and thereby (together with an incumbency and signature certificate
regarding the officer(s) signing on its behalf);
(c) a copy of Aspect's articles of organization which have been
filed with the Secretary of State of its State of organization, certified
as of a recent date by the Secretary of State of its State of organization;
(d) the Registration Rights Agreement substantially in the form
of Exhibit "B";
(e) a certificate of good standing with respect to Aspect,
issued not earlier than 10 days prior to the Closing Date by the Secretary
of State of its State of organization;
(f) an Assignment, Bill of Sale and Conveyance Agreement with
respect to the Aspect Assets substantially in the form of Exhibit "C";
(g) [Intentionally omitted];
(h) the Technical Services Agreement between Aspect and
Frontier, in form mutually acceptable to the parties thereto;
(i) the Land Consulting Services Agreement between Aspect and
Frontier, in form mutually acceptable to the parties thereto;
(j) a Section 351 Plan of Exchange, in form and substance
mutually acceptable to the parties hereto;
(k) a letter regarding the limited guaranty of the Aspect
Members substantially in the form of Exhibit "J";
(l) the written opinion of Davis, Graham & Stubbs LLP, counsel
to Aspect, substantially in the form of Exhibit "K";
(m) such verified tax lien, Uniform Commercial Code and judgment
searches relating to Aspect as may be reasonably required by Frontier or
Esenjay; and
(n) without limitation by specific enumeration of the foregoing,
all other documents and instruments reasonably required or requested by
Frontier or Esenjay to consummate the Exchange.
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ARTICLE XI
VALUATION ADJUSTMENTS FOR TITLE DEFECTS
11.01 Buyer and Seller. For purposes of this Article XI and
Article XII, the terms "Buyer" and "Seller" shall have the following meanings:
(a) with respect to the Oil and Gas Interest owned by Frontier, Frontier shall
be the Seller and Esenjay and/or Aspect shall be the Buyer; (b) with respect to
the Esenjay Assets, Esenjay shall be the Seller and Aspect and/or Frontier shall
be the Buyer; and (c) with respect to the Aspect Assets, Aspect shall be the
Seller and Frontier and/or Esenjay shall be the Buyer. Any references in this
Article XI or in Article XII to Oil and Gas Interests of a party shall mean
(i) in the case of Frontier, the Oil and Gas Interests set forth on
Schedule 4.17, (ii) in the case of Esenjay, the Oil and Gas Interests set forth
on Schedule 2.01, and (iii) in the case of Aspect, the Oil and Gas Interests set
forth on Schedule 3.01.
11.02 Allocated Value of Oil and Gas Interests. For the purposes of
any adjustment to the valuation of a particular party's Oil and Gas Interest,
the value of each party's Oil and Gas Interests shall be mutually agreed by the
parties.
11.03 Notice of Title Defects. Buyer shall deliver to Seller a written
notice of Title Defects ("Notice of Title Defects") as soon as possible but no
later than January 19, 1998 at 5:00 p.m. Central Time. As a condition precedent
to the effectiveness of such notice, the Notice of Title Defects shall describe
with reasonable particularity the Title Defect, the basis for the Title Defect,
and Buyer's good faith estimate of the reduction in the particular Oil and Gas
Interest's Allocated Value caused by the Title Defect ("Title Defect Value") and
associated calculations.
11.04 Adjustments. If the Title Defect Value of a particular party's
aggregate Title Defects does not exceed $125,000 in the case of Frontier and
$250,000 in the case of Aspect or Esenjay (the "Defect Limit"), there shall be
no adjustment to the aggregate Allocated Value for such party's Oil and Gas
Interests. If the sum of all Title Defect Values attributable to a particular
party's Oil and Gas Interests equals or exceeds the Defect Limit, then (a) if
the Seller is Esenjay or Aspect either (i) the basis for the Title Defect shall
be removed by Seller, at its sole cost and expense prior to Closing, or Seller
may agree (by a written instrument delivered to Frontier and in form
satisfactory to Frontier) to cure such Title Defect no later than ninety
(90) days after Closing, or (ii) Seller shall replace the Oil and Gas Interest
subject to the Title Defect with other Oil and Gas Interests (in an amount equal
to the full amount of the Title Defect Value), acceptable to Buyer; or (b) if
the Seller is Frontier, the parties shall adjust the Esenjay Assets and the
Aspect Assets, in a manner satisfactory to Esenjay and Aspect, to decrease the
assets being conveyed by Esenjay and Aspect to Frontier by the aggregate Title
Defect Value.
11.05 Casualty Loss. Prior to Closing, if a portion of the Oil and Gas
Interests is destroyed by fire or other casualty, is taken or threatened to be
taken in condemnation or under the right of
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eminent domain ("Casualty Loss"), Buyer shall purchase the Oil and Gas
Interests at Closing for the Allocated Value of the Oil and Gas Interests
reduced by the estimated cost to repair such Oil and Gas Interests (with
equipment of similar utility) up to the Allocated Value thereof (the
reduction being the "Net Casualty Loss").
11.06 Dispute Resolution. The parties agree to resolve disputes
concerning the following matters pursuant to this Section 11.06: (a) the Title
Defect Value, (b) the existence of a Title Defect, (c) the amount of Net
Casualty Loss, (d) the adequacy of Title Defect curative materials submitted
pursuant to Section 11.04, (e) the existence of an Environmental Defect or
(f) the Environmental Defect Value (collectively, the "Disputed Matters"). The
parties agree to attempt to initially resolve all disputes through good-faith
negotiations. If the parties cannot resolve such disputes on or before one day
prior to Closing, the Disputed Matters shall be finally determined by the
Houston office of the accounting firm of Coopers & Lybrand (the "Accounting
Firm"), taking into account the factors set forth in this Article XI and
employing such independent attorneys, petroleum engineers and environmental
consultants as such firm deems necessary or as reasonably requested by the
parties. Buyer and Seller shall present their respective positions in writing
to the Accounting Firm, together with such evidence as each party deems
appropriate. If any party fails to provide the Accounting Firm with its written
position within ten (10) business days of the Accounting Firm's written request
for such position, the party failing to timely provide such written position
shall be treated as acquiescing in the other party's proposed resolution of the
dispute. The Accounting Firm shall be instructed to resolve the dispute through
a final decision within thirty (30) days after submission of the parties'
respective positions to the Accounting Firm. The costs incurred in employing
the Accounting Firm shall be borne equally by Buyer and Seller, unless either
Buyer or Seller fails to timely provide the Accounting Firm with its written
position regarding the dispute (to the extent requested by the Accounting Firm
in accordance with the provisions hereof), in which case the party failing to
provide a written position shall pay all of the costs incurred in employing the
Accounting Firm. After the Accounting Firm makes a determination as to all
disputes, the Accounting Firm shall instruct Seller to (i) if the Seller is
Esenjay or Aspect, transfer, assign, convey and deliver replacement or
additional Oil and Gas Interests to Frontier, which replacement or additional
Oil and Gas Interests shall have a value equal to the Title Defect Value or the
Environmental Defect Value, the case may be and as determined by the Accounting
Firm, and must be satisfactory to Frontier, or (ii) if the Seller is Frontier,
adjust the Esenjay Assets and the Aspect Assets, in a manner satisfactory to
Esenjay and Aspect, to decrease the assets being conveyed by Esenjay and Aspect
to Frontier by the aggregate Title Defect Value or the Environmental Defect
Value, as the case may be and as determined by the Accounting Firm.
11.07 Preferential Rights and Consents. For the purposes of this
Section, Seller shall mean Esenjay or Aspect and Buyer shall mean Frontier.
(a) Pre-Closing. Seller shall use its reasonable best efforts
to obtain all required consents and to give notices required in connection
with preferential purchase rights prior to Closing. If a party discovers
other affected properties during
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the course of its due diligence activities, that party shall notify
Seller immediately and Seller shall use its reasonable best efforts to
obtain such consents and to give the notices required in connection with
the preferential rights prior to Closing.
(b) Consents. Except for consents and approvals which are
customarily obtained post-Closing and those consents which would not
invalidate the conveyance of the Oil and Gas Interests included in the
Esenjay Assets or the Aspect Assets, if a necessary consent to assign any
lease has not been obtained as of the Closing, then (i) the portion of the
Oil and Gas Interests for which such consent has not been obtained shall
not be excluded from the Oil and Gas Interests at the Closing, (ii) Seller
shall use its reasonable best efforts to obtain such consent as promptly as
possible following Closing, and (iii) if such consent has not been obtained
within six months of the Closing Date (A) the portion of the Oil and Gas
Interests for which the necessary consent has not been obtained shall be
reconveyed by Frontier to Seller effective as of the Effective Date and
shall be excluded from the Oil and Gas Interests conveyed by Seller to
Frontier and (B) Seller shall transfer, assign and convey to Frontier other
Oil and Gas Interests equivalent in value to the Allocated Value for such
reconveyed portion less the net proceeds of production that have been
received by Frontier as of the time of the reconveyance. The parties shall
reasonably cooperate with each other in obtaining any required consent
including providing assurances of reasonable financial conditions, but a
party shall not be required to expend funds or make any other type of
financial commitments a condition of obtaining such consent.
(c) Preferential Rights.
(i) Pre-Closing. If any preferential right to purchase
any portion of the Oil and Gas Interests included in the Esenjay Assets
and/or the Aspect Assets is exercised prior to the Closing Date, the Oil
and Gas Interest for which such preferential right is exercised shall be
excluded from the Oil and Gas Interest of the affected Seller and the
affected Seller shall assign and convey to Frontier other Oil and Gas
Interests, acceptable to Frontier, equivalent in value to the Allocated
Value of such affected Oil and Gas Interests. All Oil and Gas Interests
that are subject to preferential rights to purchase that have not been
exercised as of the Closing shall be conveyed to Frontier at the Closing.
(ii) Post-Closing. If any such preferential right is
exercised after Closing, Frontier agrees to convey such affected Oil and
Gas Interests to the party exercising such right on the same terms and
conditions under which Seller conveyed such Oil and Gas Interests to
Frontier and retain all amounts paid by the party exercising such
preferential right to purchase. In the event of such exercise, Frontier
shall prepare, execute and deliver a form of conveyance of such interests
to such
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such exercising party, such conveyance to be in form and substance as
provided in this Agreement.
(d) Exclusive Remedy. The remedies set forth in this
Section 11.07 are the exclusive remedies for exercised preferential
purchase rights and required consents to assign the Oil and Gas Interests
that are not obtained.
ARTICLE XII
VALUATION ADJUSTMENT FOR ENVIRONMENTAL DEFECTS
12.01 Environmental Liabilities and Obligations.
(a) Esenjay Assets. As of the Effective Date and with respect
to the Esenjay Assets, Esenjay agrees to retain and release the other
parties from all claims, costs, expenses, liabilities and obligations
attributable to the period of time prior to the Effective Date.
(b) Aspect Assets. As of the Effective Date and with respect to
the Aspect Assets, Aspect agrees to retain and release the other parties
from all claims, costs, expenses, liabilities and obligations attributable
to the period of time prior to the Effective Date.
12.02 Environmental Defect Notice. Buyer may conduct an environmental
review of Seller's Oil and Gas Interests and give Seller a written notice of
Environmental Defects ("Environmental Defect Notice"). As a condition precedent
to the effectiveness of such notice, an Environmental Defect Notice must be
received on or before January 19, 1998 at 5:00 p.m. Central Time and shall state
with reasonable particularity the name of the affected Oil and Gas Interest, the
condition in, on or under the Oil and Gas Interest that causes the Environmental
Defect, substantiation for the Environmental Defect, and the estimated cost to
remediate the Oil and Gas Interest. If Buyer fails to timely deliver a valid
Environmental Defect Notice with respect to an Oil and Gas Interest, Buyer shall
be deemed to have accepted the environmental condition in, on and under that Oil
and Gas Interest and shall be deemed to have waived its right to claim an
Environmental Defect with respect to that Oil and Gas Interest, except in the
event of the breach of a representation or warranty of Seller hereunder.
12.03 Remedies. Each particular party's Oil and Gas Interests shall be
treated independently for the purposes of this Section. If Buyer delivers a
valid Environmental Defect Notice to Seller and if the aggregate Environmental
Defects claimed exceeds the Defect Limit, Seller shall have the following
options: (a) remediate the Environmental Defect; or (b) contest the existence
of an Environmental Defect or Buyer's good-faith estimate of the costs
associated with remediation of the Environmental Defect; or (c) replace the Oil
and Gas Interest subject to the Environmental Defect
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with other equivalent property that would qualify as an Oil and Gas Interest
with a similar Allocated Value. If the estimated cost of Remediation of an
Oil and Gas Interest exceeds twenty-five percent (25%) of the Allocated Value
of such Oil and Gas Interest, Buyer or Seller may elect to remove the
affected Oil and Gas Interest from its Oil and Gas Interests hereunder by
notifying Seller or Buyer in writing on or prior to Closing, in which case
(i) if the Seller is Esenjay or Aspect, the Seller shall replace the Oil and
Gas Interest subject to the Environmental Defect with other Oil and Gas
Interests (in an amount equal to the full amount of the affected Oil and Gas
Interest), acceptable to Buyer; or (ii) if the Seller is Frontier, the
parties shall adjust the Esenjay Assets and the Aspect Assets, in a manner
satisfactory to Esenjay and Aspect, to decrease the assets being conveyed by
Esenjay and Aspect to Frontier by the Allocated Value of the affected Oil and
Gas Interest.
12.04 Contested Environmental Defects. If Seller contests the
existence of an Environmental Defect or Buyer's good-faith estimate of costs
of remediation of an Environmental Defect ("Environmental Defect Value"), the
contesting party shall notify the other party in writing on or before two
business days prior to Closing ("Rejection Notice"). The Rejection Notice
shall state with reasonable specificity the basis of the rejection of the
Environmental Defect or the good-faith estimate of the Environmental Defect
Value. Within five business days of receipt of the Rejection Notice,
representatives of the parties, knowledgeable in environmental matters, shall
meet and, within ten business days after receipt of such Rejection Notice,
either (i) mutually agree to reject the particular Environmental Defect or
(ii) agree on the validity of such Environmental Defect and the Environmental
Defect Value, in which case the party receiving the notice shall proceed to
remediate the Environmental Defect as provided herein, or reduce the value of
the particular Oil and Gas Interest, as the case may be. If the parties
cannot agree on either options (i) or (ii) in the preceding sentence, the
Environmental Defect or the Environmental Defect Value subject to the
Rejection Notice shall be resolved in accordance with the arbitration
procedures set forth in Section 11.06. If a party fails to timely deliver a
Rejection Notice, that party shall be deemed to have accepted the validity of
the Environmental Defect and the other party's good-faith estimate of the
Environmental Defect Value, and shall be deemed to have waived its own option
to contest the Environmental Defect pursuant to this section.
12.05 Exclusive Remedies. The rights and remedies granted each
party in this Article are the exclusive rights and remedies against the other
party related to any Environmental Defect for which a party has received a
valid Environmental Defect Notice.
ARTICLE XIII
TERMINATION
13.01 Termination of Agreement. Notwithstanding anything herein to
the contrary, this Agreement and the Exchange may be terminated and abandoned
at any time prior to the Closing in the following manner:
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(a) By the mutual written consent of each of Frontier, Esenjay,
and Aspect;
(b) By either Esenjay or Aspect, through written notice to
Frontier, if there has been a material breach by Frontier of any
representation or warranty of Frontier set forth in this Agreement, or if,
on the Closing Date, any condition in favor of Esenjay and/or Aspect set
forth in Sections 9.01 or 9.03 has not been satisfied by Frontier or waived
by Esenjay and Aspect;
(c) By either Frontier or Aspect, through written notice to the
other parties if there has been a material breach by Esenjay of any
representation or warranty of Esenjay set forth in this Agreement, or if,
on the Closing Date, any condition in favor of Frontier and/or Aspect set
forth in Sections 9.02 or 9.03 has not been satisfied by Esenjay or waived
by Frontier and Aspect; or
(d) By either Frontier or Esenjay, through written notice to the
other parties, if there has been a material breach by Aspect of any
representation or warranty of Aspect set forth in this Agreement or if, on
the Closing Date, any condition in favor of Frontier and/or Esenjay set
forth in Sections 9.02 or 9.03 has not been satisfied by Aspect or waived
by Frontier and Esenjay; or
(e) In the event that Closing has not occurred by June 30, 1998,
any party hereto may, by written notice, terminate the Agreement.
(f) By Frontier in the event it receives a Superior Proposal.
Upon receipt of written notice of termination, pursuant to
paragraphs (b), (c) or (d) above, the breaching or nonperforming party
shall have a period of five (5) business days to cure the breach or remedy,
cure, perform or fulfill the condition which has not been satisfied or
waived. In the event that any such breach or non-performance is not cured
within said five day period, termination shall be effective as of the
expiration of such five day period.
13.02 Obligations Upon Termination. In the event of termination of
this Agreement pursuant to the terms and provisions hereof, each party shall
return all books, records, maps, files, papers and other property in such
party's possession to the party entitled thereto, whereupon this Agreement
shall become void, except as provided herein and no party shall have any
character of liability to the other parties hereunder, including any
liability for damages; provided that in the event of termination because of
breach of or default under a representation, warranty, covenant or agreement
contained herein, the party not in breach or default shall have and retain
all rights afforded to it under this Agreement and in law or at equity by
reason of such breach or default, including actions for actual or
consequential damages.
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13.03 Breakup Fee. If this Agreement is terminated (a) by any party
hereto due to the failure of Frontier's shareholders to approve this
Agreement and the consummation of the Exchange (regardless of the reason for
such failure to approve) or (b) by Frontier pursuant to Section 13.01(f),
then Aspect and Esenjay shall be entitled to receive from Frontier, and
Frontier shall be obligated to pay to each of Aspect and Esenjay, within one
business day following receipt of an invoice therefor, a fee equal to the sum
of all out-of-pocket expenses and fees (including fees and expenses of
counsel, accountants, experts, and consultants) actually incurred or accrued
by Aspect or Esenjay in connection with this Agreement and the Exchange. In
addition, Aspect and Esenjay shall each be entitled to an assignment of 10%
of Frontier's interest in the Lapeyrouse Prospect, Terrebonne Parish,
Louisiana as described on Schedule 4.17, which assignment Frontier shall
promptly deliver.
ARTICLE XIV
CLOSING
14.01 Time and Place. Subject to the provisions of this Agreement,
the Closing of the Exchange shall take place at the offices of Frontier in
Houston, Texas, within three days of the date of approval by Frontier
shareholders of this Agreement, at 10:00 a.m. local time, or as soon as
practicable thereafter, provided each of the conditions set forth in Article
IX has been satisfied or waived by the party or parties entitled to the
benefit of such conditions on or before Closing.
14.02 Further Assurances. At any time and from time to time after
the Closing, at Frontier's request and without additional consideration, any
party hereto will execute and deliver such other instruments of sale,
transfer, conveyance, assignment and confirmation and take such action as
Frontier may deem reasonably necessary or desirable in order to more
effectively transfer, convey and assign to Frontier, and to confirm
Frontier's title to, all of the Aspect Assets and Esenjay Assets and to
assist Frontier in exercising all rights with respect thereto. Frontier
shall take any action reasonably requested by Aspect or Esenjay to confirm
the transfer and issuance of either such party of the shares of Frontier
Common Stock required to be issued to Aspect or Esenjay pursuant to the terms
of this Agreement.
14.03 Concurrent Conditions. The performance or tender of
performance of all matters applicable to a party at the Closing under this
Agreement shall be deemed concurrent conditions and no party shall be
required to perform, or tender performance of, the obligations of such party
hereunder unless, coincident therewith, each other party for whom performance
is required under this Agreement performs or tenders performance of its
obligations hereunder.
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ARTICLE XV
INDEMNIFICATION
15.01 Indemnification by Frontier. Frontier shall indemnify, defend
and hold Aspect and Esenjay harmless from and against any and all losses,
liabilities, damages, obligations, costs and expenses (including legal and
other similar expenses) (collectively, "Damages") from, resulting by reason
of or arising in connection with any of the following (in each case so long
as notice of a claim for indemnification is made in good faith within the
applicable survival period):
(a) any breach of or inaccuracy in any representation or
warranty made by Frontier in this Agreement or any Related Document or any
document delivered at Closing; or
(b) any breach of or failure by Frontier to perform any covenant
or obligation of Frontier in this Agreement or any Related Document or any
document delivered at Closing.
15.02 Indemnification by Esenjay. Esenjay shall indemnify, defend
and hold Aspect and Frontier harmless from and against any all Damages from,
resulting by reason of or arising in connection with any of the following (in
each case so long as notice of a claim for indemnification is made in good
faith within the applicable survival period):
(a) any breach of or inaccuracy in any representation or
warranty made by Esenjay in this Agreement or any Related Document or any
document delivered at Closing;
(b) any breach of or failure by Esenjay to perform any covenant
or obligation of Esenjay in this Agreement or any Related Document or any
document delivered at Closing; or
(c) any liability, loss, damage, obligation, cost or expense of
Esenjay, other than liabilities for Post Effective Date Costs assumed by
Frontier pursuant to Section 2.03 hereof.
15.03 Indemnification by Aspect. Aspect shall indemnify, defend and
hold Esenjay and Frontier harmless from and against any all Damages from,
resulting by reason of or arising in connection with any of the following (in
each case so long as notice of a claim for indemnification is made in good
faith within the applicable survival period):
(a) any breach of or inaccuracy in any representation or
warranty made by Aspect in this Agreement or any Related Document or any
document delivered at Closing;
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(b) any breach of or failure by Aspect to perform any covenant
or obligation of Aspect in this Agreement or any Related Document or any
document delivered at Closing; or
(c) any liability, loss, damage, obligation, cost or expense of
Aspect, other than liabilities attributable to Post Effective Date Costs
incurred after December 31, 1997 and assumed by Frontier pursuant to
Section 3.02 hereof.
15.04 Indemnification Limitations. The indemnification provided
under this Article XV shall survive the consummation of the transactions
contemplated by this Agreement, but shall be limited to liabilities of which
the party seeking indemnification shall have notified in writing the
indemnifying party within twenty-four (24) months of the Closing Date;
provided, however that with respect to any claim for Damages sustained by
reason of (a) a breach of any representation or warranty relating to those
matters governed by Section 6.08 or (b) any liability for the Taxes of
Esenjay, Esenjay's idemnification obligations hereunder shall not be limited
to 24 months, but instead shall be limited to claims for which written notice
is given to Esenjay by the appropriate taxing authority within the period of
the applicable federal or state statutes of limitations related to such
matters.
15.05 Notice and Resolution of Claim. An indemnified party
hereunder shall promptly give notice to the indemnifying party after
obtaining knowledge of any claim against the indemnified party as to which
recovery may be sought against the indemnifying party because of the
indemnity set forth above, and, if such indemnity shall arise from the claim
of a third party, shall permit the indemnifying party to assume the defense
of any such claim or any litigation resulting from such claim. The failure
of the indemnified party to give notice shall not relieve the indemnifying
party of its obligations hereunder except to the extent (if any) that the
indemnifying party shall have been prejudiced thereby. If the indemnifying
party assumes the defense of such claim or litigation resulting therefrom,
the obligations of the indemnify ing party hereunder as to such claim shall
include taking all reasonable steps necessary in the defense or settlement of
such claim or litigation resulting therefrom and defending and holding the
indemnified party harmless from and against any and all losses, damages and
liabilities caused by or arising out of any settlement approved by the
indemnifying party or any judgment in connection with such claim or
litigation resulting therefrom. The indemnifying party shall not, in the
defense of such claim or any litigation resulting therefrom, consent to the
entry of any judgment (except with the written consent of the indemnified
party), or enter into any settlement (except with the written consent of the
indemnified party), which does not include, as to the indemnified party and
as an unconditional term thereof, a release by the third party from any and
all liability in respect of such claim or litigation. The indemnified party
will cooperate reasonably in the defense of the action or claim.
15.06 Defense of Third Party Claim. If the indemnifying party does
not assume the defense of any claim by a third party or litigation resulting
therefrom, the indemnified party may, but shall have no obligation to, defend
against such claim or litigation in any matter that it may deem
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appropriate and, unless the indemnifying party shall deposit with the
indemnified party a sum equivalent to the total amount demanded in such claim
or litigation plus the indemnified party's estimate of the cost of defending
the same, the indemnified party may settle such claim or litigation on such
terms as it may deem appropriate and the indemnifying party shall promptly
reimburse the indemnified party for the amount of such settlement and for all
losses or expenses, legal or otherwise, incurred by the indemnified party in
connection with the defense against or settlement of such claim or
litigation.
15.07 Payment. The indemnifying party shall promptly reimburse the
indemnified party for the amount of any judgment rendered with respect to any
claim by a third party in such litigation and for all reasonable expenses
incurred directly by the indemnified party in connection with the defense
against such claim or litigation, and for any other loss suffered or incurred
with respect to the falsity or the breach of any representation, warranty,
covenant or agreement (whether or not arising out of the claim of a third
party).
ARTICLE XVI
GENERAL PROVISIONS
16.01 Effect of Due Diligence. No investigation by any of the
parties hereto into the business, operations and conditions of the other
parties shall diminish in any way the effect of any representation or
warranty made by either party in this Agreement or shall relieve such party
of any of its obligations under this Agreement.
16.02 Further Assurances. Each party agrees to cooperate fully and
to obtain the written agreement of each officer, director or employee
designated by the other parties to so cooperate with the other parties and to
execute such further instruments, documents and agreements and to give such
further written assurances as may be reasonably requested by any other party
to better evidence and reflect the Exchange and to carry into effect the
intention and purposes of this Agreement.
16.03 Survival of Representations, Warranties and Covenants. The
representations, warranties, covenants and agreements made by each of the
parties hereto shall survive the Closing of the transactions contemplated
hereby.
16.04 Entire Agreement; Amendment and Waiver. This Agreement,
together with all Exhibits and Schedules attached hereto and all agreements
and instruments to be executed and delivered by the parties pursuant hereto,
contains the entire agreement between the parties relating to the subject
matter hereof and supersedes any other prior agreement or arrangement and
understanding between the parties regarding the subject matter hereof. No
representation, warranty, covenant, obligation, promise, inducement or
statement of intention has been made by any of the parties which is not
expressed in this Agreement. This Agreement may be amended or changed only by
written instrument duly executed by all the parties hereto, and any amendment
or change which
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is not so documented shall not be effective as to the parties. Except as
expressly provided herein to the contrary, provisions of this Agreement may
be waived only by the party(ies) hereto entitled to the benefit thereof by
evidencing such waiver in writing, executed by such party(ies). Except to
the extent waiver or satisfaction is deemed to exist by the express terms of
this Agreement, the failure of any party hereto to enforce at any time any of
the provisions of this Agreement shall in no way be construed to be a waiver
of any such provision, nor in any to affect the validity of this Agreement or
any party thereof or the right of any party thereafter to enforce each and
every provision. No waiver of any breach of this Agreement shall be held to
be a waiver of any other or subsequent breach.
16.05 Severability. This Agreement is intended to be performed in
accordance with and only to the extent permitted by all applicable legal
requirements. If any provision of this Agreement or the application thereof
to any person or circumstance shall for any reason and to any extent, be
invalid or unenforceable, then the performance of such offending provision
shall be excused by the parties hereto, but the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected thereby, but rather shall be enforced to the greatest extent
permitted by law.
16.06 Applicable Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the substantive federal laws
of the United States and the internal laws of the State of Texas (principles
of conflict of laws excluded) and, to the extent the OGCA so requires, the
laws of the State of Oklahoma.
16.07 Assignment. This Agreement may not be assigned by any party
without the prior written consent of each other party hereto. No such
permitted assignment shall alter any of the obligations of an assigning party
under this Agreement or release an assigning party from obligations of such
party under this Agreement. Upon any such assignment, the assignee shall
succeed to all rights assigned to it by, and shall become bound by all of the
obligations of, the assigning party. Nothing in this Agreement is intended
to confer upon any person not a party hereto any rights, benefits or remedies
under or by reason of this Agreement.
16.08 Notices. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and
shall be delivered personally or by facsimile communication to the number set
forth below, or by first class mail, postage prepaid, registered or certified
with return receipt requested, at the addresses set forth below. Notice
deposited in the mail in the manner hereinabove provided shall be effective
upon expiration of five (5) business days from the date on which it is so
deposited. Notice given in any other manner shall be effective only if and
when received by the addressee. For purposes of notice, the addresses of the
parties shall be as follows:
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With respect to Frontier: FRONTIER NATURAL GAS CORPORATION
500 Dallas Street, Suite 2920
Houston, Texas 77002
Attention: President
Telephone Number: (713) 739-7100
Fax Number: (713) 739-7124
With a copy to: Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002-2730
Attention: Samuel N. Allen
Telephone Number: (713) 226-0600
Fax Number: (713) 226-0296
With respect to Esenjay: ESENJAY PETROLEUM CORPORATION
500 N. Water St., Suite 1100 South
Corpus Christi, Texas 78471
Attention: Michael E. Johnson
Telephone Number: (512) 883-7464
Fax Number: (512) 883-3244
With a copy to: Pollicoff, Smith, Myres & Remels, L.L.P.
One Greenway Plaza, Suite 300
Houston, Texas 77046-0102
Attention: Jeffrey B. Pollicoff
Telephone Number: (713) 622-6866
Fax Number: (713) 622-5905
With respect to Aspect: ASPECT RESOURCES, LLC
511 16th Street, Suite 300
Denver, Colorado 80202
Attention: Alex M. Cranberg
Telephone Number: (303) 573-7011
Fax Number: (303) 573-7340
With a copy to: Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attention: Charles D. Bybee
Telephone Number: (303) 892-9400
Fax Number: (303) 893-1379
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provided that each party shall have the right to change its address for
notice, and the person who is to receive notice hereunder, by the giving of
fifteen (15) days' prior written notice to the other parties hereto in the
manner set forth above.
16.09 Incorporation of Exhibits and Schedules by Reference. All
Exhibits and Schedules expressly referenced herein are hereby incorporated
herein for any and all purposes as a part of this Agreement, to the same
extent as if stated herein.
16.10 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
16.11 Headings. The headings in this Agreement are inserted for
convenience and identification only and are not intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any provision hereof.
16.12 Gender and Number. Whenever required by the context, as used in
this Agreement, the singular number shall include the plural and vice versa
and pronouns of whatever gender shall be deemed to include and designate the
masculine, feminine or neuter gender.
16.13 Multiple Counterparts. This Agreement will be executed in one
or more counterparts, each of which shall be an original, but all of which
shall constitute but one instrument.
16.14 Expenses. Except as provided in Section 13.03, prior to
Closing each party shall be responsible for its own fees and expenses,
including fees and expenses of legal counsel and/or accountants, incurred in
connection with the negotiation of this Agreement and the consummation of the
Exchange; provided, however, that if Closing occurs then Esenjay and Aspect
may submit invoices for reasonable third party out-of-pocket costs to
Frontier, which costs shall be due and payable by Frontier not later than 180
days from receipt of said invoices.
[Signatures on Following Page]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written by the parties or the authorized representative of the
parties.
FRONTIER:
Frontier Natural Gas Corporation
By: /s/ David W. Berry
---------------------------------
David W. Berry, President
ESENJAY:
Esenjay Petroleum Corporation
By: /s/ Michael E. Johnson
---------------------------------
Michael E. Johnson, President
By: /s/ Charles J. Smith
---------------------------------
Charles J. Smith, Chairman
ASPECT:
Aspect Resources LLC
By: Aspect Management Corporation,
its Manager
By: /s/ Alex M. Cranberg
---------------------------------
Alex M. Cranberg, President
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C O R N E R S T O N E
- -------------------------------------------------------------------------------
INVESTMENT BANKERS
6363 Woodway, Suite 970
Houston, Texas 77057-1735
713-952-0186
Fax: 713-952-9861
E-mail: [email protected]
January 23, 1998
David B. Christofferson
Executive Vice President
Frontier Natural Gas Corporation
500 Dallas Street, Suite 2920
Houston, Texas 77002
Re: Valuation of assets to be conveyed to Frontier Natural Gas Corporation by
Esenjay Petroleum Corporation and Aspect Resources, LLC
Dr. Mr. Christofferson:
Frontier Natural Gas Corporation ("Client" or "Company") has requested
our opinion with respect to the fair market value of certain oil and gas
assets to be conveyed to Client by Esenjay Petroleum Corporation ("Esenjay")
and Aspect Resources, LLC ("Aspect") in a transaction that is pending,
subject to the approval of the shareholders of the Company.
As part of its investment banking services, Cornerstone Ventures, L.P.
("Cornerstone") helps clients negotiate mergers, acquisitions and
divestitures, arranges project and corporate financing, and furnishes
valuations of closely-held companies and assets. Cornerstone is registered
with the Securities and Exchange Commission under the Investment Advisors Act
of 1940, and with the Texas State Securities Board. Cornerstone complies
with the Uniform Standards of Professional Appraisal Practice promulgated by
the Business Valuation section of the American Society of Appraisers, and
with the stringent standards imposed by the Internal Revenue Service.
For the purposes of this opinion, "value" means fair market value as
that term is defined by IRS ruling 59-60. This meaning of value is used
widely among buyers, sellers, investors, lenders, and valuation specialists,
and is reinforced by court decisions. A working definition of fair market
value is the price in cash at which a property would change hands between a
willing buyer and a willing seller, with neither party acting under
compulsion, and both parties having reasonable knowledge of relevant facts.
<PAGE>
David B. Christofferson
January 23, 1998
Page 2
In connection with this opinion, Cornerstone has reviewed the following
information:
- The draft Acquisition Agreement and Plan of Exchange regarding the
transaction.
- Detailed materials prepared by Esenjay and Aspect regarding the oil
and gas properties to be conveyed, including geologic and seismic
based maps, seismic data, lease maps, etc.
- A summary description of as well as summary information regarding each
of the oil and gas properties to be conveyed.
- The QUARTERLY RESERVE REPORT published by Cornerstone setting forth
prices paid per unit in actual purchases and sales of oil and gas
interests.
- Cornerstone's proprietary database containing information regarding
actual purchases and sales of oil and gas interests, including
information on recent transactions in the Company's areas of
exploration and production.
- Published data concerning historical and projected oil and gas prices
in the United States.
In addition, Cornerstone attended meetings in the offices of Esenjay and
Aspect to review the detailed data discussed above and to hear presentations
by, and ask questions of, the technical people involved with each specific
property to be conveyed.
In preparing this opinion, Cornerstone has relied upon the accuracy and
completeness of, and has not independently verified (other than employing its
own appropriate internal tests of reasonableness and consistency and
participating in the meetings described above) the business, financial,
geological, geophysical, engineering and other information supplied regarding
this assignment.
In formulating our opinion, Cornerstone also considered many factors
including, but not limited to, the following:
<PAGE>
David B. Christofferson
January 23, 1998
Page 3
- In all valuations of oil and gas interests, Cornerstone uses more than
one approach to arrive at an estimate that, because it is tested
(compared) against other estimates, is more reliable than any estimate
based upon a single approach. For properties that currently are
producing, the most widely used methodology is discounted future net
revenues derived from a comprehensive technical assessment of future
production and reserves. In this case, because the properties
currently are not producing, Cornerstone utilized prices paid in other
comparable transactions as a proxy.
- Calculations of estimated value were made on the basis of risk
adjusted reserves (derived from a comprehensive technical assessment).
Additionally, calculations were made of the estimated replacement
costs that a buyer would have to incur to bring the individual
properties to their current state of development. Both these
calculations then were compared to actual transactions, the details of
which Cornerstone has in its proprietary data base.
- The market supply/demand environment for oil and gas reserves and
exploration prospects in the United States, that has the
characteristics generally reflective of a seller's market, was
considered.
- The current commodity price environment was considered. Such price
environment has short-term volatility generally and particularly for
gas, which adds an extra element of risk to oil and gas reserve
transactions, but that is perceived by the market to be somewhat
stable over the long term at levels somewhat above current prices.
- Another relevant factor is the current active drilling environment for
oil and gas and its effect on the value of properties in the regions
where the oil and gas properties to be conveyed to the Company exist.
Schedule 1 reflects a tabulation of certain data concerning each of the
twenty-nine (29) properties to be conveyed to the Company from Esenjay and
Aspect. The first column of numbers reflects estimates of the total reserves,
in natural gas equivalent quantities (Bcfe), that can reasonably be expected
to be developed in each property. Esenjay and Aspect each had prepared
estimates of the potential reserves that they felt possibly could be found
for each property. After
<PAGE>
David B. Christofferson
January 23, 1998
Page 4
reviewing the data presented by each company and hearing a presentation as to
the stage of exploration and/or exploitation of each property, Cornerstone
made adjustments to the reserve estimates where appropriate to reflect what
it felt could reasonably be categorized as Possible Reserves in accordance
with the definition of the Society of Petroleum Engineers ("SPE"). The gross
reserve numbers reflected in the first column represents 100% of the possible
reserves for each property. It can be seen that the total reserves
associated with these properties is approximately 2.8 Tcfe. The next two (2)
columns reflect, by seller, the working interests in each property that is to
be conveyed to the Company. The next two (2) columns reflect, again by
seller, the net working interest reserves to be conveyed to the Company and
was determined by multiplying the gross reserves by the working interest to
be conveyed. It can be seen that the total working interest reserves to be
conveyed to the Company is approximately 1.0 Tcfe, comprised of 468 Bcfe from
Aspect and 576 Bcfe from Esenjay.
For purposes of valuation, each category of reserves defined by the SPE
are risked. The Society of Petroleum Evaluation Engineers ("SPEE") each
year tabulates the levels of risk that are used by its members for the
purpose of valuing oil and gas properties. The latest survey of the SPEE
indicates that the average risk factor used for reserves categorized as
possible is 6%, i.e., the estimated possible reserves would be multiplied by
6% to arrive at an expected reserve. Based on Cornerstone's QUARTERLY
RESERVE REPORT and its proprietary data base, the average value in the market
place for proved reserves is approximately $.85/Mcfe. If the 6% risk factor
is multiplied by the average reserve value of $.85/Mcfe, the result is that
possible reserves would have a fair market value of approximately $.05/mcfe.
Cornerstone has proprietary data that confirms that exploration properties of
the quality and type to be conveyed to the Company, in fact, have recently
sold in the marketplace at approximately the level of $.05/Mcfe of possible
reserves.
The last series of columns on Schedule 1 reflect the estimates of the
fair market value of the reserves to be conveyed to the Company. It can be
seen that the total value of such properties is approximately $54.5 million,
broken down as $25.7 million to be conveyed from Aspect and $28.8 million
from Esenjay.
As a test of reasonableness of the above described reserve-based
estimates, Cornerstone also undertook a series of calculations that are
reflected on Schedule 2. Based on Cornerstone's investment banking
experience in transactions that have taken
<PAGE>
David B. Christofferson
January 23, 1998
Page 5
place recently and its proprietary data base, a mathematical relationship can
be said to exist between the fair market value of a group of properties of
the quality and type to be conveyed to the Company and the approximate
replacement cost for a buyer to acquire the land position and seismic data
associated with such a group of properties, e.g., replacement costs.
Overall, we have found that the fair market value of such properties ranges
from 1.7 to 2.0 times their replacement costs.
In Schedule 2, the first column, again, reflects the working interests
to be conveyed to the Company. The second column reflects the gross acres
associated with the land position. It can be seen that the gross acreage
involved is approximately 294,000 acres. The next column reflects net acres
to be conveyed (gross multiplied by the working interest). It can be seen
that the net acres to be conveyed to the Company amounts to approximately
133,000 acres. The next column reflects Cornerstone's estimate of the average
cost to acquire such acreage. The next column reflects the estimated
replacement cost associated with the acreage to be conveyed to the Company
(acreage cost multiplied by the net acreage). It can be seen that the
estimated replacement costs associated with the acreage position to be
conveyed to the Company is approximately $16.6 million.
As to seismic data, the next two columns reflect the gross amount of
seismic assets in square miles to be conveyed to the Company that is
associated with each property. These seismic projects are in various stages
of development completion. Some seismic data have been acquired and fully
interpreted, others have yet to be acquired, but have been or are in the
process of being designed. Cornerstone has estimated the unit costs (per
square mile) to bring these projects to their current stage of development,
which is reflected in the next two columns. We then multiplied the gross
square miles associated with each project, times the working interest to be
conveyed, times the unit cost to arrive at each property's estimated net
seismic replacement cost. The total estimated replacement cost associated
with these seismic projects is $10.2 million. The last column reflects the
sum of the estimated land and seismic replacement costs for each property.
The aggregate replacement cost for these assets is approximately $26.8
million.
The calculated reserve-based fair market value of the properties is
approximately 2.0 times the aggregate estimated replacement cost associated
with them. This ratio is within the range of relational values that have
occurred in actual transactions.
<PAGE>
SCHEDULE 1
FRONTIER NATURAL GAS
CORPORATION
PROPERTY VALUATION
RESERVE BASED VALUE
<TABLE>
UNRISKED RESERVES
GROSS ASPECT ESENJAY FRONTIER ASPECT ESENJAY FRONTIER TOTAL
PROPERTY RESERVES W.I. W.I. W.I. RESERVES RESERVES RESERVES RESERVES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GILLOCK 250 22.50% 0.00% 0.00% 56 0 0 56
CANEY CREEK 250 12.50% 0.00% 0.00% 31 0 0 31
TIDEHAVEN 140 12.50% 28.00% 0.00% 18 39 0 57
EL MATON 90 12.50% 34.00% 0.00% 11 31 0 42
MIDFIELD 50 12.50% 25.00% 0.00% 6 13 0 19
WOLFPOINT 50 12.50% 33.00% 0.00% 6 17 0 23
HALL RANCH 325 12.50% 29.00% 0.00% 41 94 0 135
HOARDS CREEK 120 12.50% 29.00% 0.00% 15 35 0 50
MIKESKA 250 12.50% 25.50% 0.00% 31 64 0 95
PILE DRIVER 10 12.50% 50.00% 0.00% 1 5 0 6
HOUSTON ENDOWMENT 100 7.00% 20.00% 0.00% 7 20 0 27
LIPSMACKER 10 7.00% 15.00% 0.00% 1 2 0 2
BLESSING 50 7.00% 17.00% 0.00% 4 9 0 12
SOUTH RAYMONDVILLE 150 22.00% 57.00% 0.00% 33 86 0 119
GERONIMO 200 0.00% 20.00% 0.00% 0 40 0 40
THOMPSON CREEK 100 0.00% 56.00% 0.00% 0 56 0 56
LA ROSA 40 0.00% 8.00% 0.00% 0 3 0 3
SHERIFF 35 75.00% 0.00% 0.00% 26 0 0 26
S.W. PHEASANT 10 75.00% 0.00% 0.00% 8 0 0 8
LOVELL LAKE 150 50.00% 0.00% 0.00% 75 0 0 75
STOWELL/BIG HILL 75 50.00% 0.00% 0.00% 38 0 0 38
BAUER RANCH 60 45.00% 0.00% 0.00% 27 0 0 27
W. BEAUMONT 100 6.25% 0.00% 0.00% 6 0 0 6
LOX B 80 25.00% 0.00% 0.00% 20 0 0 20
WEST PORT ACRES 30 25.00% 0.00% 0.00% 8 0 0 8
EAST TEXAS 0 0.00% 0.00% 0.00% 0 0 0 0
BUCKEYE 40 0.00% 74.00% 0.00% 0 30 0 30
HAGIST RANCH 10 0.00% 90.00% 0.00% 0 9 0 9
DUNCAN SLOUGH 40 0.00% 66.00% 0.00% 0 26 0 26
CRAB LAKE 40 0.00% 0.00% 75.00% 0 0 30 30
LAPEYROUSE 400 0.00% 0.00% 45.00% 0 0 180 180
TOTAL 3,255 468 576 210 1,254
<CAPTION>
ASPECT ESENJAY FRONTIER TOTAL
PROPERTY VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
GILLOCK $2,812,500 $0 $0 $2,812,500
CANEY CREEK $1,562,500 $0 $0 $1,562,500
TIDEHAVEN $875,000 $1,960,000 $0 $2,835,000
EL MATON $562,500 $1,530,000 $0 $2,092,500
MIDFIELD $312,500 $625,000 $0 $937,500
WOLFPOINT $312,500 $825,000 $0 $1,137,500
HALL RANCH $2,031,250 $4,712,500 $0 $6,743,750
HOARDS CREEK $750,000 $1,740,000 $0 $2,490,000
MIKESKA $1,562,500 $3,187,500 $0 $4,750,000
PILE DRIVER $62,500 $250,000 $0 $312,500
HOUSTON ENDOWMENT $350,000 $1,000,000 $0 $1,350,000
LIPSMACKER $35,000 $75,000 $0 $110,000
BLESSING $175,000 $425,000 $0 $600,000
SOUTH RAYMONDVILLE $1,650,000 $4,275,000 $0 $5,925,000
GERONIMO $0 $2,000,000 $0 $2,000,000
THOMPSON CREEK $0 $2,800,000 $0 $2,800,000
LA ROSA $0 $160,000 $0 $160,000
SHERIFF $1,312,500 $0 $0 $1,312,500
S.W. PHEASANT $375,000 $0 $0 $375,000
LOVELL LAKE $3,750,000 $0 $0 $3,750,000
STOWELL/BIG HILL $1,875,000 $0 $0 $1,875,000
BAUER RANCH $1,350,000 $0 $0 $1,350,000
W. BEAUMONT $312,500 $0 $0 $312,500
LOX B $1,000,000 $0 $0 $1,000,000
WEST PORT ACRES $375,000 $0 $0 $375,000
EAST TEXAS $2,000,000 $0 $0 $2,000,000
BUCKEYE $0 $1,480,000 $0 $1,480,000
HAGIST RANCH $0 $450,000 $0 $450,000
DUNCAN SLOUGH $0 $1,320,000 $0 $1,320,000
CRAB LAKE $0 $0 $1,500,000 $1,500,000
LAPEYROUSE $0 $0 $9,000,000 $9,000,000
TOTAL $25,403,750 $28,815,000 $10,500,000 $64,718,750
PERCENTAGE OF TOTAL ASSETS FOR EACH COMPANY 39.25% 44.52% 16.22% 100.00%
</TABLE>
<PAGE>
David B. Christofferson
January 23, 1998
Page 6
For the reasons explained above, it is Cornerstone's opinion that the
estimated fair market value of the properties to be conveyed to the Company
is $54.5 million, broken down between Aspect and Esenjay as $25.7 million and
$28.8 million, respectively. The estimated fair market value of each
property to be conveyed is reflected in the last column of Schedule 1.
Cornerstone was compensated for this assignment in accordance with its
regular compensation schedule. There is no relationship between Cornerstone
and the Client that would impair the objectivity of this opinion.
Compensation for this opinion was independent of the conclusions reached.
CORNERSTONE VENTURES, L.P.
/s/ CORNERSTONE VENTURES, L.P.
<PAGE>
SCHEDULE 2
FRONTIER NATURAL GAS CORPORATION
PROPERTY VALUATION
REPLACEMENT COST ESTIMATE
<TABLE>
Total Gross Net Cost Acreage Existing
Property W.I. Acres Acres Per Acre Cost Seismic
<S> <C> <C> <C> <C> <C> <C>
GILLOCK 22.50% 24,693 5,556 $250 $1,388,981 0
CANEY CREEK 12.50% 20,911 2,614 $200 $522,775 34
TIDEHAVEN 40.50% 4,500 1,823 $200 $364,500 28
EL MATON 46.50% 7,000 3,255 $200 $651,000 38
MIDFIELD 37.50% 4,000 1,500 $200 $300,000 21
WOLFPOINT 45.50% 1,200 546 $250 $136,500 8
HALL RANCH 41.50% 8,300 3,445 $150 $516,675 57
HOARDS CREEK 41.50% 10,000 4,150 $150 $622,500 30
MIKESKA 38.00% 8,000 3,040 $250 $760,000 31
PILE DRIVER 62.50% 640 400 $200 $80,000 2
HOUSTON ENDOWMENT 27.00% 11,000 2,970 $200 $594,000 50
LIPSMACKER 22.00% 4,000 880 $100 $88,000 7
BLESSING 24.00% 10,000 2,400 $150 $360,000 22
SOUTH RAYMONDVILLE 79.00% 10,000 7,900 $200 $1,580,000
GERONIMO 20.00% 7,000 1,400 $200 $280,000 72
THOMPSON CREEK 56.00% 2,000 1,120 $250 $280,000 10
LA ROSA 8.00% 5,000 400 $150 $60,000 25
SHERIFF 75.00% 54,084 40,563 $25 $1,014,075
S.W. PHEASANT 75.00% 10,139 7,604 $200 $1,520,850 10
LOVELL LAKE 50.00% 23,543 11,772 $150 $1,765,725
STOWELL/BIG HILL 50.00% 11,745 5,873 $150 $880,875 56
BAUER RANCH 45.00% 13,494 6,072 $150 $910,845
W. BEAUMONT 6.25% 11,264 704 $150 $105,600 22
LOX B 25.00% 11,681 2,920 $150 $438,038 71
WEST PORT ACRES 25.00% 753 188 $150 $28,238 21
EAST TEXAS 0.00% 0 0 $0 $0
BUCKEYE 74.00% 8,500 6,290 $150 $943,500
HAGIST RANCH 90.00% 2,000 1,800 $50 $90,000 0
DUNCAN SLOUGH 66.00% 8,500 5,610 $50 $280,500
CRAB LAKE 75.00% 500 375 $350 $131,250 12
LAPEYROUSE 45.00% 8,900 4,005 $350 $1,401,750 35
TOTAL 303,347 137,174 $18,096,176 662
<CAPTION>
Planned Cost Cost Seismic Total
Property Seismic Existing Planned Cost Cost
<S> <C> <C> <C> <C> <C>
GILLOCK 65 $45,000 $5,000 $73,125 $1,462,106
CANEY CREEK $45,000 $5,000 $191,250 $714,025
TIDEHAVEN $45,000 $5,000 $510,300 $874,800
EL MATON $45,000 $5,000 $795,150 $1,446,150
MIDFIELD $45,000 $5,000 $354,375 $654,375
WOLFPOINT $45,000 $5,000 $163,800 $300,300
HALL RANCH $45,000 $5,000 $1,064,475 $1,581,150
HOARDS CREEK $45,000 $5,000 $560,250 $1,182,750
MIKESKA $45,000 $5,000 $530,100 $1,290,100
PILE DRIVER $45,000 $5,000 $56,250 $136,250
HOUSTON ENDOWMENT $45,000 $5,000 $607,500 $1,201,500
LIPSMACKER $45,000 $5,000 $69,300 $157,300
BLESSING $45,000 $5,000 $237,600 $597,600
SOUTH RAYMONDVILLE 60 $45,000 $5,000 $237,000 $1,817,000
GERONIMO $45,000 $5,000 $648,000 $928,000
THOMPSON CREEK 2 $45,000 $5,000 $257,600 $537,600
LA ROSA $45,000 $5,000 $90,000 $150,000
SHERIFF 72 $45,000 $5,000 $270,000 $1,284,075
S.W. PHEASANT $45,000 $5,000 $337,500 $1,858,350
LOVELL LAKE 100 $45,000 $5,000 $250,000 $2,015,725
STOWELL/BIG HILL $45,000 $5,000 $1,260,000 $2,140,875
BAUER RANCH 60 $45,000 $5,000 $135,000 $1,045,845
W. BEAUMONT $45,000 $5,000 $61,875 $167,475
LOX B $45,000 $5,000 $798,750 $1,236,788
WEST PORT ACRES $45,000 $5,000 $236,250 $264,488
EAST TEXAS 400 $45,000 $5,000 $0 $0
BUCKEYE 50 $45,000 $5,000 $185,000 $1,128,500
HAGIST RANCH 15 $45,000 $5,000 $67,500 $157,500
DUNCAN SLOUGH 60 $45,000 $5,000 $198,000 $478,500
CRAB LAKE 0 $110,000 $5,000 $990,000 $1,121,250
LAPEYROUSE 0 $110,000 $5,000 $1,732,500 $3,134,250
TOTAL 884 $12,968,450 $31,064,626
</TABLE>
<PAGE>
APPENDIX C
GAINES, BERLAND, INC.
February 10, 1998
CONFIDENTIAL
Board of Directors
Frontier Natural Gas Corporation
500 Dallas Street - Suite 2920
Houston, TX 77002
Gentlemen:
Gaines, Berland Inc. ("GBI") understands that Frontier Natural Gas
Corporation, an Oklahoma corporation ("Frontier" or the "Company"), has
entered into an Acquisition Agreement and Plan of Exchange substantially in
the form delivered to us on January 19, 1998 (the "Acquisition Agreement")
with Esenjay Petroleum Corporation, a Texas corporation, ("Esenjay") and
Aspect Resources, LLC, a Colorado limited liability company ("Aspect"). As
stated in the Agreement, the Company has agreed to acquire certain assets
from Esenjay and Aspect (or its affiliates or assigns) (the "Acquisitions")
in exchange for shares of the Company's common stock ("Common Stock"). At
closing, the Company will issue to Esenjay 30,991,563 shares of Common Stock
in exchange for the Esenjay assets and 29,648,636 shares of Common Stock to
Aspect (or its affiliates or assigns) in exchange for the Aspect assets,
(collectively, the "Consideration").
The Acquisitions are expected to be considered by the shareholders of
the Company at a special meeting of the shareholders and to be consummated on
or shortly after the date of such meeting.
You have asked for GBI's opinion, as investment bankers, as to whether
the Consideration to be paid to Esenjay and Aspect (or its affiliates or
assigns) by Frontier pursuant to the Acquisition Agreement is fair to the
Frontier shareholders from a financial point of view.
Gaines, Berland Inc., as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. We have acted as
financial advisor to the Board of Directors of Frontier in connection with
the Acquisitions and will receive fees for such services and the delivery of
this opinion.
In arriving at the opinion set forth below, GBI reviewed such
information and considered such financial data and other factors as GBI
deemed relevant under the circumstances, including among others, the
following: (i) the terms and conditions of the Acquisition Agreement, (ii)
the historical and current financial condition and results of operations of
the Company; (iii) certain non-public financial and non-financial information
prepared by the respective managements of the Company, Esenjay and Aspect,
which data was made available to GBI in its role as financial advisor to the
Company; (iv) published information regarding the financial performance and
operating characteristics of a selected group of companies that GBI deemed
comparable; (v) business prospects of the Company when taking into
consideration the impact of the Acquisitions; (vi) the historical and current
market prices for the Company's Common Stock and for the equity securities of
certain other companies with businesses that GBI considered relevant to its
inquiry; (vii) publicly available information, including research reports on
companies that GBI considered relevant to its inquiry; and (viii) the nature
and terms of other recent acquisition transactions in the onshore exploration
and drilling industry. GBI also met with certain officers and employees of
the Company, Esenjay and Aspect to discuss the foregoing, as well as other
matters believed relevant to its opinion.
<PAGE>
Frontier Natural Gas Corporation
February 10, 1998
Page 2
In addition, GBI relied on the opinion of Cornerstone Ventures L.P.
("Cornerstone"), which independently determined the fair market value of
certain oil and gas assets currently owned by Frontier, as well as the fair
market value of the Esenjay assets and Aspect assets to be conveyed to
Frontier upon consummation of this transaction. The Cornerstone opinion is
included as Exhibit A.
In its review and analysis and in rendering its opinion, GBI assumed and
relied upon the accuracy and completeness of the representations and
warranties made by the Company, Esenjay and Aspect in the Acquisition
Agreement, as well as all of the financial and other information provided to
it by the Company's management or publicly available, including without
limitation, information with respect to tax positions, contingent
liabilities, condition of assets and material contract terms, and GBI did not
assume any responsibility for the independent verification of such
information. GBI did not conduct a physical inspection of any of the
properties or facilities of the Company, Esenjay or Aspect. In preparing its
opinion, GBI did not independently verify the business, financial,
geological, geophysical, engineering and other information supplied regarding
Frontier, Esenjay and Aspect.
GBI's opinion was necessarily based upon information available to GBI,
and economic, financial, market and other conditions as they existed and
could be evaluated on the date of the opinion. Although subsequent
developments may affect its opinion, GBI does not have any obligation to
update, revise or reaffirm its opinion.
GBI's opinion was delivered for the information of the Company's Board
of Directors and does not constitute a recommendation to any shareholder of
Frontier as to how such shareholder should vote at the Frontier Special
Meeting of Shareholders. Further, GBI's opinion addresses only the fairness
from a financial point of view of the consideration to be paid to Esenjay and
Aspect pursuant to the Acquisition Agreement and does not address any other
terms of the Acquisitions or the Company's underlying business decision to
effect the Acquisitions.
It is understood that this letter is for the information of the Board of
Directors of Frontier in connection with its evaluation of the fairness to
Frontier shareholders, from a financial point of view, as of the date hereof,
of the Consideration to be paid pursuant to the Acquisition Agreement to
Esenjay and Aspect by Frontier. Without limiting the foregoing, in rendering
this opinion, GBI has not been engaged to act as an agent or fiduciary for
Frontier's shareholders or any other third party.
Based on and subject to the foregoing, we are of the opinion that the
Consideration to be paid to Esenjay and Aspect pursuant to the Acquisition
Agreement is fair to Frontier shareholders from a financial point of view.
Very truly yours,
GAINES, BERLAND INC.
By: /s/ Peter H. Blum
------------------------------
Peter H. Blum
Senior Managing Director
<PAGE>
March __, 1998
Esenjay Petroleum Corporation
500 N. Water St., Suite 1100 South
Corpus Christie, Texas 78471
Aspect Resources LLC
511 16th Street, Suite 300
Denver, Colorado 80202
Gentlemen:
This letter states our opinion regarding the material federal income tax
consequences arising from the acquisition of certain property by Frontier
Natural Gas Corporation ("FRONTIER") from Esenjay Petroleum Corporation
("ESENJAY") and Aspect Resources LLC ("ASPECT") pursuant to the Acquisition
Agreement and Plan of Exchange dated effective as of January 19, 1998 by and
among Frontier, Esenjay, and Aspect (the "ACQUISITION AGREEMENT").
The transactions that are the subject of the Acquisition Agreement,
including any transactions undertaken pursuant to Section 3.02(f) of the
Acquisition Agreement, are collectively referred to as the "ACQUISITIONS" for
purposes of this letter. The terms of the Acquisitions are set forth in the
Acquisition Agreement and described in the Registration Statement filed on
Form S-4 by the Company with the Securities and Exchange Commission on February
__, 1998 (the "REGISTRATION STATEMENT"). All capitalized terms used but not
defined in this letter have the same meanings given to them in the Acquisition
Agreement.
Our conclusions are based solely on the U.S. federal income tax laws. We
are not hereby addressing any other legal consequences arising under federal,
state, local, foreign or other law. We have examined such documents, corporate
records, and certificates (copies of which are attached; collectively, the
"CERTIFICATES") as we have considered necessary or appropriate for purposes of
rendering our opinion, including the Acquisition Agreement and the Registration
Statement. For purposes of such examination, we have assumed the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
(and the authenticity of the originals of such documents), the genuineness of
all signatures, and the legal capacity of all natural persons.
<PAGE>
Esenjay Petroleum Corporation
Aspect Resources LLC
March __, 1998
Page 2
In rendering our opinion, we have relied upon the accuracy and completeness
of the facts, information, covenants and representations contained in the
documents and corporate records referenced above, including the Acquisition
Agreement, Registration Statement, and Certificates. Our opinion is conditioned
on the initial and continuing accuracy of the facts, information, covenants and
representations set forth in such documents and corporate records.
Additionally, we have assumed for purposes of rendering our opinion that the
Acquisitions are consummated in accordance with the terms and conditions of the
Acquisition Agreement.
Based solely upon and subject to the foregoing, we are of the opinion that:
1. The Acquisitions will satisfy the requirements of section 351 of
the Internal Revenue Code of 1986, as amended (the "CODE").
2. Frontier will not recognize any gain (or loss) in connection
with the issuance of shares of Frontier Common Stock as part of the
Acquisitions.
3. Esenjay and Aspect will not recognize any gain (or loss) from
the transfer of the Esenjay Assets and Aspect Assets respectively to
Frontier as part of the Acquisitions solely to the extent that Esenjay and
Aspect receive shares of Frontier Common Stock in exchange for such assets.
4. The adjusted basis that Frontier will obtain in the Esenjay
Assets and Aspect Assets will be equal to the adjusted basis that Esenjay
and Aspect respectively had in the Esenjay Assets and Aspect Assets
immediately prior to the Acquisitions, increased by the amount of gain, if
any, that Esenjay or Aspect respectively is required to recognize in
connection with the Acquisitions.
5. The adjusted basis that Esenjay and Aspect will obtain in the
Frontier Common Stock that they receive as part of the Acquisitions will be
equal to the adjusted basis that they had immediately prior to the
Acquisitions in the Esenjay Assets and Aspect Assets respectively,
increased by the amount of gain, if any, that they are required to
recognize respectively in connection with the Acquisitions, reduced by the
amount of money and the fair market value of any other boot that they
receive respectively as part of the Acquisitions, reduced by the amount of
the liabilities, if any, assumed from them respectively by Frontier as part
of the Acquisitions, and reduced by the amount of the liabilities, if any,
encumbering the Esenjay Assets and Aspect Assets respectively at the time
acquired by Frontier as part of the Acquisitions.
<PAGE>
Esenjay Petroleum Corporation
Aspect Resources LLC
March __, 1998
Page 3
6. The holding period that the Company will have in the Esenjay
Assets and Aspect Assets will include the holding period during which
Esenjay and Aspect respectively held the Esenjay Assets and Aspect Assets
prior to the Acquisitions.
7. The holding period that Esenjay and Aspect will have in the
Frontier Common Stock that they receive as part of the Acquisitions will
include the holding period prior to the Acquisitions during which they held
the Esenjay Assets and Aspect Assets respectively, but only to the extent
that the items of property comprising the Esenjay Assets and Aspect Assets
constituted either capital assets or property described in section 1231 of
the Code on the date of the Acquisitions.
The opinions that we state in this letter represent our best legal
judgment. However, they have no binding effect or official status of any kind.
It is possible that the Internal Revenue Service ("IRS") will disagree with all,
or some, of our conclusions. The opinions are based upon existing provisions of
the Code, the applicable Treasury Department regulations promulgated thereunder,
published rulings, procedures, and pronouncements of the IRS which are
authority, applicable legislative history, and judicial decisions. All such
authorities are subject to change at any time, either prospectively or
retroactively, and any such change could modify the opinions stated in this
letter. In rendering our opinions, we undertake no responsibility to advise you
of any such change in the federal income tax laws. The opinions may not be
relied upon to the extent that there is any such change in the federal income
tax laws that relate to the transactions that are the subject of this letter.
Our opinions address only the matters expressly set forth in this letter,
and no opinion is to be implied or inferred except as expressly stated in this
letter. The opinions stated in this letter are stated and effective as of the
Closing Date. This letter is solely for the benefit of Esenjay Petroleum
Corporation and Aspect Resources LLC, and may not be relied upon by any other
person without in each instance our prior written consent. This opinion may be
filed as an exhibit to the Registration Statement.
Sincerely,
CHAMBERLAIN, HRDLICKA, WHITE,
WILLIAMS & MARTIN
<PAGE>
APPENDIX E
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
FRONTIER NATURAL GAS CORPORATION
The undersigned Oklahoma corporation, for the purposes of amending its
Certificate of Incorporation as provided in section 1077 of the Oklahoma General
Corporation Act, hereby certifies:
1. The name of the corporation is Frontier Natural Gas Corporation (the
"Corporation").
2. Article V of the Certificate of Incorporation of the Corporation is
amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the
corporation shall have authority to issue is 145,000,000, divided into
classes as follows: (i) 140,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"), and (ii) 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock")."
3. At a meeting of the Board of Directors, a resolution was duly adopted
setting forth proposed amendments to the Certificate of Incorporation of the
Corporation, declaring said amendments to be advisable and calling a meeting of
the shareholders of the Corporation for consideration thereof. Thereafter,
pursuant to said resolution of its Board of Directors, a meeting of the
shareholders of the Corporation was duly called and held, at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendments.
SUCH AMENDMENT(S) WAS DULY ADOPTED IN ACCORDANCE WITH 18 O.S., Section
1077.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Amendment to be signed by Michael E. Johnson, its President and attested by
David B. Christofferson, its Secretary, this ___ day of ______, 1998.
FRONTIER NATURAL GAS CORPORATION
By:
----------------------------------
Michael E. Johnson, PRESIDENT
ATTEST:
- -----------------------------------
David B. Christofferson, SECRETARY
<PAGE>
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME personally appeared Michael E. Johnson, known to me or proved to
me on the basis of satisfactory evidence to be the person whose name is
subscribed to the foregoing instrument, and known to me to be the President of
Frontier Natural Gas Corporation, an Oklahoma corporation, and acknowledged to
me that he executed said instrument for the purposes and consideration therein
expressed, and as the act of said corporation and declared that the statements
therein contained are true.
WITNESS my hand and official seal this __ day of _______, 1998.
---------------------------------------
NOTARY PUBLIC IN AND FOR THE
STATE OF TEXAS
---------------------------------------
NOTARY PUBLIC PRINTED NAME
MY COMMISSION EXPIRES:
-----------------
2
<PAGE>
APPENDIX F
PLAN AND AGREEMENT OF MERGER
REINCORPORATION OF FRONTIER NATURAL GAS CORPORATION
IN DELAWARE
PLAN AND AGREEMENT OF MERGER, dated as of ________, 1998, by and between
Esenjay Exploration, Inc., a Delaware corporation ("Newco" or the "Surviving
Corporation"), and Frontier Natural Gas Corporation, an Oklahoma corporation
("Frontier"). Frontier and Newco are hereinafter collectively referred to as
the "Merging Corporations."
W I T N E S S E T H:
WHEREAS, Newco is a corporation duly organized and validly existing under
the laws of the State of Delaware, with its registered office at 1209 Orange
Street, Wilmington, Delaware 19801, and with its principal executive offices at
One Allen Center, Suite 2920, Houston, Texas 77002;
WHEREAS, the authorized capital stock of Newco consists of 140,000,000
shares of common stock, par value $.01 per share ("Newco Common Stock"), and
5,000,000 shares of preferred stock, par value $.01 per share, of which, as of
the date hereof, ten shares of Newco Common Stock were issued and outstanding
and owned by Frontier;
WHEREAS, Frontier is a corporation duly organized and validly existing
under the laws of the State of Oklahoma, with its registered office at 735 First
National Building, Oklahoma City, Oklahoma 73102, and with its principal
executive offices at One Allen Center, Suite 2920, Houston, Texas 77002;
WHEREAS, the authorized capital stock of Frontier consists of 40,000,000
shares of common stock, par value $.01 per share ("Frontier Common Stock"), and
5,000,000 shares of preferred stock, par value, $.01 per share ("Frontier
Preferred Stock"), of which, as of the date hereof, approximately ______shares
of Frontier Common Stock and ____ shares of Frontier Preferred Stock, were
issued and outstanding, and _______shares of Frontier Common Stock were reserved
for issuance upon exercise of outstanding warrants and options;
WHEREAS, subject to the approval of the Frontier stockholders and prior to
the Effective Date (as defined below), Frontier intends to amend its Certificate
of Incorporation to increase the number of authorized shares of Frontier Common
Stock to 140,000,000 shares;
WHEREAS, subject to the approval of the Frontier stockholders of a
certain Acquisition Agreement and Plan of Exchange dated as of January 19,
1998 and prior to the Effective Date, the Company intends to issue up to
60,640,199 shares of Frontier Common Stock, in exchange for certain assets of
Esenjay Petroleum Corporation and Aspect Resources LLC;
WHEREAS, pursuant to the terms of a Certificate of Designations of
Convertible Preferred Stock, the board of directors of Frontier has approved the
redemption of all of the issued and outstanding shares of Frontier Preferred
Stock prior to the Effective Date;
WHEREAS, the respective boards of directors of Frontier and Newco deem it
desirable and in the best interests of their respective corporations and their
respective stockholders to merge, pursuant to the provisions of Section 252 of
the General Corporation Law of the State of Delaware and Section 1082 of the
Oklahoma General Corporation Act, Frontier into Newco in exchange solely for
shares of the Newco Common Stock, and have proposed, declared advisable,
<PAGE>
and approved such merger pursuant to this Plan and Agreement of Merger (the
"Agreement"), which Agreement has been duly approved by resolutions of the
respective boards of directors of Frontier and Newco; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the merger, the mode of carrying the same into effect, the manner
and basis of converting the shares of Frontier Common Stock into shares of Newco
Common Stock, and such other details and provisions as are deemed necessary or
proper, the parties hereby agree as follows:
ARTICLE I
MERGER
1:1 SURVIVING CORPORATION. Subject to the adoption and approval of this
Agreement by the requisite vote of the stockholders of each of the Merging
Corporations and to the other conditions hereinafter set forth, Frontier and
Newco shall be, upon the Effective Date, merged into a single surviving
corporation, which shall be Newco, one of the Merging Corporations, which shall
continue its corporate existence and remain a Delaware corporation governed by
and subject to the laws of that State.
1:2 STOCKHOLDER APPROVAL. This Agreement shall be submitted for adoption
and approval by the stockholders of each of the Merging Corporations in
accordance with the applicable laws of the States of Delaware and Oklahoma, at
separate meetings called and held for such purpose.
1:3 EFFECTIVE DATE. The merger shall become effective upon (i) the filing
of a Certificate of Merger with the Secretary of State of Delaware and the
issuance by the Secretary of State of Delaware of evidence of such filing, and
(ii) the filing of a Certificate of Merger with the Secretary of State of
Oklahoma and the issuance by the Secretary of State of Oklahoma of evidence of
such filing. The date upon which the merger shall become effective, as defined
by this Section 1:3, is referred to in this Agreement as the "Effective Date."
ARTICLE II
CONTINUED CORPORATE EXISTENCE OF SURVIVING CORPORATION
2:1 EXISTENCE. The identity, existence, purposes, powers, objects,
franchises, rights, and immunities of Newco, the Surviving Corporation, shall
continue unaffected and unimpaired by the merger, and the corporate identity,
existence, purposes, powers, objects, franchises, rights, and immunities of
Frontier shall be wholly merged into Newco, the Surviving Corporation, and Newco
shall be fully vested therewith. Accordingly, on the Effective Date, the
separate existence of Frontier, except insofar as continued by statute, shall
cease.
ARTICLE III
GOVERNING LAW AND CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION
3:1 DELAWARE LAW GOVERNS AND NEWCO'S CERTIFICATE OF INCORPORATION
SURVIVES. The laws of Delaware shall continue to govern the Surviving
Corporation. On and after the Effective Date, the Certificate of Incorporation
of Newco, as in effect on the Effective Date, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in the
manner provided by law.
ARTICLE IV
BYLAWS OF SURVIVING CORPORATION
4:1 NEWCO'S BYLAWS SURVIVE. On and after the Effective Date, the Bylaws
of Newco as in effect on the Effective Date, shall be the Bylaws of the
Surviving Corporation until the same shall be altered, amended, or repealed,
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<PAGE>
or until new Bylaws shall be adopted in accordance with the provisions of
law, the Certificate of Incorporation, and the Bylaws of the Surviving
Corporation.
ARTICLE V
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
5:1 DIRECTORS OF SURVIVING CORPORATION. The incumbent directors of
Frontier immediately before the Effective Date shall constitute the board of
directors of the Surviving Corporation from and after the Effective Date, and
such persons shall hold office until their successors are, in accordance with
the Bylaws of the Surviving Corporation, elected and qualify.
5:2 OFFICERS OF SURVIVING CORPORATION. The incumbent officers of Frontier
immediately before the Effective Date shall hold the same respective offices of
the Surviving Corporation from and after the Effective Date and until the first
meeting of directors following the next annual meeting of stockholders thereof,
or until their successors are elected in accordance with the Bylaws of the
Surviving Corporation.
5:3 VACANCIES. On or after the Effective Date, if a vacancy shall for any
reason exist in the board of directors or in any of the offices of the Surviving
Corporation, such vacancy shall be filled in the manner provided in the
Certificate of Incorporation or Bylaws of the Surviving Corporation.
ARTICLE VI
CAPITAL STOCK OF SURVIVING CORPORATION
6:1 CAPITAL STOCK AS IN NEWCO'S CERTIFICATE OF INCORPORATION. The
authorized number of shares of capital stock of the Surviving Corporation, the
par value, designations, preferences, rights, and limitations thereof, and the
express terms thereof, shall be as set forth in the Certificate of Incorporation
of the Surviving Corporation as in effect on the Effective Date.
ARTICLE VII
CONVERSION OF SECURITIES ON MERGER
7:1 NEWCO'S CAPITAL STOCK. Each of the shares of Newco Common Stock
issued and outstanding immediately before consummation of the merger on the
Effective Date (all of which are owned by Frontier) shall be extinguished and
deemed canceled for all purposes upon the Effective Date.
7:2 CONVERSION OF FRONTIER' STOCK. On the Effective Date, each share of
Frontier Common Stock then issued and outstanding (excluding any Frontier shares
which may then be held in the treasury of Frontier, all of which shares shall
cease to exist), without any action on the part of the holders thereof, shall
automatically become and be converted into one fully paid and nonassessable
share of the issued and outstanding Newco Common Stock.
7:3 EXCHANGE OF FRONTIER'S STOCK CERTIFICATES. As promptly as practicable
after the Effective Date, each holder of an outstanding certificate or
certificates theretofore representing shares of Frontier Common Stock may
surrender the same to an exchange agent of and designated by the Surviving
Corporation and such holder shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates representing the number of whole
shares of Newco Common Stock into which the shares of Frontier Common Stock
theretofore represented by the certificate or certificates so surrendered shall
have been converted as aforesaid. However, before any surrender, each
outstanding certificate representing issued and outstanding shares of Frontier's
Common Stock shall be deemed for all purposes (other than the right to receive
any dividend payable by Newco, which shall be deferred until such certificate
surrender) to evidence ownership of the number of whole shares of Newco Common
Stock into which the same shall have been converted.
-3-
<PAGE>
7:4 NEWCO FRACTIONAL SHARES. No certificates for fractional share
interests of Newco Common Stock will be issued, but, in lieu thereof, Newco
will settle all such fractional share interests in cash on the basis of the last
sale price for Frontier Common Stock (regular way or when-issued, as the case
may be) on the Nasdaq SmallCap Market, or if none, on the basis of the mean
between the closing bid and asked prices for Frontier Common Stock on such
exchange, on the last trading day next preceding the Effective Date.
7:5 FRONTIER' TRANSFER BOOKS CLOSED. Upon the Effective Date, the stock
transfer books of Frontier shall be deemed closed, and no transfer of any
certificates theretofore representing shares of Frontier shall thereafter be
made or consummated.
ARTICLE VIII
AGREEMENTS OF FRONTIER AND NEWCO PENDING EFFECTIVE DATE
8:1 STOCKHOLDERS MEETINGS. Frontier and Newco will each hold separate
meetings of stockholders for the purpose of considering and acting upon a
proposal to approve and adopt this Agreement and the merger contemplated hereby.
If the holders of at least a majority of all the outstanding shares of Frontier
shall vote in favor of the merger at its meeting, then Frontier (as the sole
stockholder of Newco) will vote all the outstanding shares of Newco in favor of
the merger at the later convening Newco meeting on that same day.
ARTICLE IX
ASSETS AND LIABILITIES
9:1 ASSETS AND LIABILITIES OF MERGING CORPORATIONS BECOME THOSE OF
SURVIVING CORPORATION. On the Effective Date, all rights, privileges, powers,
immunities, and franchises of each of the Merging Corporations, both of a public
and private nature, and all property, real, personal, and mixed, and all debts
due on whatever account, as well as stock subscriptions and all other choses or
things in action, and all and every other interest of or belonging to or due to
either of the Merging Corporations, shall be taken by and deemed to be
transferred to and shall be vested in the Surviving Corporation without further
act or deed, and all such rights, privileges, powers, immunities, franchises,
property, debts, choses or things in action, and all and every other interest of
the Merging Corporations shall be thereafter as effectually the property of the
Surviving Corporation as they were of the respective Merging Corporations, and
the title to any real or other property, or any interest therein, whether vested
by deed or otherwise, in either of the Merging Corporations, shall not revert or
be in any way impaired by reason of the merger; PROVIDED, HOWEVER, that all
rights of creditors and all liens upon any properties of each of the Merging
Corporations shall be preserved unimpaired, and all debts, liabilities,
restrictions obligations, and duties of the respective Merging Corporations,
including without limitation all obligations, liabilities, and duties as lessee
under any existing lease, shall thenceforth attach to the Surviving Corporation
and may be enforced against and by it to the same extent as if such debts,
liabilities, restrictions, obligations, and duties had been incurred or
contracted by it. Any action or proceeding pending by or against either of the
Merging Corporations may be prosecuted to judgment as if the merger had not
taken place, or the Surviving Corporation may be substituted in place of either
of the Merging Corporations.
9:2 CONVEYANCES TO SURVIVING CORPORATION. The Merging Corporations hereby
agree, respectively, that from time to time, as and when requested by the
Surviving Corporation, or by its successors and assigns, they will execute and
deliver or cause to be executed and delivered, all such deeds, conveyances,
assignments, and other instruments, and will take or cause to be taken such
further or other action as the Surviving Corporation, or its successors or
assigns, may deem necessary or desirable in order to vest or perfect in or
confirm to the Surviving Corporation, its successors and assigns, title to and
possession of all the property, rights, privileges, powers, immunities,
franchises, and interests referred to in this Article IX of this Agreement and
otherwise carry out the intent and purposes of this Agreement.
9:3 ACCOUNT TREATMENT. The assets and liabilities of the Merging
Corporations shall be taken up on the books of the Surviving Corporation in
accordance with generally accepted accounting principles, and the capital
surplus and retained earnings accounts of the Surviving Corporation shall be
determined, in accordance with generally accepted
-4-
<PAGE>
accounting principles, by the board of directors of the Surviving
Corporation. Nothing herein shall prevent the board of directors of the
Surviving Corporation from making any future changes in its accounts in
accordance with law.
9:4 CONSENT TO SERVICE OF PROCESS IN OKLAHOMA. The Surviving Corporation,
from and after the Effective Date of the Merger, agrees that it may be served
with process in the State of Oklahoma in any proceeding for the enforcement of
any obligation of Frontier as well as for the enforcement of any obligation of
the Surviving Corporation arising from the Merger, including any suit or
proceeding to enforce the right of any shareholder as determined in appraisal
proceedings pursuant to the provisions of Section 1091 of Title 18, Oklahoma
statutes, and irrevocably appoints the Secretary of State of the State of
Oklahoma as its agent to accept service of process in any such proceeding. Any
such process served upon the Secretary of State of the State of Oklahoma should
be forwarded to the Surviving Corporation, Esenjay Resources Corporation, One
Allen Center, Suite 2920, Houston, Texas 77002, Attn: General Counsel.
ARTICLE X
TERMINATION AND ABANDONMENT
10:1 TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the merger abandoned at
any time (whether before or after the approval and adoption thereof by the
stockholders of Frontier) before the Effective Date:
10:1:1 BY MUTUAL CONSENT. By mutual consent of Frontier and Newco;
10:1:2 BY FRONTIER OR NEWCO BECAUSE OF INSUFFICIENT FRONTIER
STOCKHOLDER VOTE. By Frontier or Newco, if the holders of at least a
majority of all the outstanding shares of Frontier shall not vote in favor
of approval and adoption of this Agreement and the merger contemplated
hereby at a special meeting of Frontier stockholders duly called and held;
10:1:3 BY FRONTIER OR NEWCO BECAUSE OF LEGAL PROCEEDINGS. By
either Frontier or Newco, if any suit, action, or other proceeding shall be
pending or threatened by the federal or a state government before any court
or governmental agency, in which it is sought to restrain, prohibit, or
otherwise affect the consummation of the merger contemplated hereby;
10:1:4 BY FRONTIER OR NEWCO IF MERGER NOT EFFECTIVE BY _____, 1998.
By either Frontier or Newco, if the merger shall not have become effective
on or before ____, 1998.
10:2 TERMINATION BY BOARD OF DIRECTORS. An election by Frontier or Newco
to terminate this Agreement and abandon the merger as provided in Section 10:1
shall be exercised on behalf of such corporation by its board of directors.
10:3 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to the provisions of Section 10:1 hereof,
this Agreement shall become void and have no effect, without any liability on
the part of any party hereto.
10:4 WAIVER OF CONDITIONS. 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, by action taken by its board of directors, the executive
committee of its board of directors, or its president; PROVIDED, HOWEVER, that
no party hereto shall waive any term or condition hereof, unless in the judgment
of the board of directors, the executive committee, or president taking the
action, such waiver will not have a materially adverse effect on the benefits
intended under this Agreement to the stockholders of its or his corporation.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective corporate names by their respective presidents and
attested by their respective secretaries, all as of the day and year first above
written.
ESENJAY EXPLORATION, INC.
(a Delaware corporation)
By
-------------------------------
David W. Berry, PRESIDENT Attest:
-------------------------
David B. Christofferson,
SECRETARY
FRONTIER NATURAL GAS CORPORATION
(an Oklahoma corporation)
By
-------------------------------
David W. Berry, PRESIDENT Attest:
-------------------------
David B. Christofferson,
SECRETARY
-6-
<PAGE>
CERTIFICATES OF CORPORATE SECRETARIES
I, David B. Christofferson, secretary of Esenjay Resources Corporation, a
Delaware corporation ("Newco"), do hereby certify that the plan and agreement of
merger (the "Agreement") to which this certificate is attached, after having
been duly signed on behalf of Newco and having been duly signed on behalf of
Frontier Natural Gas Corporation, an Oklahoma corporation, was duly adopted
pursuant to section 252 of the General Corporation Law of the State of Delaware
on the _____ day of ____________, 1998, by the affirmative vote of the holders
of a majority of the outstanding shares of the common stock of Newco, which
Agreement was thereby adopted as the act of the stockholders of Newco, and the
duly adopted agreement and act of Newco.
WITNESS MY HAND, this _________ day of ____________, 1998.
--------------------------------------
David B. Christofferson, SECRETARY
I, David B. Christofferson, secretary of Frontier Natural Gas Corporation,
an Oklahoma corporation ("Frontier"), do hereby certify that the plan and
agreement of merger to which this certificate is attached, after having been
duly signed on behalf of Frontier and having been duly signed on behalf of
Esenjay Exploration, Inc., a Delaware corporation, was duly adopted pursuant to
Section 1082 of the Oklahoma General Corporation Act, on the _____ day of
____________, 1998, by the affirmative vote of the holders of at least a
majority of the outstanding shares of the common stock of Frontier, which
Agreement was thereby adopted as the act of the stockholders of Frontier, and
the duly adopted agreement and act of Frontier.
WITNESS MY HAND, this ______ day of ____________, 1998.
--------------------------------------
David B. Christofferson, SECRETARY
-7-
<PAGE>
ACKNOWLEDGMENTS
THE STATE OF TEXAS )
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, in and for said County and State, on
this day personally appeared David W. Berry, president, and David B.
Christofferson, secretary, of Esenjay Exploration, Inc., a Delaware corporation,
each known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed said instrument as
the act and deed of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _____ day of ________, 1998.
(SEAL)
----------------------------------------
NOTARY PUBLIC IN AND FOR HARRIS COUNTY,
TEXAS
____________
THE STATE OF TEXAS )
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, in and for said County and State, on
this day personally appeared David W. Berry, president, and David B.
Christofferson, secretary, of Frontier Natural Gas Corporation, an Oklahoma
corporation, each known to me to be the person and officer whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
said instrument as the act and deed of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _____ day of ________, 1998.
(SEAL)
----------------------------------------
NOTARY PUBLIC IN AND FOR HARRIS COUNTY,
TEXAS
-8-
<PAGE>
FIRST AMENDMENT TO
ACQUISITION AGREEMENT AND PLAN OF EXCHANGE
This First Amendment to Acquisition Agreement and Plan of Exchange (this
"Amendment") is made and entered into as of April 20, 1998, by and among
Frontier Natural Gas Corporation, an Oklahoma corporation ("Frontier"),
Esenjay Petroleum Corporation, a Texas corporation ("Esenjay"), and Aspect
Resources LLC, a Colorado limited liability company ("Aspect"), for the
purpose of amending that Acquisition Agreement and Plan of Exchange, dated as
of January 19, 1998 (the "Agreement"), by and among Frontier, Esenjay and
Aspect. Capitalized terms used, but not defined, herein shall have the
meaning ascribed to them in the Agreement.
1. The defined term "Proxy Statement/Prospectus" in Section 1.01 of the
Agreement is hereby deleted in its entirety and a new defined term is hereby
added in its place as follows:
"Proxy Statement" shall mean the proxy statement of Frontier, which
shall be prepared for the purpose of obtaining the approval of
Frontier's stockholders of this Agreement and the Exchange, in addition
to other matters.
2. The definition of "Registration Statement" in Section 1.01 of the
Agreement is hereby amended and restated in its entirety as follows:
"Registration Statement" shall mean a registration statement on Form
SB-2 to be filed by Frontier with the SEC for the purpose, among other
things, of registering the Frontier Common Stock which will be issued to
Aspect, Esenjay and other parties, if any, upon consummation of the
Exchange.
3. Section 8.11 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 8.11 Registration Statement and Proxy Statement/Prospectus;
Frontier Stockholders' Meeting.
(a) As promptly as practical, after the execution of this
Agreement, Frontier shall prepare and file with the SEC the Proxy
Statement to be sent to its stockholders in connection with the
meeting of Frontier's stockholders (the "Frontier Stockholders'
Meeting") to consider the Exchange and Frontier shall prepare and
file with the SEC the Registration Statement. Frontier shall use all
commercially reasonable efforts to cause the Registration Statement
to become effective as soon after such filing as is practical and,
in any event, no later than fourteen days following the Closing
Date. The Proxy Statement shall include the recommendation of the
Board of Directors of Frontier in favor of this Agreement and the
Exchange. Frontier
<PAGE>
shall make all other necessary filings with respect to the Exchange
and the issuance of Frontier Common Stock required under the
Securities Act and the Exchange Act.
(b) Aspect and Esenjay will cooperate in the preparation of
the Registration Statement and the Proxy Statement and will as
promptly as practicable after the date hereof furnish all such data
and information relating to it as Frontier may reasonably request
for the purpose of including such data and information in the
Registration Statement and Proxy Statement. Frontier shall notify
Aspect and Esenjay of the receipt of any comments of the SEC with
respect to the Registration Statement or the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or
for additional information and shall provide to the other promptly
copies of all correspondence to and from the SEC with respect to the
Registration Statement or the Proxy Statement. Frontier shall give
Aspect and Esenjay and their counsel the opportunity to review the
Registration Statement and the Proxy Statement and all responses to
requests for additional information by and replies to comments of
the SEC before their being filed with, or sent to, the SEC. Frontier
agrees to use its commercially reasonable efforts, after
consultation with Aspect and Esenjay, to respond promptly to all
such comments of and requests by the SEC and to cause (i) the Proxy
Statement to be approved by the SEC at the earliest practicable
time, (ii) the Registration Statement to be declared effective by
the SEC as of the Closing Date or as soon thereafter as practicable
and in any event no later than fourteen days following the Closing
Date and to be kept effective for so long as any parties receiving
Frontier Common Stock in connection with the Exchange retain any
such shares or until such time as the Frontier Common Stock held by
such parties can be sold free of restrictions under Rule 144 (other
than volume limitations), whichever is earlier, and (iii) the Proxy
Statement to be mailed to the holders of Frontier Common Stock and
the Frontier Preferred Stock entitled to vote at the Frontier
Stockholders' Meeting at the earliest practicable time. No amendment
or supplement to the Registration Statement or the Proxy Statement
shall be made by Frontier without first providing Aspect and Esenjay
with reasonable opportunity to review such amendment or supplement.
Frontier shall, within the confines of its fiduciary and regulatory
obligations, use its reasonable best efforts to incorporate or
otherwise address the comments of Aspect and/or Esenjay after their
review of such documents.
(c) Frontier shall, as soon as practicable following
effectiveness of the Proxy Statement, take all action necessary
under the OGCA and its Certificate of Incorporation and Bylaws to
convene the Frontier Stockholders' Meeting of its stockholders for
the purpose of approving the Exchange, among other things. Included
in the issues required to be approved by the Shareholders of
Frontier shall be (i) closing of the acquisition of the Aspect
Assets, (ii) closing of the acquisition of the Esenjay Assets, (iii)
authorizing a reverse split of the Frontier Common Stock, (iv)
authorizing the change of Frontier's state of incorporation from
Oklahoma to
2
<PAGE>
Delaware, (v) election of the slate of nominees for the Board of
Directors as set forth in Section 8.09 of this Agreement, and (vi)
any other provision hereof its counsel advises Frontier requires
specific approval in order to fully implement the provisions of this
Agreement. Frontier shall use commercially reasonable efforts to
cause the Frontier Stockholders' Meeting to be held as soon as
practicable after the date hereof.
(d) Frontier shall take such action as may be necessary to
insure that (i) the information included in the Registration
Statement shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make
the statements therein not misleading, and the prospectus contained
in such Registration Statement, at the time the Registration
Statement becomes effective and at any time such prospectus is
delivered to a purchaser of the Frontier Common Stock covered by
such prospectus, will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and (ii) the information included in the
Proxy Statement shall not, on the date the Proxy Statement is first
mailed to stockholders of Frontier, at the time of the Frontier
Stockholders' Meeting, and at the Closing Date, contain any
statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in
order to make the statements made in the Proxy Statement not false
or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to
the solicitation of proxies for the Frontier Stockholders' Meeting
which has become false or misleading.
(e) Aspect and Esenjay shall take such action as may be
necessary to insure that any information or data provided by them to
Frontier in connection with the Proxy Statement or Registration
Statement does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated in the
Proxy Statement or Registration Statement or necessary to make the
statements in the Proxy Statement or Registration Statement, in
light of the circumstances under which they were made, not
misleading.
4. Section 8.13 of the Agreement is hereby amended and restated in its
entirety as follows:
Section 8.13 Name Change. Within three (3) days of Closing,
Frontier shall take all steps necessary or appropriate to change its
name from "Frontier Natural Gas Corporation" to "Esenjay Exploration,
Inc." or a similar name as is legally available and as may be agreed to
among the parties hereto prior to Closing and Esenjay shall consent to
the use of such name and execute any documents reasonably requested by
Frontier to evidence
3
<PAGE>
such consent. In the event that Esenjay retains the name "Esenjay
Petroleum Corporation," Esenjay agrees not to assign the rights to such
name to any person or entity other than Frontier.
5. Except as amended herein, the Agreement remains the same and, to
such extent, is hereby ratified and confirmed.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first above written by the parties or the authorized representative of the
parties.
FRONTIER:
Frontier Natural Gas Corporation
By: /s/ David W. Berry
--------------------------------
David W. Berry, President
ESENJAY:
Esenjay Petroleum Corporation
By: /s/ Michael E. Johnson
--------------------------------
Michael E. Johnson, President
By: /s/ Charles J. Smith
--------------------------------
Charles J. Smith, Chairman
ASPECT:
Aspect Resources LLC
By: Aspect Management Corporation,
its Manager
By: /s/ Alex M. Cranberg
--------------------------------
Alex M. Cranberg, President
4
<PAGE>
SECOND AMENDMENT TO
ACQUISITION AGREEMENT AND PLAN OF EXCHANGE
This Second Amendment to Acquisition Agreement and Plan of Exchange
(this "Amendment") is made and entered into as of May 13, 1998, by and among
Frontier Natural Gas Corporation, an Oklahoma corporation ("Frontier"),
Esenjay Petroleum Corporation, a Texas corporation ("Esenjay"), and Aspect
Resources LLC, a Colorado limited liability company ("Aspect"), for the
purpose of amending that Acquisition Agreement and Plan of Exchange, dated as
of January 18, 1998 (as amended, the "Agreement"), by and among Frontier,
Esenjay and Aspect. Capitalized terms used, but not defined, herein shall
have the meaning ascribed to them in the Agreement.
1. Section 15.02 of the Agreement is hereby amended and restated in
its entirety as follows:
Section 15.02 Indemnification by Esenjay. Esenjay shall indemnify,
defend and hold Aspect and Frontier harmless from and against any all
Damages from, resulting by reason of or arising in connection with any
of the following (in each case so long as notice of a claim for
indemnification is made in good faith within the applicable survival
period):
(a) any break of or inaccuracy in any representation or
warranty made by Esenjay in this Agreement or any Related Document
or any document delivered at Closing;
(b) any breach of or failure by Esenjay to perform any
covenant or obligation of Esenjay in this Agreement or any Related
Document or any document delivered at Closing;
(c) any liability, loss, damage, or obligation incurred or
suffered by Frontier in connection with or as a result of that
lawsuit styled JUAN CABALLERO VS. ESENJAY PETROLEUM CORPORATION AND
FRONTIER NATURAL GAS CORPORATION, Cause No. 98-1884-A in the 28th
District Court of Nueces County, Texas (the "Lawsuit"); provided
however, that this Section 15.02(c) shall (i) only apply in the
event of a final non-appealable monetary judgment or other final
settlement of the Lawsuit or in the event of any loss or damage to
the Esenjay Assets arising out of or resulting from the Lawsuit;
(ii) not include (A) any legal fees or costs of defense, or (B) any
costs associated with the implementation of a safety plan or loss
control program by Frontier, and (iii) not entitle Frontier to
recover any amounts in excess of any monetary damages pursuant to
any final non-appealable judgment or
<PAGE>
settlement, except in the case of any loss or damage to the Esenjay
Assets; and provided further that Frontier shall not enter into any
settlement of the Lawsuit without the prior written consent of
Esenjay and, to the extent Frontier does so, this Section 15.02(c)
shall terminate as to any such settlement and Frontier shall not be
entitled to indemnification hereunder with respect to such
settlement;
(d) any liability, loss, damage, obligation, cost or expense
of Esenjay, other than liabilities for Post Effective Date Costs
assumed by Frontier pursuant to Section 2.03 hereof.
2. Section 15.04 of the Agreement is hereby amended by adding the
following to the end of such section:
"; provided, further, that with respect to any claim for
Damages under Section 15.02(c) of this Agreement, Esenjay's
indemnification obligations hereunder shall not be limited to 24
months, but instead shall extend to any claims brought during the
pendency of the Lawsuit and for a period of 60 days thereafter.
3. Except as amended herein, the Agreement remains the same and, to such
extent, is hereby ratified and confirmed.
[SIGNATURES ON FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first above written by the parties or the authorized representative of the
parties.
FRONTIER:
Frontier Natural Gas Corporation
By: /s/ David W. Berry
--------------------------------------
David W. Berry, President
ESENJAY:
Esenjay Petroleum Corporation
By: /s/ Michael E. Johnson
--------------------------------------
Michael E. Johnson, President
By: /s/ Charles J. Smith
--------------------------------------
Charles J. Smith, Chairman
ASPECT:
Aspect Resources LLC
By: Aspect Management Corporation,
its Manager
By: /s/ Alex M. Cranberg
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Alex M. Cranberg, President
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of May
14, 1998, is made and entered into by and among Esenjay Petroleum
Corporation, a Texas corporation ("Esenjay"), Aspect Resources LLC, a
Colorado limited liability ("Aspect"), and Frontier Natural Gas Corporation,
an Oklahoma corporation (the "Company"). Esenjay and Aspect are herein
collectively referred to as "Shareholders" or individually as a "Shareholder."
RECITALS
A. Esenjay, Aspect and the Company entered into that certain
Acquisition Agreement and Plan of Exchange, dated as of January 19, 1998 (the
"Acquisition Agreement").
B. As of January 12, 1998, Aspect and the Company entered into a Credit
Agreement and in connection therewith the Company issued to Esenjay and
Aspect warrants (the "Bridge Facility Warrants") to purchase an aggregate of
93,750 shares (56,250 in the case of Aspect and 37,500 in the case of
Esenjay) of the common stock, par value $0.01 per share of the Company (the
"Common Stock").
C. As of February 23, 1998, the Company entered into a Credit Agreement
with Duke Energy Financial Services, Inc. and in connection therewith the
Company issued to Esenjay and Aspect warrants (the "Duke Facility Warrants;"
and together with the Bridge Facility Warrants, the "Warrants") to purchase
an aggregate of 93,750 shares (56,250 in the case of Aspect and 37,500 in the
case of Esenjay) of the Common Stock.
D. On May 14, 1998, the shareholders of the Company approved, and the
Company effectuated, a 1 for 6 reverse stock split (the "Reverse Stock
Split"), thereby reducing the number of shares of Common Stock that are the
subject of the Warrants to 31,250 shares.
D. Following the Reverse Stock Split and upon consummation of
transactions contemplated by the Acquisition Agreement, Esenjay will own
5,165,261 shares of the Common Stock and Aspect will own 4,203,106 shares of
the Common Stock.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein and in the Acquisition Agreement, and intending to be
legally bound hereby, covenant and agree as follows:
1. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. At any time after June 30, 1998, the
Shareholders, in the aggregate, may request up to three registrations under
the Securities Act of 1933, as amended (the "Securities Act"), of all or part
of its Registrable Shares (as hereinafter defined). Any registration
requested pursuant to this Section 1(a) is referred to herein as a "Demand
Registration." The Demand Registration will be on Form S-2 or S-3, or any
similar short-form registration, if available, or, if such forms are
unavailable, on Form S-1 or any other appropriate form.
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Any request for Demand Registration must include at least ten percent (10%)
of the Registrable Shares.
(b) PRIORITY ON DEMAND REGISTRATION. In the event a Demand
Registration is underwritten, if the managing underwriter advises the Company
in writing that in its opinion the number of Registrable Shares and other
securities requested to be included exceeds the number which can be sold in
such offering, the Company will include in such registration: (i) first, the
number of Registrable Shares requested to be included which in the opinion of
such underwriters can be sold; (ii) second, any securities for the account of
the Company; and (iii) any other securities requested to be included under
Section 1(c)(iii).
(c) RESTRICTIONS ON DEMAND REGISTRATION.
(i) Each of the Shareholders agrees that the Company shall not
be required to effect any registration during any period of time when the
Company is in possession of material non-public information, which the
Company's Board of Directors deems not to be advisable to disclose in a
registration statement, which material information may relate to any matter
or matters, including without limitation, to a financing project, pending
acquisition, merger or other material corporate transaction to which the
Company is or expects to be a party, and the Company agrees to advise the
Shareholders promptly when such delay is no longer applicable; provided,
however, that the Company may not exercise such right more than once in any
twelve-month period.
(ii) The Company will not be required to proceed with any
Demand Registration for a period of 180 days from the completion of sales of
more than five percent (5%) of the Registrable Shares in any prior Demand or
Piggyback Registration.
(iii) The Company shall have the right to notify such of its
stockholders as it shall desire of any Demand Registration and to invite them
to participate in such registration, subject to Section 1(b) hereof.
Further, the Company shall also be entitled to participate in any Demand
Registration, subject to Section 1(b) hereof, but in the event the Company
participates, such registration shall not count as a Demand Registration
unless the Company's participation is cut back materially.
(iv) A registration will not count as a Demand Registration (A)
until it has become effective, or (B) if the Company takes any action or
fails to take any action in violation of this Agreement and as a result
thereof a registration statement is not effective for the period of time
required hereby or if less, the time required to sell the Registrable Shares
included in such registration statement, provided that any registration that
is withdrawn or terminated at the written request of the Shareholders will
count as a Demand Registration.
(d) SELECTION OF UNDERWRITERS. The investment banker(s) and
manager(s), if any, who shall administer any underwritten offering made
pursuant to the Demand Registration
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shall be selected by the Shareholder(s) requesting the registration and shall
be reasonably satisfactory to the Company.
(e) DURATION OF EFFECTIVENESS. The Company agrees to use its best
efforts to keep any Demand Registration that is a "shelf" registration
pursuant to Rule 415 under the Securities Act continuously effective for one
year after the effective date of such registration statement (the "Effective
Date").
(f) DEMAND REGISTRATION EXPENSES. The Company, on the one hand,
and the Shareholder(s) requesting the first Demand Registration, on the other
hand, shall share equally in all Registration Expenses (as hereinafter
defined) in connection with the first two Demand Registrations, whether or
not they become effective; provided, however, that the Company shall pay all
of the Registration Expenses associated with the first Demand Registration if
the Shareholders jointly agree to waive their rights to and agree to forego
the second Demand Registration. The Shareholder(s) requesting the third
Demand Registration will pay all Registration Expenses in connection
therewith. The Company will make generally available to the public and the
Shareholders, as soon as reasonably practicable after they become available,
earnings statements governing a period of 12 months commencing not later than
the first day of the fiscal quarter next succeeding the Effective Date of
each Demand Registration which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act (except in the case of any
primary offering by Frontier occurring on or before September 30, 1998) and
the registration form to be used may be used for the registration of
Registrable Shares (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Shares of its intention to
effect such a registration no less than fifteen (15) days prior to the filing
of such registration statement and will include in such registration all
Registrable Shares with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the
Company's notice.
(b) PIGGYBACK EXPENSES. The Company will pay the Registration
Expenses of the holders of Registrable Shares in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriter advises the Company in writing that in its opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering, the Company will include in
such registration, in order of priority, the following (i) first, the
securities the Company purposes to sell, (ii) second, the Registrable Shares
held by the Shareholders or their assigns and requested to be included in such
registration, which shall be included in the offering on a pro rata basis
with respect
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to the holders thereof requesting registration, and (iii) third, other
securities requested to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of the Company's securities, and the managing underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, in order of
priority, the following (i) first, the securities requested to be included
therein by the holders of Common Stock exercising registration rights with a
priority senior to the Shareholders, (ii) second, the Registrable Shares held
by the Shareholders or their assigns and requested to be included in such
registration, which shall be included in the offering on a pro rata basis
with respect to the holders thereof requesting registration, which amount
will be calculated based upon the total number of Registrable Shares owned by
such holders, and (iii) third, other securities requested to be included in
such registration.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration
and the sale of such Registrable Shares in accordance with the intended
method of disposition thereof and pursuant thereto the Company will, as
expeditiously as possible:
(a) prepare and file with the Section a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish, at least 10 days prior to filing, to the
counsel selected by the holders of a majority of the Registrable Shares
covered by such registration statement copies of all such documents proposed
to be filed, which documents will be subject to the review and approval of
such counsel, which shall not be unreasonably withheld);
(b) prepare and file with the Section such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than one year and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such
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seller may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition of the Registrable Shares owned by such seller in such
jurisdictions; provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) subject itself to income
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Shares, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading;
(f) cause all such Registrable Shares to be listed or quoted on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed or quoted;
(g) appoint a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Shares being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares;
(i) if the offering is underwritten, at the request of any seller
of Registrable Shares the Company will use its best efforts to furnish on the
date that Registrable Shares are delivered to the underwriters for sale
pursuant to such registration an opinion of counsel representing the Company
for the purposes of such registration, dated such date addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (i) to the best knowledge
of such counsel, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act, (ii) the registration statement,
the related prospectus and each amendment or supplement thereof comply as to
form in all material respects with the requirements of the Securities Act
(except that such counsel need not express any opinion as to financial
statements
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contained therein) and (iii) to such other effect as reasonably may be
requested by counsel for the underwriters or by such seller or its counsel.
(j) make available for inspection by any seller of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement; and
(k) use its best efforts to cause the Registrable Shares covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Shares.
4. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Securities and Exchange Commission (the
"Section") that may permit the sale of the Registrable Shares to the public
without registration, the Company agrees to use its best efforts to:
(a) make and keep public information regarding the Company
available, as those terms are understood and-defined in Rule 144 under the
Securities Act, at all times;
(b) file with the Section in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended;
(c) furnish to any holder of Registrable Shares forthwith upon written
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed as such holder may reasonably
request in availing itself of any rule or regulation of the Section allowing
such a holder to sell any such securities without registration.
5. REGISTRATION EXPENSES. All Registration Expenses will be borne as
provided in this Agreement, except that the Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of
any liability insurance and the expenses and fees for listing or including
the securities to be registered on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed or quoted.
6. INDEMNIFICATION.
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(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Shares, its officers and directors and each
person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
holder expressly for use therein or are caused solely by such holder's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto in conformity with applicable federal and
state securities laws after the Company has furnished such holder with a
sufficient number of copies of the same.
(b) In connection with any registration statement in which a holder
of Registrable Shares is participating, each such holder will furnish to the
Company in writing such information as the Company reasonably requests for
use in connection with any such registration statement or prospectus and, to
the extent permitted by law, will indemnify the Company, its directors and
officers and each person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares and
the liability of each such holder of Registrable Shares will be in proportion
to and limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party and its legal
counsel a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or
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any officer, director or controlling person of such indemnified party and
will survive the transfer of securities.
(e) If the indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7. DEFINITIONS.
(a) "REGISTRATION EXPENSES" means, subject to Section 5 hereof, all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees,
fees and expenses of compliance with federal and state securities or blue sky
laws, securities laws of any foreign jurisdictions, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for
the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the
Company.
(b) "REGISTRABLE SHARES" means (i) the 9,368,367 shares of Common
Stock that will be issued to the Shareholders in connection with the
transactions contemplated by the Acquisition Agreement, (ii) the 31,250
shares of Common Stock that will be issued to the Shareholders upon exercise
of the Warrants, and (iii) any securities issued or issuable with respect to
the Common Stock referred to in clauses (i) or (ii) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any
securities which have become eligible for transfer pursuant to Rule 144 under
the Securities Act (or any similar rule then in force), will cease to be
Registrable Shares when they have actually been sold in compliance with Rule
144 (or any similar rule then in effect). For purposes of this Agreement, a
person will be deemed to be a holder of Registrable Shares whenever such
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person has the right to acquire such Registrable Shares (by conversion,
exchange, exercise or otherwise), whether or not such acquisition has
actually been effected.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which grants senior
rights to register its securities or which is inconsistent with the rights
granted to the holders of Registrable Shares in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company will not
take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include the Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration.
(c) REMEDIES. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of 66 2/3% of the then-outstanding Registrable Shares.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not; provided however, that the only the Piggyback
Registration rights of a holder of Registrable Shares hereunder may be
transferred or assigned and then only to: (i) a transferee or assignee of at
least one-fifth of the Shareholder's Registrable Shares (as presently
constituted and subject to adjustment for stock splits, stock dividends,
reverse splits and the like); (ii) to a partner or stockholder of such
holder; (iii) another holder of Registrable Shares; (iv) any entity to which
such holder acts as a trustee, investment manager, investment advisor or other
fiduciary; (vi) an affiliate of such holder; in each case to whom Registrable
Shares are transferred, subject to such transferee's delivery to the Company
of a written instrument agreeing to be bound hereby.
(f) NOTICES. The Section entitled "Notices, Etc." in the
Acquisition Agreement is hereby incorporated in this Agreement by reference
and made a part hereof.
(g) TERM. Other than the obligations under Section 6 hereof, this
Agreement shall terminate upon the sale of all Registrable Shares held by the
Shareholders or their respective successors or assigns.
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(h) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, including
the conflicts of law provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the
date first above written.
ESENJAY PETROLEUM CORPORATION
By: /s/ Michael E. Johnson
-------------------------------------
Michael E. Johnson, President
ASPECT RESOURCES LLC
By: Aspect Management Corporation,
its Manager
By: /s/ Alex M. Cranberg
-------------------------------------
Alex M. Cranberg, President
FRONTIER NATURAL GAS CORPORATION
By: /s/ David W. Berry
-------------------------------------
David W. Berry, President
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