<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______________ to ______________
COMMISSION FILE NO. 0-21702
MIDDLE BAY OIL COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
ALABAMA 63-1081013
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
------------------------
1221 LAMAR STREET, SUITE 1020
HOUSTON, TX 77010
(Address of principal executive offices)
------------------------
(713) 759-6808
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /
Number of shares outstanding of each of the Registrant's classes of common
stock,
as of the latest practicable date:
Common stock, $.02 par value
14,439,631 shares as of November 4, 1999
Transitional Small Business Disclosure Format (check one)
Yes / / No /X/
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<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--
September 30, 1999 (Unaudited) and December 31,
1998................................................... 1
Consolidated Statements of Operations (Unaudited)--
Three and nine months ended September 30, 1999 and
1998................................................... 2
Consolidated Statements of Cash Flows (Unaudited)--
Nine months ended September 30, 1999 and 1998......... 3
Notes to Consolidated Financial Statements
(Unaudited)............................................ 4
Item 2. Management's Discussion and Analysis Of Financial
Condition and Results of Operations..................... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 26
Item 6. Exhibits and Reports on Form 8-K................... 26
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31
1999 1998
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS................................. $25,076,465 $ 1,040,096
ACCOUNTS RECEIVABLE....................................... 2,716,165 3,309,043
ACCOUNTS RECEIVABLE-INSURANCE CLAIM....................... -- 448,083
OTHER CURRENT ASSETS...................................... 90,567 141,364
----------- -----------
TOTAL CURRENT ASSETS.................................... 27,883,197 4,938,586
NON-CURRENT ASSETS
NOTES RECEIVABLE--STOCKHOLDER............................. -- 173,115
PROPERTY (AT COST)
OIL AND GAS (SUCCESSFUL EFFORTS METHOD)................... 80,659,521 90,849,439
OTHER..................................................... 988,579 795,323
----------- -----------
81,648,100 91,644,762
ACCUMULATED DEPLETION, DEPRECIATION AND AMORTIZATION........ (34,486,362) (39,073,584)
----------- -----------
47,161,738 52,571,178
OTHER ASSETS................................................ 637,875 257,938
----------- -----------
TOTAL ASSETS................................................ $75,682,810 $57,940,817
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITY OF LONG-TERM DEBT........................ $4,314,318 $ --
ACCOUNTS PAYABLE-TRADE.................................... 2,822,415 3,643,241
ACCOUNTS PAYABLE-ENEX LP LIMITED PARTNERS................. -- 538,750
ACCOUNTS PAYABLE-REVENUE.................................. 362,065 342,931
OTHER CURRENT LIABILITIES................................. 200,806 275,010
----------- -----------
TOTAL CURRENT LIABILITIES................................... 7,699,604 4,799,932
LONG-TERM DEBT.............................................. 24,176,249 27,454,567
CONVERTIBLE SUBORDINATED NOTES.............................. 10,850,000 --
DEFERRED INCOME TAXES....................................... 805,353 1,733,167
OTHER LIABILITIES........................................... 304,404 437,949
MINORITY INTEREST........................................... 1,014,155 957,369
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.02 PAR, 20,000,000 SHARES AUTHORIZED,
266,667 DESIGNATED SERIES B AND 2,177,481 SHARES
DESIGNATED SERIES C, NONE OTHER DESIGNATED................ -- --
CONVERTIBLE PREFERRED STOCK SERIES B, $7.50 STATED VALUE,
266,667 SHARES ISSUED AND OUTSTANDING AT SEPTEMBER 30,
1999 AND DECEMBER 31, 1998. $2,000,000 AGGREGATE
LIQUIDATION PREFERENCE.................................... 3,627,000 3,627,000
CONVERTIBLE PREFERRED STOCK SERIES C, $5.00 STATED VALUE,
1,142,996 AND 1,142,663 SHARES ISSUED AND OUTSTANDING AT
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.
$5,714,980 AGGREGATE LIQUIDATION PREFERENCE............... 5,235,083 5,281,937
COMMON STOCK, $.02 PAR VALUE, 40,000,000 SHARES AUTHORIZED,
13,383,005 AND 8,552,365 SHARES ISSUED AND OUTSTANDING AT
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.... 267,692 171,055
PAID-IN-CAPITAL............................................. 48,137,005 36,947,588
ACCUMULATED DEFICIT......................................... (26,365,695) (23,401,707)
LESS COST OF TREASURY STOCK; 21,773 SHARES.................. (68,040) (68,040)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 30,833,045 22,557,833
COMMITMENTS AND CONTINGENCIES
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $75,682,810 $57,940,817
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ -------------------------
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
OIL AND GAS SALES AND PLANT INCOME........................ $ 4,656,156 $3,961,442 $11,328,502 $11,078,360
GAIN ON SALE OF PROPERTIES................................ 575,287 1,518,139 882,477 1,527,207
DELAY RENTAL AND LEASE BONUS INCOME....................... 61,911 20,333 64,911 217,404
OTHER..................................................... 469,508 194,846 691,442 436,783
----------- ---------- ----------- -----------
TOTAL REVENUE............................................... 5,762,862 5,694,760 12,967,332 13,259,754
----------- ---------- ----------- -----------
COSTS AND EXPENSES
LEASE OPERATING, PRODUCTION TAXES AND PLANT COSTS......... 1,434,185 1,934,203 4,450,843 5,539,218
GEOLOGICAL AND GEOPHYSICAL................................ 46,768 139,303 188,484 927,418
DEPRECIATION, DEPLETION AND AMORTIZATION.................. 1,466,006 1,945,110 4,046,546 4,970,052
IMPAIRMENTS............................................... 749,443 492,000 749,443 492,000
DRYHOLE................................................... 391,477 24,141 455,108 331,405
INTEREST.................................................. 717,917 615,792 1,739,362 1,428,633
STOCK COMPENSATION........................................ 729,938 -- 729,938 67,500
SEVERANCE PAYMENT......................................... 284,060 -- 284,060 --
COMPENSATION PLAN PAYMENT................................. 292,527 -- 292,527 --
GENERAL AND ADMINISTRATIVE................................ 1,112,181 975,435 3,048,430 3,231,349
OTHER..................................................... 272,233 -- 481,622 4,639
----------- ---------- ----------- -----------
TOTAL COSTS AND EXPENSES.................................... 7,496,735 6,125,984 16,466,363 16,992,214
LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST........ (1,733,873) (431,224) (3,499,031) (3,732,460)
MINORITY INTEREST........................................... 23,545 154,209 (40,228) 5,523
----------- ---------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (1,757,418) (585,433) (3,458,803) (3,737,983)
INCOME TAX BENEFIT.......................................... (367,314) (199,047) (923,324) (1,270,914)
----------- ---------- ----------- -----------
NET LOSS.................................................... (1,390,104) (386,386) (2,535,479) (2,467,069)
DIVIDENDS TO PREFERRED STOCKHOLDERS......................... 142,843 -- 428,509 67,945
----------- ---------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS................ ($1,532,947) ($ 386,386) ($2,963,988) ($2,535,014)
=========== ========== =========== ===========
NET LOSS PER SHARE
Basic..................................................... ($ 0.15) ($ 0.05) ($ 0.32) ($ 0.32)
=========== ========== =========== ===========
Diluted................................................... ($ 0.15) ($ 0.05) ($ 0.32) ($ 0.32)
=========== ========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 10,351,990 8,530,592 9,137,784 7,889,947
=========== ========== =========== ===========
Diluted................................................... 10,351,990 8,530,592 9,137,784 7,889,947
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
NET LOSS.................................................... ($ 2,535,479) ($ 2,467,069)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPLETION, DEPRECIATION AND AMORTIZATION.................. 4,046,546 4,970,052
IMPAIRMENTS............................................... 749,443 492,000
DRYHOLE COSTS............................................. 455,108 331,405
STOCK COMPENSATION EXPENSE................................ 729,938 67,500
GAIN ON SALE OF PROPERTIES................................ (882,477) (1,527,207)
DEFERRED INCOME TAX BENEFIT............................... (927,814) (1,270,914)
MINORITY INTEREST......................................... (40,228) 5,523
OTHER CHARGES............................................. 350,023 (34,680)
------------ ------------
CASH FLOW FROM OPERATIONS BEFORE CHANGES IN CURRENT ASSETS
AND LIABILITIES........................................... 1,945,060 566,610
CHANGES IN CURRENT ASSETS AND LIABILITIES, NET OF
ACQUISITION EFFECTS:
ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS.............. 827,906 (588,159)
ACCOUNTS PAYABLE, REVENUE PAYABLE, AND OTHER CURRENT
LIABILITIES............................................. (1,330,626) 2,080,921
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 1,442,340 2,059,372
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF PROPERTIES........................... 3,614,453 4,707,497
ADDITIONS TO OIL AND GAS PROPERTIES......................... (1,827,614) (3,305,635)
ACQUISITION OF ENEX RESOURCES CORPORATION, NET OF
CASH ACQUIRED OF $4,698,211................................. -- (11,329,203)
ACQUISITION OF ASSETS OF SERVICE DRILLING CO................ -- (6,337,689)
OTHER ASSETS................................................ (251,680) (492,129)
PAYMENTS FROM (ADVANCES TO) STOCKHOLDER..................... 173,115 (5,211)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... 1,708,274 (16,762,370)
FINANCING ACTIVITIES
PROCEEDS FROM DEBT ISSUED................................. 1,036,000 32,469,604
PROCEEDS FROM SUBORDINATED NOTES ISSUED................... 10,850,000 --
PROCEEDS FROM COMMON STOCK ISSUED......................... 9,975,000 --
PRINCIPAL PAYMENTS ON DEBT................................ -- (15,976,432)
PREFERRED STOCK DIVIDENDS PAID............................ (242,293) (67,945)
REGISTRATION COSTS ON SERIES C PREFERRED STOCK............ (48,518) (778,501)
OTHER..................................................... (684,434) (242,375)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 20,885,755 15,404,351
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 24,036,369 701,353
CASH AND CASH EQUIVALENTS- BEGINNING........................ 1,040,096 1,587,184
------------ ------------
CASH AND CASH EQUIVALENTS- ENDING........................... $ 25,076,465 $ 2,288,537
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID IN CASH..................................... $ 1,446,736 $ 1,322,038
============ ============
PREFERRED DIVIDENDS INCURRED BUT NOT PAID................. $ 186,216 --
============ ============
ACQUISITION OF OIL AND GAS PROPERTIES FROM 3TEC........... $ 875,000 --
============ ============
DRYHOLE COST ACCRUED BUT NOT PAID......................... $ 345,841 --
============ ============
CONVERSION OF SERIES A PREFERRED STOCK.................... -- $ 10,000,000
============ ============
COMMON STOCK ISSUED AS FINDERS' FEE
IN ENEX RESOURCES CORP. TENDER OFFER.................... -- $ 245,231
============ ============
COMMON STOCK ISSUED IN ACQUISITION OF ASSETS FROM SERVICE
DRILLING CO., LLC....................................... -- $ 5,078,250
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Middle Bay Oil Company, Inc., was incorporated under the laws of the State
of Alabama on November 30, 1992. Effective March 27, 1998, the Company acquired
79.2% of Enex Resources Corporation ("Enex") and over a three-week period ending
December 23, 1998, the Company acquired an additional 0.80% of Enex for a total
of 80% of Enex. Effective April 16, 1998, the Company acquired the assets of
Service Drilling Co., LLC ("Service Drilling"). Effective October 1, 1998, the
Company acquired 100% of Enex Consolidated Partners, L.P. ("Enex Partnership"),
a limited partnership of which Enex owned greater than a 50% interest. The
Company and its subsidiaries are engaged in the acquisition, development and
production of oil and gas in the contiguous United States.
BASIS OF PRESENTATION
In management's opinion, the accompanying consolidated financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the consolidated financial position of the Company
as of September 30, 1999 and December 31, 1998 and the consolidated results of
operations and consolidated cash flows for the periods ended September 30, 1999
and 1998.
The consolidated financial statements were prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. An independent
accountant has not audited the accompanying consolidated financial statements.
Certain information and disclosures normally included in annual audited
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary and Enex, an 80% owned subsidiary. The equity of the
minority interest in Enex is shown in the consolidated statements as "minority
interest". Significant intercompany accounts and transactions are eliminated in
consolidation.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares outstanding
without any dilutive effects considered. Diluted earnings per share reflects
dilution from all potential common shares, including options, warrants and
convertible preferred stock. A weighted average of 2,041,751 and 3,285,751
common stock equivalents in 1999 and 330,297 and 288,535 common stock
equivalents in 1998, are not considered in the calculation of diluted earnings
per share for the nine and three month periods ending September 30,
respectively, due to the net loss recorded during these periods.
4
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made to conform
to the current presentation.
(2) ACQUISITIONS
On March 27, 1998, the Company acquired 1,064,432 common shares,
approximately 79.2%, of Enex for $15,966,480. The Company purchased the common
shares of Enex through a cash tender offer that commenced February 19, 1998 (the
"Enex Acquisition"). The Company also incurred approximately $60,934 in legal,
accounting and printing expenses and issued 33,825 shares of Company common
stock for finders fees to unrelated third parties. At the time, Enex was general
partner of Enex Consolidated Partners, L.P., (the "Enex Partnership"), a New
Jersey limited partnership whose principal business was oil and gas exploration
and production. Enex's general partner interest was 4.1%. Enex also owned an
approximate 56.2% limited partner interest in Enex Partnership.
The cost of acquiring 79.2% of Enex was allocated using the purchase method
of accounting to the consolidated assets and liabilities of Enex based on
estimates of the fair values with the remaining purchase price allocated to
proved oil and gas properties.
The allocation of the purchase price is summarized as follows: (in
thousands)
<TABLE>
<S> <C>
Working capital............................................. $ 5,640
Oil and gas properties (proved and unproved)................ 19,090
Minority interest........................................... (7,669)
-------
Total....................................................... $17,061
=======
</TABLE>
Over a three-week period ending December 23, 1998, the Company acquired an
additional 0.80% (9,747 common shares) of Enex common stock for approximately
$68,000.
On April 16, 1998, the Company acquired substantially all of the oil and gas
assets of Service Drilling Co., LLC and certain affiliates ("Service Drilling"),
in exchange for 666,000 shares of Company common stock and $6,500,000 in cash
for a total acquisition cost of $10,054,774, before post-closing adjustments
(the "Service Acquisition"). The fair value of the securities issued in
connection with the Service Acquisition was calculated using the price of the
Company's common stock at the time the Service Acquisition was announced to the
public and further adjusted for tradability restrictions. An independent
valuation firm determined the tradability discount for the Company's common
stock. The effective date of the acquisition was March 1, 1998 and the cost was
allocated using the purchase method of accounting.
On December 30, 1998, the Company completed the acquisition of the Enex
Partnership (the "Enex Partnership Acquisition"). The transaction consisted of
an exchange offer whereby the Company offered to exchange 2.086 shares of
Series C Preferred stock ("Series C") for each Enex Partnership unit (the
"Exchange Offer"). In connection with the Exchange Offer, the Company submitted
a proposal to investors in the Enex Partnership to amend the partnership
agreement to provide for the transfer of all of the assets and liabilities of
the Enex Partnership to the Company as of October 1, 1998 and dissolve the
5
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(2) ACQUISITIONS (CONTINUED)
Enex Partnership. The Exchange Offer was approved on December 30, 1998 and the
Company issued 2,177,481 Series C shares for 100% of the outstanding limited
partner units. At the close of the Exchange Offer, the Enex Partnership had
1,102,631 units outstanding. Enex was issued 1,293,521 Series C shares for its
56.2% ownership of the Enex Partnership. The remaining 883,959 Series C shares
were issued to the limited partners that elected to take Series C shares in lieu
of cash. In January 1999, certain dissenting limited partners were paid $516,000
and other unitholders were paid $23,000 in lieu of fractional shares. Because of
the dissenting limited partners, Enex owns 59.4% of the Series C shares, of
which 20% (258,704 shares) are considered outstanding and held by third parties.
The Series C accrues dividends at an annual rate of $0.50 per share which are
paid on March 31 and September 30 and has a $5.00 per share liquidation value.
The cost of acquiring 100% of the outstanding limited partner units was
approximately $11.9 million, consisting of the following (in thousands):
<TABLE>
<S> <C>
Estimated fair value of 2,177,481 shares of Company Series C
preferred stock........................................... $10,887
Cash consideration.......................................... 539
Legal, accounting and other expenses........................ 431
-------
Total....................................................... $11,857
=======
</TABLE>
As Enex is consolidated into the Company's financial statements, the number
of shares outstanding and the value of the shares outstanding attributable to
the 43.8% of the Enex Partnership not owned by Enex and the minority interest
owners of Enex (20%) is 1,142,663 and $5,713,317, respectively. The cost of
acquiring the outstanding limited partner units that were not owned by Enex was
approximately $6.7 million, consisting of the following (in thousands):
<TABLE>
<S> <C>
Estimated fair value of 1,142,663 shares of Company Series C
preferred stock........................................... $5,713
Cash consideration.......................................... 539
Legal, accounting and other expenses........................ 431
------
Total....................................................... $6,683
======
</TABLE>
The Company's purchase price was allocated to the assets and liabilities of
the Enex Partnership based on estimates of the fair values with the remaining
purchase price allocated to proved oil and gas properties. The registration
costs of approximately $431,000 reduced the value of the Series C shares issued.
Because the Enex Partnership was consolidated in the financial statements of the
Company as of the effective date
6
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(2) ACQUISITIONS (CONTINUED)
of October 1, 1998, the purchase price allocation below shows the effect of the
acquisition on the consolidated financial statements (in thousands):
<TABLE>
<S> <C>
Working capital............................................. $ (539)
Oil and gas properties...................................... (23)
Minority interest........................................... 5,844
------
Series C Preferred Stock.................................... $5,282
======
</TABLE>
The following pro forma data presents the results of the Company for the
nine months ended September 30, 1998, as if the acquisitions of Service, Enex
and the Enex Partnership had occurred on January 1, 1998. The pro forma results
are presented for comparative purposes only and are not necessarily indicative
of the results which would have been obtained had the acquisitions been
consummated as presented. The following data reflect pro forma adjustments for
oil and gas revenues, production costs, depreciation and depletion related to
the properties and businesses acquired, preferred stock dividends on preferred
stock issued, and the related income tax effects (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
PROFORMA
NINE MONTHS
ENDED
SEPTEMBER 30, 1998
------------------
(UNAUDITED)
<S> <C>
Total revenues.............................................. $20,765
Net loss available to stockholders.......................... (3,346)
Net loss per share available to stockholders................ (0.41)
</TABLE>
(3) COMMON STOCK, WARRANT AND SENIOR SUBORDINATED NOTE SALE TO 3TEC ENERGY
COMPANY, L.L.C. ("3TEC")
On August 27, 1999, the Company closed a Securities Purchase Agreement(the
"Agreement') for a total of $21,400,000 with 3TEC Energy Corporation, a
privately-held company ("Old 3TEC"). Contemporaneously with the closing of the
transactions contemplated by the Securities Purchase Agreement, Old 3TEC was
merged with and into 3TEC with 3TEC as the surviving entity. As a result of the
merger, all of the properties, rights, privileges, powers and franchises of Old
3TEC, including without limitation, the rights, obligations and duties of Old
3TEC under the Securities Purchase Agreement became vested in 3TEC as the
surviving entity. The Securities Purchase Agreement and contemplated
transactions were approved by the stockholders at the Company's annual meeting
on August 10, 1999.
The controlling person of 3TEC is EnCap Investments L.L.C., a Delaware
limited liability company ("EnCap Investments"). The sole member of EnCap
Investments is El Paso Field Services Company, a Delaware corporation ("El Paso
Field Services"). The controlling person of El Paso Field Services is El Paso
Energy Corporation, a Delaware corporation. The Company received $9,825,000 in
cash and oil and gas properties valued at $875,000 for 4,755,556 shares of
common stock and 3,600,000 warrants (the
7
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(3) COMMON STOCK, WARRANT AND SENIOR SUBORDINATED NOTE SALE TO 3TEC ENERGY
COMPANY, L.L.C. ("3TEC") (CONTINUED)
"Warrants")(See Note 7) and $10,700,000 for a 5-year senior subordinated
convertible note with a face value of $10,700,000 (the "Note").
At closing, 3TEC became the Company's largest shareholder with ownership of
approximately 36% of the outstanding common stock. If 3TEC chooses to fully
exercise the Warrants and fully convert the Note to common shares, 3TEC would
control approximately 58% of the then issued and outstanding shares of common
stock of the Company.
As part of the Agreement, at closing, five of the seven directors resigned
and all of the executive officers, except Stephen W. Herod and Robert W.
Hammons, resigned from their executive positions. A new five-member board was
formed. John J. Bassett, former president, chief executive officer and chairman
of the Company and Gary C. Christopher, continued as directors and 3TEC
appointed three new board members, Floyd C. Wilson, David B. Miller and D.
Martin Phillips. Floyd C. Wilson is Managing Director and a member of 3TEC.
David B. Miller and D. Martin Phillips are Managing Directors of EnCap
Investments. The Company appointed Mr. Wilson Chairman of the Board, President,
Chief Executive Officer, Secretary and Treasurer, Mr. Bassett Executive
Vice-President and Frank C. Turner II acting Chief Financial Officer.
Subsequently, Mr. Bassett resigned and Mr. Herod was named to the Board
effective September 30, 1999.
(4) ACCOUNTS RECEIVABLE-INSURANCE CLAIM
The Company owns a 100% working interest in the Louis Mayard #1 well (the
"Well") located in the Esther Field in Vermillion Parish, Louisiana. Due to a
failed recompletion attempt and the inability of the Company to shut in the Well
using normal operating methods, the Company incurred approximately $1,856,000
during 1998 to gain control of the Well using special crews. On November 4,
1998, the insurance company made a partial payment to the Company under its well
control insurance policy of approximately $1,408,000. In April, 1999 the Company
was paid $383,000 in final settlement of all claims related to the Well. The
Company had recorded the estimated remaining amount due from the insurance
company in current assets as Accounts Receivable-Insurance Claim.
(5) LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Reducing revolving line of credit of up to $100,000,000 due
April 1, 2001, secured by oil and gas properties, monthly
borrowing base reductions of $250,000 effective May 1,
1999 and monthly payments of interest at Libor plus 2.00%
and prime. At September 30, 1999 the Libor and prime rates
were 5.30% and 8.25%, respectively........................ 28,490,567 27,454,567
Less current maturities..................................... (4,314,318) --
----------- -----------
Long-term debt excluding current maturities................. $24,176,249 $27,454,567
=========== ===========
</TABLE>
8
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(5) LONG-TERM DEBT (CONTINUED)
In connection with the Enex Acquisition the Company entered into a new
reducing revolving line of credit agreement (the "$100 million Revolver"). The
$100 million Revolver is subject to semi-annual borrowing base redeterminations
which are affected by acquisitions and dispositions of assets. The borrowing
base at September 30, 1999 was $27,600,000 and monthly borrowing base reduction
requirements are $250,000.
The principal is due at maturity, April 1, 2001. Monthly principal payments
are made as required in order that the outstanding principal balance plus
outstanding letters of credit does not exceed the borrowing base. Interest is
payable monthly and is calculated at the prime rate. The Company may also elect
to calculate interest under the Libor rate, as defined in the agreement. The
Libor rate increases by (a) 2.00% if the outstanding loan balance and letters of
credit are equal to or greater than 75% of the borrowing base, (b) 1.75% if the
outstanding loan balance and letters of credit are less than 75% or greater than
50% of the borrowing base or (c) 1.50% if the outstanding loan balance and
letters of credit are equal to or less than 50% of the borrowing base. Libor
interest is payable at maturity of the Libor loan which cannot be less than
thirty days.
At September 30, 1999, the Company had borrowed $28,490,567 and had $373,750
of outstanding letters of credit. As of September 30, 1999, the Company is
paying Libor plus 2.00% on a ninety day Libor loan for $26,505,605 and prime on
$1,984,962.
Effective May 1, 1999, the borrowing base was redetermined to be $31,000,000
with monthly borrowing base reductions of $250,000. Effective September 1, 1999,
the Company sold mortgaged properties for $2,741,000 with a borrowing base of
$2,200,000. Considering the monthly reductions and the September property sale,
the outstanding principal balance and letters of credit exceed the borrowing
base by $1,314,000 as of September 30. The property sale closed on September 30
and the Company made a $1,900,000 principal payment on October 1. The terms of
the October 1, 1999 redetermination for the Company's $100 million Revolver have
been deferred pending execution of a definitive agreement with Bank One (See
Note 10). Pursuant to the terms of the $100 million Revolver, if the borrowing
base is less than the outstanding principal balance plus outstanding letters of
credit the Company has sixty days, after receipt of notice from the Banks, to
cure the excess by prepayment, providing additional collateral or a combination
of both.
Amounts spent on debt retirement due to reductions in the borrowing base
reduce the cash available to spend on acquisition, development and exploration
activities, and accordingly, oil and natural gas revenues and operating results
may be adversely affected.
The Company paid a facility fee equal to 3/8% of the initial borrowing base
and is required to pay 3/8% on any future increase in the borrowing base within
five days of written notice. The Company is required to pay a quarterly
commitment fee on the unused portion of the borrowing base of 1/2% if the
outstanding loan balance plus letters of credit are greater than 50% of the
borrowing base or 3/8% if the outstanding loan balance plus letters of credit
are less than or equal to 50% of the borrowing base. The Company is required to
pay a letter of credit fee on the date of issuance or renewal of each letter of
credit equal to the greater of $500 or 1 1/2% of the face amount of the letter
of credit.
9
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(5) LONG-TERM DEBT (CONTINUED)
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and gas properties.
The $100 million Revolver requires, among other things, a cash flow coverage
ratio of 1.25 to 1.00 and a current ratio, excluding current maturities of the
$100 million Revolver, of 0.9 to 1.00, determined on a quarterly basis.
(6) SENIOR SUBORDINATED NOTES
On August 27, 1999, senior subordinated promissory notes (the "Senior
Notes") were sold to 3TEC and affiliates of Alvin V. Shoemaker ("Shoemaker"), a
former director and significant shareholder, for $10,700,000 and $150,000,
respectively. The Senior Notes bear interest at an annual rate of 9%. Interest
is payable on December 31, 1999 and on every March 31, June 30, September 30 and
December 31, thereafter until maturity. The Company may defer payment of fifty
percent (50%) of the first eight quarterly interest payments. The Senior Notes
may be prepaid, without premium or penalty, in whole or in part, at any time
after August 27, 2001. 3TEC and Shoemaker may convert all or any portion of
outstanding principal and accrued interest at any time into shares of Company
common stock at a conversion price of $3.00 per common share, a total of
3,616,667 common shares. The conversion price may be adjusted from time to time
based on the occurrence of certain events. In the event of a change in control
(as defined in the Agreement), the entire outstanding principal balance and all
accrued but unpaid interest shall be immediately due and payable.
The Senior Notes rank senior in right of payment to all Company notes and
indebtedness other than the $100 Million Revolver.
(7) COMMON STOCK, OPTIONS AND WARRANTS
On August 27, 1999, the Company sold 3TEC 4,755,556 shares of common stock
and five-year warrants to purchase 3,600,000 shares of common stock for
$9,825,000 in cash and oil and gas properties valued at $875,000. On the same
date, the Company sold 66,666 shares of common stock and five-year warrants to
purchase 50,466 shares of common stock to Shoemaker for $150,000.
The warrants issued to 3TEC and Shoemaker are exercisable for $1.00 per
share and expire five years from the issue date. Sixty percent of the warrants
are immediately exercisable, in whole or in part at any time until the
expiration date. An additional 10% of the warrants may be exercised at each
anniversary of the grant date until expiration. On the occurrence of either a
change of control, payment in full of the Senior Notes or conversion of the
entire principal balance of the Senior Notes, all of the warrants become
immediately exercisable. If less than the entire principal balance of the Senior
Notes are converted, a pro-rata portion of the warrants will be convertible
based on the portion of the Senior Notes that are converted.
On August 24, 1999, the Company amended the 1995 Stock Option and Stock
Appreciation Rights Plan due to the change in control that resulted from the
sale of securities to 3TEC. The Plan was amended to extend the exercise date for
all options issued prior to July 1, 1999 to one year from the following dates:
(1) the termination date of employees if the termination date is without cause
and occurred during the
10
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(7) COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
six-month period commencing with the closing of the Purchase Agreement; (2) the
date of termination for employees terminated for "Good Reason" as defined in
such employee's employment agreement; and (3) the date of resignation of a
holder who is also a director who resigns at closing of the Purchase Agreement.
According to APB Opinion 25, the extension of the exercise period results in
a new measurement date and compensation expense, equal to the intrinsic value of
all of the Plan's outstanding options, is recognized. A one-time charge of
$730,000 due to the Plan amendment was recorded as Compensation Expense during
the three-month period ending September 30, 1999.
On February 9, 1999 and January 13, 1998, the Board of Directors granted to
certain employees and directors, options with exercise prices of $1.50 and $5.75
per share, respectively, to acquire 200,000 and 232,000 shares of Company common
stock, respectively. All of the options were granted under the 1995 Stock Option
and Stock Appreciation Rights Plan at fair market value on date of grant and
will expire five years from date of grant if not exercised. On September 15,
1998, warrants to acquire 75,000 shares of Company common stock at an exercise
price of $5.00 were granted to a consultant as compensation. The warrants vested
over the period September 15, 1998 to January 1, 1999. The estimated fair value
of the warrants of $198,946 was determined at the date of grant and charged to
stock compensation expense over the vesting period. The agreement was amended on
August 9, 1999 to include issuing the consultant 10,000 shares of Series C
Preferred Stock as additional compensation for services performed to date.
General and administrative expense was charged $50,000 during the three-month
period ending September 30, 1999 for the issuance of the 10,000 Series C shares.
(8) COMMITMENTS AND CONTINGENCIES
Effective September 30, 1999, John J. Bassett, resigned as executive
vice-president and board member and ceased employment with the Company. Under
the terms of Mr. Bassett's employment agreement, the Company is obligated to
make a lump-sum payment of $280,000 to Mr. Bassett within ten days of his
resignation. The severance payment, and associated taxes of $4,060, was
recognized as severance payment expense during the quarter ending September 30.
Mr. Bassett was paid on October 10. Stephen W. Herod, Vice-President Corporate
Development, was appointed to the Board to replace Mr. Bassett.
In March 1995, the Board of Directors adopted an employee incentive
compensation plan (the "Plan") for the benefit of Company employees. The Plan
benefits are equal to one percent (1%) of the annual net profit from oil and gas
properties acquired or discovered on or after January 1, 1994 and one percent
(1%) of the annual sales proceeds from any oil and gas properties sold on or
after January 1, 1994. The Compensation Committee of the Board of Directors has
sole authority regarding the amount and timing of payment of any Plan benefits
to eligible employees.
On August 27, 1999, the Compensation Committee authorized the payment of
$274,625 to the eligible participants in the Plan. The authorized amount, equal
to 100% of the Plan benefits through August 27, 1999, was paid to the Plan
participants and the Plan was terminated pursuant to the terms of the 3TEC
Agreement. The entire amount of the payment, including associated taxes of
$17,902, was recognized as compensation expense during the quarter ending
September 30, 1999. Prior to the Compensation Committee's authorization, the
Plan benefits were not accrued as an expense in the financial statements because
11
<PAGE>
MIDDLE BAY OIL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
the likelihood that the Compensation Committee would determine that the benefits
would be payable to eligible employees was less than probable.
The Company is a defendant in various legal proceedings which are considered
routine litigation incidental to the Company's business, the disposition of
which management believes will not have a material effect on the financial
position or results of operations of the Company.
(9) HEDGING ACTIVITIES
In April, the Company entered into costless collar hedges for approximately
3,650 Mcf per day with a weighted average floor and ceiling of $2.06 and $2.20,
for the months of May through October of 1999. During the three month and nine
month periods ending September 30, 1999, the Company incurred hedging losses of
approximately $118,000 and $131,000, respectively.
(10) SUBSEQUENT EVENTS
On October 1, 1999 the Company executed, and subsequently amended on October
22, a commitment letter with Bank One Texas, N.A. and Banc One Capital
Markets, Inc. ("Bank One") for a $250 million credit facility (the "Facility")
to finance the potential Floyd Oil Acquisition, subject to an initial borrowing
base of $95 million. Unless a definitive agreement is executed on or before
November 30, 1999 the $95 million commitment with Bank One will terminate. The
terms of the October 1, 1999 redetermination for the Company's $100 million
Revolver have been deferred pending execution of a definitive agreement with
Bank One.
On October 7, 1999, the Company announced that it had entered into an
agreement for the acquisition of properties and interests owned by a group of
private sellers and managed by Floyd Oil Company. There is no relationship
between Floyd C. Wilson, President of the Company, and Floyd Oil Company. The
transaction has an adjusted purchase price of approximately $96 million with an
effective date of January 1, 1999. The majority of the properties are located in
Texas and Louisiana. The properties being acquired have estimated proved
reserves at August 1, 1999 of 186,000 Mmcfe with 73% of the reserves classified
as proved developed producing. The reserves being acquired are 76% natural gas.
The Company will operate the majority of the properties. Closing is expected to
be on or before November 30, 1999 and is subject to execution of definitive
agreements and completion of due diligence. The transaction is expected to be
financed through the Bank One Facility and from working capital.
On October 19, 1999, the Company closed a private placement of securities to
The Prudential Insurance Company of America ("Prudential"). The economic terms
and conditions of the private placement are similar to those of the Agreement
with 3TEC entered into on July 1, 1999. The private placement consisted of the
sale of 1,055,042 shares of common stock and five-year warrants to purchase
798,677 shares at $1.00 per share of common stock for $2,373,844 and a five-year
senior subordinated convertible note for $2,373,844. The subordinated note will
bear interest at a rate of 9% per annum and is convertible into 791,281 shares
of common stock.
On November 2, 1999, the operator authorized the plugging and abandonment of
the Cornelius #1 well on the Hawkins Ranch Prospect which was spudded on
September 3, 1999. The Company incurred approximately $363,000 in costs, which
were charged to dryhole expense in the current period.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table reflects certain summary operating data for the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Production Data:
Oil and Liquids (MBbls)................................. 116 163 367 427
Natural Gas (MMcf)...................................... 982 1,031 2,778 2,713
Equivalent Production (Mcfe)............................ 1,680 2,009 4,980 5,277
Average Sales Price (1)
Oil and Liquids (per Bbl)............................... $19.10 11.35 14.66 11.91
Natural Gas (per Mcf)................................... 2.35 1.90 2.01 2.04
Average equivalent price (per Mcfe)......................... 2.69 1.90 2.20 2.02
Expenses ($ per Mcfe)
Oil and gas operating (2)............................... 0.78 0.92 0.82 0.99
General and administrative.............................. 0.66 0.49 0.61 0.61
Depreciation and depletion (3).......................... 0.85 0.95 0.79 0.93
Cash Margin ($ per Mcfe) (4)................................ 1.25 0.49 0.77 0.42
</TABLE>
- ------------------------
(1) Excludes revenue from Spivey Field gas plant.
(2) Includes lease operating costs, production and ad valorem taxes and excludes
Spivey Field plant costs.
(3) Represents depreciation and depletion, excluding impairments, of oil and gas
properties only.
(4) Represents average equivalent price per Mcfe less oil and gas operating
expenses per Mcfe and general and administrative expenses per Mcfe.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
For the three months ended September 30, 1998, the revenues and expenses
include the Enex Acquisition and the Service Acquisition but do not include the
Enex Partnership Acquisition.
REVENUES--
Total revenues for the current period of $5,763,000 were $68,000 higher than
the comparable period. The increase in total revenues was due principally to
increases in oil and gas revenues of $695,000 and other income of $275,000,
offset partially by a $943,000 decrease in gains on sales of properties.
Oil and gas revenues increased $695,000. The increase in oil and gas
revenues consisted of a $371,000 increase in oil revenues, a $348,000 increase
in gas revenues and a $24,000 decrease in other revenues. The increase in gas
revenues included a loss on hedging of $118,000. The increase in oil and gas
revenues was the result of higher oil and gas prices. Production of oil and gas
decreased 29% and 5%, respectively while oil and gas prices increased 68% and
24%, respectively. Normal production decline and property sales contributed to
the declines in oil and gas production.
In April, the Company entered into costless collar hedges for approximately
3,650 Mcf per day with a weighted average floor and ceiling of $2.06 and $2.20,
for the months of May through October. During the current period, the Company
incurred a hedging loss of $118,000. In the current period, the realized gas
price would have been $2.47, if the hedging loss was excluded versus a realized
price of $2.35.
The Company recorded gains on the sale of properties in the current and
comparable periods of $575,000 and $1,518,000, respectively. The sale of
approximately 157 wells in 19 fields for approximately $2,741,000 to a private
company accounted for the primary portion of the gain in the current period. The
13
<PAGE>
effective date of the private sale was September 1. In the prior period, the
Company also sold several hundred properties at auction and in private sales for
approximately $4,140,000. In the current and comparable periods a significant
portion of the proceeds was credited against the original acquisition cost.
Other income in the current period of $469,000 includes $256,000 from a
lawsuit settlement. Other income in the comparable period includes a lawsuit
settlement of $123,000.
COSTS AND EXPENSES--
Total expenses increased $1,371,000 over the comparable period. The primary
reasons for the total expense increase were non-recurring charges of $1,307,000
associated with the sale of securities to 3TEC and the resulting change in
management control and increased dryhole costs of $367,000. The non-recurring
charges were stock compensation expense of $730,000, severance payment of
$284,000 and employee incentive compensation plan payment of $293,000. The stock
compensation charge resulted from an amendment to the Company's stock option
plan, prior to the sale of securities to 3TEC, which increased the length of
time employees and directors could exercise their options if they were
terminated or resigned, in the case of directors, for a certain period of time
after the sale of securities to 3TEC. The severance payment was the amount
payable to John J. Bassett upon his resignation on September 30, 1999, according
to the terms of his employment agreement. The employee incentive compensation
plan payment was the result of an agreement between 3TEC and the Company to pay
the benefits due under the plan as a condition precedent to the closing of the
securities sale to 3TEC.
Lease operating expense decreased $500,000. Property sales that have closed
throughout the twelve month period ending September 30, 1999 contributed to the
lower lease operating expenses.
Geological and geophysical expenses ("G&G expenses") decreased $92,000. In
the current and comparable periods, the Company incurred approximately $47,000
and $139,000, respectively, of G&G expenses. The principal G&G expenses in the
current and comparable periods were attributable to the Cedartown Prospect and
the Sherburne Prospect, respectively.
Depletion, depreciation and amortization expenses decreased $479,000.
Reserve write-downs, property sales and lower production contributed to the
lower depletion, depreciation and amortization expenses.
Impairment expense in the current period of $749,000 consists of a $472,000
impairment on the fee mineral acreage situated in Louisiana, a $27,000
impairment of various non-producing leases and a $250,000 impairment on various
oil and gas properties. The fee mineral impairment was the result of 6,227
unleased acres in Terrebonne Parish that are expected to revert to the surface
owners by December 1, 1999. Impairment expense in the comparable period was due
to the writedown of reserves resulting from an unsuccessful recompletion
attempt.
During the current period, dryhole expense increased by $367,000. In the
current and comparable periods, the Company incurred approximately $391,000 and
$24,000, respectively, of dryhole expenses. Dryhole expense attributable to the
Cornelius #1 of $363,000 was the primary dryhole expense in the current period.
The Cornelius #1 was declared a dryhole subsequent to September 30 and the
estimated costs to complete the drilling and plug and abandon the well were
accrued at September 30.
Interest expense increased $102,000. Accrued interest on the subordinated
notes since August 27, 1999 resulted in slightly higher interest expense.
Interest rates and the loan balance did not vary significantly between the
current and comparable periods.
General and administrative expenses ("G&A") increased $137,000. Increases in
salary, legal and consulting expenses in the current period offset decreases in
salary, office and rent expenses in the comparable period. The increase in
salary expense was due to employees hired subsequent to the sale of securities
to 3TEC. Legal and consulting expenses increased for various reasons. The
decrease in salary,
14
<PAGE>
office and rent expenses in the comparable period was due to the staff
reductions at Enex and the closing of the Enex offices in Kingwood, Texas.
Other expenses increased $272,000. Bad debt expense of $70,000 and various
other charges accounted for the increase.
OPERATING LOSS AND NET LOSS--
The Company reported an operating loss before minority interest of
$1,734,000 for current period versus an operating loss of $431,000 for the
comparable period. Due to the Enex Acquisition, the Company records a minority
interest on its income statement to remove the net income or loss attributable
to the minority interest holders of Enex (20%). In the current and comparable
periods, the minority interest increased the operating loss by $23,000 and
$154,000, respectively. The minority interest in the current period accounted
only for the Enex operations while the minority interest in the comparable
period accounted for the operations of Enex and the Enex Partnership. The Enex
Partnership was acquired by the Company effective October 1, 1998.
The Company reported an income tax benefit of $367,000 in the current period
versus a $199,000 benefit in the comparable period.
The Company reported a net loss of $1,390,000 for the current period versus
a net loss of $386,000 for the comparable period. After considering the
preferred stock dividend requirement of $143,000 in the current period versus
none in the comparable period, the Company reported a net loss attributable to
common stockholders in the current and comparable periods of $1,533,000 and
$386,000, respectively. The preferred dividends in the current period represent
three months of accrued dividends on the Series C preferred stock.
If the non-recurring charges of $1,307,000 associated with the sale of
securities to 3TEC and the resulting change in management control in the current
period were excluded, the Company would have reported net loss attributable to
common stockholders of $440,000 versus the actual net loss attributable to
common stockholders of $1,533,000.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
For the nine months ended September 30, 1998, the revenues and expenses
include the Enex Acquisition for the period April through September and do not
include the Enex Partnership Acquisition. The Service Acquisition is included in
the revenues and expenses for the months of May through September.
REVENUES--
Total revenues for the current period of $12,967,000 were $292,000 lower
than the comparable period. The decrease in total revenues was due principally
to a decrease in gain on sale of properties of $645,000 offset partially by
increases in other income and oil and gas revenues.
Oil and gas revenues increased $250,000. The increase in oil and gas
revenues consisted of a $292,000 increase in oil revenues, a $35,000 increase in
gas revenues and a $77,000 decrease in other revenues. The increase in gas
revenues included a loss on hedging of $131,000. The increase in oil and gas
revenues was primarily the result of higher oil prices. Oil production decreased
14% while oil prices increased 23%. The 2% increase in gas production was almost
entirely offset by the 2% lower gas prices caused by the hedging loss. Normal
production decline and property sales contributed to the reduced oil production
over the comparable period. The Enex, Service and Enex Partnership Acquisitions,
which closed subsequent to March 26, 1998, increased oil and gas production over
the comparable period.
15
<PAGE>
In April, the Company entered into costless collar hedges for approximately
3,650 Mcf per day with a weighted average floor and ceiling of $2.06 and $2.20,
for the months of May through October. During the current period, the Company
incurred a hedging loss of $131,000. In the current period, the realized gas
price would have been $2.06, if the hedging loss was excluded versus a realized
price of $2.01.
The Company recorded gains on the sale of properties in the current and
comparable periods of $882,000 and $1,527,000, respectively. The sale of
approximately 157 wells in 19 fields for approximately $2,741,000 to a private
company accounted for the primary portion of the gain in the current period. The
effective date of the private sale was September 1. In the comparable period,
the Company also sold several hundred properties at auction and in private sales
for approximately $4,495,000. In the current and comparable periods a
significant portion of the proceeds was credited against the original
acquisition cost.
Other income in the current period of $691,000 includes $256,000 from a
lawsuit settlement and $135,000 in interest income. Other income in the
comparable period includes a lawsuit settlement of $123,000.
COSTS AND EXPENSES--
Total expenses decreased $526,000 over the comparable period. The primary
reasons for the total expense decrease were lower lease operating expenses,
production taxes and plant costs ("lease operating expenses"), geological and
geophysical expenses and depletion. Certain non-recurring charges associated
with the sale of securities to 3TEC and the resulting change in management
control increased total expenses by $1,307,000. The non-recurring charges were
stock compensation expense of $730,000, severance payment of $284,000 and
employee incentive compensation plan payment of $293,000. The stock compensation
charge resulted from an amendment to the Company's stock option plan, prior to
the sale of securities to 3TEC, which increased the length of time employees and
directors could exercise their options if they were terminated or resigned, in
the case of directors, for a certain period of time after the sale of securities
to 3TEC. The severance payment was the amount payable to John J. Bassett upon
his resignation on September 30, 1999, according to the terms of his employment
agreement. The employee incentive compensation plan payment was the result of an
agreement between 3TEC and the Company to pay the benefits under the plan as a
condition precedent to the closing of the securities sale to 3TEC.
Lease operating expense decreased $1,088,000. Property sales that have
closed throughout the twelve month period ending September 30, 1999 contributed
to the lower lease operating expenses.
Geological and geophysical expenses ("G&G expenses") decreased $739,000. In
the current and comparable periods, the Company incurred approximately $188,000
and $927,000, respectively, of G&G expenses. The principal G&G expenses in the
current and comparable periods were attributable to the Cedartown Prospect and
Hawkins Ranch Prospect, respectively.
Depletion, depreciation and amortization expenses decreased $923,000.
Reserve write-downs, property sales and lower production contributed to the
lower depletion, depreciation and amortization expenses.
Impairment expense in the current period of $749,000 consists of a $472,000
impairment on the fee mineral acreage situated in Louisiana, a $27,000
impairment of various non-producing leases and a $250,000 impairment on various
oil and gas properties. The fee mineral impairment was the result of 6,227
unleased acres in Terrebonne Parish that are expected to revert to the surface
owners by December 1, 1999. Impairment expense in the comparable period was due
to the writedown of reserves resulting from an unsuccessful recompletion
attempt.
During the current period, dryhole expense increased by $124,000. The
dryhole expense in the current period of $455,000 was due primarily to expenses
on the Hawkins 60 #1 of $39,000 and Cornelius #1 of $363,000. Both wells are
part of the Hawkins Ranch Prospect. The dryhole expense in the prior period of
16
<PAGE>
$331,000 consisted principally of a $199,000 dryhole on the S. Highbaugh
Prospect and additional dryhole expense of $102,000 on two dryholes in the
Reflection Ridge Prospect.
Interest expense increased $311,000 due to a lower average loan balance in
the first quarter of the comparable period and higher interest expense in the
current period due to the interest on the subordinated notes issued on
August 27, 1999. The loan balance was lower in the first quarter of the
comparable period compared to the second quarter of the comparable period
because the Enex Acquisition closed on March 27, 1998 and the Service
Acquisition closed on April 16, 1998. In addition, advances on the $100 Million
Revolver occurred in February and April of the current period.
General and administrative expenses ("G&A") decreased $183,000. Decreases in
several expense categories contributed to the decrease. The primary expense
decrease was due to decreases in salary, contract labor, office and rent
expenses. The staff reductions at Enex and the closing of the Enex offices in
Kingwood, Texas contributed largely to these expense reductions. Increases in
salary, legal, accounting and consulting expenses in the current period
partially offset the expense reductions. An increase in salary expense was due
to employees hired subsequent to the sale of securities to 3TEC. Legal,
accounting and consulting expenses increased for various reasons.
Other expenses increased $477,000. Bad debt expense of $170,000 and other
miscellaneous adjustments resulted in the expense increase.
OPERATING LOSS AND NET LOSS--
The Company reported an operating loss before minority interest of
$3,499,000 for current period versus an operating loss of $3,732,000 for the
comparable period. Due to the Enex Acquisition, the Company records a minority
interest on its income statement to remove the net income or loss attributable
to the minority interest holders of Enex (20%). In the current and comparable
periods, the minority interest decreased the operating loss by $40,000 and
increased the operating loss by $6,000, respectively. The minority interest in
the current period accounted only for the Enex operations while the minority
interest in the comparable period accounted for the operations of Enex and the
Enex Partnership. The Enex Partnership was acquired by the Company effective
October 1, 1998.
The Company reported an income tax benefit of $923,000 in the current period
versus a $1,271,000 benefit in the comparable period.
The Company reported a net loss of $2,535,000 for the current period versus
a net loss of $2,467,000 for the comparable period. After considering the
preferred stock dividend requirement of $428,000 in the current period versus
$68,000 in the comparable period, the Company reported a net loss attributable
to common stockholders in the current and comparable periods of $2,964,000 and
$2,535,000, respectively. The preferred dividends in the current period
represent nine months of accrued dividends on the Series C preferred stock. The
preferred dividend in the comparable period represents accrued dividends on the
Series A preferred stock.
If the non-recurring charges of $1,307,000 associated with the sale of
securities to 3TEC and the resulting change in management control in the current
period were excluded, the Company would have reported net loss attributable to
common stockholders of $1,849,000 versus the actual net loss attributable to
common stockholders of $2,964,000.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Cash flow from operating activities for the current period of $1,442,000
decreased $617,000 from the comparable period. The decrease in cash flow was due
primarily to working capital changes offset partially by lower lease operating
and geological and geophysical expenses. Cash flow from oil and gas properties
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(oil and gas revenues and plant income less lease operating expenses, production
taxes and plant costs) increased $1,338,000 over the comparable period. Lower
lease operating expense was the primary reason for the increased cash flow from
oil and gas properties. Increases in oil prices and gas production resulted in
higher oil and gas revenues. Oil prices increased 23%, while oil production
decreased 14%. Gas prices decreased 1%, while gas production increased 2%. The
change in working capital was caused principally by timing differences in the
payment of expenses and receipt of revenues.
Cash additions to oil and gas properties were lower than the comparable
period due primarily to less exploratory and developmental drilling in the
current period. The amount spent on acquisitions was lower due to no
acquisitions in the current period versus the Enex and Service Acquisitions that
closed in the comparable period. The Company acquired approximately 79% of Enex
common stock for cash in a tender offer that closed March 27, 1998 and acquired
the oil and gas assets of Service Drilling Co., LLC and certain affiliates for
cash and stock in a transaction that closed April 16, 1998.
During the current period, the Company was advanced $516,000 on the
$100 million Revolver to pay the dissenting limited partners in the Enex
Partnership Acquisition and $520,000 to pay for developmental drilling projects
on several of its major properties. In the comparable period, the Company
refinanced its existing debt and financed the Enex and Service Acquisitions with
proceeds from the $100 million Revolver. The Company made no principal payments
on the $100 million Revolver during the current period. In the comparable
period, the Company made principal payments, excluding refinancings, of
$5,015,000.
During the current period, the Company sold $10,850,000 of common stock,
receiving $9,975,000 in cash and $875,000 in oil and gas properties, and
$10,850,000 of subordinated notes to 3TEC and Shoemaker. No common stock or note
sales were made in the comparable period. Cash costs of $684,000 were incurred
in the sale of the securities to 3TEC and classified as Other Financing
Activities.
In the current period, the Company paid approximately $242,000 in dividends
on the Series C preferred stock issued in the Enex Partnership Acquisition. The
amount paid represents a portion of the $428,000 of dividends accrued for the
nine months ended September 30, 1999. Of the $428,000, $97,000 is attributable
to the 20% minority interest ownership in Enex. The remaining dividends were not
immediately paid in cash because of unknown addresses and non-receipt of
preferred stock issuance forms.
Net cash from operations, property sales, $100 million Revolver advances and
cash on hand were used during the period ending September 30, 1999 principally
for proved property and leasehold acquisitions, exploratory and developmental
drilling and geological and geophysical expenses. Approximately $134,000 and
$198,000 was spent on leasehold and legal costs on the Cedartown and Hawkins
Ranch Prospects, respectively. Approximately $1,329,000 was spent on exploratory
and developmental drilling and recompletions. Approximately $167,000 was spent
on abandonment costs on a field in Florida. The principal exploratory well
drilled in the current period was the Hawkins 60 #1 on the Hawkins Ranch
Prospect which was unsuccessful. The principal developmental expenditure in the
current period was a recompletion in the Murphy Lake Field for approximately
$351,000. The remaining exploratory and developmental work was throughout
several fields.
The Company had current assets of $27,883,000 and current liabilities of
$7,700,000, which resulted in working capital of $20,183,000 as of
September 30, 1999. Current period working capital increased $20,044,000 from
working capital of $139,000 as of December 31, 1998. Cash received from the sale
of securities to 3TEC and Shoemaker of $20,825,000 caused the increase in
working capital. The current maturity of long-term debt increased from
December 31, 1998 because the amount of debt outstanding increased and the
borrowing base decreased since December 31, 1998. The Company's current ratio of
8.24, calculated under the terms of the $100 million Revolver agreement, which
excludes current maturities of debt due under the $100 million Revolver, was in
excess of the 0.90 to 1.00 required.
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COMMON STOCK, WARRANT AND SENIOR SUBORDINATED NOTE SALE TO 3TEC ENERGY COMPANY,
L.L.C. ("3TEC")
On August 27, 1999, the Company closed a Securities Purchase Agreement(the
"Agreement') for a total of $21,400,000 with 3TEC Energy Corporation, a
privately-held company ("Old 3TEC"). Contemporaneously with the closing of the
transactions contemplated by the Securities Purchase Agreement, Old 3TEC was
merged with and into 3TEC with 3TEC as the surviving entity. As a result of the
merger, all of the properties, rights, privileges, powers and franchises of Old
3TEC, including without limitation, the rights, obligations and duties of Old
3TEC under the Securities Purchase Agreement became vested in 3TEC as the
surviving entity. The Securities Purchase Agreement and contemplated
transactions were approved by the stockholders at the Company's annual meeting
on August 10, 1999. The controlling person of 3TEC is EnCap Investments L.L.C.,
a Delaware limited liability company ("EnCap Investments"). The sole member of
EnCap Investments is El Paso Field Services Company, a Delaware corporation ("El
Paso Field Services"). The controlling person of El Paso Field Services is El
Paso Energy Corporation, a Delaware corporation. The Company received $9,825,000
in cash and oil and gas properties valued at $875,000 for 4,755,556 shares of
common stock and 3,600,000 warrants (the "Warrants") and $10,700,000 for a
5-year senior subordinated convertible note with a face value of $10,700,000
(the "Note"). The Warrants may be exercised for up to 3,600,000 shares of common
stock at an exercise price of $1 per share. Sixty percent of the Warrants may be
exercised immediately. The remaining 40% will be exercisable over a 4-year
period commencing 12 months from the closing date of the Agreement. The Note
will bear interest at a rate of 9% per annum and is convertible into 3,566,667
shares of common stock.
Simultaneous with the close of the Agreement with 3TEC, the Company sold
66,666 shares of Company common stock for $150,000 and $150,000 of 5-year senior
subordinated convertible notes to affiliates of Alvin V. Shoemaker, a former
director and significant shareholder of the Company ("Shoemaker").
At closing, 3TEC became the Company's largest shareholder with ownership of
approximately 36% of the outstanding common stock. If 3TEC chooses to fully
exercise the Warrants and fully convert the Note to common shares, 3TEC would
control approximately 58% of the then issued and outstanding shares of common
stock of the Company.
As part of the Agreement, at closing, five of the seven directors resigned
and a new five-member board was formed. John J. Bassett, former president, chief
executive officer and chairman of the Company and Gary C. Christopher, continued
as directors and 3TEC appointed three new board members, Floyd C. Wilson, David
B. Miller and D. Martin Phillips. Floyd C. Wilson is Managing Director and a
member of 3TEC. David B. Miller and D. Martin Phillips are Directors of EnCap
Investments. Subsequently, Mr. Bassett resigned and Mr. Herod was named to the
Board effective September 30, 1999.
As part of the Agreement, at closing, all of the officers of the Company,
except Stephen W. Herod and Robert W. Hammons, resigned from their executive
positions. The Company appointed Mr. Wilson Chairman of the Board, President,
Chief Executive Officer, Secretary and Treasurer, Mr. Bassett Executive
Vice-President and Frank C. Turner II acting Chief Financial Officer.
COMMITMENT FOR A $250 MILLION CREDIT FACILITY
On October 1, 1999 the Company executed, and subsequently amended on October
22, a commitment letter with Bank One Texas, N.A. and Banc One Capital
Markets, Inc. ("Bank One") for a $250 million credit facility (the "Facility")
to finance the potential Floyd Oil Acquisition, subject to an initial borrowing
base of $95 million. Unless a definitive agreement is executed on or before
November 30, 1999 the $95 million commitment with Bank One will terminate. The
terms of the October 1, 1999 redetermination for the Company's $100 million
Revolver have been deferred pending execution of a definitive agreement with
Bank One.
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$100 MILLION LINE OF CREDIT
In conjunction with the Enex Acquisition on March 27, 1998 the Company
entered into a $100 million reducing, revolving line of credit (the
"$100 million Revolver") with current borrowings under a term note maturing
April 1, 2001. The entire principal balance of the Company's $50 million
Convertible Loan was replaced with the $100 million Revolver.
The amount the Company can borrow is based upon the borrowing base. The
borrowing base and the monthly borrowing base reduction amounts are redetermined
semi-annually by unanimous consent of the lenders. The principal is due at
maturity, April 1, 2001. Monthly principal payments are made as required in
order that the outstanding principal balance plus outstanding letters of credit
does not exceed the borrowing base. Interest is payable monthly and is
calculated at the prime rate. The Company may elect to calculate interest under
the Libor rate, as defined in the agreement. The Libor rate increases by
(a) 2.00% if the outstanding loan balance and letters of credit are equal to or
greater than 75% of the borrowing base, (b) 1.75% if the outstanding loan
balance and letters of credit are less than 75% or greater than 50% of the
borrowing base or (c) 1.50% if the outstanding loan balance and letters of
credit are equal to or less than 50% of the borrowing base.
The borrowing base at September 30, 1999 was $27,600,000. Effective May 1,
the borrowing base was redetermined to be $31,000,000 with monthly borrowing
base reductions of $250,000. The borrowing base was reduced by $2,200,000 due to
the sale of mortgaged properties for $2,741,000 effective September 1, 1999. At
September 30, 1999 the Company had borrowed $28,491,000 and had $374,000 of
outstanding letters of credit. During the current period, the Company did not
make any principal payments and was advanced $1,036,000 under the $100 million
Revolver. The Company is currently paying Libor plus 2.00% on a ninety day Libor
loan for $26,506,000 and prime on $1,985,000.
At September 30, 1999, the outstanding principal balance and letters of
credit exceed the borrowing base by $1,314,000. The property sale closed on
September 30 and the Company made a $1,900,000 principal payment on October 1.
Pursuant to the terms of the $100 million Revolver, if the borrowing base is
less than the outstanding principal balance plus outstanding letters of credit
the Company has sixty days, after receipt of notice from the Banks, to cure the
excess by prepayment, providing additional collateral or a combination of both.
The terms of the October 1, 1999 redetermination have been deferred pending
execution of a definitive agreement on the $250 million credit facility with
Bank One.
The Company paid a facility fee equal to 3/8% of the initial borrowing base
and is required to pay 3/8% on any future increase in the borrowing base within
five days of written notice. The Company is required to pay a quarterly
commitment fee on the unused portion of the borrowing base of 1/2% if the
outstanding loan balance plus letters of credit are greater than 50% of the
borrowing base or 3/8% if the outstanding loan balance plus letters of credit
are less than or equal to 50% of the borrowing base. The Company is required to
pay a letter of credit fee on the date of issuance or renewal of each letter of
credit equal to the greater of $500 or 1 1/2% of the face amount of the letter
of credit.
The Company has granted to the Banks liens on substantially all of the
Company's oil and natural gas properties, whether currently owned or hereafter
acquired, and a negative pledge on all other oil and gas properties.
The $100 million Revolver requires, among other things, a cash flow coverage
ratio of 1.25 to 1.00 and a current ratio, excluding the current maturity of the
$100 million Revolver, of 0.9 to 1.00, determined on a quarterly basis. As of
September 30, 1999 the Company was in compliance with the cash flow and current
ratio covenants. Because the borrowing base was higher than the debt and
outstanding letters of credit during the current period, excluding the effects
of the property sale that closed on September 30, no debt payments were
required.
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Under the terms of the $100 million Revolver, when mortgaged properties are
sold the borrowing base shall be reduced, and if necessary, proceeds from the
sales of properties shall be applied to the debt outstanding in an amount equal
to the loan value attributable to such properties sold.
The $100 million Revolver includes other covenants prohibiting cash
dividends, distributions, loans, advances to third parties in excess of
$100,000, or sales of assets greater than 10% of the aggregate net present value
of the oil and gas properties in the borrowing base. The bank has granted the
Company a waiver allowing the Company to pay the dividends to holders of
Series C as long as no default or event of default exists or would exist as a
result of any Series C dividend payment.
SENIOR SUBORDINATED NOTES
On August 27, 1999, as part of the Agreement with 3TEC, senior subordinated
promissory notes (the "Senior Notes") were sold to 3TEC and Shoemaker for
$10,700,000 and $150,000, respectively. The Senior Notes bear interest at an
annual rate of 9%. Interest is payable on December 31, 1999 and on every
March 31, June 30, September 30 and December 31, thereafter until maturity. The
Company may defer payment of fifty percent (50%) of the first eight quarterly
interest payments. The Senior Notes may be redeemed, in whole or in part, at any
time after August 27, 2001. 3TEC and Shoemaker may convert all or any portion of
outstanding principal and accrued interest at any time into shares of Company
common stock at a conversion price of $3.00 per common share, for a total of
3,616,667 common shares. The conversion price may be adjusted from time to time
based on the occurrence of certain events. In the event of a change in control,
the entire outstanding principal balance and all accrued but unpaid interest
shall be immediately due and payable.
The Senior Notes rank senior in right of payment to all Company notes and
indebtedness other than the $100 Million Revolver.
PRIVATE PLACEMENT OF SECURITIES TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
On October 19, 1999, the Company closed a private placement of securities to
The Prudential Insurance Company of America ("Prudential"). The economic terms
and conditions of the private placement are similar to those of the Agreement
with 3TEC entered into on July 1, 1999. The private placement consisted of the
sale of 1,055,042 shares of common stock and five-year warrants to purchase
798,677 shares of common stock at $1.00 per share for $2,373,844 and a five-year
senior subordinated convertible note for $2,373,844. The subordinated note will
bear interest at a rate of 9% per annum and is convertible into 791,281 shares
of common stock. Prudential owns approximately 7% of the Company's currently
outstanding common stock.
PROPERTY SALES
During the nine-month period ending September 30, 1999, the Company received
approximately $3,600,000 in cash from the sales of non-strategic oil and gas
properties. The Company recorded a gain of $869,000 on the sales of the oil and
gas properties.
Subsequent to the May 1 borrowing base redetermination, the borrowing base
on the $100 Million Revolver was reduced by $2,200,000 for the loan value of the
sold properties.
FUTURE CAPITAL REQUIREMENTS AND AVAILABLE FINANCING
The Company has made and will continue to make, substantial capital
expenditures for acquisition, development and exploration of oil and natural gas
reserves. The timing of most of the Company's capital expenditures is
discretionary with no material long-term commitments. Consequently, the Company
has a significant degree of flexibility to adjust the level of such expenditures
as conditions warrant.
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The Company expects to spend approximately $3,400,000 on development and
exploration projects over the next twelve months, which excludes any exploration
and development projects associated with any future significant acquisitions.
The Company intends to use available cash, cash flows from operations and cash
proceeds from asset sales of certain non-core properties to fund capital
expenditures other than significant acquisitions and expects such funds to be
adequate for such purposes.
On October 7, 1999, the Company announced that it had entered into an
agreement for the acquisition of properties and interests owned by a group of
private sellers and managed by Floyd Oil Company. There is no relationship
between Floyd C. Wilson, President of the Company, and Floyd Oil Company. The
transaction has an adjusted purchase price of approximately $96 million with an
effective date of January 1, 1999. The majority of the properties are located in
Texas and Louisiana. The properties being acquired have estimated proved
reserves at August 1, 1999 of 186,000 Mmcfe with 73% of the reserves classified
as proved developed producing. The reserves being acquired are 76% natural gas.
The Company will operate the majority of the properties. Closing is expected to
be on or before November 30, 1999 and is subject to execution of definitive
agreements and completion of due diligence. The transaction is expected to be
financed through the Bank One Facility and from working capital.
Other than the Floyd Oil Acquisition, the Company does not have a specific
acquisition budget as a result of the unpredictability of the timing and size of
potential acquisition activities. The Company intends to use borrowings under
its bank credit facility, or other debt or equity financings, to the extent
available, to finance significant acquisitions. The availability and
attractiveness of these sources of financing will depend upon a number of
factors, some of which will relate to the financial condition and performance of
the Company, and some of which will be beyond the Company's control, such as
prevailing interest rates, oil and gas prices and other market conditions.
On October 17, 1999 the Company spudded a well in the Cedartown Prospect.
The Company's share of the dryhole cost is $187,000.
On November 2, 1999, the operator agreed to plug and abandon the second
exploratory well drilled on the Hawkins Ranch Prospect, the Cornelius #1, which
was spudded on September 3. The first well drilled on the Hawkins Ranch Prospect
in the first quarter of 1999 was also unsuccessful. The operator is currently
evaluating the future drilling plans on the Hawkins Ranch Prospect in light of
the results of the Cornelius #1. Prior to the results of the Cornelius #1, the
operator had scheduled the drilling of three additional exploratory wells
through February 1, 2000 with total estimated dryhole costs, net to the Company,
of approximately $885,000. The Company expects to pay approximately $300,000 in
the fourth quarter of 1999 to fund the remaining Cornelius #1 dryhole costs. As
of November 12, 1999 the Company had not committed to drill any additional wells
on the Hawkins Ranch Prospect.
At September 30, 1999, the outstanding principal balance and letters of
credit on the $100 million revolver exceeded the borrowing base by $1,314,000.
The Company paid $1,900,000 on the outstanding principal balance on October 1,
1999. The terms of the October 1, 1999 redetermination have been deferred
pending execution of a definitive agreement on the $250 million credit facility
with Bank One. If a definitive agreement on the Bank One credit facility is
executed, the outstanding principal balance on the $100 million Revolver will be
paid in full.
Amounts spent on debt retirement due to reductions in the borrowing base
reduce the cash available to spend on acquisition, development and exploration
activities and, accordingly, oil and natural gas revenues and operating results
may be adversely affected.
The Company believes that cash flow from operations, cash on hand and
available borrowings will be sufficient to fund its operations and future growth
as contemplated under its current business plan. However, if the Company's plans
or assumptions change or if its assumptions prove to be inaccurate, the Company
may be required to seek additional capital. Management cannot be assured that
the Company will be able to obtain such capital or, if such capital is
available, that the Company will be able to obtain it on acceptable terms.
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CURRENT ACTIVITIES
As of November 12, 1999, there was one exploratory well drilling on the
Cedartown Prospect in Lincoln Parish, Louisiana.
YEAR 2000 COMPLIANCE
Readers are cautioned that the forward-looking statements contained in the
following Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements." The disclosures also
constitute a "Year 2000 Readiness Disclosure" and "Year 2000 Statement" within
the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998.
STATEMENT OF READINESS
The Company has undertaken various initiatives to ensure that its hardware,
software and equipment will function properly with respect to dates before and
after January 1, 2000. For this purpose, the phrase "hardware, software and
equipment" includes systems that are commonly thought of as Information
Technology systems ("IT"), as well as those Non-Information Technology systems
("Non-IT") and equipment which include embedded technology. IT systems include
computer hardware and software and other related systems. Non-IT systems include
certain oil and gas production and field equipment, gathering systems, office
equipment, telephone systems, security systems and other miscellaneous systems.
The Non-IT systems present the greatest readiness challenge since identification
of embedded technology is difficult and because the Company is, to a great
extent, reliant on third parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team, which is chaired by
its Chief Financial Officer, Frank C. Turner, II. The team includes corporate
staff and representatives from the Company's business units. In response to the
possible risks posed to the Company, the team has developed a Y2K Plan (the
"Plan") which includes guidelines for inventory, assessment, remediation,
testing and contingency planning.
The following categories represent the mission-critical operational systems
of the Company. A "mission-critical system" is a system that is vital to the
successful continuation of a core business activity. An application may be
mission critical if it interfaces with a designated mission-critical system.
Each system has been evaluated by the Company as to (a) the risks to the Company
in the event of the most reasonably likely worst case scenario (the "Worst Case
Scenario"); (b) the status of the Company's remediation plan, if any ("Status");
and (c) the Company's contingency plans, if any ("Contingency Plans").
ACCOUNTING SOFTWARE SYSTEMS. The Company relies solely on certain software
accounting packages ("Accounting Packages") to provide management with various
reports that allow managers to determine the cash flow and profitability of
individual properties and of the Company as a whole. Management also relies on
the Accounting Packages to provide financial information necessary to prepare
quarterly and annual financial reports that are sent to the Securities and
Exchange Commission, NASDAQ Stock Market, banks and stockholders. In addition,
the Company relies on the Accounting Packages to process and print checks to be
sent to working and royalty interest owners for their share of the monthly oil
and gas sales, to process and print checks for payment to vendors and to process
and print monthly joint-interest statements to be sent to working interest
owners in Company-operated oil and gas properties. Under a Worst Case Scenario,
all accounting functions would have to be completed manually, significantly
hindering the Company's ability to complete the above-described mission-critical
tasks.
Status: The Company has updated its accounting systems. Testing was completed
on June 30, 1999 and all primary functions utilizing dates functioned
properly.
Contingency Plans: Based on the results of the independent testing of the
Accounting Software System, the Y2K Team believes the risk of the
Accounting Software System being adversely affected by Y2K is remote. If
the Accounting Software System is adversely affected by Y2K, the Company
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has developed various contingency plans which include the utilization of
support personnel and the performance of manual tasks.
CONTROL SYSTEMS AND IMBEDDED TECHNOLOGY. These systems include the
equipment used to produce, monitor, control, sell and record hydrocarbon
production, including all artificial lift equipment, storage, measurement and
control facilities and third-party systems and technology interrelated to the
Company's business. Under a Worst Case Scenario, multiple fields of oil and gas
would lose the ability to account for or produce the amount of hydrocarbon
production, temporarily shutting down the field(s) until the malfunctioning
part(s) could be repaired or replaced. This is not expected to materially
adversely affect the Company.
Status: The only mission-critical field operated by the Company is the Spivey
Field, whose production operations are not affected by Y2K issues. The
Spivey Field is affected by a third-party operated gas plant that
processes the field's natural gas and may be subject to Y2K issues.
Refer to "Third Party Systems-Gas Plant" for a discussion of the gas
plant at the Spivey Field. The operations of the remaining fields were
not materially affected by Y2K issues.
Contingency Plans: The Company will continue to monitor the operations at its
field locations and develop contingency planning if an exposure becomes
apparent.
THIRD-PARTY SYSTEMS--OIL AND GAS PURCHASERS. The Company utilizes
third-party purchasers to sell the oil and gas produced from the wells in which
it has a working or royalty interest. The Company also depends on third-party
purchasers to remit to the Company its share of the proceeds from the sales of
oil and gas. The Company does not directly sell any oil and gas produced from
the wells in which it has a working or royalty interest and does not take any
oil or gas in kind as an alternative to cash payment. Under a Worst Case
Scenario, multiple major purchasers would be temporarily shut down due to Y2K
issues, materially adversely affecting the Company's revenues.
Status: Based upon the diversity of purchasers, the Company believes that no
single purchaser is a mission-critical purchaser. The Y2K team does not
anticipate that a problem with any single purchaser for a reasonable
period of time beyond 2000 will force the Company to curtail or shut
down its operations. Although no single purchaser is a mission-critical
purchaser, the loss of a major purchaser or multiple minor purchasers
due to Y2K problems would affect the Company. The Company has obtained
information about the top ten purchasers and their Y2K readiness. All
but two of the top ten purchasers have formal Y2K Plans and are working
to upgrade any mission-critical systems that are affected by Y2K. The
other two purchasers acknowledge that certain systems will be affected
by Y2K and have been undertaking plans to upgrade these systems.
Contingency Plans: The Company continues to monitor the Y2K status of its major
purchasers. Should a purchaser not become Y2K compliant, the Company
will identify alternative purchasers for its production and, if
necessary, temporarily shut-in production.
THIRD-PARTY SYSTEMS--GAS PLANT. Over 95% of the gas produced in the Spivey
Field, a mission-critical system, is sold to a gas plant under a life of the
lease casinghead tailgate gas contract. The Company owns approximately 11.5% of
the gas plant and related gathering system. Colt Resources Corporation operates
the plant. Under a Worst Case Scenario, the gas plant would be shut down less
than one month which would not materially adversely affect the Company.
Status: The Company has received a letter from the operator of the Spivey plant
stating that the Spivey plant's control systems and embedded technology
are not Y2K affected and that its accounting and processing systems are
Y2K compliant.
Contingency Plans: A short-term interruption of gas sales would not materially
affect the Company's operations. If the Spivey plant experiences
problems with an expected duration in excess of one month, the Company
has identified alternative gas markets it could utilize.
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THIRD-PARTY SYSTEMS--BANKING. The Company relies on its banks to deposit
checks payable to the Company and credit the checks to the appropriate accounts.
The Company also relies on its banks to credit third-party accounts for payment.
A Worst Case Scenario would occur if the Company's principal bank is unable to
provide certain services for an extended period of time due to Y2K, causing the
Company to be materially adversely affected.
Status: The Company's principal bank has represented that it has a formal Y2K
Plan in effect and has substantially remediated and tested all of its
non-compliant, in-house and vendor-supported mission-critical systems
as of June 30, 1999.
Contingency Plans: The Company intends to have cash on hand sufficient to cover
short-term emergency payments and payroll. The Company also plans to
open accounts with other institutions in the event its principal bank is
unable to rectify its problems in a timely manner. The Company has no
long-term contingency plans in the event of a system-wide failure of
banking institutions.
THIRD-PARTY SYSTEMS--SUPPORT FUNCTIONS. The primary material support
functions provided by third parties are electrical service, communication
service and office space. Under a Worst Case Scenario, all primary support
functions would be hindered in the short term.
Status: All vendors of these services have reported that formal Y2K remediation
plans are in effect and are substantially complete as of September 30,
1999.
Contingency Plans: Short-term (less than two weeks) interruptions of services
will not materially adversely affect the Company. The Company will be
able to conduct business on a reduced scale using alternative business
methods. Longer-term interruptions may materially adversely affect the
Company. The Company has no plans sufficient to fully offset the effect
of long-term interruptions.
COMPUTER OPERATING SYSTEMS AND APPLICATION SOFTWARE SYSTEMS. The Company
relies solely on its personal computer systems to access the accounting software
package through the Company's computer network. In addition, certain schedules
and databases that are used for critical functions rely on spreadsheet and
word-processing applications that are run on the Company's personal computer
systems.
Status: All systems appear to be Y2K ready.
Contingency Plans: Operations could be performed manually until non-functioning
equipment or software is repaired or replaced
COSTS OF Y2K COMPLIANCE
The costs incurred by the Company to implement the Plan were not material to
the Company's financial condition or results of operations. The Company does not
expect any future costs related to the Plan to be material to the Company's
financial condition or results of operations.
THE RISKS OF Y2K ISSUES
The Company presently believes that Y2K issues will not pose significant
operational problems. However, if all significant Y2K issues are not properly
identified or assessed, remediation and testing are not effected timely, the Y2K
issues, either individually or in combination, may materially and adversely
impact the Company's results of operations, liquidity and financial condition or
materially and adversely affect its relationships with its business partners.
Additionally, the misrepresentation of compliance by other entities or the
persistent, universal failure of financial, transportation or other economic
systems will likely have a material and adverse impact on the Company's
operations or financial condition for which it cannot adequately prepare.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 19, 1999 a proxy was mailed to shareholders of record on July 12,
1999 soliciting their vote at the Annual Meeting of Shareholders of the Company
on August 10, 1999. The following matters were submitted to a vote of
shareholders (Shares Eligible to Vote on All Matters: 8,534,057):
1. Election of Directors
Messrs. Edward P. Turner, Jr., John J. Bassett, Frank E. Bolling, Jr., C.J.
Lett, III, Stephen W. Herod, Alvin V. Shoemaker and Gary R. Christopher were
elected to serve on the Board of Directors until the next Annual Meeting of
Shareholders.
<TABLE>
<CAPTION>
WITHHELD
FOR AUTHORITY
--------- ---------
<S> <C> <C>
John J. Bassett......................................... 7,289,621 5,031
C. J. Lett, III......................................... 7,289,521 5,131
Stephen W. Herod........................................ 7,289,621 5,031
Edward P. Turner, Jr.................................... 7,289,521 5,131
Frank E. Bolling, Jr.................................... 7,289,521 5,131
Alvin V. Shoemaker...................................... 7,289,521 5,131
Gary R. Christopher..................................... 7,289,621 5,031
</TABLE>
2. Amendment to increase the authorized capital stock of the Company from
20,000,000 to 40,000,000 shares of common stock and from 10,000,000 to
20,000,000 shares preferred stock.
The increase in the authorized capital stock of the Company to 40,000,000
common shares and 20,000,000 preferred shares was approved.
<TABLE>
<S> <C> <C>
For Against Abstain
7,094,278 11,123 1,954
</TABLE>
3. Ratification of issuance of Series C Preferred Stock in connection with the
acquisition by the Company of the oil and gas properties of Enex
Consolidated Partners, L.P.
The ratification of the issuance of the Series C Preferred Stock was
approved.
<TABLE>
<S> <C> <C>
For Against Abstain
7,098,597 5,785 2,973
</TABLE>
4. Consideration of and voting upon the approval of a Securities Purchase
Agreement with 3TEC Energy Corporation and the issuance of 4,755,556 shares
of common stock, 5-year warrants to purchase 3,600,000 shares of common
stock and a 5-year $10,700,000 subordinated convertible promissory note.
The issuance of the common stock, warrants and convertible note was
approved.
<TABLE>
<S> <C> <C>
For Against Abstain
7,101,576 2,826 2,973
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this report:
<TABLE>
<C> <S>
3.1 Articles of Incorporation (Incorporated by reference to
Exhibits to Registration Statement on Form S-4 filed
October 4, 1993.)
</TABLE>
26
<PAGE>
<TABLE>
<C> <S>
3.2 Articles of Amendment to Articles of Incorporation
reflecting reverse split (Incorporated by reference to
Exhibits to definitive Proxy Statement filed February 15,
1995.)
3.3 Articles of Amendment to Articles of Incorporation
designating preferences and rights of Series A Preferred
Stock (Incorporated by reference to Exhibits to Form 8-K
filed July 3, 1997.)
3.4 Articles of Amendment to Articles of Incorporation
designating preferences and rights of Series B Preferred
Stock (Incorporated by reference to Form 8-K filed July 3,
1997.)
3.5 Articles of Amendment to Amended Articles of Incorporation
increasing the number of authorized shares (Incorporated by
reference to Exhibits to definitive Proxy Statement filed
July 19, 1999.)
3.6 Bylaws of the Company (Incorporated by reference to Exhibits
to Registration Statement on Form S-4 filed October 4,
1993.)
3.7 Articles of Amendment to Articles of Incorporation
designating preferences and rights of Series C Preferred
Stock (Incorporated by reference to Exhibits to Amendment
No. 1 to Form S-4 filed October 19, 1998.)
10.1 Securities Purchase Agreement, dated July 1, 1999 by and
between the Company and 3TEC Energy Corporation
(Incorporated by reference to Exhibits to definitive Proxy
Statement filed July 19, 1999.)
10.2* Securities Purchase Agreement, dated August 27, 1999 by and
between the Company and Shoemaker Family Partners, LP
10.3* Securities Purchase Agreement, dated August 27, 1999 by and
between the Company and Shoeinvest II, LP
10.4 Securities Purchase Agreement, dated October 19, 1999
between The Prudential Insurance Company of America and the
Company (Incorporated by reference to Exhibits to Form 8-K
filed November 2, 1999.)
10.5* Shareholders Agreement, dated August 27, 1999 by and among
the Company, 3TEC Energy Corporation and the Major
Shareholders
10.6* Registration Rights Agreement, dated August 27, 1999 by and
among the Company, 3TEC Energy Corporation, the Major
Shareholders, Shoemaker Family Partners, LP and Shoeinvest
II, LP
10.7 Amendment to Registration Rights Agreement, dated
October 19, 1999 by and among the Company, 3TEC Energy
Company L.L.C., f/k/a 3TEC Energy Corporation, Shoemaker
Family Partners, LP, Shoeinvest II, LP, and The Prudential
Insurance Company of America (Incorporated by reference to
Exhibits to Form 8-K filed November 2, 1999.)
10.8 Participation Rights Agreement, dated October 19, 1999 by
and among the Company, The Prudential Insurance Company of
America and 3TEC Energy Company L.L.C. (Incorporated by
reference to Exhibits to Form 8-K filed November 2, 1999.)
10.9* Employment Agreement, dated August 27, 1999 by and between
Floyd C. Wilson and the Company
10.10* Employment Agreement, dated August 27, 1999 by and between
John J. Bassett and the Company
10.11* Credit Agreement, dated March 27, 1998 by and among the
Company, Compass Bank, and Bank of Oklahoma, National
Association
</TABLE>
27
<PAGE>
<TABLE>
<C> <S>
10.12* First Amendment to Credit Agreement, dated August 27, 1999
by and among the Company, Compass Bank, and Bank of
Oklahoma, National Association
10.13* Second Amendment to Credit Agreement, dated October 19, 1999
by and among the Company, Compass Bank, and Bank of
Oklahoma, National Association
10.14* Subordination Agreement, dated August 27, 1999 by and
between 3TEC Energy Corporation, Compass Bank, and Bank of
Oklahoma, National Association
10.15* Subordination Agreement, dated August 27, 1999 by and among
Shoemaker Family Partners, LP, Compass Bank, and Bank of
Oklahoma, National Association
10.16* Subordination Agreement, dated August 27, 1999 by and among
Shoeinvest II, LP, Compass Bank, and Bank of Oklahoma,
National Association
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
(b) On July 16, 1999, the Company filed a Form 8-K under Item 1 describing
the securities purchase agreement between the Company and 3TEC Energy
Corporation that was executed on July 1, 1999.
On September 8, 1999, the Company filed a Form 8-K under Item 1 describing
the final securities purchase agreement and the closing of the transaction on
August 27, 1999.
28
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C> <C>
MIDDLE BAY OIL COMPANY, INC.
(Registrant)
By: /s/ FRANK C. TURNER II
-----------------------------------------
Frank C. Turner II
Date: November 12, 1999 CHIEF FINANCIAL OFFICER
</TABLE>
29
<PAGE>
Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
BETWEEN
SHOEMAKER FAMILY PARTNERS, LP
AND
MIDDLE BAY OIL COMPANY, INC.
AUGUST 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I TERMS DEFINED
Section 1.1 Definitions.....................................................................................1
Section 1.2 Accounting Terms and Determinations............................................................11
Section 1.3 Gender and Number............................................................................. 11
Section 1.4 References to Agreement........................................................................11
ARTICLE II PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale..............................................................................11
Section 2.2 Closing ......................................................................................11
Section 2.3 Delivery.......................................................................................11
Section 2.4 Payment........................................................................................12
ARTICLE III RESERVATION AND ISSUANCE OF CONVERSION SHARES .................................................12
ARTICLE IV CERTAIN TERMS APPLICABLE TO WARRANTS
Section 4.1 Exercise of Warrants...........................................................................12
Section 4.2 Adjustment of Number of Warrant Shares Purchasable.............................................14
Section 4.3 Notices to Warrant Holders.....................................................................16
Section 4.4 Reservation and Issuance of Warrant Shares.....................................................17
ARTICLE V TRANSFER OF SECURITIES
Section 5.1 Restrictions on Transfer.......................................................................17
Section 5.2 Registration, Transfer and Exchange of Warrants................................................18
Section 5.3 Mutilated or Missing Warrant Certificates......................................................18
Section 5.4 Registration, Transfer and Exchange of Notes...................................................19
Section 5.5 Mutilated or Missing Notes.....................................................................19
ARTICLE VI CONDITIONS
Section 6.1 Conditions Precedent to Closing................................................................19
Section 6.2 Conditions Precedent to Closing ...............................................................22
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 7.1 Corporate Existence and Power..................................................................23
Section 7.2 Corporate and Governmental Authorization; Contravention........................................23
Section 7.3 Binding Effect ................................................................................24
Section 7.4 Capitalization.................................................................................24
Section 7.5 Issuance of Securities.........................................................................24
<PAGE>
Section 7.6 Financial Statements...........................................................................24
Section 7.7 Material Agreements............................................................................25
Section 7.8 Compass Debt Documents.........................................................................25
Section 7.9 Investments ...................................................................................25
Section 7.10 Outstanding Debt...............................................................................25
Section 7.11 Transactions with Affiliates...................................................................25
Section 7.12 Employment Matters.............................................................................25
Section 7.13 Litigation.....................................................................................25
Section 7.14 ERISA .........................................................................................26
Section 7.15 Taxes and Filing of Tax Returns................................................................27
Section 7.16 Title to Assets................................................................................27
Section 7.17 Licenses, Permits, Etc.........................................................................27
Section 7.18 Proprietary Rights.............................................................................27
Section 7.19 Compliance with Law............................................................................27
Section 7.20 Environmental Matters..........................................................................27
Section 7.21 Intentionally Left Blank.......................................................................29
Section 7.22 Fiscal Year....................................................................................29
Section 7.23 No Default.....................................................................................29
Section 7.24 Insurance......................................................................................29
Section 7.25 Government Regulation..........................................................................29
Section 7.26 Securities Law .............................................................................29
Section 7.27 Brokers and Finders............................................................................29
Section 7.28 SEC Documents..................................................................................29
Section 7.29 Oil and Gas Operations.........................................................................30
Section 7.30 Financial and Commodity Hedging................................................................31
Section 7.31 Books and Records..............................................................................31
Section 7.32 Reserve Report.................................................................................31
Section 7.33 Nature of Company Assets.......................................................................31
Section 7.34 Full Disclosure................................................................................32
Section 7.35 Year 2000 Compliance...........................................................................32
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF SFP
Section 8.1 Corporate Existence and Power..................................................................32
Section 8.2 Corporate and Governmental Authorization; Contravention........................................32
Section 8.3 Binding Effect.................................................................................32
Section 8.4 Brokers and Finders............................................................................33
Section 8.5 Taxes and Filing of Returns....................................................................33
Section 8.6 Intentionally Omitted..........................................................................33
<PAGE>
ARTICLE IX COVENANTS
Section 9.1 Maintenance of Insurance.......................................................................33
Section 9.2 Payment of Taxes and Claims....................................................................33
Section 9.3 Compliance with Laws and Documents.............................................................34
Section 9.4 Operation of Properties and Equipment..........................................................34
Section 9.5 Additional Documents...........................................................................34
Section 9.6 Maintenance of Books and Records...............................................................34
Section 9.7 Environmental Matters..........................................................................34
Section 9.8 Access to Information..........................................................................34
Section 9.9 Conduct of Business of the Company.............................................................35
Section 9.10 Intentionally Omitted..........................................................................36
Section 9.11 Intentionally Omitted..........................................................................36
ARTICLE X DEFAULTS; TERMINATION
Section 10.1 Events of Default..............................................................................36
Section 10.2 Termination....................................................................................37
Section 10.3 Effect of Termination..........................................................................37
ARTICLE XI MISCELLANEOUS
Section 11.1 Notices........................................................................................38
Section 11.2 No Waivers.....................................................................................38
Section 11.3 Expenses; Indemnification......................................................................38
Section 11.4 Amendments and Waivers; Sale of Interest.......................................................39
Section 11.5 Survival.......................................................................................39
Section 11.6 Limitation on Interest.........................................................................40
Section 11.7 Invalid Provisions.............................................................................40
Section 11.8 Successors and Assigns.........................................................................40
Section 11.9 Governing Law..................................................................................40
Section 11.10 Counterparts...................................................................................40
Section 11.11 No Third Party Beneficiaries...................................................................40
Section 11.12 Final Agreement................................................................................41
Section 11.13 Submission to Jurisdiction; Waiver of Service of Venue.........................................41
Section 11.14 Waiver of Right to Trial by Jury...............................................................41
Section 11.15 Public Announcements...........................................................................41
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Senior Subordinate Promissory Note
Exhibit B Registration Rights Agreement
Exhibit C Intentionally Omitted
Exhibit D Form of Warrant Certificate
Exhibit E Employment Agreement
Exhibit F Intentionally Omitted
Exhibit G Purchase Price to be Transferred at Closing
Exhibit H Identification of Other Securities Purchase Agreements
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is entered into effective this ___
day of August, 1999, by and between SHOEMAKER FAMILY PARTNERS, LP, a New Jersey
limited partnership ("SFP") and Middle Bay Oil Company, Inc., an Alabama
corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Company has authorized and desires to issue and sell to
SFP (a) certain shares of the Company's Common Stock, par value $0.02 per share,
(b) a Note, and (c) certain Warrants;
WHEREAS, SFP desires to purchase such securities from the Company on
the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Affiliate" means, as to any Person, any Subsidiary of such Person, or
any other Person which, directly or indirectly, controls, is controlled by, or
is under common control with, such Person and, with respect to the Company, any
executive officer of any Subsidiary or any Person who holds five percent (5%) or
more of the voting stock of the Company. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or partnership interests, or by contract or
otherwise. SFP shall not be considered an Affiliate of the Company for purposes
of this Agreement or the other Transaction Documents.
"Agreement" means this Securities Purchase Agreement.
"Authorized Officer" means, as to any Person, its Chairman, its Chief
Executive Officer, its President, its Chief Operating Officer, its Financial
Officer and any Vice President.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Capital Lease" means, for any Person, as of any date, any lease of
property, real or personal, which
1
<PAGE>
would be capitalized on a balance sheet of the lessee of such lease prepared as
of such date in accordance with GAAP.
"Change of Control" means the occurrence of any of the following: (a)
the sale, lease, transfer or other disposition, in one transaction or a series
of related transactions, of more than fifty percent (50%) of the value of the
Oil and Gas Interests as set forth in the most current reserve report of the
Company and its Subsidiaries (on the date hereof, the Reserve Report is the most
recent reserve report), or (b) any sale, transfer, merger, consolidation,
disposition or other transaction which results in any Person or Persons
individually or together with their Affiliates owning more than fifty percent
(50%) of the Common Stock on a Fully Diluted Basis.
"Charter Documents" means, with respect to any Person, its certificate
of incorporation, articles of incorporation, bylaws, partnership agreement,
regulations, operating agreement and all other comparable charter documents.
"Closing" has the meaning given such term in SECTION 2.2 hereof.
"Closing Date" means the tenth Business Day after the date of the
Company's Shareholders' meeting whereby the transactions contemplated hereby are
approved.
"Closing Transactions" means the transactions which will occur on the
Closing Date pursuant to the Transaction Documents.
"COBRA" has the meaning given such term in SECTION 7.14 hereof.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to any or all of its functions under the Securities Act or the
Exchange Act.
"Common Stock" means the Company's common stock, par value $0.02 per
share.
"Common Stock Shares" means the 22,222 shares of Common Stock to be
purchased by SFP pursuant to this Agreement.
"Company" has the meaning given such term in the preamble hereto.
"Company Financial Statements" means the audited and unaudited
consolidated financial statements of the Company and its Subsidiaries (including
the related notes) included (or incorporated by reference) in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998, and the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1999, filed with the Commission.
"Compass Senior Credit Agreement" means that certain Credit Agreement
dated March 27, 1998, as amended, by and among Middle Bay Oil Company, Inc. and
Enex Resources Corporation, as Borrower, and Compass Bank, as Agent and a
Lender, Bank of Oklahoma, National Association, as a Lender and the other
lenders signatory thereto.
2
<PAGE>
"Compass Senior Debt" means all Debt of the Company outstanding under
the Compass Senior Credit Agreement, including all renewals and extensions
thereof.
"Compass Senior Debt Documents" means the Compass Senior Debt Agreement
and all promissory notes, security agreements, mortgages, deeds of trust,
assignments, guarantees and other documents, instruments and agreements executed
and delivered pursuant to the Compass Senior Credit Agreement evidencing,
securing, guaranteeing or otherwise pertaining to the Compass Senior Debt and
other obligations arising under the Compass Senior Credit Agreement, as the
foregoing may be amended, renewed, extended, supplemented, increased or
otherwise modified from time to time to the extent permitted hereunder.
"Conversion Shares" means shares of Common Stock issued upon conversion
of the Note.
"Debt" means, for any Person, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all indebtedness
of such Person on which interest charges are customarily paid or accrued, (d)
all Guarantees by such Person, (e) the unfunded or unreimbursed portion of all
letters of credit issued for the account of such Person, (f) the present value
of all obligations in respect of Capital Leases of such Person, (g) any
obligation of such Person representing the deferred purchase price of property
or services purchased by such Person other than trade payables incurred in the
ordinary course of business and which are not more than ninety (90) days past
invoice date, (h) any indebtedness, liability or obligation secured by a Lien on
the assets of such Person whether or not such indebtedness, liability or
obligation is otherwise non-recourse to such Person, (i) liabilities arising
under future contracts, forward contracts, swap, cap or collar contracts, option
contracts, hedging contracts, other derivative contracts and similar agreements,
(j) liabilities with respect to payments received in consideration of oil, gas
or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment, and (k) all liability of such Person as a
general partner or joint venturer for obligations of the nature described in (a)
through (k) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means the Fixed Rate plus 3% per annum.
"Defensible Title" means such right, title and interest that is (a)
evidenced by an instrument or instruments 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 and (b) subject to Permitted Encumbrances, free and clear of all
Liens, claims, infringements, burdens or other defects.
"Disclosure Schedule" means the disclosure schedule entitled Middle Bay
Disclosure Schedule separately provided by the Company to SFP on or before the
date hereof, and any documents listed on such disclosure schedule and expressly
incorporated therein by reference.
3
<PAGE>
"Employment Agreement" means that certain employment agreement to be
executed at Closing by the Company and Floyd C. Wilson in substantially the form
of Exhibit E.
"Environmental Complaint" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other communication from any federal, state, municipal or
other Governmental Authority or any other party involving a Hazardous Discharge,
Environmental Contamination or any violation of any order, permit or
Environmental Law and Laws.
"Environmental Contamination" means the presence of any Hazardous
Substances, which presence results from a Hazardous Discharge.
"Environmental Law and Laws" means any law, common law, ordinance,
regulation or policy of any Governmental Authority, as well as any order,
decree, permit, judgment or injunction issued, promulgated, approved, or entered
thereunder, relating to the environment, health and safety, Hazardous Substances
(including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof), industrial hygiene, the environmental
conditions on, under, or about any real property owned, leased or operated at
any time by the Company or any of its Subsidiaries or any real property owned,
leased or operated by any other party, including, without limitation, soil,
groundwater, and indoor and ambient air conditions or the reporting or
remediation of Environmental Contamination. Environmental Law and Laws include,
without limitation, the Clean Air Act, as amended, the Federal Water Pollution
Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the
Safe Drinking Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, the Superfund Amendments
and Reauthorization Act of 1986 ("SARA"), as amended, the Resource Conservation
and Recovery Act of 1976 ("RCRA"), as amended, the Hazardous and Solid Waste
Amendments Act of 1984, as amended, the Toxic Substances Control Act, as
amended, the Occupational Safety and Health Act ("OSHA"), as amended, the
Hazardous Materials Transportation Act, as amended, and any other federal, state
and local law whose purpose is to conserve or protect health, the environment,
wildlife or natural resource.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA Affiliate" means the Company or any of its Subsidiaries and any
other corporation or trade or business under common control with the Company or
any of its Subsidiaries or treated as a single employer with the Company or any
of its Subsidiaries as determined under sections 414(b), (c), (m) or (o) of the
IRC.
"Event of Default" has the meaning set forth in SECTION 10.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute.
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Financial Officer" means, as to any Person, its Chief Financial
Officer, or if no Person serves in such
4
<PAGE>
capacity, the highest ranking executive officer of such Person with
responsibility for accounting, financial reporting, financial compliance and
similar functions.
"Fixed Rate" means nine percent (9.0%) per annum.
"Fully Diluted Basis" means, with reference to outstanding Common
Stock, the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire Common Stock had been
exercised (regardless of whether such rights are then exercisable) and all
securities convertible into Common Stock had then been converted (regardless of
whether such securities are then convertible) and had been issued, all in
accordance with GAAP. Any reference in this Agreement or any of the other
Transaction Documents to "holder(s) of outstanding Common Stock on a Fully
Diluted Basis" or words of similar import shall be deemed to include holder(s)
of outstanding options, warrants or similar rights to acquire Common Stock or
securities convertible into Common Stock.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the requirement
that such principles be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
"Governmental Authority" means any national, state or county, municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over the Company or its Subsidiaries or any of
their respective properties or assets.
"Guaranty" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions, by "comfort
letter" or other similar undertaking of support of otherwise), or (b) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, that, the term "Guaranty"
shall not include endorsements for collection or deposit in the ordinary course
of business. For purposes of this Agreement, the amount of any Guaranty shall be
the maximum amount that the guarantor could be legally required to pay under
such Guaranty.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Discharge" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of a Hazardous Substance at, from, onto,
5
<PAGE>
under or within any real property owned, leased or operated at any time by the
Company or any of its Subsidiaries or any real property owned, leased or
operated by any other Person.
"Hazardous Substance" means any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is defined as hazardous, toxic,
noxious, dangerous or infectious pursuant to any Environmental Law and Laws or
which is otherwise regulated by any Environmental Law and Laws.
"Holder" with respect to any Security, shall mean the record or
beneficial owner of such Security.
"Hydrocarbons" means oil, condensate, gas, casinghead gas and other
liquid or gaseous hydrocarbons.
"Investment" in any Person means any investment, whether by means of
securities purchase (whether by direct purchase from such Person or from an
existing holder of securities of such Person), loan, advance, extension of
credit, capital contribution or otherwise, in or to such Person, the Guaranty of
any Debt or other obligation of such Person, or the subordination of any claim
against such Person to other Debt or other obligation of such Person; PROVIDED,
that, "Investments" shall not include advances made to employees of such Person
for reasonable travel, entertainment and similar expenses incurred in the
ordinary course of business.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any regulation promulgated thereunder.
"Knowledge" means actual knowledge after reasonable investigation
consistent with the generally accepted business practices in the oil and gas
industry.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality, or Governmental
Authority.
"Lien" means with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement or other title retention
agreement relating to such asset.
"Majority Noteholder" means a Noteholder or Noteholders holding more
than fifty percent (50%) of the aggregate principal balance of the Note.
"Majority Warrantholder" means a Warrant Holder or Warrant Holders who
hold more than fifty percent (50%) of the outstanding Warrant Shares.
"Major Shareholders" means Kaiser-Francis Oil Company, C.J. Lett, III,
Weskids, L.P., and Alvin V. Shoemaker.
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"Material Adverse Effect" means, with respect to a Person, a material
adverse effect on the business, financial condition, operations, assets or
prospects of such Person or any of its Subsidiaries, and shall also mean, with
respect to the Company or any of its Subsidiaries, a material adverse effect on
such Person's ability to pay and perform its obligations under the Transaction
Documents.
"Material Agreement" means any written or oral agreement, contract,
commitment, or understanding to which a Person is a party, by which such Person
is directly or indirectly bound, or to which any assets of such Person may be
subject (a) which is not cancelable by such Person upon notice of sixty (60)
days or less without liability for further payment other than nominal penalty,
(b) pursuant to which such Person acquires any material portion of the raw
materials, supplies or services used or consumed by such Person in the operation
of its business (unless such raw materials, supplies or services are readily
available to such Person from other sources on comparable terms), or (c)
pursuant to which such Person derives any material part of its revenues.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the Note at such
time to exceed the maximum amount which Noteholders would be allowed to contract
for, charge, take, reserve, or receive under applicable Law after taking into
account, to the extent required by applicable Law, any and all relevant payments
or charges under the Transaction Documents.
"Noteholder" means any Person in whose name a Note is registered on the
Note Register.
"Note Redemption Date" means the date on which the entire balance of
the Note, including, without limitation, all accrued but unpaid interest thereon
and all fees payable by the Company or its Subsidiaries in connection therewith,
have been paid in full.
"Note Register" means a register maintained by the Company setting
forth the name and address of each Noteholder and the principal amount of the
Note held by such Noteholder.
"Notes" means the Company's Senior Subordinate Promissory Notes in the
aggregate principal amount of $50,000 to be issued and sold by the Company to
SFP pursuant to SECTION 2.1 hereof and any renewals, extensions or replacements
thereof, and "Note" means any of such Notes. The Notes shall be substantially in
the form of EXHIBIT A attached hereto.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part thereof,
of the Company, its Subsidiaries and any other Person arising pursuant to the
Transaction Documents, and all interest accrued thereon and costs, expenses, and
attorneys' fees incurred in the enforcement or collection thereof, regardless of
whether such indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, liquidated, unliquidated, joint, several or joint and
several.
"Oil and Gas Interest(s)" means (a) direct and indirect 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, other non-working
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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, mineral servitudes,
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; and (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.
"Ownership Interests" means the ownership interests of the Company and
its Subsidiaries in its assets, as set forth on SCHEDULE 1.1A of the Disclosure
Schedule.
"Other Notes" means the Company notes to be issued and sold by the
Company pursuant to provisions of the Other Securities Purchase Agreements.
"Other Securities Purchase Agreements" shall mean those securities
purchase agreements of even date herewith as listed on EXHIBIT H attached
hereto.
"Pension Plan" means any employee benefit plan or welfare benefit plan
within the meaning of section 3(3) of ERISA maintained by the Company, any
Subsidiary of the Company or any ERISA Affiliate that is or was previously
covered by Title IV of ERISA or subject to the minimum funding standards under
section 412 of the IRC, including a "multiemployer plan" as such term is defined
in section 3(37) of ERISA, under which the Company or any Subsidiary of the
Company has any current or future obligation or liability and under which any
present or former employee of the Company or any Subsidiary of the Company, or
such present or former employee's dependents or beneficiaries, has any current
or future right to benefits.
"Per Share Stock Price" means for the Common Stock on any day shall be
the last sale price, or, in case no such sale takes place on such day, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System, or such other system
then in use.
"Permitted Encumbrances" means (a) Liens for Taxes, assessments or
other governmental charges or levies if the same shall not at the particular
time in question be due and delinquent or (if foreclosure, distraint, sale or
other similar proceedings shall not have been commenced or if commenced, shall
have been stayed) are being contested in good faith by appropriate proceedings
and if the Company or its Subsidiaries shall have set aside on their books such
reserves (segregated to the extent required by sound accounting principles) as
may be required by GAAP or otherwise determined by its board of directors to be
adequate with respect thereto; (b) Liens of carriers, warehousemen, mechanics,
laborers, materialmen, landlords, vendors, workmen and operators arising by
operation of law in the ordinary course of business or by a written agreement
existing
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as of the date hereof and necessary or incident to the exploration, development,
operation and maintenance of Hydrocarbon properties and related facilities and
assets for sums not yet due or being contested in good faith by appropriate
proceedings, if any the Company or its Subsidiaries shall have set aside on its
books such reserves(segregated to the extent required by sound accounting
practices) as may be required by GAAP or otherwise determined by its board of
directors to be adequate with respect thereto; (c) Liens incurred in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and social security legislation (other than ERISA); (d)
Liens incurred in the ordinary course of business to secure the performance of
bids, tenders, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance and repayment bonds and other obligations of a like nature;
(e) Liens, easements, rights-of-way, restrictions, servitudes, permits,
conditions, covenants, exceptions, reservations and other similar encumbrances
incurred in the ordinary course of business or existing on property and not (i)
reducing the Company's net revenue interest in any Oil and Gas Interests below
that set forth on Schedule 1.1A , (ii) increasing the Company's Working Interest
in any Oil and Gas Interest above that set forth on Schedule 1.1A or (iii) in
the aggregate materially impairing the value of the assets of the Company or its
Subsidiaries or interfering with the ordinary conduct of the business of the
Company or its Subsidiaries or rights to any of their assets; (f) Liens created
or arising by operation of law to secure a party's obligations as a purchaser of
oil and gas; (g) all rights to consent by, required notices to, filings with, or
other actions by Governmental Authorities to the extent customarily obtained
subsequent to Closing; (h) farmout, carried working interest, joint operating,
unitization, royalty, overriding royalty, sales and similar arrangements
relating to the exploration, development of, or production from, Hydrocarbon
properties entered into in the ordinary course of business; (i) preferential
rights to purchase and Third Party Consents (to the extent not triggered by the
consummation of the transactions contemplated herein); and (j) Liens arising
under or created pursuant to the Compass Senior Debt Documents.
"Permitted Senior Debt" means the Compass Senior Debt or other debt or
credit facility of the Company which is intended to replace the Compass Senior
Debt.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof and shall also
mean the Company.
"Pre-Distribution Price" has the meaning given such term in SECTION
4.2(c).
"Purchase Price" has the meaning given such term in SECTION 2.1
"Redemption Date" means the date on which the entire balance of the
Note, including, without limitation, all accrued but unpaid interest thereon and
all fees payable by the Company or its Subsidiaries in connection therewith,
have been paid in full.
"Registration Rights Agreement" means a Registration Rights Agreement
to be executed by the Company, 3TEC and SFP at Closing, in the form attached
hereto as Exhibit B.
"Registration Statement" has the meaning giving such term in SECTION
5.1.
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"Reserve Engineer" shall have the meaning set forth in SECTION 7.32.
"Reserve Report" shall have the meaning set forth in SECTION 7.32.
"SEC Documents" shall have the meaning set forth in SECTION 7.28.
"Schedule" means a "schedule" attached to this Agreement and
incorporated herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement
unless specifically indicated otherwise.
"Securities" means the Notes, the Common Stock Shares and the Warrants
to be issued and sold to SFP and any Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute.
"Senior Lender" means Compass Bank, Bank of Oklahoma, National
Association and the other lenders who executed the Compass Senior Credit
Agreement.
"Series B Convertible Preferred Shares" shall mean those shares of
Series B Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1B of the Disclosure Schedule.
"Series C Convertible Preferred Shares" shall mean those shares of
Series C Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1C of the Disclosure Schedule.
"Shareholders Agreement" means a Shareholders Agreement to be entered
into by and among the Company and the Major Shareholders of the Company at
Closing.
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on).
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of any
nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency. "Tax" means any one of the
foregoing.
"Third Party Consents" means the consent or approval of any Person
other than the Company, SFP or any Governmental Authority.
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"3TEC" shall mean 3TEC Energy Corporation, a Delaware corporation.
"3TEC Note" shall mean that certain Senior Subordinate Promissory Note
in the aggregate principal amount of $10,700,000 to be issued and sold by the
Company to 3TEC.
"Transaction Documents" means this Agreement, the Notes, the Warrant
Certificates, the Registration Rights Agreement, the Shareholders Agreement, the
Company's Charter Documents and all other agreements, certificates, documents or
instruments now or at any time hereafter delivered in connection with this
Agreement, as the foregoing may be renewed, extended, modified, amended or
restated from time to time.
"Warrant Certificate" means the Warrant Certificates to be issued by
the Company evidencing Warrants issued hereunder which shall be in the form of
EXHIBIT D attached hereto.
"Warrant Exercise Price" means $1.00 per share (subject to adjustment
as provided in SECTION 4.2).
"Warrant Expiration Date" means 5:00 p.m., Dallas, Texas time, five (5)
years following the Closing Date.
"Warrant Holder" means any Person (i) in whose name any Warrant is
registered on the Warrant Register, or (ii) in whose name any Warrant Shares are
registered on the books and records of the Company.
"Warrant Register" means a register maintained by the Company setting
forth the name and address of each Warrant Holder, the number of Warrants held
by such Warrant Holder and the certificate number of each Warrant Certificate
held by such Warrant Holder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
"Warrants" means the Common Stock Purchase Warrants to be issued by the
Company to SFP pursuant to SECTION 2.1 of this Agreement, each of which shall
entitle the holder thereof to purchase one (1) share of Common Stock at the
Warrant Exercise Price (subject to adjustment as provided in SECTION 4.2).
"Working Interests" means the Company's or its Subsidiaries' share of
all of the costs, expenses, burdens, and obligations of any type or nature
attributable to the Company's or its Subsidiaries' interests in its oil and gas
properties or any well thereon.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent with the most recent
annual audited, consolidated financial statements of the Company delivered to
SFP prior to the date hereof.
SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Agreement shall be held and construed to include any other gender and words in
the singular number shall be held to include the plural,
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and vice versa, unless the context requires otherwise.
SECTION 1.4. REFERENCES TO AGREEMENT. Use of the words "herein",
"hereof", "hereinabove", and the like are and shall be construed as references
to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. PURCHASE AND SALE. Subject to the satisfaction of the
terms and conditions set forth herein and in reliance upon the representations
and warranties of the parties set forth herein and in the other Transaction
Documents (a) SFP agrees to purchase from the Company and the Company agrees to
issue and sell to SFP, 22,222 shares of Common Stock and 16,822 Warrants for an
aggregate purchase price of $50,000 (the "COMMON STOCK SHARES PURCHASE PRICE"),
and (b) SFP agrees to purchase from the Company and the Company agrees to issue
and sell to SFP the Note for the purchase price of $50,000 (the "NOTE PURCHASE
PRICE," and together with the Common Stock Shares Purchase Price, the "PURCHASE
PRICE").
SECTION 2.2. CLOSING. Closing of the purchase and sale of the
Securities (the "Closing") shall take place at the offices of Thompson & Knight,
P.C., Houston, Texas at 10:00 a.m. on the Closing Date, or at such other time,
date and place as may be agreed upon in writing by the Company and SFP.
SECTION 2.3. DELIVERY. At the Closing, the Company shall deliver to
SFP, against payment therefor, certificates evidencing the Common Stock Shares,
the Note and the Warrant Certificate purchased by SFP hereunder, in each case
duly issued and in form sufficient to vest title thereto fully in SFP, free and
clear of all Liens, claims and encumbrances.
SECTION 2.4. PAYMENT. At the Closing, SFP shall pay the Purchase Price
to the Company by wire transfer of immediately available funds.
ARTICLE III
RESERVATION AND ISSUANCE OF CONVERSION SHARES
The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Conversion Shares upon the Noteholder's exercise
of its conversion rights under the Note, the number of shares of Common Stock
deliverable upon such conversion rights. The Company covenants that all
Conversion Shares issued by it will, upon issuance in accordance with the terms
of this Agreement, be fully paid and nonassessable and free from all Taxes with
respect to the issuance thereof and free from all Liens other than Liens arising
by, through or under the Noteholder to whom such Conversion Shares were issued.
ARTICLE IV
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CERTAIN TERMS APPLICABLE TO WARRANTS
SECTION 4.1. EXERCISE OF WARRANTS.
(a) One-half of the Warrants may be exercised in whole or in part at
any time until the Warrant Expiration Date at which time the Warrants shall
expire and shall thereafter no longer be exercisable.
(b) The other half of the Warrants (the "Restricted Warrants") may be
exercised, in whole or in part, until the Warrant Expiration Date, as follows:
(i) up to 20% of the Restricted Warrants may be exercised during
the one (1) year period commencing on the Closing Date;
(ii) up to 40% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twelve (12) months after
the Closing Date;
(iii) up to 60% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twenty-four (24) months
after the Closing Date;
(iv) up to 80% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing thirty-six (36) months
after the Closing Date; and
(v) up to 100% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing forty-eight (48) months
after the Closing Date;
Notwithstanding the foregoing, in any event, the Restricted Warrants
may be exercised at the earlier of:
(i) the conversion of all or part of the Note into shares of
Common Stock, subject to the restrictions set forth below in
SECTION 4.1(C);
(ii) a Change of Control; or
(iii) the payment in full of the Note.
(c) If the entire amount of principal and interest due and payable
under the Note is converted to Common Stock, all of the Restricted Warrants
shall be immediately exercisable in whole or in part at any time until the
Warrant Expiration Date. If less than the entire amount of principal and
interest due and payable
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under the Note is converted, a pro-rata portion of the Restricted Warrants based
upon the amount of the Note which is converted compared to the total amount of
the Note prior to conversion, shall be immediately exercisable in whole or in
part at any time until the Warrant Expiration Date. For example, if fifty
percent (50%) of the Note is converted, one half of the Restricted Warrants
would be exercisable.
(d) The Warrants shall be exercised by presentation of the Warrant
Certificate evidencing the Warrants to be exercised, with the form of election
to purchase on the reverse thereof duly completed and signed, to the Company at
the offices of the Company as set forth on the signature page of this Agreement,
together with payment of the aggregate Warrant Exercise Price for the number of
Warrant Shares in respect of which such Warrants are being exercised in lawful
money of the United States of America; PROVIDED, that, to the extent the Warrant
Holder exercising such Warrants is also the holder of a Note, such Warrant
Holder or Noteholder may elect, by written notice to the Company delivered with
such presentation, to elect to pay the applicable Warrant Exercise Price by
offsetting the next scheduled payment of such Note by an amount equal to the
aggregate Warrant Exercise Price payable in connection with such exercise of
Warrants. Upon such presentation, the Company shall issue and cause to be
delivered to or upon the written order of the registered Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the aggregate number of Warrant Shares issued upon such
exercise of such Warrants. Any Person so designated to be named therein shall be
deemed to have become holder of record of such Warrant Shares as of the date of
exercise of such Warrants; PROVIDED, that, no Warrant Holder will be permitted
to designate that such Warrant Shares be issued to any Person other than such
Warrant Holder unless each condition to transfer contained in ARTICLE V hereof
which would be applicable to a transfer of Warrants or Warrant Shares has been
satisfied.
(b) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or Certificates
shall be issued for the remaining number of Warrants evidenced by such Warrant
Certificate. All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled.
(c) The Company shall not be required to issue fractional
shares of Common Stock upon exercise of any Warrants issued by it, but shall pay
for any such fraction of a share an amount in cash equal to the value of such
fractional share determined by the Company's board of directors in good faith.
(d) The Company will pay all Taxes attributable to the initial
issuance of Warrant Shares upon the exercise of the Warrants issued by it;
PROVIDED, that, each Warrant Holder shall use its reasonable efforts to avoid
any such Tax on the issuance of Warrant Shares; and PROVIDED, further that, the
Company shall not be required to pay any income Tax or any other Tax which may
be payable in respect of any transfer involved in the issue of any Warrant
Certificate or any certificate for Warrant Shares in a name other than that of
the registered holder of a Warrant Certificate surrendered upon the exercise of
such a Warrant, and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such Tax or shall have
established to the satisfaction of the Company that such Tax has been paid.
SECTION 4.2. ADJUSTMENT OF NUMBER OF WARRANT SHARES PURCHASABLE. The
number of Warrant
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Shares purchasable upon the exercise of each Warrant is subject to adjustment
from time to time upon the occurrence of any of the events enumerated in this
SECTION 4.2.
(a) In the event that the Company shall at any time after the date of
this Agreement declare a dividend on the Common Stock in shares of its capital
stock (whether shares of such Common Stock or of capital stock of any other
class of the Company), split or subdivide the outstanding Common Stock, or
combine the outstanding Common Stock into a smaller number of shares, the number
of Warrant Shares purchasable upon an exercise of each Warrant after the time of
the record date for such dividend or of the effective date of such split,
subdivision or combination shall be adjusted to equal the number of shares of
Common Stock which a Holder having the same number of shares of Common Stock as
the number of Warrant Shares into which each Warrant is exercisable immediately
prior to such record date or effective date, as the case may be, would own or be
entitled to receive after such record date or effective date.
(b) In the event that the Company shall at any time after the date of
this Agreement issue any shares of Common Stock without consideration or at a
price per share less than $1.00, or issue options, rights or warrants to
subscribe for or purchase such Common Stock (or securities convertible into such
Common Stock) without consideration or at a price per share (or having a
conversion price per share, if a security convertible into such Common Stock)
less than $1.00, the number of Warrant Shares purchasable upon an exercise of
each Warrant after the date of such issuance shall be adjusted to equal the
product obtained by multiplying the number of Warrant Shares into which each
Warrant is exercisable immediately prior to the date of such issuance by a
fraction, the numerator shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
on a Fully Diluted Basis immediately prior to such issuance PLUS the number of
shares of such Common Stock which the aggregate offering price of the total
number of shares of such Common Stock so to be issued or to be offered for
subscription or purchase (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at $1.00 per share. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined by an investment banker reasonably acceptable to the Warrant Holder
(the cost of the engagement of said investment banking firm to be borne by the
Company). Shares of such Common Stock owned by or held for the account of the
Company or any Subsidiary thereof shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever the date of such issuance is fixed (which date of issuance shall be the
record date for such issuance if a record date therefor is fixed); and, in the
event that such shares or options, rights or warrants are not so issued, the
number of Warrant Shares into which each Warrant is exercisable shall again be
adjusted to be such number of Warrant Shares into which each Warrant is
exercisable if the date of such issuance had not been fixed.
(c) In case the Company shall make a distribution to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation) of
shares of it stock, evidences of its indebtedness, assets, or rights, options or
warrants (other than those referred to in subsection (b) of this Section 4.2) to
subscribe for or purchase such shares, evidences of indebtedness, or assets, the
number of Warrant Shares into which each Warrant is exercisable after such date
of distribution shall be adjusted to equal the product obtained by multiplying
the number of Warrant
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Shares purchasable upon an exercise of each Warrant immediately prior to such
date by a fraction, the numerator of which shall be the Per Share Stock Price
for the trading day immediately preceding the day of distribution
("Pre-Distribution Price"), and the denominator of which shall be the
Pre-Distribution Price less the fair market value of the distribution (as
determined in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock. Such adjustment shall be made successively whenever a
date for such distribution is fixed (which date of distribution shall be the
record date for such issuance if a record date therefor is fixed); and, if such
distribution is not so made, the number of Warrant Shares into which each
Warrant is exercisable shall again be adjusted to be such number of Warrant
Shares which would then be in effect if the date of such distribution had not
been fixed.
(d) No adjustment in the number of Warrant Shares purchasable upon an
exercise of each Warrant shall be required unless such adjustment would require
an increase or decrease of at least one-tenth of one percent (.1%) in such
number of Warrant Shares; PROVIDED that any adjustments which by reason of this
SECTION 4.2(d) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this SECTION
4.2 shall be made to the nearest hundredth of one percent.
(e) The Warrant Exercise Price in effect immediately prior to any
adjustment of the number of Warrant Shares into which each Warrant is
exercisable shall be simultaneously adjusted (but not below the par value of the
Common Stock) by multiplying the Warrant Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
Warrant Shares into which each Warrant is exercisable immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
into which each Warrant is exercisable immediately after such adjustment.
(f) In the event of any capital reorganization of the Company, or of
any reclassification of any Common Stock for which any Warrant is exercisable
(other than a subdivision or combination of outstanding shares of such Common
Stock), or in case of the consolidation of the Company with or the merger of the
Company with or into any other corporation or of the sale of the properties and
assets of the Company as, or substantially as, an entirety to any other Person,
each Warrant shall after such capital reorganization, reclassification of such
Common Stock, consolidation, merger or sale be exercisable, upon the terms and
conditions specified in this Agreement, for the number of shares of stock or
other securities or assets to which a holder of the number of Warrant Shares
purchasable (at the time of such capital reorganization, reclassification of
such Common Stock, consolidation, merger or sale) upon exercise of such Warrant
would have been entitled upon such capital reorganization, reclassification of
such Common Stock, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this SECTION 4 with respect to the rights
thereafter of such Warrant shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable on the exercise of such Warrants.
The Company shall not effect any such consolidation, merger or sale, unless
prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets or the appropriate corporation
or entity shall assume, by written instrument, the obligation to deliver to each
Warrant Holder the shares of stock, securities or assets to which, in accordance
with the foregoing provisions, such Warrant Holder may be entitled pursuant to
this SECTION 4.2(f).
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(g) If any question shall at any time arise with respect to the
adjusted number of Warrant Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national standing
selected by the Warrant Holder.
(h) Notwithstanding anything in this SECTION 4.2 to the contrary, the
Company shall not be permitted to take any action described in this SECTION 4.2
(such as, but not by way of limitation, any dividend, consolidation merger or
reorganization) if such action is prohibited under any other provision of this
Agreement.
(i) Notwithstanding that the number of Warrant Shares purchasable upon
the exercise of each Warrant may have been adjusted pursuant to the terms
hereof, the Company shall nonetheless not be required to issue fractions of
Warrant Shares upon exercise of each Warrant or to distribute certificates that
evidence fractional shares, but instead shall pay to the holder of each Warrant
the cash value of any such fractional Warrant Shares.
SECTION 4.3 NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
number of Warrant Shares issuable upon an exercise of the Warrants or any
adjustment of the Warrant Exercise Price pursuant to SECTION 4.3, the Company
shall promptly, but in any event within thirty (30) days thereafter, cause to be
given to each Warrant Holder, at its address appearing on the Warrant Register,
by first class mail, postage prepaid, a certificate signed by the Company's
Financial Officer setting forth the number of Warrant Shares issuable upon the
exercise of each Warrant as so adjusted and the Warrant Exercise Price as so
adjusted, and describing in reasonable detail the facts accounting for such
adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as part of the notice required
to be mailed under the other provisions of this SECTION 4.3.
In the event:
(a) that the Company shall authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase capital stock of
the Company or of any other subscription rights or warrants; or
(b) that the Company shall issue any shares of Common Stock without
consideration or at a price per share less than $1.00, or issue options, rights,
or warrants to subscribe for or purchase such Common Stock (or securities
convertible into such Common Stock) without consideration or at a price per
share (or having a conversion price per share, if a security convertible into
such Common Stock) less than $1.00; or
(c) that the Company shall authorize the distribution to all holders of
its Common Stock of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness or assets; or
(d) of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of
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the Company substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination); or
(d) of the voluntary dissolution, liquidation or winding up of the
Company; or
(e) that the Company proposes to take any other action which would
require an adjustment of the Warrant Exercise Price of the Warrants issued by it
pursuant to SECTION 4.2;
then the Company shall cause to be given to each Warrant Holder at such
Warrant Holder's address appearing on the Warrant Register, at least twenty (20)
days prior to the applicable date hereinafter specified, by first class mail,
postage prepaid, a written notice stating the date as of which the holders of
record of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined, or the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that the holders of
record of Common Stock shall be entitled to exchange their shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up.
SECTION 4.4. RESERVATION AND ISSUANCE OF WARRANT SHARES. The Company
will at all times have authorized, and reserve and keep available, free from
preemptive rights, for the purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the Warrants, the number of shares of
Common Stock deliverable upon exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares issued by it will, upon issuance in accordance
with the terms of this Agreement, be fully paid and nonassessable and free from
all Taxes with respect to the issuance thereof and free from all Liens other
than Liens arising by, through or under the Warrant Holder to whom such Warrant
Shares were issued.
ARTICLE V
TRANSFER OF SECURITIES
Section 5.1. RESTRICTIONS ON TRANSFER. SFP understands and agrees that
the Securities have not been registered under the Securities Act or any state
securities Laws, and that accordingly, they will not be fully transferable
except as permitted under various exemptions contained in the Securities Act and
applicable state securities Laws, or upon satisfaction of the registration and
prospectus delivery requirements of the Securities Act and applicable state
securities Laws. SFP acknowledges that it must bear the economic risk of its
investment in the Securities for an indefinite period of time (subject, however,
to the payment terms of the Note, and the Company's obligations pursuant to the
Registration Rights Agreement) since they have not been registered under the
Securities Act and applicable state securities Laws and therefore cannot be sold
unless they are subsequently registered or an exemption from registration is
available. Absent an effective registration statement under the Securities Act
and applicable state securities Laws covering the disposition of the Securities,
SFP will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of
any or all of the Securities absent a valid exemption from the registration and
prospectus delivery requirements of the
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Securities Act and the registration or qualification requirements of any
applicable state securities Laws. The Company agrees that it will effect the
transfer of the Securities on its books and records upon receipt of an opinion
of counsel stating that SFP's proposed sale or transfer of the Securities is
exempt from the registration and qualification requirements of the Securities
Act.
SECTION 5.2. REGISTRATION, TRANSFER AND EXCHANGE OF WARRANTS. (a) The
Company shall maintain at the offices of the Company as set forth on the
signature pages of this Agreement, the Warrant Register for registration of the
Warrants and Warrant Certificates and transfers thereof. On the Closing Date,
the Company shall register the outstanding Warrants and Warrant Certificates
issued to SFP. The Company may deem and treat the registered Warrant Holders as
the absolute owners of the Warrants registered to such Holders and
(notwithstanding any notation of ownership or other writing on the Warrant
Certificates made by any Person) for the purpose of any exercise thereof or any
distribution to the Warrant Holders, and for all other purposes.
(b) Upon satisfaction of each condition set forth in SECTION
5.1 hereof, the Company shall register the transfer of any outstanding Warrants
in the Warrant Register upon surrender of the Warrant Certificate(s) evidencing
such Warrants to the Company at the offices of the Company as set forth on the
signature pages of this Agreement, accompanied (if so required by it) by a
written instrument or instruments of transfer in form satisfactory to it, duly
executed by the registered Warrant Holder or by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificate(s) evidencing such transferred Warrants shall be issued to the
transferee(s) and the surrendered Warrant Certificate(s) shall be canceled. If
less than all the Warrants evidenced by a Warrant Certificate(s) surrendered for
transfer are to be transferred, a new Warrant Certificate(s) shall be issued to
the Warrant Holder surrendering such Warrant Certificate(s) evidencing such
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
Warrant Holder(s) thereof, when surrendered to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, for another
Warrant Certificate or other Warrant Certificates of like tenor and representing
in the aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any Tax or other governmental charge imposed in connection therewith.
SECTION 5.3. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity satisfactory to it. No service charge
shall be made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, Tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Warrant Certificate.
SECTION 5.4. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. (a) The
Company shall maintain
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at the offices of the Company as set forth on the signature pages of this
Agreement, the Note Register for registration of the Notes and transfers
thereof. On the Closing Date, the Company shall register the outstanding Notes
issued to SFP. The Company may deem and treat the registered Noteholder as the
absolute owner of the Note registered to such Holder and (notwithstanding any
notation of ownership or other writing on the Note made by any Person) for the
purpose of any exercise thereof or any distribution to the Noteholder, and for
all other purposes.
(b) Upon satisfaction of each condition set forth in SECTION
5.1 hereof, the Company shall register the transfer of any outstanding Note in
the Note Register upon surrender of such Note to the Company at the offices of
the Company as set forth on the signature pages of this Agreement, accompanied
(if so required by it) by a written instrument or instruments of transfer in
form satisfactory to it, duly executed by the registered Noteholder or by the
duly appointed legal representative thereof. Upon any such registration of
transfer, a new Note evidencing such transferred Note shall be issued to the
transferee and the surrendered Note shall be canceled. If less than all of the
principal amount of a Note surrendered for transfer is to be transferred, a new
Note shall be issued to the Noteholder surrendering such Note evidencing such
remaining principal balance.
(c) The Notes may be exchanged at the option of the
Noteholders thereof, when surrendered to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, for another Note
or other Notes of like tenor and representing in the aggregate a like number of
Notes. Notes surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any Tax or other governmental charge imposed in connection therewith.
SECTION 5.5. MUTILATED OR MISSING NOTES. If any Note shall be
mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and
substitution for and upon cancellation of the mutilated Note, or in lieu of and
substitution for the Note lost, stolen or destroyed, a new Note of like tenor
and representing the same outstanding principal, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Note and, if requested, indemnity satisfactory to it. No service charge shall be
made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, Tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Note.
ARTICLE VI
CONDITIONS
SECTION 6.1. CONDITIONS PRECEDENT TO SFP'S OBLIGATIONS AT CLOSING. The
obligations of SFP to purchase the Securities pursuant to SECTION 2.1 are
subject to the satisfaction of each of the conditions precedent set forth in
this SECTION 6.1 on or before 10:00 a.m. (Dallas, Texas time) on the Closing
Date. In the event all of the conditions precedent set forth in this SECTION 6.1
are not satisfied by such time, SFP may,
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at its option, terminate this Agreement and the other Transaction Documents and
all obligations of SFP hereunder and thereunder, or waive any and all of such
conditions precedent and close the transactions as contemplated herein.
(a) CLOSING DELIVERIES. The Company shall have delivered to SFP, in
form and substance satisfactory to SFP each of the following:
(i) the Note to be purchased by SFP pursuant to SECTION 2.1
duly executed and delivered by the Company and payable to SFP;
(ii) certificates issued to SFP evidencing the Common Stock
Shares to be purchased by SFP pursuant to SECTION 2.1;
(iii) Warrant Certificates issued to SFP by the Company
evidencing the Warrants to be purchased by SFP pursuant to SECTION 2.1;
(iv) the Registration Rights Agreement duly executed and
delivered by the Company and SFP;
(v) the Employment Agreement duly executed and delivered by
the Company and Floyd C. Wilson;
(vi) a favorable opinion of Thrasher, Whitley, Hampton &
Morgan, counsel for the Company, in form and substance satisfactory to
SFP and its counsel;
(vii) all resolutions, certificates and documents SFP may
request relating to (A) the organization, existence, good standing and
foreign qualification of the Company and each of its Subsidiaries, (B)
the corporate authority for the execution, delivery and enforceability
of this Agreement and the consummation of the Closing Transactions, (C)
the stock ownership of the Company and each of its Subsidiaries, (D)
evidence of all resolutions and related documents necessary to increase
the Company's outstanding capital, if necessary, and (E) such other
matters relevant to the foregoing as SFP shall reasonably request, all
of which shall be in form and substance satisfactory to SFP and its
counsel;
(viii) if applicable, the waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have expired
or been terminated and all filings required to be made prior to the
Closing Date, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, any
Governmental Authority in connection with execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained.
(ix) evidence satisfactory to SFP that all Closing
Transactions have been consummated;
(x) a Subordination Agreement among SFP, Compass Bank and Bank
of Oklahoma in the
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form and substance reasonably acceptable to SFP;
(xi) a certificate from an Authorized Officer of the Company
certifying that (A) neither a Default nor an Event of Default has
occurred, and (B) each and every representation and warranty of the
Company in the Transaction Documents is true and correct in all
material respects;
(xii) the holders of the requisite number of shares of
outstanding capital stock of the Company shall have duly and validly
approved all items necessary to effect the transactions contemplated by
this Agreement and the other Transaction Documents, the Closing
Transactions and all other transactions contemplated hereby or thereby;
(xiii) the Common Stock Shares, the Warrant Shares and the
shares of Common Stock issuable upon conversion of the Notes shall have
been approved for listing on the Nasdaq Small Cap Market, subject to
official notice of issuance;
(xiv) resignations in form acceptable to SFP of each of the
directors of the Company who are not designated by the Major
Shareholders pursuant to the provisions of the Shareholders Agreement;
(xv) evidence of cancellation of the Company's Employee Net
Profits Interest Incentive Compensation Plan ("NPI Plan") and
termination of the Company's SEP/IRA Plan established in 1993;and
(xvi) such other documents, instruments and agreements as SFP
shall reasonably request in light of the transactions contemplated
hereunder.
The documents, certificates and opinions referred to in this SECTION 6.1(a)
shall be delivered to SFP no later than the Closing Date and shall, except as
expressly provided otherwise, be dated the Closing Date.
(b) LEGAL MATTERS. All legal matters with respect to the Company and
its Subsidiaries, the Transaction Documents and the Closing Transactions shall
be acceptable to SFP.
(c) ABSENCE OF DEFAULT. No Default or Event of Default shall have
occurred which is continuing.
(d) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement and in the other Transaction
Documents shall be true and correct in all material respects on the Closing Date
as if they were made on such date (in determining the truth and correctness of
any representation or warranty no effect shall be given to any limitation
contained in such representation or warranty as to Knowledge).
(e) NO MATERIAL ADVERSE EFFECT. No event has occurred or condition
exists which has had or could be expected to have a Material Adverse Effect on
the Company.
(f) PAYMENT OF EXPENSES. The Company shall have paid, or will make
arrangements to pay at
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Closing, in full all documented and reasonable out of pocket fees, expenses and
disbursements incurred by SFP in connection with its investigation, negotiation
and closing of the transactions contemplated hereby.
(g) WAIVER. SFP shall have been given evidence that the provisions, if
any, listed on SCHEDULE 6.1(G) have been waived by the Company's shareholders or
board of directors, as the case may be.
(h) EMPLOYEE PARTICIPANT's Consent. Evidence of each employee
participant's consent to the termination and release of all rights related to
the NPI Plan.
(i) DUE DILIGENCE REVIEW. Completion of Buyer's due diligence, the
results of which are satisfactory to Buyer, including but not limited to,
Buyer's review of all items listed on the Disclosure Schedule.
SECTION 6.2. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS AT
CLOSING. The obligations of the Company to sell the Securities pursuant to
SECTION 2.1 are subject to the satisfaction of each of the conditions precedent
set forth in this SECTION 6.2 on or before 10:00 a.m. (Dallas, Texas time) on
the Closing Date. In the event all of the conditions precedent set forth in this
SECTION 6.2 are not satisfied by such time, the Company may, at its option,
terminate this Agreement and the other Transaction Documents and all obligations
of the Company hereunder and thereunder.
(a) CLOSING DELIVERIES. SFP shall have delivered to the Company, in
form and substance satisfactory to the Company each of the following:
(i) the Purchase Price to be paid by SFP pursuant to SECTION 2.1;
(ii) the Registration Rights Agreement duly executed and delivered
by the Company and SFP;
(iii) the Employment Agreement duly executed and delivered by the
Company and Floyd C. Wilson;
(iv) all resolutions, certificates and documents the Company may
request relating to (A) the organization, existence, good standing and
foreign qualification of SFP, (B) the corporate authority for the
execution, delivery and enforceability of this Agreement and the
consummation of the Closing Transactions, and (C) such other matters
relevant to the foregoing as the Company shall reasonably request, all
of which shall be in form and substance satisfactory to the Company and
its counsel;
(v) if applicable, the waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have expired
or been terminated and all filings required to be made prior to the
Closing Date, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, any
Governmental Authority in connection with execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained;
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(vi) evidence satisfactory to the Company that all Closing
Transactions have been consummated;
(vii) a certificate from an Authorized Officer of SFP certifying
that (A) each and every representation and warranty of the Company in
the Transaction Documents is true and correct in all material respects;
(viii) payment of $274,625 to current employees of the Company as
set forth on the schedule previously provided by the Company to SFP as
payment in full of each employee's rights under the NPI Plan;
(ix) such other documents, instruments and agreements as the
Company shall reasonably request.
The documents and certificates referred to in this SECTION
6.2(A) shall be delivered to the Company no later than the Closing Date
and shall, except as expressly provided otherwise, be dated the Closing
Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SFP contained in this Agreement and in the other Transaction Documents shall
be true and correct in all material respects on the Closing Date as if they were
made on such date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce SFP to purchase the Securities to be purchased by it
hereunder, the Company hereby represents and warrants to SFP that each of the
following statements (a) is true and correct on the date hereof, and (b) will be
true and correct after giving effect to the Closing Transactions.
SECTION 7.1. CORPORATE EXISTENCE AND POWER. Each of the Company and
each of its Subsidiaries (a) is a corporation, duly organized, validly existing
and in good standing under the Laws of its jurisdiction of incorporation set
forth on SCHEDULE 7.1 of the Disclosure Schedule, (b) has all corporate power
and authority necessary to carry on its business as now conducted and as
proposed to be conducted, and (c) is duly qualified as a foreign corporation in
each jurisdiction set forth on SCHEDULE 7.1 on the Disclosure Schedule which
constitutes all jurisdictions where a failure to be so qualified could have a
Material Adverse Effect on the Company or such Subsidiary.
SECTION 7.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by each of the Company and each of its Subsidiaries (to
the extent each is a party to this Agreement or the other
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Transaction Documents) are within its corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any Governmental Authority (other than filings with any
applicable securities regulatory authorities to perfect exemptions from the
registration or qualification requirements of applicable securities Laws and
which will be made immediately following the Closing Date), and, except for
matters which have been waived in writing by the appropriate Person, do not
contravene, or constitute a default under, any provision of applicable Law or of
the Charter Documents or of any material judgment, injunction, order, decree or
Material Agreement binding upon the Company or any of its Subsidiaries or its
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries.
SECTION 7.3. BINDING EFFECT. This Agreement constitutes the valid and
binding agreement of the Company; each other Transaction Document when executed
and delivered in accordance with this Agreement, will constitute the valid and
binding obligation of the Company and each of its Subsidiaries which is a party
thereto, in each case enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar Laws
affecting creditors rights generally, and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 7.4. CAPITALIZATION. SCHEDULE 7.4 of the Disclosure Schedule
accurately and completely sets forth for each of the Company and its
Subsidiaries (a) its authorized, issued and outstanding capital stock of every
class, and (b) the names of the record, and to the Company's knowledge,
beneficial owner, of its capital stock of every class, including the number and
class of shares held by each such shareholder. Except as set forth SCHEDULE 7.4
of the Disclosure Schedule and except for the Warrants and registration rights
provided in the Registration Rights Agreement, (x) there are not outstanding any
options, warrants or other rights to acquire capital stock of any class of the
Company or any of its Subsidiaries or securities convertible into capital stock
of the Company or any of its Subsidiaries of any class, (y) no Person has any
preemptive or similar rights with respect to any subsequent issue of stock by
the Company or any of its Subsidiaries, and (z) no Person has any right to
require the Company or any of its Subsidiaries to register any securities of the
Company or any of its Subsidiaries under the Securities Act.
SECTION 7.5. ISSUANCE OF SECURITIES. The Securities to be issued on the
Closing Date, when issued upon payment of the applicable Purchase Price in
accordance with SECTION 2.1, will be duly authorized, validly issued, fully paid
and non-assessable and will be free and clear of all Liens, claims and
encumbrances including pre-emptive rights. The Warrant Shares, when issued upon
an exercise of the Warrants, and the Conversion Shares, when issued upon a
conversion of the amount of principal and unpaid interest on the Notes, will be
duly authorized, validly issued, fully paid and nonassessable and free and clear
of all Liens, claims and encumbrances, including, without limitation, all
preemptive rights.
SECTION 7.6. FINANCIAL STATEMENTS. The Company Financial Statements
were prepared in accordance with the applicable published rules and regulations
of the Commission with respect thereto and in accordance with GAAP applied on a
consistent basis during the periods involved
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(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the Commission) and
fairly present in all material respects, in accordance with applicable
requirements of GAAP (in the case of unaudited statements, subject to normal,
recurring adjustments), the consolidated financial position of the Company and
its Subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of the Company and its Subsidiaries
for the periods presented therein. The are no material liabilities of the
Company or any Subsidiary (contingent or otherwise), other than as disclosed in
the Company's Financial Statements. There are no material imbalances of
production from the oil and gas properties of the Company or its Subsidiaries
whether required to be disclosed pursuant to GAAP or otherwise. Since December
31, 1998, no event has occurred or condition exists which has had or could be
expected to have a Material Adverse Effect.
SECTION 7.7. MATERIAL AGREEMENTS. SCHEDULE 7.7 of the Disclosure
Schedule contains a complete and accurate description of every Material
Agreement to which the Company or any of its Subsidiaries is a party (other than
the Transaction Documents) or by which the Company or any of its Subsidiaries or
any of their respective assets are bound (including all amendments and
modifications thereto). The Company has made available to SFP or provided SFP
with a true and correct copy of all such Material Agreements, including all
amendments and modifications thereof. No rights or obligations of any party to
any of such Material Agreements has been waived, and no party to any of such
Material Agreements is in default of its obligations thereunder. Each of such
Material Agreements is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and effect.
SECTION 7.8. COMPASS DEBT DOCUMENTS. The Company has provided to or
made available to SFP with a true and correct copy of all of the Compass Senior
Debt Documents including all amendments and modifications thereto. No rights or
obligations of any party to any of such Compass Senior Debt Documents have been
waived, and no party to any of such Compass Senior Debt Documents is in default
of its obligations thereunder. Each of such Compass Senior Debt Documents is a
valid, binding and enforceable obligation of the parties thereto in accordance
with its terms and is in full force and affect.
SECTION 7.9. INVESTMENTS. Except as set forth on SCHEDULE 7.9 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has any
outstanding Investments.
SECTION 7.10. OUTSTANDING DEBT. SCHEDULE 7.10 of the Disclosure
Schedule contains a complete and accurate description of all Debt of the Company
and each of its Subsidiaries outstanding on the date hereof. Neither the Company
nor any of its Subsidiaries is in default in payment of any Debt with respect to
which it is an obligor or in default of any covenant, agreement, representation,
warranty or other term of any document, instrument or agreement evidencing,
securing or otherwise pertaining to any such Debt.
SECTION 7.11. TRANSACTIONS WITH AFFILIATES. SCHEDULE 7.11 of the
Disclosure Schedule contains a complete and accurate description of all
contracts, agreements and other arrangements
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(whether written, oral, express or implied) between the Company or any of its
Subsidiaries and any Affiliate of the Company and its Subsidiaries in existence
on the date hereof, including, without limitation, a complete and accurate
description of all Investments of any of the Company or any of its Subsidiaries
in any Affiliate of the Company or any of its Subsidiaries.
SECTION 7.12. EMPLOYMENT MATTERS. SCHEDULE 7.12 of the Disclosure
Schedule contains a complete and accurate list of all employees of the Company
and each of its Subsidiaries. Such schedule also sets forth for the current
fiscal year the annual salary (including projected bonuses and other cash
compensation) of all such employees and all benefits (other than health
insurance benefits and other similar benefits which are both customary in the
industry in which the Company or any of its Subsidiaries is engaged and provided
to all full time employees of the Company or any of its Subsidiaries generally)
provided to such employees. SCHEDULE 7.12 of the Disclosure Schedule also
contains a complete and accurate description of all employment contracts,
consulting agreements, management agreements, non-compete and similar agreements
to which the Company or any of its Subsidiaries is a party on the date hereof.
SECTION 7.13. LITIGATION. Except as set forth on SCHEDULE 7.13 of the
Disclosure Schedule, there is no action, suit or proceeding pending against, or
to the knowledge of the Company, threatened against or affecting the Company or
any of its Subsidiaries before any court or arbitrator or any Governmental
Authority.
SECTION 7.14. ERISA. Neither the Company nor any of its Subsidiaries
nor any ERISA Affiliate maintains or contributes to any Pension Plan other than
those disclosed on SCHEDULE 7.14 of the Disclosure Schedule. Each such Pension
Plan is in compliance in all material respects with its terms and the applicable
provisions of ERISA and the IRC. Except as required by law, none of the Company
or any of its Subsidiaries nor any ERISA Affiliate has any commitment to create
any additional Pension Plans. Except as set forth on SCHEDULE 7.14, neither the
Company nor any of its Subsidiaries nor any ERISA Affiliate has ever sponsored,
adopted, maintained or been obligated to contribute to, or had any liability
under, any Pension Plan. There is no material violation of ERISA with respect to
the filing of applicable reports, documents and notices regarding the Pension
Plans with the Secretary of the Treasury or the furnishing of such documents to
the participants and beneficiaries of the Pension Plans, and, to the best of the
Company's knowledge, with respect to each Pension Plan all other reports
required under ERISA or the IRC to be filed with any Governmental Authority have
been duly filed and all such reports are true and correct in all material
respects as of the dates given. Each Pension Plan that is intended to be
"qualified" within the meaning of section 401(a) of the IRC is, and has been
during the period from its adoption to date, so qualified, both as to form and,
to the best of the Company's knowledge, has been qualified, and all necessary
governmental approvals, including a favorable determination as to the
qualification under the IRC of each of such Pension Plans and each amendment
thereto, have been timely obtained or application for a favorable determination
will be filed prior to the applicable filing deadlines. Except as disclosed on
SCHEDULE 7.14 of the Disclosure Schedule, each trust created under any such
Pension Plan intended to be qualified within the meaning of section 401(a) of
the IRC and each trust described in section 501(c)(9) of the IRC is exempt from
federal income taxation under section 501(a) of the IRC and has
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been so exempt during the period from creation to date. The Company has no
pending or, to the best of the Company's knowledge, threatened claims, lawsuits
or actions (other than routine claims for benefits in the ordinary course)
asserted or instituted against, and the Company has no knowledge of any
threatened litigation or claims against, the assets of any Pension Plan or its
related trust or against any fiduciary of a Pension Plan with respect to the
operation of such Pension Plan. Neither the Company nor any of its Subsidiaries
has received notice of any pending investigations, inquires or audits with
respect to any Pension Plan by any regulatory agency. Neither the Company nor
any of its Subsidiaries has engaged in any prohibited transactions, within the
meaning of section 406 of ERISA or section 4975 of the IRC, in connection with
any Pension Plan. Neither the Company nor any of its Subsidiaries maintains or
has established any Pension Plan which is a welfare benefit plan within the
meaning of section 3(1) of ERISA which provides for retiree medical liabilities
or continuing benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder, and at the expense of the
participant or the beneficiary of the participant. The Company and each of its
Subsidiaries that maintains a Pension Plan that is a welfare benefit plan within
the meaning of section 3(1) of ERISA has complied with any applicable notice and
continuation requirements of COBRA and the regulations thereunder. To the best
of the Company's knowledge, none of the Company or any of its Subsidiaries
maintains, has established, or has ever participated in, a multiple employer
welfare benefit arrangement within the meaning of section 3(40)(A) of ERISA.
SECTION 7.15. TAXES AND FILING OF TAX RETURNS. The Company and each of
its Subsidiaries has filed all Tax returns required to have been filed by it or
has legally extended such returns and has paid all Taxes shown to be due and
payable on such returns, including interest and penalties, and all other Taxes
which are payable by the Company or any of its Subsidiaries. The Company does
not know of any proposed Tax assessment against the Company or any of its
Subsidiaries and all Tax liabilities of the Company and each of its Subsidiaries
are adequately provided for and no Tax liability of the Company or any of its
Subsidiaries has been asserted by the Internal Revenue Service or any other
Governmental Authority for Taxes in excess of those already paid.
SECTION 7.16. TITLE TO ASSETS. The Company and its Subsidiaries have
Defensible Title to all Oil and Gas Interests of the Company and its
Subsidiaries included or reflected in the Ownership Interests and all of their
other assets, subject only to Permitted Encumbrances. Each Oil and Gas Interest
included or reflected in the Ownership Interest entitles the Company and its
Subsidiaries to receive not less than the undivided interest set forth in (or
derived from) the Ownership Interests of all Hydrocarbons produced, saved and
sold from or attributable to such Oil and Gas Interest, and the portion of such
costs and expenses of operation and development of such Oil and Gas Interest
that is borne or to be borne by the Company and its Subsidiaries is not greater
than the undivided interest set forth in (or derived from) the Ownership
Interests. All proceeds from the sale of each of the Company's and the
Subsidiaries' shares of the Hydrocarbons being produced from its Oil and Gas
Interests are currently being paid in full to such party by the purchasers
thereof on a timely basis and none of such proceeds are currently being held in
suspense by such purchaser or any other party,
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except as set forth on SCHEDULE 7.16 of the Disclosure Schedule.
SECTION 7.17. LICENSES, PERMITS, ETC. The Company and each of its
Subsidiaries possess all franchises, certificates, licenses, permits, consents,
authorizations, exemptions and orders of Governmental Authorities as are
necessary to carry on their respective businesses as now being conducted and as
proposed to be conducted, except to the extent a failure to have such
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders could not have a Material Adverse Effect.
SECTION 7.18. PROPRIETARY RIGHTS. The Company and each of its
Subsidiaries has ownership of, or valid licenses to use, all trademarks,
copyrights, patents and other proprietary rights used in their respective
businesses. To the best of the Company's knowledge, the operation of the
businesses of the Company and its Subsidiaries does not infringe any patent,
copyright, trademark or other proprietary rights of others, and, neither the
Company nor any of its Subsidiaries has received any notice from any third party
of any such alleged infringement by the Company or any of its Subsidiaries. The
Company and each of its Subsidiaries has taken reasonable steps to establish and
preserve its respective ownership of all patents, copyrights, trademarks, trade
secrets and other proprietary rights. The Company is not aware of any
infringement by others of its or any its Subsidiaries' patents, copyrights,
trademarks or other proprietary rights.
SECTION 7.19. COMPLIANCE WITH LAW. To the Knowledge of the Company, the
business and operations of the Company and each of its Subsidiaries have been
and are being conducted in accordance with all applicable Laws.
SECTION 7.20. ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 7.20 of the Disclosure Schedule,
(i) the reserves reflected in the Company's Financial Statements relating to
environmental matters were adequate under GAAP as of the date of such financial
statements, and neither the Company nor its Subsidiaries has incurred any
material liability in respect of any environmental matter since the that date,
and (ii) the SEC Documents include all information relating to environmental
matters required to be included therein under the rules and regulations of the
Commission applicable thereto.
(b) Except as set forth in SCHEDULE 7.20 of the Disclosure Schedule:
(i) Each of the Company and its Subsidiaries has conducted its
business and operated its assets, and is conducting its business and
operating its assets, in material compliance with all Environmental
Laws.
(ii) Neither the Company nor any of its Subsidiaries has been
notified by any Governmental Authority that any of the operations or
assets of the Company or its Subsidiaries is the subject of any
investigation or inquiry by any Governmental Authority evaluating
whether any material remedial action is needed to respond to a release
of Hazardous Substance or to the improper storage or disposal
(including storage or disposal at
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offsite locations) of any Hazardous Substance.
(iii) Neither the Company nor any of its Subsidiaries and no other
Person has filed any notice under any federal, state or local law
indicating that (i) the Company or its Subsidiaries is responsible for
the improper release into the environment, or the improper storage or
disposal of any Hazardous Substance, or (ii) any Hazardous Substance is
improperly stored or disposed of upon any property of the Company or
its Subsidiaries.
(iv) Neither the Company nor any of its Subsidiaries has any
Substance contingent liability in connection with (i) release into the
environment at or on the property now or previously owned or leased by
the Company or its Subsidiaries, or (ii) the storage or disposal of any
Hazardous Substance.
(v) Neither the Company nor any of its Subsidiaries has received
any claim, complaint, notice, inquiry or request for information which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Laws or regarding potential liability
under any Environmental Laws relating to operations or conditions of
any facilities or property owned, leased or operated by the Company or
its Subsidiaries.
(vi) There are no sites, locations or operations at which the
Company or its Subsidiaries are currently undertaking, or have
completed, any remedial or response action relating to any such
disposal or release, as required by Environmental Laws.
(vii) There are no physical or environmental conditions existing on
any property owned or leased by the Company or any Subsidiary resulting
from the Company's or any Subsidiary's operations or activities, past
or present, at any location, that would give rise to any on-site or
off-site remedial obligations under any applicable Environmental Laws,
other than normal and ordinary remedial work associated with plugging
and abandoning of oil and gas facilities.
SECTION 7.21. Intentionally Left Blank.
SECTION 7.22. FISCAL YEAR. The Company's fiscal year is from January 1
to December 31.
SECTION 7.23. NO DEFAULT. Neither a Default nor an Event of Default has
occurred.
SECTION 7.24. INSURANCE. SCHEDULE 7.24 of the Disclosure Schedule
contains a complete and accurate list and description of all insurance policies
maintained by the Company as of the date hereof.
SECTION 7.25. GOVERNMENT REGULATION. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding the
Company Act of 1935, the Interstate Commerce Act (as either of the preceding
acts have been amended), or any other Law which regulates the incurring by the
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Company or any of its Subsidiaries of Debt, including, but not limited to, Laws
relating to common contract carriers of the sale of electricity, gas, steam,
water or other public utility services.
SECTION 7.26. SECURITIES LAWS. Assuming SFP's representations made
herein are true and correct, the offer, issuance and sale of the Securities (a)
are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act, (b) have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities Laws, and (c)
are and will be accomplished in conformity with all other federal and applicable
state securities Laws.
SECTION 7.27. BROKERS AND FINDERS. SCHEDULE 7.27 of the Disclosure
Schedule sets forth all arrangements (including amounts payable by the Company
or any of its Subsidiaries in connection therewith) pursuant to which any Person
has, or as a result of the Closing Transactions will have, any right or valid
claim against the Company or any of its Subsidiaries for any commission, fee or
other compensation as an investment banker, finder or broker, or in any similar
capacity. No Person engaged by the Company has or will have any right or valid
claim against SFP for any such commission, fee or other compensation. The
Company will indemnify and hold SFP harmless against any liability or expense
arising out of, or in connection with, any such right or claim (including,
without limitation, claims arising out of the matters disclosed on SCHEDULE 7.27
of the Disclosure Schedule).
SECTION 7.28. SEC DOCUMENTS. The Company is current in its obligations
to file all periodic reports and proxy statements with the Commission required
to be filed under the Exchange Act. SFP has had available to it a true and
correct complete copy of each report, schedule, Registration Statement and
definitive proxy statement filed by the Company with the Commission since
October 4, 1993, and prior to the date of this Agreement (the "SEC Documents"),
which are all the documents (other than preliminary material) that the Company
was required to file with the Commission since such date. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act as the case may be, and the rules and
regulations of the Commission thereunder applicable to such SEC Documents, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 7.29. OIL AND GAS OPERATIONS. Except as set forth on SCHEDULE
7.29 of the Disclosure Schedule:
(a) All wells included in the Oil and Gas Interests of the Company or
its Subsidiaries (the "Wells") have been drilled and (if completed) completed,
operated and produced in accordance with generally accepted oil and gas field
practices and in compliance in all material respects with applicable oil and gas
leases and applicable laws, rules, regulations. The Wells have been drilled and
completed within the limits permitted by contract, pooling or unit agreement,
and by law; and all drilling and completion of the Wells and all development and
operations have been conducted in compliance with all applicable laws,
ordinances, rules, regulations and permits, and judgments, orders and decrees of
any court or governmental body or agency. No Well is subject to penalties on
allowables because of any overproduction or any other violation of applicable
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laws, rules, regulations or permits or judgments, orders or decrees of any court
or governmental body or agency that would prevent such Well from being entitled
to its full legal and regular allowable from and after the Closing Date as
prescribed by any court or governmental body or agency.
(b) There are no Wells that
(i) the Company is currently obligated by law or contract to plug
and abandon;
(ii) the Company will be obligated by law or contract to plug and
abandon with the lapse of time or notice or both because the Well is
not currently capable of producing in commercial quantities;
(iii) are subject to exceptions to a requirement to plug and
abandon issued by a regulatory authority having jurisdiction over the
applicable lease; or
(iv) to the best knowledge of the Company, have been plugged and
abandoned but have not been plugged in accordance with all applicable
requirements of each regulatory authority having jurisdiction over the
Oil and Gas Interests.
(c) With respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other documents
creating interests comprising the Oil and Gas Interests: (a) the Company has
fulfilled all requirements in all material respects for filings, certificates,
disclosures of parties in interest, and other similar matters contained in (or
otherwise applicable thereto by law, rule or regulation) such leases or other
documents and are fully qualified to own and hold all such leases or other
interests; (b) there are no provisions applicable to such leases or other
documents which increase the royalty share of the lessor thereunder, and (c)
upon the establishment and maintenance of production in commercial quantities,
the leases and other interest are to be in full force and effect over the
economic life of the property involved and do not have terms fixed by a certain
number of years.
(d) Proceeds from the sale of Hydrocarbons produced from the Company's
and its Subsidiaries' Oil and Gas Interests are being received by the Company
and its Subsidiaries 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 $100,000 and held in suspense in the ordinary course of business).
(e) Seller is not obligated, by virtue of a prepayment arrangement, a
"take or pay" arrangement, a production payment or any other arrangement to
deliver Hydrocarbons produced from the Oil and Gas Interests at some future time
without then or thereafter receiving full payment therefor.
SECTION 7.30. FINANCIAL AND COMMODITY HEDGING. SCHEDULE 7.30 of the
Disclosure Schedule accurately summarizes the outstanding Hydrocarbon and
financial hedging positions of the Company and its Subsidiaries (including fixed
price controls, collars, swaps, caps, hedges and puts) as of the date reflected
on said Schedule. From the date of this Agreement to the date of Closing, the
Company and its Subsidiaries will not enter into any new hedging positions
without SFP's prior written consent.
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SECTION 7.31. BOOKS AND RECORDS. All books, records and files of the
Company and its Subsidiaries (including those pertaining to the Company's or its
Subsidiaries' 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 and customary policies and
procedures and (b) fairly and accurately reflect the ownership, use, enjoyment
and operation by the Company and its Subsidiaries of their respective assets.
SECTION 7.32. RESERVE REPORT. To the knowledge of the Company, the
estimates of proved reserves of oil and natural gas prepared by Lee Keeling &
Associates, Inc. and H. J. Gruy and Associates, Inc. (together, the "Reserve
Engineer") as of December 31, 1998 (the "Reserve Report"): (i) are reasonable;
and (ii) were prepared in accordance with generally accepted petroleum
engineering and evaluation principles as set forth in the Standards Pertaining
to the Estimating and Auditing of Oil and Gas Reserve Information promulgated by
the Society of Petroleum Engineers. The engineering information and production
data used in the preparation of the Reserve Report, which information and data
have been available to SFP, are the information and data which are used by the
Company in good faith in the ordinary course of business. The factual
information underlying the estimates of the reserves of the Company and the
Subsidiaries, which was supplied by the Company to the Reserve Engineers for the
purpose of preparing the Reserve Report, including, without limitation,
production, volumes, sales prices for production, contractual pricing provisions
under oil or gas sales or marketing contracts under hedging arrangements, costs
of operations and development, and working interest and net revenue information
relating to the Company's and the Subsidiaries' ownership interests in
properties, was true and correct in all material respects on the date of such
Reserve Report; the estimates of future capital expenditures and other future
exploration and development costs supplied to the Reserve Engineers were
prepared in good faith and with a reasonable basis; the information provided to
the Reserve Engineers for purposes of preparing the Reserve Report was prepared
in accordance with customary industry practices; other than normal production of
the reserves and intervening oil and gas price fluctuations, the Company is not
as of the date hereof and as of the Closing Date will not be, aware of any facts
or circumstances that would result in a materially adverse change in the
reserves in the aggregate, or the aggregate present value of future net cash
flows therefrom, as described in the Reserve Report.
SECTION 7.33. NATURE OF COMPANY ASSETS. The assets of the Company and
of the Subsidiaries consist solely of (i) reserves of oil and gas, rights to
reserves of oil and gas and associated exploration and production assets with a
fair market value not exceeding $500 million and (ii) other assets with a fair
market value not exceeding $15 million. For purposes of this Section 7.33, the
term "associated exploration and production assets" shall have the meaning set
forth in Section 802.3 of the Rules promulgated pursuant to HSR Act.
SECTION 7.34. FULL DISCLOSURE. No information heretofore furnished by
or on behalf of the Company or any of its Subsidiaries to SFP for the purposes
of this Agreement or any other Transaction Document or any transaction
contemplated hereby or thereby, contained, and no written information hereafter
furnished by or on behalf of the Company or any of its Subsidiaries to SFP for
purposes of this Agreement or any other Transaction Document or any transaction
contemplated hereby or thereby will contain, any untrue statement of a material
fact or omit a material fact necessary to make the statements therein not
misleading. There is no fact or circumstance known to the Company which may have
a Material Adverse Effect on the
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Company or any of its Subsidiaries which has not been disclosed to SFP.
SECTION 7.35. YEAR 2000 COMPLIANCE. The Company's disclosure in its
Annual Report on Form 10-KSB for the year ended December 31, 1998 under the
heading "Year 2000 Compliance" accurately states the Company's statement of
readiness and contingency plans relative to the computer software which is
material to the conduct of the business and operations of the Company and its
Subsidiaries being capable of recording, storing, processing and presenting
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software records, stores,
processes and presents such calendar dated falling on or before December 31,
1999.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF SFP
In order to induce the Company to issue and sell the Securities to SFP
hereunder, SFP hereby represents and warrants to the Company as follows:
SECTION 8.1. PARTNERSHIP EXISTENCE AND POWER. SFP (a) is a limited
partnership, duly organized, validly existing and in good standing under the
Laws of its jurisdiction of incorporation, (b) has all power and authority
necessary to carry on its business as now conducted and as proposed to be
conducted.
SECTION 8.2. PARTNERSHIP AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by SFP are within its powers, have been duly authorized by
all necessary action, require no action by or in respect of, or filing with, any
Governmental Authority (other than filings with any applicable securities
regulatory authorities to perfect exemptions from the registration or
qualification requirements of applicable securities Laws and which will be made
immediately following the Closing Date), and, except for matters which have been
waived in writing by the appropriate Person, do not contravene, or constitute a
default under, any provision of applicable Law or of the Charter Documents or of
any material judgment, injunction, order, decree or Material Agreement binding
upon SFP or its assets, or result in the creation or imposition of any Lien on
any asset of SFP.
SECTION 8.3. BINDING EFFECT. This Agreement constitutes the valid and
binding agreement of SFP; each other Transaction Document when executed and
delivered in accordance with this Agreement, will constitute the valid and
binding obligation of SFP, in each case enforceable in accordance with its terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar Laws affecting creditors rights generally, and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 8.4. BROKERS AND FINDERS. No Person engaged by SFP has or will
have any right or valid claim against the Company for any commission, fee or
other compensation. SFP will indemnify and hold the Company harmless against any
liability or expense arising out of, or in connection with, any such right or
claim.
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SECTION 8.5. TAXES AND FILING OF TAX RETURNS. SFP has filed all Tax
returns required to have been filed by it or has legally extended such returns
and has paid all Taxes shown to be due and payable on such returns, including
interest and penalties, and all other Taxes which are payable by SFP. SFP does
not know of any proposed Tax assessment against SFP and all Tax liabilities of
SFP are adequately provided for and no Tax liability of SFP has been asserted by
the Internal Revenue Service or any other Governmental Authority for Taxes in
excess of those already paid.
SECTION 8.6 INTENTIONALLY OMITTED.
ARTICLE IX
COVENANTS
SECTION 9.1. MAINTENANCE OF INSURANCE. The Company will, and will cause
each of its Subsidiaries to, at all times maintain or cause to be maintained
insurance issued by insurers of recognized responsibility covering such risks
and in such amounts as are customary in the case of companies of established
reputation engaged in the same or similar business and similarly situated.
SECTION 9.2. PAYMENT OF TAXES AND CLAIMS. The Company will, and will
cause each of its Subsidiaries to, pay when due (a) all Taxes imposed upon it or
its respective assets and, with respect to its respective franchises, business,
income or profits, pay such Taxes before any material penalty or interest
accrues thereon, and (b) all material claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have become
due and payable; PROVIDED, however, no payment of Taxes or claims shall be
required if (i) the amount, applicability or validity thereof is being contested
in good faith by appropriate action promptly initiated and diligently conducted
in accordance with good business practices and no material part of the property
or assets of each holder of Securities is the subject of any pending levy or
execution, and (ii) the Company has notified each holder of Securities of such
circumstances in reasonable detail.
SECTION 9.3. COMPLIANCE WITH LAWS AND DOCUMENTS. The Company will, and
will cause each of its Subsidiaries to, comply with the provisions of (a) all
Laws, (b) its Charter Documents, and (c) every Material Agreement to which the
Company or any of its Subsidiaries is a party or by which the Company's or any
of its Subsidiaries' properties are bound.
SECTION 9.4. OPERATION OF PROPERTIES AND EQUIPMENT. The Company will,
and will cause each of its Subsidiaries to, at all times, maintain, preserve and
keep all operating equipment used or useful in the operation of their respective
businesses in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such equipment shall at all times be properly
preserved and maintained; PROVIDED, that, no item of operating equipment need be
so repaired, renewed, replaced, added to or improved, if the Company shall in
good faith determine that such action is not necessary or desirable for the
continued efficient and profitable operation of the Company's and its
Subsidiaries' businesses.
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SECTION 9.5. ADDITIONAL DOCUMENTS. The Company will, and will cause
each of its Subsidiaries to, cure promptly any defects in the creation and
issuance of the Securities, and the execution and delivery of this Agreement and
the other Transaction Documents, and, at the Company's sole expense, promptly
and duly execute and deliver, and cause each of its Subsidiaries to promptly
execute and deliver, to the holders of the Securities, upon reasonable request,
all such other and further documents, agreements and instruments in compliance
with or accomplishment of the covenants and agreements of the Company and each
of its Subsidiaries in this Agreement and the other Transaction Documents, all
as may be reasonably necessary or appropriate in connection therewith.
SECTION 9.6. MAINTENANCE OF BOOKS AND RECORDS. The Company will, and
will cause each of its Subsidiaries to, maintain proper books of record and
account in which true and correct entries in conformity with GAAP shall be made
on a timely basis of all dealings and transactions in relation to the Company's
and its Subsidiaries' businesses and activities.
SECTION 9.7. ENIVIRONMENTAL MATTERS.
(a) The Company will, and will cause each of its Subsidiaries to,
comply with all Environmental Law and Laws applicable to their respective
properties and operations, including, without limitation, all Hazardous
Substances transportation, storage, disposal, remediation and similar
requirements of applicable Environmental Law and Laws.
(b) Notwithstanding any other provision contained within this Agreement
or the other Transaction Documents, the Company shall immediately orally notify
each holder of Securities of any Hazardous Discharge or the receipt of any
Environmental Complaint relating to any property or assets owned by the Company
or any of its Subsidiaries or affecting any properties or assets owned or leased
by other Persons and shall furnish each holder of Securities with written notice
of such Hazardous Discharge or Environmental Complaint within five (5) days of
the oral notification.
SECTION 9.8 ACCESS TO INFORMATION. The Company will (and will cause
each of its Subsidiaries to) afford SFP and its representatives (including
without limitation directors, officers and employees of SFP and its Affiliates,
and counsel, accountants and other professionals retained by SFP) such access,
during normal business hours throughout the period to the Closing Date, to the
Company's books, records (including without limitation Tax returns and
non-restricted work papers of the Company's independent auditors), properties,
personnel and to such other information as SFP may reasonably request and will
permit SFP to make such inspections as SFP may reasonably request and will cause
the officers of the Company and those of its Subsidiaries to furnish SFP with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its Subsidiaries as SFP
may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by the Company in this Agreement. SFP
will afford the Company and its representatives (including without limitation
directors, officers and employees of the Company and its Affiliates, and
counsel, accountants and other professionals retained by the Company) such
access, during normal business hours throughout the period to the Closing Date,
to SFP's books, records
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(including without limitation Tax returns and non-restricted workpapers of SFP's
independent auditors), properties, personnel and to such other information as
the Company may reasonably request and will permit the Company to make such
inspections as the Company may reasonably request and will cause the officers of
SFP to furnish the Company with such financial and operating data and other
information with respect to the business, properties and personnel of SFP as the
Company may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by SFP in this Agreement.
SECTION 9.9 CONDUCT OF THE BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement or to the extent that SFP shall otherwise consent
in writing, during the period from the date of this Agreement to the Closing,
the Company will conduct its operations only in, and the Company will not take
any action except in the ordinary course of business and the Company will use
all reasonable efforts to preserve intact in all material respects its business
organizations, assets, prospects and advantageous business relationships, to
keep available the services of its officers and key employees and to maintain
satisfactory relationships with its licensors, licensees, suppliers,
contractors, distributors, customers and others having advantageous business
relationships with it. Without limiting the generality of the foregoing, except
as contemplated by this Agreement, the Company will not, without the prior
written consent of SFP:
(a) amend its Charter Documents;
(b) split, combine or reclassify any shares of its capital stock,
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, or directly or indirectly, redeem, purchase or
otherwise acquire any shares of its capital stock or other securities;
(c) authorize for issuance, issue, sell or deliver or agree or commit
to issue, sell, or deliver (whether through the issuance or granting of any
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any of its capital stock or any securities convertible into or exercisable or
exchangeable for shares of its capital stock, except the Company may, effective
as of Closing, amend its Amended and Restated 1995 Stock Option and Stock
Appreciation Rights Plan to provide that options granted to optionees prior to
the date of this Agreement may be exercised for a one (1) year period from the
following dates: (i) the date of termination of an optionee whose employment
with the Company is terminated without cause by the Company during the six (6)
month period commencing with Closing, (ii) the date of termination of an
optionee's employment whose employment with Company is terminated by employee
with "Good Reason" as defined in such employee's written employment agreement,
or, (iii) from the date of resignation of a director of the Company who resigns
at Closing; provided, that the form of any such amendment to such plan be
approved in writing by SFP.
(d) incur any material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual or
entity, or change any assumption underlying, or methods of calculating, any bad
debt, contingency or other reserve;
(e) enter into, adopt, or amend any employment agreement or Pension
Plan, or grant,
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or become obligated to grant, any increase in the compensation payable or to
become payable to any of its officers or directors or any general increase in
the compensation payable or to become payable to its employees.
(f) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer, or purchase of properties or assets
of any Person;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against on the Company Financial Statements or
subsequently incurred in the ordinary course of business, or disclosed pursuant
to this Agreement;
(h) acquire (including by lease) any material assets or properties or
dispose of, mortgage or encumber any material assets or properties, other than
in the ordinary course of business;
(i) waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease, contract or
other document, other than in the ordinary course of business and consistent
with past practice; or
(j) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would at any time make any
representation or warranty in Article VII untrue or incorrect.
SECTION 9.10 INTENTIONALLY OMITTED.
SECTION 9.11 INTENTIONALLY OMITTED.
ARTICLE X
DEFAULTS; TERMINATION
SECTION 10.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively, "EVENTS OF DEFAULT" and individually, an "EVENT OF DEFAULT")
shall have occurred and be continuing:
(a) the Company shall fail to pay when due any principal or
interest on the Note;
(2) the Company shall fail to pay when due any fees, expenses,
reimbursements, indemnification payments or other monetary
obligations when due under any of the Transaction Documents
and such failure shall continue for ten (10) days following
the due date of such payment;
(3) the Company or any of its Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or
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its Debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail
generally to pay its Debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(4) an involuntary case or other proceeding shall be commenced
against the Company or any of its Subsidiaries seeking
liquidation, reorganization or other relief with respect to it
or its Debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or
an order for relief shall be entered against the Company under
the federal bankruptcy Laws as now or hereafter in effect;
then, so long as any such event is continuing, any Noteholder shall
without notice or demand of any kind (including, without limitation, notice of
intention to accelerate and acceleration) (unless any such notice is expressly
provided for herein or in the other Transaction Documents), all of which are
hereby waived, take any and all actions as may be permitted by the Transaction
Documents including, declaring the obligations in respect of the Note owned by
such Noteholder (including all accrued interest thereon) to be, and such
obligations shall thereupon become, immediately due and payable.
SECTION 10.2 TERMINATION. This Agreement may be terminated, whether
before or after approval of this Agreement by the stockholders of the Company,
at any time prior to the Closing:
(a) By mutual written consent of SFP and the Company;
(b) By SFP if (i) there has been a breach of the representations
and warranties made by the Company in this Agreement or (ii)
the Company has failed to comply in any material respect with
any of its covenants or agreements contained in this Agreement
and such failure has not been, or cannot be, cured within a
reasonable time after notice and demand for cure thereof;
(c) By the Company if (i) there has been a breach of the
representations and warranties made by SFP in this Agreement
or (ii) SFP has failed to comply in any material respect with
any of the its covenants or agreements contained in this
Agreement and such failure has not been, or cannot be, cured
within a reasonable time after notice and demand for cure
thereof;
SECTION 10.3. EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or SFP pursuant to the provisions of SECTION 10.2, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of any party hereto or its respective Affiliates, directors,
officers, or stockholders, except pursuant to, the provisions of Section 11.3;
provided, however, that a termination of this
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Agreement shall not relieve any party hereto from any libility for damages
incurred as a result of a breach by such party of its representations,
warranties, covenants, agreements or other obligations hereunder occurring prior
to such termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex, telecopy
or similar writing) and shall be given to such party at its address, telex or
telecopy number set forth on the signature pages hereof or such other address,
telex or telecopy number as such party may hereafter specify for the purpose by
notice to the other party. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, when such telex or
telecopy is transmitted to the telex or telecopy number specified in this
SECTION 11.1 and the appropriate answer back is received or receipt is otherwise
confirmed, (ii) if given by mail, three (3) Business Days after deposit in the
mails with first class postage prepaid, addressed as aforesaid, or (iii) if
given by any other means, when delivered at the address specified in this
SECTION 11.1.
SECTION 11.2. NO WAIVERS. No failure or delay by any holder of
Securities in exercising any right, power or privilege hereunder or under any
other Transaction Document shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law or in any of the other Transaction Documents.
SECTION 11.3. EXPENSES; INDEMNIFICATION. (a) Except as provided in
SECTION 6.1(F), all expenses incurred in connection with this Agreement shall be
paid by the party incurring such expenses.
(b) The Company agrees to indemnify and hold harmless, SFP, its
shareholders and each subsequent holder of Securities and their respective
directors, officers, employees, agents, successors and assigns (collectively,
the "INDEMNIFIED PARTIES") from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, the
reasonable fees and disbursements of counsel for the Indemnified Parties in
connection with any investigative, administrative or judicial proceeding,
whether or not any such Indemnified Party shall be designated a party thereto)
which may be incurred by any Indemnified Party relating to or arising out of (a)
this Agreement, the other Transaction Documents, the Closing Transactions and
all other transactions contemplated hereby or thereby.
(c) The Company further agrees to defend, indemnify and hold
harmless each Indemnified Party from and against any and all losses, liabilities
(including strict liability), damages (including for bodily injury and property
damage), costs, expenses (including attorneys' fees and environmental
consultants' expenses), relating to any of the properties or assets securing the
Obligations, that any Indemnified Party may incur in connection with any
Environmental Complaint or Hazardous Discharge or any violation of any
Environmental Law and Laws regardless of whether or not caused by, or within the
control
40
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of, the Company, or any of its Subsidiaries as tenant, sub-tenant or prior owner
or occupant of any of the properties or assets securing the Obligations or any
properties owned or leased by other parties, and regardless of whether such
claim is brought by Governmental Authorities or private parties. This indemnity
shall survive the repayment of the Obligations and the discharge or release of
any Lien granted hereunder or in any other Transaction Document.
(d) (i) Promptly after receipt by an Indemnified Party of
notice of the commencement of any action, suit or other proceeding against an
Indemnified Party with respect to which an Indemnified Party demands
indemnification hereunder, such Indemnified Party shall promptly notify the
Company in writing of the commencement thereof, provided that the failure to so
notify the Company shall not relieve it from any liability that it may have to
an Indemnified Party, except to the extent that such failure has materially
prejudiced the Company's ability to provide a defense in the proceeding. The
Company shall have the right to assume the defense of any such proceeding, but
the Indemnified Parties collectively shall have the right, at the expense of the
Company, to retain not more than one counsel of their choice to represent the
Indemnified Parties in such proceeding. The counsel for the Indemnified Parties
may participate in, but not control, the defense of such proceeding.
(ii) The indemnity provided for herein shall cover the
amount of any settlements entered into by an Indemnified Party in connection
with any claim for which an Indemnified Party may be indemnified hereunder;
provided that, no settlement binding on an Indemnified Party may be made without
the consent of an Indemnified Party and the Company (which consent shall not be
reasonably withheld).
(iii) Any indemnification hereunder shall be made no later
than 45 days after receipt by the Company of the written request of the
Indemnified Party.
THE PARTIES RECOGNIZE THAT AN INDEMNITEE MAY BE ENTITLED TO
INDEMNIFICATION HEREUNDER FROM ACTS OR OMISSIONS THAT ARISE OUT OF OR RESULT
FROM THE ORDINARY, STRICT, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNITEE.
(e) SFP hereby covenants and agrees with the Company that SFP
shall indemnify the Company and hold it harmless from, against and in respect of
any and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable fees and disbursements of counsel) incurred by it
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any agreement, covenant or obligation by SFP made in this Agreement (including
without limitation any certificate or instrument delivered in connection
herewith.
SECTION 11.4. AMENDMENTS AND WAIVERS; SALE OF INTEREST. Any provision
of this Agreement and the other Transaction Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and (a) the Majority Noteholder and (b) the Majority Warrant Holder. The
Company hereby consents to any participation, sale, assignment, transfer or
other disposition which complies with ARTICLE V, at any time or times hereafter,
of any Securities, this Agreement and any of the other Transaction Documents, or
of any portion hereof or thereof, including, without limitation,
41
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SFP's rights, title, interests, remedies, powers, and duties hereunder or
thereunder, subject to compliance with applicable Laws and the provisions of the
Compass Senior Debt Documents subject to the requirement that any such assignee,
transferee or purchaser shall agree in writing to become bound by the terms of
this Agreement and the other Transaction Documents.
SECTION 11.5. SURVIVAL. All representations, warranties and covenants
made by the Company herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by SFP and shall survive the delivery to SFP of such
Transaction Documents and the purchase of the Securities, regardless of any
investigation made by or on behalf of SFP. All representations, warranties and
covenants made by SFP herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by the Company and shall survive the delivery to the
Company of such Transaction Documents and the purchase of the Securities,
regardless of any investigation made by or on behalf of the Company.
SECTION 11.6. LIMITATION ON INTEREST. Regardless of any provision
contained in the Transaction Documents, no Noteholder shall ever be entitled to
receive, collect, or apply, as interest on the Note, any amount in excess of the
Maximum Lawful Rate, and in the event any Noteholder ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Note is paid in full, any remaining excess shall promptly be
paid to the Company. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Lawful Rate, the Company and
the Noteholder shall, to the extent permitted under applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate and spread, in equal parts, the total amount of the
interest throughout the entire contemplated term of the Note, so that the
interest rate is the Maximum Lawful Rate throughout the entire term of the Note;
PROVIDED, HOWEVER, that, if the unpaid principal balance thereof is paid and
performed in full prior to the end of the full contemplated term thereof, and if
the interest received for the actual period of existence thereof exceeds the
Maximum Lawful Rate, the Noteholder shall refund to the Company the amount of
such excess and, in such event, the Noteholder shall not be subject to any
penalties provided by any Laws for contracting for, charging, taking, reserving
or receiving interest in excess of the Maximum Lawful Rate.
SECTION 11.7. INVALID PROVISIONS. If any provision of the Transaction
Documents is held to be illegal, invalid, or unenforceable under present or
future Laws effective during the term thereof, such provision shall be fully
severable, the Transaction Documents shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part thereof,
and the remaining provisions thereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of the
Transaction Documents a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 11.8. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the
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Company may not assign or otherwise transfer any of its rights or obligations
under this Agreement.
SECTION 11.9. GOVERNING LAW. THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS.
SECTION 11.10. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 11.11. NO THIRD PARTY BENEFICIARIES. Except as provided in
SECTION 11.3, it is expressly intended that there shall be no third party
beneficiaries of the covenants, agreements, representations or warranties herein
contained other than transferees or assignees of all or any part of SFP's
interest hereunder.
SECTION 11.12. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 11.13. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE.
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY SFP WITH RESPECT TO THIS AGREEMENT OR
ANY OF THE OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE
OF TEXAS, COUNTY OF DALLAS, OR IN THE FEDERAL COURTS LOCATED IN THE NORTHERN
DISTRICT OF TEXAS, AS SFP MAY SELECT IN ITS SOLE DISCRETION. THE COMPANY HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY
SUCH SUIT, ACTION OR PROCEEDING. THE COMPANY HEREBY IRREVOCABLE WAIVES ANY
OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS,
COUNTY OF DALLAS, AND HEREBY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
SECTION 11.14. WAIVER OF RIGHT TO TRIAL BY JURY. SFP AND THE COMPANY
EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, ANY TRANSACTION DOCUMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN
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RESPECT TO THIS AGREEMENT. SFP AND THE COMPANY EACH AGREE THAT THE OTHER MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 11.15. PUBLIC ANNOUNCEMENTS. Except as may be required by
applicable Law or this Section, SFP shall not issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the
Company (which consent shall not be unreasonably withheld). Any such press
release or public statement required by applicable Law shall only be made after
reasonable notice to the other party. Upon execution of this Agreement, the
Company shall make a press release in a form previously approved by SFP and
promptly file a report on Form 8-K with the Commission.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective Authorized Officers on the day and year first above
written.
COMPANY:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ John J. Bassett
Name: John J. Bassett
------------------------
Title: President
------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
SHOEMAKER FAMILY PARTNERS, LP
By: /s/ Peter V. Shoemaker
-------------------------
Name: Peter V. Shoemaker
-------------------------
Title: Attorney in Fact
-------------------------
Address for Notice:
Shoemaker Family Partners, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
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EXHIBIT A
SENIOR SUBORDINATE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO A VALID EXEMPTION COVERING SUCH
TRANSFER.
$50,000 Dallas, Texas __________________, 1999
FOR VALUE RECEIVED, the undersigned, MIDDLE BAY OIL COMPANY, INC, an
Alabama corporation ("MAKER" or the "COMPANY") hereby promises to pay to the
order of SHOEMAKER FAMILY PARTNERS, LP, a New Jersey limited partnership
("PAYEE"), not later than 2:00 P.M. (Dallas, Texas time), on the date when due,
in Federal or other funds immediately available in Dallas, Texas, at Payee's
offices at 60 Brushhill Road, Kinnelon, NJ 07405 or such other address, given to
Maker by Payee, the principal sum of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000), together with interest, as hereinafter described. Whenever any
payment of principal of, or interest on, this Note shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for payment of principal is extended
by operation of law or otherwise, interest thereon shall be payable for such
extended time.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Securities Purchase Agreement
dated of even date herewith, by and between Maker and Payee (the "AGREEMENT").
This Note is the "Note" referred to in the Agreement. Unless otherwise defined
herein or unless the context hereof otherwise requires, each term used herein
with its initial letter capitalized has the meaning given to such term in the
Agreement.
This Note shall rank senior in right of payment to all Company notes
and indebtedness other than the Compass Senior Debt. This Note shall rank pari
passu with the 3TEC Note and that certain Senior Subordinate $100,000 Promissory
Note dated of even date herewith payable to the order of Shoeinvest II, LP, a
New Jersey limited partnership, without any preference or priority one over
another.
Maker reserves the right to prepay without premium or penalty, after
thirty (30) days prior written notice to the Noteholder, the principal amount of
the Note, in whole or in part, at any time after _______________, 2001.
Maker promises to pay interest on the outstanding principal balance
hereof, prior to the occurrence of an Event of Default, at a rate per annum
equal to the lesser of (a) the Fixed Rate or (b) the Maximum Lawful Rate, in
Federal or other funds immediately available in Dallas, Texas, at the offices
of Payee above referenced. Interest shall accrue on the principal balance of the
Note outstanding from time to time at the Fixed Rate; PROVIDED, that, interest
shall accrue on any amounts past due and owing on the Note from the date due
until paid at the Default Rate; PROVIDED FURTHER, that in no event shall the
rate of interest charged hereunder exceed the Maximum Lawful Rate. Interest
shall be payable on the Note as it accrues on December 1, 1999 and continuing on
each March 1, June 1, September 1, and December 1 thereafter until maturity.
Whenever
<PAGE>
any payment of principal of, or interest on, the Note shall be due on a
day which is not a Business Day, the date for payment thereof shall be extended
to the next succeeding Business Day.
With respect to the first eight (8) quarterly interest payments
payable hereunder commencing with the first such quarterly interest payment, the
Company may, at least thirty (30) days prior to the subject payment date, elect
to accrue and add to the principal of the Note up to fifty percent (50%) of the
interest payment due and payable on such interest payment date. If such an
election is made, the Company shall notify the Noteholder of the portion (up to
50%) of such quarterly interest payment which the Company elects to accrue and
add to the principal of the Note.
Interest shall be computed on the Note on the basis of the number of
actual days elapsed, assuming that each calendar year consisted of 360 days. The
entire outstanding principal balance of this Note and all accrued but unpaid
interest thereon shall be due and payable in full in a single installment on
___________________, 2004.
A Noteholder may elect to convert all or any portion of the amount of
principal and accrued but unpaid interest on the Note as hereinafter provided.
Each $3.00 (the "Conversion Price") of principal and accrued but unpaid interest
on the Note shall be convertible into one share of Common Stock. The Conversion
Price is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below:
1. In the event that the Company shall (a) declare a
dividend on the Common Stock in shares of its capital
stock (whether shares of such Common Stock or of
capital stock of any other class of the Company), (b)
split or subdivide the outstanding Common Stock, or
(c) combine the outstanding Common Stock into a
smaller number of shares, then (as a result of an
event described in (a), (b) or (c)) the Conversion
Price shall be adjusted to equal the product of the
Conversion Price in effect immediately prior to such
event multiplied by a fraction the numerator of which
is equal to the number of shares of Common Stock
outstanding on a Fully Diluted Basis (as defined
below) immediately after the event and the
denominator of which is equal to the number of shares
of Common Stock outstanding on a Fully Diluted Basis
immediately prior to such event.
[Remainder of this page intentionally blank]
<PAGE>
2. In the event that the Company shall (a) issue any
shares of Common Stock without consideration or at a
price per share less than the Conversion Price
immediately prior to such issuance, or (b) issue
options, rights or warrants to subscribe for or
purchase such Common Stock (or securities convertible
into such Common Stock) without consideration or at a
price per share (or having a conversion price per
share, if a security convertible into such Common
Stock) less than the Conversion Price, then,
effective upon such issuance, the Conversion Price
shall be adjusted to equal the product obtained by
multiplying the Conversion Price in effect
immediately prior to the date of such issuance by a
fraction, the numerator of which shall be the number
of shares of Common Stock outstanding on a Fully
Diluted Basis immediately prior to such issuance PLUS
the number of shares of Common Stock which the
aggregate offering price of the total number of
shares of such Common Stock so to be issued or to be
offered for subscription or purchase (or the
aggregate initial conversion price of the convertible
securities so to be offered) would purchase at the
Conversion Price immediately prior to such issuance,
and the denominator of which shall be the number of
shares of Common Stock outstanding on a Fully Diluted
Basis immediately after such issuance. In case such
consideration may be paid in a consideration part or
all of which shall be in a form other than cash, the
value of such consideration shall be as determined by
an investment banking firm reasonably acceptable to
the Noteholder (the cost of the engagement of said
investment banking firm to be borne by the Company).
Shares of such Common Stock owned by or held for the
account of the Company or any Subsidiary thereof
shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made
successively whenever the date of such issuance is
fixed (which date of issuance shall be the record
date for such issuance if a record date therefor is
fixed); and, in the event that such shares or
options, rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the
Conversion Price if the date of such issuance had not
been fixed.
3. In case the Company shall make a distribution to all
holders of Common Stock (including any such
distribution made in connection with a consolidation
or merger in which the Company is the surviving
corporation) of shares of it stock, evidences of its
indebtedness, assets, or rights, options or warrants
(other than those referred to in paragraph 2 above)
to subscribe for or purchase such shares, evidences
of indebtedness, or assets, then, effective upon such
distribution, the Conversion Price shall be adjusted
to equal the product obtained by multiplying the
Conversion Price in effect immediately prior to the
date of such distribution by a fraction, the
numerator of which shall be the Per Share Stock Price
for the trading day immediately preceding the day of
distribution ("Pre-Distribution Price") less the fair
market value of the distribution (as determined in
good faith by the Board of Directors of the Company)
applicable to one share of Common Stock, and the
denominator of which shall be the Pre-Distribution
Price. Such adjustment shall be made successively
whenever a date for such distribution is fixed (which
date of distribution shall be the record date for
such issuance if a record date therefor is fixed);
and, if such distribution is not so made, the
Conversion Price shall again be adjusted to be to be
the Conversion Price if the date of such issuance had
not been
<PAGE>
fixed.
4. No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least one-tenth of one
percent (.1%) in the total number of shares of Common
Stock that would be issued as a result of the
conversion of all the Note; PROVIDED that any
adjustments which by reason of this section are not
required to be made shall be carried forward and
taken into account in any subsequent adjustment. All
calculations under this section shall be made to the
nearest hundredth of one percent.
5. In the event of any capital reorganization of the
Company, or of any reclassification of any Common
Stock for which the Note is convertible (other than a
subdivision or combination of outstanding shares of
such Common Stock), or in case of the consolidation
of the Company with or the merger of the Company with
or into any other corporation or of the sale of the
properties and assets of the Company as, or
substantially as, an entirety to any other entity,
each $3.00 of principal and unpaid interest
outstanding of the Note shall after such capital
reorganization, reclassification of such Common
Stock, consolidation, merger or sale be convertible,
upon the terms and conditions specified in this
Agreement, into the number of shares of stock or
other securities or assets to which a holder of the
number of shares of Common Stock into which amount of
principal and interest payable under the Note is
convertible (at the time of such capital
reorganization, reclassification of such Common
Stock, consolidation, merger or sale) would have been
entitled upon such capital reorganization,
reclassification of such Common Stock, consolidation,
merger or sale; and in any such case, if necessary,
the provisions set forth in this section with respect
to the rights thereafter of such Note shall be
appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock
or other securities or assets thereafter deliverable
upon the conversion of the Note. The Company shall
not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the
consummation thereof, the successor corporation (if
other than the Company) resulting from such
consolidation or merger or the corporation purchasing
such assets or the appropriate corporation or entity
shall assume, by written instrument, the obligation
to deliver to the Noteholder the shares of stock,
securities or assets to which, in accordance with the
foregoing provisions, such Noteholder may be entitled
pursuant to this section.
6. If any question shall at any time arise with respect
to the Conversion Price or the number of shares
issuable upon conversion of the Note, such question
shall be determined by the independent firm of
certified public accountants of recognized national
standing selected by the Noteholder and acceptable to
the Company.
7. Notwithstanding anything in this section to the
contrary, the Company shall not be permitted to take
any action described in this section, if such action
is prohibited under any other provision of this Note
or the Agreement.
<PAGE>
If a Noteholder elects to convert all or a portion of the outstanding
principal and accrued and unpaid interest under the Note, then the Noteholder
shall deliver the Note to the Company in exchange for an amended and restated
note setting forth the new amount of principal and accrued and unpaid interest.
Upon such exchange, the Company shall promptly issue and deliver, or cause to be
issued and delivered, to the Noteholder a certificate or certificates for the
number of whole shares of Common Stock to which the Noteholder is entitled under
the terms hereof. To the extent permitted by law, such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such exchange of the Notes for the amended and restated note and Conversion
Shares, and the Noteholder shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
No fractional shares or script of Common Stock shall be issued upon
conversion of all or a portion of the outstanding principal and accrued unpaid
interest of the outstanding principal and accrued unpaid interest under the
Note. In lieu of a fractional share of Common Stock to which the holder would
otherwise be entitled, the Company shall pay cash equal to the product of such
fraction multiplied by the market value of one share of Common Stock on the date
of conversion.
Upon the occurrence and during the continuance of an Event of Default,
and upon the conditions stated in the Agreement, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided that, upon the occurrence of certain
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice, demand, or presentment, all of
which are hereby waived, and the holder hereof shall have the right to offset
against this Note any sum or sums owed by the holder hereof to Maker. After the
occurrence of an Event of Default, interest shall accrue on the outstanding
principal balance of this Note and, to the extent permitted by applicable Law,
on accrued but unpaid interest, at the lesser of (a) the Default Rate or (b) the
Maximum Lawful Rate.
After the occurrence of an Event of Default, all amounts collected or
received by any Noteholder in respect of the Obligations shall be applied first,
to the payment of all proper costs incurred by the Noteholder in connection with
the collection thereof (including reasonable fees, expenses and disbursements of
counsel for the Noteholder), second, to the reimbursement of any advances made
by Noteholder to effect performance of any unperformed covenants of the Company
under any of the Transaction Documents, third, to the payment of all accrued
interest on the Note, fourth, to unpaid principal on the Note, and fifth to the
Company or any other Person entitled to such proceeds under applicable Law.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay the court
costs, reasonable attorneys' fees, and other costs of collection of the holder
hereof.
Maker, and each surety, endorser, guarantor, and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, protest, notice of protest
and nonpayment, and notice of acceleration and the intention to accelerate, and
agree that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Note, and hereby consent to
any and all renewals, extensions, indulgences, releases, or changes, regardless
of the number of such renewals,
<PAGE>
extensions, indulgences, releases or changes.
THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
MIDDLE BAY OIL COMPANY, INC.
By:
----------------------------
Name: John J. Bassett
Title: President
<PAGE>
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as of
________________, 1999, is entered into by and among MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation ("Corporation") and the parties listed on Schedule
1 attached hereto and incorporated herein by reference (each of such parties are
referred to individually as "Shareholder" and collectively, as "Shareholders")
and the parties listed on Schedule 2 attached hereto and incorporated herein by
reference (each of such parties are referred to individually as "Piggy-Back
Shareholder" and collectively, as "Piggy-Back Shareholders").
RECITALS
WHEREAS, pursuant to those Securities Purchase Agreements by and
between Corporation and each of the Shareholders executed on ______________,
1999 (the "Purchase Agreements"), each Shareholder will receive the number of
shares of Common Stock, Notes and Warrants as set forth on Schedule 1.
WHEREAS, each of the Piggy-Back Shareholders currently owns shares of
Common Stock as set forth on Schedule 2.
WHEREAS, as a condition to the Purchase Agreements, Corporation has
agreed to grant to Shareholders certain registration rights with respect to
their Registrable Securities (defined hereafter) and has agreed to grant the
Piggy-Back Shareholders certain registration rights with respect to their
Piggy-Back Registrable Securities (defined hereafter).
WHEREAS, all the terms used but not defined in this Agreement shall
have the meaning ascribed to them in the Purchase Agreements.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the recitals above
or the subsections referred to below.
"Piggy-Back Registrable Securities" shall mean (i) the shares of Common
Stock owned by each Piggy-Back Shareholder as listed on Schedule 2 (ii) the
shares of Common Stock owned by each Piggy-Back Shareholder during the term of
this Agreement as a result of the conversion of the shares of the Company's
Series B Convertible Preferred Shares as listed on Schedule 2, and (iii) any
securities issued or issuable with respect to the shares described in clauses
(i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Registrable Securities" shall mean (i) the shares of Common Stock
issued to the Shareholders pursuant to the Purchase Agreements (which, for
purposes hereof, shall mean the Common Stock Shares, the Warrant Shares and the
Conversion Shares as defined in the Purchase Agreements) and (ii) any securities
issued or issuable with respect to the shares described in clause (i) above by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
<PAGE>
Section 2. INDEPENDENT REGISTRATION RIGHTS.
2.1 The Corporation hereby grants to each Shareholder separate rights
to require the Corporation to use its best efforts to cause registration and
sale in a public offering of all or a portion of such Shareholder's Registrable
Securities in accordance with this Section 2; provided, however, the Corporation
shall not have any obligation to effect more than a total of three (3) effective
registrations pursuant to this Section 2 at the Corporation's expense. If the
Corporation shall have received a written request submitted by Shareholder(s)
owning at least a majority of the Registrable Securities outstanding at the time
of such request (the "Requisite Holders") that such Shareholder(s)
desires/desire to sell Registrable Securities and specifying the number of
Registrable Securities proposed to be sold (for the purposes of this Section 2,
"Shares") and the proposed plan for distribution of the Shares, Corporation will
thereafter:
2.1.1 Give prompt (but in any event within fifteen (15) days after
the receipt of the Requisite Holder(s)' notice) notice to all other Shareholders
of such notice and of such other Shareholders' rights to have their Registrable
Securities included in such registration.
2.1.2 Upon the request of any such Shareholder made within fifteen
(15) days after the receipt by such Shareholder of any such notice given
pursuant to subsection 2.1.1 (which request shall specify the Registrable
Securities intended to be disposed of by such Shareholder and the intended
method or methods of disposition thereof), the Corporation will use its best
efforts to effect the registration of all Shares which the Corporation has been
so requested to register pursuant to this subsection 2.1.
2.1.3 Prepare and file as soon as practicable, but in no event
later than thirty (30) days from Corporation's receipt of the last Shareholder's
request to have such Shareholder's Registrable Securities included in such
registration within the time period specified in Section 2.1.2, a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
("Registration Statement") with the Securities Exchange Commission
("Commission") on Form S-1 (or Form S-2 or Form S-3, if Corporation is entitled
to use such forms, or similar forms available for use by small business issuers)
and use its best efforts to cause such Registration Statement to become
effective in order that the Shareholders may sell the Shares in accordance with
the proposed plan of distribution.
2.1.4 Prepare and file with the Commission such amendment and
supplements to such Registration Statement and prospectus used in connection
therewith including any preliminary prospectus or supplemental or amended
prospectus (the "Prospectus") as may be necessary to keep such Registration
Statement continuously effective and to comply with the provisions of the
Securities Act with respect to the offer of the Shares during the period
required for distribution of the Shares, which period shall not be in excess of
the earlier of (i) one year from the effective date of such Registration
Statement, and (ii) the distribution of all Shares covered by such Registration
Statement.
2.1.5 Furnish to each Shareholder such number of copies of the
Prospectus (including any preliminary prospectus or supplemental or amended
prospectus) as such Shareholder may reasonably request in order to facilitate
the sale and distribution of the Shares.
2.2 The right of each Shareholder to register Shares pursuant to the
provisions of this Section 2 shall be subject to the condition that if a request
for registration is made within sixty (60) days prior to the conclusion of
Corporation's then current fiscal year, Corporation shall have the right to
delay the filing of the Registration Statement for such period of time until
Corporation receives its audited financial statements for such fiscal year.
2.3 If the Requisite Holder(s) intend/intends to distribute the
Registrable Securities covered by the notice pursuant to subsection 2.1 by means
of an underwriting, the Requisite Holder(s) shall so advise the Corporation as a
part of the notice made pursuant to subsection 2.1 and provide the name of the
managing underwriter or underwriters that the Requisite Holder(s)
proposes/propose to employ in connection with the public offering proposed to be
made pursuant
<PAGE>
to the registration requested. If the managing underwriter of such underwritten
offering shall inform the Corporation and the Shareholders requesting that their
Shares be registered pursuant to this Section 2 by letter of its belief that the
amount of Shares requested to be included in such registration exceeds the
amount which can be sold in (or during the time of) such offering within a price
range acceptable to the Requisite Holders, then the Corporation will include in
such registration such amount of Shares which the Corporation is so advised can
be sold in (or during the time of) such offering PRO RATA on the basis of the
amount of such Shares so proposed to be sold and so requested to be included by
such parties.
2.4 A registration shall not be deemed to have been effected (i)
unless it has become effective and remained effective for the period specified
in subsection 2.1.4, (ii) if, after it has become effective, such registration
is terminated by a stop order, injunction or other order of the Commission or
other governmental agency or court, or (iii) if the conditions to closing
specified in any purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied for any reason, other than
as a result of the voluntary termination of such offering by the Requisite
Holders.
Section 3. PIGGY-BACK REGISTRATION RIGHTS.
3.1 If Corporation proposes to file, on its behalf, a Registration
Statement under the Securities Act on Form S-1, S-2 or S-3 or similar forms
available for use by small business issuers, other than pursuant to Section 2 of
this Agreement or in connection with a dividend reinvestment, employee stock
purchase, option or similar plan or in connection with a merger, consolidation
or reorganization, Corporation shall give written notice to each Shareholder and
Piggy-Back Shareholder at least thirty (30) days before the filing with the
Commission of such Registration Statement. Such notice shall offer to include in
such filing all or a portion of the Registrable Securities and Piggy-Back
Registrable Securities owned by such Shareholder or Piggy-Back Shareholder. If a
Shareholder or Piggy-Back Shareholder desires to include all or a portion of
its Registrable Securities or Piggy-Back Registrable Securities in such
Registration Statement, it shall give written notice to Corporation within
fifteen (15) days after the date of mailing of such offer specifying the amount
of Registrable Securities and/or Piggy-Back Registrable Securities to be
registered (for the purpose of this Section 3, "Shares"). Corporation shall
thereupon include in such filing the Shares, subject to priorities in
registration set forth in this Agreement, and subject to its right to withdraw
such filing, and shall use its best efforts to effect registration under the
Securities Act of the Shares.
3.2 The right of the Shareholders and the Piggy-Back Shareholders to
have the Shares included in any Registration Statement in accordance with the
provisions of this Section 3 shall be subject to the following conditions:
3.2.1 Corporation shall have the right to require that each
Shareholder or Piggy-Back Shareholder agree to refrain from offering or selling
any shares of Common Stock that it owns which are not included in any such
Registration Statement in accordance with this Section 3 for any reasonable time
period specified, not to exceed ninety (90) days, by any managing underwriter of
the offering to which such Registration Statement relates.
3.2.2 If (i) a registration pursuant to this Section 3 involves an
underwritten offering of the securities being registered to be distributed (on a
firm commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction and (ii)
the managing underwriter of such underwritten offering shall inform the
Corporation and the Shareholders and Piggy-Back Shareholders who have requested
that their Shares be registered pursuant to this Section 3 by letter of its
belief that the amount of Shares requested to be included in such registration
exceeds the amount which can be sold in (or during the time of) such offering
within a price range acceptable to a majority of such requesting holders, then
the Corporation will include in such registration such amount of securities
which the Corporation is so advised can be sold in (or during the time of) such
offering as follows: FIRST, the securities being offered by the Corporation for
its own account; SECOND such Shares of the Shareholders which are requested to
be included in such registration PRO RATA on the basis of the amount of such
Shares
<PAGE>
so proposed to be sold and so requested to be included by such Shareholders;
and THIRD, such Shares of the Piggy-Back Shareholders and which are requested
to be included in such registration PRO RATA on the basis of the amount of
such Shares so proposed to be sold and so requested to be included by such
Piggy-Back Shareholders.
3.2.3 Corporation shall furnish each Shareholder and Piggy-Back
Shareholder with such number of copies of the Prospectus as such Shareholder or
Piggy-Back Shareholder may reasonably request in order to facilitate the sale
and distribution of its shares.
3.3 Notwithstanding the foregoing, Corporation in its sole discretion
may determine not to file the Registration Statement or proceed with the
offering as to which the notice specified herein is given without liability to
the Shareholders or the Piggy-Back Shareholders.
Section 4. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Shareholder
or Piggy-Back Shareholder may participate in any registration hereunder which
relates to an underwritten offering unless such Shareholder or Piggy-Back
Shareholder (a) agrees to sell such holder's securities on the basis provided in
any underwriting arrangements approved by the holders of at least a majority of
the Registrable Securities and Piggy-Back Registrable Securities to be included
in such registration, or by a Person appointed by such holders to act on their
behalf to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
Section 5. EXCLUSIVE REGISTRATION RIGHTS AND TRANSFER.
The rights of each Shareholder under this Agreement may upon notice to
the Corporation be transferred to its respective Affiliates in combination with
a transfer of shares to such Affiliates. In addition, the rights of each
Shareholder under this Agreement may upon notice to the Corporation be
transferred to a non-Affiliate transferee in combination with a transfer of
shares to such non-Affiliate transferee. However, such non-Affiliate transferee
may not thereafter transfer its rights under this Agreement without the
Corporation's written consent. Except as provided in this Section 5, the rights
granted under this Agreement are granted specifically to and for the benefit of
each Shareholder and Piggy Back Shareholder and shall not pass to any transferee
of Registrable Securities. From and after the date of this Agreement, the
Corporation will not, without the prior written consent of Shareholders holding
at least a majority of the Registrable Securities then outstanding, enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Shareholders in this Agreement. Without
limiting the foregoing, the Corporation also specifically agrees that during the
period commencing on the date hereof and ending when the Shareholders have
disposed of all of their Registrable Securities, the Corporation will not enter
into an agreement with any party pertaining to the registration by the
Corporation of such party's Common Stock. The Corporation represents and
warrants to each of the Shareholders that, as of the date hereof, the
Corporation is not a party to any agreement, other than this Agreement,
pertaining to the registration by the Corporation of Common Stock.
Section 6. EXPENSES. Corporation will bear all the expenses in
connection with any Registration Statement under this Agreement, other than
transfer taxes payable on the sale of such shares, the fees and expenses of
counsel to the Shareholders and Piggy-Back Shareholders and fees and commissions
of brokers, dealers and underwriters.
Section 7. RECALL OF PROSPECTUSES, ETC. With respect to a Registration
Statement or amendment thereto filed pursuant to this Agreement, if, at any
time, Corporation notifies the Shareholders and Piggy-Back Shareholders that an
amendment or supplement to such Registration Statement or amendment to the
Prospectus included therein is necessary or appropriate, each Shareholder and
Piggy-Back Shareholder will forthwith cease selling and distributing shares
thereunder and will forthwith redeliver to Corporation all copies of such
Registration Statement and Prospectuses
<PAGE>
then in its possession or under its control. Corporation will use its best
efforts to cause any such amendment or supplement to become effective as soon as
practicable and will furnish each Shareholder and Piggy-Back Shareholder with a
reasonable number of copies of such amended or supplemented prospectus (and the
period during which Corporation is required to use its best efforts to maintain
such Registration Statement in effect pursuant to this Agreement will be
increased by the period from the date on which such Shareholder or Piggy-Back
Shareholder ceased selling and distributing shares thereunder to the date on
which such amendment or supplement becomes effective).
Section 8. COOPERATION WITH EXISTING SHAREHOLDERS. Corporation shall be
entitled to require the Shareholders and Piggy-Back Shareholders to cooperate
with Corporation in connection with a registration of Registrable Securities
pursuant to this Agreement and furnish (i) such information as may be required
by Corporation or the Commission in connection therewith and (ii) such
representations, undertakings and agreements as may be required by the
Commission in connection therewith.
Section 9. REGISTRATION PROCEDURES Upon the receipt of a request for
registration of any Registrable Securities pursuant to Section 2 or Section 3 of
this Agreement, Corporation will use its best efforts to effect the registration
of the Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto Corporation will as expeditiously as
possible:
9.1.1 Prepare and file with the Commission a registration statement on
an appropriate form under the Securities Act 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,
including documents incorporated by reference after the initial filing of any
registration statement, Corporation will promptly furnish to the holders of
Registrable Securities and Piggy-Back Registrable Securities to be registered
and sold pursuant to this Agreement (the "Registered Holders") and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of the Registered Holders and the
underwriters, and Corporation will not file any registration statement or
amendment thereto, or any prospectus or any supplement thereto (including such
documents incorporated by reference) to which the Registered Holders or the
underwriters, if any, shall reasonably object in the light of the requirements
of the Securities Act and any other applicable laws and regulations.
9.1.2 Prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration statement effective for the applicable period; cause the
related prospectus to be filed pursuant to Rule 424(b) (or any successor
provision) under the Securities Act; cause such prospectus to be supplemented by
any required prospectus supplement and, as so supplemented, to be filed pursuant
to Rule 424(b) (or any successor provision) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during the applicable period
in accordance with the intended methods of disposition set forth in such
registration statement or supplement to such prospectus.
9.1.3 Notify the Registered Holders and the managing underwriters, if
any, promptly, and (if requested by any such person) confirm such advice in
writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceeding for that purpose,
(iv) if at any time the representations and warranties of Corporation
contemplated by subsection 9.1.10 cease to be true and correct, (v) of the
receipt by Corporation of any notification with respect to the suspension or
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (vi) of the happening of
any event which requires the making of any changes in a registration statement
or related prospectus so that such documents
<PAGE>
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and (vii) of Corporation's reasonable determination that
a post-effective amendment to a registration statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such registration statement inadvisable pending such
disclosures and post-effective amendment.
9.1.4 Make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment.
9.1.5 If requested by the managing underwriters or the Registered
Holders in connection with an underwritten offering, immediately incorporate in
a prospectus supplement or post effective amendment such information as the
managing underwriters and the Registered Holders agree should be included
therein relating to such sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of shares
of Registrable Securities being sold to such underwriters and the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement if
requested by the Registered Holders or any underwriter of such Registrable
Securities.
9.1.6 Furnish to the Registered Holders and each managing underwriter,
if any, without charge, at least one signed copy of the registration statement,
any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
9.1.7 Deliver without charge to the Registered Holders and the
underwriters, if any, as many copies of the prospectus or prospectuses
(including each preliminary prospectus) and any amendment or supplement thereto
as such persons may reasonably request; and Corporation consents to the use of
such prospectus or any amendment or supplement thereto by such Registered
Holders and the underwriters, if any, in connection with the offer and sale of
the Registrable Securities covered by such prospectus or any amendment or
supplement thereto.
9.1.8 Prior to any public offering of Registrable Securities, register
or qualify or cooperate with the Registered Holders, the underwriters, if any,
and respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Registered Holders or an underwriter
reasonably requests in writing; keep each such registration or qualification
effective during the period such registration statement is required to be kept
effective and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable registration statement; PROVIDED, HOWEVER, that
Corporation will not be required in connection therewith or as a condition
thereto to qualify generally to do business or subject itself to general service
of process in any such jurisdiction where it is not then so subject.
9.1.9 Upon the occurrence of any event contemplated by subsection 9.1.3
(ii) - (vii) above, prepare, to the extent required, a supplement or
post-effective amendment to the applicable registration statement or related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchaser of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
9.1.10 Enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities to
<PAGE>
be covered by such registration are to be offered in an underwritten offering:
(i) make such representations and warranties to the Registered Holders to the
registration statement, prospectus and documents incorporated by reference, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to Corporation and updates thereof
with respect to the registration statement and the prospectus in the form, scope
and substance which are customarily delivered in underwritten offerings; (iii)
in the case of an underwritten offering, enter into an underwriting agreement in
form, scope and substance as is customary in underwritten offerings and obtain
opinions of counsel to Corporation and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters and the Registered Holders) addressed to the Registered
Holders and the underwriters, if any, covering the matters customarily covered
in opinions delivered in underwritten offerings and such other matters as may be
reasonably requested by the Registered Holders and such underwriters; (iv)
obtain "cold comfort" letters and updates thereof from Corporation's independent
certified public accountants addressed to the Registered Holders and the
underwriters, if any, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters by accountants in
connection with underwritten offerings; (v) if any underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures customarily included in underwriting agreements in underwritten
offerings; and (vi) Corporation shall deliver such documents and certificates as
may be requested by the Registered Holders and the managing underwriters, if
any, to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by Corporation. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder.
9.1.11 Make available for inspection by a representative of the
Registered Holders, any underwriter participating in any disposition pursuant to
such registration, and any attorney or accountant retained by the Registered
Holders or such underwriter, all financial and other records, pertinent
corporate documents and properties of Corporation, and cause Corporation's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such registration; provided that any records, information or documents that
are designated by Corporation in writing as confidential shall be kept
confidential by such Persons unless disclosures of such records, information or
documents is required by court or administrative order.
9.1.12 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders earning statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
offering and (ii) beginning with the first day of Corporation's first fiscal
quarter next succeeding each sale of Registrable Securities after the effective
date of a registration statement, which statements shall cover said 12-month
periods.
9.1.13 If Corporation, in the exercise of its reasonable judgment,
objects to any change reasonably requested by the Registered Holders or the
underwriters, if any, to any registration statement or prospectus or any
amendments or supplements thereto (including documents incorporated or to be
incorporated therein by reference) as provided for in this Section 9,
Corporation shall not be obligated to make any such change and such Registered
Holders may withdraw their Registrable Securities from such registration, in
which event (i) Corporation shall pay all registration expenses (including its
counsel fees and expenses) incurred in connection with such registration
statement or amendment thereto or prospectus or supplement thereto, and (ii) in
the case of a registration being effected pursuant to Section 2, such
registration shall not count as one of the registrations Corporation is
obligated to effect pursuant to Section 2 hereof.
Section 10. INDEMNIFICATION.
10.1 In the event of any registration of any securities under the
Securities Act pursuant to this Agreement, Corporation will indemnify and hold
harmless each Shareholder, each Piggy-Back Shareholder, any underwriter and each
<PAGE>
other Person, if any, who controls such Shareholder, Piggy-Back Shareholder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which each such
Shareholder, Piggy-Back Shareholder or any underwriter may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement or preliminary prospectus (if used prior to the
effective date of such Registration Statement) or final or summary prospectus
contained therein (if used during the period the Corporation is required to keep
the Registration Statement effective), or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse each such
Shareholder, Piggy-Back Shareholder or underwriter for any legal or any other
expenses as reasonably incurred by such person in connection with investigating
or defending any such action or claim, excluding any amounts paid in settlement
of any litigation, commenced or threatened, if such settlement is effected
without prior written consent of Corporation; provided, however, that
Corporation will not be liable to the Shareholders, Piggy-Back Shareholders or
an underwriter in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
omission or alleged omission made in said Registration Statement, said
preliminary prospectus or said final or summary prospectus or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to Corporation by that Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives, or by that underwriter, as the case
may be, specifically for use in the preparation thereof; and provided further
that the indemnity agreement contained in this Section 10 with respect to any
preliminary prospectus shall not inure to the benefit of the Shareholders,
Piggy-Back Shareholders or any underwriter or to any Person selling the same in
respect of any loss, claim, damage, liability or action asserted by someone who
purchased shares from such person if a copy of the final prospectus (as the same
may be amended or supplemented) in connection with such registration statement
was not sent or given to such person with or prior to written confirmation of
the sale and if the untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus was
corrected in the final prospectus.
10.2 In the event of any registration of securities under the
Securities Act pursuant to this Agreement, each Shareholder and Piggy-Back
Shareholder will indemnify and hold harmless Corporation, each of its directors
and officers, any underwriter and each other Person, if any, who controls
Corporation or underwriter within the meaning of the Securities Acts, against
any losses, claims, damages or liabilities, joint or several, to which
Corporation or any such director, officer, underwriter may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement or preliminary prospectus or final or summary
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, and will reimburse Corporation, each such director,
officer, underwriter for any legal or any other expenses as reasonably incurred
by them in connection with investigating or defending any such action or claim,
excluding any amounts paid in settlement of any litigation, commenced or
threatened, if such settlement is effected without prior written consent of the
indemnifying Shareholder, Piggy-Back Shareholder or their respective
representative; but in all cases only if, and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission therein
made in reliance upon and in conformity with written information furnished to
Corporation by the indemnifying Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives specifically for use in the preparation
thereof. Notwithstanding the foregoing, the amount of the indemnity provided by
each such Shareholder or Piggy-Back Shareholder pursuant to this Section 10
shall not exceed the net proceeds received by such Shareholder or Piggy-Back
Shareholder in such related registration and sale.
10.3 Promptly after receipt by a party entitled to indemnification
under subsection 10.1 or 10.2 hereof of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under either of such subsections, notify the
indemnifying party in writing of the commencement
<PAGE>
thereof. In case any such action is brought against the indemnified party and it
shall so notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it so chooses, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party that it so chooses, such indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, provided, however, that if the indemnifying
party fails to take reasonable steps necessary to diligently defend such claim
within twenty (20) days after receiving notice from the indemnified party that
the indemnified party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the indemnifying
party shall be liable for any expenses therefor. The indemnity agreements in
this Section 10 shall be in addition to any liabilities which the indemnifying
parties may have pursuant to law.
10.4 If the indemnification provided for in this Section 10 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 10 hereof, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
Section 11. SALES UNDER RULE 144. With a view to making available to
each Shareholder and Piggy-Back Shareholder the benefits of Rule 144 promulgated
under the Securities Act and any other similar rule or regulation of the
Commission that may at any time permit such Shareholder or Piggy-Back
Shareholder to sell the Registrable Securities without registration, Corporation
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor provision);
(b) file with the Commission in a timely manner all reports and other
documents required of Corporation under the Securities Act and the Exchange Act;
(c) furnish to such Shareholder or Piggy-Back Shareholder forthwith
upon request (i) a written statement by Corporation that it has complied with
the reporting requirements of Rule 144 (or any successor provision), the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of Corporation and such other reports and documents so filed by
Corporation under the Securities Act and the Exchange Act and (iii) such other
information as may be reasonably requested by such Shareholder or Piggy-Back
Shareholder in availing itself of any rule or regulation of the Commission which
permits the selling of any such securities without registration; and
<PAGE>
(d) after any sale of Registrable Securities pursuant to Rule 144, to
the extent allowed by law, to cause any restrictive legends to be removed and
any transfer restrictions to be rescinded with respect to such Registration
Securities.
Section 12. REMOVAL OF LEGEND. The Corporation agrees, to the extent
allowed by law, to remove any legends on certificates representing Registrable
Securities or Piggy-Back Registrable Securities describing transfer restrictions
applicable to such securities upon the sale of such securities (i) pursuant to
an effective Registration Statement under the Securities Act or (ii) in
accordance with the provisions of Rule 144 under the Securities Act.
Section 13. NOTICES. Any notice to be given by any party hereunder to
any other shall be in writing, mailed by certified or registered mail, return
receipt requested, and shall be addressed to the other parties at the addresses
listed on the signature pages hereof. All such notices shall be deemed to be
given three (3) days after the date of mailing thereof.
Section 14. MODIFICATION. Notwithstanding anything to the contrary in
this Agreement or otherwise, no modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
the Corporation and the Shareholders holding not less than 95% of the
Registrable Securities then outstanding.
Section 15. NON-WAIVER. The failure to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by any other
party of any of the provisions hereof, shall in no way be construed to be a
waiver of such provisions.
Section 16. PARTIAL INVALIDITY. If any clause, sentence, paragraph,
section or part of this Agreement shall be deemed invalid, unenforceable or
against public policy, the part which is invalid, unenforceable or contrary to
public policy shall not affect, impair, invalidate or nullify the remainder of
this Agreement, but the invalidity, unenforceability or contrariness to public
policy shall be confined only to the clause, sentence, paragraph, section or
party of this Agreement so invalidated, unenforceable or against public policy.
Section 17. CONSTRUCTION. The language in all parts of this Agreement
shall in all cases be construed simply, according to its fair meaning, and shall
not be construed strictly for or against either of the parties hereto.
Section 18. GOVERNING LAW. This Agreement shall be governed and
construed according to the laws of the State of Alabama, without regard to its
conflicts of law principles.
Section 19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute but one and the same instrument.
Section 20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
Section 21. SPECIFIC PERFORMANCE. The parties agree that, to the extent
permitted by law, (i) the obligations
<PAGE>
imposed on them in this Agreement are special, unique and of an extraordinary
character, and that in the event of a breach of any such party damages would not
be an adequate remedy and (ii) the other party shall be entitled to specific
performance and injunctive and equitable relief in addition to any other remedy
to which it may be entitled at law or in equity.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Exhibit 10.3
SECURITIES PURCHASE AGREEMENT
BETWEEN
SHOEINVEST II, LP
AND
MIDDLE BAY OIL COMPANY, INC.
AUGUST 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I TERMS DEFINED
Section 1.1 Definitions.....................................................................................1
Section 1.2 Accounting Terms and Determinations............................................................11
Section 1.3 Gender and Number..............................................................................11
Section 1.4 References to Agreement........................................................................11
ARTICLE II PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale..............................................................................11
Section 2.2 Closing........................................................................................11
Section 2.3 Delivery.......................................................................................11
Section 2.4 Payment........................................................................................12
ARTICLE III RESERVATION AND ISSUANCE OF CONVERSION SHARES..................................................12
ARTICLE IV CERTAIN TERMS APPLICABLE TO WARRANTS
Section 4.1 Exercise of Warrants...........................................................................12
Section 4.2 Adjustment of Number of Warrant Shares Purchasable.............................................14
Section 4.3 Notices to Warrant Holders.....................................................................16
Section 4.4 Reservation and Issuance of Warrant Shares.....................................................17
ARTICLE V TRANSFER OF SECURITIES
Section 5.1 Restrictions on Transfer.......................................................................17
Section 5.2 Registration, Transfer and Exchange of Warrants................................................18
Section 5.3 Mutilated or Missing Warrant Certificates......................................................18
Section 5.4 Registration, Transfer and Exchange of Notes...................................................19
Section 5.5 Mutilated or Missing Notes.....................................................................19
ARTICLE VI CONDITIONS
Section 6.1 Conditions Precedent to Closing................................................................19
Section 6.2 Conditions Precedent to Closing................................................................22
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 7.1 Corporate Existence and Power..................................................................23
Section 7.2 Corporate and Governmental Authorization; Contravention........................................23
Section 7.3 Binding Effect.................................................................................24
Section 7.4 Capitalization.................................................................................24
Section 7.5 Issuance of Securities.........................................................................24
<PAGE>
Section 7.6 Financial Statements...........................................................................24
Section 7.7 Material Agreements............................................................................25
Section 7.8 Compass Debt Documents.........................................................................25
Section 7.9 Investments ...................................................................................25
Section 7.10 Outstanding Debt...............................................................................25
Section 7.11 Transactions with Affiliates...................................................................25
Section 7.12 Employment Matters.............................................................................25
Section 7.13 Litigation.....................................................................................25
Section 7.14 ERISA..........................................................................................26
Section 7.15 Taxes and Filing of Tax Returns................................................................27
Section 7.16 Title to Assets................................................................................27
Section 7.17 Licenses, Permits, Etc.........................................................................27
Section 7.18 Proprietary Rights.............................................................................27
Section 7.19 Compliance with Law............................................................................27
Section 7.20 Environmental Matters..........................................................................27
Section 7.21 Intentionally Left Blank.......................................................................29
Section 7.22 Fiscal Year....................................................................................29
Section 7.23 No Default.....................................................................................29
Section 7.24 Insurance......................................................................................29
Section 7.25 Government Regulation..........................................................................29
Section 7.26 Securities Law.................................................................................29
Section 7.27 Brokers and Finders............................................................................29
Section 7.28 SEC Documents..................................................................................29
Section 7.29 Oil and Gas Operations.........................................................................30
Section 7.30 Financial and Commodity Hedging................................................................31
Section 7.31 Books and Records..............................................................................31
Section 7.32 Reserve Report.................................................................................31
Section 7.33 Nature of Company Assets.......................................................................31
Section 7.34 Full Disclosure................................................................................32
Section 7.35 Year 2000 Compliance...........................................................................32
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF Shoeinvest
Section 8.1 Corporate Existence and Power..................................................................32
Section 8.2 Corporate and Governmental Authorization; Contravention........................................32
Section 8.3 Binding Effect.................................................................................32
Section 8.4 Brokers and Finders............................................................................33
Section 8.5 Taxes and Filing of Returns....................................................................33
Section 8.6 Intentionally Omitted..........................................................................33
ARTICLE IX COVENANTS
<PAGE>
Section 9.1 Maintenance of Insurance.......................................................................33
Section 9.2 Payment of Taxes and Claims....................................................................33
Section 9.3 Compliance with Laws and Documents.............................................................34
Section 9.4 Operation of Properties and Equipment..........................................................34
Section 9.5 Additional Documents...........................................................................34
Section 9.6 Maintenance of Books and Records...............................................................34
Section 9.7 Environmental Matters..........................................................................34
Section 9.8 Access to Information..........................................................................34
Section 9.9 Conduct of Business of the Company.............................................................35
Section 9.10 Intentionally Omitted..........................................................................36
Section 9.11 Intentionally Omitted..........................................................................36
ARTICLE X DEFAULTS; TERMINATION
Section 10.1 Events of Default..............................................................................36
Section 10.2 Termination....................................................................................37
Section 10.3 Effect of Termination..........................................................................37
ARTICLE XI MISCELLANEOUS
Section 11.1 Notices........................................................................................38
Section 11.2 No Waivers.....................................................................................38
Section 11.3 Expenses; Indemnification......................................................................38
Section 11.4 Amendments and Waivers; Sale of Interest.......................................................39
Section 11.5 Survival.......................................................................................39
Section 11.6 Limitation on Interest.........................................................................40
Section 11.7 Invalid Provisions.............................................................................40
Section 11.8 Successors and Assigns.........................................................................40
Section 11.9 Governing Law..................................................................................40
Section 11.10 Counterparts...................................................................................40
Section 11.11 No Third Party Beneficiaries...................................................................40
Section 11.12 Final Agreement................................................................................41
Section 11.13 Submission to Jurisdiction; Waiver of Service of Venue.........................................41
Section 11.14 Waiver of Right to Trial by Jury ............................................................41
Section 11.15 Public Announcements...........................................................................41
</TABLE>
<PAGE>
EXHIBITS
Exhibit A Senior Subordinate Promissory Note
Exhibit B Registration Rights Agreement
Exhibit C Intentionally Omitted
Exhibit D Form of Warrant Certificate
Exhibit E Employment Agreement
Exhibit F Intentionally Omitted
Exhibit G Purchase Price to be Transferred at Closing
Exhibit H Identification of Other Securities Purchase Agreements
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is entered into effective this
___ day of August, 1999, by and between Shoeinvest II, LP, a New Jersey
limited partnership ("SHOEINVEST") and Middle Bay Oil Company, Inc., an
Alabama corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Company has authorized and desires to issue and sell to
Shoeinvest (a) certain shares of the Company's Common Stock, par value $0.02
per share, (b) a Note, and (c) certain Warrants;
WHEREAS, Shoeinvest desires to purchase such securities from the
Company on the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein,
have the following meanings:
"Affiliate" means, as to any Person, any Subsidiary of such Person,
or any other Person which, directly or indirectly, controls, is controlled
by, or is under common control with, such Person and, with respect to the
Company, any executive officer of any Subsidiary or any Person who holds five
percent (5%) or more of the voting stock of the Company. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or partnership interests,
or by contract or otherwise. Shoeinvest shall not be considered an Affiliate
of the Company for purposes of this Agreement or the other Transaction
Documents.
"Agreement" means this Securities Purchase Agreement.
"Authorized Officer" means, as to any Person, its Chairman, its
Chief Executive Officer, its President, its Chief Operating Officer, its
Financial Officer and any Vice President.
"Business Day" means any day except a Saturday, Sunday or other day
on which national banks in Dallas, Texas are authorized by law to close.
"Capital Lease" means, for any Person, as of any date, any lease of
property, real or personal, which
1
<PAGE>
would be capitalized on a balance sheet of the lessee of such lease prepared
as of such date in accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease, transfer or other disposition, in one transaction or a
series of related transactions, of more than fifty percent (50%) of the value
of the Oil and Gas Interests as set forth in the most current reserve report
of the Company and its Subsidiaries (on the date hereof, the Reserve Report
is the most recent reserve report), or (b) any sale, transfer, merger,
consolidation, disposition or other transaction which results in any Person
or Persons individually or together with their Affiliates owning more than
fifty percent (50%) of the Common Stock on a Fully Diluted Basis.
"Charter Documents" means, with respect to any Person, its
certificate of incorporation, articles of incorporation, bylaws, partnership
agreement, regulations, operating agreement and all other comparable charter
documents.
"Closing" has the meaning given such term in SECTION 2.2 hereof.
"Closing Date" means the tenth Business Day after the date of the
Company's Shareholders' meeting whereby the transactions contemplated hereby
are approved.
"Closing Transactions" means the transactions which will occur on
the Closing Date pursuant to the Transaction Documents.
"COBRA" has the meaning given such term in SECTION 7.14 hereof.
"Commission" means the Securities and Exchange Commission or any
entity succeeding to any or all of its functions under the Securities Act or
the Exchange Act.
"Common Stock" means the Company's common stock, par value $0.02 per
share.
"Common Stock Shares" means the 44,444 shares of Common Stock to be
purchased by Shoeinvest pursuant to this Agreement.
"Company" has the meaning given such term in the preamble hereto.
"Company Financial Statements" means the audited and unaudited
consolidated financial statements of the Company and its Subsidiaries
(including the related notes) included (or incorporated by reference) in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998,
and the Company's Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 1999, filed with the Commission.
"Compass Senior Credit Agreement" means that certain Credit
Agreement dated March 27, 1998, as amended, by and among Middle Bay Oil
Company, Inc. and Enex Resources Corporation, as Borrower,
2
<PAGE>
and Compass Bank, as Agent and a Lender, Bank of Oklahoma, National
Association, as a Lender and the other lenders signatory thereto.
"Compass Senior Debt" means all Debt of the Company outstanding
under the Compass Senior Credit Agreement, including all renewals and
extensions thereof.
"Compass Senior Debt Documents" means the Compass Senior Debt
Agreement and all promissory notes, security agreements, mortgages, deeds of
trust, assignments, guarantees and other documents, instruments and
agreements executed and delivered pursuant to the Compass Senior Credit
Agreement evidencing, securing, guaranteeing or otherwise pertaining to the
Compass Senior Debt and other obligations arising under the Compass Senior
Credit Agreement, as the foregoing may be amended, renewed, extended,
supplemented, increased or otherwise modified from time to time to the extent
permitted hereunder.
"Conversion Shares" means shares of Common Stock issued upon
conversion of the Note.
"Debt" means, for any Person, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all indebtedness of such Person on which interest charges are customarily
paid or accrued, (d) all Guarantees by such Person, (e) the unfunded or
unreimbursed portion of all letters of credit issued for the account of such
Person, (f) the present value of all obligations in respect of Capital Leases
of such Person, (g) any obligation of such Person representing the deferred
purchase price of property or services purchased by such Person other than
trade payables incurred in the ordinary course of business and which are not
more than ninety (90) days past invoice date, (h) any indebtedness, liability
or obligation secured by a Lien on the assets of such Person whether or not
such indebtedness, liability or obligation is otherwise non-recourse to such
Person, (i) liabilities arising under future contracts, forward contracts,
swap, cap or collar contracts, option contracts, hedging contracts, other
derivative contracts and similar agreements, (j) liabilities with respect to
payments received in consideration of oil, gas or other minerals yet to be
acquired or produced at the time of payment (including obligations under
"take-or-pay" contracts to deliver gas in return for payments already
received and the undischarged balance of any production payment created by
such Person or for the creation of which such Person directly or indirectly
received payment, and (k) all liability of such Person as a general partner
or joint venturer for obligations of the nature described in (a) through (k)
preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means the Fixed Rate plus 3% per annum.
"Defensible Title" means such right, title and interest that is (a)
evidenced by an instrument or instruments 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 and (b) subject to Permitted Encumbrances, free and
clear of all Liens, claims, infringements, burdens or other defects.
3
<PAGE>
"Disclosure Schedule" means the disclosure schedule entitled Middle
Bay Disclosure Schedule separately provided by the Company to Shoeinvest on
or before the date hereof, and any documents listed on such disclosure
schedule and expressly incorporated therein by reference.
"Employment Agreement" means that certain employment agreement to be
executed at Closing by the Company and Floyd C. Wilson in substantially the
form of Exhibit E.
"Environmental Complaint" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other communication from any federal, state, municipal or
other Governmental Authority or any other party involving a Hazardous
Discharge, Environmental Contamination or any violation of any order, permit
or Environmental Law and Laws.
"Environmental Contamination" means the presence of any Hazardous
Substances, which presence results from a Hazardous Discharge.
"Environmental Law and Laws" means any law, common law, ordinance,
regulation or policy of any Governmental Authority, as well as any order,
decree, permit, judgment or injunction issued, promulgated, approved, or
entered thereunder, relating to the environment, health and safety, Hazardous
Substances (including, without limitation, the use, handling, transportation,
production, disposal, discharge or storage thereof), industrial hygiene, the
environmental conditions on, under, or about any real property owned, leased
or operated at any time by the Company or any of its Subsidiaries or any real
property owned, leased or operated by any other party, including, without
limitation, soil, groundwater, and indoor and ambient air conditions or the
reporting or remediation of Environmental Contamination. Environmental Law
and Laws include, without limitation, the Clean Air Act, as amended, the
Federal Water Pollution Control Act, as amended, the Rivers and Harbors Act
of 1899, as amended, the Safe Drinking Water Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), as amended, the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, the Hazardous and Solid Waste Amendments Act of 1984,
as amended, the Toxic Substances Control Act, as amended, the Occupational
Safety and Health Act ("OSHA"), as amended, the Hazardous Materials
Transportation Act, as amended, and any other federal, state and local law
whose purpose is to conserve or protect health, the environment, wildlife or
natural resource.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any regulation promulgated thereunder.
"ERISA Affiliate" means the Company or any of its Subsidiaries and
any other corporation or trade or business under common control with the
Company or any of its Subsidiaries or treated as a single employer with the
Company or any of its Subsidiaries as determined under sections 414(b), (c),
(m) or (o) of the IRC.
"Event of Default" has the meaning set forth in SECTION 10.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute.
4
<PAGE>
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Financial Officer" means, as to any Person, its Chief Financial
Officer, or if no Person serves in such capacity, the highest ranking
executive officer of such Person with responsibility for accounting,
financial reporting, financial compliance and similar functions.
"Fixed Rate" means nine percent (9.0%) per annum.
"Fully Diluted Basis" means, with reference to outstanding Common
Stock, the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire Common Stock had
been exercised (regardless of whether such rights are then exercisable) and
all securities convertible into Common Stock had then been converted
(regardless of whether such securities are then convertible) and had been
issued, all in accordance with GAAP. Any reference in this Agreement or any
of the other Transaction Documents to "holder(s) of outstanding Common Stock
on a Fully Diluted Basis" or words of similar import shall be deemed to
include holder(s) of outstanding options, warrants or similar rights to
acquire Common Stock or securities convertible into Common Stock.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the
requirement that such principles be applied on a consistent basis means that
the accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period.
"Governmental Authority" means any national, state or county,
municipal government, domestic or foreign, any agency, board, bureau,
commission, court, department or other instrumentality of any such
government, or any arbitrator in any case that has jurisdiction over the
Company or its Subsidiaries or any of their respective properties or assets.
"Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or
other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise,
of such Person (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions, by "comfort letter" or other similar
undertaking of support of otherwise), or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); PROVIDED, that, the term "Guaranty" shall not
include endorsements for collection or deposit in the ordinary course of
business. For purposes of this Agreement, the amount of any Guaranty shall be
the maximum amount that the guarantor could be legally required to pay under
such Guaranty.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"Hazardous Discharge" means any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping of a Hazardous Substance at, from, onto, under
or within any real property owned, leased or operated at any time by the
Company or any of its Subsidiaries or any real property owned, leased or
operated by any other Person.
"Hazardous Substance" means any pollutant, toxic substance,
hazardous waste, compound, element or chemical that is defined as hazardous,
toxic, noxious, dangerous or infectious pursuant to any Environmental Law and
Laws or which is otherwise regulated by any Environmental Law and Laws.
"Holder" with respect to any Security, shall mean the record or
beneficial owner of such Security.
"Hydrocarbons" means oil, condensate, gas, casinghead gas and other
liquid or gaseous hydrocarbons.
"Investment" in any Person means any investment, whether by means of
securities purchase (whether by direct purchase from such Person or from an
existing holder of securities of such Person), loan, advance, extension of
credit, capital contribution or otherwise, in or to such Person, the Guaranty
of any Debt or other obligation of such Person, or the subordination of any
claim against such Person to other Debt or other obligation of such Person;
PROVIDED, that, "Investments" shall not include advances made to employees of
such Person for reasonable travel, entertainment and similar expenses
incurred in the ordinary course of business.
"IRC" means the Internal Revenue Code of 1986, as amended from time
to time, and any regulation promulgated thereunder.
"Knowledge" means actual knowledge after reasonable investigation
consistent with the generally accepted business practices in the oil and gas
industry.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality, or
Governmental Authority.
"Lien" means with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement or other
title retention agreement relating to such asset.
"Majority Noteholder" means a Noteholder or Noteholders holding more
than fifty percent (50%) of the aggregate principal balance of the Note.
"Majority Warrantholder" means a Warrant Holder or Warrant Holders
who hold more than fifty percent (50%) of the outstanding Warrant Shares.
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"Major Shareholders" means Kaiser-Francis Oil Company, C.J.
Lett, III, Weskids, L.P., and Alvin V. Shoemaker.
"Material Adverse Effect" means, with respect to a Person, a
material adverse effect on the business, financial condition, operations,
assets or prospects of such Person or any of its Subsidiaries, and shall also
mean, with respect to the Company or any of its Subsidiaries, a material
adverse effect on such Person's ability to pay and perform its obligations
under the Transaction Documents.
"Material Agreement" means any written or oral agreement, contract,
commitment, or understanding to which a Person is a party, by which such
Person is directly or indirectly bound, or to which any assets of such Person
may be subject (a) which is not cancelable by such Person upon notice of
sixty (60) days or less without liability for further payment other than
nominal penalty, (b) pursuant to which such Person acquires any material
portion of the raw materials, supplies or services used or consumed by such
Person in the operation of its business (unless such raw materials, supplies
or services are readily available to such Person from other sources on
comparable terms), or (c) pursuant to which such Person derives any material
part of its revenues.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the Note at such
time to exceed the maximum amount which Noteholders would be allowed to
contract for, charge, take, reserve, or receive under applicable Law after
taking into account, to the extent required by applicable Law, any and all
relevant payments or charges under the Transaction Documents.
"Noteholder" means any Person in whose name a Note is registered on
the Note Register.
"Note Redemption Date" means the date on which the entire balance of
the Note, including, without limitation, all accrued but unpaid interest
thereon and all fees payable by the Company or its Subsidiaries in connection
therewith, have been paid in full.
"Note Register" means a register maintained by the Company setting
forth the name and address of each Noteholder and the principal amount of the
Note held by such Noteholder.
"Notes" means the Company's Senior Subordinate Promissory Notes in
the aggregate principal amount of $100,000 to be issued and sold by the
Company to Shoeinvest pursuant to SECTION 2.1 hereof and any renewals,
extensions or replacements thereof, and "Note" means any of such Notes. The
Notes shall be substantially in the form of EXHIBIT A attached hereto.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part
thereof, of the Company, its Subsidiaries and any other Person arising
pursuant to the Transaction Documents, and all interest accrued thereon and
costs, expenses, and attorneys' fees incurred in the enforcement or
collection thereof, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several.
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"Oil and Gas Interest(s)" means (a) direct and indirect 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, 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, mineral servitudes, 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; and (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.
"Ownership Interests" means the ownership interests of the Company
and its Subsidiaries in its assets, as set forth on SCHEDULE 1.1A of the
Disclosure Schedule.
"Other Notes" means the Company notes to be issued and sold by the
Company pursuant to provisions of the Other Securities Purchase Agreements.
"Other Securities Purchase Agreements" shall mean those securities
purchase agreements of even date herewith as listed on EXHIBIT H attached
hereto.
"Pension Plan" means any employee benefit plan or welfare benefit
plan within the meaning of section 3(3) of ERISA maintained by the Company,
any Subsidiary of the Company or any ERISA Affiliate that is or was
previously covered by Title IV of ERISA or subject to the minimum funding
standards under section 412 of the IRC, including a "multiemployer plan" as
such term is defined in section 3(37) of ERISA, under which the Company or
any Subsidiary of the Company has any current or future obligation or
liability and under which any present or former employee of the Company or
any Subsidiary of the Company, or such present or former employee's
dependents or beneficiaries, has any current or future right to benefits.
"Per Share Stock Price" means for the Common Stock on any day shall
be the last sale price, or, in case no such sale takes place on such day, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System, or such
other system then in use.
"Permitted Encumbrances" means (a) Liens for Taxes, assessments or
other governmental charges or levies if the same shall not at the particular
time in question be due and delinquent or (if foreclosure, distraint, sale or
other similar proceedings shall not have been commenced or if commenced,
shall have been stayed) are being contested in good faith by appropriate
proceedings and if the Company or its Subsidiaries shall have set aside on
their books such reserves (segregated to the extent required by sound
accounting
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principles) as may be required by GAAP or otherwise determined by its board
of directors to be adequate with respect thereto; (b) Liens of carriers,
warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen
and operators arising by operation of law in the ordinary course of business
or by a written agreement existing as of the date hereof and necessary or
incident to the exploration, development, operation and maintenance of
Hydrocarbon properties and related facilities and assets for sums not yet due
or being contested in good faith by appropriate proceedings, if any the
Company or its Subsidiaries shall have set aside on its books such
reserves(segregated to the extent required by sound accounting practices) as
may be required by GAAP or otherwise determined by its board of directors to
be adequate with respect thereto; (c) Liens incurred in the ordinary course
of business in connection with worker's compensation, unemployment insurance
and social security legislation (other than ERISA); (d) Liens incurred in the
ordinary course of business to secure the performance of bids, tenders, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance and repayment bonds and other obligations of a like nature; (e)
Liens, easements, rights-of-way, restrictions, servitudes, permits,
conditions, covenants, exceptions, reservations and other similar
encumbrances incurred in the ordinary course of business or existing on
property and not (i) reducing the Company's net revenue interest in any Oil
and Gas Interests below that set forth on Schedule 1.1A , (ii) increasing the
Company's Working Interest in any Oil and Gas Interest above that set forth
on Schedule 1.1A or (iii) in the aggregate materially impairing the value of
the assets of the Company or its Subsidiaries or interfering with the
ordinary conduct of the business of the Company or its Subsidiaries or rights
to any of their assets; (f) Liens created or arising by operation of law to
secure a party's obligations as a purchaser of oil and gas; (g) all rights to
consent by, required notices to, filings with, or other actions by
Governmental Authorities to the extent customarily obtained subsequent to
Closing; (h) farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales and similar arrangements relating to the
exploration, development of, or production from, Hydrocarbon properties
entered into in the ordinary course of business; (i) preferential rights to
purchase and Third Party Consents (to the extent not triggered by the
consummation of the transactions contemplated herein); and (j) Liens arising
under or created pursuant to the Compass Senior Debt Documents.
"Permitted Senior Debt" means the Compass Senior Debt or other debt
or credit facility of the Company which is intended to replace the Compass
Senior Debt.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof
and shall also mean the Company.
"Pre-Distribution Price" has the meaning given such term in
SECTION 4.2(c).
"Purchase Price" has the meaning given such term in SECTION 2.1
"Redemption Date" means the date on which the entire balance of the
Note, including, without limitation, all accrued but unpaid interest thereon
and all fees payable by the Company or its Subsidiaries in connection
therewith, have been paid in full.
"Registration Rights Agreement" means a Registration Rights
Agreement to be executed by the
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Company, 3TEC and Shoeinvest at Closing, in the form attached hereto as
Exhibit B.
"Registration Statement" has the meaning giving such term in SECTION
5.1.
"Reserve Engineer" shall have the meaning set forth in SECTION 7.32.
"Reserve Report" shall have the meaning set forth in SECTION 7.32.
"SEC Documents" shall have the meaning set forth in SECTION 7.28.
"Schedule" means a "schedule" attached to this Agreement and
incorporated herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement
unless specifically indicated otherwise.
"Securities" means the Notes, the Common Stock Shares and the
Warrants to be issued and sold to Shoeinvest and any Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute.
"Senior Lender" means Compass Bank, Bank of Oklahoma, National
Association and the other lenders who executed the Compass Senior Credit
Agreement.
"Series B Convertible Preferred Shares" shall mean those shares of
Series B Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1B of the Disclosure Schedule.
"Series C Convertible Preferred Shares" shall mean those shares of
Series C Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1C of the Disclosure Schedule.
"Shareholders Agreement" means a Shareholders Agreement to be
entered into by and among the Company and the Major Shareholders of the
Company at Closing.
"Subsidiary" means, for any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other Persons performing
similar functions (including that of a general partner) are at the time
directly or indirectly owned, collectively, by such Person and any
Subsidiaries of such Person. The term Subsidiary shall include Subsidiaries
of Subsidiaries (and so on).
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of
any nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency. "Tax" means any one of the
foregoing.
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"Third Party Consents" means the consent or approval of any Person
other than the Company, Shoeinvest or any Governmental Authority.
"3TEC" shall mean 3TEC Energy Corporation, a Delaware corporation.
"3TEC Note" shall mean that certain Senior Subordinate Promissory
Note in the aggregate principal amount of $10,700,000 to be issued and sold
by the Company to 3TEC.
"Transaction Documents" means this Agreement, the Notes, the Warrant
Certificates, the Registration Rights Agreement, the Shareholders Agreement,
the Company's Charter Documents and all other agreements, certificates,
documents or instruments now or at any time hereafter delivered in connection
with this Agreement, as the foregoing may be renewed, extended, modified,
amended or restated from time to time.
"Warrant Certificate" means the Warrant Certificates to be issued by
the Company evidencing Warrants issued hereunder which shall be in the form
of EXHIBIT D attached hereto.
"Warrant Exercise Price" means $1.00 per share (subject to
adjustment as provided in SECTION 4.2).
"Warrant Expiration Date" means 5:00 p.m., Dallas, Texas time,
five (5) years following the Closing Date.
"Warrant Holder" means any Person (i) in whose name any Warrant is
registered on the Warrant Register, or (ii) in whose name any Warrant Shares
are registered on the books and records of the Company.
"Warrant Register" means a register maintained by the Company
setting forth the name and address of each Warrant Holder, the number of
Warrants held by such Warrant Holder and the certificate number of each
Warrant Certificate held by such Warrant Holder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
"Warrants" means the Common Stock Purchase Warrants to be issued by
the Company to Shoeinvest pursuant to SECTION 2.1 of this Agreement, each of
which shall entitle the holder thereof to purchase one (1) share of Common
Stock at the Warrant Exercise Price (subject to adjustment as provided in
SECTION 4.2).
"Working Interests" means the Company's or its Subsidiaries' share
of all of the costs, expenses, burdens, and obligations of any type or nature
attributable to the Company's or its Subsidiaries' interests in its oil and
gas properties or any well thereon.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared in accordance
with GAAP as in effect from time to time, applied on a basis consistent with
the most recent annual audited, consolidated financial statements of the
Company delivered to Shoeinvest prior to the date hereof.
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SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Agreement shall be held and construed to include any other gender and words
in the singular number shall be held to include the plural, and vice versa,
unless the context requires otherwise.
SECTION 1.4. REFERENCES TO AGREEMENT. Use of the words "herein",
"hereof", "hereinabove", and the like are and shall be construed as
references to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. PURCHASE AND SALE. Subject to the satisfaction of the
terms and conditions set forth herein and in reliance upon the
representations and warranties of the parties set forth herein and in the
other Transaction Documents (a) Shoeinvest agrees to purchase from the
Company and the Company agrees to issue and sell to Shoeinvest, 44,444 shares
of Common Stock and 33,644 Warrants for an aggregate purchase price of
$100,000 (the "COMMON STOCK SHARES PURCHASE PRICE"), and (b) Shoeinvest
agrees to purchase from the Company and the Company agrees to issue and sell
to Shoeinvest the Note for the purchase price of $100,000 (the "NOTE PURCHASE
PRICE," and together with the Common Stock Shares Purchase Price, the
"PURCHASE PRICE").
SECTION 2.2. CLOSING. Closing of the purchase and sale of the
Securities (the "CLOSING") shall take place at the offices of Thompson &
Knight, P.C., Houston, Texas at 10:00 a.m. on the Closing Date, or at
such other time, date and place as may be agreed upon in writing by the
Company and Shoeinvest.
SECTION 2.3. DELIVERY. At the Closing, the Company shall deliver to
Shoeinvest, against payment therefor, certificates evidencing the Common
Stock Shares, the Note and the Warrant Certificate purchased by Shoeinvest
hereunder, in each case duly issued and in form sufficient to vest title
thereto fully in Shoeinvest, free and clear of all Liens, claims and
encumbrances.
SECTION 2.4. PAYMENT. At the Closing, Shoeinvest shall pay the
Purchase Price to the Company by wire transfer of immediately available funds.
ARTICLE III
RESERVATION AND ISSUANCE OF CONVERSION SHARES
The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Conversion Shares upon the Noteholder's
exercise of its conversion rights under the Note, the number of shares of
Common Stock deliverable upon such conversion rights. The Company covenants
that all Conversion Shares issued by it will, upon issuance in accordance
with the terms of this Agreement, be fully paid and nonassessable and free
from all Taxes with respect to the issuance thereof and free from all Liens
other than Liens arising by,
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through or under the Noteholder to whom such Conversion Shares were issued.
ARTICLE IV
CERTAIN TERMS APPLICABLE TO WARRANTS
SECTION 4.1. EXERCISE OF WARRANTS.
(a) One-half of the Warrants may be exercised in whole or in part at
any time until the Warrant Expiration Date at which time the Warrants shall
expire and shall thereafter no longer be exercisable.
(b) The other half of the Warrants (the "Restricted Warrants") may
be exercised, in whole or in part, until the Warrant Expiration Date, as
follows:
(i) up to 20% of the Restricted Warrants may be exercised
during the one (1) year period commencing on the Closing
Date;
(ii) up to 40% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twelve (12) months after
the Closing Date;
(iii) up to 60% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twenty-four (24) months
after the Closing Date;
(iv) up to 80% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing thirty-six (36) months
after the Closing Date; and
(v) up to 100% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing forty-eight (48) months
after the Closing Date;
Notwithstanding the foregoing, in any event, the Restricted Warrants
may be exercised at the earlier of:
(i) the conversion of all or part of the Note into shares of
Common Stock, subject to the restrictions set forth below in
SECTION 4.1(C);
(ii) a Change of Control; or
(iii) the payment in full of the Note.
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(c) If the entire amount of principal and interest due and payable
under the Note is converted to Common Stock, all of the Restricted Warrants
shall be immediately exercisable in whole or in part at any time until the
Warrant Expiration Date. If less than the entire amount of principal and
interest due and payable under the Note is converted, a pro-rata portion of
the Restricted Warrants based upon the amount of the Note which is converted
compared to the total amount of the Note prior to conversion, shall be
immediately exercisable in whole or in part at any time until the Warrant
Expiration Date. For example, if fifty percent (50%) of the Note is
converted, one half of the Restricted Warrants would be exercisable.
(d) The Warrants shall be exercised by presentation of the Warrant
Certificate evidencing the Warrants to be exercised, with the form of
election to purchase on the reverse thereof duly completed and signed, to the
Company at the offices of the Company as set forth on the signature page of
this Agreement, together with payment of the aggregate Warrant Exercise Price
for the number of Warrant Shares in respect of which such Warrants are being
exercised in lawful money of the United States of America; PROVIDED, that, to
the extent the Warrant Holder exercising such Warrants is also the holder of
a Note, such Warrant Holder or Noteholder may elect, by written notice to the
Company delivered with such presentation, to elect to pay the applicable
Warrant Exercise Price by offsetting the next scheduled payment of such Note
by an amount equal to the aggregate Warrant Exercise Price payable in
connection with such exercise of Warrants. Upon such presentation, the
Company shall issue and cause to be delivered to or upon the written order of
the registered Holder of such Warrants and in such name or names as such
registered Holder may designate, a certificate or certificates for the
aggregate number of Warrant Shares issued upon such exercise of such
Warrants. Any Person so designated to be named therein shall be deemed to
have become holder of record of such Warrant Shares as of the date of
exercise of such Warrants; PROVIDED, that, no Warrant Holder will be
permitted to designate that such Warrant Shares be issued to any Person other
than such Warrant Holder unless each condition to transfer contained in
ARTICLE V hereof which would be applicable to a transfer of Warrants or
Warrant Shares has been satisfied.
(b) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants evidenced
by such Warrant Certificate. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
(c) The Company shall not be required to issue fractional
shares of Common Stock upon exercise of any Warrants issued by it, but shall
pay for any such fraction of a share an amount in cash equal to the value of
such fractional share determined by the Company's board of directors in good
faith.
(d) The Company will pay all Taxes attributable to the
initial issuance of Warrant Shares upon the exercise of the Warrants issued
by it; PROVIDED, that, each Warrant Holder shall use its reasonable efforts
to avoid any such Tax on the issuance of Warrant Shares; and PROVIDED,
further that, the Company shall not be required to pay any income Tax or any
other Tax which may be payable in respect of any transfer involved in the
issue of any Warrant Certificate or any certificate for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of such a Warrant, and the Company shall not be
required to issue or deliver such certificates unless or until the Person or
Persons requesting the issuance thereof shall have paid to the Company the
amount of such Tax or shall
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have established to the satisfaction of the Company that such Tax has been
paid.
SECTION 4.2. ADJUSTMENT OF NUMBER OF WARRANT SHARES PURCHASABLE. The
number of Warrant Shares purchasable upon the exercise of each Warrant is
subject to adjustment from time to time upon the occurrence of any of the
events enumerated in this SECTION 4.2.
(a) In the event that the Company shall at any time after the date
of this Agreement declare a dividend on the Common Stock in shares of its
capital stock (whether shares of such Common Stock or of capital stock of any
other class of the Company), split or subdivide the outstanding Common Stock,
or combine the outstanding Common Stock into a smaller number of shares, the
number of Warrant Shares purchasable upon an exercise of each Warrant after
the time of the record date for such dividend or of the effective date of
such split, subdivision or combination shall be adjusted to equal the number
of shares of Common Stock which a Holder having the same number of shares of
Common Stock as the number of Warrant Shares into which each Warrant is
exercisable immediately prior to such record date or effective date, as the
case may be, would own or be entitled to receive after such record date or
effective date.
(b) In the event that the Company shall at any time after the date
of this Agreement issue any shares of Common Stock without consideration or
at a price per share less than $1.00, or issue options, rights or warrants to
subscribe for or purchase such Common Stock (or securities convertible into
such Common Stock) without consideration or at a price per share (or having a
conversion price per share, if a security convertible into such Common Stock)
less than $1.00, the number of Warrant Shares purchasable upon an exercise of
each Warrant after the date of such issuance shall be adjusted to equal the
product obtained by multiplying the number of Warrant Shares into which each
Warrant is exercisable immediately prior to the date of such issuance by a
fraction, the numerator shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issuance, and the
denominator of which shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately prior to such issuance PLUS
the number of shares of such Common Stock which the aggregate offering price
of the total number of shares of such Common Stock so to be issued or to be
offered for subscription or purchase (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at $1.00
per share. In case such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined by an investment banker reasonably
acceptable to the Warrant Holder (the cost of the engagement of said
investment banking firm to be borne by the Company). Shares of such Common
Stock owned by or held for the account of the Company or any Subsidiary
thereof shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever the date of
such issuance is fixed (which date of issuance shall be the record date for
such issuance if a record date therefor is fixed); and, in the event that
such shares or options, rights or warrants are not so issued, the number of
Warrant Shares into which each Warrant is exercisable shall again be adjusted
to be such number of Warrant Shares into which each Warrant is exercisable if
the date of such issuance had not been fixed.
(c) In case the Company shall make a distribution to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation) of
shares of it stock, evidences of its indebtedness, assets, or rights, options
or
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warrants (other than those referred to in subsection (b) of this Section 4.2)
to subscribe for or purchase such shares, evidences of indebtedness, or
assets, the number of Warrant Shares into which each Warrant is exercisable
after such date of distribution shall be adjusted to equal the product
obtained by multiplying the number of Warrant Shares purchasable upon an
exercise of each Warrant immediately prior to such date by a fraction, the
numerator of which shall be the Per Share Stock Price for the trading day
immediately preceding the day of distribution ("Pre-Distribution Price"), and
the denominator of which shall be the Pre-Distribution Price less the fair
market value of the distribution (as determined in good faith by the Board of
Directors of the Company) applicable to one share of Common Stock. Such
adjustment shall be made successively whenever a date for such distribution
is fixed (which date of distribution shall be the record date for such
issuance if a record date therefor is fixed); and, if such distribution is
not so made, the number of Warrant Shares into which each Warrant is
exercisable shall again be adjusted to be such number of Warrant Shares which
would then be in effect if the date of such distribution had not been fixed.
(d) No adjustment in the number of Warrant Shares purchasable upon
an exercise of each Warrant shall be required unless such adjustment would
require an increase or decrease of at least one-tenth of one percent (.1%) in
such number of Warrant Shares; PROVIDED that any adjustments which by reason
of this SECTION 4.2(D) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this SECTION 4.2 shall be made to the nearest hundredth of one percent.
(e) The Warrant Exercise Price in effect immediately prior to any
adjustment of the number of Warrant Shares into which each Warrant is
exercisable shall be simultaneously adjusted (but not below the par value of
the Common Stock) by multiplying the Warrant Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number
of Warrant Shares into which each Warrant is exercisable immediately prior to
such adjustment, and the denominator of which shall be the number of Warrant
Shares into which each Warrant is exercisable immediately after such
adjustment.
(f) In the event of any capital reorganization of the Company, or of
any reclassification of any Common Stock for which any Warrant is exercisable
(other than a subdivision or combination of outstanding shares of such Common
Stock), or in case of the consolidation of the Company with or the merger of
the Company with or into any other corporation or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to
any other Person, each Warrant shall after such capital reorganization,
reclassification of such Common Stock, consolidation, merger or sale be
exercisable, upon the terms and conditions specified in this Agreement, for
the number of shares of stock or other securities or assets to which a holder
of the number of Warrant Shares purchasable (at the time of such capital
reorganization, reclassification of such Common Stock, consolidation, merger
or sale) upon exercise of such Warrant would have been entitled upon such
capital reorganization, reclassification of such Common Stock, consolidation,
merger or sale; and in any such case, if necessary, the provisions set forth
in this SECTION 4 with respect to the rights thereafter of such Warrant shall
be appropriately adjusted so as to be applicable, as nearly as may reasonably
be, to any shares of stock or other securities or assets thereafter
deliverable on the exercise of such Warrants. The Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets or the appropriate
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corporation or entity shall assume, by written instrument, the obligation to
deliver to each Warrant Holder the shares of stock, securities or assets to
which, in accordance with the foregoing provisions, such Warrant Holder may
be entitled pursuant to this SECTION 4.2(F).
(g) If any question shall at any time arise with respect to the
adjusted number of Warrant Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national
standing selected by the Warrant Holder.
(h) Notwithstanding anything in this SECTION 4.2 to the contrary,
the Company shall not be permitted to take any action described in this
SECTION 4.2 (such as, but not by way of limitation, any dividend,
consolidation merger or reorganization) if such action is prohibited under
any other provision of this Agreement.
(i) Notwithstanding that the number of Warrant Shares purchasable
upon the exercise of each Warrant may have been adjusted pursuant to the
terms hereof, the Company shall nonetheless not be required to issue
fractions of Warrant Shares upon exercise of each Warrant or to distribute
certificates that evidence fractional shares, but instead shall pay to the
holder of each Warrant the cash value of any such fractional Warrant Shares.
SECTION 4.3 NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
number of Warrant Shares issuable upon an exercise of the Warrants or any
adjustment of the Warrant Exercise Price pursuant to SECTION 4.3, the Company
shall promptly, but in any event within thirty (30) days thereafter, cause to
be given to each Warrant Holder, at its address appearing on the Warrant
Register, by first class mail, postage prepaid, a certificate signed by the
Company's Financial Officer setting forth the number of Warrant Shares
issuable upon the exercise of each Warrant as so adjusted and the Warrant
Exercise Price as so adjusted, and describing in reasonable detail the facts
accounting for such adjustment and the method of calculation used. Where
appropriate, such certificate may be given in advance and included as part of
the notice required to be mailed under the other provisions of this SECTION
4.3.
In the event:
(a) that the Company shall authorize the issuance to all holders of
its Common Stock of rights or warrants to subscribe for or purchase capital
stock of the Company or of any other subscription rights or warrants; or
(b) that the Company shall issue any shares of Common Stock without
consideration or at a price per share less than $1.00, or issue options,
rights, or warrants to subscribe for or purchase such Common Stock (or
securities convertible into such Common Stock) without consideration or at a
price per share (or having a conversion price per share, if a security
convertible into such Common Stock) less than $1.00; or
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(c) that the Company shall authorize the distribution to all holders
of its Common Stock of shares of its stock, evidences of its indebtedness,
assets, or rights, options, or warrants to subscribe for or purchase such
shares, evidences of indebtedness or assets; or
(d) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination); or
(d) of the voluntary dissolution, liquidation or winding up of the
Company; or
(e) that the Company proposes to take any other action which would
require an adjustment of the Warrant Exercise Price of the Warrants issued by
it pursuant to SECTION 4.2;
then the Company shall cause to be given to each Warrant Holder at
such Warrant Holder's address appearing on the Warrant Register, at least
twenty (20) days prior to the applicable date hereinafter specified, by first
class mail, postage prepaid, a written notice stating the date as of which
the holders of record of Common Stock to be entitled to receive any such
rights, warrants or distribution are to be determined, or the date on which
any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that the holders of record of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up.
SECTION 4.4. RESERVATION AND ISSUANCE OF WARRANT SHARES. The Company
will at all times have authorized, and reserve and keep available, free from
preemptive rights, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon the exercise of the Warrants, the number of
shares of Common Stock deliverable upon exercise of all outstanding Warrants.
The Company covenants that all Warrant Shares issued by it will, upon
issuance in accordance with the terms of this Agreement, be fully paid and
nonassessable and free from all Taxes with respect to the issuance thereof
and free from all Liens other than Liens arising by, through or under the
Warrant Holder to whom such Warrant Shares were issued.
ARTICLE V
TRANSFER OF SECURITIES
Section 5.1. RESTRICTIONS ON TRANSFER. Shoeinvest understands and
agrees that the Securities have not been registered under the Securities Act
or any state securities Laws, and that accordingly, they will not be fully
transferable except as permitted under various exemptions contained in the
Securities Act and applicable state securities Laws, or upon satisfaction of
the registration and prospectus delivery requirements of the Securities Act
and applicable state securities Laws. Shoeinvest acknowledges that it must
bear the economic risk of its investment in the Securities for an indefinite
period of time (subject, however, to the
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payment terms of the Note, and the Company's obligations pursuant to the
Registration Rights Agreement) since they have not been registered under the
Securities Act and applicable state securities Laws and therefore cannot be
sold unless they are subsequently registered or an exemption from
registration is available. Absent an effective registration statement under
the Securities Act and applicable state securities Laws covering the
disposition of the Securities, Shoeinvest will not sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any or all of the Securities
absent a valid exemption from the registration and prospectus delivery
requirements of the Securities Act and the registration or qualification
requirements of any applicable state securities Laws. The Company agrees that
it will effect the transfer of the Securities on its books and records upon
receipt of an opinion of counsel stating that Shoeinvest's proposed sale or
transfer of the Securities is exempt from the registration and qualification
requirements of the Securities Act.
SECTION 5.2. REGISTRATION, TRANSFER AND EXCHANGE OF WARRANTS. (a)
The Company shall maintain at the offices of the Company as set forth on the
signature pages of this Agreement, the Warrant Register for registration of
the Warrants and Warrant Certificates and transfers thereof. On the Closing
Date, the Company shall register the outstanding Warrants and Warrant
Certificates issued to Shoeinvest. The Company may deem and treat the
registered Warrant Holders as the absolute owners of the Warrants registered
to such Holders and (notwithstanding any notation of ownership or other
writing on the Warrant Certificates made by any Person) for the purpose of
any exercise thereof or any distribution to the Warrant Holders, and for all
other purposes.
(b) Upon satisfaction of each condition set forth in
SECTION 5.1 hereof, the Company shall register the transfer of any
outstanding Warrants in the Warrant Register upon surrender of the Warrant
Certificate(s) evidencing such Warrants to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, accompanied
(if so required by it) by a written instrument or instruments of transfer in
form satisfactory to it, duly executed by the registered Warrant Holder or by
the duly appointed legal representative thereof. Upon any such registration
of transfer, new Warrant Certificate(s) evidencing such transferred Warrants
shall be issued to the transferee(s) and the surrendered Warrant
Certificate(s) shall be canceled. If less than all the Warrants evidenced by
a Warrant Certificate(s) surrendered for transfer are to be transferred, a
new Warrant Certificate(s) shall be issued to the Warrant Holder surrendering
such Warrant Certificate(s) evidencing such remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of
the Warrant Holder(s) thereof, when surrendered to the Company at the offices
of the Company as set forth on the signature pages of this Agreement, for
another Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or
exchange except for any Tax or other governmental charge imposed in
connection therewith.
SECTION 5.3. MUTILATED OR MISSING WARRANT CERTIFICATES. If any
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue, in exchange and substitution for and upon cancellation
of the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent number of
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Warrants, but only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of such Warrant Certificate and, if
requested, indemnity satisfactory to it. No service charge shall be made for
any such substitution, but all expenses and reasonable charges associated
with procuring such indemnity and all stamp, Tax and other governmental
duties that may be imposed in relation thereto shall be borne by the holder
of such Warrant Certificate.
SECTION 5.4. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. (a) The
Company shall maintain at the offices of the Company as set forth on the
signature pages of this Agreement, the Note Register for registration of the
Notes and transfers thereof. On the Closing Date, the Company shall register
the outstanding Notes issued to Shoeinvest. The Company may deem and treat
the registered Noteholder as the absolute owner of the Note registered to
such Holder and (notwithstanding any notation of ownership or other writing
on the Note made by any Person) for the purpose of any exercise thereof or
any distribution to the Noteholder, and for all other purposes.
(b) Upon satisfaction of each condition set forth in
SECTION 5.1 hereof, the Company shall register the transfer of any
outstanding Note in the Note Register upon surrender of such Note to the
Company at the offices of the Company as set forth on the signature pages of
this Agreement, accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to it, duly executed by the
registered Noteholder or by the duly appointed legal representative thereof.
Upon any such registration of transfer, a new Note evidencing such
transferred Note shall be issued to the transferee and the surrendered Note
shall be canceled. If less than all of the principal amount of a Note
surrendered for transfer is to be transferred, a new Note shall be issued to
the Noteholder surrendering such Note evidencing such remaining principal
balance.
(c) The Notes may be exchanged at the option of the
Noteholders thereof, when surrendered to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, for another
Note or other Notes of like tenor and representing in the aggregate a like
number of Notes. Notes surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or
exchange except for any Tax or other governmental charge imposed in
connection therewith.
SECTION 5.5. MUTILATED OR MISSING NOTES. If any Note shall be
mutilated, lost, stolen or destroyed, the Company shall issue, in exchange
and substitution for and upon cancellation of the mutilated Note, or in lieu
of and substitution for the Note lost, stolen or destroyed, a new Note of
like tenor and representing the same outstanding principal, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Note and, if requested, indemnity satisfactory to it. No
service charge shall be made for any such substitution, but all expenses and
reasonable charges associated with procuring such indemnity and all stamp,
Tax and other governmental duties that may be imposed in relation thereto
shall be borne by the holder of such Note.
ARTICLE VI
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CONDITIONS
SECTION 6.1. CONDITIONS PRECEDENT TO SHOEINVEST'S OBLIGATIONS AT
CLOSING. The obligations of Shoeinvest to purchase the Securities pursuant to
SECTION 2.1 are subject to the satisfaction of each of the conditions
precedent set forth in this SECTION 6.1 on or before 10:00 a.m. (Dallas,
Texas time) on the Closing Date. In the event all of the conditions precedent
set forth in this SECTION 6.1 are not satisfied by such time, Shoeinvest may,
at its option, terminate this Agreement and the other Transaction Documents
and all obligations of Shoeinvest hereunder and thereunder, or waive any and
all of such conditions precedent and close the transactions as contemplated
herein.
(a) CLOSING DELIVERIES. The Company shall have delivered to
Shoeinvest, in form and substance satisfactory to Shoeinvest each of the
following:
(i) the Note to be purchased by Shoeinvest pursuant to
SECTION 2.1 duly executed and delivered by the Company and
payable to Shoeinvest;
(ii) certificates issued to Shoeinvest evidencing the
Common Stock Shares to be purchased by Shoeinvest pursuant to
SECTION 2.1;
(iii) Warrant Certificates issued to Shoeinvest by the
Company evidencing the Warrants to be purchased by Shoeinvest
pursuant to SECTION 2.1;
(iv) the Registration Rights Agreement duly executed
and delivered by the Company and Shoeinvest;
(v) the Employment Agreement duly executed and
delivered by the Company and Floyd C. Wilson;
(vi) a favorable opinion of Thrasher, Whitley, Hampton
& Morgan, counsel for the Company, in form and substance
satisfactory to Shoeinvest and its counsel;
(vii) all resolutions, certificates and documents
Shoeinvest may request relating to (A) the organization,
existence, good standing and foreign qualification of the
Company and each of its Subsidiaries, (B) the corporate
authority for the execution, delivery and enforceability of this
Agreement and the consummation of the Closing Transactions, (C)
the stock ownership of the Company and each of its Subsidiaries,
(D) evidence of all resolutions and related documents necessary
to increase the Company's outstanding capital, if necessary, and
(E) such other matters relevant to the foregoing as Shoeinvest
shall reasonably request, all of which shall be in form and
substance satisfactory to Shoeinvest and its counsel;
(viii) if applicable, the waiting period applicable to
the transactions contemplated hereby under the HSR Act shall
have expired or been terminated and all filings required to be
made prior to the Closing Date, and all consents, approvals,
permits and authorizations required to be obtained
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prior to the Closing Date from, any Governmental Authority in
connection with execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have
been made or obtained.
(ix) evidence satisfactory to Shoeinvest that all
Closing Transactions have been consummated;
(x) a Subordination Agreement among Shoeinvest, Compass
Bank and Bank of Oklahoma in the form and substance reasonably
acceptable to Shoeinvest;
(xi) a certificate from an Authorized Officer of the
Company certifying that (A) neither a Default nor an Event of
Default has occurred, and (B) each and every representation and
warranty of the Company in the Transaction Documents is true and
correct in all material respects;
(xii) the holders of the requisite number of shares of
outstanding capital stock of the Company shall have duly and
validly approved all items necessary to effect the transactions
contemplated by this Agreement and the other Transaction
Documents, the Closing Transactions and all other transactions
contemplated hereby or thereby;
(xiii) the Common Stock Shares, the Warrant Shares and
the shares of Common Stock issuable upon conversion of the Notes
shall have been approved for listing on the Nasdaq Small Cap
Market, subject to official notice of issuance;
(xiv) resignations in form acceptable to Shoeinvest of
each of the directors of the Company who are not designated by
the Major Shareholders pursuant to the provisions of the
Shareholders Agreement;
(xv) evidence of cancellation of the Company's Employee
Net Profits Interest Incentive Compensation Plan ("NPI Plan")
and termination of the Company's SEP/IRA Plan established in
1993;and
(xvi) such other documents, instruments and agreements
as Shoeinvest shall reasonably request in light of the
transactions contemplated hereunder.
The documents, certificates and opinions referred to in this SECTION 6.1(A)
shall be delivered to Shoeinvest no later than the Closing Date and shall,
except as expressly provided otherwise, be dated the Closing Date.
(b) LEGAL MATTERS. All legal matters with respect to the Company and
its Subsidiaries, the Transaction Documents and the Closing Transactions
shall be acceptable to Shoeinvest.
(c) ABSENCE OF DEFAULT. No Default or Event of Default shall have
occurred which is continuing.
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company
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contained in this Agreement and in the other Transaction Documents shall be
true and correct in all material respects on the Closing Date as if they were
made on such date (in determining the truth and correctness of any
representation or warranty no effect shall be given to any limitation
contained in such representation or warranty as to Knowledge).
(e) NO MATERIAL ADVERSE EFFECT. No event has occurred or condition
exists which has had or could be expected to have a Material Adverse Effect
on the Company.
(f) PAYMENT OF EXPENSES. The Company shall have paid, or will make
arrangements to pay at Closing, in full all documented and reasonable out of
pocket fees, expenses and disbursements incurred by Shoeinvest in connection
with its investigation, negotiation and closing of the transactions
contemplated hereby.
(g) WAIVER. Shoeinvest shall have been given evidence that the
provisions, if any, listed on SCHEDULE 6.1(G) have been waived by the
Company's shareholders or board of directors, as the case may be.
(h) EMPLOYEE PARTICIPANT'S CONSENT. Evidence of each employee
participant's consent to the termination and release of all rights related to
the NPI Plan.
(i) DUE DILIGENCE REVIEW. Completion of Buyer's due diligence, the
results of which are satisfactory to Buyer, including but not limited to,
Buyer's review of all items listed on the Disclosure Schedule.
SECTION 6.2. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS AT
CLOSING. The obligations of the Company to sell the Securities pursuant to
SECTION 2.1 are subject to the satisfaction of each of the conditions
precedent set forth in this SECTION 6.2 on or before 10:00 a.m. (Dallas,
Texas time) on the Closing Date. In the event all of the conditions precedent
set forth in this SECTION 6.2 are not satisfied by such time, the Company
may, at its option, terminate this Agreement and the other Transaction
Documents and all obligations of the Company hereunder and thereunder.
(a) CLOSING DELIVERIES. Shoeinvest shall have delivered to the
Company, in form and substance satisfactory to the Company each of the
following:
(i) the Purchase Price to be paid by Shoeinvest
pursuant to SECTION 2.1;
(ii) the Registration Rights Agreement duly executed and
delivered by the Company and Shoeinvest;
(iii) the Employment Agreement duly executed and
delivered by the Company and Floyd C. Wilson;
(iv) all resolutions, certificates and documents the
Company may request relating to (A) the organization, existence,
good standing and foreign qualification of Shoeinvest, (B) the
corporate
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authority for the execution, delivery and enforceability of this
Agreement and the consummation of the Closing Transactions, and
(C) such other matters relevant to the foregoing as the Company
shall reasonably request, all of which shall be in form and
substance satisfactory to the Company and its counsel;
(v) if applicable, the waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have
expired or been terminated and all filings required to be made
prior to the Closing Date, and all consents, approvals, permits
and authorizations required to be obtained prior to the Closing
Date from, any Governmental Authority in connection with
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby shall have been made or
obtained;
(vi) evidence satisfactory to the Company that all
Closing Transactions have been consummated;
(vii) a certificate from an Authorized Officer of
Shoeinvest certifying that (A) each and every representation and
warranty of the Company in the Transaction Documents is true and
correct in all material respects;
(viii) payment of $274,625 to current employees of the
Company as set forth on the schedule previously provided by the
Company to Shoeinvest as payment in full of each employee's
rights under the NPI Plan;
(ix) such other documents, instruments and
agreements as the Company shall reasonably request.
The documents and certificates referred to in this
SECTION 6.2(A) shall be delivered to the Company no later than
the Closing Date and shall, except as expressly provided
otherwise, be dated the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Shoeinvest contained in this Agreement and in the other
Transaction Documents shall be true and correct in all material
respects on the Closing Date as if they were made on such date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce Shoeinvest to purchase the Securities
to be purchased by it hereunder, the Company hereby represents
and warrants to Shoeinvest that each of the following statements
(a) is true and correct on the date hereof, and (b) will be true
and correct after giving effect to the Closing Transactions.
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SECTION 7.1. CORPORATE EXISTENCE AND POWER. Each of the
Company and each of its Subsidiaries (a) is a corporation, duly
organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation set forth on SCHEDULE 7.1 of
the Disclosure Schedule, (b) has all corporate power and
authority necessary to carry on its business as now conducted and
as proposed to be conducted, and (c) is duly qualified as a
foreign corporation in each jurisdiction set forth on SCHEDULE
7.1 on the Disclosure Schedule which constitutes all
jurisdictions where a failure to be so qualified could have a
Material Adverse Effect on the Company or such Subsidiary.
SECTION 7.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION. The execution, delivery and performance of this
Agreement and the other Transaction Documents by each of the
Company and each of its Subsidiaries (to the extent each is a
party to this Agreement or the other Transaction Documents) are
within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect
of, or filing with, any Governmental Authority (other than
filings with any applicable securities regulatory authorities to
perfect exemptions from the registration or qualification
requirements of applicable securities Laws and which will be made
immediately following the Closing Date), and, except for matters
which have been waived in writing by the appropriate Person, do
not contravene, or constitute a default under, any provision of
applicable Law or of the Charter Documents or of any material
judgment, injunction, order, decree or Material Agreement binding
upon the Company or any of its Subsidiaries or its respective
assets, or result in the creation or imposition of any Lien on
any asset of the Company or any of its Subsidiaries.
SECTION 7.3. BINDING EFFECT. This Agreement constitutes
the valid and binding agreement of the Company; each other
Transaction Document when executed and delivered in accordance
with this Agreement, will constitute the valid and binding
obligation of the Company and each of its Subsidiaries which is a
party thereto, in each case enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar Laws affecting creditors rights
generally, and (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability.
SECTION 7.4. CAPITALIZATION. SCHEDULE 7.4 of the
Disclosure Schedule accurately and completely sets forth for each
of the Company and its Subsidiaries (a) its authorized, issued
and outstanding capital stock of every class, and (b) the names
of the record, and to the Company's knowledge, beneficial owner,
of its capital stock of every class, including the number and
class of shares held by each such shareholder. Except as set
forth SCHEDULE 7.4 of the Disclosure Schedule and except for the
Warrants and registration rights provided in the Registration
Rights Agreement, (x) there are not outstanding any options,
warrants or other rights to acquire capital stock of any class of
the Company or any of its Subsidiaries or securities convertible
into capital stock of the Company or any of its Subsidiaries of
any class, (y) no Person has any preemptive or similar rights
with respect to any subsequent issue of stock by the Company or
any of its Subsidiaries, and (z) no Person has any right to
require the Company or any of its Subsidiaries to register any
securities of the Company or any of its Subsidiaries under the
Securities Act.
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SECTION 7.5. ISSUANCE OF SECURITIES. The Securities to
be issued on the Closing Date, when issued upon payment of the
applicable Purchase Price in accordance with SECTION 2.1, will be
duly authorized, validly issued, fully paid and non-assessable
and will be free and clear of all Liens, claims and encumbrances
including pre-emptive rights. The Warrant Shares, when issued
upon an exercise of the Warrants, and the Conversion Shares, when
issued upon a conversion of the amount of principal and unpaid
interest on the Notes, will be duly authorized, validly issued,
fully paid and nonassessable and free and clear of all Liens,
claims and encumbrances, including, without limitation, all
preemptive rights.
SECTION 7.6. FINANCIAL STATEMENTS. The Company Financial
Statements were prepared in accordance with the applicable
published rules and regulations of the Commission with respect
thereto and in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as
permitted by Rule 10-01 of Regulation S-X of the Commission) and
fairly present in all material respects, in accordance with
applicable requirements of GAAP (in the case of unaudited
statements, subject to normal, recurring adjustments), the
consolidated financial position of the Company and its
Subsidiaries as of their respective dates and the consolidated
results of operations and the consolidated cash flows of the
Company and its Subsidiaries for the periods presented therein.
The are no material liabilities of the Company or any Subsidiary
(contingent or otherwise), other than as disclosed in the
Company's Financial Statements. There are no material imbalances
of production from the oil and gas properties of the Company or
its Subsidiaries whether required to be disclosed pursuant to
GAAP or otherwise. Since December 31, 1998, no event has occurred
or condition exists which has had or could be expected to have a
Material Adverse Effect.
SECTION 7.7. MATERIAL AGREEMENTS. SCHEDULE 7.7 of the
Disclosure Schedule contains a complete and accurate description
of every Material Agreement to which the Company or any of its
Subsidiaries is a party (other than the Transaction Documents) or
by which the Company or any of its Subsidiaries or any of their
respective assets are bound (including all amendments and
modifications thereto). The Company has made available to
Shoeinvest or provided Shoeinvest with a true and correct copy of
all such Material Agreements, including all amendments and
modifications thereof. No rights or obligations of any party to
any of such Material Agreements has been waived, and no party to
any of such Material Agreements is in default of its obligations
thereunder. Each of such Material Agreements is a valid, binding
and enforceable obligation of the parties thereto in accordance
with its terms and is in full force and effect.
SECTION 7.8. COMPASS DEBT DOCUMENTS. The Company has
provided to or made available to Shoeinvest with a true and
correct copy of all of the Compass Senior Debt Documents
including all amendments and modifications thereto. No rights or
obligations of any party to any of such Compass Senior Debt
Documents have been waived, and no party to any of such Compass
Senior Debt Documents is in default of its obligations
thereunder. Each of such Compass Senior Debt Documents is a
valid, binding and enforceable obligation of the parties thereto
in accordance with its terms and is in full force and affect.
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SECTION 7.9. INVESTMENTS. Except as set forth on
SCHEDULE 7.9 of the Disclosure Schedule, neither the Company nor
any of its Subsidiaries has any outstanding Investments.
SECTION 7.10. OUTSTANDING DEBT. SCHEDULE 7.10 of the
Disclosure Schedule contains a complete and accurate description
of all Debt of the Company and each of its Subsidiaries
outstanding on the date hereof. Neither the Company nor any of
its Subsidiaries is in default in payment of any Debt with
respect to which it is an obligor or in default of any covenant,
agreement, representation, warranty or other term of any
document, instrument or agreement evidencing, securing or
otherwise pertaining to any such Debt.
SECTION 7.11. TRANSACTIONS WITH AFFILIATES. SCHEDULE
7.11 of the Disclosure Schedule contains a complete and accurate
description of all contracts, agreements and other arrangements
(whether written, oral, express or implied) between the Company
or any of its Subsidiaries and any Affiliate of the Company and
its Subsidiaries in existence on the date hereof, including,
without limitation, a complete and accurate description of all
Investments of any of the Company or any of its Subsidiaries in
any Affiliate of the Company or any of its Subsidiaries.
SECTION 7.12. EMPLOYMENT MATTERS. SCHEDULE 7.12 of the
Disclosure Schedule contains a complete and accurate list of all
employees of the Company and each of its Subsidiaries. Such
schedule also sets forth for the current fiscal year the annual
salary (including projected bonuses and other cash compensation)
of all such employees and all benefits (other than health
insurance benefits and other similar benefits which are both
customary in the industry in which the Company or any of its
Subsidiaries is engaged and provided to all full time employees
of the Company or any of its Subsidiaries generally) provided to
such employees. SCHEDULE 7.12 of the Disclosure Schedule also
contains a complete and accurate description of all employment
contracts, consulting agreements, management agreements,
non-compete and similar agreements to which the Company or any of
its Subsidiaries is a party on the date hereof.
SECTION 7.13. LITIGATION. Except as set forth on
SCHEDULE 7.13 of the Disclosure Schedule, there is no action,
suit or proceeding pending against, or to the knowledge of the
Company, threatened against or affecting the Company or any of
its Subsidiaries before any court or arbitrator or any
Governmental Authority.
SECTION 7.14. ERISA. Neither the Company nor any of its
Subsidiaries nor any ERISA Affiliate maintains or contributes to
any Pension Plan other than those disclosed on SCHEDULE 7.14 of
the Disclosure Schedule. Each such Pension Plan is in compliance
in all material respects with its terms and the applicable
provisions of ERISA and the IRC. Except as required by law, none
of the Company or any of its Subsidiaries nor any ERISA Affiliate
has any commitment to create any additional Pension Plans. Except
as set forth on SCHEDULE 7.14, neither the Company nor any of its
Subsidiaries nor any ERISA Affiliate has ever sponsored, adopted,
maintained or been obligated to contribute to, or had any
liability under, any Pension Plan. There is no material violation
of ERISA with respect to the filing of applicable reports,
documents and notices regarding the Pension Plans with the
Secretary of the Treasury or the furnishing of such documents to
the participants and
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beneficiaries of the Pension Plans, and, to the best of the
Company's knowledge, with respect to each Pension Plan all other
reports required under ERISA or the IRC to be filed with any
Governmental Authority have been duly filed and all such reports
are true and correct in all material respects as of the dates
given. Each Pension Plan that is intended to be "qualified"
within the meaning of section 401(a) of the IRC is, and has been
during the period from its adoption to date, so qualified, both
as to form and, to the best of the Company's knowledge, has been
qualified, and all necessary governmental approvals, including a
favorable determination as to the qualification under the IRC of
each of such Pension Plans and each amendment thereto, have been
timely obtained or application for a favorable determination will
be filed prior to the applicable filing deadlines. Except as
disclosed on SCHEDULE 7.14 of the Disclosure Schedule, each trust
created under any such Pension Plan intended to be qualified
within the meaning of section 401(a) of the IRC and each trust
described in section 501(c)(9) of the IRC is exempt from federal
income taxation under section 501(a) of the IRC and has been so
exempt during the period from creation to date. The Company has
no pending or, to the best of the Company's knowledge, threatened
claims, lawsuits or actions (other than routine claims for
benefits in the ordinary course) asserted or instituted against,
and the Company has no knowledge of any threatened litigation or
claims against, the assets of any Pension Plan or its related
trust or against any fiduciary of a Pension Plan with respect to
the operation of such Pension Plan. Neither the Company nor any
of its Subsidiaries has received notice of any pending
investigations, inquires or audits with respect to any Pension
Plan by any regulatory agency. Neither the Company nor any of its
Subsidiaries has engaged in any prohibited transactions, within
the meaning of section 406 of ERISA or section 4975 of the IRC,
in connection with any Pension Plan. Neither the Company nor any
of its Subsidiaries maintains or has established any Pension Plan
which is a welfare benefit plan within the meaning of section
3(1) of ERISA which provides for retiree medical liabilities or
continuing benefits or coverage for any participant or any
beneficiary of any participant after such participant's
termination of employment except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder, and at the
expense of the participant or the beneficiary of the participant.
The Company and each of its Subsidiaries that maintains a Pension
Plan that is a welfare benefit plan within the meaning of section
3(1) of ERISA has complied with any applicable notice and
continuation requirements of COBRA and the regulations
thereunder. To the best of the Company's knowledge, none of the
Company or any of its Subsidiaries maintains, has established, or
has ever participated in, a multiple employer welfare benefit
arrangement within the meaning of section 3(40)(A) of ERISA.
SECTION 7.15. TAXES AND FILING OF TAX RETURNS. The
Company and each of its Subsidiaries has filed all Tax returns
required to have been filed by it or has legally extended such
returns and has paid all Taxes shown to be due and payable on
such returns, including interest and penalties, and all other
Taxes which are payable by the Company or any of its
Subsidiaries. The Company does not know of any proposed Tax
assessment against the Company or any of its Subsidiaries and all
Tax liabilities of the Company and each of its Subsidiaries are
adequately provided for and no Tax liability of the Company or
any of its Subsidiaries has been asserted by the Internal Revenue
Service or any other Governmental Authority for Taxes in excess
of those already paid.
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SECTION 7.16. TITLE TO ASSETS. The Company and its
Subsidiaries have Defensible Title to all Oil and Gas Interests
of the Company and its Subsidiaries included or reflected in the
Ownership Interests and all of their other assets, subject only
to Permitted Encumbrances. Each Oil and Gas Interest included or
reflected in the Ownership Interest entitles the Company and its
Subsidiaries to receive not less than the undivided interest set
forth in (or derived from) the Ownership Interests of all
Hydrocarbons produced, saved and sold from or attributable to
such Oil and Gas Interest, and the portion of such costs and
expenses of operation and development of such Oil and Gas
Interest that is borne or to be borne by the Company and its
Subsidiaries is not greater than the undivided interest set forth
in (or derived from) the Ownership Interests. All proceeds from
the sale of each of the Company's and the Subsidiaries' shares of
the Hydrocarbons being produced from its Oil and Gas Interests
are currently being paid in full to such party by the purchasers
thereof on a timely basis and none of such proceeds are currently
being held in suspense by such purchaser or any other party,
except as set forth on SCHEDULE 7.16 of the Disclosure Schedule.
SECTION 7.17. LICENSES, PERMITS, ETC. The Company and
each of its Subsidiaries possess all franchises, certificates,
licenses, permits, consents, authorizations, exemptions and
orders of Governmental Authorities as are necessary to carry on
their respective businesses as now being conducted and as
proposed to be conducted, except to the extent a failure to have
such franchises, certificates, licenses, permits, consents,
authorizations, exemptions and orders could not have a Material
Adverse Effect.
SECTION 7.18. PROPRIETARY RIGHTS. The Company and each
of its Subsidiaries has ownership of, or valid licenses to use,
all trademarks, copyrights, patents and other proprietary rights
used in their respective businesses. To the best of the Company's
knowledge, the operation of the businesses of the Company and its
Subsidiaries does not infringe any patent, copyright, trademark
or other proprietary rights of others, and, neither the Company
nor any of its Subsidiaries has received any notice from any
third party of any such alleged infringement by the Company or
any of its Subsidiaries. The Company and each of its Subsidiaries
has taken reasonable steps to establish and preserve its
respective ownership of all patents, copyrights, trademarks,
trade secrets and other proprietary rights. The Company is not
aware of any infringement by others of its or any its
Subsidiaries' patents, copyrights, trademarks or other
proprietary rights.
SECTION 7.19. COMPLIANCE WITH LAW. To the Knowledge of
the Company, the business and operations of the Company and each
of its Subsidiaries have been and are being conducted in
accordance with all applicable Laws.
SECTION 7.20. ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 7.20 of the
Disclosure Schedule, (i) the reserves reflected in the Company's
Financial Statements relating to environmental matters were
adequate under GAAP as of the date of such financial statements,
and neither the Company nor its Subsidiaries has incurred any
material liability in respect of any environmental matter since
the that date, and (ii) the SEC Documents include all information
relating to environmental matters required to be included therein
under the rules and regulations of the Commission applicable
thereto.
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(b) Except as set forth in SCHEDULE 7.20 of the Disclosure
Schedule:
(i) Each of the Company and its Subsidiaries
has conducted its business and operated its
assets, and is conducting its business and
operating its assets, in material compliance with
all Environmental Laws.
(ii) Neither the Company nor any of
its Subsidiaries has been notified by any
Governmental Authority that any of the
operations or assets of the Company or its
Subsidiaries is the subject of any
investigation or inquiry by any Governmental
Authority evaluating whether any material
remedial action is needed to respond to a
release of Hazardous Substance or to the
improper storage or disposal (including storage
or disposal at offsite locations) of any
Hazardous Substance.
(iii) Neither the Company nor any of
its Subsidiaries and no other Person has filed
any notice under any federal, state or local
law indicating that (i) the Company or its
Subsidiaries is responsible for the improper
release into the environment, or the improper
storage or disposal of any Hazardous Substance,
or (ii) any Hazardous Substance is improperly
stored or disposed of upon any property of the
Company or its Subsidiaries.
(iv) Neither the Company nor any of
its Subsidiaries has any Substance contingent
liability in connection with (i) release into
the environment at or on the property now or
previously owned or leased by the Company or
its Subsidiaries, or (ii) the storage or
disposal of any Hazardous Substance.
(v) Neither the Company nor any of its
Subsidiaries has received any claim, complaint,
notice, inquiry or request for information
which remains unresolved as of the date hereof
with respect to any alleged violation of any
Environmental Laws or regarding potential
liability under any Environmental Laws relating
to operations or conditions of any facilities
or property owned, leased or operated by the
Company or its Subsidiaries.
(vi) There are no sites, locations or
operations at which the Company or its
Subsidiaries are currently undertaking, or have
completed, any remedial or response action
relating to any such disposal or release, as
required by Environmental Laws.
(vii) There are no physical or
environmental conditions existing on any
property owned or leased by the Company or any
Subsidiary resulting from the Company's or any
Subsidiary's operations or activities, past or
present, at any location, that would give rise
to any on-site or off-site remedial obligations
under any applicable Environmental Laws, other
than normal and ordinary remedial work
associated with plugging and abandoning of oil
and gas facilities.
SECTION 7.21. Intentionally Left Blank.
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SECTION 7.22. FISCAL YEAR. The Company's fiscal year is from
January 1 to December 31.
SECTION 7.23. NO DEFAULT. Neither a Default nor an Event of
Default has occurred.
SECTION 7.24. INSURANCE. SCHEDULE 7.24 of the Disclosure Schedule
contains a complete and accurate list and description of all insurance
policies maintained by the Company as of the date hereof.
SECTION 7.25. GOVERNMENT REGULATION. Neither the Company nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
the Company Act of 1935, the Interstate Commerce Act (as either of the
preceding acts have been amended), or any other Law which regulates the
incurring by the Company or any of its Subsidiaries of Debt, including, but
not limited to, Laws relating to common contract carriers of the sale of
electricity, gas, steam, water or other public utility services.
SECTION 7.26. SECURITIES LAWS. Assuming Shoeinvest's representations
made herein are true and correct, the offer, issuance and sale of the
Securities (a) are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, (b) have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities Laws, and (c) are and will be accomplished in conformity with all
other federal and applicable state securities Laws.
SECTION 7.27. BROKERS AND FINDERS. SCHEDULE 7.27 of the Disclosure
Schedule sets forth all arrangements (including amounts payable by the
Company or any of its Subsidiaries in connection therewith) pursuant to which
any Person has, or as a result of the Closing Transactions will have, any
right or valid claim against the Company or any of its Subsidiaries for any
commission, fee or other compensation as an investment banker, finder or
broker, or in any similar capacity. No Person engaged by the Company has or
will have any right or valid claim against Shoeinvest for any such
commission, fee or other compensation. The Company will indemnify and hold
Shoeinvest harmless against any liability or expense arising out of, or in
connection with, any such right or claim (including, without limitation,
claims arising out of the matters disclosed on SCHEDULE7.27 of the Disclosure
Schedule).
SECTION 7.28. SEC DOCUMENTS. The Company is current in its
obligations to file all periodic reports and proxy statements with the
Commission required to be filed under the Exchange Act. Shoeinvest has had
available to it a true and correct complete copy of each report, schedule,
Registration Statement and definitive proxy statement filed by the Company
with the Commission since October 4, 1993, and prior to the date of this
Agreement (the "SEC Documents"), which are all the documents (other than
preliminary material) that the Company was required to file with the
Commission since such date. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act
or the Exchange Act as the case may be, and the rules and regulations of the
Commission thereunder applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 7.29. OIL AND GAS OPERATIONS. Except as set forth on
SCHEDULE 7.29 of the Disclosure
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Schedule:
(a) All wells included in the Oil and Gas Interests of the Company
or its Subsidiaries (the "Wells") have been drilled and (if completed)
completed, operated and produced in accordance with generally accepted oil
and gas field practices and in compliance in all material respects with
applicable oil and gas leases and applicable laws, rules, regulations. The
Wells have been drilled and completed within the limits permitted by
contract, pooling or unit agreement, and by law; and all drilling and
completion of the Wells and all development and operations have been
conducted in compliance with all applicable laws, ordinances, rules,
regulations and permits, and judgments, orders and decrees of any court or
governmental body or agency. No Well is subject to penalties on allowables
because of any overproduction or any other violation of applicable laws,
rules, regulations or permits or judgments, orders or decrees of any court or
governmental body or agency that would prevent such Well from being entitled
to its full legal and regular allowable from and after the Closing Date as
prescribed by any court or governmental body or agency.
(b) There are no Wells that
(i) the Company is currently obligated by law or
contract to plug and abandon;
(ii) the Company will be obligated by law or contract
to plug and abandon with the lapse of time or notice or both
because the Well is not currently capable of producing in
commercial quantities;
(iii) are subject to exceptions to a requirement to
plug and abandon issued by a regulatory authority having
jurisdiction over the applicable lease; or
(iv) to the best knowledge of the Company, have been
plugged and abandoned but have not been plugged in accordance
with all applicable requirements of each regulatory authority
having jurisdiction over the Oil and Gas Interests.
(c) With respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other
documents creating interests comprising the Oil and Gas Interests: (a) the
Company has fulfilled all requirements in all material respects for filings,
certificates, disclosures of parties in interest, and other similar matters
contained in (or otherwise applicable thereto by law, rule or regulation)
such leases or other documents and are fully qualified to own and hold all
such leases or other interests; (b) there are no provisions applicable to
such leases or other documents which increase the royalty share of the lessor
thereunder, and (c) upon the establishment and maintenance of production in
commercial quantities, the leases and other interest are to be in full force
and effect over the economic life of the property involved and do not have
terms fixed by a certain number of years.
(d) Proceeds from the sale of Hydrocarbons produced from the
Company's and its Subsidiaries' Oil and Gas Interests are being received by
the Company and its Subsidiaries 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 $100,000 and held in suspense in the ordinary
course of business).
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(e) Seller is not obligated, by virtue of a prepayment arrangement,
a "take or pay" arrangement, a production payment or any other arrangement to
deliver Hydrocarbons produced from the Oil and Gas Interests at some future
time without then or thereafter receiving full payment therefor.
SECTION 7.30. FINANCIAL AND COMMODITY HEDGING. SCHEDULE7.30 of the
Disclosure Schedule accurately summarizes the outstanding Hydrocarbon and
financial hedging positions of the Company and its Subsidiaries (including
fixed price controls, collars, swaps, caps, hedges and puts) as of the date
reflected on said Schedule. From the date of this Agreement to the date of
Closing, the Company and its Subsidiaries will not enter into any new hedging
positions without Shoeinvest's prior written consent.
SECTION 7.31. BOOKS AND RECORDS. All books, records and files of the
Company and its Subsidiaries (including those pertaining to the Company's or
its Subsidiaries' 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 and
customary policies and procedures and (b) fairly and accurately reflect the
ownership, use, enjoyment and operation by the Company and its Subsidiaries
of their respective assets.
SECTION 7.32. RESERVE REPORT. To the knowledge of the Company, the
estimates of proved reserves of oil and natural gas prepared by Lee Keeling &
Associates, Inc. and H. J. Gruy and Associates, Inc. (together, the "Reserve
Engineer") as of December 31, 1998 (the "Reserve Report"): (i) are
reasonable; and (ii) were prepared in accordance with generally accepted
petroleum engineering and evaluation principles as set forth in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information
promulgated by the Society of Petroleum Engineers. The engineering
information and production data used in the preparation of the Reserve
Report, which information and data have been available to Shoeinvest, are the
information and data which are used by the Company in good faith in the
ordinary course of business. The factual information underlying the estimates
of the reserves of the Company and the Subsidiaries, which was supplied by
the Company to the Reserve Engineers for the purpose of preparing the Reserve
Report, including, without limitation, production, volumes, sales prices for
production, contractual pricing provisions under oil or gas sales or
marketing contracts under hedging arrangements, costs of operations and
development, and working interest and net revenue information relating to the
Company's and the Subsidiaries' ownership interests in properties, was true
and correct in all material respects on the date of such Reserve Report; the
estimates of future capital expenditures and other future exploration and
development costs supplied to the Reserve Engineers were prepared in good
faith and with a reasonable basis; the information provided to the Reserve
Engineers for purposes of preparing the Reserve Report was prepared in
accordance with customary industry practices; other than normal production of
the reserves and intervening oil and gas price fluctuations, the Company is
not as of the date hereof and as of the Closing Date will not be, aware of
any facts or circumstances that would result in a materially adverse change
in the reserves in the aggregate, or the aggregate present value of future
net cash flows therefrom, as described in the Reserve Report.
SECTION 7.33. NATURE OF COMPANY ASSETS. The assets of the Company
and of the Subsidiaries consist solely of (i) reserves of oil and gas, rights
to reserves of oil and gas and associated exploration and production assets
with a fair market value not exceeding $500 million and (ii) other assets
with a fair market
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value not exceeding $15 million. For purposes of this Section 7.33, the term
"associated exploration and production assets" shall have the meaning set
forth in Section 802.3 of the Rules promulgated pursuant to HSR Act.
SECTION 7.34. FULL DISCLOSURE. No information heretofore furnished
by or on behalf of the Company or any of its Subsidiaries to Shoeinvest for
the purposes of this Agreement or any other Transaction Document or any
transaction contemplated hereby or thereby, contained, and no written
information hereafter furnished by or on behalf of the Company or any of its
Subsidiaries to Shoeinvest for purposes of this Agreement or any other
Transaction Document or any transaction contemplated hereby or thereby will
contain, any untrue statement of a material fact or omit a material fact
necessary to make the statements therein not misleading. There is no fact or
circumstance known to the Company which may have a Material Adverse Effect on
the Company or any of its Subsidiaries which has not been disclosed to
Shoeinvest.
SECTION 7.35. YEAR 2000 COMPLIANCE. The Company's disclosure in its
Annual Report on Form 10-KSB for the year ended December 31, 1998 under the
heading "Year 2000 Compliance" accurately states the Company's statement of
readiness and contingency plans relative to the computer software which is
material to the conduct of the business and operations of the Company and its
Subsidiaries being capable of recording, storing, processing and presenting
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software records, stores,
processes and presents such calendar dated falling on or before December 31,
1999.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF SHOEINVEST
In order to induce the Company to issue and sell the Securities to
Shoeinvest hereunder, Shoeinvest hereby represents and warrants to the
Company as follows:
SECTION 8.1. PARTNERSHIP EXISTENCE AND POWER. Shoeinvest (a) is a
limited partnership, duly organized, validly existing and in good standing
under the Laws of its jurisdiction of incorporation, (b) has all power and
authority necessary to carry on its business as now conducted and as proposed
to be conducted.
SECTION 8.2. PARTNERSHIP AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION. The execution, delivery and performance of this Agreement and
the other Transaction Documents by Shoeinvest are within its powers, have
been duly authorized by all necessary action, require no action by or in
respect of, or filing with, any Governmental Authority (other than filings
with any applicable securities regulatory authorities to perfect exemptions
from the registration or qualification requirements of applicable securities
Laws and which will be made immediately following the Closing Date), and,
except for matters which have been waived in writing by the appropriate
Person, do not contravene, or constitute a default under, any provision of
applicable Law or of the Charter Documents or of any material judgment,
injunction, order, decree or Material Agreement binding upon Shoeinvest or
its assets, or result in the creation or imposition of any Lien on any asset
of Shoeinvest.
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SECTION 8.3. BINDING EFFECT. This Agreement constitutes the valid
and binding agreement of Shoeinvest; each other Transaction Document when
executed and delivered in accordance with this Agreement, will constitute the
valid and binding obligation of Shoeinvest, in each case enforceable in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar Laws affecting creditors rights
generally, and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 8.4. BROKERS AND FINDERS. No Person engaged by Shoeinvest
has or will have any right or valid claim against the Company for any
commission, fee or other compensation. Shoeinvest will indemnify and hold the
Company harmless against any liability or expense arising out of, or in
connection with, any such right or claim.
SECTION 8.5. TAXES AND FILING OF TAX RETURNS. Shoeinvest has filed
all Tax returns required to have been filed by it or has legally extended
such returns and has paid all Taxes shown to be due and payable on such
returns, including interest and penalties, and all other Taxes which are
payable by Shoeinvest. Shoeinvest does not know of any proposed Tax
assessment against Shoeinvest and all Tax liabilities of Shoeinvest are
adequately provided for and no Tax liability of Shoeinvest has been asserted
by the Internal Revenue Service or any other Governmental Authority for Taxes
in excess of those already paid.
SECTION 8.6 INTENTIONALLY OMITTED.
ARTICLE IX
COVENANTS
SECTION 9.1. MAINTENANCE OF INSURANCE. The Company will, and will
cause each of its Subsidiaries to, at all times maintain or cause to be
maintained insurance issued by insurers of recognized responsibility covering
such risks and in such amounts as are customary in the case of companies of
established reputation engaged in the same or similar business and similarly
situated.
SECTION 9.2. PAYMENT OF TAXES AND CLAIMS. The Company will, and will
cause each of its Subsidiaries to, pay when due (a) all Taxes imposed upon it
or its respective assets and, with respect to its respective franchises,
business, income or profits, pay such Taxes before any material penalty or
interest accrues thereon, and (b) all material claims (including, without
limitation, claims for labor, services, materials and supplies) for sums
which have become due and payable; PROVIDED, however, no payment of Taxes or
claims shall be required if (i) the amount, applicability or validity thereof
is being contested in good faith by appropriate action promptly initiated and
diligently conducted in accordance with good business practices and no
material part of the property or assets of each holder of Securities is the
subject of any pending levy or execution, and (ii) the Company has notified
each holder of Securities of such circumstances in reasonable detail.
SECTION 9.3. COMPLIANCE WITH LAWS AND DOCUMENTS. The Company will,
and will cause each
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of its Subsidiaries to, comply with the provisions of (a) all Laws, (b) its
Charter Documents, and (c) every Material Agreement to which the Company or
any of its Subsidiaries is a party or by which the Company's or any of its
Subsidiaries' properties are bound.
SECTION 9.4. OPERATION OF PROPERTIES AND EQUIPMENT. The Company
will, and will cause each of its Subsidiaries to, at all times, maintain,
preserve and keep all operating equipment used or useful in the operation of
their respective businesses in proper repair, working order and condition,
and make all necessary or appropriate repairs, renewals, replacements,
additions and improvements thereto so that the efficiency of such equipment
shall at all times be properly preserved and maintained; PROVIDED, that, no
item of operating equipment need be so repaired, renewed, replaced, added to
or improved, if the Company shall in good faith determine that such action is
not necessary or desirable for the continued efficient and profitable
operation of the Company's and its Subsidiaries' businesses.
SECTION 9.5. ADDITIONAL DOCUMENTS. The Company will, and will cause
each of its Subsidiaries to, cure promptly any defects in the creation and
issuance of the Securities, and the execution and delivery of this Agreement
and the other Transaction Documents, and, at the Company's sole expense,
promptly and duly execute and deliver, and cause each of its Subsidiaries to
promptly execute and deliver, to the holders of the Securities, upon
reasonable request, all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and
agreements of the Company and each of its Subsidiaries in this Agreement and
the other Transaction Documents, all as may be reasonably necessary or
appropriate in connection therewith.
SECTION 9.6. MAINTENANCE OF BOOKS AND RECORDS. The Company will, and
will cause each of its Subsidiaries to, maintain proper books of record and
account in which true and correct entries in conformity with GAAP shall be
made on a timely basis of all dealings and transactions in relation to the
Company's and its Subsidiaries' businesses and activities.
SECTION 9.7. ENVIRONMENTAL MATTERS.
(a) The Company will, and will cause each of its Subsidiaries to,
comply with all Environmental Law and Laws applicable to their respective
properties and operations, including, without limitation, all Hazardous
Substances transportation, storage, disposal, remediation and similar
requirements of applicable Environmental Law and Laws.
(b) Notwithstanding any other provision contained within this
Agreement or the other Transaction Documents, the Company shall immediately
orally notify each holder of Securities of any Hazardous Discharge or the
receipt of any Environmental Complaint relating to any property or assets
owned by the Company or any of its Subsidiaries or affecting any properties
or assets owned or leased by other Persons and shall furnish each holder of
Securities with written notice of such Hazardous Discharge or Environmental
Complaint within five (5) days of the oral notification.
SECTION 9.8 ACCESS TO INFORMATION. The Company will (and will cause
each of its Subsidiaries to) afford Shoeinvest and its representatives
(including without limitation directors, officers and employees
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of Shoeinvest and its Affiliates, and counsel, accountants and other
professionals retained by Shoeinvest) such access, during normal business hours
throughout the period to the Closing Date, to the Company's books, records
(including without limitation Tax returns and non-restricted work papers of the
Company's independent auditors), properties, personnel and to such other
information as Shoeinvest may reasonably request and will permit Shoeinvest to
make such inspections as Shoeinvest may reasonably request and will cause the
officers of the Company and those of its Subsidiaries to furnish Shoeinvest with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its Subsidiaries as
Shoeinvest may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by the Company in this Agreement.
Shoeinvest will afford the Company and its representatives (including without
limitation directors, officers and employees of the Company and its Affiliates,
and counsel, accountants and other professionals retained by the Company) such
access, during normal business hours throughout the period to the Closing Date,
to Shoeinvest's books, records (including without limitation Tax returns and
non-restricted workpapers of Shoeinvest's independent auditors), properties,
personnel and to such other information as the Company may reasonably request
and will permit the Company to make such inspections as the Company may
reasonably request and will cause the officers of Shoeinvest to furnish the
Company with such financial and operating data and other information with
respect to the business, properties and personnel of Shoeinvest as the Company
may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by Shoeinvest in this Agreement.
SECTION 9.9 CONDUCT OF THE BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement or to the extent that Shoeinvest shall otherwise
consent in writing, during the period from the date of this Agreement to the
Closing, the Company will conduct its operations only in, and the Company will
not take any action except in the ordinary course of business and the Company
will use all reasonable efforts to preserve intact in all material respects its
business organizations, assets, prospects and advantageous business
relationships, to keep available the services of its officers and key employees
and to maintain satisfactory relationships with its licensors, licensees,
suppliers, contractors, distributors, customers and others having advantageous
business relationships with it. Without limiting the generality of the
foregoing, except as contemplated by this Agreement, the Company will not,
without the prior written consent of Shoeinvest:
(a) amend its Charter Documents;
(b) split, combine or reclassify any shares of its capital
stock, declare, pay or set aside for payment any dividend or other distribution
in respect of its capital stock, or directly or indirectly, redeem, purchase or
otherwise acquire any shares of its capital stock or other securities;
(c) authorize for issuance, issue, sell or deliver or agree or
commit to issue, sell, or deliver (whether through the issuance or granting of
any options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any of its capital stock or any securities convertible into or
exercisable or exchangeable for shares of its capital stock, except the Company
may, effective as of Closing, amend its Amended and Restated 1995 Stock Option
and Stock Appreciation Rights Plan to provide that options granted to optionees
prior to the date of this Agreement may be exercised for a one (1) year period
from the
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following dates: (i) the date of termination of an optionee whose employment
with the Company is terminated without cause by the Company during the six (6)
month period commencing with Closing, (ii) the date of termination of an
optionee's employment whose employment with Company is terminated by employee
with "Good Reason" as defined in such employee's written employment agreement,
or, (iii) from the date of resignation of a director of the Company who resigns
at Closing; provided, that the form of any such amendment to such plan be
approved in writing by Shoeinvest.
(d) incur any material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual or
entity, or change any assumption underlying, or methods of calculating, any bad
debt, contingency or other reserve;
(e) enter into, adopt, or amend any employment agreement or
Pension Plan, or grant, or become obligated to grant, any increase in the
compensation payable or to become payable to any of its officers or directors or
any general increase in the compensation payable or to become payable to its
employees.
(f) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer, or purchase of properties or assets
of any Person;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against on the Company Financial Statements or
subsequently incurred in the ordinary course of business, or disclosed pursuant
to this Agreement;
(h) acquire (including by lease) any material assets or properties
or dispose of, mortgage or encumber any material assets or properties, other
than in the ordinary course of business;
(i) waive, release, grant or transfer any material rights or
modify or change in any material respect any material existing license, lease,
contract or other document, other than in the ordinary course of business and
consistent with past practice; or
(j) take any action or agree, in writing or otherwise, to take any
of the foregoing actions or any action which would at any time make any
representation or warranty in Article VII untrue or incorrect.
SECTION 9.10 INTENTIONALLY OMITTED.
SECTION 9.11 INTENTIONALLY OMITTED.
ARTICLE X
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DEFAULTS; TERMINATION
SECTION 10.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively, "EVENTS OF DEFAULT" and individually, an "EVENT OF DEFAULT")
shall have occurred and be continuing:
(a) the Company shall fail to pay when due any principal or
interest on the Note;
(5) the Company shall fail to pay when due any fees, expenses,
reimbursements, indemnification payments or other monetary
obligations when due under any of the Transaction Documents
and such failure shall continue for ten (10) days following
the due date of such payment;
(6) the Company or any of its Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its
Debts under any bankruptcy, insolvency or other similar Law
now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail
generally to pay its Debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(7) an involuntary case or other proceeding shall be commenced
against the Company or any of its Subsidiaries seeking
liquidation, reorganization or other relief with respect to it
or its Debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or
an order for relief shall be entered against the Company under
the federal bankruptcy Laws as now or hereafter in effect;
then, so long as any such event is continuing, any Noteholder shall
without notice or demand of any kind (including, without limitation, notice of
intention to accelerate and acceleration) (unless any such notice is expressly
provided for herein or in the other Transaction Documents), all of which are
hereby waived, take any and all actions as may be permitted by the Transaction
Documents including, declaring the obligations in respect of the Note owned by
such Noteholder (including all accrued interest thereon) to be, and such
obligations shall thereupon become, immediately due and payable.
SECTION 10.2 TERMINATION. This Agreement may be terminated, whether
before or after approval of this Agreement by the stockholders of the Company,
at any time prior to the Closing:
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(a) By mutual written consent of Shoeinvest and the Company;
(b) By Shoeinvest if (i) there has been a breach of the
representations and warranties made by the Company in this
Agreement or (ii) the Company has failed to comply in any
material respect with any of its covenants or agreements
contained in this Agreement and such failure has not been, or
cannot be, cured within a reasonable time after notice and
demand for cure thereof;
(c) By the Company if (i) there has been a breach of the
representations and warranties made by Shoeinvest in this
Agreement or (ii) Shoeinvest has failed to comply in any
material respect with any of the its covenants or agreements
contained in this Agreement and such failure has not been, or
cannot be, cured within a reasonable time after notice and
demand for cure thereof;
SECTION 10.3. EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or Shoeinvest pursuant to the provisions of SECTION 10.2,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of any party hereto or its respective Affiliates,
directors, officers, or stockholders, except pursuant to, the provisions of
Section 11.3; provided, however, that a termination of this Agreement shall not
relieve any party hereto from any liability for damages incurred as a result of
a breach by such party of its representations, warranties, covenants, agreements
or other obligations hereunder occurring prior to such termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex, telecopy
or similar writing) and shall be given to such party at its address, telex or
telecopy number set forth on the signature pages hereof or such other address,
telex or telecopy number as such party may hereafter specify for the purpose by
notice to the other party. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, when such telex or
telecopy is transmitted to the telex or telecopy number specified in this
SECTION 11.1 and the appropriate answer back is received or receipt is otherwise
confirmed, (ii) if given by mail, three (3) Business Days after deposit in the
mails with first class postage prepaid, addressed as aforesaid, or (iii) if
given by any other means, when delivered at the address specified in this
SECTION 11.1.
SECTION 11.2. NO WAIVERS. No failure or delay by any holder of
Securities in exercising any right, power or privilege hereunder or under any
other Transaction Document shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law or in any of the other Transaction Documents.
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SECTION 11.3. EXPENSES; INDEMNIFICATION. (a) Except as provided in
SECTION 6.1(f), all expenses incurred in connection with this Agreement shall be
paid by the party incurring such expenses.
(b) The Company agrees to indemnify and hold harmless, Shoeinvest,
its shareholders and each subsequent holder of Securities and their respective
directors, officers, employees, agents, successors and assigns (collectively,
the "INDEMNIFIED PARTIES") from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, the
reasonable fees and disbursements of counsel for the Indemnified Parties in
connection with any investigative, administrative or judicial proceeding,
whether or not any such Indemnified Party shall be designated a party thereto)
which may be incurred by any Indemnified Party relating to or arising out of
(a) this Agreement, the other Transaction Documents, the Closing Transactions
and all other transactions contemplated hereby or thereby.
(c) The Company further agrees to defend, indemnify and hold
harmless each Indemnified Party from and against any and all losses, liabilities
(including strict liability), damages (including for bodily injury and property
damage), costs, expenses (including attorneys' fees and environmental
consultants' expenses), relating to any of the properties or assets securing the
Obligations, that any Indemnified Party may incur in connection with any
Environmental Complaint or Hazardous Discharge or any violation of any
Environmental Law and Laws regardless of whether or not caused by, or within the
control of, the Company, or any of its Subsidiaries as tenant, sub-tenant or
prior owner or occupant of any of the properties or assets securing the
Obligations or any properties owned or leased by other parties, and regardless
of whether such claim is brought by Governmental Authorities or private parties.
This indemnity shall survive the repayment of the Obligations and the discharge
or release of any Lien granted hereunder or in any other Transaction Document.
(d) (i) Promptly after receipt by an Indemnified Party of notice
of the commencement of any action, suit or other proceeding against an
Indemnified Party with respect to which an Indemnified Party demands
indemnification hereunder, such Indemnified Party shall promptly notify the
Company in writing of the commencement thereof, provided that the failure to so
notify the Company shall not relieve it from any liability that it may have to
an Indemnified Party, except to the extent that such failure has materially
prejudiced the Company's ability to provide a defense in the proceeding. The
Company shall have the right to assume the defense of any such proceeding, but
the Indemnified Parties collectively shall have the right, at the expense of the
Company, to retain not more than one counsel of their choice to represent the
Indemnified Parties in such proceeding. The counsel for the Indemnified Parties
may participate in, but not control, the defense of such proceeding.
(ii) The indemnity provided for herein shall cover the amount
of any settlements entered into by an Indemnified Party in connection with any
claim for which an Indemnified Party may be indemnified hereunder; provided
that, no settlement binding on an Indemnified Party may be made without the
consent of an Indemnified Party and the Company (which consent shall not be
reasonably withheld).
(iii) Any indemnification hereunder shall be made no later than 45 days
after receipt by the Company of the written request of the Indemnified Party.
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THE PARTIES RECOGNIZE THAT AN INDEMNITEE MAY BE ENTITLED TO
INDEMNIFICATION HEREUNDER FROM ACTS OR OMISSIONS THAT ARISE OUT OF OR RESULT
FROM THE ORDINARY, STRICT, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNITEE.
(e) Shoeinvest hereby covenants and agrees with the Company that
Shoeinvest shall indemnify the Company and hold it harmless from, against and in
respect of any and all costs, losses, claims, liabilities, fines, penalties,
damages and expenses (including interest which may be imposed in connection
therewith and court costs and reasonable fees and disbursements of counsel)
incurred by it resulting from any misrepresentation, breach of warranty or
nonfulfillment of any agreement, covenant or obligation by Shoeinvest made in
this Agreement (including without limitation any certificate or instrument
delivered in connection herewith.
SECTION 11.4. AMENDMENTS AND WAIVERS; SALE OF INTEREST. Any provision
of this Agreement and the other Transaction Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and (a) the Majority Noteholder and (b) the Majority Warrant Holder. The
Company hereby consents to any participation, sale, assignment, transfer or
other disposition which complies with ARTICLE V, at any time or times hereafter,
of any Securities, this Agreement and any of the other Transaction Documents, or
of any portion hereof or thereof, including, without limitation, Shoeinvest's
rights, title, interests, remedies, powers, and duties hereunder or thereunder,
subject to compliance with applicable Laws and the provisions of the Compass
Senior Debt Documents subject to the requirement that any such assignee,
transferee or purchaser shall agree in writing to become bound by the terms of
this Agreement and the other Transaction Documents.
SECTION 11.5. SURVIVAL. All representations, warranties and covenants
made by the Company herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by Shoeinvest and shall survive the delivery to Shoeinvest
of such Transaction Documents and the purchase of the Securities, regardless of
any investigation made by or on behalf of Shoeinvest. All representations,
warranties and covenants made by Shoeinvest herein or in any certificate or
other instrument delivered by it or in its behalf under the Transaction
Documents shall be considered to have been relied upon by the Company and shall
survive the delivery to the Company of such Transaction Documents and the
purchase of the Securities, regardless of any investigation made by or on behalf
of the Company.
SECTION 11.6. LIMITATION ON INTEREST. Regardless of any provision
contained in the Transaction Documents, no Noteholder shall ever be entitled to
receive, collect, or apply, as interest on the Note, any amount in excess of the
Maximum Lawful Rate, and in the event any Noteholder ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Note is paid in full, any remaining excess shall promptly be
paid to the Company. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Lawful Rate, the Company and
the Noteholder shall, to the extent permitted under applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate and spread, in equal parts, the total amount of
the interest
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throughout the entire contemplated term of the Note, so that the interest rate
is the Maximum Lawful Rate throughout the entire term of the Note; PROVIDED,
HOWEVER, that, if the unpaid principal balance thereof is paid and performed in
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Lawful
Rate, the Noteholder shall refund to the Company the amount of such excess and,
in such event, the Noteholder shall not be subject to any penalties provided by
any Laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Lawful Rate.
SECTION 11.7. INVALID PROVISIONS. If any provision of the Transaction
Documents is held to be illegal, invalid, or unenforceable under present or
future Laws effective during the term thereof, such provision shall be fully
severable, the Transaction Documents shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part thereof,
and the remaining provisions thereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of the
Transaction Documents a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 11.8. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign or
otherwise transfer any of its rights or obligations under this Agreement.
SECTION 11.9. GOVERNING LAW. THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS.
SECTION 11.10. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 11.11. NO THIRD PARTY BENEFICIARIES. Except as provided in
SECTION 11.3, it is expressly intended that there shall be no third party
beneficiaries of the covenants, agreements, representations or warranties herein
contained other than transferees or assignees of all or any part of Shoeinvest's
interest hereunder.
SECTION 11.12. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
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SECTION 11.13. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE.
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY Shoeinvest WITH RESPECT TO THIS
AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS
OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE FEDERAL COURTS LOCATED IN THE
NORTHERN DISTRICT OF TEXAS, AS SHOEINVEST MAY SELECT IN ITS SOLE DISCRETION. THE
COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE
PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING. THE COMPANY HEREBY IRREVOCABLY
WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF
TEXAS, COUNTY OF DALLAS, AND HEREBY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT
FORUM.
SECTION 11.14. WAIVER OF RIGHT TO TRIAL BY JURY. SHOEINVEST AND THE
COMPANY EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, ANY TRANSACTION
DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO
THIS AGREEMENT. SHOEINVEST AND THE COMPANY EACH AGREE THAT THE OTHER MAY FILE A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 11.15. PUBLIC ANNOUNCEMENTS. Except as may be required by
applicable Law or this Section, Shoeinvest shall not issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the
Company (which consent shall not be unreasonably withheld). Any such press
release or public statement required by applicable Law shall only be made after
reasonable notice to the other party. Upon execution of this Agreement, the
Company shall make a press release in a form previously approved by Shoeinvest
and promptly file a report on Form 8-K with the Commission.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective Authorized Officers on the day and year first above
written.
COMPANY:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ John J. Bassett
--------------------------
Name: John J. Bassett
--------------------------
Title: President
--------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
SHOEINVEST II, LP
By: Alvin V. Shoemaker Investments, Inc.
---------------------------------------
Its General Partner
By: /s/ Peter Shoemaker
------------------------
Name: Peter Shoemaker
------------------------
Title: Executive Vice President
------------------------
Address for Notice:
Shoeinvest II, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
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EXHIBIT A
SENIOR SUBORDINATE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO A VALID EXEMPTION COVERING SUCH
TRANSFER.
$100,000 Dallas, Texas , 1999
----------------
FOR VALUE RECEIVED, the undersigned, MIDDLE BAY OIL COMPANY, INC, an
Alabama corporation ("MAKER" or the "COMPANY") hereby promises to pay to the
order of SHOEINVEST II, LP, a New Jersey limited partnership ("PAYEE"), not
later than 2:00 P.M. (Dallas, Texas time), on the date when due, in Federal or
other funds immediately available in Dallas, Texas, at Payee's offices at
60 Brushhill Road, Kinnelon, NJ 07405 or such other address, given to Maker by
Payee, the principal sum of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000),
together with interest, as hereinafter described. Whenever any payment of
principal of, or interest on, this Note shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day. If the date for payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Securities Purchase Agreement
dated of even date herewith, by and between Maker and Payee (the "AGREEMENT").
This Note is the "Note" referred to in the Agreement. Unless otherwise defined
herein or unless the context hereof otherwise requires, each term used herein
with its initial letter capitalized has the meaning given to such term in the
Agreement.
This Note shall rank senior in right of payment to all Company notes
and indebtedness other than the Compass Senior Debt. This Note shall rank pari
passu with the 3TEC Note and that certain Senior Subordinate $50,000 Promissory
Note dated of even date herewith payable to the order of Shoemaker Family
Partners, LP, a New Jersey limited partnership, without any preference or
priority one over another.
Maker reserves the right to prepay without premium or penalty, after
thirty (30) days prior written notice to the Noteholder, the principal amount of
the Note, in whole or in part, at any time after _______________, 2001.
Maker promises to pay interest on the outstanding principal balance
hereof, prior to the occurrence of an Event of Default, at a rate per annum
equal to the lesser of (a) the Fixed Rate or (b) the Maximum Lawful Rate, in
Federal or other funds immediately available in Dallas, Texas, at the offices of
Payee above referenced. Interest shall accrue on the principal balance of the
Note outstanding from time to time at the Fixed Rate; PROVIDED, that, interest
shall accrue on any amounts past due and owing on the Note from the date due
until paid at the Default Rate; PROVIDED FURTHER, that in no event shall the
rate of interest charged hereunder exceed the Maximum Lawful Rate. Interest
shall be payable on the Note as it accrues on December 1, 1999 and continuing on
each March 1, June 1, September 1, and December 1 thereafter until maturity.
Whenever any payment of principal of, or interest on, the Note shall be due on a
day which is not a Business Day, the date for payment thereof shall be extended
to the next succeeding Business Day.
<PAGE>
With respect to the first eight (8) quarterly interest payments payable
hereunder commencing with the first such quarterly interest payment, the Company
may, at least thirty (30) days prior to the subject payment date, elect to
accrue and add to the principal of the Note up to fifty percent (50%) of the
interest payment due and payable on such interest payment date. If such an
election is made, the Company shall notify the Noteholder of the portion (up to
50%) of such quarterly interest payment which the Company elects to accrue and
add to the principal of the Note.
Interest shall be computed on the Note on the basis of the number of
actual days elapsed, assuming that each calendar year consisted of 360 days. The
entire outstanding principal balance of this Note and all accrued but unpaid
interest thereon shall be due and payable in full in a single installment on
___________________, 2004.
A Noteholder may elect to convert all or any portion of the amount of
principal and accrued but unpaid interest on the Note as hereinafter provided.
Each $3.00 (the "Conversion Price") of principal and accrued but unpaid interest
on the Note shall be convertible into one share of Common Stock. The Conversion
Price is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below:
1. In the event that the Company shall (a) declare a dividend
on the Common Stock in shares of its capital stock (whether
shares of such Common Stock or of capital stock of any
other class of the Company), (b) split or subdivide the
outstanding Common Stock, or (c) combine the outstanding
Common Stock into a smaller number of shares, then (as a
result of an event described in (a), (b) or (c)) the
Conversion Price shall be adjusted to equal the product of
the Conversion Price in effect immediately prior to such
event multiplied by a fraction the numerator of which is
equal to the number of shares of Common Stock outstanding
on a Fully Diluted Basis (as defined below) immediately
after the event and the denominator of which is equal to
the number of shares of Common Stock outstanding on a Fully
Diluted Basis immediately prior to such event.
[Remainder of this page intentionally blank]
<PAGE>
2. In the event that the Company shall (a) issue any shares of
Common Stock without consideration or at a price per share
less than the Conversion Price immediately prior to such
issuance, or (b) issue options, rights or warrants to
subscribe for or purchase such Common Stock (or securities
convertible into such Common Stock) without consideration
or at a price per share (or having a conversion price per
share, if a security convertible into such Common Stock)
less than the Conversion Price, then, effective upon such
issuance, the Conversion Price shall be adjusted to equal
the product obtained by multiplying the Conversion Price in
effect immediately prior to the date of such issuance by a
fraction, the numerator of which shall be the number of
shares of Common Stock outstanding on a Fully Diluted Basis
immediately prior to such issuance PLUS the number of
shares of Common Stock which the aggregate offering price
of the total number of shares of such Common Stock so
to be issued or to be offered for subscription or purchase
(or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at
the Conversion Price immediately prior to such issuance,
and the denominator of which shall be the number of shares
of Common Stock outstanding on a Fully Diluted Basis
immediately after such issuance. In case such consideration
may be paid in a consideration part or all of which shall
be in a form other than cash, the value of such
consideration shall be as determined by an investment
banking firm reasonably acceptable to the Noteholder (the
cost of the engagement of said investment banking firm to
be borne by the Company). Shares of such Common Stock owned
by or held for the account of the Company or any Subsidiary
thereof shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made
successively whenever the date of such issuance is fixed
(which date of issuance shall be the record date for such
issuance if a record date therefor is fixed); and, in the
event that such shares or options, rights or warrants are
not so issued, the Conversion Price shall again be adjusted
to be the Conversion Price if the date of such issuance had
not been fixed.
3. In case the Company shall make a distribution to all
holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which
the Company is the surviving corporation) of shares of it
stock, evidences of its indebtedness, assets, or rights,
options or warrants (other than those referred to in
paragraph 2 above) to subscribe for or purchase such
shares, evidences of indebtedness, or assets, then,
effective upon such distribution, the Conversion Price
shall be adjusted to equal the product obtained by
multiplying the Conversion Price in effect immediately
prior to the date of such distribution by a fraction, the
numerator of which shall be the Per Share Stock Price for
the trading day immediately preceding the day of
distribution ("Pre-Distribution Price") less the fair
market value of the distribution (as determined in good
faith by the Board of Directors of the Company) applicable
to one share of Common Stock, and the denominator of which
shall be the Pre-Distribution Price. Such adjustment shall
be made successively whenever a date for such distribution
is fixed (which date of distribution shall be the record
date for such issuance if a record date therefor is fixed);
and, if such distribution is not so made, the
<PAGE>
Conversion Price shall again be adjusted to be to be the
Conversion Price if the date of such issuance had not been
fixed.
4. No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or
decrease of at least one-tenth of one percent (.1%) in the
total number of shares of Common Stock that would be issued
as a result of the conversion of all the Note; PROVIDED
that any adjustments which by reason of this section are
not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations
under this section shall be made to the nearest hundredth
of one percent.
5. In the event of any capital reorganization of the Company,
or of any reclassification of any Common Stock for which
the Note is convertible (other than a subdivision or
combination of outstanding shares of such Common Stock), or
in case of the consolidation of the Company with or the
merger of the Company with or into any other corporation or
of the sale of the properties and assets of the Company as,
or substantially as, an entirety to any other entity, each
$3.00 of principal and unpaid interest outstanding of the
Note shall after such capital reorganization,
reclassification of such Common Stock, consolidation,
merger or sale be convertible, upon the terms and
conditions specified in this Agreement, into the number of
shares of stock or other securities or assets to which a
holder of the number of shares of Common Stock into which
amount of principal and interest payable under the Note is
convertible (at the time of such capital reorganization,
reclassification of such Common Stock, consolidation,
merger or sale) would have been entitled upon such capital
reorganization, reclassification of such Common Stock,
consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this section with
respect to the rights thereafter of such Note shall be
appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable upon the
conversion of the Note. The Company shall not effect any
such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such
assets or the appropriate corporation or entity shall
assume, by written instrument, the obligation to deliver to
the Noteholder the shares of stock, securities or assets to
which, in accordance with the foregoing provisions, such
Noteholder may be entitled pursuant to this section.
6. If any question shall at any time arise with respect to the
Conversion Price or the number of shares issuable upon
conversion of the Note, such question shall be determined
by the independent firm of certified public accountants of
recognized national standing selected by the Noteholder and
acceptable to the Company.
7. Notwithstanding anything in this section to the contrary,
the Company shall not be permitted to take any action
described in this section, if such action is
<PAGE>
prohibited under any other provision of this Note or the
Agreement.
If a Noteholder elects to convert all or a portion of the outstanding
principal and accrued and unpaid interest under the Note, then the Noteholder
shall deliver the Note to the Company in exchange for an amended and restated
note setting forth the new amount of principal and accrued and unpaid interest.
Upon such exchange, the Company shall promptly issue and deliver, or cause to be
issued and delivered, to the Noteholder a certificate or certificates for the
number of whole shares of Common Stock to which the Noteholder is entitled under
the terms hereof. To the extent permitted by law, such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such exchange of the Notes for the amended and restated note and Conversion
Shares, and the Noteholder shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
No fractional shares or script of Common Stock shall be issued upon
conversion of all or a portion of the outstanding principal and accrued unpaid
interest of the outstanding principal and accrued unpaid interest under the
Note. In lieu of a fractional share of Common Stock to which the holder would
otherwise be entitled, the Company shall pay cash equal to the product of such
fraction multiplied by the market value of one share of Common Stock on the date
of conversion.
Upon the occurrence and during the continuance of an Event of Default,
and upon the conditions stated in the Agreement, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided that, upon the occurrence of certain
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice, demand, or presentment, all of
which are hereby waived, and the holder hereof shall have the right to offset
against this Note any sum or sums owed by the holder hereof to Maker. After the
occurrence of an Event of Default, interest shall accrue on the outstanding
principal balance of this Note and, to the extent permitted by applicable Law,
on accrued but unpaid interest, at the lesser of (a) the Default Rate or (b) the
Maximum Lawful Rate.
After the occurrence of an Event of Default, all amounts collected or
received by any Noteholder in respect of the Obligations shall be applied first,
to the payment of all proper costs incurred by the Noteholder in connection with
the collection thereof (including reasonable fees, expenses and disbursements of
counsel for the Noteholder), second, to the reimbursement of any advances made
by Noteholder to effect performance of any unperformed covenants of the Company
under any of the Transaction Documents, third, to the payment of all accrued
interest on the Note, fourth, to unpaid principal on the Note, and fifth to the
Company or any other Person entitled to such proceeds under applicable Law.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay the court
costs, reasonable attorneys' fees, and other costs of collection of the holder
hereof.
Maker, and each surety, endorser, guarantor, and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, protest, notice of protest
and nonpayment, and notice of acceleration and the intention to accelerate, and
agree that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Note, and hereby consent
<PAGE>
to any and all renewals, extensions, indulgences, releases, or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.
THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------
Name: John J. Bassett
Title: President
<PAGE>
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as of
________________, 1999, is entered into by and among MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation ("Corporation") and the parties listed on Schedule
1 attached hereto and incorporated herein by reference (each of such parties are
referred to individually as "Shareholder" and collectively, as "Shareholders")
and the parties listed on Schedule 2 attached hereto and incorporated herein by
reference (each of such parties are referred to individually as "Piggy-Back
Shareholder" and collectively, as "Piggy-Back Shareholders").
RECITALS
WHEREAS, pursuant to those
Securities Purchase Agreements by and between Corporation and each of the
Shareholders executed on ______________, 1999 (the "Purchase Agreements"), each
Shareholder will receive the number of shares of Common Stock, Notes and
Warrants as set forth on Schedule 1.
WHEREAS, each of the Piggy-Back
Shareholders currently owns shares of Common Stock as set forth on Schedule 2.
WHEREAS, as a condition to the
Purchase Agreements, Corporation has agreed to grant to Shareholders certain
registration rights with respect to their Registrable Securities (defined
hereafter) and has agreed to grant the Piggy-Back Shareholders certain
registration rights with respect to their Piggy-Back Registrable Securities
(defined hereafter).
WHEREAS, all the terms used but not
defined in this Agreement shall have the meaning ascribed to them in the
Purchase Agreements.
NOW, THEREFORE, in consideration of
the mutual promises contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. DEFINITIONS.
For purposes of this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 1 or in the recitals above or the subsections referred to below.
"Piggy-Back Registrable Securities"
shall mean (i) the shares of Common Stock owned by each Piggy-Back Shareholder
as listed on Schedule 2 (ii) the shares of Common Stock owned by each Piggy-Back
Shareholder during the term of this Agreement as a result of the conversion of
the shares of the Company's Series B Convertible Preferred Shares as listed on
Schedule 2, and (iii) any securities issued or issuable with respect to the
shares described in clauses (i) and (ii) above by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
"Registrable Securities" shall mean
(i) the shares of Common Stock issued to the Shareholders pursuant to the
Purchase Agreements (which, for purposes hereof, shall mean
<PAGE>
the Common Stock Shares, the Warrant Shares and the Conversion Shares as defined
in the Purchase Agreements) and (ii) any securities issued or issuable with
respect to the shares described in clause (i) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
Section 2. INDEPENDENT REGISTRATION RIGHTS.
2.1 The Corporation hereby grants to
each Shareholder separate rights to require the Corporation to use its best
efforts to cause registration and sale in a public offering of all or a portion
of such Shareholder's Registrable Securities in accordance with this Section 2;
provided, however, the Corporation shall not have any obligation to effect more
than a total of three (3) effective registrations pursuant to this Section 2 at
the Corporation's expense. If the Corporation shall have received a written
request submitted by Shareholder(s) owning at least a majority of the
Registrable Securities outstanding at the time of such request (the "Requisite
Holders") that such Shareholder(s) desires/desire to sell Registrable Securities
and specifying the number of Registrable Securities proposed to be sold (for the
purposes of this Section 2, "Shares") and the proposed plan for distribution of
the Shares, Corporation will thereafter:
2.1.1 Give prompt (but in any event
within fifteen (15) days after the receipt of the Requisite Holder(s)' notice)
notice to all other Shareholders of such notice and of such other Shareholders'
rights to have their Registrable Securities included in such registration.
2.1.2 Upon the request of any such
Shareholder made within fifteen (15) days after the receipt by such Shareholder
of any such notice given pursuant to subsection 2.1.1 (which request shall
specify the Registrable Securities intended to be disposed of by such
Shareholder and the intended method or methods of disposition thereof), the
Corporation will use its best efforts to effect the registration of all Shares
which the Corporation has been so requested to register pursuant to this
subsection 2.1.
2.1.3 Prepare and file as soon as
practicable, but in no event later than thirty (30) days from Corporation's
receipt of the last Shareholder's request to have such Shareholder's Registrable
Securities included in such registration within the time period specified in
Section 2.1.2, a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") ("Registration Statement") with the Securities
Exchange Commission ("Commission") on Form S-1 (or Form S-2 or Form S-3, if
Corporation is entitled to use such forms, or similar forms available for use by
small business issuers) and use its best efforts to cause such Registration
Statement to become effective in order that the Shareholders may sell the Shares
in accordance with the proposed plan of distribution.
2.1.4 Prepare and file with the
Commission such amendment and supplements to such Registration Statement and
prospectus used in connection therewith including any preliminary prospectus or
supplemental or amended prospectus (the "Prospectus") as may be necessary to
keep such Registration Statement continuously effective and to comply with the
provisions of the Securities Act with respect to the offer of the Shares during
the period required for distribution of the Shares, which period shall not be in
excess of the earlier of (i) one year from the effective date of such
Registration Statement, and (ii) the distribution of all Shares covered by such
Registration Statement.
2.1.5 Furnish to each Shareholder
such number of copies of the Prospectus (including any preliminary prospectus or
supplemental or amended prospectus ) as such Shareholder may reasonably request
in order to facilitate the sale and distribution of the Shares.
2.2 The right of each Shareholder to register
Shares
<PAGE>
pursuant to the provisions of this Section 2 shall be subject to the
condition that if a request for registration is made within sixty (60) days
prior to the conclusion of Corporation's then current fiscal year,
Corporation shall have the right to delay the filing of the Registration
Statement for such period of time until Corporation receives its audited
financial statements for such fiscal year.
2.3 If the Requisite Holder(s) intend/intends
to distribute the Registrable Securities covered by the notice pursuant to
subsection 2.1 by means of an underwriting, the Requisite Holder(s) shall so
advise the Corporation as a part of the notice made pursuant to subsection 2.1
and provide the name of the managing underwriter or underwriters that the
Requisite Holder(s) proposes/propose to employ in connection with the public
offering proposed to be made pursuant to the registration requested. If the
managing underwriter of such underwritten offering shall inform the Corporation
and the Shareholders requesting that their Shares be registered pursuant to this
Section 2 by letter of its belief that the amount of Shares requested to be
included in such registration exceeds the amount which can be sold in (or during
the time of) such offering within a price range acceptable to the Requisite
Holders, then the Corporation will include in such registration such amount of
Shares which the Corporation is so advised can be sold in (or during the time
of) such offering PRO RATA on the basis of the amount of such Shares so proposed
to be sold and so requested to be included by such parties.
2.4 A registration shall not be deemed to have
been effected (i) unless it has become effective and remained effective for the
period specified in subsection 2.1.4, (ii) if, after it has become effective,
such registration is terminated by a stop order, injunction or other order of
the Commission or other governmental agency or court, or (iii) if the conditions
to closing specified in any purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied for any reason,
other than as a result of the voluntary termination of such offering by the
Requisite Holders.
Section 3. PIGGY-BACK REGISTRATION RIGHTS.
3.1 If Corporation proposes to file, on its
behalf, a Registration Statement under the Securities Act on Form S-1, S-2 or
S-3 or similar forms available for use by small business issuers, other than
pursuant to Section 2 of this Agreement or in connection with a dividend
reinvestment, employee stock purchase, option or similar plan or in connection
with a merger, consolidation or reorganization, Corporation shall give written
notice to each Shareholder and Piggy-Back Shareholder at least thirty (30) days
before the filing with the Commission of such Registration Statement. Such
notice shall offer to include in such filing all or a portion of the Registrable
Securities and Piggy-Back Registrable Securities owned by such Shareholder or
Piggy-Back Shareholder. If a Shareholder or Piggy-Back Shareholder desires to
include all or a portion of its Registrable Securities or Piggy-Back Registrable
Securities in such Registration Statement, it shall give written notice to
Corporation within fifteen (15) days after the date of mailing of such offer
specifying the amount of Registrable Securities and/or Piggy-Back Registrable
Securities to be registered (for the purpose of this Section 3, "Shares").
Corporation shall thereupon include in such filing the Shares, subject to
priorities in registration set forth in this Agreement, and subject to its right
to withdraw such filing, and shall use its best efforts to effect registration
under the Securities Act of the Shares.
3.2 The right of the Shareholders and the
Piggy-Back Shareholders to have the Shares included in any Registration
Statement in accordance with the provisions of this Section 3 shall be subject
to the following conditions:
3.2.1 Corporation shall have the
right to require that each Shareholder or Piggy-Back Shareholder agree to
refrain from offering or selling any shares of Common Stock that it owns which
are not included in any such Registration Statement in accordance with this
Section 3 for any reasonable time period specified, not to exceed ninety (90)
days, by any managing underwriter of the offering to which
<PAGE>
such Registration Statement relates.
3.2.2 If (i) a registration pursuant
to this Section 3 involves an underwritten offering of the securities being
registered to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms appropriate
for such a transaction and (ii) the managing underwriter of such underwritten
offering shall inform the Corporation and the Shareholders and Piggy-Back
Shareholders who have requested that their Shares be registered pursuant to this
Section 3 by letter of its belief that the amount of Shares requested to be
included in such registration exceeds the amount which can be sold in (or during
the time of) such offering within a price range acceptable to a majority of such
requesting holders, then the Corporation will include in such registration such
amount of securities which the Corporation is so advised can be sold in (or
during the time of) such offering as follows: FIRST, the securities being
offered by the Corporation for its own account; SECOND such Shares of the
Shareholders which are requested to be included in such registration PRO RATA on
the basis of the amount of such Shares so proposed to be sold and so requested
to be included by such Shareholders; and THIRD, such Shares of the Piggy-Back
Shareholders and which are requested to be included in such registration
PRO RATA on the basis of the amount of such Shares so proposed to be sold and so
requested to be included by such Piggy-Back Shareholders.
3.2.3 Corporation shall furnish each
Shareholder and Piggy-Back Shareholder with such number of copies of the
Prospectus as such Shareholder or Piggy-Back Shareholder may reasonably request
in order to facilitate the sale and distribution of its shares.
3.3 Notwithstanding the foregoing, Corporation
in its sole discretion may determine not to file the Registration Statement or
proceed with the offering as to which the notice specified herein is given
without liability to the Shareholders or the Piggy-Back Shareholders.
Section 4. PARTICIPATION IN UNDERWRITTEN
REGISTRATIONS. No Shareholder or Piggy-Back Shareholder may participate in any
registration hereunder which relates to an underwritten offering unless such
Shareholder or Piggy-Back Shareholder (a) agrees to sell such holder's
securities on the basis provided in any underwriting arrangements approved by
the holders of at least a majority of the Registrable Securities and Piggy-Back
Registrable Securities to be included in such registration, or by a Person
appointed by such holders to act on their behalf to approve such arrangements,
and (b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
Section 5. EXCLUSIVE REGISTRATION RIGHTS AND
TRANSFER.
The rights of each Shareholder under
this Agreement may upon notice to the Corporation be transferred to its
respective Affiliates in combination with a transfer of shares to such
Affiliates. In addition, the rights of each Shareholder under this Agreement may
upon notice to the Corporation be transferred to a non-Affiliate transferee in
combination with a transfer of shares to such non-Affiliate transferee. However,
such non-Affiliate transferee may not thereafter transfer its rights under this
Agreement without the Corporation's written consent. Except as provided in this
Section 5, the rights granted under this Agreement are granted specifically to
and for the benefit of each Shareholder and Piggy Back Shareholder and shall not
pass to any transferee of Registrable Securities. From and after the date of
this Agreement, the Corporation will not, without the prior written consent of
Shareholders holding at least a majority of the Registrable Securities then
outstanding, enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the Shareholders in this
Agreement. Without limiting the foregoing, the Corporation also specifically
agrees that during the period commencing on the date hereof and ending when the
Shareholders have disposed of all of their Registrable Securities,
<PAGE>
the Corporation will not enter into an agreement with any party pertaining to
the registration by the Corporation of such party's Common Stock. The
Corporation represents and warrants to each of the Shareholders that, as of the
date hereof, the Corporation is not a party to any agreement, other than this
Agreement, pertaining to the registration by the Corporation of Common Stock.
Section 6. EXPENSES. Corporation will bear all
the expenses in connection with any Registration Statement under this Agreement,
other than transfer taxes payable on the sale of such shares, the fees and
expenses of counsel to the Shareholders and Piggy-Back Shareholders and fees and
commissions of brokers, dealers and underwriters.
Section 7. RECALL OF PROSPECTUSES, ETC. With
respect to a Registration Statement or amendment thereto filed pursuant to this
Agreement, if, at any time, Corporation notifies the Shareholders and Piggy-Back
Shareholders that an amendment or supplement to such Registration Statement or
amendment to the Prospectus included therein is necessary or appropriate, each
Shareholder and Piggy-Back Shareholder will forthwith cease selling and
distributing shares thereunder and will forthwith redeliver to Corporation all
copies of such Registration Statement and Prospectuses then in its possession or
under its control. Corporation will use its best efforts to cause any such
amendment or supplement to become effective as soon as practicable and will
furnish each Shareholder and Piggy-Back Shareholder with a reasonable number of
copies of such amended or supplemented prospectus (and the period during which
Corporation is required to use its best efforts to maintain such Registration
Statement in effect pursuant to this Agreement will be increased by the period
from the date on which such Shareholder or Piggy-Back Shareholder ceased selling
and distributing shares thereunder to the date on which such amendment or
supplement becomes effective).
Section 8. COOPERATION WITH EXISTING
SHAREHOLDERS. Corporation shall be entitled to require the Shareholders and
Piggy-Back Shareholders to cooperate with Corporation in connection with a
registration of Registrable Securities pursuant to this Agreement and furnish
(i) such information as may be required by Corporation or the Commission in
connection therewith and (ii) such representations, undertakings and agreements
as may be required by the Commission in connection therewith.
Section 9. REGISTRATION PROCEDURE Upon the
receipt of a request for registration of any Registrable Securities pursuant to
Section 2 or Section 3 of this Agreement, Corporation will use its best efforts
to effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto Corporation will as
expeditiously as possible:
9.1.1 Prepare and file with the Commission a
registration statement on an appropriate form under the Securities Act 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, including documents incorporated by reference
after the initial filing of any registration statement, Corporation will
promptly furnish to the holders of Registrable Securities and Piggy-Back
Registrable Securities to be registered and sold pursuant to this Agreement (the
"Registered Holders") and the underwriters, if any, copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Registered Holders and the underwriters, and Corporation will not file any
registration statement or amendment thereto, or any prospectus or any supplement
thereto (including such documents incorporated by reference) to which the
Registered Holders or the underwriters, if any, shall reasonably object in the
light of the requirements of the Securities Act and any other applicable laws
and regulations.
9.1.2 Prepare and file with the Commission such
<PAGE>
amendments and post-effective amendments to a registration statement as may be
necessary to keep such registration statement effective for the applicable
period; cause the related prospectus to be filed pursuant to Rule 424(b) (or any
successor provision) under the Securities Act; cause such prospectus to be
supplemented by any required prospectus supplement and, as so supplemented, to
be filed pursuant to Rule 424(b) (or any successor provision) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during the applicable period in accordance with the intended methods
of disposition set forth in such registration statement or supplement to such
prospectus.
9.1.3 Notify the Registered Holders and the
managing underwriters, if any, promptly, and (if requested by any such person)
confirm such advice in writing, (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and, with respect to a
registration statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission for amendments or supplements
to a registration statement or related prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceeding
for that purpose, (iv) if at any time the representations and warranties of
Corporation contemplated by subsection 9.1.10 cease to be true and correct,
(v) of the receipt by Corporation of any notification with respect to the
suspension or qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (vi) of the
happening of any event which requires the making of any changes in a
registration statement or related prospectus so that such documents will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (vii) of Corporation's reasonable determination that a
post-effective amendment to a registration statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such registration statement inadvisable pending such
disclosures and post-effective amendment.
9.1.4 Make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment.
9.1.5 If requested by the managing underwriters
or the Registered Holders in connection with an underwritten offering,
immediately incorporate in a prospectus supplement or post effective amendment
such information as the managing underwriters and the Registered Holders agree
should be included therein relating to such sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of shares of Registrable Securities being sold to such underwriters and
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering of
the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any registration
statement if requested by the Registered Holders or any underwriter of such
Registrable Securities.
9.1.6 Furnish to the Registered Holders and
each managing underwriter, if any, without charge, at least one signed copy of
the registration statement, any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference).
9.1.7 Deliver without charge to the Registered
Holders and the underwriters, if any, as many copies of the prospectus or
prospectuses (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request; and Corporation
consents to the use of such prospectus or any amendment or supplement thereto by
such Registered Holders and the underwriters, if any, in connection with the
offer and sale of the Registrable Securities covered by such prospectus or any
amendment or supplement thereto.
<PAGE>
9.1.8 Prior to any public offering of
Registrable Securities, register or qualify or cooperate with the Registered
Holders, the underwriters, if any, and respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the Registered
Holders or an underwriter reasonably requests in writing; keep each such
registration or qualification effective during the period such registration
statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the applicable registration statement;
PROVIDED, HOWEVER, that Corporation will not be required in connection therewith
or as a condition thereto to qualify generally to do business or subject itself
to general service of process in any such jurisdiction where it is not then so
subject.
9.1.9 Upon the occurrence of any event
contemplated by subsection 9.1.3 (ii) - (vii) above, prepare, to the extent
required, a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchaser of the Registrable Securities being sold thereunder,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading.
9.1.10 Enter into such agreements (including an
underwriting agreement) and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the Registrable Securities to be covered by such
registration are to be offered in an underwritten offering: (i) make such
representations and warranties to the Registered Holders to the registration
statement, prospectus and documents incorporated by reference, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested; (ii) obtain
opinions of counsel to Corporation and updates thereof with respect to the
registration statement and the prospectus in the form, scope and substance which
are customarily delivered in underwritten offerings; (iii) in the case of an
underwritten offering, enter into an underwriting agreement in form, scope and
substance as is customary in underwritten offerings and obtain opinions of
counsel to Corporation and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters and the Registered Holders) addressed to the Registered Holders and
the underwriters, if any, covering the matters customarily covered in opinions
delivered in underwritten offerings and such other matters as may be reasonably
requested by the Registered Holders and such underwriters; (iv) obtain "cold
comfort" letters and updates thereof from Corporation's independent certified
public accountants addressed to the Registered Holders and the underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by accountants in connection with
underwritten offerings; (v) if any underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures
customarily included in underwriting agreements in underwritten offerings; and
(vi) Corporation shall deliver such documents and certificates as may be
requested by the Registered Holders and the managing underwriters, if any, to
evidence compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
Corporation. The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder.
9.1.11 Make available for inspection by a
representative of the Registered Holders, any underwriter participating in any
disposition pursuant to such registration, and any attorney or accountant
retained by the Registered Holders or such underwriter, all financial and other
records, pertinent corporate documents and properties of Corporation, and cause
Corporation's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such registration; provided that any records,
information or documents that are designated by Corporation in writing as
confidential shall be kept confidential by such Persons unless disclosures of
such records, information or documents is required by court or administrative
order.
<PAGE>
9.1.12 Otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission and make generally
available to its security holders earning statements satisfying the provisions
of Section 11(a) of the Securities Act, no later than 90 days after the end of
any 12-month period (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm or best efforts
underwritten offering and (ii) beginning with the first day of Corporation's
first fiscal quarter next succeeding each sale of Registrable Securities after
the effective date of a registration statement, which statements shall cover
said 12-month periods.
9.1.13 If Corporation, in the exercise of its
reasonable judgment, objects to any change reasonably requested by the
Registered Holders or the underwriters, if any, to any registration statement or
prospectus or any amendments or supplements thereto (including documents
incorporated or to be incorporated therein by reference) as provided for in this
Section 9, Corporation shall not be obligated to make any such change and such
Registered Holders may withdraw their Registrable Securities from such
registration, in which event (i) Corporation shall pay all registration expenses
(including its counsel fees and expenses) incurred in connection with such
registration statement or amendment thereto or prospectus or supplement thereto,
and (ii) in the case of a registration being effected pursuant to Section 2,
such registration shall not count as one of the registrations Corporation is
obligated to effect pursuant to Section 2 hereof.
Section 10. INDEMNIFICATION.
10.1 In the event of any registration of any
securities under the Securities Act pursuant to this Agreement, Corporation will
indemnify and hold harmless each Shareholder, each Piggy-Back Shareholder, any
underwriter and each other Person, if any, who controls such Shareholder,
Piggy-Back Shareholder or underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
each such Shareholder, Piggy-Back Shareholder or any underwriter may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or action in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in such Registration Statement or preliminary prospectus (if used
prior to the effective date of such Registration Statement) or final or summary
prospectus contained therein (if used during the period the Corporation is
required to keep the Registration Statement effective), or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
each such Shareholder, Piggy-Back Shareholder or underwriter for any legal or
any other expenses as reasonably incurred by such person in connection with
investigating or defending any such action or claim, excluding any amounts paid
in settlement of any litigation, commenced or threatened, if such settlement is
effected without prior written consent of Corporation; provided, however, that
Corporation will not be liable to the Shareholders, Piggy-Back Shareholders or
an underwriter in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
omission or alleged omission made in said Registration Statement, said
preliminary prospectus or said final or summary prospectus or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to Corporation by that Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives, or by that underwriter, as the case
may be, specifically for use in the preparation thereof; and provided further
that the indemnity agreement contained in this Section 10 with respect to any
preliminary prospectus shall not inure to the benefit of the Shareholders,
Piggy-Back Shareholders or any underwriter or to any Person selling the same in
respect of any loss, claim, damage, liability or action asserted by someone who
purchased shares from such person if a copy of the final prospectus (as the same
may be amended or supplemented) in connection with such registration statement
was not sent or given to such person with or prior to written confirmation of
the sale and if the untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus was
corrected in the final prospectus.
<PAGE>
10.2 In the event of any registration of
securities under the Securities Act pursuant to this Agreement, each Shareholder
and Piggy-Back Shareholder will indemnify and hold harmless Corporation, each of
its directors and officers, any underwriter and each other Person, if any, who
controls Corporation or underwriter within the meaning of the Securities Acts,
against any losses, claims, damages or liabilities, joint or several, to which
Corporation or any such director, officer, underwriter may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement or preliminary prospectus or final or summary
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, and will reimburse Corporation, each such director,
officer, underwriter for any legal or any other expenses as reasonably incurred
by them in connection with investigating or defending any such action or claim,
excluding any amounts paid in settlement of any litigation, commenced or
threatened, if such settlement is effected without prior written consent of the
indemnifying Shareholder, Piggy-Back Shareholder or their respective
representative; but in all cases only if, and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission therein
made in reliance upon and in conformity with written information furnished to
Corporation by the indemnifying Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives specifically for use in the preparation
thereof. Notwithstanding the foregoing, the amount of the indemnity provided by
each such Shareholder or Piggy-Back Shareholder pursuant to this Section 10
shall not exceed the net proceeds received by such Shareholder or Piggy-Back
Shareholder in such related registration and sale.
10.3 Promptly after receipt by a party entitled
to indemnification under subsection 10.1 or 10.2 hereof of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under either of such
subsections, notify the indemnifying party in writing of the commencement
thereof. In case any such action is brought against the indemnified party and it
shall so notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it so chooses, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party that it so chooses, such indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, provided, however, that if the indemnifying
party fails to take reasonable steps necessary to diligently defend such claim
within twenty (20) days after receiving notice from the indemnified party that
the indemnified party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the indemnifying
party shall be liable for any expenses therefor. The indemnity agreements in
this Section 10 shall be in addition to any liabilities which the indemnifying
parties may have pursuant to law.
10.4 If the indemnification provided for in
this Section 10 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 10 hereof,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
<PAGE>
The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 10 were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
Section 11. SALES UNDER RULE 144. With a view
to making available to each Shareholder and Piggy-Back Shareholder the benefits
of Rule 144 promulgated under the Securities Act and any other similar rule or
regulation of the Commission that may at any time permit such Shareholder or
Piggy-Back Shareholder to sell the Registrable Securities without registration,
Corporation agrees to:
(a) make and keep public information
available, as those terms are understood and defined in Rule 144 (or any
successor provision);
(b) file with the Commission in a timely
manner all reports and other documents required of Corporation under the
Securities Act and the Exchange Act;
(c) furnish to such Shareholder or
Piggy-Back Shareholder forthwith upon request (i) a written statement by
Corporation that it has complied with the reporting requirements of Rule 144 (or
any successor provision), the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of Corporation and such other
reports and documents so filed by Corporation under the Securities Act and the
Exchange Act and (iii) such other information as may be reasonably requested by
such Shareholder or Piggy-Back Shareholder in availing itself of any rule or
regulation of the Commission which permits the selling of any such securities
without registration; and
(d) after any sale of Registrable
Securities pursuant to Rule 144, to the extent allowed by law, to cause any
restrictive legends to be removed and any transfer restrictions to be rescinded
with respect to such Registration Securities.
Section 12. REMOVAL OF LEGEND. The Corporation
agrees, to the extent allowed by law, to remove any legends on certificates
representing Registrable Securities or Piggy-Back Registrable Securities
describing transfer restrictions applicable to such securities upon the sale of
such securities (i) pursuant to an effective Registration Statement under the
Securities Act or (ii) in accordance with the provisions of Rule 144 under the
Securities Act.
Section 13. NOTICES. Any notice to be given by
any party hereunder to any other shall be in writing, mailed by certified or
registered mail, return receipt requested, and shall be addressed to the other
parties at the addresses listed on the signature pages hereof. All such notices
shall be deemed to be given three (3) days after the date of mailing thereof.
Section 14. MODIFICATION. Notwithstanding
anything to the contrary in this Agreement or otherwise, no modification,
amendment or waiver of any of the provisions of this Agreement shall be
effective unless in writing and signed by the Corporation and the Shareholders
holding not less than 95% of the Registrable Securities then outstanding.
<PAGE>
Section 15. NON-WAIVER. The failure to enforce
at any time any of the provisions of this Agreement, or to require at any time
performance by any other party of any of the provisions hereof, shall in no way
be construed to be a waiver of such provisions.
Section 16. PARTIAL INVALIDITY. If any clause,
sentence, paragraph, section or part of this Agreement shall be deemed invalid,
unenforceable or against public policy, the part which is invalid, unenforceable
or contrary to public policy shall not affect, impair, invalidate or nullify the
remainder of this Agreement, but the invalidity, unenforceability or
contrariness to public policy shall be confined only to the clause, sentence,
paragraph, section or party of this Agreement so invalidated, unenforceable or
against public policy.
Section 17. CONSTRUCTION. The language in all
parts of this Agreement shall in all cases be construed simply, according to its
fair meaning, and shall not be construed strictly for or against either of the
parties hereto.
Section 18. GOVERNING LAW. This Agreement shall
be governed and construed according to the laws of the State of Alabama, without
regard to its conflicts of law principles.
Section 19. COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall constitute an original
and all of which together shall constitute but one and the same instrument.
Section 20. SUCCESSORS AND ASSIGNS. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and permitted assigns.
Section 21. SPECIFIC PERFORMANCE. The parties
agree that, to the extent permitted by law, (i) the obligations imposed on them
in this Agreement are special, unique and of an extraordinary character, and
that in the event of a breach of any such party damages would not be an adequate
remedy and (ii) the other party shall be entitled to specific performance and
injunctive and equitable relief in addition to any other remedy to which it may
be entitled at law or in equity.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above written.
"CORPORATION"
MIDDLE BAY OIL COMPANY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
"SHAREHOLDERS"
3TEC ENERGY CORPORATION
By:
----------------------------------
Name: Floyd C. Wilson
--------------------------------
Title: President
-------------------------------
Address for Notice:
3TEC Energy Corporation
5910 N. Central Expressway
Suite 1150
Dallas, TX 75206
Fax: (214) 373-9731
<PAGE>
SHOEMAKER FAMILY PARTNERS, LP
By:
--------------------
Its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notice:
Shoemaker Family Partners, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
SHOEINVEST II, LP
By:
--------------------
Its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notice:
Shoeinvest II, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
"PIGGY-BACK SHAREHOLDERS"
KAISER-FRANCIS OIL COMPANY
By:
----------------------------
Name:
--------------------------
<PAGE>
Title:
-------------------------
Address for Notice:
Kaiser-Francis Oil Company
6733 South Yale
Tulsa, OK 74136
Fax: (918) 491-4694
-------------------------------
C.J. LETT, III
Address for Notice:
C.J. Lett, III
9320 East Central
Wichita, Kansas 67206
Fax: (316) 636-1803
<PAGE>
WESKIDS, L.P.
By: Weskids, Inc.
Its General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for Notice:
Weskids, L.P.
310 South Street
Morristown, NJ 07960
Fax: (973) 682-2684
----------------------------------------
ALVIN V. SHOEMAKER
Address for Notice:
Alvin V. Shoemaker
8800 First Avenue
Stone Harbor, NJ 08247
Fax: (609) 368-0147
<PAGE>
SCHEDULE 1
<TABLE>
<S> <C>
3TEC Energy Corporation 4,775,556 shares of Common Stock
Warrants exercisable for
3,600,000 shares of
Common Stock
$10,700,000 Note (which
is convertible to
Conversion Shares)
Shoemaker Family Partners, LP
22,222 shares of Common
Stock
Warrants exercisable for
16,822 shares of Common
Stock
$50,000 Note (which is
convertible to Conversion
Shares)
Shoeinvest II, LP 44,444 shares of Common Stock
Warrants exercisable for
33,644 shares of Common
Stock $100,000 Note (which
is convertible to
Conversion Shares)
</TABLE>
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
PIGGY-BACK SHAREHOLDER NUMBER OF SHARES OF
COMMON STOCK HELD
SERIES B CONVERTIBLE IMMEDIATELY PRIOR TO
PREFERRED SHARES HELD CLOSING
<C> <S> <C>
Kaiser-Francis Oil Company 3,333,334
0
C.J. Lett, III 1,187,556
0
Weskids, L.P. 843,687
117,467
Alvin V. Shoemaker 684,222
117,466
</TABLE>
<PAGE>
EXHIBIT "C"
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT D
FORM OF WARRANT CERTIFICATE
---------------------------
THE OFFER AND SALE OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND
THE SECURITIES ISSUABLE UPON AN EXERCISE OF SUCH WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT COVERING SUCH SALE OR TRANSFER OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT. THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES
ISSUABLE UPON AN EXERCISE OF SUCH WARRANTS ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS SET FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE COMPANY, CERTAIN
OF ITS SHAREHOLDERS AND SHOEINVEST ENERGY CORPORATION, DATED AS OF
_____________, 1999, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT
THE COMPANY'S PRINCIPAL PLACE OF BUSINESS.
No. W-1 _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate ("WARRANT CERTIFICATE") certifies that
Shoeinvest II, LP, a New Jersey limited partnership ("HOLDER"), or registered
assigns, is the registered holder of ( ) Warrants
("WARRANTS") to purchase Common Stock of MIDDLE BAY OIL COMPANY, INC. an
Alabama corporation (the "COMPANY"). Each Warrant entitles the holder, subject
to the conditions set forth herein and in the Securities Purchase Agreement
referred to below, to purchase from the Company before 5:00 P.M., Dallas,
Texas time, five (5) years following the Closing Date (as defined in the
Securities Purchase Agreement) (the "EXPIRATION DATE"), one fully paid and
nonassessable share of the Common Stock of the Company (the "WARRANT SHARES")
at a price (the "WARRANT EXERCISE PRICE") of $1.00 per Warrant Share, subject
to adjustment as provided in SECTION 4.2 of the Securities Purchase Agreement,
payable in lawful money of the United States of America (or, subject to the
terms of SECTION 4.1 of the Securities Purchase Agreement, by offsetting the
principal balance of the Note, upon surrender of this Warrant Certificate,
execution of the form of Election to Purchase on the reverse hereof, and
payment of the Warrant Exercise Price (in lawful money of the United States of
America or by offsetting the principal balance of the Note) to the Company,
at its offices located at 1221 Lamar Street, Suite 1020, Houston, Texas 77010,
or at such other address as the Company may specify in writing to the registered
holder of the Warrants evidenced hereby (the "WARRANT OFFICE"). The Warrant
Exercise Price and number of Warrant Shares purchasable upon exercise of the
Warrants are subject to adjustment prior to the Expiration Date upon the
occurrence of certain events as set forth in SECTION 4.2 of the Securities
Purchase Agreement.
The Company may deem and treat the registered holder(s) of the
Warrants evidenced hereby as the absolute owner(s) thereof (notwithstanding
any notation of ownership or other writing hereon made by
<PAGE>
anyone), for the purpose of any exercise hereof and of any distribution to
the holder(s) hereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
Warrant Certificates, when surrendered at the office of the Company
at the above-mentioned address by the registered holder hereof in person or
by a legal representative duly authorized in writing, may be exchanged, in
the manner and subject to the limitations provided in the Securities Purchase
Agreement, but without payment of any service charge, for another Warrant
Certificate or Warrant Certificates of like tenor evidencing in the aggregate
a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company at the above-mentioned address and
subject to the conditions set forth on this Certificate and in SECTION 4.2 of
the Securities Purchase Agreement, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Securities Purchase Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred
to in the Securities Purchase Agreement, dated as of ____________, 1999,
between the Company and Holder. Said Securities Purchase Agreement is hereby
incorporated by referenced in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its corporate
seal to be affixed hereunto.
MIDDLE BAY OIL COMPANY, INC.
By:
Name: JOHN J. BASSETT
Title: PRESIDENT
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ Warrant Shares
and herewith / / tenders payment for such Warrant Shares to the order of the
Company in the amount of $_______ in accordance with the terms hereof, or
represents and warrants to the Company that the undersigned is the legal and
beneficial owner of the Warrant Shares and hereby advises the Company that
the undersigned has offset the principal balance of the Note in the amount of
$__________ in payment for the Warrant Shares. The undersigned requests that
a certificate for such Warrant Shares be registered in the name of
___________ whose address is ________ _____________ and that such certificate
be delivered to __________ whose address is ____________________. If said
number of Warrant Shares is less than all of the Warrant Shares purchased
hereunder, the undersigned requests that a new Warrant Certificate be
registered in the name of ______________ whose address is ______________ and
that such Warrant Certificate is to be delivered to _______________ whose
address is __________________.
SIGNATURE:
-----------------------------
(Signature must conform in all respects
to name as specified on the face of
the Warrant Certificate.)
Date:
----------------------------
<PAGE>
EXHIBIT "E"
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this ___ day of
________, 1999 (the "Effective Date"), by and between MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation (hereinafter referred to as the "Company") and
FLOYD C. WILSON (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, the Company is engaged in the oil and gas business;
WHEREAS, the Company desires to employ Employee as President and
Chief Executive Officer of the Company and Employee desires to be employed by
the Company in that capacity; and
WHEREAS, the Company and Employee desire to set forth in writing
the terms and conditions of their agreements and understandings;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, agree as follows:
1. TERM OF EMPLOYMENT. The Company shall employ Employee in the
capacity set forth herein for a term commencing on the Effective Date and
ending on November 25, 2000 (the "Employment Period"). Within the period
commencing one hundred twenty (120) days prior to the end of the Employment
Period, the Employee and the Company shall review the terms of this
Employment Agreement in light of the circumstances existing at that time and,
if the parties in good faith deem it necessary or advisable, agree to extend
the term of this Employment Agreement or negotiate and enter into a new
employment agreement. Notwithstanding the foregoing, Employee's employment
hereunder may be terminated earlier in accordance with the provisions of
Section 8 hereof.
2. RESPONSIBILITIES OF EMPLOYEE.
(a) In accepting employment by the Company, Employee shall
undertake and assume the responsibility of performing for and on behalf of
the Company any and all duties of the Chief Executive Officer and President
as set forth in the Company's Bylaws, as they may be amended from time to
time, and shall have such other duties, functions, responsibilities and
authority commensurate with such offices from time to time delegated to the
Employee by the Board of Directors provided that such duties, functions,
responsibilities and authority are customarily associated with the position
of President and Chief Executive Officer.
(b) Employee agrees to devote his full time and effort to his
duties as an employee of the Company. Employee may devote a reasonable amount
of his time to civic and community affairs, and subject to the provisions of
Section 7, to the business and financial interests described on EXHIBIT A
attached hereto; provided that such other activities do not materially
interfere with the performance of Employee's responsibility as President and
Chief Executive Officer; and provided further that no additional outside
business activities shall be undertaken without the prior written consent of
the Board of Directors.
3. COMPENSATION. As compensation for the services to be rendered
by Employee for the Company under this Agreement, Employee shall be entitled
to the following:
<PAGE>
(a) The Company shall pay Employee during the Employment Period
an annual salary of not less than Two Hundred Thousand Dollars ($200,000).
The amount of such annual salary may be amended by the Company's Board of
Directors (the "Board") from time to time (but in no event shall such annual
salary be less than Two Hundred Thousand Dollars ($200,000)). Such annual
salary shall be payable periodically for such periods as may be established
by the Company for payment of its employees under its normal payroll
practices.
(b) Employee may receive a bonus and fringe benefits each year in
amounts to be determined by the Board. Such bonus may, in the discretion of
the Board, be based, in part, upon the Company meeting certain financial
goals, which goals may be agreed upon by the Board and Employee.
4. EXPENSES. Employee shall be reimbursed for all reasonable
business expenses incurred by him in connection with or incident to the
performance of his duties and responsibilities hereunder upon the Employee's
submission to the Company of vouchers or expense statements evidencing such
expenses in such form or format as the Company may reasonably require.
5. VACATION AND OTHER BENEFITS.
(a) VACATION. Employee shall be entitled to four (4) weeks of
paid vacation per year during the Employment Period. In addition, Employee
shall be entitled to participate in all other present and future benefit
plans provided by the Company to its employees and for which Employee meets
the eligibility requirements thereof.
(b) MEDICAL INSURANCE. The Company shall provide Employee and his
dependents with medical insurance coverage under the Company's medical
insurance plan, which plan shall be reasonably acceptable to Employee.
6. BUSINESS OPPORTUNITIES AND INTELLECTUAL PROPERTY.
(a) During the period in which Employee is employed by the
Company, Employee shall promptly disclose to the Company all "Business
Opportunities" and "Intellectual Property" (each as defined below).
(b) Employee hereby assigns and agrees to assign to the Company,
its successors, assigns or designees, all of Employee's right, title and
interest in and to all "Business Opportunities" and "Intellectual Property,"
and further acknowledges and agrees that all Business Opportunities and
Intellectual Property constitute the exclusive property of the Company.
(c) For purposes hereof, "Business Opportunities" shall mean all
business ideas, prospects, proposals or other opportunities pertaining to the
lease, acquisition, exploration, production, gathering or marketing of
hydrocarbons and related products and the exploration potential of
geographical areas on which hydrocarbon exploration prospects are located,
which are:
(i) developed by Employee (A) during the period in which
Employee is employed by the Company, or (B) before the period in which
Employee is employed by the Company, but only to the extent of
Employee's rights thereto during such period, or
(ii) originated by any third party and brought to the
attention of Employee (A) during the period in which Employee is
employed by the Company, or (B) before the period in which Employee is
employed by the Company, but only to the extent of Employee's rights
thereto during such period,
together with information relating thereto, including, without limitation,
any "Business Records" (as defined below).
<PAGE>
(d) For purposes hereof "Intellectual Property" shall mean all
ideas, inventions, discoveries, processes, designs, methods, substances,
articles, computer programs and improvements (including, without limitation,
enhancements to, or further interpretation or processing of, information that
was in the possession of Employee prior to the date of this Agreement),
whether or not patentable or copyrightable, which do not fall within the
definition of Business Opportunities, which are discovered, conceived,
invented, created or developed by Employee, alone or with others: (i) during
the period in which Employee is employed by the Company if such discovery,
conception, invention, creation, or development (A) occurs in the course of
the Employee's employment with the Company, or (B) occurs with the use of any
of the Company's time, materials or facilities, or (C) in the opinion of the
Board of Directors of the Company, relates or pertains in any way to the
Company's purposes, activities or affairs, or (ii) before the period in which
Employee is employed by the Company, but only to the extent of Employee's
rights thereto during such period.
7. NON-COMPETITION AND NON-DISCLOSURE; INJUNCTIVE RELIEF. Employee
acknowledges that the services he is to render in the course of his
employment by the Company are of a special and unusual character with unique
value to the Company. In view of the value to the Company of the services of
Employee during the course of his employment by the Company, because of the
Business Opportunities, Intellectual Property and "Confidential Information"
(as defined below) to be obtained by or disclosed to Employee, and as a
inducement to the Company to enter into this Agreement and to pay to Employee
the compensation stated herein, Employee covenants and agrees as follows:
(a) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7,
Employee shall not directly or indirectly be employed by or render advisory,
consulting or other services in connection with any business enterprise or
person that is engaged in leasing, acquiring, exploring, producing, gathering
or marketing hydrocarbons and related products.
(b) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7,
Employee shall not, directly or indirectly, in any capacity (including,
without limitation, as a proprietor, investor, director or officer or in any
other individual or representative capacity), be financially interested in or
engage in any business that is engaged in leasing, acquiring, exploring,
producing, gathering or marketing hydrocarbons and related products; however,
it is specifically agreed between the parties that Employee may continue to
be financially interested in and engage in any business similar to or related
to the Company's business that is described on EXHIBIT A attached hereto,
provided, that such activities do not materially detract from the Employee's
performance of his responsibilities as President and Chief Executive Officer,
provided, further that, nothing contained in this paragraph 7(b) shall
relieve the Employee of his obligations contained in paragraph 7(a) above.
(c) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7,
all investments made by Employee (whether in his own name or in the name of
any family members or made by Employee's controlled affiliates), which relate
to the lease, acquisition, exploration, production, gathering or marketing or
hydrocarbons and related products shall be made solely through the Company;
and Employee will not (directly or indirectly through any family members),
and will not permit any of his controlled affiliates to (i) invest or
otherwise participate alongside the Company in any Business Opportunities, or
(ii) invest or otherwise participate in any business or activity relating to
a Business Opportunity, regardless of whether the Company ultimately
participates in such business or activity.
(d) During the period in which Employee is employed by the
Company and thereafter, Employee will not disclose to any third party or
directly or indirectly make use of, in a way materially detrimental to the
Company, any and all trade secrets and confidential or proprietary
information pertaining to the Company (collectively referred to as
"Confidential Information"). For purposes of this Section 7, it is agreed
that Confidential Information includes, without limitation, any information
heretofore or hereafter acquired, developed or used by the Company relating
to Business Opportunities or Intellectual Property or other geological,
geophysical, economic, financial or management aspects of the business,
operations, properties or prospects of the Company whether oral or in written
form in a "Business Records" (as defined in paragraph 7(g) below).
Notwithstanding the foregoing, no information of the
<PAGE>
Company will be deemed confidential for the purposes of this paragraph 7(d)
if such information is or becomes public knowledge through no act of Employee
or was previously known by Employee prior to entering into this Agreement.
(e) During the Employment Period or the period in which Employee
is employed by the Company, whichever is longer, and for a six-month period
commencing upon the termination of such longer period, unless otherwise
extended pursuant to the terms of this Section 7, Employee may not solicit,
raid, entice or induce, directly or indirectly, any employee (or person who
within the preceding ninety (90) days was an employee) of the Company or any
other person who is under contract with or rendering services to the Company,
to (i) terminate his employment by, or contractual relationship with, the
Company, (ii) refrain from extending or renewing the same (upon the same or
new terms), (iii) refrain from rendering services to or for the Company, (iv)
become employed by or to enter into contractual relations with any persons
other than the Company, or (v) enter into a relationship with a competitor of
the Company; provided that during the six-month period commencing upon the
termination of the Employment Period or the period in which the Employee is
employed by the Company, whichever is longer, nothing in this paragraph 7(e)
shall prohibit Employee from entering into contractual relations to obtain
capital as long as the Board of Directors of the Company in good faith
determines that such relations are not detrimental to the Company.
(f) Employee acknowledges and agrees that the services to be
rendered by him are of a special, unique and extraordinary character and, in
connection with such services, he will have access to Business Opportunities,
Intellectual Property and Confidential Information vital to the Company's
businesses. By reason of this, the Employee consents and agrees that if he
violates any of the provisions of this Section 7, the Company would sustain
irreparable harm and, therefore, in addition to any other remedies which the
Company may have under this Agreement or otherwise, the Company shall be
entitled to an injunction restraining the Employee from committing or
continuing any such violation of this Agreement. Such right to an injunction
shall be cumulative and in addition to, and not in lieu of, any other
remedies to which the Company may show itself justly entitled. Further,
during any period in which the Employee is in breach of the covenants set
forth in this Section 7, the time period of this covenant shall be extended
for an amount of time that the Employee is in breach.
(g) The Employee agrees to promptly deliver to the Company, upon
termination of Employee's employment with the Company, or at any other time
when the Company so requests, all documents relating to the business of the
Company, including, without limitation: all geological and geophysical
reports and related data such as maps, charts, logs, seismographs, seismic
records and other reports and related data, calculations, summaries,
memoranda and opinions relating to the foregoing, production records,
electric logs, core data, pressure data, lease files, well files and records,
land files, abstracts, title opinions, title or curative matters, contract
files, notes, records, drawings, manuals, correspondence, financial and
accounting information, customer lists, statistical data and compilations,
patents, copyrights, trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents relating to
the business of the Company (collectively, the "Business Records"), and all
copies thereof and therefrom. The Employee confirms that all of the Business
Records (and all copies thereof and therefrom) that are required to be
delivered to the Company pursuant to this paragraph 7(g) constitute the
exclusive property of the Company. The obligation of confidentiality set
forth in this Section 7 shall continue notwithstanding the Employee's
delivery of any such documents to the Company. Notwithstanding the foregoing
provisions of this Section 7 or any other provision of this Agreement, the
Employee shall be entitled to retain any written materials which, as shown by
the Employee's records, were in Employee's possession on or prior to the date
hereof, subject to the Company's right to receive a copy of all such
materials.
(h) The representations and covenants contained in this Section 7
on the part of the Employee will be construed as ancillary to and independent
of any other provision of this Agreement, and the existence of any claim or
cause of action of the Employee against the Company or any officer, director,
or shareholder of the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company
of the covenants of the Employee contained in this Section 7. In addition,
the provisions of this Section 7 shall continue to be binding upon the
Employee in accordance with their terms, notwithstanding the termination of
the Employee's
<PAGE>
employment hereunder for any reason.
(i) The parties to this Agreement agree that the limitations
contained in this Section 7 with respect to time, geographical area, and
scope of activity are reasonable. However, if any court shall determine that
the time, geographical area, or scope of activity of any restriction
contained in this Section 7 is unenforceable, it is the intention of the
parties that such restrictive covenants set forth herein shall not thereby be
terminated but shall be deemed amended to the extent required to render it
valid and enforceable.
8. TERMINATION BY THE COMPANY FOR CAUSE.
(a) The Company may terminate Employee's employment under this
Agreement for Cause. The termination shall be evidenced by written notice
thereof to the Employee and shall specify the Cause for termination. For
purposes hereof, the term "Cause" shall mean (i) the inability of Employee,
despite any reasonable accommodation required by law, due to bodily injury or
disease or any other physical or mental incapacity, to perform the services
provided for hereunder for a period of 120 days in the aggregate, within any
given period of 180 consecutive days during the term of this Agreement, in
addition to any statutorily required leave of absence, (ii) conduct of the
Employee that constitutes fraud, dishonesty, theft, or a criminal act
involving moral turpitude, in each case only if it materially affects his
ability to perform the duties and responsibilities of his position or has a
material adverse effect on the Company, (iii) commission of a material act of
fraud against the Company, (iv) embezzlement of funds or misappropriation of
other property by the Employee from the Company; or (v) failure of Employee
to observe or perform his material duties and obligations as an employee of
the Company or a material breach of this Agreement, after thirty (30) days
advance written notice of such failure or breach which has not been cured.
(b) Upon Employee's death or if Employee's employment with the
Company is terminated for Cause, Employee shall be paid his salary through
the month of his death or termination.
9. TERMINATION BY THE COMPANY WITHOUT CAUSE.
(a) The Company may terminate Employee's employment under this
Agreement without Cause. The termination shall be evidenced by written
notice thereof to the Employee and shall specify that the termination
was without Cause.
(b) If Employee's employment with the Company is terminated
without Cause during any period in which Employee is employed by the
Company, Employee shall be entitled to receive, within ten (10) days
of such termination, the amount of compensation Employee would have
earned if his employment had continued through the remainder of the
Employment Period. Notwithstanding the foregoing, if the payment
referred to above is not made within ten (10) days of Employee's
termination, all unpaid amounts shall bear interest at a rate equal
to the New York Prime (as published in the Wall Street Journal) on
the date of such termination.
10. BURDEN AND BENEFIT. This Agreement shall be binding upon, and
shall inure to the benefit of, the Company and Employee, and their respective
heirs, personal and legal representatives, successors and permitted assigns.
11. GOVERNING LAW. It is understood and agreed that the construction
and interpretation of this Agreement shall at all times and in all respects
be governed by the laws of the State of Texas. The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State
of Texas and the federal courts of the United States of America located in
Texas, and appropriate appellate courts therefrom, over any dispute arising
out of or relating to this Agreement or any of the transactions contemplated
hereby, and each party hereby irrevocably agrees that all claims in respect
of such dispute or proceeding may be heard and determined in such courts. The
parties hereby irrevocably
<PAGE>
waive, to the fullest extent permitted by applicable law, any objection which
they may now or hereafter have to the laying of venue of any dispute arising
out of or relating to this Agreement or any of the transactions contemplated
hereby brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to
any other dispute in which a party to this Agreement may become involved.
Each of the parties hereto hereby consents to process being served by any
party to this Agreement in any suit, action, or proceeding of the nature
specified above by the mailing of a copy thereof in the manner specified by
the provisions of Section 13.
12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity and enforceability
of the other provisions.
13. NOTICE. Any notice required to be given shall be sufficient if
it is in writing and sent by certified or registered mail, return receipt
requested, first-class postage prepaid, to his last know residence in the
case of Employee, and to its principal office in the State of Texas in the
case of the Company.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding by and between the Company and Employee with respect to the
employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, not contained herein shall be of any force
or effect. No waiver of any provision of this Agreement shall be valid unless
it is in writing and signed by the party against whom the waiver is sought to
be enforced. No valid waiver of any provision of this Agreement at any time
shall be deemed a waiver of any other provision of this Agreement at such
time or any other time.
15. MODIFICATION. No amendment, alteration or modification to any of
the provisions of this Agreement shall be valid unless made in writing and
signed by both parties.
16. PARAGRAPH HEADINGS. The paragraph headings have been inserted
for convenience only and are not to be considered when construing the
provisions of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement on the day and year first above written.
"COMPANY" "EMPLOYEE"
MIDDLE BAY OIL COMPANY, INC.
------------------------------------
FLOYD C. WILSON
By: ______________________________
Name: ______________________________
Title: ______________________________
<PAGE>
EXHIBIT A
ENERGY RELATED INVESTMENTS
1. Employee owns a 50% interest in Encorp Inc., a privately held energy and
production company which hold oil and gas properties valued at less than $2
million.
2. Employee owns or controls two Kansas corporations FCW Energy Corporation
and FCW Holding Corporation. The assets of these two corporations consist of
a net operating loss and non-operated, non-managed working interests and
overriding royalty interests of nominal value located in Kansas, Oklahoma and
Texas.
3. Employee holds non-operated, non-managed working interests in oil and gas
properties alongside the following entities: (1) RAK Energy Corp.; (2)
Javelin Exploration Company; and (3) JAVEX Inc. Employee is also a limited
partner in certain limited partnerships related to the foregoing entities.
The aggregate value of Employee's working interests and partnership interests
is less than $2 million.
4. Employee owns approximately 2,500,000 shares of common stock of Chesapeake
Energy Corporation (NYSE:CHK).
5. Employee owns shares of capital stock of various publicly-traded energy
and production companies. The aggregate number of shares Employee owns in
each entity does not exceed 1% of the outstanding shares of capital stock of
such entity.
<PAGE>
EXHIBIT "F"
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT G
Purchase Price to be transferred at Closing
Immediately available funds
$200,000
<PAGE>
EXHIBIT H
Securities Purchase Agreement dated July 1, 1999, by and between the
Company and 3TEC
Securities Purchase Agreement of even date herewith by and between
the Company and Shoeinvest II, LP
<PAGE>
Exhibit 10.5
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Agreement") is made and entered
into this 27th day of August, 1999, by and among MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation (the "Company") and the undersigned shareholders
of the Company (the "Shareholders")
RECITALS
WHEREAS, as of the date hereof, there are 13,379,153 issued and
outstanding shares of the Company's common stock, $.02 par value (the "Common
Stock");
WHEREAS, as of the date hereof, the Shareholders collectively own
10,804,355 shares or 80.76% of the issued and outstanding shares of Common
Stock, as follows:
<TABLE>
<CAPTION>
- ------------------------------------- -------------------------------- ---------------------------------------------
SHAREHOLDER SHARES PERCENTAGE
- ------------------------------------- -------------------------------- ---------------------------------------------
<S> <C> <C>
3TEC Energy Corporation 4,755,556 35.55%
- ------------------------------------- -------------------------------- ---------------------------------------------
Kaiser-Francis Oil Company 3,333,334 24.91%
- ------------------------------------- -------------------------------- ---------------------------------------------
C.J. Lett, III 1,187,556 8.88%
- ------------------------------------- -------------------------------- ---------------------------------------------
Weskids, L.P. 843,687 6.31%
- ------------------------------------- -------------------------------- ---------------------------------------------
Alvin V. Shoemaker 684,222 5.11%
- ------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
WHEREAS, Kaiser-Francis Oil Company, C.J. Lett, III, Weskids, L.P.
and Alvin V. Shoemaker are referred to herein collectively as the "Major
Shareholders";
WHEREAS, the Shareholders desire to promote their mutual interests
and interests of the Company by imposing certain restrictions and obligations
upon themselves, the Company and the shares of Common Stock; and
WHEREAS, the execution and delivery of this Shareholders' Agreement
is a condition to the closing of that certain Securities Purchase Agreement
between the Company and 3TEC Energy Corporation dated July 1, 1999 (the
"Purchase Agreement").
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. NOMINATION AND ELECTION OF DIRECTORS. Each of the Shareholders
agrees, so long as it owns such shares, to vote (including the taking of any
action by written consent, as necessary or appropriate) and cause its
Affiliates to vote all shares of Common Stock (and any and all shares of any
other voting class of capital stock of the Company presently or at any future
time owned by the Shareholders) which it is entitled to vote (or control the
voting directly or indirectly) to ensure that the following shall occur:
(a) The Company shall at all times be managed by or under the
direction of the Board of Directors of the Company (the
"Board"), which shall consist of five (5) members.
(b) The Shareholders shall use their best efforts (including
voting the shares owned by them and their
<PAGE>
affiliates, in calling special meetings of the Shareholders and executing and
delivering written consents), to elect five (5) members of the Board,
consisting of the following:
(i) Three (3) members designated by 3TEC Energy Corporation
("3TEC"); and
(ii) Two (2) members designated by the Major Shareholders.
The party designating a director may remove such director, with or without
cause, and designate his or her successor. If the director designated by a
party resigns, dies, becomes incapacitated or is otherwise unable to serve,
the party designating such director may designate his or her successor. All
Shareholders shall vote all shares held by them in favor of the election or
removal of such persons so designated. Action taken by either 3TEC or the
Major Shareholders in designating or removing directors shall be in writing
executed by either 3TEC or the Major Shareholders, as the case may be, and
promptly delivered to the other Shareholders and the Company.
2. ADVISORY MEMBER. As long as the Board of Directors of the Company
shall consist of five (5) members, the Major Shareholders may request that a
non-voting advisory board member be appointed. Upon such request, the Major
Shareholders shall, subject to 3TEC's approval, select the person whom it
desires to have serve as such non-voting advisory board member. Such
non-voting advisory board member shall be permitted but not required to
attend meetings of the Board of Directors.
3. VOTE IN FAVOR OF CHANGE OF STATE OF INCORPORATION. Each of the
Shareholders agrees, so long as it owns such shares, to vote (including the
taking of any action by written consent, as necessary or appropriate) and
cause its Affiliates to vote all shares of Common Stock (and any and all
shares of any other voting class of capital stock of the Company presently or
at any future time owned by the Shareholders) which it is entitled to vote
(or control the voting directly or indirectly) to ensure that, at the request
of 3TEC, to vote their shares of Common Stock in favor of changing the state
of incorporation of the Company from Alabama to another jurisdiction
recommended by the Board of Directors.
4. TERMINATION OF 3TEC'S RIGHT TO ELECT DIRECTORS. 3TEC's right to
designate the directors as provided in paragraph 1(b)(i) above shall
terminate as follows:
(a) if 3TEC's ownership of Common Stock is below 15% of the
Adjusted Outstanding Common Stock, 3TEC shall be entitled to
designate only two (2) members to the Board;
(b) if 3TEC's ownership of Common Stock is below 7 1/2% of the
Adjusted Outstanding Common Stock, 3TEC shall be entitled to
designate only one (1) member to the Board; and
(c) if 3TEC's ownership of Common Stock is below 5% of the
Adjusted Outstanding Common Stock, 3TEC's right to designate
a member to the Board shall terminate.
For purposes hereof, "Adjusted Outstanding Common Stock" shall mean the
number of shares of Common Stock outstanding less any shares of Common Stock
purchased by Kaiser-Francis Oil Company pursuant to its respective Purchase
Agreement.
5. TERMINATION OF MAJOR SHAREHOLDERS' RIGHT TO ELECT DIRECTORS. The
Major Shareholders' right to designate the directors as provided in paragraph
1(b)(ii) above shall terminate as follows:
2
<PAGE>
(a) if the Major Shareholders' ownership of Common Stock is below
7 1/2% of the outstanding Common Stock, the Major Shareholders
shall be entitled to designate only one (1) member to the
Board;
(b) if the Major Shareholders' ownership of Common Stock is below
5% of the outstanding Common Stock, the Major Shareholders'
right to designate a member to the Board shall terminate.
6. REPLACEMENT DIRECTOR. If either 3TEC or the Major Shareholders is
no longer eligible to designate a director or directors to the Board, the
Board shall (i) decrease the size of the Board, (i) leave the vacated seat
empty, or (iii) appoint a replacement to serve until the next of election of
directors by the shareholders of the Company through its normal nominating
procedure, and select a nominee to fill the open seat for election by
shareholders at the next annual meeting.
7. RESTRICTIVE LEGEND. Each certificate evidencing Common Stock
subject hereto shall bear a legend as follows:
"The shares of stock represented by this certificate are,
until sale, subject to a Shareholders' Agreement, dated as of
August 27, 1999, a copy of which is on file in the office of
the Company."
Any certificate evidencing Common Stock subject to this Agreement which is
hereafter issued shall bear the same legend.
8. TERMINATION OF AGREEMENT. This Agreement shall continue until,
and shall terminate immediately upon (a) execution of a written agreement of
termination by the Shareholders and the Company, (b) the adjudication of the
Company as a bankrupt or insolvent by a court of competent jurisdiction, or
(c) each of 3TEC and the Major Stockholders own less than five percent of the
issued and outstanding shares of Common Stock.
9. SHAREHOLDERS' REPRESENTATION AND WARRANTIES. Each Shareholder,
severally, as to itself only, represents and warrants to the Company that (a)
the Shareholder has duly authorized, executed and delivered this Agreement
and this Agreement constitutes a valid and binding agreement, enforceable in
accordance with its terms and neither the execution and delivery of this
Agreement nor the consummation by the Shareholder of the transactions
contemplated hereby will constitute a violation of, a default under, or
conflict with any contract, commitment, agreement, understanding, arrangement
or restriction of any kind to which the Shareholder is a party or by which
the Shareholder is a party or by which the Shareholder is bound; (b)
consummation by the Shareholder of the transactions contemplated hereby will
not violate, or require any consent, approval, or notice under, any provision
of law other than filing on Form 13D that may be required under the
Securities Exchange Act of 1934, as amended; (c) except to the extent
contemplated herein each Shareholder's shares of Common Stock and the
certificates representing same are now and at all times during the term of
this Agreement will be held by the Shareholder, or by a nominee or custodian
for the benefit of the Shareholder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreement or any other
encumbrances whatsoever ("Encumbrances") with respect to the ownership or
voting of such shares of Common Stock or otherwise, other than Encumbrances
created by or arising pursuant to this Agreement; (d) there are no
outstanding options, warrants or rights to purchase or acquire, or proxies,
powers-of-attorney, voting agreements, trust agreements or other agreements
relating to, such shares of Common Stock other than this Agreement and the
Registration Rights Agreement of even date as defined in the Purchase
Agreement; (e) the shares of Stock listed in the second recital paragraph
hereof constitutes all of the Common Stock of each Shareholder owned
beneficially or of record by such Shareholder on the date hereof; and (f) the
Shareholder has the present power and right to vote all of the shares of
Common Stock as contemplated herein.
3
<PAGE>
10. NEGATIVE COVENANTS OF EACH SHAREHOLDER. Except to the extent
contemplated herein or in the Purchase Agreements, each Shareholder hereby
covenants and agrees that such Shareholder will not, and will not agree to,
directly or indirectly, except pursuant to an effective registration
statement or through "brokers" transactions as contemplated by subparagraphs
(f) and (g) and subject to the limitations on amount provided by subparagraph
(e) of Rule 144 under the Securities Act, (a) sell, transfer, assign, cause
to be redeemed or otherwise dispose of any of its shares of Stock or enter
into any contract, option or other agreement or understanding with respect to
the sale, transfer, assignment, redemption or other disposition of its shares
of Stock; (b) grant any proxy, power-of-attorney or other authorization or
interest in or with respect to its shares of Stock pertaining or relating to
the Purchase Agreements or any of the transactions contemplated thereby; or
(c) deposit such Stock into a voting trust or enter into a voting agreement
or arrangement with respect to such Stock, unless and until, in the case of
(a), (b) or (c) above, the Shareholder shall have taken all actions
(including, without limitation, the endorsement of a legend on the
certificates evidencing such Stock) reasonably necessary to ensure that such
Stock shall at all times be subject to all the rights, powers and privileges
granted or conferred, and subject to all the restrictions, covenants and
limitations imposed, by this Agreement and shall have caused, as a condition
to any sale, transfer, pledge or other disposition of any shares of Stock,
any transferee of any of the Stock, unless it is already a signatory to this
Agreement, shall become a signatory to and be bound by the terms of this
Agreement.
11. CERTAIN DEFINED TERMS. Unless otherwise expressly provided
herein, all capitalized terms used herein without definition shall have the
meanings assigned to them in the Purchase Agreement.
12. SUCCESSORS. This Agreement shall be binding upon and shall
operate for the benefit of the Company, its shareholders, and their
respective successors, assigns, executors, administrators and heirs, and it
shall be binding upon any entity to whom any Stock is transferred in accord
with or in violation of the provisions of this Agreement, and the executor or
administrator of such entity.
13. MODIFICATION. Notwithstanding anything to the contrary in this
Agreement or otherwise, no modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed
by all parties hereto. Each Shareholder covenants not to vote any shares of
Stock in favor of any amendment of the articles of incorporation or bylaws of
the Company, if such amendment would materially modify the terms or frustrate
the purpose of this Agreement or the Purchase Agreements, unless the vote on
such amendment is approved unanimously by the parties to this Agreement.
14. NON-WAIVER. The failure to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by any
other party of any of the provisions hereof, shall in no way be constructed
to be a waiver of such provisions.
15. INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws
effective during the term thereof, such provision shall be fully severable,
this Agreement shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part thereof, and the
remaining provisions thereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom.
16. ENTIRE AGREEMENT. This Agreement contains the full understanding
of the parties hereto with respect to the subject matter hereof, and there
are no representations, warranties, agreements or understandings other than
expressly contained herein.
17. NOTICES. Any notice to be given by any party hereunder to any
other shall be in writing, mailed by
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certified or registered mail, return receipt requested, and shall be
addressed to all other parties at the addresses listed on the signature page
hereof. All such notices shall be deemed to be given three (3) days after the
date of mailing thereof.
18. SPECIFIC PERFORMANCE. Each of the Shareholders acknowledges and
agrees that the Company would be damaged irreparably in the event that any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the
Shareholders agrees that the Company shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court having jurisdiction over the parties
hereto and the subject matter hereof, in addition to any other remedy to
which the Company may be entitled at law or in equity.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF ALABAMA.
20. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.
COMPANY:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ John J. Bassett
--------------------------------
Name: John J. Bassett
------------------------------
Title: President
-----------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
3TEC ENERGY CORPORATION
By: /s/ Floyd C. Wilson
--------------------------------
Name: Floyd C. Wilson
------------------------------
Title: President
-----------------------------
Address for Notice:
3TEC Energy Corporation
5910 N. Central Expressway
Suite 1150
Dallas, TX 75206
Fax: (214) 373-9731
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KAISER-FRANCIS OIL COMPANY
By: /s/ Gary R. Christopher
--------------------------------
Name: Gary R. Christopher
------------------------------
Title: Acquisitions Coordinator
-----------------------------
Address for Notice:
Kaiser-Francis Oil Company
6733 South Yale
Tulsa, OK 74136
Fax: (918) 491-4694
/s/ C.J. Lett, III
----------------------------------
C.J. Lett, III
Address for Notice:
C.J. Lett, III
9320 East Central
Wichita, Kansas 67206
Fax: (316) 636-1803
7
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WESKIDS, L.P.
By: Weskids, Inc.
Its General Partner
By: /s/ Christine W. Jenkins
--------------------------------------
Name: Christine W. Jenkins
------------------------------------
Title: Vice President
-----------------------------------
Address for Notice:
Weskids, L.P.
310 South Street
Morristown, NJ 07960
Fax: (973) 682-2684
/s/ Alvin V. Shoemaker
--------------------------------------------------
ALVIN V. SHOEMAKER
Address for Notice:
Alvin V. Shoemaker
8800 First Avenue
Stone Harbor, NJ 08247
Fax: (609) 368-0147
<PAGE>
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as of
August 27, 1999, is entered into by and among MIDDLE BAY OIL COMPANY, INC.,
an Alabama corporation ("Corporation") and the parties listed on Schedule 1
attached hereto and incorporated herein by reference (each of such parties
are referred to individually as "Shareholder" and collectively, as
"Shareholders") and the parties listed on Schedule 2 attached hereto and
incorporated herein by reference (each of such parties are referred to
individually as "Piggy-Back Shareholder" and collectively, as "Piggy-Back
Shareholders").
RECITALS
WHEREAS, pursuant to those Securities Purchase Agreements by and
between Corporation and each of the Shareholders executed on the dates as set
forth on Schedule 1 (the "Purchase Agreements"), each Shareholder will
receive the number of shares of Common Stock, Notes and Warrants as set forth
on Schedule 1.
WHEREAS, each of the Piggy-Back Shareholders currently owns shares
of Common Stock as set forth on Schedule 2.
WHEREAS, as a condition to the Purchase Agreements, Corporation has
agreed to grant to Shareholders certain registration rights with respect to
their Registrable Securities (defined hereafter) and has agreed to grant the
Piggy-Back Shareholders certain registration rights with respect to their
Piggy-Back Registrable Securities (defined hereafter).
WHEREAS, all the terms used but not defined in this Agreement shall
have the meaning ascribed to them in the Purchase Agreements.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the recitals
above or the subsections referred to below.
"Piggy-Back Registrable Securities" shall mean (i) the shares of
Common Stock owned by each Piggy-Back Shareholder as listed on Schedule 2
(ii) the shares of Common Stock owned by each Piggy-Back Shareholder during
the term of this Agreement as a result of the conversion of the shares of the
Company's Series B Convertible Preferred Shares as listed on Schedule 2, and
(iii) any securities issued or issuable with respect to the shares described
in clauses (i) and (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Registrable Securities" shall mean (i) the shares of Common Stock
issued to the Shareholders pursuant to the Purchase Agreements (which, for
purposes hereof, shall mean the Common Stock Shares, the Warrant Shares and
the Conversion Shares as defined in the Purchase Agreements) and (ii) any
securities issued or issuable with respect to the shares described in clause
(i) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
<PAGE>
Section 2. INDEPENDENT REGISTRATION RIGHTS.
2.1 The Corporation hereby grants to each Shareholder separate
rights to require the Corporation to use its best efforts to cause
registration and sale in a public offering of all or a portion of such
Shareholder's Registrable Securities in accordance with this Section 2;
provided, however, the Corporation shall not have any obligation to effect
more than a total of three (3) effective registrations pursuant to this
Section 2 at the Corporation's expense. If the Corporation shall have
received a written request submitted by Shareholder(s) owning at least a
majority of the Registrable Securities outstanding at the time of such
request (the "Requisite Holders") that such Shareholder(s) desires/desire to
sell Registrable Securities and specifying the number of Registrable
Securities proposed to be sold (for the purposes of this Section 2, "Shares")
and the proposed plan for distribution of the Shares, Corporation will
thereafter:
2.1.1 Give prompt (but in any event within fifteen (15)
days after the receipt of the Requisite Holder(s)' notice) notice to all
other Shareholders of such notice and of such other Shareholders' rights to
have their Registrable Securities included in such registration.
2.1.2 Upon the request of any such Shareholder made within
fifteen (15) days after the receipt by such Shareholder of any such notice
given pursuant to subsection 2.1.1 (which request shall specify the
Registrable Securities intended to be disposed of by such Shareholder and the
intended method or methods of disposition thereof), the Corporation will use
its best efforts to effect the registration of all Shares which the
Corporation has been so requested to register pursuant to this subsection 2.1.
2.1.3 Prepare and file as soon as practicable, but in no
event later than thirty (30) days from Corporation's receipt of the last
Shareholder's request to have such Shareholder's Registrable Securities
included in such registration within the time period specified in Section
2.1.2, a registration statement under the Securities Act of 1933, as amended
(the "Securities Act") ("Registration Statement") with the Securities
Exchange Commission ("Commission") on Form S-1 (or Form S-2 or Form S-3, if
Corporation is entitled to use such forms, or similar forms available for use
by small business issuers) and use its best efforts to cause such
Registration Statement to become effective in order that the Shareholders may
sell the Shares in accordance with the proposed plan of distribution.
2.1.4 Prepare and file with the Commission such amendment
and supplements to such Registration Statement and prospectus used in
connection therewith including any preliminary prospectus or supplemental or
amended prospectus (the "Prospectus") as may be necessary to keep such
Registration Statement continuously effective and to comply with the
provisions of the Securities Act with respect to the offer of the Shares
during the period required for distribution of the Shares, which period shall
not be in excess of the earlier of (i) one year from the effective date of
such Registration Statement, and (ii) the distribution of all Shares covered
by such Registration Statement.
2.1.5 Furnish to each Shareholder such number of copies of
the Prospectus (including any preliminary prospectus or supplemental or
amended prospectus ) as such Shareholder may reasonably request in order to
facilitate the sale and distribution of the Shares.
2.2 The right of each Shareholder to register Shares pursuant to the
provisions of this Section 2 shall be subject to the condition that if a
request for registration is made within sixty (60) days prior to the
conclusion of Corporation's then current fiscal year, Corporation shall have
the right to delay the filing of the Registration Statement for such period
of time until Corporation receives its audited financial statements for such
fiscal year.
2.3 If the Requisite Holder(s) intend/intends to distribute the
Registrable Securities covered by the notice pursuant to subsection 2.1 by
means of an underwriting, the Requisite Holder(s) shall so advise the
Corporation as a
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part of the notice made pursuant to subsection 2.1 and provide the name of
the managing underwriter or underwriters that the Requisite Holder(s)
proposes/propose to employ in connection with the public offering proposed to
be made pursuant to the registration requested. If the managing underwriter
of such underwritten offering shall inform the Corporation and the
Shareholders requesting that their Shares be registered pursuant to this
Section 2 by letter of its belief that the amount of Shares requested to be
included in such registration exceeds the amount which can be sold in (or
during the time of) such offering within a price range acceptable to the
Requisite Holders, then the Corporation will include in such registration
such amount of Shares which the Corporation is so advised can be sold in (or
during the time of) such offering PRO RATA on the basis of the amount of such
Shares so proposed to be sold and so requested to be included by such parties.
2.4 A registration shall not be deemed to have been effected (i)
unless it has become effective and remained effective for the period
specified in subsection 2.1.4, (ii) if, after it has become effective, such
registration is terminated by a stop order, injunction or other order of the
Commission or other governmental agency or court, or (iii) if the conditions
to closing specified in any purchase agreement or underwriting agreement
entered into in connection with such registration are not satisfied for any
reason, other than as a result of the voluntary termination of such offering
by the Requisite Holders.
Section 3. PIGGY-BACK REGISTRATION RIGHTS.
3.1 If Corporation proposes to file, on its behalf, a Registration
Statement under the Securities Act on Form S-1, S-2 or S-3 or similar forms
available for use by small business issuers, other than pursuant to Section 2
of this Agreement or in connection with a dividend reinvestment, employee
stock purchase, option or similar plan or in connection with a merger,
consolidation or reorganization, Corporation shall give written notice to
each Shareholder and Piggy-Back Shareholder at least thirty (30) days before
the filing with the Commission of such Registration Statement. Such notice
shall offer to include in such filing all or a portion of the Registrable
Securities and Piggy-Back Registrable Securities owned by such Shareholder or
Piggy-Back Shareholder. If a Shareholder or Piggy-Back Shareholder desires to
include all or a portion of its Registrable Securities or Piggy-Back
Registrable Securities in such Registration Statement, it shall give written
notice to Corporation within fifteen (15) days after the date of mailing of
such offer specifying the amount of Registrable Securities and/or Piggy-Back
Registrable Securities to be registered (for the purpose of this Section 3,
"Shares"). Corporation shall thereupon include in such filing the Shares,
subject to priorities in registration set forth in this Agreement, and
subject to its right to withdraw such filing, and shall use its best efforts
to effect registration under the Securities Act of the Shares.
3.2 The right of the Shareholders and the Piggy-Back Shareholders to
have the Shares included in any Registration Statement in accordance with the
provisions of this Section 3 shall be subject to the following conditions:
3.2.1 Corporation shall have the right to require that each
Shareholder or Piggy-Back Shareholder agree to refrain from offering or
selling any shares of Common Stock that it owns which are not included in any
such Registration Statement in accordance with this Section 3 for any
reasonable time period specified, not to exceed ninety (90) days, by any
managing underwriter of the offering to which such Registration Statement
relates.
3.2.2 If (i) a registration pursuant to this Section 3
involves an underwritten offering of the securities being registered to be
distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms appropriate for
such a transaction and (ii) the managing underwriter of such underwritten
offering shall inform the Corporation and the Shareholders and Piggy-Back
Shareholders who have requested that their Shares be registered pursuant to
this Section 3 by letter of its belief that the amount of Shares
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<PAGE>
requested to be included in such registration exceeds the amount which can be
sold in (or during the time of) such offering within a price range acceptable
to a majority of such requesting holders, then the Corporation will include
in such registration such amount of securities which the Corporation is so
advised can be sold in (or during the time of) such offering as follows:
FIRST, the securities being offered by the Corporation for its own account;
SECOND such Shares of the Shareholders which are requested to be included in
such registration PRO RATA on the basis of the amount of such Shares so
proposed to be sold and so requested to be included by such Shareholders; and
THIRD, such Shares of the Piggy-Back Shareholders and which are requested to
be included in such registration PRO RATA on the basis of the amount of such
Shares so proposed to be sold and so requested to be included by such
Piggy-Back Shareholders.
3.2.3 Corporation shall furnish each Shareholder and
Piggy-Back Shareholder with such number of copies of the Prospectus as such
Shareholder or Piggy-Back Shareholder may reasonably request in order to
facilitate the sale and distribution of its shares.
3.3 Notwithstanding the foregoing, Corporation in its sole
discretion may determine not to file the Registration Statement or proceed
with the offering as to which the notice specified herein is given without
liability to the Shareholders or the Piggy-Back Shareholders.
Section 4. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No
Shareholder or Piggy-Back Shareholder may participate in any registration
hereunder which relates to an underwritten offering unless such Shareholder
or Piggy-Back Shareholder (a) agrees to sell such holder's securities on the
basis provided in any underwriting arrangements approved by the holders of at
least a majority of the Registrable Securities and Piggy-Back Registrable
Securities to be included in such registration, or by a Person appointed by
such holders to act on their behalf to approve such arrangements, and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements.
Section 5. EXCLUSIVE REGISTRATION RIGHTS AND TRANSFER.
The rights of each Shareholder under this Agreement may upon notice
to the Corporation be transferred to its respective Affiliates in combination
with a transfer of shares to such Affiliates. In addition, the rights of each
Shareholder under this Agreement may upon notice to the Corporation be
transferred to a non-Affiliate transferee in combination with a transfer of
shares to such non-Affiliate transferee. However, such non-Affiliate
transferee may not thereafter transfer its rights under this Agreement
without the Corporation's written consent. Except as provided in this Section
5, the rights granted under this Agreement are granted specifically to and
for the benefit of each Shareholder and Piggy Back Shareholder and shall not
pass to any transferee of Registrable Securities. From and after the date of
this Agreement, the Corporation will not, without the prior written consent
of Shareholders holding at least a majority of the Registrable Securities
then outstanding, enter into any agreement with respect to its securities
which is inconsistent with or violates the rights granted to the Shareholders
in this Agreement. Without limiting the foregoing, the Corporation also
specifically agrees that during the period commencing on the date hereof and
ending when the Shareholders have disposed of all of their Registrable
Securities, the Corporation will not enter into an agreement with any party
pertaining to the registration by the Corporation of such party's Common
Stock. The Corporation represents and warrants to each of the Shareholders
that, as of the date hereof, the Corporation is not a party to any agreement,
other than this Agreement, pertaining to the registration by the Corporation
of Common Stock.
Section 6. EXPENSES. Corporation will bear all the expenses in
connection with any Registration
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<PAGE>
Statement under this Agreement, other than transfer taxes payable on the sale
of such shares, the fees and expenses of counsel to the Shareholders and
Piggy-Back Shareholders and fees and commissions of brokers, dealers and
underwriters.
Section 7. RECALL OF PROSPECTUSES, ETC. With respect to a
Registration Statement or amendment thereto filed pursuant to this Agreement,
if, at any time, Corporation notifies the Shareholders and Piggy-Back
Shareholders that an amendment or supplement to such Registration Statement
or amendment to the Prospectus included therein is necessary or appropriate,
each Shareholder and Piggy-Back Shareholder will forthwith cease selling and
distributing shares thereunder and will forthwith redeliver to Corporation
all copies of such Registration Statement and Prospectuses then in its
possession or under its control. Corporation will use its best efforts to
cause any such amendment or supplement to become effective as soon as
practicable and will furnish each Shareholder and Piggy-Back Shareholder with
a reasonable number of copies of such amended or supplemented prospectus (and
the period during which Corporation is required to use its best efforts to
maintain such Registration Statement in effect pursuant to this Agreement
will be increased by the period from the date on which such Shareholder or
Piggy-Back Shareholder ceased selling and distributing shares thereunder to
the date on which such amendment or supplement becomes effective).
Section 8. COOPERATION WITH EXISTING SHAREHOLDERS. Corporation shall
be entitled to require the Shareholders and Piggy-Back Shareholders to
cooperate with Corporation in connection with a registration of Registrable
Securities pursuant to this Agreement and furnish (i) such information as may
be required by Corporation or the Commission in connection therewith and (ii)
such representations, undertakings and agreements as may be required by the
Commission in connection therewith.
Section 9. REGISTRATION PROCEDURES Upon the receipt of a request for
registration of any Registrable Securities pursuant to Section 2 or Section 3
of this Agreement, Corporation will use its best efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof, and pursuant thereto Corporation will as
expeditiously as possible:
9.1.1 Prepare and file with the Commission a registration statement
on an appropriate form under the Securities Act 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, including documents incorporated by reference after the
initial filing of any registration statement, Corporation will promptly
furnish to the holders of Registrable Securities and Piggy-Back Registrable
Securities to be registered and sold pursuant to this Agreement (the
"Registered Holders") and the underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the review
of the Registered Holders and the underwriters, and Corporation will not file
any registration statement or amendment thereto, or any prospectus or any
supplement thereto (including such documents incorporated by reference) to
which the Registered Holders or the underwriters, if any, shall reasonably
object in the light of the requirements of the Securities Act and any other
applicable laws and regulations.
9.1.2 Prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration statement effective for the applicable period; cause
the related prospectus to be filed pursuant to Rule 424(b) (or any successor
provision) under the Securities Act; cause such prospectus to be supplemented
by any required prospectus supplement and, as so supplemented, to be filed
pursuant to Rule 424(b) (or any successor provision) under the Securities
Act; and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
the
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<PAGE>
applicable period in accordance with the intended methods of disposition set
forth in such registration statement or supplement to such prospectus.
9.1.3 Notify the Registered Holders and the managing underwriters,
if any, promptly, and (if requested by any such person) confirm such advice
in writing, (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to a registration
statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission for amendments or
supplements to a registration statement or related prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of a registration statement or the
initiation of any proceeding for that purpose, (iv) if at any time the
representations and warranties of Corporation contemplated by subsection
9.1.10 cease to be true and correct, (v) of the receipt by Corporation of any
notification with respect to the suspension or qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (vi) of the happening of any event which
requires the making of any changes in a registration statement or related
prospectus so that such documents will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (vii)
of Corporation's reasonable determination that a post-effective amendment to
a registration statement would be appropriate or that there exist
circumstances not yet disclosed to the public which make further sales under
such registration statement inadvisable pending such disclosures and
post-effective amendment.
9.1.4 Make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of
any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction, at the earliest possible moment.
9.1.5 If requested by the managing underwriters or the Registered
Holders in connection with an underwritten offering, immediately incorporate
in a prospectus supplement or post effective amendment such information as
the managing underwriters and the Registered Holders agree should be included
therein relating to such sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of
shares of Registrable Securities being sold to such underwriters and the
purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering
of the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any
registration statement if requested by the Registered Holders or any
underwriter of such Registrable Securities.
9.1.6 Furnish to the Registered Holders and each managing
underwriter, if any, without charge, at least one signed copy of the
registration statement, any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference).
9.1.7 Deliver without charge to the Registered Holders and the
underwriters, if any, as many copies of the prospectus or prospectuses
(including each preliminary prospectus) and any amendment or supplement
thereto as such persons may reasonably request; and Corporation consents to
the use of such prospectus or any amendment or supplement thereto by such
Registered Holders and the underwriters, if any, in connection with the offer
and sale of the Registrable Securities covered by such prospectus or any
amendment or supplement thereto.
9.1.8 Prior to any public offering of Registrable Securities,
register or qualify or cooperate with the Registered Holders, the
underwriters, if any, and respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Registered Holders or an underwriter reasonably requests in writing; keep
each such registration or qualification
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effective during the period such registration statement is required to be
kept effective and do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable registration statement; PROVIDED, HOWEVER, that
Corporation will not be required in connection therewith or as a condition
thereto to qualify generally to do business or subject itself to general
service of process in any such jurisdiction where it is not then so subject.
9.1.9 Upon the occurrence of any event contemplated by subsection
9.1.3 (ii) - (vii) above, prepare, to the extent required, a supplement or
post-effective amendment to the applicable registration statement or related
prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchaser of
the Registrable Securities being sold thereunder, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
9.1.10 Enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order
to expedite or facilitate the disposition of such Registrable Securities and
in such connection, whether or not an underwriting agreement is entered into
and whether or not the Registrable Securities to be covered by such
registration are to be offered in an underwritten offering: (i) make such
representations and warranties to the Registered Holders to the registration
statement, prospectus and documents incorporated by reference, if any, in
form, substance and scope as are customarily made by issuers to underwriters
in underwritten offerings and confirm the same if and when requested; (ii)
obtain opinions of counsel to Corporation and updates thereof with respect to
the registration statement and the prospectus in the form, scope and
substance which are customarily delivered in underwritten offerings; (iii) in
the case of an underwritten offering, enter into an underwriting agreement in
form, scope and substance as is customary in underwritten offerings and
obtain opinions of counsel to Corporation and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters and the Registered Holders) addressed to the
Registered Holders and the underwriters, if any, covering the matters
customarily covered in opinions delivered in underwritten offerings and such
other matters as may be reasonably requested by the Registered Holders and
such underwriters; (iv) obtain "cold comfort" letters and updates thereof
from Corporation's independent certified public accountants addressed to the
Registered Holders and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters by accountants in connection with underwritten offerings;
(v) if any underwriting agreement is entered into, the same shall set forth
in full the indemnification provisions and procedures customarily included in
underwriting agreements in underwritten offerings; and (vi) Corporation shall
deliver such documents and certificates as may be requested by the Registered
Holders and the managing underwriters, if any, to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Corporation. The
above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder.
9.1.11 Make available for inspection by a representative of the
Registered Holders, any underwriter participating in any disposition pursuant
to such registration, and any attorney or accountant retained by the
Registered Holders or such underwriter, all financial and other records,
pertinent corporate documents and properties of Corporation, and cause
Corporation's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such registration; provided that any records,
information or documents that are designated by Corporation in writing as
confidential shall be kept confidential by such Persons unless disclosures of
such records, information or documents is required by court or administrative
order.
9.1.12 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders earning statements satisfying the provisions of Section
11(a) of the
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Securities Act, no later than 90 days after the end of any 12-month period
(i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
offering and (ii) beginning with the first day of Corporation's first fiscal
quarter next succeeding each sale of Registrable Securities after the
effective date of a registration statement, which statements shall cover said
12-month periods.
9.1.13 If Corporation, in the exercise of its reasonable judgment,
objects to any change reasonably requested by the Registered Holders or the
underwriters, if any, to any registration statement or prospectus or any
amendments or supplements thereto (including documents incorporated or to be
incorporated therein by reference) as provided for in this Section 9,
Corporation shall not be obligated to make any such change and such
Registered Holders may withdraw their Registrable Securities from such
registration, in which event (i) Corporation shall pay all registration
expenses (including its counsel fees and expenses) incurred in connection
with such registration statement or amendment thereto or prospectus or
supplement thereto, and (ii) in the case of a registration being effected
pursuant to Section 2, such registration shall not count as one of the
registrations Corporation is obligated to effect pursuant to Section 2 hereof.
Section 10. INDEMNIFICATION.
10.1 In the event of any registration of any securities under the
Securities Act pursuant to this Agreement, Corporation will indemnify and
hold harmless each Shareholder, each Piggy-Back Shareholder, any underwriter
and each other Person, if any, who controls such Shareholder, Piggy-Back
Shareholder or underwriter within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which each
such Shareholder, Piggy-Back Shareholder or any underwriter may become
subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in such Registration Statement or preliminary
prospectus (if used prior to the effective date of such Registration
Statement) or final or summary prospectus contained therein (if used during
the period the Corporation is required to keep the Registration Statement
effective), or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements made
therein not misleading, and will reimburse each such Shareholder, Piggy-Back
Shareholder or underwriter for any legal or any other expenses as reasonably
incurred by such person in connection with investigating or defending any
such action or claim, excluding any amounts paid in settlement of any
litigation, commenced or threatened, if such settlement is effected without
prior written consent of Corporation; provided, however, that Corporation
will not be liable to the Shareholders, Piggy-Back Shareholders or an
underwriter in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
omission or alleged omission made in said Registration Statement, said
preliminary prospectus or said final or summary prospectus or any amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to Corporation by that Shareholder, Piggy-Back
Shareholder or their respective affiliates or representatives, or by that
underwriter, as the case may be, specifically for use in the preparation
thereof; and provided further that the indemnity agreement contained in this
Section 10 with respect to any preliminary prospectus shall not inure to the
benefit of the Shareholders, Piggy-Back Shareholders or any underwriter or to
any Person selling the same in respect of any loss, claim, damage, liability
or action asserted by someone who purchased shares from such person if a copy
of the final prospectus (as the same may be amended or supplemented) in
connection with such registration statement was not sent or given to such
person with or prior to written confirmation of the sale and if the untrue
statement or omission or alleged untrue statement or omission of a material
fact contained in such preliminary prospectus was corrected in the final
prospectus.
10.2 In the event of any registration of securities under the
Securities Act pursuant to this Agreement, each
8
<PAGE>
Shareholder and Piggy-Back Shareholder will indemnify and hold harmless
Corporation, each of its directors and officers, any underwriter and each
other Person, if any, who controls Corporation or underwriter within the
meaning of the Securities Acts, against any losses, claims, damages or
liabilities, joint or several, to which Corporation or any such director,
officer, underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or action
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such Registration
Statement or preliminary prospectus or final or summary prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements made
therein not misleading, and will reimburse Corporation, each such director,
officer, underwriter for any legal or any other expenses as reasonably
incurred by them in connection with investigating or defending any such
action or claim, excluding any amounts paid in settlement of any litigation,
commenced or threatened, if such settlement is effected without prior written
consent of the indemnifying Shareholder, Piggy-Back Shareholder or their
respective representative; but in all cases only if, and to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission therein made in reliance upon and in conformity with written
information furnished to Corporation by the indemnifying Shareholder,
Piggy-Back Shareholder or their respective affiliates or representatives
specifically for use in the preparation thereof. Notwithstanding the
foregoing, the amount of the indemnity provided by each such Shareholder or
Piggy-Back Shareholder pursuant to this Section 10 shall not exceed the net
proceeds received by such Shareholder or Piggy-Back Shareholder in such
related registration and sale.
10.3 Promptly after receipt by a party entitled to indemnification
under subsection 10.1 or 10.2 hereof of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party under either of such subsections, notify
the indemnifying party in writing of the commencement thereof. In case any
such action is brought against the indemnified party and it shall so notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it so chooses,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party that it so
chooses, such indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, provided, however, that if the indemnifying party fails
to take reasonable steps necessary to diligently defend such claim within
twenty (20) days after receiving notice from the indemnified party that the
indemnified party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the indemnifying
party shall be liable for any expenses therefor. The indemnity agreements in
this Section 10 shall be in addition to any liabilities which the
indemnifying parties may have pursuant to law.
10.4 If the indemnification provided for in this Section 10 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 10 hereof, any legal or other fees or expenses reasonably
incurred by such party in connection with any
9
<PAGE>
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
Section 11. SALES UNDER RULE 144. With a view to making available to
each Shareholder and Piggy-Back Shareholder the benefits of Rule 144
promulgated under the Securities Act and any other similar rule or regulation
of the Commission that may at any time permit such Shareholder or Piggy-Back
Shareholder to sell the Registrable Securities without registration,
Corporation agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor provision);
(b) file with the Commission in a timely manner all reports and
other documents required of Corporation under the Securities Act and the
Exchange Act;
(c) furnish to such Shareholder or Piggy-Back Shareholder forthwith
upon request (i) a written statement by Corporation that it has complied with
the reporting requirements of Rule 144 (or any successor provision), the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of Corporation and such other reports and documents so filed
by Corporation under the Securities Act and the Exchange Act and (iii) such
other information as may be reasonably requested by such Shareholder or
Piggy-Back Shareholder in availing itself of any rule or regulation of the
Commission which permits the selling of any such securities without
registration; and
(d) after any sale of Registrable Securities pursuant to Rule 144,
to the extent allowed by law, to cause any restrictive legends to be removed
and any transfer restrictions to be rescinded with respect to such
Registration Securities.
Section 12. REMOVAL OF LEGEND. The Corporation agrees, to the extent
allowed by law, to remove any legends on certificates representing
Registrable Securities or Piggy-Back Registrable Securities describing
transfer restrictions applicable to such securities upon the sale of such
securities (i) pursuant to an effective Registration Statement under the
Securities Act or (ii) in accordance with the provisions of Rule 144 under
the Securities Act.
Section 13. NOTICES. Any notice to be given by any party hereunder
to any other shall be in writing, mailed by certified or registered mail,
return receipt requested, and shall be addressed to the other parties at the
addresses listed on the signature pages hereof. All such notices shall be
deemed to be given three (3) days after the date of mailing thereof.
Section 14. MODIFICATION. Notwithstanding anything to the contrary
in this Agreement or otherwise, no modification, amendment or waiver of any
of the provisions of this Agreement shall be effective unless in writing and
signed by the Corporation and the Shareholders holding not less than 95% of
the Registrable Securities then outstanding.
10
<PAGE>
Section 15. NON-WAIVER. The failure to enforce at any time any of
the provisions of this Agreement, or to require at any time performance by
any other party of any of the provisions hereof, shall in no way be construed
to be a waiver of such provisions.
Section 16. PARTIAL INVALIDITY. If any clause, sentence, paragraph,
section or part of this Agreement shall be deemed invalid, unenforceable or
against public policy, the part which is invalid, unenforceable or contrary
to public policy shall not affect, impair, invalidate or nullify the
remainder of this Agreement, but the invalidity, unenforceability or
contrariness to public policy shall be confined only to the clause, sentence,
paragraph, section or party of this Agreement so invalidated, unenforceable
or against public policy.
Section 17. CONSTRUCTION. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair
meaning, and shall not be construed strictly for or against either of the
parties hereto.
Section 18. GOVERNING LAW. This Agreement shall be governed and
construed according to the laws of the State of Alabama, without regard to
its conflicts of law principles.
Section 19. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original and all of
which together shall constitute but one and the same instrument.
Section 20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
Section 21. SPECIFIC PERFORMANCE. The parties agree that, to the
extent permitted by law, (i) the obligations imposed on them in this
Agreement are special, unique and of an extraordinary character, and that in
the event of a breach of any such party damages would not be an adequate
remedy and (ii) the other party shall be entitled to specific performance and
injunctive and equitable relief in addition to any other remedy to which it
may be entitled at law or in equity.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
"CORPORATION"
MIDDLE BAY OIL COMPANY, INC.
By: /s/ John J. Bassett
-------------------------------------
Name: John J. Bassett
-----------------------------------
Title: President
----------------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
"SHAREHOLDERS"
3TEC ENERGY CORPORATION
By: /s/ Floyd C. Wilson
-------------------------------------
Name: Floyd C. Wilson
-----------------------------------
Title: President
----------------------------------
Address for Notice:
3TEC Energy Corporation
5910 N. Central Expressway
Suite 1150
Dallas, TX 75206
Fax: (214) 373-9731
12
<PAGE>
"PIGGY-BACK SHAREHOLDERS"
KAISER-FRANCIS OIL COMPANY
By: /s/ Gary R. Christopher
-------------------------------------
Name: Gary R. Christopher
-----------------------------------
Title: Acquisitions Coordinator
----------------------------------
Address for Notice:
Kaiser-Francis Oil Company
6733 South Yale
Tulsa, OK 74136
Fax: (918) 491-4694
/s/ C.J. Lett, III
- ----------------------------------------
C.J. LETT, III
Address for Notice:
C.J. Lett, III
9320 East Central
Wichita, Kansas 67206
Fax: (316) 636-1803
13
<PAGE>
WESKIDS, L.P.
By: Weskids, Inc.
Its General Partner
By: /s/ Christine W. Jenkins
--------------------------------------
Name: Christine W. Jenkins
------------------------------------
Title: Vice President
-----------------------------------
Address for Notice:
Weskids, L.P.
310 South Street
Morristown, NJ 07960
Fax: (973) 682-2684
/s/ Alvin V. Shoemaker
-----------------------------------------
ALVIN V. SHOEMAKER
Address for Notice:
Alvin V. Shoemaker
8800 First Avenue
Stone Harbor, NJ 08247
Fax: (609) 368-0147
14
<PAGE>
SHOEMAKER FAMILY PARTNERS, LP
By: Alvin V. Shoemaker
-----------------------------------------
Its General Partner
By: /s/ Peter Shoemaker
--------------------------------------
Name: Peter Shoemaker
------------------------------------
Title: Attorney In Fact
-----------------------------------------
Address for Notice:
Shoemaker Family Partners, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
SHOEINVEST II, LP
By: ALVIN V. SHOEMAKER INVESTMENTS, INC.
-----------------------------------------
Its General Partner
By: /s/ PETER SHOEMAKER
----------------------------------------
Name: PETER SHOEMAKER
-----------------------------------------
Title: EXECUTIVE VICE PRESIDENT
-----------------------------------
Address for Notice:
Shoeinvest II, LP
60 Brushhill Road
Kinnelon, NJ 07405
Fax: (310) 444-3833
15
<PAGE>
SCHEDULE 1
<TABLE>
<S> <C>
3TEC Energy Corporation Securities Purchase Agreement by and
between 3TEC Energy Corporation and
Middle Bay Oil Company, Inc., dated
July 1, 1999
4,775,556 shares of Common Stock
Warrants exercisable for 3,600,000
shares of Common Stock $10,700,000
Note (which is convertible to
Conversion Shares)
Shoemaker Family
Partners, LP Securities Purchase Agreement by and
between Shoemaker Family Partners, LP and
Middle Bay Oil Company, Inc., dated
August 27, 1999
22,222 shares of Common Stock
Warrants exercisable for 16,822
shares of Common Stock $50,000 Note
(which is convertible to Conversion
Shares)
Shoeinvest II, LP Securities Purchase Agreement
by and between Shoeinvest II, LP and
Middle Bay Oil Company, Inc., dated
August 27, 1999
44,444 shares of Common Stock
Warrants exercisable for 33,644
shares of Common Stock $100,000 Note
(which is convertible to Conversion
Shares)
</TABLE>
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Number of Shares of
Number of Shares of Series B Convertible
Common Stock Held Preferred Shares Held
Piggy-Back Shareholder Immediately Prior To Closing Immediately Prior to Closing
---------------------- ---------------------------- ----------------------------
<S> <C> <C>
Kaiser-Francis Oil Company 3,333,334 0
C.J. Lett, III 1,187,556 0
Weskids, L.P. 843,687 117,467
Alvin V. Shoemaker 684,222 117,466
</TABLE>
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 27th day of August,
1999 (the "Effective Date"), by and between MIDDLE BAY OIL COMPANY, INC., an
Alabama corporation (hereinafter referred to as the "Company") and FLOYD C.
WILSON (hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, the Company is engaged in the oil and gas business;
WHEREAS, the Company desires to employ Employee as President and Chief
Executive Officer of the Company and Employee desires to be employed by the
Company in that capacity; and
WHEREAS, the Company and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings;
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
herein contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. TERM OF EMPLOYMENT. The Company shall employ Employee in the capacity
set forth herein for a term commencing on the Effective Date and ending on
November 25, 2000 (the "Employment Period"). Within the period commencing one
hundred twenty (120) days prior to the end of the Employment Period, the
Employee and the Company shall review the terms of this Employment Agreement in
light of the circumstances existing at that time and, if the parties in good
faith deem it necessary or advisable, agree to extend the term of this
Employment Agreement or negotiate and enter into a new employment agreement.
Notwithstanding the foregoing, Employee's employment hereunder may be terminated
earlier in accordance with the provisions of Section 8 hereof.
2. RESPONSIBILITIES OF EMPLOYEE.
(a) In accepting employment by the Company, Employee shall undertake
and assume the responsibility of performing for and on behalf of the Company any
and all duties of the Chief Executive Officer and President as set forth in the
Company's Bylaws, as they may be amended from time to time, and shall have such
other duties, functions, responsibilities and authority commensurate with such
offices from time to time delegated to the Employee by the Board of Directors
provided that such duties, functions, responsibilities and authority are
customarily associated with the position of President and Chief Executive
Officer.
(b) Employee agrees to devote his full time and effort to his duties
as an employee of the Company. Employee may devote a reasonable amount of his
time to civic and community affairs, and subject to the provisions of Section 7,
to the business and financial interests described on EXHIBIT A attached hereto;
provided that such other activities do not materially interfere with the
performance of Employee's responsibility as President and Chief Executive
Officer; and provided further that no additional outside business activities
shall be undertaken without the prior written consent of the Board of Directors.
3. COMPENSATION. As compensation for the services to be rendered by
Employee for the Company under this Agreement, Employee shall be entitled to the
following:
<PAGE>
(a) The Company shall pay Employee during the Employment Period an
annual salary of not less than Two Hundred Thousand Dollars ($200,000). The
amount of such annual salary may be amended by the Company's Board of Directors
(the "Board") from time to time (but in no event shall such annual salary be
less than Two Hundred Thousand Dollars ($200,000)). Such annual salary shall be
payable periodically for such periods as may be established by the Company for
payment of its employees under its normal payroll practices.
(b) Employee may receive a bonus and fringe benefits each year in
amounts to be determined by the Board. Such bonus may, in the discretion of the
Board, be based, in part, upon the Company meeting certain financial goals,
which goals may be agreed upon by the Board and Employee.
4. EXPENSES. Employee shall be reimbursed for all reasonable business
expenses incurred by him in connection with or incident to the performance of
his duties and responsibilities hereunder upon the Employee's submission to the
Company of vouchers or expense statements evidencing such expenses in such form
or format as the Company may reasonably require.
5. VACATION AND OTHER BENEFITS.
(a) VACATION. Employee shall be entitled to four (4) weeks of paid
vacation per year during the Employment Period. In addition, Employee shall be
entitled to participate in all other present and future benefit plans provided
by the Company to its employees and for which Employee meets the eligibility
requirements thereof.
(b) MEDICAL INSURANCE. The Company shall provide Employee and his
dependents with medical insurance coverage under the Company's medical insurance
plan, which plan shall be reasonably acceptable to Employee.
6. BUSINESS OPPORTUNITIES AND INTELLECTUAL PROPERTY.
(a) During the period in which Employee is employed by the Company,
Employee shall promptly disclose to the Company all "Business Opportunities" and
"Intellectual Property" (each as defined below).
(b) Employee hereby assigns and agrees to assign to the Company, its
successors, assigns or designees, all of Employee's right, title and interest in
and to all "Business Opportunities" and "Intellectual Property," and further
acknowledges and agrees that all Business Opportunities and Intellectual
Property constitute the exclusive property of the Company.
(c) For purposes hereof, "Business Opportunities" shall mean all
business ideas, prospects, proposals or other opportunities pertaining to the
lease, acquisition, exploration, production, gathering or marketing of
hydrocarbons and related products and the exploration potential of geographical
areas on which hydrocarbon exploration prospects are located, which are:
(i) developed by Employee (A) during the period in which Employee is
employed by the Company, or (B) before the period in which Employee is
employed by the Company, but only to the extent of Employee's
rights thereto during such period, or
(ii) originated by any third party and brought to the attention of
Employee (A) during the period in which Employee is employed by the
Company, or (B) before the period in which Employee is employed
2
<PAGE>
by the Company, but only to the extent of Employee's rights thereto during
such period,
together with information relating thereto, including, without limitation, any
"Business Records" (as defined below).
(d) For purposes hereof "Intellectual Property" shall mean all ideas,
inventions, discoveries, processes, designs, methods, substances, articles,
computer programs and improvements (including, without limitation, enhancements
to, or further interpretation or processing of, information that was in the
possession of Employee prior to the date of this Agreement), whether or not
patentable or copyrightable, which do not fall within the definition of Business
Opportunities, which are discovered, conceived, invented, created or developed
by Employee, alone or with others: (i) during the period in which Employee is
employed by the Company if such discovery, conception, invention, creation, or
development (A) occurs in the course of the Employee's employment with the
Company, or (B) occurs with the use of any of the Company's time, materials or
facilities, or (C) in the opinion of the Board of Directors of the Company,
relates or pertains in any way to the Company's purposes, activities or affairs,
or (ii) before the period in which Employee is employed by the Company, but only
to the extent of Employee's rights thereto during such period.
7. NON-COMPETITION AND NON-DISCLOSURE; INJUNCTIVE RELIEF. Employee
acknowledges that the services he is to render in the course of his employment
by the Company are of a special and unusual character with unique value to the
Company. In view of the value to the Company of the services of Employee during
the course of his employment by the Company, because of the Business
Opportunities, Intellectual Property and "Confidential Information" (as defined
below) to be obtained by or disclosed to Employee, and as a inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated herein, Employee covenants and agrees as follows:
(a) During the period in which Employee is employed by the Company,
unless otherwise extended pursuant to the terms of this Section 7, Employee
shall not directly or indirectly be employed by or render advisory, consulting
or other services in connection with any business enterprise or person that is
engaged in leasing, acquiring, exploring, producing, gathering or marketing
hydrocarbons and related products.
(b) During the period in which Employee is employed by the Company,
unless otherwise extended pursuant to the terms of this Section 7, Employee
shall not, directly or indirectly, in any capacity (including, without
limitation, as a proprietor, investor, director or officer or in any other
individual or representative capacity), be financially interested in or engage
in any business that is engaged in leasing, acquiring, exploring, producing,
gathering or marketing hydrocarbons and related products; however, it is
specifically agreed between the parties that Employee may continue to be
financially interested in and engage in any business similar to or related to
the Company's business that is described on EXHIBIT A attached hereto, provided,
that such activities do not materially detract from the Employee's performance
of his responsibilities as President and Chief Executive Officer, provided,
further that, nothing contained in this paragraph 7(b) shall relieve the
Employee of his obligations contained in paragraph 7(a) above.
(c) During the period in which Employee is employed by the Company,
unless otherwise extended pursuant to the terms of this Section 7, all
investments made by Employee (whether in his own name or in the name of any
family members or made by Employee's controlled affiliates), which relate to the
lease, acquisition, exploration, production, gathering or marketing or
hydrocarbons and related products shall be made solely through the Company; and
Employee will not (directly or indirectly through any family members), and will
not permit any of his controlled affiliates to (i) invest or otherwise
participate alongside the Company in any Business Opportunities, or (ii) invest
or otherwise participate in any business or activity relating to a Business
Opportunity, regardless of whether the Company ultimately participates in such
business or activity.
(d) During the period in which Employee is employed by the Company
and thereafter, Employee
3
<PAGE>
will not disclose to any third party or directly or indirectly make use of, in a
way materially detrimental to the Company, any and all trade secrets and
confidential or proprietary information pertaining to the Company (collectively
referred to as "Confidential Information"). For purposes of this Section 7, it
is agreed that Confidential Information includes, without limitation, any
information heretofore or hereafter acquired, developed or used by the Company
relating to Business Opportunities or Intellectual Property or other geological,
geophysical, economic, financial or management aspects of the business,
operations, properties or prospects of the Company whether oral or in written
form in a "Business Records" (as defined in paragraph 7(g) below).
Notwithstanding the foregoing, no information of the Company will be deemed
confidential for the purposes of this paragraph 7(d) if such information is or
becomes public knowledge through no act of Employee or was previously known by
Employee prior to entering into this Agreement.
(e) During the Employment Period or the period in which Employee is
employed by the Company, whichever is longer, and for a six-month period
commencing upon the termination of such longer period, unless otherwise extended
pursuant to the terms of this Section 7, Employee may not solicit, raid, entice
or induce, directly or indirectly, any employee (or person who within the
preceding ninety (90) days was an employee) of the Company or any other person
who is under contract with or rendering services to the Company, to (i)
terminate his employment by, or contractual relationship with, the Company, (ii)
refrain from extending or renewing the same (upon the same or new terms), (iii)
refrain from rendering services to or for the Company, (iv) become employed by
or to enter into contractual relations with any persons other than the Company,
or (v) enter into a relationship with a competitor of the Company; provided that
during the six-month period commencing upon the termination of the Employment
Period or the period in which the Employee is employed by the Company, whichever
is longer, nothing in this paragraph 7(e) shall prohibit Employee from entering
into contractual relations to obtain capital as long as the Board of Directors
of the Company in good faith determines that such relations are not detrimental
to the Company.
(f) Employee acknowledges and agrees that the services to be rendered
by him are of a special, unique and extraordinary character and, in connection
with such services, he will have access to Business Opportunities, Intellectual
Property and Confidential Information vital to the Company's businesses. By
reason of this, the Employee consents and agrees that if he violates any of the
provisions of this Section 7, the Company would sustain irreparable harm and,
therefore, in addition to any other remedies which the Company may have under
this Agreement or otherwise, the Company shall be entitled to an injunction
restraining the Employee from committing or continuing any such violation of
this Agreement. Such right to an injunction shall be cumulative and in addition
to, and not in lieu of, any other remedies to which the Company may show itself
justly entitled. Further, during any period in which the Employee is in breach
of the covenants set forth in this Section 7, the time period of this covenant
shall be extended for an amount of time that the Employee is in breach.
(g) The Employee agrees to promptly deliver to the Company, upon
termination of Employee's employment with the Company, or at any other time when
the Company so requests, all documents relating to the business of the Company,
including, without limitation: all geological and geophysical reports and
related data such as maps, charts, logs, seismographs, seismic records and other
reports and related data, calculations, summaries, memoranda and opinions
relating to the foregoing, production records, electric logs, core data,
pressure data, lease files, well files and records, land files, abstracts, title
opinions, title or curative matters, contract files, notes, records, drawings,
manuals, correspondence, financial and accounting information, customer lists,
statistical data and compilations, patents, copyrights, trademarks, trade names,
inventions, formulae, methods, processes, agreements, contracts, manuals or any
other documents relating to the business of the Company (collectively, the
"Business Records"), and all copies thereof and therefrom. The Employee confirms
that all of the Business Records (and all copies thereof and therefrom) that are
required to be delivered to the Company pursuant to this paragraph 7(g)
constitute the exclusive property of the Company. The obligation of
confidentiality set forth in this Section 7 shall continue notwithstanding the
Employee's delivery of any such documents to the Company. Notwithstanding the
foregoing provisions of this Section 7 or any other provision of this Agreement,
the Employee shall be entitled to retain any written materials which, as shown
by
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the Employee's records, were in Employee's possession on or prior to the date
hereof, subject to the Company's right to receive a copy of all such materials.
(h) The representations and covenants contained in this Section 7 on
the part of the Employee will be construed as ancillary to and independent of
any other provision of this Agreement, and the existence of any claim or cause
of action of the Employee against the Company or any officer, director, or
shareholder of the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of the
covenants of the Employee contained in this Section 7. In addition, the
provisions of this Section 7 shall continue to be binding upon the Employee in
accordance with their terms, notwithstanding the termination of the Employee's
employment hereunder for any reason.
(i) The parties to this Agreement agree that the limitations
contained in this Section 7 with respect to time, geographical area, and scope
of activity are reasonable. However, if any court shall determine that the time,
geographical area, or scope of activity of any restriction contained in this
Section 7 is unenforceable, it is the intention of the parties that such
restrictive covenants set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
8. TERMINATION BY THE COMPANY FOR CAUSE.
(a) The Company may terminate Employee's employment under this
Agreement for Cause. The termination shall be evidenced by written notice
thereof to the Employee and shall specify the Cause for termination. For
purposes hereof, the term "Cause" shall mean (i) the inability of Employee,
despite any reasonable accommodation required by law, due to bodily injury or
disease or any other physical or mental incapacity, to perform the services
provided for hereunder for a period of 120 days in the aggregate, within any
given period of 180 consecutive days during the term of this Agreement, in
addition to any statutorily required leave of absence, (ii) conduct of the
Employee that constitutes fraud, dishonesty, theft, or a criminal act involving
moral turpitude, in each case only if it materially affects his ability to
perform the duties and responsibilities of his position or has a material
adverse effect on the Company, (iii) commission of a material act of fraud
against the Company, (iv) embezzlement of funds or misappropriation of other
property by the Employee from the Company; or (v) failure of Employee to observe
or perform his material duties and obligations as an employee of the Company or
a material breach of this Agreement, after thirty (30) days advance written
notice of such failure or breach which has not been cured.
(b) Upon Employee's death or if Employee's employment with the
Company is terminated for Cause, Employee shall be paid his salary through the
month of his death or termination.
9. TERMINATION BY THE COMPANY WITHOUT CAUSE.
(a) The Company may terminate Employee's employment under this
Agreement without Cause. The termination shall be evidenced by written
notice thereof to the Employee and shall specify that the termination was
without Cause.
(b) If Employee's employment with the Company is terminated without
Cause during any period in which Employee is employed by the Company,
Employee shall be entitled to receive, within ten (10) days of such
termination, the amount of compensation Employee would have earned if his
employment had continued through the remainder of the Employment Period.
Notwithstanding the foregoing, if the payment referred to above is not made
within ten (10) days of Employee's termination, all unpaid amounts shall
bear interest at a rate equal to the New York Prime (as published
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in the Wall Street Journal) on the date of such termination.
10. BURDEN AND BENEFIT. This Agreement shall be binding upon, and shall
inure to the benefit of, the Company and Employee, and their respective heirs,
personal and legal representatives, successors and permitted assigns.
11. GOVERNING LAW. It is understood and agreed that the construction and
interpretation of this Agreement shall at all times and in all respects be
governed by the laws of the State of Texas. The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
Texas and the federal courts of the United States of America located in Texas,
and appropriate appellate courts therefrom, over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby, and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved. Each of
the parties hereto hereby consents to process being served by any party to this
Agreement in any suit, action, or proceeding of the nature specified above by
the mailing of a copy thereof in the manner specified by the provisions of
Section 13.
12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity and enforceability of
the other provisions.
13. NOTICE. Any notice required to be given shall be sufficient if it is in
writing and sent by certified or registered mail, return receipt requested,
first-class postage prepaid, to his last know residence in the case of Employee,
and to its principal office in the State of Texas in the case of the Company.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between the Company and Employee with respect to the
employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, not contained herein shall be of any force or
effect. No waiver of any provision of this Agreement shall be valid unless it is
in writing and signed by the party against whom the waiver is sought to be
enforced. No valid waiver of any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement at such time or any
other time.
15. MODIFICATION. No amendment, alteration or modification to any of the
provisions of this Agreement shall be valid unless made in writing and signed by
both parties.
16. PARAGRAPH HEADINGS. The paragraph headings have been inserted for
convenience only and are not to be considered when construing the provisions of
this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the Company and Employee have executed this Agreement
on the day and year first above written.
"COMPANY" "EMPLOYEE"
MIDDLE BAY OIL COMPANY, INC.
/s/ Floyd C. Wilson
-------------------
FLOYD C. WILSON
By: /s/ John J. Basset
-------------------
Name: John J. Bassett
-------------------
Title: President
-------------------
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EXHIBIT A
ENERGY RELATED INVESTMENTS
1. Employee owns a 50% interest in Encorp Inc., a privately held energy and
production company which hold oil and gas properties valued at less than $2
million.
2. Employee owns or controls two Kansas corporations FCW Energy Corporation
and FCW Holding Corporation. The assets of these two corporations consist of a
net operating loss and non-operated, non-managed working interests and
overriding royalty interests of nominal value located in Kansas, Oklahoma and
Texas.
3. Employee holds non-operated, non-managed working interests in oil and gas
properties alongside the following entities: (1) RAK Energy Corp.; (2) Javelin
Exploration Company; and (3) JAVEX Inc. Employee is also a limited partner in
certain limited partnerships related to the foregoing entities. The aggregate
value of Employee's working interests and partnership interests is less than $2
million.
4. Employee owns approximately 2,500,000 shares of common stock of Chesapeake
Energy Corporation (NYSE:CHK).
5. Employee owns shares of capital stock of various publicly-traded energy and
production companies. The aggregate number of shares Employee owns in each
entity does not exceed 1% of the outstanding shares of capital stock of such
entity.
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Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made to be effective as
of the 27th day of August, 1999 (the "Effective Date") by and between MIDDLE BAY
OIL COMPANY, INC., an Alabama corporation (hereinafter referred to as the
"Company"), and JOHN J. BASSETT (hereinafter referred to as "Employee").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the oil and gas business;
WHEREAS, as of the Effective Date of this Agreement, Employee has
resigned his position as President and Chief Executive Officer of the Company;
and
WHEREAS, the Company and Employee desire to embody in this Agreement
the terms and conditions under which Employee shall continue his employment as
Executive Vice President of the Company;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. TERM OF EMPLOYMENT. The Company shall employ Employee in the
capacity set forth herein for a term commencing on the Effective Date and ending
on February 1, 2002 (the "Employment Period"). Within the period commencing one
hundred twenty (120) days prior to the end of the Employment Period, Employee
and the Company shall review the terms of this Employment Agreement in light of
the circumstances existing at that time and, if the parties in good faith deem
it necessary or advisable, agree to extend the term of this Employment Agreement
or negotiate and enter into a new employment agreement. Notwithstanding the
foregoing, Employee's employment hereunder may be terminated earlier in
accordance with the provisions of Section 8 hereof.
2. RESPONSIBILITIES OF EMPLOYEE.
(a) In accepting employment by the Company, Employee shall
undertake and assume the responsibility of performing for and on behalf of the
Company any and all duties of the sole Executive Vice President of the Company
as set forth in the Company's Bylaws, as they may be amended from time to time,
and shall have such other duties, functions, responsibilities and authority
commensurate with such office from time to time delegated to Employee by the
Board of Directors; provided, that such duties, functions, responsibilities and
authority (and the office
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facilities, staff and working environment made available to Employee) are
customarily associated with the senior executive position of Executive Vice
President and are subordinate only to the offices of President and/or Chief
Executive Officer.
(b) Employee agrees to devote his full time and effort to
his duties as an employee of the Company. Employee may devote a reasonable
amount of his time to civic and community affairs, and subject to the
provisions of Section 7, to the business and financial interests described
on EXHIBIT A attached hereto; provided that such other activities do not
materially interfere with the performance of Employee's responsibility as
Executive Vice President, and provided further that no additional outside
business activities shall be undertaken without the prior written consent of
the Board of Directors.
3. COMPENSATION. As compensation for the services to be rendered
by Employee for the Company under this Agreement, Employee shall be entitled to
the following:
(a) The Company shall pay Employee during the Employment
Period an annual salary of not less than One Hundred Twenty Thousand Dollars
($120,000). The amount of such annual salary may be amended by the Company's
Board of Directors (the "Board") from time to time (but in no event shall such
annual salary be less than One Hundred Twenty Thousand Dollars ($120,000)). Such
annual salary shall be payable periodically for such periods as may be
established by the Company for payment of its employees under its normal payroll
practices.
(b) Employee may receive a bonus and fringe benefits each
year in amounts to be determined by the Board. Such bonus may, in the discretion
of the Board, be based, in part, upon the Company meeting certain financial
goals, which goals may be agreed upon by the Board and Employee.
4. EXPENSES. Employee shall be reimbursed for all reasonable business
expenses incurred by him in connection with or incident to the performance of
his duties and responsibilities hereunder upon the Employee's submission to the
Company of vouchers or expense statements evidencing such expenses in such form
or format as the Company may reasonably require.
5. VACATION AND OTHER BENEFITS.
(a) VACATION. Employee shall be entitled to four (4) weeks
of paid vacation per year during the Employment Period. In addition, Employee
shall be entitled to participate in all other present and future benefit plans
provided by the Company to its employees and for which Employee meets the
eligibility requirements thereof.
(b) MEDICAL INSURANCE. The Company shall provide Employee
and his dependents with medical insurance coverage under the Company's medical
insurance plan, which plan shall be reasonably acceptable to Employee.
6. BUSINESS OPPORTUNITIES AND INTELLECTUAL PROPERTY.
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(a) During the period in which Employee is employed by the
Company, Employee shall promptly disclose to the Company all "Business
Opportunities" and "Intellectual Property" (each as defined below).
(b) Employee hereby assigns and agrees to assign to the
Company, its successors, assigns or designees, all of Employee's right, title
and interest in and to all "Business Opportunities" and "Intellectual Property,"
and further acknowledges and agrees that all Business Opportunities and
Intellectual Property constitute the exclusive property of the Company.
(c) For purposes hereof, "Business Opportunities" shall
mean all business ideas, prospects, proposals or other opportunities pertaining
to the lease, acquisition, exploration, production, gathering or marketing of
hydrocarbons and related products and the exploration potential of geographical
areas on which hydrocarbon exploration prospects are located, which are:
(i) developed by Employee (A) during the period in
which Employee is employed by the Company, or (B) before the period in
which Employee is employed by the Company, but only to the extent of
Employee's rights thereto during such period, or
(ii) originated by any third party and brought to
the attention of Employee (A) during the period in which Employee is
employed by the Company, or (B) before the period in which Employee is
employed by the Company, but only to the extent of Employee's rights
thereto during such period,
together with information relating thereto, including, without limitation, any
"Business Records" (as defined below).
(d) For purposes hereof "Intellectual Property" shall mean
all ideas, inventions, discoveries, processes, designs, methods, substances,
articles, computer programs and improvements (including, without limitation,
enhancements to, or further interpretation or processing of, information that
was in the possession of Employee prior to the date of this Agreement), whether
or not patentable or copyrightable, which do not fall within the definition of
Business Opportunities, which are discovered, conceived, invented, created or
developed by Employee, alone or with others: (i) during the period in which
Employee is employed by the Company if such discovery, conception, invention,
creation, or development (A) occurs in the course of the Employee's employment
with the Company, or (B) occurs with the use of any of the Company's time,
materials or facilities, or (C) in the opinion of the Board of Directors of the
Company, relates or pertains in any way to the Company's purposes, activities or
affairs, or (ii) before the period in which Employee is employed by the Company,
but only to the extent of Employee's rights thereto during such period.
7. NON-COMPETITION AND NON-DISCLOSURE; INJUNCTIVE RELIEF. Employee
acknowledges that the services he is to render in the course of his employment
by the Company are of a special and unusual character with unique value to the
Company. In view of the value to the Company of the services of Employee during
the course of his employment by the Company, because of the Business
Opportunities, Intellectual Property and "Confidential Information" (as defined
below) to be obtained by or disclosed to Employee, and as a inducement to the
Company to enter into this Agreement and to pay to Employee the compensation
stated herein, Employee covenants and agrees as follows:
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<PAGE>
(a) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7,
Employee shall not directly or indirectly be employed by or render advisory,
consulting or other services in connection with any business enterprise or
person that is engaged in leasing, acquiring, exploring, producing, gathering or
marketing hydrocarbons and related products.
(b) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7,
Employee shall not, directly or indirectly, in any capacity (including, without
limitation, as a proprietor, investor, director or officer or in any other
individual or representative capacity), be financially interested in or engage
in any business that is engaged in leasing, acquiring, exploring, producing,
gathering or marketing hydrocarbons and related products; however, it is
specifically agreed between the parties that Employee may continue to be
financially interested in and engage in any business similar to or related to
the Company's business that is described on EXHIBIT A attached hereto, provided
that such activities do not materially detract from the Employee's performance
of his responsibilities as Executive Vice President, and provided, further, that
nothing contained in this paragraph 7(b) shall relieve Employee of his
obligations contained in paragraph 7(a) above.
(c) During the period in which Employee is employed by the
Company, unless otherwise extended pursuant to the terms of this Section 7, all
investments made by Employee (whether in his own name or in the name of any
family members or made by Employee's controlled affiliates), which relate to the
lease, acquisition, exploration, production, gathering or marketing or
hydrocarbons and related products shall be made solely through the Company; and
Employee will not (directly or indirectly through any family members), and will
not permit any of his controlled affiliates to (i) invest or otherwise
participate alongside the Company in any Business Opportunities, or (ii) invest
or otherwise participate in any business or activity relating to a Business
Opportunity, regardless of whether the Company ultimately participates in such
business or activity.
(d) During the period in which Employee is employed by the
Company and thereafter, Employee will not disclose to any third party or
directly or indirectly make use of, in a way materially detrimental to the
Company, any and all trade secrets and confidential or proprietary information
pertaining to the Company (collectively referred to as "Confidential
Information"). For purposes of this Section 7, it is agreed that Confidential
Information includes, without limitation, any information heretofore or
hereafter acquired, developed or used by the Company relating to Business
Opportunities or Intellectual Property or other geological, geophysical,
economic, financial or management aspects of the business, operations,
properties or prospects of the Company whether oral or in written form in a
"Business Records" (as defined in paragraph 7(g) below). Notwithstanding the
foregoing, no information of the Company will be deemed confidential for the
purposes of this paragraph 7(d) if such information is or becomes public
knowledge through no act of Employee or was previously known by Employee prior
to entering into this Agreement.
(e) During the Employment Period or the period in which
Employee is employed by the Company, whichever is longer, and for a six-month
period commencing upon the termination of such longer period, unless otherwise
extended pursuant to the terms of this Section 7, Employee may not solicit,
raid, entice or induce, directly or indirectly, any employee (or person who
within the preceding ninety (90) days was an employee) of the Company or any
other person who is under contract with or rendering services to the Company, to
(i) terminate his employment by, or contractual relationship with, the Company,
(ii) refrain from extending or renewing the same (upon
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<PAGE>
the same or new terms), (iii) refrain from rendering services to or for the
Company, (iv) become employed by or to enter into contractual relations with
any persons other than the Company, or (v) enter into a relationship with a
competitor of the Company; provided that during the six-month period
commencing upon the termination of the Employment Period or the period in
which the Employee is employed by the Company, whichever is longer, nothing
in this paragraph 7(e) shall prohibit Employee from entering into contractual
relations to obtain capital as long as the Board of Directors of the Company
in good faith determines that such relations are not detrimental to the
Company.
(f) Employee acknowledges and agrees that the services to be
rendered by him are of a special, unique and extraordinary character and, in
connection with such services, he will have access to Business Opportunities,
Intellectual Property and Confidential Information vital to the Company's
businesses. By reason of this, Employee consents and agrees that if he violates
any of the provisions of this Section 7, the Company would sustain irreparable
harm and, therefore, in addition to any other remedies which the Company may
have under this Agreement or otherwise, the Company shall be entitled to an
injunction restraining Employee from committing or continuing any such violation
of this Agreement. Such right to an injunction shall be cumulative and in
addition to, and not in lieu of, any other remedies to which the Company may
show itself justly entitled. Further, during any period in which Employee is in
breach of the covenants set forth in this Section 7, the time period of this
covenant shall be extended for an amount of time that Employee is in breach.
(g) Employee agrees to promptly deliver to the Company, upon
termination of Employee's employment with the Company, or at any other time when
the Company so requests, all documents relating to the business of the Company,
including, without limitation: all geological and geophysical reports and
related data such as maps, charts, logs, seismographs, seismic records and other
reports and related data, calculations, summaries, memoranda and opinions
relating to the foregoing, production records, electric logs, core data,
pressure data, lease files, well files and records, land files, abstracts, title
opinions, title or curative matters, contract files, notes, records, drawings,
manuals, correspondence, financial and accounting information, customer lists,
statistical data and compilations, patents, copyrights, trademarks, trade names,
inventions, formulae, methods, processes, agreements, contracts, manuals or any
other documents relating to the business of the Company (collectively, the
"Business Records") and all copies thereof and therefrom. Employee confirms that
all of the Business Records (and all copies thereof and therefrom) that are
required to be delivered to the Company pursuant to this paragraph 7(g)
constitute the exclusive property of the Company. The obligation of
confidentiality set forth in this Section 7 shall continue notwithstanding
Employee's delivery of any such documents to the Company. Notwithstanding the
foregoing provisions of this Section 7 or any other provision of this Agreement,
Employee shall be entitled to retain any written materials which, as shown by
Employee's records, were in Employee's possession on or prior to the date
hereof, subject to the Company's right to receive a copy of all such materials.
(h) The representations and covenants contained in this
Section 7 on the part of Employee will be construed as ancillary to and
independent of any other provision of this Agreement, and the existence of any
claim or cause of action of Employee against the Company or any officer,
director, or shareholder of the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants of Employee contained in this Section 7. In addition, the
provisions of this Section 7 shall continue to be binding upon Employee in
accordance with their terms, notwithstanding the termination of Employee's
employment hereunder for any reason.
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(i) The parties to this Agreement agree that the limitations
contained in this Section 7 with respect to time, geographical area, and scope
of activity are reasonable. However, if any court shall determine that the time,
geographical area, or scope of activity of any restriction contained in this
Section 7 is unenforceable, it is the intention of the parties that such
restrictive covenants set forth herein shall not thereby be terminated but shall
be deemed amended to the extent required to render it valid and enforceable.
8. TERMINATION BY THE COMPANY FOR CAUSE.
(a) The Company may terminate Employee's employment under
this Agreement for Cause. The termination shall be evidenced by written notice
thereof to Employee and shall specify the Cause for termination. For purposes
hereof, the term "Cause" shall mean (i) the inability of Employee, despite any
reasonable accommodation required by law, due to bodily injury or disease or any
other physical or mental incapacity, to perform the services provided for
hereunder for a period of 120 days in the aggregate, within any given period of
180 consecutive days during the term of this Agreement, in addition to any
statutorily required leave of absence, (ii) conduct of Employee that constitutes
fraud, dishonesty, theft, or a criminal act involving moral turpitude, in each
case only if it materially affects his ability to perform the duties and
responsibilities of his position or has a material adverse effect on the
Company, (iii) commission of a material act of fraud against the Company, (iv)
embezzlement of funds or misappropriation of other property by Employee from the
Company; or (v) failure of Employee to observe or perform his material duties
and obligations as an employee of the Company or a material breach of this
Agreement, after thirty (30) days advance written notice of such failure or
breach which has not been cured.
(b) Upon Employee's death or if Employee's employment with
the Company is terminated for Cause, Employee shall be paid his salary through
the month of his death or termination.
9. TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR
GOOD REASON.
(a) The Company may terminate Employee's employment under
this Agreement without Cause. The termination shall be evidenced by written
notice thereof to Employee and shall specify that the termination was without
Cause.
(b) If Employee elects to terminate his employment by
written notice to the Company during the three (3) month period after the
Effective Date, such election by Employee shall be deemed termination of
employment for "Good Reason."
(c) If Employee's employment with the Company is terminated
without Cause or if Employee terminates his employment for Good Reason, Employee
shall be entitled to receive, within ten (10) days of such termination, an
amount equal to the greater of: (i) two (2) times his annual compensation as
initially set forth in paragraph 3(a) herein, as such may be amended by the
Board from time to time; or (ii) the amount of compensation Employee would have
earned if his employment had continued through the remainder of the Employment
Period. Notwithstanding the foregoing, if the payment referred to above is not
made within ten (10) days of Employee's
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termination, all unpaid amounts shall bear interest at a rate equal to the
New York Prime (as published in the Wall Street Journal) on the date of such
termination.
10. BURDEN AND BENEFIT. This Agreement shall be binding upon, and
shall inure to the benefit of, the Company and Employee, and their respective
heirs, personal and legal representatives, successors and permitted assigns.
11. GOVERNING LAW. It is understood and agreed that the construction
and interpretation of this Agreement shall at all times and in all respects be
governed by the laws of the State of Texas. The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the courts of the State of
Texas and the federal courts of the United States of America located in Texas,
and appropriate appellate courts therefrom, over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby, and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved. Each of
the parties hereto hereby consents to process being served by any party to this
Agreement in any suit, action, or proceeding of the nature specified above by
the mailing of a copy thereof in the manner specified by the provisions of
Section 13.
12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions of this Agreement shall not affect the validity and enforceability of
the other provisions.
13. NOTICE. Any notice required to be given shall be sufficient if it
is in writing and sent by certified or registered mail, return receipt
requested, first-class postage prepaid, to his last know residence in the case
of Employee, and to its principal office in the State of Texas in the case of
the Company.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between the Company and Employee with respect to the
employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, not contained herein shall be of any force or
effect. No waiver of any provision of this Agreement shall be valid unless it is
in writing and signed by the party against whom the waiver is sought to be
enforced. No valid waiver of any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement at such time or any
other time.
15. MODIFICATION. No amendment, alteration or modification to any of
the provisions of this Agreement shall be valid unless made in writing and
signed by both parties.
16. PARAGRAPH HEADINGS. The paragraph headings have been inserted
for convenience only and are not
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to be considered when construing the provisions of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed, acknowledged, sealed
and delivered this Agreement on the 27th day of August, 1999, to become
effective as of the Effective Date.
MIDDLE BAY OIL COMPANY, INC.
By: /s/ Floyd C. Wilson
------------------------
Name: ----------------------
Title: ---------------------
EMPLOYEE
/s/ John J. Bassett
--------------------------
John J. Bassett
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EXHIBIT "A"
ENERGY RELATED BUSINESS
1. Employee owns a 9.1644% limited partnership interest in the Bay City Energy
Fund, LTD. The aggregate value of Employee's limited partnership interest is
less than $2 million in value.
2. Employee owns approximately 53 shares (8.32%) of common stock of Bay City
Energy Group, Inc.
3. Employee owns shares of capital stock of various publicly traded energy and
production companies. The aggregate number of shares the Employee owns in each
entity does not exceed 1% of the total outstanding shares.
4. Employee holds non-operated, non-managed working and royalty interests in oil
and gas properties through Middle Bay Oil Company or other entities.
5. Employee owns interest in a newly developed patented traveling valve to be
installed in wells that are having gas locking problems.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MIDDLE BAY OIL COMPANY, INC.
(Registrant)
Date: November 12, 1999 By: /s/ Frank C. Turner II
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Frank C. Turner II
Chief Financial Officer
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CREDIT AGREEMENT
BETWEEN
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
MARCH 27, 1998
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REDUCING REVOLVING LINE OF CREDIT OF UP TO $100,000,000
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above 1
1.2 Additional Defined Terms 1
1.3 Undefined Financial Accounting Terms 15
1.4 References 15
1.5 Articles and Sections 15
1.6 Number and Gender 15
1.7 Incorporation of Schedules and Exhibits 15
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit 16
2.2 Letter of Credit Facility 17
2.3 Use of Loan Proceeds and Letters of Credit. 18
2.4 Interest 19
2.5 Repayment of Loans and Interest 19
2.6 Outstanding Amounts 19
2.7 Time, Place, and Method of Payments 20
2.8 Pro Rata Treatment; Adjustments 20
2.9 Borrowing Base Determinations 21
2.10 Mandatory Prepayments 22
2.11 Voluntary Prepayments and Conversions of Loans 22
2.12 Commitment Fee 22
2.13 Facility Fee 23
2.14 Engineering Fee 23
2.15 Letter of Credit Fee 23
2.16 Agency Fee 24
2.17 Loans to Satisfy Obligations of Borrower 24
2.18 Security Interest in Accounts; Right of Offset 24
2.19 General Provisions Relating to Interest 24
2.20 Yield Protection 25
2.21 Limitation on Types of Loans 27
2.22 Illegality 27
2.23 Regulatory Change 28
2.24 Limitations on Interest Periods 28
2.25 Letters in Lieu of Transfer Orders 28
2.26 Power of Attorney 28
ARTICLE III CONDITIONS
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3.1 Receipt of Loan Documents and Other Items 29
3.2 Each Loan 32
3.3 Each Letter of Credit 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization 33
4.2 Corporate Existence 34
4.3 Valid and Binding Obligations 34
4.4 Security Instruments 34
4.5 Title to Assets 34
4.6 Scope and Accuracy of Financial Statements 34
4.7 No Material Misstatements 34
4.8 Liabilities, Litigation, and Restrictions 34
4.9 Compliance with Laws 35
4.10 ERISA 35
4.11 Environmental Laws 35
4.12 Compliance with Federal Reserve Regulations 35
4.13 Investment Company Act Compliance 35
4.14 Public Utility Holding Company Act Compliance 36
4.15 Proper Filing of Tax Returns; Payment of Taxes Due 36
4.16 Refunds 36
4.17 Gas Contracts 36
4.18 Intellectual Property 36
4.19 Casualties or Taking of Property 36
4.20 Locations of Borrower 37
4.21 Subsidiaries 37
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records 37
5.2 Quarterly Financial Statements; Compliance Certificates 37
5.3 Annual Financial Statements 38
5.4 Oil and Gas Reserve Reports 38
5.5 Title Opinions; Title Defects 38
5.6 Notices of Certain Events 39
5.7 Letters in Lieu of Transfer Orders; Division Orders 40
5.8 Additional Information 40
5.9 Compliance with Laws 40
5.10 Payment of Assessments and Charges 40
5.11 Maintenance of Corporate Existence and Good Standing 40
5.12 Payment of Notes; Performance of Obligations 40
5.13 Further Assurances 41
5.14 Initial Fees and Expenses of Counsel to Agent 41
5.15 Subsequent Fees and Expenses of Agent and Lenders 41
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5.16 Operation of Oil and Gas Properties 41
5.17 Maintenance and Inspection of Properties 42
5.18 Maintenance of Insurance 42
5.19 INDEMNIFICATION 42
5.20 Operating Accounts 43
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness 44
6.2 Contingent Obligations 44
6.3 Liens 44
6.4 Sales of Assets 44
6.5 Leasebacks 45
6.6 Loans or Advances 45
6.7 Investments 45
6.8 Dividends and Distributions 46
6.9 Changes in Corporate Structure 46
6.10 Transactions with Affiliates 46
6.11 Lines of Business 46
6.12 Plan Obligations 46
6.13 New Subsidiaries 46
6.14 Cash Flow Coverage 46
6.15 Current Ratio 46
6.16 Change of Fiscal Year 46
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default 46
7.2 Remedies 48
ARTICLE VIII THE AGENT
8.1 Appointment 49
8.2 Waivers, Amendments 49
8.3 Delegation of Duties 50
8.4 Exculpatory Provisions 50
8.5 Reliance by Agent 50
8.6 Notice of Default 51
8.7 Non-Reliance on Agent and Other Lenders 51
8.8 Indemnification 52
8.9 Restitution 52
8.10 Agent in Its Individual Capacity 53
8.11 Successor Agent 53
8.12 Applicable Parties 53
ARTICLE IX MISCELLANEOUS
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9.1 Assignments; Participations 54
9.2 Survival of Representations, Warranties, and Covenants 55
9.3 Notices and Other Communications 55
9.4 Parties in Interest 56
9.5 Rights of Third Parties 56
9.6 Renewals; Extensions 57
9.7 No Waiver; Rights Cumulative 57
9.8 Survival Upon Unenforceability 57
9.9 Amendments; Waivers 57
9.10 Controlling Agreement 57
9.11 Disposition of Collateral 57
9.12 GOVERNING LAW 58
9.13 JURISDICTION AND VENUE 58
9.14 ENTIRE AGREEMENT 58
9.15 Counterparts 58
LIST OF SCHEDULES
Schedule 4.8 - Liabilities and Litigation
Schedule 4.12 - Environmental Matters
Schedule 4.16 - Refunds
Schedule 4.17 - Gas Contracts
Schedule 4.19 - Casualties
Schedule 4.21 - Subsidiaries
LIST OF EXHIBITS
Exhibit I - Form of Notes
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Form of Borrowing Base Utilization Certificate
Exhibit V - Form of Opinion of Counsel
Exhibit VI - Form of Lender Assignment Agreement
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CREDIT AGREEMENT
This CREDIT AGREEMENT is made and entered into this 27th
day of March, 1998, by and between MIDDLE BAY OIL COMPANY, INC., an Alabama
corporation ("MIDDLE BAY"), and ENEX RESOURCES CORPORATION, a Delaware
corporation ("ENEX") (collectively, the "BORROWER", but with such entities
constituting the Borrower being jointly and severally liable for the
Obligations and each reference herein to the Borrower being applicable to
each of such entities) and COMPASS BANK, a Texas state chartered banking
institution ("COMPASS"), BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a national
banking association ("BOK") and each other lender that becomes a signatory
hereto as provided in Section 9.1 (Compass and each such other lender,
together with its successors and assigns, individually a "Lender" and
collectively, the "Lenders"), and Compass, as agent for the Lenders pursuant
to the terms hereof (in such capacity, together with its successors in such
capacity pursuant to the terms hereof, (the "AGENT").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements
herein contained, the Lender or Lenders hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED ABOVE. As used in this Credit Agreement,
each of the terms "AGENT", "AGREEMENT", "BOK", "BORROWER", "COMPASS",
"LENDER" and "LENDERS" shall have the meaning assigned to such term
hereinabove.
1.2 ADDITIONAL DEFINED TERMS. As used in this Agreement,
each of the following terms shall have the meaning assigned thereto in this
Section, unless the context otherwise requires:
"ADDITIONAL COSTS" shall mean reasonable costs which the Agent
or any Lender determines are attributable to its obligation to make or
its making or maintaining any LIBO Rate Loan or issuing or
participating in Letters of Credit, or any reduction in any amount
receivable by the Agent or any Lender in respect of any such obligation
or any LIBO Rate Loan or Letter of Credit, resulting from any
Regulatory Change which (a) changes the basis of taxation of any
amounts payable to the Agent or such Lender under this Agreement or any
Note in respect of any LIBO Rate Loan or Letter of Credit (other than
taxes imposed on the overall net income of the Agent or such Lender or
its Applicable Lending Office for any such LIBO Rate Loan by the
jurisdiction in which the Agent or such Lender has its
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principal office or Applicable Lending Office), (b) imposes or
modifies any reserve, special deposit, minimum capital, capital
ratio, or similar requirements (other than the Reserve Requirement
utilized in the determination of the Adjusted LIBO Rate for such
Loan) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Agent or such Lender
(including LIBO Rate Loans and Dollar deposits in the London
interbank market in connection with LIBO Rate Loans), or the
Commitment of the Agent or such Lender, or the London interbank
market, or (c) imposes any other condition affecting this Agreement
or any Note or any of such extensions of credit, liabilities, or
Commitments.
"ADJUSTED LIBO RATE" shall mean, for any LIBO Rate Loan, an
interest rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the sum of the LIBO
Rate for such Loan plus the Applicable Margin, but in no event
exceeding the Highest Lawful Rate.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes
any Subsidiary of the Borrower and any "affiliate" of the Borrower
within the meaning of Reg. Section 240.12b-2 of the Securities Exchange
Act of 1934, as amended, with "control," as used in this definition,
meaning possession, directly or indirectly, of the power to direct or
cause the direction of management, policies or action through ownership
of voting securities, contract, voting trust, or membership in
management or in the group appointing or electing management or
otherwise through formal or informal arrangements or business
relationships.
"AGENCY FEE LETTER" shall mean the letter agreement dated
March 27, 1998, between Compass and the Borrower concerning certain
fees in connection with the transactions contemplated hereby, and any
agreements or instruments executed in connection therewith, as amended,
restated, or supplemented from time to time.
"AGREEMENT" shall mean this Credit Agreement, as it may be
amended, supplemented, restated or otherwise modified from time to
time.
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and
type of Loan, the lending office of such Lender (or an affiliate of
such Lender) designated for such type of Loan on the signature pages
hereof or such other office of such Lender (or an affiliate of such
Lender) as such Lender may from time to time specify to the Agent and
the Borrower as the office by which Loans of such type are to be made
and maintained.
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"APPLICABLE MARGIN" shall mean as to each LIBO Rate Loan, the
following:
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Borrowing Base LIBO Rate Loan
Utilization Applicable Margin
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equal to or greater than 75% two percent (2%)
of Borrowing Base
less than 75% but greater one and three-fourths
than 50% of Borrowing percent (1-3/4%)
Base
less than or equal to one and one-half
50% of Borrowing Base percent (1-1/2%),
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with the Borrowing Base Utilization and the corresponding LIBO Rate
being set at the close of each calendar quarter for the next calendar
quarter. The Borrower shall furnish to the Agent, within five (5) days
of the end of each calendar quarter, except for the quarter ending
March 31, 1998, a Borrowing Base Utilization Certificate, substantially
in the form attached as Exhibit IV to this Agreement, which shall
stipulate the Borrowing Base Utilization level at the end of such
quarter.
"AVAILABLE COMMITMENT" shall mean, at any time, an amount
equal to the remainder, if any, of (a) the Borrowing Base in effect at
such time MINUS (b) the sum of the Loan Balance at such time and the
L/C Exposure at such time.
"BORROWING BASE" shall mean, at any time, the amount
determined by the Lenders in accordance with Section 2.9 and then in
effect.
"BORROWING BASE UTILIZATION" shall mean, at any time, the Loan
Balance, plus any L/C Exposure hereunder, expressed as a percentage of
the Borrowing Base.
"BORROWING REQUEST" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower
to the Agent for a borrowing or conversion pursuant to Sections 2.1
or 2.11, each of which shall:
(a) be signed by a Responsible Officer of the Borrower;
(b) specify the amount and type of Loan requested, and, as
applicable, the Loan to be converted and the date of the
borrowing or conversion (which shall be a Business Day);
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(c) when requesting a Floating Rate Loan, be delivered to
the Agent no later than 10:00 a.m., Central Standard or Daylight
Savings Time, as the case may be, on the Business Day of the
requested borrowing or conversion, and
(d) when requesting a LIBO Rate Loan, be delivered to the
Agent no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, two Business Days preceding the
requested borrowing or conversion and designate the Interest
Period requested with respect to such Loan.
"BUSINESS DAY" shall mean (a) for all purposes other than as
covered by clause (b) of this definition, a day other than a Saturday,
Sunday, legal holiday for commercial banks under the laws of the State
of Texas, or any other day when banking is suspended in the State of
Texas, and (b) with respect to all requests, notices, and
determinations in connection with, and payments of principal and
interest on, LIBO Rate Loans, a day which is a Business Day described
in clause (a) of this definition and which is a day for trading by and
between banks for Dollar deposits in the London interbank market.
"CASH FLOW" shall mean, for any relevant accounting period,
Net Income for such period plus, without duplication and to the extent
deducted from revenues in determining Net Income for the relevant
period, depreciation, amortization, depletion, other non-cash expenses,
exploration expenses, dry-hole expenses, and geological and geophysical
costs, less, without duplication and to the extent added to revenues in
determining Net Income for the relevant period, all non-cash revenue
and non-recurring gains of the Borrower for the relevant period.
"CLOSING DATE" shall mean the date of this Agreement.
"CODE" shall mean the United States Internal Revenue Code of
1986, as amended from time to time.
"COLLATERAL" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the
payment or performance of all or any portion of the Obligations of the
Borrower or any Subsidiary or other Affiliate of the Borrower owing to
the Agent or any Lender or any branch, Subsidiary or other Affiliate of
the Agent or any Lender which is subject to a Security Instrument.
"COMMITMENTS" shall mean the several obligations of the
Lenders, subject to applicable provisions of this Agreement, to make
Loans to or for the benefit of the Borrower pursuant to Section 2.1 or
participate in the issuance of Letters of Credit pursuant to Section
2.2.
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"COMMITMENT AMOUNT" shall mean $18,850,000 as to Compass
and $10,150,000 as to BOK as of the Closing Date.
"COMMITMENT FEE" shall mean each fee payable to the Agent for
the benefit of the Lenders by the Borrower pursuant to Section 2.12.
"COMMITMENT PERIOD" shall mean the period from and including
the Closing Date to but not including the Commitment Termination Date.
"COMMITMENT TERMINATION DATE" shall mean April 1, 2001.
"COMMONLY CONTROLLED ENTITY" shall mean any Person which is
under common control with the Borrower within the meaning of Section
4001 of ERISA.
"COMPLIANCE CERTIFICATE" shall mean each certificate,
substantially in the form attached hereto as Exhibit III, executed by a
Responsible Officer of the Borrower and furnished to the Agent from
time to time in accordance with Section 5.2.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends, or other obligations of any other
Person (for purposes of this definition, a "PRIMARY OBLIGATION") in any
manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, regardless of whether such obligation is
contingent, (a) to purchase any primary obligation or any Property
constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any primary obligation,
or (ii) to maintain working or equity capital of any other Person in
respect of any primary obligation, or otherwise to maintain the net
worth or solvency of any other Person, (c) to purchase Property,
securities or services primarily for the purpose of assuring the owner
of any primary obligation of the ability of the Person primarily liable
for such primary obligation to make payment thereof, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation
against loss in respect thereof, with the amount of any Contingent
Obligation being deemed to be equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by
such Person in good faith.
"CURRENT RATIO" means the ratio of (a) consolidated current
assets of the Borrower and it Subsidiaries to (b) consolidated current
liabilities (excluding the current portion of Loans hereunder).
"DEBT SERVICE" shall mean, for each relevant accounting
period, an amount equal to (i) actual principal amounts paid on debt
other than the Obligations during
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each quarter, plus (ii) required principal payments under the
Obligations during such quarter.
"DEFAULT" shall mean any event or occurrence which with the
lapse of time or the giving of notice or both would become an Event of
Default.
"DEFAULT RATE" shall mean a per annum interest rate equal to
the Index Rate plus five percent (5%), but in no event exceeding the
Highest Lawful Rate.
"DOLLARS" and "$" shall mean dollars in lawful currency of the
United States of America.
"ENVIRONMENTAL COMPLAINT" shall mean any written complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority with
respect to (a) air emissions, (b) spills, releases, or discharges to
soils, any improvements located thereon, surface water, groundwater, or
the sewer, septic, waste treatment, storage, or disposal systems
servicing any Property of the Borrower, (c) solid or liquid waste
disposal, (d) the use, generation, storage, transportation, or disposal
of any Hazardous Substance, or (e) other environmental, health, or
safety matters affecting any Property of the Borrower or the business
conducted thereon.
"ENVIRONMENTAL LAWS" shall mean (a) the following federal laws
as they may be cited, referenced, and amended from time to time: the
Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act,
the Endangered Species Act, the Resource Conservation and Recovery Act,
the Occupational Safety and Health Act, the Hazardous Materials
Transportation Act, the Superfund Amendments and Reauthorization Act,
and the Toxic Substances Control Act; (b) any and all equivalent
environmental statutes of any state in which Property of the Borrower
is situated, as they may be cited, referenced and amended from time to
time; (c) any rules or regulations promulgated under or adopted
pursuant to the above federal and state laws; and (d) any other
equivalent foreign, federal, state, or local statute or any
requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations thereunder
and interpretations thereof.
"EXISTING LIENS" shall mean the liens held by BOK.
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"EVENT OF DEFAULT" shall mean any of the events
specified in Section 7.1.
"FACILITY FEE" shall mean the fee payable to the Agent for the
benefit of the Lenders by the Borrower pursuant to Section 2.13.
"FINAL MATURITY" shall mean April 1, 2001.
"FINANCIAL STATEMENTS" shall mean statements of the financial
condition of the Borrower and its consolidated Subsidiaries on a
consolidated and consolidating basis as at the point in time and for
the period indicated and consisting of at least a balance sheet and
related statements of operations, common stock and other stockholders'
equity, and cash flows, and when such statements prepared on a
consolidated basis are required by applicable provisions of this
Agreement to be audited, accompanied by the unqualified certification
of a nationally-recognized firm of independent certified public
accountants or other independent certified public accountants
acceptable to the Agent and footnotes to any of the foregoing, all of
which shall be prepared in accordance with GAAP consistently applied
and in comparative form with respect to the corresponding period of the
preceding fiscal period.
"FIXED RATE LOAN" shall mean any LIBO Rate Loan.
"FLOATING RATE" shall mean an interest rate per annum equal to
the Index Rate from time to time in effect, but in no event exceeding
the Highest Lawful Rate.
"FLOATING RATE LOAN" shall mean any Loan and any portion of
the Loan Balance which the Borrower has requested, in the initial
Borrowing Request for such Loan or a subsequent Borrowing Request for
such portion of the Loan Balance, bear interest at the Floating Rate,
or which pursuant to the terms hereof is otherwise required to bear
interest at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country,
commonwealth, territory, government, state, county, parish,
municipality, or other political subdivision and any entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances
or related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and
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development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Superfund
Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, or any other law or regulation now or hereafter enacted or
promulgated by any Governmental Authority.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious
interest rate, if any (or, if the context so requires, an amount
calculated at such rate), that at any time or from time to time may be
contracted for, taken, reserved, charged, or received under applicable
laws of the State of Texas or the United States of America, whichever
authorizes the greater rate, as such laws are presently in effect or,
to the extent allowed by applicable law, as such laws may hereafter be
in effect and which allow a higher maximum non-usurious interest rate
than such laws now allow.
"INDEBTEDNESS" shall mean, as to any Person, without
duplication, (a) all liabilities (excluding reserves for deferred
income taxes, deferred compensation liabilities, and other deferred
liabilities and credits) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet, (b) all obligations of such Person evidenced
by bonds, debentures, promissory notes, or similar evidences of
indebtedness, (c) all other indebtedness of such Person for borrowed
money, (d) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade
payables, which include amounts owed to drilling contractors, entered
into in the ordinary course of business on ordinary terms); (e) all
indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person (even though the rights
and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property)
including, without limitation, production payments, net profit
interests and other hydrocarbon interests subject to repayment out of
future oil and gas production; (f) all obligations with respect to
capital leases; (g) all net obligations with respect to derivative
contracts; and (h) all obligations, including Contingent Obligations of
others, to the extent any such obligation is secured by a Lien on the
assets of such Person (whether or not such Person has assumed or become
liable for the obligation secured by such Lien).
"INDEX RATE" shall mean the prime rate established in THE WALL
STREET JOURNAL'S "MONEY RATES" or similar table. If multiple prime
rates are quoted in the table, then the highest prime rate will be the
Index Rate. In the event that the prime rate is no longer published by
THE WALL STREET JOURNAL in the "MONEY RATES" or similar table, then
Agent may select an alternative published index based upon
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comparable information as a substitute Index Rate. Upon the
selection of a substitute Index Rate, the applicable interest rate
shall thereafter vary in relation to the substitute index. Such
substitute index shall be the same index that is generally used as
a substitute by Agent on all Index Rate loans.
"INSOLVENCY PROCEEDING" shall mean application (whether
voluntary or instituted by another Person) for or the consent to the
appointment of a receiver, trustee, conservator, custodian, or
liquidator of any Person or of all or a substantial part of the
Property of such Person, or the filing of a petition (whether voluntary
or instituted by another Person) commencing a case under Title 11 of
the United States Code, seeking liquidation, reorganization, or
rearrangement or taking advantage of any bankruptcy, insolvency,
debtor's relief, or other similar law of the United States, the State
of Texas, or any other jurisdiction.
"INTELLECTUAL PROPERTY" shall mean patents, patent
applications, trademarks, tradenames, copyrights, technology, know-how,
and processes.
"INTEREST PERIOD" shall mean, subject to the limitations set
forth in Section 2.24, and with respect to any LIBO Rate Loan, a period
commencing on the date such Loan is made or converted from a Loan of
another type pursuant to this Agreement or the last day of the next
preceding Interest Period with respect to such Loan and ending on the
numerically corresponding day in the calendar month that is one, two,
three, or, subject to availability, six months thereafter, as the
Borrower may request in the Borrowing Request for such Loan.
"INVESTMENT" in any Person shall mean any stock, bond, note,
or other evidence of Indebtedness, or any other security (other than
current trade and customer accounts) of, investment or partnership
interest in or loan to, such Person.
"L/C EXPOSURE" shall mean, at any time, the aggregate maximum
amount available to be drawn under outstanding Letters of Credit at
such time.
"LETTER OF CREDIT" shall mean any standby letter of credit
issued by the Agent for the account of the Borrower pursuant to Section
2.2.
"LETTER OF CREDIT APPLICATION" shall mean the standard letter
of credit application employed by the Agent as the issuer of the
Letters of Credit, from time to time, in connection with Letters of
Credit.
"LETTER OF CREDIT FEE" shall mean each fee payable by the
Borrower to the Agent for the account of the Lenders pursuant to
Section 2.15 upon or in connection with the issuance or renewal of each
Letter of Credit.
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"LETTER OF CREDIT PAYMENT" shall mean any payment made by the
Agent on behalf of the Lenders under a Letter of Credit, to the extent
that such payment has not been repaid by the Borrower.
"LIBO RATE" shall mean, with respect to any Interest Period
for any LIBO Rate Loan, the lesser of (a) the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the average
of the offered quotations appearing on Telerate Page 3750 (or if such
Telerate Page shall not be available, any successor or similar service
selected by the Agent and the Borrower) as of approximately 11:00 a.m.,
Central Standard or Daylight Savings Time, as the case may be, on the
day two Business Days prior to the first day of such Interest Period
for Dollar deposits in an amount comparable to the principal amount of
such LIBO Rate Loan and having a term comparable to the Interest Period
for such LIBO Rate Loan, or (b) the Highest Lawful Rate. If neither
such Telerate Page 3750 nor any successor or similar service is
available, the term "LIBO Rate" shall mean, with respect to any
Interest Period for any LIBO Rate Loan, the lesser of (a) the rate per
annum (rounded upwards if necessary, to the nearest 1/100 of 1%) quoted
by the Agent at approximately 11:00 a.m., London time (or as soon
thereafter as practicable) two Business Days prior to the first day of
the Interest Period for such LIBO Rate Loan for the offering by the
Agent to leading banks in the London interbank market of Dollar
deposits in an amount comparable to the principal amount of such LIBO
Rate Loan and having a term comparable to the Interest Period for such
LIBO Rate Loan, or (b) the Highest Lawful Rate.
"LIBO RATE LOAN" shall mean any Loan and any portion of the
Loan Balance which the Borrower has requested, in the initial Borrowing
Request for such Loan or a subsequent Borrowing Request for such
portion of the Loan Balance, bear interest at the Adjusted LIBO Rate
and which is permitted by the terms hereof to bear interest at the
Adjusted LIBO Rate.
"LIEN" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of
such Property, whether such interest is based on common law, statute,
or contract, and including, but not limited to, the lien or security
interest arising from a mortgage, ship mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt, or a lease,
consignment, or bailment for security purposes (other than true leases
or true consignments), liens of mechanics, materialmen, and artisans,
maritime liens and reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Property which secure an
obligation owed to, or a claim by, a Person other than the owner of
such Property (for the purpose of this Agreement, the Borrower shall be
deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, financing lease, or other
arrangement pursuant to which title to the Property has been
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retained by or vested in some other Person for security purposes),
and the filing or recording of any financing statement or other
security instrument in any public office.
"LIMITATION PERIOD" shall mean any period while any amount
remains owing on the Notes and interest on such amount, calculated at
the applicable interest rate, plus any fees or other sums payable under
any Loan Document and deemed to be interest under applicable law, would
exceed the amount of interest which would accrue at the Highest Lawful
Rate.
"LOAN" shall mean any loan made by any Lender to or for the
benefit of the Borrower pursuant to this Agreement and any payment made
by the Agent or any Lender under a Letter of Credit.
"LOAN BALANCE" shall mean, at any time, the outstanding
principal balance of the Notes at such time.
"LOAN DOCUMENTS" shall mean the Assignment, this Agreement,
the Notes, any Letter of Credit Applications, any Letters of Credit,
the Security Instruments, and all other documents and instruments now
or hereafter delivered pursuant to the terms of or in connection with
the Assignment, this Agreement, the Notes, any Letter of Credit
Applications, any Letters of Credit, or the Security Instruments, and
all renewals and extensions of, amendments and supplements to, and
restatements of, any or all of the foregoing from time to time in
effect.
"MATERIAL ADVERSE EFFECT" shall mean (a) any material adverse
effect on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower taken as a whole, or (b) any
adverse effect upon the Collateral taken as a whole.
"MAXIMUM COMMITMENT AMOUNT" shall mean the sum of the
Commitment Amounts of all Lenders.
"MORTGAGED PROPERTIES" shall mean all Oil and Gas Properties
of the Borrower subject to a perfected first-priority Lien in favor of
the Agent for the benefit of the Lenders, subject only to Permitted
Liens, as security for the Obligations owing to the Agent or any
Lender.
"NET INCOME" shall mean, for any relevant accounting period,
the net income of the Borrower and its consolidated Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
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"NOTES" shall mean, collectively, each of the promissory notes
of the Borrower, in the form attached hereto as Exhibit I, together
with all renewals, extensions for any period, increases, and
rearrangements thereof.
"OBLIGATIONS" shall mean, without duplication, (a) all
Indebtedness evidenced by the Notes, (b) the undrawn, unexpired amount
of all outstanding Letters of Credit, (c) the obligation of the
Borrower for the payment of Commitment Fees, Facility Fees and Letter
of Credit Fees, and (e) all other obligations and liabilities of the
Borrower to the Agent and/or the Lenders, now existing or hereafter
incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or
refers to the payment of amounts deemed or constituting interest, only
so much thereof as shall have accrued, been earned and which remains
unpaid at each relevant time of determination.
"OIL AND GAS PROPERTIES" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States,
including, without limitation, overriding royalty and royalty
interests, leasehold estate interests, net profits interests,
production payment interests, and mineral fee interests, together with
contracts executed in connection therewith and all tenements,
hereditaments, appurtenances and Properties appertaining, belonging,
affixed, or incidental thereto.
"PERCENTAGE SHARE" shall mean, as to each Lender, the
percentage such Lender's Commitment Amount constitutes of the Maximum
Commitment Amount.
"PERMITTED INDEBTEDNESS" shall mean (a) the Obligations, (b)
Indebtedness arising from endorsing negotiable instruments for deposit
or collection in the ordinary course of business, (c) current
liabilities incurred in the ordinary course of business, (d) other
Indebtedness which does not exceed an aggregate principal amount of
$250,000 during any fiscal year, and (e) Indebtedness existing by
virtue of the requirements of GAAP or any changes in the requirements
of GAAP.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments,
or other governmental charges or levies not yet due or which (if
foreclosure, distraint, sale, or other similar proceedings shall not
have been initiated) are being contested in good faith by appropriate
proceedings, and such reserve as may be required by GAAP shall have
been made therefor, (b) Liens in connection with workers' compensation,
unemployment insurance or other social security (other than Liens
created by Section 4068 of ERISA), old-age pension, or public liability
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (c) Liens in favor of vendors,
carriers, warehousemen, repairmen, mechanics, workmen,
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materialmen, construction, or similar Liens arising by operation of
law in the ordinary course of business in respect of obligations
which are not yet due or which are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP
shall have been made therefor, (d) Liens in favor of operators and
non-operators under joint operating agreements or similar
contractual arrangements arising in the ordinary course of the
business of the Borrower to secure amounts owing, which amounts are
not yet due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have
been made therefor, (e) Liens under production sales agreements,
division orders, operating agreements, and other agreements
customary in the oil and gas business for processing, producing,
and selling hydrocarbons securing obligations not constituting
Indebtedness and provided that such Liens do not secure obligations
to deliver hydrocarbons at some future date without receiving full
payment therefor within 90 days of delivery, (f) easements, rights
of way, restrictions, and other similar encumbrances, and minor
defects in the chain of title which are customarily accepted in the
oil and gas financing industry, none of which interfere with the
ordinary conduct of the business of the Borrower or materially
detract from the value or use of the Property to which they apply,
and (g) Liens in favor of the Agent for the benefit of the Lenders
and other Liens expressly permitted under the Security Instruments.
"PERSON" shall mean an individual, corporation, limited
liability company, partnership, trust, unincorporated organization,
government, any agency or political subdivision of any government, or
any other form of entity.
"PLAN" shall mean, at any time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or any
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer"
as defined in Section 3(5) of ERISA.
"PRINCIPAL OFFICE" shall mean the principal office of the
Agent in Houston, Texas, presently located at 24 Greenway Plaza, 14th
Floor, Houston, Texas 77046.
"PROPERTY" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"REGULATION D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System, as the same may be amended or
supplemented from time to time.
"REGULATORY CHANGE" shall mean the passage, adoption,
institution, or amendment of any federal, state, local, or foreign
Requirement of Law (including, without limitation, Regulation D), or
any interpretation, directive, or request of any
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Governmental Authority or monetary authority charged with the
enforcement, interpretation, or administration thereof, occurring
after the Closing Date and applying to a class of banks including
any Lender or its Applicable Lending Office.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission,
spill, release, disposal, or discharge, except in accordance with the
Requirement of Law, a valid permit, license, certificate, or approval
of the relevant Governmental Authority, of any Hazardous Substance into
or upon (a) the air, (b) soils or any improvements located thereon, (c)
surface water or groundwater, or (d) the sewer or septic system, or the
waste treatment, storage, or disposal system servicing any Property of
the Borrower.
"REQUIRED LENDERS" shall mean, Lenders (including the Agent)
holding at least 75% of the then Loan Balance, or, if there is no Loan
Balance, Lenders (including the Agent) having at least 75% of the
aggregate amount of the Commitments.
"REQUIREMENT OF LAW" shall mean, as to any Person, the
certificate or articles of incorporation and by-laws or other
organizational or governing documents of such Person, and any
applicable law, treaty, ordinance, order, judgment, rule, decree,
regulation, or determination of an arbitrator, court, or other
Governmental Authority, including, without limitation, rules,
regulations, orders, and requirements for permits, licenses,
registrations, approvals, or authorizations, in each case as such now
exist or may be hereafter amended and are applicable to or binding upon
such Person or any of its Property or to which such Person or any of
its Property is subject.
"RESERVE REPORT" shall mean each report delivered to the Agent
and each Lender pursuant to Section 5.4.
"RESPONSIBLE OFFICER" shall mean, as to any Person, its President,
Chief Executive Officer, Chief Financial Officer or any Vice President.
"SCHEDULED REDUCTION AMOUNT" shall mean the amount by which
the Borrowing Base shall be reduced each calendar month as determined
by the Lenders under Section 2.9(b) from time to time.
"SECURITY INSTRUMENTS" shall mean the security instruments
executed and delivered in satisfaction of the condition set forth in
Section 3.1(f), and all other documents and instruments at any time
executed as security for all or any portion of the Obligations of the
Borrower or any Subsidiary or other Affiliate of the Borrower owing to
the Agent or any Lender or any branch, Subsidiary or other Affiliate of
the Agent or any Lender, as such instruments may be amended, restated,
or supplemented from time to time.
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"SUBSIDIARY" shall mean, as to any Person, a corporation of
which shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"SUPERFUND SITE" shall mean those sites listed on the
Environmental Protection Agency National Priority List and eligible for
remedial action or any comparable state registries or list in any state
of the United States.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the State of Texas.
1.3 UNDEFINED FINANCIAL ACCOUNTING TERMS. Undefined
financial accounting terms used in this Agreement shall be defined
according to GAAP at the time in effect.
1.4 REFERENCES. References in this Agreement to Schedule,
Exhibit, Article, or Section numbers shall be to Schedules,
Exhibits, Articles, or Sections of this Agreement, unless
expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow,"
"hereof," "hereunder" and words of similar import shall be to this
Agreement in its entirety and not only to the particular Schedule,
Exhibit, Article, or Section in which such reference appears.
1.5 ARTICLES AND SECTIONS. This Agreement, for
convenience only, has been divided into Articles and Sections; and
it is understood that the rights and other legal relations of the
parties hereto shall be determined from this instrument as an
entirety and without regard to the aforesaid division into Articles
and Sections and without regard to headings prefixed to such
Articles or Sections.
1.6 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to
include the plural; and likewise, the plural shall be understood to
include the singular. Definitions of terms defined in the singular
or plural shall be equally applicable to the plural or singular, as
the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration
shall not exclude the general but shall be construed as cumulative.
1.7 INCORPORATION OF SCHEDULES AND EXHIBITS. The Exhibits
attached to this Agreement are incorporated herein and shall be
considered a part of this Agreement for all purposes.
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ARTICLE II
TERMS OF FACILITY
2.1 REVOLVING LINE OF CREDIT. Upon the terms and conditions
(including, without limitation, the right of the Lenders to decline to make
any Loan so long as any Default or Event of Default exists) and relying on
the representations and warranties contained in this Agreement, the Lenders
severally agree, during the Commitment Period, to make Loans, in immediately
available funds at the Applicable Lending Office or the Principal Office, to
or for the benefit of the Borrower, from time to time on any Business Day
designated by the Borrower following receipt by the Agent of a Borrowing
Request; provided, however, no Loan at the time it is made shall exceed the
then existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a
different Interest Period. Except for prepayments made pursuant to Section
2.10, each borrowing, conversion, and prepayment of principal of Loans shall
be in an aggregate amount at least equal to $100,000. Each borrowing,
prepayment, or conversion of or into a Loan of a different type or, in the
case of a Fixed Rate Loan, having a different Interest Period, shall be
deemed a separate borrowing, conversion, or prepayment for purposes of the
foregoing, one for each type of Loan or Interest Period. Anything in this
Agreement to the contrary notwithstanding, the aggregate principal amount of
LIBO Rate Loans having the same Interest Period shall be at least equal to
$1,000,000; and if any LIBO Rate Loan would otherwise be in a lesser
aggregate principal amount for any period, such Loan shall be a Floating Rate
Loan during such period.
(c) The Loans shall be made and maintained at the Applicable
Lending Office or the Principal Office and shall be evidenced by the Notes.
(d) Not later than 3:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, each
Lender shall make available an amount equal to its Percentage Share of the
borrowing to be made on such date to the Agent, at an account designated by
the Agent, in immediately available funds, for the account of the Borrower.
The amount so received by the Agent shall, subject to the terms and
conditions hereof, be made available to the Borrower in immediately available
funds at the Principal Office. All Loans by each Lender shall be maintained
at the Applicable Lending Office of such Lender and shall be evidenced by the
Note of such Lender.
(e) The failure of any Lender to make any Loan required to be made
by it hereunder shall not relieve any other Lender of its obligation to make
any Loan required to be made by it, and no Lender shall be responsible for
the failure of any other Lender to make any Loan.
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(f) The face amounts of the Notes have been established as an
administrative convenience and do not commit any Lender to advance funds
hereunder in excess of the then current Borrowing Base.
2.2 LETTER OF CREDIT FACILITY. Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement,
the Agent, as issuing bank for the Lenders, agrees from the date of this
Agreement until the date which is thirty days prior to the Commitment
Termination Date, to issue on behalf of the Lenders in their respective
Percentage Shares Letters of Credit for the account of the Borrower and to
renew and extend such Letters of Credit. Letters of Credit shall be issued,
renewed, or extended from time to time on any Business Day designated by the
Borrower following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of the Borrower therefor and a Letter of Credit
Application. Letters of Credit shall be issued in such amounts as the
Borrower may request; provided, however, that (i) no Letter of Credit shall
have an expiration date which is more than 365 days after the issuance
thereof or subsequent to the Final Maturity, (ii) each automatically
renewable Letter of Credit shall provide that it may be terminated by the
Agent at its then current expiry date by not less than 30 days' written
notice by the Agent to the beneficiary of such Letter of Credit, and (iii)
the Agent shall not be obligated to issue any Letter of Credit if (A) the
face amount thereof would exceed the Available Commitment, or (B) after
giving effect to the issuance thereof, (I) the L/C Exposure, when added to
the Loan Balance then outstanding, would exceed the lesser of the Maximum
Commitment Amount or the Borrowing Base, or (II) the L/C Exposure would
exceed $2,000,000.
(b) Prior to any Letter of Credit Payment in respect of any Letter
of Credit, each Lender shall be deemed to be a participant through the Agent
with respect to the relevant Letter of Credit in the obligation of the Agent,
as the issuer of such Letter of Credit, in an amount equal to the Percentage
Share of such Lender of the maximum amount which is or at any time may become
available to be drawn thereunder. Upon delivery by such Lender of funds
requested pursuant to Section 2.2(c), such Lender shall be treated as having
purchased a participating interest in an amount equal to such funds delivered
by such Lender to the Agent in the obligation of the Borrower to reimburse
the Agent, as the issuer of such Letter of Credit, for any amounts payable,
paid, or incurred by the Agent, as the issuer of such Letter of Credit, with
respect to such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a
Floating Rate Loan by each Lender to the extent of funds delivered by such
Lender to the Agent with respect to such Letter of Credit Payment and shall
to such extent be deemed a Floating Rate Loan under and shall be evidenced by
the Note of such Lender and shall be payable by the Borrower upon demand by
the Agent.
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(d) EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE AGENT, AS THE
ISSUER OF EACH LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT
REIMBURSED BY THE BORROWER AND WITHOUT LIMITING THE OBLIGATION OF THE
BORROWER TO DO SO), RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER
AT THE TIME OF ISSUANCE OF SUCH LETTER OF CREDIT, FROM AND AGAINST ANY AND
ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER
WHICH MAY AT ANY TIME (INCLUDING, WITHOUT LIMITATION, ANY TIME FOLLOWING THE
PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE
ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT
OF THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY
THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN
CONNECTION WITH ANY OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY
LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR
ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE
AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT
NO LENDER (OTHER THAN THE AGENT AS THE ISSUER OF A LETTER OF CREDIT) SHALL BE
LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR
DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE WHETHER SOLE OR CONCURRENT
OR WILLFUL MISCONDUCT OF THE AGENT AS THE ISSUER OF A LETTER OF CREDIT. THE
AGREEMENTS IN THIS Section 2.2(D) SHALL SURVIVE THE PAYMENT AND PERFORMANCE
OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
2.3 USE OF LOAN PROCEEDS AND LETTERS OF CREDIT. (a) Proceeds of all
Loans shall be used to refinance the existing debt with Bank of Oklahoma, for
general corporate purposes of the Borrower, including, without limitation,
costs of acquiring, exploring on and developing Oil and Gas Properties and
general working capital needs; and
(b) Letters of Credit shall be used solely for general
corporate purposes of the Borrower; provided, however, no Letter of Credit
may be used in lieu or in support of stay or appeal bonds.
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2.4 INTEREST. Subject to the terms of this Agreement (including,
without limitation, Section 2.19), interest on the Loans shall accrue and be
payable at a rate per annum equal to the Floating Rate for each Floating Rate
Loan and the Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all
Floating Rate Loans shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day
but excluding the last day) during the period for which payable. Interest on
all LIBO Rate Loans shall be computed on the basis of a year of 360 days, and
actual days elapsed (including the first day but excluding the last day)
during the period for which payable. Notwithstanding the foregoing, interest
on past-due principal and, to the extent permitted by applicable law,
past-due interest, shall accrue at the Default Rate, computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) during the period for
which payable, and shall be payable upon demand by the Lenders at any time as
to all or any portion of such interest. In the event that the Borrower fails
to select the duration of any Interest Period for any Fixed Rate Loan within
the time period and otherwise as provided herein, such Loan (if outstanding
as a Fixed Rate Loan) will be automatically converted into a Floating Rate
Loan on the last day of the then current Interest Period for such Loan or (if
outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate Loan. Interest provided for
herein shall be calculated on unpaid sums actually advanced and outstanding
pursuant to the terms of this Agreement and only for the period from the date
or dates of such advances until repayment.
2.5 REPAYMENT OF LOANS AND INTEREST. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly
commencing on the first day of May, 1998, and continuing on the first day of
each calendar month thereafter while any Floating Rate Loan remains
outstanding, the payment in each instance to be the amount of interest which
has accrued and remains unpaid in respect of the relevant Loan. Accrued and
unpaid interest on each outstanding Fixed Rate Loan shall be due and payable
on the last day of the Interest Period for such Fixed Rate Loan and, in the
case of any Interest Period in excess of three months, on the day of the
third calendar month following the commencement of such Interest Period
corresponding to the day of the calendar month on which such Interest Period
commenced, the payment in each instance to be the amount of interest which
has accrued and remains unpaid in respect of the relevant Loan. The Loan
Balance, together with all accrued and unpaid interest thereon, shall be due
and payable at Final Maturity. At the time of making each payment hereunder
or under the Notes, the Borrower shall specify to the Agent the Loans or
other amounts payable by the Borrower hereunder to which such payment is to
be applied. In the event the Borrower fails to so specify, or if an Event of
Default has occurred and is continuing, the Agent may apply such payment as
it may elect in its sole discretion.
2.6 OUTSTANDING AMOUNTS. The Loan Balance reflected by the
notations by the Lenders on their records shall be deemed rebuttably
presumptive evidence of the Loan Balance. The liability for payment of
principal and interest evidenced by the Notes shall be limited to principal
amounts actually advanced and outstanding pursuant to this Agreement and
interest on such amounts calculated in accordance with this Agreement.
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2.7 TIME, PLACE, AND METHOD OF PAYMENTS. All payments required
pursuant to this Agreement or the Notes shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Lenders on the next Business Day following receipt if such
receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date
of any payment hereunder or under the Notes would otherwise fall on a day
which is not a Business Day, such date shall be extended to the next
succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
2.8 PRO RATA TREATMENT; ADJUSTMENTS. Except to the extent otherwise
expressly provided herein, (i) each borrowing made pursuant to this Agreement
shall be from the Lenders pro rata in accordance with their Percentage
Shares, (ii) each payment by the Borrower of Commitment Fees shall be made
for the account of the Lenders pro rata in accordance with their respective
Percentage Shares, (iii) Facility Fees and Letter of Credit Fees shall be
made for the account of the Lenders in accordance with each Lender's
Percentage Share of any increase in the Commitment Amount or any Letter of
Credit issued, (iv) each payment of principal of Loans shall be made for the
account of the Lenders pro rata in accordance with their respective
Percentage Shares of the Loan Balance, and (v) each payment of interest on
Loans shall be made for the account of the Lenders pro rata in accordance
with their Percentage Shares of the aggregate amount of interest due and
payable to the Lenders.
(b) The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received.
In the event that any payments made hereunder by the Borrower at any
particular time are insufficient to satisfy in full the Obligations due and
payable at such time, such payments shall be applied (a) first, to fees and
expenses due pursuant to the terms of this Agreement or any other Loan
Document, (b) second, to accrued interest, (c) third, to the Loan Balance,
and (d) last, to any other Obligations.
(c) If any Lender (for purposes of this Section, a "benefitted
Lender") shall at any time receive any payment of all or part of its portion
of the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings
of the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an
amount greater than such Lender was entitled to receive pursuant to the terms
hereof, such benefitted Lender shall purchase for cash from the other Lenders
such portion of the Obligations of such other Lenders or shall provide such
other Lenders with the benefits of any such Collateral or the proceeds
thereof as shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such Collateral or proceeds with each of the
Lenders according to the terms hereof. If all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded and the purchase price and benefits returned by
such Lender, to the extent of such recovery, but without interest. The
Borrower agrees that each such Lender so purchasing a portion of the
Obligations of another Lender may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as fully
as if such Lender
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were the direct holder of such portion. If any Lender ever receives, by
voluntary payment, exercise of rights of set-off or banker's lien,
counterclaim, cross-action or otherwise, any funds of the Borrower to be
applied to the Obligations, or receives any proceeds by realization on or
with respect to any Collateral, all such funds and proceeds shall be
immediately forwarded to the Agent for distribution in accordance with the
terms of this Agreement.
2.9 BORROWING BASE DETERMINATIONS. (a) The Borrowing Base as of the
Closing Date is acknowledged by the Borrower and the Lenders to be
$29,000,000 and shall reduce to a level of $27,500,000 within ten days of the
Closing Date. Commencing on May 1, 1998, and continuing thereafter on the
first day of each calendar month until the earlier of the date such amount is
redetermined or the Commitment Termination Date, the Scheduled Reduction
Amount shall be $275,000.
(b) The Borrowing Base and the Scheduled Reduction Amount shall be
redetermined semi-annually by unanimous consent of the Lenders beginning
October 1, 1998, on the basis of information supplied by the Borrower in
compliance with the provisions of this Agreement, including, without
limitation, Reserve Reports, and all other information available to the
Lenders. In addition, the Lenders shall, in the normal course of business
following a request of the Borrower, redetermine the Borrowing Base;
provided, however, the Lenders shall not be obligated to respond to more than
four such requests during any calendar year, and in no event shall the
Lenders be required to redetermine the Borrowing Base more than twice in any
three-month period, including, without limitation, each scheduled semi-annual
redetermination provided for above. Notwithstanding the foregoing, the
Lenders may at their discretion and by unanimous consent redetermine the
Borrowing Base and the Scheduled Reduction Amount at any time and from time
to time.
(c) Upon each determination of the Borrowing Base and the Scheduled
Reduction Amount by the Lenders, the Agent shall notify the Borrower orally
(confirming such notice promptly in writing) of such determination, and the
Borrowing Base and the Scheduled Reduction Amount shall become effective upon
such written notification and shall remain in effect until the next
subsequent determination of the Borrowing Base. Upon request, Agent will
furnish detailed information as to the determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the
Lenders, in accordance with the applicable definitions and provisions herein
contained and their customary lending practices for loans of this nature, of
the value, for loan purposes, of the Mortgaged Properties, plus certain other
Oil and Gas Properties to be determined in sole discretion of the Lenders
subject, in the case of any increase in the Borrowing Base, to the credit
approval process of the Lenders. Furthermore, the Borrower acknowledges that
the determination of the Borrowing Base contains an equity cushion (market
value in excess of loan value), which is acknowledged by the Borrower to be
essential for the adequate protection of the Lenders. The Borrowing Base
shall be determined in the sole discretion of the Lenders by using the
Lenders' then current engineering and credit standards.
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2.10 MANDATORY PREPAYMENTS. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the Borrowing Base then in effect, the
Borrower shall, within 60 days of notice from the Agent of such occurrence,
(a) prepay, or make arrangements acceptable to the Lenders for the prepayment
of, the amount of such excess for application on the Loan Balance, (b)
provide additional Collateral, of character and value satisfactory to the
Lenders in their sole discretion, to secure the amount of such excess by the
execution and delivery to the Agent for the benefit of the Lenders of
Security Instruments in form and substance satisfactory to the Agent, or (c)
effect any combination of the alternatives described in clauses (a) and (b)
of this Section and acceptable to the Lenders in their sole discretion. In
the event that a mandatory prepayment is required under this Section and the
Loan Balance is less than the amount required to be prepaid, the Borrower
shall repay the entire Loan Balance and, in accordance with the provisions of
the relevant Letter of Credit Applications executed by the Borrower or
otherwise to the satisfaction of the Lenders, deposit with the Agent for the
benefit of the Lenders, as additional collateral securing the Obligations, an
amount of cash, in immediately available funds, equal to the L/C Exposure
minus the lesser of the aggregate Commitment Amounts or the Borrowing Base.
The cash deposited with the Agent for the benefit of the Lenders in
satisfaction of the requirement provided in this Section may be invested, at
the sole discretion of the Lenders and then only at the express direction of
the Borrower as to investment vehicle and maturity (which shall be no later
than the latest expiry date of any then outstanding Letter of Credit), for
the account of the Borrower in cash or cash equivalent investments offered by
or through the Agent.
2.11 VOLUNTARY PREPAYMENTS AND CONVERSIONS OF LOANS. Subject to
applicable provisions of this Agreement, the Borrower shall have the right at
any time or from time to time to prepay Loans without penalty and to convert
Loans of one type or with one Interest Period into Loans of another type or
with a different Interest Period; provided, however, that (a) the Borrower
shall give the Agent notice of each such prepayment or conversion of all or
any portion of a Fixed Rate Loan no less than two Business Days prior to
prepayment or conversion, (b) any Fixed Rate Loan may be prepaid or converted
only on the last day of an Interest Period for such Loan, (c) the Borrower
shall pay all accrued and unpaid interest on the amounts prepaid or
converted, and (d) no such prepayment or conversion shall serve to postpone
the repayment when due of any Obligation.
2.12 COMMITMENT FEE. In addition to interest on the Notes as
provided herein and other fees payable hereunder and to compensate the
Lenders for maintaining funds available, the Borrower shall pay to the Agent,
for the account of the Lenders, in immediately available funds, on the first
day of April, 1998, and on the first day of each third calendar month
thereafter during the Commitment Period and on the Commitment Termination
Date, a fee in the amount per annum as set forth below, calculated on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the Available Commitment during the preceding quarterly
period as follows:
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<TABLE>
<CAPTION>
Borrowing Base
Utilization Commitment Fee
-------------------------------------------------------
<S> <C>
greater than 50% one-half percent (1/2%)
of Borrowing Base
less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base
</TABLE>
The Borrowing Base Utilization and the corresponding Commitment Fee
shall be set at the close of each calendar quarter for the next such quarter.
2.13 FACILITY FEE. In addition to interest on the Notes as provided
herein and other fees payable hereunder and to compensate the Lenders for the
costs of the extension of credit hereunder, the Borrower shall pay to the
Agent for the account of the Lenders, in immediately available funds, an
initial facility fee in the amount of $108,750. Such fee shall be paid on the
Closing Date to the Agent for the benefit of the Lenders as of the Closing
Date. In addition, the Borrower shall pay to the Agent for the account of the
Lenders three-eighths percent (3/8%) on any future increase in the Borrowing
Base within five days of written notice.
2.14 ENGINEERING FEE. In addition to the interest on the Notes as
provided herein and other fees payable hereunder and to compensate the Agent
for costs of evaluating the Mortgaged Properties and reviewing the Reserve
Reports, the Borrower shall pay to the Agent, in immediately available funds,
an engineering fee of $5,000 per each semi-annual Borrowing Base review and
to the Agent for the benefit of the Lenders other than the Agent, an
engineering fee of $2,500 per each semi-annual Borrowing Base review. The
Borrower shall pay to the Agent an engineering fee of $2,500 per each interim
Borrowing Base review and to the Agent for the benefit of the Lenders other
than the Agent, an engineering fee of $1,250 per each interim Borrowing Base
review.
2.15 LETTER OF CREDIT FEE. In addition to interest on the Notes as
provided herein and Commitment Fees and Facility Fees payable hereunder, the
Borrower agrees to pay to the Agent, for the account of the Lenders, on the
date of issuance or renewal of each Letter of Credit, a fee equal to the
greater of (a) $500 or (b) one and one-half percent (1 1/2%) per annum
calculated on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day), on
the face amount of such Letter of Credit and for the period for which such
Letter of Credit is issued or renewed; provided, however, in the event such
Letter of Credit is canceled prior to its original expiry date or a payment
is made by the Agent for the account of the Lenders with respect to such
Letter of Credit, the Agent and the Lenders shall, within 30 days after such
cancellation or the making of such payment, rebate to the Borrower the
unearned portion of any such fee. The Borrower also agrees to pay on demand
to the Agent, for its own account as the issuer of the Letters of Credit, its
reasonable customary letter of credit transactional fees, including, without
limitation, amendment fees, payable with respect to each Letter of Credit.
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2.16 AGENCY FEE. The Borrower shall pay to the Agent, for its own
account, all fees owing or which may become owing under the Agency Fee Letter
as provided therein.
2.17 LOANS TO SATISFY OBLIGATIONS OF BORROWER. The Lenders may, by
unanimous consent, but shall not be obligated to, make Loans for the benefit
of the Borrower and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced
by the Notes and shall be made as a Floating Rate Loan.
2.18 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET. As security
for the payment and performance of the Obligations, the Borrower hereby
transfers, assigns, and pledges to the Agent, for the benefit of the Lenders,
and grants to the Agent, for the benefit of the Lenders, a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Agent or any Lender, with such interest of the Lenders to be
retransferred, reassigned, and/or released by the Agent and each Lender, as
the case may be, at the expense of the Borrower upon payment in full and
complete performance by the Borrower of all Obligations. All remedies as
secured party or assignee of such funds shall be exercisable by the Agent and
each Lender upon the occurrence of any Event of Default, regardless of
whether the exercise of any such remedy would result in any penalty or loss
of interest or profit with respect to any withdrawal of funds deposited in a
time deposit account prior to the maturity thereof. Furthermore, the Borrower
hereby grants to the Agent and each Lender the right, exercisable at such
time as any Obligation shall mature, whether by acceleration of maturity or
otherwise, of offset or banker's lien against all funds of the Borrower now
or hereafter or from time to time on deposit with the Agent and each Lender,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof.
2.19 GENERAL PROVISIONS RELATING TO INTEREST. It is the intention
of the parties hereto to comply strictly with the usury laws of the State of
Texas to the extent applicable to each Lender and the United States of
America. In this connection, there shall never be collected, charged, or
received on the sums advanced hereunder interest in excess of that which
would accrue at the Highest Lawful Rate. For purposes of Tex. Fin. Code Ann.
Section 303.301 (Vernon 1998), the Borrower agrees that the Highest Lawful
Rate shall be the "indicated (weekly) rate ceiling" as defined in such
Article, provided that the Agent and the Lenders may also rely, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, on alternative maximum rates of interest under other laws of the
State of Texas or other states or the United States of America applicable to
the Agent and/or such Lender, if greater.
(b) Notwithstanding anything herein or in the Notes to the
contrary, during any Limitation Period, the interest rate to be charged on
amounts evidenced by the Notes shall be the Highest Lawful Rate, and the
obligation, if any, of the Borrower for the payment of fees or other charges
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of
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<PAGE>
Texas or other states or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time
as there has been paid to the Agent for the account of each Lender (i) the
amount of interest in excess of that accruing at the Highest Lawful Rate that
the Agent and the Lenders would have received during the Limitation Period
had the interest rate remained at the otherwise applicable rate, and (ii) all
interest and fees otherwise payable to the Agent and the Lenders but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts
which by law are deemed interest and which would exceed the amount permitted
if the Highest Lawful Rate were in effect, the Borrower stipulates that such
payment and collection will have been and will be deemed to have been, to the
greatest extent permitted by applicable laws of the State of Texas any other
applicable states' laws or the United States of America, the result of
mathematical error on the part of the Borrower and the Agent and the Lenders;
and the Agent and the Lenders shall promptly refund the amount of such excess
(to the extent only of such interest payments in excess of that which would
have accrued and been payable on the basis of the Highest Lawful Rate) upon
discovery of such error by the Agent and the Lenders or notice thereof from
the Borrower. In the event that the maturity of any Obligation is
accelerated, by reason of an election by the Agent and the Lenders or
otherwise, or in the event of any required or permitted prepayment, then the
consideration constituting interest under applicable laws may never exceed
the Highest Lawful Rate; and excess amounts paid which by law are deemed
interest, if any, shall be credited by the Lenders on the principal amount of
the Obligations, or if the principal amount of the Obligations shall have
been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.20 YIELD PROTECTION. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay
to the Agent and each Lender from time to time upon written request such
amounts as the Agent and such Lender may determine are necessary to
compensate it for any Additional Costs incurred by the Agent and such Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to each Lender from
time to time upon written request such amounts as each Lender may determine
are necessary to compensate each Lender for any reasonable costs attributable
to the maintenance by each Lender (or any Applicable Lending Office),
pursuant to any Regulatory Change, of capital in respect of the Commitment,
such compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of each Lender (or any
Applicable Lending Office) to a level below that which each Lender (or any
Applicable Lending Office) could have achieved but for such Regulatory Change.
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<PAGE>
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to each Lender the
reasonable administrative and re-employment costs customarily charged by
Lenders as a result of:
(i) any payment, prepayment, or conversion by the Borrower of a
Fixed Rate Loan on a date other than the last day of an Interest
Period for such Loan; or
(ii) any failure by the Borrower to borrow a Fixed Rate Loan
from the Lenders on the date for such borrowing specified in the
relevant Borrowing Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any and only to the extent actually
incurred by such Lender, of (A) the amount of interest which would have accrued
on the principal amount so paid, prepaid, converted, or not borrowed for the
period from the date of such payment, prepayment, conversion, or failure to
borrow to the last day of the then current Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date of such failure to borrow) at the applicable rate of
interest for such Loan provided for herein over (B) the interest component (as
reasonably determined by the Lenders) of the amount (as reasonably determined by
the Agent and such Lender) the Agent and such Lender would have bid in the
London interbank market for Dollar deposits of amounts comparable to such
principal amount and maturities comparable to such period.
(d) Determinations by the Agent and any Lender for purposes of this
Section of the effect of any Regulatory Change on capital maintained, their
costs or rate of return, maintaining Loans, their obligation to make Loans or
on amounts receivable by it in respect of Loans or such obligations, and the
additional amounts required to compensate the Agent and the Lenders under
this Section shall be conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis. The Agent or such Lender shall
furnish the Borrower with a certificate setting forth in reasonable detail
the basis and amount of increased costs incurred or reduced amounts
receivable as a result of any such event, and the statements set forth
therein shall be conclusive, absent manifest error. The Agent or such Lender
shall (i) notify the Borrower, as promptly as practicable after any Lender
obtains knowledge of any Additional Costs or other sums payable pursuant to
this Section and determine to request compensation therefor, of any event
occurring after the Closing Date which will entitle the Agent and such Lender
to compensation pursuant to this Section; provided that the Borrower shall
not be obligated for the payment of any Additional Costs or other sums
payable pursuant to this Section to the extent such Additional Costs or other
sums accrued more than 30 days prior to the date upon which the Borrower was
given such notice; and (ii) designate a different Applicable Lending Office
for the Loans of the Lenders affected by such event if such designation will
avoid the need for or reduce the amount of such compensation. If the Agent or
any Lender requests compensation from the Borrower under this Section, the
Borrower may, by notice to the Agent and any Lender, require that the Loans
by the Lenders of the type with
26
<PAGE>
respect to which such compensation is requested be converted into Floating
Rate Loans in accordance with Section 2.11. Any compensation requested by the
Lenders pursuant to this Section shall be due and payable to the Lenders
within five days of delivery of any such notice by the Lenders to the
Borrower.
(e) Each Lender agrees that it shall not request, and the Borrower
shall not be obligated to pay, any Additional Costs or other sums payable
pursuant to this Section unless similar additional costs and other sums
payable are also generally assessed by the Lenders against other customers of
such Lenders similarly situated where such customers are subject to documents
providing for such assessment.
2.21 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, no more than six separate Loans shall be outstanding at any
one time, with, for purposes of this Section, all Floating Rate Loans
constituting one Loan and all LIBO Rate Loans for the same Interest Period
constituting one Loan. Anything herein to the contrary notwithstanding, if,
on or prior to the determination of any interest rate for any LIBO Rate Loan
for any Interest Period therefor:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for such Loan as provided in this
Agreement; or
(b) the Agent determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate"
in Section upon the basis of which the rate of interest for such Loan
for such Interest Period is to be determined does not accurately
reflect the cost to the Lenders of making or maintaining such Loan for
such Interest Period,
then the Agent shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate
Loans, and the Borrower shall, on the last day of the then current Interest
Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan
or convert such Loan into another type of Loan in accordance with Section 2.11.
Before giving such notice pursuant to this Section, the Agent will designate
a different available Applicable Lending Office for LIBO Rate Loans or take
such other action as the Borrower may request if such designation or action
will avoid the need to suspend the obligation of the Lenders to make LIBO
Rate Loans hereunder and will not, in the opinion of any Lender, be
disadvantageous to the Lenders.
2.22 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of
Fixed Rate Loans hereunder, or (b) maintain any type of Fixed Rate
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<PAGE>
Loans hereunder, then such Lender shall promptly notify the Agent and the
Borrower thereof; and the obligation of such Lender hereunder to make such
type of Fixed Rate Loans and to convert other types of Loans into Fixed Rate
Loans of such type shall be suspended until such time as such Lender may
again make and maintain Fixed Rate Loans of such type, and the outstanding
Fixed Rate Loans of such type shall be converted into Floating Rate Loans in
accordance with Section 2.11. Before giving such notice pursuant to this
Section, such Lender will designate a different available Applicable Lending
Office for Fixed Rate Loans or take such other action as the Borrower may
request if such designation or action will avoid the need to suspend the
obligation of the Lenders to make Fixed Rate Loans and will not, in the
opinion of any Lender, be disadvantageous to the Lenders.
2.23 REGULATORY CHANGE. In the event that by reason of any
Regulatory Change, any Lender (a) incurs Additional Costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of such Lender which includes deposits by
reference to which the interest rate on any Fixed Rate Loan is determined as
provided in this Agreement or a category of extensions of credit or other
assets of such Lender which includes any Fixed Rate Loan, or (b) becomes
subject to restrictions on the amount of such a category of liabilities or
assets which it may hold, then, at the election of such Lender with notice to
the Agent and the Borrower, the obligation of the Lenders to make such Fixed
Rate Loans and to convert Floating Rate Loans into such Fixed Rate Loans
shall be suspended until such time as such Regulatory Change ceases to be in
effect, and all such outstanding Fixed Rate Loans shall be converted into
Floating Rate Loans in accordance with Section 2.11.
2.24 LIMITATIONS ON INTEREST PERIODS. Each Interest Period selected
by the Borrower (a) which commences on the last Business Day of a calendar
month (or, with respect to any LIBO Rate Loan, any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar
month, (b) which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next
preceding Business Day), (c) which would otherwise commence before and end
after Final Maturity shall end on Final Maturity, and (d) shall have a
duration of not less than one month, as to any LIBO Rate Loan, and, if any
Interest Period would otherwise be a shorter period, the relevant Loan shall
be a Floating Rate Loan during such period.
2.25 LETTERS IN LIEU OF TRANSFER ORDERS. The Agent agrees that
none of the letters in lieu of transfer or division orders provided by the
Borrower pursuant to Section 3.1(f)(v) or Section will be sent to the
addressees thereof prior to the occurrence of an Event of Default, at which
time the Agent may, at its option and in addition to the exercise of any of
its other rights and remedies, send any or all of such letters.
2.26 POWER OF ATTORNEY. The Borrower hereby designates the Agent as
its agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders
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<PAGE>
delivered by the Borrower to the Agent pursuant to Section 3.1(f)(v) or
Section 5.7, including, without limitation, completing any blanks contained in
such letters and attaching exhibits thereto describing the relevant
Collateral. The Borrower hereby ratifies and confirms all that the Agent
shall lawfully do or cause to be done by virtue of this power of attorney and
the rights granted with respect to such power of attorney. This power of
attorney is coupled with the interests of the Agent in the Collateral, shall
commence and be in full force and effect as of the Closing Date and shall
remain in full force and effect and shall be irrevocable so long as any
Obligation remains outstanding or unpaid or any Commitment exists. The powers
conferred on the Agent by this appointment are solely to protect the
interests of the Agent and the Lenders under the Loan Documents and shall not
impose any duty upon the Agent to exercise any such powers. The Agent shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers,
except for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lenders to enter into this Agreement
and to make Loans or participate in the issuance of Letters of Credit are
subject to the satisfaction of the following conditions precedent:
3.1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. The Lenders shall
have no obligation under this Agreement unless and until all matters incident
to the consummation of the transactions contemplated herein, including,
without limitation, the review by the Agent or its counsel of the title of
the Borrower shall be satisfactory to the Agent, and the Agent shall have
received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and, where applicable, acknowledged by
one or more authorized officers of the Borrower all in form and substance
satisfactory to the Agent and dated, where applicable, of even date herewith
or a date prior thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement as requested by the
Lenders;
(b) the Note or Notes;
(c) copies of the Certificate of Incorporation and all amendments
thereto and the bylaws and all amendments thereto of the Borrower
accompanied by a certificate issued by the secretary or an assistant
secretary of the Borrower as the case may be, to the effect that each
such copy is correct and complete;
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(d) a certificate of incumbency and signatures of all officers of the
Borrower who are authorized to execute Loan Documents on behalf of the
Borrower, each such certificate being executed by the secretary or an
assistant secretary of the Borrower;
(e) copies of corporate resolutions approving the Loan
Documents and authorizing the transactions contemplated herein
and therein, duly adopted by the boards of directors of the
Borrower accompanied by a certificate of the secretary or an
assistant secretary of the Borrower to the effect that such copies
are true and correct copies of resolutions duly adopted at a
meeting or by unanimous consent of the board of directors of the
Borrower and that such resolutions constitute all the resolutions
adopted with respect to such transactions, have not been
amended, modified, or revoked in any respect, and are in full force
and effect as of the date of such certificate;
(f) multiple counterparts, as requested by the Lenders,
of the following Security Instruments creating, evidencing,
perfecting, and otherwise establishing Liens in favor of the Agent
for the benefit of the Lenders in and to the Collateral as security
for the Obligations of the Borrower or any Subsidiary or other
Affiliate of the Borrower owing to the Agent or any Lender or any
branch, Subsidiary or other Affiliate of the Agent or any Lender:
(i) Assignment of Note and Liens from Bank of
Oklahoma, National Association covering Oil and Gas Properties of
Middle Bay;
(ii) Ratification of and Amendment to Mortgage, Deed
of Trust, Indenture, Security Agreement, Assignment of Production,
and Financing Statement from Middle Bay to or for the benefit of
the Agent covering the Oil and Gas Properties of Middle Bay and all
improvements, personal property, and fixtures related thereto;
(iii) Mortgage, Deed of Trust, Indenture, Security
Agreement, Assignment of Production, and Financing Statement from
the Borrower to or for the benefit of the Agent covering certain
Oil and Gas Properties of Middle Bay and Enex designated by the
Agent and all improvements, personal property, and fixtures related
thereto;
(iv) Financing Statements from Middle Bay and Enex,
as debtors, in favor of the Agent, as secured party, constituent to
the instruments described in clause (ii) or clause (iii) above;
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(v) abundated letters, in form and substance
satisfactory to the Agent, from Middle Bay and Enex to each
purchaser of production and disburser of the proceeds of production
from or attributable to the Mortgaged Properties, together with
additional letters with the addressees left blank, authorizing and
directing the addressees to make future payments attributable to
production from the Mortgaged Properties directly to the Agent;
(vi) Security Agreement (Stock Pledge) by Middle Bay
in favor of the Agent and covering 1,064,432 shares, equal to
approximately 79% of the shares of the common stock of Enex;
(g) unaudited Financial Statements of the Borrower as of
September 30, 1997;
(h) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrower in its jurisdiction of
incorporation and in any other jurisdiction in which it conducts
business;
(i) results of searches of the UCC Records of the
Secretary of State of the States of Alabama, Arkansas, Kansas,
Louisiana, Michigan, Mississippi, New Mexico, Oklahoma, Texas, and
Wyoming from a source acceptable to the Agent and reflecting no
Liens, other than Permitted Liens, against any of the Collateral as
to which perfection of a Lien is accomplished by the filing of a
financing statement;
(j) confirmation, acceptable to the Agent, of the title of the
Borrower to the Mortgaged Properties, free and clear of Liens other than
Permitted Liens;
(k) copies of all operating, lease, sublease, royalty, sales,
exchange, processing, farmout, bidding, pooling, unitization,
communitization, and other agreements relating to the Mortgaged Properties
requested by the Agent;
(l) engineering reports covering the Mortgaged Properties;
(m) the opinion of Thrasher, Whitley, Hampton & Morgan, counsel to the
Borrower, substantially in the form attached hereto as Exhibit V, with
such changes thereto as may be approved by the Agent;
(n) certificates evidencing the insurance coverage required pursuant
to Section 5.18, 5.19; and
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(o) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or any Lender
may reasonably request.
3.2 EACH LOAN. In addition to the conditions precedent
stated elsewhere herein, the Lenders shall not be obligated to make
any Loan unless:
(a) the Borrower shall have delivered to the Agent a Borrowing Request
at least the requisite time prior to the requested date for the relevant Loan,
and each statement or certification made in such Borrowing Request shall be true
and correct in all material respects on the requested date for such Loan;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan;
(c) if requested by the Agent or any Lender, the Borrower shall have
delivered evidence satisfactory to the Agent or such Lender substantiating
any of the matters contained in this Agreement which are necessary to enable
the Borrower to qualify for such Loan;
(d) the Agent shall have received, reviewed, and approved such
additional documents and items as described in Section as may be requested by
any Lender with respect to such Loan;
(e) no event shall have occurred which, in the reasonable opinion of
the Lenders, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct and shall be deemed to be repeated by the
Borrower as if made on the requested date for such Loan;
(g) the Security Instruments shall be in full force and effect
and provide to the Lenders the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan shall contravene, violate, or conflict with any
Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral
pledged by such entities and be the sole beneficial owners thereof;
(j) the Agent and/or each Lender shall have received payment of all
Facility Fees, Letter of Credit Fees, and other fees payable to the Agent
and/or each Lender hereunder and reimbursement from the Borrower, or special
legal counsel for the Agent shall have received payment from the Borrower,
for (i) all reasonable fees and expenses of counsel to the Agent for which
the Borrower is responsible pursuant to applicable provisions of this
Agreement and for which invoices have been presented as of or prior to the
date of the relevant Loan, and (ii) estimated fees charged by filing
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officers and other public officials incurred or to be incurred in connection
with the filing and recordation of any Security Instruments, for which
invoices have been presented as of or prior to the date of the requested
Loan; and
(k) all matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the Agent and each Lender.
3.3 EACH LETTER OF CREDIT. The obligation of the Agent, as the
issuer of the Letters of Credit, to issue, renew, or extend any Letter of
Credit is subject to the satisfaction of the following additional conditions
precedent:
(a) the Borrower shall have delivered to the Agent a written (or oral,
confirmed promptly in writing) request for the issuance, renewal, or
extension of a Letter of Credit at least two Business Days prior to the
requested issuance, renewal, or extension date and a completed Letter
of Credit Application at least two Business Days prior to the requested
issuance date; and each statement or certification made in such Letter
of Credit Application shall be true and correct in all material
respects on the requested date for the issuance of such Letter of
Credit;
(b) no Default or Event of Default shall exist or will occur as a
result of the issuance, renewal, or extension of such Letter of Credit;
and
(c) the terms, provisions, and beneficiary of the Letter of Credit or
such renewal or extension shall be satisfactory to the Agent, as the
issuer of the Letters of Credit, in its sole discretion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and issue, or participate in the issuance of,
Letters of Credit, the Borrower represents and warrants to the Agent and the
Lenders (which representations and warranties shall survive the delivery of the
Notes) that:
4.1 DUE AUTHORIZATION. The execution and delivery by the
Borrower of this Agreement and the borrowings hereunder, the execution and
delivery by the Borrower of the Notes, the repayment of the Notes and
interest and fees provided for in the Notes and this Agreement, the execution
and delivery of the Security Instruments by the Borrower and the performance
of all obligations of the Borrower under the Loan Documents are within the
power of the Borrower, have been duly authorized by all necessary corporate
action by the Borrower, and do not and will not to our knowledge, (a) require
the consent of any Governmental Authority, (b) contravene or conflict
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with any Requirement of Law, (c) contravene or conflict with any indenture,
instrument, or other agreement to which the Borrower is a party or by which
any Property of the Borrower may be presently bound or encumbered, or (d)
result in or require the creation or imposition of any Lien in, upon or of
any Property of the Borrower under any such indenture, instrument, or other
agreement, other than the Loan Documents.
4.2 CORPORATE EXISTENCE. The Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and are in
good standing in all jurisdictions wherein the ownership of Property or the
operation of its business necessitates same, other than those jurisdictions
wherein the failure to so qualify will not have a Material Adverse Effect.
4.3 VALID AND BINDING OBLIGATIONS. All Loan Documents, when duly
executed and delivered by the Borrower, will be the legal, valid, and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms.
4.4 SECURITY INSTRUMENTS. The provisions of each Security
Instrument are effective to create in favor of the Agent for the benefit of
the Lenders, a legal, valid, and enforceable Lien in all right, title, and
interest of the Borrower in the Collateral described therein, which Liens,
assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of the Borrower in the Collateral described therein. The Existing
Liens, as assigned by BOK to the Agent for the benefit of the Lenders,
continue to constitute good and valid first-priority Liens as of the original
date of recordation thereof.
4.5 TITLE TO ASSETS. The Borrower has good and defensible title to
all of its Properties, free and clear of all Liens except Permitted Liens.
4.6 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of the Borrower as of September 30, 1997, present fairly the
financial position and results of operations and cash flows of the Borrower
and its consolidated Subsidiaries in accordance with GAAP as at the relevant
point in time or for the period indicated, as applicable. No event or
circumstance has occurred since September 30, 1997, which could reasonably be
expected to have a Material Adverse Effect.
4.7 NO MATERIAL MISSTATEMENTS. To the knowledge of the Borrower, no
information, exhibit, statement, or report furnished to the Lenders by or at
the direction of the Borrower in connection with this Agreement contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the statements contained therein not misleading as of the
date made or deemed made.
4.8 LIABILITIES, LITIGATION, AND RESTRICTIONS. Other than as
reflected in the Financial Statements referred to in Section 4.6 or as listed
on Schedule 4.8 attached hereto, the
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Borrower has no liabilities, direct, or contingent, which may materially and
adversely affect its business or operations or its ownership of the
Collateral and no litigation or other action of any nature affecting the
Borrower is pending before any Governmental Authority or, to the best
knowledge of the Borrower, threatened against or affecting the Borrower which
might reasonably be expected to result in any impairment of its ownership of
any Collateral or have a Material Adverse Effect. No unusual or unduly
burdensome restriction, restraint or hazard exists by contract, Requirement
of Law, or otherwise relative to the business or operations of the Borrower
or the ownership and operation of the Collateral other than such as relate
generally to Persons engaged in business activities similar to those
conducted by the Borrower.
4.9 COMPLIANCE WITH LAWS. The Borrower and its Property, including,
without limitation, the Mortgaged Property, are in compliance with all
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to
the extent non-compliance with any such Requirements of Law could not
reasonably be expected to have a Material Adverse Effect.
4.10 ERISA. The Borrower does not maintain nor has it maintained
any Plan. The Borrower does not currently contribute to or have any
obligation to contribute to or otherwise have any liability with respect to
any Plan.
4.11 ENVIRONMENTAL LAWS. To the best knowledge and belief of the
Borrower, except as would not have a Material Adverse Effect or as described
on Schedule 4.11 attached hereto:
(a) no Property of the Borrower is currently on or has ever been on,
or is adjacent to any Property which is on or has ever been on, any
federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the
Borrower or from, affecting, or related to any Property of the Borrower
or adjacent to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower.
4.12 COMPLIANCE WITH FEDERAL RESERVE REGULATIONS. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System,
including, without limitation, Regulations G, T, U, or X.
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4.13 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower is not, nor is
the Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
4.14 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. The Borrower
is not a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.15 PROPER FILING OF TAX RETURNS; PAYMENT OF TAXES DUE. The
Borrower has duly and properly filed a United States income tax return and
all other tax returns which are required to be filed and has paid all taxes
due except such as are being contested in good faith and as to which adequate
provisions and disclosures have been made. The respective charges and
reserves on the books of the Borrower with respect to taxes and other
governmental charges are adequate.
4.16 REFUNDS. Except as described on Schedule 4.16 attached hereto,
no orders of, proceedings pending before, or other requirements of the
Minerals Management Service, Bureau of Land Management, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in the Borrower being required to refund
any material portion of the proceeds received or to be received from the sale
of hydrocarbons constituting part of the Mortgaged Property.
4.17 GAS CONTRACTS. Except as described on Schedule 4.17 attached
hereto, the Borrower (a) is not obligated in any material respect by virtue
of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future
date without receiving full payment therefor within 90 days of delivery, and
(b) has not produced gas, in any material amount, subject to, and neither the
Borrower nor any of the Mortgaged Properties is subject to, balancing rights
of third parties or subject to balancing duties under governmental
requirements or joint operating agreements, except as to such matters for
which the Borrower has established monetary reserves adequate in amount to
satisfy such obligations and have segregated such reserves from other
accounts.
4.18 INTELLECTUAL PROPERTY. The Borrower owns or is licensed to use
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business
is currently conducted. No claim has been asserted or is pending by any
Person with respect to the use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any such
Intellectual Property; and the Borrower knows of no valid basis for any such
claim. The use of such Intellectual Property by the Borrower does not
infringe on the rights of any Person, except for such claims and
infringements as do not, in the aggregate, give rise to any material
liability on the part of the Borrower.
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4.19 CASUALTIES OR TAKING OF PROPERTY. Except as disclosed on
Schedule 4.19 attached hereto, since September 30, 1997, neither the business
nor any Property of the Borrower has been materially adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking
of Property, or cancellation of contracts, permits, or concessions by any
Governmental Authority, riot, activities of armed forces, or acts of God.
4.20 LOCATIONS OF BORROWER. The principal place of business and
chief executive office of the Borrower is located at the address of the
Borrower set forth in Section 9.3 or at such other location as the Borrower may
have, by proper written notice hereunder, advised the Agent and the Lenders,
provided that such other location is within a state in which appropriate
financing statements from the Borrower in favor of the Agent have been filed.
4.21 SUBSIDIARIES. The Borrower has no Subsidiaries other than as
listed on Schedule 4.21 attached hereto.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
5.1 MAINTENANCE AND ACCESS TO RECORDS. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from
time to time, its true and complete financial condition may be readily
determined, and within two Business Days following the reasonable request of
the Agent or any Lender, make such records available for inspection by the
Agent or any Lender and, at the expense of the Borrower, allow the Agent or
any Lender to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES.
Deliver to the Agent and each Lender, (a) on or before the 45th day after the
close of each of the first three quarterly periods of each fiscal year of the
Borrower, a copy of the unaudited consolidated and consolidating Financial
Statements of the Borrower and its consolidated Subsidiaries as at the close
of such quarterly period and from the beginning of such fiscal year to the
end of such period, such Financial Statements to be certified by a
Responsible Officer of the Borrower as having been prepared in accordance
with GAAP consistently applied and as a fair presentation of the condition of
the Borrower, subject to changes resulting from normal year-end audit
adjustments, and (b) on or before the 45th day after the close of each fiscal
quarter and on or before the 120th day after the close of each fiscal year, a
Compliance Certificate and calculations of compliance with the financial
covenants included therein.
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5.3 ANNUAL FINANCIAL STATEMENTS. (a) Deliver to the Agent and each
Lender, on or before the 120th day after the close of each fiscal year of the
Borrower, a copy of the annual audited consolidated and unaudited
consolidating Financial Statements of the Borrower.
5.4 OIL AND GAS RESERVE REPORTS. Deliver to the Agent and each
Lender, no later than April 1 of each year during the term of this Agreement,
engineering reports in form and substance satisfactory to the Agent and the
Lenders, certified by any nationally- or regionally-recognized independent
consulting petroleum engineers acceptable to the Agent and the Lenders as
fairly and accurately setting forth (i) the proven and producing, shut-in,
behind-pipe, and undeveloped oil and gas reserves (separately classified as
such) attributable to the Oil and Gas Properties as of January 1 of the year
for which such reserve reports are furnished, (ii) the aggregate present
value of the future net income with respect to such Oil and Gas Properties,
discounted at a stated per annum discount rate of proven and producing
reserves, (iii) projections of the annual rate of production, gross income,
and net income with respect to such proven and producing reserves, and (iv)
information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrower.
(b) Deliver to the Agent and each Lender no later than October 1 of
each year during the term of this Agreement, engineering reports in form and
substance satisfactory to the Agent and the Lenders prepared by or under the
supervision of the chief petroleum engineer of the Borrower evaluating the
Oil and Gas Properties as of July 1 of the year for which such reserve
reports are furnished and updating the information provided in the reports
pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent and each Lender together with additional data
concerning pricing, quantities of production from the Oil and Gas Properties
to be determined in sole discretion of the Agent and the Lenders, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Agent and the Lenders may reasonably request.
5.5 TITLE OPINIONS; TITLE DEFECTS. For additions of Oil and Gas
Properties after the Closing Date, promptly upon the request of the Agent or
any Lender, furnish to the Agent title opinions, in form and substance and by
counsel satisfactory to the Agent, or other confirmation of title acceptable
to the Agent, covering a percentage of the present value, acceptable by the
Agent in its sole discretion, of the Oil and Gas Properties of the Borrower,
and promptly, but in any event within 60 days after notice by the Agent of
any defect, material in the reasonable opinion of the Agent and the Lenders
in value, in the title of the Borrower to any of its Oil and Gas Properties,
cure such title defects, and, in the event any such title defects are not
cured in a timely manner, pay all reasonable related costs and fees incurred
by the Agent to do so. Provided, however, to the extent it is determined by
the Lenders that such title defects cannot be cured or the Borrower so
notifies the Lenders, the Lenders may reduce the Borrowing Base by the amount
equal to the value of the Oil and Gas Property affected by such title defect.
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5.6 NOTICES OF CERTAIN EVENTS. Deliver to the Agent and each
Lender, immediately upon having knowledge of the occurrence of any of the
following events or circumstances, a written statement with respect thereto,
signed by a Responsible Officer of the Borrower and setting forth the
relevant event or circumstance and the steps being taken by the Borrower with
respect to such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Borrower, or any litigation, investigation, or proceeding between
the Borrower and any Governmental Authority which, in either case, if not
cured or if adversely determined, as the case may be, could reasonably
be expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower as a defendant
or in which any Property of the Borrower is subject to a claim and in
which the amount involved is $500,000 or more and which is not covered
by insurance or in which injunctive or similar relief is sought;
(d) the receipt by the Borrower of any material Environmental
Complaint;
(e) any actual, proposed, or threatened testing or other investigation
by any Governmental Authority or other Person concerning the environmental
condition of, or relating to, any Property of the Borrower or adjacent
to any Property of the Borrower following any allegation of a violation
of any Requirement of Law;
(f) any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or adjacent to any
Property of the Borrower except in accordance with applicable Requirements
of Law or the terms of a valid permit, license, certificate, or approval
of the relevant Governmental Authority, or the violation of any
Environmental Law, or the revocation, suspension, or forfeiture of or
failure to renew, any permit, license, registration, approval, or
authorization which could reasonably be expected to have a Material
Adverse Effect;
(g) upon request from the Agent, the change in identity or address of
any Person remitting to the Borrower proceeds from the sale of hydrocarbon
production from or attributable to any Mortgaged Property;
(h) within two days of any change in the senior management of the
Borrower; and
(i) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
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5.7 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS. Promptly
upon request by the Agent at any time and from time to time, execute such
letters in lieu of transfer orders, in addition to the letters signed by the
Borrower and delivered to the Agent in satisfaction of the condition set
forth in Section 3.1 (f)(v) and/or division and/or transfer orders as are
necessary or appropriate to transfer and deliver to the Agent proceeds from
or attributable to any Mortgaged Property.
5.8 ADDITIONAL INFORMATION. Furnish to the Agent and each Lender,
promptly upon the request of the Agent or any Lender, such additional
financial or other information concerning the assets, liabilities,
operations, and transactions of the Borrower as the Agent or any Lender may
from time to time reasonably request; and notify the Agent and each Lender
not less than ten Business Days prior to the occurrence of any condition or
event that may change the proper location for the filing of any financing
statement or other public notice or recording for the purpose of perfecting a
Lien in any Collateral, including, without limitation, any change in its name
or the location of its principal place of business or chief executive office;
and upon the request of the Agent or any Lender, execute such additional
Security Instruments as may be necessary or appropriate in connection
therewith.
5.9 COMPLIANCE WITH LAWS. Comply with all applicable Requirements
of Law, including, without limitation, (a) the Natural Gas Policy Act of
1978, as amended, (b) ERISA, (c) Environmental Laws, and (d) all permits,
licenses, registrations, approvals, and authorizations issued to it or of
which it has knowledge (i) related to any natural or environmental resource
or media located on, above, within, in the vicinity of, related to or
affected by any Property of the Borrower, (ii) required for the performance
of the operations of the Borrower, or (iii) applicable to the use,
generation, handling, storage, treatment, transport, or disposal of any
Hazardous Substances; and instruct all employees, crew members, agents,
contractors, subcontractors, and future lessees (pursuant to appropriate
lease provisions) of the Borrower, while such Persons are acting within the
scope of their relationship with the Borrower, to comply with all such
Requirements of Law as may be necessary or appropriate to enable the Borrower
to so comply.
5.10 PAYMENT OF ASSESSMENTS AND CHARGES. Pay all taxes,
assessments, governmental charges, rent, and other Indebtedness which, if
unpaid, might become a Lien against the Property of the Borrower, except any
of the foregoing being contested in good faith and as to which adequate
reserve in accordance with GAAP has been established or unless failure to pay
would not have a Material Adverse Effect.
5.11 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING. Maintain
its corporate existence or qualification and good standing in its
jurisdiction of incorporation and in all jurisdictions wherein the Property
now owned or hereafter acquired or business now or hereafter conducted
necessitates same, unless the failure to do so would not have a Material
Adverse Effect.
5.12 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS. Pay the Notes
according to the reading, tenor, and effect thereof, as modified hereby, and
do and perform every act and
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discharge all of its other Obligations. Each Borrower is jointly and
severally liable for all Obligations.
5.13 FURTHER ASSURANCES. Upon the Agent's written request, promptly
cure any defects in the execution and delivery of any of the Loan Documents
and all agreements contemplated thereby, and execute, acknowledge, and
deliver such other assurances and instruments as shall, in the opinion of the
Agent, be necessary to fulfill the terms of the Loan Documents.
5.14 INITIAL FEES AND EXPENSES OF COUNSEL TO AGENT. Upon request by
the Agent, promptly reimburse the Agent for all reasonable fees and expenses
of Jackson Walker L.L.P., special counsel to the Agent, for which an invoice
in reasonable detail has been provided, in connection with the preparation of
this Agreement and all documentation contemplated hereby, the satisfaction of
the conditions precedent set forth herein, the filing and recordation of
Security Instruments, and the consummation of the transactions contemplated
in this Agreement.
5.15 SUBSEQUENT FEES AND EXPENSES OF AGENT AND LENDERS. Upon
request by the Agent, promptly reimburse the Agent (to the fullest extent
permitted by law) for all amounts reasonably expended, advanced, or incurred
by or on behalf of the Agent to ratify, amend, restate, or prepare additional
Loan Documents, as the case may be and for the filing and recordation of
Security Instruments. Promptly reimburse the Agent and each Lender for all
amounts reasonably expended, advanced, or incurred to satisfy any obligation
of the Borrower under any of the Loan Documents; to collect the Obligations;
to enforce the rights of the Agent and each Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower,
including, without limitation, the Collateral, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the
Borrower by the Agent and each Lender and which amounts shall include, but
not be limited to (a) all court costs, (b) reasonable attorneys' fees, (c)
reasonable fees and expenses of auditors and accountants incurred to protect
the interests of the Agent and each Lender, (d) fees and expenses incurred in
connection with the participation by the Agent and each Lender as a member of
the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in Section 362 Title 11 of the United States Code, and (f) fees
and expenses incurred in connection with any action pursuant to Section 1129
Title 11 of the United States Code all reasonably incurred by the Agent and
each Lender in connection with the collection of any sums due under the Loan
Documents, together with interest at the per annum interest rate equal to the
Floating Rate, calculated on a basis of a calendar year of 365 or 366 days,
as the case may be, counting the actual number of days elapsed, on each such
amount from the date of notification that the same was expended, advanced, or
incurred by the Agent and each Lender until the date it is repaid to the
Agent and each Lender, with the obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.
5.16 OPERATION OF OIL AND GAS PROPERTIES. Develop, maintain, and
operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards.
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5.17 MAINTENANCE AND INSPECTION OF PROPERTIES. Maintain all of its
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties
in a good and workmanlike manner; and permit on two Business Days prior
notice any authorized representative of the Agent or any Lender to visit and
inspect any tangible Property of the Borrower which is operated by the
Borrower.
5.18 MAINTENANCE OF INSURANCE. Maintain insurance with respect to
its Properties and businesses against such liabilities, casualties, risks,
and contingencies as is customary in the relevant industry and sufficient to
prevent a Material Adverse Effect, all such insurance to be in amounts and
from insurers acceptable to the Lenders and, within 60 days of the Closing
Date for property damage insurance covering Collateral and business
interruption insurance, if any, maintained by Borrower, naming the Agent as
loss payee, and, upon any renewal of any such insurance and at other times
upon request by the Agent or any Lender, furnish to the Agent or any Lender
evidence, satisfactory to the Agent and each Lender of the maintenance of
such insurance. The Agent shall have the right to collect, and the Borrower
hereby assigns to the Agent for the benefit of the Lenders, any and all
monies that may become payable under any policies of insurance relating to
business interruption or by reason of damage, loss, or destruction of any of
the Collateral. In the event of any damage, loss, or destruction for which
insurance proceeds relating to business interruption or Collateral exceed
$100,000, the Agent for the benefit of the Lenders may, at its option, apply
all such sums or any part thereof received by it toward the payment of the
Obligations, whether matured or unmatured, application to be made first to
interest and then to principal, and shall deliver to the Borrower the
balance, if any, after such application has been made. In the event of any
such damage, loss, or destruction for which insurance proceeds are $100,000
or less, provided that no Default or Event of Default has occurred and is
continuing, the Agent shall deliver any such proceeds received by it to the
Borrower. In the event the Agent receives insurance proceeds not attributable
to Collateral or business interruption, the Agent shall deliver any such
proceeds to the Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER
AND THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE
AGENT AND EACH LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL
ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND
EXPENSES INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION,
ATTORNEYS' FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN
PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM
ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B)
ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER,
, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR
ANY PREDECESSOR IN TITLE,
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EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH
THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP,
TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED
OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR
UNDER ANY PROPERTY OF THE BORROWER, (D) ANY CONTAMINATION OF ANY PROPERTY OR
NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING,
STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE
BORROWER OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER
WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE
BORROWER, IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE
UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE
PERFORMANCE OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A
LETTER OF CREDIT OF A WRONGFUL DISHONOR BY THE AGENT OR ANY LENDER OF A CLAIM
OR DRAFT PRESENTED THEREUNDER, OR ANY OTHER ACT OR OMISSION IN CONNECTION
WITH OR RELATED TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION
ARISING FROM NEGLIGENCE, OTHER THAN GROSS NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, ON THE PART OF THE AGENT OR ANY LENDER OR ANY OF THEIR
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER
ANY SECURITY INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION
OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH
OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY
WAY OF REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY
IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR
OMISSION BY THE AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT
TO THE AGENT OR ANY LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH
RESPECT TO WHICH PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY,
CHARGE, PROCEEDING, ORDER, JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT
TO THE ACQUISITION OF TITLE THERETO BY THE AGENT OR ANY LENDER.
5.20 OPERATING ACCOUNTS. The Borrower shall maintain their
principal operating accounts with the Agent.
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ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not and will not allow any of its
Subsidiaries or other Affiliates to:
6.1 INDEBTEDNESS. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) Permitted
Indebtedness, and (c) unsecured accounts payable incurred in the ordinary
course of business, which are not unpaid in excess of 60 days beyond receipt
date or are being contested in good faith, and (d) crude oil, natural gas, or
other hydrocarbon floor, collar, cap, price protection, or swap agreements,
in form and substance and with a Person acceptable to the Lenders, provided
that (i) such agreements shall not be entered into with respect to Mortgaged
Properties constituting more than 75% of the monthly production of proven
producing reserves as forecast in Lenders' most recent engineering
evaluation, (ii) that the strike prices in connection with option and swap
agreements are not less than the prices used by the Lenders in their most
recent Borrowing Base determination, (iii) the counterparty shall be approved
by Lenders, (iv) Borrowers and/or Co-Borrowers shall notify Lenders within
five days of executing a hedge transaction of the strike price and the volume
of production, as well as the duration of the transaction, (v) Borrowers
and/or Co-Borrowers shall only enter into hedge transactions with durations
of eighteen months or less, (vi) Borrower and/or Co-Borrowers shall pay any
liabilities created under the hedge transactions as they become due and in
any event no later than 60 days from the date such liability was incurred;
and (vii) the Lenders shall receive a security interest in the hedging
contracts.
6.2 CONTINGENT OBLIGATIONS. Create, incur, assume, or suffer to
exist any Contingent Obligation not otherwise prohibited by Section 6.1;
provided, however, the foregoing restriction shall not apply to (a)
performance guarantees and performance surety or other bonds provided in the
ordinary course of business, or (b) trade credit incurred or operating leases
entered into in the ordinary course of business.
6.3 LIENS. Create, incur, assume, or suffer to exist any Lien on
any of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 SALES OF ASSETS. Without the prior written consent of the Agent
and the Lenders, Borrower shall sell, transfer, or otherwise dispose of any
assets, if such assets are material to the operations of Borrower, other than
(a) sales of inventory in the ordinary course of business, (b) occasional
sales, leases or other dispositions of immaterial assets for consideration
not less than fair market value, (c) sales, leases or other dispositions of
assets that are obsolete or have negligible fair market value, and (d) sales
of equipment for fair and adequate consideration. The Agent and the Lenders
will consent to sales of assets representing up to 10% in the aggregate of
the net present
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value of the Oil and Gas Properties which comprise the Borrowing Base, as
calculated by the Agent and the Lenders pursuant to the terms of this
Agreement, provided that the Borrowing Base shall be reduced, and if
necessary, proceeds from such sale shall be applied to Loan Balance in an
amount equal to the loan value attributable to such assets sold.
6.5 LEASEBACKS. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other
Property intended for the same use or purpose as the Property sold or
transferred.
6.6 LOANS OR ADVANCES. Make or agree to make or allow to remain
outstanding any loans or advances to any Person, other than to the other
entity also constituting a Borrower in excess of $100,000 in the aggregate;
provided, however, the foregoing restrictions shall not apply to (a) advances
or extensions of credit in the form of accounts receivable incurred in the
ordinary course of business and upon terms common in the industry for such
accounts receivable, or (b) advances to employees of the Borrower for the
payment of expenses in the ordinary course of business.
6.7 INVESTMENTS. Acquire Investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person which exceeds
$250,000 in the aggregate during any calendar year, without the prior consent
of the Lenders provided, however, such restriction shall not apply to the
following Investments:
(a) marketable obligations issued or unconditionally
guaranteed by the United States Government or issued
by any of its agencies and backed by the full faith
and credit of the United States of America;
(b) short-term investment grade domestic or Eurodollar
certificates of deposit or time deposits that are
fully insured by the Federal Deposit Insurance
Corporation;
(c) commercial paper and similar obligations rated "P-1"
or better by Moody's Investors Services, Inc. or
"A-1" or better by Standard & Poors Corporation;
(d) intercompany loans to, advances to or investments in,
wholly owned Subsidiaries;
(e) readily marketable tax-free municipal bonds of a
domestic issuer or rated "aaa" or better by Moody's
Investors Services, Inc. or "AAA" by Standard & Poors
Corporation; and
(f) demand deposit accounts maintained in the ordinary course
of business.
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6.8 DIVIDENDS AND DISTRIBUTIONS. Declare, pay, or make, any cash
dividend or distribution on, or purchase, redeem, or otherwise acquire for
value, any share of any class of its capital stock.
6.9 CHANGES IN CORPORATE STRUCTURE. Enter into any transaction of
consolidation, merger, or amalgamation; or liquidate, wind up, or dissolve
(or suffer any liquidation or dissolution).
6.10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter
into any transaction (including the sale, lease, or exchange of Property or
the rendering of service) with any of its Affiliates, other than upon fair
and reasonable terms no less favorable than could be obtained in an arm's
length transaction with a Person which was not an Affiliate.
6.11 LINES OF BUSINESS. Expand, on their own or through any
Subsidiary, into any line of business other than those in which the Borrower
is engaged as of the date hereof.
6.12 PLAN OBLIGATIONS. Assume or otherwise become subject to an
obligation to contribute to or maintain any Plan not set forth in Schedule
6.12 or acquire any Person which has at any time had an obligation to
contribute to or maintain any Plan.
6.13 NEW SUBSIDIARIES. Form any new Subsidiaries without the prior
written consent of the Lenders.
6.14 CASH FLOW COVERAGE. Permit, as of the close of any fiscal
quarter of Borrower, the ratio of Cash Flow to Debt Service to be less than
1.25 to 1.00.
6.15 CURRENT RATIO. Permit, as of the close of any fiscal quarter
of Borrower, the Current Ratio to be less than .90 to 1.00. Receivables from
Bay City Energy Group and the current portion of the Loan Balance shall be
excluded from calculation of Current Ratio.
6.16 CHANGE OF FISCAL YEAR. The Borrower will not change its
fiscal year.
ARTICLE VII
EVENTS OF DEFAULT
7.1 ENUMERATION OF EVENTS OF DEFAULT. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Agreement or the Notes or in the
payment when due of any fee or other sum payable under any Loan
Document.
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(b) default shall be made by the Borrower in the due observance or
performance of any obligation of the Borrower under the Loan Documents,
and such default shall continue for 30 days after the earlier of
written notice thereof to the Borrower by the Agent or actual knowledge
thereof by the Borrower;
(c) any representation or warranty made by the Borrower in any of the
Loan Documents proves to have been untrue in any material respect or any
representation, statement (including Financial Statements), certificate,
or data furnished or made to the Agent and/or the Lenders in connection
herewith proves to have been untrue in any material respect as of the date
the facts therein set forth were stated or certified;
(d) default shall be made by the Borrower (as principal or guarantor
or other surety) in the payment or performance of any Indebtedness in
excess of $100,000 and such default shall remain unremedied for in
excess of the period of grace, if any, with respect thereto;
(e) the Borrower shall be unable to satisfy any condition or cure any
circumstance specified in Article , the satisfaction or curing of which
is a condition precedent to the right of the Borrower to obtain a Loan
or for the issuance of a Letter of Credit, and such inability shall
continue for a period in excess of 30 days;
(f) the Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, or liquidator of their or all or a substantial part
of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of
creditors, (iv) be unable, or admit in writing its inability, to pay
its debts generally as they become due, or (v) file an answer admitting
the material allegations of a petition filed against it in any
Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against the
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise,
granting relief in any Insolvency Proceeding or approving a petition
seeking reorganization or an arrangement of its debts or appointing a
receiver, trustee, conservator, custodian, or liquidator of their or
all or any substantial part of its assets, and such order, judgment,
or decree shall not be dismissed or stayed within 90 days;
(h) the levy against any significant portion of the Property of the
Borrower or any execution, garnishment, attachment, sequestration, or
other writ or similar proceeding which is not permanently dismissed or
discharged within 30 days after the levy;
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(i) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower for money damages and/or Indebtedness due in
an amount in excess of $100,000, and such order, judgment, or decree shall
not be dismissed or stayed within 30 days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
Section 1961 ET SEQ.), the result of which could be the forfeiture or
transfer of any material Property of the Borrower subject to a Lien in
favor of the Agent for the benefit of the Lenders without (i)
satisfaction or provision for satisfaction of such Lien, or (ii) such
forfeiture or transfer of such Property being expressly made subject to
such Lien;
(k) the Borrower shall have (i) concealed, removed, or diverted, or
permitted to be concealed, removed, or diverted, any part of their
Property, with intent to hinder, delay, or defraud its creditors or any
of them, (ii) made or suffered a transfer of any of its Property which
may be fraudulent under any bankruptcy, fraudulent conveyance, or
similar law, or (iii) shall have suffered or permitted, while
insolvent, any creditor to obtain a Lien upon any of its Property
through legal proceedings or distraint which is not vacated within 30
days from the date thereof;
(l) any Security Instrument shall for any reason (other than the
Agent's or the Lender's fault or negligence) not, or cease to, create
valid and perfected first-priority Liens against the Collateral
purportedly covered thereby and not cured within 30 days; and
(m) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Agent.
7.2 REMEDIES. Upon the occurrence of an Event of Default specified
in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice
of intent to accelerate maturity, notice of acceleration of maturity, or
`other notice of any kind, except as may be provided to the contrary
elsewhere herein, all of which are hereby expressly waived by the Borrower;
(ii) the Commitments shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) to the extent
permitted by and in compliance with applicable law, the Agent and the Lenders
may set-off and apply any and all deposits (general or special, time or
demand, provisional or final) held by the Agent and the Lenders and any and
all other indebtedness at any time owing by the Agent and the Lenders to or
for the credit or account of the Borrower against any and all of the
Obligations although such Obligations may be unmatured.
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(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Agent and the Lenders may, by
notice to the Borrower, declare all Obligations immediately due and payable,
without presentment, demand, protest, notice of protest, default, or
dishonor, notice of intent to accelerate maturity, notice of acceleration of
maturity, or other notice of any kind, except as may be provided to the
contrary elsewhere herein, all of which are hereby expressly waived by the
Borrower; (ii) the Commitments shall immediately cease and terminate unless
and until reinstated by the Agent and the Lenders in writing; and (iii) to
the extent permitted by and in compliance with applicable law, the Agent and
the Lenders may set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Agent and the Lenders and
any and all other indebtedness at any time owing by the Agent and the Lenders
to or for the credit or account of the Borrower against any and all of the
Obligations although such Obligations may be unmatured.
(c) Upon the occurrence of any Event of Default, the Agent and the
Lenders may, in addition to the foregoing in this Section, exercise any or
all of their rights and remedies provided by law or pursuant to the Loan
Documents.
ARTICLE VIII
THE AGENT
8.1 APPOINTMENT. Each Lender hereby designates and appoints the
Agent as the agent of such Lender under this Agreement and the other Loan
Documents. Each Lender authorizes the Agent, as the agent for such Lender, to
take such action on behalf of such Lender under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Loan Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities except those expressly set
forth herein or in any other Loan Document or any fiduciary relationship with
any Lender; and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities on the part of the Agent shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
8.2 WAIVERS, AMENDMENTS. The provisions of this Agreement and of
each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification, or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however,
that no such amendment, modification or waiver would: (a) modify any
requirement hereunder that any particular action be taken by all of the
Lenders or by the Required Lenders unless consented to by each Lender; (b)
modify this Section 8.2, change the definition of "Required Lenders", or
change the Commitment Amount or Percentage Share of any Lender, reduce the
fees described in Article II, extend the Commitment Termination Date or Final
Maturity, release any Security Instrument or Lien, or initiate any
foreclosure, enforcement or collection procedure
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without the consent of each Lender; (c) extend the due date for, (or reduce
the amount of any scheduled repayment or prepayment of principal of or
interest on any Loan) without the consent of the holder of that Note
evidencing such Loan; (d) affect, adversely the interests, rights, or
obligations of the Agent without the consent of the Agent; or (e) modify the
Borrowing Base or modify the Scheduled Reduction Amount.
8.3 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
8.4 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall
be (a) required to initiate or conduct any litigation or collection
proceedings hereunder, except with the concurrence of the Lenders and
contribution by each Lender of its Percentage Share of costs reasonably
expected by the Agent to be incurred in connection therewith, (b) liable for
any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement or any other Loan Document (except for
gross negligence or willful misconduct of the Agent or such Person), or (c)
responsible in any manner to any Lender for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or
received by the Agent under or in connection with, this Agreement or any
other Loan Document, or for the sufficiency, accuracy, or completeness of any
materials provided by the Agent, or the failure of the Agent to provide any
materials or disclose any matter to any Lender except as may be expressly
required herein, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.5 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner thereof for
all purposes unless and until an executed Lender Assignment Agreement shall
have been received by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Lenders as it deems appropriate and contribution by each Lender of its
Percentage Share of costs reasonably
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FIRST AMENDMENT TO
CREDIT AGREEMENT
between
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
Effective as of
August __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS....................................................1
1.01 Terms Defined Above......................................1
1.02 Terms Defined in Agreement...............................1
1.03 References...............................................1
1.04 Articles and Sections....................................2
1.05 Number and Gender........................................2
ARTICLE II. AMENDMENTS.....................................................2
2.01 Amendment of Section 1.2.................................2
2.02 Amendment of Section 2.2.................................2
2.03 Amendment of Article V...................................3
ARTICLE III. CONDITIONS.....................................................3
3.01 Receipt of Documents.....................................3
3.02 Accuracy of Representations and Warranties...............3
3.03 Matters Satisfactory to Lender...........................4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................4
ARTICLE V. RATIFICATION...................................................4
ARTICLE VI. MISCELLANEOUS..................................................4
6.01 Scope of Amendment.......................................4
6.02 Agreement as Amended.....................................4
6.03 Parties in Interest......................................4
6.04 Rights of Third Parties..................................4
6.05 ENTIRE AGREEMENT.........................................5
6.06 GOVERNING LAW............................................5
6.07 JURISDICTION AND VENUE...................................5
</TABLE>
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "FIRST
AMENDMENT") is made and entered into effective as of August __, 1999, by
and between MIDDLE BAY OIL COMPANY, INC., an Alabama corporation ("MIDDLE BAY"),
and ENEX RESOURCES CORPORATION, a Delaware corporation ("ENEX") (collectively,
the "BORROWER", but with such entities constituting the Borrower being jointly
and severally liable for the Obligations and each reference herein to the
Borrower being applicable to each of such entities) and COMPASS BANK, an Alabama
state chartered banking institution ("COMPASS"), BANK OF OKLAHOMA, NATIONAL
ASSOCIATION, a national banking association ("BOK") and each other lender that
becomes a signatory hereto as provided in Section 9.1 of the Credit Agreement
(Compass and each such other lender, together with its successors and assigns,
individually a "Lender" and collectively, the "Lenders"), and Compass, as agent
for the Lenders pursuant to the terms hereof (in such capacity, together with
its successors in such capacity pursuant to the terms hereof, (the "AGENT").
W I T N E S S E T H:
WHEREAS, the above named parties did execute and exchange
counterparts of that certain Credit Agreement dated March 27, 1998, as amended
by various letter amendments (the "AGREEMENT"), to which reference is here made
for all purposes;
WHEREAS, the parties subject to and bound by the Agreement
are desirous of amending the Agreement in the particulars hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties to the Agreement, as set forth therein, and the
mutual covenants and agreements of the parties hereto, as set forth in this
First Amendment, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used herein, each of the terms
"AGENT," "AGREEMENT," "BOK," "BORROWER," "COMPASS," "ENEX," "MIDDLE BAY,"
"LENDERS", and "FIRST AMENDMENT," shall have the meaning assigned to such term
hereinabove.
1.02 TERMS DEFINED IN AGREEMENT. As used herein, each term
defined in the Agreement shall have the meaning assigned thereto in the
Agreement, unless expressly provided herein to the contrary.
<PAGE>
1.03 REFERENCES. References in this First Amendment to
Article or Section numbers shall be to Articles and Sections of this First
Amendment, unless expressly stated herein to the contrary. References in this
First Amendment to "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," and "hereunder" shall be to this First Amendment in
its entirety and not only to the particular Article or Section in which such
reference appears.
1.04 ARTICLES AND SECTIONS. This First Amendment, for
convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties, and other legal
relations of the parties hereto shall be determined from this First Amendment
as an entirety and without regard to such division into Articles and Sections
and without regard to headings prefixed to such Articles and Sections.
1.05 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative. Definitions of
terms defined in the singular and plural shall be equally applicable to the
plural or singular, as the case may be.
ARTICLE II.
AMENDMENTS
The Borrower and the Lenders hereby amend the Agreement in
the following particulars:
2.01 AMENDMENT OF SECTION 1.2. Section 1.2 of the Agreement
is hereby amended as follows:
The following definitions are added and/or amended to read as
follows:
"PERMITTED INDEBTEDNESS" shall mean (a) the Obligations, (b)
Indebtedness arising from endorsing negotiable instruments
for deposit or collection in the ordinary course of business,
(c) current liabilities incurred in the ordinary course of
business, (d) other Indebtedness which does not exceed an
aggregate principal amount of $250,000 during any fiscal
year, (e) Indebtedness existing by virtue of the requirements
of GAAP or any changes in the requirements of GAAP, and (f)
Subordinated Debt.
"SUBORDINATED DEBT" shall mean (i) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc. payable to 3TEC Energy Corporation in the
principal
2
<PAGE>
amount of $10,700,000, (ii) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc., payable to Shoemaker Family Partners, LP in
the amount of $50,000, and (iii) the Senior Subordinated
Promissory Note dated August __, 1999, from Middle Bay Oil
Company, Inc., payable to Shoeinvest II, LP in the amount of
$100,000.
ARTICLE III.
CONDITIONS
The obligation of the Lenders to amend the Agreement as
provided herein is subject to the fulfillment of the following conditions
precedent:
3.01 RECEIPT OF DOCUMENTS. The Lenders shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and in form and substance satisfactory to the Agent:
(a) multiple counterparts of this First Amendment as
requested by the Agent;
(b) Subordination Agreement dated August __, 1999, by and
among 3TEC Energy Corporation, Middle Bay Oil Company, Inc.
and Compass Bank and Bank of Oklahoma, National
Association.; and
(c) Subordination Agreement dated August __, 1999, by and
mong Shoemaker Family Partners, LP, Middle Bay Oil Company,
nc. and Compass Bank and Bank of Oklahoma, National
ssociation.; and
(d) Subordination Agreement dated August __, 1999, by and
among Shoeinvest II, LP, Middle Bay Oil Company, Inc. and
Compass Bank and Bank of Oklahoma, National Association.; and
(e) such other agreements, documents, items, instruments,
opinions, certificates, waivers, consents, and evidence as
the Agent may reasonably request.
3.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Article IV of the Agreement and
this First Amendment shall be true and correct.
3.03 MATTERS SATISFACTORY TO LENDERS. All matters incident
to the consummation of the transactions contemplated hereby shall be
satisfactory to the Lenders.
3
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby expressly re-makes, in favor of the Agent
and the Lenders, all of the representations and warranties set forth in Article
IV of the Agreement, and represents and warrants that all such representations
and warranties remain true and unbreached.
ARTICLE V.
RATIFICATION
Each of the parties hereto does hereby adopt, ratify, and
confirm the Agreement and the other Loan Documents, in all things in accordance
with the terms and provisions thereof, as amended by this First Amendment.
ARTICLE VI.
MISCELLANEOUS
6.01 SCOPE OF AMENDMENT. The scope of this First Amendment
is expressly limited to the matters addressed herein and this First Amendment
shall not operate as a waiver of any past, present, or future breach, Default,
or Event of Default under the Agreement, except to the extent, if any, that any
such breach, Default, or Event of Default is remedied by the effect of this
First Amendment.
6.02 AGREEMENT AS AMENDED. All references to the Agreement
in any document heretofore or hereafter executed in connection with the
transactions contemplated in the Agreement shall be deemed to refer to the
Agreement as amended by this First Amendment.
6.03 PARTIES IN INTEREST. All provisions of this First
Amendment shall be binding upon and shall inure to the benefit of the Borrower,
the Lender and their respective successors and assigns.
6.04 RIGHTS OF THIRD PARTIES. All provisions herein are
imposed solely and exclusively for the benefit of the Agent and the Lenders and
the Borrower, and no other Person shall have standing to require satisfaction
of such provisions in accordance with their terms and any or all of such
provisions may be freely waived in whole or in part by the Lender at any time
if in its sole discretion it deems it advisable to do so.
6.05 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO,
4
<PAGE>
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN
THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT,
COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
6.06 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE
TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE
SOLE DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS IN ACCORDANCE WITH
THIS SECTION.
IN WITNESS WHEREOF, this First Amendment to Credit Agreement
is executed effective the date first hereinabove written.
BORROWER:
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------------
John J. Bassett
President
5
<PAGE>
ENEX RESOURCES CORPORATION
By:
-------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
By:
-------------------------------
Dorothy Marchand Wilson
Senior Vice President
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
-------------------------------
Michael M. Coats
Senior Vice President
6
<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
between
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
Effective as of
October __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS .................................................... 1
1.01 Terms Defined Above ..................................... 1
1.02 Terms Defined in Agreement .............................. 1
1.03 References .............................................. 1
1.04 Articles and Sections ................................... 2
1.05 Number and Gender ....................................... 2
ARTICLE II. AMENDMENTS ..................................................... 2
2.01 Amendment of Section 1.2 ................................ 2
2.02 Amendment of Section 2.2 ................................ 2
2.03 Amendment of Article V. ................................. 3
ARTICLE III. CONDITIONS ..................................................... 3
3.01 Receipt of Documents .................................... 3
3.02 Accuracy of Representations and Warranties .............. 3
3.03 Matters Satisfactory to Lender .......................... 4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES ................................. 4
ARTICLE V. RATIFICATION ................................................... 4
ARTICLE VI. MISCELLANEOUS .................................................. 4
6.01 Scope of Amendment ...................................... 4
6.02 Agreement as Amended .................................... 4
6.03 Parties in Interest ..................................... 4
6.04 Rights of Third Parties ................................. 4
6.05 ENTIRE AGREEMENT ........................................ 5
6.06 GOVERNING LAW ........................................... 5
6.07 JURISDICTION AND VENUE .................................. 5
</TABLE>
i
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "SECOND AMENDMENT")
is made and entered into effective as of October __, 1999, by and between MIDDLE
BAY OIL COMPANY, INC., an Alabama corporation ("MIDDLE Bay"), and ENEX RESOURCES
CORPORATION, a Delaware corporation ("ENEX") (collectively, the "BORROWER", but
with such entities constituting the Borrower being jointly and severally liable
for the Obligations and each reference herein to the Borrower being applicable
to each of such entities) and COMPASS BANK, an Alabama state chartered banking
institution ("COMPASS"), BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a national
banking association ("BOK") and each other lender that becomes a signatory
hereto as provided in Section 9.1 of the Credit Agreement (Compass and each such
other lender, together with its successors and assigns, individually a "Lender"
and collectively, the "Lenders"), and Compass, as agent for the Lenders pursuant
to the terms hereof (in such capacity, together with its successors in such
capacity pursuant to the terms hereof, (the "AGENT").
W I T N E S S E T H:
--------------------
WHEREAS, the above named parties did execute and exchange
counterparts of that certain Credit Agreement dated March 27, 1998, as amended
by various letter amendments, and as further amended by First Amendment to
Credit Agreement dated August 27, 1999 (the "AGREEMENT"), to which reference is
here made for all purposes;
WHEREAS, the parties subject to and bound by the Agreement are
desirous of amending the Agreement in the particulars hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties to the Agreement, as set forth therein, and the mutual
covenants and agreements of the parties hereto, as set forth in this Second
Amendment, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.01 TERMS DEFINED ABOVE. As used herein, each of the terms
"AGENT," "AGREEMENT," "BOK," "BORROWER," "COMPASS," "ENEX," "MIDDLE BAY,"
"LENDERS", and "SECOND AMENDMENT," shall have the meaning assigned to such term
hereinabove.
1.02 TERMS DEFINED IN AGREEMENT. As used herein, each term
defined in the Agreement shall have the meaning assigned thereto in the
Agreement, unless expressly provided herein to the contrary.
<PAGE>
1.03 REFERENCES. References in this Second Amendment to Article or
Section numbers shall be to Articles and Sections of this Second Amendment,
unless expressly stated herein to the contrary. References in this Second
Amendment to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow,"
"hereof," and "hereunder" shall be to this Second Amendment in its entirety and
not only to the particular Article or Section in which such reference appears.
1.04 ARTICLES AND SECTIONS. This Second Amendment, for convenience
only, has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties, and other legal relations of the parties
hereto shall be determined from this Second Amendment as an entirety and without
regard to such division into Articles and Sections and without regard to
headings prefixed to such Articles and Sections.
1.05 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural and
likewise the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.
ARTICLE II.
AMENDMENTS
----------
The Borrower and the Lenders hereby amend the Agreement in the
following particulars:
2.01 AMENDMENT OF SECTION 1.2. Section 1.2 of the Agreement is
hereby amended as follows:
The following definitions is added and/or amended to read as
follows:
"SUBORDINATED DEBT" shall mean (i) the Senior Subordinated
Promissory Note dated August 27, 1999, from Middle Bay Oil Company,
Inc. payable to 3TEC Energy Corporation in the principal amount of
$10,700,000, (ii) the Senior Subordinated Promissory Note dated
August 27, 1999, from Middle Bay Oil Company, Inc., payable to
Shoemaker Family Partners, LP in the amount of $50,000, (iii) the
Senior Subordinated Promissory Note dated August 27, 1999, from
Middle Bay Oil Company, Inc., payable to Shoeinvest II, LP in the
amount of $100,000, and (iv) the Senior Subordinated Convertible
Promissory Note dated October __, 1999, from Middle Bay Oil Company,
Inc., payable to The Prudential Insurance Company of America in the
principal amount of $2,373,844.
2
<PAGE>
ARTICLE III.
CONDITIONS
------------
The obligation of the Lenders to amend the Agreement as provided
herein is subject to the fulfillment of the following conditions precedent:
3.01 RECEIPT OF DOCUMENTS. The Lenders shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and in form and substance satisfactory to the Agent:
(a) multiple counterparts of this Second Amendment as requested by
the Agent; and
(b) such other agreements, documents, items, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent may
reasonably request.
3.02 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Article IV of the Agreement and this Second
Amendment shall be true and correct.
3.03 MATTERS SATISFACTORY TO LENDERS. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lenders.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower hereby expressly re-makes, in favor of the Agent and
the Lenders, all of the representations and warranties set forth in Article IV
of the Agreement, and represents and warrants that all such representations and
warranties remain true and unbreached.
ARTICLE V.
RATIFICATION
------------
Each of the parties hereto does hereby adopt, ratify, and confirm
the Agreement and the other Loan Documents, in all things in accordance with
the terms and provisions thereof, as amended by this Second Amendment.
3
<PAGE>
ARTICLE VI.
MISCELLANEOUS
-------------
6.01 SCOPE OF AMENDMENT. The scope of this Second Amendment is
expressly limited to the matters addressed herein and this Second Amendment
shall not operate as a waiver of any past, present, or future breach, Default,
or Event of Default under the Agreement, except to the extent, if any, that any
such breach, Default, or Event of Default is remedied by the effect of this
Second Amendment.
6.02 AGREEMENT AS AMENDED. All references to the Agreement in any
document heretofore or hereafter executed in connection with the transactions
contemplated in the Agreement shall be deemed to refer to the Agreement as
amended by this Second Amendment.
6.03 PARTIES IN INTEREST. All provisions of this Second Amendment
shall be binding upon and shall inure to the benefit of the Borrower, the Lender
and their respective successors and assigns.
6.04 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Agent and the Lenders and the
Borrower, and no other Person shall have standing to require satisfaction of
such provisions in accordance with their terms and any or all of such provisions
may be freely waived in whole or in part by the Lender at any time if in its
sole discretion it deems it advisable to do so.
6.05 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
6.06 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
4
<PAGE>
6.07 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS IN ACCORDANCE WITH
THIS SECTION.
IN WITNESS WHEREOF, this Second Amendment to Credit Agreement
is executed effective the date first hereinabove written.
BORROWER:
---------
MIDDLE BAY OIL COMPANY, INC.
By: ______________________________________
Floyd C. Wilson
President and Chief Executive Officer
ENEX RESOURCES CORPORATION
By: ______________________________________
Floyd C. Wilson
President and Chief Executive Officer
LENDER AND AGENT:
COMPASS BANK
By: ______________________________________
Dorothy Marchand Wilson
Senior Vice President
5
<PAGE>
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By: ______________________________________
Michael M. Coats
Senior Vice President
6
<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is made and entered
into effective this ___ day of August, 1999, by and among 3TEC ENERGY
CORPORATION, a Delaware corporation ("3TEC"); MIDDLE BAY OIL COMPANY, INC., an
Alabama corporation (the "BORROWER") and COMPASS BANK, an Alabama state
chartered banking institution, as Agent for itself and BANK OF OKLAHOMA,
NATIONAL ASSOCIATION (collectively, the "LENDERS").
WITNESSETH:
WHEREAS, pursuant to that certain Credit Agreement dated March 27,
1998, by and between the Borrower and ENEX RESOURCES CORPORATION as Borrowers
and the Lenders as amended by various letter amendments and by First Amendment
of even date herewith (as such agreement may be amended, modified, supplemented
or restated from time to time, the "CREDIT AGREEMENT"), the Lenders has agreed
to make Loans to or for the benefit of the Borrower;
WHEREAS, 3TEC has or is obligated to advance certain funds to the
Borrower pursuant to that certain note dated August __, 1999, from the Borrower
to 3TEC ( the "3TEC NOTE"), in the amount of $10,700,000 (the "DEBT");
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrower under the Credit Agreement, 3TEC and
the Borrower have agreed to execute this Agreement in favor of the Lenders;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Agreement, each of the terms
"AGREEMENT," "BORROWER," "CREDIT AGREEMENT," "DEBT," "LENDERS," "3TEC," and the
"3TEC NOTE" shall have the meaning assigned to such term hereinabove.
1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement.
<PAGE>
1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," "hereunder," and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular Article, Section or provision of this Agreement.
(b) Section references are to such Sections of this Agreement unless
otherwise specified.
(c) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting and financial terms not otherwise
defined shall be defined according to GAAP.
ARTICLE II
SUBORDINATION
2.01 SUBORDINATION OF PAYMENT. The payment of the Debt is hereby
expressly subordinated in right of payment to the prior payment in full of all
Obligations and all other indebtedness of the Borrower owed to the Lenders;
PROVIDED, HOWEVER, so long as no Event of Default has occurred and is continuing
for which (other than an event specified in Subsection 7.1(d) of the Credit
Agreement) the Lenders have given written notice of such Event of Default to the
Borrower (a "DEFAULT NOTICE"), the Borrower may pay only interest due on the
Debt according to its terms. At any time following the occurrence and during the
continuance of any Event of Default and provided that the Lenders have given a
Default Notice, 3TEC will not request, accept or receive, and the Borrower will
not make, any payments, whether in cash or other Property, on or with respect to
the Debt unless and until (a) such Event of Default shall have been cured or
waived or shall have ceased to exist, or (b) such time as all Obligations shall
have been fully paid and performed and the obligation of the Lenders to make
Loans under the Credit Agreement shall have terminated. Notwithstanding the
above, if within ninety (90) days after the giving of such Default Notice by the
Lenders such Event of Default has not become the subject of (a) judicial
proceedings or (b) an acceleration notice by the Lenders, then the Borrower
shall (unless in such interval the provision of this Section 2.01 have again
come into effect on account of any other Event of Default), resume making any
and all required payments in respect of the Debt in any manner authorized under
the terms governing such Debt until such time (if any) that such judicial
proceedings are instituted, such an acceleration notice is given or a Default
Notice (on account of any other Event of Default) is given and a period of
ninety (90) days shall not have elapsed since the giving of such Default Notice
as contemplated above. In the event any direct or indirect payment or
distribution, whether in cash or other Property, shall be received by 3TEC in
contravention of the provisions hereof, such payment or distribution shall be
held in trust for, and shall be immediately paid over or delivered to, the
Lenders.
2
<PAGE>
2.02 3TEC DEBT SUBORDINATED TO PRIOR PAYMENT OF OBLIGATIONS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE BORROWER. Upon any
distribution of assets of the Borrower upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) the Lenders shall first be entitled to receive payment in full
(or to have such payment duly provided for to their satisfaction) of the
principal thereof and interest due on the Obligations and other amounts due
in connection therewith before 3TEC is entitled to receive any payment on
account of the principal of or interest on the Debt;
(b) any payment or distribution of assets of the Borrower of any kind
or character, whether in cash, property or securities, to which 3TEC would
be entitled except for the provisions of this Agreement, shall be paid by
the liquidating trustee or agent or other person making such payment or
distribution directly to the Lenders or its representative, to the extent
necessary to make payment in full of all Obligations remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor to the Lenders; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Borrower of any kind or character, whether in
cash, property or securities, shall be received by 3TEC on account of
principal of or interest on the Debt before all Obligations are paid in
full or provision made for their payment, such payment or distribution
(subject to the further provisions of this Article) shall be paid over to
the Lenders or their representative for application to the payment of all
Obligations remaining unpaid or unprovided for until all such Obligations
shall have been paid in full, after giving effect to any concurrent payment
or distribution or provision therefor to the Lenders.
2.03 SUBORDINATION OF LIENS. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, 3TEC hereby subordinates all Liens, now existing or hereafter
created or arising, securing all or any portion of the Debt to all Liens, now
existing or hereafter created or arising, securing all or any portion of the
Obligations, notwithstanding any defect, deficiency, error or omission which may
be contained in any Loan Document creating or perfecting any such Lien securing
all or any portion of the Obligations. All Liens, now existing or hereafter
created or arising, securing all or any portion of the Debt shall at all times
remain subordinate, secondary and inferior to all Liens, now existing or
hereafter created or arising, securing all or any portion of the Obligations.
2.04 SUBORDINATION OF REMEDIES. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, 3TEC shall not, without the prior written consent of the
Lenders, declare any Debt due or in default (other than to accelerate the Debt
and take such other actions as reasonably required to protect 3TEC's claims upon
any bankruptcy, insolvency, or receivership proceeding with respect to Borrower)
or foreclose upon
3
<PAGE>
or exercise any power of sale with respect to any security for all or any
portion of the Debt or exercise any other right, power or remedy of 3TEC
provided for in any document or instrument executed in connection with the Debt
or by law or initiate or join with any other creditor of the Borrower in
initiating any plan or proceeding pursuant to any bankruptcy, insolvency or
receivership proceedings or seeking an assignment for the benefit of creditors
or the marshalling of the assets and liabilities of the Borrower. Upon any
distribution of assets of the Borrower or the dissolution, winding up,
liquidation or reorganization (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or the
marshalling of the assets and liabilities of the Borrower or otherwise), any
payment to which 3TEC would otherwise be entitled with respect to the Debt shall
be held in trust for, and shall be immediately paid over or delivered to, the
Lenders for application to the Obligations until all Obligations shall have been
paid in full. Notwithstanding any provision of this Agreement (i) the holder of
the 3TEC Note may convert the 3TEC Note to shares of common stock of Borrower at
any time in accordance with the terms of the 3TEC Note; and (ii) 3TEC may
exercise any warrants for shares of common stock of the Borrower in accordance
with the terms of any such warrants.
2.05 CONTINUING AGREEMENT. This Agreement shall continue in full force
and effect and the liabilities and obligations of the Borrower and 3TEC
hereunder shall not be affected or impaired by any amendment, modification or
alteration of any Loan Document, except as may be expressly provided in any such
amendment, modification or alteration. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
Lenders upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
2.06 LIABILITY NOT IMPAIRED. The liabilities and obligations of the
Borrower and 3TEC hereunder shall not be affected or impaired by (a) the failure
of the Agent or the Lenders or any other Person to exercise diligence or
reasonable care in the preservation, protection or other handling or treatment
of all or any part of any Collateral for all or any portion of the Obligations,
(b) the failure of any Lien intended to be granted or created to secure all or
any part of the Obligations to be properly perfected or created or the
unenforceability of any such Lien for any other reason, or (c) the subordination
of any such Lien to any other Lien. The Lenders may at any time and from time to
time, without the consent of or notice to 3TEC, and without incurring any
responsibility to 3TEC, and without impairing or releasing or otherwise
affecting any of the obligations or agreements of 3TEC hereunder, (a) change the
manner, place or terms of payment, or change or extend the time of payment of,
renew, or alter all or any portion of the Obligations, (b) exchange, release,
surrender, realize upon or otherwise deal with, in any manner and any order, any
Property at any time subject to any Lien in favor of the Lenders, (c) exercise
or refrain from exercising any rights against the Borrower or others, and (d)
sell, transfer, assign or grant participations in the Obligations or any portion
thereof.
2.07 WAIVERS. 3TEC waives any right to require the Lenders to
(a) proceed against the Borrower or make any effort at the collection of the
Obligations from the Borrower or any other Person liable for all or any portion
of the Obligations, (b) proceed against or exhaust any Collateral securing all
or any portion of the Obligations, or (c) pursue any other remedy in the power
of the
4
<PAGE>
Lenders. The liability and obligations of 3TEC hereunder shall not be
affected or impaired by any action or inaction by the Lenders in regard to any
matter waived herein.
2.08 MODIFICATION OF 3TEC DEBT. Without the prior written consent of
the Lenders, none of the terms or provisions of the 3TEC Note, or the payment of
the Debt evidenced thereby, shall be modified, amended, accelerated, renewed or
extended. Notwithstanding the foregoing, Borrower may, without the consent of
Lender (a) extend the date on which payments are required on the 3TEC Note,
(b) reduce the interest rate applicable to the 3TEC Note, (c) waive compliance
with the terms of the 3TEC Note or loan documents associated therewith or any
default arising from non-compliance, or (d) relax or make less restrictive any
covenant in the 3TEC Note or loan documents associated therewith.
2.09 KNOWLEDGE OF 3TEC. 3TEC shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to 3TEC under the 3TEC Note or the taking of any action under the 3TEC
Note by 3TEC unless and until 3TEC shall have received written notice thereof
from the Borrower or the Agent or the Lenders or from any trustee or
representative therefor and, prior to the receipt of any such written notice,
shall be entitled in all respects conclusively to assume that no such facts
exist.
2.10 OBLIGATION OF THE BORROWER. Nothing contained in this Agreement
shall affect the obligation of the Borrower to make, or prevent the Borrower
from making, payment of the principal of or interest on the Debt, except as
otherwise provided in this Agreement and the 3TEC Note.
ARTICLE III
MISCELLANEOUS
3.01 SURVIVAL OF COVENANTS AND AGREEMENTS. All covenants and
agreements of the Borrower and 3TEC herein made shall survive the execution and
delivery hereof and shall remain in force and effect so long as any Obligation
remains outstanding or any obligation of the Lenders exists to make Loans under
the Credit Agreement.
3.02 PARTIES IN INTEREST. All covenants and agreements herein
contained by or on behalf of the Borrower, 3TEC or the Lenders shall be binding
upon and inure to the benefit of the Borrower, 3TEC, or the Lenders, as the case
may be, and their respective legal representatives, successors and assigns.
3.03 RIGHTS OF THIRD PARTIES. All provisions herein are imposed solely
and exclusively for the benefit of the Borrower, 3TEC, and the Lenders. No other
Person shall have any right, benefit, priority or interest hereunder or as a
result hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms; and any or all of such provisions may be freely
waived in whole or in part by the Lenders at any time if in their sole
discretion it deems it advisable to do so.
5
<PAGE>
3.04 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood and agreed that
the rights and other legal relations of the parties hereto shall be determined
from this Agreement as an entirety and without regard to the aforesaid division
into Articles and Sections and without regard to headings prefixed to such
Articles or Sections.
3.05 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
3.06 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part of
the Lenders, their officers or employees, nor any failure or delay by the
Lenders with respect to exercising any of its rights hereunder or under any Loan
Document shall operate as a waiver of any of the rights of the Lenders hereunder
or under such Loan Document. The rights of the Lenders hereunder and under the
Loan Documents shall be cumulative, and the exercise or partial exercise of any
such right shall not preclude the exercise of any other right.
3.07 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained herein or executed in connection herewith shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof or of any such other instrument.
3.08 AMENDMENTS OR MODIFICATIONS. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
3.09 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AGREEMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDERS, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF THE
BORROWER AND 3TEC HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY
RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY
LITIGATION BROUGHT AGAINST IT BY THE LENDERS IN ACCORDANCE WITH THIS SECTION.
6
<PAGE>
3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE
ANY PRIOR AGREEMENT AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING
TO THE SUBJECT HEREOF. THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
3TEC ENERGY CORPORATION
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
MIDDLE BAY OIL COMPANY, INC.
By:
--------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
By:
--------------------------------
Dorothy Marchand Wilson
Senior Vice President
7
<PAGE>
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
--------------------------------
Michael M. Coats
Senior Vice President
8
<PAGE>
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is made and
entered into effective this ___ day of August, 1999, by and among SHOEMAKER
FAMILY PARTNERS, LP, a Delaware corporation ("SFP"); MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation (the "BORROWER") and COMPASS BANK, an Alabama state
chartered banking institution, as Agent for itself and BANK OF OKLAHOMA,
NATIONAL ASSOCIATION (collectively, the "LENDERS").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Credit Agreement dated March
27, 1998, by and between the Borrower and ENEX RESOURCES CORPORATION as
Borrowers and the Lenders as amended by various letter amendments and by First
Amendment of even date herewith (as such agreement may be amended, modified,
supplemented or restated from time to time, the "CREDIT AGREEMENT"), the Lenders
has agreed to make Loans to or for the benefit of the Borrower;
WHEREAS, SFP has or is obligated to advance certain funds to
the Borrower pursuant to that certain note dated August __, 1999, from the
Borrower to SFP ( the "SFP NOTE"), in the amount of $50,000 (the "DEBT");
WHEREAS, pursuant to the Credit Agreement and as an inducement
to the Lenders to extend credit to the Borrower under the Credit Agreement, SFP
and the Borrower have agreed to execute this Agreement in favor of the Lenders;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Agreement, each of
the terms "AGREEMENT," "BORROWER," "CREDIT AGREEMENT," "DEBT," "LENDERS," "SFP,"
and the "SFP NOTE" shall have the meaning assigned to such term hereinabove.
1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in
the Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement.
<PAGE>
1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder," and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement.
(b) Section references are to such Sections of this Agreement
unless otherwise specified.
(c) As used herein and in any certificate or other document
made or delivered pursuant hereto, accounting and financial terms not
otherwise defined shall be defined according to GAAP.
ARTICLE II
SUBORDINATION
2.01 SUBORDINATION OF PAYMENT. The payment of the Debt is
hereby expressly subordinated in right of payment to the prior payment in full
of all Obligations and all other indebtedness of the Borrower owed to the
Lenders; PROVIDED, HOWEVER, so long as no Event of Default has occurred and is
continuing for which (other than an event specified in Subsection 7.1(d) of the
Credit Agreement) the Lenders have given written notice of such Event of Default
to the Borrower (a "DEFAULT NOTICE"), the Borrower may pay only interest due on
the Debt according to its terms. At any time following the occurrence and during
the continuance of any Event of Default and provided that the Lenders have given
a Default Notice, SFP will not request, accept or receive, and the Borrower will
not make, any payments, whether in cash or other Property, on or with respect to
the Debt unless and until (a) such Event of Default shall have been cured or
waived or shall have ceased to exist, or (b) such time as all Obligations shall
have been fully paid and performed and the obligation of the Lenders to make
Loans under the Credit Agreement shall have terminated. Notwithstanding the
above, if within ninety (90) days after the giving of such Default Notice by the
Lenders such Event of Default has not become the subject of (a) judicial
proceedings or (b) an acceleration notice by the Lenders, then the Borrower
shall (unless in such interval the provision of this Section 2.01 have again
come into effect on account of any other Event of Default), resume making any
and all required payments in respect of the Debt in any manner authorized under
the terms governing such Debt until such time (if any) that such judicial
proceedings are instituted, such an acceleration notice is given or a Default
Notice (on account of any other Event of Default) is given and a period of
ninety (90) days shall not have elapsed since the giving of such Default Notice
as contemplated above. In the event any direct or indirect payment or
distribution, whether in cash or other Property, shall be received by SFP in
contravention of the provisions hereof, such payment or distribution shall be
held in trust for, and shall be immediately paid over or delivered to, the
Lenders.
2
<PAGE>
2.02 SFP DEBT SUBORDINATED TO PRIOR PAYMENT OF OBLIGATIONS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE BORROWER. Upon any
distribution of assets of the Borrower upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) the Lenders shall first be entitled to receive payment in
full (or to have such payment duly provided for to their satisfaction)
of the principal thereof and interest due on the Obligations and other
amounts due in connection therewith before SFP is entitled to receive
any payment on account of the principal of or interest on the Debt;
(b) any payment or distribution of assets of the Borrower of
any kind or character, whether in cash, property or securities, to
which SFP would be entitled except for the provisions of this
Agreement, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution directly to the Lenders or
its representative, to the extent necessary to make payment in full of
all Obligations remaining unpaid, after giving effect to any concurrent
payment or distribution or provision therefor to the Lenders; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Borrower of any kind or
character, whether in cash, property or securities, shall be received
by SFP on account of principal of or interest on the Debt before all
Obligations are paid in full or provision made for their payment, such
payment or distribution (subject to the further provisions of this
Article) shall be paid over to the Lenders or their representative for
application to the payment of all Obligations remaining unpaid or
unprovided for until all such Obligations shall have been paid in full,
after giving effect to any concurrent payment or distribution or
provision therefor to the Lenders.
2.03 SUBORDINATION OF LIENS. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, SFP hereby subordinates all Liens, now existing or hereafter
created or arising, securing all or any portion of the Debt to all Liens, now
existing or hereafter created or arising, securing all or any portion of the
Obligations, notwithstanding any defect, deficiency, error or omission which may
be contained in any Loan Document creating or perfecting any such Lien securing
all or any portion of the Obligations. All Liens, now existing or hereafter
created or arising, securing all or any portion of the Debt shall at all times
remain subordinate, secondary and inferior to all Liens, now existing or
hereafter created or arising, securing all or any portion of the Obligations.
2.04 SUBORDINATION OF REMEDIES. So long as any Obligation
remains outstanding or any obligation of the Lenders exists to make Loans under
the Credit Agreement, SFP shall not, without the prior written consent of the
Lenders, declare any Debt due or in default (other than to accelerate the Debt
and take such other actions as reasonably required to protect SFP's claims upon
any bankruptcy, insolvency, or receivership proceeding with respect to Borrower)
or foreclose upon
3
<PAGE>
or exercise any power of sale with respect to any security for all or any
portion of the Debt or exercise any other right, power or remedy of SFP provided
for in any document or instrument executed in connection with the Debt or by law
or initiate or join with any other creditor of the Borrower in initiating any
plan or proceeding pursuant to any bankruptcy, insolvency or receivership
proceedings or seeking an assignment for the benefit of creditors or the
marshalling of the assets and liabilities of the Borrower. Upon any distribution
of assets of the Borrower or the dissolution, winding up, liquidation or
reorganization (whether in bankruptcy, insolvency or receivership proceedings or
upon an assignment for the benefit of creditors or the marshalling of the assets
and liabilities of the Borrower or otherwise), any payment to which SFP would
otherwise be entitled with respect to the Debt shall be held in trust for, and
shall be immediately paid over or delivered to, the Lenders for application to
the Obligations until all Obligations shall have been paid in full.
Notwithstanding any provision of this Agreement (i) the holder of the SFP Note
may convert the SFP Note to shares of common stock of Borrower at any time in
accordance with the terms of the SFP Note; and (ii) SFP may exercise any
warrants for shares of common stock of the Borrower in accordance with the terms
of any such warrants.
2.05 CONTINUING AGREEMENT. This Agreement shall continue in
full force and effect and the liabilities and obligations of the Borrower and
SFP hereunder shall not be affected or impaired by any amendment, modification
or alteration of any Loan Document, except as may be expressly provided in any
such amendment, modification or alteration. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
Lenders upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
2.06 LIABILITY NOT IMPAIRED . The liabilities and obligations
of the Borrower and SFP hereunder shall not be affected or impaired by (a) the
failure of the Agent or the Lenders or any other Person to exercise diligence or
reasonable care in the preservation, protection or other handling or treatment
of all or any part of any Collateral for all or any portion of the Obligations,
(b) the failure of any Lien intended to be granted or created to secure all or
any part of the Obligations to be properly perfected or created or the
unenforceability of any such Lien for any other reason, or (c) the subordination
of any such Lien to any other Lien. The Lenders may at any time and from time to
time, without the consent of or notice to SFP, and without incurring any
responsibility to SFP, and without impairing or releasing or otherwise affecting
any of the obligations or agreements of SFP hereunder, (a) change the manner,
place or terms of payment, or change or extend the time of payment of, renew, or
alter all or any portion of the Obligations, (b) exchange, release, surrender,
realize upon or otherwise deal with, in any manner and any order, any Property
at any time subject to any Lien in favor of the Lenders, (c) exercise or refrain
from exercising any rights against the Borrower or others, and (d) sell,
transfer, assign or grant participations in the Obligations or any portion
thereof.
2.07 WAIVERS . SFP waives any right to require the Lenders to
(a) proceed against the Borrower or make any effort at the collection of the
Obligations from the Borrower or any other Person liable for all or any portion
of the Obligations, (b) proceed against or exhaust any Collateral securing all
or any portion of the Obligations, or (c) pursue any other remedy in the power
of the
4
<PAGE>
Lenders. The liability and obligations of SFP hereunder shall not be affected or
impaired by any action or inaction by the Lenders in regard to any matter waived
herein.
2.08 MODIFICATION OF SFP DEBT. Without the prior written
consent of the Lenders, none of the terms or provisions of the SFP Note, or the
payment of the Debt evidenced thereby, shall be modified, amended, accelerated,
renewed or extended. Notwithstanding the foregoing, Borrower may, without the
consent of Lender (a) extend the date on which payments are required on the SFP
Note, (b) reduce the interest rate applicable to the SFP Note, (c) waive
compliance with the terms of the SFP Note or loan documents associated therewith
or any default arising from non-compliance, or (d) relax or make less
restrictive any covenant in the SFP Note or loan documents associated therewith.
2.09 KNOWLEDGE OF SFP. SFP shall not at any time be charged
with knowledge of the existence of any facts which would prohibit the making of
any payment to SFP under the SFP Note or the taking of any action under the SFP
Note by SFP unless and until SFP shall have received written notice thereof from
the Borrower or the Agent or the Lenders or from any trustee or representative
therefor and, prior to the receipt of any such written notice, shall be entitled
in all respects conclusively to assume that no such facts exist.
2.10 OBLIGATION OF THE BORROWER. Nothing contained in this
Agreement shall affect the obligation of the Borrower to make, or prevent the
Borrower from making, payment of the principal of or interest on the Debt,
except as otherwise provided in this Agreement and the SFP Note.
ARTICLE III
MISCELLANEOUS
3.01 SURVIVAL OF COVENANTS AND AGREEMENTS . All covenants and
agreements of the Borrower and SFP herein made shall survive the execution and
delivery hereof and shall remain in force and effect so long as any Obligation
remains outstanding or any obligation of the Lenders exists to make Loans under
the Credit Agreement.
3.02 PARTIES IN INTEREST . All covenants and agreements herein
contained by or on behalf of the Borrower, SFP or the Lenders shall be binding
upon and inure to the benefit of the Borrower, SFP, or the Lenders, as the case
may be, and their respective legal representatives, successors and assigns.
3.03 RIGHTS OF THIRD PARTIES . All provisions herein are
imposed solely and exclusively for the benefit of the Borrower, SFP, and the
Lenders. No other Person shall have any right, benefit, priority or interest
hereunder or as a result hereof or have standing to require satisfaction of
provisions hereof in accordance with their terms; and any or all of such
provisions may be freely waived in whole or in part by the Lenders at any time
if in their sole discretion it deems it advisable to do so.
5
<PAGE>
3.04 ARTICLES AND SECTIONS. This Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood and
agreed that the rights and other legal relations of the parties hereto shall be
determined from this Agreement as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings
prefixed to such Articles or Sections.
3.05 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Definitions of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as the case may be, unless otherwise
indicated. Words denoting sex shall be construed to include the masculine,
feminine and neuter, when such construction is appropriate; and specific
enumeration shall not exclude the general but shall be construed as cumulative.
3.06 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on
the part of the Lenders, their officers or employees, nor any failure or delay
by the Lenders with respect to exercising any of its rights hereunder or under
any Loan Document shall operate as a waiver of any of the rights of the Lenders
hereunder or under such Loan Document. The rights of the Lenders hereunder and
under the Loan Documents shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
3.07 SURVIVAL UPON UNENFORCEABILITY. In the event any one or
more of the provisions contained herein or executed in connection herewith
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof or of any such other instrument.
3.08 AMENDMENTS OR MODIFICATIONS. Neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
3.09 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AGREEMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION
OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF
THE BORROWER AND SFP HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY
RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY
LITIGATION BROUGHT AGAINST IT BY THE LENDERS IN ACCORDANCE WITH THIS SECTION.
6
<PAGE>
3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT HEREOF. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
SUCH PARTIES.
IN WITNESS WHEREOF, this Agreement is deemed executed
effective as of the date first above written.
SHOEMAKER FAMILY PARTNERS, LP
By:
----------------------------------
Printed Name:
------------------------
Title:
-------------------------------
MIDDLE BAY OIL COMPANY, INC.
By:
----------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
By:
----------------------------------
Dorothy Marchand Wilson
Senior Vice President
7
<PAGE>
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
----------------------------------
Michael M. Coats
Senior Vice President
8
<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is made and
entered into effective this ___ day of August, 1999, by and among SHOEINVEST II,
LP, a Delaware corporation ("Shoeinvest"); MIDDLE BAY OIL COMPANY, INC., an
Alabama corporation (the "BORROWER") and COMPASS BANK, an Alabama state
chartered banking institution, as Agent for itself and BANK OF OKLAHOMA,
NATIONAL ASSOCIATION (collectively, the "LENDERS").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Credit Agreement dated March
27, 1998, by and between the Borrower and ENEX RESOURCES CORPORATION as
Borrowers and the Lenders as amended by various letter amendments and by First
Amendment of even date herewith (as such agreement may be amended, modified,
supplemented or restated from time to time, the "CREDIT AGREEMENT"), the Lenders
has agreed to make Loans to or for the benefit of the Borrower;
WHEREAS, Shoeinvest has or is obligated to advance certain
funds to the Borrower pursuant to that certain note dated August __, 1999, from
the Borrower to Shoeinvest ( the "SHOEINVEST NOTE"), in the amount of $100,000
(the "DEBT");
WHEREAS, pursuant to the Credit Agreement and as an inducement
to the Lenders to extend credit to the Borrower under the Credit Agreement,
Shoeinvest and the Borrower have agreed to execute this Agreement in favor of
the Lenders;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Agreement, each of
the terms "AGREEMENT," "BORROWER," "CREDIT AGREEMENT," "DEBT," "LENDERS,"
"SHOEINVEST," and the "SHOEINVEST NOTE" shall have the meaning assigned to such
term hereinabove.
1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in
the Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement.
1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder," and words of
similar import when used in this
<PAGE>
Agreement shall refer to this Agreement as a whole and not to any
particular Article, Section or provision of this Agreement.
(b) Section references are to such Sections of this
Agreement unless otherwise specified.
(c) As used herein and in any certificate or other document
made or delivered pursuant hereto, accounting and financial terms not
otherwise defined shall be defined according to GAAP.
ARTICLE II
SUBORDINATION
2.01 SUBORDINATION OF PAYMENT. The payment of the Debt is
hereby expressly subordinated in right of payment to the prior payment in full
of all Obligations and all other indebtedness of the Borrower owed to the
Lenders; PROVIDED, HOWEVER, so long as no Event of Default has occurred and is
continuing for which (other than an event specified in Subsection 7.1(d) of the
Credit Agreement) the Lenders have given written notice of such Event of Default
to the Borrower (a "DEFAULT NOTICE"), the Borrower may pay only interest due on
the Debt according to its terms. At any time following the occurrence and during
the continuance of any Event of Default and provided that the Lenders have given
a Default Notice, Shoeinvest will not request, accept or receive, and the
Borrower will not make, any payments, whether in cash or other Property, on or
with respect to the Debt unless and until (a) such Event of Default shall have
been cured or waived or shall have ceased to exist, or (b) such time as all
Obligations shall have been fully paid and performed and the obligation of the
Lenders to make Loans under the Credit Agreement shall have terminated.
Notwithstanding the above, if within ninety (90) days after the giving of such
Default Notice by the Lenders such Event of Default has not become the subject
of (a) judicial proceedings or (b) an acceleration notice by the Lenders, then
the Borrower shall (unless in such interval the provision of this Section 2.01
have again come into effect on account of any other Event of Default), resume
making any and all required payments in respect of the Debt in any manner
authorized under the terms governing such Debt until such time (if any) that
such judicial proceedings are instituted, such an acceleration notice is given
or a Default Notice (on account of any other Event of Default) is given and a
period of ninety (90) days shall not have elapsed since the giving of such
Default Notice as contemplated above. In the event any direct or indirect
payment or distribution, whether in cash or other Property, shall be received by
Shoeinvest in contravention of the provisions hereof, such payment or
distribution shall be held in trust for, and shall be immediately paid over or
delivered to, the Lenders.
2.02 SHOEINVEST DEBT SUBORDINATED TO PRIOR PAYMENT OF
OBLIGATIONS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE BORROWER. Upon
any distribution of assets of the Borrower upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
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(a) the Lenders shall first be entitled to receive payment
in full (or to have such payment duly provided for to their
satisfaction) of the principal thereof and interest due on the
Obligations and other amounts due in connection therewith before
Shoeinvest is entitled to receive any payment on account of the
principal of or interest on the Debt;
(b) any payment or distribution of assets of the Borrower of
any kind or character, whether in cash, property or securities, to
which Shoeinvest would be entitled except for the provisions of this
Agreement, shall be paid by the liquidating trustee or agent or other
person making such payment or distribution directly to the Lenders or
its representative, to the extent necessary to make payment in full of
all Obligations remaining unpaid, after giving effect to any concurrent
payment or distribution or provision therefor to the Lenders; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Borrower of any kind or
character, whether in cash, property or securities, shall be received
by Shoeinvest on account of principal of or interest on the Debt before
all Obligations are paid in full or provision made for their payment,
such payment or distribution (subject to the further provisions of this
Article) shall be paid over to the Lenders or their representative for
application to the payment of all Obligations remaining unpaid or
unprovided for until all such Obligations shall have been paid in full,
after giving effect to any concurrent payment or distribution or
provision therefor to the Lenders.
2.03 SUBORDINATION OF LIENS. So long as any Obligation
remains outstanding or any obligation of the Lenders exists to make Loans under
the Credit Agreement, Shoeinvest hereby subordinates all Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt to all
Liens, now existing or hereafter created or arising, securing all or any portion
of the Obligations, notwithstanding any defect, deficiency, error or omission
which may be contained in any Loan Document creating or perfecting any such Lien
securing all or any portion of the Obligations. All Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt shall at
all times remain subordinate, secondary and inferior to all Liens, now existing
or hereafter created or arising, securing all or any portion of the Obligations.
2.04 SUBORDINATION OF REMEDIES. So long as any Obligation
remains outstanding or any obligation of the Lenders exists to make Loans under
the Credit Agreement, Shoeinvest shall not, without the prior written consent of
the Lenders, declare any Debt due or in default (other than to accelerate the
Debt and take such other actions as reasonably required to protect Shoeinvest's
claims upon any bankruptcy, insolvency, or receivership proceeding with respect
to Borrower) or foreclose upon or exercise any power of sale with respect to any
security for all or any portion of the Debt or exercise any other right, power
or remedy of Shoeinvest provided for in any document or instrument executed in
connection with the Debt or by law or initiate or join with any other creditor
of the Borrower in initiating any plan or proceeding pursuant to any bankruptcy,
insolvency or receivership proceedings or seeking an assignment for the benefit
of creditors or the marshalling of the assets and liabilities of the Borrower.
Upon any distribution of assets of the Borrower or the
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dissolution, winding up, liquidation or reorganization (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or the marshalling of the assets and liabilities of
the Borrower or otherwise), any payment to which Shoeinvest would otherwise
be entitled with respect to the Debt shall be held in trust for, and shall be
immediately paid over or delivered to, the Lenders for application to the
Obligations until all Obligations shall have been paid in full.
Notwithstanding any provision of this Agreement (i) the holder of the
Shoeinvest Note may convert the Shoeinvest Note to shares of common stock of
Borrower at any time in accordance with the terms of the Shoeinvest Note; and
(ii) Shoeinvest may exercise any warrants for shares of common stock of the
Borrower in accordance with the terms of any such warrants.
2.05 CONTINUING AGREEMENT. This Agreement shall continue in
full force and effect and the liabilities and obligations of the Borrower and
Shoeinvest hereunder shall not be affected or impaired by any amendment,
modification or alteration of any Loan Document, except as may be expressly
provided in any such amendment, modification or alteration. This Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Obligations is rescinded or must otherwise be
returned by the Lenders upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
2.06 LIABILITY NOT IMPAIRED. The liabilities and obligations
of the Borrower and Shoeinvest hereunder shall not be affected or impaired by
(a) the failure of the Agent or the Lenders or any other Person to exercise
diligence or reasonable care in the preservation, protection or other handling
or treatment of all or any part of any Collateral for all or any portion of the
Obligations, (b) the failure of any Lien intended to be granted or created to
secure all or any part of the Obligations to be properly perfected or created or
the unenforceability of any such Lien for any other reason, or (c) the
subordination of any such Lien to any other Lien. The Lenders may at any time
and from time to time, without the consent of or notice to Shoeinvest, and
without incurring any responsibility to Shoeinvest, and without impairing or
releasing or otherwise affecting any of the obligations or agreements of
Shoeinvest hereunder, (a) change the manner, place or terms of payment, or
change or extend the time of payment of, renew, or alter all or any portion of
the Obligations, (b) exchange, release, surrender, realize upon or otherwise
deal with, in any manner and any order, any Property at any time subject to any
Lien in favor of the Lenders, (c) exercise or refrain from exercising any rights
against the Borrower or others, and (d) sell, transfer, assign or grant
participations in the Obligations or any portion thereof.
2.07 WAIVERS. Shoeinvest waives any right to require the
Lenders to (a) proceed against the Borrower or make any effort at the collection
of the Obligations from the Borrower or any other Person liable for all or any
portion of the Obligations, (b) proceed against or exhaust any Collateral
securing all or any portion of the Obligations, or (c) pursue any other remedy
in the power of the Lenders. The liability and obligations of Shoeinvest
hereunder shall not be affected or impaired by any action or inaction by the
Lenders in regard to any matter waived herein.
2.08 MODIFICATION OF SHOEINVEST DEBT. Without the prior
written consent of the Lenders, none of the terms or provisions of the
Shoeinvest Note, or the payment of the Debt evidenced thereby, shall be
modified, amended, accelerated, renewed or extended. Notwithstanding
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the foregoing, Borrower may, without the consent of Lender (a) extend the
date on which payments are required on the Shoeinvest Note, (b) reduce the
interest rate applicable to the Shoeinvest Note, (c) waive compliance with
the terms of the Shoeinvest Note or loan documents associated therewith or
any default arising from non-compliance, or (d) relax or make less
restrictive any covenant in the Shoeinvest Note or loan documents associated
therewith.
2.09 KNOWLEDGE OF SHOEINVEST. Shoeinvest shall not at any
time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to Shoeinvest under the Shoeinvest Note or
the taking of any action under the Shoeinvest Note by Shoeinvest unless and
until Shoeinvest shall have received written notice thereof from the Borrower
or the Agent or the Lenders or from any trustee or representative therefor and,
prior to the receipt of any such written notice, shall be entitled in all
respects conclusively to assume that no such facts exist.
2.10 OBLIGATION OF THE BORROWER. Nothing contained in this
Agreement shall affect the obligation of the Borrower to make, or prevent the
Borrower from making, payment of the principal of or interest on the Debt,
except as otherwise provided in this Agreement and the Shoeinvest Note.
ARTICLE III
MISCELLANEOUS
3.01 SURVIVAL OF COVENANTS AND AGREEMENTS. All covenants
and agreements of the Borrower and Shoeinvest herein made shall survive the
execution and delivery hereof and shall remain in force and effect so long as
any Obligation remains outstanding or any obligation of the Lenders exists to
make Loans under the Credit Agreement.
3.02 PARTIES IN INTEREST. All covenants and agreements
herein contained by or on behalf of the Borrower, Shoeinvest or the Lenders
shall be binding upon and inure to the benefit of the Borrower, Shoeinvest,
or the Lenders, as the case may be, and their respective legal representatives,
successors and assigns.
3.03 RIGHTS OF THIRD PARTIES. All provisions herein are
imposed solely and exclusively for the benefit of the Borrower, Shoeinvest, and
the Lenders. No other Person shall have any right, benefit, priority or interest
hereunder or as a result hereof or have standing to require satisfaction of
provisions hereof in accordance with their terms; and any or all of such
provisions may be freely waived in whole or in part by the Lenders at any time
if in their sole discretion it deems it advisable to do so.
3.04 ARTICLES AND SECTIONS. This Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood and
agreed that the rights and other legal relations of the parties hereto shall be
determined from this Agreement as an entirety and without
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<PAGE>
regard to the aforesaid division into Articles and Sections and without
regard to headings prefixed to such Articles or Sections.
3.05 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Definitions of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as the case may be, unless otherwise
indicated. Words denoting sex shall be construed to include the masculine,
feminine and neuter, when such construction is appropriate; and specific
enumeration shall not exclude the general but shall be construed as cumulative.
3.06 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on
the part of the Lenders, their officers or employees, nor any failure or delay
by the Lenders with respect to exercising any of its rights hereunder or under
any Loan Document shall operate as a waiver of any of the rights of the Lenders
hereunder or under such Loan Document. The rights of the Lenders hereunder and
under the Loan Documents shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
3.07 SURVIVAL UPON UNENFORCEABILITY. In the event any one or
more of the provisions contained herein or executed in connection herewith
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof or of any such other instrument.
3.08 AMENDMENTS OR MODIFICATIONS. Neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
3.09 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AGREEMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION
OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF
THE BORROWER AND SHOEINVEST HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDERS IN ACCORDANCE WITH THIS
SECTION.
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3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT HEREOF. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
SUCH PARTIES.
IN WITNESS WHEREOF, this Agreement is deemed executed
effective as of the date first above written.
SHOEINVEST II, LP
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
MIDDLE BAY OIL COMPANY, INC.
By:
--------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
By:
---------------------------------
Dorothy Marchand Wilson
Senior Vice President
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<PAGE>
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
---------------------------------
Michael M. Coats
Senior Vice President
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SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is made and entered
into effective this ___ day of October, 1999, by and among THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a Delaware corporation ("Prudential"); MIDDLE BAY
OIL COMPANY, INC., an Alabama corporation (the "BORROWER") and COMPASS BANK, an
Alabama state chartered banking institution, as Agent for itself and BANK OF
OKLAHOMA, NATIONAL ASSOCIATION (collectively, the "LENDERS").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Credit Agreement dated
March 27, 1998, by and between the Borrower and ENEX RESOURCES CORPORATION as
Borrowers and the Lenders as amended by various letter amendments, by First
Amendment dated August 27, 1999, and by Second Amendment of even date herewith
(as such agreement may be amended, modified, supplemented or restated from time
to time, the "CREDIT AGREEMENT"), the Lenders has agreed to make Loans to or for
the benefit of the Borrower;
WHEREAS, Prudential has or is obligated to advance certain funds to
the Borrower pursuant to that certain note dated October __, 1999, from the
Borrower to Prudential ( the "PRUDENTIAL NOTE"), in the amount of $__________
(the "DEBT");
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrower under the Credit Agreement, Prudential
and the Borrower have agreed to execute this Agreement in favor of the Lenders;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Agreement, each of the
terms "AGREEMENT," "BORROWER," "CREDIT AGREEMENT," "DEBT," "LENDERS,"
"PRUDENTIAL," and the "PRUDENTIAL NOTE" shall have the meaning assigned to such
term hereinabove.
1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement.
<PAGE>
1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," "hereunder," and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular Article, Section or provision of this Agreement.
(b) Section references are to such Sections of this Agreement unless
otherwise specified.
(c) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting and financial terms not otherwise
defined shall be defined according to GAAP.
ARTICLE II
SUBORDINATION
2.01 SUBORDINATION OF PAYMENT. The payment of the Debt is hereby
expressly subordinated in right of payment to the prior payment in full of all
Obligations and all other indebtedness of the Borrower owed to the Lenders;
PROVIDED, HOWEVER, so long as no Event of Default has occurred and is continuing
for which (other than an event specified in Subsection 7.1(d) of the Credit
Agreement) the Lenders have given written notice of such Event of Default to the
Borrower (a "DEFAULT NOTICE"), the Borrower may pay only interest due on the
Debt according to its terms. At any time following the occurrence and during the
continuance of any Event of Default and provided that the Lenders have given a
Default Notice, Prudential will not request, accept or receive, and the Borrower
will not make, any payments, whether in cash or other Property, on or with
respect to the Debt unless and until (a) such Event of Default shall have been
cured or waived or shall have ceased to exist, or (b) such time as all
Obligations shall have been fully paid and performed and the obligation of the
Lenders to make Loans under the Credit Agreement shall have terminated.
Notwithstanding the above, if within ninety (90) days after the giving of such
Default Notice by the Lenders such Event of Default has not become the subject
of (a) judicial proceedings or (b) an acceleration notice by the Lenders, then
the Borrower shall (unless in such interval the provision of this Section 2.01
have again come into effect on account of any other Event of Default), resume
making any and all required payments in respect of the Debt in any manner
authorized under the terms governing such Debt until such time (if any) that
such judicial proceedings are instituted, such an acceleration notice is given
or a Default Notice (on account of any other Event of Default) is given and a
period of ninety (90) days shall not have elapsed since the giving of such
Default Notice as contemplated above. In the event any direct or indirect
payment or distribution, whether in cash or other Property, shall be received by
Prudential in contravention of the provisions hereof, such payment or
distribution shall be held in trust for, and shall be immediately paid over or
delivered to, the Lenders.
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<PAGE>
2.02 PRUDENTIAL DEBT SUBORDINATED TO PRIOR PAYMENT OF OBLIGATIONS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE BORROWER. Upon any
distribution of assets of the Borrower upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) the Lenders shall first be entitled to receive payment in full
(or to have such payment duly provided for to their satisfaction) of the
principal thereof and interest due on the Obligations and other amounts due
in connection therewith before Prudential is entitled to receive any
payment on account of the principal of or interest on the Debt;
(b) any payment or distribution of assets of the Borrower of any
kind or character, whether in cash, property or securities, to which
Prudential would be entitled except for the provisions of this Agreement,
shall be paid by the liquidating trustee or agent or other person making
such payment or distribution directly to the Lenders or its representative,
to the extent necessary to make payment in full of all Obligations
remaining unpaid, after giving effect to any concurrent payment or
distribution or provision therefor to the Lenders; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Borrower of any kind or character, whether in
cash, property or securities, shall be received by Prudential on account of
principal of or interest on the Debt before all Obligations are paid in
full or provision made for their payment, such payment or distribution
(subject to the further provisions of this Article) shall be paid over to
the Lenders or their representative for application to the payment of all
Obligations remaining unpaid or unprovided for until all such Obligations
shall have been paid in full, after giving effect to any concurrent payment
or distribution or provision therefor to the Lenders.
2.03 SUBORDINATION OF LIENS. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, Prudential hereby subordinates all Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt to all
Liens, now existing or hereafter created or arising, securing all or any portion
of the Obligations, notwithstanding any defect, deficiency, error or omission
which may be contained in any Loan Document creating or perfecting any such Lien
securing all or any portion of the Obligations. All Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt shall at
all times remain subordinate, secondary and inferior to all Liens, now existing
or hereafter created or arising, securing all or any portion of the Obligations.
2.04 SUBORDINATION OF REMEDIES. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, Prudential shall not, without the prior written consent of the
Lenders, declare any Debt due or in default (other than to accelerate the Debt
and take such other actions as reasonably required to protect Prudential's
claims upon any bankruptcy, insolvency, or receivership proceeding with respect
to Borrower) or
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foreclose upon or exercise any power of sale with respect to any security for
all or any portion of the Debt or exercise any other right, power or remedy of
Prudential provided for in any document or instrument executed in connection
with the Debt or by law or initiate or join with any other creditor of the
Borrower in initiating any plan or proceeding pursuant to any bankruptcy,
insolvency or receivership proceedings or seeking an assignment for the benefit
of creditors or the marshalling of the assets and liabilities of the Borrower.
Upon any distribution of assets of the Borrower or the dissolution, winding up,
liquidation or reorganization (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or the
marshalling of the assets and liabilities of the Borrower or otherwise), any
payment to which Prudential would otherwise be entitled with respect to the Debt
shall be held in trust for, and shall be immediately paid over or delivered to,
the Lenders for application to the Obligations until all Obligations shall have
been paid in full. Notwithstanding any provision of this Agreement (i) the
holder of the Prudential Note may convert the Prudential Note to shares of
common stock of Borrower at any time in accordance with the terms of the
Prudential Note; and (ii) Prudential may exercise any warrants for shares of
common stock of the Borrower in accordance with the terms of any such warrants.
2.05 CONTINUING AGREEMENT. This Agreement shall continue in full
force and effect and the liabilities and obligations of the Borrower and
Prudential hereunder shall not be affected or impaired by any amendment,
modification or alteration of any Loan Document, except as may be expressly
provided in any such amendment, modification or alteration. This Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Obligations is rescinded or must otherwise be
returned by the Lenders upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
2.06 LIABILITY NOT IMPAIRED. The liabilities and obligations of the
Borrower and Prudential hereunder shall not be affected or impaired by (a) the
failure of the Agent or the Lenders or any other Person to exercise diligence or
reasonable care in the preservation, protection or other handling or treatment
of all or any part of any Collateral for all or any portion of the Obligations,
(b) the failure of any Lien intended to be granted or created to secure all or
any part of the Obligations to be properly perfected or created or the
unenforceability of any such Lien for any other reason, or (c) the subordination
of any such Lien to any other Lien. The Lenders may at any time and from time to
time, without the consent of or notice to Prudential, and without incurring any
responsibility to Prudential, and without impairing or releasing or otherwise
affecting any of the obligations or agreements of Prudential hereunder, (a)
change the manner, place or terms of payment, or change or extend the time of
payment of, renew, or alter all or any portion of the Obligations, (b) exchange,
release, surrender, realize upon or otherwise deal with, in any manner and any
order, any Property at any time subject to any Lien in favor of the Lenders, (c)
exercise or refrain from exercising any rights against the Borrower or others,
and (d) sell, transfer, assign or grant participations in the Obligations or any
portion thereof.
2.07 WAIVERS. Prudential waives any right to require the Lenders to
(a) proceed against the Borrower or make any effort at the collection of the
Obligations from the Borrower or any other Person liable for all or any portion
of the Obligations, (b) proceed against or exhaust any Collateral securing all
or any portion of the Obligations, or (c) pursue any other remedy in the power
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<PAGE>
of the Lenders. The liability and obligations of Prudential hereunder shall not
be affected or impaired by any action or inaction by the Lenders in regard to
any matter waived herein.
2.08 MODIFICATION OF PRUDENTIAL DEBT. Without the prior written
consent of the Lenders, none of the terms or provisions of the Prudential Note,
or the payment of the Debt evidenced thereby, shall be modified, amended,
accelerated, renewed or extended. Notwithstanding the foregoing, Borrower may,
without the consent of Lender (a) extend the date on which payments are required
on the Prudential Note, (b) reduce the interest rate applicable to the
Prudential Note, (c) waive compliance with the terms of the Prudential Note or
loan documents associated therewith or any default arising from non-compliance,
or (d) relax or make less restrictive any covenant in the Prudential Note or
loan documents associated therewith.
2.09 KNOWLEDGE OF PRUDENTIAL. Prudential shall not at any time be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to Prudential under the Prudential Note or the taking of
any action under the Prudential Note by Prudential unless and until Prudential
shall have received written notice thereof from the Borrower or the Agent or the
Lenders or from any trustee or representative therefor and, prior to the receipt
of any such written notice, shall be entitled in all respects conclusively to
assume that no such facts exist.
2.10 OBLIGATION OF THE BORROWER. Nothing contained in this Agreement
shall affect the obligation of the Borrower to make, or prevent the Borrower
from making, payment of the principal of or interest on the Debt, except as
otherwise provided in this Agreement and the Prudential Note.
ARTICLE III
MISCELLANEOUS
3.01 SURVIVAL OF COVENANTS AND AGREEMENTS. All covenants and
agreements of the Borrower and Prudential herein made shall survive the
execution and delivery hereof and shall remain in force and effect so long as
any Obligation remains outstanding or any obligation of the Lenders exists to
make Loans under the Credit Agreement.
3.02 PARTIES IN INTEREST. All covenants and agreements herein
contained by or on behalf of the Borrower, Prudential or the Lenders shall be
binding upon and inure to the benefit of the Borrower, Prudential, or the
Lenders, as the case may be, and their respective legal representatives,
successors and assigns.
3.03 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Borrower, Prudential, and the
Lenders. No other Person shall have any right, benefit, priority or interest
hereunder or as a result hereof or have standing to require satisfaction of
provisions hereof in accordance with their terms; and any or all of such
provisions
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may be freely waived in whole or in part by the Lenders at any time if in their
sole discretion it deems it advisable to do so.
3.04 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood and agreed that
the rights and other legal relations of the parties hereto shall be determined
from this Agreement as an entirety and without regard to the aforesaid division
into Articles and Sections and without regard to headings prefixed to such
Articles or Sections.
3.05 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
3.06 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part
of the Lenders, their officers or employees, nor any failure or delay by the
Lenders with respect to exercising any of its rights hereunder or under any Loan
Document shall operate as a waiver of any of the rights of the Lenders hereunder
or under such Loan Document. The rights of the Lenders hereunder and under the
Loan Documents shall be cumulative, and the exercise or partial exercise of any
such right shall not preclude the exercise of any other right.
3.07 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained herein or executed in connection herewith shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof or of any such other instrument.
3.08 AMENDMENTS OR MODIFICATIONS. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
3.09 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AGREEMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDERS, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. EACH OF THE
BORROWER AND PRUDENTIAL HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
6
<PAGE>
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDERS IN ACCORDANCE WITH THIS
SECTION.
3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT HEREOF. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
SUCH PARTIES.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------------------
John J. Bassett
President
LENDER AND AGENT:
COMPASS BANK
7
<PAGE>
By:
-------------------------------------
Dorothy Marchand Wilson
Senior Vice President
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
-------------------------------------
Michael M. Coats
Senior Vice President
8
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 25,076,465
<SECURITIES> 0
<RECEIVABLES> 2,716,165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,883,197
<PP&E> 81,648,100
<DEPRECIATION> (34,486,362)
<TOTAL-ASSETS> 75,682,810
<CURRENT-LIABILITIES> 7,699,604
<BONDS> 35,026,249
0
8,862,083
<COMMON> 48,404,967
<OTHER-SE> (26,433,735)
<TOTAL-LIABILITY-AND-EQUITY> 75,682,810
<SALES> 11,328,502
<TOTAL-REVENUES> 12,967,332
<CGS> 4,450,843
<TOTAL-COSTS> 16,466,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,739,362
<INCOME-PRETAX> (3,458,803)
<INCOME-TAX> (923,324)
<INCOME-CONTINUING> (2,963,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,963,988)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
