<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
MIDDLE BAY OIL COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
MIDDLE BAY OIL COMPANY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST __, 1999
To the Shareholders of Middle Bay Oil Company, Inc.
You are cordially invited to attend the Annual Meeting of
Shareholders of Middle Bay Oil Company, Inc., an Alabama corporation ("Middle
Bay"), to be held at the offices of Middle Bay, 1221 Lamar Street, Suite
1020, Houston, Texas 77010, on August __, 1999 at 10:00 a.m. Central Daylight
Time, for the purpose of acting on the following matters:
1. Consideration of and voting upon the election of seven directors
to serve until the next Annual Shareholder Meeting;
2. The consideration of and voting upon a proposed amendment to
Middle Bay's Articles of Incorporation to increase the
authorized capital stock of Middle Bay from 20,000,000 shares
to 40,000,000 shares of common stock and from 10,000,000
shares to 20,000,000 shares of preferred stock;
3. Ratification of Middle Bay's issuance of its Series C Preferred
Stock in connection with the acquisition by Middle Bay of the oil
and gas properties of Enex Consolidated Partners, L.P.;
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; and
5. Transaction of such other business as may properly come before the
meeting or any adjournment.
All shareholders of record as of July __, 1999 are entitled to
notice of and to vote at the Annual Meeting or any adjournments thereof.
Whether or not you plan to attend this meeting, we urge you to
please sign and date the accompanying form of proxy and return it promptly in
the enclosed, postage prepaid envelope. This will ensure that your shares
will be represented. If you attend the meeting, you may vote in person
regardless of whether you have given your proxy. Any proxy may be revoked at
any time before it is exercised, as indicated in the Proxy Statement.
By Order of the Board of Directors
John J. Bassett, President
July __, 1999
Houston, Texas
Annual Reports to shareholders, including financial
statements, are being mailed to shareholders,
together with these proxy materials, commencing on
or about July __, 1999.
<PAGE>
Stockholders may obtain, without charge, a copy of Middle Bay's Annual Report
on Form 10-KSB (without exhibits) for the year ended December 31, 1998 as
filed with the Securities and Exchange Commission, by writing to Middle Bay
Oil Company, 1221 Lamar Street, Suite 1020, Houston, Texas 77010. Copies of
Middle Bay's Annual Report on Form 10-KSB may also be obtained directly from
the Securities and Exchange Commission web site at http://www.sec.gov/.
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN AND RETURN THE ACCOMPANYING
PROXY FORM IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
Preliminary Copy
MIDDLE BAY OIL COMPANY, INC.
1221 Lamar Street, Suite 1020
Houston, Texas 77010
PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
To Be Held August ____, 1999
This Proxy Statement is furnished to shareholders of Middle Bay Oil
Company, Inc., an Alabama corporation ("Middle Bay"), in connection with the
solicitation, at Middle Bay's expense, on behalf of the Board of Directors of
Middle Bay of proxies to be used at an Annual Meeting of Shareholders to be held
at 10:00 a.m. Central Daylight Time on August ___, 1999 and all adjournments
thereof (the "Annual Meeting"). This Proxy Statement and the enclosed form of
proxy are being mailed to shareholders on or about July ___, 1999.
The Annual Meeting will be held at the principal offices of Middle Bay at
1221 Lamar Street, Suite 1020, Houston, Texas 77010. Proxies in the form
enclosed will be voted at the Annual Meeting if properly executed, returned to
Middle Bay before the meeting and not revoked. Any shareholder giving such proxy
may revoke it at any time before it is voted by written revocation delivered to
Middle Bay's Secretary, by voting in person at the Annual Meeting or by giving a
later proxy.
The cost of solicitation will be paid by Middle Bay. In addition to
solicitation of proxies by use of the mails, directors, officers or employees of
Middle Bay may, without additional compensation, solicit proxies personally, by
telephone or by other appropriate means. Middle Bay will request banks,
brokerage houses and other custodians, nominees or fiduciaries holding shares of
common stock in their names for others to promptly send proxy materials to, and
obtain proxies from, their principals, and Middle Bay will reimburse them for
their reasonable expenses in doing so.
OUTSTANDING CAPITAL STOCK
All voting rights are vested exclusively in the holders of Middle Bay's
common stock. The record date for shareholders entitled to vote at the Annual
Meeting is the close of business on July ___, 1999. At the close of business on
that date, Middle Bay had issued, outstanding and entitled to vote at the
meeting 8,534,425 shares of common stock, $.02 par value, each of which is
entitled to one vote on all matters expected to be voted upon at the Annual
Meeting.
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QUORUM AND VOTING
The presence, in person or by proxy, of the holders of shares of common
stock entitled to vote at the Annual Meeting representing a majority of the
votes entitled to be cast is necessary to constitute a quorum at the Annual
Meeting. Each holder of shares of common stock is entitled to one vote, in
person or by proxy, for each share held in such shareholder's name on the record
date. Assuming the presence of a quorum, the affirmative votes equal to at least
a majority of the votes of holders of common stock entitled to vote at the
Annual Meeting, in person or by proxy, are required for the election of
directors and the approval of the selection of independent public accountants.
As to any other matters which may come before the meeting, a majority of the
votes of holders of common stock cast at the Annual Meeting generally is
required for approval. Abstentions will be included in vote totals and, as such,
will have the same effect on the matter voted upon as a negative vote. Where
nominee recordholders do not vote on directors or the other proposals because
they did not receive specific instructions on such proposal from the beneficial
owners of such shares ("broker nonvotes"), such broker nonvotes will not be
included in vote totals and, as such, will have no effect on the action taken at
the Annual Meeting.
The shares represented by proxies solicited by the Board of Directors will
be voted in accordance with the recommendations of the Board of Directors unless
otherwise specified in the proxy, and where the person solicited specifies a
choice with respect to any matter to be acted upon, the shares will be voted in
accordance with the specification so made.
The enclosed proxy is revocable at any time prior to its being voted by
filing an instrument of revocation or a duly executed proxy bearing a later
date. A proxy may also be revoked by attendance at the meeting and voting in
person. Attendance at the meeting will not by itself constitute a revocation.
Any such revocation or later dated proxy should be mailed or delivered to Middle
Bay Oil Company, Inc., 1221 Lamar Street, Suite 1020, Houston, Texas 77010,
Attention: Kelly L. Green, Assistant Secretary.
Middle Bay will bear the cost of soliciting proxies from shareholders. In
addition to the use of the mails, proxies may be solicited by directors and
officers of Middle Bay by personal solicitation, telephone or telegram. Such
directors and officers will not be additionally compensated for such
solicitation but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith.
Middle Bay has not and will not engage any investment banking or brokerage
firm or any professional proxy solicitation firm to solicit proxies. No fees,
commissions or other compensation will be paid to anyone for proxy votes
solicited by Middle Bay.
Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of the common stock. Middle Bay may reimburse such custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred in
connection therewith.
The enclosed form of proxy allows shareholders to grant or withhold
discretionary authority to the persons named to vote on any other matters that
may properly come before the Annual Meeting. Middle Bay
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<PAGE>
is not aware of any other proposals planned to be made at the Annual Meeting and
has no current intention of making any additional proposals. The chairman of the
meeting shall determine the order of business at the Annual Meeting and the
voting and other procedures to be observed. The chairman is authorized to
declare whether any business is properly brought before the meeting, and
business not properly brought before the meeting may not be transacted.
CORPORATE GOVERNANCE
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of Middle Bay, taking into
consideration the interests of all shareholders. Members of the Board are kept
informed of Middle Bay's business by various reports sent or communicated to
them regularly, as well as by operating and financial reports made at Board and
Committee meetings by the President and other officers. During 1998, the full
Board met four times. The Board has two Committees, an Audit Committee and a
Compensation Committee. The Audit Committee met one time, and the Compensation
Committee met twice.
The Audit Committee's duties include recommending to the Board the
selection of a firm of independent public accountants for approval by the
shareholders at their Annual Meeting. In addition, the Committee confers with
Middle Bay's independent public accountants to review the plan and scope of
their proposed audit, as well as their findings and recommendations upon the
completion of the audit. The Committee meets with the independent public
accountants and with appropriate Company financial personnel regarding Middle
Bay's internal controls and financial policies. The Audit Committee currently
consists of Gary R. Christopher, Frank E. Bolling, Jr. and Alvin V. Shoemaker.
No member of the Audit Committee is an officer or employee of Middle Bay.
The Compensation Committee is responsible for establishing and reviewing
policies governing executive salaries, bonus and incentive compensation and the
terms and conditions of employment of executives of Middle Bay. In addition, the
Committee is responsible for the oversight of Middle Bay's 1995 Stock Option and
Stock Appreciation Rights Plan and similar or other plans which may be
maintained from time to time by Middle Bay and has authority to grant options
and awards under Middle Bay's 1995 Stock Option and Stock Appreciation Rights
Plan, and oversees Middle Bay's SEP/IRA retirement plan, the net profits
interest incentive compensation plan established by Middle Bay in 1995 and the
40l(k) plan established in 1997 (see "Corporate Governance - Executive
Compensation"). The Committee coordinates with the appropriate financial, legal
and administrative personnel of Middle Bay, as well as outside experts retained
in connection with the administration of these plans. The Compensation Committee
currently consists of John J. Bassett, President and Chief Executive Officer,
and Messrs. Edward P. Turner, Jr. and Frank E. Bolling, Jr., neither of whom is
an officer or employee of Middle Bay.
During 1998, all incumbent directors attended all of the meetings of the
Board of Directors. Attendance at those meetings was 100%. Attendance at the
Committee meetings was also 100%.
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Compensation of Directors
Each director is paid an attendance fee of $500 for each meeting of the
Board and of each Committee of the Board, and Middle Bay reimburses directors'
documented travel and lodging expenses.
Each nonemployee director is eligible for incentive awards under the 1995
Stock Option and Stock Appreciation Rights Plan. As previously reported in
Middle Bay's 1998 Proxy Statement, in January 1998, the Board of Directors
approved the Compensation Committee's recommendation to issue nonqualified stock
options pursuant to the Plan to nonemployee directors. These options were issued
as follows (see "Executive Compensation"):
Issued 1/98 Issued 2/99
No. of Exercise No. of Exercise
Name Optioned Shares Price Optioned Shares Price
---- --------------- ----- --------------- -----
Edward P. Turner, Jr. 10,000 $5.75 5,000 $1.50
Frank E. Bolling, Jr. 10,000 $5.75 5,000 $1.50
Gary R. Christopher 10,000 $5.75 5,000 $1.50
Alvin V. Shoemaker 10,000 $5.75 5,000 $1.50
Security Ownership of Certain Beneficial Owners
The following table sets forth the shares of Middle Bay's common and
preferred stock beneficially owned by those persons known by Middle Bay to be
the beneficial owner of more than five percent of Middle Bay's issued and
outstanding common and preferred stock as of June 30, 1999:
Title of Name and Address of Amount and Nature of Percent of
Class(1) Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
Common C. J. Lett, III(1) 1,187,556 13.9%
9320 East Central
Wichita, Kansas 67206
Common Kaiser-Francis Oil Company(1) 3,333,334 39.1%
6733 South Yale
Tulsa, Oklahoma 74136
Common Weskids, L.P.(2) 843,687 9.9%
310 South Street
Morristown, NJ 07960
Common Weskids, Inc. 843,687 9.9%
310 South Street
Morristown, NJ 07960
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Common Alvin V. Shoemaker(1) 684,222 8.0%
8800 First Avenue
Stone Harbor,NJ 08247
Common SerDrilco, Inc.(4) 666,000 7.8%
15 West 6th Street
Suite 1800
Tulsa, OK 74192
Preferred Weskids, L.P.(2) 117,467 44.1%
Series B 310 South Street
Morristown, NJ 07960
Preferred Weskids, Inc. 117,467 44.1%
Series B 310 South Street
Morristown, NJ 07960
Preferred Alvin V. Shoemaker(1) 117,466 44.1%
Series B 8800 First Avenue
Stone Harbor, NJ 08247
Preferred Stephen W. Herod(1) 15,867 5.9%
Series B 1110 Briar Ridge Drive
Houston, TX 77057
Preferred W. Tim Sexton(1) 15,867 5.9%
Series B 12010 Winwood
Houston, TX 77024
(1) The nature of the beneficial ownership is sole voting and investment
power.
(2) Weskids, L.P. is presently the beneficial owner and has sole voting and
disposition power of 843,687 shares of common stock and 117,467 shares of
Series B preferred stock immediately convertible into not less than
117,467 shares of Middle Bay's common stock. The exact conversion ratio is
determined by the terms of the June 20, 1997 merger agreement between
Middle Bay and Shore Oil Company (the "Shore Merger"). Weskids, Inc. is
the general partner of Weskids, L.P. and effectively controls Weskids,
L.P. The officers and directors of Weskids, Inc. are as follows: J. Peter
Simon, director; Michael B. Lenard, President; Mark J. Butler, Vice
President/Treasurer; and Christine W. Jenkins, Secretary.
(3) Series B preferred stock is convertible into common stock at a variable
ratio of not less than one-to-one.
(4) SerDrilco, Inc. is the parent company of Service Drilling Co., LLC.
Sherman E. Smith is the majority shareholder of SerDrilco, Inc.
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Security Ownership of Management
The following table sets forth the shares of Middle Bay's common
stock beneficially owned by each director and executive officer and all
directors and executive officers as a group, all as of June 30, 1999:
<TABLE>
<CAPTION>
Conv. Preferred Common Name and Address of Amount and Nature of Percent of
& Options Stock Beneficial Owner Beneficial Ownership(6) Class
--------- ----- ---------------- -------------------- -----
<S> <C> <C> <C> <C>
222,000 25,211 John J. Bassett 247,211 2.5%
4326 Noble Oak Trail
Houston, TX 77059
136,500 14,296 Frank C. Turner, II 150,796 1.5%
1406 Tallow Court
Seabrook, TX 77586
156,500 6,996 Robert W. Hammons 163,496 1.7%
915 Kentbury Court
Katy, TX 77450
13,500 -- Lynn M. Davis 13,500 --
121 Donna Circle
Daphne, AL 36526
49,734 376,241 Edward P. Turner, Jr.(1) 425,975 4.3%
100 Central Avenue
Chatom, AL 36518
47,000 1,187,556 C. J. Lett, III(2) 1,234,556 12.6%
9320 East Central
Wichita, KS 67206
49,533 -- Frank E. Bolling, Jr. 49,533 0.5%
3830 Kendale Drive
Gautier, MS 39553
15,000 13,000 Gary R Christopher(3) 28,000 0.3%
6733 South Yale
Tulsa, OK 74136
132,466 684,222 Alvin V. Shoemaker(4) 816,688 8.3%
8800 First Avenue
Stone Harbor, NJ 08247
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
70,867 109,816 Stephen W. Herod(5) 180,683 1.8%
1110 Briar Ridge Drive
Houston, TX 77057
All executive officers and
directors as a group
(10 persons) 3,310,438 33.7%
</TABLE>
(1) Includes 362,803 shares owned by Bay City Energy Group, Inc. in which Mr.
Turner has indirect voting control but not a direct beneficial interest,
and 13,438 shares over which Mr. Turner has sole voting and dispositive
power.
(2) Mr. Lett was named Executive Vice President of Middle Bay on February 28,
1997 in connection with the Bison Merger (see "Certain Relationships and
Related Transactions").
(3) Mr. Christopher is an officer of Kaiser-Francis Oil Company which is the
beneficial owner of 3,333,334 of Middle Bay's common shares.
(4) Consists of 117,466 shares of Series B preferred stock convertible into
117,466 common shares of Middle Bay and options to purchase 15,000 common
shares.
(5) Consists of 15,867 shares of Series B preferred stock convertible into
15,867 common shares of Middle Bay and options to purchase 55,000 common
shares.
(6) The nature of beneficial ownership for all shares is sole voting and
investment power.
Changes in Control
Middle Bay has entered into a Securities Purchase Agreement with 3TEC
Energy Corporation (the "3TEC Agreement") involving the issuance of common
stock, a convertible promissory note and stock purchase warrants. If
consummated, the 3TEC Agreement would result in a change of control of Middle
Bay and changes in its Board of Directors and executive officers. The 3TEC
transactions are described under "Proposal to Approve the 3TEC Energy
Corporation Securities Purchase Agreement" and are subject to shareholder
approval.
Executive Compensation
Summary Compensation Table. The following table sets forth the aggregate
cash compensation earned by and paid to Middle Bay's executive officers for the
periods ended December 31, 1996 through December 31, 1998:
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<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- ----------------------
Awards Payouts
------ -------
Securities
Underlying
Restr. Options/ All Other
Name and Other Annual Stock SARs LTIP Compensation
Principal Position Year Salary ($) Bonus ($) Compensation Awards($) (#) Payouts ($) ($)
- ------------------ ---- ---------- --------- ------------ --------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Bassett 1998 111,667 37,121 -- -- 35,000 -- --
President & 1997 95,521 6,001 -- 129,545 132,000 -- 13,032
Chief Executive 1996 58,075 -- -- -- 20,000 -- 2,271
Officer
Stephen W. Herod 1998 100,000 24,375 -- -- 35,000 -- --
Vice President - 1997 50,000 -- -- -- -- -- --
Corp. Development 1996 -- -- -- -- -- -- --
Robert W. Hammons 1998 91,250 25,625 -- -- 22,000 -- --
Vice President - 1997 85,729 6,000 -- 57,960 94,500 -- 12,500
Engineering 1996 58,075 -- -- -- 20,000 -- 2,271
Frank C. Turner, II 1998 89,167 25,521 -- -- 22,000 -- --
Vice President & 1997 85,729 6,000 -- 57,960 94,500 -- 16,250
CFO 1996 54,458 -- -- -- 20,000 -- 2,174
</TABLE>
Compensation Under Plans. Middle Bay established a SEP/IRA retirement plan
(the "Plan") in 1993 which allows for a maximum discretionary Company
contribution of 15% of total wages paid to employees for the year. For the years
ended December 1998 through 1996, Middle Bay made no contributions in 1998,
$51,5000 in 1997 and $5,000 in 1996 to the Plan, including $32,064 (1997) and
$3,068 (1996) for all executive officers as a group.
Middle Bay established a 401(k) plan in October 1997, which allows for
voluntary contributions by the employees and the employer. No Company
contributions were made in 1998.
In March 1995, the Board of Directors adopted an employee incentive
compensation plan whereby the proceeds equivalent to 1% net profits interest
(the "net profits interest") in all oil and gas properties, drilling prospects
and acquisitions and divestitures acquired or made after January 1, 1994 are
paid into a fund for incentive compensation awards to eligible employees.
The net profits interest on property acquisitions and drilling prospects
are calculated on the monthly gross profit which is defined as revenues from oil
and gas sales, less direct operating expenses, attributable to Middle Bay's
working or royalty interest in an individual property. Direct operating expenses
include landowner's royalty, overriding royalty and all costs of production,
equipment, operating expenses and taxes. On drilling prospects, the net profits
interest will not include costs of drilling, testing and completing the well,
the costs of acreage and costs of geological or geophysical work. For
divestitures, the net profits interest will be calculated on the gross sales
price, less any direct costs of the sale of an individual property.
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To qualify for an award as an "eligible employee," as presently
established by the Compensation Committee, an employee must be employed by
Middle Bay on October 1 and December 31 of the calendar year and have been
recommended by the Compensation Committee to receive an award. For the year
ended December 31, 1996, Middle Bay paid $6,916 to employees through the
employee incentive plan, including $4,897 for all executive officers as a group.
No amount was paid into the employee incentive plan in 1997 or 1998.
Middle Bay has no other retirement, pension/profit-sharing or other
deferred compensation.
Option Grants in Last Fiscal Year. The 1995 Stock Option and Stock
Appreciation Rights Plan (the "Plan") is administered by the Compensation
Committee (the "Committee") of the Board of Directors. At least two members of
the Committee must be disinterested nonemployee directors. The Committee is
authorized to determine the employees, including officers, to whom options or
rights are granted. Each option or right granted shall be on such terms and
conditions consistent with the Plan as the Committee may determine, but the
duration of any option or right shall be not greater than ten years or less than
five years from the date of grant.
Options or rights grants shall be made under the Plan only to persons who
are officers or salaried employees of Middle Bay or are nonemployee directors.
The aggregate number of shares of common stock of Middle Bay which could be
subject to options or rights under the Plan during 1998 was 1,500,000. During
the fiscal year ended December 31, 1998, options covering 232,000 shares were
issued under the Plan.
The option price of shares covered by options granted under the Plan may
not be less than the fair market value at the time the option is granted. The
option price must be paid in full in cash or cash equivalent at the time of
purchase or prior to delivery of the shares in accordance with cash payment
arrangements acceptable to the Committee. If the Committee so determines, the
option price may also be paid in shares of Middle Bay's common stock already
owned by the optionee. The Committee has discretion to determine the time or
times when options become exercisable, within the limits set forth in the Plan.
All options and rights granted under the Plan will, however, become fully
exercisable if there is a change in control (as defined in the Plan) of Middle
Bay.
The following table provides certain information with respect to all
options granted during the fiscal year ended December 31, 1998 to any executive
officer or director of Middle Bay; 232,000 options were granted under the Plan
and none were granted outside of the Plan:
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Individual Grants
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
John J. Bassett 35,000 15.1% 5.75 1/13/2003
Stephen W. Herod 35,000 15.1% 5.75 1/13/2003
Frank C. Turner, II 22,000 9.5% 5.75 1/13/2003
Robert W. Hammons 22,000 9.5% 5.75 1/13/2003
C. J. Lett, III 22,000 9.5% 5.75 1/13/2003
Edward P. Turner, Jr.* 10,000 4.3% 5.75 1/13/2003
Frank E. Bolling, Jr.* 10,000 4.3% 5.75 1/13/2003
Alvin V. Shoemaker* 10,000 4.3% 5.75 1/13/2003
Gary R. Christopher* 10,000 4.3% 5.75 1/13/2003
</TABLE>
* Nonemployee director
Aggregated Option Exercises in Last Fiscal Year and Option Value Table as
of December 31, 1998. The following table sets forth certain information
concerning each exercise of stock options during the year ended December 31,
1998, by each of the named executive officers and directors and the aggregated
fiscal year-end value of the unexercised options of each such named executive
officer and director:
Individual Grants
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY End (#) FY End ($)
Acquired Value ------------------ --------------------
Name on Exercise (#) Realized ($) Exer. Unexer. Exer. Unexer.
---- --------------- ------------ ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
John J. Bassett -- -- -- 187,000 -- 5,000
Frank C. Turner, II -- -- 20,000 116,500 5,000 --
Robert W. Hammons -- -- -- 136,500 -- 5,000
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
C. J. Lett, III -- -- -- 37,000 -- --
Stephen W. Herod -- -- -- 35,000 -- --
Edward P. Turner, Jr.* -- -- -- 44,734 -- 5,000
Frank E. Bolling, Jr.* -- -- -- 44,533 -- 5,000
Alvin V. Shoemaker* -- -- -- 10,000 -- --
Gary R. Christopher* -- -- -- 10,000 -- --
*Nonemployee director
</TABLE>
Employment Agreements
Mr. Bassett and Mr. Hammons in January 1997, signed employment agreements
with Middle Bay which extend through January 31, 2002 and January 31, 2000,
respectively, with automatic one-year extensions upon each anniversary date of
the employment agreement thereafter unless either party gives at least 30 days'
notice of termination. Each employment agreement is terminable by Middle Bay
before expiration of the term if such termination is for cause (as specified in
the employment agreement). The executive employment agreements provide for an
annual salary of not less than the base salaries of $95,000 and $85,000,
respectively, which amounts may be adjusted from time to time by the Board of
Directors upon the recommendation of the Compensation Committee. They also
provide for fringe benefits in accordance with Middle Bay's policies adopted
from time to time for salaried executive employees holding comparable positions.
Mr. Herod executed an employment agreement with Middle Bay with an
effective date of July 1, 1997 and extending through June 30, 1999, with
automatic one-year extensions upon each anniversary date of the employment
agreement thereafter unless either party gives at least 30 days' notice of
termination. The employment agreement is terminable by Middle Bay before
expiration of the term if such termination is for cause (as specified in the
employment agreement). The executive employment agreement provides for an annual
salary of not less than the base salary of $100,000, which amount may be
adjusted from time to time by the Board of Directors upon the recommendation of
the Compensation Committee. It also provides for fringe benefits in accordance
with Middle Bay's policies adopted from time to time for salaried executive
employees holding comparable positions.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires Middle Bay's
directors and executive officers and any persons who own more than 10% of Middle
Bay's common stock to file with the Securities and Exchange Commission reports
of ownership and changes in ownership of such securities. Based on
representations from such persons, Middle Bay believes that there was no failure
to file or delinquent filings
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under Section 16(a) of the Securities Exchange Act of 1934 by any officer,
director or beneficial owner of 10% or more of Middle Bay's common stock during
1998.
Certain Relationships and Related Transactions
Edward P. Turner, Jr., a director of Middle Bay, is managing partner of
the law firm of Turner, Onderdonk, Kimbrough & Howell, P.A., Middle Bay's
counsel for certain corporate and oil and gas matters. For the years ended
December 31, 1996 through 1998, Middle Bay paid legal fees to Mr. Turner's firm
of $1,560, $2,874 and $915, respectively, for legal services. Mr. Turner's firm
charges Middle Bay for its services on the same basis as it charges other
business clients for similar services rendered. Middle Bay intends to continue
to use Mr. Turner's firm as its primary local counsel in Alabama and will pay
reasonable fees for such future services.
Bay City Energy Group, Inc., is presently indebted to Middle Bay in the
amount of $173,115 ($139,005 of principal and $34,110 of accrued interest). The
note payable was renegotiated on December 31, 1995 and is due in full on January
1, 2001, plus interest at an annual fixed rate of 5%. The note payable is
secured by 75,000 shares of Middle Bay's common stock. Edward P. Turner, Jr., a
director of Middle Bay, has indirect voting control but not a beneficial
interest in Bay City Energy Group, Inc.
On December 31, 1996, NPC Energy Corp., then a company indirectly
controlled by C. J. Lett, III through Bison Energy Corporation ("Bison"), merged
with Middle Bay in exchange for 562,000 shares of common stock of Middle Bay and
$1,226,400 cash. Subsequently, in February, 1997, Middle Bay acquired Bison as a
wholly-owned subsidiary pursuant to an Agreement and Plan of Merger whereby Mr.
Lett received net cash consideration of $5.9 million plus 1,167,556 shares of
Middle Bay's common stock, and the 562,000 shares held by Bison (as a result of
the NPC merger) were canceled. Middle Bay rents office space for its division
office in Wichita, Kansas from Mr. Lett at the rate of $3,000 per month through
February, 2000.
Middle Bay loaned Frank C. Turner, II, Vice President and Chief Financial
Officer, $14,400 in September, 1998 to pay income taxes associated with the
exercise of incentive stock options. The loan is represented by a note payable
on demand bearing interest at 8% per annum.
Gary R. Christopher, a director of Middle Bay, is employed by
Kaiser-Francis Oil Company, which directly owns 3,333,334 common shares, or
39.1% of Middle Bay.
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ELECTION OF DIRECTORS
Nominees for Election as Directors
The following table sets forth information concerning the present
directors and executive officers of Middle Bay. All of the directors are
nominees for election at the Annual Meeting. All directors serve for a one-year
term or until the annual meeting of shareholders of Middle Bay held following
their election:
Director
Name Age Position(s) Held Since
---- --- ---------------- -----
John J. Bassett 40 Chairman, President and 1992
Chief Executive Officer
C. J. Lett, III 41 Executive Vice President 1997
and Director
Stephen W. Herod (1) 40 Vice President and Director 1997
Edward P. Turner, Jr. 69 Director 1989
Frank E. Bolling, Jr. 39 Director 1992
Alvin V. Shoemaker (2) 60 Director 1997
Gary R. Christopher 49 Director 1997
(1) Mr. Herod replaced Frank C. Turner, II effective July 3, 1997.
(2) Mr. Shoemaker replaced C. Noell Rather effective July 28, 1997.
John J. Bassett has served as President, Chief Executive Officer and
a director of Middle Bay since 1992 and was elected Chairman of the Board of
Directors in 1992. He served as President of the general partner of Middle Bay's
predecessor partnership from 1987 to 1992. Mr. Bassett was a director and
President of Bay City Energy Group, Inc., a then principal shareholder of Middle
Bay, from 1987 to 1997.
C. J. Lett, III has served as Executive Vice President and a
director for Middle Bay since the merger of Middle Bay and Bison Energy
Corporation on February 28, 1997. Mr. Lett was President and a director of Bison
Energy Corporation from 1981 to 1997.
Stephen W. Herod has served as Vice President - Corporate
Development and a director of Middle Bay since July 1, 1997. Mr. Herod served as
President and a director of Shore Oil Company from April 1992 until the merger
of Shore and Middle Bay on June 30, 1997. He joined Shore's predecessor as
Controller in February 1991. In addition, Mr. Herod was employed by Conquest
Exploration Company from
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1984 until 1991 in various financial management positions. From 1981 to 1984,
Superior Oil Company employed Mr. Herod as a financial analyst.
Edward P. Turner, Jr. served as President of Bay City Minerals, Inc.
from 1975 to 1987. He is a member of the Alabama State Bar and a managing
partner of the law firm of Turner, Onderdonk, Kimbrough & Howell, P.A., in
Chatom, Alabama. A substantial amount of his practice is devoted to oil and gas
law. Mr. Turner also serves as an officer and director of Bay City Energy Group,
Inc.
Frank E. Bolling, Jr. has been employed by Midstream Fuel Services,
Inc. as Vice President of Retail Operations since February, 1995. Prior to his
employment with Midstream, Mr. Bolling served as Vice President and General
Manager of Dantzler Bulk Plant, Inc., a distributor for Chevron U.S.A., Inc.
with annual sales in excess of $25 million.
Alvin V. Shoemaker is a former Chairman of the Board of First Boston
Corporation and former President of Blyth Eastman Paine Webber. He has also
worked for the U.S. Treasury. He has been Chairman of the Board of Trustees of
the University of Pennsylvania, Vice Chairman of the Securities Industry
Association and a director of Harcourt Brace Jovanovich, Royal Insurance of
America, Hanover Compressor Company, the Council on Foreign Relations and the
Wharton School of Finance Board.
Gary R. Christopher is Acquisitions Coordinator of Kaiser-Francis
Oil Company, a position he has held since February, 1996. From 1991 to 1996, Mr.
Christopher served as Senior Vice President and Manager of Energy Lending for
the Bank of Oklahoma. He continues to serve as a consultant to the Bank of
Oklahoma. Mr. Christopher is also a director of PetroCorp, Inc. Kaiser-Francis
Oil Company owns 3,333,334 shares of Middle Bay's common stock.
The Board of Directors recommends that the shareholders vote FOR all
nominees for election to the Board of Directors of Middle Bay for the ensuing
year.
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PROPOSAL TO INCREASE AUTHORIZED CAPITAL STOCK
Middle Bay's amended Articles of Incorporation authorize twenty million
(20,000,000) common shares with a par value of $.02 per share and ten million
(10,000,000) preferred shares, the preferences and rights with respect to which
may be designated from time to time by the Board of Directors.
Currently, there are 8,534,425 common shares issued and outstanding.
Shares of common stock may be issued from time to time as may be determined by
the Board of Directors. Each share of common stock has one vote for each share
of common stock standing in the name of the holder thereof on the books of
Middle Bay and entitled to vote. Cumulative voting is not allowed in the
election of directors or for any other purpose.
Currently, there are 1,666,667 shares of preferred stock which have been
designated as Series A Preferred by the Board of Directors, none of which are
issued and outstanding. The 1,666,667 Series A Preferred shares which were
issued and outstanding in 1997 were converted into 3,333,334 shares of common
stock of Middle Bay on January 31, 1998.
There are 266,667 shares of preferred stock which have been designated
Series B Preferred by the Board of Directors, of which 266,667 were issued in
connection with the Shore Merger and are presently outstanding. The Series B
Preferred shares are nonvoting but are convertible into as many as 1,333,333
shares of common stock, contingent upon the results of drilling and leasing
activity on mineral acreage in South Louisiana acquired in the Shore Merger.
There are 2,300,000 shares of preferred stock which have been designated
Series C Preferred by the Board of Directors, 2,173,645 of which are issued and
outstanding. The Series C shares pay cumulative cash dividends at the rate of
10% per annum and have a $5.00 per share liquidation preference over common
stock. The Series C shares are nonvoting, but are convertible, share for share,
into shares of common stock.
Additional shares of authorized preferred stock may be issued from time to
time by the Board of Directors in one or more series, with each series having
such designation rights (including voting rights or the absence thereof) and
preferences as may be determined by the directors.
The Board of Directors believes that it is in the best interests of Middle
Bay to amend Middle Bay's Articles of Incorporation to increase authorized
common stock to 40,000,000 shares of common stock, $.02 par value, and to
increase the authorized preferred stock to 20,000,000 shares to have additional
shares available for issuance should Middle Bay determine to raise equity
capital and for purposes of facilitating future acquisitions. A copy of the
proposed Articles of Amendment to Middle Bay's Articles of Incorporation which
has been approved by the Board of Directors is included herewith as Exhibit "A".
The Board of Directors recommends that the shareholders vote FOR the
proposal to increase the authorized capital stock of Middle Bay.
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PROPOSAL TO RATIFY ACQUISITION OF OIL AND GAS ASSETS
FOR SERIES C CONVERTIBLE PREFERRED STOCK
On December 30, 1998, Middle Bay completed the acquisition of all of the
oil and gas properties of Enex Consolidated Partners, L.P., a publicly-held oil
and gas limited partnership (the "Enex Partnership"). The transaction had an
economic effective date of October 1, 1998.
The transaction, which was valued at $11.9 million, involved the issuance
of 2,177,481 shares of Middle Bay's Series C Convertible Preferred stock
("Series C") in exchange for the outstanding limited partnership interests of
the Enex Partnership, the transfer of the Enex Partnership's assets and
liabilities to Middle Bay, and the dissolution of the Enex Partnership. Enex
Resources Corporation ("Enex Resources"), an 80%-owned subsidiary of Middle Bay,
was general partner of the Partnership and owned 56.24% of the total outstanding
limited partnership units, for which it received 1,293,522 Series C shares
(59.4% of the Series C shares issued in the transaction).
The Series C shares pay cumulative cash dividends at the rate of 10% per
annum. Each share has a $5.00 per share liquidation preference over common stock
and is convertible into one share of Middle Bay common stock.
Total proved reserves of the properties acquired were approximately 8,958
MMCF of natural gas and 797 thousand barrels of oil with a PV 10% value of $14.1
million as of October 1, 1998, based upon an independent engineering reserve
report. On an equivalent barrel basis, the reserves are 65% gas with 82%
classified as proved developed producing. The properties are located primarily
in Texas. In addition, the Enex Partnership had approximately $1.0 million in
working capital which was acquired in the transaction. The Enex Partnership's
oil and gas properties increased the net proved reserves of Middle Bay by
approximately 10%.
The Enex Partnership transaction and the designation and issuance of the
Series C shares were unanimously approved by Middle Bay's Board of Directors
after a review of the transaction and recommendation by the Audit Committee of
the Board. Shareholder approval of the transaction by Middle Bay shareholders
was not required under the Alabama Business Corporation Act and was not sought
(except to the extent that the Directors voting in favor of the transaction
represented more than a majority of the issued and outstanding shares of common
stock of Middle Bay). An independent investment banking firm issued an opinion
that the transaction was fair from a financial point of view to the public
holders of Enex Partnership interests.
Application has been made to list the Series C on the Nasdaq Small Cap
Stock Market (the "Application"). It is in connection with this Application that
ratification of the transaction by shareholders of Middle Bay is being sought.
The Nasdaq Stock Market ("Nasdaq") staff has deferred approval of the
Application pending a review of Middle Bay's compliance with Nasdaq's corporate
governance rules regarding issuance of additional shares of equity securities.
The Nasdaq staff has informed Middle Bay that since the Series C shares are
convertible, share for share, into shares of common stock of Middle Bay, the
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transaction may have involved the issuance of potentially more than 20% of the
then outstanding shares of Middle Bay common stock. The Nasdaq corporate
governance rules under such circumstances would have required approval by a
majority of the issued and outstanding shares of common stock of Middle Bay
prior to the issuance of the Series C shares.
Middle Bay believes the Series C shares were issued in compliance with the
Nasdaq corporate governance rules and prior shareholder approval of the
transaction was not required because the Series C shares presently outstanding,
if converted to common stock, would potentially represent less than 20% of the
issued and outstanding common stock of Middle Bay. This position is supported by
the fact that Enex Resources, Middle Bay's 80%-owned subsidiary, received 59.4%
of the Series C shares. For accounting, reporting and all practical purposes,
only 20% (the percentage of minority shareholders of Enex Resources) of the
Series C shares held by Enex Resources are considered outstanding and held by
third parties. The consolidated financial statements of Middle Bay as of
December 31, 1998 show 1,142,663 Series C shares outstanding (which includes the
250,704 Series C shares attributable to the minority shareholder interest in
Enex Resources) and 8,530,589 shares of common stock outstanding. If all
1,142,663 Series C shares were converted into 1,142,663 shares of Middle Bay
common stock, they would represent only 13.4% of the 8,530,589 shares of common
stock issued and outstanding as of the transaction date. Accordingly, Middle Bay
believes that the issuance of the Series C shares did not require prior
shareholder approval.
No final determination has been made by Nasdaq regarding the Application,
and Middle Bay has determined to include the ratification of the transaction in
this Proxy Statement in an effort to accommodate the Nasdaq staff in its
approval process. Since the Directors of Middle Bay represent major shareholders
of Middle Bay with voting power in excess of a majority of the issued and
outstanding common stock, the ratification being sought is assured.
The Board of Directors recommends that the shareholders vote FOR
ratification of the issuance of Series C Convertible Preferred stock of Middle
Bay.
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PROPOSAL TO APPROVE THE 3TEC ENERGY CORPORATION
SECURITIES PURCHASE AGREEMENT
On July 1, 1999, 3TEC Energy Corporation ("3TEC"), a privately-held
Delaware corporation based in Dallas, Texas, entered into a Securities Purchase
Agreement (the "Agreement") with Middle Bay involving initially a $21,400,000
investment by 3TEC in equity and debt. The Agreement, if consummated, would
result in 3TEC becoming Middle Bay's largest shareholder. Other provisions of
the Agreement would cause changes in Middle Bay's Board of Directors and the
installation of a new President and Chief Executive Officer, resulting in a
change of control and management structure of Middle Bay. The cash proceeds to
Middle Bay from the transaction would be added to its working capital and be
available for acquisition, development and exploration of oil and gas
properties.
The following is a summary of the principal terms of the Agreement. A
complete copy of the Agreement is included as Exhibit "B" to this Proxy
Statement. The Agreement includes as exhibits the Registration Rights Agreement,
Shareholders' Agreement, Agreement of Shareholders and the executive employment
agreements referred to below.
o Purchase and Sale of Securities - 3TEC will purchase 4,755,556
shares of new issue Middle Bay common stock plus five-year
warrants to purchase (at $1.00 per share) 3,600,000 shares of
common stock, for a total purchase price of $10,700,000. The
purchase price is payable $20,525,000 in cash and $875,000 in
agreed value of certain oil and gas properties to be assigned
to Middle Bay.
-- 3TEC will lend to Middle Bay $10,700,000, for which
Middle Bay will issue a five-year senior subordinated
convertible promissory note (the "Note"). The Note is
convertible at any time into Middle Bay common stock at
$3.00 per share (a total of 3,566,667 common shares).
Interest at 9% per annum is payable quarterly. Middle
Bay may defer 50% of the first eight interest payments
and add them to the principal due at maturity. The Note
is subordinate to Middle Bay's bank credit facility, but
senior to other debt. 3TEC (as noteholder) must approve
any change in the credit facility, corporate structure
and major transactions of Middle Bay until the Note is
paid.
-- Sixty percent (60%) of the warrants may be exercised by
3TEC at any time. The remaining 40% may be exercised
incrementally over the five-year term of the warrants.
The warrants may be exercised for cash or reduction of
the Note principal.
o Registration Rights - 3TEC has a two-time demand right to have
its Middle Bay common stock registered with the Securities and
Exchange Commission (at Middle Bay's expense) and has
"piggyback rights" (with certain other principal shareholders
of Middle Bay having subordinate piggyback rights) to have its
common stock registered and publicly sold along with any
public offering of securities by Middle Bay.
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o Agreement to Vote for the 3TEC Agreement - Certain major
shareholders (collectively, the "Major Shareholders") of
Middle Bay, Kaiser-Francis Oil Company, C. J. Lett, III,
Weskids, L.P. and Alvin V. Shoemaker (see "Corporate
Governance - Security Ownership of Certain Beneficial
Owners"), have agreed to vote in favor of the 3TEC Agreement,
thereby assuring approval of the Agreement at the
Shareholders' meeting.
o Potential Participation by Major Shareholders - One or more of
the Major Shareholders, prior to the closing of the Agreement,
may enter into agreements substantially identical to the 3TEC
Agreement and may invest up to an aggregate of $20,000,000 in
Middle Bay securities on similar terms as 3TEC. No Major
Shareholder has agreed to such participation as of the date of
this Proxy Statement.
o Board of Directors of Middle Bay - The Board of Directors
would be reduced to five members. 3TEC has the right to
designate three Directors, and the Major Shareholders have the
right to designate two. A Shareholders' Agreement would be
signed by 3TEC and the Major Shareholders assuring election of
the designated Directors.
o Floyd C. Wilson Employment Agreement. Floyd C. Wilson,
President and a shareholder of 3TEC, would become Chairman,
President and Chief Executive Officer of Middle Bay. Middle
Bay's current Chairman and President, John J. Bassett, would
become Middle Bay's Executive Vice President and would be one
of the two Directors designated by the Major Shareholders. Mr.
Wilson would have an employment agreement commencing at
closing and terminating in November, 2000 to serve as
President and Chief Executive Officer with a $200,000 base
salary. If terminated by Middle Bay without cause he is owned
the salary payable to him over the remaining term of his
agreement. There are standard confidentiality, noncompete and
noninterference provisions in the contract. Floyd C. Wilson
has serves as Chairman of the Board and President of 3TEC
Energy Corporation since November of 1998. Mr. Wilson served
as Chairman of the Board, President and Chief Executive
Officer of Hugolon Energy Corporation, a publicly-held Kansas
corporation, from its inception in 1987 until March of 1998,
when it merged with the Chesapeake Energy Corporation, a
publicly-held Oklahoma corporation.
o John J. Bassett Employment Agreement. John J. Bassett,
currently Chairman and President of Middle Bay, would enter
into a new employment agreement as Executive Vice President
with a base salary of $120,000 per year. The new agreement
would expire on February 1, 2002, the expiration date of Mr.
Bassett's current employment agreement. If terminated by
Middle Bay without cause or if he resigns within ninety (90)
days of closing, he is owed the greater of two years' salary
or his salary for the remainder to the term of his agreement.
There are standard confidentiality, noncompete and
noninterference provisions in the contract.
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o Other Executive Employment Agreements - The existing
employment agreements of Stephen W. Herod and Robert Hammons
would remain unchanged (see "Corporate Governance - Employment
Agreements").
o Representations and Warranties - The Agreement contains
standard representations and warranties regarding corporate
existence and authority, as well as representations and
warranties regarding financial condition, material agreements,
compensation plans, title to properties, licenses,
environmental matters, regulations, brokers, SEC filings, oil
and gas operations and Year 2000 compliance.
o Conduct of Business Pending Closing - Between the date the
3TEC Agreement was executed (June 30, 1999) and closing,
Middle Bay must operate in the ordinary course of business and
cannot make any major changes in corporate structure or
acquire or dispose of material assets without 3TEC approval.
Closing is expected to occur within ten business days
following approval of the Agreement at the Annual Meeting.
o Incentive Stock Options - Middle Bay's Employee Incentive
Stock Option and Stock Appreciation Rights Plan would be
amended to allow any employees whose employment with Middle
Bay is terminated without cause within six (6) months of
Closing to retain any stock options previously granted to such
employee for a period of one year. Directors who resign as a
result of the Agreement may retain their stock options for a
period of one year.
o Net Profits Interest Plan - Middle Bay's Net Profits Interest
Plan (the "NPI Plan") (see "Corporate Governance - Executive
Compensation") would be terminated. At closing of the
Agreement, an aggregate of $274,625 would be paid to
participants in the NPI Plan, including $98,976 to officers
and directors of Middle Bay.
o Conduct of Business After Closing - Until the Note is paid in
full, Middle Bay cannot make material changes in its business,
corporate structure or pay certain debt subordinate to the
Note without 3TEC approval.
o Indemnification - There are mutual indemnification provisions
in the event of breach of the Agreement by either party.
o Jurisdiction Over Disputes; Litigation. Any lawsuit or
proceeding brought by either party over the Agreement must be
in Dallas, Texas. Trial by jury is waived.
The Board of Directors recommends that the shareholders vote FOR the
proposal to approve the 3TEC Securities Purchase Agreement.
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MISCELLANEOUS
Shareholder Proposals
Any proposals from shareholders to be presented for consideration for
inclusion in the proxy material being prepared for the 2000 annual meeting of
shareholders of Middle Bay must be submitted in accordance with applicable
Securities and Exchange Commission rules and received by Middle Bay at its
principal offices, 1221 Lamar Street, Suite 1020, Houston, Texas 77010 no later
than February 28, 2000.
Financial Statements
Financial Statements, the Notes to Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations for
1998 with comparisons to 1997 and other relevant information are included in
Middle Bay's 1998 Annual Report to Shareholders which accompanies this Proxy
Statement and are incorporated herein by reference.
Discretionary Authority
At the time of mailing this Proxy Statement, the Board of Directors was
not aware of any other matters which might be presented at the meeting. If any
matter not described in this Proxy Statement should properly be presented, the
persons name in the accompanying form of proxy will vote such proxy in
accordance with their judgment.
By Order of the Board of Directors
/s/ Kelly L. Green
--------------------------------------
Kelly L. Green, Assistant Secretary
DATED this ___ day of July, 1999
================================================================================
A copy of Middle Bay's 1998 Annual Report to the Securities and Exchange
Commission on Form 10-KSB referred to above may be obtained without charge by
any beneficial owner of Middle Bay's common stock upon written request addressed
to Kelly L. Green, Assistant Secretary, Middle Bay Oil Company, Inc., 1221 Lamar
Street, Suite 1020, Houston, Texas 77010. Requests can be made by telephone by
calling (713) 759-6808.
================================================================================
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Exhibit "A"
ARTICLES OF AMENDMENT
TO THE
AMENDED ARTICLES OF INCORPORATION
OF
MIDDLE BAY OIL COMPANY, INC.
I.
The name of the corporation is MIDDLE BAY OIL COMPANY, INC.
II.
As of August ___, 1999, Article III of the Amended Articles of
Incorporation of MIDDLE BAY OIL COMPANY, INC. is amended to read as follows:
"III.
The Corporation has authority to issue not more than 60,000,000
shares of capital stock which are divided into classes as follows:
(a) Forty million (40,000,000) shares of common stock with $.02 par
value, designated "Common Stock" which, except as specifically granted to
the preferred stock as set forth below, are entitled to the entire stock
voting power in regard to the Corporation, to all dividends declared and
to all assets of the Corporation upon liquidation.
(b) Twenty million (20,000,000) shares of preferred stock with $.02
par value, designated "Preferred Stock."
(c) The designations and the powers, preferences and rights and the
qualifications, limitations or restrictions of the preferred stock shall
be as follows:
The Board of Directors is expressly authorized at any time and from
time to time to provide for the issuance of shares from the authorized
preferred stock which may be issued in one or more series, with such
designations, preferences and relative participating optional or other
special rights, qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing
for the
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issuance thereof adopted by the Board of Directors and as are not stated
or expressed in Articles of Incorporation or any Amendment thereto,
including (but without limiting the generality of the foregoing) the
following:
(1) the distinctive designation of a series, if any, and the
number of shares which shall constitute such series,
which number may be increased (except where otherwise
provided by the Board of Directors in creating such
series) or decreased (but not below the number of shares
thereof then outstanding) from time to time by like
action of the Board of Directors;
(2) the annual rate of dividends payable on preferred shares
or on the shares of any series created, whether the
dividends shall be cumulative, noncumulative or
partially cumulative dividends and the date from which
dividends shall be accumulated, if dividends are to be
cumulative;
(3) the time or times when and the price or prices at which
preferred shares or shares of any series created, shall
be redeemable and the sinking fund provisions, if any,
for the purchase or redemption of such shares;
(4) the amount payable on preferred shares or shares of any
series created and the rights of holders of such shares
in the event of any liquidation, dissolution or winding
up of the affairs of the Corporation;
(5) the rights, if any, of the holders of preferred shares
or shares of any series created to convert such shares
into, or exchange such shares for, shares of common
stock or shares of any other series of preferred stock,
if any, and the terms and conditions of such conversions
or exchange; and
(6) the voting rights, if any which holders of such shares
may exercise.
The Board of Directors is expressly authorized to vary the
provisions relating to the foregoing matters between the various series of
Preferred Shares, but in all other respects the shares of each series of
Preferred Shares, shall be of equal rank with each other, regardless of
series. All of the Preferred Shares of any one series shall be identical
with each other in all respects.
(d) Dividend Rights. The holders of the Preferred Shares of any
series shall be entitled to receive, as and when declared by the Board of
Directors, out of funds
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legally available for that purpose under the laws of the State of Alabama,
preferential dividends which may be either cumulative or noncumulative at
the rate per annum fixed by the Board of Directors for such series. Such
dividends shall be payable at the time determined by the Board of
Directors. If Preferred Shares of more than one series are outstanding,
and the stated dividend is not paid in full, all series of Preferred
Shares shall share ratably in the payment of dividends including
accumulations, if any, in accordance with the sum which would be payable
on such shares if all dividends were declared and paid in full.
Accumulations of dividends shall not bear interest. So long as any
Preferred Shares shall remain outstanding, no dividends shall be declared
or paid to any distributions made on the Common Shares or on any other
class of shares junior to the Preferred Shares, and no share of common or
of any other class junior to the Preferred Shares shall be purchased or
retired, and no monies shall be made available for a sinking fund for such
purpose unless dividends for all past dividend periods shall have been
paid on all outstanding Preferred Shares of all series. Subject to the
above provisions, and not otherwise, dividends may be paid from time to
time on the Common Shares or other junior issues out of funds legally
available for the purpose as and when declared by the Board of Directors.
(e) Redemption.
(1) The Corporation, on the sole authority of the Board of
Directors, may at its option redeem all or any part of
any series of the Preferred Shares on the terms,
including redemption price, and to the extent, if any,
therefor affixed by the Board of Directors. Such
redemption may be effected only after dividends which
have been declared or accrued on any series of Preferred
Shares have been paid. If less than all of the Preferred
Shares of any series is to be redeemed, the redemption
shall be in such amount and by such method, whether by
lot or pro rata, or by such other method as may then be
required by law or by the rules and regulations of any
stock exchange upon which the Preferred Shares may at
that time be listed, as may from time to time be
determined by the Board of Directors. Written notice of
redemption stating the date and place of redemption
shall be mailed by the Corporation, not less than thirty
(30) days nor more than forty-five (45) days prior to
the redemption date, to the record holders of the shares
to be redeemed, directed to their last noted addresses
as shown by the corporate records.
(2) If notice of redemption is given as provided above, and
if on the redemption date the Corporation has set apart
in trust for the
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purpose, sufficient funds for such redemption, then from
and after the redemption date, notwithstanding that any
certificate for such shares has not been surrendered for
cancellation, the Preferred Shares called for redemption
shall no longer be deemed outstanding and all rights
with respect to such shares shall forthwith cease and
terminate, except on the right of the holders thereof to
receive the redemption price, without interest, upon
surrender of certificates of the shares called for
redemption.
(3) Any funds so set apart or deposited which, at the end of
one (1) year after the redemption date, remain unclaimed
by the holder(s) of Preferred Shares called for
redemption, shall be released and returned to the
Corporation upon demand, and shall thereafter be
available for general corporate purposes, and the
depository, if any, shall thereupon be relieved of all
responsibility therefor to such holders. Any interest
accrued on funds so deposited shall be paid to the
Corporation from time to time.
(4) Preferred Shares which are redeemed as provided in this
section, or are reacquired for retirement pursuant to
any sinking fund which may be established therefor, may
be held as Treasury Shares or may be canceled and
retired in the manner provided by law, and appropriate
proceedings to effect the corresponding reduction in the
stated capital of the Corporation shall be taken.
(f) Rights on Liquidation. In the event of the liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, resulting in any distribution of its assets to its
shareholders, the holders of the Preferred Shares then outstanding shall
be entitled to receive the amount per share theretofore affixed by the
Board of Directors of the various series, plus any accrued interest, and
no more, before any payment or distribution of the assets of the
Corporation is made to or set apart for the holders of Common Shares or
any other class junior to the Preferred Shares. If the assets of the
Corporation distributable to the holders of all the Preferred Shares are
insufficient for the payment to them of the full preferential amount
described above, such assets shall be distributed ratably among the
holders of all Preferred Shares of all series in accordance with the
amounts which would be payable on such distribution of all sums payable
were discharge in full. After payment for the preferential amounts
required to be paid to the holders of all Preferred Shares then
outstanding, the holders of Preferred Shares and/or any other class junior
to the Preferred Shares shall be entitled, to the exclusion of the holders
of any of the Preferred Shares, to share in all remaining assets of the
Corporation
-4-
<PAGE>
in accordance with their respective interests.
For the purposes of this Section and any certificate filed pursuant
to law and setting forth the designation, description, and terms of any
series of Preferred Shares, a consolidation or merger of the Corporation
with any other corporation or corporations shall not be deemed a
liquidation, or winding up of the Corporation."
All other provisions of the Amended Articles of Incorporation shall remain
in full force and effect.
III.
This amendment was duly approved by the shareholders at the Annual Meeting
of Shareholders held in accordance with the provisions of Section 10-2B-7.01 of
the Alabama Business Corporation Act on August ____, 1999. At such Annual
Meeting, there were a total of _________ shares of common stock issued and
outstanding and eligible to vote on the amendment. _________ shares were voted
in favor of the amendment, and ______ shares were voted against the amendment.
There were _______ abstentions.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed and attested by its duly authorized officers this ______ day of
August, 1999.
MIDDLE BAY OIL COMPANY, INC.
ATTEST:
By:____________________________________
John J. Bassett, President
____________________________________
John R. Elixon, Assistant Secretary
[CORPORATE SEAL]
STATE OF TEXAS
COUNTY OF HARRIS
I, ____________________________________________, the undersigned authority
in and for
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<PAGE>
said County and State, do hereby certify that JOHN J. BASSETT and JOHN R.
ELIXON, whose names as President and Assistant Secretary, respectively, of
Middle Bay Oil Company, Inc., an Alabama corporation, are signed to the
foregoing instrument and who are known to me, acknowledged before me on this day
that, being informed of the contents of this instrument, they, as such officers
and with full authority, executed the same voluntarily for and as an act of the
corporation.
Given under my hand and official seal on this the ________ day of
_______________, 1999.
_______________________________________
Notary Public
My Commission
Expires: July 1, 1999
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<PAGE>
SECURITIES PURCHASE AGREEMENT
BETWEEN
3TEC ENERGY CORPORATION
AND
MIDDLE BAY OIL COMPANY, INC.
July 1, 1999
<PAGE>
TABLE OF CONTENTS
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
Section 7.6 Financial Statements......................................24
<PAGE>
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................................................26
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.......................................28
Section 7.20 Environmental Matters.....................................28
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 3TEC
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 Title to 3TEC Properties..................................33
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
<PAGE>
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 Negative Covenants........................................36
Section 9.11 Meeting; Proxy Statement..................................37
ARTICLE X DEFAULTS; TERMINATION
Section 10.1 Events of Default.........................................38
Section 10.2 Termination...............................................39
Section 10.3 Effect of Termination.....................................39
ARTICLE XI MISCELLANEOUS
Section 11.1 Notices...................................................40
Section 11.2 No Waivers................................................40
Section 11.3 Expenses; Indemnification.................................40
Section 11.4 Amendments and Waivers; Sale of Interest..................41
Section 11.5 Survival..................................................42
Section 11.6 Limitation on Interest....................................42
Section 11.7 Invalid Provisions........................................42
Section 11.8 Successors and Assigns....................................42
Section 11.9 Governing Law.............................................43
Section 11.10 Counterparts..............................................43
Section 11.11 No Third Party Beneficiaries..............................43
Section 11.12 Final Agreement...........................................43
Section 11.13 Submission to Jurisdiction; Waiver of Service of Venue....43
Section 11.14 Waiver of Right to Trial by Jury..........................43
Section 11.15 Public Announcements......................................43
<PAGE>
Exhibits
Exhibit A Senior Subordinate Promissory Note
Exhibit B Registration Rights Agreement
Exhibit C Shareholders Agreement
Exhibit D Form of Warrant Certificate
Exhibit E Employment Agreement
Exhibit F Agreement of Shareholders
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 1st day
of July, 1999, by and between 3TEC Energy Corporation, a Delaware corporation
("3TEC") 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 3TEC
(a) certain shares of the Company's Common Stock, par value $0.02 per share, (b)
a Note, and (c) certain Warrants;
WHEREAS, 3TEC desires to purchase such securities from the Company on the
terms and conditions set forth herein; and
WHEREAS, the Major Shareholders have entered into the Agreement of
Shareholders in the form of Exhibit F attached hereto.
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. 3TEC 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.
"Agreement of Shareholders" means that certain Agreement of Shareholders
to be executed on even date herewith by each of the parties thereto in the form
of Exhibit F attached hereto.
"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.
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"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 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 this Agreement and 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 4,755,556 shares of Common Stock to be
purchased by 3TEC 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
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<PAGE>
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.
"Confidentiality Agreements" means those certain confidentiality
agreements dated February 17, 1999, by and between the Company and 3TEC.
"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 3TEC 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.
"Exhibit" refers to an exhibit attached to this Agreement and incorporated
herein by reference, unless specifically provided otherwise.
4
<PAGE>
"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.
"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.
5
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"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.
"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
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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 $10,700,000 to be issued and sold by the Company
to 3TEC 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 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
7
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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 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
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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 and 3TEC 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 3TEC and any Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute.
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"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, 3TEC and the Major Shareholders of the Company at
Closing, in the form of Exhibit C attached hereto.
"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, 3TEC or any Governmental Authority.
"3TEC Properties" shall mean those properties of 3TEC as set forth on
Schedule 1 to Exhibit G attached hereto and incorporated herein by reference.
"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.
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"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 3TEC 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
3TEC 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, 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) 3TEC agrees to purchase from the Company and the Company agrees to
issue and sell to 3TEC, 4,755,556 shares of Common Stock and 3,600,000 Warrants
for an aggregate purchase price of $10,700,000 (the "Common Stock Shares
Purchase Price"), and (b) 3TEC agrees to purchase from the Company and the
Company agrees to issue and sell to 3TEC the Note for the purchase price of
$10,700,000 (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 3TEC 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 3TEC.
SECTION 2.3. Delivery. At the Closing, the Company shall deliver to 3TEC,
against payment therefor, certificates evidencing the Common Stock Shares, the
Note and the Warrant Certificate purchased
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by 3TEC hereunder, in each case duly issued and in form sufficient to vest title
thereto fully in 3TEC, free and clear of all Liens, claims and encumbrances.
SECTION 2.4. Payment. At the Closing, 3TEC shall, at 3TEC's option, pay
the Purchase Price to the Company (i) by wire transfer of immediately available
funds; or (ii) by wire transfer of immediately available funds and the transfer
to the Company of the 3TEC Properties, by an assignment and bill of sale in form
reasonably acceptable to the Company and 3TEC.
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
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
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(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 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.
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(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 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
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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 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
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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).
(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. 3TEC 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. 3TEC 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
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of the Securities, 3TEC 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 3TEC's proposed sale or transfer of the Securities is exempt from
the registration and qualification requirements of the Securities Act and in
compliance with the Shareholders' Agreement and Agreement of Shareholders.
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 3TEC. 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.
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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 3TEC. 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 3TEC's Obligations at Closing. The
obligations of 3TEC 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, 3TEC may, at its option, terminate this
Agreement and the other Transaction Documents and all obligations of 3TEC
hereunder and thereunder.
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(a) Closing Deliveries. The Company shall have delivered to 3TEC, in form
and substance satisfactory to 3TEC each of the following:
(i) the Note to be purchased by 3TEC pursuant to Section 2.1 duly
executed and delivered by the Company and payable to 3TEC;
(ii) certificates issued to 3TEC evidencing the Common Stock Shares
to be purchased by 3TEC pursuant to Section 2.1;
(iii) Warrant Certificates issued to 3TEC by the Company evidencing
the Warrants to be purchased by 3TEC pursuant to Section 2.1;
(iv) the Shareholders Agreement duly executed and delivered by the
Company, 3TEC and Major Stockholders;
(v) the Registration Rights Agreement duly executed and delivered by
the Company and 3TEC;
(vi) the Employment Agreement duly executed and delivered by the
Company and Floyd C. Wilson;
(vii) a favorable opinion of Thrasher, Whitley, Hampton & Morgan,
counsel for the Company, in form and substance satisfactory to 3TEC and
its counsel;
(viii) all resolutions, certificates and documents 3TEC 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 3TEC shall reasonably request, all of which shall be in
form and substance satisfactory to 3TEC and its counsel;
(ix) 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.
(x) evidence satisfactory to 3TEC that all Closing Transactions have
been consummated;
(xi) a Subordination Agreement among 3TEC, Compass Bank and Bank of
Oklahoma in the form and substance reasonably acceptable to 3TEC;
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(xii) 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;
(xiii) 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;
(xiv) 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;
(xix) resignations in form acceptable to 3TEC of each of the
directors of the Company who are not designated by the Major Shareholders
pursuant to the provisions of the Shareholders Agreement;
(xx) 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
(xxi) such other documents, instruments and agreements as 3TEC 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 3TEC 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 3TEC.
(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 Closing, in full all documented and reasonable out of
pocket fees, expenses and disbursements incurred by 3TEC in connection with its
investigation, negotiation and closing of the transactions contemplated hereby,
including, without limitation, all fees and expenses of counsel to 3TEC,
engineering (reserve evaluations) costs, the cash portion of the brokerage fee
to Premier Capital Limited, accounting and land due diligence
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costs, to the extent incurred from May 1, 1999 through the Closing Date, in
connection with the preparation and negotiation of the Transaction Documents and
closing of the transactions contemplated hereby.
(g) Waiver. 3TEC 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. 3TEC 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 3TEC pursuant to Section 2.1;
(ii) the Shareholders Agreement duly executed and delivered by the
Company, 3TEC and Major Stockholders;
(iii) the Registration Rights Agreement duly executed and delivered
by the Company and 3TEC;
(vi) the Employment Agreement duly executed and delivered by the
Company and Floyd C. Wilson;
(viii) all resolutions, certificates and documents the Company may
request relating to (A) the organization, existence, good standing and
foreign qualification of 3TEC, (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;
(iv) 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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(v) evidence satisfactory to the Company that all Closing
Transactions have been consummated;
(vi) a certificate from an Authorized Officer of 3TEC certifying
that (A) each and every representation and warranty of the Company in the
Transaction Documents is true and correct in all material respects;
(vii) a favorable opinion of Hinkle Elkouri Law Firm, L.L.C.,
counsel for 3TEC, in form and substance satisfactory to the Company and
its counsel;
(viii) payment of $274,625 to current employees of the Company as
set forth on the schedule previously provided by the Company to 3TEC 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 3TEC 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.
(c) Due Diligence Review. To the extent a portion of the Purchase
Price is to be paid the form of 3TEC Properties, satisfactory completion
of the Company's due diligence review of the 3TEC Properties.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce 3TEC to purchase the Securities to be purchased
by it hereunder, the Company hereby represents and warrants to 3TEC 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.
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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.
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 3TEC or provided 3TEC 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 3TEC 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 (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.
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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 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
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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, 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
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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 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
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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
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 3TEC'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 3TEC for any such commission, fee or other compensation. The
Company will indemnify and hold 3TEC 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).
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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. 3TEC 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
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
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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. 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 3TEC'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 3TEC, 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
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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 3TEC 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 3TEC 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 3TEC.
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 3TEC
In order to induce the Company to issue and sell the Securities to 3TEC
hereunder, 3TEC hereby represents and warrants to the Company as follows:
SECTION 8.1. Corporate Existence and Power. 3TEC (a) is a corporation,
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation, (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 Texas.
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SECTION 8.2. Corporate and Governmental Authorization; Contravention. The
execution, delivery and performance of this Agreement and the other Transaction
Documents by 3TEC 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 3TEC or its assets, or result in the creation or imposition of any Lien on
any asset of 3TEC.
SECTION 8.3. Binding Effect. This Agreement constitutes the valid and
binding agreement of 3TEC; each other Transaction Document when executed and
delivered in accordance with this Agreement, will constitute the valid and
binding obligation of 3TEC, 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. Except for the cash portion of the
payment to Premier Capital Limited, no Person engaged by 3TEC has or will have
any right or valid claim against the Company for any commission, fee or other
compensation. 3TEC 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. 3TEC 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 3TEC. 3TEC does
not know of any proposed Tax assessment against 3TEC and all Tax liabilities of
3TEC are adequately provided for and no Tax liability of 3TEC has been asserted
by the Internal Revenue Service or any other Governmental Authority for Taxes in
excess of those already paid.
SECTION 8.6 Title to 3TEC Properties. To the extent a portion of the
Purchase Price is paid in the form of certain of the 3TEC Properties: (i) 3TEC
has Defensible Title to such 3TEC Properties, subject only to Permitted
Encumbrances; (ii) each of such 3TEC Properties entitles 3TEC to receive not
less than the undivided interest set forth in (or derived from) such 3TEC
Properties of all Hydrocarbons produced, saved and sold from or attributable to
such 3TEC Properties, and the portion of such costs and expenses of operation
and development of such properties that is borne or to be borne by 3TEC is not
greater than the undivided interest set forth in (or derived from) such 3TEC
Properties; and (iii) all proceeds from the sale of 3TEC's share of the
Hydrocarbons being produced from such 3TEC Properties 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 8.6 of the disclosure summary
previously supplied to the Company.
ARTICLE IX
COVENANTS
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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.
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.
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(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 3TEC and its representatives (including without
limitation directors, officers and employees of 3TEC and its Affiliates, and
counsel, accountants and other professionals retained by 3TEC) 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 3TEC may reasonably request and will
permit 3TEC to make such inspections as 3TEC may reasonably request and will
cause the officers of the Company and those of its Subsidiaries to furnish 3TEC
with such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its Subsidiaries as 3TEC
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. 3TEC
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 3TEC's books, records (including without limitation Tax returns and
non-restricted workpapers of 3TEC'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 3TEC to furnish the Company with such
financial and operating data and other information with respect to the business,
properties and personnel of 3TEC 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
3TEC in this Agreement.
SECTION 9.9 Conduct of the Business of the Company. Except as contemplated
by this Agreement or to the extent that 3TEC 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 3TEC:
(a) amend its Charter Documents;
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(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 3TEC.
(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
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(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 Negative Covenants. Until the Redemption Date:
(a) The Company and its Subsidiaries will not engage in any business other
than the exploration, acquisition, development and production of oil and gas.
(b) The Company will not, nor will it permit any of its Subsidiaries to,
enter into any amendment or modification of its Charter Documents or the Compass
Senior Debt Documents or waive or fail to enforce any material right of the
Company or any of its Subsidiaries thereunder.
(c) The Company will not, and will not permit any of its Subsidiaries to,
(i) terminate, or fail to maintain its existence in its jurisdiction of
incorporation, or (ii) terminate, or fail to maintain its good standing and
qualification to transact business in all jurisdictions where the failure to
maintain its good standing or qualification to transact business could have a
Material Adverse Effect.
(d) The Company will not, and will not permit any of its Subsidiaries to,
enter into any transaction with an Affiliate or make any payments to an
Affiliate (whether in cash or in property) of any type other than (i)
compensation paid to the executive officers of the Company or any of its
Subsidiaries which is approved by the Board of Directors, and (b) advances for,
and reimbursement of, reasonable travel, entertainment and similar expenses.
(e) The proceeds of the issuance and sale of the Securities hereunder will
be used by the Company solely for the acquisition and development of oil and gas
properties and for general corporate purposes. None of such proceeds will be
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying securities in violation of applicable Laws,
rules or regulations of any Governmental Authority.
(f) The Company will not, and will not permit any of its Subsidiaries or
any ERISA Affiliate to, directly or indirectly, terminate any Pension Plan so as
to result in any material liability to the Company or any of its Subsidiaries or
any ERISA Affiliate, establish, or become obligated to contribute to or provide
benefits under, any Pension Plan, incur any obligation to provide
post-employment health care benefits to any of their current or former
employees, except as required by COBRA, enter into any new Plan or modify any
existing Plan so as to increase its obligations thereunder except in the
ordinary course of business consistent with past practice which could result in
any material liability to the Company or any of its Subsidiaries or any ERISA
Affiliate, or permit to exist any circumstances with respect to any Pension Plan
that would have a Material Adverse Effect.
(g) The Company will not, and will not permit any of its Subsidiaries to,
make payments on Debt which is subordinate, in right of payment to the Note, to
the extent such payments would be in violation of the subordination provisions
applicable to such Debt.
SECTION 9.11 Meeting; Proxy Statement
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(a) The Company shall take all action necessary in accordance with
applicable Law and the Company's Articles of Incorporation and Bylaws to duly
call, give notice of, convene and hold an annual or special meeting of its
shareholders (the "Special Meeting") as promptly as practicable after the date
hereof to consider and vote upon the adoption and approval of this Agreement and
the transactions contemplated hereby (including, without limitation, amendments
to the Articles of Incorporation of the Company), to the extent such shareholder
approval is necessary with respect to the effectuation of any part of the
transactions contemplated by this Agreement. The shareholder vote required for
the adoption and approval of this Agreement and the transactions contemplated
hereby shall be the vote required by applicable Law, the Company's Articles of
Incorporation, and the rules of the Nasdaq Small Cap Market. The Board of
Directors of the Company shall, subject to its fiduciary obligations to the
Company's shareholders under applicable Law, (i) recommend to the shareholders
of the Company that they vote in favor of the adoption and approval of all
matters necessary to effectuate this Agreement and the transactions contemplated
hereby, (ii) use its reasonable best efforts to solicit from the shareholders of
the Company proxies in favor of such adoption and approval, and (iii) take all
other action reasonably necessary to secure a vote of the shareholders of the
Company in favor of such adoption and approval.
(b) As promptly as practicable after the date hereof, the Company
shall prepare, shall file with the Commission under the Exchange Act, shall use
all reasonable best efforts to have cleared by the Commission, and promptly
thereafter shall mail to its shareholders, a proxy statement with respect to the
Special Meeting. The term "Proxy Statement", as used herein, means such proxy
statement and all related proxy materials and all amendments and supplements
thereto, if any. Except to the extent otherwise determined in good faith by the
Board of Directors of the Company in the exercise of its fiduciary duties, the
Proxy Statement shall contain the recommendation of the Board that shareholders
of the Company vote in favor of the adoption and approval of all matters
necessary to effectuate the transactions contemplated by the Agreement. The
Company shall notify 3TEC promptly of the receipt of any comments on, or any
requests for amendments or supplements to, the Proxy Statement by the
Commission, and the Company shall supply 3TEC with copies of all correspondence
between it and its representatives, on the one hand, and the Commission or
members of its staff, on the other, with respect to the Proxy Statement. The
Company, after consultation with 3TEC, shall use its reasonable best efforts to
respond promptly to any comments made by the Commission with respect to the
Proxy Statement. The Company and 3TEC shall cooperate with each other in
preparing the Proxy Statement, and the Company and 3TEC shall each use its
reasonable best efforts to obtain and furnish the information required to be
included in the Proxy Statement. The Company and 3TEC each agrees promptly to
correct any information provided by it for use in the Proxy Statement if and to
the extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Proxy Statement as so corrected to be filed with the Commission and to
be disseminated promptly to holders of shares of the Common Stock, in each case
as and to the extent required by applicable Law.
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;
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(b) 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;
(c) the Company shall fail to observe or perform any covenant or agreement
contained in Article IX hereof;
(d) the Company shall fail to observe or perform any covenant or agreement
contained in this Agreement or any other Transaction Document (other than as
referred to in subsection (c)) which failure has resulted in, or could
reasonably be expected to result in a Material Adverse Effect;
(e) any representation, warranty, certification or statement made or
deemed to have been made by the Company in this Agreement or any of the other
Transaction Documents or by the Company or any other Person on behalf of the
Company in any certificate, financial statement or other document delivered
pursuant to this Agreement or any of the other Transaction Documents, shall
prove to have been incorrect in any material respect when made;
(f) a default or event which, with the giving of notice, lapse of time or
both could (unless cured or waived) become a default, shall occur under the
terms of any Debt of the Company or any of its Subsidiaries having a principal
balance of $250,000 or more (including, without limitation, the Permitted Senior
Debt);
(g) 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;
(h) 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;
(i) one (1) or more judgments or orders for the payment of money
aggregating in excess of $250,000 shall be rendered against the Company or any
of its Subsidiaries and such judgment or order (i) shall continue unsatisfied
and unstayed for a period of thirty (30) days, or (ii) is not fully paid and
satisfied at least ten (10) days prior to the date on which any of its assets
may be lawfully sold to satisfy such judgment or order;
(j) any Change of Control; or
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(k) an "Event of Default" under any Other Securities Purchase Agreement;
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 3TEC and the Company;
(b) By 3TEC 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 3TEC in this Agreement or (ii) 3TEC 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 3TEC 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
and the Confidentiality Agreements (which shall continue pursuant to their
terms); 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.
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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, 3TEC, 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).
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(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) 3TEC hereby covenants and agrees with the Company that 3TEC
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 3TEC 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, 3TEC'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. The
Company hereby covenants to notify 3TEC in writing of any amendment proposed to
be made to the Other Securities Purchase Agreements, Other Notes or other
documents relating thereto, and shall allow 3TEC the opportunity to amend this
Agreement and the other Transaction Documents to conform to any such amendments.
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 3TEC and shall survive the delivery to
3TEC of such Transaction Documents and the purchase of the Securities,
regardless of any investigation made by or on behalf of 3TEC. All
representations, warranties and covenants made by 3TEC 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
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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 Company may not
assign or otherwise transfer any of its rights or obligations under this
Agreement. Notwithstanding any other provision herein, 3TEC may assign its
rights to its Affiliates, subject to compliance with applicable Laws.
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 3TEC'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 3TEC 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 3TEC 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. 3TEC 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. 3TEC 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 neither 3TEC, on the one hand, or the Company, on
the other, shall 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 other parties (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 3TEC and promptly file a report on Form 8-K with the
Commission.
[Signature Page to Follow]
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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:
------------------------------
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:
------------------------------
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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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.
$10,700,000 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 3TEC ENERGY CORPORATION, a Delaware corporation ("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 5910 N.
Central Expressway, Suite 1150, Dallas, Texas 75206 or such other address, given
to Maker by Payee, the principal sum of TEN MILLION SEVEN HUNDRED THOUSAND AND
NO/100 DOLLARS ($10,700,000), 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
as of _____________, 1999, 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 Other Notes 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 ___, 1999 and continuing on each
___, ___, ___ and ___ 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.
The entire outstanding principal balance of the Note and all accrued but
unpaid interest thereon shall be immediately due and payable in full upon the
occurrence of a Change of Control.
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.
<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 fixed.
<PAGE>
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, extensions, indulgences, releases or changes.
<PAGE>
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:
Title:
<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
<PAGE>
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.
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
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<PAGE>
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 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.
3
<PAGE>
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 PiggyBack 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 so
4
<PAGE>
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
5
<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
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
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
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<PAGE>
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
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<PAGE>
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 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
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<PAGE>
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;
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<PAGE>
(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.
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
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<PAGE>
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)
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<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
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<PAGE>
_______________________________________
_______________________________________
"PIGGY-BACK SHAREHOLDERS"
KAISER-FRANCIS OIL COMPANY
By:____________________________________
Name:__________________________________
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
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<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
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<PAGE>
SCHEDULE 1
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)
_______________________ _________________________________________
_______________________ _________________________________________
<PAGE>
SCHEDULE 2
Piggy-Back Shareholder Number of Shares of Number of Shares of
---------------------- Common Stock Held Series B Convertible
Immediately Prior to Closing Preferred Shares Held
---------------------------- Immediately Prior to
Closing
---------------------
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
<PAGE>
EXHIBIT C
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Agreement") is made and entered into
this ____ day of ________, 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 13,289,981 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
10,802,355 shares or 81.28% of the issued and outstanding shares of Common
Stock, as follows:
- --------------------------------------------------------------------------------
SHAREHOLDER SHARES PERCENTAGE
- --------------------------------------------------------------------------------
3TEC Energy Corporation 4,755,556 35.79%
- --------------------------------------------------------------------------------
Kaiser-Francis Oil 3,333,334 25.09%
Company
- --------------------------------------------------------------------------------
C.J. Lett, III 1,187,556 8.94%
- --------------------------------------------------------------------------------
Weskids, L.P. 843,687 6.35%
- --------------------------------------------------------------------------------
Alvin V. Shoemaker 684,222 5.13%
- --------------------------------------------------------------------------------
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:
<PAGE>
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 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.
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<PAGE>
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:
(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 _____________, 1999, a
copy of which is on file in the office of the Company."
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<PAGE>
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;
(e) the shares of Stock listed in the second recital paragraph hereof
constitutes all of the securities of each Stockholder 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.
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
4
<PAGE>
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.
5
<PAGE>
17. 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 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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<PAGE>
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:____________________________________
Name:__________________________________
Title:_________________________________
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
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
7
<PAGE>
KAISER-FRANCIS OIL COMPANY
By:____________________________________
Name:__________________________________
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
8
<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>
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
3TEC 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 3TEC
ENERGY CORPORATION, a Delaware corporation ("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 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.
<PAGE>
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.
<PAGE>
(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:
(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
2
<PAGE>
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
3
<PAGE>
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 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.
4
<PAGE>
(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
5
<PAGE>
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
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.
6
<PAGE>
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 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.
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<PAGE>
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.
8
<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: ___________________________
9
<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
AGREEMENT OF SHAREHOLDERS
This Agreement of Shareholders (the "Agreement") is made and entered into
this 1st day of July, 1999, by and among MIDDLE BAY OIL COMPANY, INC. (the
"Company"), 3TEC ENERGY CORPORATION, a Delaware corporation ("3TEC") and the
undersigned shareholders of the Company (the "Shareholders")
RECITALS
WHEREAS, the Company and 3TEC have entered into a certain Securities
Purchase Agreement of even date herewith (the "Purchase Agreement");
WHEREAS, as a condition to the execution of the Purchase Agreement, the
Shareholders are entering into this 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. Shareholder Voting Regarding the Purchase Agreement. Each of the
Shareholders agree, 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 the Company's common stock, $.02 par value
(and any and all shares of any other voting class of capital stock of the
Company presently or at any future time owned by such Shareholder) (the
"Stock"), which it is entitled to vote (or control the voting directly or
indirectly) in favor of the Purchase Agreement, and all transactions
contemplated thereby, including but not limited to, an amendment to the
Company's Articles of Incorporation increasing the authorized number of shares
of Company common stock.
2. Term. This Agreement shall terminate and be of no further force and
effect at the earlier of the (i) termination of the Purchase Agreement, and (ii)
the Closing of the transactions contemplated by the Purchase Agreement, and
(iii) ninety (90) days after the date of the Company's Shareholders' meeting
whereby the Purchase Agreement and all transactions contemplated thereby are
approved.
3. Shareholders' Representation and Warranties. Each Shareholder
severally, as to itself only, represents and warrants to 3TEC 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
<PAGE>
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 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 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 Stock other than this Agreement;
(e) the shares of Stock listed on Exhibit "A" constitutes all of the securities
of each Stockholder 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 Stock as contemplated herein.
4. 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.
5. Negative Covenants of Each Shareholder. Except to the extent
contemplated herein or in the Purchase Agreement, each Shareholder hereby
covenants and agrees that such Shareholder will not, and will not agree to,
directly or indirectly, (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, except
through "brokers" transactions as contemplated by subparagraphs (f) and (g) and
subject to the limitations on amount provided by subparagraph (e) of Rule 144 of
the Securities Act; (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 Agreement 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 placement 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.
6. Successors. This Agreement shall be binding upon and shall operate for
the benefit of 3TEC and the Company, their respective shareholders, and their
respective successors, assigns, executors, administrators and heirs, and it
shall be binding upon any entity to whom any Stock is transferred whether or not
in accordance with the provisions of this Agreement, and the executor or
administrator of such entity.
2
<PAGE>
7. 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 Agreement, unless the vote on such
amendment is approved unanimously by the parties to this Agreement.
8. 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.
9. 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.
10. 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.
11. 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 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.
12. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF ALABAMA.
13. 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]
3
<PAGE>
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:__________________________________
Name:________________________________
Title:_______________________________
Address for Notice:
Middle Bay Oil Company, Inc.
1221 Lamar Street, Suite 1020
Houston, TX 77010
Fax: (713) 650-0352
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
4
<PAGE>
KAISER-FRANCIS OIL COMPANY
By:__________________________________
Name:________________________________
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
5
<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
6
<PAGE>
EXHIBIT "A"
Common Stock
Shareholder Number of Shares
- ----------- ----------------
Kaiser-Francis Oil Company 3,333,334
C.J. Lett, III 1,187,556
WESKIDS, L.P. 843,687
Alvin V. Shoemaker 684,222
<PAGE>
EXHIBIT G
Purchase Price to be transferred at Closing
Immediately available funds
$20,525,000
Value of oil and gas properties as described on Schedule 1 separately provided
by 3TEC to the Company to be transferred from 3TEC to the Company
$875,000
<PAGE>
EXHIBIT H
[Identification of Other Securities Purchase Agreements to be inserted]
<PAGE>
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
MIDDLE BAY OIL COMPANY, INC.
The undersigned, a shareholder of record of Middle Bay Oil Company,
Inc. (the "Company"), hereby appoints John J. Bassett and Frank C. Turner,
II, and each of them, with power of substitution, to represent and to vote
all of the shares of the Company which the undersigned is entitled to vote at
the Annual Meeting of Shareholders of the Company to be held at the offices
of the Company located at 1221 Lamar Street, Suite 1020, Houston, Texas, on
________, August __, 1999 at 10:00 a.m. Central Daylight Time, and at any
adjournment or adjournments thereof, hereby revoking all proxies heretofore
given with respect to such shares; and the undersigned hereby instructs said
proxy to vote all such shares of stock at the Annual Meeting in accordance
with the following instructions: (INDICATE BY CHECK MARK)
I. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below)
to vote for all nominees listed below
/ /
John J. Bassett - C. J. Lett, III - Stephen W. Herod
Edward P. Turner, Jr. - Frank E. Bolling, Jr.
Alvin V. Shoemaker - Gary Christopher
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided hereinafter:
-------------------------------------------------------------------)
II. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE COMPANY'S
AUTHORIZED CAPITAL STOCK FROM 20,000,000 SHARES TO 40,000,000 SHARES OF
COMMON STOCK AND FROM 10,000,000 SHARES TO 20,000,000 SHARES OF PREFERRED
STOCK
/ / FOR / / AGAINST / / ABSTAIN
III. PROPOSAL TO RATIFY THE ACQUISITION OF OIL AND GAS ASSETS FOR SERIES C
CONVERTIBLE PREFERRED STOCK
/ / FOR / / AGAINST / / ABSTAIN
IV. PROPOSAL TO APPROVE THE 3TEC ENERGY CORPORATION SECURITIES PURCHASE
AGREEMENT
/ / FOR / / AGAINST / / ABSTAIN
V. OTHER MATTERS
/ / WITH discretionary authority / / WITHOUT AUTHORITY
to vote upon any other matters
to vote upon any other matters
<PAGE>
Shareholders approving the proposals set forth herein should mark the
"For" box herein; those opposing such action should register their position by
marking the appropriate "Against" or "Abstain" box herein or by not returning
this Proxy Form. SIGNED BUT UNMARKED PROXY FORMS WILL BE DEEMED TO AUTHORIZE A
VOTE "FOR" THE PROPOSALS SET FORTH HEREIN.
The invalidity, illegality or unenforceability of any particular
provision of this Proxy Form shall be construed in all respects as if such
invalid, illegal or unenforceable provision were omitted without affecting the
validity, legality or enforceability of the remaining provisions hereof.
YOUR VOTE IS IMPORTANT. IF YOU ARE UNABLE TO ATTEND THE
ANNUAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY FORM, USING THE ENCLOSED ENVELOPE.
PLEASE SIGN BELOW EXACTLY AS NAME APPEARS ON THIS PROXY FORM. If shares
are registered in more than one name, the signatures of all such persons are
required. A corporation should sign in its full corporate name by a duly
authorized officer, stating his title. Trustees, guardians, executors and
administrators should sign in their official capacity, giving their full title
as such. If a partnership, please sign in the partnership name by authorized
persons.
The undersigned acknowledges receipt of the Notice of said Annual
Meeting and the Proxy Statement dated July ___, 1999 by signing this Proxy.
------------------------
(Number of Shares)
(Paste mailing label from
Transfer Agent here)
----------------------------------------
(Signature of Shareholder)
----------------------------------------
(Additional Signatures, if held jointly)
Dated: _____________________, 1999 ----------------------------------------
(Title or Authority, if applicable)
July 1, 1999
