EXHIBIT 10.30
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
between
CLIFFWOOD OIL & GAS CORP.
and
FIRST UNION CAPITAL PARTNERS, INC.
Dated as of May 30, 1997
41
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS.......................................................1
1.1 DEFINITIONS......................................................1
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS...........................8
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS....................8
2.1 PURCHASE AND SALE OF COMMON STOCK................................8
2.2 PURCHASE AND SALE OF WARRANTS....................................8
2.3 PURCHASE PRICE...................................................8
2.4 CLOSING..........................................................8
2.5 RESERVATION OF SHARES............................................8
ARTICLE 3
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE............9
3.1 REPRESENTATIONS AND WARRANTIES...................................9
3.2 COMPLIANCE WITH THIS AGREEMENT...................................9
3.3 OFFICERS' CERTIFICATE............................................9
3.4 SECRETARY'S CERTIFICATE..........................................9
3.5 TRANSACTION DOCUMENTS...........................................10
3.6 FINANCIAL MATTERS...............................................10
3.7 PURCHASE PERMITTED BY APPLICABLE LAWS...........................10
3.8 APPROVAL OF COUNSEL TO THE PURCHASER............................10
3.9 CONSENTS AND APPROVALS..........................................10
3.10 SBA DOCUMENTS...................................................11
3.11 ARTICLES OF INCORPORATION AND BYLAWS, ETC.......................11
3.12 AMENDMENT TO SHAREHOLDERS' AGREEMENT............................11
3.13 CO-SALE AGREEMENT...............................................11
3.14 INSURANCE.......................................................11
3.15 DISBURSEMENT INSTRUCTIONS.......................................11
3.16 NO MATERIAL ADVERSE CHANGE......................................11
3.17 OPINION OF COUNSEL..............................................11
ARTICLE 4
1
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE.............12
4.1 REPRESENTATIONS AND WARRANTIES TRUE.............................12
4.2 COMPLIANCE WITH THIS AGREEMENT..................................12
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS...........................12
4.4 APPROVAL OF COUNSEL TO THE COMPANY..............................12
4.5 CONSENTS AND APPROVALS..........................................12
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................12
5.1 CORPORATE EXISTENCE AND POWER...................................13
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION.......................13
5.3 CAPITALIZATION..................................................13
5.4 SUBSIDIARIES....................................................13
5.5 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS................14
5.6 BINDING EFFECT..................................................14
5.7 LITIGATION......................................................14
5.8 NO DEFAULT OR BREACH............................................14
5.9 ERISA...........................................................14
5.10 SMALL BUSINESS CONCERN..........................................14
5.11 DISCLOSURE......................................................15
5.12 PRIVATE OFFERING................................................15
5.13 BROKER'S, FINDER'S OR SIMILAR FEES..............................15
5.14 OIL AND GAS MATTERS.............................................15
5.15 MATERIAL CONTRACTS..............................................19
5.16 SENIOR LOAN DOCUMENTS...........................................19
5.17 OTHER TRANSACTION DOCUMENTS.....................................19
5.18 USE OF PROCEEDS.................................................19
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................20
6.1 AUTHORIZATION; NO CONTRAVENTION.................................20
6.2 BINDING EFFECT..................................................20
6.3 PURCHASE FOR OWN ACCOUNT........................................20
6.4 ERISA...........................................................21
2
6.5 BROKER'S, FINDER'S OR SIMILAR FEES..............................21
6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT.................21
ARTICLE 7
COVENANTS........................................................21
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION......................21
7.2 NOTICES.........................................................23
7.3 PRESERVATION OF EXISTENCE AND RELATED MATTERS...................23
7.4 MAINTENANCE OF PROPERTY.........................................23
7.5 MAINTENANCE OF INSURANCE........................................23
7.6 PAYMENT AND PERFORMANCE OF OBLIGATIONS..........................24
7.7 ACCOUNTING METHODS AND FINANCIAL RECORDS........................24
7.8 VISITS AND INSPECTIONS..........................................24
7.9 BOARD VISITATION RIGHTS.........................................24
7.10 CONFIDENTIALITY.................................................24
7.11 COMPLIANCE WITH LAWS; ENVIRONMENTAL LAWS........................25
7.12 TRANSACTIONS WITH AFFILIATES....................................25
7.13 CAPITAL EXPENDITURES............................................25
7.14 COORDINATION OF REGISTRATION RIGHTS.............................25
7.15 NO INCONSISTENT AGREEMENTS......................................25
7.16 SHAREHOLDERS' AGREEMENT.........................................26
ARTICLE 8
PREEMPTIVE RIGHTS................................................26
8.1 ELIGIBLE OFFERING...............................................26
8.2 NOTICE OF AN ELIGIBLE OFFERING..................................26
8.3 SALE TO THIRD PARTIES...........................................26
8.4 EXCEPTIONS TO ELIGIBLE OFFERING.................................26
ARTICLE 9
PUT RIGHTS.......................................................27
9.1 OPTION TO PUT...................................................27
9.2 SALE OF PUT SECURITIES..........................................27
9.3 PRICE PER SHARE.................................................28
9.4 LIMITATION ON OTHER PUT RIGHTS..................................28
ARTICLE 10
3
REGISTRATION RIGHTS..............................................29
10.1 DEMAND REGISTRATION.............................................29
10.2 PIGGYBACK REGISTRATION..........................................30
10.3 FORM S-3 REGISTRATION...........................................30
10.4 REGISTRATION PROCEDURES.........................................31
10.5 EXPENSES........................................................33
10.6 LIMITATION ON REGISTRATION RIGHTS OF OTHERS.....................33
10.7 LOCK-UP AGREEMENTS..............................................33
ARTICLE 11
INDEMNIFICATION..................................................34
11.1 INDEMNIFICATION.................................................34
11.2 SECURITIES LAWS VIOLATIONS......................................34
11.3 INDEMNIFICATION BY PURCHASER....................................35
11.4 NOTIFICATION....................................................36
ARTICLE 12
MISCELLANEOUS....................................................37
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................37
12.2 NOTICES.........................................................37
12.3 SUCCESSORS AND ASSIGNS..........................................38
12.4 AMENDMENT AND WAIVER............................................38
12.5 COUNTERPARTS....................................................38
12.6 HEADINGS........................................................38
12.7 GOVERNING LAW...................................................39
12.8 JURISDICTION....................................................39
12.9 SEVERABILITY....................................................39
12.10 RULES OF CONSTRUCTION...........................................39
12.11 ENTIRE AGREEMENT................................................39
12.12 CERTAIN EXPENSES................................................39
12.13 REGULATORY REQUIREMENTS.........................................39
12.14 PUBLICITY.......................................................40
12.15 FURTHER ASSURANCES..............................................40
EXHIBITS
Exhibit A - Articles of Incorporation
Exhibit B - Bylaws
4
Exhibit D - Shareholders' Agreement
Exhibit E - Co-Sale Agreement
Exhibit F - Form of Legal Opinion
SCHEDULES
Schedule 1.1 - Oil & Gas Interests
Schedule 3.6 - Financial Statements
Schedule 5.3 - Capitalization
Schedule 5.4 - Subsidiaries
Schedule 5.14(a) - Oil and Gas Contracts and Leases
Schedule 5.14(b) - Oil and Gas Operations
Schedule 5.14(c) - Oil and Gas Reversionary Rights
Schedule 5.14(d) - Sales and Transportation Agreements
Schedule 5.14(e) - Tax Partnerships
Schedule 5.14(f) - Prepayments
Schedule 5.14(h) - Calls on Production
Schedule 5.14(i) - Reserve Report Exceptions
Schedule 5.15 - Material Contracts
5
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this
"Agreement") is dated as of May 30, 1997, between CLIFFWOOD OIL & GAS CORP., a
Texas corporation (the "Company") and FIRST UNION CAPITAL PARTNERS, INC., a
Virginia corporation (the "Purchaser").
STATEMENT OF PURPOSE
The Company proposes to issue to the Purchaser shares of its Class B
Non-Voting Common Stock and warrants to purchase additional shares of its Class
B Non-Voting Common Stock, all for an aggregate purchase price of $1,000,000 and
on the other terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement, in addition to the
terms defined elsewhere in this Agreement, the following terms shall have the
meanings set forth below:
"AFFILIATE" means, with respect to a Person, any other Person (other than
a Subsidiary) which directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. The
term "control" means (a) the power to vote 10% or more of the securities or
other equity interests of a Person having ordinary voting power, or (b) the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"AGREEMENT" means this Common Stock and Warrant Purchase Agreement, as
amended or supplemented from time to time.
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of the Company as in effect on the date hereof, a copy of which is
attached hereto as EXHIBIT A, as amended from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in Houston, Texas are authorized or required by law or
executive order to close.
"BYLAWS" means the Bylaws of the Company as in effect on the date hereof,
a copy of which
1
is attached hereto as EXHIBIT B, as amended from time to time.
"CALCULATED MARKET VALUE" has the meaning assigned thereto in Section
9.3(b) hereof.
"CASH-OUT TRANSACTION" means any transaction in which (a) all of the
holders of Common Stock are offered the opportunity to sell at least 75% of
their shares of Common Stock to a third Person which is not an Affiliate of the
Company; (b) the Purchaser may elect to sell all of its shares and may further
elect to receive cash in payment for its shares; (c) all of the holders of
Common Stock are offered the same per share consideration; and (d) at least 75%
of the shares of Common Stock, on a fully diluted basis, are actually sold to
the offeror.
"CHANGE IN CONTROL" means a transaction pursuant to which (i) a Person or
group of Persons (within the meaning of Section 13(d) of the Exchange Act) other
than V & C Energy Limited Partnership or Energy Resource Associates, Inc.
acquires directly or indirectly and in one or a series of transactions all or
substantially all of the assets of the Company or any Subsidiary, (ii) a Person
or group of Persons (within the meaning of Section 13(d) of the Exchange Act)
other than V & C Energy Limited Partnership or Energy Resource Associates, Inc.
acquires directly or indirectly and in one or a series of transactions more than
50% of the capital stock of the Company, on a fully diluted basis (whether by
merger, consolidation or sale or transfer of the Company's capital stock), (iii)
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (A) ceases to own directly or indirectly a minimum of 200,000
shares of Common Stock (excluding shares issuable upon the exercise of such
options but not yet issued), (B) ceases to own, directly or indirectly, more
than 50% of the capital stock and voting interests of Energy Resource
Associates, Inc. or the general partnership interest in V & C Energy Limited
Partnership or (C) ceases to have the title and responsibilities of the Chief
Executive Officer of the Company, or (iv) Senior Management of the Company in
the aggregate ceases to own directly or indirectly a minimum of 300,000 shares
of Common Stock (excluding shares issuable upon the exercise of such options but
not yet issued). The minimum share requirements in clauses (iii)(A) and (iv)
above shall be adjusted proportionately in the event of any stock split or stock
dividend by the Company after the Closing Date.
"CLASS A COMMON" means the Class A Voting Common Stock of the Company as
described in the Articles of Incorporation.
"CLASS B COMMON" means the Class B Non-Voting Common Stock of the Company
as described in the Articles of Incorporation.
"CLOSING" has the meaning assigned thereto in Section 2.4 hereof.
"CLOSING DATE" has the meaning assigned thereto in Section 2.4 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"COMMISSION" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
2
"COMMON STOCK" means collectively, the Class A Common and the Class B
Common, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section
11.3 hereof.
"CONTRACTUAL OBLIGATIONS" means, with respect to a Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which such
Person is a party or by which it or any of its property is bound.
"CO-SALE AGREEMENT" means the agreement to be entered into between the
Company and the Purchaser in substantially the form attached hereto as EXHIBIT
E.
"DEMAND REGISTRATION" has the meaning assigned thereto in Section 10.1
hereof.
"EARLIER TIME" has the meaning assigned thereto in Section 9.1 hereof.
"ELIGIBLE OFFERING" has the meaning assigned thereto in Section 8.1
hereof.
"ENVIRONMENTAL LAWS" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including but not limited to,
requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXERCISE NOTICE" has the meaning assigned thereto in Section 9.2 hereof.
"FISCAL YEAR" means the fiscal year of the Company and its Subsidiaries
ending on December 31.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity having
jurisdiction and exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any corporation or
other entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
3
"HAZARDOUS MATERIALS" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are or
become regulated by any Governmental Authority, (c) the presence of which
require investigation or remediation under any Environmental Law or common law,
(d) the discharge or emission or release of which requires a permit or license
under any Environmental Law or other Governmental Approval or (e) which are
deemed to constitute a nuisance, a trespass or pose a health or safety hazard to
persons or neighboring properties.
"HOLDER INDEMNIFIED PARTY" has the meaning assigned thereto in Section
11.2 hereof.
"HYDROCARBONS" means oil, gas and/or other liquid and gaseous hydrocarbons
or any combination thereof.
"INDEMNIFIED PARTY" has the meaning assigned thereto in Section 11.1
hereof.
"INTERESTS" means the collective reference to:
(a) the Oil and Gas Interests; and
(b) all of the Company's or applicable Subsidiary's rights, titles and
interests, whether direct or indirect, in and to all of the property, rights and
interests incident to the Oil and Gas Interests, including without limitation
all of the Company's or such Subsidiary's rights, titles and interests in and to
all Oil and Gas Contracts, leases, rights-of-way, easements, options, orders and
rulings of any applicable Governmental Authority, ▇▇▇▇▇, lease and well
equipment, machinery, production facilities, processing facilities, gathering
systems, transportation systems, disposal systems, fixtures and other items of
personal property and improvements now or as of the Closing Date appurtenant to
the Oil and Gas Interests or with the production, treatment, sale or disposal of
Hydrocarbons or water produced therefrom or attributable thereto.
"INVESTMENT AGREEMENT" means the Investment Agreement, dated as of
September 27, 1996, by and among the Company, Energy Capital Investment Company
PLC, an English investment company, and EnCap Equity 1996 Limited Partnership, a
Texas limited partnership, as amended or supplemented from time to time.
"INVESTORS AGREEMENT" means the Investors Agreement, dated as of September
27, 1996, by and among V & C Energy Limited Partnership, a Michigan limited
partnership, Energy Resource Associates, Inc., a Texas corporation, Energy
Capital Investment Company PLC, an English investment company, and EnCap Equity
1996 Limited Partnership, a Texas limited partnership, as amended or
supplemented from time to time.
"LEASES" means oil, gas and mineral leases, oil and gas leases, oil
leases, gas leases, other mineral leases, subleases, assignments of operating
rights and similar agreements, and any extensions or renewals thereof.
4
"LIABILITIES" has the meaning assigned thereto in Section 11.1 hereof.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind.
"MATERIAL CONTRACT" means (a) any contract or other agreement, written or
oral, of the Company or any of its Subsidiaries involving monetary liability of,
or to such Person in an amount in excess of $100,000 per annum, (b) any contract
between or among the Company or any Subsidiary and any securityholders of the
Company or such Subsidiary or (c) any other contract or agreement, written or
oral, of the Company or any Subsidiary the failure to comply with which could
have a material adverse effect on the business, operations, properties, assets
or condition (financial or otherwise) of the Company or any Subsidiary.
"NET ASSET VALUE" has the meaning assigned thereto in Section 9.3(b)
hereof.
"NET REVENUE INTEREST" means the decimal interest in and to all production
of the Hydrocarbons produced and saved or sold from the Oil and Gas Interests
after giving effect to all valid lessors' royalties, overriding royalties and/or
other non-expense bearing burdens against production.
"OIL AND GAS CONTRACTS" means all Leases, permits, licenses, farm-out or
farm-in agreements, bottom hole or acreage contribution agreements, operating
agreements, unit agreements, water flood agreements, declarations or orders,
joint venture, exploration, participation or acquisition agreements, division
orders, production, sales, purchase, exchange, processing or transportation
agreements and all other contracts and agreements in effect or in existence on
the date hereof and affecting or relating to the ownership or operation of the
Interests or the disposition of the Hydrocarbons produced therefrom.
"OIL AND GAS INTERESTS" means (a) all of the Company's and any of its
Subsidiaries' rights, titles and interests, whether direct or indirect, in and
to the ▇▇▇▇▇ described on SCHEDULE 1.1 and in and to the leases and lands
(whether or not described on SCHEDULE 1.1) upon which such ▇▇▇▇▇ have been
drilled or which have been pooled or unitized with Leases upon which such ▇▇▇▇▇
have been drilled, and (b) all of the Company's and any of its Subsidiaries'
rights, titles and interests, including leasehold interests, whether direct or
indirect, in and to the non-producing lands and Leases described on SCHEDULE
1.1.
"PERSON" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"PIGGYBACK REGISTRATION" has the meaning assigned thereto in Section 10.2
hereof.
"PUBLIC OFFERING" means a public offering of the Common Stock pursuant to
a registration statement declared effective under the Securities Act,
underwritten on a firm commitment basis by
5
an investment banking firm acceptable to the Company.
"PURCHASE PRICE" has the meaning assigned thereto in Section 2.3 hereof.
"PUT SECURITIES" means the Shares, the Warrants, any shares of Common
Stock issued upon conversion or exercise of the Shares or Warrants, and any
securities issued or issuable with respect to the foregoing securities by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"QUALIFIED PUBLIC OFFERING" means a Public Offering resulting in gross
proceeds to the Company of at least $20,000,000.
"REGISTRABLE SECURITIES" means the Shares, the Warrant Shares, any
securities issued upon conversion of the Shares or Warrant Shares, and any
securities issued or issuable with respect to the foregoing securities by way of
a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company and reasonable fees and disbursements of a single
attorney or firm representing the Purchaser, all independent certified public
accountants and underwriters (excluding discounts and commissions); PROVIDED,
that Registration Expenses shall not include any Selling Expenses.
"REGULATORY REQUIREMENT" has the meaning assigned thereto in Section 12.13
hereof.
"REQUIREMENTS OF LAW" means with respect to a Person, the articles of
incorporation and bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"RESERVE REPORT" means the report and property evaluation of the type
specified in Section 7.1(d)(i) hereof effective as of December 31, 1996.
"SALES AGREEMENTS" has the meaning assigned thereto in Section 5.14(d)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLING EXPENSES" means underwriting discounts or commissions and any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
6
"SENIOR LOAN AGREEMENT" means the Credit Agreement dated as of September
17, 1996 by and among the Company, Cliffwood Energy Company, Cliffwood
Production Co. and Comerica Bank - Texas, as amended or supplemented from time
to time.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and each other
document and instrument executed pursuant thereto, as amended or supplemented
from time to time.
"SENIOR MANAGEMENT" means the Chief Executive Officer, President,
Secretary, Treasurer, Chief Operating Officer, Chief Financial Officer, Chief
Legal Officer, and any Vice-President of the Company, and any other management
position in the Company occupied by ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ or ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇.
"SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement dated as of
May 21, 1996 by and among the Company and certain shareholders of the Company,
as amended or supplemented from time to time.
"SHARES" has the meaning assigned thereto in Section 2.1 hereof.
"SUBSIDIARY" means, with respect to a Person, (i) a corporation or other
entity of which more than 50% of the voting power of the equity securities or
other equity interests is owned, directly or indirectly, by such Person and (ii)
any general partnership, limited partnership or limited liability company in
which such Person or an entity specified in clause (i) above is a managing
partner, manager or otherwise exercises any controlling influence over such
general partnership, limited partnership or limited liability company. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Warrants,
the Articles of Incorporation, the Bylaws, the Shareholders' Agreement and the
Co-Sale Agreement.
"WARRANT SHARES" means the shares of Class B Common issuable upon exercise
of the Warrants and the shares of Class A Common issuable upon conversion
thereof.
"WARRANTS" mean the common stock purchase warrants issued by the Company
to the Purchaser pursuant to this Agreement substantially in the form attached
hereto as EXHIBIT C.
"▇▇▇▇▇" means the ▇▇▇▇▇ set forth on SCHEDULE 1.1.
1.2 ACCOUNTING TERMS; FINANCIAL STATEMENTS. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur. If any changes in accounting
principles are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions of or are otherwise required by, the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or
7
successors thereto or agencies with similar functions), and any of such changes
results in a change in the method of calculation of, or affects the results of
such calculation of, any of the financial covenants, standards or terms found
herein, then the parties hereto agree to enter into and diligently pursue
negotiations in order to amend such financial covenants, standards or terms so
as to reflect fairly and equitably such changes, with the desired result that
the criteria for evaluating the Company's financial condition and results of
operations shall be the same after such changes as if such changes had not been
made.
ARTICLE 2
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
2.1 PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser, and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, 333,334 shares of
Class B Common (the "Shares"). The Shares shall have all the powers, rights and
preferences of Class B Common as set forth in the Articles of Incorporation.
2.2 PURCHASE AND SALE OF WARRANTS. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser and the Purchaser agrees
that it will purchase from the Company, on the Closing Date, in the form
attached hereto as EXHIBIT C, warrants to purchase 167,500 shares of Class B
Common (the "Warrants").
2.3 PURCHASE PRICE. The aggregate purchase price of the Shares and
Warrants (the "Purchase Price") shall be $1,000,000.
2.4 CLOSING. The issuance and purchase of the Shares and the Warrants
shall take place at the closing (the "Closing") to be held at such time and
place as mutually agreed upon by the Company and the Purchaser, (the "Closing
Date"). At the Closing, the Company shall deliver to the Purchaser the Shares
and the Warrants against delivery to the Company by the Purchaser of the
Purchase Price therefor by wire transfer of immediately available funds.
2.5 RESERVATION OF SHARES. The Company shall at all times reserve and keep
available out of its authorized Class A Common and Class B Common, solely for
the purpose of issue or delivery upon conversion of the Class B Common as
provided in the Articles of Incorporation and the exercise of the Warrants as
provided therein, the maximum number of shares of Class A Common and Class B
Common that may be issuable or deliverable upon such conversion or exercise.
Such shares of Class A Common and Class B Common shall, when issued or delivered
in accordance with the provisions of the Articles of Incorporation or the
Warrants, as the case may be, be duly and validly issued and fully paid and
non-assessable. The Company shall issue such Class A Common and Class B Common
in accordance with the provisions of the Articles of Incorporation and the
Warrants, and shall otherwise comply with the terms thereof.
8
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Shares and the Warrants,
to pay the Purchase Price therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by the Purchaser of
the following conditions on or before the Closing Date:
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 5 hereof shall be true and correct on and as of
the Closing Date as if made on and as of such date.
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and
complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
3.3 OFFICERS' CERTIFICATE. The Purchaser shall have received a certificate
dated as of the Closing Date from the President and any Vice President of the
Company, in form and substance satisfactory to the Purchaser, to the effect that
(a) all representations and warranties of the Company contained in this
Agreement are true, correct and complete, (b) neither the Company nor any
Subsidiary is in violation of any of the covenants contained in this Agreement,
and (c) all conditions precedent to the Closing of this Agreement to be
performed by the Company have been duly performed.
3.4 SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate from the Company, dated the Closing Date and signed by the Secretary
or an Assistant Secretary of the Company, certifying (a) that the attached
copies of the Articles of Incorporation and Bylaws of the Company (and the
appropriate charter or other governing documents for each Subsidiary of the
Company which is a corporation), and resolutions of the Board of Directors of
the Company approving this Agreement and the transactions contemplated hereby,
are all true, complete and correct and remain unamended and in full force and
effect and (b) as to the incumbency and specimen signature of each officer of
the Company executing this Agreement and any other document delivered in
connection herewith on behalf of the Company. Attached to such certificate shall
be certificates of good standing and qualification or authorization to do
business of the Company and its Subsidiaries which are corporations from their
respective states of organization and, except with respect to the qualification
of Cliffwood Energy Company, a California corporation, in the State of Texas,
each other jurisdiction where any such Person is required to be so qualified or
authorized.
3.5 TRANSACTION DOCUMENTS. The Purchaser shall have received true,
complete and correct copies of the Transaction Documents and such other
documents as it may reasonably request in writing in connection with or relating
to the sale of the Shares and the Warrants and the transactions contemplated
hereby, all in form and substance reasonably satisfactory to the Purchaser.
9
3.6 FINANCIAL MATTERS.
(a) FINANCIAL STATEMENTS. The Purchaser shall have received financial
statements, certificates and other information concerning the Company and its
Subsidiaries, and each predecessor thereto, as set forth on SCHEDULE 3.6 hereto,
including a copy of the Reserve Report.
(b) PAYMENT AT CLOSING. There shall have been paid by the Company to the
Purchaser any reasonable accrued and unpaid fees due hereunder (including,
without limitation, legal fees and expenses), and to any other Person such
amount as may be due, including all taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of any of the
Transaction Documents.
3.7 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and payment
for the Shares and the Warrants to be acquired by the Purchaser hereunder and
the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject the Purchaser to any
penalty or other onerous condition under or pursuant to any Requirement of Law,
and (c) shall be permitted by all Requirements of Law to which it or the
transactions contemplated by or referred to herein are subject and the Purchaser
shall have received such certificates or other evidence as it may reasonably
request to establish compliance with this condition.
3.8 APPROVAL OF COUNSEL TO THE PURCHASER. All actions and proceedings
hereunder and all documents required to be delivered by the Company or any of
its Subsidiaries hereunder or in connection with the consummation of the
transactions contemplated hereby, and all other related matters, shall be in
form and substance acceptable to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P.,
counsel to the Purchaser, in its reasonable judgment.
3.9 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Company and its Subsidiaries necessary, desirable
or required in connection with the execution, delivery or performance by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
3.10 SBA DOCUMENTS. The Company shall have executed and delivered to the
Purchaser forms and information required by the rules and regulations of the
United States Small Business Administration, including without limitation, a
Size Status Declaration on SBA Form 480 and an Assurance of Compliance on SBA
Form 652 and information necessary for the preparation of a Portfolio Financing
Report on SBA Form 1031.
3.11 ARTICLES OF INCORPORATION AND BYLAWS, ETC. The Articles of
Incorporation and Bylaws of the Company (and the appropriate charter or other
governing documents for each Subsidiary of the Company) shall be in form and
substance reasonably satisfactory to the Purchaser.
10
3.12 AMENDMENT TO SHAREHOLDERS' AGREEMENT. The Company shall have (i)
delivered to the Purchaser a copy of the Shareholders' Agreement, a copy of
which is attached hereto as EXHIBIT D, amended and restated to include the
Purchaser as a signatory, such copy to be executed by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and V &
C Energy Limited Partnership, and (ii) provided the Purchaser with evidence that
such Shareholders' Agreement has been circulated to each other party thereto
requesting their signatures.
3.13 CO-SALE AGREEMENT. The Company and the Purchaser shall have executed
the Co-Sale Agreement, a copy of which is attached hereto as EXHIBIT E.
3.14 INSURANCE. The Company shall have delivered to the Purchaser (a) a
detailed list of all insurance maintained by the Company as of the Closing Date,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of expiration thereof and the properties and risks covered
thereby and (b) certificates of insurance relating to all insurance referenced
on such list.
3.15 DISBURSEMENT INSTRUCTIONS. The Purchaser shall have received written
instructions from the Company to the Purchaser directing the payment of the
proceeds of the Shares and the Warrants that are to be paid on the Closing Date.
3.16 NO MATERIAL ADVERSE CHANGE. On and prior to the Closing Date, no
event or change shall have occurred which could reasonably be expected to have a
material adverse effect on the business, operations, properties, assets or
condition (financial or otherwise) of the Company or any Subsidiary or otherwise
could reasonably be expected to impair the ability of the Company or any
Subsidiary to perform its obligations under this Agreement or any of the other
Transaction Documents.
3.17 OPINION OF COUNSEL. The Purchaser shall have received an opinion of
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, dated the Closing Date, in the form attached hereto as
EXHIBIT F.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Shares and the
Warrants and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by the Company of the following conditions on or
before the Closing Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Purchaser contained in Section 6 hereof shall be true and
correct on and as of the Closing Date as if made on and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. The Purchaser shall have performed and
complied with all of the agreements and conditions set forth or contemplated
herein that are required to be
11
performed or complied with by the Purchaser on or before the Closing Date.
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS. The issuance of the Shares and
the Warrants hereunder and the consummation of the transactions contemplated
hereby (a) shall not be prohibited by any Requirement of Law, (b) shall not
subject the Company to any penalty or, in its reasonable judgment, other onerous
condition under or pursuant to any Requirement of Law and (c) shall be permitted
by all Requirements of Law to which the Company is subject.
4.4 APPROVAL OF COUNSEL TO THE COMPANY. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall be in form and substance acceptable to
▇▇▇▇▇▇▇▇▇▇ & Snokhous, counsel to the Company, in its reasonable judgment.
4.5 CONSENTS AND APPROVALS. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law necessary or required in
connection with the execution, delivery or performance by the Purchaser or
enforcement against the Purchaser of this Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser before and
after giving effect to the transactions contemplated by this Agreement and the
other Transaction Documents as follows:
5.1 CORPORATE EXISTENCE AND POWER. Except as indicated on Schedule 5.4,
each of the Company and those Subsidiaries listed on Schedule 5.4 (a) is duly
organized, validly existing and in good standing under the laws of the State of
Texas and (b) has all requisite power and authority to own, lease and operate
its assets, properties and business and to conduct the business in which it is
currently, or is currently proposed to be, engaged. The Company has the power
and authority to execute, deliver and perform its obligations under this
Agreement and each other Transaction Document to which it is or will be a party.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and each other Transaction Document
to which it is or will be a party and the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Shares and the
Warrants (a) have been duly authorized by all necessary corporate, and if
required, stockholder action, (b) do not contravene the terms of the Articles of
Incorporation or Bylaws of the Company (or any charter or other governing
document for any Subsidiary of the Company), and (c) will not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual Obligation of the Company, or any Requirement of Law
12
applicable to the Company or any of its Subsidiaries.
5.3 CAPITALIZATION. As of the Closing Date, the authorized capital stock
of the Company consists of 25,000,000 shares of Common Stock, including
20,000,000 shares of Class A Common and 5,000,000 shares of Class B Common, and
10,000,000 shares of Preferred Stock. As of the Closing Date, and after giving
effect to the transactions contemplated by this Agreement, (a) 2,505,588 shares
of Class A Common will be issued and outstanding, (b) at least 500,834 shares of
Class A Common will be reserved for issuance upon conversion of the Class B
Common, (c) 333,334 shares of Class B Common will be issued and outstanding, (d)
at least 167,500 shares of Class B Common will be reserved for issuance upon
exercise of the Warrants, and (e) no shares of Preferred Stock will be issued
and outstanding, all as shown on SCHEDULE 5.3 hereto. As of the Closing Date,
and upon the consummation of the transactions contemplated by this Agreement,
(i) all outstanding shares of Common Stock of the Company will be duly
authorized and (ii) all outstanding shares of Common Stock of the Company will
be, and the shares of Common Stock issuable upon exercise of the Warrants, when
issued, will be, validly issued, fully paid, nonassessable and free and clear of
any Lien. Except as described in SCHEDULE 5.3, no other class of capital stock
or other ownership interests of the Company are authorized or outstanding and
the Company does not have outstanding any rights (either preemptive or other) or
options to subscribe for or purchase from the Company, or any warrants or other
agreements providing for or requiring the issuance by the Company of, any of its
capital stock or any securities convertible into or exchangeable for its capital
stock.
5.4 SUBSIDIARIES. Each Subsidiary of the Company is listed on SCHEDULE
5.4. The capitalization of all Subsidiaries consists of the number of shares or
other equity interests, authorized, issued and outstanding, of such classes and
series, with or without par value, described on SCHEDULE 5.4. All such
outstanding shares or other equity interests have been duly authorized and
validly issued and are fully paid and nonassessable. The shareholders or other
owners of the Subsidiaries and the number of shares or other equity interests
owned by each are described on SCHEDULE 5.4. There are no outstanding stock
purchase warrants, subscriptions, options, securities, instruments or other
rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of capital
stock or other equity interests of the Subsidiaries, except as described on
SCHEDULE 5.4.
5.5 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law
or Contractual Obligation, and no lapse of a waiting period under any
Requirement of Law or Contractual Obligation, is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Company of this Agreement and the other Transaction Documents or
the transactions contemplated hereby or thereby.
5.6 BINDING EFFECT. This Agreement and each of the other Transaction
Documents to which the Company is a party will, upon the due execution and
delivery thereof by the Company, constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement
13
of creditors' rights generally and by general principles of equity relating to
enforceability.
5.7 LITIGATION. There are no legal actions, suits, proceedings, claims or
disputes pending, or to the knowledge of the Company, threatened, at law, in
equity, in arbitration or before any Governmental Authority against or affecting
the Company or any Subsidiary (a) with respect to this Agreement or any of the
other Transaction Documents, or any of the transactions contemplated hereby or
thereby, or (b) which would, if adversely determined, have an adverse effect on
the ability of the Company or any Subsidiary to perform its obligations under
this Agreement or any of the other Transaction Documents. No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any of the other
Transaction Documents.
5.8 NO DEFAULT OR BREACH. Neither the Company nor any Subsidiary is in
default under or with respect to any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on the condition of the Company or any Subsidiary, or which could
adversely affect the ability of the Company or any Subsidiary to perform its
obligations under this Agreement or any of the other Transaction Documents.
5.9 ERISA. The execution and delivery of this Agreement and each of the
other Transaction Documents, the purchase and sale of the Shares and the
Warrants hereunder and the consummation of the transactions contemplated hereby
and thereby will not result in any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code or any other violation of ERISA
or any other Requirement of Law related thereto.
5.10 SMALL BUSINESS CONCERN. The Company, together with its "affiliates"
(as that term is defined in 13 C.F.R. Part 121), is a "small business concern"
within the meaning of the Small Business Investment Act of 1958, as amended, and
the regulations thereunder, including 13 C.F.R. Part 121. The information set
forth in the documents provided to the Purchaser pursuant to Section 3.10 is
true, correct and complete.
5.11 DISCLOSURE.
(a) AGREEMENT AND OTHER DOCUMENTS. This Agreement and the documents and
certificates furnished to the Purchaser by the Company on or prior to the
Closing do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) MATERIAL ADVERSE EFFECT. Other than general market conditions
affecting companies similar to the Company, there is no fact known to the
Company which the Company has not disclosed to the Purchaser in writing (such
written disclosure to include, without limitation, the Reserve Report, financial
statements set forth on Schedule 3.6, Exhibits A, B, D, E and F hereto, the
Transaction Documents, the Investment Agreement, the Senior Loan Documents, the
Investors Agreement, any document defined herein or in the Transaction Documents
or in the exhibits or schedules hereto), which materially adversely affects, or
insofar as the Company can reasonably foresee could materially
14
adversely affect, the ability of the Company or any of its Subsidiaries to
perform its obligations under this Agreement or any other Transaction Document,
or any document contemplated thereby.
5.12 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Shares, the Warrants or other securities. No
registration of the Shares, the Warrants, or the Common Stock issuable upon
conversion or exercise thereof pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws will be required by the offer, sale
or issuance of the Shares and the Warrants pursuant to this Agreement.
5.13 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or any other Transaction Document to
which the Company is a party, based on any agreement, arrangement or
understanding with the Company or any action taken by the Company.
5.14 OIL AND GAS MATTERS.
(a) OIL AND GAS CONTRACTS AND LEASES. Except as set forth on SCHEDULE
5.14(A):
(i) All of the material Leases included in the Oil and Gas Interests
are in full force and effect (insofar as such Leases cover the lands and depths
described on SCHEDULE 1.1) and are the valid and legally binding obligations of
the parties to those agreements and are enforceable in all material respects in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
creditors' rights generally and by general principles of equity relating to
enforceability;
(ii) Neither the Company nor any Subsidiary is in breach or default with
respect to any of its material representations, warranties or obligations
pursuant to any of the Oil and Gas Contracts or with respect to any regulations
incorporated in or governing the Oil and Gas Contracts;
(iii) No lessor under any of the Leases included in the Oil and Gas
Interests has notified the Company that such lessor considers any lease to be
terminated or in default or other jeopardy because of lessee's failure to
perform. To the Company's best knowledge, all payments (including without
limitation royalties, delay rentals, shut-in royalties, payments due under unit
or operating agreements) due under the Leases included in the Oil and Gas
Interests and relating to the lands described on SCHEDULE 1.1 have been properly
and timely made (except to the extent that the failure to make any such payment
would not have a material adverse affect on the ownership, use or value of such
Interest), all conditions necessary to keep such Leases in force as to the lands
and depths described on SCHEDULE 1.1 have been fully performed and no notices
have been received by the Company or any Subsidiary of any claim to the
contrary;
(iv) To the Company's best knowledge, there are no material obligations
to engage in continuous development operations in order to maintain any Lease
included in the Oil and Gas Interests in full force and effect as to the lands
and depths described on SCHEDULE 1.1;
15
(v) The execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions as contemplated
hereby and thereby will not result in a breach of, constitute a default under,
result in a violation of or entitle any party to a right of first refusal or
preferential right to purchase under any of the Oil and Gas Contracts relating
to the Oil and Gas Interests; and
(vi) The Company and its Subsidiaries have fulfilled, or will fulfill
within the applicable time periods, all material requirements for filings,
certificates, disclosures of parties in interest and other similar matters
contained in (or otherwise, by law, rule or regulation, applicable to) the
Leases included in the Oil and Gas Interests and are fully qualified to own and
hold all such Leases.
(b) OIL AND GAS OPERATIONS. Except as set forth on SCHEDULE 5.14(B):
(i) The Oil and Gas Interests operated by the Company and its
Subsidiaries are being developed, operated and maintained in material compliance
with the Oil and Gas Contracts and to the Company's best knowledge, the Oil and
Gas Interests operated by third parties are being developed, operated and
maintained in material compliance with the Oil and Gas Contracts. In operating
the Interests, the Company and its Subsidiaries are not dependent on the right
to use the property of others, except under valid and enforceable agreements,
rights or other arrangements included in the Oil and Gas Contracts;
(ii) Since January 1, 1997, neither the Company nor any of its
Subsidiaries has operated or in any manner dealt with, incurred obligations with
respect to, or undertaken any transactions relating to, the Oil and Gas
Interests other than in the ordinary course of business consistent with past
practice or other than sales of property in any single transaction having a
value of less than $100,000, and the Oil and Gas Interests have not suffered any
material destruction, damage, or loss (except depreciation of equipment through
ordinary wear and tear and depletion through ordinary production) not covered by
insurance;
(iii) There are no outstanding authorities for expenditures covering work
in progress or work not yet started covering the Interests other than in the
ordinary course of business of the Company and its Subsidiaries; and
(iv) No condition, obligation or other circumstance, including any prior
overproduction under a gas balancing agreement, not reflected in the Reserve
Report, exists that could materially adversely affect the right of the Company
or any Subsidiary to receive its full share of production and full payment of
proceeds from the sale of Hydrocarbons produced from any Oil and Gas Interests.
(c) NO REVERSIONARY INTERESTS. Except as set forth on SCHEDULE 5.14(C) or
as reflected in the Reserve Report, the Oil and Gas Interests are not subject to
any reversionary, back-in or similar rights, the exercise of which would reduce
the Net Revenue Interests of the Company or any of its Subsidiaries to less than
the Net Revenue Interests set forth on SCHEDULE 1.1.
16
(d) SALES AND TRANSPORTATION AGREEMENTS. Except as set forth on SCHEDULE
5.14(D), (i) there are no material crude oil and condensate sales, arrangements
or gas purchase and sales agreements or division orders relating to the Oil and
Gas Interests (collectively "Sales Agreements"), and no material transportation
agreements relating to the Oil and Gas Interests that cannot be terminated by
the Company or any Subsidiary upon sixty (60) days' or less notice without
penalty or detriment to the Company and its Subsidiaries and (ii) there are no
Sales Agreements pursuant to which Hydrocarbons are being sold at less than the
prevailing market price therefor.
(e) TAX PARTNERSHIPS. The Company and its Subsidiaries have not filed any
federal or state income tax returns identifying the Interests as held by any tax
partnership other than the partnerships set forth on SCHEDULE 5.14(E).
(f) PREPAYMENTS. Except as set forth on SCHEDULE 5.14(F) or as reflected
in the Reserve Report, there exists no material imbalance regarding production
taken or marketed from any Lease included in the Oil and Gas Interests or
otherwise affecting the Company or any Subsidiary which could result in (i) a
portion of its interest in production therefrom to be taken or delivered after
January 1, 1997 without the Company or applicable Subsidiary receiving full
payment therefor and at the price it would have received absent such imbalance,
(ii) the Company and its Subsidiaries being obligated to make payment to any
Person as a result of such imbalance or (iii) production being shut-in or
curtailed after January 1, 1997 due to non-compliance with allowables,
production quotas, proration rules or similar orders or regulations of any
applicable Governmental Authority; and neither the Company nor any of its
Subsidiaries is obligated, by virtue of any prepayment arrangement, take-or-pay
agreement or similar arrangement, to deliver Hydrocarbons produced from the Oil
and Gas Interests at some future time without then receiving full payment
therefor in all material respects.
(g) GAS CONTRACTS. The buyers under all gas sales contracts pursuant to
which the Company or any Subsidiary is selling natural gas produced from the Oil
and Gas Interests are in compliance in all material respects with all the
material terms of such contracts. Neither the Company nor any Subsidiary has
received a notice from any such buyer of such party's intention or desire to
modify, renegotiate or repudiate any such contract or any of the material terms
thereof.
(h) CALLS. Except as set forth on Schedule 5.14(h), no person has any call
upon, option to purchase, or similar right to purchase any material portion of
the Hydrocarbons from the Oil and Gas Interests at a price less than the
prevailing market price therefor.
(i) RESERVE REPORT. Except as set forth on SCHEDULE 5.14(I), (i) the
Company information utilized in the preparation of the Reserve Report was true
and correct in all material respects, (ii) the calculations utilized in the
preparation of the Reserve Report are consistent with generally accepted
standards of petroleum reservoir engineering at the dates of their preparation,
(iii) neither the Company nor any Subsidiary has any knowledge that the oil,
condensate, natural gas liquids and gas reserves attributable to the Interests
as of the date of the Reserve Report are materially less than the estimate of
quantities of those reserves shown in the Reserve Report, (iv) neither the
Company nor any Subsidiary has any knowledge of any change occurring since the
date of the Reserve Report that would result in a material change in the
information contained in the Reserve Report, and (v) neither the Company nor any
Subsidiary nor the Interests are subject to any agreements, consents, orders or
17
regulations that would materially reduce the rate of production of Hydrocarbons
or other substances from the Interests below that reflected in the Reserve
Report.
(j) ▇▇▇▇▇.
(i) All of the ▇▇▇▇▇ have been drilled and completed within the
boundaries of the Leases or within the limits otherwise permitted by the Oil and
Gas Contracts, and by applicable law.
(ii) All drilling and completion of the ▇▇▇▇▇ and all development and
operations of the Interests have been conducted in material compliance with all
Requirements of Law and permits, and all judgments, orders and decrees of any
Governmental Authority.
(iii) Except as reflected in the Reserve Report, no Well is subject to
material penalties on allowable production after the date of this Agreement
because of any overproduction or any other violation of applicable laws, rules,
regulations or permits or judgments, orders or decrees of any Governmental
Authority that would prevent any Well from being entitled to its full legal and
regular allowable production from and after January 1, 1997 as prescribed by any
Governmental Authority.
(k) NO FUNDS IN SUSPENSE. All material proceeds from the sale of
Hydrocarbons produced from the Oil and Gas Interests are currently being paid to
the Company or a Subsidiary and no portion of such proceeds is currently being
held in suspense by any purchaser thereof or any other party by whom proceeds
are paid except for immaterial amounts and with respect to the one well which
was recently completed with no division order yet issued.
(l) PHYSICAL CONDITION OF FACILITIES. The physical facilities on the Oil
and Gas Interests (including facilities held under lease) have been and are in a
state of repair that is adequate for the intended use of such facilities in the
ordinary course of the business conducted thereon.
5.15 MATERIAL CONTRACTS. SCHEDULE 5.15 sets forth a complete and accurate
list of all Material Contracts of the Company and its Subsidiaries (other than
Oil and Gas Contracts and the Transaction Documents) in effect as of the Closing
Date. Except as set forth on SCHEDULE 5.15, each such Material Contract is, and
after giving effect to the consummation of the transactions contemplated by the
Transaction Documents will be, in full force and effect in accordance with the
terms thereof. The Company and each Subsidiary have delivered to the Purchaser a
true and complete copy of each Material Contract required to be listed on
SCHEDULE 5.15.
5.16 SENIOR LOAN DOCUMENTS. The Company has delivered to the Purchaser
true, complete and correct copies of the Senior Loan Documents, together with
all amendments and modifications thereto. Such documents (including the
schedules and exhibits thereto) comprise a full and complete copy of all
agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
related to or modify the substance thereof. The representations and warranties
of the Company made in Article IV of the Senior Loan Agreement are true,
complete and correct in all material respects.
18
5.17 OTHER TRANSACTION DOCUMENTS. The Company has delivered to the
Purchaser true, complete and correct copies of each other Transaction Document
together with all amendments and modifications thereto. Such documents
(including the schedules and exhibits thereto) comprise a full and complete copy
of all agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
relate to or modify the substance thereof. Such Transaction Documents have been
duly authorized by all necessary corporate action on the part of the Company and
when executed and delivered by the Company will be the legal, valid and binding
obligations of the Company and its successors, enforceable in accordance with
their terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and by
general principles of equity relating to enforceability.
5.18 USE OF PROCEEDS. The proceeds from the sale of the Shares and the
Warrants will be used for general corporate purposes of the Company. No portion
of such proceeds will be used for any purpose prohibited by the Small Business
Investment Act of 1958, as amended, or the regulations promulgated thereunder
including 13 CFR Part 107.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants as follows:
6.1 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by the Purchaser of this Agreement (a) is within the Purchaser's
power and authority and has been duly authorized by all necessary action, (b)
does not contravene the terms of the Purchaser's organizational documents or any
amendment thereof, and (c) will not violate, conflict with or result in any
breach or contravention of any material Contractual Obligation of the Purchaser,
or any material Requirement of Law directly relating to the Purchaser.
6.2 BINDING EFFECT. This Agreement has been duly executed and delivered by
the Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of the Purchaser enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles relating to enforceability.
6.3 PURCHASE FOR OWN ACCOUNT. The Shares, the Warrants and the shares of
Common Stock to be issued upon conversion or exercise thereof are being or will
be acquired for the Purchaser's own account and with no intention of
distributing or reselling such securities or any part thereof in any transaction
that would be in violation of the Securities Act or the securities laws of any
state, without prejudice, however, to the rights of the Purchaser at all times
to sell or otherwise dispose of all or any part of its Shares, the Warrants or
its shares of Common Stock under an effective registration statement under the
Securities Act, or under an exemption from such
19
registration available under the Securities Act. If the Purchaser should in the
future decide to dispose of any of its Shares, the Warrants or its shares of
Common Stock issued upon the exercise or conversion thereof, the Purchaser
understands and agrees that it may do so only in compliance with the Securities
Act and applicable state securities laws as then in effect. The Purchaser agrees
to the imprinting, so long as required by law, of a legend on certificates
representing all of its Shares, the Warrants and its shares of Common Stock to
be issued upon conversion or exercise thereof to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
6.4 ERISA. No part of the funds used by such Purchaser to purchase the
Shares or the Warrants hereunder constitutes assets of any "employee benefit
plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section
4975 of the Code).
6.5 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or by any other Transaction Document
to which the Purchaser is a party, based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
6.6 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under any Requirement of Law, is necessary or
required in connection with the execution, delivery or performance by such
Purchaser or enforcement against such Purchaser of this Agreement or the
transactions contemplated hereby.
ARTICLE 7
COVENANTS
Until such time as the Shares, the Warrants and the Common Stock issued
upon the conversion or exercise thereof are no longer outstanding or the
Purchaser (or its assigns) is no longer the holder of any of the Shares, the
Warrants or the Common Stock issued upon the conversion or exercise thereof
(PROVIDED, that the Purchaser may not transfer the covenants in Sections 7.9 and
7.13 to a Person materially active in any of the businesses described in Section
7.3), the Company hereby covenants and agrees with the Purchaser as follows:
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Except as provided below,
the Company
20
shall deliver to the Purchaser:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 130 days after the end of each Fiscal Year of the Company, an audited
consolidated and consolidating balance sheet as at the close of such year, and
statements of profit and loss, cash flow and reconciliation of surplus of the
Company and its Subsidiaries for such year (including tax financial statements),
audited by independent public accountants selected by the Company and reasonably
satisfactory to the Purchaser, together with each management letter provided by
such accountants with such financial statements.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the end of each
fiscal quarter of the Company, an unaudited consolidated and consolidating
balance sheet as at the end of such period and statements of profit and loss,
cash flow and surplus of the Company and its Subsidiaries, for such quarter and
for the fiscal period then ended (including tax financial statements), certified
by an authorized financial or accounting officer of the Company and compared to
the prior year's fiscal quarter and fiscal period and applicable budget
projections for such quarter and fiscal period.
(c) ANNUAL BUDGET. Within 30 days prior to any Fiscal Year end, a
preliminary twelve month budget for the succeeding Fiscal Year.
(d) INFORMATION CONCERNING OIL AND GAS INTERESTS.
(i) No later than April 1 of each Fiscal Year, engineering reports in
form and substance satisfactory to the Purchaser, certified by any nationally-
or regionally-recognized independent consulting petroleum engineers reasonably
acceptable to the Purchaser, fairly and accurately setting forth (A) the proven
and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Interests as of December 31
of the Fiscal Year for which such reserve reports are furnished, (B) the
aggregate present value of the future net income with respect to such Interests,
discounted at a stated per annum discount rate of proven and producing reserves,
(C) projections of the annual rate of production, gross income, and net income
with respect to such proven and producing reserves, and (D) information with
respect to the "take-or-pay" "prepayment," and gas-balancing liabilities of the
Company and its Subsidiaries.
(ii) Should the Company prepare, or cause to be prepared, engineering
reports in addition to the annual reserve reports described in Section
7.1(d)(i), the Company shall promptly provide the Purchaser with copies of such
reports.
(iii) Such additional data concerning pricing, quantities of production
from the Interests, volumes of production sold, purchasers of production, gross
revenues, expenses, and such other information and engineering and geological
data with respect thereto as the Purchaser may reasonably request from time to
time.
(e) OTHER FINANCIAL INFORMATION. From time to time, such further
information regarding the business affairs and financial condition of the
Company and its Subsidiaries as the Purchaser may request.
21
(f) NOTICE OF SHAREHOLDERS MEETINGS. Deliver to the Purchaser written
notice of any meeting of the shareholders of the Company at the same time and in
the same form as is delivered to holders of Class A Common.
(g) COMPLIANCE CERTIFICATE. With each financial statement which the
Company is required to submit pursuant to Sections 7.1(a) and (b), an officers'
certificate, signed by the President and any Vice President of the Company,
pursuant to which such officers must certify that such financial statement
fairly and accurately represents in all material respects the financial
condition of the Company and its Subsidiaries at the end of the particular
accounting period, as well as the operating results of the Company and its
Subsidiaries during such accounting period, subject to year-end audit
adjustments.
At any time after a Qualified Public Offering, so long as the Company has
a class of equity securities registered under Section 12 of the Exchange Act,
the financial reporting requirements set forth in paragraphs (a) through (d) of
this Section shall be replaced with the requirement that the Company deliver to
the Purchaser a copy of each document, including without limitation all reports
on Form 10-K and Form 10-Q, filed with the Commission as soon as practicable
after such filing.
7.2 NOTICES. The Company shall deliver to the Purchaser prompt (but in no
event later than 5 Business Days after an officer of the Company obtains
knowledge thereof) telephonic and written notice of: (a) the commencement of all
proceedings and investigations by or before any Governmental Authority
(including any notice of violation of any Requirement of Law) and all actions
and proceedings in any court or before any arbitrator against or involving the
Company, any Subsidiary or any of their respective properties, assets or
businesses, in each case involving a claim or liability in excess of $250,000
and not fully covered by insurance, (b) any labor controversy that has resulted
in or threatens to result in, a strike or other work action against the Company
or any Subsidiary, (c) any attachment, judgment, levy or order exceeding
$250,000 that may be assessed against the Company or any Subsidiary, (d) any
event which constitutes or which with the passage of time or giving of notice or
both would constitute a default or event of default under the Senior Loan
Agreement and (e) any act or condition arising under ERISA that might constitute
grounds for the termination of any Employee Benefit Plan (as defined in Section
3(3) of ERISA) or for the appointment by the appropriate United States District
Court of a trustee to administer such plan.
7.3 PRESERVATION OF EXISTENCE AND RELATED MATTERS. Each of the Company and
its Subsidiaries shall preserve and maintain its separate existence and all
rights, franchises, licenses and privileges necessary to the conduct of its
business; and qualify and remain qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization. Each of the Company and
its Subsidiaries shall engage only in business consisting of the businesses in
which the Company is currently engaged, including without limitation Hydrocarbon
acquisition, exploration, exploitation, development, gathering, transmission,
processing and marketing and the acquisition of Persons engaged in such
businesses, or any other business reasonably incidental thereto.
7.4 MAINTENANCE OF PROPERTY. Each of the Company and its Subsidiaries
shall protect and
22
preserve all properties material to its business.
7.5 MAINTENANCE OF INSURANCE. Each of the Company and its Subsidiaries
shall maintain insurance with responsible insurance companies against such risks
and in such amounts as are customarily maintained by businesses of similar size
and business activity or as may be required by any Requirement of Law, and on
the Closing Date and from time to time thereafter deliver to the Purchaser upon
its request a detailed list of the insurance then in effect, stating the names
of the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
7.6 PAYMENT AND PERFORMANCE OF OBLIGATIONS. Each of the Company and its
Subsidiaries shall perform all obligations under this Agreement and the other
Transaction Documents, and pay or perform (a) all material taxes, assessments
and other governmental charges that may be levied or assessed upon it or any of
its property, and (b) all other material indebtedness, obligations and
liabilities in accordance with customary trade practices including without
limitation all notifications to lessors; PROVIDED, that the Company or such
Subsidiary may contest any item described in clause (a) or (b) of this Section
7.6 (other than such notifications) in good faith so long as adequate reserves
are maintained with respect thereto in accordance with GAAP.
7.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Each of the Company and its
Subsidiaries shall maintain a system of accounting and keep such books, records
and accounts (which shall be true and complete in all material respects) as may
be required or as may be necessary to permit the preparation of financial
statements in accordance with GAAP consistently applied and in compliance with
the regulations of any Governmental Authority having jurisdiction over it or any
of its properties.
7.8 VISITS AND INSPECTIONS. Each of the Company and its Subsidiaries shall
permit representatives of the Purchaser, from time to time, as often as may be
reasonably requested, but only during normal business hours, to visit and
inspect its properties; inspect, audit and make extracts from its books, records
and files, including, but not limited to, management letters prepared by
independent accountants; and discuss with its principal officers and its
independent accountants, its business, assets, liabilities, financial condition,
results of operations and business prospects. Any such visits, inspections or
audits shall be at the Purchaser's sole cost, risk and expense; PROVIDED, that
the Purchaser shall receive the same reimbursement granted to any shareholder or
member of the Board of Directors of the Company in connection with any such
visit, inspection or audit.
7.9 BOARD VISITATION RIGHTS. The Company shall permit the Purchaser to
designate two advisory non-voting observers, each of whom shall be an officer of
the Purchaser or any of its Affiliates and shall be entitled to attend each
meeting of the Board of Directors and Executive Committee of the Company and its
Subsidiaries. Any such attendance shall be at the Purchaser's sole cost, risk
and expense; PROVIDED, that the Purchaser shall receive the same reimbursement
granted to all members of the Board of Directors and Executive Committee of the
Company and its Subsidiaries in connection with the attendance of any meeting of
the Board of Directors or Executive Committee of the Company and its
Subsidiaries not held in Houston, Texas. The Company shall provide the Purchaser
with written notice of any meeting of the Board of Directors or Executive
Committee of
23
the Company and its Subsidiaries at least 10 Business Days in advance of such
meeting.
7.10 CONFIDENTIALITY. The Purchaser shall keep all documents, data and
information furnished by the Company or received by the Purchaser pursuant to
this Agreement strictly confidential and shall not disclose such documents, data
or information to any third party unless such disclosure (i) is required by
applicable laws, (ii) is made with respect to information generally available to
the public, or (iii) is made to an Affiliate of the Purchaser. The provisions of
this 7.10 shall survive the expiration or termination of this Agreement.
7.11 COMPLIANCE WITH LAWS; ENVIRONMENTAL LAWS. Each of the Company and its
Subsidiaries shall observe and remain in material compliance with all
Requirements of Law and Contractual Obligations in each case applicable or
necessary to the conduct of its business. Without limitation of the foregoing,
each of the Company and its Subsidiaries shall (a) comply in all material
respects with, and use its best efforts to ensure such compliance by all tenants
and subtenants, if any, with, all applicable Environmental Laws and obtain and
comply with and maintain, and ensure that all tenants and subtenants obtain and
comply with and maintain, any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws; and (b)
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws, and
promptly comply with all lawful orders and directives of any Governmental
Authority regarding Environmental Laws.
7.12 TRANSACTIONS WITH AFFILIATES. Except as contemplated by the
Transaction Documents, neither the Company nor any of its Subsidiaries shall
enter into any transaction with any Affiliate of the Company or any of its
Subsidiaries or any stockholder (or any Affiliate of such stockholder) of the
Company or any of its Subsidiaries (including any employee stockholder), except
transactions permitted pursuant to Section 6.10 of the Senior Loan Agreement as
in effect on the date hereof.
7.13 CAPITAL EXPENDITURES. The Company shall not alter or amend, or pass
any resolution or enter into any Contractual Obligation inconsistent with, the
Resolutions of the Board of Directors of the Company dated May 23, 1997 relating
to the authorization of capital expenditures, without the prior written consent
of the Purchaser, which shall not be unreasonably withheld.
7.14 COORDINATION OF REGISTRATION RIGHTS. The Company shall use its best
efforts to cause Energy Capital Investment Company PLC and EnCap Equity 1996
Limited Partnership to enter into an agreement with the Purchaser providing for
the coordination of registration rights and procedures in the event that (i) the
Purchaser wishes to exercise its demand registration rights pursuant to Section
10.1 of this Agreement or (ii) Energy Capital Investment Company PLC or EnCap
Equity 1996 Limited Partnership wishes to exercise its demand registration
rights pursuant to Section 2 of the Investment Agreement. The Company shall use
its best efforts to cause any future holder of demand registration rights with
respect to securities of the Company to enter into a letter agreement with the
Purchaser and all other holders of demand registration rights on terms
substantially similar to those contained in any such agreement by and among the
Purchaser, Energy Capital Investment Company PLC and EnCap Equity 1996 Limited
Partnership.
7.15 NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
Subsidiaries shall
24
enter into any Contractual Obligation, or enter into any amendment or other
modification to any currently existing Contractual Obligation or to the Articles
of Incorporation or Bylaws, which by its terms restricts or prohibits the
ability of the Company to issue Class B Common upon exercise of the Warrants or
to issue Class A Common upon conversion of the Class B Common or otherwise
results in a material adverse effect to the Purchaser or materially impairs any
rights of the Purchaser under any of the Transaction Documents.
7.16 SHAREHOLDERS' AGREEMENT. The Company shall use its best efforts to
provide the Purchaser with a fully executed copy of the Shareholders' Agreement
within 30 days after the Closing Date.
ARTICLE 8
PREEMPTIVE RIGHTS
8.1 ELIGIBLE OFFERING. Except as otherwise provided in Section 8.4, the
Company hereby grants to the Purchaser the right to purchase any future offering
of equity securities of the Company or of any security or other obligation
convertible into or exchangeable for or carrying rights or options to purchase
equity securities of the Company (an "Eligible Offering"); PROVIDED, that the
portion of any Eligible Offering which the Purchaser may purchase shall bear the
same ratio to the aggregate amount of securities covered by such Eligible
Offering as the number of shares of Common Stock owned by the Purchaser, on a
fully diluted basis, bears to the total number of shares of Common Stock owned
by all shareholders of the Company, on a fully diluted basis, at the time of
such Eligible Offering.
8.2 NOTICE OF AN ELIGIBLE OFFERING. Before issuing any securities pursuant
to an Eligible Offering, the Company shall give written notice thereof to the
Purchaser. Such notice must specify the security or securities the Company
proposes to issue and the consideration that the Company intends to receive for
such security or securities. For a period of ten (10) Business Days following
the delivery of such notice, the Purchaser shall be entitled, by written notice
to the Company, to elect to purchase up to the portion of the securities being
sold in the Eligible Offering calculated in accordance with Section 8.1. In the
event of a material change in the terms of such Eligible Offering during the ten
(10) Business Days following such notice, the Purchaser shall have an additional
ten (10) Business Days following the Purchaser's notice of such material change
to make its election. If any such election is made by the Purchaser, the Company
shall sell to the Purchaser, and the Purchaser shall purchase from the Company,
for the consideration and on the terms set forth in the Company's notice of such
Eligible Offering, the number of securities that the Purchaser has elected to
purchase. The Company may sell the remainder of the securities to be sold in the
Eligible Offering, if any, pursuant to the provisions set forth in Section 8.3.
8.3 SALE TO THIRD PARTIES. If any election to exercise the rights pursuant
to Section 8.1 is not made with respect to any securities included in an
Eligible Offering within the period of ten (10) Business Days described in
Section 8.2, or if there remain securities to be sold after the sale of
securities to the Purchaser, then the Company may issue such securities to third
persons, but only for a consideration not less than that set forth in the
Company's notice and only within a period of 120
25
days thereafter.
8.4 EXCEPTIONS TO ELIGIBLE OFFERING. The Purchaser shall not have any
preemptive right to purchase any of the following securities issued by the
Company:
(a) Securities issued to employees of the Company in the ordinary course
of business pursuant to a stock option plan of the Company; PROVIDED, that the
aggregate amount of Common Stock available for employee stock options shall not
exceed 20% of the outstanding Common Stock determined on a fully diluted basis;
PROVIDED, FURTHER, that the exercise price of such options shall not be less
than $3.25 per share;
(b) Securities issued to the acquiree or to shareholders in connection
with any merger, consolidation or acquisition to which the Company is a party;
(c) Securities issued for consideration other than cash;
(d) Securities issued pursuant to a Qualified Public Offering;
(e) Securities issued pursuant to the proposal dated May 7, 1997 from the
Company to Belleview Capital Corp., as modified by the response dated May 13,
1997; or
(f) Securities issued after the Purchaser (or its assigns) ceases to be a
holder of any of the Shares, the Warrants, or the Common Stock issued upon the
conversion or exercise thereof.
ARTICLE 9
PUT RIGHTS
9.1 OPTION TO PUT. Upon the earlier to occur of (i) May 27, 2001 or (ii) a
Change in Control (the "Earlier Time"), and, in the event of a Change in Control
caused by the death or disability of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, through the 90th day
after the Purchaser receives written notice of such Change in Control, and in
all other events, until May 31, 2005, the Purchaser shall have the right to sell
all or a portion of its Put Securities to the Company, and the Company shall be
obligated to purchase such Put Securities, at a price per share determined in
accordance with Section 9.3 below; PROVIDED, that all of the Purchaser's put
rights under this Article 9 shall expire and terminate upon the consummation of
a Qualified Public Offering or a Cash-Out Transaction.
9.2 SALE OF PUT SECURITIES. To exercise its right to sell all or any
portion of the Put Securities under Section 9.1, the Purchaser shall give
written notice to that effect to the Company, which notice (the "Exercise
Notice") shall also specify the number of Put Securities the Purchaser is
electing to sell. The Company and the Purchaser shall consummate any purchase
and sale contemplated under this Article 9 at a place and time mutually
determined by the Company and the Purchaser, but in any event within fifteen
(15) days after receipt by the Company of the Exercise Notice. At the closing of
any purchase and sale contemplated under this Article 9, the Company shall
tender immediately available funds to the Purchaser in an amount equal to the
number of the Put
26
Securities to be sold multiplied by the price per share determined in accordance
with Section 9.3 below and the Purchaser shall deliver to the Company
certificate(s) or instrument(s) evidencing such securities.
9.3 PRICE PER SHARE.
(a) PURCHASE PRICE. The Company shall be obligated to purchase the Put
Securities pursuant to Sections 9.1 and 9.2 at a price per share equal to (i)
the Net Asset Value LESS (ii) in the case of a purchase of all or any portion of
the Warrants, the exercise price per share of such Warrants.
(b) NET ASSET VALUE. For purposes of this Article 9, the term "Net Asset
Value" shall mean, as of the date of the Exercise Notice, an amount determined
by dividing X by Y, where "X" is (i) the total assets of the Company and its
Subsidiaries which would be shown as assets on a consolidated balance sheet of
the Company and its Subsidiaries as of such time prepared in accordance with
GAAP (exclusive, however, of oil and gas properties), PLUS (ii) the "Calculated
Market Value" (as hereinafter defined) of such oil and gas properties, MINUS
(iii) the total liabilities of the Company and its Subsidiaries which would be
shown as liabilities on a consolidated balance sheet of the Company and its
Subsidiaries as of such time prepared in accordance with GAAP and where "Y" is
the total number of shares of Common Stock outstanding as of such time
determined on a fully diluted basis (except for options which have not yet
vested or are not immediately exercisable). In computing Net Asset Value, the
"Calculated Market Value" of oil and gas properties of the Company and its
Subsidiaries shall be the value determined by a nationally recognized
independent engineering firm acceptable to the Company and the Purchaser, and
calculated in accordance with ss.210.4-10 of Regulation S-X, as promulgated by
the Commission, with the following adjustments to certain parameters: (i)
applicable future prices for commodities shall be determined as follows: (A) for
crude oil the beginning price shall be calculated using the average of one full
calendar year forward prices, and (B) for natural gas the beginning price shall
be calculated using the average of the first twelve month forward prices, each
as reported on the New York Mercantile Exchange; PROVIDED, that such prices
shall be adjusted for product quality and for basis differentials resulting from
product location, as determined by the Purchaser by obtaining market quotes from
at least two mutually agreeable major independent third party dealers for each
pipeline or point of delivery; PROVIDED, FURTHER, that such prices shall
escalate at 3% per annum thereafter; (ii) beginning lease operating expenses, as
determined by ss.210.4-10 of Regulation S-X, shall escalate at 3% per annum
thereafter; (iii) the resulting cashflow stream, as determined by ss.210.4-10 of
Regulation S-X, after giving effect to the adjustments to commodity price and
lease operating expense assumptions, shall be discounted for a present value at
a 12% discount rate; and (iv) that in making such computation, only the
following categories (and portions of such categories) of reserves shall be
utilized: 100% of proved developed producing reserves; 80% of proved developed
non-producing reserves; and 50% of proved undeveloped reserves.
9.4 LIMITATION ON OTHER PUT RIGHTS. The Company covenants and agrees that,
except as provided in the other Transaction Documents, from and after the date
hereof, so long as the Purchaser holds Put Securities in respect of which any
put rights provided for in this Article 9 have not terminated, the Company shall
not grant, directly or indirectly, to any Person or agree to otherwise become
obligated in respect of (i) any rights to require the Company to purchase or
redeem
27
securities of the Company upon the demand of any Person or (ii) rights in the
nature or substantially in the nature of those set forth in Article 9 of this
Agreement; in each case, without the prior written consent of the Purchaser,
which shall not be unreasonably withheld, or unless such rights are expressly
subject and subordinated to the put rights of the Purchaser pursuant to Article
9 hereof on terms reasonably satisfactory to the Purchaser.
ARTICLE 10
REGISTRATION RIGHTS
10.1 DEMAND REGISTRATION
(a) FORM OF DEMAND REQUEST. Subject to paragraphs (b), (c) and (d) below
and the other terms and provisions hereof, until May 31, 2005, the Purchaser may
request at any time a registration by the Company under the Securities Act of
all or a part of its Registrable Securities (a "Demand Registration"). Any
request made pursuant to this paragraph (a) will specify the number of
Registrable Securities to be registered and will specify the intended method of
disposition thereof; PROVIDED, that such method of disposition shall be an
underwritten offering if requested by the Purchaser.
(b) LIMITATIONS ON REGISTRATION RIGHTS OF THE PURCHASER. Notwithstanding
paragraph (a) above or anything else herein to the contrary, the Company shall
have no obligations under this Section 10.1 until the earlier of (i) May 1, 2000
or (ii) one year after the date any class of the Company's Common Stock becomes
subject to the reporting requirements under the Exchange Act. Notwithstanding
paragraph (a) above or anything else herein to the contrary, in no event shall
the Company be obligated to effect more than one registration pursuant to this
Section 10.1; PROVIDED, that any registration requested pursuant to this Section
10.1 will not be deemed to have been effected unless it has become effective and
remained effective until all of the Registrable Securities have been sold;
PROVIDED, FURTHER, that any such registration which does not become effective
after the Company has filed a registration statement in accordance with the
provisions of this Section 10.1 solely by reason of the refusal to proceed of
the Purchaser after having requested the Demand Registration pursuant to
paragraph (a) above, including failure to comply with the provisions of this
Agreement (other than any refusal to proceed based upon the advice of counsel to
the Purchaser that the registration statement, or the prospectus contained
therein, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, or that
such registration statement or such prospectus, or the distribution contemplated
thereby, otherwise violates or would, if such distribution using such prospectus
took place, violate any applicable state or federal securities law) shall be
deemed to have been effected by the Company at the request of the Purchaser.
(c) INCLUSION OF OTHER SECURITIES. Neither the Company nor any of its
securityholders (other than the Purchaser) shall have the right to include any
of the Company's securities in a registration statement initiated as a Demand
Registration under this Section 10.1 unless (i) the Purchaser consents to such
inclusion and (ii) if the Demand Registration is an underwritten offering, (A)
the Company and such securityholders, as applicable, agree in writing to sell
their securities on
28
the same terms and conditions as apply to the Registrable Securities being sold
and (B) the managing underwriter(s) of such underwritten offering has reasonably
determined that inclusion of such securities will not adversely affect the
marketability or offering price of the Registrable Securities to be included.
(d) UNDERWRITERS. If a Demand Registration is an underwritten offering or
a best efforts underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering shall be
selected by the Purchaser; PROVIDED, that such investment bankers and managers
must be reasonably satisfactory to the Company.
10.2 PIGGYBACK REGISTRATION. If, at any time before May 31, 2005, the
Company proposes to register any of its securities under the Securities Act for
its own account or for the account of any other holder of its securities other
than (a) under employee compensation or benefit programs or (b) an exchange
offer or an offering of securities solely to the existing stockholders or
employees of the Company, and the registration form to be used may be used for
the registration of Registrable Securities, the Company will give prompt written
notice to the Purchaser of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within fifteen
(15) days after the receipt of the Company's notice (a "Piggyback
Registration"). The Company shall use its reasonable best efforts to cause the
managing underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in the registration statement
(or registration statements) for such offering to be included therein on the
same terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the Company gives notice of such a
proposed registration, the total number of Registrable Securities which shall be
included in such registration shall be reduced to such number, if any, as in the
reasonable opinion of the managing underwriters of such offering would not
adversely affect the marketability or offering price of all of the securities
proposed to be offered by the Company in such offering; PROVIDED, that (i) if
such Piggyback Registration is incident to a primary registration on behalf of
the Company, the securities to be included in the registration statement (or
registration statements) for any person other than the Purchaser and the Company
shall be first reduced prior to any such reduction applicable to the Purchaser,
and (ii) if such Piggyback Registration is incident to a secondary registration
on behalf of holders of securities of the Company, the securities to be included
in the registration statement (or registration statements) for any person not
exercising "demand" registration rights other than the Purchaser, as currently
in effect, shall be first reduced prior to any such pro rata reduction
applicable to the Purchaser.
10.3 FORM S-3 REGISTRATION.
(a) REQUESTS FOR REGISTRATION ON FORM S-3. After the initial Public
Offering of Common Stock pursuant to an effective registration statement under
the Securities Act and until May 31, 2005, the Company shall use its best
efforts to qualify to register securities on Form S-3 (or any successor to such
form). After the Company has qualified for the use of Form S-3, in addition to
the rights contained in the foregoing provisions of this Agreement, the
Purchaser shall have the right to request the registration of any such
Registrable Securities on Form S-3. All such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended
29
methods of disposition of such shares by the Purchaser; PROVIDED, that the
Company shall not be required to effect a registration pursuant to this Section
10.3(a) unless the Purchaser proposes to dispose of Registrable Securities
having an aggregate price to the public (before deducting underwriting discounts
and expenses of sale) of at least $500,000. Registrations effected pursuant to
this Section 10.3 shall not be counted as a Demand Registration for purposes of
Section 10.1.
(b) UNDERWRITING PROCEDURES. If the Purchaser so elects, the offering of
such Registrable Securities pursuant to a registration effected pursuant to
Section 10.3(a) shall be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall be
selected by the Purchaser in the same manner as described in Section 10.1(d).
10.4 REGISTRATION PROCEDURES.
(a) Whenever the Purchaser has requested that any Registrable Securities
be registered pursuant to Section 10.1, 10.2 or 10.3, the Company will use its
reasonable best efforts to effect the registration of and permit the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(i) prepare and file with the Commission a registration statement on
the appropriate form with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become effective
(provided, that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish copies of all such
documents proposed to be filed to the Purchaser);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period which will terminate when Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period) and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(iii) furnish to the Purchaser such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including, without limitation, each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by the
Purchaser;
(iv) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions within the United States as the Purchaser reasonably requests and
do any and all other acts and things which may be reasonably necessary or
advisable to enable the Purchaser to consummate the disposition in such
jurisdictions of the Registrable Securities owned by the Purchaser (provided
that the Company will not be required to qualify generally to do business or
subject itself to any general service of process in any jurisdiction
30
where it is otherwise not then so subject);
(v) notify the Purchaser, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event which requires the making of any change in the prospectus included
in such registration statement so that such document will not contain an 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,
at the request of the Purchaser, the Company will prepare a supplement or
amendment to such prospectus so that such prospectus will not contain an 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;
(vi) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange or exchanges, automated
quotation system or over-the-counter market upon which securities of the Company
of the same class are then listed or which are recommended for listing by the
Purchaser or any underwriters;
(vii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and scope) and
take all such other actions as the Purchaser or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(viii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders an earnings statement no later than 90 days after the
end of the 12 month period beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(ix) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the disqualification
of any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order; and
(x) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Purchaser to consummate the disposition of such Registrable
Securities.
(b) The Purchaser agrees with the Company as follows:
(i) upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 10.4(a)(v), the Purchaser will
forthwith discontinue disposition of any Registrable Securities until the
Purchaser receives copies of the supplemented or amended prospectus contemplated
by Section 10.4(a)(v), or until it is advised in writing by the Company that
31
the use of the applicable prospectus may be resumed, and it has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such prospectus;
(ii) furnish to the Company such information regarding the
Purchaser, the Registrable Securities held by it and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
reasonably required in connection with the preparation of the applicable
registration statement and other actions taken by the Company under this
Agreement, and it shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the
Registrable Securities that such information has been furnished to the Company
by the Purchaser; and
(iii) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, the Purchaser will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the Commission
and, at the request of the Company, will execute and deliver to the Company and
to any underwriter participating in such offering, an appropriate agreement to
such effect.
10.5 EXPENSES. The Company shall pay all Registration Expenses in
connection with each registration effected pursuant to Section 10.1, 10.2 and
10.3 and, in any event, shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal and accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed. All Selling Expenses incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the
Purchaser and any other holder of Registrable Securities participating in such
registration pro rata, based upon the number of Registrable Securities included
in such registration.
10.6 LIMITATION ON REGISTRATION RIGHTS OF OTHERS. The Company covenants
and agrees that, except as provided in the other Transaction Documents, from and
after the date hereof, so long as the Purchaser holds any Registrable Securities
in respect of which any registration rights provided for in this Article 10
remain in effect, the Company will not, directly or indirectly, grant to any
Person or agree to or otherwise become obligated in respect of rights of Demand
Registration in the nature or substantially in the nature of those set forth in
Section 10.1.
10.7 LOCK-UP AGREEMENTS. In the event V & C Energy Limited Partnership or
Energy Resource Associates, Inc. enters into any "lock-up" or similar agreement
not to dispose of any securities of the Company during registration, the
Purchaser covenants and agrees to enter into a substantially similar agreement;
PROVIDED, that such restrictive period does not exceed 180 days.
32
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNIFICATION. In addition to all other sums due hereunder or
provided for in this Agreement, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners and controlling persons
(each, together with each Holder Indemnified Party, an "Indemnified Party") to
the fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities (collectively, "Liabilities") resulting from or
arising out of any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement or in any of the other Transaction
Documents or any legal, administrative or other actions (including actions
brought by the Purchaser or the Company or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of this Agreement or any
of the other Transaction Documents; PROVIDED, that (a) the Company shall not be
liable under this Section 11.1 to an Indemnified Party (i) for any amount paid
in settlement of claims without the Company's consent (which consent shall not
be unreasonably withheld), (ii) to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the willful misconduct
or gross negligence of such Indemnified Party or (iii) to the extent that it is
finally judicially determined that such Liabilities resulted primarily from the
material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement or in the applicable Transaction Document, and (b) if and to the
extent that such indemnification is unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of such
Liabilities which shall be permissible under applicable laws. In connection with
the obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees, upon presentation of appropriate invoices containing
reasonable detail, to reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel) as they
are incurred by such Indemnified Party; PROVIDED, that if an Indemnified Party
is reimbursed hereunder for any expenses, such reimbursement of expenses shall
be refunded to the extent it is finally judicially determined that the
Liabilities in question resulted primarily from (i) the willful misconduct or
gross negligence of such Indemnified Party or (ii) the material breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement or any of the other
Transaction Documents.
11.2 SECURITIES LAWS VIOLATIONS. The Company shall indemnify and hold
harmless, with respect to any registration statement filed by it, to the full
extent permitted by law, the Purchaser and each other Person, if any, who
controls the Purchaser within the meaning of Section 15 of the Securities Act
(collectively, "Holder Indemnified Parties") against all losses, claims,
damages, liabilities and expenses, joint or several to which any such Holder
Indemnified Party may become subject under the Securities Act, the Exchange Act,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged
33
untrue statement of a material fact contained in any registration statement in
which such Registrable Securities were included as contemplated hereby or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
of or inaction by the Company in connection with any such registration; and in
each such case, the Company shall reimburse each such Holder Indemnified Party
for any reasonable legal or other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding; PROVIDED, that the Company shall not be liable to
any such Holder Indemnified Party in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding, whether
commenced or threatened, in respect thereof) arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or amendment thereof or supplement thereto
or in any such preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any such Holder Indemnified Party for use in the preparation thereof, except to
the extent such loss, claim, damage, liability or expense exceeds the net
proceeds paid or payable to such Holder Indemnified Party in connection with
such transfer of securities. If and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such liabilities which shall be permissible
under applicable laws. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
11.3 INDEMNIFICATION BY PURCHASER. The Purchaser shall indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its directors,
officers, employees and agents, and each Person who controls the Company (within
the meaning of Section 15 of the Securities Act) (collectively, the "Company
Indemnified Parties") against all losses, claims, damages, liabilities and
expenses to which the Company Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which the Purchaser's Registrable
Securities were included or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading
34
to the extent in the cases described in CLAUSES (I) and (II), that such untrue
statement or omission was furnished in writing by the Purchaser for use in the
preparation thereof, or (iii) any violation by the Purchaser of any federal,
state or common law rule or regulation applicable to the Purchaser and relating
to action of or inaction by such holder in connection with any such
registration, except to the extent such loss, claim, damage, liability or
expense exceeds the net proceeds paid or payable to the Purchaser in connection
with such transfer of securities. Such indemnity obligation shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company Indemnified Parties (except as provided above) and shall survive the
transfer of such securities by the Purchaser.
11.4 NOTIFICATION. Each Indemnified Party under this Article 11 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company under this Article 11,
notify the Company in writing of the commencement thereof. The omission of any
Indemnified Party so to notify the Company of any such action shall not relieve
the Company from any liability which it may have to such Indemnified Party (a)
other than pursuant to this Article 11 or (b) under this Article 11 unless, and
only to the extent that, such omission results in the Company's forfeiture of
substantive rights or defenses. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
the Company of the commencement thereof, the Company shall be entitled to assume
the defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; PROVIDED, that any Indemnified
Party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action, claim or proceeding in
which both the Company, on the one hand, and an Indemnified Party, on the other
hand, is, or is reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel at the Company's expense and to
control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Company, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable. The Company agrees that it will not, without the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld,
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Purchaser and each other
Indemnified Party from all liability arising or that may arise out of such
claim, action or proceeding. The Company shall not be liable for any settlement
of any claim, action or proceeding effected against an Indemnified Party without
its written consent, which consent shall not be unreasonably withheld. The
rights accorded to Indemnified Parties hereunder shall be in addition to any
rights that any Indemnified Party may have at common law, by separate agreement
or otherwise.
35
ARTICLE 12
MISCELLANEOUS
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Shares and the Warrants and payment therefor, conversion of
the Shares, and exercise of the Warrants.
12.2 NOTICES. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, recognized
overnight courier service or personal delivery:
(a) if to the Company:
Cliffwood Oil & Gas Corp.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇ & Snokhous
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Purchaser:
First Union Capital Partners, Inc.
One First Union Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
36
with a copy to:
First Union Corporation of North Carolina
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
12.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws and except as otherwise set forth in the
Transaction Documents, the Purchaser may assign any of its rights under this
Agreement. The Company may not assign any of its rights under this Agreement
without the prior written consent of the Purchaser. Except as provided in
Article 11, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of any of the Transaction
Documents.
12.4 AMENDMENT AND WAIVER.
(a) No failure or delay on the part of the Company or the Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the Company
and the Purchaser, and (ii) only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand in any case shall entitle either party to
any other or further notice or demand in similar or other circumstances.
12.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
12.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
37
12.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW OF SUCH STATE.
12.8 JURISDICTION. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of Texas or of the United States of America for the Southern
District of Texas and hereby expressly submits to the personal jurisdiction and
venue of such courts for the purposes thereof and expressly waives any claim of
improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 12.2, such service to become effective 10 days after such
mailing.
12.9 SEVERABILITY. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
12.10 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
12.11 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
12.12 CERTAIN EXPENSES. The Company will pay all reasonable legal,
accounting and environmental due diligence expenses of the Purchasers (including
reasonable fees, charges and disbursements of counsel) in connection with
transactions contemplated by this Agreement and the other Transaction Documents.
12.13 REGULATORY REQUIREMENTS. In the event of any reasonable
determination by the Purchaser that, by reason of any existing or future Federal
or state rule, regulation, guideline, order, request or directive (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the Shares, Warrants, Warrant
Shares or shares of Common Stock issued upon conversion thereof (including any
shares of capital stock or other securities distributable
38
to the Purchaser in any merger, reorganization, readjustment or other
reclassification of Shares), the Company shall take, and shall cause the other
stockholders of the Company to take, such action, at the Company's expense, as
may be deemed reasonably necessary by the Purchaser to permit the Purchaser to
comply with such Regulatory Requirement. Such action to be taken may include,
without limitation, the Company's authorization of one or more new classes of
capital stock and the modification or amendment of the Articles of Incorporation
or any other documents or instruments executed in connection with the Shares,
Warrants, Warrant Shares or shares of Common Stock issued upon conversion
thereof (including any shares of capital stock or other securities distributable
to the Purchaser in any merger, reorganization, readjustment or other
reclassification of Shares) held by the Purchaser. The Purchaser shall give
written notice to the Company and the other stockholders of the Company of any
such determination and the action or actions necessary to comply with such
Regulatory Requirement, and the Company and such other stockholders shall take
all steps necessary to comply with such determination as expeditiously as
possible.
12.14 PUBLICITY. Except as may be required by applicable law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby without prior approval by the other parties hereto. If any announcement
is required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
12.15 FURTHER ASSURANCES. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
CLIFFWOOD OIL & GAS CORP.
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
FIRST UNION CAPITAL PARTNERS, INC.
By:
Name:
Title:
40