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EXHIBIT 5
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PURCHASE AGREEMENT
BY AND BETWEEN
SHERIDAN ENERGY, INC.
AND
GRAND GULF PRODUCTION, L. L. C.
DATED AS OF
DECEMBER 31, 1997
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TABLE OF CONTENTS
ARTICLE I.
Definitions
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE I.
Sale and Purchase; Closing
1.1 Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Ownership, Revenues and Expenses of GGP Properties. . . . . . . . . . . . . . . . . . . . . 12
1.4 Certain Reassignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE II.
Representations and Warranties of Sheridan
2.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Corporate Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.6 SEC Documents and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Liabilities; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.9 Title to Properties and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.12 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.13 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.14 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.16 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.17 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.19 Intellectual Property and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . 21
2.20 No Public Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.22 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.23 Plugging and Abandonment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.24 No Material Misstatements or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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ARTICLE III.
Representations and Warranties of GGP
3.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Power and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.5 Consents and Preferential Purchase Rights. . . . . . . . . . . . . . . . . . . . . . . . . 24
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 Title to Properties and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.8 Compliance with the Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.10 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.11 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV.
Covenants
4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.3 Operation of Business by Sheridan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.4 Operation of GGP Properties by GGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.5 Full Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.6 Notice of Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V.
Closing Conditions
5.1 Conditions to Obligation of GGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.2 Conditions to Obligation of Sheridan . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VI.
Other Provisions
6.1 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 No Restrictions on Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.4 Business Opportunity Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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6.6 Survival of Terms; Failure to Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7 Disclaimers of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 37
6.8 Transfer Taxes and Recording Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII.
Miscellaneous
7.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.4 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8 Further Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.10 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.11 Exhibits; Schedules; Amendment of Disclosure Letter . . . . . . . . . . . . . . . . . . . . 39
7.12 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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EXHIBITS
Exhibit A - Form of Warrant Agreement
Exhibit B - Form of Assignment and ▇▇▇▇ of Sale
Exhibit C - Form of Registration Rights Agreement
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is dated as of December 31,
1997, by and between Sheridan Energy, Inc., a Delaware corporation
("Sheridan"), and Grand Gulf Production, L.L.C., a Texas limited liability
company ("GGP").
RECITALS
Sheridan desires to issue and sell to GGP, subject to the terms and
conditions set forth herein, (i) 467,500 shares of Common Stock (the "Shares"),
and (ii) Warrants to purchase up to 82,500 shares of Common Stock in exchange
for substantially all of GGP's oil and gas properties, together with all of
GGP's interest in and to personal property, equipment, fixtures and data
relating thereto , including the office equipment and 3-D seismic data
described in Schedule III attached hereto, LESS AND EXCEPT and GGP hereby
excludes from the foregoing all 2-D seismic information, licenses and data
relating to the GGP Leases, to the extent that the same is not transferable
without consent, payment or penalty (collectively, the "GGP Properties").
Simultaneously herewith, (i) Sheridan is entering into an agreement
with JEDI Hydrocarbon Investments I Limited Partnership, a Delaware limited
partnership ("JEDI I Partnership") (the "JEDI I Partnership/Sheridan Purchase
Agreement") pursuant to which Sheridan will acquire all of JEDI I Partnership's
right, title and interest in and to certain oil and gas properties, together
with all personal property, equipment, fixtures and data relating thereto,
including the 3-D seismic data described in Schedule III attached hereto, LESS
AND EXCEPT all 2-D seismic information, licenses and data relating to the JEDI
I Leases, to the extent that the same is not transferable without consent,
payment or penalty, in exchange for 382,500 shares of Common Stock and warrants
to purchase up to 67,500 shares of Common Stock, (ii) GGP is entering into a
termination and release agreement with JEDI I Partnership (the "GGP/JEDI I
Partnership Termination Agreement") pursuant to which GGP and JEDI I
Partnership will terminate the Farmout Agreement and the Participation
Agreement, (iii) GGP is entering into an agreement (the "GGP/JEDI Termination
Agreement") with Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), pursuant to which JEDI will terminate
all of the outstanding debt obligations of GGP to JEDI under the JEDI Loan
Agreement in exchange for the transfer by GGP to JEDI of 467,500 shares of
Common Stock and warrants to purchase up to 82,500 shares of Common Stock, (iv)
JEDI will release and terminate the ▇▇▇▇▇ Guaranty Agreement pursuant to the
GGP/JEDI Termination Agreement, (v) BBU Mezzanine Fund II, a California limited
partnership ("BBU II") is entering into a sharing agreement with JEDI (the
"Sharing Agreement") pursuant to which BBU II and JEDI will agree to the
sharing of proceeds from the sale of certain shares of Common Stock and
warrants of Sheridan transferred to JEDI by GGP, (vi) BBU II and GGP are
entering into an agreement (the "BBU II/GGP Termination Agreement") pursuant to
which BBU II will terminate the BBU II/GGP Loan Agreement (vii) BBU Mezzanine
Fund, a California limited partnership ("BBU"), BBU II, AmPac Oil & Gas, Inc.,
a Texas corporation ("AmPac") and GGP are entering into an agreement (the
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"BBU/AmPac Termination Agreement") pursuant to which the BBU/AmPac Letter
Agreement will be terminated and (viii) BBU II and AmPac are entering into an
agreement (the "BBU II/AmPac Termination Agreement") pursuant to which the BBU
II/AmPac Loan Agreement will be terminated.
It is the desire of Sheridan and GGP that the transactions
contemplated by this Purchase Agreement, the JEDI I Partnership/Sheridan
Purchase Agreement, the GGP/JEDI I Partnership Termination Agreement, the
GGP/JEDI Termination Agreement, the Sharing Agreement, the BBU/AmPac
Termination Agreement and the BBUII/GGP Termination Agreement shall close
simultaneously in accordance with the terms and conditions set forth herein and
therein.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the capitalized
terms defined elsewhere in this Agreement, the following capitalized terms
shall have the following respective meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person means any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such specified Person. The
term "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly,
of 10% or more of the voting power (or in the case of a Person which
is not a corporation, 10% or more of the ownership interest,
beneficial or otherwise) of such Person or the power otherwise to
direct or cause the direction of the management and policies of that
Person, whether through voting, by contract or otherwise. For
purposes of this paragraph, "voting power" of any Person means the
total number of votes which may be cast by the holders of the total
number of outstanding shares of equity of any class or classes of such
Person in any election of directors (or Persons performing similar
functions) of such Person. For purposes of this Agreement all
executive officers and directors of a Person shall be deemed to be
Affiliates of such Person. For purposes of this Agreement (i) all
executive officers and directors of a Person shall be deemed to be
Affiliates of such Person, (ii) for avoidance of doubt, Enron Corp.
and its Affiliates shall be deemed to be Affiliates of JEDI I
Partnership, (iii) Sheridan and its Subsidiaries shall not be
considered Affiliates of JEDI I Partnership
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or its Affiliates, and (iv) JEDI I Partnership and its Affiliates
shall not be considered Affiliates of Sheridan and its Subsidiaries.
"ASSIGNMENT" means the Assignment and ▇▇▇▇ of Sale in the form
of Exhibit B hereto.
"AMPAC" shall have the meaning assigned to such term in the
recitals.
"BBU" shall have the meaning assigned to such term in the
recitals.
"BBU/AMPAC LETTER AGREEMENT" means that certain letter
agreement, dated October 3, 1994, among BBU, BBU II, AmPac and GGP.
"BBU/AMPAC TERMINATION AGREEMENT" shall have the meaning
assigned to such term in the recitals.
"BBU II" shall have the meaning assigned to such term in the
recitals.
"BBU II/GGP TERMINATION AGREEMENT" shall have the meaning
assigned to such term in the recitals.
"BBU II/AMPAC LOAN AGREEMENT" means that certain Term Credit
Agreement, dated as of October 30, 1992, between AmPac and BBU II, as
amended by that certain First Amendment to Term Credit Agreement,
dated effective as of December 1, 1994, between AmPac and BBU II.
"BBU II/GGP LOAN AGREEMENT" means that certain Loan Agreement,
dated October 3, 1994, between BBU II and GGP, as amended by (i) that
certain Amendment to Loan Agreement and Rights Agreement, dated
effective as of February 23, 1995, between BBU II and GGP and (ii)
that certain Second Amendment to Loan Agreement, dated effective May
3, 1995, between BBU II and GGP.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on Sheridan's or any of its Subsidiary's balance
sheet or for which the amount of the asset and liability thereunder as
if so capitalized should, in accordance with GAAP, be disclosed in a
note to such balance sheet.
"CHARTER" means, for any Person, such Person's certificate of
incorporation, articles of incorporation or other organizational
documents, as the same may be amended.
"CLAIMS" shall have the meaning assigned to such term in
Section 7.5(b).
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.
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"CLOSING DATE" shall have the meaning assigned to such term in
Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and all rules and regulations promulgated
thereunder, and any successor statute.
"COMMISSION" shall have the meaning assigned to such term in
Section 3.6.
"COMMON STOCK" means the common stock, par value $.01 per
share, of Sheridan.
"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.
"ECT" means Enron Capital & Trade Resources Corp.
"ECT PURCHASE AGREEMENT" means that Stock Purchase Agreement
dated November 28, 1997 between Sheridan and ECT.
"EFFECTIVE DATE" means September 1, 1997.
"ENVIRONMENTAL LAWS" means any and all laws, statutes,
ordinances, rules, regulations, orders or determinations of any
Governmental Authority pertaining to health or the environment in
effect in any and all jurisdictions in which the Person identified
conducts business or at any time has conducted business, or where any
of its properties or operations are located, including without
limitation, the Clean Air Act, as amended, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended,
the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous and Solid Waste Amendments Act
of 1984, as amended, the Hazardous Materials Transportation Act, as
amended, the Outer Continental Shelf Lands Act, as amended, the
Coastal Zone Management Act, as amended, and other environmental
conservation or protection laws. The terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that to the
extent the laws of the state in which any property or operation is
located has established a meaning for "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
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"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with Sheridan or a Subsidiary of Sheridan
would be deemed to be a "single employer" within the meaning of
Section 4001 of ERISA.
"EXCHANGE ACT" shall have the meaning assigned to such term in
Section 3.6.
"EXISTING LAWSUIT" means the pending cause of action described
in Section 4.6 of the GGP Disclosure Letter.
"FARMOUT AGREEMENT" means that certain letter agreement, dated
September 19, 1997, among JEDI, JEDI I Partnership and GGP.
"GAAP" means generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied.
"GGP" shall have the meaning assigned to such term in the
recitals.
"GGP DISCLOSURE LETTER" means that certain disclosure letter
of even date herewith delivered to Sheridan by GGP relating to GGP's
disclosure in connection with its representations and warranties
hereunder.
"GGP ENCUMBRANCES" means any of the following matters:
(a) the terms, conditions, restrictions, exceptions,
reservations, limitations and other matters contained in the
agreements, instruments and documents that create or reserve to GGP
its interests in any of the GGP Properties;
(b) any (i) undetermined or inchoate Liens constituting
or securing the payment of expenses that were incurred incidental to
maintenance, development, production or operation of the GGP
Properties or for the purpose of developing, producing or processing
oil, gas or other hydrocarbons therefrom or therein, excluding any
Liens for borrowed money, and (ii) statutory Liens (including
materialman's, mechanics', repairman's, mineral contractor's or
mineral sub-contractor's and similar Liens), to the extent not shown
in the applicable public records, and operators' Liens, in each case
arising in the ordinary course of business (x) that GGP has agreed to
assume or pay pursuant to the terms hereof, (y) for which GGP is
responsible for paying or releasing at Closing, or (z) for which
Sheridan has agreed to assume or pay pursuant to the terms hereof;
(c) any Liens for taxes not yet due and payable or, if
due and payable, to the extent being contested in good faith by
appropriate proceedings;
(d) any Liens created by law or reserved in oil and gas
leases for royalty, bonus or rental, or created to secure compliance
with the terms of the agreements, instruments and documents that
create or reserve to GGP its interests in the GGP Properties;
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(e) any obligations or duties affecting the GGP
Properties to any municipality or public authority with respect to any
franchise, grant, license or permit, and all applicable laws, rules,
regulations and orders of any Governmental Authority;
(f) any (i) easements, rights-of-way, servitudes,
permits, licenses, surface leases and other rights in respect of
surface operations, pipelines, grazing, hunting, lodging, canals,
ditches, reservoirs or the like, and (ii) easements for streets,
alleys, highways, pipelines, telephone lines, power lines, railways
and other similar rights-of-way, on, over or in respect of property
owned or leased by GGP or over which GGP owns rights-of-way,
easements, permits or licenses;
(g) all lessors' royalties, overriding royalties, net
profits interests (other than those granted to JEDI, which net profits
interest shall be reconveyed to GGP at or prior to Closing); carried
interests, production payments, reversionary interests and other
burdens on or deductions from the proceeds of production created or in
existence as of the date hereof that do not operate to reduce the Net
Revenue Interests of GGP in the GGP ▇▇▇▇▇ described in Schedule II;
(h) preferential rights to purchase or similar
agreements;
(i) required third party consents to assignments or
similar agreements;
(j) all rights to consent by, required notices to,
filings with, or other actions by any Governmental Authority in
connection with the sale or conveyance of oil and gas leases or
interests therein;
(k) production sales contracts; division orders;
contracts for sale, purchase, exchange, refining or processing of
hydrocarbons; unitization and pooling designations, declarations,
orders and agreements; operating agreements; agreements of
development; area of mutual interest agreements; gas balancing or
deferred production agreements (but only to the extent Sheridan and
GGP have agreed on, and/or balanced up, any imbalances pursuant
thereto); processing agreements; plant agreements; pipeline, gathering
and transportation agreements; injection, repressuring and recycling
agreements; carbon dioxide purchase or sale agreements; salt water or
other disposal agreements; seismic or geophysical permits or
agreements; tax partnership agreements (but only if there is
currently, and at the Closing Date, no capital account deficit which
would be required to be made up, in whole or in part, upon liquidation
or termination); and any and all other agreements that are ordinary
and customary in the oil, gas, sulphur and other mineral exploration,
development or extraction business, or in the business of processing
of gas and gas condensate production for the extraction of products
therefrom; and
(l) all defects and irregularities affecting the GGP
Properties which individually or in the aggregate do not operate to
reduce the Net Revenue Interests of GGP in the GGP ▇▇▇▇▇ described in
Schedule II, increase the proportionate share of costs and expenses of
leasehold operations attributable to or to be borne by the Working
Interests of GGP in the
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GGP ▇▇▇▇▇ described in Schedule II, or otherwise interfere materially
with the operation, value or use of the GGP Properties, taken as a
whole.
"GGP/JEDI I PARTNERSHIP TERMINATION AGREEMENT" shall have the
meaning assigned to such term in the recitals.
"GGP/JEDI TERMINATION AGREEMENT" shall have the meaning
assigned to such term in the recitals.
"GGP LEASES" means the leases described in Schedule 1-A and
Schedule 1-B.
"GGP MATERIAL ADVERSE EFFECT" means any change or event that,
individually or in the aggregate, would or could reasonably be
expected to have a material adverse effect on (a) the GGP Properties,
taken as a whole, (b) the ability of GGP to meet its obligations under
this Agreement or the Operative Documents to which it is a party, or
(c) the consummation of the transactions contemplated hereby;
provided, however, that any change or event resulting from (i) changes
in the prices of oil, gas, natural gas liquids or other hydrocarbon
products, or (ii) changes in general economic conditions, including
general stock market conditions and interest rate changes or (iii) the
adverse determination of any pending litigation disclosed in the GGP
Disclosure Letter shall not constitute a GGP Material Adverse Effect.
"GGP PROPERTIES" shall have the meaning assigned to such term
in the recitals.
"GGP ▇▇▇▇▇" means the ▇▇▇▇▇ located on the GGP Leases
described in Schedule 2.
"GOOD TITLE" means that, subject to and except for the GGP
Encumbrances:
(a) GGP is (i) entitled to receive not less than the
percentage set forth in Schedule II hereto as the "Net Revenue
Interest" of all hydrocarbons produced, saved and marketed from the
GGP ▇▇▇▇▇ listed in Schedule II to which such interest corresponds,
all without reduction throughout the duration of the life of such
well, except as specifically set forth in Schedule II, and (ii)
obligated to bear the percentage of the costs and expenses relating to
the maintenance, development and operation of such well, not greater
than the "Working Interest" shown in Schedule II with respect to such
well, without increase throughout the duration of the life of such
well, except as specifically set forth in Schedule II; and
(b) the title of GGP is free and clear of all liens,
encumbrances and material defects.
"GOVERNMENTAL AUTHORITY" means any foreign or domestic
federal, state, county, municipal, or other governmental or regulatory
authority, agency, board, body, commission, instrumentality, court, or
any political subdivision thereof.
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"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other
direction or requirement (including but not limited to any of the
foregoing which relate to Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any
Governmental Authority.
"INDEBTEDNESS" means, with respect to any Person, the
principal of, premium, if any, and interest on: (a) indebtedness for
money borrowed from others whether or not evidenced by notes, bonds,
debentures or otherwise; (b) indebtedness of another Person
guaranteed, directly or indirectly, in any manner by such Person,
including, without limitation, through an agreement, contingent or
otherwise, (i) to purchase or pay any such indebtedness, (ii) to
advance or supply funds for the purchase or payment of such
indebtedness, (iii) to purchase and pay for property if not delivered
or pay for services if not performed, primarily for the purpose of
enabling such other Person to make payment of such indebtedness or to
assure the owners of the indebtedness against loss, or (iv) to
maintain working capital, equity capital or other financial condition
of such other Person so as to enable it to pay such indebtedness; (c)
all indebtedness secured by any Lien upon property owned by such
Person, even though such Person has not in any manner become liable
for the payment of such indebtedness; (d) all indebtedness of such
Person created or arising under any conditional sale, lease (intended
primarily as a financing device) or other title retention or security
agreement with respect to property acquired by such Person even though
the rights and remedies of Sheridan, lessor or lender under such
agreement or lease in the event of default may be limited to
repossession or sale of such property; (e) all obligations of such
Person issued or assumed for the deferred purchase price of property
or services, including all trade credit, to the extent such
obligations have remained outstanding in excess of sixty days; (f)
Capitalized Lease Obligations and the present value of all future
lease payments under a lease other than Capitalized Lease Obligations;
(g) all unfunded post-retirement and post-employment benefits
including, without limitation, unfunded pension liabilities; (h)
mandatory redemption or mandatory dividend rights on ordinary shares
(or other equity); (i) obligations of discontinued businesses that are
subsumed within the single-sum amount of the net assets of the
discontinued operations being held for sale, and (j) all obligations
of such Person under or with respect to letters of credit.
"INTERIM BALANCE SHEET" shall have the meaning assigned to
such term in Section 3.6(a).
"INTERMEDIARY" shall have the meaning assigned to such term in
Section 7.1.
"JEDI" shall have the meaning assigned to such term in the
recitals.
"JEDI I PARTNERSHIP" shall have the meaning assigned to such
term in the recitals.
"JEDI I PARTNERSHIP/SHERIDAN PURCHASE AGREEMENT" shall have
the meaning assigned to such term in the recitals.
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"JEDI LOAN AGREEMENT" means that certain Loan Agreement, dated
May 3, 1995, between GGP and JEDI, as amended by (i) that certain
First Amendment and Supplement to Loan Agreement, dated effective
January 1, 1996, between GGP and JEDI and (ii) that certain Second
Amendment and Supplement to Loan Agreement, dated January 23, 1997,
between GGP and JEDI.
"KNOWLEDGE" or "KNOWN" means with respect to Sheridan, those
individuals listed in Section 1.1 of the Sheridan Disclosure Letter
and with respect to GGP, those individuals listed in Section 1.1 of
the GGP Disclosure Letter, in each case, individually or collectively,
have conducted such investigations and inquiries as they reasonably
believe to be most likely to confirm the truth and accuracy of the
matter being represented and warranted (or have caused such
investigations and inquiries to be made under their supervision) and,
after evaluating the findings of such investigation and inquiries
either (a) know that the matter being represented and warranted is
true and accurate or (b) have no reason to believe that the matter
being represented and warranted is not true and accurate.
"▇▇▇▇▇ GUARANTY AGREEMENT" means that certain Guaranty
Agreement, dated January 23, 1997, executed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ in
favor of JEDI.
"LIEN" means, with respect to any Person, any mortgage, deed
of trust, lien, security interest, pledge, lease, conditional sale
contract, claim, charge, easement, right of way, assessment,
restriction and other encumbrance of every kind.
"OPERATIVE DOCUMENTS" means this Agreement, the Warrant
Agreement, the Warrant Certificate, the Assignment (including the
warrant agreement and warrant certificates referred to therein), and
the Registration Rights Agreement.
"PARTICIPATION AGREEMENT" means that certain Participation
Agreement, dated February 27, 1995, between GGP and JEDI I
Partnership, as amended by that certain First Amendment to
Participation Agreement, dated January 1, 1996, between GGP and JEDI I
Partnership.
"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities
necessary for the conduct of the business of such Person as currently
conducted and as proposed to be conducted after the Closing.
"PERMITTED LIENS" means (a) Liens for taxes not yet due and
payable, (b) statutory Liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar Liens) and operators'
Liens, in each case arising in connection with the ordinary course of
business securing payments not yet due and payable, (c) Liens created
pursuant to or under the Sheridan Senior Credit Facility and (d) such
imperfections or irregularities of title, if any, as (i) are not
substantial in character, amount, or extent and do not materially
detract from the value of the property subject thereto, (ii) do not
and will not materially
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interfere with either the present or intended use of such property,
and (iii) do not and will not, individually or in the aggregate,
materially interfere with the conduct of Sheridan's or its
Subsidiaries current or proposed operations.
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental
Authority.
"PLAN" shall have the meaning assigned to such term in Section
3.12(a)(i).
"PROPERTIES EXPENSES" means all costs and expenses (including
royalties, production taxes, capital expenditures, lease operating
expenses and overhead) paid by GGP that are (x) attributable to the
GGP Properties, and (y) attributable to the period of time from and
after the Effective Date including one-third of the ad valorem taxes
for 1997.
"PROPERTIES REVENUES" means the amount of all proceeds
actually received by GGP that are (x) attributable to the GGP
Properties, and (y) attributable to the period of time from and after
the Effective Time.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of Exhibit C hereto.
"SEC DOCUMENTS" shall have the meaning assigned to such term
in Section 3.6.
"SECURITIES ACT" shall have the meaning assigned to such term
in Section 3.6.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of Sheridan issued to ECT pursuant to the ECT Purchase Agreement.
"SHARES" shall have the meaning assigned to such term in
Section 2.1.
"SHARING AGREEMENT" shall have the meaning assigned to such
term in the recitals.
"SHERIDAN DISCLOSURE LETTER" means that certain disclosure
letter of even date herewith delivered to GGP by Sheridan relating to
Sheridan's disclosures in connection with its representations and
warranties hereunder.
"SHERIDAN MATERIAL ADVERSE EFFECT" means any change or event
that, individually or in the aggregate, would or could reasonably be
expected to have a material adverse effect on (a) the assets,
liabilities, condition (financial or otherwise), business, results of
operations or prospects of Sheridan and its Subsidiaries on a
Consolidated basis, (b) the ability of Sheridan to meet its
obligations under this Agreement or the Operative Documents to which
Sheridan is a party, or (c) the consummation of the transactions
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contemplated hereby; provided, however, that any change or event
resulting from (i) changes in the prices of oil, gas, natural gas
liquids or other hydrocarbon products, (ii) changes in general
economic conditions, including general stock market conditions and
interest rate changes or (iii) the adverse determination of any
pending litigation disclosed in the Sheridan Disclosure Letter shall
not constitute a Sheridan Material Adverse Effect.
"SHERIDAN SENIOR CREDIT FACILITY" means that certain First
Amended and Restated Credit Agreement dated as of September 30, 1997
by Sheridan, as the borrower and Bank One Texas, N.A., as the lender.
"SUBSIDIARY" means, as to any Person, any corporation,
company, association, partnership, limited liability company or other
business entity of which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns
sufficient equity or voting interests to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of
such entity, and any partnership, limited liability company or joint
venture if more than a 50% interest in the profits or capital thereof
is owned by such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries.
"WARRANT AGREEMENT" means the Warrant Agreement to be executed
by Sheridan and GGP, in the form of Exhibit A hereto, as the same may
be amended, supplemented, or otherwise modified from time to time.
"WARRANT CERTIFICATE" means the certificate evidencing
Warrants, in the form of Exhibit A to the Warrant Agreement, as the
same may be amended, supplemented, or otherwise modified from time to
time.
"WARRANTS" means the Common Stock purchase warrants described
in the Warrant Agreement.
"WARRANT SHARES" means the shares of Common Stock issued or
issuable upon the exercise of the Warrants.
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ARTICLE I.
SALE AND PURCHASE; CLOSING
1.1 SALE AND PURCHASE. Subject to the satisfaction of the terms
and conditions herein set forth and in reliance upon the respective
representations, warranties, and covenants of the parties set forth herein or
in any document delivered pursuant hereto, at the Closing (i) Sheridan agrees
to deliver to GGP, and GGP agrees to accept, 467,500 shares of Common Stock
(the "Shares") and, pursuant to the terms of the Warrant Agreement, Warrants to
purchase 82,500 shares of Common Stock for $5.50 per share and (ii) GGP agrees
to deliver to Sheridan, and Sheridan agrees to accept, all of GGP's right,
title and interest in and to the GGP Properties.
1.2 CLOSING. The closing of the exchange of the Shares and the
Warrants for the GGP Properties by the parties (the "Closing") will occur on or
before December 31, 1997, or on such other date as may be agreed by the parties
(the "Closing Date"), at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. At the Closing,
(i) Sheridan will deliver to GGP (or its designee) the Shares, duly executed
and registered in the name of GGP or its designee (such shares bearing the
appropriate legend agreed to by the parties), and the Warrant Agreement and the
Warrant Certificates, (ii) GGP will deliver to Sheridan the Assignment covering
the GGP Properties and (iii) each of Sheridan, GGP, JEDI I Partnership and ECT
shall execute and deliver the Registration Rights Agreement; and (iv) GGP shall
deliver such letters in lieu or similar documents as Sheridan shall reasonably
request in order to reflect the transfer of the GGP Properties.
1.3 OWNERSHIP, REVENUES AND EXPENSES OF GGP PROPERTIES. (a)
Subject to the other provisions of this Agreement, including without limitation
the indemnification provisions hereof, GGP shall be entitled to all of the
rights of ownership (including, without limitation, the right to all production
including proceeds of production and other proceeds) and shall be responsible
for costs and expenses attributable to the GGP Properties for the period of
time prior to the Effective Date. Subject to the other provisions of this
Agreement, Sheridan shall be entitled to all of the rights of ownership
(including, without limitation, the right to all production including all
proceeds of production and other proceeds), and shall be responsible for costs
and expenses attributable to the GGP Properties for the period of time from and
after the Effective Date.
(b) Notwithstanding anything herein to the contrary, including the
provisions of Section 2.3(a) hereof, (i) GGP shall not be responsible for (and
Sheridan hereby assumes) any plugging and abandonment costs attributable to the
Georgia-Pacific Well #1, (ii) Sheridan shall be responsible for twenty-five
percent (25%) of GGP's general and administrative expenses for the period
commencing on September 1, 1997 and ending on December 31, 1997, (iii) GGP
shall not be responsible for (and Sheridan hereby assumes) costs in excess of
$7,500 relating to repairs of pipeline right-of- way(s) on those GGP Leases
under which either ▇▇▇▇ ▇▇▇▇▇▇, Sr., et al. or Ridge Road Land Company Ltd., et
al. is the lessor thereunder and (iv) Sheridan hereby assumes fifty percent
(50%) of the delay rental costs attributable to the ▇▇▇▇▇▇ prospects for the
period commencing on September 1, 1997 and ending on December 31, 1997.
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(c) At Closing, GGP shall prepare, and shall furnish to Sheridan,
an accounting statement setting forth an estimate of the Properties Revenues
and the Properties Expenses. To the extent that the Properties Revenues exceed
the Properties Expenses, GGP shall pay to Sheridan the amount by which the
Properties Revenues exceed the Properties Expenses at the Closing. To the
extent that the Properties Expenses exceed the Properties Revenues, Sheridan
shall pay to GGP the amount by which the Properties Expenses exceed the
Properties Revenues at the Closing.
(d) Promptly after the Closing Date (but not later than 120 days
thereafter), Sheridan shall prepare, and shall furnish to GGP, a final
accounting statement setting forth the actual amounts provided in Section
2.3(a). As soon as reasonably practicable thereafter (but not later than 30
days thereafter), GGP shall deliver to Sheridan a written report containing any
changes that GGP proposes be made to such statement. The parties shall
undertake to agree on the final adjustment amount, and such final adjustment
amount shall be paid by GGP or Sheridan, as appropriate, not later than 180
days after the Closing Date. During said 180 day period, either party may at
its own expense audit the other party's books, accounts and records relating to
production proceeds, operating expenses and taxes paid that may have been
adjusted on account of this transaction. Such audit shall be conducted so as
to cause a minimum of inconvenience to the audited party.
1.4 CERTAIN REASSIGNMENTS. If the consent described in
Section 4.5 of the GGP Disclosure Letter with respect to that certain Oil, Gas
and Mineral Lease dated February 1, 1990 between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ et al, as
Lessor, and Grand Gulf Production, L.L.C., as Lessee, and recorded under Entry
121809, Book H-8 covering the ▇. ▇▇▇▇▇▇ Estate 62 #1 and ▇. ▇▇▇▇▇▇ Estate 62 #3
has not been received by August 1, 1998, Sheridan may require, upon written
notice to GGP, a reassignment by GGP of 46,750 Shares and 8,250 Warrants. Upon
receipt of such notice, GGP shall assign to Sheridan 46,750 Shares endorsed in
blank or accompanied by duly executed assignment documents and 8,250 Warrants
accompanied by duly executed assignment documents and Sheridan shall reassign
to GGP the GGP Leases affected by such consents. Such assignments must be made
not later than November 1, 1998. In the event that the stock certificates
representing the Shares contain a restrictive legend referring to this Section
2.4, then upon the request of GGP or its assignee after the receipt of the
consent referenced in this Section 2.4 or the execution and delivery of
assignments referred to herein (whichever is earlier), Sheridan agrees to cause
new stock certificate(s) evidencing the Shares (less any Shares reassigned to
Sheridan pursuant to this Section 2.4) to be issued to GGP or its assignee
without such restrictive legend.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ represents and warrants to GGP as follows:
2.1 CORPORATE EXISTENCE. Sheridan is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sheridan has full corporate power and authority to conduct its business as it
is now being conducted and to own, operate and lease the properties and assets
it currently owns, operates and holds under lease. Sheridan is duly
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qualified to do business and is in good standing in each jurisdiction in which
the nature of its business activities or its ownership or leasing of property
makes such qualification necessary, except where the failure to be so qualified
would not have a Sheridan Material Adverse Effect. On or before the date
hereof Sheridan has delivered to GGP's counsel true and complete copies of
Sheridan's Certificate of Incorporation and bylaws, together with all
amendments thereto. No other amendments to Sheridan's Certificate of
Incorporation have been approved by the Board of Directors or stockholders of
the Corporation or filed with the Delaware Secretary of State.
2.2 CORPORATE POWER AND AUTHORIZATION. Sheridan is duly
authorized and empowered to issue the Shares, the Warrants and the Warrant
Shares, and to execute, deliver, and perform this Agreement and to consummate
the transactions contemplated hereby and thereby. All action on Sheridan's
part requisite for the due issuance of the Shares and the Warrants and for the
due execution, delivery, and performance of this Agreement and the other
Operative Documents to which Sheridan is a party has been duly and effectively
taken. The execution and delivery of this Agreement and the other Operative
Documents to which Sheridan is a party and the consummation of the transactions
to be performed by Sheridan hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Board of Directors of
Sheridan, and no other corporate proceedings are necessary to authorize the
execution and delivery of this Agreement or the other Operative Documents to
which Sheridan is a party by Sheridan or to consummate the transactions to be
performed by Sheridan hereby and thereby.
2.3 BINDING OBLIGATIONS. This Agreement and the other Operative
Documents to which Sheridan is a party, when executed and delivered, shall each
constitute a legal, valid and binding obligation of Sheridan enforceable in
accordance with its respective terms, except insofar as the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity. When issued to GGP at the
Closing upon Sheridan's receipt of the Assignment, (i) the Shares will be
validly issued, fully paid and nonassessable and free and clear of any Liens,
and (ii) the Warrants will be validly issued and free and clear of any Liens.
When issued and paid for in accordance with the terms of the Warrant Agreement,
the Warrant Shares will be validly issued, fully paid and nonassessable and
free and clear of any Liens.
2.4 NO VIOLATION. The execution and delivery of this Agreement or
any of the other Operative Documents to which Sheridan is a party, the
consummation of the transactions provided for herein and therein and
contemplated hereby and thereby, and the fulfillment by Sheridan of the terms
hereof and thereof, will not (a) conflict with or result in a breach of any
provision of the Charter or bylaws or other organizational document of Sheridan
or any of its Subsidiaries, (b) except for consents described in Section 3.5 of
the Sheridan Disclosure Letter, result in any default or in any material
modification of the terms of any material contract, agreement, obligation,
commitment applicable to Sheridan or its Subsidiaries, or the creation of any
Lien upon any of the properties or assets owned by Sheridan or any of its
Subsidiaries, (c) except for consents described in Section 3.5 of the Sheridan
Disclosure Letter, require any consent or approval (which has not been obtained
or waived) under any Permit or any note, bond, mortgage, indenture, loan,
distribution agreement, license, agreement, lease or material instrument or
material obligation to which Sheridan or any of its Subsidiaries is a party or
by which Sheridan
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or any of its Subsidiaries may be bound, or (d) violate any Governmental
Requirement or Permit applicable to Sheridan or any of its Subsidiaries, except
in the case of subparagraphs (b), (c) and (d) above where any such default,
modification, consent, approval or violation that would not have a Sheridan
Material Adverse Effect.
2.5 CONSENTS. Except as set forth in Section 3.5 of the Sheridan
Disclosure Letter, all consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all
consents under any contracts, agreements, or instruments by which Sheridan or
any of its Subsidiaries is bound or to which it or any of its Subsidiaries is
subject, and required in connection with Sheridan's valid execution, delivery,
or performance of this Agreement and the other Operative Documents to which
Sheridan is a party, and the consummation of the transactions contemplated
hereby and thereby has been obtained or made, except where the failure to have
obtained or made such consents, approvals, qualifications, orders,
authorizations or filings would not have a Sheridan Material Adverse Effect.
2.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Sheridan and its
predecessor, TGX Corporation ("TGX"), have filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules,
statements and other documents required to be filed by them since January 1,
1994 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or the Securities Act of 1933, as amended (the "Securities Act") (such
documents, as supplemented and amended since the time of filing, collectively,
the "SEC Documents"). The SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed (and, in
the case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively) (a) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be. The financial
statements of Sheridan and TGX included in the SEC Documents at the time filed
(and, in the case of registration statements and proxy statements, on the dates
of effectiveness and the dates of mailing, respectively) complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the Commission), and
fairly present (subject in the case of unaudited statements to normal,
recurring audit adjustments) the Consolidated financial position of Sheridan or
TGX, as the case may be, as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. The
Consolidated balance sheet for Sheridan included in its quarterly report on
Form 10-Q dated September 30, 1997 is referred to herein as the "Interim
Balance Sheet".
(b) Since September 30, 1997, there has been no Sheridan Material
Adverse Effect with respect to Sheridan.
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2.7 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in
the ordinary course of business and that would not, individually or in the
aggregate, have a Sheridan Material Adverse Effect, Sheridan and its
Subsidiaries do not have liabilities, direct or contingent (including but not
limited to liability with respect to any Plan or, to Sheridan's knowledge, any
Environmental Law) other than those provided for in the Interim Balance Sheet
or disclosed in Section 3.7 of the Sheridan Disclosure Letter or the borrowings
under the Sheridan Senior Credit Facility or in connection with the Series A
Preferred Stock. Except as would not have a Sheridan Material Adverse Effect,
Sheridan and its Subsidiaries have no Indebtedness other than (a) the Series A
Preferred Stock, (b) the Indebtedness disclosed in Section 3.7 of the Sheridan
Disclosure Letter and (c) the borrowings under the Sheridan Senior Credit
Facility.
2.8 LITIGATION. Except as disclosed in Section 3.8 of the Sheridan
Disclosure Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
Sheridan, threatened against Sheridan or any of its Subsidiaries or any
material property of Sheridan or any Subsidiary thereof before any Governmental
Authority (i) which challenges the validity of this Agreement or any of the
Operative Documents to which Sheridan is a party, or (ii) which, if adversely
determined, would have a Sheridan Material Adverse Effect.
2.9 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set
forth in Section 3.9 of the Sheridan Disclosure Letter or as would not have a
Sheridan Material Adverse Effect, Sheridan or its Subsidiaries has defensible
title to (i) all of its properties and assets (real and personal, tangible and
intangible) reflected on the Interim Balance Sheet, and (ii) as of the Closing
Date, all properties acquired by Sheridan or its Subsidiaries after December 1,
1997, in each case free and clear of all liens except the Permitted Liens. All
equipment owned by Sheridan or its Subsidiaries which is necessary to the
business of Sheridan or its Subsidiaries is in good condition and repair
(ordinary wear and tear excepted), except where the failure to be in good
condition and repair would not have a Sheridan Material Adverse Effect.
(b) Except as set forth in Section 3.9 of the Sheridan Disclosure
Letter, the oil and gas leases in which Sheridan or its Subsidiaries own an
interest (i) have been maintained according to their terms and in compliance
with all material agreements to which such oil and gas leases are subject,
except where the failure to be so maintained or any noncompliance therewith
would not have a Sheridan Material Adverse Effect, and (ii) are in full force
and effect, except where the failure to be in full force and effect would not
have a Sheridan Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the oil and gas properties of Sheridan
and its Subsidiaries have been properly and correctly paid, except where the
failure to make such payment would not have a Sheridan Material Adverse Effect.
2.10 COMPLIANCE WITH THE LAW. Except with respect to environmental
matters (which are exclusively covered by Section 3.18), neither Sheridan nor
any of its Subsidiaries (i) is in violation of any Governmental Requirement or
(ii) has failed to obtain any Permit, necessary to
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the ownership of any of their respective properties or the conduct of their
respective business, except where a violation or failure would not have a
Sheridan Material Adverse Effect.
2.11 TAXES. Sheridan and its Subsidiaries (i) have filed all tax
returns and reports ("Tax Returns") required to be filed by or with respect to
Sheridan or any of its Subsidiaries, (ii) have included all items of income,
gain, loss, deduction and credit or other items required to be included in each
such Tax Return, and (iii) have paid all taxes, assessments, fees, imposts,
duties or other charges, including any interest and penalties, (all
collectively referred to herein as "Taxes") due with respect to such Tax
Returns. There is no claim against Sheridan or any of its Subsidiaries for any
Taxes, and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to Sheridan or any
of its Subsidiaries which would have a Sheridan Material Adverse Effect.
2.12 EMPLOYEE BENEFIT MATTERS. (a) Definitions. Where the
following words and phrases appear in this Agreement, they shall have the
respective meanings set forth below, unless the context clearly indicates to
the contrary:
(i) Plan: Each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, but not limited to, any
employee benefit plan that may be exempt from some or all of the
provisions of ERISA, which is sponsored, maintained, or contributed to
by Sheridan or any of its Subsidiaries for the benefit of the
employees, former employees, independent contractors, or agents of
Sheridan or any of its Subsidiaries, or has been so sponsored,
maintained or contributed to since 1974.
(ii) Benefit Program or Agreement: Each personnel policy,
stock option plan, collective bargaining agreement, workers'
compensation agreement or arrangement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay
plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, and each
other employee benefit plan, agreement, arrangement, program, practice
or understanding, which is not described in Section 3.12(a)(i) and
which is sponsored, maintained, or contributed to by Sheridan or any
of its Subsidiaries for the benefit of the employees, former
employees, independent contractors, or agents of Sheridan or any of
its Subsidiaries, or has been so sponsored, maintained, or contributed
to since 1974.
(iii) Benefit Plans: Collectively, the Plans and Benefit
Programs or Agreements.
(b) Employee Benefit Plan Compliance.
(i) Neither Sheridan nor any corporation, trade,
business, or entity under common control with Sheridan, within the
meaning of Section 414(b), (c), (m), or (o) of the Code or Section
4001 of ERISA, ("Commonly Controlled Entity") contributes to or has an
obligation to contribute to, nor has Sheridan or any Commonly
Controlled Entity at any time within six years prior to the Closing
Date contributed to or had an obligation to
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contribute to, a multiemployer plan within the meaning of Section
3(37) of ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of law
or by contract, required to be performed in connection with the
Benefit Plans have been performed, and there have been no defaults,
omissions, or violations by any party with respect to any Benefit Plan
or law applicable thereto.
(iii) Each Plan that is intended to be qualified under
Section 401(a) of the Code (A) satisfies the requirements of such
Section, (b) has received a favorable determination letter from the
Internal Revenue Service ("IRS") regarding such qualified status and
covering amendments required under the Tax Reform Act of 1986 ("TRA
'86"), the Unemployment Compensation Amendments of 1992, the Omnibus
Reconciliation Act of 1993, the final nondiscrimination regulations
under Section 401(a)(4) of the Code, and all other amendments required
to be filed within the TRA '86 remedial amendment period described in
Internal Revenue Procedure 95-12 (the "TRA '86 Amendments") (or the
TRA '86 Amendments to such Plans have been timely made and filed with
the IRS for such a determination letter), and (C) has not, since
receipt of the most recent favorable determination letter, been
amended or operated in a way that would adversely affect such
qualified status.
(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not (A) require Sheridan or any of its Subsidiaries to
make a larger contribution to, or pay greater benefits under, any Benefit Plan
than it otherwise would or (B) create or give rise to any additional vested
rights or service credits under any Benefit Plan.
(d) NO ADDITIONAL SEVERANCE. Except as set forth in Section
3.12(d) of the Sheridan Disclosure Letter, neither Sheridan nor any of its
Subsidiaries is a party to any agreement, nor has Sheridan or any of its
Subsidiaries established any policy or practice requiring it to make a payment
or provide any other form of compensation or benefit to any person performing
services for Sheridan upon termination of such services that would not be
payable or provided in the absence of the consummation of the transactions
contemplated by this Agreement.
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the
consummation of the transaction contemplated by this Agreement, no payments
have or will be made under the Benefit Plans which, in the aggregate, would
result in imposition of the sanctions imposed under Section 280G or Section
4999 of the Code.
2.13 INVESTMENT COMPANY ACT. Neither Sheridan nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
2.14 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Sheridan nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of
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a "holding company" or of a "subsidiary company" of a "holding company," or a
"public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
2.15 NO RESTRICTIONS ON AFFILIATES. Neither Sheridan nor any of its
Subsidiaries is a party to any agreement that would purport to impose
restrictions or limitations on GGP or any of its Affiliates.
2.16 CAPITALIZATION. The authorized capital stock of Sheridan
consists of (i) 20,000,000 shares of Common Stock, of which 5,881,471 shares
are issued and outstanding and an additional 450,000 shares are reserved for
issuance under the Sheridan 1997 Flexible Incentive Plan and (ii) 5,000,000
shares of preferred stock, par value $0.01 per share, of which 1,000,000 shares
of Series A Preferred Stock are issued and outstanding and an additional
900,000 shares of Series A Preferred Stock are reserved for issuance as
dividends to holders of Series A Preferred Stock of Sheridan. Section 3.16 of
the Sheridan Disclosure Letter sets forth the name and address of each person
known to Sheridan to be the beneficial owner of 5% or more of the outstanding
shares of Common Stock. Except as set forth in Section 3.16 of the Sheridan
Disclosure Letter and except for up to 450,000 shares of Common Stock reserved
for issuance upon purchases of shares of Common Stock under the Sheridan 1997
Flexible Incentive Plan, there are no outstanding subscriptions, warrants,
options, calls, commitments or other rights to purchase or acquire, or
securities convertible into or exchangeable for, any capital stock of Sheridan
or its Subsidiaries. All of the outstanding shares of Common Stock are validly
issued, fully paid, and nonassessable.
2.17 SUBSIDIARIES. (a) Section 3.17 of the Sheridan Disclosure
Letter contains (except as noted therein) a complete and correct list of
Sheridan's Subsidiaries and joint ventures, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the percentage
of shares of each class of its capital stock or similar equity interests
outstanding owned by Sheridan and each other Subsidiary. Except for the
Subsidiaries, Sheridan does not own, directly or indirectly, any interest or
investment in any corporation, association, joint venture, partnership, limited
liability company or other business organization, firm or enterprise of any
character, other than interests under any joint operating agreement of oil and
gas property that expressly provides the relationship of the parties created by
such agreement is not intended to render the parties thereto liable as
partners. Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has full corporate power and authority to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease. Each Subsidiary is duly
qualified to do business and is in good standing in each jurisdiction where the
character of its business or the nature of its properties makes such
qualification necessary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Section 3.17 of the Sheridan
Disclosure Letter as being owned by Sheridan and its Subsidiaries have been
validly issued, are fully paid and nonassessable, and are owned by Sheridan or
such other Subsidiaries free and clear of any Liens (except as otherwise
disclosed in Section 3.17 of the Sheridan Disclosure Letter).
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(c) No Subsidiary of Sheridan is a party to, or otherwise subject
to any legal restriction or any agreement (other than this Agreement and
customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to Sheridan or any of its Subsidiaries that
owns outstanding shares of capital stock or similar equity interests of such
Subsidiary.
2.18 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.18 of
the Sheridan Disclosure Letter:
(a) to the knowledge of Sheridan and its Subsidiaries, the
properties and operations of Sheridan and its Subsidiaries are not in violation
of any Environmental Laws or any order or requirement of any court or
Governmental Authority to the extent pertaining to health or the environment,
except where a violation would not have a Sheridan Material Adverse Effect, nor
are there any conditions existing on such property or resulting from operations
thereon that may give rise to any on-site or off-site remedial obligations
under any Environmental Law, except for any condition that would not have a
Sheridan Material Adverse Effect;
(b) without limitation of Section 3.18(a) above, Sheridan and its
Subsidiaries are not subject to any pending or, to the knowledge of Sheridan,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority under any Environmental Law;
(c) except as would not have a Sheridan Material Adverse Effect,
to the knowledge of Sheridan all notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by Sheridan and its
Subsidiaries under any Environmental Law, including without limitation those
relating to the treatment, storage, disposal or release of a hazardous
substance or solid waste into the environment, have been duly obtained or
filed, and Sheridan and its Subsidiaries are in compliance with the terms and
conditions of all such notices, permits, licenses and similar authorizations;
(d) except as would not have a Sheridan Material Adverse Effect,
all hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Sheridan and its Subsidiaries and requiring
disposal have been transported only by carriers maintaining valid
authorizations under applicable Environmental Laws and treated and disposed of
only at treatment, storage and disposal facilities maintaining valid
authorizations under applicable Environmental Laws, and, to the knowledge of
Sheridan, such carriers and facilities have been and are operating in
compliance with such authorizations and are not the subject of any pending or
threatened action, investigation or inquiry by any Governmental Authority in
connection with any Environmental Laws;
(e) except as would not have a Sheridan Material Adverse Effect,
to the knowledge of Sheridan there are no asbestos-containing materials on or
in any property owned or used by Sheridan and its Subsidiaries, and there are
no storage tanks or similar containers exceeding 55 gallons in size on or under
any such properties from which hazardous substances, petroleum products or
other contaminants may be released into the surrounding environment;
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(f) without limiting the foregoing, to the knowledge of Sheridan
there is no material liability (accrued or contingent) to any non-governmental
third party in tort or under common law in connection with any release or
threatened release of any hazardous substances, solid wastes, petroleum,
petroleum products, and oil and gas exploration and production wastes into the
environment as a result of operations conducted on its properties; and
(g) Section 3.18 of the Sheridan Disclosure Letter also separately
lists for Sheridan and each Subsidiary any and all Claims against or affecting
it and relating to the release, discharge or emission or any hazardous
substance, or to the generation, treatment, storage or disposal of any wastes,
or otherwise relating to the protection of the environment or to the
noncompliance with any notices, permits, licenses, consent decrees or other
authorization and the disposition of each such Claim. With respect to each
such pending or prior matter, Section 3.18 of the Sheridan Disclosure Letter
hereto lists the date of the Claim, the claimant or investigating agency, the
nature and a brief description of the matter, the damages claimed or relief
sought, and the status or outcome of the matter. Except as set forth on
Section 3.18 of the Sheridan Disclosure Letter, neither Sheridan nor any
Subsidiary has received any written notice that it is a potentially responsible
party under any Environmental Laws.
2.19 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Sheridan and
its Subsidiaries (i) own or have the right to use, free and clear of all Liens,
all patents, trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all trade
secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information
(collectively, "Intellectual Property") used and sufficient for use in the
conduct of its business, without infringing upon or violating any right, Lien,
or claim of others, and (ii) except as described in Section 3.19 of the
Sheridan Disclosure Letter, is not obligated or under any liability whatsoever
to make any payments by way of royalties, fees, or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service ▇▇▇▇, trade
name, copyright, or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise.
2.20 NO PUBLIC OFFER. Neither Sheridan nor anyone acting on its
behalf has offered to any Person securities of Sheridan, nor any part thereof,
nor any instruments convertible, exercisable, or exchangeable into such
securities, or has solicited from any Person any offer to acquire the same, in
a manner so as to make the transactions contemplated by this Agreement not
exempt from the registration requirements of Section 5 of the Securities Act.
2.21 INSURANCE. Sheridan has previously provided to GGP true and
complete copies of all of Sheridan's and its Subsidiaries' insurance policies.
Sheridan has given in a timely manner to its insurers all notices required to
be given under such insurance policies with respect to all claims and actions
covered by insurance, and no insurer has denied coverage of any such claims or
actions or reserved its rights in respect of or rejected any of such claims.
Sheridan has not received any notice or other communication from any such
insurer canceling or materially amending any of such insurance policies, and no
such cancellation is pending or threatened.
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2.22 CERTAIN TRANSACTIONS. Except for the Series A Preferred Stock
and except as set forth on Section 3.22 of the Sheridan Disclosure Letter, (a)
neither Sheridan nor any of its Subsidiaries is indebted directly or indirectly
to any of its officers, directors or stockholders or to their respective
spouses or children in any amount whatsoever, (b) none of such officers,
directors or stockholders, or any members of their immediate families, are
indebted to Sheridan or any of its Subsidiaries, and (c) no officer, director
or stockholder, or any member of his immediate family, has a direct or indirect
financial interest in any material contract with Sheridan or any of its
Subsidiaries.
2.23 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.23 of the Sheridan Disclosure Letter or as would not have a Sheridan
Material Adverse Effect, there is no well located upon any property owned by
Sheridan or its Subsidiaries that Sheridan or its Subsidiaries is currently
obligated by law or contract to plug and abandon.
2.24 NO MATERIAL MISSTATEMENTS OR OMISSIONS. Neither this Agreement
nor any certificates or documents made or delivered in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading, in view
of the circumstances in which they were made.
2.25 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth
in Section 3.25 of the Sheridan Disclosure Letter, Sheridan and its
Subsidiaries have no (i) employment or consulting contracts involving annual
payments by Sheridan or its Subsidiaries in excess of $100,000 and not
cancelable without liability on sixty days' notice or less; (ii) capital
redemption or purchase agreements other than in connection with the Series A
Preferred Stock; (iii) agreements providing for the indemnification of other
parties for such parties' negligence or other fault (except for such
obligations incurred in the ordinary course of business as an operator of oil
and gas properties, including obligations under master service agreements,
drilling contracts and similar agreements) or the sharing of the tax liability
of other parties; (iv) collective bargaining agreements; (v) gas sales or
purchase contracts, gas marketing agreements or transportation agreements under
which Sheridan or its Subsidiaries is the seller, any of which contracts or
agreements is for a term of greater than one year and provides for a fixed
price; (vi) agreements for capital expenditures, the acquisition or
commodities, equipment or material or the construction of fixed assets which
requires aggregate future payments by Sheridan or its Subsidiaries in excess of
$250,000; (vii) agreements for, or that contemplate, the sale of any interest
in oil or gas leases which involves payment (including property received in
exchange or other non-cash consideration) to Sheridan or its Subsidiaries in
excess of $500,000; (viii) agreements which require future payments by Sheridan
or its Subsidiaries in excess of $500,000 which is not otherwise specifically
disclosed herein; (ix) agreements containing covenants limiting or restricting
the freedom of Sheridan or its Subsidiaries to compete in any line of business
or territory or with any person or entity; (x) area of mutual interest
agreements binding Sheridan or its Subsidiaries, (xi) futures, hedge, swaps,
collars, puts, calls, floors, caps, options or other contracts that are
intended to benefit from or reduce or eliminate the risk of fluctuations in the
price of commodities, including hydrocarbons or (xii) indentures, mortgages,
promissory notes, loan agreements, guaranties or other agreements or
commitments for the borrowing of money or any related security agreements
(other than relating to the Sheridan Senior Credit
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Facility or the Indebtedness described in Section 3.7 of the Sheridan
Disclosure Letter) (collectively, "Sheridan Material Contracts"). None of the
Sheridan Material Contracts have been amended or modified except as set forth
in Section 3.25 of the Sheridan Disclosure Letter or as would not have a
Sheridan Material Adverse Effect;
(b) All of the Sheridan Material Contracts are in full force and
effect and constitute legal, valid and binding obligations of Sheridan or its
Subsidiaries, as applicable, and, to the knowledge of Sheridan, the other
parties thereto, enforceable in accordance with their respective terms, except
insofar as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
and except where the failure to be in full force and effect would not have a
Sheridan Material Adverse Effect. Neither Sheridan (or Sheridan's
Subsidiaries, if applicable) nor, to the knowledge of Sheridan, any other party
to any Sheridan Material Contract, is in default in complying with any
provisions thereof, and no condition or event or fact exists which, with
notice, lapse of time or both would constitute a default thereunder on the part
of Sheridan (or Sheridan's Subsidiaries, if applicable) or, to the knowledge of
Sheridan, any other party thereto, except for any such default, condition,
event, or fact that, individually or in the aggregate, would not have a
Sheridan Material Adverse Effect.
Sheridan have provided counsel to GGP with a true and complete copy of
each contract, agreement and instrument listed in Section 3.25 of the Sheridan
Disclosure Letter or has otherwise made such documents available for GGP to
review.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF GGP
GGP represents and warrants to Sheridan as follows:
3.1 EXISTENCE. GGP is a limited liability company duly formed and
validly existing under the laws of the State of Texas. GGP has full power and
authority to conduct its business as it is now being conducted and to own,
operate and lease the GGP Properties. GGP is duly qualified to do business and
is in good standing in each jurisdiction in which the GGP Properties are
located, except where the failure to be so qualified would not have a GGP
Material Adverse Effect.
3.2 POWER AND AUTHORIZATION. GGP is duly authorized to execute,
deliver and perform this Agreement and the Operative Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby. All
action on GGP's part requisite for the due execution, delivery, and performance
of this Agreement and the other Operative Documents to which it is a party has
been duly and effectively taken.
3.3 BINDING OBLIGATIONS. This Agreement and the other Operative
Documents to which it is a party, when executed and delivered, shall each
constitute a legal, valid and binding obligation of GGP enforceable in
accordance with its respective terms, except insofar as the
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enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.
3.4 NO VIOLATION. The execution and delivery of this Agreement or
any of the other Operative Documents to which it is a party, the consummation
of the transactions provided for herein and therein and contemplated hereby and
thereby, and the fulfillment by GGP of the terms hereof and thereof, will not
(a) conflict with or result in a breach of any provision of the organizational
document of GGP, (b) except for the consents described in Section 4.5 of the
GGP Disclosure Letter, result in any default or in any material modification of
the terms of any material contract, agreement, obligation, commitment
applicable to GGP, (c) except as set forth in Section 4.5 of the GGP Disclosure
Letter, require any consent or approval (which has not been obtained or waived)
under any Permit or any note, bond, mortgage, indenture, loan, distribution
agreement, license, agreement, lease or material instrument or material
obligation to which GGP is a party or by which GGP may be bound with respect to
the GGP Properties, or (d) violate any Governmental Requirement applicable to
GGP with respect to the GGP Properties, except in the case of subparagraphs
(b), (c) and (d) above, where any such default, modification consent, approval
or violation would not have a GGP Material Adverse Effect.
3.5 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. Except as set forth
in Section 4.5 of the GGP Disclosure Letter, all consents, approvals,
qualifications, orders or authorizations of, or filings with, any Governmental
Authority, and all consents or waivers of preferential purchase rights under
any contracts, agreements, or instruments by which GGP is bound with respect to
the GGP Properties, and required in connection with GGP's valid execution,
delivery, or performance of this Agreement and the other Operative Documents to
which it is a party, and the consummation of the transactions contemplated
hereby and thereby has been obtained or made, except where the failure to have
so obtained or made such consents, approvals, qualifications, orders,
authorizations, filings or waivers, would not have a GGP Material Adverse
Effect.
3.6 LITIGATION. Except as disclosed in Section 4.6 of the GGP
Disclosure Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
GGP, threatened against GGP or any of the GGP Properties before any
Governmental Authority (i) which challenges the validity of this Agreement or
any of the Operative Documents to which it is a party, or (ii) which, if
adversely determined, would have a GGP Material Adverse Effect.
3.7 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except (i) as set
forth in Section 4.7 of the GGP Disclosure Letter, (ii) for the Participation
Agreement and Farmout Agreement to be terminated pursuant to the GGP/JEDI I
Partnership Termination Agreement, (iii) releases of non-productive acreage in
accordance with terms of the applicable GGP Leases, (iv) liens and security
interests in favor of JEDI, BBU and BBU II that will be released or (v) as
would not have a GGP Material Adverse Effect, GGP has Good Title to all of the
GGP Leases. Schedule III sets forth a true, correct and complete list of all
office equipment owned by GGP and being transferred to Sheridan hereunder and
all proprietary 3-D seismic data owned by GGP. All equipment owned by GGP and
included in the GGP Properties which is necessary to the ownership and
operation
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of the GGP Properties is in satisfactory condition and repair (ordinary wear
and tear excepted), except where the failure to be in satisfactory condition
and repair would not have a GGP Material Adverse Effect.
(b) Except as set forth in Section 4.7 of the GGP Disclosure
Letter, the producing oil and gas leases included in the GGP Properties in
which GGP owns an interest (i) have been maintained by the operator thereof
according to their terms and in compliance with all material agreements to
which such oil and gas leases are subject, except where the failure to be so
maintained or any noncompliance therewith would not have a GGP Material Adverse
Effect, and (ii) are in full force and effect, except where the failure to be
in full force and effect would not have a GGP Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties
and other payments due with respect to the GGP Leases has been properly and
correctly paid by the operator of the GGP Leases, except where the failure to
make such payment would not have a GGP Material Adverse Effect.
3.8 COMPLIANCE WITH THE LAW. Except with respect to environmental
matters (which are exclusively covered in Section 4.9), GGP (i) is not in
violation of any Governmental Requirement with respect to the GGP Properties
and (ii) has not failed to obtain any Permit necessary to the ownership of the
GGP Properties, except where a violation or failure would not have a GGP
Material Adverse Effect.
3.9 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.9 of
the GGP Disclosure Letter:
(a) to the knowledge of GGP, the GGP Properties and the operations
of GGP thereon are not in violation of any Environmental Laws or any order or
requirement of any court or Governmental Authority to the extent pertaining to
health or the environment, except where a violation would not have a GGP
Material Adverse Effect, nor are there any conditions existing on such
properties or resulting from its operations thereon that may give rise to any
on-site or off-site remedial obligations under any Environmental Law, except
for any condition that would not have a GGP Material Adverse Effect;
(b) without limitation of Section 4.9(a) above, GGP is not subject
to any pending or, to the knowledge of GGP, threatened action, suit,
investigation, inquiry or proceeding by or before any court or Governmental
Authority under any Environmental Law;
(c) except as would not have a GGP Material Adverse Effect, to the
knowledge of GGP all notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed by GGP under any Environmental Law with
respect to GGP, including without limitation those relating to the treatment,
storage, disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and GGP is in compliance with
the terms and conditions of all such notices, permits, licenses and similar
authorizations;
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31
(d) except as would not have a GGP Material Adverse Effect, all
hazardous substances or solid wastes generated by or as a result of its
operations on the GGP Properties and requiring disposal have been transported
only by carriers maintaining valid authorizations under applicable
Environmental Laws and treated and disposed of only at treatment, storage and
disposal facilities maintaining valid authorizations under applicable
Environmental Laws, and, to the knowledge of GGP, such carriers and facilities
have been and are operating in compliance with such authorizations and are not
the subject of any pending or threatened action, investigation or inquiry by
any Governmental Authority in connection with any Environmental Laws;
(e) except as would not have a GGP Material Adverse Effect, to the
knowledge of GGP there are no asbestos- containing materials on or in any GGP
Property, and there are no storage tanks or similar containers exceeding 55
gallons in size on or under any such properties from which hazardous
substances, petroleum products or other contaminants may be released into the
surrounding environment;
(f) without limiting the foregoing, to the knowledge of GGP there
is (there will be) no material liability (accrued or contingent) to any
non-governmental third party in tort or under common law in connection with any
release or threatened release of any hazardous substances, solid wastes,
petroleum, petroleum products, and oil and gas exploration and production
wastes into the environment as a result of operations conducted on the GGP
Properties; and
(g) Section 4.9 of the GGP Disclosure Letter also separately lists
for GGP any and all Claims against or affecting it and relating to the release,
discharge or emission of any hazardous substance, or to the generation,
treatment, storage or disposal of any wastes, or otherwise relating to the
protection of the environment or to the noncompliance with any notices,
permits, licenses, consent decrees or other authorization and the disposition
of each such Claim. With respect to each such pending or prior matter, Section
4.9 of the GGP Disclosure Letter hereto lists the date of the Claim, the
claimant or investigating agency, the nature and a brief description of the
matter, the damages claimed or relief sought, and the status or outcome of the
matter. Except as set forth on Section 4.9 of the GGP Disclosure Letter, GGP
has not received any written notice that it is a potentially responsible party
under any Environmental Laws.
3.10 PURCHASE FOR INVESTMENT. GGP is acquiring the Shares and the
Warrants for its own accounts and not with a view to the public resale of all
or any part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act. GGP acknowledges that the Shares and
Warrants have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available.
3.11 FEES AND COMMISSIONS. Other than ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Co.
Capital Corporation ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇"), GGP has not retained any Intermediary
in connection with the transactions contemplated by this Agreement and the
Operative Documents.
3.12 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth in
Section 4.12 of the GGP Disclosure Letter, GGP has no (i) agreements included
in or encumbering the GGP
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Properties providing for the indemnification of other parties for such parties'
negligence or other fault (except for such obligations incurred in the ordinary
course of business as an owner or operator of oil and gas properties, including
obligations under master service agreements, drilling contracts and similar
agreements) or the sharing of the tax liability of other parties; (ii) gas
sales or purchase contracts, gas marketing agreements or transportation
agreements included in or encumbering the GGP Properties, any of which
contracts or agreements is for a term of greater than one year and provides for
a fixed price; (iii) agreements for capital expenditures, the acquisition of
commodities, equipment or material or the construction of fixed assets with
respect to the GGP Properties which requires aggregate future payments by GGP
in excess of $50,000; (iv) agreements included in or encumbering the GGP
Properties or that contemplate, the sale of any interest in oil or gas leases
included in the GGP Properties which involves payment (including property
received in exchange or other non-cash consideration) to GGP in excess of
$50,000; (v) agreements included in or encumbering the GGP Properties which
require future payments by GGP in excess of $50,000 which is not otherwise
specifically disclosed herein; (iv) area of mutual interest agreements binding
the GGP Properties; and (vii) futures, hedge, swaps, collars, puts, calls,
floors, caps, options or other contracts included in or encumbering the GGP
Properties that are intended to benefit from or reduce or eliminate the risk of
fluctuations in the price of commodities, including hydrocarbons, that are not
terminated at Closing (collectively, "GGP Material Contracts"). None of the
GGP Material Contracts have been amended or modified except as set forth in
Section 4.12 of the GGP Disclosure Letter or as would not have a GGP Material
Adverse Effect.
(b) All of the GGP Material Contracts are in full force and effect
and constitute legal, valid and binding obligations of GGP, as applicable, and,
to the knowledge of GGP, the other parties thereto, enforceable in accordance
with their respective terms, except insofar as the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity and except where the failure to be in full
force and effect would not have a GGP Material Adverse Effect. Neither GGP
nor, to the knowledge of GGP or any other party to any GGP Material Contract is
in default in complying with any provisions thereof, and no condition or event
or fact exists which, with notice, lapse of time or both would constitute a
default thereunder on the part of GGP or, to the knowledge of GGP, any other
party thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a GGP Material Adverse Effect.
GGP has provided counsel to Sheridan with a true and complete copy of
each contract, agreement and instrument listed in Section 4.12 of the GGP
Disclosure Letter or has otherwise made such documents available for Sheridan
to review.
3.13 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 4.13 of the GGP Disclosure Letter or as would not have a GGP Material
Adverse Effect, there is no well located upon any GGP Lease that GGP is
currently obligated by law or contract to plug and abandon.
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ARTICLE IV.
COVENANTS
The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
4.1 GENERAL. Each of the parties will use all reasonable efforts
to take all action and to do all things necessary, proper, or advisable in
order to consummate and to make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Article VI).
4.2 NOTICES AND CONSENTS. Each of Sheridan and GGP will give any
notices to third parties, and will use all reasonable efforts to obtain all
third party consents and waivers of preferential rights, that are required for
the consummation of the transactions contemplated hereby by such a party
(except for governmental consents customarily obtained after closing).
4.3 OPERATION OF BUSINESS BY SHERIDAN. Sheridan covenants and
agrees that, unless otherwise expressly contemplated by this Agreement or
consented to in writing by GGP, (x) Sheridan will:
(a) operate its business only in the usual and ordinary
course consistent with past practices;
(b) preserve its business and properties, including its
present operations, leases, working conditions and relationships with
lessors, licensors, suppliers, customers and employees;
(c) maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
and
(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;
and (y) Sheridan will not:
(a) make any declaration for setting aside or payment of
dividends or distributions in respect of shares of Common Stock or any
redemption, purchase or other acquisition of any of its securities;
(b) make any capital expenditures, or commit to make any
capital expenditures, other than in the ordinary course of business;
(c) except for borrowings under the Sheridan Senior
Credit Facility or the incurrence of other obligations in the ordinary
course of business (other than debt for borrowed money), incur any
Indebtedness; and
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(d) amend or modify its Charter or, without the written
consent of GGP, the JEDI I Partnership/Sheridan Purchase Agreement.
4.4 OPERATION OF GGP PROPERTIES BY GGP. GGP covenants and agrees
that, unless otherwise expressly contemplated by this Agreement or consented to
in writing by Sheridan, GGP will use its reasonable efforts to cause the
operator of the GGP Properties to:
(a) operate the GGP Properties only in the usual and
ordinary course consistent with past practices;
(b) preserve the GGP Properties, including its present
operations, leases, working conditions and relationships with lessors,
licensors, suppliers, customers and employees with respect to such
properties;
(c) maintain and keep the GGP Properties in as good
repair and condition as at present, ordinary wear and tear excepted;
(d) keep in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained;
(e) submit to Sheridan for prior written approval, all
requests for operating or capital expenditures to be incurred after
the date hereof and all proposed contracts and agreements to be
entered into by GGP after the date hereof, in each case relating to
the GGP and that involve individual commitments of more than $5,000
and $10,000 in the aggregate; and
(f) obtain Sheridan's written approval prior to voting
under any operating, joint venture, partnership or similar agreement.
Sheridan acknowledges that GGP owns an undivided interest in the GGP
Properties, and Sheridan agrees that the acts or omissions of the other working
interests owners shall not constitute a violation of the provisions of this
Section 5.4, nor shall any action required by a vote of working interest owners
constitute such a violation so long as GGP has voted its interest in a manner
that complies with the provisions of this Section 5.4. To the extent that GGP
is not the operator of any of the GGP Leases, the obligations of GGP in this
Section 5.4 shall be construed to require that GGP use reasonable efforts
(without being obligated to incur any expense or institute any cause of action)
to cause the operator of such leases to take such actions or render such
performance within the constraints of the applicable operating agreements and
other applicable agreements.
4.5 FULL ACCESS. (a) Sheridan will permit representatives of GGP
to have full access at reasonable times during normal business hours, in a
manner that will not interfere with the normal business operations of Sheridan,
to all premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to Sheridan. GGP HEREBY AGREES TO
DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS SHERIDAN AND ITS
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS AND ADVISORS FROM AND
AGAINST
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ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THE ACCESS TO THE PROPERTY OF
SHERIDAN PURSUANT TO THIS SECTION 5.5(a) AND ANY OTHER DUE DILIGENCE ACTIVITY
CONDUCTED BY GGP OR ANY OF ITS OFFICERS, EMPLOYEES, AGENTS OR ADVISORS,
INCLUDING WITHOUT LIMITATION ANY CLAIMS RESULTING, IN WHOLE OR IN PART, FROM
THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF SHERIDAN OR ITS
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS OR ADVISORS. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
(b) GGP will permit representatives of Sheridan to have full
access at reasonable times during normal business hours, in a manner that will
not interfere with the normal business operations of GGP, to all personnel,
books, records (including tax records), contracts and documents of or
pertaining to GGP Properties in GGP's possession. SHERIDAN HEREBY AGREES TO
DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS GGP AND ITS
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS AND ADVISORS FROM AND
AGAINST ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THE ACCESS TO THE
PROPERTY OF GGP PURSUANT TO THIS SECTION 5.5(b) AND ANY OTHER DUE DILIGENCE
ACTIVITY CONDUCTED BY SHERIDAN OR ANY OF ITS OFFICERS, EMPLOYEES, AGENTS OR
ADVISORS, INCLUDING WITHOUT LIMITATION ANY CLAIMS RESULTING, IN WHOLE OR IN
PART, FROM THE CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF GGP OR ITS
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS OR ADVISORS. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
(c) Except as required by law and except for information that is
public, all information relating to the GGP Properties obtained by or on behalf
of Sheridan in connection with its evaluation of the GGP Properties under
Section 5.5(b) shall be kept confidential and shall not be disclosed by
Sheridan or any of Sheridan's employees, agents, representatives or advisors
(collectively, "Sheridan Representatives") in any manner whatsoever, in whole
or in part, unless and until the Closing occurs. Sheridan shall indemnify,
defend and hold harmless GGP, its officers, partners, Affiliates, employees,
agents and advisors from any Claims incurred as the result of the use of such
information by Sheridan or the Sheridan Representatives in contravention of the
terms of this Agreement or the breach by Sheridan or the Sheridan
Representatives of the covenant contained in the preceding sentence.
(d) Except as required by law and except for information that is
public, all information relating to the Sheridan properties obtained by or on
behalf of GGP in connection with this Agreement shall be kept confidential and
shall not be disclosed by GGP or any of GGP's employees, agents,
representatives or advisors (collectively, "GGP Representatives") in any manner
whatsoever, in whole or in part, unless and until the Closing occurs. GGP
shall indemnify, defend and hold harmless Sheridan, its officers, partners,
Affiliates, employees, agents and advisors from any Claims incurred as the
result of the use of such information by GGP or the GGP Representatives in
contravention of the terms of this Agreement or the breach by GGP or the GGP
Representatives of the covenant contained in the preceding sentence.
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4.6 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its representations and warranties under this Agreement.
ARTICLE V.
CLOSING CONDITIONS
5.1 CONDITIONS TO OBLIGATION OF GGP. The obligation of GGP to
consummate the transactions contemplated hereby is subject to satisfaction of
the following conditions:
(a) the representations and warranties contained in
Article III, to the extent qualified as to materiality shall be
accurate in all respects, and, to the extent not so qualified, shall
be accurate in all material respects, as of the Closing Date as though
such representations and warranties had been made at and as of that
time;
(b) Sheridan shall have performed and complied with all of
the covenants and agreements hereunder in all material respects
through the Closing;
(c) no action suit, or proceeding shall be pending before
any Governmental Authority wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation
of any of the transactions contemplated by this Agreement; and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect;
(d) Sheridan shall have delivered to GGP a certificate
from an officer of Sheridan to the effect that each of the conditions
specified above in Section 6.1(a)-(c) is satisfied in all respects;
(e) the conditions to the closing of the transactions
contemplated by the JEDI I Partnership/Sheridan Purchase Agreement
shall have been satisfied and such transaction shall have been
consummated;
(f) the transaction contemplated by the GGP/JEDI I
Termination Agreement shall have been consummated;
(g) the transaction contemplated by the Sharing Agreement
shall have been consummated;
(h) JEDI shall have executed mortgage and deed of trust
lien releases and UCC-3 termination statements releasing mortgage and
deed of trust liens and security interests securing payment of debt
owing under the JEDI Loan Agreement;
(i) BBU II shall have executed mortgage and deed of trust
lien releases and UCC-3 termination statements releasing mortgage and
deed of trust liens and security
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interests securing payment of debt owing under the BBU II/GGP Loan
Agreement and under the BBU II/AmPac Loan Agreement;
(j) the transaction contemplated by the GGP JEDI I
Partnership Termination Agreement shall have been consummated;
(k) the ▇▇▇▇▇ Guaranty Agreement shall have been
terminated and released pursuant to the GGP/JEDI Termination
Agreement.
(l) The transaction anticipated by the BBU II/GGP
Termination Agreement shall have been consummated;
(m) the transaction contemplated by the BBU/AmPac
Termination Agreement shall have been consummated;
(n) JEDI I Partnership shall have executed and delivered
to Sheridan the Registration Rights Agreement in connection with the
consummation of the transactions under the JEDI I Partnership/Sheridan
Purchase Agreement; and
(o) GGP shall have received an opinion of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C., dated as of the Closing Date, that addresses
the matters set forth in Sections 3.1, 3.2, 3.3, 3.13, 3.14, the first
sentence in 3.16 and 3.20 hereof, including such exceptions and
assumptions as are customary in such opinions, in form and substance
reasonably acceptable to GGP.
5.2 CONDITIONS TO OBLIGATION OF SHERIDAN. The obligation of
Sheridan to consummate the transactions contemplated hereby is subject to
satisfaction of the following conditions:
(a) the representations and warranties contained in
Article IV, to the extent qualified as to materiality shall be
accurate in all respects, and, to the extent not so qualified, shall
be accurate in all material respects, as of the Closing Date as though
such representations and warranties had been made at and as of that
time;
(b) GGP shall have performed and complied with all of the
covenants and agreements hereunder in all material respects through
the Closing;
(c) no action, suit, or proceeding shall be pending
before any Governmental Authority wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation
of any of the transactions contemplated by this Agreement, and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect;
(d) GGP shall have delivered to Sheridan a certificate to
the effect that each of the conditions specified above in Section
6.2(a)-(c) is satisfied in all respects;
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(e) the conditions to the closing of the transactions
contemplated by the JEDI I Partnership/Sheridan Purchase Agreement
shall have been satisfied and such transaction shall have been
consummated; and
(f) Sheridan shall have received an opinion of (i)
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., addressing the matters set forth in
Section 4.1, 4.2, and 4.3, in each case, dated as of the Closing Date
and including such exceptions and assumptions as are customary in such
opinions, in form and substance reasonably acceptable to Sheridan.
ARTICLE VI.
OTHER PROVISIONS
6.1 FEES AND COMMISSIONS. Sheridan agrees to pay, and to indemnify
and hold harmless GGP from and against liability for, any compensation to any
finder, broker, agent, financial advisor (other than ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇), or
other intermediary (collectively, an "Intermediary") that it has retained in
connection with the transactions contemplated by this Agreement , and the fees
and expenses of defending against such liability or alleged liability. Each
party shall be responsible for all expenses, including due diligence expenses,
incurred by it in connection with the consummation of the transactions
contemplated by this Agreement.
6.2 NO RESTRICTIONS ON AFFILIATES. As long as GGP or any of its
Affiliates hold any shares of Common Stock, neither Sheridan nor any of its
Subsidiaries will enter into any agreement that would purport to impose
restrictions or limitations on the business, operations or assets of GGP or its
Affiliates.
6.3 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated herein,
Sheridan will not take any action that would be inconsistent with the
representations contained in Sections 3.14 and 3.15 hereof so long as the GGP
or its Affiliates holds any shares of Common Stock. For purposes of this
Section 7.3, the term "Affiliate" when used to refer to Affiliates of GGP,
shall exclude Sheridan and its Subsidiaries.
6.4 BUSINESS OPPORTUNITY MATTERS. (a) Sheridan and GGP
acknowledge and agree that neither GGP nor any of its Affiliates shall be
expressly or implicitly restricted or proscribed pursuant to this Agreement,
the relationship that exists between GGP and Sheridan or otherwise, from
engaging in any type of business activity or owning an interest in any type of
business entity, regardless of whether such business activity is (or such
business entity engages in businesses that are) in direct or indirect
competition with the businesses or activities of Sheridan or any of its
Affiliates. Without limiting the foregoing, GGP and Sheridan acknowledge and
agree that (i) neither Sheridan nor its Affiliates nor any other Person shall
have any rights, by virtue of this Agreement, the relationship that exists
between GGP and Sheridan or otherwise, in any business venture or business
opportunity of GGP or any of its Affiliates, and neither GGP nor its Affiliates
shall have any obligation to offer any interest in any such business venture or
business opportunity to Sheridan, any Affiliate of Sheridan or any other
Person, or otherwise account to any of such Persons in respect of any such
business ventures, (ii) the activities of GGP or any of its Affiliates
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that are in direct or indirect competition with the activities of Sheridan or
any of its Affiliates are hereby approved by Sheridan, and (iii) it shall be
deemed not to be a breach of any fiduciary or other duties, if any and whether
express or implied, that may be owed by GGP or its Affiliates to Sheridan or
its Affiliates for GGP to permit itself or one of its Affiliates to engage in a
business opportunity in preference or to the exclusion of Sheridan, its
Affiliates or any other Person.
(b) Neither Sheridan or its Affiliates shall enter into any "area
of mutual interest" agreement of similar agreement that could or would have the
effect of binding GGP or any of its Affiliates or their respective properties.
(c) Except for duties and obligations owed by Sheridan to GGP or
any of its Affiliates pursuant to this Agreement, any of the Operative
Documents to which GGP or any of its Affiliates is a party, or any other
existing or prospective contract or agreement between Sheridan and GGP or any
of its Affiliates, nothing in the relationship between Sheridan and GGP and its
Affiliates created by this Agreement shall be deemed to create any duty or
obligation of Sheridan to offer any interest in any business venture or
business opportunity to GGP or its Affiliates.
6.5 INDEMNIFICATION. Subject to Sheridan's rights hereunder with
respect to a Claim under the indemnity of GGP set forth in Section 7.5(c)
hereof, as of the Closing, Sheridan hereby assumes (i) all obligations to
properly plug and abandon all ▇▇▇▇▇ and remove all related equipment now
located on the GGP Properties or hereafter placed on the GGP Properties by
Sheridan, its successors and assigns, and cleanup and restore the lands related
to such GGP Properties, and (ii) all other liabilities (other than the Existing
Lawsuit) attributable to the GGP Properties, including liabilities arising
from, attributable to, or alleged to be arising from or attributable to,
personal injury or property damage and any violation of, or the failure to
perform any obligation imposed by, any Environmental Laws (in each case the
assumption by Sheridan is made regardless of whether any such obligation or
liability is attributable to events or periods of time prior to or after the
Effective Date) (such assumed obligations and liabilities being hereinafter
collectively referred to as the "Assumed Obligations").
(b) Sheridan agrees to indemnify, release, defend, and hold
harmless GGP, its partners, and Affiliates, and their respective officers,
directors, employees and agents from, against, and in respect of any and all
claims, demands, losses, reasonable costs and expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties and reasonable attorneys' fees (collectively, "Claims"), that GGP
shall incur or suffer, which arise, result from, or relate to (i) any breach
of, or failure by Sheridan or any of its Subsidiaries to perform, any of its
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by Sheridan or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement, or (ii) the Assumed Obligations.
(c) GGP agrees to indemnify, release, defend, and hold harmless
Sheridan and its Subsidiaries and their respective officers, directors,
employees and agents from, against, and in respect of any and all Claims, that
Sheridan shall incur or suffer, which arise, result from, or relate to (i)
other than with respect to its covenant under Section 7.5(c)(iii) hereof, any
breach of,
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or failure by GGP to perform, any of its representations, warranties,
covenants, or agreements in this Agreement or in any schedule, certificate,
exhibit, or other instrument furnished or to be furnished by GGP in connection
with the transactions contemplated by this Agreement, (ii) the Existing
Lawsuit, (iii) the operation or ownership of the GGP Properties prior to the
Effective Date or (iv) the continued sponsorship by GGP of any group health
plan maintained by GGP and its affiliates with respect to its former or
existing employees subject to the Consolidated Omnibus Budget Reconciliation
Act of 1984 ("COBRA") and any and all COBRA Claims with respect to any
"qualifying event" (as defined therein) that occurs before or on the Closing
Date.
(d) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION
AND EXCULPATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED OR
RELEASED PARTY SHALL BE ENTITLED TO INDEMNIFICATION OR EXCULPATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM
GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE,
CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW
OF OR BY SUCH INDEMNIFIED OR RELEASED PARTY. THE PARTIES AGREE THAT THIS
PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
(e) With respect to the representations, warranties, covenants and
agreements that survive the Closing pursuant to Section 7.6, in no event shall
any amounts be recovered from the indemnifying party under this Section 7.5 or
otherwise for any matter for which a written notice of claim specifying in
reasonable detail the specific nature of the claim ("Claim Notice") is not
delivered to the indemnifying party prior to the time provided in Section 7.6;
provided, however, that such indemnities shall survive with respect only to the
specific matter that is the subject of any Claim Notice delivered in good faith
in compliance with the requirements of this Section 7.5(e) until the earlier to
occur of (A) the date on which a final nonappealable resolution of the matter
described in such Claim Notice has been reached or (B) the date on which the
matter described in such Claim Notice has otherwise reached final resolution.
The indemnifications provided by Sections 7.5(b) and 7.5(c) of this Agreement
are expressly subject to the following: in case any legal proceeding or claim,
including any investigatory proceeding, is brought or made against a party (the
"Indemnified Party") in a matter for which indemnification may be provided
under Sections 7.5(b) and 7.5(c), the Indemnified Party shall within 20
business days notify the other party (the "Indemnifying Party") with the
delivery of the Claim Notice. The Indemnifying Party shall have the right to
control and assume the defense of any such legal proceeding or claim, including
the employment of counsel satisfactory to the Indemnifying Party. If the
Indemnifying Party controls and assumes the defense of any proceeding or claim,
the Indemnified Party shall have the right to employ separate counsel, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless the representation of both parties by the same counsel would be
inappropriate due to any actual or potential conflicts of interest as
determined by counsel to the Indemnifying Party. The Indemnifying Party shall
not be liable for the fees and expenses of more than one separate firm of
attorneys at any one time for the Indemnified Party in connection with any one
legal proceeding or claim or substantially similar related proceedings and
claims. The indemnification obligations of this Section 7.5 shall not apply to
any settlements effected without the consent of the Indemnifying Party. The
indemnification obligations of this
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Section 7.5 shall not be deemed to create any rights of subrogation or other
rights in any insurer or third party.
(f) Except for the parties' rights pursuant to the Registration
Rights Agreement, the Warrant Agreement and the Assignment, each of the parties
hereto acknowledges and agrees that its sole and exclusive remedy with respect
to any and all Claims relating to this Agreement or the transactions
contemplated hereby shall be limited to the indemnification provisions set
forth in this Agreement, and, in furtherance of the forgoing, each party hereby
waives, to the fullest extent permitted under any applicable law, any and all
other rights, claims and causes of action it may have against the other party
with respect to this Agreement or the transactions contemplated hereby.
(g) NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN CONNECTION
WITH ANY CLAIM MADE BY A PARTY AGAINST ANOTHER PARTY HEREUNDER, THE CLAIMING
PARTY SHALL NOT BE ENTITLED TO RECOVER ANY PUNITIVE, CONSEQUENTIAL, SPECIAL,
INCIDENTAL OR INDIRECT DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY EXEMPLARY
DAMAGES, TREBLE DAMAGES, PENALTIES, OR LOSS OF PROFITS OR INCOME), WHETHER
BASED ON STATUTE, IN TORT, CONTRACT OR OTHERWISE, REGARDLESS OF WHETHER SUCH
DAMAGES MAY BE AVAILABLE UNDER APPLICABLE LAW OR OTHERWISE, AND WHETHER OR NOT
ARISING FROM A PARTY'S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY
OR OTHER FAULT, THE PARTIES HERETO HEREBY WAIVING THEIR RIGHT, IF ANY, TO
RECOVER SUCH DAMAGES IN CONNECTION WITH ANY CLAIMS HEREUNDER.
(h) Notwithstanding anything herein to the contrary and, except
for the matters set forth in Section 7.5(c)(ii) and (c)(iv), (i) neither
Sheridan nor GGP shall be required to indemnify the other party hereto (or such
party's related indemnified parties) unless the total amount of all payments
required to be made by such party pursuant to the indemnification provisions
hereof exceeds, in the aggregate, $100,000, in which event the party required
to indemnify the other party shall be liable under such indemnification
provisions for the entire amount and not merely the excess over $100,000, and
(ii) neither Sheridan nor GGP shall be required to indemnify the other party
hereto (or such party's related indemnified parties) under this Agreement in
any amount exceeding in the aggregate $2,750,000.
(i) Notwithstanding anything herein to the contrary, GGP shall not
be obligated to indemnify Sheridan (or such party's related indemnified
parties) pursuant to the provisions of Section 7.5(c)(iii) unless (i) the Claim
by Sheridan for indemnification under Section 7.5(c)(iii) is made as a result
of a Claim brought against Sheridan by a Person that is not an Affiliate of
Sheridan or (ii) the Claim by Sheridan for indemnification under Section
7.5(c)(iii) is made on account of the GGP Properties being in violation of a
Governmental Requirement.
6.6 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations,
warranties, indemnities, and covenants contained herein or made in writing by
any party in connection herewith will survive the execution and delivery of
this Agreement and any investigation made at any time by or on behalf of
Sheridan and GGP; provided, however, that any Claim with respect to the breach
thereof may be made only if the party claiming such breach shall have delivered
a Claim Notice
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to the responsible party hereunder (a) in the case of the representations,
warranties and covenants of Sheridan contained in Sections 2.3 and 2.4 and
Articles 3 and 5 and of GGP contained in Sections 2.3 and 2.4 and Articles 4
and 5, on or before first anniversary of the Closing Date, (b) in the case of
the covenant of GGP contained in Section 7.5(c)(iii), on or before the third
anniversary of the Closing Date and (c) at any time, in the case of all other
provisions. Notwithstanding anything herein to the contrary, in the event the
Closing has not occurred on or before January 15, 1998, because one or more
conditions set forth in Section 6.1 has not been satisfied Sheridan or GGP may
terminate its obligations under this Agreement by written notice to Sheridan;
provided, however, that the provisions of Sections 7.1 and 7.6 shall survive
any such termination.
6.7 DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES. The express
representations and warranties of the parties contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied or statutory. SHERIDAN ACKNOWLEDGES THAT GGP HAS NOT MADE, AND GGP
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND SHERIDAN HEREBY EXPRESSLY WAIVES,
ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (A) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, GAS BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE
RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE GGP PROPERTIES, AND (B)
THE ACCURACY, COMPLETENESS OR MATERIALITY OR ANY INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO SHERIDAN
BY OR ON BEHALF OF GGP. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, GGP EXPRESSLY DISCLAIMS AND NEGATES, AND SHERIDAN HEREBY WAIVES, AS
TO PERSONAL PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE GGP
PROPERTIES (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(IV) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (V) ANY CLAIMS BY SHERIDAN FOR DAMAGES BECAUSE OF REDHIBITORY
VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN AS OF THE
EFFECTIVE DATE OR THE CLOSING DATE, AND (VI) ANY AND ALL IMPLIED WARRANTIES
EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION OF BOTH SHERIDAN
AND GGP THAT THE PERSONAL PROPERTY, EQUIPMENT AND FIXTURES INCLUDED WITHIN THE
GGP PROPERTIES ARE HEREBY CONVEYED TO SHERIDAN IN THEIR PRESENT CONDITION AND
STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS, AND THAT SHERIDAN HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ APPROPRIATE. GGP
AND SHERIDAN AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE
EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE
"CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR
ORDER.
6.8 TRANSFER TAXES AND RECORDING FEES. All sales, use or other
taxes (other than taxes on gross income, net income or gross receipts) and
duties, levies or other governmental charges incurred by or imposed with
respect to the property transfers undertaken pursuant to this
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Agreement and all costs of recording the Assignment shall be the responsibility
of, and shall be paid by Sheridan.
6.9 ACTIONS BY SHERIDAN. Notwithstanding anything herein to the
contrary, GGP shall not be liable for, or in breach of its representations or
covenants hereunder on account of, any actions taken by Sheridan on or with
respect to the GGP Properties prior to the Closing Date.
ARTICLE VII.
MISCELLANEOUS
7.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision
of this Agreement, nor consent to any departure by Sheridan or GGP therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the parties hereto, and then such waiver or consent shall be effective only
in the specific instance or for the specific purpose for which given.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and
the permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of Sheridan shall not be assigned without the prior written consent
of GGP. GGP may not assign or transfer any or all of its rights and
obligations under this Agreement without the consent of Sheridan except
following the Closing, to an Affiliate or to JEDI.
7.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement unless the consummation of the transaction
contemplated hereby is materially and adversely affected thereby.
7.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
7.5 GOVERNING LAW. Each of the parties hereto hereby consents and
agrees that this Agreement shall be deemed a contract and instrument made under
the laws of the State of Texas and shall be construed and enforced in
accordance with and governed by the laws of the State of Texas, without regard
to principles of conflicts of law.
7.6 ENTIRE AGREEMENT. This Agreement, the Operative Documents and
the disclosure letters delivered by the parties hereto constitutes the entire
agreement between Sheridan and GGP concerning the matters referred to herein
and therein, and, supersede all prior agreements and
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understandings among Sheridan and GGP relating to the subject matter hereof and
thereof. There are no unwritten oral agreements between the parties.
7.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
7.8 FURTHER COOPERATION. At any time and from time to time, and at
its own expense, each party shall promptly execute and deliver all such
documents and instruments, and do all such acts and things, as the other party
may reasonably request in order to further effect the purposes of this
Agreement.
7.9 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given
to such party at its address or telecopy number set forth on the signature
pages hereof or such other address or telecopy number as such party may
hereafter specify by notice to the other parties.
7.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any party hereto in exercising any right or remedy under this
Agreement and no course of dealing among the parties hereto shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
under this Agreement preclude any other or further exercise thereof or the
exercise of any other right or remedy under this Agreement. No notice to or
demand on any party hereto not otherwise required by this Agreement shall
entitle such party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of such party to any other
or further action in any circumstances without notice or demand.
7.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER. (a) The
exhibits attached to this Agreement and the Sheridan Disclosure Letter and the
GGP Disclosure Letter are incorporated herein and shall be considered to be a
part of this Agreement for the purposes stated herein, except that in the event
of any conflict between any of the provisions of such exhibits or schedules and
the provisions of this Agreement, the provisions of this Agreement shall
prevail.
(b) Each of Sheridan and GGP may, from time to time, prior to the
Closing, by written notice to the other party, supplement or amend such party's
disclosure letter to correct any matter that would constitute a breach of any
representation or warranty of such party herein contained; provided, however,
except as provided in the following sentence, no such supplement or amendment
will affect the rights or obligations of the parties to this Agreement
(including without limitation hereof) until after the Closing Date.
Notwithstanding any other provision hereof, if the Closing occurs, any such
supplement or amendment of such disclosure letter will be effective to cure and
correct for indemnification purposes (but only for such purposes) any breach of
any representation, warranty or covenant that would have existed by reason of
not having made such supplement or amendment.
7.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim
arising out of or relating to this Agreement or the transactions contemplated
hereby (a "Dispute") shall be submitted
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to non-binding mediation upon the request of Sheridan or GGP on the following
terms. Upon the request of either party, a neutral mediator acceptable to both
parties (the "Mediator") shall be appointed within fifteen (15) days. The
Mediator shall attempt, through negotiations in any manner deemed reasonably
appropriate by the Mediator, in which the parties shall participate, to resolve
the Dispute. The Mediator shall be compensated at a rate agreeable to
Sheridan, GGP and the Mediator, and each of Sheridan and GGP shall pay one-half
of such compensation and other expenses of the mediation.
(b) In the event that the Dispute has not been resolved within 30
days after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 8.12, the Commercial Arbitration
Rules of the AAA, and, to the maximum extent applicable, the United States
Arbitration Act. Judgment on any matter rendered by arbitrators may be entered
in any court having jurisdiction. Any arbitration shall be conducted before
three arbitrators. The arbitrators shall be individuals knowledgeable in the
subject matter of the Dispute. Each party shall select one arbitrator and the
two arbitrators so selected shall select the third arbitrator. If, within 10
days after notice, a party fails to select an arbitrator, that party's
arbitrator shall be selected by the AAA pursuant to Rule 14 of the Commercial
Arbitration Rules. If the third arbitrator is not selected within thirty (30)
days after the request for an arbitration, then any party may request the AAA
to select the third arbitrator. The arbitrators may engage engineers,
accountants or other consultants they deem necessary to render a conclusion in
the arbitration proceeding. To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in Houston,
Texas. Arbitrators shall be empowered to impose sanctions and to take such
other actions as the arbitrators deem necessary to the same extent a judge
could impose sanctions or take such other actions pursuant to the Federal Rules
of Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and
any engineer, accountant or other consultant engaged by the arbitrators, shall
be shared equally unless otherwise awarded by the arbitrators.
(c) Nothing in this Section 8.12 shall limit or delay the right of
GGP to exercise the remedies available to it under the Warrant Agreement or the
Registration Rights Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SHERIDAN ENERGY, INC.
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇. ▇. ▇▇▇▇▇▇▇▇, President
Address for Notice:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇▇▇
Telecopy:
-----------------------------
GRAND GULF PRODUCTION, L.L.C.
a Texas limited liability company
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Title: C.E.O.
--------------------------------
Address for Notice:
Grand Gulf Production, L.L.C.
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
Fax: 713/▇▇▇-▇▇▇▇
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EXHIBIT A
FORM OF WARRANT
EXHIBIT A
Page 1
48
EXHIBIT B
FORM OF ASSIGNMENT AND ▇▇▇▇ OF SALE
EXHIBIT B
Page 1