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STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SHERIDAN ENERGY, INC.
AND
ENRON CAPITAL TRADE & RESOURCES CORP.
DATED
NOVEMBER 28, 1997
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TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS.........................................................1
ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES.........................................7
2.2 CLOSING.............................................................7
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 CORPORATE EXISTENCE.................................................7
3.2 CORPORATE POWER AND AUTHORIZATION...................................7
3.3 BINDING OBLIGATIONS.................................................8
3.4 NO VIOLATION........................................................8
3.5 CONSENTS............................................................8
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS..............................8
3.7 LIABILITIES; INDEBTEDNESS...........................................9
3.8 LITIGATION..........................................................9
3.9 MATERIAL CONTRACTS AND COMMITMENTS..................................9
3.10 TITLE TO PROPERTIES AND ASSETS; LEASES.............................11
3.11 COMPLIANCE WITH THE LAW............................................11
3.12 TAXES..............................................................11
3.13 EMPLOYEE BENEFIT MATTERS...........................................12
3.14 INVESTMENT COMPANY ACT.............................................13
3.15 PUBLIC UTILITY HOLDING COMPANY ACT.................................13
3.17 CAPITALIZATION.....................................................13
3.18 SUBSIDIARIES.......................................................14
3.19 ENVIRONMENTAL MATTERS..............................................14
3.20 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS..................16
3.21 NO PUBLIC OFFER....................................................16
3.22 INSURANCE..........................................................16
3.23 CERTAIN TRANSACTIONS...............................................16
3.24 USE OF PROCEEDS; MARGIN REGULATIONS................................17
3.25 PLUGGING AND ABANDONMENT OBLIGATIONS...............................17
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3.26 NO MATERIAL MISSTATEMENTS OR OMISSIONS.............................17
3.27 PIONEER TRANSACTIONS...............................................17
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 CORPORATE EXISTENCE................................................17
4.2 CORPORATE POWER AND AUTHORIZATION..................................17
4.3 BINDING OBLIGATIONS................................................18
4.4 NO VIOLATION.......................................................18
4.5 PURCHASE FOR INVESTMENT............................................18
4.6 FEES AND COMMISSIONS...............................................18
ARTICLE V.
COVENANTS
5.1 GENERAL............................................................18
5.2 NOTICES AND CONSENTS...............................................18
5.3 OPERATION OF BUSINESS..............................................18
5.4 FULL ACCESS........................................................19
5.5 NOTICE OF DEVELOPMENTS.............................................19
ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF BUYER..................................20
6.2 CONDITIONS TO OBLIGATION OF SELLER.................................21
ARTICLE VII.
REGISTRATION RIGHTS
7.1 DEFINITIONS........................................................22
7.2 PIGGYBACK REGISTRATION.............................................22
7.3 DEMAND REGISTRATION................................................22
7.4 DELAY IN REGISTRATION..............................................23
7.5 DESIGNATION OF UNDERWRITER.........................................23
7.6 EXPENSES...........................................................23
7.7 INDEMNITIES........................................................24
7.8 OBLIGATIONS OF SELLER..............................................26
7.9 ASSIGNMENT OF REGISTRATION RIGHTS..................................27
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7.10 LOCKUPS............................................................27
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS...........................27
ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS...............................................28
8.2 USE OF PROCEEDS....................................................28
8.3 NO RESTRICTIONS ON AFFILIATES......................................28
8.4 CERTAIN PUBLIC UTILITY MATTERS.....................................28
8.5 STANDSTILL.........................................................28
8.6 BUSINESS OPPORTUNITY MATTERS.......................................29
8.7 INDEMNIFICATION....................................................29
8.8 SURVIVAL OF TERMS; FAILURE TO CLOSE................................30
8.9 INFORMATION AND MEETINGS...........................................30
8.10 COMMODITY PRICE RISK PROGRAM.......................................30
8.11 NUMBER OF BOARD OF DIRECTORS.......................................30
8.12 OPTION.............................................................31
ARTICLE IX.
MISCELLANEOUS
9.1 AMENDMENTS; WAIVERS................................................31
9.2 SUCCESSORS AND ASSIGNS.............................................31
9.3 SEVERABILITY.......................................................31
9.4 DESCRIPTIVE HEADINGS...............................................32
9.5 GOVERNING LAW......................................................32
9.6 ENTIRE AGREEMENT...................................................32
9.7 EXECUTION IN COUNTERPARTS..........................................32
9.8 FURTHER COOPERATION................................................32
9.9 NOTICES............................................................32
9.10 NO WAIVER; REMEDIES CUMULATIVE.....................................32
9.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER................32
9.12 DISPUTE RESOLUTION.................................................33
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EXHIBITS
Exhibit A - Form of Certificate of Designation
Exhibit B - Form of Shareholders' Agreement
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of November
28, 1997, by and between Sheridan Energy, Inc., a Delaware corporation
("Seller"), and Enron Capital Trade & Resource Corp., a Delaware corporation
("Buyer").
RECITALS
Seller desires to issue and sell to Buyer, and Buyer desires to
purchase, subject to the terms and conditions set forth herein, (i) up to
1,765,000 shares of Common Stock (as hereinafter defined), and (ii) 1,000,000
shares of a new series of senior cumulative preferred stock of Seller as
hereinafter described.
Seller and Pioneer Natural Resources, Inc. ("Pioneer") have entered
into a Purchase and Sale Agreement dated November 13, 1997 (as the same may be
amended as permitted under this Agreement, the "Pioneer Purchase Agreement"),
pursuant to which Seller will purchase from Pioneer certain of the oil and gas
properties located in Oklahoma and the Gulf Coast Region owned by Pioneer,
together with all of Pioneer's interest in and to all personal property,
equipment, fixtures and data relating thereto, all as is more particularly
described therein (collectively, the "Pioneer Properties"). Seller has agreed to
use the consideration to be paid by Buyer for the Shares (as hereinafter
defined) for, among other things, part of the purchase price under the Pioneer
Purchase Agreement.
It is the desire of Seller and Buyer that the transactions contemplated
by this Purchase Agreement and the Pioneer Purchase 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 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
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"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 (i) all executive officers and directors
of a Person shall be deemed to be Affiliates of such Person, and (ii)
for avoidance of doubt, Enron Corp. and its Affiliates shall be deemed
to be Affiliates of Buyer.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations
arising under any lease of property which, in accordance with GAAP,
would be capitalized on Seller'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.
"CERTIFICATE OF DESIGNATION" means the Certificate of
Designation relating to the Series A Preferred Stock, a form of which
is attached hereto as Exhibit A.
"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 8.7.
"CLOSING" shall have the meaning assigned to such term in
Section 2.2.
"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.
"COMMODITY PRICE RISK PROGRAM" means a program designed to
benefit from, or reduce or eliminate the risk of, fluctuations in the
price of hydrocarbons produced and sold from properties that are now or
hereafter owned by Seller or its Subsidiaries that are or could be
classified as "proved developed producing" by an independent petroleum
engineering consulting firm.
"COMMON STOCK" means the common stock, par value $.01 per
share, of Seller.
"CONSOLIDATED" refers to the consolidation of financial
statements in accordance with GAAP.
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"DISCLOSURE LETTER" means that certain disclosure letter of
even date herewith delivered to Buyer by Seller relating to Seller's
disclosures in connection with its representations and warranties
hereunder.
"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 Seller or any Subsidiary
conducts business or at any time has conducted business, or where any
of their properties or operations or the Pioneer Properties 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.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with Seller or a Subsidiary of Seller
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.
"FEE LETTER" means that certain letter agreement of even date
herewith regarding Seller's agreement to pay a structuring fee to ECT
Securities Corp.
"GAAP" means generally accepted accounting principles
(including principles of consolidation), in effect from time to time,
consistently applied.
"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.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization
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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.
"GRAND GULF LOI" means that certain letter of intent dated
October 31, 1997 among Seller, the JEDI Entities and Grand Gulf
Production L.L.C.
"GRAND GULF TRANSACTIONS" means the transactions contemplated
by the Grand Gulf LOI.
"INADVERTENT PURCHASE" means any purchase of Common Stock, or
securities convertible into or exchangeable for shares of Common Stock,
by any Subsidiary of Buyer or the JEDI Entities on or prior to the
second anniversary of the Closing Date that is made (a) without the
actual knowledge of such Subsidiary with respect to the restriction set
forth in Section 8.5 hereof, and (b) without any purpose or intent to
increase the percentage of the Common Stock owned or controlled by
Buyer and its Affiliates.
"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 Seller,
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 postemployment
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.
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"INTERMEDIARY" shall have the meaning assigned to such term in
Section 8.1.
"JEDI ENTITIES" means Joint Energy Development Investments
Limited Partnership and JEDI Hydrocarbons Investments I Limited
Partnership
"KNOWLEDGE" or "KNOWN" means, with respect to Seller, those
individuals listed in Section 1.1 of the Disclosure Letter,
individually or collectively, have conducted such investigations and
inquiries that 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 is true
and accurate or (b) have no reason to believe that the matter being
represented and warranted is not true and accurate.
"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.
"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 Seller and its Subsidiaries on a Consolidated basis
assuming the consummation of the Pioneer Transactions, (b) the ability
of Seller to meet its obligations under this Agreement or with respect
to the payment of dividends on, or redemption of, the Series A
Preferred Stock on a timely basis 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, (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 Disclosure Letter shall not constitute a Material
Adverse Effect.
"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 Seller and its
Subsidiaries as currently conducted and as proposed to be conducted by
Seller and its Subsidiaries after the Closing.
"PERMITTED LIENS" means (a) Liens created pursuant to the
Seller Senior Credit Facility, (b) Liens for taxes not yet due and
payable, (c) statutory Liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar liens) arising in connection
with the ordinary course of business securing payments not yet due and
payable, 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 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 Seller's or its Subsidiaries current or proposed operations.
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"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.
"PIONEER" shall have the meaning assigned to such term in the
recitals hereof.
"PIONEER PURCHASE AGREEMENT" shall have the meaning assigned
to such term in the recitals hereof.
"PIONEER PROPERTIES" shall have the meaning assigned to such
term in the recitals hereof.
"PIONEER TRANSACTIONS" means the transactions contemplated by
the Pioneer Purchase Agreement.
"PLAN" shall have the meaning assigned to such term in Section
3.13(a)(i).
"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.
"SELLER SENIOR CREDIT FACILITY" means that certain First
Amended and Restated Credit Agreement to be entered into by Seller, as
the borrower and Bank One Texas, N.A., as the lender, in connection
with the funding of the acquisition of the Pioneer Properties.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock,
par value $0.01, having the relative rights, preferences, privileges
and limitations set forth in the Certificate of Designation.
"SHARES" shall have the meaning assigned to such term in
Section 2.1.
"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.
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ARTICLE II.
SALE AND PURCHASE OF SHARES; CLOSING
2.1 SALE AND PURCHASE OF SHARES. 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 (a) Seller agrees to
deliver to Buyer, and Buyer agrees to accept, 1,600,000 shares of Common Stock
for $6.25 per share, and (b) Seller agrees to deliver to Buyer, and Buyer agrees
to accept, 1,000,000 shares of Series A Preferred Stock for $10.00 per share of
such Series A Preferred Stock. The shares of Common Stock and Series A Preferred
Stock to be acquired by Buyer hereunder are hereinafter referred to as the
"Shares."
2.2 CLOSING. The closing of the sale and purchase of the Shares (the
"Closing") will occur on the earlier to occur of (i) January 15, 1998, and (ii)
the date of the closing of the Pioneer Transactions (the "Closing Date"), or on
such other date as may be agreed by the parties, at the offices of ▇▇▇▇▇▇ &
▇▇▇▇▇▇ L.L.P. At the Closing, Seller will, upon receipt of the purchase price
for the Shares by wire transfer of immediately available funds to an account
designated by Seller, or by such other method as is mutually agreed to by the
Buyer and Seller, deliver to Buyer (or its designee) the Shares, duly executed
and registered in the name of Buyer or its designee. Prior to the Closing,
Seller shall have filed with the Secretary of State of Delaware the Certificate
of Designation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 CORPORATE EXISTENCE. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller 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. Seller is duly 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 Material Adverse Effect. On or before the date hereof Seller has
delivered to Buyer's counsel true and complete copies of Seller's Certificate of
Incorporation and bylaws, together with all amendments thereto. Except for the
Certificate of Designation, no other amendment to Seller's Certificate of
Incorporation has been approved by the Board of Directors or stockholders of the
Corporation or filed with the Delaware Secretary of State.
3.2 CORPORATE POWER AND AUTHORIZATION. Seller is duly authorized and
empowered to issue the Shares and to execute, deliver, and perform this
Agreement and to consummate the transactions contemplated hereby and thereby.
All action on Seller's part requisite for the due issuance of the Shares and for
the due execution, delivery, and performance of this Agreement has been duly and
effectively taken. The execution and delivery of this Agreement and the
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consummation of the transactions to be performed by Seller have been duly and
validly authorized by all necessary action on the part of the Board of
Directors of Seller, and no other corporate proceedings are necessary to
authorize the execution and delivery of this Agreement by Seller or to
consummate the transactions to be performed by Seller, other than filing the
Certificate of Designation with the Secretary of State of Delaware prior to the
Closing Date.
3.3 BINDING OBLIGATIONS. This Agreement, when executed and delivered,
shall constitute a legal, valid and binding obligation of Seller enforceable in
accordance with its 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 Buyer at the Closing upon
payment therefor as provided in this Agreement, the Shares will be validly
issued, fully paid and nonassessable and free and clear of any Liens.
3.4 NO VIOLATION. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein and contemplated hereby,
and the fulfillment by Seller of the terms hereof, will not (a) conflict with or
result in a breach of any provision of the Charter or bylaws or other
organizational document of Seller or any of its Subsidiaries, (b) result in any
default or in any material modification of the terms of any material contract,
agreement, obligation, commitment applicable to Seller or its Subsidiaries, or
the creation of any Lien upon any of the properties or assets owned by Seller or
any of its Subsidiaries, (c) 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 Seller or any of its Subsidiaries is a party or
by which Seller or any of its Subsidiaries may be bound, or (d) violate any
Governmental Requirement or Permit applicable to Seller or any of its
Subsidiaries.
3.5 CONSENTS. 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 Seller or any of its
Subsidiaries is bound or to which it or any of its Subsidiaries is subject, and
required in connection with Seller's valid execution, delivery, or performance
of this Agreement, and the consummation of the transactions contemplated hereby
has been obtained or made. To the knowledge of Seller and its Subsidiaries and
except as would not have a Material Adverse Effect, upon the consummation of the
Pioneer Transactions, 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 Seller or any of its
Subsidiaries will be bound or to which it or any of its Subsidiaries will be
subject, with respect to the Pioneer Properties, shall have been obtained or
made.
3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Seller 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
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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 Seller 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 Seller 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 Seller 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 Material Adverse Effect
with respect to Seller.
3.7 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in the
ordinary course of business and that would not, individually or in the
aggregate, have a Material Adverse Effect, Seller and its Subsidiaries do not
have (and, to the knowledge of Seller and its Subsidiaries, upon the
consummation of the Pioneer Transactions, will not have) any liabilities, direct
or contingent (including but not limited to liability with respect to any Plan
or, to Seller's knowledge, any Environmental Law) other than those provided for
in the Interim Balance Sheet or disclosed in Section 3.7 of the Disclosure
Letter. Except as would not have a Material Adverse Effect, Seller and its
Subsidiaries have (and to the knowledge of Seller and its Subsidiaries, upon the
consummation of the Pioneer Transactions, will have) no Indebtedness other than
the Indebtedness disclosed in Section 3.7 of the Disclosure Letter.
3.8 LITIGATION. Except as disclosed in Section 3.8 of the 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
Seller, threatened against Seller or any of its Subsidiaries or any material
property of Seller or any Subsidiary thereof before any Governmental Authority
(i) which challenges the validity of this Agreement, or (ii) which, if adversely
determined, would have a Material Adverse Effect. To the knowledge of Seller,
there is no action, suit or proceeding, or any governmental investigation or any
arbitration, in each case pending or threatened affecting the Pioneer Properties
before any Governmental Authority which if adversely determined, would have a
Material Adverse Effect.
3.9 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth in
Section 3.9 of the Disclosure Letter and except for the Pioneer Purchase
Agreement and the agreements relating to the Grand Gulf Transactions, Seller and
its Subsidiaries have no (i) employment or consulting contracts involving annual
payments by Seller or its Subsidiaries in excess of $100,000 and not cancelable
without liability on sixty days' notice or less; (ii) capital redemption or
purchase
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agreements; (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) any gas sales or purchase
contract, gas marketing agreement or transportation agreement under which Seller
or its Subsidiaries is the seller, which contract or agreement is for a term of
greater than one year and provides for a fixed price; (vi) any agreement for
capital expenditures, the acquisition of commodities, equipment or material or
the construction of fixed assets which requires aggregate future payments by
Seller or its Subsidiaries in excess of $250,000; (vii) any agreement for, or
that contemplates, the sale of any interest in oil or gas leases which involves
payment (including property received in exchange or other non-cash
consideration) to Seller or its Subsidiaries in excess of $500,000; (viii) any
agreement which requires future payments by Seller 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 Seller 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 Seller 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 Indebtedness described
on Section 3.7 of the Disclosure Letter) (collectively, "Material Contracts").
Except as set forth in Section 3.9 of the Disclosure Letter hereof or as
specifically disclosed in the Pioneer Purchase Agreement, Seller has no
knowledge of any agreements of the types described in subsections (i)-(xii)
above that will be applicable to Seller or its Affiliates upon the consummation
of the Pioneer Transactions. None of the Material Contracts have been amended or
modified except as set forth in Section 3.9 of the Disclosure Letter.
(b) All of the Material Contracts and the Pioneer Purchase Agreement
are in full force and effect and constitute legal, valid and binding obligations
of Seller or its Subsidiaries, as applicable, and, to the knowledge of Seller,
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. Neither Seller (or Seller's Subsidiaries, if applicable)
nor, to the knowledge of Seller, any other party to any Material Contract or the
Pioneer Purchase Agreement, 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 Seller (or
Seller's Subsidiaries, if applicable) or, to the knowledge of Seller, any other
party thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) Neither Seller nor its Subsidiaries has any government contracts or
subcontracts. Seller has provided counsel to Buyer with a true and complete copy
of each contract, agreement and instrument listed in Section 3.9 of the
Disclosure Letter or has otherwise made such documents available for Buyer to
review.
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3.10 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set forth in
Section 3.10 of the Disclosure Letter or as would not have a Material Adverse
Effect, (i) Seller or its Subsidiaries has defensible title to all of its
properties and assets (real and personal, tangible and intangible) reflected on
the Interim Balance Sheet, and (ii) to the knowledge of Seller, upon the
consummation of the Pioneer Transactions and the filing of the assignments from
Pioneer to Seller covering the Pioneer Properties in the appropriate
county/parish records, Seller will have defensible title to the Pioneer
Properties, in each case free and clear of all Liens except the Permitted Liens.
To Seller's knowledge, all equipment now owned by Seller or its Subsidiaries (or
included in the Pioneer Properties) which is necessary to the business of Seller
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 Material Adverse Effect.
(b) Except as set forth in Section 3.10 of the Disclosure Letter, but
only to the knowledge of Seller or its Subsidiaries with respect to oil and gas
leases not operated by any of Seller or its Subsidiaries and the Pioneer
Properties, the oil and gas leases in which Seller or its Subsidiaries own an
interest (and, upon the acquisition of the Pioneer Properties, will own an
interest) (i) have been (and, upon the acquisition of the Pioneer Properties, to
the knowledge of Seller will 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 would
not have a Material Adverse Effect, and (ii) are (and, upon the acquisition of
the Pioneer Properties, will be) in full force and effect, except where the
failure to be in full force and effect would not have a Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties and
other payments due with respect to the oil and gas properties of Seller and its
Subsidiaries have been properly and correctly paid, except where the failure to
make such payment would not have a Material Adverse Effect. To the knowledge of
Seller and its Subsidiaries, upon the acquisition of the Pioneer Properties, all
royalties, overriding royalties, compensatory royalties and other payments due
with respect to such properties shall have been properly and correctly paid,
except where the failure to make such payment would not have a Material Adverse
Effect.
3.11 COMPLIANCE WITH THE LAW. Neither Seller nor any of its
Subsidiaries (i) is (or to the knowledge of Seller and its Subsidiaries, upon
the consummation of the Pioneer Transactions, will be) in violation of any
Governmental Requirement or (ii) has failed to obtain any Permit, necessary to
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
Material Adverse Effect. Upon the consummation of the Pioneer Transactions,
Seller will have obtained all Permits known to Seller to be necessary to the
ownership of the Pioneer Properties, except where the failure to obtain such
Permits would not have a Material Adverse Effect.
3.12 TAXES. Seller and its Subsidiaries (i) have filed all tax returns
and reports ("Tax Returns") required to be filed by or with respect to Seller 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 Seller or any of its
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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
Seller or any of its Subsidiaries which would have a Material Adverse Effect.
3.13 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 Seller or any of its Subsidiaries for the benefit of the employees,
former employees, independent contractors, or agents of Seller 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 3.13(a)(i) and which
is sponsored, maintained, or contributed to by Seller or any of its
Subsidiaries for the benefit of the employees, former employees,
independent contractors, or agents of Seller 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 Seller nor any corporation, trade, business, or
entity under common control with Seller, 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 Seller or any Commonly Controlled Entity at any
time within six years prior to the Closing Date contributed to or had
an obligation to 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
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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 Seller 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. Neither Seller nor any of its Subsidiaries
is a party to any agreement, nor has Seller 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
Seller 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.
3.14 INVESTMENT COMPANY ACT. Neither Seller 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.
3.15 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Seller nor any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of 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.
3.16 NO RESTRICTIONS ON AFFILIATES. Except for any existing agreement
between Seller (or a Subsidiary of Seller) and an Affiliate of Buyer that
imposes restrictions or limitations on such Affiliate of Buyer, neither Seller
nor any of its Subsidiaries is (and, to the knowledge of Seller and its
Subsidiaries, upon consummation of the Pioneer Transactions, will be) a party to
any agreement that would purport to impose restrictions or limitations on Buyer
or any of its Affiliates.
3.17 CAPITALIZATION. The authorized capital stock of Seller consists of
(i) 20,000,000 shares of Common Stock, of which 4,281,471 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, none of which have been
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issued or are outstanding. Section 3.17 of the Disclosure Letter sets forth the
name and address of each person known to Seller to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock. Except for the shares of
Common Stock and warrants to purchase Common Stock to be issued in connection
with the Grand Gulf Transactions and 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 Seller or
its Subsidiaries. All of the outstanding shares of Common Stock are validly
issued, fully paid, and nonassessable.
3.18 SUBSIDIARIES. (a) Section 3.18 of the Disclosure Letter contains
(except as noted therein) a complete and correct list of Seller's Subsidiaries,
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 Seller and each other
Subsidiary. Except for the Subsidiaries, Seller does not own (and, upon the
consummation of the Pioneer Transactions will 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 3.18 of the Disclosure Letter as
being owned by Seller and its Subsidiaries have been validly issued, are fully
paid and nonassessable, and are owned by Seller or such other Subsidiaries free
and clear of any Liens (except as otherwise disclosed in Section 3.18 of the
Disclosure Letter).
(c) No Subsidiary of Seller 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 Seller or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of such
Subsidiary.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Section
3.19 of the Disclosure Letter:
(a) to the knowledge of Seller and its Subsidiaries, the
properties and operations of Seller and its Subsidiaries are not, and
upon the consummation of the Pioneer Transactions, the Pioneer
Properties will not be, 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 Material Adverse
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Effect, nor are there, and upon consummation of the Pioneer
Transactions will there be, 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 Material Adverse Effect;
(b) without limitation of Section 3.19(a) above, Seller and
its Subsidiaries are not subject to any pending or, to the knowledge of
Seller, 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 Material Adverse Effect, to the
knowledge of Seller all notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by Seller 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 Seller 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 Material Adverse Effect, all
hazardous substances or solid wastes generated by or as a result of
operations on properties owned by Seller and its Subsidiaries (and to
the knowledge of Seller, upon the consummation of the Pioneer
Transactions, on the Pioneer 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 Seller, 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 Material Adverse Effect, to the
knowledge of Seller there are (and, upon consummation of the Pioneer
Transactions, there will be) no asbestos-containing materials on or in
any property owned or used by Seller and its Subsidiaries, and there
are (and, upon consummation of the Pioneer Transactions, there will be)
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 Seller
there is (and upon consummation of the Pioneer Transactions, 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 its properties and the Pioneer Properties; and
(g) Section 3.19 of the Disclosure Letter also separately
lists for Seller and each Subsidiary any and all Claims against or
affecting it and relating to the release, discharge or
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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 non-compliance 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 3.19 of the 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 3.19 of the Disclosure Letter, neither Seller nor any
Subsidiary has received any written notice that it is a potentially
responsible party under any Environmental Laws.
3.20 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Seller 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 as now conducted and as proposed to be conducted following the
consummation of the Pioneer Transactions, without infringing upon or violating
any right, Lien, or claim of others, and (ii) except as described in Section
3.20 of the 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.
3.21 NO PUBLIC OFFER. Neither Seller nor anyone acting on its behalf
has offered to any Person securities of Seller, 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.
3.22 INSURANCE. Seller has previously provided to Buyer true and
complete copies of all of Seller's and its Subsidiaries' insurance policies.
Seller 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.
Seller 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.
3.23 CERTAIN TRANSACTIONS. Except as set forth on Section 3.24 of the
Disclosure Letter, (a) neither Seller 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 Seller 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 Seller or any of its
Subsidiaries.
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3.24 USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds from the
issuance of Shares will be used by Seller only in accordance with the provisions
of Section 8.2 hereof. No part of the proceeds from the issuance of Shares will
be used by Seller to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock. Neither the
purchase of the Shares nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Federal
Reserve Board.
3.25 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in
Section 3.25 of the Disclosure Letter and as would not have a Material Adverse
Effect, there is no well located upon any property owned by Seller or its
Subsidiaries (and to the knowledge of Seller and its Subsidiaries, upon the
acquisition of the Pioneer Properties, there will be no well located upon the
Pioneer Properties) that Seller or its Subsidiaries is currently obligated (or
would be obligated immediately following the acquisition of the Pioneer
Properties) by law or contract to plug and abandon.
3.26 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. To the knowledge of Seller, there is
no fact or information relating to the business, prospects, condition (financial
or otherwise), affairs, operations, or assets of Seller or any of its
Subsidiaries or the Pioneer Transactions that has not been disclosed to Buyer in
writing by Seller which would result in a Material Adverse Effect.
3.27 PIONEER TRANSACTIONS. Except as set forth in Section 3.27 of the
Disclosure Letter or as would not have a Material Adverse Effect, neither Seller
nor its Subsidiaries has any knowledge of any fact, event, condition or
circumstance that would cause (i) the representations (without regard to any
materiality or material adverse effect qualifications in such representations)
made by Pioneer under the Pioneer Purchase Agreement to be untrue, or (ii) the
representations (without regard to any materiality or material adverse effect
qualifications in such representations) made by Seller in this Article III to be
untrue upon the consummation of the transactions contemplated by the Pioneer
Purchase Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER\
Buyer represents and warrants to Seller as follows:
4.1 CORPORATE EXISTENCE. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
4.2 CORPORATE POWER AND AUTHORIZATION. Buyer is duly authorized and
empowered to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby and thereby. All action on Buyer's part
requisite for the due execution, delivery, and performance of this Agreement has
been duly and effectively taken. The execution and delivery of this Agreement
and the consummation of the transactions to be performed by Buyer have been duly
and validly authorized by all necessary action on the part of the Board of
Directors of Buyer, and no
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other corporate proceedings are necessary to authorize the execution and
delivery of this Agreement by Buyer or to consummate the transactions to be
performed by Buyer.
4.3 BINDING OBLIGATIONS. This Agreement, when executed and delivered,
shall constitute a legal, valid and binding obligation of Buyer enforceable in
accordance with its 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.
4.4 NO VIOLATION. The execution and delivery of this Agreement, the
consummation of the transactions provided for herein and contemplated hereby,
and the fulfillment by Buyer of the terms hereof, will not (a) conflict with or
result in a breach of any provision of the Charter or bylaws or other
organizational document of Buyer, (b) result in any default or in any material
modification of the terms of any material contract, agreement, obligation,
commitment applicable to Buyer, (c) require any consent or approval (which has
not been obtained or waived) under any material instrument or material
obligation to which Buyer is a party or by which Buyer may be bound, or (d)
violate any Governmental Requirement applicable to Buyer.
4.5 PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares 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. Buyer acknowledges that the Shares 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.
4.6 FEES AND COMMISSIONS. Buyer has not retained any Intermediary in
connection with the transactions contemplated by this Agreement.
ARTICLE V.
COVENANTS
The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
5.1 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).
5.2 NOTICES AND CONSENTS. Seller will give any notices to third
parties, and will use all reasonable efforts to obtain all third party consents,
that are required for the consummation of the transactions contemplated hereby.
5.3 OPERATION OF BUSINESS. Seller covenants and agrees that, unless
otherwise expressly contemplated by this Agreement (including Seller's
performance under the terms of the Pioneer Purchase Agreement, the execution of
the Seller Senior Credit Facility and the execution and
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consummation of agreements relating to the Grand Gulf Transactions) or
consented to in writing by Buyer, (x) Seller 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) Seller 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 Seller 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
(d) amend or modify its Charter (except as set forth in the
Certificate of Designation) or, without the written consent of Buyer,
the Pioneer Purchase Agreement.
5.4 FULL ACCESS. Seller will permit representatives of Buyer to have
full access at reasonable times during normal business hours, in a manner that
will not interfere with the normal business operations of Seller, to all
premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to Seller and, to the extent it has the
right to do so, the Pioneer Properties.
5.5 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. Seller shall give Buyer
prompt written notice of any breach by Pioneer of its representations,
warranties or covenants under the Pioneer Purchase Agreement.
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ARTICLE VI.
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer 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) Seller 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) the conditions to the closing of the Pioneer Transactions
set forth in the Pioneer Purchase Agreement shall have been satisfied
without having been waived, no event or circumstance shall exist that
would give Seller the right to terminate the Pioneer Purchase Agreement
and the Pioneer Transactions shall have been consummated;
(e) the terms of the transactions contemplated by the Seller
Senior Credit Facility shall be in accordance with the terms and
conditions set forth in the commitment dated November 20, 1997 from
Bank One Texas, N.A. to Seller and such transactions shall have been
consummated and the amounts thereunder that are necessary for the
acquisition of the Pioneer Properties shall have been funded by the
lender;
(f) the Certificate of Designation shall have been filed with
the Secretary of State of Delaware prior to the Closing Date.
(g) there shall have not occurred any events or developments,
individually or in the aggregate, resulting in a Material Adverse
Effect;
(h) Seller shall have paid all amounts payable pursuant to the
Fee Letter;
(i) if requested by Buyer, two designees of Buyer shall have
been appointed to the Board of Directors of Seller;
(j) all consents and approvals required for the consummation
of the transactions contemplated hereby shall have been obtained;
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(k) the Board of Directors of Seller shall have adopted and
approved a Commodity Price Risk Program covering a period of one to
three years, which program shall be in written form and shall be
mutually acceptable to Seller and Buyer;
(l) Seller shall have delivered to Buyer a certificate from an
officer of Seller to the effect that each of the conditions specified
above in Section 6.1(a)-(k) is satisfied in all respects;
(m) Seller and Buyer shall have entered a Shareholders'
Agreement with Seller's shareholder, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and his spouse
(the "Susskinds"), providing for an agreement by the Susskinds not to
sell, transfer or otherwise dispose of more than 10% of their shares of
Common Stock for a period of one year after the Closing Date and to
vote their shares for Buyer's nominees to Seller's Board of Directors,
in the form attached hereto as Exhibit B;
(n) Buyer 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, 3.4, 3.14, 3.15, the first
sentence in 3.17 and 3.21 hereof, including such exceptions and
assumptions as are customary in such opinions, in form and substance
reasonably acceptable to Buyer.
6.2 CONDITIONS TO OBLIGATION OF SELLER. The obligations of Seller to
consummate the transactions contemplated hereby are 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) Buyer shall have performed and complied with all of the
covenants 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; and
(d) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified above in Section
6.2(a)-(c) is satisfied in all respects.
(e) Seller shall have received an opinion of (i) ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, General Counsel of Buyer, addressing the matters set forth in
Section 4.1 and 4.2, and (ii) ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. addressing the
matters set forth in Section 4.4, 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 Seller.
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ARTICLE VII.
REGISTRATION RIGHTS
The following provisions govern the registration of Seller's
securities:
7.1 DEFINITIONS. As used in this Article VII, the following terms have
the following meanings:
"HOLDERS" means the holders of Registrable Shares (which initially
shall be Buyer and/or its designee) and shall include transferees
to whom Holders are permitted to assign rights hereunder pursuant
to Section 7.9.
"INITIATING HOLDERS" shall mean Holders holding no less than
250,000 Registrable Shares.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
"REGISTRABLE SHARES" means the shares of Common Stock issued by
Seller to Buyer pursuant to this Agreement, and any shares of
Common Stock (including shares of Common Stock issuable upon the
exercise of options, warrants or other convertible or exchangeable
securities) received on or after the date hereof by Buyer (or any
Affiliate of Buyer) from Seller or otherwise in a transaction not
involving a public offering within the meaning of the Securities
Act.
7.2 PIGGYBACK REGISTRATION. If Seller at any time proposes to register
any shares of Common Stock (or securities convertible into or exercisable or
exchangeable for Common Stock), other than in a demand registration pursuant to
Section 7.3 of this Agreement and other than in a registration on Form S-4 or
Form S-8, it shall give notice to the Holders of such intention 20 days prior to
the filing of a registration statement with respect to such shares. Upon the
written request of any Holder given within 20 days after receipt of any such
notice, Seller shall include in such registration all of the Registrable Shares
indicated in such request, so as to permit the disposition of the shares so
registered. Notwithstanding any other provision of this Section 7.2, if the
managing underwriter advises Seller that marketing factors require a limitation
of the number of shares to be underwritten, the managing underwriter may limit
the number of shares that may be included in such registration and the reduced
number of shares, if any, to be sold shall be allocated among the Seller,
participating Holders and other persons participating in such registration in
proportion to the number of shares proposed to be sold by each party prior to
the imposition of a limitation by the managing underwriter. The rights of a
Holder to participate in a registration pursuant to this Section 7.2 shall
terminate at such time as such Holder hold less than 2% of the outstanding
shares of Common Stock.
7.3 DEMAND REGISTRATION. At any time and from time to time, one or more
Initiating Holders may request in writing that all or part of the Registrable
Shares shall be registered for sale
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under the Securities Act. Within 5 days after receipt of any such request,
Seller shall give written notice of such request to the other Holders and shall
include in such registration all Registrable Shares held by all such Holders who
wish to participate in such demand registration and provide Seller with written
requests for inclusion therein within 15 days after the receipt of Seller's
notice. Thereupon, Seller shall effect the registration of all Registrable
Shares as to which it has received requests for registration specified in the
request for registration. Seller shall not be required to effect any such
registration prior to the first anniversary date hereof; provided, however, that
the Initiating Holders may request registration hereunder prior to the first
anniversary hereof and in such event Seller shall undertake to issue the notices
referred to herein prior to such first anniversary so as to permit the filing of
registration statement promptly after such first anniversary. Notwithstanding
any other provision of this Article VII, if the managing underwriter advises the
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then there shall be excluded from such registration
and underwriting to the extent necessary to satisfy such limitation, first
shares to be offered by Seller or by shareholders other than the Holders, and
second, to the extent necessary, and only if all shares to be offered by Seller
and by shareholders other than Holders have been excluded, Registrable Shares.
Seller may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan) to be initiated after a registration requested pursuant to this
Section 7.3 and to become effective less than 90 days after the effective date
of any registration requested pursuant to this Section 7.3. Seller shall not be
required to effect more than three registrations pursuant to this Section 7.3.
7.4 DELAY IN REGISTRATION. If Seller shall furnish to the Holders a
certificate signed by the President of Seller stating that in the good faith
judgment of the Board of Directors of Seller it would be seriously detrimental
to Seller for a registration statement to be filed at such time or would
materially adversely affect a pending or proposed public offering of Seller's
securities, Seller shall have the right to defer the filing of a registration
statement requested pursuant to Section 7.3 hereof for a period of not more than
90 days after receipt of the request of the Holders under Section 7.3; provided,
however, that (i) Seller shall not utilize this right more than once in any
12-month period and (ii) except with respect to the first deferment of the
filing of a registration statement required pursuant to Section 7.3 because of
any pending or proposed public offering of Seller's securities, in the event of
any such pending or proposed public offering of Seller's securities, up to 25%
of the shares to be included in the registration for such public offering shall
be Registrable Shares at the request of such Holders.
7.5 DESIGNATION OF UNDERWRITER. In the case of any registration
effected pursuant to Section 7.3, the managing underwriter shall be reasonably
acceptable to the Initiating Holders and Seller.
7.6 EXPENSES. All expenses incurred in connection with any registration
under Sections 7.2 or 7.3 shall be borne by Seller; provided, however, that (i)
each of the Holders participating in such registration shall pay its pro rata
portion of the fees, discounts or commissions payable to any underwriter, and
(ii) the Holders participating in a third registration made pursuant to Section
7.3 shall bear their proportionate part of all SEC and NASD filing fees and
one-half of all other expenses incurred in connection with any such
registration.
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7.7 INDEMNITIES. In the event of any registered offering of Common
Stock pursuant to this Article VII:
(a) Seller will indemnify and hold harmless, to the fullest
extent permitted by law, any Holder and any underwriter for such
Holder, and each person, if any, who controls the Holder or such
underwriter, from and against any and all losses, damages, claims,
liabilities, joint or several, costs and expenses (including any
amounts paid in any settlement effected with Seller's consent) to which
the Holder or any such underwriter or controlling person may become
subject under applicable law or otherwise, insofar as such losses,
damages, claims, liabilities (or actions or proceedings in respect
thereof), costs or expenses arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or included in the prospectus,
as amended or supplemented, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading, and Seller
will reimburse the Holder, such underwriter and each such controlling
person of the Holder or the underwriter, promptly upon demand, for any
reasonable legal or any other expenses incurred by them in connection
with investigating, preparing to defend or defending against or
appearing as a third party witness in connection with such loss, claim,
damage, liability, action or proceeding; provided, however, that Seller
will not be liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in strict conformity with written information
furnished by a Holder to the managing underwriter specifically for
inclusion therein; provided, further, that the indemnity agreement
contained in this subsection 7.7(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of Seller, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf
of the selling Holder, the underwriter or any controlling person of the
selling Holder or the underwriter, and regardless of any sale in
connection with such offering by the selling Holder. Such indemnity
shall survive the transfer of securities by a selling Holder.
(b) Each Holder participating in a registration hereunder will
indemnify and hold harmless Seller, any underwriter for Seller, and
each person, if any, who controls Seller or such underwriter, from and
against any and all losses, damages, claims, liabilities, costs or
expenses (including any amounts paid in any settlement effected with
the selling Holder's consent) to which Seller or any such controlling
person and/or any such underwriter may become subject under applicable
law or otherwise, insofar as such losses, damages, claims, liabilities
(or actions or proceedings in respect thereof), costs or expenses arise
out of or are based on (i) any untrue or alleged untrue statement of
any material fact contained in the registration statement or included
in the prospectus, as amended or supplemented, or (ii) the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
and each such Holder will reimburse Seller, any underwriter and each
such controlling person of Seller or any underwriter, promptly upon
demand, for any reasonable legal or other expenses incurred by them in
connection with investigating,
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preparing to defend or defending against or appearing as a third party
witness in connection with such loss, claim, damage, liability, action
or proceeding; in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in strict conformity with written
information furnished by such Holder to the managing underwriter
specifically for inclusion therein; provided, however, that the
indemnity agreement contained in this subsection 7.7(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the consent
of such Holder, which consent shall not be unreasonably withheld. In no
event shall the liability of any Holder exceed the gross proceeds
received by such Holder from the offering.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of subsections 7.7(a) or (b) of notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said subsections 7.7(a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than to the extent
the party to be notified is actually prejudiced thereby. In case such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any
action include both the indemnified party and the indemnifying party
and there is a conflict of interests which would prevent counsel for
the indemnifying party from also representing the indemnified party,
the indemnified party or parties shall have the right to select one
separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said subsections 7.7(a)
or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i)
the indemnified party shall have employed counsel in accordance with
the provision of the preceding sentence, (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action and
within 15 days after written notice of the indemnified party's
intention to employ separate counsel pursuant to the previous sentence,
or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such
claim or litigation.
(d) If recovery is not available under the foregoing
indemnification provisions with respect to a matter referred to in
Sections 7(a) or 7(b) hereof, for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof
shall be
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entitled to contribution to liabilities and expenses as more fully set
forth in an underwriting agreement to be executed in connection with
such registration. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the
parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances; provided that no
party shall be required to contribute an amount in excess of the amount
it would have been required to pay pursuant to the foregoing
indemnification provisions if they had been available.
7.8 OBLIGATIONS OF SELLER. Whenever required under this Article VII to
effect the registration of any Registrable Shares, Seller shall, as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Shares covered by such registration
statement;
(c) furnish to the Holder such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Shares owned by them;
(d) in the event of any underwritten public offering, enter in
to and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering; each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement;
(e) notify each Holder of Registrable Shares covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material act or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) cause all Registrable Shares registered pursuant hereunder
to be listed on each securities exchange on which similar securities
issued by Seller are then listed;
(g) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereunder and a CUSIP number for all such
Registrable Shares in each case not later than the effective date of
such registration; and
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(h) furnish, at the request of any Holder requesting
registration of Registrable Shares pursuant to this Section, on the
date that such Registrable Shares are delivered to the underwriters for
sale in connection with a registration pursuant to this Article VII, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing
Seller for the purposes of such registration, in form and substance as
is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Shares and (ii) a letter dated
such date, from the independent certified public accountants of Seller,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Shares.
7.9 ASSIGNMENT OF REGISTRATION RIGHTS. Any Holder may assign all of its
rights under this Article VII to any transferee who acquires 100,000 or more
Registrable Shares. The transferor shall, within 20 days after such transfer,
furnish Seller with written notice of the name and address of such transferee
and the securities with respect to which such registration rights are being
assigned.
7.10 LOCKUPS. Each Holder agrees, so long as such Holder holds 2% or
more of the outstanding shares of Common Stock, that upon request by the
managing underwriter in any underwriting of Common Stock or securities
convertible into or exchangeable for Common Stock, it will agree not to sell or
otherwise dispose of its shares of Common Stock without the consent of such
managing underwriter for such period of time (which may not exceed 180 days)
from the effective date of the registration statement as may be requested by
such underwriters; provided, however, that the obligations of such Holders
pursuant to this Section 7.10 shall be conditioned upon the receipt by such
underwriters of lockup agreements for the same period of time and on the same
terms as the time period and terms requested of such Holders from each executive
officer, director and holder of 10% or more of the outstanding shares of Common
Stock.
7.11 SUBSEQUENT GRANTS OF REGISTRATION RIGHTS. After the date hereof,
except with respect to the Grand Gulf Transactions, Seller will not enter into
any agreement granting any holder or prospective holder of any securities of
Seller registration rights (i) unless such registration rights include lockup
provisions which are the same as those provisions set forth in Section 7.10
hereof, and (ii) unless any demand registration rights granted to such holders
or prospective holders expressly permit the Holders to participate in any such
demand registration and provide for cutbacks as requested by a managing
underwriter on a pro rata basis among such holders or prospective holders and
any Holders electing to participate in such offering on a pro rata basis based
on the number of shares for which registration is requested.
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ARTICLE VIII.
OTHER PROVISIONS
8.1 FEES AND COMMISSIONS. Seller agrees to pay, and to indemnify and
hold harmless Buyer from and against liability for, any compensation to any
finder, broker, agent, financial advisor, or other intermediary (collectively,
an "Intermediary") in connection with the transactions contemplated by this
Agreement , and the fees and expenses of defending against such liability or
alleged liability. Seller further agrees to pay to Buyer on demand and whether
or not the transactions contemplated by this Agreement are consummated, all
legal, professional and other bills and costs incurred by Buyer and its
Affiliates in connection with the negotiation and preparation of this Agreement
and the evaluation of, and due diligence investigation with respect to, the
transactions contemplated hereby (including, without limitation, survey, title
due diligence and filing fees and expenses, whether incurred by Buyer, its
Affiliates or counsel or other third party professionals); provided, however,
Seller shall only be liable for the first $75,000 of Buyer's third party legal
fees and 50% of such legal fees that exceed $75,000. Seller shall also pay all
the amounts required to be paid by Seller in accordance with the Fee Letter.
8.2 USE OF PROCEEDS. The entire amount of the cash proceeds from the
issuance of the Shares shall be used by Seller on the Closing Date to pay a
portion of the purchase price under the Pioneer Purchase Agreement and for
general corporate purposes.
8.3 NO RESTRICTIONS ON AFFILIATES. As long as Buyer or any of its
Affiliates hold any shares of Common Stock or Series A Preferred Stock, neither
Seller 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 Buyer or its Affiliates. For purposes of this Section 8.3, the term
"Affiliate" when used to refer to Affiliates of Buyer, shall exclude Seller and
its Affiliates.
8.4 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated herein,
Seller will not take any action that would be inconsistent with the
representations contained in Sections 3.15 and 3.16 hereof so long as the Buyer
or its Affiliates holds any shares of Common Stock or Series A Preferred Stock.
For purposes of this Section 8.4, the term "Affiliate" when used to refer to
Affiliates of Buyer, shall exclude Seller and its Affiliates.
8.5 STANDSTILL. For two years after the Closing Date, none of Buyer,
the JEDI Entities or their respective Subsidiaries (a) will purchase any
additional shares of Common Stock, or securities convertible into or
exchangeable for shares of Common Stock, other than (i) in transactions approved
by the Board of Directors of Seller, (ii) the purchase of shares of Common Stock
in connection with the Grand Gulf Transaction acquisition, (iii) the purchase of
shares of Common Stock pursuant to the provisions of Section 8.12 hereof, or
(iv) an Inadvertant Purchase, and (b) make or participate in making any
solicitation of proxies to vote Common Stock of Seller or form, join or
participate in a "group" for the purpose of the foregoing without the approval
of the Board of Directors of the Seller. Notwithstanding anything herein to the
contrary, the provisions of this Section 8.5 shall terminate and have no further
force or effect if (x) at any time in which Buyer and its Affiliates hold more
than 14% of the issued and outstanding shares of Common Stock, less than two
designees of Buyer are elected to Seller's Board of Directors within 30 days
after Buyer has
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requested the nomination and election of such designees, or (y) at any time in
which Buyer and its Affiliates hold in the range of 7% through 14% of the issued
and outstanding shares of Common Stock, one designee of Buyer is not elected to
Seller's Board of Directors within 30 days after Buyer has requested the
nomination and election of such designee (including as a result of the death or
voluntary resignation of such a designee). Other than as expressly provided
herein, Buyer will be free to exercise its rights as a stockholder, voting or
otherwise, and regardless of whether the exercise of such rights might influence
management, the Board of Directors or the stockholders of Seller. Buyer agrees
that in the event that it transfers more than 10% of the issued and outstanding
shares of Common Stock (determined as of the time of such transfer), then the
transferee of such shares shall be bound by the restrictions set forth in this
Section 8.5 to the extent the same are in full force and effect at the time of
such transfer.
8.6 BUSINESS OPPORTUNITY MATTERS. (a) Seller and Buyer acknowledge and
agree that neither Buyer nor any of its Affiliates shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement, the relationship
that exists between Buyer and Seller 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 Seller or any of its Affiliates. Without limiting the foregoing,
Buyer and Seller acknowledge and agree that (i) neither Seller nor its
Affiliates nor any other Person shall have any rights, by virtue of this
Agreement, the relationship that exists between Buyer and Seller or otherwise,
in any business venture or business opportunity of Buyer or any of its
Affiliates, and neither Buyer nor its Affiliates shall have any obligation to
offer any interest in any such business venture or business opportunity to
Seller, any Affiliate of Seller or any other Person, or otherwise account to any
of such Persons in respect of any such business ventures, (ii) the activities of
Buyer or any of its Affiliates that are in direct or indirect competition with
the activities of Seller or any of its Affiliates are hereby approved by Seller,
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 Buyer or its
Affiliates to the Seller or its Affiliates for Buyer to permit itself or one of
its Affiliates to engage in a business opportunity in preference or to the
exclusion of Seller, its Affiliates or any other Person.
(b) Neither Seller or its Affiliates shall enter into any "area of
mutual interest" agreement of similar agreement that could or would have the
effect of binding Buyer or any of its Affiliates or their respective properties.
(c) For purposes of this Section 8.6, the term "Affiliate" when used to
refer to Affiliates of Buyer, shall exclude Seller and its Affiliates.
8.7 INDEMNIFICATION. Seller agrees to indemnify, defend, and hold
harmless Buyer and each Affiliate of Buyer 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 Buyer
shall incur or suffer, which arise, result from, or relate to (a) any breach of,
or failure by Seller 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 Seller or any of its Subsidiaries in connection with the
transactions contemplated by this
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Agreement, or in the Charter of Seller or any of its Subsidiaries or (b) any
claims of any applicable Governmental Authority or other Person arising under
any Governmental Requirement (including without limitation any Environmental Law
or regulation under ERISA).
8.8 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 Buyer;
provided, however, that any Claim with respect to the breach thereof may be made
only if the party claiming such breach shall have notified the responsible party
hereunder (a) in the case of the representations and warranties of Seller
contained in Article 3 and of Buyer contained in Article 4 and the covenants of
Seller contained in Article V, on or before first anniversary of the Closing
Date, and (b) 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 Article VI
has not been satisfied, Buyer may terminate its obligations under this Agreement
by written notice to Seller; provided, however, that the provisions of Sections
8.1 and 8.7 shall survive any such termination.
8.9 INFORMATION AND MEETINGS. For so long as Buyer and its Affiliates
hold any shares of Common Stock or Series A Preferred Stock, Buyer shall be
entitled to (a) receive notice of each meeting of the Board of Directors of
Seller or each matter to be acted on by consent (in each case as provided for
directors in the bylaws of Seller) and, so long as Buyer and its Affiliates hold
7% or more of the issued and outstanding shares of Common Stock, to have (i) two
observers present at each such meeting if Buyer and its Affiliates hold more
than 14% of the issued and outstanding shares of Common Stock or (ii) one
observer present at each such meeting if Buyer and its Affiliates hold in the
range of 7% through 14% of the issued and outstanding shares of Common Stock
(and any such observers shall enter into a confidentiality agreement with the
Seller providing for such observers to keep confidential any confidential or
proprietary information which such observer obtains from any such meeting of the
Seller's Board of Directors, provided that the information to be kept
confidential shall not include information which (x) is or becomes generally
available to the public other than as a result of acts by the observers, (y) was
in the observers' or Buyer's, or Buyer's Affiliate's, possession prior to the
date it was disclosed to the observers, or (z) is or becomes available to
observers or Buyer, or Buyer's Affiliate, on a nonconfidential basis from a
source other than Seller or its Subsidiaries), (b) to receive, promptly after
they are produced, all management reports and management accounts relating to
Seller and its Subsidiaries and (c) upon reasonable notice, to have reasonable
access to the books and records of Seller and its Subsidiaries, including
statutory books, minutes books, accounting records and customer lists.
8.10 COMMODITY PRICE RISK PROGRAM. Seller shall, and shall cause its
Subsidiaries to, comply with the Commodity Price Risk Program adopted by the
Board of Directors of Seller on or prior to the Closing as contemplated pursuant
to Section 6.1(k) hereof, and neither Seller nor any of its Subsidiary shall
amend or modify such program without the prior written consent of Buyer.
8.11 NUMBER OF BOARD OF DIRECTORS. Seller agrees that it shall not
increase the size of its Board of Directors to a number greater than seven
(inclusive of Buyer's two designees), unless otherwise necessary to permit the
holders of the Series A Preferred Stock to exercise their rights with respect to
the election of directors to serve on the Board of Directors of Seller.
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8.12 OPTION. (a) In the event that the Grand Gulf Transactions are not
consummated on or before January 15, 1998, then Buyer shall have the option (the
"Option") to purchase 165,000 shares of Common Stock of Seller from Seller for
the price equal to the par value of each Option Share (the "Option Price"). To
exercise the Option, Buyer shall deliver a written notice ("Option Notice") to
Seller on or before the second business day following January 15, 1998, stating
its intention to purchase the Option Stock in accordance with the terms hereof.
The closing shall occur at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. on the fifth
business day after the exercise of such Option, unless Seller and Buyer agree in
writing upon a different place or date. At the closing of the sale of the Option
Stock from Seller to Buyer, the following actions shall occur:
(i) Seller shall deliver a certificate or certificates for the
Option Shares, duly executed and registered in the name of Buyer or its
designee; and
(ii) Buyer shall pay the Option Price to Seller in immediately
available funds.
(b) Seller agrees that, when issued to Buyer at the closing of the sale
of the Option Shares upon payment of the Option Price therefor, the Option
Shares will be validly issued, fully paid and non-assessable, and free and clear
of any Liens.
ARTICLE IX.
MISCELLANEOUS
9.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by Seller therefrom, shall in any
event be effective unless the same shall be in writing and signed by Buyer (and,
in the case of Article VII hereof, Buyer and each permitted transferee of Buyer
or Buyer of the rights thereunto), and then such waiver or consent shall be
effective only in the specific instance or for the specific purpose for which
given.
9.2 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 Seller shall not be assigned without the prior written consent of
Buyer. Buyer may not assign or transfer any or all of its rights and obligations
under this Agreement without the consent of Seller except (i) prior to the
Closing, to an Affiliate with respect to which it has the power to direct or
cause the direction of the management and policies of such Affiliate (whether
through voting, by contract or otherwise), (ii) following the Closing, to an
Affiliate, and (iii) as provided in Section 7.9 hereof.
9.3 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
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of this Agreement unless the consummation of the transaction contemplated hereby
is materially and adversely affected thereby.
9.4 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.
9.5 GOVERNING LAW. Seller 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.
9.6 ENTIRE AGREEMENT. This Agreement, the Fee Letter and the Disclosure
Letter constitutes the entire agreement among Seller and Buyer concerning the
matters referred to herein and therein, and, except only with respect to the
break up fee described in the commitment letter between Seller and Buyer dated
November 14, 1997, supersede all prior agreements and understandings among
Seller and Buyer relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between or among the parties.
9.7 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.
9.8 FURTHER COOPERATION. At any time and from time to time, and at its
own expense, Seller shall promptly execute and deliver all such documents and
instruments, and do all such acts and things, as Buyer may reasonably request in
order to further effect the purposes of this Agreement.
9.9 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.
9.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
Buyer in exercising any right or remedy under this Agreement and no course of
dealing among Seller and Buyer 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. The rights and remedies expressly provided are
cumulative and not exclusive of any rights or remedies that Buyer would
otherwise have. No notice to or demand on Seller not otherwise required by this
Agreement or shall entitle Seller to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Buyer to
any other or further action in any circumstances without notice or demand.
9.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER. The exhibits
and the Disclosure Letter attached to this Agreement 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
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between any of the provisions of such exhibits or schedules and the provisions
of this Agreement, the provisions of this Agreement shall prevail. Seller may,
from time to time, prior to the Closing, by written notice to Buyer, supplement
or amend the Disclosure Letter to correct any matter that would constitute a
breach of any representation or warranty of such Seller 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 Buyer's rights and obligations
under Section 6.1(a) hereof) until after the Closing Date. Notwithstanding any
other provision hereof, if the Closing occurs, any such supplement or amendment
of the 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 Seller
not having made such supplement or amendment.
9.12 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 to non-binding mediation upon the request of
Seller or Buyer 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 Seller, Buyer and the Mediator, and each of Seller and
Buyer shall pay its pro rata share 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 9.12, 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 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 9.12 shall limit or delay the right of
Buyer to exercise the remedies available to it under the Certificate of
Designation.
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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:
---------------------------
ENRON CAPITAL TRADE &
RESOURCES CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Address for Notice:
Enron Capital and Trade Resources
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇
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