EXHIBIT 10.2
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PURCHASE AGREEMENT
BY AND BETWEEN
SHERIDAN ENERGY, INC.
AND
GRAND GULF PRODUCTION, L. L. C.
DATED AS OF
DECEMBER 31, 1997
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TABLE OF CONTENTS
ARTICLE I.
Definitions
1.1 Definitions........................................................ 2
ARTICLE I.
Sale and Purchase; Closing
1.1 Sale and Purchase..................................................12
1.2 Closing............................................................12
1.3 Ownership, Revenues and Expenses of GGP Properties.................12
1.4 Certain Reassignments..............................................13
ARTICLE II.
Representations and Warranties of Sheridan
2.1 Corporate Existence................................................13
2.2 Corporate Power and Authorization..................................14
2.3 Binding Obligations................................................14
2.4 No Violation.......................................................14
2.5 Consents...........................................................15
2.6 SEC Documents and Financial Statements.............................15
2.7 Liabilities; Indebtedness..........................................16
2.8 Litigation.........................................................16
2.9 Title to Properties and Assets; Leases.............................16
2.10 Compliance with the Law............................................16
2.11 Taxes..............................................................17
2.12 Employee Benefit Matters...........................................17
2.13 Investment Company Act.............................................18
2.14 Public Utility Holding Company Act.................................18
2.16 Capitalization.....................................................19
2.17 Subsidiaries.......................................................19
2.18 Environmental Matters..............................................20
2.19 Intellectual Property and Other Intangible Assets..................21
2.20 No Public Offer....................................................21
2.21 Insurance..........................................................21
2.22 Certain Transactions...............................................22
2.23 Plugging and Abandonment Obligations...............................22
2.24 No Material Misstatements or Omissions.............................22
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ARTICLE III.
Representations and Warranties of GGP
3.1 Existence..........................................................23
3.2 Power and Authorization............................................23
3.3 Binding Obligations................................................23
3.4 No Violation.......................................................24
3.5 Consents and Preferential Purchase Rights..........................24
3.6 Litigation.........................................................24
3.7 Title to Properties and Assets; Leases.............................24
3.8 Compliance with the Law............................................25
3.9 Environmental Matters..............................................25
3.10 Purchase for Investment............................................26
3.11 Fees and Commissions...............................................26
ARTICLE IV.
Covenants
4.1 General............................................................28
4.2 Notices and Consents...............................................28
4.3 Operation of Business by Sheridan..................................28
4.4 Operation of GGP Properties by GGP.................................29
4.5 Full Access........................................................29
4.6 Notice of Developments.............................................31
ARTICLE V.
Closing Conditions
5.1 Conditions to Obligation of GGP....................................31
5.2 Conditions to Obligation of Sheridan...............................32
ARTICLE VI.
Other Provisions
6.1 Fees and Commissions...............................................33
6.2 No Restrictions on Affiliates......................................33
6.4 Business Opportunity Matters.......................................33
6.5 Indemnification....................................................34
6.6 Survival of Terms; Failure to Close................................36
6.7 Disclaimers of Representations and Warranties......................37
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6.8 Transfer Taxes and Recording Fees..................................37
ARTICLE VII.
Miscellaneous
7.1 Amendments; Waivers................................................38
7.2 Successors and Assigns.............................................38
7.3 Severability.......................................................38
7.4 Descriptive Headings...............................................38
7.5 Governing Law......................................................38
7.6 Entire Agreement...................................................38
7.7 Execution in Counterparts..........................................39
7.8 Further Cooperation................................................39
7.9 Notices............................................................39
7.10 No Waiver; Remedies Cumulative.....................................39
7.11 Exhibits; Schedules; Amendment of Disclosure Letter................39
7.12 Dispute Resolution.................................................39
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EXHIBITS
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Exhibit A - Form of Warrant Agreement
Exhibit B - Form of Assignment and ▇▇▇▇ of Sale
Exhibit C - Form of Registration Rights Agreement
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is dated as of December 31,
1997, by and between Sheridan Energy, Inc., a Delaware corporation ("Sheridan"),
and Grand Gulf Production, L.L.C., a Texas limited liability company ("GGP").
RECITALS
Sheridan desires to issue and sell to GGP, subject to the terms and
conditions set forth herein, (i) 467,500 shares of Common Stock (the "Shares"),
and (ii) Warrants to purchase up to 82,500 shares of Common Stock in exchange
for substantially all of GGP's oil and gas properties, together with all of
GGP's interest in and to personal property, equipment, fixtures and data
relating thereto , including the office equipment and 3-D seismic data described
in Schedule III attached hereto, LESS AND EXCEPT and GGP hereby excludes from
the foregoing all 2-D seismic information, licenses and data relating to the GGP
Leases, to the extent that the same is not transferable without consent, payment
or penalty (collectively, the "GGP Properties").
Simultaneously herewith, (i) Sheridan is entering into an agreement with
JEDI Hydrocarbon Investments I Limited Partnership, a Delaware limited
partnership ("JEDI I Partnership") (the "JEDI I Partnership/Sheridan Purchase
Agreement") pursuant to which Sheridan will acquire all of JEDI I Partnership's
right, title and interest in and to certain oil and gas properties, together
with all personal property, equipment, fixtures and data relating thereto,
including the 3-D seismic data described in Schedule III attached hereto, LESS
AND EXCEPT all 2-D seismic information, licenses and data relating to the JEDI I
Leases, to the extent that the same is not transferable without consent, payment
or penalty, in exchange for 382,500 shares of Common Stock and warrants to
purchase up to 67,500 shares of Common Stock, (ii) GGP is entering into a
termination and release agreement with JEDI I Partnership (the "GGP/JEDI I
Partnership Termination Agreement") pursuant to which GGP and JEDI I Partnership
will terminate the Farmout Agreement and the Participation Agreement, (iii) GGP
is entering into an agreement (the "GGP/JEDI Termination Agreement") with Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"), pursuant to which JEDI will terminate all of the
outstanding debt obligations of GGP to JEDI under the JEDI Loan Agreement in
exchange for the transfer by GGP to JEDI of 467,500 shares of Common Stock and
warrants to purchase up to 82,500 shares of Common Stock, (iv) JEDI will release
and terminate the ▇▇▇▇▇ Guaranty Agreement pursuant to the GGP/JEDI Termination
Agreement, (v) BBU Mezzanine Fund II, a California limited partnership ("BBU
II") is entering into a sharing agreement with JEDI (the "Sharing Agreement")
pursuant to which BBU II and JEDI will agree to the sharing of proceeds from the
sale of certain shares of Common Stock and warrants of Sheridan transferred to
JEDI by GGP, (vi) BBU II and GGP are entering into an agreement (the "BBU II/GGP
Termination Agreement") pursuant to which BBU II will terminate the BBU II/GGP
Loan Agreement (vii) BBU Mezzanine Fund, a California limited partnership
("BBU"), BBU II, AmPac Oil & Gas, Inc., a Texas corporation ("AmPac") and GGP
are entering into an agreement (the "BBU/AmPac Termination Agreement") pursuant
to which the BBU/AmPac Letter Agreement will be terminated
and (viii) BBU II and AmPac are entering into an agreement (the "BBU II/AmPac
Termination Agreement") pursuant to which the BBU II/AmPac Loan Agreement will
be terminated.
It is the desire of Sheridan and GGP that the transactions contemplated by
this Purchase Agreement, the JEDI I Partnership/Sheridan Purchase Agreement, the
GGP/JEDI I Partnership Termination Agreement, the GGP/JEDI Termination
Agreement, the Sharing Agreement, the BBU/AmPac Termination Agreement and the
BBUII/GGP Termination Agreement shall close simultaneously in accordance with
the terms and conditions set forth herein and therein.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
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1.1 DEFINITIONS. In addition to the capitalized terms defined elsewhere
in this Agreement, the following capitalized terms shall have the following
respective meanings when used in this Agreement:
"AFFILIATE" as applied to any specified Person means any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such specified Person. The term "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of 10% or more of the voting power (or
in the case of a Person which is not a corporation, 10% or more of the
ownership interest, beneficial or otherwise) of such Person or the power
otherwise to direct or cause the direction of the management and policies
of that Person, whether through voting, by contract or otherwise. For
purposes of this paragraph, "voting power" of any Person means the total
number of votes which may be cast by the holders of the total number of
outstanding shares of equity of any class or classes of such Person in any
election of directors (or Persons performing similar functions) of such
Person. For purposes of this Agreement all executive officers and
directors of a Person shall be deemed to be Affiliates of such Person. For
purposes of this Agreement (i) all executive officers and directors of a
Person shall be deemed to be Affiliates of such Person, (ii) for avoidance
of doubt, Enron Corp. and its Affiliates shall be deemed to be Affiliates
of JEDI I Partnership, (iii) Sheridan and its Subsidiaries shall not be
considered Affiliates of JEDI I Partnership or its Affiliates, and (iv)
JEDI I Partnership and its Affiliates shall not be considered Affiliates of
Sheridan and its Subsidiaries.
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"ASSIGNMENT" means the Assignment and ▇▇▇▇ of Sale in the form of
Exhibit B hereto.
"AMPAC" shall have the meaning assigned to such term in the recitals.
"BBU" shall have the meaning assigned to such term in the recitals.
"BBU/AMPAC LETTER AGREEMENT" means that certain letter agreement,
dated October 3, 1994, among BBU, BBU II, AmPac and GGP.
"BBU/AMPAC TERMINATION AGREEMENT" shall have the meaning assigned to
such term in the recitals.
"BBU II" shall have the meaning assigned to such term in the recitals.
"BBU II/GGP TERMINATION AGREEMENT" shall have the meaning assigned to
such term in the recitals.
"BBU II/AMPAC LOAN AGREEMENT" means that certain Term Credit
Agreement, dated as of October 30, 1992, between AmPac and BBU II, as
amended by that certain First Amendment to Term Credit Agreement, dated
effective as of December 1, 1994, between AmPac and BBU II.
"BBU II/GGP LOAN AGREEMENT" means that certain Loan Agreement, dated
October 3, 1994, between BBU II and GGP, as amended by (i) that certain
Amendment to Loan Agreement and Rights Agreement, dated effective as of
February 23, 1995, between BBU II and GGP and (ii) that certain Second
Amendment to Loan Agreement, dated effective May 3, 1995, between BBU II
and GGP.
"CAPITALIZED LEASE OBLIGATIONS" means all payment obligations arising
under any lease of property which, in accordance with GAAP, would be
capitalized on Sheridan's or any of its Subsidiary's balance sheet or for
which the amount of the asset and liability thereunder as if so capitalized
should, in accordance with GAAP, be disclosed in a note to such balance
sheet.
"CHARTER" means, for any Person, such Person's certificate of
incorporation, articles of incorporation or other organizational documents,
as the same may be amended.
"CLAIMS" shall have the meaning assigned to such term in Section
7.5(b).
"CLOSING" shall have the meaning assigned to such term in Section 2.2.
"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.
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"COMMISSION" shall have the meaning assigned to such term in Section
3.6.
"COMMON STOCK" means the common stock, par value $.01 per share, of
Sheridan.
"CONSOLIDATED" refers to the consolidation of financial statements in
accordance with GAAP.
"ECT" means Enron Capital & Trade Resources Corp.
"ECT PURCHASE AGREEMENT" means that Stock Purchase Agreement dated
November 28, 1997 between Sheridan and ECT.
"EFFECTIVE DATE" means September 1, 1997.
"ENVIRONMENTAL LAWS" means any and all laws, statutes, ordinances,
rules, regulations, orders or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all
jurisdictions in which the Person identified conducts business or at any
time has conducted business, or where any of its properties or operations
are located, including without limitation, the Clean Air Act, as amended,
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous and Solid Waste Amendments Act of 1984, as amended,
the Hazardous Materials Transportation Act, as amended, the Outer
Continental Shelf Lands Act, as amended, the Coastal Zone Management Act,
as amended, and other environmental conservation or protection laws. The
terms "hazardous substance" and "release" (or "threatened release") have
the meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA; provided,
however, that to the extent the laws of the state in which any property or
operation is located has established a meaning for "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified
in either CERCLA or RCRA, such broader meaning shall apply.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with Sheridan or a Subsidiary of Sheridan
would be deemed to be a "single employer" within the meaning of Section
4001 of ERISA.
"EXCHANGE ACT" shall have the meaning assigned to such term in Section
3.6.
"EXISTING LAWSUIT" means the pending cause of action described in
Section 4.6 of the GGP Disclosure Letter.
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"FARMOUT AGREEMENT" means that certain letter agreement, dated
September 19, 1997, among JEDI, JEDI I Partnership and GGP.
"GAAP" means generally accepted accounting principles (including
principles of consolidation), in effect from time to time, consistently
applied.
"GGP" shall have the meaning assigned to such term in the recitals.
"GGP DISCLOSURE LETTER" means that certain disclosure letter of even
date herewith delivered to Sheridan by GGP relating to GGP's disclosure in
connection with its representations and warranties hereunder.
"GGP ENCUMBRANCES" means any of the following matters:
(a) the terms, conditions, restrictions, exceptions, reservations,
limitations and other matters contained in the agreements, instruments and
documents that create or reserve to GGP its interests in any of the GGP
Properties;
(b) any (i) undetermined or inchoate Liens constituting or securing
the payment of expenses that were incurred incidental to maintenance,
development, production or operation of the GGP Properties or for the
purpose of developing, producing or processing oil, gas or other
hydrocarbons therefrom or therein, excluding any Liens for borrowed money,
and (ii) statutory Liens (including materialman's, mechanics', repairman's,
mineral contractor's or mineral sub-contractor's and similar Liens), to the
extent not shown in the applicable public records, and operators' Liens, in
each case arising in the ordinary course of business (x) that GGP has
agreed to assume or pay pursuant to the terms hereof, (y) for which GGP is
responsible for paying or releasing at Closing, or (z) for which Sheridan
has agreed to assume or pay pursuant to the terms hereof;
(c) any Liens for taxes not yet due and payable or, if due and
payable, to the extent being contested in good faith by appropriate
proceedings;
(d) any Liens created by law or reserved in oil and gas leases for
royalty, bonus or rental, or created to secure compliance with the terms of
the agreements, instruments and documents that create or reserve to GGP its
interests in the GGP Properties;
(e) any obligations or duties affecting the GGP Properties to any
municipality or public authority with respect to any franchise, grant,
license or permit, and all applicable laws, rules, regulations and orders
of any Governmental Authority;
(f) any (i) easements, rights-of-way, servitudes, permits, licenses,
surface leases and other rights in respect of surface operations,
pipelines, grazing, hunting, lodging, canals, ditches, reservoirs or the
like, and (ii) easements for streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other similar rights-of-way, on,
over or in respect of property owned or leased by GGP or over which GGP
owns rights-of-way, easements, permits or licenses;
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(g) all lessors' royalties, overriding royalties, net profits
interests (other than those granted to JEDI, which net profits interest
shall be reconveyed to GGP at or prior to Closing); carried interests,
production payments, reversionary interests and other burdens on or
deductions from the proceeds of production created or in existence as of
the date hereof that do not operate to reduce the Net Revenue Interests of
GGP in the GGP ▇▇▇▇▇ described in Schedule II;
(h) preferential rights to purchase or similar agreements;
(i) required third party consents to assignments or similar
agreements;
(j) all rights to consent by, required notices to, filings with, or
other actions by any Governmental Authority in connection with the sale or
conveyance of oil and gas leases or interests therein;
(k) production sales contracts; division orders; contracts for sale,
purchase, exchange, refining or processing of hydrocarbons; unitization and
pooling designations, declarations, orders and agreements; operating
agreements; agreements of development; area of mutual interest agreements;
gas balancing or deferred production agreements (but only to the extent
Sheridan and GGP have agreed on, and/or balanced up, any imbalances
pursuant thereto); processing agreements; plant agreements; pipeline,
gathering and transportation agreements; injection, repressuring and
recycling agreements; carbon dioxide purchase or sale agreements; salt
water or other disposal agreements; seismic or geophysical permits or
agreements; tax partnership agreements (but only if there is currently, and
at the Closing Date, no capital account deficit which would be required to
be made up, in whole or in part, upon liquidation or termination); and any
and all other agreements that are ordinary and customary in the oil, gas,
sulphur and other mineral exploration, development or extraction business,
or in the business of processing of gas and gas condensate production for
the extraction of products therefrom; and
(l) all defects and irregularities affecting the GGP Properties which
individually or in the aggregate do not operate to reduce the Net Revenue
Interests of GGP in the GGP ▇▇▇▇▇ described in Schedule II, increase the
proportionate share of costs and expenses of leasehold operations
attributable to or to be borne by the Working Interests of GGP in the GGP
▇▇▇▇▇ described in Schedule II, or otherwise interfere materially with the
operation, value or use of the GGP Properties, taken as a whole.
"GGP/JEDI I PARTNERSHIP TERMINATION AGREEMENT" shall have the meaning
assigned to such term in the recitals.
"GGP/JEDI TERMINATION AGREEMENT" shall have the meaning assigned to
such term in the recitals.
"GGP LEASES" means the leases described in Schedule 1-A and Schedule
1-B.
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"GGP MATERIAL ADVERSE EFFECT" means any change or event that,
individually or in the aggregate, would or could reasonably be expected to
have a material adverse effect on (a) the GGP Properties, taken as a
whole, (b) the ability of GGP to meet its obligations under this Agreement
or the Operative Documents to which it is a party, or (c) the consummation
of the transactions contemplated hereby; provided, however, that any change
or event resulting from (i) changes in the prices of oil, gas, natural gas
liquids or other hydrocarbon products, or (ii) changes in general economic
conditions, including general stock market conditions and interest rate
changes or (iii) the adverse determination of any pending litigation
disclosed in the GGP Disclosure Letter shall not constitute a GGP Material
Adverse Effect.
"GGP PROPERTIES" shall have the meaning assigned to such term in the
recitals.
"GGP ▇▇▇▇▇" means the ▇▇▇▇▇ located on the GGP Leases described in
Schedule 2.
"GOOD TITLE" means that, subject to and except for the GGP
Encumbrances:
(a) GGP is (i) entitled to receive not less than the percentage set
forth in Schedule II hereto as the "Net Revenue Interest" of all
hydrocarbons produced, saved and marketed from the GGP ▇▇▇▇▇ listed in
Schedule II to which such interest corresponds, all without reduction
throughout the duration of the life of such well, except as specifically
set forth in Schedule II, and (ii) obligated to bear the percentage of the
costs and expenses relating to the maintenance, development and operation
of such well, not greater than the "Working Interest" shown in Schedule II
with respect to such well, without increase throughout the duration of the
life of such well, except as specifically set forth in Schedule II; and
(b) the title of GGP is free and clear of all liens, encumbrances and
material defects.
"GOVERNMENTAL AUTHORITY" means any foreign or domestic federal, state,
county, municipal, or other governmental or regulatory authority, agency,
board, body, commission, instrumentality, court, or any political
subdivision thereof.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including but not limited to any of the foregoing which relate to
Environmental Laws, energy regulations and occupational, safety and health
standards or controls) of any Governmental Authority.
"INDEBTEDNESS" means, with respect to any Person, the principal of,
premium, if any, and interest on: (a) indebtedness for money borrowed from
others whether or not evidenced by notes, bonds, debentures or otherwise;
(b) indebtedness of another Person guaranteed, directly or indirectly, in
any manner by such Person, including, without limitation, through an
agreement, contingent or otherwise, (i) to purchase or pay any such
indebtedness, (ii) to advance or supply funds for the purchase or payment
of such indebtedness, (iii) to purchase and pay for property if not
delivered or pay for services if not performed, primarily for the
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purpose of enabling such other Person to make payment of such indebtedness
or to assure the owners of the indebtedness against loss, or (iv) to
maintain working capital, equity capital or other financial condition of
such other Person so as to enable it to pay such indebtedness; (c) all
indebtedness secured by any Lien upon property owned by such Person, even
though such Person has not in any manner become liable for the payment of
such indebtedness; (d) all indebtedness of such Person created or arising
under any conditional sale, lease (intended primarily as a financing
device) or other title retention or security agreement with respect to
property acquired by such Person even though the rights and remedies of
Sheridan, lessor or lender under such agreement or lease in the event of
default may be limited to repossession or sale of such property; (e) all
obligations of such Person issued or assumed for the deferred purchase
price of property or services, including all trade credit, to the extent
such obligations have remained outstanding in excess of sixty days; (f)
Capitalized Lease Obligations and the present value of all future lease
payments under a lease other than Capitalized Lease Obligations; (g) all
unfunded post-retirement and post-employment benefits including, without
limitation, unfunded pension liabilities; (h) mandatory redemption or
mandatory dividend rights on ordinary shares (or other equity); (i)
obligations of discontinued businesses that are subsumed within the single-
sum amount of the net assets of the discontinued operations being held for
sale, and (j) all obligations of such Person under or with respect to
letters of credit.
"INTERIM BALANCE SHEET" shall have the meaning assigned to such term
in Section 3.6(a).
"INTERMEDIARY" shall have the meaning assigned to such term in Section
7.1.
"JEDI" shall have the meaning assigned to such term in the recitals.
"JEDI I PARTNERSHIP" shall have the meaning assigned to such term in
the recitals.
"JEDI I PARTNERSHIP/SHERIDAN PURCHASE AGREEMENT" shall have the
meaning assigned to such term in the recitals.
"JEDI LOAN AGREEMENT" means that certain Loan Agreement, dated May 3,
1995, between GGP and JEDI, as amended by (i) that certain First Amendment
and Supplement to Loan Agreement, dated effective January 1, 1996, between
GGP and JEDI and (ii) that certain Second Amendment and Supplement to Loan
Agreement, dated January 23, 1997, between GGP and JEDI.
"KNOWLEDGE" or "KNOWN" means with respect to Sheridan, those
individuals listed in Section 1.1 of the Sheridan Disclosure Letter and
with respect to GGP, those individuals listed in Section 1.1 of the GGP
Disclosure Letter, in each case, individually or collectively, have
conducted such investigations and inquiries as they reasonably believe to
be most likely to confirm the truth and accuracy of the matter being
represented and warranted (or have caused such investigations and inquiries
to be made under their supervision) and, after evaluating the findings of
such investigation and inquiries either (a) know that the matter being
represented and warranted is true and accurate or (b) have no reason to
believe that the matter being represented and warranted is not true and
accurate.
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"▇▇▇▇▇ GUARANTY AGREEMENT" means that certain Guaranty Agreement,
dated January 23, 1997, executed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ in favor of JEDI.
"LIEN" means, with respect to any Person, any mortgage, deed of trust,
lien, security interest, pledge, lease, conditional sale contract, claim,
charge, easement, right of way, assessment, restriction and other
encumbrance of every kind.
"OPERATIVE DOCUMENTS" means this Agreement, the Warrant Agreement, the
Warrant Certificate, the Assignment (including the warrant agreement and
warrant certificates referred to therein), and the Registration Rights
Agreement.
"PARTICIPATION AGREEMENT" means that certain Participation Agreement,
dated February 27, 1995, between GGP and JEDI I Partnership, as amended by
that certain First Amendment to Participation Agreement, dated January 1,
1996, between GGP and JEDI I Partnership.
"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and other
authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities necessary
for the conduct of the business of such Person as currently conducted and
as proposed to be conducted after the Closing.
"PERMITTED LIENS" means (a) Liens for taxes not yet due and payable,
(b) statutory Liens (including materialmen's, mechanic's, repairmen's,
landlord's, and other similar Liens) and operators' Liens, in each case
arising in connection with the ordinary course of business securing
payments not yet due and payable, (c) Liens created pursuant to or under
the Sheridan Senior Credit Facility and (d) such imperfections or
irregularities of title, if any, as (i) are not substantial in character,
amount, or extent and do not materially detract from the value of the
property subject thereto, (ii) do not and will not materially interfere
with either the present or intended use of such property, and (iii) do not
and will not, individually or in the aggregate, materially interfere with
the conduct of Sheridan's or its Subsidiaries current or proposed
operations.
"PERSON" means an individual or individuals, a partnership, a
corporation, a company, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization, any other form of legal entity, or a Governmental Authority.
"PLAN" shall have the meaning assigned to such term in Section
3.12(a)(i).
"PROPERTIES EXPENSES" means all costs and expenses (including
royalties, production taxes, capital expenditures, lease operating expenses
and overhead) paid by GGP that are (x) attributable to the GGP Properties,
and (y) attributable to the period of time from and after the Effective
Date including one-third of the ad valorem taxes for 1997.
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"PROPERTIES REVENUES" means the amount of all proceeds actually
received by GGP that are (x) attributable to the GGP Properties, and (y)
attributable to the period of time from and after the Effective Time.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form of Exhibit C hereto.
"SEC DOCUMENTS" shall have the meaning assigned to such term in
Section 3.6.
"SECURITIES ACT" shall have the meaning assigned to such term in
Section 3.6.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock of
Sheridan issued to ECT pursuant to the ECT Purchase Agreement.
"SHARES" shall have the meaning assigned to such term in Section 2.1.
"SHARING AGREEMENT" shall have the meaning assigned to such term in
the recitals.
"SHERIDAN DISCLOSURE LETTER" means that certain disclosure letter of
even date herewith delivered to GGP by Sheridan relating to Sheridan's
disclosures in connection with its representations and warranties
hereunder.
"SHERIDAN MATERIAL ADVERSE EFFECT" means any change or event that,
individually or in the aggregate, would or could reasonably be expected to
have a material adverse effect on (a) the assets, liabilities, condition
(financial or otherwise), business, results of operations or prospects of
Sheridan and its Subsidiaries on a Consolidated basis, (b) the ability of
Sheridan to meet its obligations under this Agreement or the Operative
Documents to which Sheridan is a party, or (c) the consummation of the
transactions contemplated hereby; provided, however, that any change or
event resulting from (i) changes in the prices of oil, gas, natural gas
liquids or other hydrocarbon products, (ii) changes in general economic
conditions, including general stock market conditions and interest rate
changes or (iii) the adverse determination of any pending litigation
disclosed in the Sheridan Disclosure Letter shall not constitute a Sheridan
Material Adverse Effect.
"SHERIDAN SENIOR CREDIT FACILITY" means that certain First Amended and
Restated Credit Agreement dated as of September 30, 1997 by Sheridan, as
the borrower and Bank One Texas, N.A., as the lender.
"SUBSIDIARY" means, as to any Person, any corporation, company,
association, partnership, limited liability company or other business
entity of which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership, limited liability
company or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries.
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"WARRANT AGREEMENT" means the Warrant Agreement to be executed by
Sheridan and GGP, in the form of Exhibit A hereto, as the same may be
amended, supplemented, or otherwise modified from time to time.
"WARRANT CERTIFICATE" means the certificate evidencing Warrants, in
the form of Exhibit A to the Warrant Agreement, as the same may be amended,
supplemented, or otherwise modified from time to time.
"WARRANTS" means the Common Stock purchase warrants described in the
Warrant Agreement.
"WARRANT SHARES" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
ARTICLE I.
SALE AND PURCHASE; CLOSING
--------------------------
1.1 SALE AND PURCHASE. Subject to the satisfaction of the terms and
conditions herein set forth and in reliance upon the respective representations,
warranties, and covenants of the parties set forth herein or in any document
delivered pursuant hereto, at the Closing (i) Sheridan agrees to deliver to GGP,
and GGP agrees to accept, 467,500 shares of Common Stock (the "Shares") and,
pursuant to the terms of the Warrant Agreement, Warrants to purchase 82,500
shares of Common Stock for $5.50 per share and (ii) GGP agrees to deliver to
Sheridan, and Sheridan agrees to accept, all of GGP's right, title and interest
in and to the GGP Properties.
1.2 CLOSING. The closing of the exchange of the Shares and the Warrants
for the GGP Properties by the parties (the "Closing") will occur on or before
December 31, 1997, or on such other date as may be agreed by the parties (the
"Closing Date"), at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P. At the Closing, (i)
Sheridan will deliver to GGP (or its designee) the Shares, duly executed and
registered in the name of GGP or its designee (such shares bearing the
appropriate legend agreed to by the parties), and the Warrant Agreement and the
Warrant Certificates, (ii) GGP will deliver to Sheridan the Assignment covering
the GGP Properties and (iii) each of Sheridan, GGP, JEDI I Partnership and ECT
shall execute and deliver the Registration Rights Agreement; and (iv) GGP shall
deliver such letters in lieu or similar documents as Sheridan shall reasonably
request in order to reflect the transfer of the GGP Properties.
1.3 OWNERSHIP, REVENUES AND EXPENSES OF GGP PROPERTIES. (a) Subject to
the other provisions of this Agreement, including without limitation the
indemnification provisions hereof, GGP shall be entitled to all of the rights of
ownership (including, without limitation, the right to all production including
proceeds of production and other proceeds) and shall be responsible for costs
and expenses attributable to the GGP Properties for the period of time prior to
the Effective Date. Subject to the other provisions of this Agreement, Sheridan
shall be entitled to all of the rights of ownership (including, without
limitation, the right to all production including all proceeds of
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production and other proceeds), and shall be responsible for costs and expenses
attributable to the GGP Properties for the period of time from and after the
Effective Date.
(b) Notwithstanding anything herein to the contrary, including the
provisions of Section 2.3(a) hereof, (i) GGP shall not be responsible for (and
Sheridan hereby assumes) any plugging and abandonment costs attributable to the
Georgia-Pacific Well #1, (ii) Sheridan shall be responsible for twenty-five
percent (25%) of GGP's general and administrative expenses for the period
commencing on September 1, 1997 and ending on December 31, 1997, (iii) GGP shall
not be responsible for (and Sheridan hereby assumes) costs in excess of $7,500
relating to repairs of pipeline right-of-way(s) on those GGP Leases under which
either ▇▇▇▇ ▇▇▇▇▇▇, Sr., et al. or Ridge Road Land Company Ltd., et al. is the
lessor thereunder and (iv) Sheridan hereby assumes fifty percent (50%) of the
delay rental costs attributable to the ▇▇▇▇▇▇ prospects for the period
commencing on September 1, 1997 and ending on December 31, 1997.
(c) At Closing, GGP shall prepare, and shall furnish to Sheridan, an
accounting statement setting forth an estimate of the Properties Revenues and
the Properties Expenses. To the extent that the Properties Revenues exceed the
Properties Expenses, GGP shall pay to Sheridan the amount by which the
Properties Revenues exceed the Properties Expenses at the Closing. To the
extent that the Properties Expenses exceed the Properties Revenues, Sheridan
shall pay to GGP the amount by which the Properties Expenses exceed the
Properties Revenues at the Closing.
(d) Promptly after the Closing Date (but not later than 120 days
thereafter), Sheridan shall prepare, and shall furnish to GGP, a final
accounting statement setting forth the actual amounts provided in Section
2.3(a). As soon as reasonably practicable thereafter (but not later than 30
days thereafter), GGP shall deliver to Sheridan a written report containing any
changes that GGP proposes be made to such statement. The parties shall
undertake to agree on the final adjustment amount, and such final adjustment
amount shall be paid by GGP or Sheridan, as appropriate, not later than 180 days
after the Closing Date. During said 180 day period, either party may at its own
expense audit the other party's books, accounts and records relating to
production proceeds, operating expenses and taxes paid that may have been
adjusted on account of this transaction. Such audit shall be conducted so as to
cause a minimum of inconvenience to the audited party.
1.4 CERTAIN REASSIGNMENTS. If the consent described in Section 4.5 of the
GGP Disclosure Letter with respect to that certain Oil, Gas and Mineral Lease
dated February 1, 1990 between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ et al, as Lessor, and Grand Gulf
Production, L.L.C., as Lessee, and recorded under Entry 121809, Book H-8
covering the ▇. ▇▇▇▇▇▇ Estate 62 #1 and ▇. ▇▇▇▇▇▇ Estate 62 #3 has not been
received by August 1, 1998, Sheridan may require, upon written notice to GGP, a
reassignment by GGP of 46,750 Shares and 8,250 Warrants. Upon receipt of such
notice, GGP shall assign to Sheridan 46,750 Shares endorsed in blank or
accompanied by duly executed assignment documents and 8,250 Warrants accompanied
by duly executed assignment documents and Sheridan shall reassign to GGP the GGP
Leases affected by such consents. Such assignments must be made not later than
November 1, 1998. In the event that the stock certificates representing the
Shares contain a restrictive legend referring to this Section 2.4, then upon the
request of GGP or its assignee after the receipt of the consent referenced in
this Section 2.4 or the execution and delivery of assignments referred to herein
(whichever is earlier), Sheridan agrees to cause new stock
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certificate(s) evidencing the Shares (less any Shares reassigned to Sheridan
pursuant to this Section 2.4) to be issued to GGP or its assignee without such
restrictive legend.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SHERIDAN
------------------------------------------
Sheridan represents and warrants to GGP as follows:
2.1 CORPORATE EXISTENCE. Sheridan is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Sheridan has full corporate power and authority to conduct its business as it is
now being conducted and to own, operate and lease the properties and assets it
currently owns, operates and holds under lease. Sheridan is duly qualified to
do business and is in good standing in each jurisdiction in which the nature of
its business activities or its ownership or leasing of property makes such
qualification necessary, except where the failure to be so qualified would not
have a Sheridan Material Adverse Effect. On or before the date hereof Sheridan
has delivered to GGP's counsel true and complete copies of Sheridan's
Certificate of Incorporation and bylaws, together with all amendments thereto.
No other amendments to Sheridan's Certificate of Incorporation have been
approved by the Board of Directors or stockholders of the Corporation or filed
with the Delaware Secretary of State.
2.2 CORPORATE POWER AND AUTHORIZATION. Sheridan is duly authorized and
empowered to issue the Shares, the Warrants and the Warrant Shares, and to
execute, deliver, and perform this Agreement and to consummate the transactions
contemplated hereby and thereby. All action on Sheridan's part requisite for
the due issuance of the Shares and the Warrants and for the due execution,
delivery, and performance of this Agreement and the other Operative Documents
to which Sheridan is a party has been duly and effectively taken. The execution
and delivery of this Agreement and the other Operative Documents to which
Sheridan is a party and the consummation of the transactions to be performed by
Sheridan hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Board of Directors of Sheridan, and no other
corporate proceedings are necessary to authorize the execution and delivery of
this Agreement or the other Operative Documents to which Sheridan is a party by
Sheridan or to consummate the transactions to be performed by Sheridan hereby
and thereby.
2.3 BINDING OBLIGATIONS. This Agreement and the other Operative Documents
to which Sheridan is a party, when executed and delivered, shall each constitute
a legal, valid and binding obligation of Sheridan enforceable in accordance with
its respective terms, except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity. When issued to GGP at the Closing upon
Sheridan's receipt of the Assignment, (i) the Shares will be validly issued,
fully paid and nonassessable and free and clear of any Liens, and (ii) the
Warrants will be validly issued and free and clear of any Liens. When issued
and paid for in accordance with the terms of the Warrant Agreement, the Warrant
Shares will be validly issued, fully paid and nonassessable and free and clear
of any Liens.
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2.4 NO VIOLATION. The execution and delivery of this Agreement or any of
the other Operative Documents to which Sheridan is a party, the consummation of
the transactions provided for herein and therein and contemplated hereby and
thereby, and the fulfillment by Sheridan of the terms hereof and thereof, will
not (a) conflict with or result in a breach of any provision of the Charter or
bylaws or other organizational document of Sheridan or any of its Subsidiaries,
(b) except for consents described in Section 3.5 of the Sheridan Disclosure
Letter, result in any default or in any material modification of the terms of
any material contract, agreement, obligation, commitment applicable to Sheridan
or its Subsidiaries, or the creation of any Lien upon any of the properties or
assets owned by Sheridan or any of its Subsidiaries, (c) except for consents
described in Section 3.5 of the Sheridan Disclosure Letter, require any consent
or approval (which has not been obtained or waived) under any Permit or any
note, bond, mortgage, indenture, loan, distribution agreement, license,
agreement, lease or material instrument or material obligation to which Sheridan
or any of its Subsidiaries is a party or by which Sheridan or any of its
Subsidiaries may be bound, or (d) violate any Governmental Requirement or Permit
applicable to Sheridan or any of its Subsidiaries, except in the case of
subparagraphs (b), (c) and (d) above where any such default, modification,
consent, approval or violation that would not have a Sheridan Material Adverse
Effect.
2.5 CONSENTS. Except as set forth in Section 3.5 of the Sheridan
Disclosure Letter, all consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all consents
under any contracts, agreements, or instruments by which Sheridan or any of its
Subsidiaries is bound or to which it or any of its Subsidiaries is subject, and
required in connection with Sheridan's valid execution, delivery, or performance
of this Agreement and the other Operative Documents to which Sheridan is a
party, and the consummation of the transactions contemplated hereby and thereby
has been obtained or made, except where the failure to have obtained or made
such consents, approvals, qualifications, orders, authorizations or filings
would not have a Sheridan Material Adverse Effect.
2.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. (a) Sheridan and its
predecessor, TGX Corporation ("TGX"), have filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules, statements
and other documents required to be filed by them since January 1, 1994 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or the
Securities Act of 1933, as amended (the "Securities Act") (such documents, as
supplemented and amended since the time of filing, collectively, the "SEC
Documents"). The SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) (a) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be. The financial statements of Sheridan
and TGX included in the SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q of the Commission), and fairly
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present (subject in the case of unaudited statements to normal, recurring audit
adjustments) the Consolidated financial position of Sheridan or TGX, as the case
may be, as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended. The Consolidated balance sheet for
Sheridan included in its quarterly report on Form 10-Q dated September 30, 1997
is referred to herein as the "Interim Balance Sheet".
(b) Since September 30, 1997, there has been no Sheridan Material Adverse
Effect with respect to Sheridan.
2.7 LIABILITIES; INDEBTEDNESS. Except for liabilities incurred in the
ordinary course of business and that would not, individually or in the
aggregate, have a Sheridan Material Adverse Effect, Sheridan and its
Subsidiaries do not have liabilities, direct or contingent (including but not
limited to liability with respect to any Plan or, to Sheridan's knowledge, any
Environmental Law) other than those provided for in the Interim Balance Sheet or
disclosed in Section 3.7 of the Sheridan Disclosure Letter or the borrowings
under the Sheridan Senior Credit Facility or in connection with the Series A
Preferred Stock. Except as would not have a Sheridan Material Adverse Effect,
Sheridan and its Subsidiaries have no Indebtedness other than (a) the Series A
Preferred Stock, (b) the Indebtedness disclosed in Section 3.7 of the Sheridan
Disclosure Letter and (c) the borrowings under the Sheridan Senior Credit
Facility.
2.8 LITIGATION. Except as disclosed in Section 3.8 of the Sheridan
Disclosure Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
Sheridan, threatened against Sheridan or any of its Subsidiaries or any material
property of Sheridan or any Subsidiary thereof before any Governmental Authority
(i) which challenges the validity of this Agreement or any of the Operative
Documents to which Sheridan is a party, or (ii) which, if adversely determined,
would have a Sheridan Material Adverse Effect.
2.9 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except as set forth in
Section 3.9 of the Sheridan Disclosure Letter or as would not have a Sheridan
Material Adverse Effect, Sheridan or its Subsidiaries has defensible title to
(i) all of its properties and assets (real and personal, tangible and
intangible) reflected on the Interim Balance Sheet, and (ii) as of the Closing
Date, all properties acquired by Sheridan or its Subsidiaries after December 1,
1997, in each case free and clear of all liens except the Permitted Liens. All
equipment owned by Sheridan or its Subsidiaries which is necessary to the
business of Sheridan or its Subsidiaries is in good condition and repair
(ordinary wear and tear excepted), except where the failure to be in good
condition and repair would not have a Sheridan Material Adverse Effect.
(b) Except as set forth in Section 3.9 of the Sheridan Disclosure Letter,
the oil and gas leases in which Sheridan or its Subsidiaries own an interest (i)
have been maintained according to their terms and in compliance with all
material agreements to which such oil and gas leases are subject, except where
the failure to be so maintained or any noncompliance therewith would not have a
Sheridan Material Adverse Effect, and (ii) are in full force and effect, except
where the failure to be in full force and effect would not have a Sheridan
Material Adverse Effect.
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(c) All royalties, overriding royalties, compensatory royalties and other
payments due with respect to the oil and gas properties of Sheridan and its
Subsidiaries have been properly and correctly paid, except where the failure to
make such payment would not have a Sheridan Material Adverse Effect.
2.10 COMPLIANCE WITH THE LAW. Except with respect to environmental matters
(which are exclusively covered by Section 3.18), neither Sheridan nor any of its
Subsidiaries (i) is in violation of any Governmental Requirement or (ii) has
failed to obtain any Permit, necessary to the ownership of any of their
respective properties or the conduct of their respective business, except where
a violation or failure would not have a Sheridan Material Adverse Effect.
2.11 TAXES. Sheridan and its Subsidiaries (i) have filed all tax returns
and reports ("Tax Returns") required to be filed by or with respect to Sheridan
or any of its Subsidiaries, (ii) have included all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return, and (iii) have paid all taxes, assessments, fees, imposts, duties or
other charges, including any interest and penalties, (all collectively referred
to herein as "Taxes") due with respect to such Tax Returns. There is no claim
against Sheridan or any of its Subsidiaries for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed with respect to any Tax
Return of or with respect to Sheridan or any of its Subsidiaries which would
have a Sheridan Material Adverse Effect.
2.12 EMPLOYEE BENEFIT MATTERS. (a) Definitions. Where the following
words and phrases appear in this Agreement, they shall have the respective
meanings set forth below, unless the context clearly indicates to the contrary:
(i) Plan: Each "employee benefit plan," as such term is defined in
Section 3(3) of ERISA, including, but not limited to, any employee benefit
plan that may be exempt from some or all of the provisions of ERISA, which
is sponsored, maintained, or contributed to by Sheridan or any of its
Subsidiaries for the benefit of the employees, former employees,
independent contractors, or agents of Sheridan or any of its Subsidiaries,
or has been so sponsored, maintained or contributed to since 1974.
(ii) Benefit Program or Agreement: Each personnel policy, stock
option plan, collective bargaining agreement, workers' compensation
agreement or arrangement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment
agreement, and each other employee benefit plan, agreement, arrangement,
program, practice or understanding, which is not described in Section
3.12(a)(i) and which is sponsored, maintained, or contributed to by
Sheridan or any of its Subsidiaries for the benefit of the employees,
former employees, independent contractors, or agents of Sheridan or any of
its Subsidiaries, or has been so sponsored, maintained, or contributed to
since 1974.
(iii) Benefit Plans: Collectively, the Plans and Benefit Programs or
Agreements.
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(b) Employee Benefit Plan Compliance.
(i) Neither Sheridan nor any corporation, trade, business, or entity
under common control with Sheridan, within the meaning of Section 414(b),
(c), (m), or (o) of the Code or Section 4001 of ERISA, ("Commonly
Controlled Entity") contributes to or has an obligation to contribute to,
nor has Sheridan or any Commonly Controlled Entity at any time within six
years prior to the Closing Date contributed to or had an obligation to
contribute to, a multiemployer plan within the meaning of Section 3(37) of
ERISA or any plan subject to Title IV of ERISA; and
(ii) All obligations, whether arising by operation of law or by
contract, required to be performed in connection with the Benefit Plans
have been performed, and there have been no defaults, omissions, or
violations by any party with respect to any Benefit Plan or law applicable
thereto.
(iii) Each Plan that is intended to be qualified under Section 401(a)
of the Code (A) satisfies the requirements of such Section, (b) has
received a favorable determination letter from the Internal Revenue Service
("IRS") regarding such qualified status and covering amendments required
under the Tax Reform Act of 1986 ("TRA '86"), the Unemployment Compensation
Amendments of 1992, the Omnibus Reconciliation Act of 1993, the final
nondiscrimination regulations under Section 401(a)(4) of the Code, and all
other amendments required to be filed within the TRA '86 remedial amendment
period described in Internal Revenue Procedure 95-12 (the "TRA '86
Amendments") (or the TRA '86 Amendments to such Plans have been timely made
and filed with the IRS for such a determination letter), and (C) has not,
since receipt of the most recent favorable determination letter, been
amended or operated in a way that would adversely affect such qualified
status.
(c) NO ADDITIONAL RIGHTS OR OBLIGATIONS. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby will
not (A) require Sheridan or any of its Subsidiaries to make a larger
contribution to, or pay greater benefits under, any Benefit Plan than it
otherwise would or (B) create or give rise to any additional vested rights or
service credits under any Benefit Plan.
(d) NO ADDITIONAL SEVERANCE. Except as set forth in Section 3.12(d) of the
Sheridan Disclosure Letter, neither Sheridan nor any of its Subsidiaries is a
party to any agreement, nor has Sheridan or any of its Subsidiaries established
any policy or practice requiring it to make a payment or provide any other form
of compensation or benefit to any person performing services for Sheridan upon
termination of such services that would not be payable or provided in the
absence of the consummation of the transactions contemplated by this Agreement.
(e) NO EXCESS PARACHUTE PAYMENTS. In connection with the consummation of
the transaction contemplated by this Agreement, no payments have or will be made
under the Benefit Plans which, in the aggregate, would result in imposition of
the sanctions imposed under Section 280G or Section 4999 of the Code.
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2.13 INVESTMENT COMPANY ACT. Neither Sheridan nor any of its Subsidiaries
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
2.14 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Sheridan nor any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
2.15 NO RESTRICTIONS ON AFFILIATES. Neither Sheridan nor any of its
Subsidiaries is a party to any agreement that would purport to impose
restrictions or limitations on GGP or any of its Affiliates.
2.16 CAPITALIZATION. The authorized capital stock of Sheridan consists of
(i) 20,000,000 shares of Common Stock, of which 5,881,471 shares are issued and
outstanding and an additional 450,000 shares are reserved for issuance under the
Sheridan 1997 Flexible Incentive Plan and (ii) 5,000,000 shares of preferred
stock, par value $0.01 per share, of which 1,000,000 shares of Series A
Preferred Stock are issued and outstanding and an additional 900,000 shares of
Series A Preferred Stock are reserved for issuance as dividends to holders of
Series A Preferred Stock of Sheridan. Section 3.16 of the Sheridan Disclosure
Letter sets forth the name and address of each person known to Sheridan to be
the beneficial owner of 5% or more of the outstanding shares of Common Stock.
Except as set forth in Section 3.16 of the Sheridan Disclosure Letter and except
for up to 450,000 shares of Common Stock reserved for issuance upon purchases of
shares of Common Stock under the Sheridan 1997 Flexible Incentive Plan, there
are no outstanding subscriptions, warrants, options, calls, commitments or other
rights to purchase or acquire, or securities convertible into or exchangeable
for, any capital stock of Sheridan or its Subsidiaries. All of the outstanding
shares of Common Stock are validly issued, fully paid, and nonassessable.
2.17 SUBSIDIARIES. (a) Section 3.17 of the Sheridan Disclosure Letter
contains (except as noted therein) a complete and correct list of Sheridan's
Subsidiaries and joint ventures, showing, as to each Subsidiary, the correct
name thereof, the jurisdiction of its organization, and the percentage of shares
of each class of its capital stock or similar equity interests outstanding owned
by Sheridan and each other Subsidiary. Except for the Subsidiaries, Sheridan
does not own, directly or indirectly, any interest or investment in any
corporation, association, joint venture, partnership, limited liability company
or other business organization, firm or enterprise of any character, other than
interests under any joint operating agreement of oil and gas property that
expressly provides the relationship of the parties created by such agreement is
not intended to render the parties thereto liable as partners. Each Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has full corporate power and
authority to conduct its business as it is now being conducted and to own,
operate or lease the properties and assets it currently owns, operates or holds
under lease. Each Subsidiary is duly qualified to do business and is in good
standing in each jurisdiction where the character of its business or the nature
of its properties makes such qualification necessary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Section 3.17 of the Sheridan Disclosure
Letter as being owned by Sheridan and
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its Subsidiaries have been validly issued, are fully paid and nonassessable, and
are owned by Sheridan or such other Subsidiaries free and clear of any Liens
(except as otherwise disclosed in Section 3.17 of the Sheridan Disclosure
Letter).
(c) No Subsidiary of Sheridan is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement and customary
limitations imposed by corporate law statutes) restricting the ability of such
Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to Sheridan or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of such
Subsidiary.
2.18 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.18 of the
Sheridan Disclosure Letter:
(a) to the knowledge of Sheridan and its Subsidiaries, the properties and
operations of Sheridan and its Subsidiaries are not in violation of any
Environmental Laws or any order or requirement of any court or Governmental
Authority to the extent pertaining to health or the environment, except where a
violation would not have a Sheridan Material Adverse Effect, nor are there any
conditions existing on such property or resulting from operations thereon that
may give rise to any on-site or off-site remedial obligations under any
Environmental Law, except for any condition that would not have a Sheridan
Material Adverse Effect;
(b) without limitation of Section 3.18(a) above, Sheridan and its
Subsidiaries are not subject to any pending or, to the knowledge of Sheridan,
threatened action, suit, investigation, inquiry or proceeding by or before any
court or Governmental Authority under any Environmental Law;
(c) except as would not have a Sheridan Material Adverse Effect, to the
knowledge of Sheridan all notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed by Sheridan and its Subsidiaries under
any Environmental Law, including without limitation those relating to the
treatment, storage, disposal or release of a hazardous substance or solid waste
into the environment, have been duly obtained or filed, and Sheridan and its
Subsidiaries are in compliance with the terms and conditions of all such
notices, permits, licenses and similar authorizations;
(d) except as would not have a Sheridan Material Adverse Effect, all
hazardous substances or solid wastes generated by or as a result of operations
on properties owned by Sheridan and its Subsidiaries and requiring disposal have
been transported only by carriers maintaining valid authorizations under
applicable Environmental Laws and treated and disposed of only at treatment,
storage and disposal facilities maintaining valid authorizations under
applicable Environmental Laws, and, to the knowledge of Sheridan, such carriers
and facilities have been and are operating in compliance with such
authorizations and are not the subject of any pending or threatened action,
investigation or inquiry by any Governmental Authority in connection with any
Environmental Laws;
(e) except as would not have a Sheridan Material Adverse Effect, to the
knowledge of Sheridan there are no asbestos-containing materials on or in any
property owned or used by Sheridan and its Subsidiaries, and there are no
storage tanks or similar containers exceeding 55 gallons in size on or under any
such properties from which hazardous substances, petroleum products or other
contaminants may be released into the surrounding environment;
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(f) without limiting the foregoing, to the knowledge of Sheridan there is
no material liability (accrued or contingent) to any non-governmental third
party in tort or under common law in connection with any release or threatened
release of any hazardous substances, solid wastes, petroleum, petroleum
products, and oil and gas exploration and production wastes into the environment
as a result of operations conducted on its properties; and
(g) Section 3.18 of the Sheridan Disclosure Letter also separately lists
for Sheridan and each Subsidiary any and all Claims against or affecting it and
relating to the release, discharge or emission or any hazardous substance, or to
the generation, treatment, storage or disposal of any wastes, or otherwise
relating to the protection of the environment or to the noncompliance with any
notices, permits, licenses, consent decrees or other authorization and the
disposition of each such Claim. With respect to each such pending or prior
matter, Section 3.18 of the Sheridan Disclosure Letter hereto lists the date of
the Claim, the claimant or investigating agency, the nature and a brief
description of the matter, the damages claimed or relief sought, and the status
or outcome of the matter. Except as set forth on Section 3.18 of the Sheridan
Disclosure Letter, neither Sheridan nor any Subsidiary has received any written
notice that it is a potentially responsible party under any Environmental Laws.
2.19 INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS. Sheridan and its
Subsidiaries (i) own or have the right to use, free and clear of all Liens, all
patents, trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all trade
secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs, and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business, without infringing upon or violating any right, Lien, or claim of
others, and (ii) except as described in Section 3.19 of the Sheridan Disclosure
Letter, is not obligated or under any liability whatsoever to make any payments
by way of royalties, fees, or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service ▇▇▇▇, trade name, copyright, or
other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
2.20 NO PUBLIC OFFER. Neither Sheridan nor anyone acting on its behalf has
offered to any Person securities of Sheridan, nor any part thereof, nor any
instruments convertible, exercisable, or exchangeable into such securities, or
has solicited from any Person any offer to acquire the same, in a manner so as
to make the transactions contemplated by this Agreement not exempt from the
registration requirements of Section 5 of the Securities Act.
2.21 INSURANCE. Sheridan has previously provided to GGP true and complete
copies of all of Sheridan's and its Subsidiaries' insurance policies. Sheridan
has given in a timely manner to its insurers all notices required to be given
under such insurance policies with respect to all claims and actions covered by
insurance, and no insurer has denied coverage of any such claims or actions or
reserved its rights in respect of or rejected any of such claims. Sheridan has
not received any notice or other communication from any such insurer canceling
or materially amending any of such insurance policies, and no such cancellation
is pending or threatened.
2.22 CERTAIN TRANSACTIONS. Except for the Series A Preferred Stock and
except as set forth on Section 3.22 of the Sheridan Disclosure Letter, (a)
neither Sheridan nor any of its
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Subsidiaries is indebted directly or indirectly to any of its officers,
directors or stockholders or to their respective spouses or children in any
amount whatsoever, (b) none of such officers, directors or stockholders, or any
members of their immediate families, are indebted to Sheridan or any of its
Subsidiaries, and (c) no officer, director or stockholder, or any member of his
immediate family, has a direct or indirect financial interest in any material
contract with Sheridan or any of its Subsidiaries.
2.23 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in Section
3.23 of the Sheridan Disclosure Letter or as would not have a Sheridan Material
Adverse Effect, there is no well located upon any property owned by Sheridan or
its Subsidiaries that Sheridan or its Subsidiaries is currently obligated by law
or contract to plug and abandon.
2.24 NO MATERIAL MISSTATEMENTS OR OMISSIONS. Neither this Agreement nor
any certificates or documents made or delivered in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading, in view of
the circumstances in which they were made.
2.25 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth in
Section 3.25 of the Sheridan Disclosure Letter, Sheridan and its Subsidiaries
have no (i) employment or consulting contracts involving annual payments by
Sheridan or its Subsidiaries in excess of $100,000 and not cancelable without
liability on sixty days' notice or less; (ii) capital redemption or purchase
agreements other than in connection with the Series A Preferred Stock; (iii)
agreements providing for the indemnification of other parties for such parties'
negligence or other fault (except for such obligations incurred in the ordinary
course of business as an operator of oil and gas properties, including
obligations under master service agreements, drilling contracts and similar
agreements) or the sharing of the tax liability of other parties; (iv)
collective bargaining agreements; (v) gas sales or purchase contracts, gas
marketing agreements or transportation agreements under which Sheridan or its
Subsidiaries is the seller, any of which contracts or agreements is for a term
of greater than one year and provides for a fixed price; (vi) agreements for
capital expenditures, the acquisition or commodities, equipment or material or
the construction of fixed assets which requires aggregate future payments by
Sheridan or its Subsidiaries in excess of $250,000; (vii) agreements for, or
that contemplate, the sale of any interest in oil or gas leases which involves
payment (including property received in exchange or other non-cash
consideration) to Sheridan or its Subsidiaries in excess of $500,000; (viii)
agreements which require future payments by Sheridan or its Subsidiaries in
excess of $500,000 which is not otherwise specifically disclosed herein; (ix)
agreements containing covenants limiting or restricting the freedom of Sheridan
or its Subsidiaries to compete in any line of business or territory or with any
person or entity; (x) area of mutual interest agreements binding Sheridan or its
Subsidiaries, (xi) futures, hedge, swaps, collars, puts, calls, floors, caps,
options or other contracts that are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
hydrocarbons or (xii) indentures, mortgages, promissory notes, loan agreements,
guaranties or other agreements or commitments for the borrowing of money or any
related security agreements (other than relating to the Sheridan Senior Credit
Facility or the Indebtedness described in Section 3.7 of the Sheridan Disclosure
Letter) (collectively, "Sheridan Material Contracts"). None of the Sheridan
Material Contracts have been amended or modified except as set forth in Section
3.25 of the Sheridan Disclosure Letter or as would not have a Sheridan Material
Adverse Effect;
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(b) All of the Sheridan Material Contracts are in full force and effect and
constitute legal, valid and binding obligations of Sheridan or its Subsidiaries,
as applicable, and, to the knowledge of Sheridan, the other parties thereto,
enforceable in accordance with their respective terms, except insofar as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and except where
the failure to be in full force and effect would not have a Sheridan Material
Adverse Effect. Neither Sheridan (or Sheridan's Subsidiaries, if applicable)
nor, to the knowledge of Sheridan, any other party to any Sheridan Material
Contract, is in default in complying with any provisions thereof, and no
condition or event or fact exists which, with notice, lapse of time or both
would constitute a default thereunder on the part of Sheridan (or Sheridan's
Subsidiaries, if applicable) or, to the knowledge of Sheridan, any other party
thereto, except for any such default, condition, event, or fact that,
individually or in the aggregate, would not have a Sheridan Material Adverse
Effect.
Sheridan have provided counsel to GGP with a true and complete copy of each
contract, agreement and instrument listed in Section 3.25 of the Sheridan
Disclosure Letter or has otherwise made such documents available for GGP to
review.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF GGP
-------------------------------------
GGP represents and warrants to Sheridan as follows:
3.1 EXISTENCE. GGP is a limited liability company duly formed and validly
existing under the laws of the State of Texas. GGP has full power and authority
to conduct its business as it is now being conducted and to own, operate and
lease the GGP Properties. GGP is duly qualified to do business and is in good
standing in each jurisdiction in which the GGP Properties are located, except
where the failure to be so qualified would not have a GGP Material Adverse
Effect.
3.2 POWER AND AUTHORIZATION. GGP is duly authorized to execute, deliver
and perform this Agreement and the Operative Documents to which it is a party
and to consummate the transactions contemplated hereby and thereby. All action
on GGP's part requisite for the due execution, delivery, and performance of this
Agreement and the other Operative Documents to which it is a party has been duly
and effectively taken.
3.3 BINDING OBLIGATIONS. This Agreement and the other Operative Documents
to which it is a party, when executed and delivered, shall each constitute a
legal, valid and binding obligation of GGP enforceable in accordance with its
respective terms, except insofar as the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity.
3.4 NO VIOLATION. The execution and delivery of this Agreement or any of
the other Operative Documents to which it is a party, the consummation of the
transactions provided for herein and therein and contemplated hereby and
thereby, and the fulfillment by GGP of the terms hereof and thereof, will not
(a) conflict with or result in a breach of any provision of the organizational
document
-22-
of GGP, (b) except for the consents described in Section 4.5 of the GGP
Disclosure Letter, result in any default or in any material modification of the
terms of any material contract, agreement, obligation, commitment applicable to
GGP, (c) except as set forth in Section 4.5 of the GGP Disclosure Letter,
require any consent or approval (which has not been obtained or waived) under
any Permit or any note, bond, mortgage, indenture, loan, distribution agreement,
license, agreement, lease or material instrument or material obligation to which
GGP is a party or by which GGP may be bound with respect to the GGP Properties,
or (d) violate any Governmental Requirement applicable to GGP with respect to
the GGP Properties, except in the case of subparagraphs (b), (c) and (d) above,
where any such default, modification consent, approval or violation would not
have a GGP Material Adverse Effect.
3.5 CONSENTS AND PREFERENTIAL PURCHASE RIGHTS. Except as set forth in
Section 4.5 of the GGP Disclosure Letter, all consents, approvals,
qualifications, orders or authorizations of, or filings with, any Governmental
Authority, and all consents or waivers of preferential purchase rights under any
contracts, agreements, or instruments by which GGP is bound with respect to the
GGP Properties, and required in connection with GGP's valid execution, delivery,
or performance of this Agreement and the other Operative Documents to which it
is a party, and the consummation of the transactions contemplated hereby and
thereby has been obtained or made, except where the failure to have so obtained
or made such consents, approvals, qualifications, orders, authorizations,
filings or waivers, would not have a GGP Material Adverse Effect.
3.6 LITIGATION. Except as disclosed in Section 4.6 of the GGP Disclosure
Letter, there is no action, suit or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
GGP, threatened against GGP or any of the GGP Properties before any Governmental
Authority (i) which challenges the validity of this Agreement or any of the
Operative Documents to which it is a party, or (ii) which, if adversely
determined, would have a GGP Material Adverse Effect.
3.7 TITLE TO PROPERTIES AND ASSETS; LEASES. (a) Except (i) as set forth
in Section 4.7 of the GGP Disclosure Letter, (ii) for the Participation
Agreement and Farmout Agreement to be terminated pursuant to the GGP/JEDI I
Partnership Termination Agreement, (iii) releases of non-productive acreage in
accordance with terms of the applicable GGP Leases, (iv) liens and security
interests in favor of JEDI, BBU and BBU II that will be released or (v) as would
not have a GGP Material Adverse Effect, GGP has Good Title to all of the GGP
Leases. Schedule III sets forth a true, correct and complete list of all office
equipment owned by GGP and being transferred to Sheridan hereunder and all
proprietary 3-D seismic data owned by GGP. All equipment owned by GGP and
included in the GGP Properties which is necessary to the ownership and operation
of the GGP Properties is in satisfactory condition and repair (ordinary wear and
tear excepted), except where the failure to be in satisfactory condition and
repair would not have a GGP Material Adverse Effect.
(b) Except as set forth in Section 4.7 of the GGP Disclosure Letter, the
producing oil and gas leases included in the GGP Properties in which GGP owns an
interest (i) have been maintained by the operator thereof according to their
terms and in compliance with all material agreements to which such oil and gas
leases are subject, except where the failure to be so maintained or any
noncompliance therewith would not have a GGP Material Adverse Effect, and (ii)
are in full force
-23-
and effect, except where the failure to be in full force and effect would not
have a GGP Material Adverse Effect.
(c) All royalties, overriding royalties, compensatory royalties and other
payments due with respect to the GGP Leases has been properly and correctly paid
by the operator of the GGP Leases, except where the failure to make such payment
would not have a GGP Material Adverse Effect.
3.8 COMPLIANCE WITH THE LAW. Except with respect to environmental
matters (which are exclusively covered in Section 4.9), GGP (i) is not in
violation of any Governmental Requirement with respect to the GGP Properties and
(ii) has not failed to obtain any Permit necessary to the ownership of the GGP
Properties, except where a violation or failure would not have a GGP Material
Adverse Effect.
3.9 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.9 of the GGP
Disclosure Letter:
(a) to the knowledge of GGP, the GGP Properties and the operations of GGP
thereon are not in violation of any Environmental Laws or any order or
requirement of any court or Governmental Authority to the extent pertaining to
health or the environment, except where a violation would not have a GGP
Material Adverse Effect, nor are there any conditions existing on such
properties or resulting from its operations thereon that may give rise to any
on-site or off-site remedial obligations under any Environmental Law, except for
any condition that would not have a GGP Material Adverse Effect;
(b) without limitation of Section 4.9(a) above, GGP is not subject to any
pending or, to the knowledge of GGP, threatened action, suit, investigation,
inquiry or proceeding by or before any court or Governmental Authority under any
Environmental Law;
(c) except as would not have a GGP Material Adverse Effect, to the
knowledge of GGP all notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed by GGP under any Environmental Law with
respect to GGP, including without limitation those relating to the treatment,
storage, disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and GGP is in compliance with the
terms and conditions of all such notices, permits, licenses and similar
authorizations;
(d) except as would not have a GGP Material Adverse Effect, all hazardous
substances or solid wastes generated by or as a result of its operations on the
GGP Properties and requiring disposal have been transported only by carriers
maintaining valid authorizations under applicable Environmental Laws and treated
and disposed of only at treatment, storage and disposal facilities maintaining
valid authorizations under applicable Environmental Laws, and, to the knowledge
of GGP, such carriers and facilities have been and are operating in compliance
with such authorizations and are not the subject of any pending or threatened
action, investigation or inquiry by any Governmental Authority in connection
with any Environmental Laws;
(e) except as would not have a GGP Material Adverse Effect, to the
knowledge of GGP there are no asbestos-containing materials on or in any GGP
Property, and there are no storage tanks
-24-
or similar containers exceeding 55 gallons in size on or under any such
properties from which hazardous substances, petroleum products or other
contaminants may be released into the surrounding environment;
(f) without limiting the foregoing, to the knowledge of GGP there is (there
will be) no material liability (accrued or contingent) to any non-governmental
third party in tort or under common law in connection with any release or
threatened release of any hazardous substances, solid wastes, petroleum,
petroleum products, and oil and gas exploration and production wastes into the
environment as a result of operations conducted on the GGP Properties; and
(g) Section 4.9 of the GGP Disclosure Letter also separately lists for GGP
any and all Claims against or affecting it and relating to the release,
discharge or emission of any hazardous substance, or to the generation,
treatment, storage or disposal of any wastes, or otherwise relating to the
protection of the environment or to the noncompliance with any notices, permits,
licenses, consent decrees or other authorization and the disposition of each
such Claim. With respect to each such pending or prior matter, Section 4.9 of
the GGP Disclosure Letter hereto lists the date of the Claim, the claimant or
investigating agency, the nature and a brief description of the matter, the
damages claimed or relief sought, and the status or outcome of the matter.
Except as set forth on Section 4.9 of the GGP Disclosure Letter, GGP has not
received any written notice that it is a potentially responsible party under any
Environmental Laws.
3.10 PURCHASE FOR INVESTMENT. GGP is acquiring the Shares and the Warrants
for its own accounts and not with a view to the public resale of all or any part
thereof in any transaction which would constitute a "distribution" within the
meaning of the Securities Act. GGP acknowledges that the Shares and Warrants
have not been registered under the Securities Act and may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
from registration is available.
3.11 FEES AND COMMISSIONS. Other than ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Co. Capital
Corporation ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇"), GGP has not retained any Intermediary in
connection with the transactions contemplated by this Agreement and the
Operative Documents.
3.12 MATERIAL CONTRACTS AND COMMITMENTS. (a) Except as set forth in
Section 4.12 of the GGP Disclosure Letter, GGP has no (i) agreements included in
or encumbering the GGP Properties providing for the indemnification of other
parties for such parties' negligence or other fault (except for such obligations
incurred in the ordinary course of business as an owner or operator of oil and
gas properties, including obligations under master service agreements, drilling
contracts and similar agreements) or the sharing of the tax liability of other
parties; (ii) gas sales or purchase contracts, gas marketing agreements or
transportation agreements included in or
-25-
encumbering the GGP Properties, any of which contracts or agreements is for a
term of greater than one year and provides for a fixed price; (iii) agreements
for capital expenditures, the acquisition of commodities, equipment or material
or the construction of fixed assets with respect to the GGP Properties which
requires aggregate future payments by GGP in excess of $50,000; (iv) agreements
included in or encumbering the GGP Properties or that contemplate, the sale of
any interest in oil or gas leases included in the GGP Properties which involves
payment (including property received in exchange or other non-cash
consideration) to GGP in excess of $50,000; (v) agreements included in or
encumbering the GGP Properties which require future payments by GGP in excess of
$50,000 which is not otherwise specifically disclosed herein; (iv) area of
mutual interest agreements binding the GGP Properties; and (vii) futures, hedge,
swaps, collars, puts, calls, floors, caps, options or other contracts included
in or encumbering the GGP Properties that are intended to benefit from or reduce
or eliminate the risk of fluctuations in the price of commodities, including
hydrocarbons, that are not terminated at Closing (collectively, "GGP Material
Contracts"). None of the GGP Material Contracts have been amended or modified
except as set forth in Section 4.12 of the GGP Disclosure Letter or as would not
have a GGP Material Adverse Effect.
(b) All of the GGP Material Contracts are in full force and effect and
constitute legal, valid and binding obligations of GGP, as applicable, and, to
the knowledge of GGP, the other parties thereto, enforceable in accordance with
their respective terms, except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity and except where the failure to be in full force
and effect would not have a GGP Material Adverse Effect. Neither GGP nor, to
the knowledge of GGP or any other party to any GGP Material Contract is in
default in complying with any provisions thereof, and no condition or event or
fact exists which, with notice, lapse of time or both would constitute a default
thereunder on the part of GGP or, to the knowledge of GGP, any other party
thereto, except for any such default, condition, event or fact that,
individually or in the aggregate, would not have a GGP Material Adverse Effect.
GGP has provided counsel to Sheridan with a true and complete copy of each
contract, agreement and instrument listed in Section 4.12 of the GGP Disclosure
Letter or has otherwise made such documents available for Sheridan to review.
3.13 PLUGGING AND ABANDONMENT OBLIGATIONS. Except as set forth in Section
4.13 of the GGP Disclosure Letter or as would not have a GGP Material Adverse
Effect, there is no well located upon any GGP Lease that GGP is currently
obligated by law or contract to plug and abandon.
ARTICLE IV.
COVENANTS
---------
The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
4.1 GENERAL. Each of the parties will use all reasonable efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and to make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article VI).
4.2 NOTICES AND CONSENTS. Each of Sheridan and GGP will give any notices
to third parties, and will use all reasonable efforts to obtain all third party
consents and waivers of preferential rights, that are required for the
consummation of the transactions contemplated hereby by such a party (except for
governmental consents customarily obtained after closing).
-26-
4.3 OPERATION OF BUSINESS BY SHERIDAN. Sheridan covenants and agrees
that, unless otherwise expressly contemplated by this Agreement or consented to
in writing by GGP, (x) Sheridan will:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) preserve its business and properties, including its present
operations, leases, working conditions and relationships with lessors,
licensors, suppliers, customers and employees;
(c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted; and
(d) keep in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained;
and (y) Sheridan will not:
(a) make any declaration for setting aside or payment of dividends or
distributions in respect of shares of Common Stock or any redemption,
purchase or other acquisition of any of its securities;
(b) make any capital expenditures, or commit to make any capital
expenditures, other than in the ordinary course of business;
(c) except for borrowings under the Sheridan Senior Credit Facility or
the incurrence of other obligations in the ordinary course of business
(other than debt for borrowed money), incur any Indebtedness; and
(d) amend or modify its Charter or, without the written consent of
GGP, the JEDI I Partnership/Sheridan Purchase Agreement.
4.4 OPERATION OF GGP PROPERTIES BY GGP. GGP covenants and agrees that,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Sheridan, GGP will use its reasonable efforts to cause the operator
of the GGP Properties to:
(a) operate the GGP Properties only in the usual and ordinary course
consistent with past practices;
(b) preserve the GGP Properties, including its present operations,
leases, working conditions and relationships with lessors, licensors,
suppliers, customers and employees with respect to such properties;
(c) maintain and keep the GGP Properties in as good repair and
condition as at present, ordinary wear and tear excepted;
-27-
(d) keep in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained;
(e) submit to Sheridan for prior written approval, all requests for
operating or capital expenditures to be incurred after the date hereof and
all proposed contracts and agreements to be entered into by GGP after the
date hereof, in each case relating to the GGP and that involve individual
commitments of more than $5,000 and $10,000 in the aggregate; and
(f) obtain Sheridan's written approval prior to voting under any
operating, joint venture, partnership or similar agreement.
Sheridan acknowledges that GGP owns an undivided interest in the GGP Properties,
and Sheridan agrees that the acts or omissions of the other working interests
owners shall not constitute a violation of the provisions of this Section 5.4,
nor shall any action required by a vote of working interest owners constitute
such a violation so long as GGP has voted its interest in a manner that complies
with the provisions of this Section 5.4. To the extent that GGP is not the
operator of any of the GGP Leases, the obligations of GGP in this Section 5.4
shall be construed to require that GGP use reasonable efforts (without being
obligated to incur any expense or institute any cause of action) to cause the
operator of such leases to take such actions or render such performance within
the constraints of the applicable operating agreements and other applicable
agreements.
4.5 FULL ACCESS. (a) Sheridan will permit representatives of GGP to have
full access at reasonable times during normal business hours, in a manner that
will not interfere with the normal business operations of Sheridan, to all
premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to Sheridan. GGP HEREBY AGREES TO
DEFEND, INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS SHERIDAN AND ITS
OFFICERS, DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS AND ADVISORS FROM AND AGAINST
ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THE ACCESS TO THE PROPERTY OF
SHERIDAN PURSUANT TO THIS SECTION 5.5(A) AND ANY OTHER DUE DILIGENCE ACTIVITY
CONDUCTED BY GGP OR ANY OF ITS OFFICERS, EMPLOYEES, AGENTS OR ADVISORS,
INCLUDING WITHOUT LIMITATION ANY CLAIMS RESULTING, IN WHOLE OR IN PART, FROM THE
CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF SHERIDAN OR ITS OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, AGENTS OR ADVISORS. THE PARTIES AGREE THAT
THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
(b) GGP will permit representatives of Sheridan to have full access at
reasonable times during normal business hours, in a manner that will not
interfere with the normal business operations of GGP, to all personnel, books,
records (including tax records), contracts and documents of or pertaining to GGP
Properties in GGP's possession. SHERIDAN HEREBY AGREES TO DEFEND, INDEMNIFY,
RELEASE, PROTECT, SAVE AND HOLD HARMLESS GGP AND ITS OFFICERS, DIRECTORS,
AFFILIATES, EMPLOYEES, AGENTS AND ADVISORS FROM AND AGAINST ANY AND ALL CLAIMS
ARISING OUT OF OR RELATING TO THE ACCESS TO THE PROPERTY OF GGP PURSUANT TO THIS
SECTION 5.5(B) AND ANY OTHER DUE DILIGENCE ACTIVITY CONDUCTED BY SHERIDAN OR ANY
OF ITS OFFICERS, EMPLOYEES, AGENTS OR ADVISORS, INCLUDING WITHOUT LIMITATION
-28-
ANY CLAIMS RESULTING, IN WHOLE OR IN PART, FROM THE CONCURRENT OR JOINT
NEGLIGENCE OR STRICT LIABILITY OF GGP OR ITS OFFICERS, DIRECTORS, AFFILIATES,
EMPLOYEES, AGENTS OR ADVISORS. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES
A CONSPICUOUS LEGEND.
(c) Except as required by law and except for information that is public,
all information relating to the GGP Properties obtained by or on behalf of
Sheridan in connection with its evaluation of the GGP Properties under Section
5.5(b) shall be kept confidential and shall not be disclosed by Sheridan or any
of Sheridan's employees, agents, representatives or advisors (collectively,
"Sheridan Representatives") in any manner whatsoever, in whole or in part,
unless and until the Closing occurs. Sheridan shall indemnify, defend and hold
harmless GGP, its officers, partners, Affiliates, employees, agents and advisors
from any Claims incurred as the result of the use of such information by
Sheridan or the Sheridan Representatives in contravention of the terms of this
Agreement or the breach by Sheridan or the Sheridan Representatives of the
covenant contained in the preceding sentence.
(d) Except as required by law and except for information that is public,
all information relating to the Sheridan properties obtained by or on behalf of
GGP in connection with this Agreement shall be kept confidential and shall not
be disclosed by GGP or any of GGP's employees, agents, representatives or
advisors (collectively, "GGP Representatives") in any manner whatsoever, in
whole or in part, unless and until the Closing occurs. GGP shall indemnify,
defend and hold harmless Sheridan, its officers, partners, Affiliates,
employees, agents and advisors from any Claims incurred as the result of the use
of such information by GGP or the GGP Representatives in contravention of the
terms of this Agreement or the breach by GGP or the GGP Representatives of the
covenant contained in the preceding sentence.
4.6 NOTICE OF DEVELOPMENTS. Each party will give prompt written notice to
the other of any material adverse development causing a breach of any of its
representations and warranties under this Agreement.
ARTICLE V.
CLOSING CONDITIONS
------------------
5.1 CONDITIONS TO OBLIGATION OF GGP. The obligation of GGP to consummate
the transactions contemplated hereby is subject to satisfaction of the following
conditions:
(a) the representations and warranties contained in Article III, to
the extent qualified as to materiality shall be accurate in all respects,
and, to the extent not so qualified, shall be accurate in all material
respects, as of the Closing Date as though such representations and
warranties had been made at and as of that time;
(b) Sheridan shall have performed and complied with all of the
covenants and agreements hereunder in all material respects through the
Closing;
(c) no action suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would
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prevent consummation of any of the transactions contemplated by this
Agreement; and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect;
(d) Sheridan shall have delivered to GGP a certificate from an officer
of Sheridan to the effect that each of the conditions specified above in
Section 6.1(a)-(c) is satisfied in all respects;
(e) the conditions to the closing of the transactions contemplated by
the JEDI I Partnership/Sheridan Purchase Agreement shall have been
satisfied and such transaction shall have been consummated;
(f) the transaction contemplated by the GGP/JEDI I Termination
Agreement shall have been consummated;
(g) the transaction contemplated by the Sharing Agreement shall have
been consummated;
(h) JEDI shall have executed mortgage and deed of trust lien releases
and UCC-3 termination statements releasing mortgage and deed of trust liens
and security interests securing payment of debt owing under the JEDI Loan
Agreement;
(i) BBU II shall have executed mortgage and deed of trust lien
releases and UCC-3 termination statements releasing mortgage and deed of
trust liens and security interests securing payment of debt owing under the
BBU II/GGP Loan Agreement and under the BBU II/AmPac Loan Agreement;
(j) the transaction contemplated by the GGP JEDI I Partnership
Termination Agreement shall have been consummated;
(k) the ▇▇▇▇▇ Guaranty Agreement shall have been terminated and
released pursuant to the GGP/JEDI Termination Agreement.
(l) The transaction anticipated by the BBU II/GGP Termination
Agreement shall have been consummated;
(m) the transaction contemplated by the BBU/AmPac Termination
Agreement shall have been consummated;
(n) JEDI I Partnership shall have executed and delivered to Sheridan
the Registration Rights Agreement in connection with the consummation of
the transactions under the JEDI I Partnership/Sheridan Purchase Agreement;
and
(o) GGP shall have received an opinion of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
P.C., dated as of the Closing Date, that addresses the matters set forth in
Sections 3.1, 3.2, 3.3, 3.13, 3.14, the first sentence in 3.16 and 3.20
hereof, including such exceptions and
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assumptions as are customary in such opinions, in form and substance
reasonably acceptable to GGP.
5.2 CONDITIONS TO OBLIGATION OF SHERIDAN. The obligation of Sheridan to
consummate the transactions contemplated hereby is subject to satisfaction of
the following conditions:
(a) the representations and warranties contained in Article IV, to the
extent qualified as to materiality shall be accurate in all respects, and,
to the extent not so qualified, shall be accurate in all material respects,
as of the Closing Date as though such representations and warranties had
been made at and as of that time;
(b) GGP shall have performed and complied with all of the covenants
and agreements hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any
Governmental Authority wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would prevent consummation of any of the
transactions contemplated by this Agreement, and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect;
(d) GGP shall have delivered to Sheridan a certificate to the effect
that each of the conditions specified above in Section 6.2(a)-(c) is
satisfied in all respects;
(e) the conditions to the closing of the transactions contemplated by
the JEDI I Partnership/Sheridan Purchase Agreement shall have been
satisfied and such transaction shall have been consummated; and
(f) Sheridan shall have received an opinion of (i) ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
L.L.P., addressing the matters set forth in Section 4.1, 4.2, and 4.3, in
each case, dated as of the Closing Date and including such exceptions and
assumptions as are customary in such opinions, in form and substance
reasonably acceptable to Sheridan.
ARTICLE VI.
OTHER PROVISIONS
----------------
6.1 FEES AND COMMISSIONS. Sheridan agrees to pay, and to indemnify and
hold harmless GGP from and against liability for, any compensation to any
finder, broker, agent, financial advisor (other than ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇), or other
intermediary (collectively, an "Intermediary") that it has retained in
connection with the transactions contemplated by this Agreement , and the fees
and expenses of defending against such liability or alleged liability. Each
party shall be responsible for all expenses, including due diligence expenses,
incurred by it in connection with the consummation of the transactions
contemplated by this Agreement.
6.2 NO RESTRICTIONS ON AFFILIATES. As long as GGP or any of its
Affiliates hold any shares of Common Stock, neither Sheridan nor any of its
Subsidiaries will enter into any agreement that
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would purport to impose restrictions or limitations on the business, operations
or assets of GGP or its Affiliates.
6.3 CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated herein,
Sheridan will not take any action that would be inconsistent with the
representations contained in Sections 3.14 and 3.15 hereof so long as the GGP or
its Affiliates holds any shares of Common Stock. For purposes of this Section
7.3, the term "Affiliate" when used to refer to Affiliates of GGP, shall exclude
Sheridan and its Subsidiaries.
6.4 BUSINESS OPPORTUNITY MATTERS. (a) Sheridan and GGP acknowledge and
agree that neither GGP nor any of its Affiliates shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement, the relationship
that exists between GGP and Sheridan or otherwise, from engaging in any type of
business activity or owning an interest in any type of business entity,
regardless of whether such business activity is (or such business entity engages
in businesses that are) in direct or indirect competition with the businesses or
activities of Sheridan or any of its Affiliates. Without limiting the
foregoing, GGP and Sheridan acknowledge and agree that (i) neither Sheridan nor
its Affiliates nor any other Person shall have any rights, by virtue of this
Agreement, the relationship that exists between GGP and Sheridan or otherwise,
in any business venture or business opportunity of GGP or any of its Affiliates,
and neither GGP nor its Affiliates shall have any obligation to offer any
interest in any such business venture or business opportunity to Sheridan, any
Affiliate of Sheridan or any other Person, or otherwise account to any of such
Persons in respect of any such business ventures, (ii) the activities of GGP or
any of its Affiliates that are in direct or indirect competition with the
activities of Sheridan or any of its Affiliates are hereby approved by Sheridan,
and (iii) it shall be deemed not to be a breach of any fiduciary or other
duties, if any and whether express or implied, that may be owed by GGP or its
Affiliates to Sheridan or its Affiliates for GGP to permit itself or one of its
Affiliates to engage in a business opportunity in preference or to the exclusion
of Sheridan, its Affiliates or any other Person.
(b) Neither Sheridan or its Affiliates shall enter into any "area of mutual
interest" agreement of similar agreement that could or would have the effect of
binding GGP or any of its Affiliates or their respective properties.
(c) Except for duties and obligations owed by Sheridan to GGP or any of its
Affiliates pursuant to this Agreement, any of the Operative Documents to which
GGP or any of its Affiliates is a party, or any other existing or prospective
contract or agreement between Sheridan and GGP or any of its Affiliates, nothing
in the relationship between Sheridan and GGP and its Affiliates created by this
Agreement shall be deemed to create any duty or obligation of Sheridan to offer
any interest in any business venture or business opportunity to GGP or its
Affiliates.
6.5 INDEMNIFICATION. Subject to Sheridan's rights hereunder with respect
to a Claim under the indemnity of GGP set forth in Section 7.5(c) hereof, as of
the Closing, Sheridan hereby assumes (i) all obligations to properly plug and
abandon all ▇▇▇▇▇ and remove all related equipment now located on the GGP
Properties or hereafter placed on the GGP Properties by Sheridan, its successors
and assigns, and cleanup and restore the lands related to such GGP Properties,
and (ii) all other liabilities (other than the Existing Lawsuit) attributable to
the GGP Properties, including liabilities arising from, attributable to, or
alleged to be arising from or attributable to, personal injury
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or property damage and any violation of, or the failure to perform any
obligation imposed by, any Environmental Laws (in each case the assumption by
Sheridan is made regardless of whether any such obligation or liability is
attributable to events or periods of time prior to or after the Effective Date)
(such assumed obligations and liabilities being hereinafter collectively
referred to as the "Assumed Obligations").
(b) Sheridan agrees to indemnify, release, defend, and hold harmless GGP,
its partners, and Affiliates, and their respective officers, directors,
employees and agents from, against, and in respect of any and all claims,
demands, losses, reasonable costs and expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties and
reasonable attorneys' fees (collectively, "Claims"), that GGP shall incur or
suffer, which arise, result from, or relate to (i) any breach of, or failure by
Sheridan or any of its Subsidiaries to perform, any of its representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Sheridan or any of its Subsidiaries in connection with the transactions
contemplated by this Agreement, or (ii) the Assumed Obligations.
(c) GGP agrees to indemnify, release, defend, and hold harmless Sheridan
and its Subsidiaries and their respective officers, directors, employees and
agents from, against, and in respect of any and all Claims, that Sheridan shall
incur or suffer, which arise, result from, or relate to (i) other than with
respect to its covenant under Section 7.5(c)(iii) hereof, any breach of, or
failure by GGP to perform, any of its representations, warranties, covenants, or
agreements in this Agreement or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by GGP in connection with the
transactions contemplated by this Agreement, (ii) the Existing Lawsuit, (iii)
the operation or ownership of the GGP Properties prior to the Effective Date or
(iv) the continued sponsorship by GGP of any group health plan maintained by GGP
and its affiliates with respect to its former or existing employees subject to
the Consolidated Omnibus Budget Reconciliation Act of 1984 ("COBRA") and any and
all COBRA Claims with respect to any "qualifying event" (as defined therein)
that occurs before or on the Closing Date.
(d) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION AND
EXCULPATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED OR RELEASED
PARTY SHALL BE ENTITLED TO INDEMNIFICATION OR EXCULPATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING
RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR
COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH
INDEMNIFIED OR RELEASED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH
CONSTITUTES A CONSPICUOUS LEGEND.
(e) With respect to the representations, warranties, covenants and
agreements that survive the Closing pursuant to Section 7.6, in no event shall
any amounts be recovered from the indemnifying party under this Section 7.5 or
otherwise for any matter for which a written notice of claim specifying in
reasonable detail the specific nature of the claim ("Claim Notice") is not
delivered to the indemnifying party prior to the time provided in Section 7.6;
provided, however, that such indemnities shall survive with respect only to the
specific matter that is the subject of any Claim Notice delivered in good faith
in compliance with the requirements of this Section 7.5(e) until the earlier to
occur of (A) the date on which a final nonappealable resolution of the matter
described in
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such Claim Notice has been reached or (B) the date on which the matter described
in such Claim Notice has otherwise reached final resolution. The
indemnifications provided by Sections 7.5(b) and 7.5(c) of this Agreement are
expressly subject to the following: in case any legal proceeding or claim,
including any investigatory proceeding, is brought or made against a party (the
"Indemnified Party") in a matter for which indemnification may be provided under
Sections 7.5(b) and 7.5(c), the Indemnified Party shall within 20 business days
notify the other party (the "Indemnifying Party") with the delivery of the Claim
Notice. The Indemnifying Party shall have the right to control and assume the
defense of any such legal proceeding or claim, including the employment of
counsel satisfactory to the Indemnifying Party. If the Indemnifying Party
controls and assumes the defense of any proceeding or claim, the Indemnified
Party shall have the right to employ separate counsel, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Party unless the
representation of both parties by the same counsel would be inappropriate due to
any actual or potential conflicts of interest as determined by counsel to the
Indemnifying Party. The Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys at any one time for the
Indemnified Party in connection with any one legal proceeding or claim or
substantially similar related proceedings and claims. The indemnification
obligations of this Section 7.5 shall not apply to any settlements effected
without the consent of the Indemnifying Party. The indemnification obligations
of this Section 7.5 shall not be deemed to create any rights of subrogation or
other rights in any insurer or third party.
(f) Except for the parties' rights pursuant to the Registration Rights
Agreement, the Warrant Agreement and the Assignment, each of the parties hereto
acknowledges and agrees that its sole and exclusive remedy with respect to any
and all Claims relating to this Agreement or the transactions contemplated
hereby shall be limited to the indemnification provisions set forth in this
Agreement, and, in furtherance of the forgoing, each party hereby waives, to the
fullest extent permitted under any applicable law, any and all other rights,
claims and causes of action it may have against the other party with respect to
this Agreement or the transactions contemplated hereby.
(g) NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN CONNECTION WITH ANY
CLAIM MADE BY A PARTY AGAINST ANOTHER PARTY HEREUNDER, THE CLAIMING PARTY SHALL
NOT BE ENTITLED TO RECOVER ANY PUNITIVE, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR
INDIRECT DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY EXEMPLARY DAMAGES, TREBLE
DAMAGES, PENALTIES, OR LOSS OF PROFITS OR INCOME), WHETHER BASED ON STATUTE, IN
TORT, CONTRACT OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE
UNDER APPLICABLE LAW OR OTHERWISE, AND WHETHER OR NOT ARISING FROM A PARTY'S
SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT, THE
PARTIES HERETO HEREBY WAIVING THEIR RIGHT, IF ANY, TO RECOVER SUCH DAMAGES IN
CONNECTION WITH ANY CLAIMS HEREUNDER.
(h) Notwithstanding anything herein to the contrary and, except for the
matters set forth in Section 7.5(c)(ii) and (c)(iv), (i) neither Sheridan nor
GGP shall be required to indemnify the other party hereto (or such party's
related indemnified parties) unless the total amount of all payments required to
be made by such party pursuant to the indemnification provisions hereof exceeds,
in the aggregate, $100,000, in which event the party required to indemnify the
other party shall be liable under such indemnification provisions for the entire
amount and not merely the excess over $100,000, and (ii) neither Sheridan nor
GGP shall be required to indemnify the other party hereto (or such
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party's related indemnified parties) under this Agreement in any amount
exceeding in the aggregate $2,750,000.
(i) Notwithstanding anything herein to the contrary, GGP shall not be
obligated to indemnify Sheridan (or such party's related indemnified parties)
pursuant to the provisions of Section 7.5(c)(iii) unless (i) the Claim by
Sheridan for indemnification under Section 7.5(c)(iii) is made as a result of a
Claim brought against Sheridan by a Person that is not an Affiliate of Sheridan
or (ii) the Claim by Sheridan for indemnification under Section 7.5(c)(iii) is
made on account of the GGP Properties being in violation of a Governmental
Requirement.
6.6 SURVIVAL OF TERMS; FAILURE TO CLOSE. All representations, warranties,
indemnities, and covenants contained herein or made in writing by any party in
connection herewith will survive the execution and delivery of this Agreement
and any investigation made at any time by or on behalf of Sheridan and GGP;
provided, however, that any Claim with respect to the breach thereof may be made
only if the party claiming such breach shall have delivered a Claim Notice to
the responsible party hereunder (a) in the case of the representations,
warranties and covenants of Sheridan contained in Sections 2.3 and 2.4 and
Articles 3 and 5 and of GGP contained in Sections 2.3 and 2.4 and Articles 4 and
5, on or before first anniversary of the Closing Date, (b) in the case of the
covenant of GGP contained in Section 7.5(c)(iii), on or before the third
anniversary of the Closing Date and (c) at any time, in the case of all other
provisions. Notwithstanding anything herein to the contrary, in the event the
Closing has not occurred on or before January 15, 1998, because one or more
conditions set forth in Section 6.1 has not been satisfied Sheridan or GGP may
terminate its obligations under this Agreement by written notice to Sheridan;
provided, however, that the provisions of Sections 7.1 and 7.6 shall survive any
such termination.
6.7 DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES. The express
representations and warranties of the parties contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied or statutory. SHERIDAN ACKNOWLEDGES THAT GGP HAS NOT MADE, AND GGP
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND SHERIDAN HEREBY EXPRESSLY WAIVES,
ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (A) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, GAS BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE
RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE GGP PROPERTIES, AND (B)
THE ACCURACY, COMPLETENESS OR MATERIALITY OR ANY INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO SHERIDAN
BY OR ON BEHALF OF GGP. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, GGP EXPRESSLY DISCLAIMS AND NEGATES, AND SHERIDAN HEREBY WAIVES, AS
TO PERSONAL PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE GGP
PROPERTIES (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(IV) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF
CONSIDERATION, (V) ANY CLAIMS BY SHERIDAN FOR DAMAGES BECAUSE OF REDHIBITORY
VICES OR DEFECTS OR OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN AS OF THE
EFFECTIVE DATE OR THE CLOSING DATE, AND (VI) ANY AND ALL IMPLIED WARRANTIES
EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION OF BOTH
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SHERIDAN AND GGP THAT THE PERSONAL PROPERTY, EQUIPMENT AND FIXTURES INCLUDED
WITHIN THE GGP PROPERTIES ARE HEREBY CONVEYED TO SHERIDAN IN THEIR PRESENT
CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS, AND THAT
SHERIDAN HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
APPROPRIATE. GGP AND SHERIDAN AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW,
RULE OR ORDER.
6.8 TRANSFER TAXES AND RECORDING FEES. All sales, use or other taxes
(other than taxes on gross income, net income or gross receipts) and duties,
levies or other governmental charges incurred by or imposed with respect to the
property transfers undertaken pursuant to this Agreement and all costs of
recording the Assignment shall be the responsibility of, and shall be paid by
Sheridan.
6.9 ACTIONS BY SHERIDAN. Notwithstanding anything herein to the contrary,
GGP shall not be liable for, or in breach of its representations or covenants
hereunder on account of, any actions taken by Sheridan on or with respect to the
GGP Properties prior to the Closing Date.
ARTICLE VII.
MISCELLANEOUS
-------------
7.1 AMENDMENTS; WAIVERS. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by Sheridan or GGP therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance or for the specific purpose for which given.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors of the parties hereto, whether so expressed or not and the
permitted assigns of the parties hereto including, without limitation and
without need of any express assignment. This Agreement and the rights and
obligations of Sheridan shall not be assigned without the prior written consent
of GGP. GGP may not assign or transfer any or all of its rights and obligations
under this Agreement without the consent of Sheridan except following the
Closing, to an Affiliate or to JEDI.
7.3 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement unless the consummation of the transaction contemplated hereby is
materially and adversely affected thereby.
7.4 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
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7.5 GOVERNING LAW. Each of the parties hereto hereby consents and agrees
that this Agreement shall be deemed a contract and instrument made under the
laws of the State of Texas and shall be construed and enforced in accordance
with and governed by the laws of the State of Texas, without regard to
principles of conflicts of law.
7.6 ENTIRE AGREEMENT. This Agreement, the Operative Documents and the
disclosure letters delivered by the parties hereto constitutes the entire
agreement between Sheridan and GGP concerning the matters referred to herein and
therein, and, supersede all prior agreements and understandings among Sheridan
and GGP relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between the parties.
7.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
7.8 FURTHER COOPERATION. At any time and from time to time, and at its
own expense, each party shall promptly execute and deliver all such documents
and instruments, and do all such acts and things, as the other party may
reasonably request in order to further effect the purposes of this Agreement.
7.9 NOTICES. All notices, requests, and other communications to any party
hereunder shall be in writing (including telecopy) and shall be given to such
party at its address or telecopy number set forth on the signature pages hereof
or such other address or telecopy number as such party may hereafter specify by
notice to the other parties.
7.10 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
any party hereto in exercising any right or remedy under this Agreement and no
course of dealing among the parties hereto shall operate as a waiver thereof,
nor shall any single or partial exercise of any right or remedy under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right or remedy under this Agreement. No notice to or demand on any party
hereto not otherwise required by this Agreement shall entitle such party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of such party to any other or further action
in any circumstances without notice or demand.
7.11 EXHIBITS; SCHEDULES; AMENDMENT OF DISCLOSURE LETTER. (a) The
exhibits attached to this Agreement and the Sheridan Disclosure Letter and the
GGP Disclosure Letter are incorporated herein and shall be considered to be a
part of this Agreement for the purposes stated herein, except that in the event
of any conflict between any of the provisions of such exhibits or schedules and
the provisions of this Agreement, the provisions of this Agreement shall
prevail.
(b) Each of Sheridan and GGP may, from time to time, prior to the Closing,
by written notice to the other party, supplement or amend such party's
disclosure letter to correct any matter that would constitute a breach of any
representation or warranty of such party herein contained; provided, however,
except as provided in the following sentence, no such supplement or amendment
will affect the rights or obligations of the parties to this Agreement
(including without limitation hereof) until
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after the Closing Date. Notwithstanding any other provision hereof, if the
Closing occurs, any such supplement or amendment of such disclosure letter will
be effective to cure and correct for indemnification purposes (but only for such
purposes) any breach of any representation, warranty or covenant that would have
existed by reason of not having made such supplement or amendment.
7.12 DISPUTE RESOLUTION. (a) Any controversy, dispute or claim arising out
of or relating to this Agreement or the transactions contemplated hereby (a
"Dispute") shall be submitted to non-binding mediation upon the request of
Sheridan or GGP on the following terms. Upon the request of either party, a
neutral mediator acceptable to both parties (the "Mediator") shall be appointed
within fifteen (15) days. The Mediator shall attempt, through negotiations in
any manner deemed reasonably appropriate by the Mediator, in which the parties
shall participate, to resolve the Dispute. The Mediator shall be compensated at
a rate agreeable to Sheridan, GGP and the Mediator, and each of Sheridan and GGP
shall pay one-half of such compensation and other expenses of the mediation.
(b) In the event that the Dispute has not been resolved within 30 days
after the appointment of the Mediator, the Dispute shall be resolved by
arbitration administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this Section 8.12, the Commercial Arbitration Rules
of the AAA, and, to the maximum extent applicable, the United States Arbitration
Act. Judgment on any matter rendered by arbitrators may be entered in any court
having jurisdiction. Any arbitration shall be conducted before three
arbitrators. The arbitrators shall be individuals knowledgeable in the subject
matter of the Dispute. Each party shall select one arbitrator and the two
arbitrators so selected shall select the third arbitrator. If, within 10 days
after notice, a party fails to select an arbitrator, that party's arbitrator
shall be selected by the AAA pursuant to Rule 14 of the Commercial Arbitration
Rules. If the third arbitrator is not selected within thirty (30) days after
the request for an arbitration, then any party may request the AAA to select the
third arbitrator. The arbitrators may engage engineers, accountants or other
consultants they deem necessary to render a conclusion in the arbitration
proceeding. To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the Dispute with
the AAA. Arbitration proceedings shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as the arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and any
engineer, accountant or other consultant engaged by the arbitrators, shall be
shared equally unless otherwise awarded by the arbitrators.
(c) Nothing in this Section 8.12 shall limit or delay the right of GGP to
exercise the remedies available to it under the Warrant Agreement or the
Registration Rights Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
SHERIDAN ENERGY, INC.
/s/ ▇. ▇. ▇▇▇▇▇▇▇▇
By:________________________________
▇. ▇. ▇▇▇▇▇▇▇▇, President
Address for Notice:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇▇▇
Telecopy:__________________________
GRAND GULF PRODUCTION, L.L.C.
a Texas limited liability company
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By:________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: CEO
Address for Notice:
Grand Gulf Production, L.L.C.
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
Fax: 713/▇▇▇-▇▇▇▇
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EXHIBIT A
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, dated as of December 31, 1997, is made by and
between SHERIDAN ENERGY, INC., a company organized under the laws of Delaware
("Sheridan") and GRAND GULF PRODUCTION, L. L. C., a Texas limited liability
company ("GGP"). GGP, together with any transferee of Warrants or Warrant
Shares, are referred to herein as the "Warrant Holder."
WHEREAS, Sheridan and GGP have entered into that certain Purchase Agreement
(the "Purchase Agreement") dated December 31, 1997; and
WHEREAS, Sheridan proposes to issue to GGP as partial consideration for GGP
entering into the Purchase Agreement, 82,500 common stock purchase warrants (the
"Warrants") to purchase shares (the "Warrant Shares") of Sheridan's common
stock, par value $0.01 per share (the "Common Stock"), each Warrant entitling
the holder thereof to purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein and in the Purchase Agreement set forth and for other good and valuable
consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. Sheridan will issue and
deliver the Warrants to GGP, on the date of Closing referred to in the Purchase
Agreement. The aggregate number of Warrants to be issued and delivered shall be
82,500. The Warrants shall be exercisable on or after the date of Closing
referred to in the Purchase Agreement. The text of the Warrant, the purchase
form and assignment form to be printed on the reverse thereof shall be
substantially as set forth in the Warrant Certificate attached as Exhibit A
hereto. The Warrants shall be executed on behalf of Sheridan by the manual or
facsimile signature of the President or a Vice President of Sheridan, attested
by the manual or facsimile signature of the Secretary or an Assistant Secretary
of Sheridan. A Warrant bearing the manual or facsimile signature of individuals
who were at any time the proper officers of Sheridan shall bind Sheridan
notwithstanding that such individuals or any of them shall have ceased to hold
such offices prior to the delivery of such Warrant or did not hold such offices
on the date of this Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by Sheridan
either upon initial issuance or upon division, exchange, substitution or
transfer.
2. REPRESENTATIONS AND WARRANTIES OF SHERIDAN. Sheridan hereby
represents and warrants as follows:
(A) POWER AND AUTHORITY. Sheridan has all requisite corporate power
and authority, and has taken all corporate action necessary, to execute,
deliver and perform this Warrant Agreement, to grant, issue and deliver the
Warrants and to authorize and reserve for
issuance and, upon payment from time to time of the Exercise Price, to issue and
deliver the shares of Common Stock or other securities issuable upon exercise of
the Warrants. This Warrant Agreement has been duly executed and delivered by
Sheridan.
(B) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There have
been reserved for issuance, and Sheridan shall at all times keep reserved,
out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and such shares, when issued upon receipt of
payment therefor or upon a net exercise in accordance with the terms of the
Warrants and of this Warrant Agreement, will be legally and validly issued,
fully paid and nonassessable and will be free of any preemptive rights of
stockholders or any restrictions.
3. CONDITIONS TO PURCHASE. GGP's obligations hereunder shall be subject
to satisfaction of the following conditions upon the Closing, in addition to
such other conditions as are set forth in the Purchase Agreement:
(a) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Warrant Agreement and the Warrants
and all other legal matters relating to this Warrant Agreement, the
Warrants and the transactions contemplated hereby shall be satisfactory in
all respects to GGP.
(b) There shall have been duly tendered to GGP or upon the order of
GGP a certificate or certificates representing the Warrants.
4. REGISTRATION. The Warrants shall be numbered and shall be registered
on the books of Sheridan (the "Warrant Register") as they are issued. The
Warrants shall be registered initially in such names and such denominations as
GGP has specified to Sheridan.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Warrant Agreement, each Warrant certificate may be
exchanged at the option of the Warrant Holder thereof for another certificate or
certificates of different denominations entitling the Warrant Holder thereof to
purchase upon surrender to Sheridan or its duly authorized agent a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle such Warrant Holder to purchase. Any Warrant Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to Sheridan, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon,
Sheridan shall execute and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested. Any Warrant
issued upon exchange, transfer or partial exercise of the Warrants shall be the
valid obligation of Sheridan, evidencing the same generic rights and entitled to
the same generic benefits under this Warrant Agreement as the Warrants
surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14 hereof,
the Warrants shall be transferrable only on the Warrant Register upon delivery
to Sheridan of the Warrant certificate or certificates duly endorsed by the
Warrant Holder or by his duly authorized attorney-in-
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fact or legal representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney-in-
fact, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with Sheridan. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with Sheridan in its discretion. Upon any registration of
transfer, Sheridan shall deliver a new Warrant or Warrants to the person
entitled thereto.
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Warrant Holder thereof to purchase one share
of Common Stock during the time period and subject to the conditions set forth
in the Warrant Certificate at an exercise price of $5.50 per share, subject to
adjustment in accordance with Section 12 hereof (the "Exercise Price"). Each
Warrant terminates at 5:00 p.m. Houston time on the fifth anniversary of the
Closing Date as defined in the Purchase Agreement (the "Expiration Date").
(b) The Exercise Price and the number of shares issuable upon exercise of
Warrants are subject to adjustment upon the occurrence of certain events,
pursuant to the provisions of Section 12 of this Warrant Agreement. Subject to
the provisions of this Warrant Agreement, each Warrant Holder shall have the
right, which may be exercised as expressed in such Warrants, to purchase from
Sheridan (and Sheridan shall issue and sell to such Warrant Holder) the number
of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to Sheridan, or its duly authorized agent, of such
Warrants, and upon payment to Sheridan of the Exercise Price, as adjusted in
accordance with the provisions of Section 12 of this Warrant Agreement or upon a
net exercise pursuant to this subsection of this Warrant Agreement, for the
number of shares in respect of which such Warrants are then exercised. The
Warrant Holder may (i) pay the Exercise Price in cash, by certified or official
bank check payable to the order of Sheridan, or by the surrender to Sheridan of
securities of Sheridan having a Market Price equal to the Exercise Price or (ii)
make an exercise of Warrants for "Net Warrant Shares." The number of Net
Warrant Shares will be determined as described by the following formula: Net
Warrant Shares = [WS x (MP-EP)]/MP. "WS" is the number of Warrant Shares
issuable upon exercise of the Warrants or portion of Warrants in question. "MP"
is the Market Price of the Common Stock on the last trading day preceding the
date of the request to exercise the Warrants. "Market Price" shall mean the then
current market price per share of Common Stock, as determined in paragraph
12.1(e). "EP" shall mean the Exercise Price.
Upon such surrender of Warrants, and payment of the Exercise Price, with
cash or securities, or upon a net exercise as aforesaid, Sheridan at its expense
shall issue and cause to be delivered with all reasonable dispatch to or upon
the written order of the Warrant Holder and in such name or names as the Warrant
Holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of such Warrants, together
with cash, as provided in Section 12 of this Warrant Agreement, in respect of
any fraction of a share of such stock otherwise issuable upon such surrender.
Such certificate or certificates shall be deemed to have been issued, and any
person so designated to be named therein shall be deemed to have become a holder
of record of such shares, as of the date of the surrender of such Warrants and
payment of the Exercise Price
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or receipt of shares by net exercise as aforesaid. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the Warrant
Holders thereof, either in full or from time to time in part and, in the event
that any Warrant is exercised in respect of less than all of the shares
purchasable on such exercise at any time prior to the Expiration Date, a new
certificate evidencing the remaining Warrant or Warrants will be issued.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. Sheridan covenants that if
any share of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any U.S. federal or state or other law or
applicable governing rule or regulation of any securities exchange, registration
with or approval of any governmental authority, or listing on any such
securities exchange, before such shares may be issued upon exercise, Sheridan
will use its best efforts to cause such shares to be duly registered, approved
or listed on the relevant national securities exchange, as the case may be.
9. PAYMENT OF TAXES. Sheridan will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants and any securities issued pursuant to Section 12 hereof; provided,
however, that Sheridan shall not be required to pay any tax or taxes which may
be payable in respect of any transfer involved in the issue or delivery of any
Warrants or certificates for Warrant Shares and any securities issued pursuant
to Section 12 hereof in a name other than that of the Warrant Holder of such
Warrants.
10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, Sheridan shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF WARRANTS.
Sheridan shall at all times reserve, out of the authorized and unissued shares
of Common Stock, a number of shares sufficient to provide for the exercise of
the rights of purchase represented by the Warrants, and the transfer agent for
the Common Stock ("Transfer Agent") and every subsequent transfer agent for any
shares of Sheridan's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times until the Expiration Date to reserve such number of authorized and
unissued shares as shall be requisite for such purpose. Sheridan will keep a
copy of this Warrant Agreement on file with the Transfer Agent and with every
subsequent transfer agent for any shares of Sheridan's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants.
Sheridan will supply the Transfer Agent and any such subsequent transfer agent
with duly executed stock certificates for such purpose and will itself provide
or otherwise make available any cash which may be issuable as provided by
Section 13 of this Warrant Agreement. Sheridan will furnish to the Transfer
Agent and any such subsequent transfer agent a copy of all notices of
adjustments, and certificates related thereto, transmitted to each Warrant
Holder pursuant to Section 12.3 hereof. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be canceled, and such canceled
Warrants shall constitute sufficient evidence of the number of shares of stock
which have been issued upon the exercise of such Warrants (subject to adjustment
as herein provided). No shares of stock shall be subject to reservation in
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respect of the Warrants subsequent to the Expiration Date except to the extent
necessary to comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price shall
be subject to adjustment as follows:
(a) In case Sheridan shall (i) pay a dividend to holders of
Common Stock in shares of Common Stock or make a distribution to
holders of Common Stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a larger number of shares of
Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of
Sheridan (including any such reclassification in connection with a
consolidation or merger in which Sheridan is the surviving
corporation), the number of Warrant Shares purchasable upon exercise
of each Warrant immediately prior thereto shall be adjusted so that
the Warrant Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of Sheridan which he would have
owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised
immediately prior to the happening of such event or any record date
with respect thereto regardless of whether the Warrants are
exercisable at the time of the happening of such event or at the time
of any record date with respect thereto. An adjustment made pursuant
to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any,
for such event.
(b) In case Sheridan shall issue rights, options or warrants to
holders of its outstanding Common Stock, without any charge to such
holders, entitling them to subscribe for or purchase shares of Common
Stock at a price per share which is lower at the record date mentioned
below than the greater of (a) the Exercise Price or (b) the then
current market price per share of Common Stock (as determined in
accordance with paragraph (e) below) (the "Greater Price"), then in
each such case the number of Warrant Shares thereafter purchasable
upon the exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon exercise of
each Warrant by a fraction, of which the numerator shall be the number
of shares of Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
on the date of issuance of such rights, options or warrants plus the
number of shares which the aggregate offering price of the total
number of shares of common stock so offered would purchase at the
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Greater Price. Such adjustment shall be made whenever such rights,
options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such rights, options or warrants.
(c) In case Sheridan shall distribute to holders of its shares of
Common Stock evidences of its indebtedness or assets (including cash
dividends or other cash distributions) or rights, options or warrants,
or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those
referred to in paragraph (b) above), then in each case the number of
Warrant Shares thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon the exercise of each Warrant by a
fraction, of which the numerator shall be the then current market
price per share of Common Stock (as determined in accordance with
paragraph (e) below) on the date of such distribution, and of which
the denominator shall be the then current market price per share of
Common Stock, less the then fair value (as determined in good faith by
the Board of Directors of Sheridan) of the portion of the assets or
evidences of indebtedness so distributed or of such subscription
rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made, and shall become
effective on the date of distribution retroactive to the record date
for the determination of stockholders entitled to receive such
distribution.
In the event of distribution by Sheridan to holders of its shares
of Common Stock of stock of a subsidiary or securities convertible
into or exercisable for such stock, then in lieu of an adjustment in
the number of Warrant Shares purchasable upon the exercise of each
Warrant, the Warrant Holder, upon the exercise thereof at any time
after such distribution, shall be entitled to receive from Sheridan,
such subsidiary or both, as Sheridan shall determine, the stock or
other securities to which such Warrant Holder would have been entitled
if such Warrant Holder had exercised such Warrant immediately prior
thereto regardless of whether the Warrants are exercisable at such
time, all subject to further adjustment as provided in this subsection
12.1; provided, however, that no adjustment in respect of dividends or
interest on such stock or other securities shall be made during the
term of a Warrant or upon the exercise of a Warrant.
(d) [intentionally left blank]
(e) For the purpose of any computation under paragraphs (b) or
(c) of this Section, the current market price per share of Common
Stock at any date shall be the average of the daily closing prices of
Sheridan's Common Stock, for 10 consecutive trading days commencing 30
trading days before the date of such computation. The closing price
for each day shall be the last such reported sales price regular way
or, in case no such reported sale takes place on such day, the average
of the closing bid
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and asked prices regular way for such day, in each case on the
principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if not listed or admitted
to trading, the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market as reported by NASDAQ or
any comparable system. In the absence of one or more such quotations,
the Board of Directors of Sheridan shall determine the current market
price, in good faith, on the basis of such quotations as it considers
appropriate.
(f) In any case in which this Section 12.1 shall require that any
adjustment in the number of Warrant Shares be made effective as of or
immediately after a record date for a specified event, Sheridan may
elect to defer until the occurrence of the event the issuing to the
holder of any Warrant exercised after that record date the shares of
Common Stock and other securities of Sheridan, if any, issuable upon
the exercise of any Warrant over and above the shares of Common Stock
and other securities of Sheridan, if any, issuable upon the exercise
of any Warrant prior to such adjustment; provided, however, that
Sheridan shall deliver to such Warrant Holder a due ▇▇▇▇ or other
appropriate instrument evidencing the holder's right to receive such
additional shares or securities upon the occurrence of the event
requiring such adjustment.
(g) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Warrant Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this
paragraph (g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations
shall be made to the nearest one-thousandth of a share.
(h) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Warrant
Price payable upon the exercise of each Warrant shall be adjusted by
multiplying such Warrant Price immediately prior to such adjustment by
a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of such Warrant immediately prior
to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately after such adjustment.
(i) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under paragraphs (b)
and (c) if Sheridan issues or distributes to each Warrant Holder the
rights, options, warrants, or convertible or exchangeable securities,
or evidences of indebtedness or assets referred to in those paragraphs
which each Warrant Holder would have been entitled to receive had the
Warrants been exercised prior to the happening of such event or the
record date with respect thereto regardless of whether the Warrants
are exercisable at the time of the happening of such event or at the
time of any record date with respect thereto.
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(j) For the purpose of this Section 12.1, the terms "shares of
Common Stock" shall mean (i) the class of stock designated as the
Common Stock of Sheridan at the date of this Agreement, or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an adjustment
made pursuant to paragraph (a) above, the Warrant Holders shall become
entitled to purchase any securities of Sheridan other than shares of
Common Stock, thereafter the number of such other securities so
purchasable upon exercise of each Warrant and the Exercise Price of
such securities shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in paragraphs
(a) through (i), inclusive, above, and the provisions of Section 7 and
Section 12.2 through 12.5, inclusive, with respect to the Warrant
Shares, shall apply on like terms to any such other securities.
(k) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges, if any thereof shall not have been
exercised, the Warrant Price and the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would
have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only
shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange rights and (B) such shares
of Common Stock, if any, were issued or sold for the consideration
actually received by Sheridan upon such exercise plus the aggregate
consideration, if any, actually received by Sheridan for the issuance,
sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, however, that no
such readjustment shall have the effect of increasing the Warrant
Price or decreasing the number of Warrant Shares by an amount in
excess of the amount of the adjustment initially made with respect to
the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
12.2. VOLUNTARY ADJUSTMENT BY SHERIDAN. Sheridan may, at its option,
at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount determined appropriate by the Board of
Directors of Sheridan.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of such
Warrant Shares is adjusted, as herein provided, Sheridan shall promptly
mail by first class, postage prepaid, to each Warrant Holder notice of such
adjustment or adjustments and a certificate of a firm of independent public
accountants selected by the Board of Directors of Sheridan (who may be the
regular accountants employed by Sheridan) setting forth the number of
Warrant Shares purchasable upon the exercise of each Warrant and the
Exercise Price of such Warrant Shares after such adjustment
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and setting forth a brief statement of the facts requiring such adjustment
and setting forth the computation by which such adjustment was made. Such
certificate, absent manifest error, shall be conclusive evidence of the
correctness of such adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION,
ETC. In case of any consolidation of Sheridan with or merger of Sheridan
into another person or in case of any sale, transfer or lease to another
person of all of or substantially all the assets of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ or
such successor or purchaser, as the case may be, shall execute with each
Warrant Holder an agreement that each Warrant Holder shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior
to such action to purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property which the Warrant Holder
would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale, transfer or lease had such Warrant been
exercised immediately prior to such action regardless of whether the
Warrants are exercisable at the time of such action. Such agreement shall
provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 12. The
provisions of this Section 12.4 shall similarly apply to successive
consolidations, mergers, sales, transfers or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore or
hereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Warrant Agreement; the parties understand and agree that such Warrants will
represent rights consistent with any adjustments in the Exercise Price or
the number or kind of shares purchasable upon the exercise of the Warrants.
13. FRACTIONAL INTERESTS. Sheridan shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrant (or specified portion, thereof),
Sheridan shall pay an amount in cash equal to the closing price for one share of
the Common Stock on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. GGP represents and
warrants to Sheridan that it will not dispose of the Warrant or Warrant Shares
except pursuant to (i) an effective registration statement, or (ii) an
applicable exemption from registration under the Securities Act of 1933, as
amended (the "Act"). In connection with any sale by GGP pursuant to clause (ii)
of the preceding sentence (other than a sale to JEDI Hydrocarbon Investments I
Limited Partnership), GGP shall furnish to Sheridan an opinion of counsel
reasonably satisfactory to Sheridan to the effect that such exemption from
registration is available in connection with such sale.
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15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to a stop-
transfer order and the certificate or certificates therefor shall bear the
following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT, OR (II)
AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. ANY SALE PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE
MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
SHERIDAN TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE
IN CONNECTION WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the Warrants
shall, unless issued pursuant to an effective registration statement, be subject
to a stop-transfer order and the certificate or certificates evidencing any such
Warrant Shares or securities shall bear the following legend by which the
Warrant Holder thereof shall be bound:
"THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT,
OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. ANY SALE PURSUANT TO CLAUSE (II) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL TO THE EFFECT THAT
SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH
SALE."
16. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be construed
as conferring upon the Warrant Holders or their transferees the right to vote or
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of Sheridan
or any other matter, or any rights whatsoever as stockholders of Sheridan. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events shall occur:
(a) Sheridan shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution (other than a cash
dividend) to the holders of its shares of Common Stock, or
(b) Sheridan shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock or any right to subscribe to or
purchase any thereof, or
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(c) a dissolution, liquidation or winding up of Sheridan (other than
in connection with a consolidation, merger, sale, transfer or lease or all
or substantially all of its property, assets, and business as an entirety)
shall be proposed,
then in any one or more of said events Sheridan shall give notice in writing of
such event to the Warrant Holders as provided in Section 17 hereof, with such
notice to be completed at least 15 days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
provide or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
dividend, distribution or subscription rights, or such proposed dissolution,
liquidation or winding up.
17. NOTICES. Any notice pursuant to this Warrant Agreement to be given or
made by the holder of any Warrant or Warrant Shares to or on Sheridan shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
Sheridan Energy, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to such
Warrant Holder at the address of such Warrant Holder as shown on the Warrant
Register or the Stock Register, as the case may be.
18. GOVERNING LAW; DISPUTES. This Warrant Agreement, the Warrants and all
related documents shall be deemed to be contracts made under and shall be
construed in accordance with and governed by the laws of the State of Texas
without giving effect to principles of conflicts of law; provided, however, that
any matter involving the internal corporate affairs of Sheridan shall be
governed by the provisions of Delaware law.
19. SUPPLEMENTS AND AMENDMENTS. Sheridan and the Warrant Holders may from
time to time supplement or amend this Warrant Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which
Sheridan and the Warrant Holder may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Warrant Holders. Any amendment to this
Warrant Agreement may be effected with the consent of Warrant Holders of at
least a majority of the total then outstanding Warrants (for this purpose
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Warrant Shares shall be deemed to be Warrants in the proportion that Warrant
Shares are then issuable upon the exercise of Warrants); provided that, any
amendment which shall have the effect of materially adversely affecting the
interests of any Warrant Holder shall not be effective with respect to such
Warrant Holder if such Warrant Holder shall not have consented thereto.
20. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Sheridan and all covenants and agreements made
herein shall survive the execution and delivery of this Warrant Agreement and
the Warrants and shall remain in force and effect until the Expiration Date of
all Warrants.
21. SUCCESSORS. All representations and warranties of Sheridan and all
covenants and agreements of this Warrant Agreement by or for the benefit of
Sheridan or the Warrant Holders shall bind and inure to the benefit of their
respective successors and assigns hereunder.
22. MERGER OR CONSOLIDATION OF SHERIDAN. So long as this Warrant
Agreement remains in effect, Sheridan will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not Sheridan), shall expressly assume, by supplemental agreement
executed and delivered to the Warrant Holders, the due and punctual performance
and observance of each and every covenant and condition of this Warrant
Agreement to be performed and observed by Sheridan.
23. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant Agreement
shall be construed to give to any person or corporation other than Sheridan and
the Warrant Holders, any legal or equitable right, remedy or claim under this
Warrant Agreement, but this Warrant Agreement shall be for the sole and
exclusive benefit of Sheridan and the holders of the Warrants and Warrant
Shares.
24. CAPTIONS. The captions of the sections and subsections of this
Warrant Agreement have been inserted for convenience and shall have no
substantive effect.
25. COUNTERPARTS. This Warrant Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed on the day, month and year first above written.
SHERIDAN ENERGY, INC.
By:
-----------------------------------
▇.▇. ▇▇▇▇▇▇▇▇, President
GRAND GULF PRODUCTION, L.L.C.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notice:
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy:
EXHIBIT A
TO
WARRANT AGREEMENT
(FORM OF WARRANT CERTIFICATE)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE Common Stock OR OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. ANY
SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SHERIDAN TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND THE COMMON STOCK UNDERLYING SUCH
WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
Warrant No. 2 82,500 Warrants
VOID AFTER 5:00 P.M. HOUSTON TIME
ON _____________, 2002
SHERIDAN ENERGY, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received GRAND GULF PRODUCTION, L.L.C.
("GGP"), the registered holders hereof or registered assigns (the "Warrant
Holders") are the owners of the number of Warrants set forth above, each of
which entitles the owners thereof to purchase at any time from 9:00 A.M.,
Houston time, on December 31, 1997, until 5:00 P.M., Houston time on
____________ 2002, one fully paid and nonassessable share of common stock
(subject to adjustment), par value $0.01 per share (the "Common Stock"), of
SHERIDAN ENERGY, INC., a company organized under the laws of Delaware
("Sheridan"), at the exercise price of $5.50 per share, subject to adjustment as
described in the Warrant Agreement referred to below (the "Exercise Price").
The Warrant Holders may pay the Exercise Price in cash, or by certified or
official bank check or make a net exercise for Net Warrant Shares as described
in the Warrant Agreement.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated December 31,
1997 (the "Warrant Agreement"), by and among Sheridan and GGP, which Warrant
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Warrant Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of Sheridan and the Warrant Holders of the Warrant Certificates. Copies of the
Warrant Agreement are on file at the principal office of Sheridan.
A-1
The Warrant Holders hereof may be treated by Sheridan and all other persons
dealing with this Warrant Certificate as the absolute owners hereof for any
purpose and as the persons entitled to exercise the rights represented hereby,
or to the transfer hereof on the books of Sheridan, any notice to the contrary
notwithstanding, and until such transfer on such books, Sheridan may treat the
Warrant Holders hereof as the owners for all purposes.
The Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of Sheridan, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the Warrant Holders to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled the Warrant Holders to purchase. If
this Warrant Certificate shall be exercised in part, the Warrant Holders shall
be entitled to receive upon surrender hereof, another Warrant Certificate or
Warrant Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holders hereof to any of the rights of a shareholder of Sheridan.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT
ANY MATTER INVOLVING THE INTERNAL CORPORATE AFFAIRS OF SHERIDAN SHALL BE
GOVERNED BY THE PROVISIONS OF DELAWARE LAW.
A-2
IN WITNESS WHEREOF, SHERIDAN ENERGY, INC. has caused the signature of its
President and Secretary to be printed hereon.
SHERIDAN ENERGY, INC.
By:
-------------------------------
▇.▇. ▇▇▇▇▇▇▇▇, President
ATTEST:
--------------------------------
Name:
Secretary/Assistant Secretary
A-3
EXHIBIT B
ASSIGNMENT AND ▇▇▇▇ OF SALE
THIS ASSIGNMENT AND ▇▇▇▇ OF SALE (this "Assignment") is from GRAND GULF
PRODUCTION, L.L.C., a Texas limited liability company, whose address is ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, as "Assignor" to SHERIDAN ENERGY,
INC., a Delaware corporation, whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇, as "Assignee."
ARTICLE I.
For and in consideration of $1,000, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor has granted, bargained, sold, conveyed, assigned, transferred, set over
and delivered and hereby grants, bargains, sells, conveys, assigns, transfers,
sets over and delivers unto Assignee all of Assignor's right, title and interest
in and to the following properties (such interest is collectively referred to
herein as the "Properties"):
(a) the oil and gas leases and leasehold interests, working interests,
net revenue interests, operating rights, overriding royalty interest, net
profits interests or similar interests in the properties, described on
Exhibits A-1 and A-2, and any other rights that may arise from operation of
the properties and lands pooled, unitized, communitized or consolidated
with such properties (the "Oil and Gas Properties"); and
(b) the oil, condensate or natural gas ▇▇▇▇▇, water source ▇▇▇▇▇, salt
water disposal ▇▇▇▇▇ and other types of injection ▇▇▇▇▇ either located on
the Oil and Gas Properties or held for use in connection with the Oil and
Gas Properties, and whether producing, operating, shut-in, temporarily
abandoned, abandoned, standing or otherwise; and
(c) the severed crude oil, natural gas, casinghead gas, drip gasoline,
natural gasoline, petroleum, petroleum gas liquids, condensate, products,
liquids and other hydrocarbons and other minerals or material of every kind
and description produced from the Oil and Gas Properties; and
(d) the physical facilities, equipment, personal property, rights-of-
way and easements or interest therein that are used or held for use in
connection with the ownership or operation of the properties described in
subparagraphs (a) through (c), inclusive, whether located on or off such
properties including, without limitation, the rights-of-way and easements
described on Exhibit B; and
(e) all contracts and agreements that in any way relate to the
properties described in subparagraphs (a) through (d), inclusive, including
operating agreements, agreements relating to the production, storage,
treatment, transportation, processing, purchase, sale or other disposal of
substances, including, but without limitation by enumeration, all
easements,
servitudes, pooling and unitization agreements, gas sale agreements, and
surface leases, and any and all other amendments, ratifications or
extensions of the foregoing.
LESS AND EXCEPT AND ASSIGNOR HEREBY EXCLUDES FROM THE FOREGOING ALL 2-D
SEISMIC INFORMATION, LICENSES AND DATA RELATING TO THE PROPERTIES, TO THE EXTENT
THAT THE SAME IS NOT TRANSFERABLE WITHOUT CONSENT, PAYMENT OR PENALTY.
TO HAVE AND TO HOLD the Properties unto Assignee and its heirs, successors
and assigns, forever; provided, however, this Assignment is made subject to the
following terms and provisions:
ARTICLE II
DISCLAIMERS
-----------
2.1 Disclaimer. Except as provided below, the Properties are hereby
assigned by Assignor to Assignee without recourse, covenant or warranty of title
of any kind, express, implied or statutory, even to the return of the purchase
price. Any covenants or warranties implied by statute or law by the use herein
of the words "grant", "convey" or other similar words are hereby expressly
restrained, disclaimed, waived and negated. WITHOUT LIMITING THE GENERALITY OF
THE TWO PRECEDING SENTENCES, ASSIGNEE ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN
THE PURCHASE AGREEMENT DATED DECEMBER 31, 1997 BETWEEN ASSIGNOR AND ASSIGNEE
(THE "PURCHASE AGREEMENT"), ASSIGNOR HAS NOT MADE, AND ASSIGNOR HEREBY EXPRESSLY
DISCLAIMS AND NEGATES, AND ASSIGNEE HEREBY EXPRESSLY WAIVES, ANY REPRESENTATION
OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING
TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS
BALANCING INFORMATION OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF
HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE PROPERTIES, (b) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO ASSIGNEE BY OR ON
BEHALF OF ASSIGNOR, (c) THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, (d) ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (e) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (f) ANY IMPLIED OR EXPRESS
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (g) ANY RIGHTS OF
PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, (h)
ANY CLAIMS BY ASSIGNEE FOR DAMAGES BECAUSE OF REDHIBITORY VICES OR DEFECTS OR
OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN AS OF THE EFFECTIVE TIME, AND
(i) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE
EXPRESS INTENTION OF BOTH ASSIGNEE AND ASSIGNOR THAT, EXCEPT AS PROVIDED IN THE
PURCHASE AGREEMENT, THE PROPERTIES ARE HEREBY ASSIGNED TO ASSIGNEE IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS,
AND THAT ASSIGNEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS ASSIGNEE
DEEMS APPROPRIATE. ASSIGNOR AND ASSIGNEE AGREE
-2-
THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS
OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS
FOR THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.
2.2 Subrogation. Assignor hereby transfers and assigns unto Assignee, its
successors and assigns, all of its rights under and by virtue of all covenants
and warranties pertaining to the Properties, express or implied (including,
without limitation, title warranties and manufacturers', suppliers' and
contractors' warranties), that have heretofore been made by any of Assignor's
predecessors in title, or by any third party manufacturers, suppliers and
contractors (the "Prior Covenants and Warranties"). This Assignment is made
with full substitution and subrogation of Assignee, its successors and assigns,
in and to and under and by virtue of the Prior Covenants and Warranties and with
full subrogation to all rights accruing under the statutes of limitation,
prescription and repose under the laws of the applicable jurisdictions in
relation to the Properties and all causes of action, rights of action or
warranty of Assignor against all former owners of the Properties.
ARTICLE III
MISCELLANEOUS
-------------
3.1 Further Assurances. Without creating any additional covenants,
warranties or representations of or by Assignor, Assignor covenants and agrees
to execute and deliver to Assignee all such other and additional assignments,
instruments and other documents and to do all such other acts and things as may
be necessary more fully to vest in Assignee record title to all of the
Properties and the respective properties, rights and interests herein and hereby
granted or intended to be granted, and to put Assignee in actual possession and
operating control of the Properties to the same extent as Assignor was
theretofore in, or was theretofore entitled to be in. Such separate or
additional assignments, if any: (a) shall evidence the assignment of the
Properties herein made or intended to be made; (b) shall not modify any of the
terms and covenants herein set forth and shall not create any additional
representations or covenants of or by Assignor to Assignee; (c) shall be deemed
to contain all of the terms and provisions hereof, as fully and to all intents
and purposes as though the same were set forth at length in the separate
assignments; and (d) to the extent required by law, shall be on forms
prescribed, or may otherwise be on forms suggested, by the appropriate
governmental entities and agencies. In the event any term or provision of any
additional assignment should be inconsistent with or conflict with the terms or
provisions of this Assignment, the terms and provisions of this Assignment shall
control and shall govern the rights, obligations and interests of the parties
hereto, their successors and assigns. Such additional assignments and this
Assignment shall, when taken together, be deemed to constitute the one
assignment by Assignor to Assignee of all of the Properties.
3.2 Approval. This Assignment, insofar as it affects any interest in
leases the transfer of which must be approved by any governmental entity or
agency, is made and accepted subject to the approval of the appropriate
governmental entity or agency and to the terms of such approval, if and to the
extent required by law.
-3-
3.3 Assumption. Assignee expressly assumes all of Assignor's obligations
relating to the Properties, including, without limitation, leases, operating
agreements, unit agreements and contracts.
3.4 Counterparts. This Assignment may be executed in any number of
counterparts, and each counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
conveyance.
3.5 Successors and Assigns. This Assignment shall bind and inure to the
benefit of Assignor and Assignee and their respective successors and assigns.
3.6 Recording. To facilitate recording or filing of this Assignment, the
counterpart to be recorded in a given county or parish may contain only that
portion of the exhibits that describes Properties located in that county or
parish. Assignor and Assignee have each retained a counterpart of this
Assignment with complete exhibits.
3.7 Exhibits. Reference is made to all Exhibits attached hereto and made
a part hereof for all purposes. References in such Exhibit to instruments on
file in the public records are made a part hereof for all purposes.
-4-
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as
of the date of their respective acknowledgments below, but effective as of 7:00
a.m. local time on September 1, 1997.
ASSIGNOR:
GRAND GULF PRODUCTION, L.L.C.
WITNESSES:
______________________________ By: ______________________________________
Name: ____________________________________
______________________________ Title: ___________________________________
ASSIGNEE:
WITNESSES: SHERIDAN ENERGY, INC.
______________________________ By: ______________________________________
Name: ____________________________________
______________________________ Title: ___________________________________
ACKNOWLEDGMENTS
STATE OF TEXAS (S)
(S)
COUNTY OF ▇▇▇▇▇▇ (S)
On this 31st day of December, 1997, before me appeared __________________,
to me personally known, who, being by me duly sworn (or affirmed) did say that
he is the _______________________ of GRAND GULF PRODUCTION, L.L.C., a Texas
limited liability company, and that the instrument was signed on behalf of the
limited liability company by authority of its Board of Managers, and that he
acknowledged the instrument to be the free act and deed of GRAND GULF
PRODUCTION, L.L.C.
____________________________________________
Notary Public in and for the ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
-▇-
▇▇▇▇▇ ▇▇ ▇▇▇▇▇ (S)
(S)
COUNTY OF ▇▇▇▇▇▇ (S)
On this 31st day of December, 1997, before me appeared __________________,
to me personally known, who, being by me duly sworn (or affirmed) did say that
he is the _______________________ of SHERIDAN ENERGY, INC., a Delaware
corporation, and that the instrument was signed on behalf of the corporation by
authority of its Board of Directors and that he acknowledged the instrument to
be the free act and deed of SHERIDAN ENERGY, INC.
____________________________________________
Notary Public in and for the State of Texas
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