STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered as of the 16th day of December, 1997, by and among ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. (collectively the "Sellers" and individually a
"Seller"), and RAMCO Operating Company, a Delaware corporation ("Buyer").
WITNESSETH THAT:
WHEREAS, Sellers are the owners of all of the outstanding shares
(the "Shares") of the common capital stock of Carlton Resources Corporation,
a Delaware corporation ("Carlton"), and Carlton and ▇▇▇▇▇▇ Field Limited
Partnership, an Oklahoma limited partnership ("CFLP"), collectively are the
owners of all of the outstanding shares of the capital stock of Magic Circle
Energy Corporation, a Delaware corporation ("MCEN"); and
WHEREAS, Sellers desire to sell to Buyer and Buyer desires to
purchase from Sellers the Shares on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants of the parties hereinafter expressed, it is hereby agreed as
follows:
ARTICLE 1
CORPORATE STRUCTURE; ASSETS
1.1 CORPORATE STRUCTURE. The corporate structure of Carlton and
its affiliates is as shown in Exhibit A. MCEN and ▇▇▇▇▇▇ Development
Corporation ("CDC") are, respectively, the sole limited and general partners
of CFLP. Carlton, MCEN and its subsidiary corporations shown in Exhibit A,
together with CFLP, are sometimes hereinafter referred to collectively as the
"Company."
1.2 DRILLING PARTNERSHIPS. MCEN is the general partner of the
"drilling program" and "drilling fund" limited partnerships also shown in
Exhibit A (the "Drilling Partnerships"). For purposes of this Agreement,
Carlton shall be deemed to own "directly" all of the assets owned by the
entities collectively referred to as the "Company" and shall be deemed to own
"indirectly" an interest in all of the assets owned by each of the Drilling
Partnerships equal to MCEN's interest in each such Drilling Partnership.
1.3 ASSETS. The principal assets owned directly and indirectly by
the Company are (i) the oil and gas properties described in Exhibit B,
including leasehold interests, mineral interests, royalty interests,
overriding royalty interests and other interests in and payable out of
production, together with the ▇▇▇▇▇, personal property, fixtures and
equipment located on the lands covered thereby or used or obtained in
connection with the production and development thereof, and together with
all contracts,
agreements, licenses, permits, easements, orders of regulatory agencies and
other rights and interests relating thereto (collectively, the "Properties"),
(ii) the gas and liquids gathering system, salt water disposal system and
storage facilities described in Exhibit C, together with all real property,
easements, rights of way, surface use agreements and other interests in real
property related or appurtenant thereto, all personal property, fixtures and
equipment comprising or used in connection therewith, and all contracts and
agreements of every nature whatsoever relating thereto (the "▇▇▇▇▇▇ System"),
and (iii) the cash, accounts receivable, accounts, securities, notes, choses
in action, and all other assets, properties, rights, contracts, claims and
interests of every kind, whether real, personal or mixed, owned directly or
indirectly by the Company (the "Other Assets"). The Properties, the ▇▇▇▇▇▇
System and the Other Assets are hereinafter referred to collectively as the
"Assets."
ARTICLE 2
SALE AND PURCHASE OF THE SHARES
2.1 AGREEMENT FOR SALE AND PURCHASE. Sellers hereby agree to sell
to Buyer and Buyer hereby agrees to purchase from Sellers on the Closing Date
(as hereinafter defined) all, but not less than all, of the Shares.
2.2 PURCHASE PRICE. The purchase price for the Shares (the
"Purchase Price") shall be (i) the sum of $43,000,000 (the "Base Price"),
less (ii) the Net Adjustment (as hereinafter defined). A portion of the Base
Price has been allocated by the parties among the Properties, as set out in
Exhibit B, and the ▇▇▇▇▇▇ System as set out in Exhibit C. The amounts so
allocated and are referred to herein as the "Agreed Values" of such Assets.
2.3 NET ADJUSTMENT. The Net Adjustment shall be (i) the aggregate
amount of the indebtedness of the Company and of the Sellers (to the extent
secured by the Shares) outstanding as of the Closing Date (including
principal, accrued interest, lender fees, expenses and other amounts payable
in connection with said indebtedness, the "Outstanding Indebtedness") under
the credit facilities and loan agreements described in Schedule 2.3, which
Outstanding Indebtedness will be paid by Buyer at the Closing, plus (ii) the
sum of the adjustment amounts described in Section 3.4 (Title Defects), plus
(iii) the Preferred Stock Redemption Adjustment (as described in Section
7.6), if applicable, plus (iv) the Gas Supply Adjustment (as defined in
Section 7.8), if applicable, plus or minus, as the case may be, (v) the
adjustment described in Section 8.4 (Gas Imbalances), minus (vi) the
adjustment described in Section 8.5 (Approved Capital Expenditures), plus or
minus, as the case may be, (vii) the Working Capital Adjustment (as defined
in Section 8.6), and plus (viii) the sum of the adjustment amounts described
in Section 9.5 (Environmental Defects).
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2.4 DEPOSIT. Buyer will advance to Sellers from time to time
prior to the Closing Date, with the first such advance to be made
contemporaneously with the execution and delivery of this Agreement and each
subsequent advance to be made in accordance with the schedule set out in
Exhibit D, the amounts set out in Exhibit D (the aggregate amount so advanced
by Buyer is referred to herein as the "Deposit"). In the event the Closing
does not occur other than by reason of termination of this Agreement by Buyer
pursuant to subsection (b) of this Section 2.4, Buyer nevertheless shall be
obligated to continue making advances in accordance with the schedule set
out in Exhibit D. Funds advanced as part of the Deposit will be paid by
Sellers or the Company promptly after receipt of same to satisfy the
obligation for which each advance is made, as set out in Exhibit D, and for
no other purpose. The Deposit shall be credited toward the Purchase Price
at the Closing.
(a) In the event that Buyer shall fail to close the
transaction contemplated hereby in accordance with the terms of this
Agreement, and provided that either (i) all of the conditions precedent to
the obligations of Buyer as set forth in Article 10 hereof have been
satisfied, or (ii) Buyer is excused from Closing solely because one of the
public offerings described in Section 10.3 closes but the other does not,
Buyer nevertheless shall continue to be obligated to make the advances in
accordance with the schedule set out in Exhibit D and Sellers shall be
entitled to retain the entire amount of the Deposit so advanced as liquidated
damages pursuant to Section 12.2.
(b) In the event that (i) prior to the date on which the
Closing is to occur (as provided in Section 13.1), Sellers shall fail to
perform any material obligation to be performed by Sellers under this
Agreement and timely notice thereof is given by Buyer to Sellers, or (iii)
prior to the date on which the Closing is to occur (as provided in Section
13.1), any representation made by Sellers in Section 4 or Section 5 hereof is
determined to be untrue in any material respect and timely notice thereof is
given by Buyer to Sellers, or (iii) Sellers shall fail to close the
transaction contemplated hereby in accordance with the terms of this
Agreement under circumstances where all of the conditions precedent to the
obligations of Sellers as set forth in Article 11 hereof have been satisfied,
then Buyer shall be excused from any further obligation to make additional
advances hereunder and the sum of all advances theretofore made by Buyer
shall constitute a demand obligation owing from Sellers to Buyer for which
Sellers shall be jointly and severally liable. Said demand obligation shall
bear interest from the date of Buyer's demand for repayment thereof until
paid in full at the highest rate per annum applicable to any outstanding
borrowings under Buyer's then existing credit facility.
(c) In the event the transaction contemplated hereby is not
closed for any reason other than one of the reasons described in subsections
(a) or (b) above, then the difference between (i) the
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sum of all advances made by Buyer pursuant to this Section 2.4, and (ii)
$250,000, shall constitute a term loan from Sellers to Buyer for which
Sellers shall be jointly and severally liable. Said loan shall bear interest
from February 1, 1998 (or from the date advanced, with respect to advances
made after February 1, 1998) until paid at the highest rate per annum
applicable to any outstanding borrowings under Buyer's then existing credit
facililty, and shall be due and payable in full, with all accrued interest
thereon, not later than August 15, 1998.
ARTICLE 3
TITLE EXAMINATION; ADJUSTMENTS
3.1 TITLE MATERIALS. From the date hereof to the Closing Date,
Sellers shall cause the Company to provide Buyer full opportunity to examine
the books, records and files of the Company insofar as they pertain to the
Assets. Sellers make no warranty or representation, express or implied, with
respect to the accuracy or completeness of any title information, records or
other data made available to Buyer in connection with this Agreement.
3.2 TITLE DEFECTS; DEFENSIBLE TITLE.
(a) Adjustments to the Base Price for failure of title shall
be made only with respect to the ▇▇▇▇▇▇ System and the Properties
(collectively, the "Examined Interests"). As used herein, the term "Title
Defect" shall mean any lien, claim, defect, encumbrance, security interest,
burden or deficiency such that the Company (directly or indirectly) does not
have Defensible Title (hereinafter defined), as distinguished from
technically marketable title, to any item of the Examined Interests;
provided, no Permitted Encumbrance (hereinafter defined) shall constitute a
Title Defect.
(b) As used herein, the term "Defensible Title" (i) with
respect to the ▇▇▇▇▇▇ System means clear, unencumbered (other than Permitted
Encumbrances) and uncontested title in the Company to the real and personal
property comprising the ▇▇▇▇▇▇ System, and (ii) with respect to the
Properties means clear, unencumbered (other than Permitted Encumbrances) and
uncontested title in the Company (or in the Drilling Partnerships) to the
Properties such that (A) after giving effect to existing spacing orders,
operating agreements, unit agreements, unitization orders and pooling
designations, and subject to the limitations, if any, described in Exhibit B,
and after taking into account all royalty interests, overriding royalty
interests, net profit interests, production payments and other burdens on
production, the Company (directly or indirectly) is entitled to a share
(expressed as a decimal) of all oil, gas and other minerals produced from
each well described in Exhibit B which is not less than the Net Revenue
Interest set out in Exhibit B in connection with the description of such
well, (B) the Company owns (directly or indirectly) an undivided interest
(expressed as a decimal) equal to the Working Interest set out in Exhibit B
in
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connection with the description of each such well in and to all property and
rights incident thereto, including all rights in, to and under all
agreements, leases, permits, easements, licenses and orders in any way
relating thereto, and in and to all ▇▇▇▇▇, personal property, fixtures and
improvements thereon, appurtenant thereto or used or obtained in connection
therewith or with the production or treatment or sale or disposal of
hydrocarbons or water produced therefrom or attributable thereto, (C) the
Company (directly or indirectly) is obligated for a fraction of the costs
relating to the exploration, development and operation of such well no
greater than the Working Interest set out in Exhibit B in connection with the
description of such well, (D) except as shown in Exhibit B, the Company's
interests (owned directly or indirectly) in such ▇▇▇▇▇ and the production
therefrom are not subject to being reduced by virtue of reversionary
interests owned by third parties, and (E) the Company and the Drilling
Partnerships are in material compliance with all of the terms and conditions
of all agreements, leases, permits, easements, licenses and orders relating
to each Property and the personal property, fixtures and improvements thereon.
(c) As used herein, the term "Permitted Encumbrances" means
(i) the mortgages, security interests, financing statements and other liens
and encumbrances securing the Outstanding Indebtedness, all as more
particularly described in Schedule 3.2, (ii) royalties, overriding royalties,
net profits interests, production payments and other burdens on production
which do not reduce the Company's Net Revenue Interest in any of the
Properties to less than that described in Exhibit B, (iii) liens for taxes,
assessments, labor and materials where payment is not due, (iv) operating
agreements, unit agreements, unitization and pooling designations and
declarations, gathering and transportation agreements, processing
agreements, gas, oil and liquids purchase, sale and exchange agreements, and
other similar agreements which are not required by the terms of this
Agreement to be disclosed on any Schedule hereto, provided (A) they contain
terms and conditions customary in the oil and gas industry, (B) they do not
adversely affect or burden the ownership of the ▇▇▇▇▇▇ System or the
Properties to any material extent, (C) all amounts due and payable by the
Company and the Drilling Partnerships thereunder have been paid, and (D)
neither the Company nor any of the Drilling Partnerships is in material
default thereunder, (v) regulatory authority of governmental agencies not
presently or previously violated, easements, surface leases and rights, plat
restrictions and similar encumbrances, provided that they do not materially
detract from the value or materially increase the cost of operation of any
item of the Examined Interests or otherwise adversely affect the operation
thereof, (vi) liens, charges, encumbrances and irregularities in the chain
of title which, because of remoteness in or passage of time, statutory cure
periods, marketable title acts or other similar reasons, have not affected
or interrupted, and are not reasonably expected to affect or interrupt, the
claimed ownership of the Company, the Drilling Partnerships or their
predecessors in title or the receipt of
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production revenues from the Properties affected thereby, and (vii) mortgages
on and security interests in any of the Assets in favor of any entity
comprising the Company.
3.3 TITLE EXAMINATION; NOTICE OF DEFECTS.
(a) Promptly after execution of this Agreement, Buyer shall,
at Buyer's sole cost and expense, commence and pursue such examination of
title to the Examined Interests as Buyer deems necessary or proper. Buyer
will conclude its title review and give notice to Sellers of any asserted
Title Defects affecting the Examined Interests not later than thirty-five
(35) days after the date of this Agreement (the "Title Notice Date"). Each
such notice shall include a brief description of each Title Defect of which
notice is being given, the action required to cure such Title Defect and the
proposed adjustment to the Base Price by reason of the existence of such
Title Defect. Buyer shall be deemed to have waived any Title Defects
existing with respect to the Examined Interests except to the extent such
Title Defects are set out in a notice given on or prior to the Title Notice
Date.
(b) Sellers shall have (i) a period of twenty (20) days after
the Title Notice Date to cure or cause the Company to cure all or any portion
of the Title Defects described in any notice(s) of Title Defects properly
given by Buyer prior to such date. In the event Sellers are unable or
unwilling to cure or cause the Company to cure any of the asserted Title
Defects prior to the expiration of cure period, the parties shall proceed in
accordance with Section 3.4.
3.4 ADJUSTMENTS.
(a) If any uncured Title Defect is based on Buyer's
substantiated notice in reasonable detail that the Company directly or
indirectly owns a Net Revenue Interest less than that shown on Exhibit B with
respect to a particular Property, then the Agreed Value of such Property
shall be reduced in the same proportion that the actual Net Revenue Interest
bears to the Net Revenue Interest shown therefor on Exhibit B and the amount
of such reduction shall constitute the approved adjustment amount with
respect to such Title Defect.
(b) If any uncured Title Defect involves a claim against or
uncertainty with respect to the Company's title (owned directly or
indirectly) to a particular item of the Examined Interests, the parties shall
attempt to negotiate a mutually acceptable reduction in the Agreed Value of
such Property by reason of such defect. In the event the parties agree on an
appropriate reduction in the Agreed Value, such amount shall constitute the
principal amount of Buyer's approved claim with respect to such Title Defect.
If the parties are unable to agree on an appropriate reduction and Buyer
elects not to waive the Title Defect, then Seller shall have
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the option of (i) proceeding to Closing but reducing the Base Price by the
Agreed Value of such Property, or (ii) proceeding to Closing but prior
thereto causing the Company to assign the affected Property to a third party
(which may be owned by Sellers) and reducing the Base Price by the Agreed
Value of such Property, provided that if Sellers notify Buyer of Sellers'
election to proceed under this subsection, Buyer shall have the last
opportunity to agree to a mutually acceptable adjustment or waive the Defect.
(c) Notwithstanding the provisions of subsections (a) and (b)
above, Buyer shall not be entitled to any adjustment of the Base Price at the
Closing by reason of Title Defects unless the sum of all such claims approved
pursuant to Section 3.4(a), agreed to by Sellers pursuant to Section 3.4(b),
or treated by Sellers as a reduction of the Base Price pursuant to Section
3.4(b), exceeds the sum of $50,000.
(d) In the event the sum of the Agreed Values of all
Properties affected by Title Defects for which the parties are unable to
agree on an appropriate adjustment exceeds the sum of $5,000,000, then
either party may terminate this Agreement in its entirety without further
liability to either party other than return by Sellers of Buyer's Deposit
(less the $250,000 amount referred to in Section 2.4(c)); provided, however,
that if either party notifies the other of the first party's election to
terminate this Agreement under this subsection, the party receiving such
notice shall have the last opportunity to agree to mutually acceptable
adjustments or waive the Defects necessary to reduce the number and value of
Defects for which no agreement has been reached.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS RELATING TO THE COMPANY
Sellers hereby jointly and severally represent and warrant to Buyer
as of the date hereof as follows:
4.1 COMPLIANCE WITH AGREEMENTS AND LAWS. Except as disclosed in
Schedule 4.1, no material default exists under any of the terms and
provisions, express or implied, of any material agreement, contract or
commitment to which the Company or any of the Drilling Partnerships is a
party or to which any material item the Assets is subject, and the Company
has not received any notice of any claim of such default (other than
defaults, if any, that will be cured at or by reason of the Closing). All
▇▇▇▇▇ included in the Properties have been drilled, completed and operated,
and all production therefrom has been accounted for and paid to the persons
entitled thereto, and the Properties and the ▇▇▇▇▇▇ System have been
operated, in substantial compliance with all applicable Federal, state and
local laws and applicable rules and regulations of the Federal, state and
local regulatory authorities having jurisdiction thereof.
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4.2 SALE/PURCHASE OF PRODUCTION. Neither the Company nor any of
the Drilling Partnerships is obligated by virtue of any prepayment made under
any production sales contract or any other contract containing a take-or-pay
clause, or under any similar arrangement, to deliver oil, gas or other
minerals produced from or allocated to any of the Properties at any time
after January 1, 1998, without receiving full payment therefor at the time of
delivery. Except for routine suspense on new ▇▇▇▇▇, proceeds from the sale
of oil and gas from the Properties are being received by the Company and the
Drilling Partnerships in a timely manner and are not being held in suspense
for any reason. Seller has described in Schedule 4.2 and made available to
Buyer for examination all agree-ments having a term extending beyond March 1,
1998 (other than agreements terminable upon less than sixty (60) days'
notice), (i) pursuant to which hydrocarbons produced from the Properties are
sold, transported, processed or otherwise disposed of or marketed, and (ii)
pursuant to which the Company purchases hydrocarbons from any third party.
4.3 PRODUCTION AND AD VALOREM TAXES. All ad valorem, property,
production, severance and similar taxes based on or measured by the
ownership of property or the production or removal of hydrocarbons or the
receipt of proceeds therefrom have been timely paid and all required returns
and reports related thereto filed.
4.4 CLAIMS OR LITIGATION. Except as disclosed in Schedule 4.4,
there is neither any suit, action or other proceeding pending before any
court or governmental agency, nor to the knowledge of Sellers has any claim,
dispute, suit, action or other proceeding been overtly threatened against the
Company or any of the Drilling Partnerships or affecting any of the Assets.
4.5 MATERIAL EXECUTORY CONTRACTS RELATING TO THE ASSETS. Sellers
have described in Schedule 4.5 all agreements and other obligations of the
Company which, after the Closing, will (i) require an expenditure by the
Company or the Drilling Partnerships in excess of $50,000 with respect to any
one project, failing which the Company may be liable for damages, (ii)
entitle a third party to earn or purchase any of the Properties or all or any
part of the ▇▇▇▇▇▇ System, or (iii) require payments for leased office
space, leased equipment, surface use, salt water disposal or similar lease
or license obligations in excess of $50,000 per year.
4.6 CONSUMMATION OF TRANSACTIONS. Except as disclosed in Schedule
4.6, the consummation of the transactions contemplated hereby will not
constitute a violation or breach of, or an event of default under, the
organizational documents of the Company or any of the Drilling Partnerships
or any contract or agreement to which the Company or any of the Drilling
Partnerships is a party, or constitute the happening of a condition upon
which any other party to such a contract may exercise any right or option
which will adversely
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affect any of the Assets; nor will the happening of such event result in any
liability of the Company or any of the Drilling Partnerships to any person
under the terms of any contracts of employment, consultancy or for services
of any kind.
4.7 CORPORATE EXISTENCE AND QUALIFICATION. Carlton, MCEN and each
of MCEN's subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and is or
will be at the Closing qualified to carry on its business and in good
standing in each jurisdiction where Properties are located. Carlton, MCEN
and each subsidiary has the corporate power and authority to own and use its
properties and to transact the business in which it is engaged, and holds all
franchises, licenses and permits necessary and required therefor. Sellers
have made available to Buyer true and correct copies of the organizational
documents of Carlton, MCEN and each of such subsidiaries.
4.8 PARTNERSHIP EXISTENCE AND QUALIFICATION. CFLP and each of the
Drilling Partnerships is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Oklahoma, and
each such partnership is duly qualified to carry on its business as a limited
partnership and is in good standing in each jurisdiction where any of the
Properties owned by such partnership is located. CFLP and each of the
Drilling Partnerships has the power and authority under its partnership
agreement and applicable law to own and use its properties and to transact
the business in which it is engaged, and holds all franchises, licenses and
permits necessary and required therefor. Sellers have made available to Buyer
true and correct copies of the organizational documents of each of the
Drilling Partnerships.
4.9 CAPITALIZATION.
(a) The entire authorized capital stock of Carlton consists
of 10,000 shares of common stock, par value $.01 per share (the "Common
Stock"), and 1,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). There are presently outstanding 1,125 shares of Common
Stock, all of which are duly authorized, validly issued, fully paid and
nonassessable, and all of which shares are owned by Sellers. There are
presently outstanding 12 shares of Preferred Stock (the "Outstanding
Preferred Stock") which is owned of record by the parties and in the amounts
described in Schedule 4.9. Except as disclosed in Schedule 4.9, there are
no outstanding warrants, options, contracts, calls, or other rights of any
kind or restriction on the right of transfer with regard to any issued and
outstanding, authorized and unissued, or issued but not outstanding, shares
of the Common Stock, Preferred Stock or any other security of Carlton of any
kind.
(b) The entire authorized capital stock of MCEN consists of
20,000 shares of common stock, par value $.001 per
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share, of which (i) 1,000 shares are issued, outstanding and owned by
Carlton, and (ii) 163.111 shares are owned by CFLP, all as described in
Schedule 4.9. Except as disclosed in Schedule 4.9, there are no outstanding
warrants, options, contracts, calls, or other rights of any kind or
restriction on the right of transfer with regard to any issued and
outstanding, authorized and unissued, or issued but not outstanding, shares
of the capital stock or any other security of MCEN of any kind. None of the
warrants described in Schedule 4.9 (x) have been issued, (y) will be issued
prior to the Closing, and (z) will be outstanding on the Closing Date.
4.10 SUBSIDIARIES AND OTHER ACTIVITIES. Carlton has no direct
subsidiaries other than MCEN. MCEN has no subsidiaries other than the
subsidiaries shown on Exhibit A and, except for CFLP and the Drilling
Partnerships or as disclosed in Schedule 4.10, does not own any interest in
any other corporation, partnership, joint venture, limited liability company
or other entity. All of the issued and outstanding stock of each subsidiary
corporation shown in Exhibit A is owned by MCEN. There are no outstanding
warrants, options, contracts, calls, or other rights of any kind or
restriction on the right of transfer with regard to any issued and
outstanding, authorized and unissued, or issued but not outstanding, shares
of common stock or any other security of any such subsidiary of any kind.
4.11 FINANCIAL STATEMENTS.
(a) Attached hereto as Schedule 4.11 are copies of the
following financial statements of Carlton, MCEN and the Company (the
"Financial Statements"), each of which presents fairly the financial
position of the reporting entity as of the date stated and the results of
operations for the period then ended and, except as disclosed in Schedule
4.11, has been prepared in accordance with generally accepted accounting
principles consistently applied:
(i) The Balance Sheet of Carlton as of December 31,
1995, and the Statement of Income and Statement of Cash Flows of Carlton for
the year then ended, with audit report thereon prepared by Ernst & Young,
L.L.P. ("EY");
(ii) The Balance Sheet of Carlton as of December 31,
1996, and the Statement of Income and Statement of Cash Flows of Carlton for
the year then ended, with audit report thereon prepared by EY;
(iii) The Consolidated Balance Sheet of MCEN as of
December 31, 1995, and the Consolidated Statement of Income and Consolidated
Statement of Cash Flows of MCEN for the year then ended, with audit report
thereon prepared by EY;
(iv) The Consolidated Balance Sheet of MCEN as of
December 31, 1996, and the Consolidated Statement of Income and
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Consolidated Statement of Cash Flows of MCEN for the year then ended, with
audit report thereon prepared by EY; and
(v) The unaudited Consolidated Balance Sheet of Carlton
as of September 30, 1997 (the "Balance Sheet Date"), and the Consolidated
Statement of Income and Consolidated Statement of Cash Flows of Carlton for
the nine-month period then ended, with a review letter from EY.
(b) The Company and each of the Drilling Partnerships has,
and as of the Closing Date will have, no material liabilities or obligations
except for those (i) reflected or reserved against in the Financial
Statements described at (a)(v) above, (ii) otherwise disclosed in this
Agreement, or (iii) incurred in the ordinary course of business since the
Balance Sheet Date.
4.12 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since the Balance
Sheet Date, and except as disclosed on Schedule 4.12 or any other Schedule
attached hereto or as may be approved in writing by Buyer, there has not/have
not been:
(a) Any change in the affairs, business, financial condition,
reserves or operations of the Company or any of the Drilling Partnerships
which has had or is expected to have, individually or in the aggregate, a
material adverse effect on the business or financial condition of the Company
or any of the Drilling Partnerships other than changes or developments which
affect the oil and gas industry generally in the geographic areas in which
the Company operates;
(b) Any damage, destruction or casualty loss (whether or not
covered by insurance) to any material item of the Assets other than
incidences of damage or loss which occur in the ordinary course of business
and which individually and in the aggregate are not material;
(c) Any change in the Articles of Incorporation or Bylaws of
Carlton, MCEN or any of its subsidiaries or in the partnership agreement of
CFLP or any of the Drilling Partnerships;
(d) Any dividends declared or paid or other distribution with
respect to, or any issuance or delivery of, any stocks, bonds or corporate
securities (whether authorized and unissued or held in treasury) of Carlton,
MCEN or any of its subsidiaries, or any grant by Carlton, MCEN or any of its
subsidiaries of any options, warrants or other rights calling for the
issuance thereof by Carlton, MCEN or any of its subsidiaries;
(e) Any sale, assignment or transfer of any material Asset,
other than the Excluded Assets described in Section 7.7;
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(f) Any increase in the compensation of any officer of the
Company or any material increase in the rate of pay of its employees, except
as part of regular compensation increases in the ordinary course of business;
(g) Any labor trouble, or any controversies or unsettled
grievances pending or threatened, between the Company and any of its
employees or a collective bargaining organization representing or seeking to
represent such employees, or any entrance into any collective bargaining
agreement by the Company with respect to any such employees;
(h) Any addition to, or modification of, any of the profit
sharing, bonus, deferred compensation, insurance, pension retirement or
other employee benefit plans, arrangements and practices described on
Schedule 4.19;
(i) Any borrowing of money by the Company or any of the
Drilling Partnerships, or the incurrence of any material obligation by the
Company or any of the Drilling Partnerships, other than in the ordinary
course of business;
(j) Any capital expenditure or commitment by the Company or
any of the Drilling Partnerships to make a capital expenditure (exclusive of
expenditures for normal repair or maintenance of equipment) other than in
the ordinary course of business or as permitted by the terms of this
Agreement;
(k) Any incurrence of any material losses or knowing waiver
of any rights of value by the Company or any of the Drilling Partnerships in
connection with any aspect of its business;
(l) Any material change in the Company's insurance policies
or any cancellation, termination or substantive amendment of any material
contract, agreement, license or other instrument to which the Company or any
of the Drilling Partnerships is a party;
(m) Any lending or advancement of money by the Company or any
of the Drilling Partnerships;
(n) Any mortgage, pledge, lien, security interest or
encumbrance created or perfected on any of the Assets, other than a Permitted
Encumbrance;
(o) Any payment on the Outstanding Indebtedness, other than
scheduled payments pursuant to and other required payments under agreements
in effect on the Balance Sheet Date;
(p) Any agreement by or commitment of the Company or any of
the Drilling Partnerships to do any of the foregoing; or
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(q) Any other event or condition of any character which, in any
one case or in the aggregate, has materially adversely affected, or which might
reasonably be expected to materially adversely affect, the condition (financial
or otherwise), Assets, operations, liabilities, or business of the Company or
any of the Drilling Partnerships.
4.13 ACCOUNTS RECEIVABLE. All accounts receivable existing on the
Closing Date (net of the allowance for doubtful accounts reflected on the
Financial Statements described in subsection 4.11(a)(v)) will be (i) valid,
genuine, and subsisting, (ii) subject to no known defenses, setoffs or
counterclaims, and (iii) collectible.
4.14 TAX RETURNS AND AUDIT. Except as disclosed in Schedule 4.14,
all federal and state income tax returns and reports required by law to be filed
on or prior to the Closing Date relating to the income or operations of the
Company or the Drilling Partnerships shall have been filed on or prior to the
Closing Date, and all taxes shown on such returns and reports shall have been
paid in full. The Company has not received any notice of any audit,
investigation, or action by any taxing authority relating to a redetermination
of previously reported income, deductions, tax credits, or tax liabilities
of the Company for any taxable period ended on or prior to the Closing Date
which remains open for assessment or redetermination. All income, profits,
franchise, sales, use, occupation, property, excise, ad valorem and other
taxes due prior to the Closing Date have been fully paid. There has not been
any intentional disregard of any applicable statute, regulation, rule, or
published ruling in the preparation of any tax returns or reports filed by
or on behalf of the Company or any of the Drilling Partnerships.
4.15 NO RESTRICTIONS. There exists no restriction or reservation
affecting the Company's or any of the Drilling Partnerships' title to or the
utility of its Assets which would prevent it from occupying or utilizing such
Assets, or any part thereof, after the Closing, to the same full extent that it
might continue to do so if the transaction contemplated hereby did not take
place.
4.16 OTHER CONTRACTS AND COMMITMENTS. Neither the Company nor any of
the Drilling Partnerships has outstanding (i) any contract, bid or offer to
provide services to third parties which (A) the Company knows or has reason to
believe is at a price or on terms which would not result in a net profit to the
Company in providing such services, or (B) includes terms and conditions the
Company or the applicable Partnership cannot reasonably expect to satisfy or
fulfill in their entirety; (ii) any revocable or irrevocable power of attorney
to any person, firm or corporation for any purpose whatsoever; (iii) any loan
agreement, indenture, promissory note, conditional sales agreement or other
similar type of agreement, except to the extent the indebtedness thereunder is
reflected on the
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September 30, 1997 Financial Statements (including inter-Company indebtedness
eliminated by principles of consolidation), (iv) any forward sale, swap or
other type of hedging agreement or commitment, or (v) except as disclosed on
Schedule 4.5 or Schedule 4.16, any other material contract or commitment not
directly related to operations on the Properties and which is not cancelable
without liability or penalty on sixty (60) days notice or less.
4.17 INDEBTEDNESS TO AND FROM OFFICERS, DIRECTORS AND OTHERS. The
Company is not indebted to any of its current or former shareholders, directors,
officers, employees or agents, or their respective heirs, legatees,
beneficiaries or legal representatives, except for amounts due as normal
salaries, wages, bonuses, commissions and in reimbursement of ordinary expenses,
all on a current basis and consistent with historical practices. All
obligations, whether arising by operation of law, contract, agreement, or
otherwise, for payments to trusts or other funds or to any governmental
agency or to any employees, directors, officers, agents, or any other
individual (or any of their respective heirs, legatees, beneficiaries, or
legal representatives) with respect to profit sharing, pension or retirement
benefits, or any other employee benefit of any kind whatsoever have been
paid, if due, or adequate accruals for such payments, if such accruals are
required in accordance with generally accepted accounting principles, are
reflected on the September 30, 1997 Financial Statements. Except as disclosed
in Schedule 4.17, no present or former shareholder, director, officer,
employee or agent of the Company is indebted to the Company other than for
advancements for ordinary business expenses in a normal amount.
4.18 EMPLOYEES. The employees of the Company are listed in
Schedule 4.18. Those employees identified in Schedule 4.18 as "corporate"
(collectively, the "Corporate Employees") will resign or their employment
with the Company will be terminated prior to or effective as of the Closing.
All severance and other obligations of the Company to the Corporate Employees
arising prior to or resulting from (i) their resignation or termination, or
(ii) the Closing of the transactions contemplated by this Agreement, will be
paid prior to the Closing. The Drilling Partnerships have no employees.
Seller has made available to Buyer copies of all OSHA citations, EEOC claims
and workers' compensation claims received by the Company during the five (5)
year period prior to the date of this Agreement.
4.19 LABOR AGREEMENTS, EMPLOYEE BENEFIT PLANS, AND EMPLOYMENT AGREE-
MENTS. Except as disclosed in Schedule 4.19, the Company is not a party to (i)
any union collective bargaining or similar agreement, (ii) any profit sharing,
deferred compensation, bonus, stock option, stock purchase, retainer,
consulting, health, welfare or incentive plan, agreement, policy or arrangement
of any kind whatsoever, whether legally binding or not, which will continue or
be binding in any way on the Company beyond the Closing, or (iii)
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any agreement relating to employment or severance from employment which will
continue beyond the Closing. All required Company contributions to employee
benefit, retirement, deferred compensation, 401(k) and similar plans have
been made and all employee contributions to such plans for which funds have
been retained by or paid to the Company have been made.
4.20 OVERTIME, BACK WAGES, VACATION AND MINIMUM WAGES. Except for
claims accrued as a liability of the Company and included in the computation of
Adjusted Consolidated Working Capital, no present or former employee of the
Company has any claim against the Company on account of or for (i) overtime
pay, other than overtime pay for the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) vacation,
time off or pay in lieu of vacation or time off other than that earned in
respect of the current year, or (iv) any violation of any statute, ordinance
or regulation relating to minimum wages or minimum hours of work.
4.21 INSURANCE POLICIES. Set forth on Schedule 4.21 is a list of all
material insurance policies in force covering the Company, the Drilling
Partnerships, and any of its and their properties, operations or personnel.
4.22 SHORT-TERM INVESTMENTS, BANK ACCOUNTS AND SAFE DEPOSIT BOXES.
Set forth on Schedule 4.22 is a list of (i) all short-term investments of the
Company together with the location of the certificate(s) or other evidence of
such investments, and (ii) all bank accounts maintained by the Company together
with the names of authorized signatories on each such account and the location
of all safe deposit boxes maintained by the Company together with the names of
the persons authorized access thereto.
4.23 OTHER ASSETS. Except as disclosed in Schedule 4.23, the Company
and the Drilling Partnerships have good title to the Other Assets, free and
clear of all liens, encumbrances, security interests, claims or charges of every
kind or description, other than routine maintenance agreements and Permitted
Encumbrances.
4.24 PERMITS AND COMPLIANCE WITH LAWS. The Company possesses all
governmental licenses, permits, certificates, orders, consents, approvals,
franchises and authorizations (collectively, the "Permits") required to
enable it to conduct its business and operations. The Company is in compliance
in all material respects with the Permits and all laws, regulations, ordinances
and orders applicable to its business and operations.
4.25 SECURITIES LAWS. To the knowledge of Sellers, the Company has
complied in all material respects with all applicable state and federal
securities laws in respect of the offer and sale of securities of the Company
and the Drilling Partnerships.
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4.26 ENVIRONMENTAL CONDITIONS. To the knowledge of Sellers, except as
disclosed in Schedule 9.4 the Properties and the ▇▇▇▇▇▇ System are in compliance
with the environmental standards set out in Section 9.4.
4.27 OUTSTANDING INDEBTEDNESS. The Outstanding Indebtedness may be
paid in full at the Closing by either Buyer or the Company. Upon receipt of
such payments, neither the holders of the instruments evidencing the Outstanding
Indebtedness nor any of their affiliates or assigns will have any continuing or
resulting lien upon, interest in, option, call or any other rights whatsoever
with respect to the Assets, the Shares, any other debt or equity security of the
Company, or any subsequent business activity or enterprise of the Company,
except for the Gas Supply Agreement described in Section 7.8 hereof (in the
event such agreement is not terminated prior to the Closing).
4.28 FULL DISCLOSURE. To the knowledge of Sellers, no representation
or warranty made by Sellers in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
made herein not misleading. Sellers shall not be deemed to have made to Buyer
any representation or warranty other than as expressly made by Sellers in
Articles 4 and 5 of this Agreement. Without limiting the generality of the
foregoing, Sellers make no representation or warranty to Buyer with respect to
(i) any projections, estimates or budgets heretofore delivered or made available
to Buyer of future revenues, expenses, expenditures or future results of
operations, or (ii) except as expressly covered by a representation or warranty
in this Article 4, any other information or documents, financial or otherwise,
made available to Buyer or its counsel, accountants or advisors with respect
to the Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLERS
RELATING TO THIS AGREEMENT AND THE SHARES
Each Seller, severally and not jointly, hereby represents and warrants
to Buyer as of the date hereof, and by proceeding with the Closing will be
deemed to represent and warrant to Buyer as of the Closing Date, as follows:
5.1 AGREEMENT VALID. This Agreement constitutes the valid and
binding agreement of Seller, enforceable against Seller in accordance with its
terms. All instruments required hereunder to be executed and delivered by
Seller at the Closing will constitute valid and binding agreements of Seller
enforceable against Seller in accordance with their terms.
5.2 OWNERSHIP. Seller is, and at the Closing Date will be, the
record and beneficial owner of the number of Shares set forth opposite the name
of such Seller on Schedule 4.9.
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5.3 TITLE. Seller now has (except as set forth in Schedule 4.9), and
at the Closing Date will have, good and marketable title to the number of Shares
set forth opposite name of such Seller in Schedule 4.9, free and clear of all
adverse claims, options, liens, security interests, restrictions and other
encumbrances.
5.4 RIGHT TO TRANSFER. Seller now has (except as set forth in
Schedule 4.9), and at the Closing Date will have, full legal right and power
to transfer and deliver to Buyer the number of Shares set forth opposite the
name of such Seller in Schedule 4.9 in the manner provided in this Agreement,
and upon delivery of such Shares pursuant to the terms of this Agreement,
Buyer will receive good and marketable title thereto, free and clear of all
adverse claims, options, liens, security interests, restrictions and other
encumbrances.
5.5 BROKERS AND FINDERS. Subject to the provisions of Section 14.4,
neither Seller nor the Company has incurred any liability, contingent or
otherwise, for brokers' or finders' fees in respect of this transaction for
which Buyer or the Company shall have any responsibility whatsoever.
5.6 NO BREACH; CONSENTS. Neither the execution and delivery of this
Agreement or of the instruments or documents contemplated hereby nor the
consummation of the transactions contemplated herein or therein will directly
or indirectly (i) violate any provision of any applicable law, rule or
regulation to which Seller is subject, (ii) violate any order, judgment or
decree applicable to Seller, or (iii) conflict with or result in breach under
any agreement to which Seller is a party or by which Seller may be bound,
except in the case of (iii) as provided in Schedule 4.6, and except in each
case for violations, conflicts, breaches and defaults that in the aggregate
would not materially hinder or impair the consummation of the transaction
contemplated hereby.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
6.1 ORGANIZATION. Buyer is a corporation duly organized and validly
existing under the laws of the State of Delaware.
6.2 AGREEMENT AUTHORIZED. This Agreement has been duly authorized,
executed and delivered by Buyer and all instruments and agreements required
hereunder to be extended and delivered by Buyer at the Closing will be duly
authorized, executed and delivered by Buyer and all requisite corporate action
has been taken to authorize the execution hereof, the transactions contemplated
hereby and all things necessary or desirable in order to accomplish the purchase
of the Shares and the performance by Buyer of all of its obligations
-17-
under this Agreement, and Buyer has all necessary authority under its
charter, bylaws and other governing documents and otherwise has good right
and lawful authority to consummate the same.
6.3 VALID AGREEMENT. This Agreement constitutes the valid and
binding agreement of Buyer enforceable against Buyer in accordance with its
terms, and all instruments required hereunder to be executed and delivered by
Buyer at the Closing will constitute valid and binding agreements of Buyer
enforceable against Buyer in accordance with their terms.
6.4 BROKERS AND FINDERS. Subject to the provisions of Section 14.4
hereof, Buyer has incurred no liability, contingent or otherwise, for brokers'
or finders' fees in respect of this transaction for which Sellers shall have any
responsibility whatsoever.
6.5 SECURITIES LAW MATTERS. Buyer hereby acknowledges that the
Shares will not be registered under the Securities Act of 1933 or any applicable
state securities laws. Buyer represents and warrants to Sellers that Buyer (i)
has reviewed such information as Buyer has deemed relevant in connection with
Buyer's acquisition of the Shares, and (ii) is acquiring the Shares for
investment purposes only and not for resale with a view to, or in connection
with, a distribution.
ARTICLE 7
COVENANTS OF SELLERS PENDING CLOSING
Sellers covenant and agree with Buyer that from and after the date of
this Agreement and until the Closing, Sellers will cause the Company to conduct
its business and that of the Drilling Partnerships subject to the following
provisions and limitations:
7.1 ORDINARY COURSE. The Properties, the ▇▇▇▇▇▇ System and the Other
Assets will be maintained and operated in a good and workmanlike manner
consistent with historical practices, and the Company will timely pay or
cause to be paid all costs and expenses incurred in connection therewith.
7.2 RESTRICTIONS ON OPERATIONS. Subject to the provisions of Section
8.5 hereof, no operations will be conducted for the drilling of any new well,
the reworking or redrilling of any existing well or the making of any other
capital expenditure on the Properties or the ▇▇▇▇▇▇ System requiring an
expenditure by the Company in excess of $25,000 for any single project.
Neither the Company nor any of the Drilling Partnerships will waive any rights
or enter into any new agreements or commitments other than in the ordinary
course of business, abandon any well capable of commercial production (based
upon prevailing economic conditions), release or abandon any of the Properties,
or encumber, sell or otherwise dispose of any of the Properties other than
personal property
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thereon which is replaced by equivalent property or consumed in the operation
of such Properties in the ordinary course of business.
7.3 MAINTENANCE OF FILES. The Company and the Drilling Partnership
will exercise reasonable diligence in safeguarding and maintaining secure all
files, books and records currently maintained.
7.4 ACCESS OF BUYER. Buyer shall have access to the employees,
offices, properties, records, files, seismic data, engineering reports and
evaluations, books of account, and all other information of the Company
pertaining to the business, properties and affairs of the Company and the
Drilling Partnerships; provided, however, that such investigation shall be
conducted during normal business hours and in a manner that does not
unreasonably interfere with the Company's normal operations and employee
relationships. Sellers shall cause the Company's personnel to reasonably
assist Buyer in making such investigation and shall cause the counsel,
accountants, employees and other representatives of the Company to be
reasonably available to Buyer for such purposes. During such investigation,
Buyer shall have the right, at Buyer's sole cost and expense, to make copies
of such records, files and other materials as Buyer may deem advisable.
7.5 CERTAIN PAYMENTS; ARRANGEMENTS. The Company will make all
scheduled payments due under all agreements and instruments providing for or
evidencing the Outstanding Indebtedness, but will not make any payments in
addition to the scheduled payments. Upon receipt from Buyer of notice to do
so, Sellers will make arrangements with the holders of the instruments
evidencing the Outstanding Indebtedness for receipt of payment in full
thereof at the Closing and for the contemporaneous release by such holders
and their respective affiliates and assigns of any and all liens upon,
interests in, options, calls or any other rights whatsoever with respect to
the Assets, the Shares, any other debt or equity security of the Company, or
any subsequent business activity or enterprise of the Company, except for
the Gas Supply Agreement described in Section 7.8 hereof (in the event such
agreement is not terminated prior to the Closing).
7.6 REDEMPTION OF PREFERRED STOCK. Prior to the Closing, Buyer may
give Sellers written notice that Buyer desires to have Carlton redeem all of the
outstanding shares of Preferred Stock (a "Redemption Request"). Upon receipt of
a Redemption Request, Sellers promptly will cause Carlton to issue a notice of
redemption to all holders of the Preferred Stock, directing such holders to
tender the subject shares for redemption. In the event the Redemption Request
is delivered to Sellers thirty-five (35) days or more prior to the date
scheduled for Closing, Sellers will cause all outstanding shares of Preferred
Stock to be redeemed or cancelled prior to the Closing. In the event the
Redemption Request is delivered to Sellers less than thirty-five (35) days
prior to the date scheduled
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for Closing, Sellers will use their reasonable best efforts to cause all
outstanding shares of Preferred Stock to be redeemed or cancelled prior to
the Closing. Upon receipt by Buyer of notice from Sellers that shares of
Preferred Stock have been tendered for redemption, Buyer will fund that
portion of the Deposit allocated in Exhibit D for redemption of Preferred
Stock to the extent attributable to the tendered shares. If on the Closing
Date shares of Preferred Stock remain outstanding, the Base Price shall be
adjusted downward by an amount equal to $50,000 times the number of shares of
Preferred Stock then outstanding (the "Preferred Stock Redemption Adjustment").
7.7 EXCLUDED ASSETS. Prior to the Closing, Sellers shall cause the
Company to assign to Sellers or their designee (i) those certain Properties and
Assets of the Company specifically described in Schedule 7.7, (ii) leases cover-
ing those certain vehicles described in Schedule 7.7 which currently are used by
the Company's executive officers and senior management employees, (iii) those
certain office space and other real estate leases described in Schedule 7.7,
which described leases constitute all of the office and other real estate leases
to which the Company is a party (other than the office space lease at One ▇▇▇▇▇▇
Place, 9400 N. Broadway, Oklahoma City, Oklahoma, which lease is being retained
by MCEN), and (iv) all of the Company's office equipment, furniture and
furnishings. The Properties, Assets, leases, vehicles, furniture, equipment
and furnishings described in (i) through (iv) above are referred to herein as
the "Excluded Assets." Following such assignments and from and after the
Closing, the Company shall be relieved from all liabilities and obligations
with respect to, and Sellers or their designee shall assume and be responsible
for, all debts, lease obligations and other liabilities related to the
Excluded Assets. If Sellers' designee assumes such obligations and liabilities,
Sellers shall indemnify the Company with respect thereto without limitation as
to time. Any additional tax liability to the Company as the result of assigning
the Excluded Assets to Sellers or their designee will be a current liability for
purposes of determining Adjusted Consolidated Working Capital at the Closing.
7.8 GAS SUPPLY AGREEMENT. The Company is a party to that certain Gas
Supply Agreement dated November 22, 1996, by and between MCEN, as Seller, and
Miami Valley Resources, Inc., as Purchaser (the "Gas Supply Agreement"), a copy
of which has been separately provided to Buyer. Sellers agree to use their best
efforts to cause the Gas Supply Agreement to be terminated in connection with
the payment of the Outstanding Indebtedness owed to the purchaser under the Gas
Supply Agreement or its affiliate. In the event a termination payment is
required in order to terminate the Gas Supply Agreement, Buyer will bear and pay
such payment up to but not to exceed the sum of $100,000, provided Sellers are
willing to pay or cause the Company to pay (out of working capital prior to the
Adjusted Consolidated Working Capital calculation) the amount, if any, by which
the termination payment exceeds $100,000. In the event Sellers are not
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successful in obtaining termination of the Gas Supply Agreement, then the
Base Price will be adjusted downward at Closing by the sum of $200,000 (the
"Gas Supply Agreement Adjustment").
7.9 CONSULTATION WITH BUYER. During the period from the execution of
this Agreement to the Closing Date, Sellers will consult with Buyer from time to
time and on a timely basis upon request with respect to any operations being
conducted, or proposed to be conducted, in connection with the Properties, the
▇▇▇▇▇▇ System or the business of the Company, and will provide Buyer with all
information reasonably available with respect thereto.
7.10 OPERATION OF BUSINESS. Except as provided in Schedule 7.10,
without the prior written consent of Buyer, Sellers will not permit the Company
to (i) grant any increase in the rate of pay of any of its employees, nor grant
any increase in the salaries of any officer, employee or agent, nor enter into,
or by means of any bonus, profit-sharing, incentive compensation payment,
pension, retirement, medical, hospitalization, life insurance or other
insurance plan or plans, or other contracts or commitments, increase in any
amount, the benefits or compensation of any such officer, employee or agent,
(ii) enter into any employment contract or collective bargaining agreement,
(iii) enter into any contract or commitment or engage in any transaction which
is not in the ordinary course of business, (iv) sell or dispose of or encumber
any material item of the Assets, (v) make any material capital expenditure
(other than capital expenditures permitted under Section 7.2 or 8.5) or enter
into any lease of equipment or real estate, (vi) create, assume, incur or
guarantee any indebtedness, (vii) declare or pay any dividend or make any sale
of, or distribution in respect of, its capital stock or directly or indirectly
redeem, purchase or otherwise acquire any of its capital stock, except as
permitted by Section 7.6, (viii) make any amendments to or changes in its
Articles of Incorporation or ByLaws, or (ix) perform any act, or attempt to
do any act or permit any act or omission to act, which will cause a breach of
any material contract, commitment or obligation to which the Company or any
of the Drilling Partnerships is a party.
7.11 PRESERVATION OF BUSINESS. The Company shall carry on its
business and that of the Partnerships diligently and substantially in the
same manner as heretofore conducted and shall use its best efforts to keep
its business organization intact, including its present employees and its
present relationships with suppliers and customers and others having
business relations with the Company and the Drilling Partnerships.
7.12 INSURANCE AND MAINTENANCE OF PROPERTY. The Company will cause
all property owned or leased by it to continue to be insured against all
ordinary and insurable risks in accordance with past practices, and will
operate, maintain and repair all its
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property in a careful, prudent and efficient manner in accordance with past
practices.
7.13 BOOKS AND FINANCIAL RECORDS. The Company shall continue to
maintain its books and financial records and those of the Drilling Partnerships
in accordance with generally accepted accounting principles, and said books and
financial records shall fairly and accurately reflect the operations of the
Company and the Drilling Partnerships.
7.14 ESTOPPEL CERTIFICATES. Prior to the Closing, Sellers shall
provide to Buyer estoppel certificates from the sublessees of the MCEN office
space lease at ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, in the form provided for
in the base lease.
ARTICLE 8
ADDITIONAL AGREEMENTS OF THE PARTIES
8.1 CONFIDENTIALITY; RETURN OF INFORMATIONAL MATERIAL. From the
date of this Agreement until the first to occur of (i) the Closing Date, or
(ii) the day that is two (2) years from and after the date of this Agreement,
Buyer agrees for itself and its representatives to keep all non-public
information concerning the Company confidential and not to use such
information for any purpose other than the evaluation of the business,
financial condition and assets of the Company in connection with the proposed
acquisition of the Shares; provided, however, that Buyer may (x) disclose
such information to its underwriters, investment bankers, prospective
purchasers and prospective investors in connection with marketing activities,
and (y) may include such information as may be required to be disclosed in
documents filed with the Securities and Exchange Commission, in connection
with the public or private offering of debt or equity securities of the
Buyer. If the Closing does not occur, Buyer shall return to Sellers or the
Company, or shall destroy and confirm such destruction in writing, all of the
items of information which Sellers or the Company has delivered to Buyer
hereunder, including all copies of same made by Buyer.
8.2 COMPLIANCE WITH CONDITIONS. Buyer and Sellers, respectively,
will proceed diligently using all reasonable efforts to cause all of the
conditions to the obligations of Sellers and Buyer, respectively, to be timely
satisfied.
8.3 CONDEMNATION OR CASUALTY LOSS. Buyer's obligation to close shall
not be excused and no adjustment to the Base Price shall be required if, after
the execution of this Agreement and prior to the Closing Date, any item of the
Assets is damaged or destroyed by fire or other casualty or is taken under the
right of eminent domain. Prior to the Closing Date, neither the Company nor the
Drilling Partnership shall voluntarily compromise, settle or adjust any claims,
causes of action or demands against third parties, arising out of such damage,
destruction or taking, or commit,
-22-
use or apply any insurance proceeds or payments toward the repair, restoration
or replacement of the affected property without the prior written consent of
Buyer. Notwithstanding the above to the contrary, in the event the Assets
are damaged or destroyed by fire or other casualty or are taken under the
right of eminent domain and as a result thereof the value of the Assets is
reduced by an amount exceeding $5,000,000, then Buyer may terminate this
Agreement in its entirety without liability to either party other than return
to Buyer of the Deposit, subject to the provisions of Section 2.4(c).
8.4 GAS IMBALANCES. Sellers and Buyer acknowledge, but Sellers do
not represent or warrant, that there are certain gas imbalances with respect to
production from or attributable to certain of the Properties as set forth on
Schedule 8.4. The Base Price shall be adjusted at the Closing (i) upward by the
amount of $1.00 per Mcf for the net underproduction set forth on Schedule 8.4,
or (ii) downward by the amount of $1.00 per Mcf for the net overproduction set
forth on Schedule 8.4. Schedule 8.4 will be adjusted prior to the Closing as
necessary to reflect the actual gas imbalance existing with respect to the
Properties determined as the result of additional investigation by the parties.
Notwithstanding the foregoing, in the event the net overproduction or net
underproduction set out on Schedule 8.4 as amended to the Closing is less than
50,0-00 Mcf, no adjustment to the Base Price shall be made.
8.5 CAPITAL EXPENDITURES. During the period from the execution of
this Agreement to the Closing Date, Sellers will cause representatives of the
Company to consult with Buyer from time to time with respect to any operation on
the Properties or the ▇▇▇▇▇▇ System proposed by the Company, or by a third party
and recommended for approval by the Company, reasonably expected to require a
capital expenditure by the Company, and will provide Buyer with all information
reasonably available to the Company with respect thereto (for this purpose,
costs incurred in connection with a workover shall not be deemed to constitute a
capital expenditure). Buyer shall, within ten (10) days after receipt of the
Company's recommendation for conducting or participating in any such project or
making such capital expenditure, or within such shorter period as may be
required by the terms of any applicable agreement, approve or disapprove such
project or capital expenditure. Failure of Buyer to respond within the time
required will be deemed to constitute disapproval by Buyer of the project or
capital expenditure. In the event Buyer approves such project or capital
expenditure pursuant to the provisions of this Section 8.5, the Company shall
conduct, propose or elect to participate in such project or make such capital
expenditure and shall incur and pay as they become due the expenditures
associated therewith. In such event, at the Closing the Base Price shall be
adjusted upward by the sum of all costs and expenses incurred by the Company
to the Closing Date in connection with such approved project or capital
expenditure, less all revenues received by or accrued in favor of the Company
attributable thereto. In the event Buyer disapproves any project or capital
expenditure proposed
-23-
by a third party under circumstances where an election not to participate would
require the Company to relinquish some interest in the Properties, the Company
shall not participate in such operation or make such captial expenditure but
shall attempt to farm out or otherwise relinquish its interests on the most
favorable terms reasonably available. Buyer hereby approves (i) the capital
expenditures described in Schedule 8.5, and (ii) capital expenditures hereafter
incurred by the Company and not otherwise approved pursuant to this Section 8.5
up to an aggregate amount of $25,000.
8.6 ADJUSTED CONSOLIDATED WORKING CAPITAL. The Base Price will be
adjusted (i) upward by the amount of the positive Adjusted Consolidated Working
Capital of the Company as of the Closing Date, but in no event more than
$1,000,000, or (ii) downward by the amount of the negative Adjusted Consolidated
Working Capital of the Company as of the Closing Date (the "Working Capital
Adjustment"). For purposes of this Agreement, the term "Adjusted Consolidated
Working Capital" means the current assets less current liabilities of the
Company on a consolidated basis determined in accordance with generally accepted
accounting principles, except that current assets will exclude deferred tax
assets and current liabilities will exclude the current portion of long-term
debt and current income tax liabilities (to the extent, only, that current
income tax liabilities can be offset by the deferred tax assets).
ARTICLE 9
ENVIRONMENTAL MATTERS
9.1 PHYSICAL CONDITION OF THE PROPERTIES. The Properties (solely for
purposes of this Article, the term "Properties" shall include the ▇▇▇▇▇▇ System)
have been used for oil and gas drilling, production, gathering and processing
operations, related oil field operations and possibly for other operations,
whether of a similar or dissimilar nature. Physical changes in or under the
Properties or adjacent lands may have occurred as a result of such uses. The
Properties also may contain buried pipelines and other equipment, whether or not
of a similar nature, the locations of which may not be known to Sellers or be
readily apparent by a physical inspection of the Properties. Third parties may
have used the Properties or the surface rights thereon for other purposes as
well. Buyer understands that the Company does not have the requisite
information with which to determine the exact nature or condition of the
Properties nor the effect any such use has had on the physical condition of
the Properties. Buyer is hereby notified that detectable amounts of regulated
and unregulated chemicals and other substances which may pose a threat to
health or to plants or wildlife, or which are known to cause illnesses,
diseases, cancer, birth defects and other reproductive harm, may be found in,
on or around the Properties. Adverse physical conditions, including the
presence of such chemicals and other substances, may not be revealed by
Buyer's investigation. In addition, Buyer acknowledges that some oil field
production equipment may contain various contaminants or hazardous sub-
-24-
stances, including without limitation, asbestos and/or naturally-occurring
radioactive material ("NORM"). In this regard, Buyer expressly understand
that NORM may affix or attach itself to the inside of ▇▇▇▇▇, materials, pipes
and equipment as scale or in other forms, and that ▇▇▇▇▇, materials, pipes
and equipment located on the Properties described herein may contain NORM and
that NORM-containing materials may be buried or have been otherwise disposed
of on the Properties. Buyer also expressly understands that special procedures
may be required for the removal and disposal of various contaminants or
hazardous substances, including without limitation asbestos and NORM, from the
Properties where it may be found. The statements in this Section 9.1 are
intended as disclosures and acknowledgments of possible conditions existing on
the Properties.
9.2 ENVIRONMENTAL ASSESSMENT. Buyer shall have the right, at Buyer's
sole cost, risk, and expense, to undertake an environmental assessment of the
Properties during the period ending on the Title Notice Date (the "Inspection
Period"). Buyer and its agents shall have the same right as the Company to
enter upon the Properties, inspect the same, conduct soil and water sampling,
analysis and monitoring, including soil borings (and, after notice and
consultation with the Company, drilling groundwater monitoring ▇▇▇▇▇), and
generally conduct such tests, examinations, investigations and studies as
Buyer deems necessary or appropriate for preparing appropriate evaluation and
other reports and making judgments relating to the Properties, their condition,
and the presence of chemicals and other substances. Sellers shall cooperate
with any efforts of Buyer and its agents to obtain third party consents for
access to those parcels of land within the Properties to which the Company
may not presently have access. Buyer and its agents shall have reasonable
access to the Company's agents and employees in the course of conducting
Buyer's environmental assessment. Sellers shall cause the Company to make
available to Buyer within five (5) days after the date of this Agreement
copies of all reports (including, without limitation, all environmental studies,
assessments, audit reports, or other evaluations prepared by or for Sellers or
the Company), citations, notices, correspondence and other documents
concerning the environmental condition of the Properties. Buyer agrees to
provide to Sellers a copy of all facts discovered in the course of conducting
Buyer's environmental assessment, including all direct observations (if in
writing or other tangible or transferable medium), data and summaries
thereof. Buyer shall keep any data or information acquired in the course of
such examinations and the results of all analyses of such data and
information strictly confidential and not disclose same to any person or
agency without the prior written approval of the Company, except that Buyer
may disclose to authorities having jurisdiction such information as is
required by law or by court order at the same time that Buyer provides such
information to Sellers. If Buyer determines that conditions on a Property do
not satisfy the environmental standards set forth in Section 9.4 below in a
material respect, then Buyer may notify Sellers of such condition by provid-
-25-
ing Sellers, on or prior to the Title Notice Date, a written "Notice of
Environmental Defect" setting forth in detail the facts giving rise to the
claimed defect, the environmental standard which Buyer claims is not
satisfied, any Applicable Environmental Law (hereinafter defined) which Buyer
contends has been breached or violated and, if the claimed defect arises from
information contained in a document, a copy of such document or the relevant
parts thereof. Buyer shall be deemed to have accepted without objection (i)
the environmental conditions described in Schedule 9.4, and (ii) any Property
which does not meet the environmental standards or which is subject to an
environmental defect unless a Notice of Environmental Defect is given with
respect to such Property on or prior to the Title Notice Date.
9.3 ACCESS; INDEMNIFICATION. Access to the Properties to conduct
Buyer's environmental assessment shall be subject to the following conditions:
Buyer waives and releases all claims against Sellers, the Company, and its
directors, officers, employees and agents, for injury to or death of persons
or damage to property arising in any way from the exercise of rights granted
to Buyer hereby or the activities of Buyer or its employees, agents or
contractors on the Properties, provided that Buyer does not hereby assume the
risk of damage, injury or death attributable to the willful misconduct or
gross negligence of Sellers or the Company. Buyer shall indemnify Sellers,
the Company, and its directors, officers, employees, and agents, and shall
hold each and all of said indemitees harmless from and against any and all
loss whatsoever arising out of (i) any and all statutory or common law liens
or other encumbrances for labor or materials furnished in connection with
such tests, samplings, studies or surveys as Buyer may conduct with respect
to the Properties, and (ii) any injury to or death of persons or damage to
property occurring in, on or about the Properties as a result of such exercise
or activities (except for any such injuries or damages caused by the gross
negligence or willful misconduct of any said indemnitees). Notwithstanding
any provision of this Agreement to the contrary, the foregoing obligation of
indemnity shall survive the Closing or the termination of this Agreement
without Closing.
9.4. ENVIRONMENTAL STANDARDS. This section sets out the
environmental standards applicable to the Properties for purposes of this
Agreement.
(a) The Properties shall not have been used for the generation,
treatment, storage or disposal of a Hazardous Substance (as defined below) in a
manner or to an extent that would subject the Company to a material liability
for violation of any Applicable Environmental Laws (as defined below). Except
as disclosed in Schedule 9.4, there shall not have been any release or discharge
of a Hazardous Substance from the Properties in a manner or to an extent that
would subject the Company to a material liability for violation of any
Applicable Environmental Laws. "Hazardous Sub-
-26-
stance" shall mean any hazardous substance, pollutant, contaminant, solid or
hazardous waste, hazardous waste constituents, hazardous material or toxic
substance subject to regulation or liability under Applicable Environmental
Laws in force as of the date hereof, including asbestos, radioactive
substances, and any other substance or material that would constitute or
cause a health, safety or environmental hazard on or at the Properties under
Applicable Environmental Laws. "Applicable Environmental Laws" shall mean
(i) all federal statutes regulating or prescribing restrictions regarding the
use of the Properties or other activities affecting the environment (air,
water, land, animal and plant life), including but not limited to the
following: the Clean Air Act, Clean Water Act, Comprehensive Environmental
Response, Compensation and Liability Act, Emergency Planning and Community
Right-to-Know Act, Endangered Species Act, Hazardous Materials Transportation
Act, Migratory Bird Treaty Act, National Environmental Policy Act, Occupational
Safety and Health Act, Oil Pollution Act of 1990, Resource Conservation and
Recovery Act, Safe Drinking Water Act, and Toxic Substances Control Act; (ii)
any regulations promulgated under such federal statutes, (iii) any state law
counterparts of such federal statutes and the regulations promulgated
thereunder; (iv) any other state or local statutes, rules, regulations or
ordinances regulating the use of or affecting the environment, and (v) all
common law rights, duties and obligations regarding the use of or matters
affecting the environment.
(b) Except as disclosed in Schedule 9.4, there are no
agreements, consent or administrative orders, injunctions, decrees,
judgments, license or permit conditions, or other directives of governmental
authorities based on any Applicable Environmental Laws that require any
material change in the present condition of the Properties, and the Company
has not received any notice from any governmental authority or private or
public entity advising the Company that it is or is potentially responsible
for response costs under an Applicable Environmental Law as a result of the
Company's ownership or activities in connection with the Properties.
(c) Except as disclosed in Schedule 9.4, no conditions or
circumstances exist on the Properties that would subject the Company to any
material damages, penalties, injunctive relief or cleanup or closure costs
under any Applicable Environmental Laws or that would require cleanup, removal,
remedial or corrective action or other response involving a material expenditure
by the Company pursuant to Applicable Environmental Laws.
9.5 PROPERTIES SUBJECT TO ENVIRONMENTAL DEFECT. Sellers shall have a
period of twenty (20) days after the Title Notice Date to cure or cause the
Company to cure or remediate the environmental defect(s) set out in any Notice
of Environmental Defect timely and properly given by Buyer. In the event
Sellers are unable or unwilling to cure or remediate any such defect prior to
Closing, one of the following shall occur:
-27-
(a) The parties shall agree upon an adjustment to the Base
Price to compensate Buyer (i) for the defect and all future liability
associated therewith or resulting therefrom, and (ii) for agreeing to
indemnify, defend and hold harmless Sellers from and against any and all
loss, cost, liability or expense associated therewith or resulting therefrom.
(b) If the parties are unable to reach agreement pursuant to
(a) above, Sellers, at their sole discretion, may elect either (i) to proceed
to Closing but prior thereto cause the Company to assign the affected
Property to a third party (which may be owned by Sellers) and reduce the Base
Price by the Agreed Value of such Property (provided that if Sellers notify
Buyer of Sellers' election to proceed under this subsection, Buyer shall have
the last opportunity to agree to a mutually acceptable adjustment or waive
the Defect), or (ii) to proceed to Closing but reduce the Base Price by the
Agreed Value of the affected Property, provided Buyer is willing to accept
the affected Property in its unremediated condition (this alternative will
not be available to Sellers if Buyer is not so willing). In the event the
estimated (by an independent third party environmental consultant) cost of
remediation of all environmental defects for which the parties are unable to
reach agreement is greater than $1,000,000, either party may terminate this
Agreement in its entirety without further liability to either party other
than return to Buyer of the Deposit, subject to the provisions of Section 2.4.
(c) Notwithstanding the provisions of (a) and (b) above,
Buyer shall not be entitled to an adjustment of the Base Price pursuant to
the provisions of this Section 9.5 unless the cumulative amount of all such
adjustments exceeds $50,000.
9.6 INDEMNIFICATION OF SELLERS. All liabilities attributable to
conditions existing and operations conducted on the Properties (other than
Properties assigned to a third party prior to the Closing pursuant to Section
9.5(b) hereof) under Applicable Environmental Laws and under all future
environmental laws shall be liabilities of the Company or the Drilling
Partnerships, as applicable, and Buyer shall indemnify, defend, and hold
harmless Sellers from and against all loss, cost, liability or expense
attributable thereto or resulting therefrom, except for liabilities known to
Sellers and not disclosed in Schedule 9.4 hereof.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions provided for in
this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Buyer to waive
any one or more of such conditions:
-28-
10.1 REPRESENTATIONS AND WARRANTIES OF SELLERS. At and as of the
Closing Date, the representations and warranties of Sellers contained in
Articles 4 and 5 hereof shall be true and correct in all material respects as
though made on such date.
10.2 PERFORMANCE OF THIS AGREEMENT. Sellers shall have duly performed
or complied in all material respects with all of the obligations to be performed
or complied with by Sellers under the terms of this Agreement on or prior to the
Closing Date.
10.3 CLOSING OF PUBLIC OFFERINGS. The closing of Buyer's planned
public offering of high-yield notes and common stock (the "Public Offering")
shall occur simultaneously with the Closing. If for whatever reason the
Public Offering does not close on or before the date scheduled for Closing in
Section 13.1 hereof (or prior to April 30, 1998, if Buyer exercises its
option to extend the Closing Date as provided in Section 13.1 hereof), Buyer
shall have no obligation to close the transaction contemplated by this
Agreement.
10.4 RESIGNATIONS. Buyer shall have received the written resignations
of each member of the Board of Directors and each officer of Carlton, MCEN and
each of its subsidiaries.
10.5 OPINION OF COUNSEL. Buyer shall have received an opinion of
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ A Professional Corporation, dated the Closing Date,
substantially in the form attached hereto as Exhibit E.
10.6 SELLERS' CLOSING CERTIFICATE. Buyer shall have received a
Closing Certificate, dated as of the Closing Date, signed by Sellers, stating
that (i) to the best of Sellers' knowledge, all of the representations and
warranties made by Sellers under Section 4 of this Agreement are true and
correct at and as of the Closing Date, (ii) all of the representations and
warranties made by Sellers under Section 5 of this Agreement are true and
correct at and as of the Closing Date, and (iii) Sellers have duly performed
or complied with in all material respects all of the obligations to be
performed or complied with by Sellers under the terms of this Agreement on or
prior to the Closing Date.
ARTICLE 11
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions provided for
in this Agreement shall be subject to the satisfaction of each of the following
conditions on or before the Closing Date, subject to the right of Sellers to
waive any one or more of such conditions:
11.1 REPRESENTATIONS AND WARRANTIES OF BUYER. The representations and
warranties of Buyer contained in this Agreement shall
-29-
be true and correct in all material respects at and as of the Closing Date.
11.2 PERFORMANCE OF THIS AGREEMENT. Buyer shall have duly performed
or complied in all material respects with all of the obligations to be performed
or complied with by Buyer under the terms of this Agreement on or prior to the
Closing Date.
11.3 OPINION OF COUNSEL. Sellers shall have received an opinion of
McAfee & ▇▇▇▇ A Professional Corporation, dated the Closing Date, substantially
in the form attached hereto as Exhibit F.
11.4 BUYER'S CLOSING CERTIFICATE. Sellers shall have received a
Closing Certificate, dated as of the Closing Date, executed on behalf of
Buyer, stating that (i) all of the representations and warranties made by
Buyer under Section 6 of this Agreement are true and correct at and as of the
Closing Date, and (ii) Buyer has duly performed or complied with in all
material respects all of the obligations to be performed or complied with by
Buyer under the terms of this Agreement on or prior to the Closing Date.
Such Certificate shall also state that (w) Buyer has had the opportunity to
visit with Sellers and with other officers and representatives of the Company
to discuss the business and the assets, liabilities, financial condition,
cash flow and operations of the Company, (x) all materials and information
requested by Buyer have been provided to Buyer to Buyer's reasonable
satisfaction, (y) Buyer has made its own independent examination,
investigation, analysis and evaluation of the Company, including Buyer's own
estimate of the value of the Company, and (z) that Buyer has undertaken such
due diligence (including review of the assets, liabilities, books, records
and contracts of the Company) as Buyer has deemed adequate, including that
described above.
ARTICLE 12
TERMINATION
12.1 BUYER'S RIGHT TO TERMINATE. Buyer shall be entitled to
terminate this Agreement by written notice to Sellers if the conditions to
Buyer's obligations under this Agreement, as set forth in Article 10 hereof,
shall not have been satisfied, complied with or performed in all material
respects (and, where applicable, Sellers shall not be prepared to comply with
or perform the same) by the date on which the Closing is to occur (as set
forth in Section 13.1), and such non-compliance or non-performance shall not
have been waived in writing by Buyer. Upon such termination, the provisions
of Section 2.4 shall govern the entitlement of the parties to the Deposit.
In the event such termination is a result of Sellers' failure or refusal to
close the transaction contemplated hereby under circumstances in which all
conditions precedent to Sellers' obligations as set forth in Article 11 have
been performed
-30-
or satisfied in all material respects, Buyer shall be entitled to pursue any
available remedies existing at law or in equity.
12.2 SELLERS' RIGHT TO TERMINATE. Sellers shall be entitled to
terminate this Agreement by written notice to Buyer if the conditions to
Sellers' obligations under this Agreement, as set forth in Article 11 hereof,
shall not have been satisfied, complied with or performed in all material
respects (and Buyer shall not be prepared to comply with or perform the same)
by the date on which the Closing is to occur (as set forth in Section 13.1),
and such non-compliance or non-performance shall not have been waived in
writing by Sellers. Upon such termination, the provisions of Section 2.4
shall govern the entitlement of the parties to the Deposit. In the event
such termination is a result of Buyer's failure or refusal to close the
transaction contemplated hereby under circumstances in which all conditions
precedent to Buyer's obligations as set forth in Article 10 have been
performed or satisfied in all material respects, Seller shall be entitled to
pursue any available remedies existing at law or in equity.
ARTICLE 13
CLOSING; POST-CLOSING
13.1 DATE AND PLACE. The Closing shall be held at 9:00 o'clock
a.m. on the first to occur of (i) February 20, 1998, or (ii) such earlier
date as the Public Offering is closed. Buyer shall give Sellers at least
three (3) business days' prior notice if the Closing is to occur prior to
February 13, 1998. Notwithstanding the foregoing, however, if becomes
apparent to Buyer that the Public Offering will not be closed by February 20,
1998, but is likely to close on or before April 30, 1997, then Buyer shall
have the option, exercisable by written notice to Sellers not later than
February 18, 1998, to extend the date set forth in subsection (i) above to
April 30, 1998. The date on which the Closing actually occurs is referred to
herein as the "Closing Date". The Closing shall take place in the offices of
Buyer, ▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
13.2 SATISFACTION OF CONDITIONS. Not later than the day prior to
the Closing Date, each party shall provide the other party such evidence of
satisfaction of conditions under Articles 10 and 11 hereof as the other party
shall have reasonably and timely requested.
13.3 STOCK CERTIFICATES. At the Closing, Sellers shall deliver to
Buyer certificates registered in the name of Sellers, endorsed in blank,
representing the Shares, free and clear of all liens, encumbrances, security
interests and adverse claims.
13.4 PAYMENT OF CLOSING AMOUNT. On the day that is two (2) business
days prior to the date scheduled for Closing, Sellers shall furnish to Buyer a
pro forma consolidated balance sheet of the
-31-
Company as at the date scheduled for Closing, certified by the chief
financial officer of the Company as having been prepared in good faith using
the best information then available. On the day that is one (1) business day
prior to the Closing, Sellers and Buyer will cooperatively prepare an agreed
Closing statement listing each of the Base Price adjustments to be effected
at the Closing pursuant to Sections 3.4, 7.6, 7.8, 8.4, 8.5, 8.6 and 9.5
hereof and the estimated Purchase Price after such Adjustments. Such
estimate, less the Deposit and the amount of Outstanding Debt, shall be paid
by Buyer to Sellers at Closing by wire transfer in accordance with payment
instructions furnished by Sellers.
13.5 WORKING CAPITAL RECONCILIATION.
(a) Within the period ending sixty (60) days after the Closing
Date, Buyer shall furnish to Sellers a consolidated balance sheet of the
Company as at Closing Date, together with a calculation of the Adjusted
Consolidated Working Capital as at the Closing Date, certified by the chief
financial officer of the Buyer as having been prepared based upon the best
information reasonably available. Representatives of Sellers shall have such
access to the offices, records, files, books of account and other information
of the Company as may be reasonably necessary to audit and verify the
information set out on the balance sheet furnished by Buyer. Buyer shall
cause its and the Company's personnel to reasonably assist Sellers'
representatives in conducting such audit. Upon completion of Sellers' audit,
representatives of Sellers and Buyer shall meet and attempt to reach
agreement on the actual Adjusted Consolidated Working Capital of the Company
as at the Closing Date. Any such agreement shall be evidenced by a written
memorandum of agreement executed by authorized representatives of Sellers and
Buyer and shall be final, conclusive and binding on the parties.
(b) If within thirty (30) days after receipt by Sellers of the
balance sheet furnished by Buyer pursuant to (a) above, the parties are unable
to reach agreement on the actual amount of the Adjusted Consolidated Working
Capital as at the Closing Date, then (i) if the parties so agree, the period for
attempting to reach agreement shall be extended for an additional specified
period, or (ii) if the parties cannot or do not choose to agree on an extension,
the amount of the Adjusted Consolidated Working Capital as at the Closing Date
shall be determined pursuant to subsection (c) of this Section 13.5.
(c) Sellers shall submit to Buyer the names of two (2)
national independent public accounting firms, neither of which shall have
been engaged by Sellers or the Company during the three-year period ending on
the Closing Date. Buyer shall select one of said firms by written notice to
Sellers within three (3) business days after receipt of Sellers' nomination.
The independent public accounting firm selected by Buyer (the "Accounting
Firm") shall be engaged jointly by Buyer and Sellers and shall meet with
representa-
-32-
tives of Buyer and Sellers and be apprised of their respective calculations
of the Adjusted Consolidated Working Capital as at the Closing Date. The
Accounting Firm then shall make such independent study as it shall deem
appropriate to determine, as nearly as possible, the actual Adjusted
Consolidated Working Capital as at the Closing Date. Sellers and Buyer shall
make available to the Accounting Firm all information reasonably requested
by the Accounting Firm to make such determination. Said determination when
made shall be conveyed to Sellers and Buyer in writing and shall be final,
conclusive and binding on the parties with respect to such issue. All fees
and expenses charged by the Accounting Firm in connection with the
above-described engagement shall be paid by the party whose calculation of
the Adjusted Consolidated Working Capital originally submitted to the
Accounting Firm bears the greatest difference from the Adjusted Consolidated
Working Capital determined by the Accounting Firm. Sellers and Buyer hereby
agree that the Accounting Firm shall have no liability of any nature
whatsoever to Sellers, Buyer or any of their respective affiliates based upon
or arising out of services performed in connection with the above-described
engagement, except to the extent resulting from gross negligence or willful
misconduct.
(d) Promptly after the Adjusted Consolidated Working Capital
as at the Closing Date is determined by agreement of the parties pursuant to
(b) above or by the Accounting Firm pursuant to (c) above, a revised Closing
statement shall be prepared with the only changed entry being the adjustment
for Adjusted Consolidated Working Capital. Promptly thereafter the party in
whose favor such changed entry is made shall be paid by the other party the
amount of the change, to the same end as if the revised Closing statement had
been the Closing statement upon which the payments at Closing were based.
13.6 ADDITIONAL DOCUMENTS. Within five (5) days after Closing,
each Seller shall deliver to Buyer at the Company's offices, to the extent
the same are not already in the possession of the Company, copies or
originals of all lease files, well files, gas and oil sales contract files,
division order files, abstracts, title opinions, reports, maps, engineering,
geological and geophysical data and other files, records and data, insofar as
the same are in existence and in the possession of such Seller or its
affiliates, are directly related to the Assets (other than the Excluded
Assets), and are necessary for the realization by the Company of the value of
the Assets.
ARTICLE 14
MISCELLANEOUS
14.1 NOTICES. All communications required or permitted to be given
under this Agreement shall be in writing and delivered, mailed or transmitted to
the parties at the addresses set out below. Notices shall be deemed given when
received except that notices
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given by facsimile transmission on weekends, holidays or after 5:00 p.m.
Central Time, shall be deemed received on the next business day. If
delivered by commercial delivery service or mailed by registered or certified
mail, the delivery receipt shall be evidence of the date of receipt. Either
party may, by written notice so delivered to the other, change the address to
which delivery shall thereafter be made.
(a) Notices to Sellers:
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Resources Corporation
Two ▇▇▇▇▇▇ Place, Suite 813
▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Carlton Resources Corporation
Two ▇▇▇▇▇▇ Place, Suite 813
▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
Lynnwood ▇. ▇▇▇▇▇, ▇▇., Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ A Professional Corporation
First Place Tower, Suite 3700
▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
(b) Notices to Buyer:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇, President
RAMCO Operating Company
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
C. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
McAfee & ▇▇▇▇ A Professional Corporation
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
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14.2 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
14.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
14.4 FEES AND EXPENSES. Each party hereto will bear and pay its
own expenses of negotiating and consummating the transactions contemplated by
this Agreement, except that Sellers shall bear and pay all of the fees and
expenses of Spectrum Energy Advisors, Inc. ("Spectrum") with respect to the
services rendered by Spectrum to both Sellers and Buyer in connection with
the transaction contemplated hereby, but not to exceed the sum of $250,000.
14.5 SECTION HEADINGS. The section headings contained in this
Agreement are for convenient reference only and shall not in any way affect
the meaning or interpretation of this Agreement.
14.6 SUPERSEDING EFFECT. This Agreement supersedes any prior
agreement or understanding between the parties with respect to the subject
matter hereof.
14.7 GOVERNING LAW; ENFORCEMENT. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State of
Oklahoma applicable to contracts made and to be performed entirely therein.
The prevailing party in any litigation initiated to enforce rights under or
collect damages for breach of this Agreement shall be entitled to
reimbursement from the non-prevailing party of all costs and expenses,
including attorneys' fees, incurred by the prevailing party in connection
with such litigation.
14.8 EXHIBITS AND SCHEDULES. The Exhibits and Schedules referred to
herein are attached hereto and by this reference made a part hereof.
14.9 ANNOUNCEMENTS. Sellers and Buyer shall consult with each other
with regard to all press releases and other announcements issued by either party
concerning this Agreement or the transaction contemplated hereby and, except as
may be required by applicable laws or the applicable rules and regulations of
any governmental agency or stock exchange, neither Buyer nor Sellers shall issue
any such press release or other publicity without the prior written consent of
the other party.
14.10 SURVIVAL. The representations and warranties of Sellers set out
in Article 4 hereof shall survive the Closing; provided, however, that after the
Closing, Buyer shall have no claim against Sellers for breach of warranty or
inaccuracy of representa-
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tion made by Sellers in said Article 4 unless (i) Sellers or either of them
had actual knowledge prior to the Closing Date that the facts which are the
subject of Buyer's claim were misrepresented or not as warranted in Section
4, and (ii) Buyer initiates litigation against Sellers or either of them with
respect to such misrepresentation or breach of warranty on or prior to (2)
years from the Closing Date. The representations and warranties (i) of
Sellers as set out in Article 5 hereof, and (ii) of Buyer as set out in
Article 6 hereof, shall survive the Closing. The covenants of the parties
under this Agreement shall survive the Closing (for this purpose, nothing
contained in Article 4 hereof shall be deemed to be a covenant).
14.11 INDEMNITY.
(a) Subject to the limitations under Section 14.10 hereof,
Sellers agree to indemnify, defend and hold Buyer harmless against any
damage, loss, cost, liability and expense, including court costs and
attorneys' fees (hereinafter referred to as "Damages"), resulting from (i)
any inaccuracy of representation or breach of warranty made by Sellers under
this Agreement, and (ii) any breach of covenant on the part of Sellers
hereunder. Buyer agrees to indemnify, defend and hold Sellers harmless
against any damage, loss, cost, liability and expense, including court costs
and attorneys' fees, resulting from any inaccuracy of representation or
breach of warranty or covenant on the part of Buyer hereunder.
Notwithstanding anything herein to the contrary (x) neither party (for this
purpose, Sellers collectively shall be deemed a "party") will have any
liability for Damages under this Section 14.11 until the total of all Damages
for which such party otherwise would be liable exceeds the sum of $50,000,
(y) except as provided in (z) below, the amount of damages for which Sellers
shall be liable hereunder shall never exceed seventy percent (70%) of the
cash portion of the Purchase Price received by Sellers at the Closing, and
(z) the amount of Damages for which Buyer shall be liable hereunder, or for
which Sellers shall be liable for inaccuracy of representation or breach of
warranty made under Article 5 hereof, shall never exceed the cash portion of
the Purchase Price received by Sellers at the Closing.
(b) Any claim for indemnification shall be adjusted to take
into account the receipt of any insurance proceeds by the indemnified party
incident to the matter giving rise to such claim. Buyer agrees that it will
make (or cause to be made) a claim against any applicable insurance policy
available to it with respect to such matter, and in such event Buyer may
provide notice of such claim to the indemnifying party but shall not proceed
further against the indemnifying party for indemnification hereunder (except
for the filing of an action if necessary to avoid the running of any
applicable statute of limitations) until any related insurance claim has been
paid, denied or settled. Buyer will not be required to pursue any other
remedies against any insurance policy or carrier if a
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claim is denied. To the extent Buyer elects not to further pursue any
claim, the indemnifying party shall be entitled to pursue such claim at its
sole cost and expense. Any such action by the indemnifying party shall not
affect or delay the rights of Buyer to proceed against the indemnifying
party for indemnification hereunder.
14.12 FURTHER ASSURANCES. After the Closing the parties shall, at
the sole cost and expense of the requesting party if more than an immaterial
expense is involved, (i) furnish such additional information, (ii) execute
and deliver such additional documents, and (iii) perform such additional
acts, as may be necessary and reasonably requested by the other party or
parties to effect the transaction contemplated by this Agreement.
14.13 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power or privilege under this
Agreement or the documents referred to herein will operate as a waiver of
such right, power or privilege, and no single or partial exercise of any such
right, power or privilege will preclude any other or further exercise of such
right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law, (i) no waiver
of any claim or right under this Agreement will be valid unless evidenced by
a writing signed by the waiving party, (ii) no waiver given by a party will
be applicable except in the specific instance for which it is given, and
(iii) no notice to or demand on a party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to herein.
Executed as of the date first above written.
SELLERS:
s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
BUYER:
RAMCO Operating Company
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By: s/▇▇▇▇▇ ▇. ▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇, President
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