EXHIBIT 7.1
PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP,
ENCAP EQUITY 1996 LIMITED PARTNERSHIP,
ENERGY CAPITAL INVESTMENT COMPANY PLC,
V&C ENERGY LIMITED PARTNERSHIP,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
AND
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DATED AS OF OCTOBER 12, 1999
TABLE OF CONTENTS
PAGE
SECTION 1. DESCRIPTION OF TRANSACTION.......................................1
1.1 Description of Securities.............................................1
1.2 Closing...............................................................1
1.3 Conditions to Closing.................................................1
1.4 Basis for Investment..................................................3
1.5 Definitions...........................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................6
2.1 Organization..........................................................6
2.2 Corporate Power.......................................................7
2.3 Governmental Authorizations; Third Party Consents.....................7
2.4 Authorization.........................................................7
2.5 Capitalization........................................................7
2.6 Preemptive Rights; Registration Rights................................8
2.7 Financial Statements..................................................8
2.8 Liabilities and Obligations...........................................8
2.9 Employee Matters......................................................9
2.10 Employee Benefit Plans...............................................10
2.11 Absence of Certain Changes...........................................12
2.12 Material Contracts...................................................13
2.13 Insurance............................................................14
2.14 Title to Properties and Assets; Liens, Etc...........................14
2.15 Ownership of Data....................................................15
2.16 Gas Imbalances; Preferential Rights..................................15
2.17 Tax Matters..........................................................16
2.18 Effect of Transactions...............................................16
2.19 Litigation...........................................................17
2.20 Legal Compliance; Pending Changes....................................17
2.21 Subsidiaries: Joint Ventures.........................................17
2.22 Brokerage............................................................17
2.23 Ownership Interests of Interested Persons............................18
2.24 Investments in Competitors...........................................18
2.25 Environmental Matters................................................18
2.26 Certain Payments.....................................................18
2.27 Government Inquiries.................................................19
2.28 No Bankruptcies......................................................19
2.29 Year 2000 Compliance.................................................19
2.30 Operating Company....................................................19
2.31 Disclosure...........................................................19
SECTION 3. REPRESENTATIONS OF THE INVESTORS................................20
3.1 Authorization........................................................20
3.2 Investment Purpose...................................................20
3.3 Restrictions on Transferability......................................20
3.4 Status of Investor...................................................20
3.5 Brokerage............................................................21
3.6 Own Account..........................................................21
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SECTION 4. COVENANTS OF THE COMPANY........................................21
4.1 Financial and Other Information......................................21
4.2 Budget...............................................................22
4.3 Access to Information................................................22
4.4 Use of Proceeds......................................................22
4.5 Board of Directors and Committees of the Board of Directors..........22
4.6 Restricted Corporate Actions.........................................23
4.7 Actions Requiring Board Approval.....................................23
4.8 Preservation of Corporate Existence and Property.....................23
4.9 Preservation of Business Opportunities...............................24
4.10 Liability Insurance..................................................24
4.11 No Impairment........................................................24
4.12 Reserve for Conversion Shares........................................24
4.13 Bylaws...............................................................24
4.14 Compliance...........................................................25
4.15 Brokerage............................................................25
4.16 Operating Company Status.............................................25
4.17 Issuance of Additional Series A Preferred............................25
4.18 Reporting Consistency................................................25
4.19 Indemnification Agreements...........................................25
SECTION 5. RIGHT OF FIRST REFUSAL ON ISSUANCE OF NEW SECURITIES............25
5.1 Grant of Right.......................................................25
5.2 Notice...............................................................25
5.3 Eligible Sales to Third Parties......................................26
SECTION 6. INDEMNIFICATION.................................................26
6.1 Indemnification by the Company.......................................26
6.2 Indemnification by Investors.........................................26
6.3 Adjustment of Conversion Price.......................................26
6.4 Notice and Resolution of Claim.......................................27
SECTION 7. GENERAL.........................................................27
7.1 Amendments, Waivers and Consents.....................................27
7.2 Survival; Assignability of Rights....................................27
7.3 Headings.............................................................28
7.4 Governing Law........................................................28
7.5 Notices and Demands..................................................28
7.6 Severability.........................................................28
7.7 Expenses.............................................................28
7.8 Corporate Opportunities..............................................28
7.9 Entire Agreement.....................................................29
7.10 Counterparts.........................................................29
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SCHEDULES AND EXHIBITS
Exhibit A - Certificate of Designation
Exhibit B - Amended and Restated Articles of Incorporation
Exhibit C - Amended and Restated Bylaws
Exhibit D - Form of Employment Agreement
Exhibit E - Indemnification Agreement
Exhibit F - Registration Rights Agreement
Exhibit G - Allocated Value of Properties
Schedule 1.1 - Investors
Schedule 2.1 - Jurisdictions
Schedule 2.5 - Capitalization
Schedule 2.7 - Financial Statements
Schedule 2.8 - Liabilities and Obligations
Schedule 2.9(a) - Cash Compensation
Schedule 2.9(b) - Compensation Plans
Schedule 2.9(c) - Employment Agreements
Schedule 2.9(d) - Employee Policies and Procedures
Schedule 2.9(f) - Labor Compliance
Schedule 2.10 - Employee Benefits Plans
Schedule 2.11 - Certain Changes
Schedule 2.13 - Insurance
Schedule 2.16 - Gas Imbalances; Preferential Rights
Schedule 2.17 - Taxes
Schedule 2.19 - Litigation
Schedule 2.20 - Legal Compliance
Schedule 2.21 - Subsidiaries
Schedule 2.22 - Brokerage
Schedule 2.23 - Ownership Interests of Interested Persons
Schedule 2.25 - Environmental Matters
Schedule 2.27 - Government Inquiries
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PREFERRED STOCK PURCHASE AGREEMENT
Texoil, Inc., a Nevada corporation (the "COMPANY"), and Quantum Energy
Partners, LP, a Delaware limited partnership ("QUANTUM"), EnCap Equity 1996
Limited Partnership, a Texas limited partnership ("ENCAP EQUITY"), Energy
Capital Investment Company PLC, a British Corporation (together with EnCap
Equity, "ENCAP"), V&C Energy Limited Partnership, a Michigan limited
partnership, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual, ▇▇▇▇ ▇. ▇▇▇▇▇, an individual,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual, and ▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual (each, an
"INVESTOR" and collectively, the "INVESTORS"), enter into this Preferred Stock
Purchase Agreement, dated October 12, 1999 (this "AGREEMENT").
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 DESCRIPTION OF SECURITIES. The Company has furnished the Investors
with financial and nonfinancial information concerning the Company and its
assets, liabilities, condition (financial and otherwise), operations, business
and prospects. Based on such information, the representations and warranties set
forth herein and the other terms and provisions hereof, the Investors
collectively will purchase 2,750,000 shares of Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company (the "SERIES A PREFERRED"), at
a purchase price per share of $8.00, all on the terms and conditions set forth
herein. Each Investor will purchase the number of shares of Series A Preferred
set forth opposite its name on SCHEDULE 1.1.
1.2 CLOSING. The closing (the "CLOSING") of the sale of the Series A
Preferred will take place at the offices of Jenkens & ▇▇▇▇▇▇▇▇▇, a Professional
Corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., on
or before the tenth day after satisfaction or waiver of the conditions set forth
in SECTION 1.3 or such other time and place as agreed to by the parties hereto
(the "CLOSING DATE"); provided that if the Closing does not take place on or
before March 31, 2000, any party can terminate this Agreement. At the Closing,
the Company will deliver to each Investor a certificate representing the shares
of Series A Preferred being acquired by each Investor on the Closing Date upon
payment of the purchase price by each Investor to the Company of immediately
available funds by wire transfer, or by other form of payment acceptable to the
Company. In addition, at the Closing the Company shall deliver to the Investors
(a) payment for the reasonable expenses of the Investors, including without
limitation the fees and expenses of Quantum's counsel and EnCap's counsel, to
the extent such expenses are reimbursable by the Company as provided in SECTION
7.7 below, and (b) a closing fee equal to 2% of the aggregate purchase price for
the Series A Preferred purchased by the Investors, to be allocated among the
Investors in proportion to the number of shares of Series A Preferred purchased
by each Investor.
1.3 CONDITIONS TO CLOSING. The obligation of the Investors to purchase and
pay for the Series A Preferred to be purchased by the Investors on the Closing
Date is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
(a) the Company shall have duly authorized and filed the Certificate of
Designation (the "CERTIFICATE") with the Secretary of State of the State of
Nevada, substantially in the form attached hereto as EXHIBIT A;
(b) the Company shall have duly authorized and filed the Amended and
Restated Articles of Incorporation (the "ARTICLES OF INCORPORATION") with the
Secretary of State of the State of Nevada, substantially in the form attached
hereto as EXHIBIT B;
(c) the Company shall have amended and restated its Bylaws, substantially
in the form attached hereto as EXHIBIT C;
(d) this Agreement, the Articles of Incorporation, and the Certificate
shall have been approved by the stockholders of the Company;
(e) each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇ shall have entered into an Employment Agreement, substantially in the
form attached hereto as EXHIBIT D;
(f) Bond & ▇▇▇▇▇▇, L.L.P., counsel for the Company, and Nevada counsel for
the Company shall have delivered to the Investors legal opinions, dated as of
the Closing Date, in form and substance satisfactory to the Investors;
(g) the Company and each of the directors who are designees of the
Investors shall have entered into Indemnification Agreements (the
"INDEMNIFICATION AGREEMENTS"), substantially in the form attached hereto as
EXHIBIT E;
(h) the Company and the Investors shall have entered into a Registration
Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), substantially in the
form attached hereto as EXHIBIT F;
(i) each of the Investors shall purchase at the Closing pursuant to this
Agreement the number of shares of Series A Preferred set forth opposite its name
on SCHEDULE 1.1;
(j) at the Closing, the net proceeds from the sale of the Series A
Preferred shall be applied to the repayment of outstanding indebtedness of the
Company, including the redemption of the $10,000,000 convertible debenture held
by RIMCO; provided, however, that if the Company is unable to redeem the RIMCO
debenture at the Closing without incurring a prepayment penalty, at the request
of a Requisite Interest, $10,000,000 of the net proceeds shall be placed into an
escrow account at the Closing pursuant to an escrow agreement, satisfactory in
form and substance to a Requisite Interest, providing for the application of
such funds to the redemption of the RIMCO debenture;
(k) all representations and warranties of the Company to the Investors
shall be true, correct and complete as of the Closing Date;
(l) the Company shall have complied with all agreements, undertakings and
obligations that are required to be performed or complied with by the Company at
or prior to the Closing Date;
(m) there shall have been no material adverse change in the business,
assets, financial condition, operation and results of operations of the Company
since September 30, 1999; and
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(n) the Company shall have delivered to the Investors:
(i) the Articles of Incorporation of the Company and all amendments
thereto, certified by the Secretary of State of Nevada;
(ii) (A) copies of the resolutions of the Company's Board of
Directors authorizing and approving this Agreement and all of the transactions
and agreements contemplated hereby and thereby, (B) the Bylaws of the Company
and (C) the names of the officer or officers of the Company authorized to
execute this Agreement and any and all documents, agreements and instruments
contemplated herein, all certified by the Secretary of the Company to be true,
correct, complete and in full force and effect and unmodified as of the Closing
Date;
(iii) a certificate of existence for the Company from the Secretary
of State of Nevada;
(iv) a certificate of account status for the Company from the
Comptroller of the State of Nevada;
(v) certificates from each state where the Company is required to be
qualified as a foreign corporation showing such qualification, dated as of a
date within ten (10) days of the Closing Date; and
(vi) such other documents, instruments, and certificates as the
Investors may reasonably request.
1.4 BASIS FOR INVESTMENT. The Investors are making an investment in the
Series A Preferred based on an equity value for the Company, prior to the sale
of the Series A Preferred to the Investors, of $26,524,689 (the "EQUITY VALUE")
and with an expectation of holding the Series A Preferred for at least two
years. The Investors may be issued additional shares of Series A Preferred after
the Closing pursuant to SECTION 4.17 of this Agreement. The Company's agreement
to issue such additional shares if required by this Agreement is a material
inducement to the Investors to enter into this Agreement and to purchase the
Series A Preferred on the terms and conditions set forth herein. The Board of
Directors of the Company has determined that the consideration to be received by
the Company for the shares of Series A Preferred to be issued pursuant to this
Agreement, including both the shares to be issued at Closing and shares that may
be issued pursuant to SECTION 4.17, is adequate and fair.
1.5 DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings set forth below:
(a) "AFFILIATE" shall have the same meaning given in Rule 405 promulgated
under the Securities Act.
(b) "ARTICLES OF INCORPORATION" shall have the meaning set forth in
SECTION 1.3(B).
(c) "BALANCE SHEET" shall mean the balance sheet of the Company as of June
30, 1999, which Balance Sheet is included in the Financial Statements.
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(d) "BALANCE SHEET DATE" means June 30, 1999.
(e) "BYLAWS" shall mean the Amended and Restated Bylaws of the Company, as
amended to date.
(f) "CASH COMPENSATION" shall mean wages, salaries, bonuses (discretionary
and formula) and other compensation paid or payable in cash.
(g) "CERTIFICATE" shall have the meaning set forth in SECTION 1.3(A).
(h) "CLASS B COMMON STOCK" shall mean the Class B Common Stock, $0.01 par
value per share, of the Company.
(i) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(j) "COMMISSION" shall mean the Securities and Exchange Commission.
(k) "COMMON STOCK" shall mean the common shares, $0.01 par value per
share, of the Company.
(l) "COMPENSATION PLANS" shall mean compensation plans, arrangements and
practices.
(m) "CONTROLLED GROUP" shall mean a controlled group (within the meaning
of Section 412(n)(6)(B) of the Code) in which the Company or any Subsidiary is a
member.
(n) "CONVERSION SHARES" shall mean any securities of the Company issued or
issuable upon conversion of the Series A Preferred or the Class B Common Stock.
(o) "DEBT LIMIT" shall mean $100,000,000 in aggregate principal amount
outstanding at any time pursuant to the Amended and Restated Credit Agreement
dated as of August 1, 1997 between Cliffwood Oil & Gas Corp., Cliffwood Energy
Company and Cliffwood Production Co. (which are Subsidiaries of the Company),
Comerica Bank-Texas, as agent for itself and certain other lenders and as a
lender, and First Union National Bank, as a lender, as amended, restated,
renewed, replaced or otherwise modified from time to time thereafter (the
"CREDIT AGREEMENT"), provided that such debt does not bear interest at a rate in
excess of the "Base Rate" plus 1% or the "Eurodollar Rate" plus 2.5%, as such
rates are defined in the Credit Agreement (except when the "Default Rate" may
become effective under the provisions of the Credit Agreement).
(p) "DATA" shall have the meaning set forth in SECTION 2.15(C).
(q) "EMPLOYEE POLICIES AND PROCEDURES" shall mean all employee manuals,
policies, procedures and work related rules that apply to employees of the
Company or any Subsidiary.
(r) "EMPLOYEE BENEFIT PLANS" shall mean employee benefit plans within
Section 3(3) of ERISA.
(s) "ENVIRONMENTAL LAWS" shall mean all federal, state and local laws
(including common law), rules and regulations, permits, treaties, orders,
enforceable
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requirements, decrees, judgments, injunctions, variances, authorizations, or
agreements promulgated or entered into, or as interpreted by, any governmental
entity relating to pollution or protection of human health or welfare or the
environment, including without limitation the Clean Water Act (33 U.S.C. Section
1251 et seq.), as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. Section 7401 et seq. ("CERCLA"), and
all other laws and regulations relating to Hazardous Materials.
(t) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(u) "EQUITY VALUE" shall have the meaning set forth in SECTION 1.4.
(v) "FINANCIAL STATEMENTS" shall mean (a) the consolidated audited balance
sheets, statements of operations and statements of cash flow of the Company as
of December 31, 1998 and 1997 and (b) consolidated unaudited balance sheets,
statements of operations and statements of cash flow of the Company for the
six-month period ended June 30, 1999.
(w) "GAAP" shall mean generally accepted accounting principles
consistently applied.
(x) "HAZARDOUS MATERIALS" shall mean any chemicals, pollutants,
contaminants, wastes, asbestos, PCBs, urea formaldehyde, oils, petroleum and
petroleum substance, or fractions thereof, or byproducts or other toxic or
hazardous wastes, materials or substances, as those or any similar terms are
defined in any Environmental Laws, or any other substance or waste regulated
pursuant to any Environmental Law.
(y) "MANAGEMENT" shall mean ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
(z) "PREFERRED STOCK" shall mean the preferred stock, par value $0.01 per
share, of the Company.
(aa) "PRO RATA SHARE" shall mean the ratio that (i) the sum of the total
number of shares of Common Stock which are then held by an Investor and those
which such Investor has the right to obtain pursuant to exercise or conversion
of any option, warrant, right or convertible security bears to (ii) the sum of
the total number of shares of Common Stock then outstanding and which are
issuable pursuant to exercise or conversion of any then outstanding options,
warrants, rights or convertible securities.
(bb) "QUANTUM" shall mean Quantum Energy Partners, LP, a Delaware limited
partnership.
(cc) "RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment.
(dd) "REQUISITE INTEREST" shall mean the vote of the holders of at least a
majority of the then outstanding Series A Preferred.
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(ee) "SALE TRANSACTION" shall mean the consolidation or merger of the
Company with or into any other corporation or business entity in which the
holders of the voting securities of the Company outstanding immediately after
the Closing do not continue to hold more than 50% of the total voting securities
of the surviving entity outstanding immediately after such transaction, the sale
or other transfer in a single transaction or a series of related transactions of
all or substantially all of the assets of the Company, or the liquidation,
dissolution, winding-up or reorganization of the Company.
(ff) "SECURITIES" shall mean the equity securities of the Company,
including, without limitation, any class or series of Preferred Stock, Common
Stock, Class B Common Stock, instruments convertible or exchangeable into such
securities, or rights to acquire such securities.
(gg) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(hh) "SERIES A PREFERRED" shall mean the Series A Preferred Stock, $0.01
par value per share, of the Company.
(ii) "SUBSIDIARY" shall mean any corporation, partnership, joint venture
or other legal entity in which the Company owns, directly or indirectly, an
equity interest.
(jj) "SUPERMAJORITY INTEREST" shall mean the vote of the holders of at
least ninety percent (90%) of the then outstanding Series A Preferred.
(kk) "THRESHOLD AMOUNT" shall mean at least ten percent (10%) of the sum
of (a) the shares of the Series A Preferred issued to the Investors on the
Closing Date, and (b) the number of additional shares of Series A Preferred
issued to the Investors as dividends or pursuant to other adjustments in
accordance with the provisions of the Certificate and/or this Agreement.
(ll) "TO THE BEST KNOWLEDGE OF THE COMPANY" shall mean those facts after
due inquiry that are actually known, or should have been known, by the officers
of the Company.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As part of the basis of this Agreement, the Company hereby represents and
warrants to the Investors on and as of the date hereof, and at the Closing Date,
that:
2.1 ORGANIZATION. Each of the Company and the Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and except as described in SCHEDULE 2.1, is
not required to be qualified to do business as a foreign corporation in any
other jurisdiction, except where the failure to be so qualified would not have a
material adverse effect upon the condition (financial or otherwise), properties,
operations or prospects of the Company or such Subsidiary. SCHEDULE 2.1 sets
forth the jurisdictions in which the Company and each Subsidiary is qualified.
2.2 CORPORATE POWER. The Company and the Subsidiaries have all required
corporate power and authority to own their respective properties and to carry on
their respective businesses as presently conducted and as proposed to be
conducted. The Company has all required corporate power and authority to execute
and deliver this Agreement and on or prior to the Closing Date, will have all
required corporate power and authority to execute and deliver the other
agreements contemplated herein, to issue and sell the Series A Preferred
hereunder, to issue shares of Class B Common Stock upon the automatic conversion
of the Series A Preferred, to issue shares of Common Stock upon conversion of
the Series A Preferred or the Class B Common Stock, and to carry out the
transactions contemplated by this Agreement and the other agreements
contemplated herein. The Articles of Incorporation and Bylaws, copies of which
have been delivered to the Investors pursuant to SECTION 1.3(N) hereof, are
true, correct and complete.
2.3 GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any governmental authority or any other individual, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind is necessary or required in connection with the
execution, delivery or performance by the Company of this Agreement, or any
other documents executed pursuant to this Agreement, other than (a) as
specifically required by this Agreement, and (b) the filing of a registration
statement pursuant to the Registration Rights Agreement, the filing of a Form D
with the Securities and Exchange Commission and filings required under
applicable state securities or "blue sky" laws.
2.4 AUTHORIZATION. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement has been taken. All corporate action on the part of
the Company, its directors and shareholders necessary for (a) the authorization,
execution and delivery of the other agreements contemplated herein by the
Company, (b) the authorization, sale, issuance and delivery of the Series A
Preferred (including the Conversion Shares) and (c) the performance of all of
the Company's obligations hereunder and under the other agreements contemplated
herein will have been taken on or prior to the Closing Date. This Agreement is,
and all documents executed pursuant to this Agreement will be on or prior to the
Closing Date, valid and binding obligations of the Company, enforceable
according to their terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other similar laws of general application relating
to or affecting the enforcement of creditor rights, (ii) laws and judicial
decisions regarding indemnification for violations of federal securities laws,
(iii) the availability of specific performance or other equitable remedies, and
(iv) with respect to any indemnification agreements set forth herein or therein,
principles of public policy.
2.5 CAPITALIZATION. The authorized and issued capital stock of the Company
is as set forth in SCHEDULE 2.5. All of the presently outstanding shares of
capital stock of the Company have been validly authorized and issued and are
fully paid and nonassessable. The Series A Preferred have been validly
authorized and, when delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable and free of all encumbrances and
restrictions, except restrictions on transfer imposed by applicable securities
laws. The relative rights, preferences, restrictions and other provisions
relating to the Series A Preferred are as set forth in
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EXHIBIT A. The Company has authorized and reserved for issuance upon conversion
of the Series A Preferred not less than 10,000,000 shares of its Class B Common
Stock and not less than 10,000,000 shares of its Common Stock, and the
Conversion Shares will be, when and if issued, validly authorized and issued,
fully paid and nonassessable, and free of all encumbrances and restrictions,
except restrictions on transfer imposed by applicable securities laws. Except as
provided in SCHEDULE 2.5, the Company has not issued any other shares of its
capital stock and there are no outstanding options, warrants, subscriptions or
other rights or obligations to purchase or acquire any of such shares, nor any
outstanding securities convertible into or exchangeable for such shares. Except
as disclosed on SCHEDULE 2.5 or as contemplated under this Agreement (and the
other agreements executed in connection herewith), there are no agreements to
which the Company is a party or has knowledge regarding the issuance,
registration, voting or transfer of or obligation (contingent or otherwise) of
the Company or any Subsidiary to repurchase or otherwise acquire or retire or
redeem any of its outstanding shares of capital stock. No dividends are accrued
but unpaid on any capital stock of the Company.
2.6 PREEMPTIVE RIGHTS; REGISTRATION RIGHTS. There are no preemptive rights
affecting the issuance or sale of the Company's capital stock, except as
described in SECTION 5. The Company is not under any contractual obligation to
register (in compliance with the filing requirements and being deemed effective
under the Securities Act) any of its presently outstanding Securities or any of
its Securities which may hereafter be issued, except as described in the
Registration Rights Agreement.
2.7 FINANCIAL STATEMENTS. SCHEDULE 2.7 contains true, correct and complete
copies of the Financial Statements. Except as described in SCHEDULE 2.7, the
Financial Statements are in accordance with the books and records of the Company
and the Subsidiaries, have been prepared consistently with past practices, have
been prepared in accordance with GAAP (except that the unaudited Financial
Statements do not contain notes required by GAAP) and present fairly in all
material respects the financial position of the Company and the Subsidiaries on
the dates of such statements and the results of their operations for the periods
covered. The Company maintains its books, records and accounts in accordance
with good business practice and in sufficient detail to reflect fairly and in
all material respects the transactions and dispositions of its assets,
liabilities and securities.
2.8 LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 2.8, the
Financial Statements reflect all liabilities of the Company and the
Subsidiaries, accrued, contingent or otherwise (asserted or unasserted), arising
out of transactions effected or events occurring on or prior to the Balance
Sheet Date. All allowances or provisions for loss shown in the Financial
Statements are appropriate, reasonable and sufficient to adequately provide for
losses thereby contemplated. Except as set forth in the Financial Statements,
neither the Company nor any Subsidiary is liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity, and
the Company knows of no basis for the assertion of any other claims or
liabilities of any material nature or in any material amount.
8
2.9 EMPLOYEE MATTERS.
(a) CASH COMPENSATION. The Company has delivered to the Investors a
complete and accurate list of the names, titles and Cash Compensation of all
executive management of the Company and the Subsidiaries, regardless of
compensation levels, and other employees who are currently compensated at a rate
in excess of $10,000 per year or who earned in excess of $10,000 during the
Company's preceding fiscal year. In addition, the Company has delivered to the
Investors a schedule containing a complete and accurate description of (i) all
increases in Cash Compensation of such employees of the Company or the
Subsidiaries during the current and immediately preceding fiscal years of the
Company, (ii) any promised increases in Cash Compensation of such employees of
the Company or the Subsidiaries that have not yet been effected and (iii) all
increases in Cash Compensation of any other employees which would cause such
employees to be compensated at a rate in excess of $10,000 per year, but which
have not yet been effected.
(b) COMPENSATION PLANS. SCHEDULE 2.9(B) contains a complete and accurate
list of all Compensation Plans sponsored by the Company or the Subsidiaries or
to which the Company or any Subsidiary contributes on behalf of its employees,
other than Employee Benefit Plans listed in SCHEDULE 2.10. The Compensation
Plans include, without limitation, plans, arrangements or practices that provide
for severance pay, deferred compensation, incentive, bonus or performance
awards, and stock ownership or stock options.
(c) EMPLOYMENT AGREEMENTS. SCHEDULE 2.9(C) contains a complete and
accurate list of all employment agreements to which the Company or any
Subsidiary is a party with respect to its employees. Such employment agreements
include, without limitation, employee leasing agreements, employee services
agreements and noncompetition agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. SCHEDULE 2.9(D) contains a complete
and accurate list of all Employee Policies and Procedures.
(e) UNWRITTEN AMENDMENTS. No unwritten amendments have been made, whether
by oral communication, pattern of conduct or otherwise, with respect to any
Compensation Plans, employment agreements to which the Company or any Subsidiary
is a party with respect to its employees or Employee Policies and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in SCHEDULE 2.9(F), the Company
and each Subsidiary (i) has been and is in compliance in all material respects
with all laws, rules, regulations and ordinances respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and (ii) is not liable for any material arrears of wages or penalties for
failure to comply with any of the foregoing. Neither the Company nor any
Subsidiary has engaged in any unfair labor practice or discriminated on the
basis of race, color, religion, sex, national origin, age or handicap in its
employment conditions or practices. There are no (A) unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, age or
handicap discrimination charges or complaints pending or, to the best knowledge
of the Company, threatened against the Company or any Subsidiary before any
federal, state or local court, board, department, commission or agency nor, to
the best knowledge of the Company, does any basis therefor exist or (B) existing
or, to the best knowledge of
9
the Company, threatened labor strikes, disputes (individual or otherwise) or
grievances affecting the Company or any Subsidiary, nor, to the best knowledge
of the Company, does any basis therefor exist.
(g) UNIONS. Neither the Company nor any Subsidiary has ever been a party
to any agreement with any union, labor organization or collective bargaining
unit. No employees of the Company or any Subsidiary are represented by any
union, labor organization or collective bargaining unit. To the best knowledge
of the Company, the employees of the Company and the Subsidiaries have no
intention to and have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(h) ALIENS. All employees of the Company and the domestic Subsidiaries are
citizens of, or are authorized to be employed in, the United States.
(i) CONTINUATION OF EMPLOYMENT. No member of Management of the Company or
any Subsidiary has indicated to the Company his or her desire or intent to
terminate employment with the Company or any Subsidiary, and neither the Company
nor any Subsidiary has any present intent of terminating any member of
management.
2.10 EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. SCHEDULE 2.10 contains a complete and accurate list of
all Employee Benefit Plans maintained by the Company or any Subsidiary or to
which the Company or any Subsidiary contributes on behalf of its employees and
all Employee Benefit Plans previously maintained or contributed to on behalf of
its employees within the five years preceding the date hereof. No unwritten
amendment exists with respect to any Employee Benefit Plan.
(b) ADMINISTRATION. Each Employee Benefit Plan and any related trust
agreements or annuity contracts currently comply and have complied in the past
both as to form and operation with the provisions of the applicable documents
and all laws, rules and regulations governing or applying to such plan
agreements or contracts. Each Employee Benefit Plan has been administered to
date in compliance with the requirements of the Code and ERISA, and all reports
and filings required by any government agency with respect to each Employee
Benefit Plan have been timely and completely filed. Future compliance with the
requirements of ERISA as in effect on the date of the Closing or any collective
bargaining agreements to which the Company or an Affiliate is a party will not
result in any increase in the rate of benefit accrual under any Employee Benefit
Plan except as otherwise stated in SCHEDULE 2.10.
(c) EXAMINATIONS. No Employee Benefit Plan is currently the subject of an
audit, investigation, enforcement action or other similar proceeding conducted
by any state or federal agency.
(d) PROHIBITED TRANSACTIONS. No prohibited transactions (within the
meaning of Section 4975 of the Code and Section 406(a) or (b) of ERISA) have
occurred with respect to any Employee Benefit Plan.
(e) CLAIMS AND LITIGATION. No pending or, to the best knowledge of the
Company, threatened, claims, suits or other proceedings exist with respect to
any
10
Employee Benefit Plan, other than normal benefit claims filed by participants or
beneficiaries.
(f) QUALIFICATION. A favorable determination letter or ruling from the
Internal Revenue Service has been issued for each Employee Benefit Plan
(including any amendments thereto) intended to be qualified within the meaning
of Section 401(a) of the Code and/or tax-exempt within the meaning of Section
501(a) of the Code. No proceedings against the Company exist or, to the best
knowledge of the Company, have been threatened that could result in the
revocation of any such favorable determination letter or ruling.
(g) FUNDING STATUS. No accumulated funding deficiency (within the meaning
of Section 412 of the Code), whether waived or unwaived, exists with respect to
any Employee Benefit Plan or any plan sponsored by any member of a Controlled
Group. With respect to each Employee Benefit Plan subject to Title IV of ERISA,
the assets of each such plan are at least equal in value to the present value of
accrued benefits determined on an ongoing basis as of the date hereof. With
respect to each Employee Benefit Plan described in Section 501(c)(9) of the
Code, the assets of each such plan are at least equal in value to the present
value of accrued benefits as of the date hereof. No partial termination has
occurred or is expected to occur in connection with the Closing.
(h) EXCISE TAXES. Neither the Company nor any Subsidiary or any member of
a Controlled Group has any liability to pay excise taxes, penalty taxes or fines
with respect to any Employee Benefit Plan under applicable provisions of the
Code or ERISA.
(i) MULTIEMPLOYER PLANS. Neither the Company nor any Subsidiary nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(j) PBGC. No facts or circumstances exist that would result in the
imposition of liability against the Investors or the Company by the Pension
Benefit Guaranty Company as a result of any act or omission by the Company, any
Subsidiary or any member of a Controlled Group. No reportable event (within the
meaning of Section 4043 of ERISA) for which the notice requirement has not been
waived has occurred with respect to any Employee Benefit Plan subject to the
requirements of Title IV of ERISA.
(k) RETIREES. Neither the Company nor any Subsidiary has any obligation or
commitment to provide medical, dental or life insurance benefits to or on behalf
of any of its employees who may retire or any of its former employees who have
retired from employment with the Company or any Subsidiary.
(l) DEFERRED COMPENSATION PLANS. SCHEDULE 2.10 lists each deferred
compensation plan, bonus plan, stock option plan, employee stock purchase plan
and any other Employee Benefit Plan, agreement, arrangement or commitment not
required under a previous subsection to be listed in the schedule to this
Section (other than normal policies concerning holidays, vacations and salary
continuation during short absences for illness or other reasons) maintained by
the Company or an Affiliate. All such plans, agreements, arrangements and
commitments comply currently and have complied in the past, both as to form and
operation with all applicable laws, rules and regulations.
11
(m) PARACHUTE PAYMENTS. There are no agreements which will provide
payments to any officer, employee, shareholder or highly compensated individual
which will be "parachute payments" under ss. 280G of the Code that are
nondeductible to the Company or an Affiliate or subject to tax under ss. 4999 of
said Code for which the Company or an Affiliate would have withholding
liability.
(n) UNFUNDED LIABILITIES. There are no material unfunded liabilities
associated with any Employee Benefit Plan.
2.11 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Form 8-K of
the Company dated July 30, 1999, since the Balance Sheet Date, neither the
Company nor any Subsidiary has:
(a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of the Company, any Subsidiary or any shareholder of
the Company, in its condition (financial or otherwise), operations, assets,
liabilities, business or prospects, taken as a whole;
(b) contracted for the purchase of any capital assets having a cost in
excess of $1,500,000 or paid any capital expenditures in excess of $1,500,000;
(c) incurred any indebtedness for borrowed money or issued or sold any
debt securities;
(d) incurred or discharged any liabilities or obligations, except in the
ordinary course of business;
(e) paid any amount on any indebtedness prior to the due date, or forgiven
or canceled any debts;
(f) mortgaged, pledged or subjected to any security interest, lien, lease
or other charge or encumbrance any of its properties or assets;
(g) suffered any damage or destruction to or loss of any assets (whether
or not covered by insurance) that has materially and adversely affected, or
could materially and adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary course of
business;
(i) written up or written down the carrying value of any of its assets;
(j) changed any accounting principles, methods or practices previously
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any material rights or forgiven any material claims;
12
(l) lost, terminated or experienced any change in the relationship with
any employee, customer or supplier, which termination or change has materially
and adversely affected, or could materially and adversely affect, its business
or assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee, except in the ordinary
course of business;
(o) made any payments to or loaned any money to any person or entity
referred to in SECTION 2.23;
(p) formed or acquired or disposed of any interest in any corporation,
partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
Securities or any rights to acquire such capital stock or Securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of the Company's capital stock;
(r) entered into any agreement with any person or group, or modified or
amended in any material respect the terms of any such existing agreement, except
in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) committed to do any of the foregoing or entered into any other
commitment or transaction or experienced any other event that is material to
this Agreement or to any of the other agreements and documents executed or to be
executed pursuant to this Agreement or to the transactions contemplated hereby
or thereby, or that has materially and adversely affected, or could materially
and adversely affect, the condition (financial or otherwise), operations,
assets, liabilities, business or prospects of the Company or any Subsidiary,
taken as a whole.
2.12 MATERIAL CONTRACTS.
(a) The Company has filed with the Commission all agreements, contracts,
leases or other documents of a character required by the rules and regulations
of the Commission to be filed by the Company as exhibits to any registration
statement or report filed by the Company (the "MATERIAL CONTRACTS"). A complete
and correct copy of each Material Contract has been furnished to or made
available to the Investors. Each Material Contract is valid, binding and
enforceable. The Company and each Subsidiary are in compliance in all material
respects with the provisions of each such Material Contract to which they are a
party. Neither the Company nor any Subsidiary has knowledge or reason to believe
that each other party to each Material Contract is not in compliance in all
material respects with the provisions of each such Material Contract.
(b) Except as disclosed in the Company's Commission Reports (as defined in
SECTION 2.26), neither the Company nor any Subsidiary has entered into, nor is
the
13
capital stock, the assets or the business of the Company or any Subsidiary
bound by, whether or not in writing any
(i) employment, consulting or compensation agreement or arrangement,
including the election or retention in office of any director or officer;
(ii) agreement between the Company and any Affiliate of the Company;
(iii) agreement relating to any material matter or transaction in which an
interest is held by a person or entity that is an Affiliate of the Company; or
(iv) contracts containing noncompetition covenants.
2.13 INSURANCE. The Company and the Subsidiaries carry property,
liability, workers' compensation and such other types of insurance as is
customary in the industry of the insured. A list and brief description of all
insurance policies of the Company and the Subsidiaries are set forth in SCHEDULE
2.13. All of such policies are valid and enforceable policies, issued by
insurers of recognized responsibility in amounts and against such risks and
losses as is customary in the industry of the insured.
2.14 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.
(a) EXHIBIT G sets forth a true and accurate description of the undivided
leasehold and other interests of the Company and its Subsidiaries in the oil,
gas and other mineral properties that are owned by the Company and its
Subsidiaries and the value of each such interest as of the Closing Date as
agreed by the Company and the Investors.
(b) Prior to acquiring such oil, gas and other mineral properties, the
Company has conducted such review of the title to such properties as would
customarily be conducted by a prudent operator in acquiring comparable oil and
gas properties. Subject to typical oil and gas options to lease, oil and gas
leases, seismic surface and mineral permits, typical oil and gas industry
operating agreements, product purchase contracts, and other typical contractual
arrangements in the oil and gas industry, (i) the Company has good and
defensible title to its properties and assets, including the properties and
assets reflected in the Financial Statements and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (w) those resulting from taxes which have not yet become
delinquent, (x) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company, (y) those securing the Company's credit facilities
and those reflected in the Financial Statements (including the footnotes
thereto), and (z) those that have otherwise arisen in the ordinary course of
business which do not materially detract from the value of the property subject
thereto or materially impair the operations of the Company, and (ii) each
Subsidiary has good and defensible title to its properties and assets and good
title to its leasehold estates. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company and the
Subsidiaries are in good operating condition and repair and are reasonably fit
and usable for the purposes for which they are being used.
14
(c) The Company and each Subsidiary enjoys peaceful and undisturbed
possession under all leases necessary for the operation of its properties,
assets and business and all such leases are valid and subsisting and are in full
force and effect. To the best knowledge of the Company, there exists no default
under any provision of any lease that would permit the lessor thereunder to
terminate any such lease or to exercise any rights under such lease that,
individually or together with all other such defaults, could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), operations, assets, liabilities, business or prospects of the
Company or any Subsidiary, taken as a whole.
2.15 OWNERSHIP OF DATA.
(a) OWNERSHIP. The Company and each Subsidiary owns all Data (as defined
herein) used in connection with its properties or assets, or possesses adequate
licenses or other rights therefor, without conflict with the rights of others.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. To the best knowledge of the
Company (i) neither the Company nor any Subsidiary is using or in any way making
use of any confidential information (including Data, to the extent confidential)
or trade secrets of any third party, including, without limitation, any past or
present employee of the Company or any Subsidiary, except under valid and
existing license agreements; (ii) use of the Data does not require the consent
of any other person which has not been obtained; and (iii) no claim, which would
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), properties, operations or prospects of the Company has
been asserted by any person to the ownership of or right to use any Data or
challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Data, and the Company knows of no valid
basis for any such claim.
(c) For purposes of the foregoing, "DATA" means materials and information
(in any form) relating to the identification, acquisition, evaluation,
exploration or development of oil, gas and other mineral properties, interests
and prospects, including without limitation (i) geological, geophysical and
seismic maps, reports, interpretations and other data; (ii) lease, land, title
and other files, records and information; (iii) logs, production records,
reserve reports, engineering data and drilling, completion and operating
records, reports and information; and (iv) any written calculations, summaries,
memoranda, correspondence, plans, proposals or strategies relating to any of the
foregoing.
2.16 GAS IMBALANCES; PREFERENTIAL RIGHTS. SCHEDULE 2.16 sets forth (a) an
accurate description of all material obligations (if any) of the Company to any
third party under any contracts to which the Company or by which its assets are
bound and which includes "take or pay" or similar provisions obligating the
Company to deliver production from an oil and gas property of the Company for
which it has already received payment (or obligating the Company to return any
such payment) together with an accurate and detailed listing of the amount of
all such delivery obligations, (b) a list of all instruments and agreements
whereby any third party may claim a preferential right or call to purchase a
material portion of the production of the Company at a price other than the
market price prevailing from time to time where such properties are located,
other than under existing contracts for sale of production, and (c) an accurate
and detailed listing of all gas imbalances owing by or owing to the Company as
of a recent date (not more than
15
5 days prior to the Closing Date) to the extent such imbalances would be
reasonably likely to result in a net liability of the Company in excess of
$100,000 in the aggregate.
2.17 TAX MATTERS.
(a) All required foreign, federal, state, local and other tax returns,
notices and reports (including, without limitation, income, property, sales,
use, franchise, capital stock, excise, added value, employees' income
withholding, social security and unemployment tax returns) of the Company and
the Subsidiaries have been accurately prepared in all material respects and duly
and timely filed, and all foreign, federal, state, local and other taxes
required to be paid with respect to the periods covered by such returns have
been paid. The Company and the Subsidiaries are not and have not been delinquent
in the payment of any tax, assessment or governmental charge. The Company is not
a party to any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code. The Company
does not have and has not had a permanent establishment in any foreign country,
as defined in any applicable tax treaty or convention between the United States
and such foreign country.
(b) Except as set forth in SCHEDULE 2.17, the Company and the Subsidiaries
have not had any tax deficiency proposed or assessed against any of them and
have not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. Except as set forth in SCHEDULE
2.17, and except for sales tax audits, none of the Company's or the
Subsidiaries' franchise tax returns has ever been audited by governmental
authorities. No tax audit, action, suit, proceeding, investigation or claim is
now pending nor, to the best knowledge of the Company, threatened against the
Company or any Subsidiary, and no issue or question has been raised (and is
currently pending) by any taxing authority in connection with any of the
Company's or any Subsidiaries' tax returns or reports.
(c) The allowances or provisions for taxes, assessments and governmental
charges reflected on the Balance Sheet are and will be sufficient for the
payment of all unpaid taxes and governmental charges payable by the Company and
the Subsidiaries with respect to the period ended on the Balance Sheet Date.
Since the Balance Sheet Date, the Company and the Subsidiaries have made
adequate provisions on their respective books of account for all taxes,
assessments and governmental charges with respect to their respective
businesses, properties and operations for such period. The Company and the
Subsidiaries have withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and have paid the
same to the proper tax receiving officers or authorized depositories.
2.18 EFFECT OF TRANSACTIONS. The Company's execution and delivery of this
Agreement and the performance of the businesses of the Company and each
Subsidiary as now conducted does not, and the Company's execution and delivery
of the other agreements contemplated herein, its performance of the transactions
contemplated by this Agreement and the other agreements contemplated herein and
the performance of the businesses of the Company and each Subsidiary as now
conducted will not, as of the Closing Date, violate any terms of the Articles of
Incorporation or Bylaws or violate
16
any judgment, decree or order, or any material contract or obligation of the
Company or such Subsidiary, as the case may be, or any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company or any such Subsidiary, or any material contract to which any employee
of the Company or any Subsidiary is bound. Subject to the truth and accuracy of
the Investors' representations and warranties herein, the offer and sale of the
Series A Preferred will be in compliance with all federal and state securities
laws.
2.19 LITIGATION. Except as described in the Company's Commission Reports
(as defined in SECTION 2.26), there is no litigation, arbitration or
governmental proceeding or investigation pending or, to the best knowledge of
the Company, threatened (a) against the Company or any Subsidiary, (b) affecting
any of the properties or assets of the Company or any Subsidiary, (c) that
questions the validity of this Agreement or any of the other agreements
contemplated herein, or the right of the Company to enter into this Agreement or
any of the other agreements contemplated herein, or consummate the transactions
contemplated hereby or thereby, or (d) against any officer, director,
shareholder or employee of the Company or any Subsidiary in such capacity or
relating to his prior employment relationships. Except as set forth on SCHEDULE
2.19, the Company is not aware of any fact that is likely to form the basis of
any such litigation, arbitration or proceeding. Except as set forth on SCHEDULE
2.19, there is no action or suit pending or threatened against others.
2.20 LEGAL COMPLIANCE; PENDING CHANGES. Except as set forth on SCHEDULE
2.20, (a) the Company and the Subsidiaries have all material franchises,
permits, licenses and other rights and privileges necessary to permit them to
own their respective properties and to conduct their respective businesses as
presently conducted and (b) the Company and each Subsidiary, and the business
and operations of the Company and each Subsidiary, have been and are being
conducted in all material respects in accordance with all applicable laws, rules
and regulations, and neither the Company nor any Subsidiary is in violation of
any judgment, order or decree. There is no existing law, rule, regulation or
order which would prohibit or restrict the Company or any Subsidiary from, or
otherwise materially adversely affect the Company or any Subsidiary in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business. To the best knowledge of
the Company, without further inquiry, there is no pending or threatened change
in any law, rule, regulation or ordinance which materially and adversely affects
or could materially and adversely affect the Company or the Subsidiaries or
their respective financial condition, operations, assets, prospects or business,
taken as a whole.
2.21 SUBSIDIARIES: JOINT VENTURES. Except as described in SCHEDULE 2.21,
the Company does not have any direct or indirect Subsidiaries. Each Subsidiary
is wholly owned by the Company, and the Company has no present intention of (a)
disposing of any of the capital stock or equity interests of any such Subsidiary
presently owned by the Company or (b) allowing any Subsidiary to sell or
otherwise dispose of any material portion of such Subsidiary's assets, except
for normal dispositions in the ordinary course of business.
2.22 BROKERAGE. Except as provided in SCHEDULE 2.22, there are no claims
for brokerage commissions, finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement made by the Company or any Subsidiary.
17
2.23 OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set forth in
Schedule 2.23, no Management, or their respective spouses or children, owns
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer, supplier, or
distributor which has a business relationship with the Company or any
Subsidiary, any organization that has a material contract or arrangement with
the Company or any Subsidiary, or any organization that has a material contract
or arrangement with a competitor of the Company or any Subsidiary, other than
the ownership of less than one percent (1%) of the securities of any company
that are publicly traded on any national exchange or over the counter market.
2.24 INVESTMENTS IN COMPETITORS. No Management, or their respective
spouses or children, owns directly or indirectly, on an individual or joint
basis, any interests or has any investment in any corporation, business or other
person that is a competitor of the Company or any Subsidiary, other than the
ownership of less than one percent (1%) of the securities of any company that
are publicly traded on any national exchange or over the counter market.
2.25 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 2.25, and
except for matters which individually or in the aggregate could not reasonably
be expected to have a material adverse effect on the Company or any Subsidiary
or their respective financial condition, operations, assets, prospects or
business, (a) neither the Company nor any Subsidiary, nor any facility, vessel,
or property currently or formerly owned, leased or operated by any of them (a
"SITE"), is in violation of or has violated any Environmental Laws; (b) the
Company and each Subsidiary have obtained and are in material compliance with
all permits, licenses, authorizations, registrations and other governmental
consents required under Environmental Laws and the Company does not know of any
reason why any Site cannot continue to be operated in compliance with such
permits, licenses, authorizations, registrations and other governmental
consents; (c) there have been no Releases of Hazardous Materials in, on, under,
from or affecting any Site; (d) there are no pending or threatened actions,
suits, claims or other legal proceedings based on (i) the current or past
presence on any Site of Hazardous Materials, (ii) the current or past Release or
threatened Release into the environment of Hazardous Materials from any Site,
(iii) the off-site disposal, transport, or arrangement for disposal of Hazardous
Materials originating on or from any Site or the business or assets of the
Company or any Subsidiary or (iv) any violation or alleged violation of
Environmental Laws by the Company or any Subsidiary, nor are there any facts or
circumstances which could give rise to any such action, suit, claim or other
proceedings; (e) neither the Company nor any Subsidiary is, and on the Effective
Date none of them will be, subject to any actual or contingent liability or any
remediation requirements in connection with any Release or threatened Release of
Hazardous Materials into the environment and there are no conditions or
occurrences which could result in any such liability or requirement; and (f)
there are no and have not been any underground storage tanks or underground
piping associated with any such tanks at or under any Site. The Company has
provided the Investors all information, documents and reports, in its possession
and control relating to the environmental condition of all Sites.
2.26 COMMISSION REPORTS. The Company has filed in a timely manner with the
Commission all forms, financial statements, documents and reports (collectively
the "COMMISSION REPORTS") required to be filed by the Company pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). Such
Commission Reports
18
were prepared in all material respects in accordance with the Exchange Act and
do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.27 GOVERNMENT INQUIRIES. Except as set forth on SCHEDULE 2.27 and except
for filings in the ordinary course of business with state agencies that regulate
oil and gas exploration and production, there have been no material inquiries,
demands or requests for information received by the Company or any Subsidiary
from, or any material statement, report or other document filed by the Company
or any Subsidiary with, any governmental or administrative agency.
2.28 NO BANKRUPTCIES. Neither the Company nor the Subsidiaries, nor any of
their respective officers, directors or Affiliates, have voluntarily sought,
consented to or acquiesced in the benefits of, or become party to or made the
subject of the Bankruptcy Code of the United States or any other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws from time
to time in effect affecting the rights of creditors generally.
2.29 YEAR 2000 COMPLIANCE. All of the material computer programs owned by
the Company or its Subsidiaries are "YEAR 2000 COMPLIANT." "YEAR 2000
COMPLIANT," for the purposes of this Agreement, means that (a) such computer
programs are designed to be used before, during and after the calendar Year 2000
A.D.; (b) such designs include the capability of performing date data century
recognition and calculations that accommodate same century and multi-century
formulas and date values, and using date data interface values that reflect the
century (and where a two-digit year is used, provides a clear definition of the
assumptions used for determining the proper century); and (c) such computer
programs, when used during each such time period, will accurately receive,
provide and process data/time data (including calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations. To the best
knowledge of the Company, no material intellectual property licensed from third
parties nor any embedded date sensitive technology will cause a material adverse
effect on the Company or any Subsidiary or their respective financial condition,
operations, assets, prospects or business on or after January 1, 2000.
2.30 OPERATING COMPANY. The Company is an "operating company" as such term
is defined under Department of Labor Regulation Section 2510.3 - 101(c).
2.31 DISCLOSURE. This Agreement and the exhibits and schedules hereto,
when taken as a whole with other documents and certificates furnished by the
Company and any Subsidiary to the Investors or their counsel, do not contain any
untrue statement of material fact or omit any material fact necessary in order
to make the statements therein not misleading; PROVIDED, HOWEVER, certain
materials provided to the Investors contain projections and estimates of future
events, and such projections and estimates have been based upon certain
assumptions that management of the Company and the Subsidiaries made in good
faith and believed were reasonable at the time such materials were prepared.
There is no fact known to the Company or any Subsidiary that has not been
disclosed to the Investors prior to the date of this Agreement that materially
and adversely affects the business, assets, properties, prospects or condition
(financial or
19
otherwise) of the Company or any Subsidiary, taken as a whole, or the ability of
the Company or any Subsidiary to perform under this Agreement or the other
agreements contemplated hereby or to consummate the transactions contemplated
hereby or thereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
As part of the basis of this Agreement, each Investor hereby represents
and warrants, severally and not jointly, to the Company on and as of the date
hereof, and at the Closing Date, that:
3.1 AUTHORIZATION. The execution by the Investor of this Agreement has
been, and the execution by the Investor of the documents to be executed by the
Investor pursuant to this Agreement will be on or prior to the Closing Date,
authorized by all necessary action on the part of the Investor. This Agreement
is, and all documents executed by the Investor pursuant to this Agreement will
be on or prior to the Closing Date, valid, legal, binding and enforceable
agreements of the Investor, except as may be limited by (a) applicable
bankruptcy, insolvency, reorganization or other similar laws of general
application relating to or affecting the enforcement of creditor rights, (b)
laws and judicial decisions regarding indemnification for violations of federal
securities laws, (c) the availability of specific performance or other equitable
remedies, and (d) with respect to any indemnification agreements set forth
herein or therein, principles of public policy.
3.2 INVESTMENT PURPOSE. The Investor is acquiring the Series A Preferred
for its own account, for investment, and not with a view to any "distribution"
within the meaning of the Securities Act. The Investor has no present intention
to make any transfer of the Series A Preferred.
3.3 RESTRICTIONS ON TRANSFERABILITY. The Investor understands that because
the Series A Preferred have not been, and the Conversion Shares when issued will
not have been, registered under the Securities Act, it cannot dispose of any or
all of the Series A Preferred or Conversion Shares unless they are subsequently
registered under the Securities Act or exemptions from registration are
available. The Investor understands that no public market now exists for the
Series A Preferred issued by the Company and that there is no assurance that a
public market will ever exist for the Series A Preferred. The Investor
understands that each certificate representing the Series A Preferred and
Conversion Shares will bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SHARES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION
IS APPLICABLE.
3.4 STATUS OF INVESTOR. The Investor is knowledgeable and experienced in
making investments of the type contemplated by this Agreement and is able to
bear the economic risk of loss of its investment in the Company. The Investor is
an "accredited investor," as that term is defined in Rule 501(a) of Regulation D
under the Securities Act.
20
3.5 BROKERAGE. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by the Investor.
3.6 OWN ACCOUNT. The Investor is acting on its own behalf in connection
with the investigation and examination of the Company and its decision to
execute these documents.
SECTION 4. COVENANTS OF THE COMPANY
The Company hereby covenants and agrees that for so long as the Investors
hold any of the Series A Preferred or the Conversion Shares or, with respect to
SECTION 4.5 or SECTION 4.6, for the periods stated therein:
4.1 FINANCIAL AND OTHER INFORMATION. The Company will maintain a system of
accounts in accordance with sound accounting principles and procedures, keep
full and complete financial records and furnish to the Investors the following:
(a) within ninety (90) days after the end of each fiscal year, a copy of
the consolidated balance sheet of the Company as of the end of such year,
together with consolidated statements of income and cash flow of the Company for
such year, audited by and accompanied by the report of independent public
accountants of nationally recognized standing, prepared in accordance with GAAP
and practices consistently applied; in addition, the Company will provide such
financial statements in comparative form with the corresponding periods of the
prior year and budgeted figures for the current year;
(b) within forty (40) days after the end of each quarter, an unaudited
consolidated balance sheet of the Company as of the end of such quarter and
unaudited consolidated statements of income and cash flow for the Company for
such quarter and for the year to date, prepared in accordance with GAAP (except
for footnotes) and practices consistently applied; in addition, the Company will
provide such financial statements in comparative form with the corresponding
periods of the prior year and budgeted figures for the current year;
(c) as soon as practicable, but in no event later than ninety (90) days
after the end of each fiscal year of the Company, a third party engineering
report as of the last day of such period prepared by an independent engineering
firm approved by the Board of Directors of the Company; and as soon as
practicable, but in no event later than forty-five (45) days after the end of
the second fiscal quarter of each fiscal year, an internally generated
engineering report as of the last day of such period updating the third party
fiscal year-end report, with each report setting forth with respect to the
Company as a whole, proved reserves, future net revenues relating thereto (based
upon pricing assumptions specified by the Investors) and the present discounted
value of such future net revenues (the rate of discount to be specified by the
Investors);
(d) at the time of delivery of each annual financial statement pursuant to
SECTION 4.1(A), a certificate executed by the Chief Accounting Officer of the
Company stating that such officer has caused this Agreement and the Certificate
to be reviewed and that such officer has no knowledge of any default by the
Company in the
21
performance or observance of any of the provisions of this Agreement or the
Certificate or, if such officer has such knowledge, specifying such default and
the nature thereof;
(e) promptly following receipt by the Company, each audit response letter,
accountant's management letter and other written report submitted to the Company
by its independent public accountants in connection with an annual or interim
audit of the books of the Company or any of its Subsidiaries;
(f) promptly after the commencement thereof, but in no event later than
forty-eight (48) hours after the Company becomes aware of such commencement,
notice of all actions, suits, claims, proceedings, investigations and inquires
of the type described in SECTION 2.20 that could materially and adversely affect
the Company or any of its Subsidiaries;
(g) promptly upon sending, making available or filing the same, all press
releases, reports and financial statements that the Company sends or makes
available to its shareholders or directors or files with the Commission;
(h) promptly upon the Company's discovery thereof, but in no event later
than seventy-two (72) hours after such discovery, notice of any inaccuracy in or
breach or nonperformance of the agreements, covenants, representations or
warranties made or to be performed by the Company pursuant to this Agreement;
and
(i) such other financial information as the Investors may reasonably
request from time to time.
4.2 BUDGET. The Company has submitted to the Investors and the Investors
have approved a budget for estimated revenues and expenditures of the Company in
connection with the operations of the Company for the twelve (12) calendar month
period following the Closing Date. At least ten days prior to the date on which
each regular quarterly meeting of the Board of Directors of the Company is
scheduled, the Company shall submit for approval by the Board of Directors a
revised budget estimating the revenues and expenditures of the Company in
connection with the Company's operations during the next succeeding twelve (12)
calendar months.
4.3 ACCESS TO INFORMATION. The Company will permit the Investors to
inspect at the Investors' expense any of the properties or books and records of
the Company and any of the Subsidiaries, to make copies of extracts from such
books and records and to discuss the affairs and condition of the Company and
the Subsidiaries with representatives of the Company and such Subsidiaries, all
to such reasonable extent and at such reasonable times and intervals as the
Investors may reasonably request.
4.4 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Series A Preferred to redeem that certain $10,000,000 convertible
debenture held by RIMCO and to repay other outstanding indebtedness.
4.5 BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS. The
Investors shall have the right to elect up to three (3) Class B Directors to the
Board of Directors of the Company and such directors elected by the Investors
shall have a certain portion of the voting power of the Board of Directors of
the Company, all in accordance with the terms and provisions of the Articles of
Incorporation, the Certificate
22
and the Bylaws. If the Investors decide not to elect any or all of their
designees to the Board of Directors of the Company, the Investors shall have the
right to receive notice of and have the number of representatives equal to such
number of directors they are entitled to elect to the Board of Directors
pursuant to the Articles of Incorporation, the Certificate or Bylaws, but which
they have not elected, attend all meetings and other functions of the Board of
Directors of the Company. At least one Class B Director designated by the
Investors shall be a member of each committee of the Board of Directors.
4.6 RESTRICTED CORPORATE ACTIONS. For so long as the Investors hold at
least the Threshold Amount of the Series A Preferred:
(a) The Company will not, without the written approval of the holders of a
Requisite Interest, take any action set forth in Section 9(a) of the
Certificate; and
(b) The Company will not, without the written approval of the holders of a
Supermajority Interest, take any action set forth in Section 9(b) of the
Certificate.
4.7 ACTIONS REQUIRING BOARD APPROVAL. The Company will not, without the
written approval of the Board of Directors of the Company, take any of the
following actions:
(a) make or obligate the Company to make expenditures in excess of
$3,000,000 for any single or series of related oil and gas property acquisitions
or development projects;
(b) make or obligate the Company to make expenditures in excess of
$750,000 for the generation and acquisition (excluding drilling) of any single
exploration prospect or project;
(c) make or obligate the Company to make expenditures in excess of
$750,000 for the drilling of any well to casing point;
(d) make or obligate the Company to make expenditures in excess of
$500,000 for any single or series of projects not directly related to
exploration and production of oil and gas, such as well servicing or gathering
of production;
(e) enter into or engage in any transaction, contract, agreement,
arrangement or operation that would involve a material change in the operating
strategy or geographic orientation of the Company;
(f) incur or permit to exist any indebtedness (whether secured or
unsecured) in excess of the Debt Limit; or
(g) enter into or engage in any transaction, contract, agreement or
arrangement with any director, officer or Affiliate of the Company or any
Subsidiary, in each case involving aggregate consideration the fair market value
of which exceeds $25,000.
4.8 PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY. The Company agrees
to preserve, protect, and maintain, and cause each Subsidiary to preserve,
protect, and
23
maintain, (a) its corporate existence, and (b) all rights, franchises,
accreditations, privileges, and properties the failure of which to preserve,
protect, and maintain might have a material and adverse effect on the business,
affairs, assets, prospects, operations, or condition, financial or otherwise, of
the Company and its Subsidiaries, taken as a whole.
4.9 PRESERVATION OF BUSINESS OPPORTUNITIES. The Company agrees to use its
best efforts to prohibit Management and all other employees of the Company or
their Affiliates from, directly or indirectly, (a) investing or otherwise
participating alongside the Company in any business opportunities of the
Company, or (b) investing or otherwise participating in any business or activity
relating to a business opportunity of the Company without unanimous written
approval from the Board of Directors, regardless of whether the Company
ultimately participates in such business or activity; provided that clause (b)
shall not preclude any Management or employee from making investments in
securities of oil and gas companies which are registered on a national stock
exchange.
4.10 LIABILITY INSURANCE. The Company will maintain comprehensive
liability insurance (including automobile liability coverage) at regular premium
rates with insurer(s) of recognized responsibility in an amount which is
commercially reasonable for the benefit of itself and the Subsidiaries.
4.11 NO IMPAIRMENT. The Company and the Subsidiaries will observe and
honor in good faith all rights of the Investors, under the terms of this
Agreement or any other documents executed in connection herewith, and will take
no action that would impair or otherwise prejudice such rights.
4.12 RESERVE FOR CONVERSION SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock and
Class B Common Stock, for the purpose of effecting the conversion of the Series
A Preferred, all additional shares of Series A Preferred issued to the Investors
pursuant to SECTION 4.17 of this Agreement or as dividends on the Series A
Preferred in accordance with the Certificate (the "ADDITIONAL SERIES A
PREFERRED") and the Class B Common Stock, such number of its duly authorized
shares of Common Stock and/or Class B Common Stock, as the case may be, as shall
be sufficient to effect the conversion of the Series A Preferred, the Additional
Series A Preferred and the Class B Common Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the number
of authorized but unissued shares of Common Stock and/or Class B Common Stock,
as the case may be, shall not be sufficient to effect the conversion of the
Series A Preferred, the Additional Series A Preferred and the Class B Common
Stock or otherwise to comply with the terms of this Agreement, the Company will
forthwith take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock and/or Class B Common Stock, as
the case may be, to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable securities laws in connection with the issuance of
shares of Common Stock and/or Class B Common Stock, as the case may be, upon
conversion of the Series A Preferred, the Additional Series A Preferred and the
Class B Common Stock.
4.13 BYLAWS. The Company shall at all times cause its Bylaws to provide
that the number of directors fixed in accordance therewith shall in no event
conflict with any
24
of the terms or provisions of this Agreement, the Certificate
or the Articles of Incorporation. The Company shall at all times maintain
provisions in its Bylaws and/or Articles of Incorporation indemnifying all
directors against liability and absolving all directors from liability to the
Company and its shareholders to the maximum extent permitted under the laws of
the State of Nevada.
4.14 COMPLIANCE. The Company shall comply, and cause each Subsidiary to
comply, with all applicable laws, rules, regulations and orders, noncompliance
with which could materially and adversely affect its business or condition,
financial or otherwise.
4.15 BROKERAGE. The Company agrees to indemnify and hold harmless the
Investors for any brokerage commissions, finder's fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by the Company or any Subsidiary.
4.16 OPERATING COMPANY STATUS. The Company shall at all times maintain its
status as an "operating company" as such term is defined under Department of
Labor Regulation Section 2510.3-10(c).
4.17 ISSUANCE OF ADDITIONAL SERIES A PREFERRED. In the event that a Sale
Transaction shall occur at any time prior to the second anniversary of the
Closing Date, the Company shall issue to each Investor immediately prior to the
consummation of the Sale Transaction an additional number of shares of Series A
Preferred equal to the difference between (a) the number of shares of Series A
Preferred that would have been held by such Investor if such Investor had
received all dividends that would have accrued on such Investor's Series A
Preferred (including Series A Preferred received as dividends on the Series A
Preferred) from the date of the Sale Transaction through such second anniversary
as Payments-in-Kind (as defined in the Certificate), regardless of whether such
Investor has previously received Payments-in-Kind or cash dividends pursuant to
the first sentence of Section 2(b) of the Certificate, and (b) the number of
shares of Series A Preferred then held by such Investor (including shares of
Series A Preferred issued as dividends on the Series A Preferred).
4.18 REPORTING CONSISTENCY. For purposes of Treasury Regulation
1.305-5(b)(5) and all other tax reporting, the Company shall report the Series A
Preferred as not subject to the constructive distribution provisions of Section
305(c) of the Code.
4.19 INDEMNIFICATION AGREEMENTS. The Company shall enter into an
Indemnification Agreement, substantially in the form attached hereto as EXHIBIT
E, with each director of the Company who is elected by the holders of the Series
A Preferred or Class B Common Stock.
SECTION 5. RIGHT OF FIRST REFUSAL ON ISSUANCE OF NEW SECURITIES
5.1 GRANT OF RIGHT. The Company hereby grants to each Investor the right
of first refusal to purchase its Pro Rata Share of New Securities which the
Company may, from time to time, propose to sell and issue.
5.2 NOTICE. In the event the Company proposes to undertake an issuance or
sale of New Securities, it shall give the Investors prompt written notice of its
intention, describing the amount and type of New Securities, and the proposed
price and terms
25
upon which the Company proposes to issue the same. Each Investor shall have
twenty (20) days from the date of receipt of any such notice to elect to
purchase up to its Pro Rata Share of such New Securities for the proposed price
and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased. The
closing of the purchase of the New Securities to be issued and sold to the
Investors shall occur on the earlier of (a) the tenth (10th) business day after
the expiration of the option period set forth above, or (b) at the same time as
the closing of the sale of New Securities not elected or eligible to be
purchased by the Investors shall occur.
5.3 ELIGIBLE SALES TO THIRD PARTIES. After giving the notice and
opportunity for the Investors to participate as required under SECTION 5.2
above, the Company shall have ninety (90) days thereafter to issue and sell the
New Securities not elected nor eligible to be purchased by the Investors at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice under SECTION 5.2. In the event the
Company has not sold such New Securities within said ninety (90) day period, the
Company shall not thereafter issue or sell any New Securities without first
offering such securities in the manner provided above.
SECTION 6. INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, defend
and hold the Investors harmless from and against any and all losses,
liabilities, damages, obligations, costs and expenses (including without
limitation legal and other similar expenses) (collectively, "DAMAGES") from,
resulting by reason of or arising in connection with any inaccuracy in or breach
of the representations or warranties made by the Company pursuant to this
Agreement, provided that the Investors have given the Company notice of such
inaccuracy or breach within one (1) year after the Closing Date or, if the
Company fails to comply with SECTION 4.1(H) with respect to any such inaccuracy
or breach, within one (1) year after receipt of the notice required by SECTION
4.1(H).
6.2 INDEMNIFICATION BY INVESTORS. Each Investor shall, separately and not
jointly, indemnify, defend and hold the Company harmless from and against any
and all Damages from, resulting by reason of or arising in connection with any
inaccuracy in or breach of the representations or warranties made by the
Investors pursuant to this Agreement, provided that the Company has given the
Investors notice of such inaccuracy or breach within one (1) year after the
Closing Date.
6.3 ADJUSTMENT OF CONVERSION PRICE.
(a) In the event of any inaccuracy in or breach or nonperformance of the
agreements, covenants, representations or warranties made or to be performed by
the Company pursuant to this Agreement, the Conversion Price (as defined in the
Certificate) shall be adjusted as provided in SECTION 6.3(B).
(b) The Equity Value shall be reduced by the amount of the Damages
resulting from such breach or nonperformance to calculate the "REVISED EQUITY
VALUE. " The Conversion Price then in effect shall be adjusted by multiplying
such Conversion Price by the quotient of (i) the Revised Equity Value divided by
(ii) the Equity Value. After the first adjustment pursuant to this SECTION 6.3,
for all subsequent adjustments
26
that may be required under this SECTION 6.3, the Equity Value shall be deemed to
be the most recently calculated Revised Equity Value.
(c) If such breach or nonperformance relates to specific interests or
properties described on EXHIBIT G, the value assigned to such interests or
properties on EXHIBIT G shall be the basis for determining the amount of the
resulting Damages.
6.4 NOTICE AND RESOLUTION OF CLAIM. An indemnified party hereunder shall
promptly give notice to the indemnifying party after obtaining knowledge of any
claim against the indemnified party as to which recovery may be sought against
the indemnifying party because of the indemnity set forth above. If such
indemnity shall arise from a claim by a third party against the Company, the
Company shall control the negotiation and defense of the claim, including
selection of counsel (subject to the approval of the Investors, which shall not
be unreasonably withheld), and the Investors shall be entitled to participate in
such proceedings at their own expense. If the Company fails to defend such claim
diligently, the Investors shall be entitled to conduct the defense of the claim
at the Company's expense. If such claim shall arise from a claim by a third
party against the Investors, the Investors shall control the negotiation and
defense of the claim, including selection of counsel (subject to the approval of
the Company, which shall not be unreasonably withheld), and the Company shall be
entitled to participate in such proceedings at its own expense. If the Investors
fail to defend such claim diligently, the Company shall be entitled to conduct
the defense of the claim at its. In the defense of any claim, each party shall
make available all information and assistance that the other party may
reasonably request and shall cooperate with the other party in such defense.
Neither the Company nor the Investors shall compromise or settle any claim
without the consent of the other, which consent shall not be unreasonably
withheld.
SECTION 7. GENERAL
7.1 AMENDMENTS, WAIVERS AND CONSENTS. Unless otherwise specified in this
Agreement, any consents required and any waiver, amendment or other action of
the Investors or holders of the Series A Preferred (or Conversion Shares) may be
made by consent(s) in writing signed by the holders of the interest specified
herein for approval of any such consent, waiver, amendment or other action. Any
amendment or waiver made according to this SECTION 7.1 will be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted) and each
future holder. Any amendment or waiver by the Company must be made in writing.
This Agreement may not be amended, except in a written document signed by the
Company and the holders of at least ninety percent (90%) of the then outstanding
Series A Preferred (including, for such purpose, any Conversion Shares into
which any of the Series A Preferred or Class B Common Stock has been converted
that have not been sold to the public).
7.2 SURVIVAL; ASSIGNABILITY OF RIGHTS. All representations and warranties
of the parties made in this Agreement and in the certificates, exhibits,
schedules or other written information delivered or furnished by one party to
the other in connection with this Agreement will survive the Closing and the
delivery of the Series A Preferred for a period of one (1) year after the
Closing Date; provided that a party may pursue any claim after the expiration of
such one-year period if it has given the other party notice of such claim prior
to the expiration of such period or within the extended one-year period provided
in
27
SECTION 6.1 in the event of a failure of the Company to comply with SECTION
4.1(H). All covenants and agreements made in this Agreement will survive the
Closing, and will bind and inure to the benefit of the parties' hereto and their
respective successors and assigns. Each Investor shall have the right to
transfer any or all of its rights and obligations hereunder. The Company may not
assign its rights or obligations hereunder without the consent of the Investors,
as provided in SECTION 7.1.
7.3 HEADINGS. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
7.4 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
7.5 NOTICES AND DEMANDS. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) or
one (1) day after sent by overnight delivery or telecopy providing confirmation
or receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
following addresses: if to the Company, at the address as shown on the signature
page of this Agreement (with a copy as shown), or at any other address
designated by the Company to the Investors in writing; if to the Investors, at
each Investor's mailing address as shown on the signature pages of this
Agreement (with a copy as shown), or at any other address designated by any
Investor to the Company in writing.
7.6 SEVERABILITY. If any provision of this Agreement is held invalid under
applicable law, such provision will be ineffective to the extent of such
invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
7.7 EXPENSES. The Company will pay (a) all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, (b) the reasonable out-of-pocket expenses of the Investors and
the reasonable legal fees and disbursements incurred by one counsel for the
Quantum with respect to this Agreement and the transactions contemplated hereby,
(c) the reasonable legal fees and disbursements, up to a maximum of $10,000,
incurred by one counsel for EnCap and (d) a closing fee as described in SECTION
1.2, such closing fee to be allocated pro rata among the Investors. Quantum
designates Jenkens & ▇▇▇▇▇▇▇▇▇, a professional corporation, as its counsel for
this transaction. If any party is required to take any action to enforce its
rights under this Agreement, the prevailing party shall be entitled to its
reasonable expenses, including attorneys' fees, in connection with any such
action.
7.8 CORPORATE OPPORTUNITIES.
(a) The Company recognizes that the Investors, their Affiliates and the
directors elected or appointed to the Board of Directors of the Company by the
Investors (i) have participated, directly or indirectly, and will continue to
participate in venture capital and other direct investments in corporations,
partnerships, joint ventures, limited liability companies and other entities
("OTHER INVESTMENTS"), including Other Investments
28
engaged in various aspects of the oil and gas industry that may be competitive
with the Company's business, (ii) may have interests in, participate with, aid
and maintain seats on the board of directors or similar governing body of Other
Investments and (iii) may develop opportunities for Other Investments. In their
positions with Other Investments, the Investors or their representatives may
become aware of business opportunities that could be suitable for the Company,
but the Company expressly acknowledges that the Investors and their
representatives will not have any duty to disclose to the Company any such
business opportunities, whether or not competitive with the Company's business
and whether or not the Company might be interested in such business opportunity
for itself. Furthermore, the Company acknowledges that the Investors and their
representatives have duties not to disclose confidential information of or
related to Other Investments. The sale of the Series A Preferred to the
Investors for the consideration and on the terms contained herein is of material
benefit to the Company and its shareholders and the Company is willing to accept
the limitations on the duties of the Investors and their representatives to the
Company described in this SECTION 7.8 in order to obtain the benefits to the
Company of the sale of the Series A Preferred to the Investors. The Company
agrees that the activities of the Investors and their representatives relating
to Other Investments that are contemplated by this SECTION 7.8 are not
unreasonable and would not violate the duty of loyalty of a director of the
Company elected by the Investors.
(b) The Company agrees that, to the extent any court holds that any
activity relating to any Other Investment is a breach of a duty to the Company
or its stockholders, the Company hereby waives any and all claims and causes of
action that the Company may have for such activity. The Company further agrees
that the waivers and agreements in this Agreement identify certain types and
categories of activities which do not violate the director's duty of loyalty to
the Company, and such types and categories are not manifestly unreasonable. The
waivers and agreements in this Agreement apply equally to activities conducted
in the future and that have been conducted in the past.
(c) In any transaction or situation in which there reasonably appears to
be a conflict of interest between the Company and any of the Other Investments
of any Investor, such Investor shall, to the extent consistent with duties and
obligations owed to such Other Investment, disclose the existence and nature of
such conflict to the Board of Directors of the Company.
7.9 ENTIRE AGREEMENT. This Agreement and the schedules and exhibits to
this Agreement constitute the entire agreement of the parties, and supersede any
prior agreements.
7.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
29
The undersigned have executed this Agreement as of the day and year first
written above.
TEXOIL, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
QUANTUM ENERGY PARTNERS, LP
By: Quantum Energy Management, LLC,
its General Partner
By: /s/ S. ▇▇▇ ▇▇▇▇▇▇, ▇▇.
Name: S. ▇▇▇ ▇▇▇▇▇▇, ▇▇.
Title: President
Address: 777 ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Jenkens & ▇▇▇▇▇▇▇▇▇,
a Professional Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
30
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: EnCap Investments L.L.C.,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & Knight,
a Professional Corporation
1700 Texas Commerce Tower
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
ENERGY CAPITAL INVESTMENT COMPANY
PLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Director
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
a Professional Corporation
1700 Texas Commerce Tower
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
31
V&C ENERGY LIMITED PARTNERSHIP
By: Energy Resource Associates, Inc.,
its general partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Inc.
Wedgewood International Tower
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
32
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ B. ▇▇▇▇▇
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
33
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Bond & ▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Bond
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
34
SCHEDULE I
NUMBER OF PURCHASE PRICE FOR
INVESTOR NAME SERIES A SHARES SERIES A SHARES
------------- --------------- ------------------
Quantum Energy Partners, L.P. ............. 1,875,000 $15,000,000
V&C Energy Limited Partnership ............ 456,250 3,650,000
EnCap Equity 1996 Limited Partnership ..... 281,250 2,250,000
Energy Capital Investment Company PLC ..... 93,750 750,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ........................... 12,500 100,000
▇▇▇▇ ▇. ▇▇▇▇▇ ............................. 18,750 150,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ .......................... 6,250 50,000
▇▇▇▇▇ ▇. ▇▇▇▇▇ ............................ 6,250 50,000
----------- -----------
2,750,000 $22,000,000
EXHIBIT A
CERTIFICATE OF DESIGNATION
ESTABLISHING
SERIES A CONVERTIBLE PREFERRED STOCK
OF
TEXOIL, INC.
1. The name of the Corporation is Texoil, Inc., a Nevada corporation (the
"CORPORATION").
2. The Board of Directors of the Corporation duly adopted the following
resolutions by Unanimous Written Consent dated __________, 1999:
WHEREAS, the Corporation's directors have reviewed and approved the
Designation of Preferences, Limitations and Rights of Series A Convertible
Preferred Stock of Texoil, Inc. ("CERTIFICATE"), attached hereto as EXHIBIT A
and incorporated herein by reference, delineating the number of shares, the
voting powers, designations, preferences and relative, participating, optional,
redemption, conversion, exchange, dividend or other special rights and
qualifications, limitations or restrictions of a series of Preferred Stock to be
issued by the Corporation and designated Series A Convertible Preferred Stock,
par value $0.01 per share (the "SERIES A PREFERRED STOCK");
RESOLVED, that 5,000,000 shares of authorized but unissued Preferred Stock
of the Corporation be designated Series A Preferred Stock and authorized for
issuance and that the Series A Preferred Stock have the rights, preferences,
limitations and restrictions set forth herein.
FURTHER RESOLVED, that the President or any Vice President of the
Corporation, individually or collectively, and the Secretary or Assistant
Secretary of the Corporation, individually or collectively, be, and such
officers hereby are, authorized and directed to execute, acknowledge, attest,
record and file with the Secretary of State of the State of Nevada a Certificate
of Designation in accordance with Section 78.1955 of the Nevada General
Corporation Law and to take all other actions that such officers deem necessary
to effectuate the Certificate of Designation and establish the Series A
Preferred Stock.
3. The authorized number of shares of Preferred Stock of the Corporation
is 10,000,000 and the number of shares of the Series A Preferred Stock, none of
which has been issued, is 5,000,000.
4. The resolutions set forth above have been duly adopted by all necessary
action on the part of the Corporation.
IN WITNESS WHEREOF, Texoil, Inc. has caused this Certificate to be
executed by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, its President, and ▇▇▇▇▇ ▇. ▇▇▇▇▇, its
Secretary, this _____ day of ____________, 1999.
TEXOIL, INC.
By: _____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
ATTEST:
By: _________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
State of Texas )
)
County of ▇▇▇▇▇▇ )
The foregoing instrument was acknowledged before me, on the ____ day of
_____________, 1999, by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President, and ▇▇▇▇▇ ▇. ▇▇▇▇▇,
Secretary of Texoil, Inc., a Nevada corporation, on behalf of the corporation.
Given under my hand and official seal this ____ day of _______________,
1999.
____________________________
Notary Public in and for the
State of Texas
My Commission Expires:
_____________________
Seal
2
EXHIBIT A
DESIGNATION OF PREFERENCES, LIMITATIONS AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
TEXOIL, INC.
1. SERIES A CONVERTIBLE PREFERRED STOCK. The Series A Convertible
Preferred Stock, par value $0.01 per share (the "SERIES A PREFERRED"), will
consist of 5,000,000 shares and will have the designations, preferences, voting
powers, relative, participating, optional or other special rights and
privileges, and the qualifications, limitations and restrictions set forth in
this Designation of Preferences, Limitations and Rights of Series A Convertible
Preferred Stock of Texoil, Inc. (the "CERTIFICATE").
2. DIVIDENDS AND DISTRIBUTIONS.
(A) The holders of record of shares of Series A Preferred (the
"HOLDERS") shall be entitled to receive dividends at a rate of nine percent (9%)
of the Conversion Value (as defined in SECTION 4(A) below) per annum per share
of Series A Preferred, out of funds legally available therefor, which shall be
fully cumulative, prior and in preference to any declaration or payment of any
dividend or other distribution on any other class or series of Preferred Stock
or Common Stock (excluding any stock subdivisions, combinations or
consolidations for which an adjustment is made under SECTION 4(D)(I) below and
subject to SECTION 2(B) below). The dividend(s) payable hereunder shall be
payable quarterly on March 31, June 30, September 30 and December 31 of each
year (each a "QUARTERLY DIVIDEND DATE"), commencing with December 31, 1999,
except that if any such date is a Saturday, Sunday or legal holiday then such
dividend shall be payable on the next day that is not a Saturday, Sunday or
legal holiday on which banks in the State of Texas are permitted to be closed (a
"BUSINESS DAY"), to Holders on the stock books of the Corporation 10 days
preceding the payment date for such dividends (the "RECORD DATE"). The foregoing
dividend on the Series A Preferred shall accrue from the date of issuance of
each share until the earlier of (i) the conversion of the Series A Preferred to
common shares, par value $0.01 per share ("COMMON STOCK") or Class B Common
Stock, par value $0.01 per share ("CLASS B COMMON STOCK") (Common Stock and
Class B Common Stock are sometimes collectively referred to in this Certificate
as "CONVERSION SHARES"), or (ii) the liquidation, distribution or winding up of
the Corporation. The dividends shall be payable in the manner set forth in
SECTION 2(B) below. The amount of dividends payable for any period that is
shorter or longer than a full quarter shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period for
which such amount is payable.
(B) All dividends payable on or before December 31, 2001 shall be
payable in shares of Series A Preferred (the "PAYMENTS-IN-KIND"), unless any
Holder elects to receive dividends payable in cash, which election must be made
in writing no later than ten (10) days after the original issuance of the shares
of Series A Preferred. Once a Holder elects to receive cash, it may not receive
Payments-in-Kind during such period. Dividends payable after December 31, 2001
shall be paid in the same form as previously paid to each Holder; provided that,
for each quarter, the Board of Directors may elect to pay the dividends in cash
by notifying the Holders of the Corporation's election to pay cash in lieu of
Payments-in-Kind for such Quarterly Dividend Date. Any such dividend election by
the Corporation for any particular
Quarterly Dividend Date shall operate only for such Quarterly Dividend Date.
Each Payment-in-Kind shall be equal in amount to that number of shares of Series
A Preferred that is equal in number to the aggregate cash dividend that would be
payable on any such dividend date, assuming such dividend were being paid in
cash, divided by the Conversion Value (as defined in SECTION 4(A) below), and
shall be allocated on a pro rata basis to each Holder entitled to receive such
dividend. Certificates representing the shares of Series A Preferred issuable on
payment of any Payment-in-Kind shall be delivered to each Holder entitled to
receive such Payment-in-Kind (in appropriate denominations) promptly following
the Quarterly Dividend Date for which such Payment-in-Kind is to be made
hereunder.
(C) All cash dividends on shares of Series A Preferred shall be due
on the Quarterly Dividend Date. If cash dividends are not paid within ten (10)
days of the Quarterly Dividend Date, the unpaid dividend amount shall accrue
interest from and after each Quarterly Dividend Date at a rate of nine percent
(9%) per annum (compounded on a quarterly basis). All shares of Series A
Preferred to be issued as Payments-in-Kind that are not issued when due shall be
deemed for all purposes to have been issued on and to be outstanding from and
after the applicable Quarterly Dividend Date.
(D) If the Corporation pays any dividend on its Common Stock (other
than in shares of its Common Stock), the Corporation shall at the same time pay
a dividend on the Series A Preferred in an amount per share of Series A
Preferred equal to the amount of such dividend per share of Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series A Preferred is then convertible.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary (a
"LIQUIDATION"), distributions shall be made to the Holders in respect of such
Series A Preferred before any amount shall be paid to the holders of any other
class or series of capital stock of the Corporation in the following manner:
(A) SERIES A PREFERRED. The Holders shall be entitled to be paid
first out of the assets of the Corporation available for distribution to holders
of its capital stock an amount per share equal to the greater of:
(I) the sum of (A) the Conversion Value, plus (B) all accrued
but unpaid dividends then owed (calculated through the date of
liquidation), plus any accrued and unpaid interest thereon, prior to any
distribution to the holders of any other Preferred Stock or Common Stock;
or
(II) the fair market value of the Corporation as determined by
an independent appraiser or investment banker experienced in the oil and
gas industry (an "INDEPENDENT EVALUATOR") selected by the Holders of at
least a majority of the then outstanding Series A Preferred (the
"REQUISITE INTEREST") and approved by the Board of Directors of the
Corporation, which approval shall not be unreasonably withheld, divided by
the total number of outstanding shares of Common Stock of the Corporation
(on a fully-diluted basis) and multiplied by the number of shares of
Common Stock into which each share of Series A Preferred is then
convertible.
If the proceeds from a Liquidation are not sufficient to pay to the
Holders at least the preference amount set forth in Section 3(a)(i), then such
Holders shall instead be entitled to receive the entire assets and funds of the
Corporation legally available for distribution to the
2
holders of capital stock, which assets and funds shall be distributed ratably
among the Holders in proportion to the shares of Series A Preferred then held by
each of them.
(B) REMAINING ASSETS. After payment to the Holders of the amounts
set forth in SECTION 3(A) above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of Common Stock in proportion to the shares of Common Stock
then held by them.
(C) EVENTS DEEMED A LIQUIDATION. For purposes of this SECTION 3, the
Holders of a Requisite Interest may elect to have treated as a Liquidation (i)
the sale or other transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Corporation, or
(ii) the sale of a majority of the Corporation's outstanding Common Stock in a
single transaction or a series of related transactions, or (iii) the merger,
consolidation or other reorganization of the Corporation with or into any other
entity unless the holders of the voting securities of the Corporation
outstanding immediately prior to such transaction continue to hold more than 50%
of the total voting securities of the surviving entity outstanding immediately
after such transaction. Upon the occurrence of any of the foregoing enumerated
events, the Corporation shall provide prompt written notice to the Holders, who
shall have ten (10) days to provide written notice to the Corporation of their
election under this SECTION 3(C).
(D) VALUATION OF SECURITIES AND PROPERTY. In the event the
Corporation proposes to distribute assets other than cash in connection with any
Liquidation, the value of the assets to be distributed to the Holders shall be
determined in good faith by the Board of Directors. The method of valuation of
securities subject to an investment letter or other restrictions on free
marketability shall be adjusted to make an appropriate discount to reflect the
fair market value thereof as determined in good faith by the Board of Directors.
The Holders of at least ten percent (10%) of the outstanding Series A Preferred
shall have the right to challenge any determination by the Board of Directors of
fair market value pursuant to this SECTION 3(D), in which case the determination
of fair market value shall be made by an Independent Evaluator selected jointly
by the Board of Directors and the challenging parties (or if they are unable to
agree, an Independent Evaluator selected by the American Arbitration
Association), the reasonable cost of such appraisal to be borne by the
Corporation.
4. CONVERSION. The Holders have conversion rights as follows (the
"CONVERSION RIGHTS"):
(A) RIGHT TO CONVERT. Each share of Series A Preferred shall
initially be convertible, at the option of the Holder thereof, at any time on or
after the date of issuance thereof, into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the Conversion
Price (as hereinafter specified) per share in effect at the time of conversion
into the per share Conversion Value. The initial Conversion Price of the Series
A Preferred shall be $4.00 per share, and the Conversion Value of the Series A
Preferred shall be $8.00 per share. The initial Conversion Price of the Series A
Preferred shall be subject to adjustment from time to time as provided in
SECTION 4(D) hereof. The Conversion Value shall not be subject to adjustment.
Upon conversion, all accrued but unpaid dividends on a Holder's Series A
Preferred so converted, plus any accrued and unpaid interest thereon, shall, at
the option of such Holder, be paid in cash (to the extent permitted under
applicable corporate law) or converted into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the Conversion
Price in effect at such time into the aggregate of all such accrued but unpaid
dividends and accrued and unpaid interest.
3
(B) AUTOMATIC CONVERSION. At any time after December 31, 2002 that
(i) the Corporation's Net Equity Value equals or exceeds $121,500,000 and (ii)
the Corporation's Net Equity Value per share (Net Equity Value divided by the
number of shares of Common Stock outstanding on a fully-diluted basis) equals or
exceeds $10.00, each share of Series A Preferred shall automatically be
converted into the number of fully paid and nonassessable shares of Class B
Common Stock which results from dividing the Conversion Price per share in
effect at the time of conversion into the per share Conversion Value. For
purposes of this SECTION 4, "NET EQUITY VALUE" shall be determined as of each
March 31, June 30, September 30 and December 31 and shall equal the sum of (A)
95% of the present value, using a 10% discount rate, of the estimated future net
revenues from the Corporation's proved developed producing reserves, (B) 50% of
the present value, using a 10% discount rate, of the estimated future net
revenues from the Corporation's proved developed nonproducing reserves ("PDNP
VALUE"), (C) 25% of the present value, using a 10% discount rate, of the
estimated future net revenues from the Corporation's proved undeveloped reserves
("PUD VALUE"), and (D) the Corporation's current assets; LESS the sum of (Y) the
Corporation's current liabilities and (Z) the Corporation's long-term
liabilities (exclusive of deferred taxes); provided, however, that, for purposes
of determining Net Equity Value, the sum of the PDNP Value and the PUD Value
shall not exceed three-sevenths (3/7) of the value determined under clause (A)
of this sentence. In determining the value of the Corporation's oil and gas
reserves, (1) the definitions of reserve categories in the rules and regulations
of the Securities and Exchange Commission shall apply, (2) oil and gas prices
shall equal the futures prices quoted on the New York Mercantile Exchange for
the next succeeding 36 months from the date as of which the determination is
being made and then shall be held flat for periods thereafter and (3) operating
costs shall be escalated 2% per year for the next succeeding 3 years from the
date as of which the determination is being made and then shall be held flat for
periods thereafter. For purposes of determining Net Equity Value, the value of
the Corporation's proved oil and gas reserves shall be determined on the basis
set forth above as of each March 31, June 30 and September 30 by the Corporation
and as of each December 31 by an independent engineering firm approved by the
Board of Directors of the Corporation. If the Holders of a Requisite Interest
disagree with the Corporation's determination of Net Equity Value, then, within
30 days after receiving notice of the Corporation's determination, such Holders
shall give notice of such disagreement to the Corporation and shall determine
the Net Equity Value of the Corporation on the basis set forth above. The
Corporation will promptly furnish, or direct its independent engineering firm to
furnish, all information reasonably requested by such Holders. If the Net Equity
Value determined by such Holders is greater than or equal to 90% of the Net
Equity Value determined by the Corporation, then the Net Equity Value shall be
the average of the two valuations. If the Net Equity Value determined by such
Holders is less than 90% of the Net Equity Value determined by the Corporation,
then the Net Equity Value shall be determined by an Independent Evaluator
selected by such Holders and the Corporation (or if they are unable to agree, an
Independent Evaluator selected by the American Arbitration Association). The Net
Equity Value determined by the Independent Evaluator shall be final and binding
on the parties with respect to the valuation date in question. The reasonable
fees and expenses of the Independent Evaluator shall be borne by the
Corporation; otherwise, the Holders and the Corporation shall each bear their
own fees, costs and expenses (including fees and expenses of attorneys,
accountants and other professional advisors) incurred in connection with such
determination of Net Equity Value. Upon conversion, all accrued but unpaid
dividends (whether declared or undeclared) on a Holder's Series A Preferred,
plus any accrued and unpaid interest thereon shall, at the option of such
Holder, be paid in cash (to the extent permitted under applicable corporate law)
or converted into the number of fully paid and nonassessable shares of Class B
Common Stock which results from dividing the Conversion Price in effect at such
time into the aggregate of all such accrued but unpaid dividends and accrued and
unpaid interest.
4
(C) MECHANICS OF CONVERSION. Before any Holder shall be entitled to
convert shares of Series A Preferred into shares of Common Stock and to receive
certificates therefor, such Holder shall surrender the certificate or
certificates therefor, duly endorsed, at the principal office of the Corporation
or of any transfer agent for the Series A Preferred, and shall give written
notice to the Corporation at such office that such Holder elects to convert the
same; PROVIDED, HOWEVER, that in the event of an automatic conversion pursuant
to SECTION 4(B) hereof, the outstanding shares of Series A Preferred shall be
converted automatically without any further action by the Holders and whether or
not the certificates representing such shares are surrendered to the Corporation
or its transfer agent; and provided further that the Corporation shall not be
obligated to issue certificates evidencing the shares of Class B Common Stock
issuable upon such automatic conversion unless and until the certificates
evidencing such shares of Series A Preferred are either delivered to the
Corporation or its transfer agent as provided above, or the Holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. The Corporation shall as soon as practicable
after such delivery, or after such agreement and indemnification, issue and
deliver at such office to such Holder a certificate or certificates for the
number of shares of Common Stock or Class B Common Stock, as the case may be, to
which it, he or she shall be entitled and, at the option of such Holder, either
a check payable to the Holder in the amount of any accrued but unpaid dividends
payable pursuant to SECTION 2 hereof, and any accrued and unpaid interest
thereon, or the number of fully paid and nonassessable shares of Common Stock or
Class B Common Stock, as the case may be, which results from dividing the
Conversion Price in effect at such time into the aggregate of all such accrued
but unpaid dividends and accrued and unpaid interest. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred to be converted, or, in
the case of automatic conversion, simultaneously upon the occurrence of the
event leading to such automatic conversion, and the person or persons entitled
to receive the shares of Common Stock or Class B Common Stock, as the case may
be, issuable upon such conversion shall be treated for all purposes as the
holder or holders of such shares of Common Stock or Class B Common Stock, as the
case may be, on such date.
(D) ADJUSTMENTS TO CONVERSION PRICE.
(I) SPECIAL DEFINITIONS. For purposes of this SECTION 4(D),
the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable
for Common Stock.
(3) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to SECTION 4(D)(III), deemed
to be issued) by the Corporation after the Original Issue Date, other than
shares of Common Stock issued or issuable:
5
(A) upon conversion of shares of Series A
Preferred or Class B Common Stock;
(B) pursuant to a stock option or warrant
outstanding as of the Original Issue Date;
(C) as a dividend or distribution on shares of
Series A Preferred;
(D) in a transaction described in SECTION
4(D)(VI); or
(E) by way of dividend or other distribution on
shares of Common Stock excluded from the definition of
Additional Shares of Common Stock by the foregoing CLAUSES
(A), (B), (C), (D) or this CLAUSE (E).
(4) "ORIGINAL ISSUE DATE" shall mean the date on which
the first share of Series A Preferred was issued.
(II) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix
a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options
therefor, the exercise of such Options and conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant
to SECTION 4(D)(IV) hereof) of such Additional Shares of Common Stock
would be less than the Conversion Price in effect immediately prior to
such issue or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(1) except as provided in SECTION 4(D)(II)(2), no
further adjustment in the Conversion Price of the Series A Preferred shall
be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any change in
the consideration payable to the Corporation, or change in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof (other than under or by reason of provisions designed to protect
against dilution), the Conversion Price of the Series A Preferred computed
upon the original issue thereof (or upon the occurrence of a record date
with respect thereto) and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to
reflect
6
such increase or decrease insofar as it affects such Options or the rights
of conversion or exchange under such Convertible Securities; and
(3) no readjustment pursuant to CLAUSE (2) above shall
have the effect of increasing the Conversion Price of the Series A
Preferred to an amount which exceeds the lower of (A) the Conversion Price
of the Series A Preferred on the original adjustment date related to such
Options or Convertible Securities or (B) the Conversion Price of the
Series A Preferred that would have resulted from any other issuance of
Additional Shares of Common Stock between the original adjustment date
related to such Options or Convertible Securities and such readjustment
date.
(III) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to SECTION 4(D)(II)), then, and
in each such event, the Conversion Price in effect immediately prior to
such issue shall be adjusted to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue (determined on a fully diluted
basis) plus (2) (A) the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock
issued or deemed to be issued since the Original Issue Date divided by (B)
the Conversion Price in effect immediately prior to such issue, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue (determined on a fully diluted
basis) plus the number of Additional Shares of Common Stock issued or
deemed to be issued since the Original Issue Date; provided that the
Conversion Price may never be adjusted to an amount greater than the
Conversion Price at the Original Issue Date as subsequently adjusted
pursuant to Sections 4(d)(v), (vi) and (vii) (without regard to any prior
or current adjustments pursuant to this Section 4(d)(iii)).
(IV) DETERMINATION OF CONSIDERATION. For purposes of this
Section 4(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall be
computed as follows:
(A) insofar as it consists of cash, such
consideration shall be computed at the aggregate amount of
cash received by the Corporation;
(B) insofar as it consists of property other than
cash, such consideration shall be computed at the fair market
value thereof at the time of such issue, as determined by the
Board of Directors in the good faith exercise of its
reasonable business judgment; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both,
such consideration shall be the proportion of such
consideration so received, computed as
7
provided in CLAUSES (A) and (B) above, as determined by the
Board of Directors in the good faith exercise of its
reasonable business judgment.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to SECTION 4(D)(II),
relating to Options and Convertible Securities, shall be determined by
dividing
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue
of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in
the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities.
(3) FAIR MARKET VALUE. The Holders of a Requisite
Interest of the issued and outstanding Series A Preferred shall have the
right to challenge any determination by the Board of Directors of fair
market value pursuant to this SECTION 4(D), in which case such
determination of fair market value shall be made by an Independent
Evaluator selected jointly by the Board of Directors and the challenging
parties (or if they are unable to agree, an Independent Evaluator selected
by the American Arbitration Association), the reasonable cost of such
appraisal to be borne by the Corporation.
(V) SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATION OF COMMON
STOCK. In the event the outstanding shares of Common Stock shall be
subdivided, combined or consolidated, by stock split, stock dividend,
combination or like event, into a greater or lesser number of shares of
Common Stock, the Conversion Price of the Series A Preferred in effect
immediately prior to such subdivision, combination or consolidation shall,
concurrently with the effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted.
(VI) RECLASSIFICATIONS. In the case, at any time after the
date hereof, of any capital reorganization or any reclassification of the
stock of the Corporation (other than as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or
merger of the Corporation with or into another person (other than a
consolidation or merger (A) in which the Corporation is the continuing
entity and which does not result in any change in the Common Stock or (B)
which is treated as a liquidation pursuant to SECTION 3(C) above), the
shares of Series A Preferred shall, after such reorganization,
reclassification, consolidation or merger, be convertible into the kind
and number of shares of stock or other securities or property of the
surviving
8
corporation or otherwise to which such Holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation
or merger such Holder had converted his shares of Series A Preferred into
Common Stock. In any such case, appropriate adjustment shall be made in
the application of the provisions of this SECTION 4 after such
reorganization, reclassification, consolidation or merger so that the
provisions of this SECTION 4 (including adjustments to the Conversion
Price) shall be applicable after such event and shall be as nearly
equivalent as practicable. The provisions of this SECTION 4(D)(VI) shall
similarly apply to successive reorganizations, reclassifications,
consolidations or mergers.
(VII) PREFERRED STOCK PURCHASE AGREEMENT. The Conversion Price
shall be adjusted as provided in the Preferred Stock Purchase Agreement
dated as of October 12, 1999 by and among the Corporation, Quantum Energy
Partners, LP, EnCap Equity 1996 Limited Partnership, Energy Capital
Investment Company PLC, V&C Energy Limited Partnership and the other
parties who are signatories thereto (the "PURCHASE AGREEMENT"), in the
event of any inaccuracy in or breach of the representations or warranties
made by the Corporation therein.
(E) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series A Preferred
pursuant to this SECTION 4, the Corporation at its expense shall promptly
thereafter compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of Series A Preferred a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any Holder, furnish or cause to be furnished to
such Holder a like certificate setting forth (i) such adjustments and
readjustments, if any, (ii) the Conversion Price of the Series A Preferred at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series A Preferred.
(F) STATUS OF CONVERTED STOCK. In case any shares of Series A
Preferred shall be converted pursuant to SECTION 4 hereof, the shares so
converted shall be canceled, shall not be reissuable as Series A Preferred and
shall become a part of the authorized, but unissued preferred stock of the
Corporation.
(G) FRACTIONAL SHARES. In lieu of any fractional shares in the
aggregate to which any Holder would otherwise be entitled upon conversion, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of one share of Common Stock determined by the Board of Directors in the
good faith exercise of its reasonable business judgment.
(H) MISCELLANEOUS.
(I) All calculations under this SECTION 4 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(II) No adjustment in the Conversion Price of the Series A
Preferred will be made if such adjustment would result in a change in such
Conversion Price of less than $0.01. Any adjustment of less than $0.01
which is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment
9
which, on a cumulative basis, amounts to an adjustment of $0.01 or more in
such Conversion Price.
(I) NO IMPAIRMENT. The Corporation will not through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 4 and in the
taking of all action as may be necessary or appropriate in order to protect the
conversion rights of the Holders against impairment.
(J) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock and Class B Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred, such number of its
shares of Common Stock and Class B Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred. If at any time the number of authorized but unissued shares of Common
Stock or Class B Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series A Preferred, the Corporation will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock or Class B Common Stock, as the case may be, to
such number of shares as shall be sufficient for such purpose.
5. VOTING RIGHTS.
(A) GENERAL. To the extent required by law or by SECTION 5(B) or
SECTION 9 hereof, the Holders will be entitled to vote on all matters as a
separate class or series. On all matters other than matters set forth in SECTION
5(B), the Holders of Series A Preferred will also vote together with the holders
of Common Stock as a single class and each share of Series A Preferred will
entitle the Holder to the number of votes per share equal to the full number of
shares of Common Stock into which each share of Series A Preferred is
convertible on the record date for such vote. The Holders of Series A Preferred
shall receive notice of and shall be entitled to attend in person or by proxy
any meeting of the holders of Common Stock.
(B) VOTING FOR DIRECTORS. For so long as at least the "Threshold
Amount" (as defined below) of Series A Preferred is outstanding, the Holders of
a Requisite Interest, voting as a separate class, shall be entitled to elect the
Class B directors to the Board of Directors of the Corporation in accordance
with the Corporation's Amended and Restated Articles of Incorporation (the
"ARTICLES OF INCORPORATION"). Any vacancies on the Board of Directors resulting
from the death, resignation, disqualification or removal of any Class B
director, and any vacancies resulting from an increase in the number of Class B
directors, may be filled by a majority of the remaining Class B directors,
though less than a quorum, or by the Holders of a Requisite Interest. Class B
directors may be removed from the Board of Directors at any time, with or
without cause, by the vote or consent of the Holders of a Requisite Interest.
"THRESHOLD AMOUNT" shall mean at least ten percent (10%) of the sum of (a) the
shares of Series A Preferred issued on the Original Issue Date, and (b) the
number of additional shares of Series A Preferred issued to the Holders as
dividends or pursuant to other adjustments in accordance with the provisions of
this Certificate or the Purchase Agreement.
(C) AMENDMENT. Any amendment to this Certificate may be made solely
by a vote of the Board of Directors of the Corporation and the Holders of at
least ninety percent
10
(90%) of the then outstanding Series A Preferred (a "SUPERMAJORITY INTEREST"),
by duly called meeting or by written consent.
6. LIQUIDATION RIGHTS.
(A) RIGHT TO LIQUIDATION. At anytime after April 1, 2004, the
Holders of a Requisite Interest may elect to require the Corporation to use its
best efforts to liquidate (the "LIQUIDATION RIGHT") all or any portion of the
shares of Series A Preferred at a price per share equal to the Liquidation Price
(as defined herein). The Holders of a Requisite Interest may require the
Corporation to effect the Liquidation Right by giving written notice to the
Corporation of such election (a "LIQUIDATION Notice"). Upon receipt of a
Liquidation Notice, the Corporation will use its best efforts to liquidate the
shares of Series A Preferred specified in such Liquidation Notice as soon as
practicable and in all events within nine (9) months of the Corporation's
receipt of the Liquidation Notice. The Corporation shall give the Holders not
less than forty-five (45) days' notice of the date estimated for liquidation of
the Series A Preferred (the "LIQUIDATION DATE"). Upon the occurrence of a
"Trigger Event" (as defined in SECTION 6(G)), the Holders' sole remedy shall be
the right of increased voting power of the Class B directors elected by the
Holders, as set forth in the Articles of Incorporation; provided that the
limitation contained in this sentence shall not limit any other rights or
privileges the Holders may have under this Certificate, the Purchase Agreement
or any other agreement between the Corporation and a Holder.
(B) LIQUIDATION PRICE. The Holders shall be entitled to receive an
amount in cash for each share of Series A Preferred to be liquidated (the
"LIQUIDATION PRICE") equal to the greater of (i) the Fair Market Value of the
Corporation as of the Valuation Date (as hereinafter defined), as determined in
accordance with SECTION 6(C) hereof, divided by the total number of outstanding
shares of Common Stock of the Corporation (on a fully-diluted basis) and
multiplied by the number of shares of Common Stock into which each share of
Series A Preferred is convertible at the time the Liquidation Price is paid or
(ii) an amount per share of Series A Preferred equal to (A) the Conversion Value
plus (B) all accrued and unpaid dividends through the date of liquidation plus
any accrued and unpaid interest thereon ((A) and (B) in the aggregate, the
"REQUIRED RETURN"). The "VALUATION DATE " shall be the date 30 days prior to the
Liquidation Date.
(C) FAIR MARKET VALUE. The "FAIR MARKET VALUE" of the Corporation
shall be determined as follows:
(I) Within 30 days after the date of the Corporation's notice
of the Liquidation Date, the Corporation, on the one hand, and the Holders
on the other hand, will independently determine the Fair Market Value of
the Corporation as of the Valuation Date and each shall provide a written
analysis of such value to the other party. The Corporation will promptly
furnish, or direct its independent engineering firm to furnish, all
information reasonably requested by the Holders. If the difference between
the two valuations is less than 10% of the lower valuation, the Fair
Market Value of the Corporation shall be the average of the two
valuations. If either party fails to deliver a written notice of valuation
to the other party within the 30-day period, such party shall be deemed to
consent and agree to the valuation submitted by the other party, which
shall be the Fair Market Value of the Corporation for purposes of this
SECTION 6.
(II) If the difference between the two valuations is greater
than 10% of the lower valuation, the parties agree to engage an
Independent Evaluator mutually
11
acceptable to each of them (or if they are unable to agree, an Independent
Evaluator selected by the American Arbitration Association) to value the
Corporation. The Independent Evaluator shall review the valuations
submitted by the Corporation and the Holders in accordance with SECTION
6(C)(I) and shall consider such valuations as well as any other
information it deems relevant in order to determine the Fair Market Value
of the Corporation. The Fair Market Value of the Corporation as
established by the Independent Evaluator shall be final and binding on the
parties; provided that, if the Independent Evaluator fails to determine
the Fair Market Value of the Corporation prior to the Liquidation Date,
then, at the option of either the Corporation or the Holders of a
Requisite Interest, the Fair Market Value of the Corporation shall be
redetermined, in which case the Corporation shall establish a new
Liquidation Date by notice as provided in SECTION 6(A), the Valuation Date
shall be changed correspondingly and the process for determining the Fair
Market Value of the Corporation pursuant to SECTION 6(C) shall be
repeated. The reasonable fees and expenses of the Independent Evaluator
shall be borne by the Corporation; otherwise, such Holders and the
Corporation shall each bear their own fees, costs and expenses (including
fees and expenses of attorneys, accountants and other professional
advisors) incurred in connection with the appraisal and the liquidation of
the Holders' Series A Preferred.
(III) In all cases, the determination of the Fair Market Value
of the Corporation shall be made on a basis that (y) assumes that all of
the debts and obligations of the Corporation have been or will be
satisfied in full, and (z) in the event that the Corporation is a public
company, meaning that it is a company required to file periodic reports
with the Securities and Exchange Commission, at such time, takes into
account not only the market price of the Corporation's equity securities,
but also the underlying net asset value of the Corporation's properties.
(D) DIVIDENDS; RIGHTS OF HOLDERS. No shares of Series A Preferred
are entitled to any dividends accruing after the date on which the Liquidation
Price of such shares of Series A Preferred is paid. On such date, all rights of
the Holders will cease, and such shares of Series A Preferred will be deemed not
to be outstanding.
(E) REISSUANCE; NEW CERTIFICATES. Any shares of Series A Preferred
which are redeemed or otherwise acquired by the Corporation will be canceled and
will not be reissued, sold or transferred, but will become part of the
authorized but unissued preferred stock of the Corporation. If fewer than the
total number of shares of Series A Preferred represented by any certificate are
redeemed, a new certificate representing the number of unredeemed shares of
Series A Preferred will be issued to the Holder thereof without cost to such
Holder within three (3) business days after surrender of the certificate
representing the redeemed shares.
(F) RATABLE OFFERS. Neither the Corporation nor any subsidiary will
redeem, repurchase or otherwise acquire any shares of Series A Preferred
pursuant to this SECTION 6, except as expressly authorized herein or pursuant to
a purchase offer made pro rata to all Holders of shares of Series A Preferred on
the basis of the number of shares of Series A Preferred owned by each such
Holder.
(G) TRIGGER EVENT. A "TRIGGER EVENT" shall be deemed to have
occurred if, within nine months after the Corporation's receipt of a Liquidation
Notice, the Corporation shall have failed to accomplish either of the following:
(i) the completion of a registered public offering of the Conversion Shares on
terms acceptable to the Holders of a Requisite Interest
12
pursuant to which the Holders have received net proceeds in an amount sufficient
to achieve the Required Return per share of Series A Preferred held immediately
prior to the public offering, or (ii) the liquidation of all of the Series A
Preferred at or above the Liquidation Price.
7. NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall mail to each Holder, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the anticipated amount and character of such
dividend, distribution or right.
8. NOTICES. Any notice required or permitted by the provisions of this
Certificate to be given to the Holders shall be deemed given when deposited in
the United States mail, postage prepaid, and addressed to each Holder of record
at such Holder's address appearing on the books of the Corporation. Any notice
required or permitted by the provisions of this Certificate to be given to the
Corporation shall be deemed given when deposited in the United States mail,
postage prepaid, and addressed to the Corporation at its registered office or
its principal place of business.
9. APPROVAL OF CERTAIN TRANSACTIONS WHILE SERIES A PREFERRED IS
OUTSTANDING.
(A) REQUISITE INTEREST. So long as at least the Threshold Amount of
Series A Preferred is outstanding, the Corporation shall not, without first
obtaining the written approval of the Holders of a Requisite Interest, voting as
a separate class, take any action to:
(I) create any new class or series of shares that has a
preference over or is on a parity with the Series A Preferred with respect to
voting, dividends, liquidation preferences or otherwise;
(II) issue any shares of capital stock of the Corporation,
including Common Stock and any series of Preferred Stock, whether now authorized
or not, or any rights, options or warrants to purchase shares of Common Stock or
Preferred Stock, or any securities of any type whatsoever that are, or may
become, convertible into or exchangeable for shares of Common stock or Preferred
Stock; PROVIDED, HOWEVER, that the Corporation may issue (i) shares of capital
stock to the Holders in connection with the conversion of the Series A Preferred
or as a dividend or distribution on the Series A Preferred; (ii) securities in
connection with stock options or warrants outstanding as of the date hereof;
(iii) stock issued in connection with any stock split, stock dividend or
recapitalization by the Corporation; and (iv) shares of Common Stock (not
including any rights, options, warrants or other securities convertible into or
exchangeable for Common Stock) at a purchase price per share of such Common
Stock for cash or other consideration the fair market value of which is greater
than or equal to 150% of the Conversion Price then in effect;
(III) repurchase, redeem or retire any shares of capital stock
of the Corporation other than the repurchase of shares of Series A Preferred
pursuant to the terms thereof;
13
(IV) authorize or pay any dividend or other distribution
(other than a stock dividend) with respect to the Preferred Stock or the Common
Stock (other than the dividends payable to the Holders as provided in this
Certificate);
(V) undertake, enter into or consummate (A) a consolidation or
merger of the Corporation with or into any other corporation or business entity
in which the holders of the voting securities of the Corporation outstanding
immediately after the Original Issue Date do not continue to hold more than
fifty percent (50%) of the total voting securities of the surviving entity
outstanding immediately after such transaction, (B) the sale or other transfer
in a single transaction or a series of related transactions of all or
substantially all of the assets of the Corporation, or (C) the liquidation,
dissolution, winding-up or reorganization of the Corporation; or
(VI) enter into or modify any commodity hedge transaction at a
price below $17.50 per barrel for crude oil or $2.10 per MMBtu for natural gas.
For purposes of SECTION 9(A)(II), the fair market value of non-cash
consideration to be paid for Common Stock shall be determined by the Board of
Directors of the Corporation, provided that the Holders of a Requisite Interest
of the issued and outstanding Series A Preferred shall have the right to
challenge any determination by the Board of Directors of fair market value
pursuant to SECTION 9(A)(II), in which case such determination of fair market
value shall be made by an Independent Evaluator selected jointly by the Board of
Directors and the challenging parties (or if they are unable to agree, an
Independent Evaluator selected by the American Arbitration Association), the
reasonable cost of such appraisal to be borne by the Corporation.
(B) SUPERMAJORITY INTEREST. So long as at least the Threshold Amount
of Series A Preferred is outstanding, the Corporation shall not, without first
obtaining the written approval of the Holders of a Supermajority Interest,
voting as a separate class, take any action to:
(I) alter the rights, preferences or privileges of the Series
A Preferred;
or
(II) alter or amend the Articles of Incorporation, this
Certificate or the bylaws of the Corporation.
14
EXHIBIT B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TEXOIL, INC.
ARTICLE I
The name of the Corporation is Texoil, Inc (the "Corporation").
ARTICLE II
The location of the principal office of the Corporation in the State of
Nevada is Corporation Trust Co. of Nevada, ▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇., ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇.
Branch offices may hereafter be established at such other place or places,
either within or without the State of Nevada as may be determined from time to
time by the Board of Directors.
ARTICLE III
The Corporation may engage in any lawful activity.
ARTICLE IV
The total number of shares that the Corporation shall have authority to
issue is 45,000,000 shares, of which 25,000,000 shall be common shares ("Common
Stock") with a par value of $.01 per share, 10,000,000 shall be Class B Common
Stock ("Class B Common Stock") with a par value of $.01 per share and 10,000,000
shall be preferred shares ("Preferred Stock") with a par value of $.01 per
share.
The designation, relative rights, preferences and liabilities of each
class of stock, itemized by class, shall be as follows:
(a) PREFERRED STOCK. Shares of Preferred Stock may be issued from
time to time in one or more series, the shares of each series to have such
designations, powers, preferences, rights, limitations and restrictions as
are stated in the resolution or resolutions providing for the issuance of
such series adopted by the Board of Directors of the Corporation (the
"Board of Directors" or the "Board"). Authority is hereby expressly
granted to the Board of Directors to authorize the issuance of the
Preferred Stock from time to time in one or more series. The authority of
the Board with respect to each series of Preferred Stock shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
1
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or
dates;
(iii) Whether that series shall have voting rights in addition
to any voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges and,
if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(v) Whether or not shares of that series shall be redeemable
and whether or not the Corporation or the holder (or both) may
exercise the redemption right, including the date or dates upon
which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different
conditions; and
(vi) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and any other relative rights, preferences and
limitations of that class or series as may be permitted or required
by law.
(b) COMMON STOCK. Except as provided in subsections (i) through
(iii) of this subsection (b) below, the Common Stock and the Class B
Common Stock shall be identical in every respect, including, but not
limited to, voting rights, dividends, distributions, designations,
preferences, qualifications, limitations, restrictions and special or
relative rights (if any).
(i) Issuance of Class B Common Stock. Class B Common Stock may
only be issued upon the automatic conversion of the Series A
Convertible Preferred Stock of the Corporation (the "Series A
Preferred") pursuant to Section 4(b) of the Certificate of
Designation Establishing Series A Convertible Preferred Stock of
Texoil, Inc. (the "Certificate") filed with the Secretary of State
of Nevada contemporaneously with the filing of these Amended and
Restated Articles of Incorporation, as such Certificate may
hereafter be amended in accordance with its terms.
(ii) VOTING RIGHTS
(1) The voting rights of the Common Stock and the Class B
Common Stock are identical except that the holders of the
Common Stock are entitled to elect the Class A Directors of the
Corporation, and the holders of the Class B Common Stock, if
any is outstanding, are entitled to elect the Class B Directors
of the Corporation, except as provided in Article V(b).
(2) The Common Stock and the Class B Common Stock vote
together as a single class on all matters on which shareholders
are entitled to vote, except for the election of directors as
provided herein and in the Certificate, and Class B Common
Stock may never otherwise vote separately as a class.
(3) Each share of Common Stock and Class B Common Stock
shall be entitled to one vote on all matters submitted to a
vote of shareholders.
2
(iii) CONVERSION OF CLASS B COMMON STOCK.
(1) RIGHT TO CONVERT. Each share of Class B Common Stock
shall initially be convertible, at the option of the holder
thereof, at any time on or after the date of issuance thereof,
into fully paid and nonassessable shares of Common Stock at the
rate of one share of Common Stock for each share of Class B
Common Stock surrendered for conversion. The number of shares
of Common Stock into which each share of Class B Common Stock
is convertible, as such number may be adjusted from time to
time pursuant to Article IV(b)(iii)(3), is referred to as the
"Conversion Ratio."
(2) MECHANICS OF CONVERSION. Before any holder of Class B
Common Stock shall be entitled to convert shares of Class B
Common Stock into shares of Common Stock and to receive
certificates therefor, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the
principal office of the Corporation or of any transfer agent
for the Class B Common Stock, and shall give written notice to
the Corporation at such office that such holder elects to
convert the same. The Corporation shall as soon as practicable
after such delivery issue and deliver at such office to such
holder a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled. Such
conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the
shares of Class B Common Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes
as the holder or holders of such shares of Common Stock on such
date.
(3) ADJUSTMENTS TO CONVERSION PRICE.
(A) SUBDIVISIONS, COMBINATIONS OR CONSOLIDATION OF
COMMON STOCK. In the event the outstanding shares of Common
Stock shall be subdivided, combined or consolidated, by
stock split, stock dividend, combination or like event, into
a greater or lesser number of shares of Common Stock, the
Conversion Ratio in effect immediately prior to such
subdivision, combination or consolidation shall,
concurrently with the effectiveness of such subdivision,
combination or consolidation, be proportionately adjusted.
(B) RECLASSIFICATIONS. In the case, at any time after
the date hereof, of any capital reorganization or any
reclassification of the stock of the Corporation (other than
as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of
the Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the
continuing entity and which does not result in any change in
the Common Stock) the shares of Class B Common Stock shall,
after such reorganization, reclassification, consolidation
or merger, be convertible into the kind and number of shares
of stock or other securities or property of the surviving
corporation or otherwise to which a holder of Class B Common
Stock would have been entitled if immediately prior to such
reorganization, reclassification, consolidation or merger
such holder had converted his shares of Class B Common Stock
into Common Stock. In any such case, appropriate adjustment
shall be made in the application of the provisions of this
Article IV(b)(iii) after such reorganization,
3
reclassification, consolidation or merger so that the
provisions of this Article IV(b)(iii) (including adjustments
to the Conversion Ratio) shall be applicable after such
event and shall be as nearly equivalent as practicable. The
provisions of this Article IV(b)(iii)(3)(B) shall similarly
apply to successive reorganizations, reclassifications,
consolidations or mergers.
(4) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Ratio
pursuant to Article IV(b)(iii)(3), the Corporation at its
expense shall promptly thereafter compute such adjustment or
readjustment in accordance with the terms hereof and furnish to
each holder of Class B Common Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any
such holder, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustments and
readjustments, if any, (B) the Conversion Ratio of the Class B
Common Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the
conversion of the Class B Common Stock.
(5) STATUS OF CONVERTED STOCK. Any shares of Class B
Common Stock converted pursuant to this Article IV(b)(iii)
shall be retired and canceled, and shall no longer be available
for issuance.
(6) MISCELLANEOUS. All calculations under this Article
IV(b)(iii) shall be made to the nearest one hundredth (1/100)
of a share.
(7) NO IMPAIRMENT. The Corporation will not through any
reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions
of this Article IV(b)(iii) and in the taking of all action as
may be necessary or appropriate in order to protect the
conversion rights of the holders of Class B Common Stock
against impairment.
(8) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of
Class B Common Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Class B Common Stock.
If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Class B Common Stock, the
Corporation will take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such
purpose.
(iv) DIVIDENDS. To the extent permitted by law and subject to
the rights of any series of Preferred Stock, the holders of the
Common Stock and Class B Common Stock shall be entitled to share
pro rata according to the number of shares held in such dividends
as may be declared by the Board of Directors from time to time.
4
(v) LIQUIDATION. In the event of the liquidation, dissolution
or winding up, whether voluntary or involuntary of the Corporation,
the remaining assets and funds of the Corporation, after payment to
creditors and to those holders of securities with preference over
the Common Stock and the Class B Common Stock, shall be divided
among the holders of Common Stock and Class B Common Stock pro rata
according to the number of shares held.
(c) APPLICATION OF NEVADA STATUTES. The provisions of Nevada
Revised Statutes 78.378 through 78.3793 do not apply to the acquisition
of the Series A Preferred pursuant to the Purchase Agreement (as defined
in the Certificate) or to the acquisition of Conversion Shares (as
defined in the Certificate) by the holders of Series A Preferred.
ARTICLE V
Members of the governing board shall be known as "Directors." The maximum
number of members of the Board of Directors shall be nine (9), with the exact
number of Directors to be determined from time to time as provided in this
Article V. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board shall take action by
the affirmative vote of a majority of the directors present at a meeting, except
as otherwise provided by law or these Articles (as they may be modified by a
certificate of designation with respect to the issuance by the Board of a series
of preferred stock), provided that a quorum is present. The Board of Directors
may adopt such rules and regulations for the conduct of its meetings and the
management of the Corporation as it deems appropriate, consistent with law,
these Articles or the Bylaws of the Corporation, as amended.
Directors need not be shareholders of the Corporation. The Board of
Directors shall be classified, into two (2) classes (Class A and Class B) as
provided under Paragraphs (a) and (b) below, with the members of each class to
hold office until their successors are elected and qualified.
(a) CLASS A DIRECTORS. Not less than one (1) or more than six (6)
of the directors shall be designated Class A directors. Within that
range, the exact number of Class A Directors shall be determined from
time to time by a majority of the Class A Directors then in office,
though less than a quorum, or by the holders of Common Stock at the
annual meeting of shareholders; provided that no Class A Director's term
shall be shortened by a reduction in the number of Class A Directors.
Class A directorships will initially be held by the six members of the
Board of Directors who hold office on the date these Articles are filed
with the Secretary of the State of Nevada, and such members will continue
to serve pursuant to the terms hereof. Upon shareholder approval of these
Amended and Restated Articles of Incorporation, Class A directors shall
hold office for three (3) years and be divided into three (3) equal
groups, Group One to initially hold office one year and to be elected in
the first annual meeting after the date these Articles become effective,
and every three years thereafter, Group Two to hold office for two (2)
years and to be elected in the second annual meeting after the date these
Articles become effective, and and every three years thereafter and Group
Three to hold office for three (3) years and to be elected in the third
annual meeting after the date these Articles become effective, and every
three years thereafter.
5
Until a Trigger Event (as defined in the Certificate) occurs or six (6)
years elapse from the date these Articles are filed with the Secretary of State
of Nevada, whichever occurs first, the Class A Directors shall have a total of
six (6) votes, to be divided equally among the Class A Directors then holding
office. After a Trigger Event has occurred or six years have elapsed, the Class
A Directors shall, without further action by the Corporation or its Board of
Directors, have a total of three (3) votes, to be divided equally among the
Class A Directors then holding office. In each of the next annual meetings of
the shareholders after the Trigger Event, only one (1) Class A Director of each
Group shall be elected with the result that the actual number of Class A
Directors shall be reduced by Group to a total of three (3), without requiring
the involuntary resignation or removal of any Class A Director.
(b) CLASS B DIRECTORS. Not less than one (1) or more than three (3)
of the Directors shall be designated Class B Directors of the Corporation
who shall be elected by the holders of Series A Preferred of the
Corporation as long as there are any shares of Series A Preferred
outstanding, and by the holders of the Class B Common Stock of the
Corporation if there are no outstanding shares of Series A Preferred.
Within that range, the exact number of Class B Directors shall be
determined from time to time by a majority of the Class B Directors then
in office, though less than an quorum, or by the holders of a majority of
the outstanding shares of Series A Preferred or Class B Common Stock;
provided that no Class B Director's term shall be shortened by a
reduction in the number of Class B Directors. Class B directorships will
initially be filled by nominees elected by the holders of the Series A
Preferred, and the initial Class B Directors will serve until the next
annual meeting following their election. Thereafter, subject to the
provisions of the Certificate, Class B directors shall be elected every
year at the annual meeting of shareholders by the holders of Series A
Preferred Stock or holders of Class B Common Stock as provided above.
Nominees for Class B directorships shall be made by the holders of the
Series A Preferred Stock or Class B Common Stock, as applicable, and
shall be designated and elected as Class B Directors. At such time, after
the Original Issue Date (as defined in the Certificate), as less than the
Threshold Amount of Series A Preferred and less than the Threshold Amount
of Class B Common Stock are outstanding, the right to elect Class B
Directors shall cease and the Board shall consist solely of Class A
Directors. With respect to the Series A Preferred, "Threshold Amount" has
the meaning specified in the Certificate. With respect to the Class B
Common Stock, "Threshold Amount" means ten percent (10%) of the number of
shares of Class B Common Stock outstanding immediately after the
automatic conversion of the Series A Preferred pursuant to Section 4(b)
of the Certificate.
Until a Trigger Event occurs or six (6) years elapse from the date these
Articles are filed with the Secretary of State of Nevada, whichever occurs
first, the Class B Directors shall have a total of three (3) votes, to be
divided equally among the Class B Directors then holding office. After a Trigger
Event has occurred or six (6) years have elapsed, the Class B Directors shall,
without further action by the Corporation or its Board of Directors, have a
total of six (6) votes, to be divided equally among the Class B Directors then
holding office. As the actual numbers of Class A Directors are reduced, pursuant
to Article V(a), the holders of Series A Preferred Stock or Class B Common
Stock, as applicable, may correspondingly increase the actual number of Class B
Directors up to a total number of six (6).
6
(c) VACANCIES. Any vacancies on the Board of Directors resulting
from the death, resignation, disqualification or removal of any Class A
Director, and any vacancies resulting from an increase in the number of
Class A Directors, may be filled by the Class A Directors, whether or not
there is a quorum of Directors. Class A Directors may only be removed for
cause by the affirmative vote of the holders of the Common Stock. Any
vacancies on the Board of Directors resulting from the death,
resignation, disqualification or removal of any Class B Director, and any
vacancies resulting from an increase in the number of Class B Directors,
may be filled by a majority of the remaining Class B Directors, though
less than a quorum, or by the holders of a majority of the outstanding
shares of Series A Preferred or Class B Common Stock. Class B Directors
may be removed from the Board at any time, with or without cause, by the
vote or consent of the holders of a majority of the outstanding shares of
Series A Preferred or Class B Common Stock. The Board of Directors may
not create and fill new directorships or otherwise fill any vacancies,
except in accordance with the terms hereof.
ARTICLE VI
The Corporation shall become effective January 1, 1982, and shall have
perpetual existence.
ARTICLE VII
A resolution, in writing, signed by all of the members of the Board of
Directors of the Corporation, shall be and constitute action by the Board of
Directors to the effect therein expressed with the same force and effect as
though such resolution has been passed at a duly convened meeting, and it shall
be the duty of the Secretary to record every such resolution in the minute book
of the Corporation under its proper date.
ARTICLE VIII
The Directors shall have the power to make, alter or repeal from time to
time the Bylaws of the Corporation in any manner not inconsistent with the law,
these Articles or the Certificate. Bylaws so made by the Directors under the
powers so conferred may be altered, amended, or repealed by the Directors or the
shareholders in any manner not inconsistent with the law, these Articles or the
Certificate at any meeting called and held for that purpose.
ARTICLE IX
No director or officer of the Corporation shall be liable to the
Corporation or its shareholders for damages for breach of fiduciary duty as a
director or officer, except for (a) acts of omission which involve intentional
misconduct, fraud or a knowing violation of law; or (b) the payment of dividends
in violation of Nevada Revised Statutes Section 78.300.
ARTICLE X
(a) INDEMNIFICATION. The Corporation shall indemnify any Director
of the Corporation who was or is a party (whether plaintiff, defendant or
third party) or witness, or is threatened to be made a
7
party or witness to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the Corporation, by reason of the
fact that the Director is or was a director, officer, shareholder,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (whether or not for profit), or by
reason of anything done or not done by the Director in any such capacity
or capacities, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
the Director in connection with the action, suit or proceeding if the
Director acted in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was illegal. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and
that, with respect to an criminal action or proceeding, he or she had
reasonable cause to believe that his or her conduct was unlawful.
The Corporation shall indemnify any Director of the Corporation who was
or is a party (whether plaintiff, defendant or third party) or witness, or is
threatened to be made a party or witness to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that the Director is or was a director, officer,
shareholder, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise (whether or not for profit), or by reason of
anything done or not done by the Director in any such capacity or capacities,
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the Director in connection with the defense
or settlement of the action or suit if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom, to be liable
to the Corporation or for amounts paid in settlement to the Corporation, unless
and only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines, upon application, that in view
of all of the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
The expenses of Directors incurred in defending a civil or criminal
action, suit or proceeding shall be paid by the Corporation as they are incurred
and in advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the Director to repay the amount if
it is ultimately determined by a court of competent jurisdiction that the
Director is not entitled to be indemnified by the Corporation. The provisions of
this paragraph do not affect any rights to advancement of expenses to which
corporate personnel other than Directors may be entitled under any contract or
otherwise by law.
8
The indemnification and advancement of expenses authorized by this
Article:
(i) Does not exclude any other rights to which a Director seeking
indemnification or advancement of expenses may be entitled under any
other Article or any Bylaw, agreement, vote of shareholders or
disinterested directors, insurance policy or otherwise, for either an
action in his or her official capacity or an action in another capacity
while holding his or her office, except that indemnification, unless
ordered by a court or for the advancement of expenses made pursuant to
this Article, may not be made to or on behalf of any Director if a final
adjudication establishes that his or her acts or omissions involved
intentional misconduct, fraud or a knowing violations of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a director or
officer and inures to the benefit of the estate, spouse, heirs,
executors, administrators and personal representatives of such a person.
Any change or amendment in these Articles that would adversely affect the
rights granted to the indemnified person shall be prospective only and shall not
be operative to adversely affect any rights of any person entitled to
indemnification hereunder.
(b) INSURANCE. The Corporation shall use its best efforts to
purchase and maintain insurance or make other financial arrangements on
behalf of any Director who is or was a director, officer, shareholder,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise (whether or not for profit), or by
reason of anything done or not done by the Director in any such capacity
or capacities, for any liability asserted against him and liability and
expenses incurred by him in his capacity as a director, officer,
shareholder, employee or agent, or arising out of his status as such,
whether or not the Corporation has the authority to indemnify him against
such liability and expenses.
(c) OTHER FINANCIAL ARRANGEMENTS. The other financial arrangements
which may be made by the Corporation pursuant to part (b) above may
include, but are not limited to, the following:
(i) The creation of a trust fund;
(ii) The establishment of a program of self-insurance;
(iii) The securing of its obligations of indemnification by
granting a security interest or other lien on any assets of the
Corporation; or
(iv)The establishment of a letter of credit, guaranty or
surety.
No financial arrangement made pursuant to this part (c) may provide
protection for a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional misconduct,
fraud or a knowing violation of law, except with respect to the advancement of
expenses or indemnification ordered by a court.
9
Any insurance or other financial arrangement made on behalf of a person
pursuant to this Article may be provided by the Corporation or any other person
approved by the Board of Directors, even if all of the other person's stock or
other securities is owned by the Corporation.
(d) GENERAL. In the absence of intentional misconduct, fraud or a knowing
violation of law:
(i) The decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement
made pursuant to parts (b) and (c) above and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(ii) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal
liability for his or her action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
ARTICLE XI
This Corporation elects not to be governed by Nevada Revised Statutes
78.411 to 78.444, inclusive concerning combinations with interested
stockholders.
EXECUTED by the undersigned, effective as of this ______ day of
______________, 1999.
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
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EXHIBIT C
AMENDED AND RESTATED
BYLAWS OF
TEXOIL, INC.
NOVEMBER ______, 1999
(HEREINAFTER THE "CORPORATION")
ARTICLE I
SHAREHOLDERS
SECTION 1.1 ANNUAL MEETING. An annual meeting of the Corporation's
shareholders shall be held for the election of directors at such date, time and
place, either within or without the State of Nevada, as designated by resolution
adopted from time to time by the Corporation's Board of Directors. Any other
proper business may be transacted at the annual meeting.
SECTION 1.2 SPECIAL MEETINGS.
(a) Special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by the chairman, the president or the Board
of Directors and shall be called by the chairman, the president or the
Board of Directors at the written request of the holders of not less than
ten percent (10%) of the voting power of all the outstanding shares of the
Corporation entitled to vote at such meeting.
(b) Business transacted at all special meetings shall be confined to
the purpose or purposes stated in the notice of the meeting, unless one of
the conditions for the holding of a meeting without notice set forth in
Section 1.5 shall be satisfied, in which case any business may be
transacted and the meeting shall be valid for all purposes.
SECTION 1.3 PLACE OF MEETINGS. Any meeting of the shareholders of the
Corporation may be held at its registered office in the State of Nevada, its
principal office in the State of Texas or at such other place in or out of the
United States as the Board of Directors may designate in a notice of meeting.
SECTION 1.4 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors
shall sign and deliver written notice of any meeting to each shareholder
of record entitled to vote at such meeting not fewer than ten (10) days,
nor more than sixty (60) days, before the date of such meeting. The notice
shall state the place, date and time of the meeting and the purpose or
purposes for which the meeting is called. Notice of a special meeting
shall also state the purpose or purposes for which the meeting is called
and the person or persons calling the meeting.
(b) A copy of the notice shall be delivered personally or mailed
postage prepaid to each shareholder of record entitled to vote at the
meeting at the address appearing on the records of the Corporation, and
the notice shall be deemed effective when mailed the date the same is
correctly deposited in the United States mail for transmission to such
shareholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership, constitutes
delivery of the notice to the corporation, association or partnership.
(c) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy
thereof attached, the date the notice was mailed or personally delivered
to the shareholders and the addresses to which the notice was mailed,
shall be prima facie evidence of the manner and fact of giving such
notice.
(d) Any shareholder may waive notice of any meeting by a signed
writing, either before or after the meeting. Neither the business to be
transacted at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice or consent,
except as otherwise provided in Section 1.4 (a) of these Bylaws. All such
waivers shall be filed with the minutes or other Corporation records.
(e) Unless otherwise provided in the Articles of Incorporation as
they may be amended or, whenever notice is required to be given, under any
provision of the laws of the State of Nevada, the Articles of
Incorporation or these Bylaws, to any shareholder to whom:
(i) Notice of two consecutive annual meetings, and all
notices of meetings or the taking of action by written consent
without a meeting to that shareholder during the period
between those two consecutive annual meetings; or
(ii) All, and at least two, payments sent by first class
mail of dividends or interest on securities during a 12-month
period, have been mailed addressed to that shareholder at his
address as shown on the records of the Corporation and have
been returned undeliverable, the giving of further notices to
that shareholder is not required. Any action or meeting taken
or held without notice to that shareholder has the same effect
as if the notice had been given. If any such shareholder
delivers to the Corporation written notice setting forth the
current address of that shareholder, the requirement that
notice be given to that shareholder is reinstated. If the
action taken by the Corporation is such as to require the
filing of a certificate as required under the laws of the
State of Nevada, the certificate need not state that notice
was not given to persons to whom notice was not required to be
given.
(f) Notice delivered or mailed to shareholders in accordance with
the provisions of this Section 1.4 and the provisions, if any, of the
Articles of Incorporation, or an amendment thereof, is sufficient, and in
the event of transfer of that shareholder's stock after
2
such delivery or mailing and before the holding of the meeting it is not
necessary to deliver or mail notice of the meeting to the transferee.
(g) Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person objects at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not
a waiver of any right to object to the consideration of matters not
properly included in the notice if such objection is expressly made at the
time any such matters are presented at the meeting.
SECTION 1.5 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting of
shareholders consent, either by:
(i) A writing on the records of the meeting or filed with the
secretary; or
(ii) Presence at such meeting and oral consent entered on the
minutes; or
(iii) Taking part in the deliberations at such meeting without
objection;
the actions taken at such meeting shall be as valid as if such had
occurred at a meeting regularly called and noticed.
(b) At such meeting any business may be transacted that is not
excepted from the written consent or to the consideration of which no
objection for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of
the meeting may be ratified and approved and rendered likewise valid and
the irregularity or defect therein waived by a writing signed by all
parties having the right to vote at such meeting.
(d) Such consent or approval may be by proxy or attorney, but all
such proxies and powers of attorney must be in writing.
SECTION 1.6 DETERMINATION OF SHAREHOLDERS OF RECORD.
(a) For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof or for the purpose of determining shareholders entitled to receive
payment of any distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of
stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date for the determination of such
shareholders, which shall not be more than sixty
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(60) days nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action.
(b) If no record date is fixed for the purposes set forth in Section
1.6 (a), the record date for determining shareholders: (i) entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the business
day next preceding the date on which the meeting is held; and (ii) for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination
of shareholders of record entitled to notice of or to vote at any meeting
of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(c) The Board of Directors may adopt a resolution prescribing a date
upon which the shareholders of record are entitled to give written consent
pursuant to Section 1.9. The date prescribed by the Board of Directors may
not precede nor be more than ten (10) days after the date the resolution
is adopted by the Board of Directors. If the Board of Directors does not
adopt a resolution prescribing a date upon which the shareholders of
record are entitled to give written consent pursuant to Section 1.9, and
(i) no prior action by the Board of Directors is required, the
date is the first date on which a valid written consent is delivered
in accordance with the provisions of Section 1.9;
(ii) prior action by the Board of Directors is required, the
date is at the close of business on the day on which the Board of
Directors adopt the resolution taking the required action.
SECTION 1.7 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
proportion, shareholders holding a majority of the voting power of the
Corporation's stock issued and outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum
for the transaction of business at any meeting. If, on any issue, voting
by classes is required by the laws of the State of Nevada, the Articles of
Incorporation or these Bylaws, at least a majority of the voting power
within each such class is necessary to constitute a quorum of each such
class.
(b) If a quorum is not present or represented by proxy, a majority
of the voting power so represented may adjourn the meeting from time to
time until holders of the voting power required to constitute a quorum
shall be represented. At any such adjourned meeting at which a quorum
shall be represented, any business may be transacted which might have been
transacted as originally called. When a shareholders meeting is adjourned
to another time and place hereunder, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. The
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shareholders present at a duly convened meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum of the voting power.
(c) With respect to shares outstanding in the name of another
corporation, partnership, limited liability company or other legal entity
on the record date, votes may be cast: (i) in the case of a corporation,
by such individual as the bylaws of such other corporation prescribe, by
such individual as may be appointed by resolution of the board of
directors of such other corporation or by such individual (including the
officer making the authorization) authorized in writing to do so by the
chairman of the board of directors, president or any vice-president of
such corporation and (ii) in the case of a partnership, limited liability
company or other legal entity, by an individual representing such
shareholder upon presentation to the Corporation of satisfactory evidence
of that person's authority to do so.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast for shares owned by this Corporation or its
subsidiaries, if any. If shares are held by this Corporation or its
wholly-owned subsidiaries, if any, in a fiduciary capacity, no votes shall
be cast with respect thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a right to vote or
to give the Corporation holding the same binding instructions on how to
vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by the
entirety, voting trustees, persons entitled to vote under a shareholder
voting agreement or otherwise and shares held by two or more persons
(including proxy holders) having the same fiduciary relationship in
respect to the same shares, votes may be cast in the following manner:
(i) If only one person votes, the vote of such person binds
all.
(ii) If more than one person casts votes, the act of the
majority so voting binds all.
(iii) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(f) Except as otherwise required by law, the Articles of
Incorporation, as amended, or these Bylaws, and except with respect to the
election of directors, if a quorum is present, the affirmative vote of
holders of at least a majority of the voting power represented at the
meeting and entitled to vote shall be the act of the shareholders, unless
voting by classes is required for any action of the shareholders by the
laws of the State of Nevada, the Articles of Incorporation or these Bylaws
in which case the affirmative vote of holders of at least a majority of
the voting power of each such class shall be required. Each class of
Directors shall be elected by a plurality of the votes cast by the holders
of shares
5
entitled to vote in the election of that class of directors at a meeting
of shareholders at which a quorum is present.
SECTION 1.8 PROXIES.
(a) At any meeting of shareholders, any holder of shares entitled to
vote may designate, in a manner permitted by the laws of the State of
Nevada, another person or persons to act as proxy or proxies. No proxy is
valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise
specified in the proxy. In no event shall the term of a proxy exceed seven
(7) years from the date of its creation. Subject to these restrictions,
every proxy properly created is not revoked and shall continue in full
force and effect until another instrument or transmission revoking it or a
properly created proxy bearing a later date is filed with or transmitted
to the secretary of the Corporation or another person or persons appointed
by the Corporation to count the votes of shareholders and determine the
validity of proxies and ballots.
(b) Without limiting the manner in which a shareholder may authorize
another person or persons to act on behalf thereof as proxy pursuant to
Section 1.8 (a), the following constitute valid means by which a
shareholder may grant such authority:
(i) a shareholder may execute a writing authorizing another
person or persons to act for that shareholder as proxy. Execution
may be accomplished by the signing of the writing by the shareholder
or his authorized officer, director, employee or agent or by causing
the signature of the shareholder to be affixed to the writing by any
reasonable means, including, but not limited to, a facsimile
signature;
(ii) a shareholder may authorize another person or persons to
act for that shareholder as proxy by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic
transmission to the person who will be the holder of the proxy or to
a firm which solicits proxies or like agent who is authorized by the
person who will be the holder of the proxy to receive the
transmission. Any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the
shareholder. If it is determined that the telegram, cablegram or
other electronic transmission is valid, the persons appointed by the
Corporation to count the votes of shareholders and determine the
validity of proxies and ballots or other persons making those
determinations must specify the information upon which they relied.
(c) Any copy, communication by telecopier, or other reliable
reproduction of the writing or transmission created pursuant to
subparagraph (b), may be substituted for the original writing or
transmission for any purposes for which the original writing or
transmission could be used, if the copy, communication by telecopier, or
other reproduction is a complete reproduction of the entire original
writing or transmission.
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SECTION 1.9 ACTION TAKEN WITHOUT A MEETING.
(a) Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a written consent thereto
is signed by the holders of the voting power of the Corporation that would
be required at a meeting to constitute the act of the shareholders. Any
action required or permitted to be taken by the holders of any class or
series of shares of the Corporation may be taken without a meeting if a
written consent thereto is signed by the holders of a majority of the
outstanding shares of such class or series, except that if a different
proportion of voting power is required for such an action, then the
written consent of the holders of that portion of the outstanding shares
of such class or series shall be required. Whenever action is taken by
written consent, a meeting of shareholders need not be called or notice
given. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the shareholders.
(b) The board of directors may determine the record date of the
written consent for the purpose of determining the shareholders entitled
to deliver a consent, which date shall be no more than sixty (60) days
prior to the date of the first written consent executed. If the board does
not set a record date, it shall be the date of receipt by the Corporation
of the first written consent.
(c) A written consent is not valid unless it is:
(i) Signed by the shareholder;
(ii) Dated, as to the date of the shareholder's signature;
(iii) Delivered to the Corporation, in the manner prescribed
herein, within sixty (60) days after the earliest date that the
first shareholder signed and delivered the written consent. Delivery
of a written consent may be made personally, by certified or
registered mail, return receipt requested, by any receipted delivery
service or by facsimile transmission to the Corporation's principal
place of business. Any certificate required to be filed with the
Secretary of State of the State of Nevada must state that the
written consent has been effected in accordance with the provisions
of the laws of the State of Nevada.
ARTICLE II
DIRECTORS
SECTION 2.1 NUMBER AND QUALIFICATION. Unless a larger number is required
by the laws of the State of Nevada or the Articles of Incorporation or until
changed in the manner provided herein, the Board of Directors of the Corporation
shall consist of two (2) classes, Class A, which shall consist of not fewer than
one (1) or more than six (6), and Class B, which shall consist of not fewer than
one (1) or more than three (3), subject to adjustment upon a Trigger Event, as
provided in the Articles of Incorporation, as amended. The exact number of
directors of each Class any time,
7
removal of directors and filling vacancies on the Board of Directors shall be
determined or effected as provided in the Articles of Incorporation, as amended
from time to time.
SECTION 2.2 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the shareholders at which directors are elected, the Board of Directors,
including newly elected directors, shall hold its annual meeting without notice,
other than this provision, to elect officers and to transact such further
business as may be necessary or appropriate. The Board of Directors may provide
by resolution the place, date, and hour for holding regular meetings between
annual meetings.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the chairman or the president and shall be called by the
chairman, the president or the secretary upon the request of any two (2)
directors. If the chairman refuses or, if there is no chairman, if both the
president and secretary refuse or neglect to call such special meeting within
five (5) business days of the request, a special meeting may be called by notice
signed by any two (2) directors.
SECTION 2.4 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the Corporation may be held at such place as the Board of Directors
may designate or, in the absence of such designation, at the place designated in
the notice calling the meeting.
SECTION 2.5 NOTICE OF MEETINGS.
(a) Except as otherwise provided in Section 2.7, there shall be
delivered to all directors, at least forty-eight (48) hours before the
time of a meeting, a copy of a written notice of the meeting, by delivery
of such notice personally, by mailing such notice postage prepaid, or by
telegraph or telecopier. Such notice shall be addressed to each director
at the address appearing on the records of the Corporation. If mailed, the
notice shall be deemed delivered on the date the same is deposited in the
United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director at a meeting and oral consent
entered on the minutes of the meeting or taking part in deliberations of
the meeting without objection shall constitute a waiver of notice of such
meeting. Attendance for the express purpose of objecting to the
transaction of business thereat because the meeting is not properly called
or convenient shall not constitute presence nor a waiver of notice for
purposes hereof.
(b) Whenever all persons entitled to vote at any meeting of
directors consent, either by:
(i) A writing on the records of the meeting or filed with the
secretary; or
(ii) Presence at such meeting and oral consent entered on the
minutes; or
(iii) Taking part in the deliberations at such meeting without
objection;
8
the actions taken at such meeting shall be as valid as if such had
occurred at a meeting regularly called and noticed.
(c) At such meeting any business may be transacted that is not
excepted from the written consent or to the consideration of which no
objection for want of notice is made at the time.
(d) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of
the meeting may be ratified and approved and rendered likewise valid and
the irregularity or defect therein waived by a writing signed by all
parties having the right to vote at such meeting.
(e) Such consent or approval may be by proxy or attorney, but all
such proxies and powers of attorney must be in writing.
SECTION 2.6 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, provided that each of
Class A and Class B has at least one (1) representative, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of
business.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn the meeting, from time to
time, until a quorum is present, and no notice of such adjournment shall
be required. At any adjourned meeting where a quorum is present, any
business may be transacted which could have been transacted at the meeting
originally called.
SECTION 2.7 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 2.8 TELEPHONIC MEETINGS. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
2.13 constitutes presence in person at the meeting.
SECTION 2.9 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a committee thereof, or by
any Class of Directors, may be taken without meeting if, before or after the
action, a written consent thereto is signed by all of the members of the Board
of Directors, the committee or such Class, as the case may be. The written
consent may be signed in counterparts and must be filed with the minutes of the
proceedings of the Board of Directors or committee. A telegram, telex,
cablegram, or similar transmission by a director or member of a committee, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
signed by a director or member of a committee, shall be regarded as signed by
the director or member of a committee for purposes of this section.
9
SECTION 2.10 POWERS AND DUTIES. Except as otherwise restricted by Nevada
law or the Articles of Incorporation, as amended, the Board of Directors shall
have full control over the affairs of the Corporation. The Board of Directors
may delegate any of its authority to manage, control or conduct the business of
the Corporation to any standing or special committee or to any officer or agent
and to appoint any person to be agents of the Corporation with such powers,
including the power to subdelegate, and upon such terms as may be deemed fit.
SECTION 2.11 COMPENSATION. The directors and members of committees shall
be allowed and paid all necessary expenses incurred in attending any meetings of
the Board of Directors or committees. Unless otherwise provided in the Articles
of Incorporation, the Board of Directors may fix by resolution the compensation
of directors for services in any capacity.
SECTION 2.12 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors may elect from
among its members, a chairman who shall preside at meetings of the Board
of Directors and may preside at meetings of the shareholders. The Board of
Directors may also elect such other officers of the Board of Directors and
for such terms as it may from time to time deem advisable.
(b) Any vacancy in any office of the chairman of the Board of
Directors because of death, resignation, removal or otherwise may be
filled by the Board of Directors for the unexpired portion of the term of
such office.
SECTION 2.13 COMMITTEES OF DIRECTORS; CONDUCT OF BUSINESS.
(a) The Board of Directors may, by resolution or resolutions passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation,
which, to the extent provided in said resolution or resolutions, shall
have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have
power to authorize the seal of the Corporation to be affixed to all papers
which may require it. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
Board of Directors.
(b) Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except
as otherwise provided herein or required by the laws of the State of
Nevada. Adequate provisions shall be made for notice to members of all
meetings and all matters shall be determined by a majority vote of the
members present.
ARTICLE III
OFFICERS
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SECTION 3.1 ELECTION. The Board of Directors, at its annual meeting, shall
elect a chairman of the board, a president and chief executive officer, a
secretary and a treasurer to hold office for a term of one (1) year or until
their successors are chosen and qualify. Any individual may hold two or more
offices. The Board of Directors may, from time to time, by resolution, elect one
or more vice-presidents, assistant secretaries and assistant treasurers and
appoint agents of the Corporation, prescribe their duties and fix their
compensation.
SECTION 3.2 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the Corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the Corporation and such officer
or agent.
SECTION 3.3 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 3.4 CHAIRMAN OF THE BOARD. The chairman of the board shall, in the
absence of the president, preside at all meetings of the shareholders and of the
Board of Directors. The chairman of the board shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and the chairman of the board shall
have such other powers and duties as designated in accordance with these Bylaws
and as from time to time may be assigned to the chairman of the board by the
Board of Directors.
SECTION 3.5 PRESIDENT.
(a) The president shall be the chief executive of the Corporation
(and, in his discretion, may use either title), subject to the supervision
and control of the Board of Directors, and shall have general executive
charge, management and control over the properties, business and
operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities. The president may agree upon and
execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation and may sign all certificates
for shares of stock of the Corporation; and shall have such other powers
and duties as designated in accordance with these Bylaws and as from time
to time may be assigned to the president by the Board of Directors.
(b) The president shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or designate such other
officer or agent of the Corporation to attend and to act and to vote, at
any meetings of the shareholders of any corporation in which the
Corporation may hold stock and, at any such meetings, shall possess and
may exercise any and all rights and powers incident to the ownership of
such stock. The Board of Directors, by resolution from time to time, may
confer like powers on any person or persons in place of the president to
exercise such powers for these purposes.
11
SECTION 3.6 VICE-PRESIDENTS. Each vice-president shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Board of Directors or
the president of the Corporation. Each vice-president shall have such other
powers and duties as from time to time may be assigned to such vice-president by
the Board of Directors or the president.
SECTION 3.7 SECRETARY. The secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
shareholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest to the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of stock of the Corporation; shall have charge of the certificate
books, transfer books and stock ledgers, and such other books and papers as the
Board of Directors may direct, all of which shall at all reasonable times be
open to inspection of any director at the office of the Corporation during
business hours; shall have such other powers and duties as designated in these
Bylaws and as from time to time may be assigned to the secretary by the Board of
Directors or the president; and shall in general perform all acts incident to
the office of secretary, subject to the control of the Board of Directors or the
president.
SECTION 3.8 ASSISTANT SECRETARIES. Each assistant secretary shall have the
usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an assistant secretary by the Board of Directors, the president or
the secretary. The assistant secretaries shall exercise the powers of the
secretary during that officer's absence or inability or refusal to act.
SECTION 3.9 TREASURER.
(a) The treasurer shall be the chief financial officer of the
Corporation (and, in his discretion, may use either title), subject to the
supervision and control of the Board of Directors, and shall have custody
of all the funds and securities of the Corporation. When necessary or
proper, the treasurer shall endorse on behalf of the Corporation for
collection checks, notes, and other obligations, and shall deposit all
monies to the credit of the Corporation in such bank or banks or other
depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the Corporation. Unless
otherwise specified by the Board of Directors, the treasurer may sign with
the president all bills of exchange and promissory notes of the
Corporation, shall also have the care and custody of the stocks, bonds,
certificates, vouchers, evidence of debts, securities, and such other
property belonging to the Corporation as the Board of Directors shall
designate, and shall sign all papers required by law, by these Bylaws, or
by Board of Directors to be signed by the treasurer. The treasurer shall
enter, or cause to be entered, regularly in the financial records of the
Corporation, to be kept for that purpose, full and accurate accounts of
all monies received and paid on account of the Corporation and, whenever
required by the Board of Directors, the treasurer shall render a statement
of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any
12
director of the Corporation and shall perform all acts incident to the
position of treasurer subject to the control of the Board of Directors.
(b) The treasurer shall, if required by the Board of Directors, give
bond to the Corporation in such sum and with such security as shall be
approved by the Board of Directors for the faithful performance of all the
duties of treasurer and for restoration to the Corporation, in the event
of the treasurer's death, resignation, retirement or removal from office,
of all books, records, papers, vouchers, money and other property in the
treasurer's custody or control and belonging to the Corporation. The
expense of such bond shall be borne by the Corporation.
SECTION 3.10 ASSISTANT TREASURERS. The Board of Directors may appoint one
or more assistant treasurers who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the treasurer. The Board of
Directors may require an assistant treasurer to give a bond to the Corporation
in such sum and with such security as it may approve, for the faithful
performance of the duties of assistant treasurer, and for restoration to the
Corporation, in the event of the assistant treasurer's death, resignation,
retirement or removal from office, of all books, records, papers, vouchers,
money and other property in the assistant treasurer's custody or control and
belonging to the Corporation. The expense of such bond shall be borne by the
Corporation.
SECTION 3.11 COMPENSATION. The Board of Directors shall have the power to
fix the compensation of officers directly or by delegation of such authority
which may be either general or specific.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1 ISSUANCE. Shares of the Corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
Corporation may be a party, be issued in such manner, at such times, upon such
conditions and for such consideration as shall be prescribed by the Board of
Directors.
SECTION 4.2 CERTIFICATES. Ownership in the Corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the Corporation and shall be
manually signed by the president or a vice-president and also by the secretary
or an assistant secretary; provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of said officers of the
Corporation may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the Corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that
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the shares are assessable. All certificates shall be consecutively numbered. If
provided by the shareholder, the name, address and federal tax identification
number of the shareholder, the number of shares, and the date of issue shall be
entered in the stock transfer records of the Corporation.
SECTION 4.3 SURRENDERED, LOST OR DESTROYED CERTIFICATES. All certificates
surrendered to the Corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any shareholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the Corporation
with the shareholder's affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the treasurer or the Board of Directors shall
require, to indemnify the Corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
SECTION 4.4 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the Corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the Corporation with another
corporation or the reorganization of the Corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive distributions or exercise any other
rights of shareholders of record until the holder has complied with the order,
but the order operates to suspend such rights only after notice and until
compliance.
SECTION 4.5 TRANSFER OF SHARES. No transfer of stock shall be valid as
against the Corporation except on surrender and cancellation of the certificates
therefor accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer in the records of the
Corporation.
SECTION 4.6 TRANSFER AGENT; REGISTRARS. The Board of Directors may appoint
one or more transfer agents, transfer clerks and registrars of transfer and may
require all certificates for shares of stock to bear the signature of such
transfer agent, transfer clerk and/or registrar of transfer.
SECTION 4.7 MISCELLANEOUS. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer, and registration of certificates
for shares of the Corporation's stock.
ARTICLE V
DISTRIBUTIONS
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SECTION 5.1 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance of a record date, as provided in Section l.6, prior to the
distribution for the purpose of determining shareholders entitled to receive any
distribution.
ARTICLE VI
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 6.1 RECORDS. All original records of the Corporation shall be kept
by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 6.2 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the Corporation's books, records, and documents of every kind and to
inspect the physical properties of the Corporation and its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
SECTION 6.3 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Use or non-use of a seal shall
not in any way affect the legality of any document.
SECTION 6.4 FISCAL YEAR-END. The fiscal year-end of the Corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
SECTION 6.5 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the Corporation, or for such other purpose as
the Board of Directors may deem beneficial to the Corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
ARTICLE VII
INDEMNIFICATION, INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
SECTION 7.1 INDEMNIFICATION.
(a) The Corporation shall indemnify any Director of the Corporation
who was or is a party (whether plaintiff, defendant or third party) or
witness, or is threatened to be made a party or witness to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the Corporation, by reason of the fact that the Director is or was a
director, officer, shareholder, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise (whether or not for profit), or by reason of anything done or
not done by the Director in any such capacity or
15
capacities, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
Director in connection with the action, suit or proceeding if the Director
acted in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was illegal. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and that, with respect to an criminal action
or proceeding, he or she had reasonable cause to believe that his or her
conduct was unlawful.
The Corporation shall indemnify any Director of the Corporation who
was or is a party (whether plaintiff, defendant or third party) or
witness, or is threatened to be made a party or witness to any threatened,
pending or completed action or suit by or in the right of the Corporation
to procure a judgment in its favor by reason of the fact that the Director
is or was a director, officer, shareholder, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise (whether or not for profit), or by reason of anything
done or not done by the Director in any such capacity or capacities,
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the Director in connection with the
defense or settlement of the action or suit if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation. Indemnification may not
be made for any claim, issue or matter as to which such a person has been
adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom, to be liable to the Corporation or for amounts paid in
settlement to the Corporation, unless and only to the extent that the
court in which the action or suit was brought or other court of competent
jurisdiction determines, upon application, that in view of all of the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
The expenses of Directors incurred in defending a civil or criminal
action, suit or proceeding shall be paid by the Corporation as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the Director
to repay the amount if it is ultimately determined by a court of competent
jurisdiction that the Director is not entitled to be indemnified by the
Corporation. The provisions of this paragraph do not affect any rights to
advancement of expenses to which corporate personnel other than Directors
may be entitled under any contract or otherwise by law.
The indemnification and advancement of expenses authorized by this
Article:
(i) Does not exclude any other rights to which a Director
seeking indemnification or advancement of expenses may be entitled
under any other Article
16
of these Bylaws, the Articles of Incorporation, agreement, vote of
shareholders or disinterested directors, insurance policy or
otherwise, for either an action in his or her official capacity or
an action in another capacity while holding his or her office,
except that indemnification, unless ordered by a court or for the
advancement of expenses made pursuant to this Article, may not be
made to or on behalf of any Director if a final adjudication
establishes that his or her acts or omissions involved intentional
misconduct, fraud or a knowing violations of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a director or
officer and inures to the benefit of the estate, spouse, heirs,
executors, administrators and personal representatives of such a
person.
Any change or amendment in these Bylaws that would adversely affect
the rights granted to the indemnified person shall be prospective only and
shall not be operative to adversely affect any rights of any person
entitled to indemnification hereunder.
SECTION 7.2 INSURANCE. The Corporation shall use its best efforts to
purchase and maintain insurance or make other financial arrangements on behalf
of any Director who is or was a director, officer, shareholder, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise (whether or not for profit), or by reason of anything done or not
done by the Director in any such capacity or capacities, for any liability
asserted against him and liability and expenses incurred by him in his capacity
as a director, officer, shareholder, employee or agent, or arising out of his
status as such, whether or not the Corporation has the authority to indemnify
him against such liability and expenses.
SECTION 7.3 OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by the Corporation
pursuant to part (b) above may include, but are not limited to, the following:
(a) The creation of a trust fund;
(b) The establishment of a program of self-insurance;
(c) The securing of its obligations of indemnification by granting a
security interest or other lien on any assets of the Corporation; or
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this part (c) may provide
protection for a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable
17
for intentional misconduct, fraud or a knowing violation of law, except with
respect to the advancement of expenses or indemnification ordered by a court.
Any insurance or other financial arrangement made on behalf of a person
pursuant to this Article may be provided by the Corporation or any other person
approved by the Board of Directors, even if all of the other person's stock or
other securities is owned by the Corporation.
SECTION 7.4 GENERAL.
In the absence of intentional misconduct, fraud or a knowing violation of
law:
(a) The decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement
made pursuant to parts (b) and (c) above and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(i) Is not void or voidable; and
(ii) Does not subject any director approving it to personal
liability for his or her action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
ARTICLE VIII
AMENDMENT OR REPEAL
SECTION 8.1 AMENDMENT. Except as otherwise restricted in the Articles of
Incorporation or these Bylaws:
(a) Any provision of these Bylaws may be altered, amended or
repealed at the annual or any regular meeting of the Board of Directors
without prior notice, or at any special meeting of the Board of Directors
if notice of such alteration, amendment or repeal is contained in the
notice of such special meeting.
(b) These Bylaws may also be altered, amended, or repealed at a duly
convened meeting of the shareholders by the affirmative vote of the
holders of a majority percent of the voting power of the Corporation
issued and outstanding and entitled to vote.
CERTIFICATION
The undersigned duly elected secretary of the Corporation does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
____ day of October, 1999.
18
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary
19
EXHIBIT E
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), dated as of the _____ day of
____________, 1999, is by and between TEXOIL, INC., a Nevada corporation (the
"Company"), and ______________________ (the "Director"), a member of the Board
of Directors of the Company (the "Board").
RECITALS
A. The Company desires to retain the services of the Director as a
director of the Company.
B. As a condition to the Director's agreement to continue to serve the
Company as a director and to undertake to serve in certain other capacities on
behalf of the Company, the Director requires that he be indemnified from
liability to the fullest extent permitted by law.
C. The Company is willing to indemnify the Director to the fullest extent
permitted by law in order to retain the services of the Director.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, the Company and the Director agree as follows:
SECTION 1. MANDATORY INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE COMPANY. Subject to SECTION 4 hereof,
the Company shall indemnify and hold harmless the Director from and against any
claims, damages, expenses (including attorneys' fees), judgments, fines
(including excise taxes assessed with respect to an employee benefit plan) and
amounts paid in settlement actually and reasonably incurred by him in connection
with the investigation, defense, settlement or appeal of any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Company) and to
which the Director was or is a party or is threatened to be made a party by
reason of the fact that the Director is or was a director, officer, stockholder,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, or by reason of anything done or not done by the Director in any
such capacity or capacities, provided that the Director acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. For purposes of this
Agreement, the Director who serves as a director or officer of a subsidiary of
the Company is deemed to be serving at the request of the Company and the
Director is considered to be serving an employee benefit plan at the Company's
request if his duties to the Company also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
SECTION 2. MANDATORY INDEMNIFICATION IN ACTIONS OR SUITS BY OR IN THE
RIGHT OF THE COMPANY. Subject to SECTION 4 hereof, the Company shall indemnify
and
1
hold harmless the Director from and against any expenses (including
attorneys' fees) or amounts paid in settlement actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal of
any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor and to which the Director was or is a
party or is threatened to be made a party by reason of the fact that the
Director is or was a director, officer, stockholder, employee, or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of anything done or not done by the Director in any such capacity or
capacities, provided that the Director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made under this SECTION 2 in respect
of any claim, issue or matter as to which the Director shall have been adjudged
by a court of competent jurisdiction, after exhaustion of all appeals therefrom,
to be liable to the Company or for amounts paid in settlement to the Company,
unless and only to the extent that the court in which such action or suit was
brought (or any other court of competent jurisdiction) shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the Director is fairly and reasonably entitled to
indemnity for such expenses that such court shall deem proper.
SECTION 3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF NEGLIGENCE.
Subject to SECTION 4 hereof and any provisions of SECTION 2 hereof to the
contrary notwithstanding, the Company shall reimburse the Director for any
expenses (including attorneys' fees) or amounts paid in settlement actually and
reasonably incurred by him in connection with the investigation, defense,
settlement or appeal of any action or suit described in SECTION 2 hereof that
results in an adjudication that the Director was liable for negligence
(including gross negligence but not willful misconduct) in the performance of
his duty to the Company; provided, however, that the Director acted in good
faith and in a manner he believed to be in the best interests of the Company.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION.
4.1 DETERMINATION. Any indemnification under SECTIONS 1 and 2 hereof
(unless ordered by a court) and any reimbursement under SECTION 3 hereof shall
be made by the Company only as authorized in the specific case upon a
determination (the "Determination") that indemnification or reimbursement of the
Director is proper in the circumstances because the Director has met the
applicable standard of conduct set forth in SECTION 1, 2 or 3 hereof, as the
case may be. Subject to SUBSECTIONS 5.7, 5.8 and SECTION 8 of this Agreement,
the Determination shall be made (i) by the Board by a majority vote or consent
of a quorum consisting of directors ("Disinterested Directors") who are not, at
the time of the Determination, named parties to the action, suit or proceeding
for which indemnification or reimbursement is sought (the "Proceeding"), or (ii)
if such a quorum is not obtainable, or, even if obtainable, a quorum of
Disinterested Directors so directs, by independent legal counsel in a written
opinion, or (iii) by vote or consent of the holders of a majority of the
outstanding shares of the Company that are entitled to vote generally for the
election of directors and are represented in person or by proxy at a meeting
called for such purpose, or (iv) if a quorum cannot be obtained under
SUBDIVISION (I), by majority vote or consent of a committee duly designated by
the Board (in which designation all directors, whether or not disinterested, may
participate), consisting solely of two or more directors who are not, at the
time of the Determination, named parties, to the Proceeding.
2
4.2 NO PRESUMPTIONS. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the Director did
not act in good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
4.3 BENEFIT PLAN CONDUCT. The Director's conduct with respect to an
employee benefit plan for a purpose he reasonably believed to be in the
interests of the participants in and beneficiaries of the plan shall be deemed
to be conduct that the Director reasonably believed to be not opposed to the
best interests of the Company.
4.4 RELIANCE AS SAFE HARBOR. For purposes of any Determination hereunder,
the Director shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, to have had no
reasonable cause to believe his conduct was unlawful, if his action is based on
the records or books of account of the Company or another enterprise, including
financial statements, or on information supplied to him by the directors of the
Company or another enterprise in the course of their duties, or on the advice of
legal counsel for the Company or another enterprise or on information or records
given or reports made to the Company or another enterprise by an independent
certified public accountant, registered professional engineer or by an appraiser
or other expert selected with reasonable care by the Company or another
enterprise. The term "another enterprise" as used in this SUBSECTION 4.4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which the Director is or was serving at the
request of the Company as a director, officer, partner, trustee, employee or
agent. The provisions of this SUBSECTION 4.4 shall not be deemed to be exclusive
or to limit in any way the other circumstances in which the Director may be
deemed to have met the applicable standard of conduct set forth in SECTION 1, 2
or 3 hereof, as the case may be.
4.5 SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other provision of
this Agreement, to the extent that the Director has been successful on the
merits or otherwise in defense of any action, suit or proceeding described in
SECTIONS 1, 2 and 3 hereof, or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the investigation,
defense, settlement or appeal thereof. For purposes of this SUBSECTION 4.5, the
term "successful on the merits or otherwise" shall include, but not be limited
to, (i) any termination, withdrawal, or dismissal (with or without prejudice) of
any claim, action, suit or proceeding against the Director without any express
finding of liability or guilt against him, (ii) the expiration of one year after
the making of any claim or threat of an action, suit or proceeding without the
institution of the same and without any promise or payment made by or on behalf
of the Director to induce a settlement, or (iii) the settlement of any action,
suit or proceeding under SECTION 1, 2 or 3 hereof pursuant to which the Director
pays less than $25,000.
4.6 PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the Director is entitled
under any provision of the Agreement to indemnification and/or reimbursement by
the Company for some or a portion of the claims, damages, expenses (including
attorneys' fees), judgments, fines or amounts paid in settlement by the Director
in connection with the investigation, defense, settlement or appeal of any
action specified in SECTION 1, 2 or 3 hereof, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify and/or reimburse the
Director for the portion thereof to which the Director is entitled. The party or
parties making the
3
Determination shall determine the portion (if less than all) of such claims,
damages, expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement for which the Director is entitled to indemnification and/or
reimbursement under this Agreement.
SECTION 5. PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE BEEN
SATISFIED.
5.1 COSTS. All costs of making the Determination required by SECTION 4
hereof shall be borne solely by the Company, including, but not limited to, the
costs of legal counsel, proxy solicitations and judicial determinations. The
Company shall also be solely responsible for paying (i) all reasonable expenses
incurred by the Director to enforce this Agreement, including, but not limited
to, the costs incurred by the Director to obtain court-ordered indemnification
pursuant to SECTION 8 hereof, regardless of the outcome of any such application
or proceeding, and (ii) all costs of defending any suits or proceedings
challenging payments to the Director under this Agreement.
5.2 TIMING OF THE DETERMINATION. The Company shall use its best efforts to
make the Determination contemplated by SECTION 4 hereof promptly.
In addition, the Company agrees:
(A) if the Determination is to be made by the Board or a committee
thereof, such Determination shall be made not later than fifteen (15) days after
a written request for a Determination (a "Request") is delivered to the Company
by the Director;
(B) if the Determination is to be made by independent legal counsel,
such Determination shall be made not later than twenty (20) days after a Request
is delivered to the Company by the Director; and
(C) if the Determination is to be made by the stockholders of the
Company, such Determination shall be made not later than ninety (90) days after
a Request is delivered to the Company by the Director.
The failure to make a Determination within the above-specified time periods
shall constitute a Determination approving full indemnification or reimbursement
of the Director, as the case may be, except as expressly limited by the laws of
the State of Nevada. Notwithstanding anything herein to the contrary, a
Determination may be made in advance of (i) the Director's payment (or
incurring) of expenses with respect to which indemnification is sought, and/or
(ii) final disposition of the action, suit or proceeding with respect to which
indemnification is sought.
5.3 REASONABLENESS OF EXPENSES. Notwithstanding the definition of
"Determination," the evaluation as to the reasonableness of expenses incurred by
the Director for purposes of this Agreement shall be made within fifteen (15)
days of the Director's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(A) by the Board by a majority vote of a quorum consisting of
directors not (at the time of the Determination) parties to the proceeding for
which the Director seeks indemnification; or
(B) if a quorum cannot be obtained under SUBDIVISION (A), by
majority vote of a committee duly designated by the Board (in which designation
directors who are parties may participate), consisting solely of two or more
directors not at the time parties to the proceeding; or
4
(C) if an evaluation cannot be obtained under either SUBDIVISION (A)
or (B) of this SUBSECTION 5.3, by vote or consent of the holders of a majority
of the outstanding shares of the Company that are entitled to vote generally for
the election of directors and are represented in person or by proxy at a meeting
called for such purpose.
All expenses shall be considered reasonable for purposes of this Agreement if
the evaluation contemplated by this SUBSECTION 5.3 is not made within the
prescribed time. The finding required by this SUBSECTION 5.3 may be made in
advance of the payment (or incurring) of the expenses for which indemnification
is sought.
5.4 PAYMENT OF INDEMNIFIED OR REIMBURSED AMOUNT. Immediately following a
Determination that the Director has met the applicable standard of conduct set
forth in SECTION 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by SUBSECTION 5.3 hereof, or the passage
of time prescribed for making such determination(s), the Company shall pay to
the Director in cash the amount to which the Director is entitled to be
indemnified or reimbursed, as the case may be, without further authorization or
action by the Board; provided, however, that the expenditures for which
indemnification is sought have actually been incurred by the Director.
5.5 PARTICIPATION IN STOCKHOLDER VOTE ON DETERMINATION. In connection with
each meeting at which a stockholder Determination will be made, the Company
shall solicit proxies that expressly include a proposal to indemnify or
reimburse the Director. The Company proxy statement relating to the proposal to
indemnify or reimburse the Director shall not include a recommendation against
indemnification or reimbursement, as the case may be.
5.6 SELECTION OF INDEPENDENT LEGAL COUNSEL. If the Determination required
under SECTION 4 is to be made by independent legal counsel, such counsel shall
be selected by the Director with the approval of the Board, which approval shall
not be unreasonably withheld. The fees and expenses incurred by counsel in
making any Determination (including Determinations pursuant to SUBSECTION 5.8
hereof) shall be borne solely by the Company regardless of the results of any
Determination and, if requested by counsel, the Company shall give such counsel
an appropriate written agreement with respect to the payment of their fees and
expenses and such other matters as may be requested by counsel.
5.7 RIGHT OF DIRECTOR TO APPEAL AN ADVERSE DETERMINATION BY BOARD. If a
Determination is made by the Board or a committee thereof that the Director did
not meet the applicable standard of conduct set forth in SECTION 1, 2 or 3
hereof, upon the written request of the Director and the Director's delivery of
$500 to the Company, the Company shall cause a new Determination to be made by
the Company's stockholders at the next regular or special meeting of
Stockholders. Subject to SECTION 8 hereof, such Determination by the Company's
stockholders shall be binding and conclusive for all purposes of this Agreement.
5.8 RIGHT OF DIRECTOR TO SELECT FORUM FOR DETERMINATION. If, at any time
subsequent to the date of this Agreement, "Continuing Directors" (as defined
below) do not constitute a majority of the members of the Board, or there is
otherwise a change in control of the Company as contemplated by Item 403(c) of
Regulation S-K, then upon the request of the Director, the Company shall cause
the Determination required by SECTION 4 hereof to be made by independent legal
counsel selected by the Director and approved by the Board (which approval shall
not be unreasonably withheld), which counsel shall be deemed to satisfy the
requirements of CLAUSE (II) of SECTION 4 hereof. If none of the legal counsel
selected by the Director are
5
willing and/or able to make the Determination, then the Company shall cause the
Determination to be made by a majority vote or consent of a Board committee
consisting solely of Continuing Directors. For purposes of this Agreement, a
"Continuing Director" means either a member of the Board at the date of this
Agreement or a person nominated to serve as a member of the Board by a majority
of the then Continuing Directors.
5.9 ACCESS BY DIRECTOR TO DETERMINATION. The Company shall afford to the
Director and his representatives ample opportunity to obtain documents and
information in the possession or control of the Company prior to any
Determination and to present evidence of the facts upon which the Director
relies for indemnification or reimbursement, together with other information
relating to any requested Determination. The Company shall also afford the
Director the reasonable opportunity to include such evidence and information in
any Company proxy statement relating to a stockholder Determination.
5.10 JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In each action or suit
described in SECTION 2 hereof, the Company shall cause its counsel to use its
best efforts to obtain from the Court in which such action or suit was brought
(i) an express adjudication whether the Director is liable for negligence or
misconduct in the performance of his duty to the Company, and, if the Director
is so liable, (ii) a determination whether and to what extent, despite the
adjudication of liability but in view of all the circumstances of the case
(including this Agreement), the Director is fairly and reasonably entitled to
indemnification.
SECTION 6. SCOPE OF INDEMNITY. The actions, suits and proceedings
described in SECTIONS 1, 2 and 3 hereof shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of the
Director both in his official capacities as a Company director and actions taken
in another capacity while a director, including, but not limited to, actions or
proceedings involving (i) compensation paid to the Director by the Company, (ii)
activities by the Director on behalf of the Company, including actions in which
the Director is plaintiff, (iii) actions alleging a misappropriation of a
"corporate opportunity," (iv) responses to a takeover attempt or threatened
takeover attempt of the Company, (v) transactions by the Director in Company
securities, (vi) the Director's preparation for and appearance (or potential
appearance) as a witness in any proceeding relating, directly or indirectly, to
the Company and (vii) any actions against the Director related to the employees
of the Company.
SECTION 7. ADVANCE FOR EXPENSES.
7.1 MANDATORY ADVANCE. Any expenses (including attorneys' fees, court
costs, judgments, fines, amounts paid in settlement and other payments) incurred
or reasonably expected to be incurred by the Director in investigating,
defending, settling or appealing any action, suit or proceeding described in
SECTION 1, 2 or 3 hereof shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding. The Company shall promptly pay
the amount of such expenses to the Director, but in no event later than ten (10)
days following the Director's delivery to the Company of a written request for
an advance pursuant to this SECTION 7, together with a reasonable accounting of
such expenses (if already incurred) or a reasonable estimate of such expenses
(if not yet incurred). If the Director shall receive from the Company an advance
of expenses based on the Director's reasonable estimate of such expenses before
such expenses are incurred, the Director shall promptly provide to the Company a
reasonable accounting of such expenses following the actual incurrence of such
expenses, but in no event later than ten (10) days after such incurrence. In the
event that the amount advanced by the Company to the Director for such expenses
exceeds the expenses
6
actually incurred by the Director, the Director shall promptly pay the amount of
such excess to the Company, but in no event later than ten (10) days following
the Director's actual incurrence of such expenses. In the event that the actual
expenses incurred by the Director exceed the estimated expenses, the Company
shall promptly pay the amount of such excess expenses to the Director, but in no
event later than ten (10) days following the Director's delivery to the Company
of a reasonable accounting of such expenses.
7.2 UNDERTAKING TO REPAY. The Director hereby undertakes and agrees to
repay to the Company any advances made pursuant to this SECTION 7 if it is
ultimately determined by a court of competent jurisdiction that the Director is
not entitled to be indemnified or reimbursed by the Company for such amounts.
7.3 MISCELLANEOUS. The Company shall make the advances contemplated by
this SECTION 7 regardless of the Director's financial ability to make repayment,
and regardless whether indemnification or reimbursement of the Director by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this SECTION 7 shall be unsecured and interest-free.
7.4 CONTROL OF LITIGATION. Notwithstanding anything herein to the
contrary, and without affecting the indemnity herein provided for, the Director
shall have the absolute right to (i) retain separate counsel in connection with
any action or proceeding described in SECTION 1, 2 or 3 hereof, and (ii) to
settle any such action or portion thereof with respect to the Director.
SECTION 8. COURT-ORDERED INDEMNIFICATION. Regardless whether the Director
has met the standard of conduct set forth in SECTIONS 1, 2 and 3 hereof, as the
case may be, and notwithstanding the presence or absence of any Determination
whether such standards have been satisfied, the Director may apply for
indemnification to the court conducting any proceeding to which the Director is
a party or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification if it determines the Director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances (including
this Agreement).
SECTION 9. NONDISCLOSURE OF PAYMENTS. Except as required by federal
securities laws or other applicable laws, neither party shall disclose any
payments under this Agreement unless prior approval of the other party is
obtained.
SECTION 10. INSURANCE. The Company shall use its best efforts to maintain
in effect the policies of the directors' and officers' liability insurance
maintained by the Company as of the date hereof (the "Present Insurance");
provided, however, that (i) the Company may substitute therefor policies of at
least the same coverage containing terms and conditions that are no less
advantageous to the insured parties, and (ii) if the premiums for such insurance
shall become unreasonably expensive, then the Company may discontinue such
insurance if the Company itself insures the Director up to the same amounts, and
on the same terms and conditions, as though the Company were the insurer under
the current policies. In addition, if the Present Insurance or comparable
coverage is not available, the Company shall issue the Director up to the same
amounts, and on the same terms and conditions, as though the Company were the
insurer under the Present Insurance.
SECTION 11. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No legal action
shall be brought and no cause of action shall be asserted by or on behalf of the
Company (or any of its subsidiaries) against the Director, his spouse, heirs,
executors, personal
7
representative or administrators after the expiration of twelve (12) months from
the date the Director ceases (for any reason) to be a director or officer of the
Company, and any claim or cause of action of the Company (or any of its
subsidiaries) shall be extinguished and deemed released unless asserted by
filing of a legal action within such twelve-month period.
SECTION 12. INDEMNIFICATION OF DIRECTOR'S ESTATE. Notwithstanding any
other provision of this Agreement, and regardless whether indemnification or
reimbursement of the Director would be permitted and/or required under this
Agreement, if the Director is deceased, the Company shall indemnify and hold
harmless the Director's estate, spouse, heirs, administrators, personal
representatives and executors (collectively the "Director's Estate") against,
and the Company shall assume, any and all claims, damages, expenses (including
attorneys' fees), penalties, judgments, fines and amounts paid in settlement
actually incurred by the Director or the Director's Estate in connection with
the investigation, defense, settlement or appeal of any action described in
SECTION 1, 2 or 3 hereof. Indemnification of the Director's Estate pursuant to
this SECTION 12 shall be mandatory and not require a Determination or any other
finding that the Director's conduct satisfied a particular standard of conduct.
SECTION 13. MISCELLANEOUS.
13.1 OTHER INDEMNIFICATION. The indemnification provided for in this
Agreement is in addition to indemnification to which the Director is entitled
pursuant to the Articles of Incorporation and Bylaws of the Company, other
agreements or otherwise.
13.2 NOTICE PROVISION. Any notice, payment, demand or communication
required or permitted to be delivered or given by the provisions of this
Agreement shall be deemed to have been effectively delivered or given and
received on the date personally delivered to the respective party to whom it is
directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the Company at its principal office and
addressed to the Director at the following address:
Quantum Energy Partners, LP
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
or at such other address given from time to time by the Director to the
Company.
13.3 SEVERABILITY OF PROVISIONS. If any provision or any portion of any
provision of this Agreement is held to be illegal, invalid or unenforceable
under present or future laws effective during the term of this Agreement, such
provision (or portion thereof) shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
(or portion thereof) had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision (or
portion thereof) or by its severance from this Agreement. Furthermore, in lieu
of each such illegal, invalid or unenforceable provision (or portion thereof),
there shall be added automatically as a part of this Agreement a provision (or
portion thereof) as similar in terms to such illegal, invalid or unenforceable
provision (or portion thereof) as may be possible and be legal, valid and
enforceable.
13.4 APPLICABLE LAW. This Agreement shall be governed by and
construed under the laws of the State of Nevada.
8
13.5 EXECUTION IN COUNTERPARTS. This Agreement and any amendment may be
executed simultaneously or in two or more counterparts, each of which together
shall constitute one and the same instrument.
13.6 COOPERATION AND INTENT. The Company shall cooperate in good faith
with the Director and use its best efforts to ensure that the Director is
indemnified, insured and/or reimbursed for liabilities described herein to the
fullest extent permitted by law.
13.7 AMENDMENT. No amendment, modification or alteration of the terms of
this Agreement shall be binding unless in writing, dated subsequent to the date
of this Agreement, and executed by the parties.
13.8 BINDING EFFECT. The obligations of the Company to the Director
hereunder shall survive and continue as to the Director even if the Director
ceases to be a director, officer, employee and/or agent of the Company. Each and
all of the covenants, terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the successors to the Company and, upon the
death of the Director, to the benefit of the estate, heirs, executors,
administrators and personal representatives of the Director.
13.9 GENDER AND NUMBER. Wherever the context shall so require, all words
herein in the male gender shall be deemed to include the female or neuter
gender, all singular words shall include the plural and all plural words shall
include the singular.
13.10 NONEXCLUSIVITY. The rights of indemnification, reimbursement and
insurance provided in this Agreement shall be in addition to any rights to which
the Director may otherwise be entitled by statute, bylaw, agreement, vote of
stockholders or otherwise.
13.11 EFFECTIVE DATE. The provisions of this Agreement shall cover claims,
actions, suits and proceedings whether now pending or hereafter commenced and
shall be retroactive to cover acts or omissions or alleged acts or omissions
that heretofore have taken place.
THE COMPANY
TEXOIL, INC.
By: _____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
THE DIRECTOR
_________________________________
[NAME OF DIRECTOR]
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of __________________, 1999,
is entered into by and among Texoil, Inc., a Nevada corporation (together with
its successors and assigns, the "Company"), Quantum Energy Partners, LP, EnCap
Equity 1996 Limited Partnership, Energy Capital Investment Company PLC, V&C
Energy Limited Partnership, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇ (together, the "Investors").
1. BACKGROUND. The Company and each of the Investors have entered into a
Preferred Stock Purchase Agreement, dated as of October 12, 1999 (the "Purchase
Agreement"), relating to a proposed transaction in which the Investors will each
purchase shares of Series A Preferred Stock, par value $0.01 per share (the
"Series A Preferred"), of the Company (the "Proposed Transaction"). The
execution and delivery of this Agreement is a condition to consummation of the
Proposed Transaction.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1. REGISTRATION ON REQUEST.
(a) Upon the written request of one or more holders of Registrable
Securities requesting that the Company effect the registration under the
Securities Act of all or a portion of such holders' Registrable Securities and
specifying the intended method of disposition thereof and whether or not such
requested registration is to be an underwritten offering, the parties hereto
agree as follows:
(i) The Company will promptly give written notice of such requested
registration to all other holders of Registrable Securities, if any;
(ii) Promptly after the performance of any obligations imposed under
clause (i) of this Section 2.1(a), and subject to the limitations set
forth in subsection (e) of this Section 2.1, the Company will use its best
efforts to effect the registration under the Securities Act of:
(A) the Registrable Securities which the Company has been so
requested to register by such holders, and
(B) all other Registrable Securities which the Company has
been requested to register by the holders thereof by written request
given to the Company within 30 days after the giving of such written
notice by the Company (which request shall specify the intended
method of disposition of such Registrable Securities), all to the
extent required to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities
to be registered;
(b) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall effect a
registration pursuant to this Section 2.1 in connection with an underwritten
offering by one or more holders of
1
Registrable Securities, no securities other than Registrable Securities shall be
included among the securities covered by such registration unless (i) the
managing underwriter of such offering shall have advised each holder of
Registrable Securities to be covered by such registration in writing that the
inclusion of such other securities would not adversely affect such offering or
(ii) the holders of all Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities.
(c) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission (i) as shall be
selected by the Company and as shall be reasonably acceptable to the Requisite
Holders, and (ii) as shall permit the disposition of such Registrable Securities
in accordance with the intended method or methods of disposition specified in
their request for such registration. The Company agrees to include in any such
registration statement all information which holders of Registrable Securities
being registered shall reasonably request.
(d) EXPENSES. The Company will pay all Registration Expenses in connection
with any registration requested pursuant to this Section 2.1. Any Selling
Expenses in connection with any registration requested under this Section 2.1
shall be allocated among all Persons on whose behalf securities of the Company
are included in such registration, on the basis of the respective amounts of the
securities then being registered on their behalf.
(e) LIMITATIONS ON REQUESTED REGISTRATIONS. The Company's obligation to
take or continue any action to effect a requested registration under this
Section 2.1 shall be subject to the following:
(i) The Company shall not be required to effect more than three
registrations requested pursuant to this Section 2.1; provided that, a
registration requested pursuant to this Section 2.1 shall not be deemed to
have been effected (A) unless a registration statement with respect
thereto has been declared effective for a period of at least 90 days, (B)
if after a registration statement has become effective, such registration
is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for
any reason, or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied, other than as a result of the voluntary
termination of such offering by the Requisite Holders;
(ii) The Company will not be required to effect a registration
pursuant to this Section 2.1 unless such registration has been requested
by the holders of Registrable Securities which either (A) represent at
least 25% of the Registrable Securities then outstanding, or (B) have an
estimated aggregate offering price to the public of at least $5,000,000;
(iii) The Company will not be required to effect a registration
pursuant to this Section 2.1 during the ninety-day period after a
registration statement shall have been filed and declared effective under
the Securities Act with respect to the public offering of any class of the
Company's equity securities (which shall exclude a registration of
securities with respect to an employee benefit, retirement or similar
plan); and
2
(iv) If (A) in the good faith judgment of the Board of Directors of
the Company, a required registration under this Section 2.1 would be
seriously detrimental to the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing
of such registration statement at such time, and (B) the Company shall
furnish to the holders of Registrable Securities requesting registration a
certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration statement to be
filed in the near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall have the
right to defer such filing for a period of not more than one hundred
eighty (180) days after receipt of the request of a holder of Registrable
Securities, and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
(f) SELECTION OF UNDERWRITERS. If a requested registration pursuant to
this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Requisite Holders, subject to the
approval of the Company, such approval not to be unreasonably withheld.
(g) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities requesting registration) that, in its opinion, the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Requisite Holders, the Company will include in such registration the number of
securities which the Company has been advised can be sold in such offering.
Registrable Securities requested to be included in such registration shall be
allocated on a pro rata basis among the holders thereof requesting such
registration. In connection with any registration as to which the provisions of
this clause (g) apply, no securities other than Registrable Securities shall be
covered by such registration.
2.2. INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any time
proposes to register any of its securities under the Securities Act (other than
(i) in connection with a registration of any employee benefit, retirement or
similar plan, or (ii) with respect to a Rule 145 transaction, or (iii) pursuant
to Section 2.1), whether or not for sale for its own account, it will each such
time give prompt written notice to all holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.2. Upon the
written request of any such holder made within 30 days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such holder and the intended method of disposition thereof),
the Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the holders thereof, to the extent required to permit
the disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities to be registered; provided, that if at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities,
3
the Company may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to registration under Section 2.1, and (ii) in
the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall be deemed to have been effected pursuant to Section 2.1 or shall
relieve the Company of its obligation to effect any registration upon request
under Section 2.1. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.2 and any Selling Expenses shall be allocated among all Persons on
whose behalf securities of the Company are included in such registration, on the
basis of the respective amounts of the securities then being registered on their
behalf.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If (i) a registration pursuant
to this Section 2.2 involves an underwritten offering of the securities being
registered, whether or not for sale for the account of the Company, and (ii) the
managing underwriter of such underwritten offering shall inform the Company and
the holders of the Registrable Securities requesting such registration by letter
of its belief that the number of securities requested to be included in such
registration exceeds the number which can be sold in (or during the time of)
such offering, then the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in (or during the time
of) such offering, first, all securities proposed by the Company to be sold for
its own account, and second, such Registrable Securities requested to be
included in such registration pro rata on the basis of the number of such
securities proposed to be sold and requested to be included.
2.3. REGISTRATION PROCEDURES. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 2.1 and 2.2, the Company will
as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than 60 days after the end of the period within which requests for
registration may be given to the Company) file with the Commission the
requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to
become effective for the period of the distribution contemplated thereby;
provided, that the Company may discontinue any registration of its
securities which are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
4
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents, as
such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains
in effect, and take any other action which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and underwriters, if any) of:
(A) an opinion of counsel for the Company, dated the effective
date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory
in form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller may reasonably
request;
(vii) notify each seller of Registrable Securities covered by such
registration
5
statement, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made,
and at the request of any such seller promptly prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act, and will
furnish to each such seller at least five business days prior to the
filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any thereof to which any such
seller shall have reasonably objected on the grounds that such amendment
or supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(x) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of
the securities of the Company is then listed;
(xi) assist in marketing the offering, including conducting and
participating in a roadshow as recommended and scheduled by the
underwriters; and
(xii) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing in order to assure compliance
with federal and applicable state securities laws.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such
6
holder's disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section 2.3 and, if so directed by the Company, will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
2.4. UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the underwriters
for any underwritten offering by holders of Registrable Securities pursuant to a
registration requested under Section 2.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be satisfactory in substance and form to each such holder, the underwriters
and the Company, and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of this
type, including, without limitation, indemnities and contribution to the effect
and to the extent provided in Section 2.7. The holders of Registrable Securities
to be distributed by such underwriters shall, as a condition to inclusion of
their Registrable Securities in such registration, be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall, as a condition to the
inclusion of their Registrable Securities in such registration, be parties to
the underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's Registrable Securities and such holder's intended method
of distribution and any other representation required by law.
7
2.5. PREPARATION: REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6. ADDITIONAL RIGHTS OF INVESTORS. If any registration statement
prepared under this Agreement refers to any Investor by name or otherwise as the
holder of any securities of the Company, then such Investor shall have the right
to require (x) the insertion therein of language, in form and substance
satisfactory to such Investor, to the effect that the holding by such Investor
of such securities does not necessarily make such Investor a "controlling
person" of the Company within the meaning of the Securities Act and is not to be
construed as a recommendation by such Investor of the investment quality of the
Company's debt or equity securities covered thereby and that such holding does
not imply that such Investor will assist in meeting any future financial
requirements of the Company, or (y) in the event that such reference to such
Investor by name or otherwise is not required by the Securities Act or any rules
and regulations promulgated thereunder, the deletion of the reference to such
Investor.
2.7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any registration of
any securities of the Company under the Securities Act, the Company will and
hereby does indemnify and hold harmless the seller of any Registrable Securities
covered by such registration statement, its directors and officers, each other
Person who participates in the offering or sale of such securities and each
other Person, if any, who controls such seller within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer, and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company through an
8
instrument duly executed by such seller specifically stating that it is for use
in the preparation thereof and; provided, further, that the Company shall not be
liable to any Person who participates as an underwriter, in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to Section 2.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.7) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such securities
by such seller. Notwithstanding the foregoing, the liability of a seller of
Registrable Securities pursuant to this Section 2.7(b) shall not exceed the net
proceeds received by such seller in connection with the sale of the Registrable
Securities.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.7, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.7, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the
9
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding subdivisions of this Section 2.7 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act.
(e) CONTRIBUTION.
(i) If the indemnification provided for in this Section 2.7 is
unavailable (except if inapplicable according to its terms) to an
indemnified party under paragraphs (a), (b) or (d) hereof or is
insufficient to hold such indemnified party harmless in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then
an indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the
other hand, in connection with the statements or omissions that resulted
in such losses, claims, damages, liabilities or expenses as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the
other hand, shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact has been taken, or
relates to information supplied by or on behalf of such indemnifying
party, on the one hand, or by or on behalf of such indemnified party, on
the other hand, and such parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such statement or
omission.
(ii) The Company and the Seller(s) of the Registrable Securities
agree that it would not be just and equitable if contribution pursuant to
this Section 2.7 were determined by a pro rata allocation or by any other
method of allocation that does not take account of the equitable
considerations referred to in paragraph (e)(i) above. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in paragraph (e)(i) above
shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 2.7,
the seller(s) of the Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds
received by them in connection with the sale of the Registrable Securities
exceeds the amount of any damages which such sellers have otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
10
(f) INDEMNIFICATION OR CONTRIBUTION PAYMENTS. The indemnification and
contribution required by this Section 2.7 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
2.8. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. So long as any of the
registration rights under this Agreement remain in effect, the Company will not,
without the prior written consent of the Majority Holders, grant to any third
party registration rights.
3. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
CLASS B COMMON STOCK: The Class B Common Stock, $0.01 par value per share,
of the Company.
COMMISSION: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
COMMON STOCK: The common shares, $0.01 par value per share, of the
Company.
COMPANY: As defined in the introductory paragraph of this Agreement.
CONVERSION SHARES: The shares of Common Stock issued or issuable upon
conversion of the Series A Preferred or the Class B Common Stock.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934 shall include a reference
to the comparable section, if any, of any such similar federal statute.
MAJORITY HOLDERS: At any time, the holder or holders of more than 50% of
all Registrable Securities then outstanding.
PERSON: A corporation, an association, a partnership, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
REGISTRABLE SECURITIES: The Conversion Shares or shares of any security of
the Company issued or issuable upon conversion of the Series A Preferred,
and any securities issued or issuable with respect to such securities by
way of distribution or in connection with any reorganization,
recapitalization, merger, consolidation or otherwise.
As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (a) a registration statement
with respect to the sale of such securities shall have become effective
under the Securities Act and such securities shall have been disposed of
in accordance with such registration statement, (b) they shall have been
sold to the public pursuant to Rule 144 (or any successor provision) under
the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not
11
bearing a legend restricting further transfer shall have been delivered by
the Company, and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or any
similar state law then in force, or (d) they shall have ceased to be
outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's performance
of or compliance with Sections 2.1 and 2.2, including, without limitation,
all registration, filing and National Association of Securities Dealers,
Inc. fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger
and delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses
of any special audits or "cold comfort" letters required by or incident to
such performance and compliance, the fees and disbursements incurred by
the holders of Registrable Securities to be registered (including the fees
and disbursements of not more than one special counsel to the holders of
such Registrable Securities), premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities being registered, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, fees
and expenses for independent reports and other experts and fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued
by the Company are then listed, but excluding Selling Expenses, if any.
REQUISITE HOLDERS: With respect to any registration of Registrable
Securities pursuant to Section 2.1, any holder or holders of more than 50%
of the Registrable Securities to be so registered.
SECURITIES ACT: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all
as of the same shall be in effect at the time. References to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such similar federal Statute.
SELLING EXPENSES: Underwriting discounts and selling commissions and stock
transfer taxes relating to the sale of securities registered by the
Company.
4. RULE 144 AND REPORTS: The Company shall timely file the reports
required to be filed by it under the Securities Act and the Exchange Act
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Commission under the Securities Act) and the rules and regulations adopted by
the Commission thereunder and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements. After any sale of Registrable Securities
pursuant to this Section 4, the Company will, to the extent allowed by law,
cause any restrictive legends to be removed and any transfer restrictions to be
rescinded with respect to such Registrable Securities.
12
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the holder or holders
of 75% or more of the Registrable Securities. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 5, whether or not such Registrable Securities shall
have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of Registrable Securities held by any
holder or holders of Registrable Securities contemplated by this Agreement. If
the beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail and (a) if addressed to a party other than the Company,
addressed to such party at the address set forth opposite such party's name on
the execution page hereof or (b) if addressed to the Company, at ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ or at such other address, or
to the attention of such other officer, as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding; provided,
however, that any such communication to the Company may also, at the option of
any of the parties hereunder, be either delivered to the Company at its address
set forth above or to any officer of the Company.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Registrable Securities, subject
to the provisions respecting the minimum numbers or percentages of Registrable
Securities required in order to be entitled to certain rights, or take certain
actions, contained herein.
9. TERMINATION. This Agreement shall terminate when no Registrable
Securities remain outstanding.
10. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
11. SPECIFIC PERFORMANCE. The parties hereto recognize and agree that
money damages may be insufficient to compensate the holders of any Registrable
Securities for breaches by the Company of the terms hereof and, consequently,
that the equitable remedy of specific performance of the terms hereof will be
available in the event of any such breach.
12. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance
13
with, and the rights of the parties shall be governed by, the laws of the State
of Texas.
13. SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
14. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
TEXOIL, INC.
By:_______________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone:____________________
Telecopy:_____________________
QUANTUM ENERGY PARTNERS, LP
By: Quantum Energy Management, LLC,
its General Partner
By:__________________________________
Name: S. ▇▇▇ ▇▇▇▇▇▇, ▇▇.
Title: President
Address: 777 ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
14
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: EnCap Investments LLC,
its general partner
By:_________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
ENERGY CAPITAL INVESTMENT COMPANY PLC
By:_______________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Director
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
V&C ENERGY LIMITED PARTNERSHIP
By: Energy Resource Associates, Inc.,
its general partner
By:_________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
15
__________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Inc.
Wedgewood International Tower
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
__________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
__________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
__________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
16
EXHIBIT G
(Intentionally Omitted)
Page 1 of 2
SCHEDULE 2.1
JURISDICTIONS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
JURISDICTION OF OTHER QUALIFIED
COMPANY & SUBSIDIARIES INCORPORATION JURISDICTIONS
---------------------- --------------- ---------------
Texoil, Inc. Nevada
Texoil Company Tennessee Texas
Louisiana
Cliffwood Oil & Gas Corp. Texas Colorado
Kansas
Louisiana
Mississippi
Nebraska
North Dakota
Oklahoma
Texas
Wyoming
Page 2 of 2
JURISDICTION OF OTHER QUALIFIED
COMPANY & SUBSIDIARIES INCORPORATION JURISDICTIONS
---------------------- --------------- ---------------
Cliffwood Production Co. Texas Mississippi
Nebraska
Oklahoma
Texas
New Cliffwood Company Texas
Cliffwood Exploration Company Texas
Cliffwood Acquisition -
1998 Limited Partnership* Texas
Cliffwood-Blue Moon Joint
Venture, Inc. Texas
*Cliffwood Oil & Gas Corp. is the General Partner
SCHEDULE 2.5
CAPITALIZATION
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
AUTHORIZED SHARES AT JUNE 25, 1999 - 25,000,000 SHARES COMMON STOCK, PAR VALUE
$.01 AND 5,000,000 SHARES PREFERRED STOCK, $.01 PAR VALUE
AVERAGE
SHARES PROCEEDS EXERCISE
PRICE
Outstanding * .................... 6,555,126
Texoil Warrants .................. 553,242 $2,105,749 $3.81
Texoil Options ................... 643,669 $2,008,247 $3.12
"Old" Texoil Options (Pre-Merger) 122,959 $ 541,772 $4.41
1999 Staff Options ............... 29,167 $ 175,002 $6.00
1999 Management Options .......... 80,000 $ 380,000 (1) $4.75 (1)
----------
FULLY DILUTED 7,984,163
(1) Exercise price, and therefore proceeds, escalates at 9% per year.
*Subject to minimal change as a result of recent reverse stock split.
SCHEDULE 2.7
FINANCIAL STATEMENTS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
This Schedule 2.7 consists of the following:
1. Annual report of Texoil, Inc. on Form 10-K/SB for the year ended
December 31, 1998.
2. Quarterly report of Texoil, Inc. on Form 10-Q/SB for the period
ended March 31, 1999.
3. Quarterly report of Texoil, Inc. on Form 10-Q/SB for the period
ended June 30, 1999.
All as previously filed with the Securities and Exchange Commission
SCHEDULE 2.8
LIABILITIES AND OBLIGATIONS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.9(B)
COMPENSATION PLANS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.9(C)
EMPLOYEE AGREEMENTS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
Employee Agreements for ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇, in accordance with this Preferred Stock Purchase Agreement, are
as set forth in Exhibit C.
Page 1 of 2
SCHEDULE 2.9(D)
EMPLOYEE POLICIES
&
PROCEDURES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
1999 HOLIDAY SCHEDULE
New Year's Day
Good Friday/Easter
Memorial Day
Independence Day
Labor Day
Thanksgiving and Friday following Thanksgiving
Christmas Eve
Christmas
New Year's Eve
SICK LEAVE; FLOATING HOLIDAYS
The following sick leave policy was implemented for 1999.
All employees will be entitled to eight (8) paid sick leave days during the
year. You will need to notify your supervisor at the beginning of each day that
you are unable to come to work, unless other arrangements are agreed to with
your supervisor.
In addition, each full-time employee is eligible for three additional days off
with pay (floating holidays) to be scheduled with his or her supervisor's
approval. During the first year of employment, these floating holidays will be
granted in the following manner:
If employed prior to January 1 3 days
If employed prior to June 1 2 days
If employed on or after June No floating days will be granted
Page 2 of 2
SCHEDULE 2.9(D)
Floating holidays are to be used for personal absences, including the observance
of any religious or other holiday. They cannot be carried over to the following,
and are not compensable upon termination of employment.
Once eight (8) paid sick days and eligible floating days have been paid,
deductions from payroll will be made for any additional absences. It is the
responsibility of each supervisor to notify the payroll department when this
occurs.
VACATION POLICY
All employees will be entitled to two weeks vacation each year. New employees
will be entitled to take the first week after six months of service. Vacation
time will accrue on January 1 of each year. Vacation time should be approved
with individual supervisors.
NOTE: The Company is in the process of revising its holiday, absence and
vacation policies and is preparing an Employee Handbook expected to be
implemented no later than January 1, 2000.
SCHEDULE 2.9(F)
LABOR COMPLIANCE
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.10
EMPLOYEE BENEFITS PLANS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
TYPE OF CARRIER/ EFFECTIVE
COVERAGE POLICY NUMBER DATE
-------- ------------- ---------
Medical, Vision, Dental and Life Great West Life & 09/01/99
Annuity Insurance Company/
Policy #266145
SCHEDULE 2.11
CERTAIN CHANGES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
On September 22, 1999, the Company signed a Purchase and Sale Agreement with
Energen Resources MAQ, Inc. and Westport Oil and Gas Company, Inc. related to
the acquisition of the Eloi Bay and Half Moon Lake Fields, St. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
Louisiana for SEVEN MILLION TWO HUNDRED THOUSAND DOLLARS (US $7,200,000).
Also on September 22, 1999, the Company signed a related Purchase and Sale
Agreement with Energen Resources MAQ, Inc. for the acquisition of certain well
interests and seismic data located in the Southwest Abbeville Prospect,
Vermilion Parish, Louisiana and Northwest Ridge Prospect, Lafayette Parish,
Louisiana for THREE HUNDRED THOUSAND DOLLARS (US $300,000).
SCHEDULE 2.13
INSURANCE
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
TYPE OF CARRIER/ EFFECTIVE LIMITS DEDUCTIBLE
COVERAGE POLICY NUMBER DATE CARRIED APPLICABLE
------------------ -------------------------------- ----------------- ------------------------------- --------------------------
General Liability Great Northern Insurance Company 09/01/99-09/01/00 $1,000,000 Per Occurrence $2,500 Per Occurrence
Policy #3535-69-06 ERG $2,000,000
General Policy Aggregate
Umbrella Liability Federal Insurance Company 09/01/99-09/01/00 $10,000,000 Per Occurrence $25,000 SIR
Policy #7975-55-21 $10,000,000
General Policy Aggregate
Workers' Altus Insurance Holdings 05/24/99-05/24/00 $500,000 Each Accident NONE
Compensation Policy # ICW1950048 $500,000 Each Employee-Disease
$500,000 Policy Aggregate-Disease
Commercial Vigilant Insurance Company 09/01/99-09/01-00 $1,000,000 CSL Liability NONE on Liability
Automobile-Texas Policy # 7324-99-15 $1,000,000 CSL Uninsured/ Coverage/.$500 on
Underinsured Motorist Collision/$0 on
$1,000,000 Hired & Non-Owned Auto Specified Causes of Loss
SCHEDULE 2.13
TYPE OF CARRIER/ EFFECTIVE LIMITS DEDUCTIBLE
COVERAGE POLICY NUMBER DATE CARRIED APPLICABLE
----------------- -------------------------------- ----------------- ------------------------------- --------------------------
Commercial Great Northern Insurance Company 09/01/99-09/01-00 $1,000,000 CSL Liability NONE on Liability
Automobile - Out Policy # 7325-53-33 $1,000,000 CSL Uninsured/ Coverage/$500 on
Of State Underinsured Motorist Collision/$0 on Specified
$3,000 Medical Payments Ea Per Causes of Loss
Pollution Great Northern Insurance Company 09/01/99-09/01/00 $1,000,000 Per Occurrence $1,000,000 Per Occurrence
Liability Policy # 37250501 ERG $2,000,000 General
Aggregate
Operators Extra St. ▇▇▇▇ Surplus Lines 09/01/99-09/01/00 $2,000,000 Per Occurrence $25,000 Per Occurrence
Expense Insurance Company $250,000 Care, Custody & Control $10,000 Per Occurrence
Policy # MU05503497 for CCC
Directors & Executive Risks 07/09/99-07-09/00 $1,000,000 Per Occurrence $100,000 Per Occurrence
Officers Insurance Company $1,000,000 General Policy Except $125,000 SEC
Liability Policy # 75112323198 Aggregate Related Claims
Business Property Great Northern Insurance 09/01/99-09/01-00 $300,000 $1,000 Per Occurrence
Company/Policy # 3535-69-06 ERG
Equipment Floater Federal Insurance Company 09/01/99-09/01/00 $1,500,000 Any One Loss $1,000 Per Occurrence
Policy # 0660-85-48 $350,000 Any One Well Site
SCHEDULE 2.16
GAS IMBALANCES
PREFERENTIAL RIGHTS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
GAS IMBALANCES
--------------
NO NET LIABILITY
PREFERENTIAL RIGHT TO PURCHASE
------------------------------
▇▇▇▇▇▇ RANCH
Call on Oil: Vastar's posted price or the average of the
3 highest posted prices in the area. Volume
subject to call is a approximately 60 BOPD
gross.
Call on Gas: Vastar has the right to purchase at the
average of the Inside F.E.R.C Index first of
the month spot prices for Natural Gas
Pipeline Co. of America and Valero National
Gas-Texas, less actual gathering,
dehydration, and other costs.
SCHEDULE 2.17
TAXES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.19
LITIGATION
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
1.) ▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ vs. Sonat Exploration Company and
Cliffwood Production Co.
Cause No. 4490
Description: Summarized, contamination of stock tank and damage to
property caused by rupture in pipeline which eventually
causes death of grazing livestock (goats).
Status: Pending; Texoil indemnified by Sonat.
2.) ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Venture vs. Texoil, Inc.
Cause No. 9847705
Description: Suing because of early cancellation of lease and demanding
payment of $35,000 plus interests and costs.
Status: Pending; trial court signed final summary judgment - Texoil
filed Notice of Appeal, contingent fee arrangement.
3.) ▇▇▇▇▇▇ ▇▇▇▇▇▇, et al vs. J. R. ▇▇▇▇▇▇, et al.
Cause No. 94-7447-278-06
Description: The plaintiffs sued certain former Lessees and an affiliated
pipeline company and subsequently included Cliffwood
Production Co., and the Madison County Energy Limited
Partnership for breach and cancellation of certain mineral
leases, mineral trespass, surface trespass, trespass damage
to the mineral estate, trespass injury to the surface
estate, non-payment of royalty and relinquishment of
rights-of-way.
Status: Cliffwood Production Co. entered into a settlement agreement;
▇▇▇▇▇▇ recently settled. This suit should be dismissed
SCHEDULE 2.20
LEGAL COMPLIANCE
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.21
SUBSIDIARIES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
COMPANY & SUBSIDIARIES
----------------------
Texoil, Inc.
Texoil Company
Cliffwood Oil & Gas Corp.
Cliffwood Production Co.
New Cliffwood Company
Cliffwood Exploration Company
Cliffwood Acquisition - 1998 Limited Partnership*
Cliffwood-Blue Moon Joint Venture, Inc.**
*Cliffwood Oil & Gas Corp. is the General Partner
**Cliffwood-Blue Moon Joint Venture, Inc. is not wholly owned
80% Texoil/20%Bechtel
SCHEDULE 2.22
BROKERAGE
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
Fees due First Union Capital Markets as specified in that certain Letter
Agreement dated January 7, 1999 and the subsequent Letter Agreement Extension
dated July 7, 1999
SCHEDULE 2.23
OWNERSHIP INTEREST
OF
INTERESTED PARTIES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.25
ENVIRONMENTAL MATTERS
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE
SCHEDULE 2.27
GOVERNMENTAL INQUIRES
TO
PREFERRED STOCK PURCHASE AGREEMENT
DATED OCTOBER 12, 1999
BY AND AMONG
TEXOIL, INC.,
QUANTUM ENERGY PARTNERS, LP
AND
CERTAIN OTHER INVESTORS
AS SPECIFIED ON SCHEDULE 1.1
NONE