3DX TECHNOLOGIES INC.
COMMON STOCK SUBSCRIPTION AGREEMENT
August 21, 1998
TABLE OF CONTENTS
PAGE
SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK.............................1
1.1 AUTHORIZATION..........................................................1
1.2 SALE OF SHARES.........................................................1
1.3 PENALTY SHARES.........................................................1
SECTION 2 CLOSING DATE: PAYMENT AND DELIVERY.................................1
2.1 CLOSING DATE...........................................................1
2.2 PAYMENT AND DELIVERY...................................................2
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................2
3.1 ORGANIZATION...........................................................2
3.2 CAPITALIZATION.........................................................2
3.3 AUTHORIZATION..........................................................3
3.4 NO CONFLICT............................................................3
3.5 ACCURACY OF REPORTS....................................................3
3.6 REGISTRATION RIGHTS....................................................3
3.7 GOVERNMENTAL CONSENTS. ETCY............................................4
3.8 LITIGATION.............................................................4
3.9 INVESTMENT COMPANY.....................................................4
3.10 FINANCIAL STATEMENTS.................................................4
3.11 EMPLOYEE BENEFITS....................................................4
3.12 ENVIRONMENTAL CONDITION..............................................6
(a) Permits. Etc.........................................................6
(b) Certain Liabilities..................................................6
(c) Certain Actions......................................................7
3.13 BUSINESS.............................................................7
3.14 GAS CONTRACTS........................................................7
3.15 PATENTS TRADEMARKS AND OTHER INTANGIBLE ASSETS.......................7
3.16 TITLE TO PROPERTIES: LIENS AND ENCUMBRANCES..........................8
3.17 TAXES................................................................9
3.18 INTERESTED PARTY TRANSACTIONS........................................9
3.19 RESERVE REPORT......................................................10
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................10
4.1 INVESTMENT............................................................10
4.2 ACCREDITED INVESTOR...................................................11
4.3 AUTHORITY.............................................................11
4.4 GOVERNMENT CONSENTS. ETC..............................................11
4.5 INVESTIGATION.........................................................11
4.6 SHORT SELLING.........................................................11
4.7 AFFILIATE STATUS......................................................11
SECTION 5 CONDITIONS TO OBLIGATIONS OF THE PURCHASER........................12
5.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER:...........................12
(a) Representations and Warranties Correct..............................12
(b) Covenants...........................................................12
(c) No Legal Order Pendint..............................................12
(d) No Law Prohibiting or Restricting Such ▇▇▇..........................12
(e) Opinion of Company's Counsel........................................12
SECTION 6 CONDITIONS TO OBLIGATIONS OF COMPANY..............................12
6.1 CONDITIONS TO OBLIGATIONS OF COMPANY.:................................12
(a) Representations and Warranties Correct..............................12
(b) Covenant............................................................13
(c) No Legal Order Pending..............................................13
(d) No Law Prohibiting or Restricting Such Sale.........................13
SECTION 7 DEFINITIONS.......................................................13
7.1 CERTAIN DEFINITIONS...................................................13
(a) Affiliate...........................................................13
(b) Business Day........................................................13
(c) Holders.............................................................13
(d) Person..............................................................13
(e) The terms register, registered and registration.....................13
(f) Registrable Securities..............................................13
(g) Registration Expenses...............................................14
(h) Registration Statement..............................................14
(i) Registration Period.................................................14
(j) Selling Expenses....................................................14
SECTION 8 COVENANTS.........................................................14
8.1 REGISTRATION RIGHTS...................................................14
(a) Registration........................................................14
(b) Expenses of Registration............................................15
(c) Registration Procedures:............................................15
(d) Indemnification.....................................................16
(e) Covenants of Holders................................................18
(f) Rule 144 Reporting:.................................................20
(g) Transfer of Registration Right......................................21
(h) Waivers and Amendments..............................................21
8.2 DISPOSITION...........................................................21
8.3 OTHER REGISTRATION RIGHTS.............................................22
SECTION 9 MISCELLANEOUS.....................................................22
9.1 TERMINATION OF AGREEMENT..............................................22
9.2 GOVERNING LAW.........................................................22
9.3 SURVIVAL: RELIANCE....................................................22
9.4 SUCCESSORS AND ASSIGNS................................................22
9.5 NOTICES AND DATES:....................................................23
9.6 SPECIFIC PERFORMANCE..................................................23
9.7 FURTHER ASSURANCES....................................................23
9.8 COUNTERPART...........................................................24
9.9 SEVERABILITY..........................................................24
9.10 CAPTIONS............................................................24
9.11 PUBLIC STATEMENTS...................................................24
9.12 BROKERS.............................................................24
9.13 COSTS AND EXPENSES..................................................24
9.14 NO THIRD-PARTY RIGHTS...............................................24
9.15 ENTIRE AGREEMENT: AMENDMENT.........................................24
Exhibits
Exhibit A Schedule of Exceptions
Exhibit B Additional Information
Exhibit C Projects
COMMON STOCK SUBSCRIPTION AGREEMENT
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (the "Agreement") is made as of
August 21, 1998, by and among 3DX TECHNOLOGIES INC., a Delaware corporation (the
"Company"), and Santa Fe Energy Resources, Inc. a Delaware corporation
("Purchaser").
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up
to 3,333,334 shares of its Common Stock, $.01 par value per share (the "Common
Stock") in accordance with the provisions of Sections 1.2 and 1.9, and has
authorized the potential issuances under Section 1.3.
1.2 SALE OF SHARES. Subject to the terms and conditions hereof, the Company
will issue and sell to the Purchaser and the Purchaser will buy from the
Company: 240,000 shares of Common Stock (the "Shares") at a purchase price of
$1.25 per share, or an aggregate purchase price of $300,000.00
1.3 PENALTY SHARES. The Company grants to the Purchaser the right to
receive additional shares of Common Stock as set forth in this Section (the
"Penalty Rights"). If the Company is unable to cause a registration statement
described in Section 8 to be filed with the Securities and Exchange Commission
(the "SEC") and to be declared effective within 120 days following August 10,
1998, at the expiration of such 120-day period, then each Penalty Right shall
without further action on behalf of any party, be automatically converted into
the right to receive from the Company, and the Company will issue, additional
shares of Common Stock (the "Penalty Shares") to each Purchaser as a holder of a
Penalty Right equal to (i) the total aggregate consideration paid by such
Purchaser pursuant to Section 1.2 divided by $1.00 less (ii) the total number of
shares issued to such Purchaser pursuant to Section 1.2. The Penalty Rights are
not transferable apart from the Shares to which they relate.
SECTION 2
CLOSING DATE; PAYMENT AND DELIVERY
2.1 CLOSING DATE. The closing under this Agreement with respect to the
sale of the Shares pursuant to Section 1.2 hereof (the "Closing") shall take
place in Houston, Texas at 9:00 a.m. (Houston time) on October 28, 1998 at the
offices of counsel to the Company or at such other times, dates and places upon
which the Company and the Purchaser shall mutually agree (the date of the
Closing is hereinafter referred to as the "Closing Date".
2.2 PAYMENT AND DELIVERY. Payment for the shares by Purchaser shall be made
in accordance with that certain Agreement by and between the Company and
Purchaser dated August 17, 1998. At the Closing the Company will deliver to the
Purchasers certificates representing the Shares. The certificates for Shares
shall be subject to a legend restricting transfer under the Securities Act of
1933, as amended (the "Securities Act"), and referring to restrictions on
transfer herein, such legend to be substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AS
TO THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION THAT SUCH
REGISTRATION IS NOT REQUIRED AND THAT ANY PROSPECTUS DELIVERY REQUIREMENTS
ARE NOT APPLICABLE.
The Shares may also include any legend required under the laws of any state or
other jurisdiction.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
EXHIBIT A, the Company hereby represents and warrants to the Purchaser as
follows:
3.1 ORGANIZATION. The Company is a corporation duly incorporated and
validly existing under the laws of the State of Delaware and is in good standing
under such laws. The Company has all requisite corporate power and authority to
own, lease and operate its properties and assets, and to carry on its business
as presently conducted and as proposed to be conducted. The Company is qualified
to do business as a foreign corporation in each jurisdiction in which the
ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company. The Company has no subsidiaries and owns no
equity interests, or rights convertible into equity interests in any entity.
3.2 CAPITALIZATION. The authorized capital stock of the Company consists
of 20,000,000 shares of Common Stock, $.01 par value per share, of which
8,913,909 shares are issued and outstanding as of the date hereof (prior to the
stock issuances contemplated hereby) and 1,000,000 shares of Preferred Stock,
$.0l par value per share, no shares of which are issued and outstanding as of
the date hereof. All such issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
were issued in compliance with all applicable Federal and state securities laws.
As of the date hereof, the Company has 2,004,937 shares of Common Stock reserved
for issuance under its 1994 Stock Option Plan and options to purchase 1,231,707
shares of Common Stock thereunder have been granted and are outstanding. Except
as described in this Agreement, and that certain Common Stock Agreement dated as
of June 3, 1998 by and among the Company and the parties named therein (the June
Subscription Agreement) there are no other options, warrants, conversion
privileges or other contractual rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the Company's capital
stock or other securities.
3.3 AUTHORIZATION. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Shares and the performance of the Company's
obligations hereunder has been taken. This Agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy. Upon the issuance and delivery of the Shares as contemplated by this
Agreement, the Shares will be validly issued, fully paid and nonassessable. The
issuance and sale of the Shares contemplated hereby will not give rise to any
preemptive rights or rights of first refusal on behalf of any person.
3.4 NO CONFLICT. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not result in
any violation of, or default (with or without notice or lapse of time, or both),
or give rise to a right of termination, cancellation or acceleration of any
obligation or to a loss of a benefit, under, any provision of the Company's
Certificate of Incorporation, as amended, or Bylaws of the Company, as amended,
or any mortgage, indenture, lease or other agreement or instrument, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets, the effect of which would have a
material adverse effect on the Company, its financial condition, results of
operation or prospects, or impair or restrict its power to perform its
obligations as contemplated hereby.
3.5 ACCURACY OF REPORTS. All reports required to be filed by the Company
under the Exchange Act, have been duly filed with the SEC, complied at the time
of filing, in all material respects with the requirements of the Exchange Act
and their respective forms (collectively, the "Reports"), and, except to the
extent updated or superseded by any subsequently filed report, were complete and
correct in all material respects as of the dates at which the information was
furnished, and contained (as of such dates) no untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
3.6 REGISTRATION RIGHTS. Except as set forth in this Agreement, the Company
is not under any obligation to register any of its presently outstanding
securities or any of its securities which may hereafter be issued other than
under (i) the June Subscription Agreement, (ii) the Series C Preferred Stock
Purchase Agreement among the Company and certain of its security holders dated
as of July 26, 1995 and (iii) the Stock Purchase Agreement among the Company and
certain of its security holders dated as of November 9, 1993.
3.7 GOVERNMENTAL CONSENTS, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the execution and delivery of
this Agreement, the offer, sale or issuance of the Shares, or the consummation
of any other transaction contemplated hereby, except such filings as may be
required to be made with the SEC and the Nasdaq and with any state or foreign
blue sky or securities regulatory authority.
3.8 LITIGATION. There is no pending or, to the best of the Company's
knowledge, threatened lawsuit, administrative proceeding, arbitration, labor
dispute or governmental investigation ("Litigation") to which the Company is a
party or by which any portion of its assets taken as a whole may be bound, and
which Litigation if adversely determined would have a material adverse effect on
the Company.
3.9 INVESTMENT COMPANY. The Company is not an "Investment Company" within
the meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the SEC thereunder.
3.10 FINANCIAL STATEMENTS. The audited balance sheet of the Company at
December 31, 1997, and the related audited statements of operations, cash flows,
and stockholders' equity of the Company for the fiscal year then ended, copies
of which have been furnished to Purchaser, and the balance sheet of the Company
at June 30, 1998, and the related statements of operations and cash flow of the
Company for the six months then ended, copies of which have been furnished to
the Purchaser, fairly present, subject, in the case of the balance sheet at June
30, 1998, and said statements of income and cash flow for the six months then
ended, to year-end audit adjustments, the financial condition of the Company at
such dates and the results of the operations of the Company for the periods
ended on such dates, and such balance sheets and statements of operations, cash
flows, and stockholders' equity were prepared in accordance with United States
generally accepted accounting principles ("GAAP") (and in compliance with the
regulations promulgated by the SEC). As of July 31, 1998, the total Long-Term
debt of the Company was $2,000,000 determined consistently with the audited
financial statements as of December 31, 1997. Since December 31, 1997, no
Material Adverse Change has occurred except as set forth in the Reports or in
this Agreement or on the Exhibits or Schedules hereto. The term "MATERIAL
ADVERSE CHANGE" shall mean (a) a material adverse change in the business,
financial condition, results of operations or prospects of the Company, or (b)
the occurrence and continuance of any event or circumstance which could
reasonably be expected to have a material adverse effect on the Company's
ability to perform its obligations under this Agreement or any material
Agreement of the Company.
3.11 EMPLOYEE BENEFITS.
(a) For purposes of this Section 3.11, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life (including, without limitation, any individual life insurance policy under
which any persons currently or formerly employed by the Company ("Employees") is
the named insured and as to which the Company makes premium payments, whether or
not the Company is the owner, beneficiary or both of such policy), death
benefit, group insurance, profit-sharing, deferred compensation, stock option,
bonus, incentive, vacation pay, severance pay, or other employee benefit plan,
trust, arrangement, agreement, policy or commitment (including, without
limitation, any employee pension benefit plan as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Pension
Plan"), and any employee welfare benefit plan as defined in Section 3(1) of
ERISA ("Welfare Plan")), whether or not any of the foregoing is funded or
insured and whether written or oral, which is intended to provide or does in
fact provide benefits to any or all current Employees, and (i) to which the
Company is party or by which the Company (or any of the rights, properties or
assets of the Company) is bound, (ii) with respect to which the Company has made
any payments, contributions or commitments, or may otherwise have any liability
(whether or not the Company still maintains such plan, trust, arrangement,
contract, agreement, policy or commitment) or (iii) under which any current
director, Employee or agent of the Company is a beneficiary as a result of his
or her employment or affiliation with the Company.
(b) With respect to any Employee, the Company has no obligation to
contribute to (or any other liability with respect to) any funded or unfunded
Welfare Plan, whether or not terminated, which provides medical, health, life
insurance or other welfare-type benefits for current or future retirees or
current, future or former Employees (including their dependents and spouses)
except for limited continued medical benefit coverage for former Employees,
their spouses and their other dependents as required to be provided under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
and the Company is in compliance in all material respects with the continued
medical and other welfare benefit coverage requirements of COBRA and all other
applicable laws.
(c) With respect to any Employee, the Company does not maintain,
contribute to or have any material liability under (or with respect to) any
Pension Plan which is a tax qualified "defined benefit plan" (as defined in
Section 3(35) of ERISA) or a tax-qualified "defined contribution plan" (as
defined in Section 3(34) of ERISA), or a non-qualified deferred compensation
plan for certain highly compensated or management employees whether or not
terminated. All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each Employee
Plan or are reflected as a liability on the books of the Company and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Plan or accrued in accordance with
the past custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with respect to
each such Employee Plan which is a Welfare Plan.
(d) Except as set forth on EXHIBIT A, the Company has, with respect
to all current and former Employee Plans (and all related trusts, insurance
contracts and funds), at all times complied in all material respects with the
applicable requirements of ERISA, the Internal Revenue Code of 1986, as amended
(the "Code") and all other applicable statutes, common law, regulations and
regulatory pronouncements, or has, in the exercise of its reasonable judgment,
determined that such statutes (including ERISA), common law, regulations and
regulatory pronouncements were and are not applicable to the Company. The
Company has not engaged in nor is it bound to enter into, any transaction with
respect to any Employee Plan which would subject the Company to any material
liability due to either a civil penalty assessed pursuant to Section 502(1) of
ERISA or the tax or penalty on prohibited transactions imposed by Section 4975
of the Code. No actions, suits or claims with respect to the assets of any
Employee Plan (and all related trusts, insurance contracts and funds), other
than routine claims for benefits, are pending or threatened which could result
in a material adverse effect on the Company. There are not now, nor have there
been, any tax-qualified retirement plans sponsored or maintained by the Company
for Employees, nor are there any unfunded obligations with respect thereto. With
respect to any Employee, the Company has no obligation to contribute to (or any
other liability with respect to) any "multi-employer plan," as defined in the
Multi-employer Pension Plan Amendments Act of 1980, and the Company has not
incurred any current or potential withdrawal or termination liability as a
result of a complete or partial withdrawal from any multi-employer plan. Except
as set forth on EXHIBIT A, each Employee Plan intended to qualify under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under the requirements of Section 401(a) of the Code, the Internal
Revenue Service has issued a determination letter to that effect, and such
letter remains effective and has not been revoked. No unfulfilled obligation to
contribute with respect to an Employee Plan exists with respect to any Employee
Plan year ending on or before the Closing. There is no agreement or promise,
written or oral, of the Company to the effect that any Employee Plan may not be
terminated at the Company's discretion at any tune, subject to applicable law.
3.12 ENVIRONMENTAL CONDITION.
(a) PERMITS, ETC. Except as set forth on EXHIBIT A, the Company (i)
has obtained all environmental permits necessary for the ownership and operation
of its properties and the conduct of its businesses, except where such failure
to obtain could not reasonably be expected to cause a Material Adverse Change;
(ii) is in compliance with all terms and conditions of such environmental
permits and with all other requirements of applicable environmental laws, except
where such failure to comply could not reasonably be expected to cause a
Material Adverse Change; (iii) has not received notice of any violation or
alleged violation of any environmental law or environmental permit; and (iv) is
not subject to any actual or contingent environmental claim which could
reasonably be expected to cause a Material Adverse Change.
(b) CERTAIN LIABILITIES. Except as set forth on EXHIBIT A, to the
Company's best knowledge, none of the present or previously owned or operated
properties of the Company or of any of its present or former subsidiaries,
wherever located, (i) has been placed on or proposed to be placed on the
National Priorities List, the Comprehensive Environmental Response Compensation
Liability Information System list, or their state or local analogs; (ii) is
subject to a lien, arising under or in connection with any Environmental Laws,
which could reasonably be expected to cause a Material Adverse Change; or (iii)
has been the site of any release of hazardous substances or hazardous wastes
from present or past operations which has caused at the site or at any
third-party site any condition that has resulted in or could reasonably be
expected to result in the need for Response (as defined in the Comprehensive
Environmental Response Compensation Liability Act or other environmental law)
that would cause a Material Adverse Change.
(c) CERTAIN ACTIONS. Without limiting the foregoing (i) all
necessary notices have been properly filed, and no further action is required
under current environmental law as to each Response or other restoration or
remedial project undertaken by the Company, or its present or former
subsidiaries on any of their presently or formerly owned or operated properties
and (ii) the present and, to the Company's best knowledge, future liability, if
any, of the Company and its subsidiaries which could reasonably be expected to
arise in connection with requirements under environmental laws will not result
in a Material Adverse Change.
3.13 BUSINESS. The Company has all franchises, permits, licenses, patents
and other rights and privileges necessary to permit it to own its property and
conduct its business, except for those, the non-obtainment of which would not
reasonably be expected to cause a Material Adverse Change. The Company manages
and operates its business in compliance with all applicable legal requirements
and in accordance with good industry practices, except where such failure to
manage or operate would not reasonably be expected to cause a Material Adverse
Change.
3.14 GAS CONTRACTS. The Company is not, as of the date hereof; (a)
obligated in any material respect by virtue of any prepayment made under any
contract containing a "take-or-pay" or "prepayment" provision or under any
similar agreement to deliver hydrocarbons produced from or allocated to any of
the Company's consolidated oil and gas properties at some future date without
receiving full payment therefor at the time of delivery, and (b) has not
produced gas, in any material amount, subject to, and none of the Company's
consolidated oil and gas properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements, except
as to such matters for which the Company has established monetary reserves
adequate in amount in accordance with GAAP to satisfy such obligations and has
segregated such reserves from its other accounts.
3.15 PATENTS, TRADEMARKS AND OTHER INTANGIBLE ASSETS. (a) Except as set
forth on EXHIBIT A or as is not material to the Company, the Company (i) uses,
owns or has the right to use, free and clear of all liens, claims and
restrictions, all patents, patent applications, trademarks, service marks, trade
names and copyrights, and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be
conducted, without infringing upon or otherwise acting adversely to the right or
claimed right of any person, corporation or other entity under or with respect
to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner or licensor of, or other claimant to, any patent, trademark, service ▇▇▇▇,
trade name, copyright or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise except for
obligations in the normal course of its exploration and production business.
(b) Except as set forth on EXHIBIT A or as is not material to the
Company, the Company owns or has the unrestricted right to use all trade
secrets, including know-how, inventions, designs, processes, works of
authorship, computer programs (with the exception of normal software purchased
and sold as such) and technical data and information (collectively herein
"Intellectual Property") required for or incident to the development, operation
and sale of all services or products sold or currently proposed to be sold by
the Company, free and clear of and without violating any right, lien, or claim
of others, including without limitation, former Employees and former employers
of its past and present Employees but excluding restrictions as are customary
for exploration and production companies.
(c) The Company has taken security measures to protect the secrecy,
confidentiality and value of all the Intellectual Property, which measures are
reasonable and customary in the industry in which it operates. Each of the
Company's Employees and other persons who, either alone or in concert with
others, developed, invented, discovered, derived, programmed or designed the
Intellectual Property, or who has knowledge of or access to information about
the Intellectual Property, has entered into a written agreement with the Company
which (i) provides that the Intellectual Property and other information are
proprietary to the Company and are not to be divulged or misused and (ii)
transfers to the Company, without any further consideration being given therefor
by the Company, all of such Employee's or other person's right, title and
interest in and to such Intellectual Property and other information and to all
patents, trademarks, service marks, trade names, copyrights, licenses and rights
with respect to such Intellectual Property and information. The Company is not
aware that any of its Employees, consultants or prospective Employees who have
signed such agreements are in violation thereof, nor is it aware or have any
basis to believe, that any former employee or consultant has made any claim of
ownership in or rights with respect to any of the Intellectual Property.
3.16 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Except as set forth on
EXHIBIT A and pursuant to the Credit Agreement by and between the Company and
NationsBank of Texas, N.A. dated December 18, 1997 (the "Credit Agreement"), the
Company has defensible title to all of the properties and assets, both real and
personal, tangible and intangible, that it purports to own, including the
properties and assets reflected in the Reports and including the lands and
leases and associated net revenue interests reflected in the Company's most
recent reserve report, as of December 31, 1997, as prepared by ▇▇▇▇▇ ▇▇▇▇▇
Company (the "Reserve Report"), other than dispositions or expirations since the
date thereof, and they are not subject to any mortgage, pledge, lien, security
interest, conditional sale agreement, encumbrance or charge ("Liens") except
routine statutory liens securing liabilities not yet due and payable and minor
liens, encumbrances, restrictions, exceptions, reservations, limitations and
other imperfections that do not materially detract from the value of the
specific asset affected or the present use of such asset and except (A) Liens
for taxes not yet due and payable or, if payable, that are being contested in
good faith in the ordinary course of business, (B) statutory Liens (including
materialmen's, mechanic's, repairmen's, landlord's, and other similar liens)
arising in the ordinary course of business to secure payments not yet due and
payable or, if payable, that are being contested in good faith in the ordinary
course of business, (C) such easements, restrictions, reservations or other
encumbrances, as well as imperfections or irregularities of title, if any, as do
not create a material adverse effect, (D) obligations or duties to any
municipality or public authority with respect to any franchise, grant, license
or permit and all applicable laws, rules, regulations and orders of any
governmental authority, (E) all lessors' royalties, overriding royalties, net
profits interests, production payments, carried interests, reversionary
interests and other burdens on or deductions from the proceeds of production
that do not operate to (x) reduce the net revenue interest of the Company below
that purported to be owned by the Company or as set forth in the Reserve Report,
(y) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the working interest of the Company
above that purported to be owned by the Company without a proportionate increase
in the net revenue interest of the Company or (z) increase the working interest
of the Company above that purported to be owned by the Company without a
proportionate increase in the net revenue interest of the Company, (F) the terms
and conditions of joint operating agreements and other oil and gas contracts,
(G) all rights to consent by, required notices to, and filings with or other
actions by governmental or tribal entities, if any, in connection with the
change of ownership or control of an interest in federal, state, tribal or other
domestic governmental oil and gas leases, if the same are customarily obtained
subsequent to such change of ownership or control, but only insofar as such
consents, notices, filings and other actions relate to the transactions
contemplated by this Agreement, (H) any preferential purchase rights, (I)
required third party consents to assignment, (J) conventional rights of
reassignment prior to abandonment and (K) the terms and provisions of oil and
gas leases, unit agreements, pooling agreements, communication agreements and
other documents creating interests comprising the oil and gas properties;
insofar and only insofar as such terms and provisions do not operate to (x)
reduce the net revenue interest of the Company below that purported to be owned
by the Company, (y) increase the proportionate share of costs and expenses of
leasehold operations attributable to or to be borne by the working interest of
the Company above that purported to be owned by the Company without a
proportionate increase in the net revenue interest of the Company or (z)
increase the working interest of the Company above that purported to be owned by
the Company. EXHIBIT D lists the current projects in which the Company has an
interest.
3.17 TAXES. Except as set forth in EXHIBIT A, the Company has accurately
prepared and timely filed all federal income tax returns and all state and
municipal tax returns that are required to be filed by it (the "Tax Returns")
and has paid or made provision for the payment of all amounts due pursuant to
such returns. The Tax Returns are true and complete in all material respects.
None of the Tax Returns have been audited by the Internal Revenue Service or any
state taxing authority, as the case may be, the Company has not been advised
that any of such Tax Returns will be so audited, and there are no waivers in
effect of the applicable statute of limitations for any period. No deficiency
assessment or proposed adjustment of federal income taxes or state or municipal
taxes of the Company is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed.
3.18 INTERESTED PARTY TRANSACTIONS. Except as otherwise reflected in the
Reports, no executive officer, director or stockholder owning 5% of the
outstanding Common Stock of the Company or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Securities Act) of any
such person or entity or the Company has or has had, either directly or
indirectly, (a) an interest in any person or entity which (i) furnishes or sells
services or products that are furnished or sold or are proposed to be furnished
or sold by the Company, or (ii) purchases from or sells or furnishes to the
Company any goods or services, or (b) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as otherwise reflected in the Reports, there are no existing
arrangements or proposed transactions between the Company and any executive
officer, director, or holder of more than 5% of the capital stock of the
Company, or any affiliate or associate of any such person.
3.19 RESERVE REPORT. A true and correct copy of the Reserve Report has been
provided to the Purchaser. All information contained in the Reserve Report is
true and correct m all material respects as of the date thereof, except that the
Company does not warrant quantity of reserves, rate of recovery, productive
capacity, future prices, future operating costs, or other similar matters that
cannot be determined with certainty.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Shares for investment for
its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, any distribution thereof. The Purchaser acknowledges
the Company's obligation to file a registration statement with respect to the
Shares as set forth in Section 8 of this Agreement, the effectiveness of which
registration statement may be required for the resale of the Shares. Without
limiting the generality of the first sentence of this Section, the Purchaser has
not offered or sold any portion of the Shares to be acquired by it and has no
present intention of reselling or otherwise disposing of any portion of such
Shares, either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or nonoccurrence of any predetermined event or
circumstance, and in particular the Purchaser has no current intention to resell
the Shares, under such registration statement nor would it have such intention
if such registration statement were effective as of the date of purchase. The
Purchaser understands that the investment in the Shares, is subject to a high
degree of risk and that the Shares have not been registered under the Securities
Act, by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
Purchaser's investment intent and the accuracy of the Purchaser's
representations as expressed herein. The Purchaser acknowledges and understands
that it must bear the economic risk of this investment for an indefinite period
of time because the Shares must be held indefinitely until subsequently
registered under the Securities Act and applicable state and other securities
laws or unless an exemption from registration is available. Purchaser
understands that any transfer agent of the Company will be issued stop-transfer
instructions with respect to the Shares, unless such transfer is subsequently
registered under the Securities Act and applicable state and other securities
laws or unless an exemption from such registration is available. The Purchaser
has experience in analyzing and investing in entities like the Company, it can
bear the economic risk of its investment, including the full loss of its
investment, and by reason of its business or financial experience or the
business or financial experience of its professional advisors has the capacity
to evaluate the merits and risks of its investment and protect its own interest
in connection with the purchase of the Shares from the Company at the Closing.
The Purchaser is a resident of the State of Texas. Purchaser was not organized
for the purpose of acquiring the Shares.
4.2 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as such
term is defined in SEC Regulation D.
4.3 AUTHORITY. The Purchaser has all right, power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with or result in any violation of any obligation under any
provision of the charter documents or Bylaws, of the Purchaser or any mortgage,
indenture, lease or other agreement or instrument, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Purchaser.
4.4 GOVERNMENT CONSENTS, ETC. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Purchaser is required in connection with the valid execution and delivery
of this Agreement, the purchase of the Shares or the consummation of any other
transaction contemplated hereby.
4.5 INVESTIGATION. The Purchaser has received a copy of the Reports and the
"Risk Factors" and "Description of Capital Stock" included as EXHIBIT B. The
Purchaser has had a reasonable opportunity to ask questions relating to and
otherwise discuss the terms and conditions of the offering and the other
information set forth in the Reports and this Agreement and the Company's
business, management and financial affairs with the Company's management,
customers and other parties, and the Purchaser has received satisfactory
responses to the Purchaser's inquiries. The Purchaser has relied solely upon the
information provided by the Company in the Reports and this Agreement in making
the decision to invest in the Shares. To the extent necessary, the Purchaser has
retained, at the expense of the Purchaser, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and its purchase of the Shares, hereunder.
4.6 SHORT SELLING. Purchaser has not prior to the date hereof directly or
indirectly, through related parties, affiliates or otherwise (a) sold "short" or
"short against the box" (as those terms are generally understood) any equity
security of the Company; or (b) otherwise engaged in any transaction which
involves hedging of its position in the securities of the Company, and it will
not until the date the Registration Statement (as defined herein) is declared
effective by the SEC take any such actions described in (a) or (b) of this
Section 4.6.
4.7 AFFILIATE STATUS. The Purchaser is not, and has not been within the 90
days prior to the Closing Date, an officer, director, employee, agent or
affiliate of the Company. The Purchaser is not a broker or dealer of securities,
an employee, officer or director of the Company nor prior to the Closing Date of
the transactions contemplated hereby is the Purchaser the beneficial owner of 5%
or more of the Common Stock of the Company.
SECTION 5
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
5.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The Purchaser's obligation
to purchase the Shares at the Closing is, at the option of Purchaser, which may
waive any such conditions to the extent permitted by law, subject to the
fulfillment on or prior to the Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date and the foregoing shall be certified in writing by
an executive officer of the Company.
(b) COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to such purchase shall
have been performed or complied with in all respects and the foregoing shall be
certified in writing by an executive officer of the Company.
(c) NO LEGAL ORDER PENDING. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.
(d) NO LAW PROHIBITING OR RESTRICTING SUCH SALE. There shall not be
in effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Shares (except as otherwise provided in this Agreement).
(e) OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received
from ▇▇▇▇▇ & ▇▇▇▇▇, L.L.P., counsel for the Company, an opinion dated the
Closing Date, in substantially the form set forth in EXHIBIT D.
SECTION 6
CONDITIONS TO OBLIGATIONS OF COMPANY
6.1 CONDITIONS TO OBLIGATIONS OF COMPANY. The Company's obligation to sell
and issue the Shares at the Closing is, at the option of the Company, which may
waive any such conditions to the extent permitted by law, subject to the
fulfillment on or prior to the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date, with the same force and effect as if they
had been made on and as of said date and the foregoing shall be certified in
writing by the Purchaser.
(b) COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Purchaser on or prior to the Closing
Date, shall have been performed or complied with in all material respects, and
the foregoing shall be certified in writing by the Purchaser.
(c) NO LEGAL ORDER PENDING. There shall not then be in effect any
legal or other order enjoining or restraining the transactions contemplated by
this Agreement.
(d) NO LAW PROHIBITING OR RESTRICTING SUCH SALE. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Shares.
SECTION 7
DEFINITIONS
7.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "AFFILIATE" shall mean, with respect to any person, any other
person controlling, controlled by or under direct or indirect common control
with such person (for the purposes of this definition "control," when used with
respect to any specified person, shall mean the power to direct the management
and policies of such person, directly or indirectly, whether through ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing).
(b) "BUSINESS DAY" shall mean a day Monday through Friday on which
banks are generally open for business in Texas.
(c) "HOLDERS" shall mean the Purchaser and any person holding
Registrable Securities to whom the rights under Section 8.1 have been
transferred in accordance with Section 8.1(g) hereof.
(d) "Person" shall mean any person, individual, corporation,
partnership, trust or other nongovernmental entity or any governmental agency,
court, authority or other body (whether foreign, federal, state, local or
otherwise).
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "REGISTRABLE SECURITIES" shall mean (A) the Shares, (B) any
shares of Common Stock issued as (or issuable upon the conversion of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to or in replacement of the Shares, (C) if permitted
under applicable law and regulation, the Penalty Shares; provided, however, that
securities shall only be treated as Registrable Securities if and only for so
long as they (I) have not been disposed of pursuant to a registration statement
declared effective by the SEC, (II) have not been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon the consummation of such sale, (III) may not be otherwise
transferred without restriction under Rule 144 (or any similar successor rule or
provision then in force) provided that the Company shall have delivered a new
certificate or other evidence of ownership for it not bearing any restrictive
legend and with all stop transfer orders withdrawn, or (IV) are held by a Holder
or a permitted transferee pursuant to subsection 8.1(g).
(g) "REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 8.1(a) hereof; including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company and the Holders up to $15,000
(aggregated for any other registration statement filed pursuant to Section 8.1
other than an additional registration required because the Company failed to
keep the Registration Statement in effect as required under this Agreement);
blue sky fees and expenses (for a reasonable number of states) and the expense
of any special audits incident to or required by any such registration.
(h) "REGISTRATION STATEMENT" shall have the meaning ascribed to such
term in Section 8.1(a).
(i) "REGISTRATION PERIOD" shall have the meaning ascribed to such
term in Section 8.1(c).
(j) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions and transfer taxes applicable to the sale of Registrable
Securities and all fees and expenses of legal counsel for any Holder in excess
of those fees and expenses treated as Registration Expenses.
SECTION 8
COVENANTS
8.1 REGISTRATION RIGHTS.
(a) REGISTRATION. Within one month after August 10, 1998, the Company
will file a registration statement (the "Registration Statement') with the SEC
on Form S-3 or any similar short form, if available, or, if such forms are
unavailable, on Form S-1 or any other appropriate form and will use its
reasonable best efforts for such Registration Statement to be declared effective
by the SEC. The Company will use its reasonable best efforts to promptly effect
the registration, qualifications or compliances (including, without limitation,
the execution of any required undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws and appropriate compliance with applicable securities laws, requirements or
regulations) as may be so reasonably requested and as would permit or facilitate
the sale and distribution of all Registrable Securities; provided that the
Company shall not be obligated to take any action to effect any such state
registration, qualification or compliance pursuant to this subsection 8.1(a) in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service or
is required to qualify in such jurisdiction, as the case may be, and except as
may be required by the Securities Act. The Company shall be obligated to effect
only one registration pursuant to this Section 8.1 so long as the Registration
Statement is kept in effect by the Company for the period of time required
hereby (otherwise the Company shall be obligated to effect an additional
registration). The Penalty Shares may, in the sole discretion of the Company
(consistent with applicable securities laws), either be included in the
Registration Statement contemplated by this Section or may be included in one or
more separate registration statements in which case the provisions of Section 8
shall apply to such separate registration statements as if they were the
Registration Statement.
(b) EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
subsection 8.1(a) shall be borne by the Company. All Selling Expenses relating
to the sale of securities registered by or on behalf of Holders shall be borne
by such Holders pro rata on the basis of the number of securities so registered.
(c) REGISTRATION PROCEDURES. In the case of the registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will, upon reasonable request, inform each Holder as to the status
of such registration, qualification and compliance. At its expense the Company
will during such time as the Holder holds Registrable Securities:
(i) use its reasonable best efforts to keep such registration,
and any qualification or compliance under state securities laws which the
Company determines to obtain, effective until the shares included in such
registration statement are sold or are otherwise freely transferable and all
restrictive legends and stop transfer orders have been removed.
(ii) furnish such number of prospectuses and other documents
incident thereto as the Holders from time to time may reasonably request;
(iii) use its reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any Holder reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such Holder
to consummate the disposition of the Registrable Shares owned by such Holder in
such jurisdictions; provided, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 8.1(c), or (B) subject
itself to income taxation in any such jurisdiction;
(iv) notify each Holder of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such Holder, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus will not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
(v) cause all such Registrable Shares to be listed or quoted
on each securities exchange or automated quotation system on which similar
securities issued by the Company are then listed or quoted;
(vi) appoint a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such Registration
Statement;
(vii) make available for inspection by any Holder of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, employees and independent accountants to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement, subject in each case to
appropriate confidentiality restrictions; and
(viii) use its best efforts to cause the Registrable Shares
covered by such registration statement to be registered with or approved by such
other United States or state governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition of such
Registrable Shares. The period of time during which the Company is required
hereunder to keep the Registration Statement effective is referred to herein as
"the Registration Period."
(d) INDEMNIFICATION.
(i) To the extent permitted by law, the Company will indemnify
each Holder requesting or joining in a registration, each agent, officer and
director of such Holders, each person controlling such Holder and each
underwriter and selling broker of the securities so registered (collectively,
"Indemnitees") against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
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,
or any violation by the Company of the Securities Act, the Exchange Act or state
securities laws or any rule or regulation promulgated under the Securities Act,
the Exchange Act or a state securities law, in each case applicable to the
Company, and will reimburse each such Indemnitee for any legal and any other
fees and expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided, however,
that the Company will not be liable to any Indemnitee in any such case to the
extent that any such claim, loss, damage or liability is caused by any untrue
statement or omission so made in strict conformity with written information
furnished to the Company by an instrument duly executed by such Indemnitee and
stated to be specifically for use therein and except that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
becomes effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure
to the benefit of any underwriter, or any Indemnitee if there is no underwriter,
if a copy of the Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act; provided, further, that this
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; provided, further, that the indemnity agreement contained
in this subsection 8. l(d)(i) shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably
withheld.
(ii) To the extent permitted by law, each Holder requesting or
joining in a registration and each underwriter and selling broker of the
securities so registered will indemnify the Company and its officers and
directors and each person, if any, who controls any thereof within the meaning
of Section 15 of the Securities Act and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance (or in any related
registration statement, notification or the like) 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 will reimburse the
Company and each other person indemnified pursuant to this subsection 8.
l(d)(ii) for any legal and any other fees and expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided, however, that this subsection 8. l(d)(ii) shall
apply only if (and only to the extent that) such statement or omission was made
in reliance upon and in strict conformity with written information (including,
without limitation, written negative responses to inquiries) furnished to the
Company by an instrument duly executed by such Holder, underwriter or selling
broker and stated to be specifically for use in such prospectus, offering
circular or other document (or related registration statement, notification or
the like) or any amendment or supplement thereto; and except that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
becomes effective or in the Final Prospectus, such indemnity agreement shall not
inure to the benefit of (i) the Company and (ii) any underwriter or Holder, if
there is no underwriter, if a copy of the Final Prospectus was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act; provided,
further, that this indemnity shall not be deemed to relieve any underwriter of
any of its due diligence obligations; provided, further, that the indemnity
agreement contained in this subsection 8. l(d)(ii) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder or underwriter, as the
case may be, which consent shall not be unreasonably withheld; and provided,
further, that the obligations of such Holders shall be limited to an amount
equal to the net proceeds received by such Holder from the sale of Registrable
Stock in such offering as contemplated herein, unless such claim, loss, damage,
liability or action resulted from such Holder's fraudulent misconduct.
(iii) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and provided
further that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 8.1(d) except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give notice. No indemnifying party, in the
defense of any such claim or litigation, shall consent, except with the consent
of each indemnified party, 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.
(iv) The reimbursement required by this Section 8.1(d) shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(v) The obligation of the Company under this Section 8.1(d) shall
survive the redemption, if any, of the Series B Preferred and the Series C
Preferred, and the completion of any offering of Registrable Stock in a
registration statement under this Section 8 or otherwise.
(e) COVENANTS OF HOLDERS.
(i) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a supplement
or amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement contemplated by subsection 8.1(a) until its
receipt of copies of the supplemented or amended prospectus from the Company
and, if so directed by the Company, each Holder shall deliver to the Company all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(ii) Each Holder severally agrees for a period of time (not to
exceed 180 days) from the effective date of any registration (other than a
registration effected solely to implement an employee benefit plan) of
securities of the Company for any underwritten offering (upon request of the
Company or of the underwriters managing any underwritten offering to the
Company's securities) not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
or any other stock of the Company held by such Holder, other than shares of
Registrable Securities included in such registration, without the prior written
consent of the Company or such underwriters, as the case may be; provided that
this obligation is subject to the condition that all officers and directors of
the Company and each holder of more than 2% of the outstanding Common Stock
shall enter into similar agreements; provided further that, each Holder
severally agrees that if and only if the Holder has not, at the date of the
effectiveness of a subsequently filed registration statement, been required to
comply with the preceding provisions of this Section, for a period of time (not
to exceed 90 days) from the effective date of any subsequent registration that
provides in whole or in part for the underwritten sale by the Company of
securities of the Company (upon request of the Company or of the underwriters
managing any underwritten offering of the Company's securities) the Holder will
agree not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities or any other
stock of the Company held by such Holder, other than shares of Registrable
Securities included in such registration, without the prior written consent of
the Company or such underwriters, as the case may be; provided that all officers
and directors of the Company shall enter into similar agreements. Each Holder
agrees to suspend, upon request of the Company, any disposition of Registrable
Securities pursuant to the Registration Statement and prospectus contemplated by
subsection 8.1(a) during any period, not to exceed one 30-day period per
circumstance or development and not to exceed 60 days in any 12-month period,
when the Company upon written advice of counsel determines in good faith that
offers and sales pursuant thereto should not be made by reason of the presence
of material, undisclosed circumstances or developments with respect to which the
disclosure that would be required in such a prospectus is premature, would have
an adverse effect on the Company.
(iii) Each Holder agrees to notify the Company, at any time when
a prospectus relating to the Registration Statement contemplated by subsection
8.1(a) is required to be delivered by it under the Securities Act, of the
occurrence of any event relating to the Holder which requires the preparation of
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
relating to the Holder, and each Holder shall promptly make available to the
Company the information to enable the Company to prepare any such supplement or
amendment. Each Holder also agrees that, upon delivery of any notice by it to
the Company of the happening of any event of the kind described in the next
preceding sentence of this subsection, the Holder will forthwith discontinue
disposition of Registrable Securities pursuant to such Registration Statement
until its receipt of the copies of the supplemental or amended prospectus
contemplated by this subsection, which the Company shall promptly make available
to each Holder and, if so directed by the Company, each Holder shall deliver to
the Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
(iv) Each Holder shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing or as shall be required in connection
with any registration, qualification or compliance referred to in this Section
8.1.
(v) Each Holder hereby covenants with the Company (1) not to make
any sale of the Shares without effectively causing the prospectus delivery
requirements under the Securities Act to be satisfied, and (2) if such Shares
are to be sold by any method or in any transaction other than on a national
securities exchange, in the over-the-counter market, on the NASDAQ National
Market, in privately negotiated transactions, or in a combination of such
methods, to notify the Company at least five business days prior to the date on
which the Purchaser first offers to sell any such Shares.
(vi) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the Registration Statement described in this Section
are not transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Shares is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (A) the
Registrable Securities have been sold in accordance with such registration
statement and (B) the requirement of delivering a current prospectus has been
satisfied. Each Holder agrees that it will not effect any disposition of the
Registrable Securities that would constitute a sale within the meaning of the
Securities Act except as contemplated in the registration statement referred to
in this Section 8.1 or in a transaction exempt from registration under the
Securities Act. Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to such registration statement that
constitutes a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
(f) RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which at any time
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(iii) so long as a Holder owns any unregistered Registrable
Securities, furnish to such Holder upon any reasonable request a written
statement by the Company as to its compliance with Rule 144 under the Securities
Act, and of the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Holder to sell any such securities without registration.
(g) TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities granted to the Holders by the Company under
subsection 8.1(a) may be assigned in full by a Holder to an Affiliate of such
Holder or a transferee of at least 100,000 shares of Registrable Securities
provided that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws; (ii) such Holder gives prior written notice to the
Company; and (iii) such transferee agrees to comply with the terms and
provisions of this Agreement including, without limitation, the restrictions in
Section 4.6 and such transfer is otherwise in compliance with this Agreement.
Except as specifically permitted by this paragraph (g), the rights of a Holder
with respect to Registrable Securities as set out herein shall not be
transferable to any other Person.
(h) WAIVERS AND AMENDMENTS. With the written consent of the Company
and the Holders holding at least a majority of the then outstanding Registrable
Securities, any provision of this Section 8.1 may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation of
each such waiver or amendment, the Company shall promptly give written notice
thereof to the Holders, if any, who have not previously received notice thereof
or consented thereto in writing.
8.2 DISPOSITION. The Purchaser has not and will not make any offer, sale or
other transfer of the Shares by any means which would not comply with applicable
law or this Agreement or which would otherwise impose upon the Company any
obligation to satisfy any public filing or registration requirement. The
Purchaser understands and agrees that any disposition of the Shares in violation
of this Agreement shall be null and void, and that no transfer of the Shares
shall be made by the Company or the transfer agent for the Shares upon the
Company's stock transfer books or records unless and until there has been
compliance with the terms of this Agreement, the Securities Act, any applicable
state and foreign securities law and any other laws. Purchaser will not sell or
transfer the Shares unless:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) it shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and, if requested by the Company, it shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company that such disposition is exempt from registration of such shares
under the Securities Act or any applicable state, foreign or other securities
laws.
The Purchaser will not transfer the Shares, other than pursuant to the
Registration Statement or in a transaction that complies with Rule 144, unless
the transferee agrees to be bound by the restrictions on transfer (including the
registration provisions) contained herein to the same extent as if it were the
original Purchaser. The provisions hereof shall apply to the Penalty Rights to
the same extent as the Shares.
8.3 OTHER REGISTRATION RIGHTS. Each of the Company and the Purchaser agrees
that the holders of any securities of the Company which are entitled to
registration rights pursuant to (i) the June Subscription Agreement, (ii) the
Series C Preferred Stock Purchase Agreement among the Company and certain of its
security holders dated as of July 26, 1995 or (iii) the Stock Purchase Agreement
among the Company and certain of its security holders dated as of November 9,
1993 shall be entitled to participate with respect to such securities in any
registration effected pursuant to Section 8.1 hereof upon the same terms and
conditions as a Holder of Registrable Securities.
SECTION 9
MISCELLANEOUS
9.1 TERMINATION OF AGREEMENT. The Company may terminate its obligation to
perform or observe any of its covenants and agreements hereunder to Purchaser if
Purchaser violates in a material respect any of the material covenants or
agreements of the Purchaser under this Agreement, and the Purchaser may
terminate its obligations to perform or observe any of its covenants and
agreements hereunder if the Company violates or fails to perform in any respect
any of the covenants or agreements of the Company under this Agreement to
Purchaser; provided, however, that neither the Company nor the Purchaser, as the
case may be, may terminate any of its obligations under this Agreement pursuant
to this sentence unless it shall have delivered written notice of such default
to the other party and such default shall not have been cured within 30 days
after the delivery of such notice.
9.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE
LAWS OF THE STATE OF TEXAS AS APPLIED TO CONTRACTS ENTERED INTO SOLELY BETWEEN
RESIDENTS OF, AND TO BE PERFORMED ENTIRELY WITHIN, SUCH STATE.
9.3 SURVIVAL; RELIANCE. The representations and warranties in Sections 3
and 4 of this Agreement shall survive any investigation made by the Purchaser or
the Company for a period of two years after the Closing Date and all covenants
and agreements contained herein shall survive the execution and delivery of this
Agreement in accordance with their terms. Thereafter, such representations and
warranties shall expire and be of no further force and effect, and no cause of
action may be brought with respect to any breach thereof unless a written notice
specifying the nature and the amount of the claims shall have been delivered by
the Company or the Purchaser, as the case may be, with respect thereto, on or
before two years after the Closing Date. Any representation or warranty
contained herein may be relied upon by counsel to the Company in connection with
any opinion delivered in connection with the transactions contemplated hereby.
9.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns. Except as otherwise provided in this Agreement, this Agreement may not
be assigned by a party without the prior written consent of the other party
except by operation of law, in which case the assignee shall be subject to all
of the provisions of this Agreement.
9.5 NOTICES AND DATES. Any notice or other communication given under this
Agreement shall be sufficient if in writing and will be effective as of (a) the
date of receipt if delivered by hand, by messenger or by courier, or transmitted
by facsimile, to a party at its address set forth below (or at such other
address as shall be designated for such purpose by such party in a written
notice to the other party hereto) or (b) three days after the date when the same
shall have been posted by registered mail, return receipt requested, in any post
office in the United States of America, postage prepaid and addressed to the
party at such address:
(i) if to the Company:
3DX Technologies Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
(Facsimile) (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Purchaser:
Santa Fe Energy Resources, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
(Facsimile) (▇▇▇) ▇▇▇-▇▇▇▇
9.6 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. It is accordingly agreed that any party hereto shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
in addition to any other remedy to which it may be entitled at law or in equity,
and such party that is sued for breach of this Agreement expressly waives any
defense that a remedy in damages would be adequate and expressly waives any
requirement in an action for specific performance for the posting of a bond by
the party bringing such action.
9.7 FURTHER ASSURANCES. The parties hereto shall do and perform or cause to
be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments or documents as any
other party may reasonably request from time to time in order to carry out the
intent and purposes of this Agreement and the consummation of the transactions
contemplated hereby.
9.8 COUNTERPARTS. This Agreement may be executed in any number of counter-
parts, each of which may be executed by fewer than all of the parties, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
9.9 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic impact of this Agreement on any party.
9.10 CAPTIONS. Headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be relied upon in
construing this Agreement. Use of any gender herein to refer to any person shall
be deemed to comprehend masculine, feminine and neuter unless the context
clearly requires otherwise.
9.11 PUBLIC STATEMENTS. The Purchaser agrees not to issue any public
statement with respect to it's investment or proposed investment in the Company
or the terms of any agreement or covenant between it and the Company without the
Company's prior written consent, except such disclosures as may be required
under applicable law or under any applicable order, rule or regulation.
9.12 BROKERS. Each of the Company and the Purchaser represents and warrants
to the others that it has not engaged, consented to or authorized any broker,
finder or intermediary to act on its behalf directly or indirectly, as a broker,
finder or intermediary in connection with the transactions contemplated by this
Agreement. Each of the Company and the Purchaser hereby agrees to indemnify and
hold harmless the other from and against all fees, commissions or other payments
owing to any such person or firm acting on behalf of such Person hereunder.
9.13 COSTS AND EXPENSES. Each party hereto shall pay its own costs and
expenses incurred in connection herewith, including the fees of its counsel,
auditors and other representatives, whether or not the transactions contemplated
herein are consummated.
9.14 NO THIRD-PARTY RIGHTS. Nothing in this Agreement shall create or be
deemed to create any rights in any person or entity not a party to this
Agreement except for certain registration rights granted hereunder to Persons in
accordance with Section 8.3 hereof.
9.15 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
supersede all prior agreements and understandings among the parties relating to
the subject matter hereof. No party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought except that any matter relating to
registration rights hereunder may be waived or amended on behalf of all of the
Holders, by the consent of the Company and the Holders holding a majority of the
then outstanding Registrable Securities.
This Common Stock Subscription Agreement is agreed to and accepted as of August
21, 1998.
3DX TECHNOLOGIES INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Vice President Finance and
Chief Financial Officer
SANTA FE ENERGY RESOURCES, INC.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
and General Counsel
EXHIBIT A
SCHEDULE OF EXCEPTIONS
1. The Company's August 19 press release is incorporated herein in their
entirety.
2. The Company made a Voluntary Request for Consideration, dated February
5, 1998, a copy of which has been provided to the Purchaser, under the Employee
Plan Closing Agreement Program to correct certain operational defects in its
former defined contribution pension plan, which was intended to qualify under
section 401(a) of the Internal Revenue Code of 1986, as amended. The Company
believes that it has made adequate provision on its financial statements for any
liability (including interest and penalties) that may result from such
operational defects.
3. The Company has not received a determination letter from the Internal
Revenue Service with regard to its current 401(k) Employee Savings Plan, which
plan the Company adopted in January 1998.
EXHIBIT B
ADDITIONAL INFORMATION
EXHIBIT B
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the materials given to the Purchaser including
statements regarding anticipated capital expenditures, estimates of proved
reserves, future rates of production, future growth, future exploration, future
seismic data (including timing and results), future reserves, revenues, future
drilling (including the timing and results thereof), expansion of operations,
generation of additional prospects and results of current or future prospects,
future reserves and future leases, and other land rights, timing of capital
expenditures and regulatory reform, and other statements contained herein
regarding matters that are not historical facts, are forward-looking statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995). The words "budgeted", "anticipate," "project," "estimate," "expect,"
"may," "believe," "potential" and similar statements are intended to be among
the statements that are forward-looking statements. Because such statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed under "Risk Factors" and in the Company's filings with the SEC.
RISK FACTORS
LIMITED OPERATING HISTORY AND SIGNIFICANT HISTORICAL OPERATING LOSSES
The Company commenced its operations in 1993 and has only a limited
operating history. Potential investors, therefore, have limited historical
financial and operating information upon which to base an evaluation of the
Company's performance and an investment in shares of Common Stock. For example,
many of the producing ▇▇▇▇▇ within exploration projects in which the Company is
participating have been on production only for a short period of time.
Therefore, estimations with respect to the proved reserves and level of future
production attributable to these ▇▇▇▇▇ are difficult to determine and there can
be no assurance as to the volume of recoverable reserves that will be realized
from such ▇▇▇▇▇. The Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in the
early stages of their development. As a result of operating expenses and
impairments of oil and gas properties, the Company has incurred significant
operating and net losses to date. The development of the Company's business and
its participation in an increasingly larger number of projects has required and
will continue to require substantial expenditures. The Company's future
financial results will depend primarily on its ability to economically locate
hydrocarbons in commercial quantities to provide drilling site and target depth
recommendations resulting in profitable productive ▇▇▇▇▇ and on the market
prices for oil and gas. There can be no assurance that the Company will achieve
or sustain profitability or positive cash flows from operating activities in the
future.
VOLATILITY OF OIL AND GAS PRICES
Although the Company's primary efforts are focused on reducing the
hydrocarbon finding costs in those projects in which it participates, the
Company's revenues, profitability, cash flow and future growth are affected by
changes in prevailing oil and gas prices. Oil and gas prices have been subject
to wide fluctuations in recent years in response to relatively minor changes in
the supply and demand for oil and gas, market uncertainty and a variety of
additional factors that are beyond the control of the Company, including
economic, political and regulatory developments and competition from other
sources of energy. It is impossible to predict future oil and gas price
movements with any certainty. Currently, the Company does not engage in hedging
activities. As a result, the Company may be more adversely affected by
fluctuations in oil and gas prices than other industry participants that do
engage in such activities. No assurances can be given as to the future level of
activity in the oil and gas exploration and development industry and its
relationship to the future demand for the expertise offered by the Company. An
extended or substantial decline in oil and gas prices could have a material
adverse effect on the Company's financial position and results of operations,
the volume of oil and gas that may be economically produced by operations of
projects in which the Company participates and the Company's access to capital.
RELIANCE ON SIGNIFICANT PARTNERS
The Company has in the past and expects in the future to rely
extensively upon its existing and future partners to offer opportunities for the
Company to participate in exploration projects. All of the Company's oil and gas
revenues have been derived from its participation in projects involving a
limited number of partners. The Company's inability to secure future business
opportunities generated by these or other partners could limit the Company's
ability to fully implement its business plan and could have a material adverse
effect on the Company's business, financial condition and results of operations.
NON-OPERATOR STATUS
The Company focuses exclusively on providing 3-D imaging and relies
upon other project partners to provide and complete all other project operations
and responsibilities including land acquisition, drilling, marketing and project
administration. As a result, the Company has only a limited ability to exercise
control over a significant number of a project's operations or the associated
costs of such operations. The success of a project is dependent upon a number of
factors which are outside of the Company's area of expertise and project
responsibilities. Such factors include: (i) the availability of favorable lease
terms and required permitting for projects, (ii) the availability of future
capital resources by the Company and the other participants for the purchasing
of leases and the drilling of ▇▇▇▇▇, (iii) the approval of other participants to
the purchasing of leases and the drilling of ▇▇▇▇▇ on the projects, (iv) the
economic conditions at the time of drilling, including the prevailing and
anticipated prices for oil and gas and (v) the ability of the operator to
successfully and adequately perform its tasks. The Company's reliance on other
project partners and its limited ability to directly control certain project
costs could have a material adverse effect on the realization of expected rates
of return on the Company's investment in projects.
ABILITY TO DISCOVER ADDITIONAL RESERVES
The Company's future success is dependent upon its ability to
economically locate additional oil and gas reserves in commercial quantities.
The Company's ability to do so is dependent upon a number of factors, including
its participation in multiple exploration projects and its technological
capability to locate oil and gas in commercial quantities. Because the Company
does not generate or develop its own projects (except in instances relating to
trend plays), relying instead upon other industry participants to do so, no
assurances can be given that the Company will have the opportunity to
participate in projects which economically produce commercial quantities of
hydrocarbons in amounts necessary to meet its business plan or that the projects
in which it elects to participate will be successful. Except to the extent that
the Company successfully locates commercial quantities of economically
recoverable oil and gas, the Company's proved reserves will decline as reserves
are produced. There can be no assurance that the Company will be able to
discover additional commercial quantities of oil and gas or that the Company's
project partners will have success drilling productive ▇▇▇▇▇ and acquiring
properties at low finding costs.
SUBSTANTIAL CAPITAL REQUIREMENTS AND LIQUIDITY
To date, net cash provided by operating activities has been
limited and the Company has funded its oil and gas exploration activities
principally through cash provided by the sale of equity securities. The
Company's business requires substantial oil and gas capital expenditures. To
achieve its near-term goals, the Company has been and will be required to make
oil and gas capital expenditures substantially in excess of its net cash flow
from operations in order to acquire, explore and develop oil and gas properties.
The level of capital spending in 1998 will be dependent upon the Company's
ability to obtain additional sources of funding.
As of March 31, 1998, the Company had a deficit in working capital
of approximately $3.8 million. On December 18, 1997, the Company executed a
credit agreement with a commercial bank, the borrowing capacity of which was set
at $2.0 million in April 1998. There were no borrowings under the credit
agreement during the quarter ended March 31, 1998. Subsequent to March 31, 1998,
the Company borrowed $2.0 million under the credit agreement. Such amount is the
maximum amount currently available for borrowing under the credit facility. The
borrowing capacity is a function of the value of the Company's proved oil and
gas reserves, and is redetermined on a quarterly basis. The bank is currently
conducting a scheduled redetermination. Although the Company increased its
proved reserves as a result of successful drilling operations during the quarter
ended March 31, 1998, the bank has not concluded whether it will increase the
borrowing capacity at this time. The credit agreement is secured by
substantially all of the Company's oil and gas properties and contains
restrictions on dividends and additional liens and indebtedness and requires the
maintenance of a minimum current ratio and net worth, each as defined in the
credit agreement. As of March 31, 1998, the Company was not in compliance with
certain covenants of the credit agreement pertaining to minimum working capital
and aging of accounts payable. The bank has agreed to waive these instances of
non-compliance through June 30, 1998. In the absence of an improvement in the
Company's working capital and accounts payable aging, future waivers from the
bank will be necessary.
As a result of the Company's periodic review of each of its oil and
gas exploration and development properties and its available capital, the
Company has occasionally sold partial interests in specific oil and gas projects
to other investors to reduce its total investment commitment to such projects.
No gain or loss has been recognized on these transactions. The Company is
currently reviewing its portfolio to identify properties to be marketed to
industry partners for cash consideration, reversionary working interests or some
combination thereof. Such interests may consist of both producing ▇▇▇▇▇ and
future drilling locations. There can be no assurance, however, that the Company
will be able to sell any such interests, or that the terms of such potential
sales would be acceptable to the Company.
The Company will require additional sources of financing to fund
drilling expenditures on properties currently owned by the Company and, to a
lesser extent, to fund leasehold costs and geological and geophysical costs on
its active exploration projects. The Company generally has the right, but not
the obligation, to participate for its percentage interest in drilling ▇▇▇▇▇ and
can decline to participate if it does not have sufficient capital resources at
the time such drilling operations are proposed. The Company can also potentially
transfer its right to participate in drilling ▇▇▇▇▇ in exchange for cash, a
reversionary interest, or some combination thereof. To recover its investment in
unevaluated properties, it is necessary for the Company to either participate in
drilling which finds commercial oil and gas production and produce such reserves
or receive sufficient value through the sale or transfer of its interests.
The Company expects that its projected cash flows from currently
producing properties will be sufficient to fund its cash general and
administrative costs for the remainder of 1998, including technical employee and
related costs which are capitalized under full-cost accounting, however, these
cash flows are not projected to be sufficient to fund the current deficit in
working capital. The Company's projections of cash flows from currently
producing properties could be adversely affected by declines in oil and gas
prices below current levels or anticipated seasonal lows and unanticipated
declines in oil and gas production from existing properties.
The Company intends to seek additional financing to satisfy its
capital requirements. The Company is currently evaluating alternatives to obtain
additional equity financing, which include sales of common or preferred stock.
In the absence of additional financing, the Company anticipates that it will be
required to modify the implementation and timing of its oil and gas exploration
and development capital spending for 1998, which modification could have a
material adverse effect on the Company. No assurance can be given that the
Company will be able to obtain additional financing on terms which would be
acceptable to the Company, if at all. The Company's inability to obtain
additional financing would have a material adverse effect on the Company. The
lack of firm commitments for equity financing at this time, combined with the
deficit in working capital, raises uncertainty about the ability of the Company
to continue as a going concern. In the absence of additional funding, the
Company may be required to reduce its planned level of capital expenditures or
pursue other financial alternatives, which could include a sale or merger of the
Company.
The Company expects to seek to obtain additional funds, in addition
to the proceeds of this offering, through equity or debt financing, or from
other sources. If additional funds are raised by issuing equity securities,
dilution to stockholders may occur. The Board of Directors of the Company is
empowered, without stockholder approval, to issue series of preferred stock with
dividend, liquidation, conversion, voting and other rights that could adversely
affect the voting power or other rights of the holders of the common stock. Any
such preferred stock or common stock may be offered at or near the time of the
securities offered pursuant to this transaction and may be on terms more or less
favorable than those offered pursuant to this transaction. If debt securities
are issued, a portion of the Company's cash flow will have to be dedicated to
payment of principal and interest on such indebtedness and the Company may be
subject to certain restrictive financial and operating restrictions in the
agreements and instruments relating to such indebtedness.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES
There are numerous uncertainties inherent in estimating oil and gas
reserves and in projecting future rates of production. Petroleum engineering is
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. Estimates of economically recoverable oil
and gas reserves and of future net cash flows depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies, and assumptions concerning future oil and gas prices,
future operating cost, severance and excise taxes, development costs and
workover and remedial costs, all which may in fact vary considerably from actual
results. For these reasons, estimates of the economically recoverable quantities
of oil and gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of the
future net cash flows expected therefrom prepared by different engineers or by
the same engineers at different times may vary substantially. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material.
DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES
The success of the Company will be materially dependent upon the
continued success of its exploratory drilling program. Exploratory drilling
involves numerous risks, including the risk that no commercially productive oil
or natural gas reservoirs will be encountered. The cost of drilling, completing
and operating ▇▇▇▇▇ is often uncertain, and drilling operations may be
curtailed, delayed or cancelled as a result of a variety of factors, including
unexpected drilling conditions, pressure or irregularities in formations,
equipment failures or accidents, adverse weather conditions, compliance with
governmental requirements and shortages or delays in the availability of
drilling rigs or delivery crews and the delivery of equipment. Although the
Company believes that its use of 3-D seismic data and other advanced technology
should increase the probability of success of its exploratory ▇▇▇▇▇ through
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic data and other traditional methods, exploratory drilling remains a
speculative activity. Even when fully utilized and properly interpreted, 3-D
seismic data and advanced techniques only assist geoscientists in identifying
subsurface structures and do not allow the interpreter to know if hydrocarbons
will in fact be present in such structures if they are drilled. In addition, the
use of 3-D seismic data and such technologies requires greater pre-drilling
expenditures than traditional drilling strategies and the Company could incur
losses as a result of such expenditures. The Company's future drilling
activities may not be successful and. if unsuccessful, such failure will have an
adverse effect on the Company's future results of operations and financial
condition. There can be no assurance that the Company's overall drilling success
rate or its drilling success rate for activity within a particular project area
will not decline. The Company may choose not to acquire option and lease rights
prior to acquiring seismic data and, in many cases, the Company may identify a
prospect or drilling location before seeking option or lease rights in the
prospect or location and in which prospects the Company may not have any option
or lease rights. Although the Company has identified or budgeted for numerous
drilling prospects, there can be no assurance that such prospects will be leased
or drilled (or drilled within the scheduled or budgeted time frame) or that
natural gas or oil will be produced from any such identified prospects or any
other prospects. [Prospects may initially be identified through a number of
methods, some of which do not include interpretation of 3-D or other seismic
data. ▇▇▇▇▇ that are currently included in the Company's capital budget may be
based upon statistical results of drilling activities in other 3-D project areas
that the Company believes are geologically similar, rather than on analysis of
seismic or other data. Actual drilling and results are likely to vary from such
statistical results and such variance may be material.] Similarly, the Company's
drilling schedule may vary from its capital budget.
COMPETITION
The exploration for and production of oil and gas are highly
competitive. Many companies and individuals are engaged in the business of
acquiring interests in and developing onshore and near onshore oil and gas
properties in the United States. The industry is not dominated by any single
competitor or a small number of competitors. The Company competes with a large
number of independent, technology-driven service companies and major and
independent oil and gas companies for the acquisition of desirable oil and gas
properties, as well as for the equipment and expertise required to operate and
develop such properties. Many of these competitors have financial and other
resources substantially in excess of those available to the Company. Such
competitive disadvantages could adversely affect the Company's ability to
participate in projects with favorable rates of return.
TECHNOLOGICAL CHANGES
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
other oil and gas finding companies may implement new technologies before the
Company, and consequently such companies may be able to provide enhanced
capabilities and superior quality compared with that which the Company is able
to provide. There can be no assurance that the Company will be able to respond
to such competitive pressures and implement such technologies on a timely basis
or at an acceptable cost. One or more of the technologies currently utilized by
the Company or implemented in the future may become obsolete. In such case, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely affected.
OPERATING RISKS OF OIL AND NATURAL GAS OPERATIONS
The oil and natural gas business involves certain operating hazards
such as well blowouts, craterings, explosions, uncontrollable flows of oil,
natural gas or well fluids, fires, formations with abnormal pressures,
pollution, releases of toxic gas and other environmental hazards and risks, any
of which could result in substantial losses to the Company. In addition,
offshore projects are subject to the additional hazards of marine operations,
such as capsizing, collision and damage or loss from severe weather. The
availability of a ready market for the Company's oil and natural gas production
also depends on the proximity of reserves to, and the capacity of, oil and
natural gas gathering systems, pipelines and trucking or terminal facilities. In
addition, the Company may be liable for environmental damages caused by previous
owners of property purchased and leased by the Company. As a result, substantial
liabilities to third parties or governmental entities may be incurred, the
payment of which could reduce or eliminate the funds available for exploration,
development or acquisitions or result in the loss of the Company's properties.
In accordance with customary industry practices, the Company maintains insurance
against some, but not all, of such risks and losses. The occurrence of an event
not fully covered by insurance could have a material adverse effect on the
financial condition and results of operations of the Company.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Oil and natural gas operations are subject to various federal, state
and local government regulations, which may be changed from time to time in
response to economic or political conditions. Matters subject to regulation
include discharge permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of ▇▇▇▇▇, unitization and pooling of
properties and taxation. From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow of
oil and natural gas ▇▇▇▇▇ below actual production capacity in order to conserve
supplies of oil and natural gas. In addition, the development, production,
handling, storage, transportation and disposal of oil and natural gas,
by-products thereof and other substances and materials produced or used in
connection with oil and natural gas operations are subject to regulation under
federal, state and local laws and regulations primarily relating to protection
of human health and the environment. The Company is also subject to changing and
extensive tax laws, the effects of which cannot be predicted. The implementation
of new, or the modification of existing, laws or regulations could have a
material adverse effect on the Company.
VARIABILITY OF OPERATING RESULTS
The Company's operating results have in the past and may in the
future fluctuate significantly depending upon a number of factors including
industry conditions, prices of oil and gas, rate of drilling success, rates of
production from completed ▇▇▇▇▇ and the timing of capital expenditures. Such
variability could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any failure or delay
in the realization of expected cash flows from operating activities could limit
the Company's ability to invest and participate in economically attractive
projects.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH
STRATEGY
The Company's rapid growth has placed, and is expected to continue
to place, a significant strain on the Company's financial, technical,
operational and administrative resources. As the Company increases its services
and enlarges the number of projects it is evaluating or in which it is
participating, there will be additional demands on the Company's financial,
technical and administrative resources. The failure to continue to upgrade the
Company's technical, administrative, operating and financial control systems or
the occurrence of unexpected expansion difficulties, including the recruitment
and retention of geoscientists and engineers, could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company has assembled a team of geologists, geophysicists and
engineers who have considerable experience effectively applying 3-D imaging
technologies. The Company is dependent upon the knowledge, skills and experience
of these experts to provide 3-D imaging and assist the Company in reducing the
risks associated with its participation in oil and gas exploration projects. In
addition, the success of the Company's business also depends to a significant
extent upon the abilities and continued efforts of its management, particularly
▇▇▇▇▇▇ ▇▇▇▇▇, the Company's President and Chief Executive Officer, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Vice President of Technology, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President of
Exploration and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Vice President of Finance. ▇▇. ▇▇▇▇ has
announced his intention to leave the Company. The loss of the services of key
management personnel or the Company's technical experts, or the inability to
attract additional qualified personnel, could have a material adverse effect on
the Company's business, financial condition, results of operations, development
efforts and ability to expand. There can be no assurance that the Company will
be successful in attracting and retaining such executives, geoscientists and
engineers.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-laws (the "Bylaws")
include certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors.
These provisions may have the effect of delaying, deterring or preventing a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Company's Board of Directors, even though
such a transaction may offer the holders of Common Stock the opportunity to sell
their stock at a price above the prevailing market price. Such provisions may
also render the removal of directors and management more difficult.
Specifically, the Certificate of Incorporation and Bylaws provide for certain
advance notice requirements for stockholder nominations of candidates for
election to the Company's Board of Directors and certain other stockholder
proposals. Such provisions could limit the price that certain persons might be
willing to pay in the future for shares of Common Stock. The Certificate of
Incorporation authorizes the Board of Directors of the Company to issue from
time to time, without any further action of stockholders, up to one million
shares of Preferred Stock (as defined herein), on such terms and with such
rights, designations, preferences, qualifications, limitations and restrictions
as the Board of Directors may determine. The issuance of such Preferred Stock,
depending upon the rights, designations, preferences, qualifications,
limitations and restrictions thereof, may have the effect of delaying, deterring
or preventing a change in control of the Company or may otherwise adversely
affect the interests of holders of Common Stock. Further, certain provisions of
the Delaware General Corporation Law (the "DGCL") prevent certain stockholders
from engaging in business combinations with the Company, subject to certain
exceptions.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares
of Common Stock, and 1,000,000 shares of Preferred Stock.
The statements set forth below are brief summaries of the material
provisions of the Certificate of Incorporation and Bylaws both as amended which
are filed as exhibits to the Company's Form 10-K filed with the SEC relating to
the Company's capital stock and certain provisions of Delaware law. Such
summaries do not purport to be complete, and are subject to, and are qualified
in their entirety by reference to, such documents and to the Delaware General
Corporation law.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share
on all matters which the holders of Common Stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than 50%
of the shares voting for the election of directors can elect all of the
directors if they choose to do so; in such event, the holders of the remaining
shares of Common Stock will not be able to elect any person to the Board of
Directors. Subject to the rights of the holders of shares of any series of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor; however, the Company does not
currently expect to pay dividends and the Company's credit agreement restricts
the payment of dividends. Holders of shares of Common Stock have no preemptive,
conversion, redemption, subscription or similar rights. In the event of a
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, holders of shares of Common Stock are entitled to shares ratably in
the assets of the Company that are legally available for distribution, if any,
remaining after the payment or provision for the payment of all debts and other
liabilities of the Company and the payment and setting aside for payment of any
preferential amount due to the holders of shares of any series of Preferred
Stock. All outstanding shares of Common Stock are, and all shares of Common
Stock offered hereby when issued will be, upon payment therefor, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors
of the Company to issue from time to time up to one million shares of Preferred
Stock in one or more series and to fix the rights, designations, preferences,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series, without any further action by the stockholders of the Company. The
issuance of Preferred Stock with voting rights could have an adverse effect on
the voting power of holders of Common Stock by increasing the number of
outstanding shares having voting rights. In addition, if the Board of Directors
authorizes Preferred Stock with conversion rights, the number of shares of
Common Stock outstanding could potentially be increased up to the authorized
amount. The issuance of Preferred Stock could decrease the amount of earnings
and assets available for distribution to holders of Common Stock. Any such
issuance could also have the effect of delaying, deterring or preventing a
change in control of the Company and may adversely affect the rights of holders
of Common Stock.
CERTAIN EFFECTS OF AUTHORIZED AND UNISSUED STOCK
The unissued and unreserved shares of capital stock may be issued
for a variety of proper corporate purposes, including future public or private
offerings to raise additional capital or facilitate acquisitions. One of the
effects of the existence of such unissued and unreserved shares may be to enable
the Company's Board of Directors to discourage an attempt to change control of
the Company (by means of a tender offer, proxy contest or otherwise) and thereby
to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock, whether or not related to
any attempt to effect a change in control, may adversely affect the rights of
the holders of shares of Common Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of his fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. These provisions will not limit the liability
of directors under the federal securities laws of the United States.
The Bylaws require the Company to indemnify any legal
representative, director or officer of the Company or any person who is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, to the
fullest extent authorized by the Delaware General Corporation Law (the "DGCL").
The Company has purchased officer's and directors' liability insurance for
members of its Board of Directors and executive officers. In addition to the
indemnification provided in the Certificate of Incorporation and Bylaws, the
Company has entered into agreements to indemnify its directors and officers.
The Bylaws include advance notice procedures with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice must be received by the Company not less than 80 days prior to the
meeting and must contain certain specified information concerning the person to
be nominated or the matter to be bought before the meeting and concerning the
stockholder submitting the proposal.
OTHER PROVISIONS
The Bylaws provide that directors can be removed only for cause and
only by the affirmative vote of holders of at least 67% of the voting power of
all then outstanding shares of capital stock of the Company entitled to vote
generally for the election of directors (the "Voting Stock") and that a vacancy
on the Company's Board of Directors, including a vacancy created by an increase
in the authorized number of directors, may be filled only by a majority of the
directors then in office (and not by the stockholders unless no directors are
then in office). Under the DGCL, if at the time of filling any such vacancy the
directors then in office constitute less than a majority of the entire Board,
the Delaware Court of Chancery may order, upon the application of the holders of
at least 10% of the outstanding shares of capital stock of the Company entitled
to vote for the election of the directors filling such vacancies, that a meeting
of stockholders be held for the purpose of electing directors to fill such
vacancies or to replace directors filling such vacancies elected by the
Company's Board of Directors.
In addition, the Certificate of Incorporation and Bylaws provide
that stockholders are not permitted to call a special meeting of stockholders or
to require the Company's Board of Directors or officers to call such a special
meeting, that only a majority of the entire Board, certain committees of the
Company's Board of Directors, certain directors or the president or chief
executive officer will be able to call such a meeting and that stockholder
action may be taken only at an annual or a special meeting of stockholders and
may not be taken by written consent.
The Certificate of Incorporation and Bylaws provide that the
affirmative vote of the holders of 67% of the Voting Stock will be required to
amend, modify or repeal any provisions of the Certificate of Incorporation or
any provision of the Bylaws discussed above. The Certificate of Incorporation
provides that the Company's Board of Directors, pursuant to (but only pursuant
to) a resolution adopted by the affirmative vote of a majority of the entire
Board, will be able to amend, modify or repeal the Bylaws.
Such provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Company's Board of Directors and may
have the effect of delaying, deterring, or preventing a future takeover or
change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors. Such provisions may also render
the removal of the directors and management more difficult.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to Section 203 of the DGCL because it
is a Delaware corporation. Section 203 of the DGCL prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder becomes an interested stockholder, unless (i) prior to the date the
interested stockholder becomes an interested stockholder, the business
combination or the transaction by which the stockholder becomes an interested
stockholder is approved by the corporation's board of directors, (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it became an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
REGISTRATION RIGHTS
Certain holders of Common Stock have certain rights with
respect to the registration of such shares under the Securities Act. Pursuant to
the terms of the Series C Preferred Stock Purchase Agreement, holders of shares
of Common Stock acquired in connection with the Series C Preferred Stock
offering may require the Company, subject to certain conditions and limitations,
to effect a registration of all or part of the shares of Common Stock held by
such persons on an unlimited number of occasions. Also, the holders of shares of
Common Stock acquired in connection with the Series B Preferred Stock offering
have certain rights to require the Company, to effect a registration of all or
part of the shares of Common Stock held by such persons on two occasions. At
such time as the Company is qualified to use a Registration Statement on Form
S-3 to register additional securities, the number of occasions on which the
holders of shares of Common Stock acquired in connection with the Series B
Preferred Stock may request registration of such shares shall be, subject to
certain conditions, unlimited in number. Additionally, if at any time the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders, holders
of shares of Common Stock issued in connection with each of the Series B
Preferred Stock offering and the Series C Preferred Stock offering, Messrs.
▇▇▇▇▇ and ▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇ and certain other key employees, are entitled to
written notice of such registration and to include therein shares of Common
Stock held by such holder. The registration rights of all parties are subject to
certain conditions and limitations, including the right of the underwriters of
any offering to limit the number of shares included in the registration. The
Company generally is required to bear all the fees, costs and expenses of such
registrations other than underwriting discounts and commissions. See also the
registration rights granted by the Company under the June Subscription
Agreement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
Continental Stock Transfer & Trust Company, whose address is ▇ ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial amount of Common Stock in the public
market, or the perception that such sales may occur, could adversely affect the
market price of the Common Stock prevailing from time to time in the public
market and could impair the Company's ability to raise additional capital
through the sale of its equity securities in the future. The expiration of the
various Rule 144 periods and/or the filing of any resale registration statement
with respect to restricted stock or stock held by affiliates could increase the
chance (or perception) that such sales will occur.
In general, under Rule 144 as currently in effect, if one year
has elapsed since the later of the date of acquisition of restricted shares from
the Company or any "affiliate" of the Company, the holder is entitled to sell
within any three-month period such number of shares of Common Stock that does
not exceed the grant of 1% of the then outstanding shares of Common Stock or
the average weekly trading volume of shares of Common Stock during the four
calendar weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 44 are also subject to certain restrictions on the
manner of sale, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the holder
acquired the restricted shares from the Company or from any "affiliate" of the
Company, and the holder is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person will be entitled to
sell such Common Stock in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
The Company has filed a registration statement under the
Securities Act to register shares of Common Stock reserved for issuance under or
issued pursuant to the Stock Option Plan thereby permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act.
EXHIBIT C
PROJECTS
EXHIBIT C
Total Approx.
Net Leasehold Project
And Option Participation
PROJECT ACREAGE* COUNTY, STATE INTEREST
------- ------- ------------- --------
Lafitte 6,204 Brazoria Co., TX 50.0%
Wild Cow 1,528 Matagorda Co., TX 40.0%
Ram Rod 7,072 Matagorda Co., TX 40.0%
Hammer 1,033 ▇▇▇▇▇▇▇ Co., TX 20.0%
Powderhorn 1,732 ▇▇▇▇▇▇▇ Co., TX 15.0%
Flintlock 1,205 ▇▇▇▇▇▇▇ Co., TX 20.0%
Rich Ranch 411 Liberty Co., TX 37.5%
Cow Island 1,750 Liberty Co., TX 87.5%
Geronimo 1,709 San ▇▇▇▇▇▇▇▇ Co., TX 22.0%
Geronimo Ext. 2,115 San ▇▇▇▇▇▇▇▇ Co., TX 15.0%
Cove 14 14 Matagorda Co., TX 7.425%
Cove 432 Matagorda Co., TX 30.0%
Gila Bend 20 ▇▇▇▇▇▇ Co., TX 6.25%
Corridor 1,628 ▇▇▇▇▇▇ Co., TX 25.00%
Thomaston 2,482 Victoria, ▇▇▇▇▇▇ Co., TX 11.25%
▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇., ▇▇ 10.00%
Bright Falcon 63 ▇▇▇▇▇▇▇ Co., TX 17.50%
▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇ 25.00%
Tidehaven 760 Matagorda Co., TX 17.9375%
El Maton 1,193 Matagorda Co., TX 17.9375%
Blessing 73 Matagorda Co., TX 11.25%
▇▇▇▇ Dome ▇▇▇ ▇▇▇▇▇▇▇▇/▇▇. ▇▇▇▇ ▇▇., ▇▇ 5.0% backin
▇▇▇▇▇▇▇ 3,150 Galveston Co., TX 15.0%
▇▇▇▇▇ Point 6,208 ▇▇▇▇▇▇▇▇ Co., TX 7.5%
High Island 288 Texas Federal Offshore 5.0%
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇. 10.0%
Hollywood 72 Louisiana Federal Offshore 5.0%
Four Isle Dome 500 Terrebonne Ph., LA 5.0%
Raceland 500 LaFourche Ph., LA 5.0%
Santa Fe Offshore 2,629 Louisiana Federal Offshore 10.0%
(Deep Water)
Lipsmacker 2,033 ▇▇▇▇▇▇ Co., MS & Choctaw Co., AL 25.0%
Sunniland 1,997 ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ Co., FL 8.0%
CI 24 19,670 Offshore Cote d'Ivoire 10.0%
CI 202 16,284 Offshore Cote d'Ivoire 10.0%
Double Diamond 16 Lea Co., NM, ▇▇▇▇▇▇ Co., TX 10.0%
▇▇▇▇▇▇ Farms 12 ▇▇▇▇▇▇ Co., TX 15.0%
_________________________
*as of December 31, 1997
The preceding list represents the Company's participation interests in
its significant oil and gas exploration and production projects under various
agreements. The projects listed herein consist of various oil and gas leases,
options or other agreements to acquire oil and gas leases and generally include
certain rights to 2-D and 3-D seismic data covering all or part of such project
areas. The Project Participation Interest represents the Company's average
working interest relative to its industry partners for the properties acquired
within the areas of mutual interest established by the agreements with such
partners governing the projects.