Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
BETWEEN
XXXXXXXXX FAMILY PARTNERS, LP
AND
MIDDLE BAY OIL COMPANY, INC.
AUGUST 27, 1999
TABLE OF CONTENTS
ARTICLE I TERMS DEFINED
Section 1.1 Definitions.....................................................................................1
Section 1.2 Accounting Terms and Determinations............................................................11
Section 1.3 Gender and Number............................................................................. 11
Section 1.4 References to Agreement........................................................................11
ARTICLE II PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale..............................................................................11
Section 2.2 Closing ......................................................................................11
Section 2.3 Delivery.......................................................................................11
Section 2.4 Payment........................................................................................12
ARTICLE III RESERVATION AND ISSUANCE OF CONVERSION SHARES .................................................12
ARTICLE IV CERTAIN TERMS APPLICABLE TO WARRANTS
Section 4.1 Exercise of Warrants...........................................................................12
Section 4.2 Adjustment of Number of Warrant Shares Purchasable.............................................14
Section 4.3 Notices to Warrant Holders.....................................................................16
Section 4.4 Reservation and Issuance of Warrant Shares.....................................................17
ARTICLE V TRANSFER OF SECURITIES
Section 5.1 Restrictions on Transfer.......................................................................17
Section 5.2 Registration, Transfer and Exchange of Warrants................................................18
Section 5.3 Mutilated or Missing Warrant Certificates......................................................18
Section 5.4 Registration, Transfer and Exchange of Notes...................................................19
Section 5.5 Mutilated or Missing Notes.....................................................................19
ARTICLE VI CONDITIONS
Section 6.1 Conditions Precedent to Closing................................................................19
Section 6.2 Conditions Precedent to Closing ...............................................................22
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 7.1 Corporate Existence and Power..................................................................23
Section 7.2 Corporate and Governmental Authorization; Contravention........................................23
Section 7.3 Binding Effect ................................................................................24
Section 7.4 Capitalization.................................................................................24
Section 7.5 Issuance of Securities.........................................................................24
Section 7.6 Financial Statements...........................................................................24
Section 7.7 Material Agreements............................................................................25
Section 7.8 Compass Debt Documents.........................................................................25
Section 7.9 Investments ...................................................................................25
Section 7.10 Outstanding Debt...............................................................................25
Section 7.11 Transactions with Affiliates...................................................................25
Section 7.12 Employment Matters.............................................................................25
Section 7.13 Litigation.....................................................................................25
Section 7.14 ERISA .........................................................................................26
Section 7.15 Taxes and Filing of Tax Returns................................................................27
Section 7.16 Title to Assets................................................................................27
Section 7.17 Licenses, Permits, Etc.........................................................................27
Section 7.18 Proprietary Rights.............................................................................27
Section 7.19 Compliance with Law............................................................................27
Section 7.20 Environmental Matters..........................................................................27
Section 7.21 Intentionally Left Blank.......................................................................29
Section 7.22 Fiscal Year....................................................................................29
Section 7.23 No Default.....................................................................................29
Section 7.24 Insurance......................................................................................29
Section 7.25 Government Regulation..........................................................................29
Section 7.26 Securities Law .............................................................................29
Section 7.27 Brokers and Finders............................................................................29
Section 7.28 SEC Documents..................................................................................29
Section 7.29 Oil and Gas Operations.........................................................................30
Section 7.30 Financial and Commodity Hedging................................................................31
Section 7.31 Books and Records..............................................................................31
Section 7.32 Reserve Report.................................................................................31
Section 7.33 Nature of Company Assets.......................................................................31
Section 7.34 Full Disclosure................................................................................32
Section 7.35 Year 2000 Compliance...........................................................................32
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF SFP
Section 8.1 Corporate Existence and Power..................................................................32
Section 8.2 Corporate and Governmental Authorization; Contravention........................................32
Section 8.3 Binding Effect.................................................................................32
Section 8.4 Brokers and Finders............................................................................33
Section 8.5 Taxes and Filing of Returns....................................................................33
Section 8.6 Intentionally Omitted..........................................................................33
ARTICLE IX COVENANTS
Section 9.1 Maintenance of Insurance.......................................................................33
Section 9.2 Payment of Taxes and Claims....................................................................33
Section 9.3 Compliance with Laws and Documents.............................................................34
Section 9.4 Operation of Properties and Equipment..........................................................34
Section 9.5 Additional Documents...........................................................................34
Section 9.6 Maintenance of Books and Records...............................................................34
Section 9.7 Environmental Matters..........................................................................34
Section 9.8 Access to Information..........................................................................34
Section 9.9 Conduct of Business of the Company.............................................................35
Section 9.10 Intentionally Omitted..........................................................................36
Section 9.11 Intentionally Omitted..........................................................................36
ARTICLE X DEFAULTS; TERMINATION
Section 10.1 Events of Default..............................................................................36
Section 10.2 Termination....................................................................................37
Section 10.3 Effect of Termination..........................................................................37
ARTICLE XI MISCELLANEOUS
Section 11.1 Notices........................................................................................38
Section 11.2 No Waivers.....................................................................................38
Section 11.3 Expenses; Indemnification......................................................................38
Section 11.4 Amendments and Waivers; Sale of Interest.......................................................39
Section 11.5 Survival.......................................................................................39
Section 11.6 Limitation on Interest.........................................................................40
Section 11.7 Invalid Provisions.............................................................................40
Section 11.8 Successors and Assigns.........................................................................40
Section 11.9 Governing Law..................................................................................40
Section 11.10 Counterparts...................................................................................40
Section 11.11 No Third Party Beneficiaries...................................................................40
Section 11.12 Final Agreement................................................................................41
Section 11.13 Submission to Jurisdiction; Waiver of Service of Venue.........................................41
Section 11.14 Waiver of Right to Trial by Jury...............................................................41
Section 11.15 Public Announcements...........................................................................41
EXHIBITS
Exhibit A Senior Subordinate Promissory Note
Exhibit B Registration Rights Agreement
Exhibit C Intentionally Omitted
Exhibit D Form of Warrant Certificate
Exhibit E Employment Agreement
Exhibit F Intentionally Omitted
Exhibit G Purchase Price to be Transferred at Closing
Exhibit H Identification of Other Securities Purchase Agreements
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT is entered into effective this ___
day of August, 1999, by and between XXXXXXXXX FAMILY PARTNERS, LP, a New Jersey
limited partnership ("SFP") and Middle Bay Oil Company, Inc., an Alabama
corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Company has authorized and desires to issue and sell to
SFP (a) certain shares of the Company's Common Stock, par value $0.02 per share,
(b) a Note, and (c) certain Warrants;
WHEREAS, SFP desires to purchase such securities from the Company on
the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Affiliate" means, as to any Person, any Subsidiary of such Person, or
any other Person which, directly or indirectly, controls, is controlled by, or
is under common control with, such Person and, with respect to the Company, any
executive officer of any Subsidiary or any Person who holds five percent (5%) or
more of the voting stock of the Company. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or partnership interests, or by contract or
otherwise. SFP shall not be considered an Affiliate of the Company for purposes
of this Agreement or the other Transaction Documents.
"Agreement" means this Securities Purchase Agreement.
"Authorized Officer" means, as to any Person, its Chairman, its Chief
Executive Officer, its President, its Chief Operating Officer, its Financial
Officer and any Vice President.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Capital Lease" means, for any Person, as of any date, any lease of
property, real or personal, which
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would be capitalized on a balance sheet of the lessee of such lease prepared as
of such date in accordance with GAAP.
"Change of Control" means the occurrence of any of the following: (a)
the sale, lease, transfer or other disposition, in one transaction or a series
of related transactions, of more than fifty percent (50%) of the value of the
Oil and Gas Interests as set forth in the most current reserve report of the
Company and its Subsidiaries (on the date hereof, the Reserve Report is the most
recent reserve report), or (b) any sale, transfer, merger, consolidation,
disposition or other transaction which results in any Person or Persons
individually or together with their Affiliates owning more than fifty percent
(50%) of the Common Stock on a Fully Diluted Basis.
"Charter Documents" means, with respect to any Person, its certificate
of incorporation, articles of incorporation, bylaws, partnership agreement,
regulations, operating agreement and all other comparable charter documents.
"Closing" has the meaning given such term in SECTION 2.2 hereof.
"Closing Date" means the tenth Business Day after the date of the
Company's Shareholders' meeting whereby the transactions contemplated hereby are
approved.
"Closing Transactions" means the transactions which will occur on the
Closing Date pursuant to the Transaction Documents.
"COBRA" has the meaning given such term in SECTION 7.14 hereof.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to any or all of its functions under the Securities Act or the
Exchange Act.
"Common Stock" means the Company's common stock, par value $0.02 per
share.
"Common Stock Shares" means the 22,222 shares of Common Stock to be
purchased by SFP pursuant to this Agreement.
"Company" has the meaning given such term in the preamble hereto.
"Company Financial Statements" means the audited and unaudited
consolidated financial statements of the Company and its Subsidiaries (including
the related notes) included (or incorporated by reference) in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998, and the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1999, filed with the Commission.
"Compass Senior Credit Agreement" means that certain Credit Agreement
dated March 27, 1998, as amended, by and among Middle Bay Oil Company, Inc. and
Enex Resources Corporation, as Borrower, and Compass Bank, as Agent and a
Lender, Bank of Oklahoma, National Association, as a Lender and the other
lenders signatory thereto.
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"Compass Senior Debt" means all Debt of the Company outstanding under
the Compass Senior Credit Agreement, including all renewals and extensions
thereof.
"Compass Senior Debt Documents" means the Compass Senior Debt Agreement
and all promissory notes, security agreements, mortgages, deeds of trust,
assignments, guarantees and other documents, instruments and agreements executed
and delivered pursuant to the Compass Senior Credit Agreement evidencing,
securing, guaranteeing or otherwise pertaining to the Compass Senior Debt and
other obligations arising under the Compass Senior Credit Agreement, as the
foregoing may be amended, renewed, extended, supplemented, increased or
otherwise modified from time to time to the extent permitted hereunder.
"Conversion Shares" means shares of Common Stock issued upon conversion
of the Note.
"Debt" means, for any Person, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all indebtedness
of such Person on which interest charges are customarily paid or accrued, (d)
all Guarantees by such Person, (e) the unfunded or unreimbursed portion of all
letters of credit issued for the account of such Person, (f) the present value
of all obligations in respect of Capital Leases of such Person, (g) any
obligation of such Person representing the deferred purchase price of property
or services purchased by such Person other than trade payables incurred in the
ordinary course of business and which are not more than ninety (90) days past
invoice date, (h) any indebtedness, liability or obligation secured by a Lien on
the assets of such Person whether or not such indebtedness, liability or
obligation is otherwise non-recourse to such Person, (i) liabilities arising
under future contracts, forward contracts, swap, cap or collar contracts, option
contracts, hedging contracts, other derivative contracts and similar agreements,
(j) liabilities with respect to payments received in consideration of oil, gas
or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment, and (k) all liability of such Person as a
general partner or joint venturer for obligations of the nature described in (a)
through (k) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means the Fixed Rate plus 3% per annum.
"Defensible Title" means such right, title and interest that is (a)
evidenced by an instrument or instruments filed of record in accordance with the
conveyance and recording laws of the applicable jurisdiction to the extent
necessary to prevail against competing claims of bona fide purchasers for value
without notice and (b) subject to Permitted Encumbrances, free and clear of all
Liens, claims, infringements, burdens or other defects.
"Disclosure Schedule" means the disclosure schedule entitled Middle Bay
Disclosure Schedule separately provided by the Company to SFP on or before the
date hereof, and any documents listed on such disclosure schedule and expressly
incorporated therein by reference.
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"Employment Agreement" means that certain employment agreement to be
executed at Closing by the Company and Xxxxx X. Xxxxxx in substantially the form
of Exhibit E.
"Environmental Complaint" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other communication from any federal, state, municipal or
other Governmental Authority or any other party involving a Hazardous Discharge,
Environmental Contamination or any violation of any order, permit or
Environmental Law and Laws.
"Environmental Contamination" means the presence of any Hazardous
Substances, which presence results from a Hazardous Discharge.
"Environmental Law and Laws" means any law, common law, ordinance,
regulation or policy of any Governmental Authority, as well as any order,
decree, permit, judgment or injunction issued, promulgated, approved, or entered
thereunder, relating to the environment, health and safety, Hazardous Substances
(including, without limitation, the use, handling, transportation, production,
disposal, discharge or storage thereof), industrial hygiene, the environmental
conditions on, under, or about any real property owned, leased or operated at
any time by the Company or any of its Subsidiaries or any real property owned,
leased or operated by any other party, including, without limitation, soil,
groundwater, and indoor and ambient air conditions or the reporting or
remediation of Environmental Contamination. Environmental Law and Laws include,
without limitation, the Clean Air Act, as amended, the Federal Water Pollution
Control Act, as amended, the Rivers and Harbors Act of 1899, as amended, the
Safe Drinking Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, the Superfund Amendments
and Reauthorization Act of 1986 ("XXXX"), as amended, the Resource Conservation
and Recovery Act of 1976 ("RCRA"), as amended, the Hazardous and Solid Waste
Amendments Act of 1984, as amended, the Toxic Substances Control Act, as
amended, the Occupational Safety and Health Act ("OSHA"), as amended, the
Hazardous Materials Transportation Act, as amended, and any other federal, state
and local law whose purpose is to conserve or protect health, the environment,
wildlife or natural resource.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.
"ERISA Affiliate" means the Company or any of its Subsidiaries and any
other corporation or trade or business under common control with the Company or
any of its Subsidiaries or treated as a single employer with the Company or any
of its Subsidiaries as determined under sections 414(b), (c), (m) or (o) of the
IRC.
"Event of Default" has the meaning set forth in SECTION 10.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute.
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Financial Officer" means, as to any Person, its Chief Financial
Officer, or if no Person serves in such
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capacity, the highest ranking executive officer of such Person with
responsibility for accounting, financial reporting, financial compliance and
similar functions.
"Fixed Rate" means nine percent (9.0%) per annum.
"Fully Diluted Basis" means, with reference to outstanding Common
Stock, the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire Common Stock had been
exercised (regardless of whether such rights are then exercisable) and all
securities convertible into Common Stock had then been converted (regardless of
whether such securities are then convertible) and had been issued, all in
accordance with GAAP. Any reference in this Agreement or any of the other
Transaction Documents to "holder(s) of outstanding Common Stock on a Fully
Diluted Basis" or words of similar import shall be deemed to include holder(s)
of outstanding options, warrants or similar rights to acquire Common Stock or
securities convertible into Common Stock.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the requirement
that such principles be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
"Governmental Authority" means any national, state or county, municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over the Company or its Subsidiaries or any of
their respective properties or assets.
"Guaranty" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions, by "comfort
letter" or other similar undertaking of support of otherwise), or (b) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, that, the term "Guaranty"
shall not include endorsements for collection or deposit in the ordinary course
of business. For purposes of this Agreement, the amount of any Guaranty shall be
the maximum amount that the guarantor could be legally required to pay under
such Guaranty.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Hazardous Discharge" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of a Hazardous Substance at, from, onto,
5
under or within any real property owned, leased or operated at any time by the
Company or any of its Subsidiaries or any real property owned, leased or
operated by any other Person.
"Hazardous Substance" means any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is defined as hazardous, toxic,
noxious, dangerous or infectious pursuant to any Environmental Law and Laws or
which is otherwise regulated by any Environmental Law and Laws.
"Holder" with respect to any Security, shall mean the record or
beneficial owner of such Security.
"Hydrocarbons" means oil, condensate, gas, casinghead gas and other
liquid or gaseous hydrocarbons.
"Investment" in any Person means any investment, whether by means of
securities purchase (whether by direct purchase from such Person or from an
existing holder of securities of such Person), loan, advance, extension of
credit, capital contribution or otherwise, in or to such Person, the Guaranty of
any Debt or other obligation of such Person, or the subordination of any claim
against such Person to other Debt or other obligation of such Person; PROVIDED,
that, "Investments" shall not include advances made to employees of such Person
for reasonable travel, entertainment and similar expenses incurred in the
ordinary course of business.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any regulation promulgated thereunder.
"Knowledge" means actual knowledge after reasonable investigation
consistent with the generally accepted business practices in the oil and gas
industry.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality, or Governmental
Authority.
"Lien" means with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement or other title retention
agreement relating to such asset.
"Majority Noteholder" means a Noteholder or Noteholders holding more
than fifty percent (50%) of the aggregate principal balance of the Note.
"Majority Warrantholder" means a Warrant Holder or Warrant Holders who
hold more than fifty percent (50%) of the outstanding Warrant Shares.
"Major Shareholders" means Xxxxxx-Xxxxxxx Oil Company, X.X. Xxxx, III,
Weskids, L.P., and Xxxxx X. Xxxxxxxxx.
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"Material Adverse Effect" means, with respect to a Person, a material
adverse effect on the business, financial condition, operations, assets or
prospects of such Person or any of its Subsidiaries, and shall also mean, with
respect to the Company or any of its Subsidiaries, a material adverse effect on
such Person's ability to pay and perform its obligations under the Transaction
Documents.
"Material Agreement" means any written or oral agreement, contract,
commitment, or understanding to which a Person is a party, by which such Person
is directly or indirectly bound, or to which any assets of such Person may be
subject (a) which is not cancelable by such Person upon notice of sixty (60)
days or less without liability for further payment other than nominal penalty,
(b) pursuant to which such Person acquires any material portion of the raw
materials, supplies or services used or consumed by such Person in the operation
of its business (unless such raw materials, supplies or services are readily
available to such Person from other sources on comparable terms), or (c)
pursuant to which such Person derives any material part of its revenues.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the Note at such
time to exceed the maximum amount which Noteholders would be allowed to contract
for, charge, take, reserve, or receive under applicable Law after taking into
account, to the extent required by applicable Law, any and all relevant payments
or charges under the Transaction Documents.
"Noteholder" means any Person in whose name a Note is registered on the
Note Register.
"Note Redemption Date" means the date on which the entire balance of
the Note, including, without limitation, all accrued but unpaid interest thereon
and all fees payable by the Company or its Subsidiaries in connection therewith,
have been paid in full.
"Note Register" means a register maintained by the Company setting
forth the name and address of each Noteholder and the principal amount of the
Note held by such Noteholder.
"Notes" means the Company's Senior Subordinate Promissory Notes in the
aggregate principal amount of $50,000 to be issued and sold by the Company to
SFP pursuant to SECTION 2.1 hereof and any renewals, extensions or replacements
thereof, and "Note" means any of such Notes. The Notes shall be substantially in
the form of EXHIBIT A attached hereto.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part thereof,
of the Company, its Subsidiaries and any other Person arising pursuant to the
Transaction Documents, and all interest accrued thereon and costs, expenses, and
attorneys' fees incurred in the enforcement or collection thereof, regardless of
whether such indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, liquidated, unliquidated, joint, several or joint and
several.
"Oil and Gas Interest(s)" means (a) direct and indirect interests in
and rights with respect to oil, gas, mineral and related properties and assets
of any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net profits
interests, other non-working
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interests and non-operating interests; (b) interests in and rights with respect
to Hydrocarbons and other minerals or revenues therefrom and contracts in
connection therewith and claims and rights thereto (including oil and gas
leases, operating agreements, unitization and pooling agreements and orders,
division orders, transfer orders, mineral deeds, royalty deeds, oil and gas
sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), surface interests, fee interests, mineral servitudes,
reversionary interests, reservations and concessions; (c) easements, rights of
way, licenses, permits, leases, and other interests associated with, appurtenant
to, or necessary for the operation of any of the foregoing; and (d) interests in
equipment and machinery (including well equipment and machinery), oil and gas
production, gathering, transmission, compression, treating, processing and
storage facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing
plants, refineries and other tangible personal property and fixtures associated
with, appurtenant to, or necessary for the operation of any of the foregoing.
"Ownership Interests" means the ownership interests of the Company and
its Subsidiaries in its assets, as set forth on SCHEDULE 1.1A of the Disclosure
Schedule.
"Other Notes" means the Company notes to be issued and sold by the
Company pursuant to provisions of the Other Securities Purchase Agreements.
"Other Securities Purchase Agreements" shall mean those securities
purchase agreements of even date herewith as listed on EXHIBIT H attached
hereto.
"Pension Plan" means any employee benefit plan or welfare benefit plan
within the meaning of section 3(3) of ERISA maintained by the Company, any
Subsidiary of the Company or any ERISA Affiliate that is or was previously
covered by Title IV of ERISA or subject to the minimum funding standards under
section 412 of the IRC, including a "multiemployer plan" as such term is defined
in section 3(37) of ERISA, under which the Company or any Subsidiary of the
Company has any current or future obligation or liability and under which any
present or former employee of the Company or any Subsidiary of the Company, or
such present or former employee's dependents or beneficiaries, has any current
or future right to benefits.
"Per Share Stock Price" means for the Common Stock on any day shall be
the last sale price, or, in case no such sale takes place on such day, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System, or such other system
then in use.
"Permitted Encumbrances" means (a) Liens for Taxes, assessments or
other governmental charges or levies if the same shall not at the particular
time in question be due and delinquent or (if foreclosure, distraint, sale or
other similar proceedings shall not have been commenced or if commenced, shall
have been stayed) are being contested in good faith by appropriate proceedings
and if the Company or its Subsidiaries shall have set aside on their books such
reserves (segregated to the extent required by sound accounting principles) as
may be required by GAAP or otherwise determined by its board of directors to be
adequate with respect thereto; (b) Liens of carriers, warehousemen, mechanics,
laborers, materialmen, landlords, vendors, workmen and operators arising by
operation of law in the ordinary course of business or by a written agreement
existing
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as of the date hereof and necessary or incident to the exploration, development,
operation and maintenance of Hydrocarbon properties and related facilities and
assets for sums not yet due or being contested in good faith by appropriate
proceedings, if any the Company or its Subsidiaries shall have set aside on its
books such reserves(segregated to the extent required by sound accounting
practices) as may be required by GAAP or otherwise determined by its board of
directors to be adequate with respect thereto; (c) Liens incurred in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and social security legislation (other than ERISA); (d)
Liens incurred in the ordinary course of business to secure the performance of
bids, tenders, trade contracts, leases, statutory obligations, surety and appeal
bonds, performance and repayment bonds and other obligations of a like nature;
(e) Liens, easements, rights-of-way, restrictions, servitudes, permits,
conditions, covenants, exceptions, reservations and other similar encumbrances
incurred in the ordinary course of business or existing on property and not (i)
reducing the Company's net revenue interest in any Oil and Gas Interests below
that set forth on Schedule 1.1A , (ii) increasing the Company's Working Interest
in any Oil and Gas Interest above that set forth on Schedule 1.1A or (iii) in
the aggregate materially impairing the value of the assets of the Company or its
Subsidiaries or interfering with the ordinary conduct of the business of the
Company or its Subsidiaries or rights to any of their assets; (f) Liens created
or arising by operation of law to secure a party's obligations as a purchaser of
oil and gas; (g) all rights to consent by, required notices to, filings with, or
other actions by Governmental Authorities to the extent customarily obtained
subsequent to Closing; (h) farmout, carried working interest, joint operating,
unitization, royalty, overriding royalty, sales and similar arrangements
relating to the exploration, development of, or production from, Hydrocarbon
properties entered into in the ordinary course of business; (i) preferential
rights to purchase and Third Party Consents (to the extent not triggered by the
consummation of the transactions contemplated herein); and (j) Liens arising
under or created pursuant to the Compass Senior Debt Documents.
"Permitted Senior Debt" means the Compass Senior Debt or other debt or
credit facility of the Company which is intended to replace the Compass Senior
Debt.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof and shall also
mean the Company.
"Pre-Distribution Price" has the meaning given such term in SECTION
4.2(c).
"Purchase Price" has the meaning given such term in SECTION 2.1
"Redemption Date" means the date on which the entire balance of the
Note, including, without limitation, all accrued but unpaid interest thereon and
all fees payable by the Company or its Subsidiaries in connection therewith,
have been paid in full.
"Registration Rights Agreement" means a Registration Rights Agreement
to be executed by the Company, 3TEC and SFP at Closing, in the form attached
hereto as Exhibit B.
"Registration Statement" has the meaning giving such term in SECTION
5.1.
9
"Reserve Engineer" shall have the meaning set forth in SECTION 7.32.
"Reserve Report" shall have the meaning set forth in SECTION 7.32.
"SEC Documents" shall have the meaning set forth in SECTION 7.28.
"Schedule" means a "schedule" attached to this Agreement and
incorporated herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement
unless specifically indicated otherwise.
"Securities" means the Notes, the Common Stock Shares and the Warrants
to be issued and sold to SFP and any Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute.
"Senior Lender" means Compass Bank, Bank of Oklahoma, National
Association and the other lenders who executed the Compass Senior Credit
Agreement.
"Series B Convertible Preferred Shares" shall mean those shares of
Series B Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1B of the Disclosure Schedule.
"Series C Convertible Preferred Shares" shall mean those shares of
Series C Convertible Preferred Stock of the Company as set forth on SCHEDULE
1.1C of the Disclosure Schedule.
"Shareholders Agreement" means a Shareholders Agreement to be entered
into by and among the Company and the Major Shareholders of the Company at
Closing.
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on).
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of any
nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency. "Tax" means any one of the
foregoing.
"Third Party Consents" means the consent or approval of any Person
other than the Company, SFP or any Governmental Authority.
10
"3TEC" shall mean 3TEC Energy Corporation, a Delaware corporation.
"3TEC Note" shall mean that certain Senior Subordinate Promissory Note
in the aggregate principal amount of $10,700,000 to be issued and sold by the
Company to 3TEC.
"Transaction Documents" means this Agreement, the Notes, the Warrant
Certificates, the Registration Rights Agreement, the Shareholders Agreement, the
Company's Charter Documents and all other agreements, certificates, documents or
instruments now or at any time hereafter delivered in connection with this
Agreement, as the foregoing may be renewed, extended, modified, amended or
restated from time to time.
"Warrant Certificate" means the Warrant Certificates to be issued by
the Company evidencing Warrants issued hereunder which shall be in the form of
EXHIBIT D attached hereto.
"Warrant Exercise Price" means $1.00 per share (subject to adjustment
as provided in SECTION 4.2).
"Warrant Expiration Date" means 5:00 p.m., Dallas, Texas time, five (5)
years following the Closing Date.
"Warrant Holder" means any Person (i) in whose name any Warrant is
registered on the Warrant Register, or (ii) in whose name any Warrant Shares are
registered on the books and records of the Company.
"Warrant Register" means a register maintained by the Company setting
forth the name and address of each Warrant Holder, the number of Warrants held
by such Warrant Holder and the certificate number of each Warrant Certificate
held by such Warrant Holder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
"Warrants" means the Common Stock Purchase Warrants to be issued by the
Company to SFP pursuant to SECTION 2.1 of this Agreement, each of which shall
entitle the holder thereof to purchase one (1) share of Common Stock at the
Warrant Exercise Price (subject to adjustment as provided in SECTION 4.2).
"Working Interests" means the Company's or its Subsidiaries' share of
all of the costs, expenses, burdens, and obligations of any type or nature
attributable to the Company's or its Subsidiaries' interests in its oil and gas
properties or any well thereon.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent with the most recent
annual audited, consolidated financial statements of the Company delivered to
SFP prior to the date hereof.
SECTION 1.3. GENDER AND NUMBER. Words of any gender used in this
Agreement shall be held and construed to include any other gender and words in
the singular number shall be held to include the plural,
11
and vice versa, unless the context requires otherwise.
SECTION 1.4. REFERENCES TO AGREEMENT. Use of the words "herein",
"hereof", "hereinabove", and the like are and shall be construed as references
to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. PURCHASE AND SALE. Subject to the satisfaction of the
terms and conditions set forth herein and in reliance upon the representations
and warranties of the parties set forth herein and in the other Transaction
Documents (a) SFP agrees to purchase from the Company and the Company agrees to
issue and sell to SFP, 22,222 shares of Common Stock and 16,822 Warrants for an
aggregate purchase price of $50,000 (the "COMMON STOCK SHARES PURCHASE PRICE"),
and (b) SFP agrees to purchase from the Company and the Company agrees to issue
and sell to SFP the Note for the purchase price of $50,000 (the "NOTE PURCHASE
PRICE," and together with the Common Stock Shares Purchase Price, the "PURCHASE
PRICE").
SECTION 2.2. CLOSING. Closing of the purchase and sale of the
Securities (the "Closing") shall take place at the offices of Xxxxxxxx & Xxxxxx,
P.C., Houston, Texas at 10:00 a.m. on the Closing Date, or at such other time,
date and place as may be agreed upon in writing by the Company and SFP.
SECTION 2.3. DELIVERY. At the Closing, the Company shall deliver to
SFP, against payment therefor, certificates evidencing the Common Stock Shares,
the Note and the Warrant Certificate purchased by SFP hereunder, in each case
duly issued and in form sufficient to vest title thereto fully in SFP, free and
clear of all Liens, claims and encumbrances.
SECTION 2.4. PAYMENT. At the Closing, SFP shall pay the Purchase Price
to the Company by wire transfer of immediately available funds.
ARTICLE III
RESERVATION AND ISSUANCE OF CONVERSION SHARES
The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Conversion Shares upon the Noteholder's exercise
of its conversion rights under the Note, the number of shares of Common Stock
deliverable upon such conversion rights. The Company covenants that all
Conversion Shares issued by it will, upon issuance in accordance with the terms
of this Agreement, be fully paid and nonassessable and free from all Taxes with
respect to the issuance thereof and free from all Liens other than Liens arising
by, through or under the Noteholder to whom such Conversion Shares were issued.
ARTICLE IV
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CERTAIN TERMS APPLICABLE TO WARRANTS
SECTION 4.1. EXERCISE OF WARRANTS.
(a) One-half of the Warrants may be exercised in whole or in part at
any time until the Warrant Expiration Date at which time the Warrants shall
expire and shall thereafter no longer be exercisable.
(b) The other half of the Warrants (the "Restricted Warrants") may be
exercised, in whole or in part, until the Warrant Expiration Date, as follows:
(i) up to 20% of the Restricted Warrants may be exercised during
the one (1) year period commencing on the Closing Date;
(ii) up to 40% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twelve (12) months after
the Closing Date;
(iii) up to 60% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing twenty-four (24) months
after the Closing Date;
(iv) up to 80% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing thirty-six (36) months
after the Closing Date; and
(v) up to 100% of the Restricted Warrants (inclusive of any prior
exercise under this subsection (b)) may be exercised during
the one (1) year period commencing forty-eight (48) months
after the Closing Date;
Notwithstanding the foregoing, in any event, the Restricted Warrants
may be exercised at the earlier of:
(i) the conversion of all or part of the Note into shares of
Common Stock, subject to the restrictions set forth below in
SECTION 4.1(C);
(ii) a Change of Control; or
(iii) the payment in full of the Note.
(c) If the entire amount of principal and interest due and payable
under the Note is converted to Common Stock, all of the Restricted Warrants
shall be immediately exercisable in whole or in part at any time until the
Warrant Expiration Date. If less than the entire amount of principal and
interest due and payable
13
under the Note is converted, a pro-rata portion of the Restricted Warrants based
upon the amount of the Note which is converted compared to the total amount of
the Note prior to conversion, shall be immediately exercisable in whole or in
part at any time until the Warrant Expiration Date. For example, if fifty
percent (50%) of the Note is converted, one half of the Restricted Warrants
would be exercisable.
(d) The Warrants shall be exercised by presentation of the Warrant
Certificate evidencing the Warrants to be exercised, with the form of election
to purchase on the reverse thereof duly completed and signed, to the Company at
the offices of the Company as set forth on the signature page of this Agreement,
together with payment of the aggregate Warrant Exercise Price for the number of
Warrant Shares in respect of which such Warrants are being exercised in lawful
money of the United States of America; PROVIDED, that, to the extent the Warrant
Holder exercising such Warrants is also the holder of a Note, such Warrant
Holder or Noteholder may elect, by written notice to the Company delivered with
such presentation, to elect to pay the applicable Warrant Exercise Price by
offsetting the next scheduled payment of such Note by an amount equal to the
aggregate Warrant Exercise Price payable in connection with such exercise of
Warrants. Upon such presentation, the Company shall issue and cause to be
delivered to or upon the written order of the registered Holder of such Warrants
and in such name or names as such registered Holder may designate, a certificate
or certificates for the aggregate number of Warrant Shares issued upon such
exercise of such Warrants. Any Person so designated to be named therein shall be
deemed to have become holder of record of such Warrant Shares as of the date of
exercise of such Warrants; PROVIDED, that, no Warrant Holder will be permitted
to designate that such Warrant Shares be issued to any Person other than such
Warrant Holder unless each condition to transfer contained in ARTICLE V hereof
which would be applicable to a transfer of Warrants or Warrant Shares has been
satisfied.
(b) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or Certificates
shall be issued for the remaining number of Warrants evidenced by such Warrant
Certificate. All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled.
(c) The Company shall not be required to issue fractional
shares of Common Stock upon exercise of any Warrants issued by it, but shall pay
for any such fraction of a share an amount in cash equal to the value of such
fractional share determined by the Company's board of directors in good faith.
(d) The Company will pay all Taxes attributable to the initial
issuance of Warrant Shares upon the exercise of the Warrants issued by it;
PROVIDED, that, each Warrant Holder shall use its reasonable efforts to avoid
any such Tax on the issuance of Warrant Shares; and PROVIDED, further that, the
Company shall not be required to pay any income Tax or any other Tax which may
be payable in respect of any transfer involved in the issue of any Warrant
Certificate or any certificate for Warrant Shares in a name other than that of
the registered holder of a Warrant Certificate surrendered upon the exercise of
such a Warrant, and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such Tax or shall have
established to the satisfaction of the Company that such Tax has been paid.
SECTION 4.2. ADJUSTMENT OF NUMBER OF WARRANT SHARES PURCHASABLE. The
number of Warrant
14
Shares purchasable upon the exercise of each Warrant is subject to adjustment
from time to time upon the occurrence of any of the events enumerated in this
SECTION 4.2.
(a) In the event that the Company shall at any time after the date of
this Agreement declare a dividend on the Common Stock in shares of its capital
stock (whether shares of such Common Stock or of capital stock of any other
class of the Company), split or subdivide the outstanding Common Stock, or
combine the outstanding Common Stock into a smaller number of shares, the number
of Warrant Shares purchasable upon an exercise of each Warrant after the time of
the record date for such dividend or of the effective date of such split,
subdivision or combination shall be adjusted to equal the number of shares of
Common Stock which a Holder having the same number of shares of Common Stock as
the number of Warrant Shares into which each Warrant is exercisable immediately
prior to such record date or effective date, as the case may be, would own or be
entitled to receive after such record date or effective date.
(b) In the event that the Company shall at any time after the date of
this Agreement issue any shares of Common Stock without consideration or at a
price per share less than $1.00, or issue options, rights or warrants to
subscribe for or purchase such Common Stock (or securities convertible into such
Common Stock) without consideration or at a price per share (or having a
conversion price per share, if a security convertible into such Common Stock)
less than $1.00, the number of Warrant Shares purchasable upon an exercise of
each Warrant after the date of such issuance shall be adjusted to equal the
product obtained by multiplying the number of Warrant Shares into which each
Warrant is exercisable immediately prior to the date of such issuance by a
fraction, the numerator shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
on a Fully Diluted Basis immediately prior to such issuance PLUS the number of
shares of such Common Stock which the aggregate offering price of the total
number of shares of such Common Stock so to be issued or to be offered for
subscription or purchase (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at $1.00 per share. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined by an investment banker reasonably acceptable to the Warrant Holder
(the cost of the engagement of said investment banking firm to be borne by the
Company). Shares of such Common Stock owned by or held for the account of the
Company or any Subsidiary thereof shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever the date of such issuance is fixed (which date of issuance shall be the
record date for such issuance if a record date therefor is fixed); and, in the
event that such shares or options, rights or warrants are not so issued, the
number of Warrant Shares into which each Warrant is exercisable shall again be
adjusted to be such number of Warrant Shares into which each Warrant is
exercisable if the date of such issuance had not been fixed.
(c) In case the Company shall make a distribution to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation) of
shares of it stock, evidences of its indebtedness, assets, or rights, options or
warrants (other than those referred to in subsection (b) of this Section 4.2) to
subscribe for or purchase such shares, evidences of indebtedness, or assets, the
number of Warrant Shares into which each Warrant is exercisable after such date
of distribution shall be adjusted to equal the product obtained by multiplying
the number of Warrant
15
Shares purchasable upon an exercise of each Warrant immediately prior to such
date by a fraction, the numerator of which shall be the Per Share Stock Price
for the trading day immediately preceding the day of distribution
("Pre-Distribution Price"), and the denominator of which shall be the
Pre-Distribution Price less the fair market value of the distribution (as
determined in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock. Such adjustment shall be made successively whenever a
date for such distribution is fixed (which date of distribution shall be the
record date for such issuance if a record date therefor is fixed); and, if such
distribution is not so made, the number of Warrant Shares into which each
Warrant is exercisable shall again be adjusted to be such number of Warrant
Shares which would then be in effect if the date of such distribution had not
been fixed.
(d) No adjustment in the number of Warrant Shares purchasable upon an
exercise of each Warrant shall be required unless such adjustment would require
an increase or decrease of at least one-tenth of one percent (.1%) in such
number of Warrant Shares; PROVIDED that any adjustments which by reason of this
SECTION 4.2(d) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this SECTION
4.2 shall be made to the nearest hundredth of one percent.
(e) The Warrant Exercise Price in effect immediately prior to any
adjustment of the number of Warrant Shares into which each Warrant is
exercisable shall be simultaneously adjusted (but not below the par value of the
Common Stock) by multiplying the Warrant Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
Warrant Shares into which each Warrant is exercisable immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
into which each Warrant is exercisable immediately after such adjustment.
(f) In the event of any capital reorganization of the Company, or of
any reclassification of any Common Stock for which any Warrant is exercisable
(other than a subdivision or combination of outstanding shares of such Common
Stock), or in case of the consolidation of the Company with or the merger of the
Company with or into any other corporation or of the sale of the properties and
assets of the Company as, or substantially as, an entirety to any other Person,
each Warrant shall after such capital reorganization, reclassification of such
Common Stock, consolidation, merger or sale be exercisable, upon the terms and
conditions specified in this Agreement, for the number of shares of stock or
other securities or assets to which a holder of the number of Warrant Shares
purchasable (at the time of such capital reorganization, reclassification of
such Common Stock, consolidation, merger or sale) upon exercise of such Warrant
would have been entitled upon such capital reorganization, reclassification of
such Common Stock, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this SECTION 4 with respect to the rights
thereafter of such Warrant shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable on the exercise of such Warrants.
The Company shall not effect any such consolidation, merger or sale, unless
prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets or the appropriate corporation
or entity shall assume, by written instrument, the obligation to deliver to each
Warrant Holder the shares of stock, securities or assets to which, in accordance
with the foregoing provisions, such Warrant Holder may be entitled pursuant to
this SECTION 4.2(f).
16
(g) If any question shall at any time arise with respect to the
adjusted number of Warrant Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national standing
selected by the Warrant Holder.
(h) Notwithstanding anything in this SECTION 4.2 to the contrary, the
Company shall not be permitted to take any action described in this SECTION 4.2
(such as, but not by way of limitation, any dividend, consolidation merger or
reorganization) if such action is prohibited under any other provision of this
Agreement.
(i) Notwithstanding that the number of Warrant Shares purchasable upon
the exercise of each Warrant may have been adjusted pursuant to the terms
hereof, the Company shall nonetheless not be required to issue fractions of
Warrant Shares upon exercise of each Warrant or to distribute certificates that
evidence fractional shares, but instead shall pay to the holder of each Warrant
the cash value of any such fractional Warrant Shares.
SECTION 4.3 NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
number of Warrant Shares issuable upon an exercise of the Warrants or any
adjustment of the Warrant Exercise Price pursuant to SECTION 4.3, the Company
shall promptly, but in any event within thirty (30) days thereafter, cause to be
given to each Warrant Holder, at its address appearing on the Warrant Register,
by first class mail, postage prepaid, a certificate signed by the Company's
Financial Officer setting forth the number of Warrant Shares issuable upon the
exercise of each Warrant as so adjusted and the Warrant Exercise Price as so
adjusted, and describing in reasonable detail the facts accounting for such
adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as part of the notice required
to be mailed under the other provisions of this SECTION 4.3.
In the event:
(a) that the Company shall authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase capital stock of
the Company or of any other subscription rights or warrants; or
(b) that the Company shall issue any shares of Common Stock without
consideration or at a price per share less than $1.00, or issue options, rights,
or warrants to subscribe for or purchase such Common Stock (or securities
convertible into such Common Stock) without consideration or at a price per
share (or having a conversion price per share, if a security convertible into
such Common Stock) less than $1.00; or
(c) that the Company shall authorize the distribution to all holders of
its Common Stock of shares of its stock, evidences of its indebtedness, assets,
or rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness or assets; or
(d) of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of
17
the Company substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination); or
(d) of the voluntary dissolution, liquidation or winding up of the
Company; or
(e) that the Company proposes to take any other action which would
require an adjustment of the Warrant Exercise Price of the Warrants issued by it
pursuant to SECTION 4.2;
then the Company shall cause to be given to each Warrant Holder at such
Warrant Holder's address appearing on the Warrant Register, at least twenty (20)
days prior to the applicable date hereinafter specified, by first class mail,
postage prepaid, a written notice stating the date as of which the holders of
record of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined, or the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that the holders of
record of Common Stock shall be entitled to exchange their shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up.
SECTION 4.4. RESERVATION AND ISSUANCE OF WARRANT SHARES. The Company
will at all times have authorized, and reserve and keep available, free from
preemptive rights, for the purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the Warrants, the number of shares of
Common Stock deliverable upon exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares issued by it will, upon issuance in accordance
with the terms of this Agreement, be fully paid and nonassessable and free from
all Taxes with respect to the issuance thereof and free from all Liens other
than Liens arising by, through or under the Warrant Holder to whom such Warrant
Shares were issued.
ARTICLE V
TRANSFER OF SECURITIES
Section 5.1. RESTRICTIONS ON TRANSFER. SFP understands and agrees that
the Securities have not been registered under the Securities Act or any state
securities Laws, and that accordingly, they will not be fully transferable
except as permitted under various exemptions contained in the Securities Act and
applicable state securities Laws, or upon satisfaction of the registration and
prospectus delivery requirements of the Securities Act and applicable state
securities Laws. SFP acknowledges that it must bear the economic risk of its
investment in the Securities for an indefinite period of time (subject, however,
to the payment terms of the Note, and the Company's obligations pursuant to the
Registration Rights Agreement) since they have not been registered under the
Securities Act and applicable state securities Laws and therefore cannot be sold
unless they are subsequently registered or an exemption from registration is
available. Absent an effective registration statement under the Securities Act
and applicable state securities Laws covering the disposition of the Securities,
SFP will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of
any or all of the Securities absent a valid exemption from the registration and
prospectus delivery requirements of the
18
Securities Act and the registration or qualification requirements of any
applicable state securities Laws. The Company agrees that it will effect the
transfer of the Securities on its books and records upon receipt of an opinion
of counsel stating that SFP's proposed sale or transfer of the Securities is
exempt from the registration and qualification requirements of the Securities
Act.
SECTION 5.2. REGISTRATION, TRANSFER AND EXCHANGE OF WARRANTS. (a) The
Company shall maintain at the offices of the Company as set forth on the
signature pages of this Agreement, the Warrant Register for registration of the
Warrants and Warrant Certificates and transfers thereof. On the Closing Date,
the Company shall register the outstanding Warrants and Warrant Certificates
issued to SFP. The Company may deem and treat the registered Warrant Holders as
the absolute owners of the Warrants registered to such Holders and
(notwithstanding any notation of ownership or other writing on the Warrant
Certificates made by any Person) for the purpose of any exercise thereof or any
distribution to the Warrant Holders, and for all other purposes.
(b) Upon satisfaction of each condition set forth in SECTION
5.1 hereof, the Company shall register the transfer of any outstanding Warrants
in the Warrant Register upon surrender of the Warrant Certificate(s) evidencing
such Warrants to the Company at the offices of the Company as set forth on the
signature pages of this Agreement, accompanied (if so required by it) by a
written instrument or instruments of transfer in form satisfactory to it, duly
executed by the registered Warrant Holder or by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificate(s) evidencing such transferred Warrants shall be issued to the
transferee(s) and the surrendered Warrant Certificate(s) shall be canceled. If
less than all the Warrants evidenced by a Warrant Certificate(s) surrendered for
transfer are to be transferred, a new Warrant Certificate(s) shall be issued to
the Warrant Holder surrendering such Warrant Certificate(s) evidencing such
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
Warrant Holder(s) thereof, when surrendered to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, for another
Warrant Certificate or other Warrant Certificates of like tenor and representing
in the aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any Tax or other governmental charge imposed in connection therewith.
SECTION 5.3. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity satisfactory to it. No service charge
shall be made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, Tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Warrant Certificate.
SECTION 5.4. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. (a) The
Company shall maintain
19
at the offices of the Company as set forth on the signature pages of this
Agreement, the Note Register for registration of the Notes and transfers
thereof. On the Closing Date, the Company shall register the outstanding Notes
issued to SFP. The Company may deem and treat the registered Noteholder as the
absolute owner of the Note registered to such Holder and (notwithstanding any
notation of ownership or other writing on the Note made by any Person) for the
purpose of any exercise thereof or any distribution to the Noteholder, and for
all other purposes.
(b) Upon satisfaction of each condition set forth in SECTION
5.1 hereof, the Company shall register the transfer of any outstanding Note in
the Note Register upon surrender of such Note to the Company at the offices of
the Company as set forth on the signature pages of this Agreement, accompanied
(if so required by it) by a written instrument or instruments of transfer in
form satisfactory to it, duly executed by the registered Noteholder or by the
duly appointed legal representative thereof. Upon any such registration of
transfer, a new Note evidencing such transferred Note shall be issued to the
transferee and the surrendered Note shall be canceled. If less than all of the
principal amount of a Note surrendered for transfer is to be transferred, a new
Note shall be issued to the Noteholder surrendering such Note evidencing such
remaining principal balance.
(c) The Notes may be exchanged at the option of the
Noteholders thereof, when surrendered to the Company at the offices of the
Company as set forth on the signature pages of this Agreement, for another Note
or other Notes of like tenor and representing in the aggregate a like number of
Notes. Notes surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any Tax or other governmental charge imposed in connection therewith.
SECTION 5.5. MUTILATED OR MISSING NOTES. If any Note shall be
mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and
substitution for and upon cancellation of the mutilated Note, or in lieu of and
substitution for the Note lost, stolen or destroyed, a new Note of like tenor
and representing the same outstanding principal, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Note and, if requested, indemnity satisfactory to it. No service charge shall be
made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, Tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Note.
ARTICLE VI
CONDITIONS
SECTION 6.1. CONDITIONS PRECEDENT TO SFP'S OBLIGATIONS AT CLOSING. The
obligations of SFP to purchase the Securities pursuant to SECTION 2.1 are
subject to the satisfaction of each of the conditions precedent set forth in
this SECTION 6.1 on or before 10:00 a.m. (Dallas, Texas time) on the Closing
Date. In the event all of the conditions precedent set forth in this SECTION 6.1
are not satisfied by such time, SFP may,
20
at its option, terminate this Agreement and the other Transaction Documents and
all obligations of SFP hereunder and thereunder, or waive any and all of such
conditions precedent and close the transactions as contemplated herein.
(a) CLOSING DELIVERIES. The Company shall have delivered to SFP, in
form and substance satisfactory to SFP each of the following:
(i) the Note to be purchased by SFP pursuant to SECTION 2.1
duly executed and delivered by the Company and payable to SFP;
(ii) certificates issued to SFP evidencing the Common Stock
Shares to be purchased by SFP pursuant to SECTION 2.1;
(iii) Warrant Certificates issued to SFP by the Company
evidencing the Warrants to be purchased by SFP pursuant to SECTION 2.1;
(iv) the Registration Rights Agreement duly executed and
delivered by the Company and SFP;
(v) the Employment Agreement duly executed and delivered by
the Company and Xxxxx X. Xxxxxx;
(vi) a favorable opinion of Thrasher, Whitley, Hampton &
Xxxxxx, counsel for the Company, in form and substance satisfactory to
SFP and its counsel;
(vii) all resolutions, certificates and documents SFP may
request relating to (A) the organization, existence, good standing and
foreign qualification of the Company and each of its Subsidiaries, (B)
the corporate authority for the execution, delivery and enforceability
of this Agreement and the consummation of the Closing Transactions, (C)
the stock ownership of the Company and each of its Subsidiaries, (D)
evidence of all resolutions and related documents necessary to increase
the Company's outstanding capital, if necessary, and (E) such other
matters relevant to the foregoing as SFP shall reasonably request, all
of which shall be in form and substance satisfactory to SFP and its
counsel;
(viii) if applicable, the waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have expired
or been terminated and all filings required to be made prior to the
Closing Date, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, any
Governmental Authority in connection with execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained.
(ix) evidence satisfactory to SFP that all Closing
Transactions have been consummated;
(x) a Subordination Agreement among SFP, Compass Bank and Bank
of Oklahoma in the
21
form and substance reasonably acceptable to SFP;
(xi) a certificate from an Authorized Officer of the Company
certifying that (A) neither a Default nor an Event of Default has
occurred, and (B) each and every representation and warranty of the
Company in the Transaction Documents is true and correct in all
material respects;
(xii) the holders of the requisite number of shares of
outstanding capital stock of the Company shall have duly and validly
approved all items necessary to effect the transactions contemplated by
this Agreement and the other Transaction Documents, the Closing
Transactions and all other transactions contemplated hereby or thereby;
(xiii) the Common Stock Shares, the Warrant Shares and the
shares of Common Stock issuable upon conversion of the Notes shall have
been approved for listing on the Nasdaq Small Cap Market, subject to
official notice of issuance;
(xiv) resignations in form acceptable to SFP of each of the
directors of the Company who are not designated by the Major
Shareholders pursuant to the provisions of the Shareholders Agreement;
(xv) evidence of cancellation of the Company's Employee Net
Profits Interest Incentive Compensation Plan ("NPI Plan") and
termination of the Company's SEP/XXX Plan established in 1993;and
(xvi) such other documents, instruments and agreements as SFP
shall reasonably request in light of the transactions contemplated
hereunder.
The documents, certificates and opinions referred to in this SECTION 6.1(a)
shall be delivered to SFP no later than the Closing Date and shall, except as
expressly provided otherwise, be dated the Closing Date.
(b) LEGAL MATTERS. All legal matters with respect to the Company and
its Subsidiaries, the Transaction Documents and the Closing Transactions shall
be acceptable to SFP.
(c) ABSENCE OF DEFAULT. No Default or Event of Default shall have
occurred which is continuing.
(d) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement and in the other Transaction
Documents shall be true and correct in all material respects on the Closing Date
as if they were made on such date (in determining the truth and correctness of
any representation or warranty no effect shall be given to any limitation
contained in such representation or warranty as to Knowledge).
(e) NO MATERIAL ADVERSE EFFECT. No event has occurred or condition
exists which has had or could be expected to have a Material Adverse Effect on
the Company.
(f) PAYMENT OF EXPENSES. The Company shall have paid, or will make
arrangements to pay at
22
Closing, in full all documented and reasonable out of pocket fees, expenses and
disbursements incurred by SFP in connection with its investigation, negotiation
and closing of the transactions contemplated hereby.
(g) WAIVER. SFP shall have been given evidence that the provisions, if
any, listed on SCHEDULE 6.1(G) have been waived by the Company's shareholders or
board of directors, as the case may be.
(h) EMPLOYEE PARTICIPANT's Consent. Evidence of each employee
participant's consent to the termination and release of all rights related to
the NPI Plan.
(i) DUE DILIGENCE REVIEW. Completion of Buyer's due diligence, the
results of which are satisfactory to Buyer, including but not limited to,
Buyer's review of all items listed on the Disclosure Schedule.
SECTION 6.2. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS AT
CLOSING. The obligations of the Company to sell the Securities pursuant to
SECTION 2.1 are subject to the satisfaction of each of the conditions precedent
set forth in this SECTION 6.2 on or before 10:00 a.m. (Dallas, Texas time) on
the Closing Date. In the event all of the conditions precedent set forth in this
SECTION 6.2 are not satisfied by such time, the Company may, at its option,
terminate this Agreement and the other Transaction Documents and all obligations
of the Company hereunder and thereunder.
(a) CLOSING DELIVERIES. SFP shall have delivered to the Company, in
form and substance satisfactory to the Company each of the following:
(i) the Purchase Price to be paid by SFP pursuant to SECTION 2.1;
(ii) the Registration Rights Agreement duly executed and delivered
by the Company and SFP;
(iii) the Employment Agreement duly executed and delivered by the
Company and Xxxxx X. Xxxxxx;
(iv) all resolutions, certificates and documents the Company may
request relating to (A) the organization, existence, good standing and
foreign qualification of SFP, (B) the corporate authority for the
execution, delivery and enforceability of this Agreement and the
consummation of the Closing Transactions, and (C) such other matters
relevant to the foregoing as the Company shall reasonably request, all
of which shall be in form and substance satisfactory to the Company and
its counsel;
(v) if applicable, the waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have expired
or been terminated and all filings required to be made prior to the
Closing Date, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, any
Governmental Authority in connection with execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby shall have been made or obtained;
23
(vi) evidence satisfactory to the Company that all Closing
Transactions have been consummated;
(vii) a certificate from an Authorized Officer of SFP certifying
that (A) each and every representation and warranty of the Company in
the Transaction Documents is true and correct in all material respects;
(viii) payment of $274,625 to current employees of the Company as
set forth on the schedule previously provided by the Company to SFP as
payment in full of each employee's rights under the NPI Plan;
(ix) such other documents, instruments and agreements as the
Company shall reasonably request.
The documents and certificates referred to in this SECTION
6.2(A) shall be delivered to the Company no later than the Closing Date
and shall, except as expressly provided otherwise, be dated the Closing
Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SFP contained in this Agreement and in the other Transaction Documents shall
be true and correct in all material respects on the Closing Date as if they were
made on such date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce SFP to purchase the Securities to be purchased by it
hereunder, the Company hereby represents and warrants to SFP that each of the
following statements (a) is true and correct on the date hereof, and (b) will be
true and correct after giving effect to the Closing Transactions.
SECTION 7.1. CORPORATE EXISTENCE AND POWER. Each of the Company and
each of its Subsidiaries (a) is a corporation, duly organized, validly existing
and in good standing under the Laws of its jurisdiction of incorporation set
forth on SCHEDULE 7.1 of the Disclosure Schedule, (b) has all corporate power
and authority necessary to carry on its business as now conducted and as
proposed to be conducted, and (c) is duly qualified as a foreign corporation in
each jurisdiction set forth on SCHEDULE 7.1 on the Disclosure Schedule which
constitutes all jurisdictions where a failure to be so qualified could have a
Material Adverse Effect on the Company or such Subsidiary.
SECTION 7.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by each of the Company and each of its Subsidiaries (to
the extent each is a party to this Agreement or the other
24
Transaction Documents) are within its corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any Governmental Authority (other than filings with any
applicable securities regulatory authorities to perfect exemptions from the
registration or qualification requirements of applicable securities Laws and
which will be made immediately following the Closing Date), and, except for
matters which have been waived in writing by the appropriate Person, do not
contravene, or constitute a default under, any provision of applicable Law or of
the Charter Documents or of any material judgment, injunction, order, decree or
Material Agreement binding upon the Company or any of its Subsidiaries or its
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries.
SECTION 7.3. BINDING EFFECT. This Agreement constitutes the valid and
binding agreement of the Company; each other Transaction Document when executed
and delivered in accordance with this Agreement, will constitute the valid and
binding obligation of the Company and each of its Subsidiaries which is a party
thereto, in each case enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar Laws
affecting creditors rights generally, and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 7.4. CAPITALIZATION. SCHEDULE 7.4 of the Disclosure Schedule
accurately and completely sets forth for each of the Company and its
Subsidiaries (a) its authorized, issued and outstanding capital stock of every
class, and (b) the names of the record, and to the Company's knowledge,
beneficial owner, of its capital stock of every class, including the number and
class of shares held by each such shareholder. Except as set forth SCHEDULE 7.4
of the Disclosure Schedule and except for the Warrants and registration rights
provided in the Registration Rights Agreement, (x) there are not outstanding any
options, warrants or other rights to acquire capital stock of any class of the
Company or any of its Subsidiaries or securities convertible into capital stock
of the Company or any of its Subsidiaries of any class, (y) no Person has any
preemptive or similar rights with respect to any subsequent issue of stock by
the Company or any of its Subsidiaries, and (z) no Person has any right to
require the Company or any of its Subsidiaries to register any securities of the
Company or any of its Subsidiaries under the Securities Act.
SECTION 7.5. ISSUANCE OF SECURITIES. The Securities to be issued on the
Closing Date, when issued upon payment of the applicable Purchase Price in
accordance with SECTION 2.1, will be duly authorized, validly issued, fully paid
and non-assessable and will be free and clear of all Liens, claims and
encumbrances including pre-emptive rights. The Warrant Shares, when issued upon
an exercise of the Warrants, and the Conversion Shares, when issued upon a
conversion of the amount of principal and unpaid interest on the Notes, will be
duly authorized, validly issued, fully paid and nonassessable and free and clear
of all Liens, claims and encumbrances, including, without limitation, all
preemptive rights.
SECTION 7.6. FINANCIAL STATEMENTS. The Company Financial Statements
were prepared in accordance with the applicable published rules and regulations
of the Commission with respect thereto and in accordance with GAAP applied on a
consistent basis during the periods involved
25
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the Commission) and
fairly present in all material respects, in accordance with applicable
requirements of GAAP (in the case of unaudited statements, subject to normal,
recurring adjustments), the consolidated financial position of the Company and
its Subsidiaries as of their respective dates and the consolidated results of
operations and the consolidated cash flows of the Company and its Subsidiaries
for the periods presented therein. The are no material liabilities of the
Company or any Subsidiary (contingent or otherwise), other than as disclosed in
the Company's Financial Statements. There are no material imbalances of
production from the oil and gas properties of the Company or its Subsidiaries
whether required to be disclosed pursuant to GAAP or otherwise. Since December
31, 1998, no event has occurred or condition exists which has had or could be
expected to have a Material Adverse Effect.
SECTION 7.7. MATERIAL AGREEMENTS. SCHEDULE 7.7 of the Disclosure
Schedule contains a complete and accurate description of every Material
Agreement to which the Company or any of its Subsidiaries is a party (other than
the Transaction Documents) or by which the Company or any of its Subsidiaries or
any of their respective assets are bound (including all amendments and
modifications thereto). The Company has made available to SFP or provided SFP
with a true and correct copy of all such Material Agreements, including all
amendments and modifications thereof. No rights or obligations of any party to
any of such Material Agreements has been waived, and no party to any of such
Material Agreements is in default of its obligations thereunder. Each of such
Material Agreements is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and effect.
SECTION 7.8. COMPASS DEBT DOCUMENTS. The Company has provided to or
made available to SFP with a true and correct copy of all of the Compass Senior
Debt Documents including all amendments and modifications thereto. No rights or
obligations of any party to any of such Compass Senior Debt Documents have been
waived, and no party to any of such Compass Senior Debt Documents is in default
of its obligations thereunder. Each of such Compass Senior Debt Documents is a
valid, binding and enforceable obligation of the parties thereto in accordance
with its terms and is in full force and affect.
SECTION 7.9. INVESTMENTS. Except as set forth on SCHEDULE 7.9 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has any
outstanding Investments.
SECTION 7.10. OUTSTANDING DEBT. SCHEDULE 7.10 of the Disclosure
Schedule contains a complete and accurate description of all Debt of the Company
and each of its Subsidiaries outstanding on the date hereof. Neither the Company
nor any of its Subsidiaries is in default in payment of any Debt with respect to
which it is an obligor or in default of any covenant, agreement, representation,
warranty or other term of any document, instrument or agreement evidencing,
securing or otherwise pertaining to any such Debt.
SECTION 7.11. TRANSACTIONS WITH AFFILIATES. SCHEDULE 7.11 of the
Disclosure Schedule contains a complete and accurate description of all
contracts, agreements and other arrangements
26
(whether written, oral, express or implied) between the Company or any of its
Subsidiaries and any Affiliate of the Company and its Subsidiaries in existence
on the date hereof, including, without limitation, a complete and accurate
description of all Investments of any of the Company or any of its Subsidiaries
in any Affiliate of the Company or any of its Subsidiaries.
SECTION 7.12. EMPLOYMENT MATTERS. SCHEDULE 7.12 of the Disclosure
Schedule contains a complete and accurate list of all employees of the Company
and each of its Subsidiaries. Such schedule also sets forth for the current
fiscal year the annual salary (including projected bonuses and other cash
compensation) of all such employees and all benefits (other than health
insurance benefits and other similar benefits which are both customary in the
industry in which the Company or any of its Subsidiaries is engaged and provided
to all full time employees of the Company or any of its Subsidiaries generally)
provided to such employees. SCHEDULE 7.12 of the Disclosure Schedule also
contains a complete and accurate description of all employment contracts,
consulting agreements, management agreements, non-compete and similar agreements
to which the Company or any of its Subsidiaries is a party on the date hereof.
SECTION 7.13. LITIGATION. Except as set forth on SCHEDULE 7.13 of the
Disclosure Schedule, there is no action, suit or proceeding pending against, or
to the knowledge of the Company, threatened against or affecting the Company or
any of its Subsidiaries before any court or arbitrator or any Governmental
Authority.
SECTION 7.14. ERISA. Neither the Company nor any of its Subsidiaries
nor any ERISA Affiliate maintains or contributes to any Pension Plan other than
those disclosed on SCHEDULE 7.14 of the Disclosure Schedule. Each such Pension
Plan is in compliance in all material respects with its terms and the applicable
provisions of ERISA and the IRC. Except as required by law, none of the Company
or any of its Subsidiaries nor any ERISA Affiliate has any commitment to create
any additional Pension Plans. Except as set forth on SCHEDULE 7.14, neither the
Company nor any of its Subsidiaries nor any ERISA Affiliate has ever sponsored,
adopted, maintained or been obligated to contribute to, or had any liability
under, any Pension Plan. There is no material violation of ERISA with respect to
the filing of applicable reports, documents and notices regarding the Pension
Plans with the Secretary of the Treasury or the furnishing of such documents to
the participants and beneficiaries of the Pension Plans, and, to the best of the
Company's knowledge, with respect to each Pension Plan all other reports
required under ERISA or the IRC to be filed with any Governmental Authority have
been duly filed and all such reports are true and correct in all material
respects as of the dates given. Each Pension Plan that is intended to be
"qualified" within the meaning of section 401(a) of the IRC is, and has been
during the period from its adoption to date, so qualified, both as to form and,
to the best of the Company's knowledge, has been qualified, and all necessary
governmental approvals, including a favorable determination as to the
qualification under the IRC of each of such Pension Plans and each amendment
thereto, have been timely obtained or application for a favorable determination
will be filed prior to the applicable filing deadlines. Except as disclosed on
SCHEDULE 7.14 of the Disclosure Schedule, each trust created under any such
Pension Plan intended to be qualified within the meaning of section 401(a) of
the IRC and each trust described in section 501(c)(9) of the IRC is exempt from
federal income taxation under section 501(a) of the IRC and has
27
been so exempt during the period from creation to date. The Company has no
pending or, to the best of the Company's knowledge, threatened claims, lawsuits
or actions (other than routine claims for benefits in the ordinary course)
asserted or instituted against, and the Company has no knowledge of any
threatened litigation or claims against, the assets of any Pension Plan or its
related trust or against any fiduciary of a Pension Plan with respect to the
operation of such Pension Plan. Neither the Company nor any of its Subsidiaries
has received notice of any pending investigations, inquires or audits with
respect to any Pension Plan by any regulatory agency. Neither the Company nor
any of its Subsidiaries has engaged in any prohibited transactions, within the
meaning of section 406 of ERISA or section 4975 of the IRC, in connection with
any Pension Plan. Neither the Company nor any of its Subsidiaries maintains or
has established any Pension Plan which is a welfare benefit plan within the
meaning of section 3(1) of ERISA which provides for retiree medical liabilities
or continuing benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the regulations thereunder, and at the expense of the
participant or the beneficiary of the participant. The Company and each of its
Subsidiaries that maintains a Pension Plan that is a welfare benefit plan within
the meaning of section 3(1) of ERISA has complied with any applicable notice and
continuation requirements of COBRA and the regulations thereunder. To the best
of the Company's knowledge, none of the Company or any of its Subsidiaries
maintains, has established, or has ever participated in, a multiple employer
welfare benefit arrangement within the meaning of section 3(40)(A) of ERISA.
SECTION 7.15. TAXES AND FILING OF TAX RETURNS. The Company and each of
its Subsidiaries has filed all Tax returns required to have been filed by it or
has legally extended such returns and has paid all Taxes shown to be due and
payable on such returns, including interest and penalties, and all other Taxes
which are payable by the Company or any of its Subsidiaries. The Company does
not know of any proposed Tax assessment against the Company or any of its
Subsidiaries and all Tax liabilities of the Company and each of its Subsidiaries
are adequately provided for and no Tax liability of the Company or any of its
Subsidiaries has been asserted by the Internal Revenue Service or any other
Governmental Authority for Taxes in excess of those already paid.
SECTION 7.16. TITLE TO ASSETS. The Company and its Subsidiaries have
Defensible Title to all Oil and Gas Interests of the Company and its
Subsidiaries included or reflected in the Ownership Interests and all of their
other assets, subject only to Permitted Encumbrances. Each Oil and Gas Interest
included or reflected in the Ownership Interest entitles the Company and its
Subsidiaries to receive not less than the undivided interest set forth in (or
derived from) the Ownership Interests of all Hydrocarbons produced, saved and
sold from or attributable to such Oil and Gas Interest, and the portion of such
costs and expenses of operation and development of such Oil and Gas Interest
that is borne or to be borne by the Company and its Subsidiaries is not greater
than the undivided interest set forth in (or derived from) the Ownership
Interests. All proceeds from the sale of each of the Company's and the
Subsidiaries' shares of the Hydrocarbons being produced from its Oil and Gas
Interests are currently being paid in full to such party by the purchasers
thereof on a timely basis and none of such proceeds are currently being held in
suspense by such purchaser or any other party,
28
except as set forth on SCHEDULE 7.16 of the Disclosure Schedule.
SECTION 7.17. LICENSES, PERMITS, ETC. The Company and each of its
Subsidiaries possess all franchises, certificates, licenses, permits, consents,
authorizations, exemptions and orders of Governmental Authorities as are
necessary to carry on their respective businesses as now being conducted and as
proposed to be conducted, except to the extent a failure to have such
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders could not have a Material Adverse Effect.
SECTION 7.18. PROPRIETARY RIGHTS. The Company and each of its
Subsidiaries has ownership of, or valid licenses to use, all trademarks,
copyrights, patents and other proprietary rights used in their respective
businesses. To the best of the Company's knowledge, the operation of the
businesses of the Company and its Subsidiaries does not infringe any patent,
copyright, trademark or other proprietary rights of others, and, neither the
Company nor any of its Subsidiaries has received any notice from any third party
of any such alleged infringement by the Company or any of its Subsidiaries. The
Company and each of its Subsidiaries has taken reasonable steps to establish and
preserve its respective ownership of all patents, copyrights, trademarks, trade
secrets and other proprietary rights. The Company is not aware of any
infringement by others of its or any its Subsidiaries' patents, copyrights,
trademarks or other proprietary rights.
SECTION 7.19. COMPLIANCE WITH LAW. To the Knowledge of the Company, the
business and operations of the Company and each of its Subsidiaries have been
and are being conducted in accordance with all applicable Laws.
SECTION 7.20. ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 7.20 of the Disclosure Schedule,
(i) the reserves reflected in the Company's Financial Statements relating to
environmental matters were adequate under GAAP as of the date of such financial
statements, and neither the Company nor its Subsidiaries has incurred any
material liability in respect of any environmental matter since the that date,
and (ii) the SEC Documents include all information relating to environmental
matters required to be included therein under the rules and regulations of the
Commission applicable thereto.
(b) Except as set forth in SCHEDULE 7.20 of the Disclosure Schedule:
(i) Each of the Company and its Subsidiaries has conducted its
business and operated its assets, and is conducting its business and
operating its assets, in material compliance with all Environmental
Laws.
(ii) Neither the Company nor any of its Subsidiaries has been
notified by any Governmental Authority that any of the operations or
assets of the Company or its Subsidiaries is the subject of any
investigation or inquiry by any Governmental Authority evaluating
whether any material remedial action is needed to respond to a release
of Hazardous Substance or to the improper storage or disposal
(including storage or disposal at
29
offsite locations) of any Hazardous Substance.
(iii) Neither the Company nor any of its Subsidiaries and no other
Person has filed any notice under any federal, state or local law
indicating that (i) the Company or its Subsidiaries is responsible for
the improper release into the environment, or the improper storage or
disposal of any Hazardous Substance, or (ii) any Hazardous Substance is
improperly stored or disposed of upon any property of the Company or
its Subsidiaries.
(iv) Neither the Company nor any of its Subsidiaries has any
Substance contingent liability in connection with (i) release into the
environment at or on the property now or previously owned or leased by
the Company or its Subsidiaries, or (ii) the storage or disposal of any
Hazardous Substance.
(v) Neither the Company nor any of its Subsidiaries has received
any claim, complaint, notice, inquiry or request for information which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Laws or regarding potential liability
under any Environmental Laws relating to operations or conditions of
any facilities or property owned, leased or operated by the Company or
its Subsidiaries.
(vi) There are no sites, locations or operations at which the
Company or its Subsidiaries are currently undertaking, or have
completed, any remedial or response action relating to any such
disposal or release, as required by Environmental Laws.
(vii) There are no physical or environmental conditions existing on
any property owned or leased by the Company or any Subsidiary resulting
from the Company's or any Subsidiary's operations or activities, past
or present, at any location, that would give rise to any on-site or
off-site remedial obligations under any applicable Environmental Laws,
other than normal and ordinary remedial work associated with plugging
and abandoning of oil and gas facilities.
SECTION 7.21. Intentionally Left Blank.
SECTION 7.22. FISCAL YEAR. The Company's fiscal year is from January 1
to December 31.
SECTION 7.23. NO DEFAULT. Neither a Default nor an Event of Default has
occurred.
SECTION 7.24. INSURANCE. SCHEDULE 7.24 of the Disclosure Schedule
contains a complete and accurate list and description of all insurance policies
maintained by the Company as of the date hereof.
SECTION 7.25. GOVERNMENT REGULATION. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding the
Company Act of 1935, the Interstate Commerce Act (as either of the preceding
acts have been amended), or any other Law which regulates the incurring by the
30
Company or any of its Subsidiaries of Debt, including, but not limited to, Laws
relating to common contract carriers of the sale of electricity, gas, steam,
water or other public utility services.
SECTION 7.26. SECURITIES LAWS. Assuming SFP's representations made
herein are true and correct, the offer, issuance and sale of the Securities (a)
are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act, (b) have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities Laws, and (c)
are and will be accomplished in conformity with all other federal and applicable
state securities Laws.
SECTION 7.27. BROKERS AND FINDERS. SCHEDULE 7.27 of the Disclosure
Schedule sets forth all arrangements (including amounts payable by the Company
or any of its Subsidiaries in connection therewith) pursuant to which any Person
has, or as a result of the Closing Transactions will have, any right or valid
claim against the Company or any of its Subsidiaries for any commission, fee or
other compensation as an investment banker, finder or broker, or in any similar
capacity. No Person engaged by the Company has or will have any right or valid
claim against SFP for any such commission, fee or other compensation. The
Company will indemnify and hold SFP harmless against any liability or expense
arising out of, or in connection with, any such right or claim (including,
without limitation, claims arising out of the matters disclosed on SCHEDULE 7.27
of the Disclosure Schedule).
SECTION 7.28. SEC DOCUMENTS. The Company is current in its obligations
to file all periodic reports and proxy statements with the Commission required
to be filed under the Exchange Act. SFP has had available to it a true and
correct complete copy of each report, schedule, Registration Statement and
definitive proxy statement filed by the Company with the Commission since
October 4, 1993, and prior to the date of this Agreement (the "SEC Documents"),
which are all the documents (other than preliminary material) that the Company
was required to file with the Commission since such date. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act as the case may be, and the rules and
regulations of the Commission thereunder applicable to such SEC Documents, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 7.29. OIL AND GAS OPERATIONS. Except as set forth on SCHEDULE
7.29 of the Disclosure Schedule:
(a) All xxxxx included in the Oil and Gas Interests of the Company or
its Subsidiaries (the "Xxxxx") have been drilled and (if completed) completed,
operated and produced in accordance with generally accepted oil and gas field
practices and in compliance in all material respects with applicable oil and gas
leases and applicable laws, rules, regulations. The Xxxxx have been drilled and
completed within the limits permitted by contract, pooling or unit agreement,
and by law; and all drilling and completion of the Xxxxx and all development and
operations have been conducted in compliance with all applicable laws,
ordinances, rules, regulations and permits, and judgments, orders and decrees of
any court or governmental body or agency. No Well is subject to penalties on
allowables because of any overproduction or any other violation of applicable
31
laws, rules, regulations or permits or judgments, orders or decrees of any court
or governmental body or agency that would prevent such Well from being entitled
to its full legal and regular allowable from and after the Closing Date as
prescribed by any court or governmental body or agency.
(b) There are no Xxxxx that
(i) the Company is currently obligated by law or contract to plug
and abandon;
(ii) the Company will be obligated by law or contract to plug and
abandon with the lapse of time or notice or both because the Well is
not currently capable of producing in commercial quantities;
(iii) are subject to exceptions to a requirement to plug and
abandon issued by a regulatory authority having jurisdiction over the
applicable lease; or
(iv) to the best knowledge of the Company, have been plugged and
abandoned but have not been plugged in accordance with all applicable
requirements of each regulatory authority having jurisdiction over the
Oil and Gas Interests.
(c) With respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other documents
creating interests comprising the Oil and Gas Interests: (a) the Company has
fulfilled all requirements in all material respects for filings, certificates,
disclosures of parties in interest, and other similar matters contained in (or
otherwise applicable thereto by law, rule or regulation) such leases or other
documents and are fully qualified to own and hold all such leases or other
interests; (b) there are no provisions applicable to such leases or other
documents which increase the royalty share of the lessor thereunder, and (c)
upon the establishment and maintenance of production in commercial quantities,
the leases and other interest are to be in full force and effect over the
economic life of the property involved and do not have terms fixed by a certain
number of years.
(d) Proceeds from the sale of Hydrocarbons produced from the Company's
and its Subsidiaries' Oil and Gas Interests are being received by the Company
and its Subsidiaries in a timely manner and are not being held in suspense for
any reason (except for amounts, individually or in the aggregate, not in excess
of $100,000 and held in suspense in the ordinary course of business).
(e) Seller is not obligated, by virtue of a prepayment arrangement, a
"take or pay" arrangement, a production payment or any other arrangement to
deliver Hydrocarbons produced from the Oil and Gas Interests at some future time
without then or thereafter receiving full payment therefor.
SECTION 7.30. FINANCIAL AND COMMODITY HEDGING. SCHEDULE 7.30 of the
Disclosure Schedule accurately summarizes the outstanding Hydrocarbon and
financial hedging positions of the Company and its Subsidiaries (including fixed
price controls, collars, swaps, caps, xxxxxx and puts) as of the date reflected
on said Schedule. From the date of this Agreement to the date of Closing, the
Company and its Subsidiaries will not enter into any new hedging positions
without SFP's prior written consent.
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SECTION 7.31. BOOKS AND RECORDS. All books, records and files of the
Company and its Subsidiaries (including those pertaining to the Company's or its
Subsidiaries' Oil and Gas Interests, xxxxx and other assets, those pertaining to
the production, gathering, transportation and sale of Hydrocarbons, and
corporate, accounting, financial and employee records) (a) have been prepared,
assembled and maintained in accordance with usual and customary policies and
procedures and (b) fairly and accurately reflect the ownership, use, enjoyment
and operation by the Company and its Subsidiaries of their respective assets.
SECTION 7.32. RESERVE REPORT. To the knowledge of the Company, the
estimates of proved reserves of oil and natural gas prepared by Xxx Xxxxxxx &
Associates, Inc. and X. X. Xxxx and Associates, Inc. (together, the "Reserve
Engineer") as of December 31, 1998 (the "Reserve Report"): (i) are reasonable;
and (ii) were prepared in accordance with generally accepted petroleum
engineering and evaluation principles as set forth in the Standards Pertaining
to the Estimating and Auditing of Oil and Gas Reserve Information promulgated by
the Society of Petroleum Engineers. The engineering information and production
data used in the preparation of the Reserve Report, which information and data
have been available to SFP, are the information and data which are used by the
Company in good faith in the ordinary course of business. The factual
information underlying the estimates of the reserves of the Company and the
Subsidiaries, which was supplied by the Company to the Reserve Engineers for the
purpose of preparing the Reserve Report, including, without limitation,
production, volumes, sales prices for production, contractual pricing provisions
under oil or gas sales or marketing contracts under hedging arrangements, costs
of operations and development, and working interest and net revenue information
relating to the Company's and the Subsidiaries' ownership interests in
properties, was true and correct in all material respects on the date of such
Reserve Report; the estimates of future capital expenditures and other future
exploration and development costs supplied to the Reserve Engineers were
prepared in good faith and with a reasonable basis; the information provided to
the Reserve Engineers for purposes of preparing the Reserve Report was prepared
in accordance with customary industry practices; other than normal production of
the reserves and intervening oil and gas price fluctuations, the Company is not
as of the date hereof and as of the Closing Date will not be, aware of any facts
or circumstances that would result in a materially adverse change in the
reserves in the aggregate, or the aggregate present value of future net cash
flows therefrom, as described in the Reserve Report.
SECTION 7.33. NATURE OF COMPANY ASSETS. The assets of the Company and
of the Subsidiaries consist solely of (i) reserves of oil and gas, rights to
reserves of oil and gas and associated exploration and production assets with a
fair market value not exceeding $500 million and (ii) other assets with a fair
market value not exceeding $15 million. For purposes of this Section 7.33, the
term "associated exploration and production assets" shall have the meaning set
forth in Section 802.3 of the Rules promulgated pursuant to HSR Act.
SECTION 7.34. FULL DISCLOSURE. No information heretofore furnished by
or on behalf of the Company or any of its Subsidiaries to SFP for the purposes
of this Agreement or any other Transaction Document or any transaction
contemplated hereby or thereby, contained, and no written information hereafter
furnished by or on behalf of the Company or any of its Subsidiaries to SFP for
purposes of this Agreement or any other Transaction Document or any transaction
contemplated hereby or thereby will contain, any untrue statement of a material
fact or omit a material fact necessary to make the statements therein not
misleading. There is no fact or circumstance known to the Company which may have
a Material Adverse Effect on the
33
Company or any of its Subsidiaries which has not been disclosed to SFP.
SECTION 7.35. YEAR 2000 COMPLIANCE. The Company's disclosure in its
Annual Report on Form 10-KSB for the year ended December 31, 1998 under the
heading "Year 2000 Compliance" accurately states the Company's statement of
readiness and contingency plans relative to the computer software which is
material to the conduct of the business and operations of the Company and its
Subsidiaries being capable of recording, storing, processing and presenting
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software records, stores,
processes and presents such calendar dated falling on or before December 31,
1999.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF SFP
In order to induce the Company to issue and sell the Securities to SFP
hereunder, SFP hereby represents and warrants to the Company as follows:
SECTION 8.1. PARTNERSHIP EXISTENCE AND POWER. SFP (a) is a limited
partnership, duly organized, validly existing and in good standing under the
Laws of its jurisdiction of incorporation, (b) has all power and authority
necessary to carry on its business as now conducted and as proposed to be
conducted.
SECTION 8.2. PARTNERSHIP AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by SFP are within its powers, have been duly authorized by
all necessary action, require no action by or in respect of, or filing with, any
Governmental Authority (other than filings with any applicable securities
regulatory authorities to perfect exemptions from the registration or
qualification requirements of applicable securities Laws and which will be made
immediately following the Closing Date), and, except for matters which have been
waived in writing by the appropriate Person, do not contravene, or constitute a
default under, any provision of applicable Law or of the Charter Documents or of
any material judgment, injunction, order, decree or Material Agreement binding
upon SFP or its assets, or result in the creation or imposition of any Lien on
any asset of SFP.
SECTION 8.3. BINDING EFFECT. This Agreement constitutes the valid and
binding agreement of SFP; each other Transaction Document when executed and
delivered in accordance with this Agreement, will constitute the valid and
binding obligation of SFP, in each case enforceable in accordance with its terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar Laws affecting creditors rights generally, and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 8.4. BROKERS AND FINDERS. No Person engaged by SFP has or will
have any right or valid claim against the Company for any commission, fee or
other compensation. SFP will indemnify and hold the Company harmless against any
liability or expense arising out of, or in connection with, any such right or
claim.
34
SECTION 8.5. TAXES AND FILING OF TAX RETURNS. SFP has filed all Tax
returns required to have been filed by it or has legally extended such returns
and has paid all Taxes shown to be due and payable on such returns, including
interest and penalties, and all other Taxes which are payable by SFP. SFP does
not know of any proposed Tax assessment against SFP and all Tax liabilities of
SFP are adequately provided for and no Tax liability of SFP has been asserted by
the Internal Revenue Service or any other Governmental Authority for Taxes in
excess of those already paid.
SECTION 8.6 INTENTIONALLY OMITTED.
ARTICLE IX
COVENANTS
SECTION 9.1. MAINTENANCE OF INSURANCE. The Company will, and will cause
each of its Subsidiaries to, at all times maintain or cause to be maintained
insurance issued by insurers of recognized responsibility covering such risks
and in such amounts as are customary in the case of companies of established
reputation engaged in the same or similar business and similarly situated.
SECTION 9.2. PAYMENT OF TAXES AND CLAIMS. The Company will, and will
cause each of its Subsidiaries to, pay when due (a) all Taxes imposed upon it or
its respective assets and, with respect to its respective franchises, business,
income or profits, pay such Taxes before any material penalty or interest
accrues thereon, and (b) all material claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have become
due and payable; PROVIDED, however, no payment of Taxes or claims shall be
required if (i) the amount, applicability or validity thereof is being contested
in good faith by appropriate action promptly initiated and diligently conducted
in accordance with good business practices and no material part of the property
or assets of each holder of Securities is the subject of any pending levy or
execution, and (ii) the Company has notified each holder of Securities of such
circumstances in reasonable detail.
SECTION 9.3. COMPLIANCE WITH LAWS AND DOCUMENTS. The Company will, and
will cause each of its Subsidiaries to, comply with the provisions of (a) all
Laws, (b) its Charter Documents, and (c) every Material Agreement to which the
Company or any of its Subsidiaries is a party or by which the Company's or any
of its Subsidiaries' properties are bound.
SECTION 9.4. OPERATION OF PROPERTIES AND EQUIPMENT. The Company will,
and will cause each of its Subsidiaries to, at all times, maintain, preserve and
keep all operating equipment used or useful in the operation of their respective
businesses in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such equipment shall at all times be properly
preserved and maintained; PROVIDED, that, no item of operating equipment need be
so repaired, renewed, replaced, added to or improved, if the Company shall in
good faith determine that such action is not necessary or desirable for the
continued efficient and profitable operation of the Company's and its
Subsidiaries' businesses.
35
SECTION 9.5. ADDITIONAL DOCUMENTS. The Company will, and will cause
each of its Subsidiaries to, cure promptly any defects in the creation and
issuance of the Securities, and the execution and delivery of this Agreement and
the other Transaction Documents, and, at the Company's sole expense, promptly
and duly execute and deliver, and cause each of its Subsidiaries to promptly
execute and deliver, to the holders of the Securities, upon reasonable request,
all such other and further documents, agreements and instruments in compliance
with or accomplishment of the covenants and agreements of the Company and each
of its Subsidiaries in this Agreement and the other Transaction Documents, all
as may be reasonably necessary or appropriate in connection therewith.
SECTION 9.6. MAINTENANCE OF BOOKS AND RECORDS. The Company will, and
will cause each of its Subsidiaries to, maintain proper books of record and
account in which true and correct entries in conformity with GAAP shall be made
on a timely basis of all dealings and transactions in relation to the Company's
and its Subsidiaries' businesses and activities.
SECTION 9.7. ENIVIRONMENTAL MATTERS.
(a) The Company will, and will cause each of its Subsidiaries to,
comply with all Environmental Law and Laws applicable to their respective
properties and operations, including, without limitation, all Hazardous
Substances transportation, storage, disposal, remediation and similar
requirements of applicable Environmental Law and Laws.
(b) Notwithstanding any other provision contained within this Agreement
or the other Transaction Documents, the Company shall immediately orally notify
each holder of Securities of any Hazardous Discharge or the receipt of any
Environmental Complaint relating to any property or assets owned by the Company
or any of its Subsidiaries or affecting any properties or assets owned or leased
by other Persons and shall furnish each holder of Securities with written notice
of such Hazardous Discharge or Environmental Complaint within five (5) days of
the oral notification.
SECTION 9.8 ACCESS TO INFORMATION. The Company will (and will cause
each of its Subsidiaries to) afford SFP and its representatives (including
without limitation directors, officers and employees of SFP and its Affiliates,
and counsel, accountants and other professionals retained by SFP) such access,
during normal business hours throughout the period to the Closing Date, to the
Company's books, records (including without limitation Tax returns and
non-restricted work papers of the Company's independent auditors), properties,
personnel and to such other information as SFP may reasonably request and will
permit SFP to make such inspections as SFP may reasonably request and will cause
the officers of the Company and those of its Subsidiaries to furnish SFP with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its Subsidiaries as SFP
may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by the Company in this Agreement. SFP
will afford the Company and its representatives (including without limitation
directors, officers and employees of the Company and its Affiliates, and
counsel, accountants and other professionals retained by the Company) such
access, during normal business hours throughout the period to the Closing Date,
to SFP's books, records
36
(including without limitation Tax returns and non-restricted workpapers of SFP's
independent auditors), properties, personnel and to such other information as
the Company may reasonably request and will permit the Company to make such
inspections as the Company may reasonably request and will cause the officers of
SFP to furnish the Company with such financial and operating data and other
information with respect to the business, properties and personnel of SFP as the
Company may from time to time reasonably request, provided, however, that no
investigation pursuant to this section will affect or be deemed to modify any of
the representations or warranties made by SFP in this Agreement.
SECTION 9.9 CONDUCT OF THE BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement or to the extent that SFP shall otherwise consent
in writing, during the period from the date of this Agreement to the Closing,
the Company will conduct its operations only in, and the Company will not take
any action except in the ordinary course of business and the Company will use
all reasonable efforts to preserve intact in all material respects its business
organizations, assets, prospects and advantageous business relationships, to
keep available the services of its officers and key employees and to maintain
satisfactory relationships with its licensors, licensees, suppliers,
contractors, distributors, customers and others having advantageous business
relationships with it. Without limiting the generality of the foregoing, except
as contemplated by this Agreement, the Company will not, without the prior
written consent of SFP:
(a) amend its Charter Documents;
(b) split, combine or reclassify any shares of its capital stock,
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, or directly or indirectly, redeem, purchase or
otherwise acquire any shares of its capital stock or other securities;
(c) authorize for issuance, issue, sell or deliver or agree or commit
to issue, sell, or deliver (whether through the issuance or granting of any
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any of its capital stock or any securities convertible into or exercisable or
exchangeable for shares of its capital stock, except the Company may, effective
as of Closing, amend its Amended and Restated 1995 Stock Option and Stock
Appreciation Rights Plan to provide that options granted to optionees prior to
the date of this Agreement may be exercised for a one (1) year period from the
following dates: (i) the date of termination of an optionee whose employment
with the Company is terminated without cause by the Company during the six (6)
month period commencing with Closing, (ii) the date of termination of an
optionee's employment whose employment with Company is terminated by employee
with "Good Reason" as defined in such employee's written employment agreement,
or, (iii) from the date of resignation of a director of the Company who resigns
at Closing; provided, that the form of any such amendment to such plan be
approved in writing by SFP.
(d) incur any material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual or
entity, or change any assumption underlying, or methods of calculating, any bad
debt, contingency or other reserve;
(e) enter into, adopt, or amend any employment agreement or Pension
Plan, or grant,
37
or become obligated to grant, any increase in the compensation payable or to
become payable to any of its officers or directors or any general increase in
the compensation payable or to become payable to its employees.
(f) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer, or purchase of properties or assets
of any Person;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against on the Company Financial Statements or
subsequently incurred in the ordinary course of business, or disclosed pursuant
to this Agreement;
(h) acquire (including by lease) any material assets or properties or
dispose of, mortgage or encumber any material assets or properties, other than
in the ordinary course of business;
(i) waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease, contract or
other document, other than in the ordinary course of business and consistent
with past practice; or
(j) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would at any time make any
representation or warranty in Article VII untrue or incorrect.
SECTION 9.10 INTENTIONALLY OMITTED.
SECTION 9.11 INTENTIONALLY OMITTED.
ARTICLE X
DEFAULTS; TERMINATION
SECTION 10.1. EVENTS OF DEFAULT. If one or more of the following events
(collectively, "EVENTS OF DEFAULT" and individually, an "EVENT OF DEFAULT")
shall have occurred and be continuing:
(a) the Company shall fail to pay when due any principal or
interest on the Note;
(2) the Company shall fail to pay when due any fees, expenses,
reimbursements, indemnification payments or other monetary
obligations when due under any of the Transaction Documents
and such failure shall continue for ten (10) days following
the due date of such payment;
(3) the Company or any of its Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or
38
its Debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail
generally to pay its Debts as they become due, or shall take
any corporate action to authorize any of the foregoing; or
(4) an involuntary case or other proceeding shall be commenced
against the Company or any of its Subsidiaries seeking
liquidation, reorganization or other relief with respect to it
or its Debts under any bankruptcy, insolvency or other similar
Law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or
an order for relief shall be entered against the Company under
the federal bankruptcy Laws as now or hereafter in effect;
then, so long as any such event is continuing, any Noteholder shall
without notice or demand of any kind (including, without limitation, notice of
intention to accelerate and acceleration) (unless any such notice is expressly
provided for herein or in the other Transaction Documents), all of which are
hereby waived, take any and all actions as may be permitted by the Transaction
Documents including, declaring the obligations in respect of the Note owned by
such Noteholder (including all accrued interest thereon) to be, and such
obligations shall thereupon become, immediately due and payable.
SECTION 10.2 TERMINATION. This Agreement may be terminated, whether
before or after approval of this Agreement by the stockholders of the Company,
at any time prior to the Closing:
(a) By mutual written consent of SFP and the Company;
(b) By SFP if (i) there has been a breach of the representations
and warranties made by the Company in this Agreement or (ii)
the Company has failed to comply in any material respect with
any of its covenants or agreements contained in this Agreement
and such failure has not been, or cannot be, cured within a
reasonable time after notice and demand for cure thereof;
(c) By the Company if (i) there has been a breach of the
representations and warranties made by SFP in this Agreement
or (ii) SFP has failed to comply in any material respect with
any of the its covenants or agreements contained in this
Agreement and such failure has not been, or cannot be, cured
within a reasonable time after notice and demand for cure
thereof;
SECTION 10.3. EFFECT OF TERMINATION. If this Agreement is terminated by
either the Company or SFP pursuant to the provisions of SECTION 10.2, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of any party hereto or its respective Affiliates, directors,
officers, or stockholders, except pursuant to, the provisions of Section 11.3;
provided, however, that a termination of this
39
Agreement shall not relieve any party hereto from any libility for damages
incurred as a result of a breach by such party of its representations,
warranties, covenants, agreements or other obligations hereunder occurring prior
to such termination.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex, telecopy
or similar writing) and shall be given to such party at its address, telex or
telecopy number set forth on the signature pages hereof or such other address,
telex or telecopy number as such party may hereafter specify for the purpose by
notice to the other party. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, when such telex or
telecopy is transmitted to the telex or telecopy number specified in this
SECTION 11.1 and the appropriate answer back is received or receipt is otherwise
confirmed, (ii) if given by mail, three (3) Business Days after deposit in the
mails with first class postage prepaid, addressed as aforesaid, or (iii) if
given by any other means, when delivered at the address specified in this
SECTION 11.1.
SECTION 11.2. NO WAIVERS. No failure or delay by any holder of
Securities in exercising any right, power or privilege hereunder or under any
other Transaction Document shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law or in any of the other Transaction Documents.
SECTION 11.3. EXPENSES; INDEMNIFICATION. (a) Except as provided in
SECTION 6.1(F), all expenses incurred in connection with this Agreement shall be
paid by the party incurring such expenses.
(b) The Company agrees to indemnify and hold harmless, SFP, its
shareholders and each subsequent holder of Securities and their respective
directors, officers, employees, agents, successors and assigns (collectively,
the "INDEMNIFIED PARTIES") from and against any and all liabilities, losses,
damages, costs and expenses of any kind (including, without limitation, the
reasonable fees and disbursements of counsel for the Indemnified Parties in
connection with any investigative, administrative or judicial proceeding,
whether or not any such Indemnified Party shall be designated a party thereto)
which may be incurred by any Indemnified Party relating to or arising out of (a)
this Agreement, the other Transaction Documents, the Closing Transactions and
all other transactions contemplated hereby or thereby.
(c) The Company further agrees to defend, indemnify and hold
harmless each Indemnified Party from and against any and all losses, liabilities
(including strict liability), damages (including for bodily injury and property
damage), costs, expenses (including attorneys' fees and environmental
consultants' expenses), relating to any of the properties or assets securing the
Obligations, that any Indemnified Party may incur in connection with any
Environmental Complaint or Hazardous Discharge or any violation of any
Environmental Law and Laws regardless of whether or not caused by, or within the
control
40
of, the Company, or any of its Subsidiaries as tenant, sub-tenant or prior owner
or occupant of any of the properties or assets securing the Obligations or any
properties owned or leased by other parties, and regardless of whether such
claim is brought by Governmental Authorities or private parties. This indemnity
shall survive the repayment of the Obligations and the discharge or release of
any Lien granted hereunder or in any other Transaction Document.
(d) (i) Promptly after receipt by an Indemnified Party of
notice of the commencement of any action, suit or other proceeding against an
Indemnified Party with respect to which an Indemnified Party demands
indemnification hereunder, such Indemnified Party shall promptly notify the
Company in writing of the commencement thereof, provided that the failure to so
notify the Company shall not relieve it from any liability that it may have to
an Indemnified Party, except to the extent that such failure has materially
prejudiced the Company's ability to provide a defense in the proceeding. The
Company shall have the right to assume the defense of any such proceeding, but
the Indemnified Parties collectively shall have the right, at the expense of the
Company, to retain not more than one counsel of their choice to represent the
Indemnified Parties in such proceeding. The counsel for the Indemnified Parties
may participate in, but not control, the defense of such proceeding.
(ii) The indemnity provided for herein shall cover the
amount of any settlements entered into by an Indemnified Party in connection
with any claim for which an Indemnified Party may be indemnified hereunder;
provided that, no settlement binding on an Indemnified Party may be made without
the consent of an Indemnified Party and the Company (which consent shall not be
reasonably withheld).
(iii) Any indemnification hereunder shall be made no later
than 45 days after receipt by the Company of the written request of the
Indemnified Party.
THE PARTIES RECOGNIZE THAT AN INDEMNITEE MAY BE ENTITLED TO
INDEMNIFICATION HEREUNDER FROM ACTS OR OMISSIONS THAT ARISE OUT OF OR RESULT
FROM THE ORDINARY, STRICT, SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNITEE.
(e) SFP hereby covenants and agrees with the Company that SFP
shall indemnify the Company and hold it harmless from, against and in respect of
any and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses (including interest which may be imposed in connection therewith and
court costs and reasonable fees and disbursements of counsel) incurred by it
resulting from any misrepresentation, breach of warranty or nonfulfillment of
any agreement, covenant or obligation by SFP made in this Agreement (including
without limitation any certificate or instrument delivered in connection
herewith.
SECTION 11.4. AMENDMENTS AND WAIVERS; SALE OF INTEREST. Any provision
of this Agreement and the other Transaction Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and (a) the Majority Noteholder and (b) the Majority Warrant Holder. The
Company hereby consents to any participation, sale, assignment, transfer or
other disposition which complies with ARTICLE V, at any time or times hereafter,
of any Securities, this Agreement and any of the other Transaction Documents, or
of any portion hereof or thereof, including, without limitation,
41
SFP's rights, title, interests, remedies, powers, and duties hereunder or
thereunder, subject to compliance with applicable Laws and the provisions of the
Compass Senior Debt Documents subject to the requirement that any such assignee,
transferee or purchaser shall agree in writing to become bound by the terms of
this Agreement and the other Transaction Documents.
SECTION 11.5. SURVIVAL. All representations, warranties and covenants
made by the Company herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by SFP and shall survive the delivery to SFP of such
Transaction Documents and the purchase of the Securities, regardless of any
investigation made by or on behalf of SFP. All representations, warranties and
covenants made by SFP herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by the Company and shall survive the delivery to the
Company of such Transaction Documents and the purchase of the Securities,
regardless of any investigation made by or on behalf of the Company.
SECTION 11.6. LIMITATION ON INTEREST. Regardless of any provision
contained in the Transaction Documents, no Noteholder shall ever be entitled to
receive, collect, or apply, as interest on the Note, any amount in excess of the
Maximum Lawful Rate, and in the event any Noteholder ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Note is paid in full, any remaining excess shall promptly be
paid to the Company. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Lawful Rate, the Company and
the Noteholder shall, to the extent permitted under applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate and spread, in equal parts, the total amount of the
interest throughout the entire contemplated term of the Note, so that the
interest rate is the Maximum Lawful Rate throughout the entire term of the Note;
PROVIDED, HOWEVER, that, if the unpaid principal balance thereof is paid and
performed in full prior to the end of the full contemplated term thereof, and if
the interest received for the actual period of existence thereof exceeds the
Maximum Lawful Rate, the Noteholder shall refund to the Company the amount of
such excess and, in such event, the Noteholder shall not be subject to any
penalties provided by any Laws for contracting for, charging, taking, reserving
or receiving interest in excess of the Maximum Lawful Rate.
SECTION 11.7. INVALID PROVISIONS. If any provision of the Transaction
Documents is held to be illegal, invalid, or unenforceable under present or
future Laws effective during the term thereof, such provision shall be fully
severable, the Transaction Documents shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part thereof,
and the remaining provisions thereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of the
Transaction Documents a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 11.8. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the
42
Company may not assign or otherwise transfer any of its rights or obligations
under this Agreement.
SECTION 11.9. GOVERNING LAW. THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS.
SECTION 11.10. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 11.11. NO THIRD PARTY BENEFICIARIES. Except as provided in
SECTION 11.3, it is expressly intended that there shall be no third party
beneficiaries of the covenants, agreements, representations or warranties herein
contained other than transferees or assignees of all or any part of SFP's
interest hereunder.
SECTION 11.12. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 11.13. SUBMISSION TO JURISDICTION; WAIVER OF SERVICE AND VENUE.
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY SFP WITH RESPECT TO THIS AGREEMENT OR
ANY OF THE OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE
OF TEXAS, COUNTY OF DALLAS, OR IN THE FEDERAL COURTS LOCATED IN THE NORTHERN
DISTRICT OF TEXAS, AS SFP MAY SELECT IN ITS SOLE DISCRETION. THE COMPANY HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY
SUCH SUIT, ACTION OR PROCEEDING. THE COMPANY HEREBY IRREVOCABLE WAIVES ANY
OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS,
COUNTY OF DALLAS, AND HEREBY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN ANY INCONVENIENT FORUM.
SECTION 11.14. WAIVER OF RIGHT TO TRIAL BY JURY. SFP AND THE COMPANY
EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT, ANY TRANSACTION DOCUMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN
43
RESPECT TO THIS AGREEMENT. SFP AND THE COMPANY EACH AGREE THAT THE OTHER MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 11.15. PUBLIC ANNOUNCEMENTS. Except as may be required by
applicable Law or this Section, SFP shall not issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the
Company (which consent shall not be unreasonably withheld). Any such press
release or public statement required by applicable Law shall only be made after
reasonable notice to the other party. Upon execution of this Agreement, the
Company shall make a press release in a form previously approved by SFP and
promptly file a report on Form 8-K with the Commission.
44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective Authorized Officers on the day and year first above
written.
COMPANY:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ Xxxx X. Xxxxxxx
Name: Xxxx X. Xxxxxxx
------------------------
Title: President
------------------------
Address for Notice:
Middle Bay Oil Company, Inc.
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Fax: (000) 000-0000
XXXXXXXXX FAMILY PARTNERS, LP
By: /s/ Xxxxx X. Xxxxxxxxx
-------------------------
Name: Xxxxx X. Xxxxxxxxx
-------------------------
Title: Attorney in Fact
-------------------------
Address for Notice:
Xxxxxxxxx Family Partners, LP
00 Xxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
45
EXHIBIT A
SENIOR SUBORDINATE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO A VALID EXEMPTION COVERING SUCH
TRANSFER.
$50,000 Dallas, Texas __________________, 1999
FOR VALUE RECEIVED, the undersigned, MIDDLE BAY OIL COMPANY, INC, an
Alabama corporation ("MAKER" or the "COMPANY") hereby promises to pay to the
order of XXXXXXXXX FAMILY PARTNERS, LP, a New Jersey limited partnership
("PAYEE"), not later than 2:00 P.M. (Dallas, Texas time), on the date when due,
in Federal or other funds immediately available in Dallas, Texas, at Payee's
offices at 00 Xxxxxxxxx Xxxx, Xxxxxxxx, XX 00000 or such other address, given to
Maker by Payee, the principal sum of FIFTY THOUSAND AND NO/100 DOLLARS
($50,000), together with interest, as hereinafter described. Whenever any
payment of principal of, or interest on, this Note shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for payment of principal is extended
by operation of law or otherwise, interest thereon shall be payable for such
extended time.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Securities Purchase Agreement
dated of even date herewith, by and between Maker and Payee (the "AGREEMENT").
This Note is the "Note" referred to in the Agreement. Unless otherwise defined
herein or unless the context hereof otherwise requires, each term used herein
with its initial letter capitalized has the meaning given to such term in the
Agreement.
This Note shall rank senior in right of payment to all Company notes
and indebtedness other than the Compass Senior Debt. This Note shall rank pari
passu with the 3TEC Note and that certain Senior Subordinate $100,000 Promissory
Note dated of even date herewith payable to the order of Shoeinvest II, LP, a
New Jersey limited partnership, without any preference or priority one over
another.
Maker reserves the right to prepay without premium or penalty, after
thirty (30) days prior written notice to the Noteholder, the principal amount of
the Note, in whole or in part, at any time after _______________, 2001.
Maker promises to pay interest on the outstanding principal balance
hereof, prior to the occurrence of an Event of Default, at a rate per annum
equal to the lesser of (a) the Fixed Rate or (b) the Maximum Lawful Rate, in
Federal or other funds immediately available in Dallas, Texas, at the offices
of Payee above referenced. Interest shall accrue on the principal balance of the
Note outstanding from time to time at the Fixed Rate; PROVIDED, that, interest
shall accrue on any amounts past due and owing on the Note from the date due
until paid at the Default Rate; PROVIDED FURTHER, that in no event shall the
rate of interest charged hereunder exceed the Maximum Lawful Rate. Interest
shall be payable on the Note as it accrues on December 1, 1999 and continuing on
each March 1, June 1, September 1, and December 1 thereafter until maturity.
Whenever
any payment of principal of, or interest on, the Note shall be due on a
day which is not a Business Day, the date for payment thereof shall be extended
to the next succeeding Business Day.
With respect to the first eight (8) quarterly interest payments
payable hereunder commencing with the first such quarterly interest payment, the
Company may, at least thirty (30) days prior to the subject payment date, elect
to accrue and add to the principal of the Note up to fifty percent (50%) of the
interest payment due and payable on such interest payment date. If such an
election is made, the Company shall notify the Noteholder of the portion (up to
50%) of such quarterly interest payment which the Company elects to accrue and
add to the principal of the Note.
Interest shall be computed on the Note on the basis of the number of
actual days elapsed, assuming that each calendar year consisted of 360 days. The
entire outstanding principal balance of this Note and all accrued but unpaid
interest thereon shall be due and payable in full in a single installment on
___________________, 2004.
A Noteholder may elect to convert all or any portion of the amount of
principal and accrued but unpaid interest on the Note as hereinafter provided.
Each $3.00 (the "Conversion Price") of principal and accrued but unpaid interest
on the Note shall be convertible into one share of Common Stock. The Conversion
Price is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below:
1. In the event that the Company shall (a) declare a
dividend on the Common Stock in shares of its capital
stock (whether shares of such Common Stock or of
capital stock of any other class of the Company), (b)
split or subdivide the outstanding Common Stock, or
(c) combine the outstanding Common Stock into a
smaller number of shares, then (as a result of an
event described in (a), (b) or (c)) the Conversion
Price shall be adjusted to equal the product of the
Conversion Price in effect immediately prior to such
event multiplied by a fraction the numerator of which
is equal to the number of shares of Common Stock
outstanding on a Fully Diluted Basis (as defined
below) immediately after the event and the
denominator of which is equal to the number of shares
of Common Stock outstanding on a Fully Diluted Basis
immediately prior to such event.
[Remainder of this page intentionally blank]
2. In the event that the Company shall (a) issue any
shares of Common Stock without consideration or at a
price per share less than the Conversion Price
immediately prior to such issuance, or (b) issue
options, rights or warrants to subscribe for or
purchase such Common Stock (or securities convertible
into such Common Stock) without consideration or at a
price per share (or having a conversion price per
share, if a security convertible into such Common
Stock) less than the Conversion Price, then,
effective upon such issuance, the Conversion Price
shall be adjusted to equal the product obtained by
multiplying the Conversion Price in effect
immediately prior to the date of such issuance by a
fraction, the numerator of which shall be the number
of shares of Common Stock outstanding on a Fully
Diluted Basis immediately prior to such issuance PLUS
the number of shares of Common Stock which the
aggregate offering price of the total number of
shares of such Common Stock so to be issued or to be
offered for subscription or purchase (or the
aggregate initial conversion price of the convertible
securities so to be offered) would purchase at the
Conversion Price immediately prior to such issuance,
and the denominator of which shall be the number of
shares of Common Stock outstanding on a Fully Diluted
Basis immediately after such issuance. In case such
consideration may be paid in a consideration part or
all of which shall be in a form other than cash, the
value of such consideration shall be as determined by
an investment banking firm reasonably acceptable to
the Noteholder (the cost of the engagement of said
investment banking firm to be borne by the Company).
Shares of such Common Stock owned by or held for the
account of the Company or any Subsidiary thereof
shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made
successively whenever the date of such issuance is
fixed (which date of issuance shall be the record
date for such issuance if a record date therefor is
fixed); and, in the event that such shares or
options, rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the
Conversion Price if the date of such issuance had not
been fixed.
3. In case the Company shall make a distribution to all
holders of Common Stock (including any such
distribution made in connection with a consolidation
or merger in which the Company is the surviving
corporation) of shares of it stock, evidences of its
indebtedness, assets, or rights, options or warrants
(other than those referred to in paragraph 2 above)
to subscribe for or purchase such shares, evidences
of indebtedness, or assets, then, effective upon such
distribution, the Conversion Price shall be adjusted
to equal the product obtained by multiplying the
Conversion Price in effect immediately prior to the
date of such distribution by a fraction, the
numerator of which shall be the Per Share Stock Price
for the trading day immediately preceding the day of
distribution ("Pre-Distribution Price") less the fair
market value of the distribution (as determined in
good faith by the Board of Directors of the Company)
applicable to one share of Common Stock, and the
denominator of which shall be the Pre-Distribution
Price. Such adjustment shall be made successively
whenever a date for such distribution is fixed (which
date of distribution shall be the record date for
such issuance if a record date therefor is fixed);
and, if such distribution is not so made, the
Conversion Price shall again be adjusted to be to be
the Conversion Price if the date of such issuance had
not been
fixed.
4. No adjustment in the Conversion Price shall be
required unless such adjustment would require an
increase or decrease of at least one-tenth of one
percent (.1%) in the total number of shares of Common
Stock that would be issued as a result of the
conversion of all the Note; PROVIDED that any
adjustments which by reason of this section are not
required to be made shall be carried forward and
taken into account in any subsequent adjustment. All
calculations under this section shall be made to the
nearest hundredth of one percent.
5. In the event of any capital reorganization of the
Company, or of any reclassification of any Common
Stock for which the Note is convertible (other than a
subdivision or combination of outstanding shares of
such Common Stock), or in case of the consolidation
of the Company with or the merger of the Company with
or into any other corporation or of the sale of the
properties and assets of the Company as, or
substantially as, an entirety to any other entity,
each $3.00 of principal and unpaid interest
outstanding of the Note shall after such capital
reorganization, reclassification of such Common
Stock, consolidation, merger or sale be convertible,
upon the terms and conditions specified in this
Agreement, into the number of shares of stock or
other securities or assets to which a holder of the
number of shares of Common Stock into which amount of
principal and interest payable under the Note is
convertible (at the time of such capital
reorganization, reclassification of such Common
Stock, consolidation, merger or sale) would have been
entitled upon such capital reorganization,
reclassification of such Common Stock, consolidation,
merger or sale; and in any such case, if necessary,
the provisions set forth in this section with respect
to the rights thereafter of such Note shall be
appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock
or other securities or assets thereafter deliverable
upon the conversion of the Note. The Company shall
not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the
consummation thereof, the successor corporation (if
other than the Company) resulting from such
consolidation or merger or the corporation purchasing
such assets or the appropriate corporation or entity
shall assume, by written instrument, the obligation
to deliver to the Noteholder the shares of stock,
securities or assets to which, in accordance with the
foregoing provisions, such Noteholder may be entitled
pursuant to this section.
6. If any question shall at any time arise with respect
to the Conversion Price or the number of shares
issuable upon conversion of the Note, such question
shall be determined by the independent firm of
certified public accountants of recognized national
standing selected by the Noteholder and acceptable to
the Company.
7. Notwithstanding anything in this section to the
contrary, the Company shall not be permitted to take
any action described in this section, if such action
is prohibited under any other provision of this Note
or the Agreement.
If a Noteholder elects to convert all or a portion of the outstanding
principal and accrued and unpaid interest under the Note, then the Noteholder
shall deliver the Note to the Company in exchange for an amended and restated
note setting forth the new amount of principal and accrued and unpaid interest.
Upon such exchange, the Company shall promptly issue and deliver, or cause to be
issued and delivered, to the Noteholder a certificate or certificates for the
number of whole shares of Common Stock to which the Noteholder is entitled under
the terms hereof. To the extent permitted by law, such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such exchange of the Notes for the amended and restated note and Conversion
Shares, and the Noteholder shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
No fractional shares or script of Common Stock shall be issued upon
conversion of all or a portion of the outstanding principal and accrued unpaid
interest of the outstanding principal and accrued unpaid interest under the
Note. In lieu of a fractional share of Common Stock to which the holder would
otherwise be entitled, the Company shall pay cash equal to the product of such
fraction multiplied by the market value of one share of Common Stock on the date
of conversion.
Upon the occurrence and during the continuance of an Event of Default,
and upon the conditions stated in the Agreement, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided that, upon the occurrence of certain
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice, demand, or presentment, all of
which are hereby waived, and the holder hereof shall have the right to offset
against this Note any sum or sums owed by the holder hereof to Maker. After the
occurrence of an Event of Default, interest shall accrue on the outstanding
principal balance of this Note and, to the extent permitted by applicable Law,
on accrued but unpaid interest, at the lesser of (a) the Default Rate or (b) the
Maximum Lawful Rate.
After the occurrence of an Event of Default, all amounts collected or
received by any Noteholder in respect of the Obligations shall be applied first,
to the payment of all proper costs incurred by the Noteholder in connection with
the collection thereof (including reasonable fees, expenses and disbursements of
counsel for the Noteholder), second, to the reimbursement of any advances made
by Noteholder to effect performance of any unperformed covenants of the Company
under any of the Transaction Documents, third, to the payment of all accrued
interest on the Note, fourth, to unpaid principal on the Note, and fifth to the
Company or any other Person entitled to such proceeds under applicable Law.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay the court
costs, reasonable attorneys' fees, and other costs of collection of the holder
hereof.
Maker, and each surety, endorser, guarantor, and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, protest, notice of protest
and nonpayment, and notice of acceleration and the intention to accelerate, and
agree that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Note, and hereby consent to
any and all renewals, extensions, indulgences, releases, or changes, regardless
of the number of such renewals,
extensions, indulgences, releases or changes.
THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
MIDDLE BAY OIL COMPANY, INC.
By:
----------------------------
Name: Xxxx X. Xxxxxxx
Title: President
EXHIBIT "B"
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as of
________________, 1999, is entered into by and among MIDDLE BAY OIL COMPANY,
INC., an Alabama corporation ("Corporation") and the parties listed on Schedule
1 attached hereto and incorporated herein by reference (each of such parties are
referred to individually as "Shareholder" and collectively, as "Shareholders")
and the parties listed on Schedule 2 attached hereto and incorporated herein by
reference (each of such parties are referred to individually as "Piggy-Back
Shareholder" and collectively, as "Piggy-Back Shareholders").
RECITALS
WHEREAS, pursuant to those Securities Purchase Agreements by and
between Corporation and each of the Shareholders executed on ______________,
1999 (the "Purchase Agreements"), each Shareholder will receive the number of
shares of Common Stock, Notes and Warrants as set forth on Schedule 1.
WHEREAS, each of the Piggy-Back Shareholders currently owns shares of
Common Stock as set forth on Schedule 2.
WHEREAS, as a condition to the Purchase Agreements, Corporation has
agreed to grant to Shareholders certain registration rights with respect to
their Registrable Securities (defined hereafter) and has agreed to grant the
Piggy-Back Shareholders certain registration rights with respect to their
Piggy-Back Registrable Securities (defined hereafter).
WHEREAS, all the terms used but not defined in this Agreement shall
have the meaning ascribed to them in the Purchase Agreements.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the recitals above
or the subsections referred to below.
"Piggy-Back Registrable Securities" shall mean (i) the shares of Common
Stock owned by each Piggy-Back Shareholder as listed on Schedule 2 (ii) the
shares of Common Stock owned by each Piggy-Back Shareholder during the term of
this Agreement as a result of the conversion of the shares of the Company's
Series B Convertible Preferred Shares as listed on Schedule 2, and (iii) any
securities issued or issuable with respect to the shares described in clauses
(i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Registrable Securities" shall mean (i) the shares of Common Stock
issued to the Shareholders pursuant to the Purchase Agreements (which, for
purposes hereof, shall mean the Common Stock Shares, the Warrant Shares and the
Conversion Shares as defined in the Purchase Agreements) and (ii) any securities
issued or issuable with respect to the shares described in clause (i) above by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
Section 2. INDEPENDENT REGISTRATION RIGHTS.
2.1 The Corporation hereby grants to each Shareholder separate rights
to require the Corporation to use its best efforts to cause registration and
sale in a public offering of all or a portion of such Shareholder's Registrable
Securities in accordance with this Section 2; provided, however, the Corporation
shall not have any obligation to effect more than a total of three (3) effective
registrations pursuant to this Section 2 at the Corporation's expense. If the
Corporation shall have received a written request submitted by Shareholder(s)
owning at least a majority of the Registrable Securities outstanding at the time
of such request (the "Requisite Holders") that such Shareholder(s)
desires/desire to sell Registrable Securities and specifying the number of
Registrable Securities proposed to be sold (for the purposes of this Section 2,
"Shares") and the proposed plan for distribution of the Shares, Corporation will
thereafter:
2.1.1 Give prompt (but in any event within fifteen (15) days after
the receipt of the Requisite Holder(s)' notice) notice to all other Shareholders
of such notice and of such other Shareholders' rights to have their Registrable
Securities included in such registration.
2.1.2 Upon the request of any such Shareholder made within fifteen
(15) days after the receipt by such Shareholder of any such notice given
pursuant to subsection 2.1.1 (which request shall specify the Registrable
Securities intended to be disposed of by such Shareholder and the intended
method or methods of disposition thereof), the Corporation will use its best
efforts to effect the registration of all Shares which the Corporation has been
so requested to register pursuant to this subsection 2.1.
2.1.3 Prepare and file as soon as practicable, but in no event
later than thirty (30) days from Corporation's receipt of the last Shareholder's
request to have such Shareholder's Registrable Securities included in such
registration within the time period specified in Section 2.1.2, a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
("Registration Statement") with the Securities Exchange Commission
("Commission") on Form S-1 (or Form S-2 or Form S-3, if Corporation is entitled
to use such forms, or similar forms available for use by small business issuers)
and use its best efforts to cause such Registration Statement to become
effective in order that the Shareholders may sell the Shares in accordance with
the proposed plan of distribution.
2.1.4 Prepare and file with the Commission such amendment and
supplements to such Registration Statement and prospectus used in connection
therewith including any preliminary prospectus or supplemental or amended
prospectus (the "Prospectus") as may be necessary to keep such Registration
Statement continuously effective and to comply with the provisions of the
Securities Act with respect to the offer of the Shares during the period
required for distribution of the Shares, which period shall not be in excess of
the earlier of (i) one year from the effective date of such Registration
Statement, and (ii) the distribution of all Shares covered by such Registration
Statement.
2.1.5 Furnish to each Shareholder such number of copies of the
Prospectus (including any preliminary prospectus or supplemental or amended
prospectus) as such Shareholder may reasonably request in order to facilitate
the sale and distribution of the Shares.
2.2 The right of each Shareholder to register Shares pursuant to the
provisions of this Section 2 shall be subject to the condition that if a request
for registration is made within sixty (60) days prior to the conclusion of
Corporation's then current fiscal year, Corporation shall have the right to
delay the filing of the Registration Statement for such period of time until
Corporation receives its audited financial statements for such fiscal year.
2.3 If the Requisite Holder(s) intend/intends to distribute the
Registrable Securities covered by the notice pursuant to subsection 2.1 by means
of an underwriting, the Requisite Holder(s) shall so advise the Corporation as a
part of the notice made pursuant to subsection 2.1 and provide the name of the
managing underwriter or underwriters that the Requisite Holder(s)
proposes/propose to employ in connection with the public offering proposed to be
made pursuant
to the registration requested. If the managing underwriter of such underwritten
offering shall inform the Corporation and the Shareholders requesting that their
Shares be registered pursuant to this Section 2 by letter of its belief that the
amount of Shares requested to be included in such registration exceeds the
amount which can be sold in (or during the time of) such offering within a price
range acceptable to the Requisite Holders, then the Corporation will include in
such registration such amount of Shares which the Corporation is so advised can
be sold in (or during the time of) such offering PRO RATA on the basis of the
amount of such Shares so proposed to be sold and so requested to be included by
such parties.
2.4 A registration shall not be deemed to have been effected (i)
unless it has become effective and remained effective for the period specified
in subsection 2.1.4, (ii) if, after it has become effective, such registration
is terminated by a stop order, injunction or other order of the Commission or
other governmental agency or court, or (iii) if the conditions to closing
specified in any purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied for any reason, other than
as a result of the voluntary termination of such offering by the Requisite
Holders.
Section 3. PIGGY-BACK REGISTRATION RIGHTS.
3.1 If Corporation proposes to file, on its behalf, a Registration
Statement under the Securities Act on Form X-0, X-0 or S-3 or similar forms
available for use by small business issuers, other than pursuant to Section 2 of
this Agreement or in connection with a dividend reinvestment, employee stock
purchase, option or similar plan or in connection with a merger, consolidation
or reorganization, Corporation shall give written notice to each Shareholder and
Piggy-Back Shareholder at least thirty (30) days before the filing with the
Commission of such Registration Statement. Such notice shall offer to include in
such filing all or a portion of the Registrable Securities and Piggy-Back
Registrable Securities owned by such Shareholder or Piggy-Back Shareholder. If a
Shareholder or Piggy-Back Shareholder desires to include all or a portion of
its Registrable Securities or Piggy-Back Registrable Securities in such
Registration Statement, it shall give written notice to Corporation within
fifteen (15) days after the date of mailing of such offer specifying the amount
of Registrable Securities and/or Piggy-Back Registrable Securities to be
registered (for the purpose of this Section 3, "Shares"). Corporation shall
thereupon include in such filing the Shares, subject to priorities in
registration set forth in this Agreement, and subject to its right to withdraw
such filing, and shall use its best efforts to effect registration under the
Securities Act of the Shares.
3.2 The right of the Shareholders and the Piggy-Back Shareholders to
have the Shares included in any Registration Statement in accordance with the
provisions of this Section 3 shall be subject to the following conditions:
3.2.1 Corporation shall have the right to require that each
Shareholder or Piggy-Back Shareholder agree to refrain from offering or selling
any shares of Common Stock that it owns which are not included in any such
Registration Statement in accordance with this Section 3 for any reasonable time
period specified, not to exceed ninety (90) days, by any managing underwriter of
the offering to which such Registration Statement relates.
3.2.2 If (i) a registration pursuant to this Section 3 involves an
underwritten offering of the securities being registered to be distributed (on a
firm commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction and (ii)
the managing underwriter of such underwritten offering shall inform the
Corporation and the Shareholders and Piggy-Back Shareholders who have requested
that their Shares be registered pursuant to this Section 3 by letter of its
belief that the amount of Shares requested to be included in such registration
exceeds the amount which can be sold in (or during the time of) such offering
within a price range acceptable to a majority of such requesting holders, then
the Corporation will include in such registration such amount of securities
which the Corporation is so advised can be sold in (or during the time of) such
offering as follows: FIRST, the securities being offered by the Corporation for
its own account; SECOND such Shares of the Shareholders which are requested to
be included in such registration PRO RATA on the basis of the amount of such
Shares
so proposed to be sold and so requested to be included by such Shareholders;
and THIRD, such Shares of the Piggy-Back Shareholders and which are requested
to be included in such registration PRO RATA on the basis of the amount of
such Shares so proposed to be sold and so requested to be included by such
Piggy-Back Shareholders.
3.2.3 Corporation shall furnish each Shareholder and Piggy-Back
Shareholder with such number of copies of the Prospectus as such Shareholder or
Piggy-Back Shareholder may reasonably request in order to facilitate the sale
and distribution of its shares.
3.3 Notwithstanding the foregoing, Corporation in its sole discretion
may determine not to file the Registration Statement or proceed with the
offering as to which the notice specified herein is given without liability to
the Shareholders or the Piggy-Back Shareholders.
Section 4. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Shareholder
or Piggy-Back Shareholder may participate in any registration hereunder which
relates to an underwritten offering unless such Shareholder or Piggy-Back
Shareholder (a) agrees to sell such holder's securities on the basis provided in
any underwriting arrangements approved by the holders of at least a majority of
the Registrable Securities and Piggy-Back Registrable Securities to be included
in such registration, or by a Person appointed by such holders to act on their
behalf to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
Section 5. EXCLUSIVE REGISTRATION RIGHTS AND TRANSFER.
The rights of each Shareholder under this Agreement may upon notice to
the Corporation be transferred to its respective Affiliates in combination with
a transfer of shares to such Affiliates. In addition, the rights of each
Shareholder under this Agreement may upon notice to the Corporation be
transferred to a non-Affiliate transferee in combination with a transfer of
shares to such non-Affiliate transferee. However, such non-Affiliate transferee
may not thereafter transfer its rights under this Agreement without the
Corporation's written consent. Except as provided in this Section 5, the rights
granted under this Agreement are granted specifically to and for the benefit of
each Shareholder and Piggy Back Shareholder and shall not pass to any transferee
of Registrable Securities. From and after the date of this Agreement, the
Corporation will not, without the prior written consent of Shareholders holding
at least a majority of the Registrable Securities then outstanding, enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Shareholders in this Agreement. Without
limiting the foregoing, the Corporation also specifically agrees that during the
period commencing on the date hereof and ending when the Shareholders have
disposed of all of their Registrable Securities, the Corporation will not enter
into an agreement with any party pertaining to the registration by the
Corporation of such party's Common Stock. The Corporation represents and
warrants to each of the Shareholders that, as of the date hereof, the
Corporation is not a party to any agreement, other than this Agreement,
pertaining to the registration by the Corporation of Common Stock.
Section 6. EXPENSES. Corporation will bear all the expenses in
connection with any Registration Statement under this Agreement, other than
transfer taxes payable on the sale of such shares, the fees and expenses of
counsel to the Shareholders and Piggy-Back Shareholders and fees and commissions
of brokers, dealers and underwriters.
Section 7. RECALL OF PROSPECTUSES, ETC. With respect to a Registration
Statement or amendment thereto filed pursuant to this Agreement, if, at any
time, Corporation notifies the Shareholders and Piggy-Back Shareholders that an
amendment or supplement to such Registration Statement or amendment to the
Prospectus included therein is necessary or appropriate, each Shareholder and
Piggy-Back Shareholder will forthwith cease selling and distributing shares
thereunder and will forthwith redeliver to Corporation all copies of such
Registration Statement and Prospectuses
then in its possession or under its control. Corporation will use its best
efforts to cause any such amendment or supplement to become effective as soon as
practicable and will furnish each Shareholder and Piggy-Back Shareholder with a
reasonable number of copies of such amended or supplemented prospectus (and the
period during which Corporation is required to use its best efforts to maintain
such Registration Statement in effect pursuant to this Agreement will be
increased by the period from the date on which such Shareholder or Piggy-Back
Shareholder ceased selling and distributing shares thereunder to the date on
which such amendment or supplement becomes effective).
Section 8. COOPERATION WITH EXISTING SHAREHOLDERS. Corporation shall be
entitled to require the Shareholders and Piggy-Back Shareholders to cooperate
with Corporation in connection with a registration of Registrable Securities
pursuant to this Agreement and furnish (i) such information as may be required
by Corporation or the Commission in connection therewith and (ii) such
representations, undertakings and agreements as may be required by the
Commission in connection therewith.
Section 9. REGISTRATION PROCEDURES Upon the receipt of a request for
registration of any Registrable Securities pursuant to Section 2 or Section 3 of
this Agreement, Corporation will use its best efforts to effect the registration
of the Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto Corporation will as expeditiously as
possible:
9.1.1 Prepare and file with the Commission a registration statement on
an appropriate form under the Securities Act and use its best efforts to cause
such registration statement to become effective; provided, that before filing a
registration statement or prospectus or any amendments or supplements thereto,
including documents incorporated by reference after the initial filing of any
registration statement, Corporation will promptly furnish to the holders of
Registrable Securities and Piggy-Back Registrable Securities to be registered
and sold pursuant to this Agreement (the "Registered Holders") and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of the Registered Holders and the
underwriters, and Corporation will not file any registration statement or
amendment thereto, or any prospectus or any supplement thereto (including such
documents incorporated by reference) to which the Registered Holders or the
underwriters, if any, shall reasonably object in the light of the requirements
of the Securities Act and any other applicable laws and regulations.
9.1.2 Prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration statement effective for the applicable period; cause the
related prospectus to be filed pursuant to Rule 424(b) (or any successor
provision) under the Securities Act; cause such prospectus to be supplemented by
any required prospectus supplement and, as so supplemented, to be filed pursuant
to Rule 424(b) (or any successor provision) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during the applicable period
in accordance with the intended methods of disposition set forth in such
registration statement or supplement to such prospectus.
9.1.3 Notify the Registered Holders and the managing underwriters, if
any, promptly, and (if requested by any such person) confirm such advice in
writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceeding for that purpose,
(iv) if at any time the representations and warranties of Corporation
contemplated by subsection 9.1.10 cease to be true and correct, (v) of the
receipt by Corporation of any notification with respect to the suspension or
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (vi) of the happening of
any event which requires the making of any changes in a registration statement
or related prospectus so that such documents
will not contain any 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 and (vii) of Corporation's reasonable determination that
a post-effective amendment to a registration statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such registration statement inadvisable pending such
disclosures and post-effective amendment.
9.1.4 Make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment.
9.1.5 If requested by the managing underwriters or the Registered
Holders in connection with an underwritten offering, immediately incorporate in
a prospectus supplement or post effective amendment such information as the
managing underwriters and the Registered Holders agree should be included
therein relating to such sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of shares
of Registrable Securities being sold to such underwriters and the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement if
requested by the Registered Holders or any underwriter of such Registrable
Securities.
9.1.6 Furnish to the Registered Holders and each managing underwriter,
if any, without charge, at least one signed copy of the registration statement,
any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
9.1.7 Deliver without charge to the Registered Holders and the
underwriters, if any, as many copies of the prospectus or prospectuses
(including each preliminary prospectus) and any amendment or supplement thereto
as such persons may reasonably request; and Corporation consents to the use of
such prospectus or any amendment or supplement thereto by such Registered
Holders and the underwriters, if any, in connection with the offer and sale of
the Registrable Securities covered by such prospectus or any amendment or
supplement thereto.
9.1.8 Prior to any public offering of Registrable Securities, register
or qualify or cooperate with the Registered Holders, the underwriters, if any,
and respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Registered Holders or an underwriter
reasonably requests in writing; keep each such registration or qualification
effective during the period such registration statement is required to be kept
effective and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable registration statement; PROVIDED, HOWEVER, that
Corporation will not be required in connection therewith or as a condition
thereto to qualify generally to do business or subject itself to general service
of process in any such jurisdiction where it is not then so subject.
9.1.9 Upon the occurrence of any event contemplated by subsection 9.1.3
(ii) - (vii) above, prepare, to the extent required, a supplement or
post-effective amendment to the applicable registration statement or related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchaser of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
9.1.10 Enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities to
be covered by such registration are to be offered in an underwritten offering:
(i) make such representations and warranties to the Registered Holders to the
registration statement, prospectus and documents incorporated by reference, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to Corporation and updates thereof
with respect to the registration statement and the prospectus in the form, scope
and substance which are customarily delivered in underwritten offerings; (iii)
in the case of an underwritten offering, enter into an underwriting agreement in
form, scope and substance as is customary in underwritten offerings and obtain
opinions of counsel to Corporation and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters and the Registered Holders) addressed to the Registered
Holders and the underwriters, if any, covering the matters customarily covered
in opinions delivered in underwritten offerings and such other matters as may be
reasonably requested by the Registered Holders and such underwriters; (iv)
obtain "cold comfort" letters and updates thereof from Corporation's independent
certified public accountants addressed to the Registered Holders and the
underwriters, if any, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters by accountants in
connection with underwritten offerings; (v) if any underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures customarily included in underwriting agreements in underwritten
offerings; and (vi) Corporation shall deliver such documents and certificates as
may be requested by the Registered Holders and the managing underwriters, if
any, to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by Corporation. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder.
9.1.11 Make available for inspection by a representative of the
Registered Holders, any underwriter participating in any disposition pursuant to
such registration, and any attorney or accountant retained by the Registered
Holders or such underwriter, all financial and other records, pertinent
corporate documents and properties of Corporation, and cause Corporation's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such registration; provided that any records, information or documents that
are designated by Corporation in writing as confidential shall be kept
confidential by such Persons unless disclosures of such records, information or
documents is required by court or administrative order.
9.1.12 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders earning statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
offering and (ii) beginning with the first day of Corporation's first fiscal
quarter next succeeding each sale of Registrable Securities after the effective
date of a registration statement, which statements shall cover said 12-month
periods.
9.1.13 If Corporation, in the exercise of its reasonable judgment,
objects to any change reasonably requested by the Registered Holders or the
underwriters, if any, to any registration statement or prospectus or any
amendments or supplements thereto (including documents incorporated or to be
incorporated therein by reference) as provided for in this Section 9,
Corporation shall not be obligated to make any such change and such Registered
Holders may withdraw their Registrable Securities from such registration, in
which event (i) Corporation shall pay all registration expenses (including its
counsel fees and expenses) incurred in connection with such registration
statement or amendment thereto or prospectus or supplement thereto, and (ii) in
the case of a registration being effected pursuant to Section 2, such
registration shall not count as one of the registrations Corporation is
obligated to effect pursuant to Section 2 hereof.
Section 10. INDEMNIFICATION.
10.1 In the event of any registration of any securities under the
Securities Act pursuant to this Agreement, Corporation will indemnify and hold
harmless each Shareholder, each Piggy-Back Shareholder, any underwriter and each
other Person, if any, who controls such Shareholder, Piggy-Back Shareholder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which each such
Shareholder, Piggy-Back Shareholder or any underwriter may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement or preliminary prospectus (if used prior to the
effective date of such Registration Statement) or final or summary prospectus
contained therein (if used during the period the Corporation is required to keep
the Registration Statement effective), or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse each such
Shareholder, Piggy-Back Shareholder or underwriter for any legal or any other
expenses as reasonably incurred by such person in connection with investigating
or defending any such action or claim, excluding any amounts paid in settlement
of any litigation, commenced or threatened, if such settlement is effected
without prior written consent of Corporation; provided, however, that
Corporation will not be liable to the Shareholders, Piggy-Back Shareholders or
an underwriter in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
omission or alleged omission made in said Registration Statement, said
preliminary prospectus or said final or summary prospectus or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to Corporation by that Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives, or by that underwriter, as the case
may be, specifically for use in the preparation thereof; and provided further
that the indemnity agreement contained in this Section 10 with respect to any
preliminary prospectus shall not inure to the benefit of the Shareholders,
Piggy-Back Shareholders or any underwriter or to any Person selling the same in
respect of any loss, claim, damage, liability or action asserted by someone who
purchased shares from such person if a copy of the final prospectus (as the same
may be amended or supplemented) in connection with such registration statement
was not sent or given to such person with or prior to written confirmation of
the sale and if the untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus was
corrected in the final prospectus.
10.2 In the event of any registration of securities under the
Securities Act pursuant to this Agreement, each Shareholder and Piggy-Back
Shareholder will indemnify and hold harmless Corporation, each of its directors
and officers, any underwriter and each other Person, if any, who controls
Corporation or underwriter within the meaning of the Securities Acts, against
any losses, claims, damages or liabilities, joint or several, to which
Corporation or any such director, officer, underwriter may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement or preliminary prospectus or final or summary
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, and will reimburse Corporation, each such director,
officer, underwriter for any legal or any other expenses as reasonably incurred
by them in connection with investigating or defending any such action or claim,
excluding any amounts paid in settlement of any litigation, commenced or
threatened, if such settlement is effected without prior written consent of the
indemnifying Shareholder, Piggy-Back Shareholder or their respective
representative; but in all cases only if, and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission therein
made in reliance upon and in conformity with written information furnished to
Corporation by the indemnifying Shareholder, Piggy-Back Shareholder or their
respective affiliates or representatives specifically for use in the preparation
thereof. Notwithstanding the foregoing, the amount of the indemnity provided by
each such Shareholder or Piggy-Back Shareholder pursuant to this Section 10
shall not exceed the net proceeds received by such Shareholder or Piggy-Back
Shareholder in such related registration and sale.
10.3 Promptly after receipt by a party entitled to indemnification
under subsection 10.1 or 10.2 hereof of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under either of such subsections, notify the
indemnifying party in writing of the commencement
thereof. In case any such action is brought against the indemnified party and it
shall so notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it so chooses, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party that it so chooses, such indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, provided, however, that if the indemnifying
party fails to take reasonable steps necessary to diligently defend such claim
within twenty (20) days after receiving notice from the indemnified party that
the indemnified party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the indemnifying
party shall be liable for any expenses therefor. The indemnity agreements in
this Section 10 shall be in addition to any liabilities which the indemnifying
parties may have pursuant to law.
10.4 If the indemnification provided for in this Section 10 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 10 hereof, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
Section 11. SALES UNDER RULE 144. With a view to making available to
each Shareholder and Piggy-Back Shareholder the benefits of Rule 144 promulgated
under the Securities Act and any other similar rule or regulation of the
Commission that may at any time permit such Shareholder or Piggy-Back
Shareholder to sell the Registrable Securities without registration, Corporation
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor provision);
(b) file with the Commission in a timely manner all reports and other
documents required of Corporation under the Securities Act and the Exchange Act;
(c) furnish to such Shareholder or Piggy-Back Shareholder forthwith
upon request (i) a written statement by Corporation that it has complied with
the reporting requirements of Rule 144 (or any successor provision), the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of Corporation and such other reports and documents so filed by
Corporation under the Securities Act and the Exchange Act and (iii) such other
information as may be reasonably requested by such Shareholder or Piggy-Back
Shareholder in availing itself of any rule or regulation of the Commission which
permits the selling of any such securities without registration; and
(d) after any sale of Registrable Securities pursuant to Rule 144, to
the extent allowed by law, to cause any restrictive legends to be removed and
any transfer restrictions to be rescinded with respect to such Registration
Securities.
Section 12. REMOVAL OF LEGEND. The Corporation agrees, to the extent
allowed by law, to remove any legends on certificates representing Registrable
Securities or Piggy-Back Registrable Securities describing transfer restrictions
applicable to such securities upon the sale of such securities (i) pursuant to
an effective Registration Statement under the Securities Act or (ii) in
accordance with the provisions of Rule 144 under the Securities Act.
Section 13. NOTICES. Any notice to be given by any party hereunder to
any other shall be in writing, mailed by certified or registered mail, return
receipt requested, and shall be addressed to the other parties at the addresses
listed on the signature pages hereof. All such notices shall be deemed to be
given three (3) days after the date of mailing thereof.
Section 14. MODIFICATION. Notwithstanding anything to the contrary in
this Agreement or otherwise, no modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
the Corporation and the Shareholders holding not less than 95% of the
Registrable Securities then outstanding.
Section 15. NON-WAIVER. The failure to enforce at any time any of the
provisions of this Agreement, or to require at any time performance by any other
party of any of the provisions hereof, shall in no way be construed to be a
waiver of such provisions.
Section 16. PARTIAL INVALIDITY. If any clause, sentence, paragraph,
section or part of this Agreement shall be deemed invalid, unenforceable or
against public policy, the part which is invalid, unenforceable or contrary to
public policy shall not affect, impair, invalidate or nullify the remainder of
this Agreement, but the invalidity, unenforceability or contrariness to public
policy shall be confined only to the clause, sentence, paragraph, section or
party of this Agreement so invalidated, unenforceable or against public policy.
Section 17. CONSTRUCTION. The language in all parts of this Agreement
shall in all cases be construed simply, according to its fair meaning, and shall
not be construed strictly for or against either of the parties hereto.
Section 18. GOVERNING LAW. This Agreement shall be governed and
construed according to the laws of the State of Alabama, without regard to its
conflicts of law principles.
Section 19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute but one and the same instrument.
Section 20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
Section 21. SPECIFIC PERFORMANCE. The parties agree that, to the extent
permitted by law, (i) the obligations
imposed on them in this Agreement are special, unique and of an extraordinary
character, and that in the event of a breach of any such party damages would not
be an adequate remedy and (ii) the other party shall be entitled to specific
performance and injunctive and equitable relief in addition to any other remedy
to which it may be entitled at law or in equity.
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