REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of May
14, 1998, is made and entered into by and among Esenjay Petroleum
Corporation, a Texas corporation ("Esenjay"), Aspect Resources LLC, a
Colorado limited liability ("Aspect"), and Frontier Natural Gas Corporation,
an Oklahoma corporation (the "Company"). Esenjay and Aspect are herein
collectively referred to as "Shareholders" or individually as a "Shareholder."
RECITALS
A. Esenjay, Aspect and the Company entered into that certain
Acquisition Agreement and Plan of Exchange, dated as of January 19, 1998 (the
"Acquisition Agreement").
B. As of January 12, 1998, Aspect and the Company entered into a Credit
Agreement and in connection therewith the Company issued to Esenjay and
Aspect warrants (the "Bridge Facility Warrants") to purchase an aggregate of
93,750 shares (56,250 in the case of Aspect and 37,500 in the case of
Esenjay) of the common stock, par value $0.01 per share of the Company (the
"Common Stock").
C. As of February 23, 1998, the Company entered into a Credit Agreement
with Duke Energy Financial Services, Inc. and in connection therewith the
Company issued to Esenjay and Aspect warrants (the "Duke Facility Warrants;"
and together with the Bridge Facility Warrants, the "Warrants") to purchase
an aggregate of 93,750 shares (56,250 in the case of Aspect and 37,500 in the
case of Esenjay) of the Common Stock.
D. On May 14, 1998, the shareholders of the Company approved, and the
Company effectuated, a 1 for 6 reverse stock split (the "Reverse Stock
Split"), thereby reducing the number of shares of Common Stock that are the
subject of the Warrants to 31,250 shares.
D. Following the Reverse Stock Split and upon consummation of
transactions contemplated by the Acquisition Agreement, Esenjay will own
5,165,261 shares of the Common Stock and Aspect will own 4,203,106 shares of
the Common Stock.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
representations, warranties, covenants, agreements, terms and conditions
contained herein and in the Acquisition Agreement, and intending to be
legally bound hereby, covenant and agree as follows:
1. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. At any time after June 30, 1998, the
Shareholders, in the aggregate, may request up to three registrations under
the Securities Act of 1933, as amended (the "Securities Act"), of all or part
of its Registrable Shares (as hereinafter defined). Any registration
requested pursuant to this Section 1(a) is referred to herein as a "Demand
Registration." The Demand Registration will be on Form S-2 or S-3, or any
similar short-form registration, if available, or, if such forms are
unavailable, on Form S-1 or any other appropriate form.
Any request for Demand Registration must include at least ten percent (10%)
of the Registrable Shares.
(b) PRIORITY ON DEMAND REGISTRATION. In the event a Demand
Registration is underwritten, if the managing underwriter advises the Company
in writing that in its opinion the number of Registrable Shares and other
securities requested to be included exceeds the number which can be sold in
such offering, the Company will include in such registration: (i) first, the
number of Registrable Shares requested to be included which in the opinion of
such underwriters can be sold; (ii) second, any securities for the account of
the Company; and (iii) any other securities requested to be included under
Section 1(c)(iii).
(c) RESTRICTIONS ON DEMAND REGISTRATION.
(i) Each of the Shareholders agrees that the Company shall not
be required to effect any registration during any period of time when the
Company is in possession of material non-public information, which the
Company's Board of Directors deems not to be advisable to disclose in a
registration statement, which material information may relate to any matter
or matters, including without limitation, to a financing project, pending
acquisition, merger or other material corporate transaction to which the
Company is or expects to be a party, and the Company agrees to advise the
Shareholders promptly when such delay is no longer applicable; provided,
however, that the Company may not exercise such right more than once in any
twelve-month period.
(ii) The Company will not be required to proceed with any
Demand Registration for a period of 180 days from the completion of sales of
more than five percent (5%) of the Registrable Shares in any prior Demand or
Piggyback Registration.
(iii) The Company shall have the right to notify such of its
stockholders as it shall desire of any Demand Registration and to invite them
to participate in such registration, subject to Section 1(b) hereof.
Further, the Company shall also be entitled to participate in any Demand
Registration, subject to Section 1(b) hereof, but in the event the Company
participates, such registration shall not count as a Demand Registration
unless the Company's participation is cut back materially.
(iv) A registration will not count as a Demand Registration (A)
until it has become effective, or (B) if the Company takes any action or
fails to take any action in violation of this Agreement and as a result
thereof a registration statement is not effective for the period of time
required hereby or if less, the time required to sell the Registrable Shares
included in such registration statement, provided that any registration that
is withdrawn or terminated at the written request of the Shareholders will
count as a Demand Registration.
(d) SELECTION OF UNDERWRITERS. The investment banker(s) and
manager(s), if any, who shall administer any underwritten offering made
pursuant to the Demand Registration
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shall be selected by the Shareholder(s) requesting the registration and shall
be reasonably satisfactory to the Company.
(e) DURATION OF EFFECTIVENESS. The Company agrees to use its best
efforts to keep any Demand Registration that is a "shelf" registration
pursuant to Rule 415 under the Securities Act continuously effective for one
year after the effective date of such registration statement (the "Effective
Date").
(f) DEMAND REGISTRATION EXPENSES. The Company, on the one hand,
and the Shareholder(s) requesting the first Demand Registration, on the other
hand, shall share equally in all Registration Expenses (as hereinafter
defined) in connection with the first two Demand Registrations, whether or
not they become effective; provided, however, that the Company shall pay all
of the Registration Expenses associated with the first Demand Registration if
the Shareholders jointly agree to waive their rights to and agree to forego
the second Demand Registration. The Shareholder(s) requesting the third
Demand Registration will pay all Registration Expenses in connection
therewith. The Company will make generally available to the public and the
Shareholders, as soon as reasonably practicable after they become available,
earnings statements governing a period of 12 months commencing not later than
the first day of the fiscal quarter next succeeding the Effective Date of
each Demand Registration which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act (except in the case of any
primary offering by Frontier occurring on or before September 30, 1998) and
the registration form to be used may be used for the registration of
Registrable Shares (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Shares of its intention to
effect such a registration no less than fifteen (15) days prior to the filing
of such registration statement and will include in such registration all
Registrable Shares with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the
Company's notice.
(b) PIGGYBACK EXPENSES. The Company will pay the Registration
Expenses of the holders of Registrable Shares in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriter advises the Company in writing that in its opinion the
number of securities requested to be included in such registration exceeds
the number which can be sold in such offering, the Company will include in
such registration, in order of priority, the following (i) first, the
securities the Company purposes to sell, (ii) second, the Registrable Shares
held by the Shareholders or their assigns and requested to be included in such
registration, which shall be included in the offering on a pro rata basis
with respect
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to the holders thereof requesting registration, and (iii) third, other
securities requested to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of the Company's securities, and the managing underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, in order of
priority, the following (i) first, the securities requested to be included
therein by the holders of Common Stock exercising registration rights with a
priority senior to the Shareholders, (ii) second, the Registrable Shares held
by the Shareholders or their assigns and requested to be included in such
registration, which shall be included in the offering on a pro rata basis
with respect to the holders thereof requesting registration, which amount
will be calculated based upon the total number of Registrable Shares owned by
such holders, and (iii) third, other securities requested to be included in
such registration.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration
and the sale of such Registrable Shares in accordance with the intended
method of disposition thereof and pursuant thereto the Company will, as
expeditiously as possible:
(a) prepare and file with the Section a registration statement with
respect to such Registrable Shares 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, the Company will furnish, at least 10 days prior to filing, to the
counsel selected by the holders of a majority of the Registrable Shares
covered by such registration statement copies of all such documents proposed
to be filed, which documents will be subject to the review and approval of
such counsel, which shall not be unreasonably withheld);
(b) prepare and file with the Section such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than one year and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such
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seller may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition of the Registrable Shares owned by such seller in such
jurisdictions; provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) subject itself to income
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Shares, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading;
(f) cause all such Registrable Shares to be listed or quoted on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed or quoted;
(g) appoint a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Shares being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares;
(i) if the offering is underwritten, at the request of any seller
of Registrable Shares the Company will use its best efforts to furnish on the
date that Registrable Shares are delivered to the underwriters for sale
pursuant to such registration an opinion of counsel representing the Company
for the purposes of such registration, dated such date addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (i) to the best knowledge
of such counsel, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act, (ii) the registration statement,
the related prospectus and each amendment or supplement thereof comply as to
form in all material respects with the requirements of the Securities Act
(except that such counsel need not express any opinion as to financial
statements
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contained therein) and (iii) to such other effect as reasonably may be
requested by counsel for the underwriters or by such seller or its counsel.
(j) make available for inspection by any seller of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement; and
(k) use its best efforts to cause the Registrable Shares covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Shares.
4. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Securities and Exchange Commission (the
"Section") that may permit the sale of the Registrable Shares to the public
without registration, the Company agrees to use its best efforts to:
(a) make and keep public information regarding the Company
available, as those terms are understood and-defined in Rule 144 under the
Securities Act, at all times;
(b) file with the Section in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended;
(c) furnish to any holder of Registrable Shares forthwith upon written
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed as such holder may reasonably
request in availing itself of any rule or regulation of the Section allowing
such a holder to sell any such securities without registration.
5. REGISTRATION EXPENSES. All Registration Expenses will be borne as
provided in this Agreement, except that the Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of
any liability insurance and the expenses and fees for listing or including
the securities to be registered on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed or quoted.
6. INDEMNIFICATION.
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(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Shares, its officers and directors and each
person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
holder expressly for use therein or are caused solely by such holder's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto in conformity with applicable federal and
state securities laws after the Company has furnished such holder with a
sufficient number of copies of the same.
(b) In connection with any registration statement in which a holder
of Registrable Shares is participating, each such holder will furnish to the
Company in writing such information as the Company reasonably requests for
use in connection with any such registration statement or prospectus and, to
the extent permitted by law, will indemnify the Company, its directors and
officers and each person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information so furnished in
writing by such holder; provided that the obligation to indemnify will be
several, not joint and several, among such holders of Registrable Shares and
the liability of each such holder of Registrable Shares will be in proportion
to and limited to the net amount received by such holder from the sale of
Registrable Shares pursuant to such registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party and its legal
counsel a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or
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any officer, director or controlling person of such indemnified party and
will survive the transfer of securities.
(e) If the indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7. DEFINITIONS.
(a) "REGISTRATION EXPENSES" means, subject to Section 5 hereof, all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees,
fees and expenses of compliance with federal and state securities or blue sky
laws, securities laws of any foreign jurisdictions, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for
the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the
Company.
(b) "REGISTRABLE SHARES" means (i) the 9,368,367 shares of Common
Stock that will be issued to the Shareholders in connection with the
transactions contemplated by the Acquisition Agreement, (ii) the 31,250
shares of Common Stock that will be issued to the Shareholders upon exercise
of the Warrants, and (iii) any securities issued or issuable with respect to
the Common Stock referred to in clauses (i) or (ii) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any
securities which have become eligible for transfer pursuant to Rule 144 under
the Securities Act (or any similar rule then in force), will cease to be
Registrable Shares when they have actually been sold in compliance with Rule
144 (or any similar rule then in effect). For purposes of this Agreement, a
person will be deemed to be a holder of Registrable Shares whenever such
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person has the right to acquire such Registrable Shares (by conversion,
exchange, exercise or otherwise), whether or not such acquisition has
actually been effected.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which grants senior
rights to register its securities or which is inconsistent with the rights
granted to the holders of Registrable Shares in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company will not
take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include the Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration.
(c) REMEDIES. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of 66 2/3% of the then-outstanding Registrable Shares.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not; provided however, that the only the Piggyback
Registration rights of a holder of Registrable Shares hereunder may be
transferred or assigned and then only to: (i) a transferee or assignee of at
least one-fifth of the Shareholder's Registrable Shares (as presently
constituted and subject to adjustment for stock splits, stock dividends,
reverse splits and the like); (ii) to a partner or stockholder of such
holder; (iii) another holder of Registrable Shares; (iv) any entity to which
such holder acts as a trustee, investment manager, investment advisor or other
fiduciary; (vi) an affiliate of such holder; in each case to whom Registrable
Shares are transferred, subject to such transferee's delivery to the Company
of a written instrument agreeing to be bound hereby.
(f) NOTICES. The Section entitled "Notices, Etc." in the
Acquisition Agreement is hereby incorporated in this Agreement by reference
and made a part hereof.
(g) TERM. Other than the obligations under Section 6 hereof, this
Agreement shall terminate upon the sale of all Registrable Shares held by the
Shareholders or their respective successors or assigns.
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(h) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, including
the conflicts of law provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the
date first above written.
ESENJAY PETROLEUM CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxxx, President
ASPECT RESOURCES LLC
By: Aspect Management Corporation,
its Manager
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Xxxx X. Xxxxxxxx, President
FRONTIER NATURAL GAS CORPORATION
By: /s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx, President
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