SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 1, 1996
COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-16741 94-1667468
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
5005 LBJ Freeway, Suite 1000, Dallas, Texas 75244
(Address of principal executive offices)
(214) 701 - 2000
(Registrant's Telephone No.)
Item 2. Acquisition or Disposition of Assets
On May 1 and May 2, 1996, Comstock Resources, Inc. (the "Company")
acquired 100% of the capital stock of Black Stone Oil Company and additional
interests held by other working interest owners in certain producing oil and gas
properties as well as interests in undeveloped oil and gas leases located in
East Texas for total cash consideration of approximately $104 million. Black
Stone Oil Company is the operator of the producing oil and gas properties which
are located in the Double A Wells field in Polk County, Texas. The estimated net
proved oil and gas reserves acquired are estimated at 98.5 billion cubic feet of
natural gas and 5.3 million barrels of oil as of January 1, 1996, the effective
date of the acquisition. Such reserves have estimated pretax future net cash
flows of $249 million and estimated pretax discounted future net cash flows of
$149 million.
The acquisition was financed under a new $176 million bank credit
facility provided by The First National Bank of Chicago and Bank One Texas,
N.A., consisting of a $166 million revolving credit facility and a $10 million
bridge loan. The Company financed the $104 million acquisition and refinanced
$58.7 million outstanding under its existing revolving credit facility and an
existing $10 million bridge loan which was to mature on July 31, 1996 with
borrowings under the new bank credit facility. Amounts outstanding under the new
revolving credit facility presently bear interest at the agent bank's base rate
plus 1/2% and are subject to a borrowing base determined semiannually by the
banks. Upon repayment of the new $10 million bridge loan, the Company may elect
to have borrowings bear interest at LIBOR plus up to 2%. The new revolving
credit facility converts to a two year term loan on May 1, 1999. Amounts
outstanding under the new bridge loan bear interest at the agent bank's base
rate plus 3% and are payable in full on December 31, 1996.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Page in
This Report
(a)Financial Statements.
Black Stone Acquisition:
Report of Independent Public Accountants .......................... F-1
Statements of Revenues and Direct Operating Expenses
for the Years ended December 31, 1993, 1994 and 1995
and Three Months Ended March 31, 1995 and 1996................ F-2
Notes to Statements of Revenues and Direct Operating Expenses...... F-3
(b)Pro Forma Financial Information.
Comstock Resources, Inc.:
Pro Forma Consolidated Financial Statements (Unaudited)............ P-1
Pro Forma Consolidated Balance Sheet as of March 31, 1996.......... P-2
Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1995.......................... P-3
Pro Forma Consolidated Statement of Operations
for the Three Months Ended March 31, 1996..................... P-4
Notes to Pro Forma Consolidated Financial Statements............... P-5
2
(c) Exhibits.
2(a) Agreement For Purchase and Sale - Black Stone Holdings
Partnership et. al. as Seller and Comstock Oil & Gas, Inc.
as Buyer and Comstock Resources, Inc. as Guarantor.
99(c) Credit Agreement dated as of May 1, 1996 between Comstock
Resources, Inc., Comstock Oil & Gas, Inc., Comstock Oil &
Gas -- Louisiana, Inc., Comstock Offshore Energy, Inc., the
Banks and The First National Bank of Chicago, as Agent and
Bank One, Texas N.A., as Co-agent.
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Comstock Resources, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the Black Stone Acquisition (see Note 1) for the years
ended December 31, 1993, 1994 and 1995. These financial statements are the
responsibility of the management of Comstock Resources, Inc. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such statements present fairly, in all material respects,
the revenues and direct operating expenses of the Black Stone Acquisition
described in Note 1 for the years ended December 31, 1993, 1994 and 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 3, 1996
F-1
BLACK STONE ACQUISITION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
For the Years Ended December 31, 1993, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996
Three Months
Year Ended December 31, Ended March 31,
----------------------------------- ----------- -----------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(Unaudited)
REVENUES
Oil and gas sales $ 2,909,854 $ 6,738,087 $17,991,527 $ 2,923,944 $7,825,741
DIRECT OPERATING EXPENSES
Oil and gas operating 474,757 990,723 2,453,204 375,231 863,461
----------- ----------- ----------- ----------- -----------
EXCESS OF REVENUES OVER
DIRECT OPERATING EXPENSES $ 2,435,097 $ 5,747,364 $15,538,323 $ 2,548,713 $6,962,280
=========== =========== =========== =========== ===========
See Notes to Statements of Revenues and Direct Operating Expenses.
F-2
BLACK STONE ACQUISITION
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(1) BASIS OF PRESENTATION -
On May 1, 1996, the Company acquired 100% of the capital stock of Black
Stone Oil Company and additional interests held by other working interest owners
in the Double A Wells field in East Texas as well as interests in certain
undeveloped oil and gas leases (the "Black Stone Acquisition") for total cash
consideration of approximately $104 million. The acquisition includes interests
in 19 producing wells (7.74 net wells).
The Company financed the $104 million acquisition and refinanced $58.7
million outstanding under its existing revolving credit facility and an existing
$10 million bridge loan which was to mature on July 31, 1996 with borrowings
under the new bank credit facility consisting of a $166 million revolving credit
facility and a $10 million bridge loan. Amounts outstanding under the new
revolving credit facility bear interest at the agent bank's base rate plus 1/2%
and are subject to a borrowing base determined semiannually by the banks. The
new revolving credit facility converts to a two year term loan on May 1, 1999.
Amounts outstanding under the new bridge loan bear interest at the agent bank's
base rate plus 3% and are payable in full on December 31, 1996.
The accompanying statements of revenues and direct operating expenses do
not include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion of
a business and the costs incurred by the sellers of the properties are not
necessarily indicative of the costs to be incurred by the Company.
Historical financial information reflecting financial position, results of
operations and cash flows of the Black Stone Acquisition is not presented
because all of the acquisition cost was assigned to the oil and gas property
interests. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.
(2) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) -
Estimated Quantities of Proved Oil and Gas Reserves
The estimates of proved oil and gas reserves utilized in the preparation of
the financial statements were estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange Commission
and the Financial Accounting Standards Board, which require that reserve reports
be prepared under existing economic and operating conditions. The Company
emphasizes that reserve estimates of new discoveries or undeveloped properties
are more imprecise than those of producing oil and gas properties. Accordingly,
these estimates are expected to change as future information becomes available.
F-3
BLACK STONE ACQUISITION
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (Continued)
PROVED OIL AND GAS RESERVES AS OF DECEMBER 31, 1995:
Oil (Bbls) Gas (Mcf)
------------ ------------
Proved Reserves 5,302,000 98,549,000
============ ============
Proved Developed Reserves 3,794,000 70,831,000
============ ============
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The standardized measure of discounted future net cash flows (the
"Standardized Measure") is prepared using assumptions required by the Financial
Accounting Standards Board. Such assumptions include the use of December 31,
1995 oil and gas prices and current costs for estimated future production and
development expenditures with no provision for escalation except as provided for
by contractual agreements. Discounted future net cash flows are calculated using
a 10% discount rate.
The Standardized Measure does not represent the Company's estimate of
future net cash flows or the value of proved oil and gas reserves. Probable and
possible reserves, which may become proved in the future, are excluded from the
calculations. Furthermore, the December 31, 1995 prices, used to determine the
standardized measure of discounted cash flows, are influenced by seasonal demand
and other factors and may not be the most representative in estimating future
revenues or reserve data.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS BEFORE INCOME
TAXES AT DECEMBER 31, 1995:
Future Cash Inflows $ 292,795,000
Future Costs:
Production (40,582,000)
Development (3,601,000)
Future Net Cash Flows 248,612,000
10% Discount Factor (100,024,000)
--------------
Standardized Measure of Discounted Future
Net Cash Flows before Income Taxes $ 148,588,000
==============
F-4
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The accompanying Pro Forma Consolidated Financial Statements have been
prepared by recording pro forma adjustments to the historical consolidated
financial statements of Comstock Resources, Inc. and subsidiaries (the
"Company"). The Pro Forma Consolidated Balance Sheet as of March 31, 1996 has
been prepared as if the Black Stone Acquisition was consummated on March 31,
1996. The Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1995 and for the three months ended March 31, 1996 have been
prepared as if the Black Stone Acquisition and the 1995 Acquisitions, as
described in Note 1, were consummated immediately prior to January 1, 1995 and
January 1, 1996, respectively.
The Pro Forma Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations that would have
occurred had the transactions been effected on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Consolidated Statements of Operations due to normal production declines,
changes in oil and gas prices, future transactions and other factors. These
statements should be read in conjunction with the Company's audited consolidated
financial statements and the related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and the Company's
consolidated financial statements and the related notes included in the
Company's quarterly report on Form 10-Q for the three months ended March 31,
1996.
P-1
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
MARCH 31, 1996
ASSETS
Pro Forma
Adjustments
(Note 2)
Black Stone
Historical Acquisition(a) Pro Forma
------------- ------------- -------------
Cash and Cash Equivalents $ 657,816 $ 5,206,600 $ 5,864,416
Accounts Receivable:
Oil and gas sales 6,780,000 - 6,780,000
Gas marketing sales 11,325,600 - 11,325,600
Joint interest operations 1,448,177 - 1,448,177
Prepaid Expenses and Other 615,980 - 615,980
Inventory 91,005 - 91,005
------------- ------------- -------------
Total current assets 20,918,578 5,206,600 26,125,178
------------- ------------- -------------
Property and Equipment:
Oil and gas properties 156,918,688 100,300,000 257,218,688
Other 2,776,143 - 2,776,143
Accumulated depreciation,
depletion and amortization (58,025,109) - (58,025,109)
------------- ------------- -------------
Net property and equipment 101,669,722 100,300,000 201,969,722
------------- ------------- -------------
Other Assets 933,768 (240,579) 693,189
------------- ------------- -------------
$123,522,068 $105,266,021 $228,788,089
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-term Debt $ 10,260,566 $ - $ 10,260,566
Accounts Payable and Accrued Expenses 18,958,008 1,966,021 20,924,029
------------- ------------- -------------
Total current liabilities 29,218,574 1,966,021 31,184,595
------------- ------------- -------------
Long-term Debt, less Current Portion 59,505,625 103,300,000 162,805,625
Deferred Revenue 322,501 - 322,501
Other Noncurrent Liabilities 1,185,071 - 1,185,071
Stockholders' Equity:
Preferred stock -
$10.00 par, 3,100,000 shares outstanding 31,000,000 - 31,000,000
Common stock -
$.50 par, 13,120,242 shares outstanding 6,560,122 - 6,560,122
Additional paid-in capital 38,861,759 - 38,861,759
Retained deficit (43,067,990) - (43,067,990)
Less: Deferred compensation -
restricted stock (63,594) - (63,594)
------------- ------------- -------------
Total stockholders' equity 33,290,297 - 33,290,297
------------- ------------- -------------
$123,522,068 $105,266,021 $228,788,089
============= ============= =============
See Notes to Pro Forma Consolidated Financial Statements.
P-2
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the Year Ended December 31, 1995
Pro Forma Adjustments (Note 2)
-----------------------------------------
Black Stone The 1995
Historical Acquisition (b)Acquisitions Other Pro Forma
------------- ------------- ------------ ------------- -------------
Revenues:
Oil and gas sales $ 22,090,894 $ 17,991,527 $ 8,041,986 $ - $ 48,124,407
Gas marketing sales 50,078,366 - 506,957 - 50,585,323
Gas gathering and processing 600,212 - 62,418 - 662,630
Gain on sales of property 2,608,088 - - - 2,608,088
Other income 290,115 - 70,219 - 360,334
------------- ------------- ------------ ------------- -------------
Total revenues 75,667,675 17,991,527 8,681,580 - 102,340,782
------------- ------------- ------------ ------------- -------------
Expenses:
Oil and gas operating 7,426,626 2,453,204 3,214,250 - 13,094,080
Natural gas purchases 48,908,969 - 478,288 - 49,387,257
Gas gathering and processing 209,535 - 39,599 - 249,134
Depreciation, depletion
and amortization 8,613,042 - - 9,560,945 18,173,987
General and administive, net 1,979,283 - - (561,850) 1,417,433
Interest 5,541,680 - - 13,081,463 18,623,143
Impariment of oil and gas
properties 29,150,000 - - - 29,150,000
------------- ------------- ------------ ------------- -------------
Total expenses 101,829,135 2,453,204 3,732,137 22,080,558 130,095,034
------------- ------------- ------------ ------------- -------------
Income (loss) before income
taxes (26,161,460) 15,538,323 4,949,443 (22,080,558) (27,754,252)
Provision for income taxes - - - - -
------------- ------------- ------------ ------------- -------------
Income (loss) (26,161,460) 15,538,323 4,949,443 (22,080,558) (27,754,252)
------------- ------------- ------------ ------------- -------------
Preferred stock dividends (1,907,500) - - - (1,907,500)
------------- ------------- ------------ ------------- -------------
Net income (loss) attributable
to common stock $(28,068,960) $ 15,538,323 $ 4,949,443 $(22,080,558) $(29,661,752)
============= ============= ============ ============= =============
Net income (loss) per $ (2.24) $ (2.36)
============= =============
Weighted average common
shares outstanding 12,545,752 12,545,752
============= =============
See Notes to Pro Forma Consolidated Financial Statements.
P-3
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For the Three Months Ended March 31, 1996
Pro Forma Adjustments (Note 2)
------------------------------
Black Stone
Historical Acquisition (b) Other Pro Forma
------------ ------------- ------------ ------------
Revenues:
Oil and gas sales $ 9,555,141 $ 7,825,741 $ - $17,380,882
Gas marketing sales 25,425,901 - - 25,425,901
Gas gathering and processing 153,611 - - 153,611
Other income 129,945 - - 129,945
------------ ------------- ------------ ------------
Total revenues 35,264,598 7,825,741 - 43,090,339
------------ ------------- ------------ ------------
Expenses:
Oil and gas operating 2,523,187 863,461 - 3,386,648
Natural gas purchases 24,793,593 - - 24,793,593
Gas gathering and processing 56,946 - 56,946
Depreciation, depletion
and amortization 2,621,358 - 2,453,244 (d) 5,074,602
General and administrative, net 411,833 - (42,799)(f) 369,034
Interest 1,848,470 - 2,143,475 (g) 3,991,945
------------ ------------- ------------ ------------
Total expenses 32,255,387 863,461 4,553,920 37,672,768
------------ ------------- ------------ ------------
Income before income taxes 3,009,211 6,962,280 (4,553,920) 5,417,571
Provision for income taxes - - - -
------------ ------------- ------------ ------------
Income 3,009,211 6,962,280 (4,553,920) 5,417,571
Preferred stock dividends (633,146) - - (633,146)
------------ ------------- ------------ ------------
Net income attributable
to common stock $ 2,376,065 $ 6,962,280 $(4,553,920) $ 4,784,425
============ ============= ============ ============
Net income attributable to common stock per share -
Primary $ 0.18 $ 0.35
============ ============
Fully diluted $ 0.15 $ 0.27
============ ============
Weighted average number of common and common
stock equivalent shares outstanding -
Primary 13,522,330 13,522,330
============ ============
Fully diluted 19,928,710 19,928,710
============ ============
See Notes to Pro Forma Consolidated Financial Statements.
P-4
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) BASIS OF PRESENTATION -
On May 1 and May 2, 1996, the Company acquired 100% of the capital stock of
Black Stone Oil Company and additional interests held by other working interest
owners in the Double A Wells field in East Texas as well as interests in certain
undeveloped oil and gas leases (the "Black Stone Acquisition") for total cash
consideration of approximately $104 million. Black Stone Oil Company is the
operator of the oil and gas properties which were acquired. The acquisition
includes interests in 19 producing wells (7.74 net wells).
The Company financed the $104 million acquisition and refinanced $58.7
million outstanding under its existing revolving credit facility and an existing
$10 million bridge loan which was to mature on July 31, 1996 with borrowings
under the new bank credit facility consisting of a $166 million revolving credit
facility and a $10 million bridge loan. Amounts outstanding under the new
revolving credit facility bear interest at the agent bank's base rate plus 1/2%
and are subject to a borrowing base determined semiannually by the banks. The
new revolving credit facility converts to a two year term loan on May 1, 1999.
Amounts outstanding under the new bridge loan bear interest at the agent bank's
base rate plus 3% and are payable in full on December 31, 1996.
On July 31, 1995, the Company closed an acquisition of producing oil and
gas properties and natural gas gathering systems located in East Texas and North
Louisiana from Sonat Exploration Company, a wholly owned subsidiary of Sonat
Inc. ("Sonat") for total cash consideration of $50.6 million. The Company
acquired interests in 319 (188 net) oil and gas wells from Sonat for $49.1
million. The interests were acquired with an effective date of March 1, 1995. In
addition, the Company acquired the managing general partner interest of and a
20.31% limited partner interest in Crosstex Pipeline Partners, Ltd.
("Crosstex"), as well as certain other gas gathering systems primarily located
in Harrison County, Texas from Sonat for cash consideration of $1.5 million. On
May 15, 1995, the Company closed an acquisition of producing offshore oil and
gas properties located in Louisiana State waters in the Gulf of Mexico. The
Company acquired interests in 14 oil and gas wells (3.5 net wells) for
$8,199,000. The effective date of the acquisition was November 1, 1994. During
1995, the Company acquired interests in the Lake LaRose field in South Louisiana
for approximately $1 million. The three acquisitions closed in 1995 are
hereafter referred to as the "1995 Acquisitions."
The accompanying Pro Forma Consolidated Balance Sheet at March 31, 1996 and
the Pro Forma Consolidated Statements of Operations for the year ended December
31, 1995 and the three months ended March 31, 1996, have been prepared assuming
the Company consummated, immediately prior to each of the periods presented, the
Black Stone Acquisition and the 1995 Acquisitions, funded by borrowings under
the Company's bank credit facility (see Note 2).
No adjustment has been made to reflect income taxes related to the Black
Stone Acquisition or the 1995 Acquisitions due to the Company's net operating
loss carryforwards which would offset any current or deferred tax liabilities.
The Pro Forma Consolidated Statements of Operations are not necessarily
indicative of the results of operations had the above described transactions
occurred on the assumed dates.
P-5
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Continued)
(2) PRO FORMA ADJUSTMENTS -
Pro forma adjustments necessary to adjust the Consolidated Balance Sheet
and Statements of Operations are as follows:
(a) To record the Black Stone Acquisition funded by borrowings under the
Company's new bank credit facility.
(b) To record revenue and direct operating expenses of the Black Stone
Acquisition, based on the statements of revenue and direct operating
expenses for the year ended December 31, 1995 and for the three months
ended March 31, 1996.
(c) To record revenue and direct operating expenses of the 1995
Acquisitions.
(d) To record estimated depreciation and depletion expense attributable to
the Black Stone Acquisition and 1995 Acquisitions using the
unit-of-production method applied to the net cost of the properties
acquired.
(e) To record the increase in general and administrative expense of
$164,025 less the operating fee income of $725,875 attributable to
Black Stone and the 1995 Acquisitions for the year ended December 31,
1995.
(f) To record operating fee income of $42,799 attributable to the Black
Stone Acquisition for the three months ended March 31, 1996.
(g) To record interest expense attributable to the increase in debt to
finance the purchase of the Black Stone Acquisition and the 1995
Acquisitions. Interest expense is based upon the weighted average
interest rate incurred by the Company under its new bank credit
facility in the case of the Black Stone Acquisition or under the
existing credit facility in the case of the 1995 Acquisitions, assuming
the entire cost of the acquisitions had been funded with bank
borrowings at January 1 of each period.
P-6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMSTOCK RESOURCES, INC.
Dated: May 7, 1996 By:/s/ROLAND O. BURNS
------------------
Roland O. Burns
Senior Vice President, Chief Financial Officer,
Secretary, and Treasurer (Principal Financial
and Accounting Officer)
AGREEMENT FOR PURCHASE AND SALE
BLACK STONE HOLDINGS PARTNERSHIP ET AL
AS SELLER
BLACK STONE OIL COMPANY
AS OPERATOR
AND
COMSTOCK OIL & GAS, INC.
AS BUYER
AND
COMSTOCK RESOURCES, INC.
AS GUARANTOR
TABLE OF CONTENTS
ARTICLE I
Construction and Definitions
Section 1.1 Separate Agreement With Each Seller..............................1
Section 1.2 Defined Terms....................................................2
ARTICLE II
Purchase and Sale
Section 2.1 Agreement to Sell and Purchase..................................10
Section 2.2 Purchase Price..................................................10
Section 2.3 Allocated Values................................................10
ARTICLE III
Effective Time
Section 3.1 Revenues and Expenses...........................................11
ARTICLE IV
Title and Environmental Matters
Section 4.1 Title Examination Period........................................11
Section 4.2 Title Defects...................................................12
Section 4.3 Notice of Title Defects.........................................12
Section 4.4 Determination of and Remedies for Title Defects.................13
Section 4.5 Special Warranty of Title.......................................14
Section 4.6 Remedies for Title Benefits.....................................16
Section 4.7 Environmental Procedure.........................................16
Section 4.8 Determination of Disqualifying Environmental Condition..........17
Section 4.9 Remedies for a Disqualifying Environmental Condition............19
Section 4.10 Correction of a Disqualifying Environmental Condition...........20
ARTICLE V
Representations and Warranties of Sellers and Operator
Section 5.1 Representations and Warranties of Working Interest Owners.... ..20
Section 5.2 Representations and Warranties of Selling Stockholders..........24
Section 5.3 Representations and Warranties of Operator......................25
ARTICLE VI
Representations and Warranties of Buyer and Guarantor
Section 6.1 Representations and Warranties of Buyer.........................31
Section 6.2 Representations and Warranties of Guarantor.....................33
ARTICLE VII
Operation of the Subject Assets and Other Covenants
Section 7.1 Operation of the Subject Assets Prior to Closing................34
Section 7.2 Operation of Certain Areas After the Closing....................35
-i-
Section 7.3 Operator's Geophysical Data.....................................35
Section 7.4 Course of Conduct by Operator...................................36
Section 7.5 Approvals and Consents..........................................37
Section 7.6 Investigations..................................................37
Section 7.7 Final S Corporation Federal Income Tax Return...................37
Section 7.8 Compiled Financials.............................................38
Section 7.9 Distributions...................................................38
ARTICLE VIII
Conditions to Obligations of Sellers
Section 8.1 Representations.................................................38
Section 8.2 Performance.....................................................38
Section 8.3 Pending Matters.................................................38
Section 8.4 Hart-Scott-Rodino...............................................38
Section 8.5 Adjusted Purchase Price.........................................38
Section 8.6 Execution and Delivery of Closing Documents.....................38
Section 8.7 Certificates....................................................38
Section 8.8 Opinion.........................................................39
ARTICLE IX
Conditions to Obligations of Buyer
Section 9.1 Representations.................................................39
Section 9.2 Performance.....................................................39
Section 9.3 Pending Matters.................................................39
Section 9.4 Hart-Scott-Rodino...............................................39
Section 9.5 Execution and Delivery of Closing Documents.....................39
Section 9.6 Certificates....................................................39
Section 9.7 Consents and Approvals..........................................40
Section 9.8 All Sellers to Close............................................40
Section 9.9 Nonforeign Affidavit............................................40
Section 9.10 Operator........................................................40
Section 9.11 ................................................................40
ARTICLE X
Closing
Section 10.1 Time and Place of Closing.......................................40
Section 10.2 Extension.......................................................40
Section 10.3 Actions to be Taken Prior to Closing............................40
Section 10.4 Adjustments to Purchase Price at Closing........................41
Section 10.5 Statement.......................................................42
Section 10.6 Post-Closing Adjustments to Purchase Price......................43
Section 10.7 Transfer Taxes..................................................44
-ii-
Section 10.8 Ad Valorem and Similar Taxes....................................44
Section 10.9 Actions of Sellers at Closing...................................44
Section 10.10 Actions of Buyer at Closing.....................................44
Section 10.11 Further Cooperation.............................................44
Section 10.12 Confidentiality Agreement.......................................45
Section 10.13 Letter of Intent................................................45
ARTICLE XI
Termination
Section 11.1 Right of Termination............................................45
Section 11.2 Effect of Termination...........................................46
Section 11.3 Attorney's Fees, Etc............................................46
ARTICLE XII
Assumption and Indemnification
Section 12.1 Assumption......................................................47
Section 12.2 Indemnification.................................................47
ARTICLE XIII
Limitations on Representations and Warranties
Section 13.1 Disclaimers of Representations and Warranties...................54
Section 13.2 Waiver of Texas DTPA............................................55
Section 13.3 Casualty Loss...................................................55
Section 13.4 Exclusive Remedies..............................................56
ARTICLE XIV
Miscellaneous
Section 14.1 HSR Act.........................................................56
Section 14.2 Expenses........................................................57
Section 14.3 Independent Investigation.......................................57
Section 14.4 Document Retention..............................................57
Section 14.5 Entire Agreement................................................57
Section 14.6 Waiver..........................................................58
Section 14.7 No Solicitation.................................................58
Section 14.8 Publicity.......................................................58
Section 14.9 Captions........................................................58
Section 14.10 No Third Party Beneficiaries....................................58
Section 14.11 Assignment......................................................58
Section 14.12 Governing Law...................................................58
Section 14.13 Notices.........................................................59
Section 14.14 Severability....................................................59
Section 14.15 Counterpart Execution...........................................59
Section 14.16 Authority of BSHP...............................................60
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Section 14.17 W.T. Carter & Bro...............................................60
Section 14.18 Champion C-2....................................................60
Section 14.19 Guaranty Agreement..............................................61
Section 14.20 Joint Operating Agreement/AMI...................................61
Schedule I -- Working Interest Owners
Schedule II -- Selling Stockholders
Exhibit "A" -- Producing Leases
Exhibit "B" -- Camden Tram Leases
Exhibit "C" -- Center Grove Leases
Exhibit "D" -- North Double A Portion/Camden Tram Leases
Exhibit "E" -- Double A Leases
Exhibit "F" -- Assignment, Bill of Sale and Conveyance
Exhibit "G" -- Guaranty
Exhibit "H" -- Plat
Exhibit "I" -- Form of Locke Purnell Opinion
Exhibit "J" -- Form of Vinson & Elkins L.L.P. Opinion
Schedule 2.3 -- Net Revenue and Working Interests; Allocated Values; Sellers'
Interests Schedule 5.1(l) -- Laws and Regulations Schedule 5.1(p) -- Consents
Schedule 5.3(d) -- Financial Statements Schedule 5.3(n) -- Insurance
-iv-
AGREEMENT FOR PURCHASE AND SALE
This Agreement for Purchase and Sale (the "Agreement") is made and
entered into as of the 31st day of January, 1996, by and among those parties
identified on Schedule I attached hereto (individually, a "Working Interest
Owner" and collectively, the "Working Interest Owners"), those parties
identified on Schedule II attached hereto (individually, a "Selling Stockholder"
and collectively, the "Selling Stockholders"), Black Stone Oil Company, a Texas
corporation ("Operator") and Comstock Oil & Gas, Inc., a Nevada corporation
("Buyer") and a wholly owned subsidiary of Comstock Resources, Inc., a Nevada
corporation ("Guarantor").
W I T N E S S E T H:
WHEREAS, the Working Interest Owners own the Purchased Subject Assets
(as hereinafter defined) and the Selling Stockholders own the Purchased Shares
(as hereinafter defined);
WHEREAS, the Working Interest Owners are willing to sell to Buyer, and
Buyer is willing to purchase from the Working Interest Owners, the Purchased
Subject Assets, and the Selling Stockholders are willing to sell to Buyer, and
Buyer is willing to purchase from the Selling Stockholders, the Purchased
Shares, all upon the terms and subject to the conditions hereinafter set forth;
and
WHEREAS, Buyer is a wholly owned subsidiary of Guarantor and the
execution, delivery and performance by Buyer of its obligations hereunder will
benefit Guarantor, directly or indirectly, and the guarantee by Guarantor of the
obligations of Buyer hereunder is in the best interest of Guarantor.
NOW, THEREFORE, in consideration of the mutual benefits derived and to
be derived from this Agreement, and upon the representations, warranties,
covenants and agreements contained herein, the Parties hereby agree as follows:
ARTICLE I
Construction and Definitions
Section 1.1 Separate Agreement With Each Seller. This Agreement shall
be construed as a separate agreement between Buyer and each Seller with respect
to each Seller's interest in the Purchased Subject Assets and Purchased Shares
as set forth in
Schedule 2.3. Except as provided in the last sentence of Section 12.2(f), the
obligations of each Seller hereunder and under each instrument executed and
delivered in connection herewith shall be several and not joint or collective.
This Agreement shall be binding upon each Seller that executes this Agreement
regardless of whether this Agreement is executed by all of the parties named as
Seller herein. In the event that any of the parties named as a Seller herein
owning interests in the Purchased Subject Assets or Purchased Shares fail to
execute this Agreement on or before 5:00 p.m. (central standard time) on January
30, 1996, Buyer, without any liability to Sellers whatsoever, may terminate this
Agreement by notice in writing to Seller given not later than 5:00 p.m. (central
standard time) on January 31, 1996.
Section 1.2 Defined Terms. Capitalized terms used in this Agreement and
not otherwise defined herein or in the recitals to this Agreement shall have the
meanings ascribed to them in this Section 1.2.
"Additional Contracts" is defined in Section 5.3(g).
"Adjusted Purchase Price" shall mean the Purchase Price as adjusted
pursuant to the provisions of Article X.
"Agencies" is defined in Section 5.3(i).
"Aggregate Environmental Defect Value" means the Aggregate
Environmental Defect Values for all Disqualifying Environmental Conditions
established pursuant to Section 4.8 in a manner consistent with a reasonably
prudent operator and in compliance with Environmental Laws.
"Allocated Values" is defined in Section 2.3.
"Arbitrator" is defined in Section 10.6(b).
"Assessment Period" is defined in Section 4.7(a).
"Assignment" is defined in Section 4.5.
"BSHP" shall mean Black Stone Holdings Partnership, a Texas general
partnership.
"BTU" is defined in Section 10.4(c).
"Buyer Indemnitees" is defined in Section 12.2(b).
"C-2 Notice Period" is defined in Section 14.18(a).
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"C Year" is defined in Section 7.7.
"Camden Tram JOA" shall mean that certain joint operating agreement
described in Exhibit "B".
"Camden Tram Leases" shall mean the oil, gas and mineral leases
described in Exhibit "B", insofar as such Leases cover the lands described in
Exhibit "B".
"Camden Tram Interest" shall mean an undivided 30% of the Working
Interest Owners' and Operator's right, title and interest as of the Effective
Time in and to the Camden Tram Leases, together with a like interest in all
contracts and other agreements applicable to said Leases insofar as they cover
such lands.
"Casualty Loss" is defined in Section 13.3(b).
"Center Grove JOA" shall mean a joint operating agreement to be
executed by Working Interest Owners, Buyer and Operator, as operator, covering
the Center Grove Area outlined on Exhibit H and in the substantially the form of
the Camden Tram JOA.
"Center Grove Leases" shall mean the oil, gas and mineral leases
described in Exhibit "C", insofar as such Leases cover the lands described in
Exhibit "C".
"Center Grove Interest" shall mean an undivided 30% of the Working
Interest Owners' and Operator's right, title and interest as of the Effective
Time in and to the Center Grove Leases, together with a like interest in all
contracts and other agreements applicable to said Leases insofar as they cover
such lands.
"Claim Notice" is defined in Section 12.2(f)(i)(A).
"Closing" shall mean the consummation of the purchase and sale of the
Purchased Subject Assets and Purchased Shares pursuant to this Agreement as
provided in Article X.
"Closing Date" shall mean May 1, 1996, unless another date for Closing
is mutually agreed to in writing by the Parties.
"Closing Working Capital" shall mean an amount of Working Capital equal
to the following determined in accordance with GAAP:
(i) all revenues from the Operator Subject Assets attributable to
the period from the Effective Time until the Closing Date, less
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(ii) all costs and expenses (including rentals, royalties,
production and severance taxes, capital expenditures (other than the
Excluded Capital Costs), lease operating expenses authorized under
joint operating agreements applicable to the Operator Subject Assets)
that are attributable to the Operator Subject Assets and attributable
to the period of time from the Effective Time until the Closing Date,
less
(iii) an amount equal to all operating fees which would be
authorized under the joint operating agreements applicable to the
Operator Subject Assets if Operator were not the operator thereunder
attributable to the period from the Effective Time to the Closing
Date, plus
(iv) the amount of any suspense accounts held by Operator as of
the Closing Date.
In determining Closing Working Capital there shall not be included in revenues
any operating fees and drilling fees earned by Operator under any operating
agreement or drilling contract or any interest earned by Operator on any
accounts.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" is defined in Section 10.12.
"Contracts" shall mean all contracts, agreements, leases and other
arrangements used or useful in connection with the Producing Leases, insofar and
only insofar as they apply to the Producing Leases.
"Defensible Title" is defined in Section 4.2.
"Disqualifying Environmental Condition" shall mean the presence, as
determined by the Environmental Assessment, of (i) a material violation of
Environmental Laws in connection with the operation of the Subject Assets or
(ii) a material amount of Regulated Substances in the soil, groundwater, or
surface water in, on, at, or under a Subject Asset in a manner or quantity: (A)
which is required by Environmental Laws or by any applicable action or guidance
levels or other standards published by any Governmental Authority to be
remediated; or (B) for which a permit or closure plan that is required under
Environmental Laws has not been obtained. Well plugging and abandonment and
drill site restoration obligations customarily taken at the time of well
plugging and abandonment, shall not constitute a "Disqualifying Environmental
Condition for wells on Exhibit A.
"Documents" is defined in Section 14.4.
"DTPA" is defined in Section 13.2(a).
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"Double A Interest" shall mean all of the Working Interest Owners' and
Operator's right, title and interest in and to the Double A Leases, together
with a like interest in all contracts and other agreements applicable to said
Leases insofar as they cover such lands.
"Double A Leases" shall mean the oil, gas and mineral leases described
in Exhibit "E", insofar as such Leases cover the lands described in Exhibit "E".
"Easements" shall mean all easements, rights-of-way, servitudes,
permits, licenses, franchises and other estates or similar rights and privileges
to the extent related to or used in connection with the Producing Leases.
"Escobeda Title Matter" shall mean the alleged overlapping of the
Bartolo Escobeda League, A-30 with the Thomas Colville League, A-16, the Andrew
Wyllie One-Quarter League, A-84 and the Cyrus Thompson One-Quarter League,
A-563, Polk County, Texas.
"Effective Time" shall mean 7:00 a.m. Central Standard Time on January 1,
1996.
"Environmental Assessment" is defined in Section 4.7(a).
"Environmental Consultant" is defined in Section 4.7(a).
"Environmental Deductible Balance" shall mean the amount, if any, by
which $250,000 exceeds the Aggregate Environmental Defect Value of all
Disqualifying Environmental Conditions on Producing Properties not treated as
Excluded Assets pursuant to Section 4.9(a)(i).
"Environmental Defect Notice" is defined in Section 4.8(a).
"Environmental Defect Value" means the net present value (determined
based on a 10% discount rate compounded annually) of the cost to correct in the
most cost effective manner reasonably available any Disqualifying Environmental
Condition established pursuant to Section 4.8.
"Environmental Laws" shall mean all laws, ordinances, statutes, codes,
rules, regulations, agreements, judgments, orders, and decrees, now in effect,
promulgated, or amended, of any Governmental Authority, relating to pollution,
the protection or regulation of human health, natural resources, or the
environment, or the emission, discharge, release or threatened release of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or waste or Regulated Substances into the environment (including,
without limitation, ambient air, surface water, ground water or land or soil).
"Environmental Matters" is defined in Section 12.2(a).
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"Equipment" shall mean all personal property, wells, equipment,
materials, fixtures and improvements located on and used in connection with the
Producing Leases or the production, treatment, sale, or disposal of hydrocarbons
or waste produced therefrom or attributable thereto.
"ERISA" is defined in Section 5.3(m).
"Excluded Assets" shall mean the following: (a) any and all corporate,
financial, tax, interpretative geological, interpretative geophysical and legal
records of Seller, (b) any and all financial, tax, interpretative geological,
interpretative geophysical and legal records of Operator, except those that
relate to the Subject Assets, (c) any and all geophysical data of Seller or of
Operator, except for Operator's interest in certain geophysical data described
in Section 7.4, (d) any and all refunds of costs, taxes or expenses borne by
Seller or Operator attributable to the period prior to the Effective Time, (e)
any and all proceeds from the settlements of contract disputes with purchasers
of oil, gas or other hydrocarbons from the Producing Leases, including without
limitation settlements of take-or-pay disputes, insofar as said proceeds are
attributable to periods of time prior to the Effective Time, (f) any and all
fee, mineral, royalty, overriding royalty, and other similar interests owned by
Seller or Operator; (g) any and all interests in the Livingston gas processing
plant, (h) any and all interests in the Camp Ruby gas gathering system including
all pipelines, rights of way, easements and road use agreements used in
connection with gathering gas from the Subject Assets, (i) an undivided 50% of
Seller's and Operator's right, title and interest in and to the Black Stone
Champion International C No. 1, Black Stone - Carter E No. 11, and Black Stone -
Alabama Coushatta No. 6 Lease Units (as designated on Exhibit A), insofar as
such right, title and interest are attributable to depths above 4,000 feet, (j)
subject to the provisions of Section 14.18, the Champion C-2 Assets, (k) any
interest in the Subject Assets which becomes an Excluded Asset pursuant to
Sections 4.9 or 13.3, and (l) any and all assets (real or personal) related to
the foregoing items (a) through (k) including any and all rights to use the
Easements insofar as they are useful in connection therewith or with the leases
described in Exhibits B, C and D.
"Excluded Capital Costs" shall mean all capital costs incurred to drill,
complete, and equip to the point of delivery the Champion International C No. 1,
Carter E No. 11, Alabama Coushatta No. 5 and Alabama Coushatta No. 6 wells.
"Existing Encumbrances" is defined in Section 4.5.
"Final Settlement Date" is defined in Section 10.6(a).
"Final Statement" is defined in Section 10.6(b).
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"Financial Statements" is defined in Section 5.3(d).
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Governmental Authority" shall mean the United States, the states, the
counties, the cities, or any other political subdivisions in which the Subject
Assets are located, and any other political subdivision, agency or
instrumentality (including the Texas Natural Resource Conservation Commission
and the Texas Railroad Commission) exercising jurisdiction over Seller,
Operator, the Subject Assets, or the operation of the Subject Assets.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Hydrocarbons" is defined in Section 4.5(b).
"Indemnified Party" is defined in Section 12.2(g).
"Indemnifying Party" is defined in Section 12.2(g).
"Information" is defined in Section 4.7(d).
"Intellectual Property" is defined in Section 5.3(k).
"Losses" is defined in Section 12.2(d).
"Lease Unit" shall mean, for each well comprising the Subject Assets, the
corresponding lease unit described in Exhibit A; provided, that the Lease Unit
for the Alabama Coushatta No. 7 well shall be the same as for the Alabama
Coushatta No. 4 well, and the Lease Unit for the Alabama Coushatta No. 8 well
shall be the same as for the Alabama Coushatta No. 6 well.
"Net Revenue Interest" is defined in Section 4.2(a).
"North Double A Portion/Camden Tram Interest" shall mean an undivided
30% of the Working Interest Owners' and Operator's right, title and interest as
of the Effective Time in and to the North Double A Portion/Camden Tram Leases,
insofar as such Leases cover the lands described in Exhibit "D", together with a
like interest in all contracts and other agreements applicable to said Leases
insofar as they cover such lands.
"North Double A JOA" shall mean a joint operating agreement to be
executed by Working Interest Owners, Buyer and Operator, as operator, covering
the North Double A Area outlined on Exhibit H and in the substantially the form
of the Camden Tram JOA.
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"North Double A Portion/Camden Tram Leases" shall mean the oil, gas and
mineral leases described in Exhibit "D".
"Notice of Disagreement" is defined in Section 10.6(a).
"Notice Period" is defined in Section 12.2(g).
"Operator" shall mean Black Stone Oil Company, a Texas corporation.
"Operator Subject Assets" shall mean those Subject Assets owned by
Operator only.
"Producing Leases" shall mean the oil, gas and mineral leases described
in Exhibit "A", insofar and only insofar as such leases cover the lands
described in Exhibit "A".
"Producing Properties" shall mean all of the right title and interest
of the Sellers and Operator in and to the Producing Leases, Easements,
Equipment, Contracts and Records.
"Purchase Price" shall mean $71,500,000.
"Purchase Price Adjustments" is defined in Section 10.4(e).
"Purchased Subject Assets" shall mean the Subject Assets, other than
the Operator Subject Assets.
"Purchased Shares" shall mean all of the issued and outstanding shares
of common stock, $.10 par value, of Operator owned by Selling Stockholders.
"Records" shall mean all books, records, files, muniments of title,
reports and similar documents and materials that relate to Operator or the
Producing Properties, Easements, Equipment or Contracts except those that relate
to the Excluded Assets.
"Regulated Substances" shall mean: (i) any hazardous substance defined
as such under Section 9601(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. ss.9601, et. seq.; and (ii)
any oil and gas exploration and production waste, hydrocarbon-contaminated soil
or groundwater, or naturally occurring radioactive material ("NORM") in soil or
equipment that is required to be remediated under applicable Environmental Laws
at the time of discovery.
"S Year" is defined in Section 7.7.
"Seller" shall mean an individual Selling Stockholder or Working
Interest Owner.
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"Sellers" shall mean all Selling Stockholders and Working Interest
Owners.
"Seller's Response" is defined in Section 4.4(a).
"Selling Stockholder" shall mean an individual party identified on
Schedule II attached hereto.
"Selling Stockholder Indemnitees" is defined in Section 12.2(a).
"Statement" is defined in Section 10.5.
"Stockholder Indemnitors" is defined in Section 12.2(c).
"Subject Assets" shall mean the following: (i) the Producing
Properties, (ii) the Camden Tram Interest, the (iii) the Center Grove Interest,
(iv) the North Double A Portion/Camden Tram Interest, and (v) the Double A
Interest, but shall not include any of the Excluded Assets.
"Tax Losses" means any Losses arising from the breach of the
representations, warranties and covenants contained in Sections 5.2(f), 5.3(j)
and 7.7 or Taxes of Operator resulting from the creation and distribution of the
stock of any subsidiary of Operator pursuant to Section 7.4(b).
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments including, without limitation, income, excise, severance, property,
withholding, sales and franchise taxes, imposed by the United States, or any
state, county, local or foreign government or subdivision or agency thereof, and
including any interest, penalties or additions attributable thereto.
"Title Benefit" shall mean that a Working Interest Owner or Operator
owns a Net Revenue Interest in any Producing Property in excess of the interest
shown in Schedule 2.3 for such Producing Property.
"Title Consultant" is defined in Section 4.4(a).
"Title Defect" is defined in Section 4.2.
"Title Defect Notice" is defined in Section 4.3.
"Title Examination Period" is defined in Section 4.1.
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"Total Defect Adjustment" shall mean the aggregate of (i) the Aggregate
Environmental Defect Value, (ii) the value of all Title Defects asserted in
accordance with Article IV and (iii) the Allocated Value of all Producing
Properties that have become Excluded Assets pursuant to Sections 4.9 or 13.3.
"TRPA" is defined in Section 13.5.
"Working Capital" shall mean all cash, accounts receivable, accounts
payable and other items of working capital as determined pursuant to GAAP.
"Working Interest" is defined in Section 4.2(a).
"Working Interest Owner" shall mean an individual party identified on
Schedule I attached hereto.
"Working Interest Owner Indemnitees" is defined in Section 12.2(a).
ARTICLE II
Purchase and Sale
Section 2.1 Agreement to Sell and Purchase. Subject to and in
accordance with the terms and conditions of this Agreement, Buyer agrees to
purchase from (i) the Selling Stockholders the Purchased Shares and (ii) the
Working Interest Owners the Purchased Subject Assets, for the total Purchase
Price as adjusted pursuant to the provisions of Article X, and (x) each Selling
Stockholder, severally and not jointly, agrees to sell to Buyer the number of
Purchased Shares indicated on Schedule II, and (y) each Working Interest Owner,
severally and not jointly, agrees to sell to Buyer the Purchased Subject Assets
owned by such Working Interest Owner as indicated on Schedule I, all for the
aggregate payment to the Sellers equal to the Purchase Price as adjusted as
provided in Article X.
Section 2.2 Purchase Price. The total consideration for the sale and
transfer of the Purchased Subject Assets and the Purchased Shares to Buyer shall
be Buyer's payment to Sellers of the Purchase Price, as adjusted pursuant to the
provisions of Article X. The Adjusted Purchase Price shall be paid by Buyer to
Sellers at Closing by means of a completed Federal Funds transfer to the account
of BSHP designated by BSHP to Buyer in writing at least two days prior to the
Closing Date for the further account of Sellers.
Section 2.3 Allocated Values. Attached hereto as Schedule 2.3 is a
schedule which shows the following items (the "Allocated Values"): (i) the
portion of the Purchase Price allocated to the Purchased Shares and the
Purchased Subject Assets, (ii) an allocation of the portion of the Purchase
Price for the Purchased Subject Assets among the properties
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which comprise the Purchased Subject Assets and each Working Interest Owner's
interests therein and (iii) an allocation of the Purchase Price for the
Purchased Shares among the properties which comprise the Operator Subject
Assets. Each Seller and Buyer agree that the Allocated Values shall be used to
compute any adjustments to the Purchase Price pursuant to the provisions of this
Agreement, but shall not be required to use such Allocated Values for any other
purpose.
ARTICLE III
Effective Time
Section 3.1 Revenues and Expenses.
(a) If the transactions contemplated hereby are consummated in
accordance with the terms and provisions hereof, the ownership of the Purchased
Subject Assets shall be transferred from each Working Interest Owner to Buyer at
the Closing Date but effective as of the Effective Time. Subject to the other
provisions of this Agreement, each Working Interest Owner shall (i) be entitled
to all revenues (and related accounts receivable) attributable to the Purchased
Subject Assets owned by such Working Interest Owner (including, without
limitation, the right to all production, proceeds of production and other
proceeds), and (ii) responsible for the payment of all expenses (and related
accounts payable) attributable to the Purchased Subject Assets owned by such
Working Interest Owner in each case to the extent the same relate to the period
of time prior to the Effective Time. Subject to the other provisions of this
Agreement, Buyer shall be entitled to all revenues (and related accounts
receivable) attributable to the Purchased Subject Assets (including, without
limitation, the right to all production, proceeds of production and other
proceeds), and shall be responsible for the payment of all expenses (and related
accounts payable) attributable to the Purchased Subject Assets, in each case to
the extent the same relate to the period of time from and after the Effective
Time.
(b) If the transactions contemplated hereby are consummated in
accordance with the terms and provisions hereof, the ownership of the Purchased
Shares shall be transferred from the Selling Stockholders to Buyer as of the
Closing Date, but the Purchase Price of the Purchased Shares shall be adjusted
as provided in Article X.
ARTICLE IV
Title and Environmental Matters
Section 4.1 Title Examination Period. Following the execution date of
this Agreement until 5:00 p.m., local time in Houston, Texas on April 12, 1996
(the "Title Examination Period"), each Working Interest Owner and Operator shall
permit Buyer and
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its representatives and agents to examine, at all reasonable times in Operator's
offices, all abstracts of title, title opinions, title files, ownership maps,
lease files, assignments, division orders, operating records and agreements
pertaining to the Subject Assets insofar as same may now be in existence and in
the possession of Working Interest Owner or Operator.
Section 4.2 Title Defects. The term "Title Defect", as used in this
Agreement, shall mean (i) any encumbrance, reversion, encroachment,
irregularity, defect in or objection to the title of any Working Interest Owner
to the interest in any Producing Property set forth opposite such Working
Interest Owner's name on Schedule 2.3 or to the title of Operator to the
interest in any Producing Property set forth opposite its name on Schedule 2.3
which causes such title, as of the Closing Date, to be less than Defensible
Title, and (ii) any failure of any Selling Stockholder to own as of the Closing
Date the Purchased Shares set forth opposite such Selling Stockholder's name on
Schedule II free and clear of all liens, pledges, security interests and other
similar encumbrances. For purposes of this Agreement, the term "Defensible
Title" means that, subject to and except for the Existing Encumbrances:
(a) Each Working Interest Owner and Operator by virtue of its interest
in the Producing Properties is (i) entitled to receive not less than the
percentage set forth in Schedule 2.3 hereto as the "Net Revenue Interest" of all
Hydrocarbons produced, saved and marketed from the Lease Unit for each well
listed on Schedule 2.3 without reduction, suspension or termination of such
interest throughout the productive life of such well, except as specifically set
forth in Schedule 2.3, and (ii) obligated to bear the percentage of the costs
and expenses relating to the maintenance, development and operation of the Lease
Unit for each well not greater than the "Working Interest" shown in Schedule
2.3, without increase throughout the productive life of such well, except as
specifically set forth in Schedule 2.3; and
(b) The title of each Working Interest Owner and Operator is free and
clear of all liens, pledges, security interests, and other similar encumbrances.
Section 4.3 Notice of Title Defects. If Buyer discovers any Title
Defect, Buyer shall notify BSHP of such alleged Title Defect setting forth a
summary of the alleged Title Defect, the asserted value thereof determined by
Buyer in accordance with the terms of this Agreement, and including copies of
relevant portions of any title opinions or other title information on which the
alleged Title Defect is based (a "Title Defect Notice"). Each Title Defect
Notice shall be delivered by Buyer to BSHP as soon as practicable after the
alleged Title Defect is discovered, but in no event later than 12:00 noon on
April 12, 1996 ; provided that Buyer shall notify BSHP on or before 12:00 noon
on March 1, 1996 of any alleged Title Defect directly related to the Escobeda
Title Matter. Any matters that may otherwise constitute Title Defects but that
are not specifically raised in a Title Defect Notice delivered prior to 12:00
noon on April 12, 1996 shall be deemed to have been waived by Buyer, except to
the extent that any Title Defect constitutes a breach of the special warranty of
title contained
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in the Assignment delivered by Working Interest Owners at Closing and the
warranty of title made by Operator pursuant to Section 5.3(e)(vii).
Notwithstanding the foregoing, any title defect or irregularity directly related
to the Escobeda Title Matter that is not specifically raised in a Title Defect
Notice delivered by Buyer to BSHP on or before 12:00 noon on March 1, 1996 shall
be deemed waived by Buyer. Operator or any Working Interest Owner shall have the
option, but not the obligation, to attempt to cure any Title Defect.
Section 4.4 Determination of and Remedies for Title Defects.
(a) Determination of Title Defects and Defect Values. Not later than
12:00 noon on April 26, 1996, BSHP shall notify Buyer whether it agrees with
Buyer's claimed Title Defects and/or the proposed defect values therefor
("Seller's Response"). If BSHP does not agree with any claimed Title Defect
and/or proposed defect value therefor, then the parties shall enter into good
faith negotiations and shall attempt to agree on such matters. The parties
hereby agree that there is no defect value with respect to Title Defects on
Subject Assets other than the Producing Properties. If the parties cannot reach
agreement concerning either the existence of a Title Defect or a defect value
within ten (10) days after Buyer's receipt of Seller's Response, upon either
party's request, the parties shall mutually agree on and employ an attorney
experienced in title examination ("Title Consultant") to resolve all points of
disagreement relating to Title Defects and defect values; provided, however,
that if at any time any Title Consultant so chosen fails or refuses to perform
hereunder, a new Title Consultant shall be chosen by the parties. The cost of
any such Title Consultant shall be borne 50% by Sellers and 50% by Buyer. Each
party shall present a written statement of its position on the Title Defect
and/or defect value in question to the Title Consultant within five (5) days
after the Title Consultant is selected, and the Title Consultant shall make a
determination of all points of disagreement in accordance with the terms and
conditions of this Agreement within ten (10) business days of receipt of such
position statements. The determination by the Title Consultant shall be
conclusive and binding on the parties, and shall be enforceable against any
party in any court of competent jurisdiction. If necessary, the Closing Date
shall be deferred until the Title Consultant has made a determination of the
disputed issues, and all subsequent dates and required activities having
reference to the Closing Date shall be correspondingly deferred; provided,
however, that, unless each Seller and Buyer mutually agree to the contrary, the
Closing Date shall not be deferred in any event for more than thirty (30) days
beyond the original Closing Date.
(b) Remedies for Title Defect. With respect to any Title Defect that a
Seller elects not to cure or that a Seller fails to cure at or prior to the
Closing, such Seller and Buyer shall reduce the Purchase Price by the agreed
upon defect value of such Title Defect, taking into consideration the Allocated
Value of the Producing Property subject to such Title Defect, the portion of
such Producing Property subject to such Title Defect and the legal effect of
such Title Defect on the Producing Property affected thereby; provided, however,
that if such Title Defect is the result of a discovery by Buyer that Working
Interest Owner
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or Operator owned, as of the Effective Time, a Net Revenue Interest in a
Producing Property that is less than the Net Revenue Interest set forth on
Schedule 2.3, then Buyer and Seller agree that the proportion of reduction to
the Purchase Price shall be equal to the product of the Allocated Value of such
Producing Property and the percentage reduction in such Net Revenue Interest as
a result of such Title Defect, and provided, further, that if the defect value
has been determined in accordance with Section 4.4(a), the Title Consultant's
determination will control. Notwithstanding anything to the contrary contained
herein, there shall be no reduction to the Purchase Price for Title Defects with
respect to any well on a Lease Unit pursuant to the terms of Section 4.4(b)
unless and until, and then only to the extent that, the aggregate value of all
adjustments for Title Defects with respect to such well on a Lease Unit, on
well-by-well basis, exceeds one-half of one percent (1/2%) of the Allocated
Value of such well on such Lease Unit.
Section 4.5 Special Warranty of Title. The documents to be executed and
delivered by each Working Interest Owner to Buyer, transferring title to the
Purchased Subject Assets as required hereby, including the Assignment and Bill
of Sale attached hereto as Exhibit "E" (the "Assignment"), shall be subject to
the Existing Encumbrances and without warranty of title of any kind whatsoever,
express, implied or statutory, except for matters arising by, through or under
Working Interest Owner. The term "Existing Encumbrances" shall mean any of the
following matters to the extent the same are valid and subsisting and affect the
Subject Assets:
(a) the contracts, agreements, instruments and other matters set forth
in Exhibit A;
(b) any (i) undetermined or inchoate liens or charges constituting or
securing the payment of expenses that were incurred incidental to maintenance,
development, production or operation of the Subject Assets or for the purpose of
developing, producing or processing oil, gas or other hydrocarbons
(collectively, "Hydrocarbons") therefrom or therein, and (ii) materialman's,
mechanics', repairman's, employees', contractors', operators' or other similar
liens or charges for liquidated amounts arising in the ordinary course of
business (x) that are not delinquent or that will be paid and discharged by a
Seller at or before Closing, (y) which Buyer has agreed to assume or pay
pursuant to the terms hereof, or (z) if delinquent, that are being contested in
good faith by appropriate action, of which Buyer will be notified in writing
before Closing;
(c) any liens for taxes and assessments not yet delinquent or, if
delinquent, that are being contested in good faith in the ordinary course of
business and for which a Seller has agreed to pay pursuant to the terms hereof
or which have been prorated pursuant to the terms hereof;
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(d) any liens or security interests created by law or reserved in oil
and gas leases for royalty, bonus or rental, or created to secure compliance
with the terms of the agreements, instruments and documents of record or
contained in the Records that create or reserve to Working Interest Owner or
Operator its interests in the Subject Assets;
(e) any obligations or duties affecting the Subject Assets to any
municipality or public authority with respect to any franchise, grant, license
or permit of record or contained in the Records, and all applicable laws, rules,
regulations and orders of any Governmental Authority;
(f) any (i) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations, pipelines, grazing,
hunting, lodging, canals, ditches, reservoirs or the like of record or contained
in the Records, and (ii) easements for streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other similar rights-of-way of record
or contained in the Records, on, over or in respect of property owned or leased
by Working Interest Owner or Operator or over which Working Interest Owner or
Operator owns rights-of-way, easements, permits or licenses which do not operate
to interfere materially with operations as currently conducted on the Subject
Assets;
(g) all lessors' royalties, overriding royalties, net profits
interests, carried interests, production payments, reversionary interests and
other burdens on or deductions from the proceeds of production created or in
existence as of the Effective Time that do not operate to reduce the Net Revenue
Interests of Working Interest Owner or Operator or increase the Working
Interests of Working Interest Owner or Operator without a corresponding increase
in the Net Revenue Interests;
(h) preferential rights to purchase or similar agreements with respect
to which (i) waivers or consents are obtained from the appropriate parties for
the transaction contemplated hereby, or (ii) required notices have been given
for the transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise of
such rights;
(i) required third party consents to assignments or similar agreements
with respect to which (i) waivers or consents are obtained from the appropriate
parties for the transaction contemplated hereby, or (ii) required notices have
been given for the transaction contemplated hereby to the holders of such rights
and the appropriate period for asserting such rights has expired without an
exercise of such rights;
(j) all rights to consent by, required notices to, filings with, or
other actions by Governmental Authorities in connection with the sale or
conveyance of oil and gas leases or interests therein that are customarily
obtained subsequent to such sale or conveyance;
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(k) production sales contracts; division orders; contracts for sale,
purchase, exchange, refining or processing of hydrocarbons; unitization and
pooling designations, declarations, orders and agreements; operating agreements;
agreements of development; area of mutual interest agreements; gas balancing or
deferred production agreements; processing agreements; plant agreements;
pipeline, gathering and transportation agreements; injection, repressuring and
recycling agreements; carbon dioxide purchase or sale agreements; salt water or
other disposal agreements; seismic or geophysical permits or agreements to the
extent the same are ordinary and customary to the oil, gas, sulphur and other
mineral exploration, development, processing or extraction business which are of
record or contained in the Records;
(l) record title to Purchased Subject Assets of any Working Interest
Owner being held in the name of Operator; or
(m) defects or irregularities affecting the Subject Assets that
individually or in the aggregate do not materially interfere with the ownership
or operation of the Subject Assets or impair the value of the Subject Assets.
Section 4.6 Remedies for Title Benefits. The Purchase Price shall be
increased pursuant to Sections 10.4(a)(iii) and 10.4(d) with respect to all
Title Benefits, in an amount equal to the value of any Title Benefit. Buyer and
Working Interest Owners agree that the value of any Title Benefit shall be equal
to the product of the Allocated Value of the affected Lease Unit and the
percentage increase in such Net Revenue Interest as a result of such Title
Benefit; provided, however, that Buyer shall have no duty or obligation to
advise a Seller of any higher Net Revenue Interest discovered in Buyer's due
diligence or otherwise coming to Buyer's attention, except where Buyer is
claiming a Title Defect based upon an increase in Working Interest, and in such
case Buyer shall disclose the existence of any corresponding increase in Net
Revenue Interest.
Section 4.7 Environmental Procedure.
(a) Each Working Interest Owner and Operator consent to the performance
of, and Buyer shall cause to be performed on or before April 12, 1996, an
environmental assessment ("Environmental Assessment") on all or a part of the
Producing Properties and agree to allow Buyer or Sound Environmental, Inc. or
other environmental consultant or technical representatives that have been
approved by BSHP (which approval shall not be unreasonably withheld) (the
"Environmental Consultant") to have access to the Producing Properties for this
purpose at any reasonable time or times prior to April 12, 1996 (the "Assessment
Period").
(b) The scope of work for the Environmental Assessment shall be
mutually agreed upon by Buyer and BSHP and the agreement of BSHP will not be
unreasonably withheld.
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(c) Buyer shall bear all costs associated with the Environmental
Assessment. Working Interest Owner and Operator understand and acknowledge that
the Environmental Assessment may involve subsurface testing of soil,
groundwater, and any surface water at the Producing Properties and may involve
soil borings and the collection of groundwater samples by hydropunch, geoprobe,
or similar means, but Buyer shall not install groundwater monitoring wells
without the prior consent of BSHP, which consent shall not be unreasonably
withheld. Buyer shall be responsible for disposing of any soil cuttings or other
waste generated by this testing and shall restore the Producing Properties at
the end of the Assessment Period to its condition prior to the performance of
the Environmental Assessment. Buyer agrees to indemnify and hold each Working
Interest Owner and Operator harmless from any liability arising from the acts or
omissions of Buyer, its representatives or the Environmental Consultant during
the performance of the Environmental Assessment WITHOUT REGARD TO THE SOLE,
PARTIAL OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY
WORKING INTEREST OWNER INDEMNITEE OR OPERATOR, but in no event for the gross
negligence or willful misconduct of any Working Interest Owner Indemnitee or
Operator. No invasive testing or excavation other than soil borings, the
installation of groundwater wells, and grab samples of surface soil, surface
water, or sediment approved by BSHP pursuant to Section 4.7(b) shall be
undertaken without the prior consent of BSHP.
(d) Unless otherwise required by law, Buyer agrees to treat
confidentially all reports prepared for Buyer by its Environmental Consultant in
connection with the performance of the Environmental Assessment, and the
information contained in such reports (collectively, referred to herein as the
"Information"). The Information may only be used by Buyer or Sellers in
connection with the transactions contemplated by this Agreement. In the event
that Buyer or its representatives become legally compelled to disclose any of
the Information, Buyer shall provide Working Interest Owner and Operator with
prompt notice prior to any such disclosure so that Working Interest Owner or
Operator, if it disagrees with this obligation to disclose, may seek a
protective order or other appropriate remedy and/or waive compliance with any
applicable provisions of this Section 4.7(d).
(e) Buyer shall make the Information available to Working Interest
Owner and Operator and provide Working Interest Owner and Operator copies of the
Information without charge.
(f) Working Interest Owner and Operator shall have the right to have a
representative or representatives accompany the Environmental Consultant at all
times during the Environmental Assessment and Buyer agrees to give Working
Interest Owner and Operator verbal notice not more than 72 hours and not less
than 48 hours before any visits by the Environmental Consultant to the Producing
Properties. Buyer agrees to take and provide to Operator identical split samples
of all sampling done on the Producing Properties.
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Section 4.8 Determination of Disqualifying Environmental Condition.
(a) Notice of Environmental Defects. To establish the existence of a
Disqualifying Environmental Condition on a Subject Asset, Buyer shall deliver to
BSHP a notice (an "Environmental Defect Notice") as soon as practicable after
discovery of such Disqualifying Environmental Condition and in any event prior
to 12:00 noon on April 12, 1996 asserting the existence of a Disqualifying
Environmental Condition and including (i) the Environmental Assessment which
must contain a conclusion that a Disqualifying Environmental Condition exists,
and which conclusion must be reasonably substantiated by the results of the
investigation conducted by the Environmental Consultant and (ii) a bid from the
Environmental Consultant and another qualified environmental consulting firm for
the correction of the Disqualifying Environmental Condition in the most cost
effective manner reasonably available. As a minimum standard for acceptance by
Working Interest Owner and Operator, such Environmental Assessment must reflect
that the Environmental Consultant performed sufficient invasive testing and
analytical work to delineate reasonably the nature and extent of the
Disqualifying Environmental Condition and is further required to contain a site
plan showing the location of all sampling events, boring logs and other field
notes describing the sampling methods utilized and the field conditions
observed, chain-of- custody documentation, laboratory reports, and copies of two
bids for corrective work.
(b) Seller's Reply to Defect Notice. On or before 12:00 noon on April
26, 1996, the affected Working Interest Owner and/or Operator shall provide
Buyer with written notice as to whether it acknowledges the existence of each
Disqualifying Environmental Condition asserted by Buyer in an Environmental
Defect Notice delivered pursuant to the terms hereof. If such Working Interest
Owner or Operator does not provide Buyer on or before said time with a written
notice that Working Interest Owner or Operator rejects the conclusion in the
Environmental Assessment as to the existence of a Disqualifying Environmental
Condition, such Working Interest Owner or Operator shall be deemed to have
acknowledged the existence of a Disqualifying Environmental Condition.
(c) Buyer's Rights of Acceptance or Appeal. If a Working Interest Owner
or Operator timely rejects the conclusions in the Environmental Assessment, then
Buyer shall have five (5) days after the receipt of this rejection to appeal the
rejection by providing such Working Interest Owner or Operator within this five
day period with a written notice of its appeal. If Buyer does not timely and
properly appeal within this time period, Buyer shall be deemed to have
acknowledged that no Disqualifying Environmental Condition exists. If Buyer
accepts or is deemed to accept that no Disqualifying Environmental Condition
exists, then the parties will proceed to Closing. If Buyer timely appeals, then,
at the sole cost of the unsuccessful party in the appeal process, Buyer and such
Working Interest Owner or Operator shall each select a consulting firm and then
the two consulting firms shall mutually agree upon a third firm. The third firm
shall make a determination whether the conclusion in the Environmental
Assessment that a Disqualifying Environmental Condition exists is
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correct and is supported by an investigation conducted in accordance with
industry-accepted standards. The determination of the third consulting firm
shall be final and binding upon Buyer and a Working Interest Owner or Operator
as to the existence of a Disqualifying Environmental Condition. The third
consulting firm shall also estimate the cost of correcting the Disqualifying
Environmental Condition in the most cost effective manner reasonably available.
Buyer and the applicable Working Interest Owner or Operator shall reasonably
cooperate in the appeal process which shall be completed within thirty (30) days
after Buyer gives Working Interest Owner or Operator written notice of its
appeal. If any party fails to cooperate in the appeal process or the two
appointed consultants cannot agree upon a third consultant, then either party
may petition the United States District Judge for the Southern District of Texas
then senior in service to designate a qualified and experienced consulting firm.
Section 4.9 Remedies for a Disqualifying Environmental Condition.
(a) With respect to all Disqualifying Environmental Conditions
established pursuant to Section 4.8, the following provisions shall apply.
(i) If the Environmental Defect Value of all Disqualifying
Environmental Conditions associated with a Producing Property exceeds the
Allocated Value of such Producing Property, Buyer may elect to exclude such
Producing Property from this transaction and treat such Producing Property as an
Excluded Asset in which event the Purchase Price shall be adjusted downward by
the Allocated Value of such Producing Property.
(ii) If the Environmental Defect Value of all Disqualifying
Environmental Conditions associated with a Producing Property exceeds 30% of the
Allocated Value of such Producing Property, Working Interest Owner or Operator
may elect to exclude such Producing Property from this transaction and treat
such Producing Property as an Excluded Asset in which event the Purchase Price
shall be adjusted downward by the Allocated Value of such Producing Property.
(iii) If the Aggregate Environmental Defect Value of all
Disqualifying Environmental Conditions on Producing Properties not treated as
Excluded Assets pursuant to Section 4.9(a)(i) and (ii) does not exceed $250,000,
Buyer alone shall pay and be responsible for the costs of correcting such
Disqualifying Environmental Conditions.
(iv) If the Aggregate Environmental Defect Value of all
Disqualifying Environmental Conditions on Producing Properties not treated as
Excluded Assets pursuant to Section 4.9(a)(i) and (ii) exceeds $250,000, Buyer
shall pay and be responsible for the first $250,000 of the Aggregate
Environmental Defect Value and Working Interest Owner and
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Operator shall pay and be responsible for the balance of such amount (but such
payments shall not be included as a part of the Closing Working Capital).
(b) Operator shall have the right, but not the obligation, on behalf
of itself and any affected Working Interest Owner to cure any Disqualifying
Environmental Condition prior to Closing. The Environmental Defect Value of any
Disqualifying Environmental Condition cured by Operator in accordance with
Section 4.10 prior to Closing shall be applied against the amount for which
Working Interest Owner and Operator are responsible under Section 4.9(a)(iv).
(c) If the Operator does not correct any Disqualifying Environmental
Defect prior to the Closing, then Buyer shall proceed with due diligence in
accordance with industry accepted practices after the Closing to correct any
Disqualifying Environmental Conditions in accordance with Section 4.10 for which
it is responsible under Sections 4.9(a)(iii) and (iv). At the Closing, the
Purchase Price shall be adjusted downward by the amount of the Environmental
Defect Value for which Working Interest Owner and Operator are responsible under
Section 4.9(a)(iii), less any credit to which they are entitled under 4.9(b).
Section 4.10 Correction of a Disqualifying Environmental Condition. To
correct a Disqualifying Environmental Condition involving a violation of
Environmental Laws, the party responsible for correcting the Disqualifying
Environmental Condition under the provisions of Sections 4.9(b) and (c) shall
cure the violation and provide reasonable evidence to the other party
substantiating that the violation has been cured. To correct a Disqualifying
Environmental Condition involving Regulated Substances, the responsible party
shall perform the type of remediation that a prudent operator would perform and
shall provide the other party with written assurance from the appropriate
Governmental Authority that no further action is required in connection with the
Regulated Substances, or if no such written assurance is customarily obtained
under normal procedures observed by prudent operators, a certification from a
qualified consultant that the appropriate remediation has been performed and
that no further response is required under applicable Environmental Laws.
ARTICLE V
Representations and Warranties of Sellers and Operator
Section 5.1 Representations and Warranties of Working Interest Owners.
Each Working Interest Owner (severally and not jointly) represents and warrants
with respect to itself only and its interest in the Purchased Subject Assets on
the date hereof and on the Closing Date as follows:
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(a) Existence. If Working Interest Owner is a corporation, it is duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. If Working Interest Owner is a partnership, it is duly
organized and validly existing under the laws of the state of its formation.
Working Interest Owner has full legal power, right and authority to own, lease
and operate its properties and to carry on its business as such is now being
conducted and as contemplated to be conducted.
(b) Legal Power. Working Interest Owner has the legal power and right
to enter into and perform this Agreement and the transactions contemplated
hereby and, in the case of any Working Interest Owner who is an individual, no
joinder by or consent of Working Interest Owner's spouse is required hereunder.
The execution and delivery of this Agreement and the documents contemplated
hereby, and the consummation of the transactions contemplated by this Agreement
will not violate, nor be in conflict with:
(i) any provision of Working Interest Owner's articles or certificate
of incorporation, by-laws or partnership agreement, as applicable; or
(ii) any judgment, order, ruling or decree applicable to Working
Interest Owner or the Purchased Subject Assets or any law, rule or regulation
applicable to Working Interest Owner or the Purchased Subject Assets.
(c) Execution. The execution and delivery of this Agreement and the
other documents contemplated hereby and the performance by Working Interest
Owner of the transactions contemplated hereby and thereby have been duly and
validly authorized by all requisite corporate or partnership action, as
applicable, on the part of each Working Interest Owner that is a corporation or
partnership. This Agreement constitutes the legal, valid and binding obligation
of Working Interest Owner, enforceable in accordance with its terms, except that
(i) enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) the remedies of specific performance and injunctive relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings may be brought, and (iii) rights to indemnification
hereunder may be limited under applicable securities laws.
(d) Brokers. No broker or finder has acted for or on behalf of Working
Interest Owner in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any brokerage
or finder's fee, or to any commission, based in any way on agreements,
arrangements or understandings made by or on behalf of Working Interest Owner
for which Buyer has or will have any liabilities or obligations (contingent or
otherwise).
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(e) Bankruptcy. There are no bankruptcy, reorganization, arrangement
or similar proceedings pending, or, to the knowledge of Working Interest Owner,
threatened against Working Interest Owner.
(f) Suits. Except for Black Stone Oil Company v. C.C. Lilley, Inc.,
there is no suit, action, claim, investigation or inquiry by any person or
entity or by any administrative agency or governmental body and no legal,
administrative or arbitration proceeding pending or, to the knowledge of Working
Interest Owner, threatened against Working Interest Owner or the Purchased
Subject Assets which, if decided adversely to the interest of Working Interest
Owner, would reasonably be expected to have a material adverse affect on the use
or value of the Purchased Subject Assets.
(g) No Defaults. Working Interest Owner has no knowledge of any
default with respect to the Producing Properties that has not been remedied or
waived and that would have a material adverse effect, and to the best of BSHP's
knowledge, the Producing Properties are being held, developed, operated and
produced substantially in compliance with the terms and conditions of the
Contracts and all other applicable agreements.
(h) Royalties. All rentals, royalties and other payments due with
respect to the Producing Properties have been properly and timely paid, except
those amounts in suspense, and, to the best of Working Interest Owner's
knowledge, all conditions necessary to keep the Producing Properties in effect
have been duly performed.
(i) Taxes. All ad valorem, property, production, severance, excise and
similar taxes and assessments based on or measured by the ownership of the
Purchased Subject Assets or the production of Hydrocarbons or the receipt of
proceeds therefrom on the Purchased Subject Assets that have become due and
payable have been properly and timely paid.
(j) Non-Resident Status. Working Interest Owner is not a nonresident
alien of the United States.
(k) Investment. Prior to entering into this Agreement, Working
Interest Owner was advised by and relied on its own legal, tax and other
professional counsel concerning this Agreement, the Purchased Subject Assets and
the value thereof. Working Interest Owner acknowledges that Buyer is entering
into other purchase agreements with other owners of interests in certain of the
properties which are covered by this Agreement, and that the terms and
conditions of such agreements may differ from those contained herein and from
those contained among the various other agreements.
(l) Laws and Regulations. Except as set forth on Schedule 5.1(l), to
the best of Working Interest Owner's knowledge, the Producing Properties have
been and currently are
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being operated in compliance, with all laws, regulations and orders of all
Governmental Authorities, except where the failure to so comply would not have a
material adverse affect on the business operations, financial condition, or
results of operations of Working Interest Owner or of the Producing Properties.
(m) Prepayments and Gas Balancing. To the best of Working Interest
Owner's knowledge, it is receiving on a current basis the payments required
under gas contracts or other contractual arrangements for the delivery,
transportation or sale of natural gas from the Producing Properties. Working
Interest Owner is not obligated under any prepayment arrangement, "take-or-pay"
contract, production payment agreement, well head or plant balancing agreement
or other arrangement to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor, and as of the Effective Time there
are no material "pipeline" or other imbalances with respect to any contract or
agreement which would require settlement by cash from Working Interest Owner
sometime in the future.
(n) Calls on Production. Except as provided in the Contracts listed in
Exhibit A and lessors' rights to take production in kind, no person has any call
upon, option to purchase, right of refusal or similar unexecuted right with
respect to the purchase of Working Interest Owner's portion of Hydrocarbon
production from the Producing Properties.
(o) Wells and Units. To the best of Working Interest Owner's
knowledge, every well comprising a part of the Producing Properties has been
drilled and completed within the applicable lease or within the limits otherwise
permitted by contract, pooling or unit agreement and by law. To the best of
Working Interest Owner's knowledge, no well comprising a part of the Producing
Properties is subject to penalties on allowables because of any overproduction
permitted by applicable laws, rules, regulations or permits, orders or decrees
of any Governmental Authority, which would prevent such well from being entitled
to its full, legal and regular allowable, from and after the Effective Time.
(p) Consents. Except as provided in the instruments described on
Schedule 5.1(p), no consent, authorization or approval of any third party is
required under any material agreement to which Working Interest Owner is a party
or to which its interest in the Subject Assets is bound for the execution and
delivery of this Agreement by Working Interest Owner or the performance of its
obligations hereunder.
(q) Governmental Approvals. Neither the execution and delivery of this
Agreement by Working Interest Owner nor the performance by Working Interest
Owner of its obligations hereunder will require any consent, authorization or
approval of, or waiver or exemption by, or filing with or notice to, any
governmental agency, instrumentality or authority under any provision of law
applicable to Working Interest Owner, except for (i)
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applicable filings under the HSR Act, (ii) those required under the instruments
described in Schedule 5.1(p) and (iii) those that are customarily obtained after
the Closing.
(r) Accuracy of Information Furnished. To the best of Working Interest
Owner's knowledge, all Contracts with respect to the Producing Properties can be
found either of record in Polk County, Texas or in, or referenced in, Operator's
or BSHP's files. To the best of Working Interest Owner's knowledge, all
Contracts located in Operator's or BSHP's files are true, accurate and complete
copies.
Section 5.2 Representations and Warranties of Selling Stockholders.
Each Selling Stockholder represents and warrants with respect to itself and its
Purchased Shares on the date hereof and on the Closing Date as follows:
(a) Legal Power. Selling Stockholder has the legal power and right to
enter into and perform this Agreement and the transactions contemplated hereby
and, to the extent such Selling Stockholder's spouse does not execute this
Agreement, no joinder by or consent of Selling Stockholder's spouse is required
hereunder.
(b) Valid and Binding Agreement. This Agreement constitutes the valid
and binding agreement of Selling Stockholder, enforceable in accordance with its
terms except that (i) such enforcement may be subject to bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, (ii) the
remedy of specific performance and injunctive relief and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceedings therefor may be brought, and (iii)
rights to indemnification hereunder may be limited under applicable securities
laws.
(c) Title to Purchased Shares. Selling Stockholder (i) owns of record
and beneficially, and has good and marketable title to the number of Purchased
Shares set forth opposite his name on Schedule II, free and clear of any and all
liens, security interests, encumbrances, charges, adverse claims, options,
rights, contracts, calls or commitments of any character whatsoever, and (ii)
has the right to vote such shares on any matters as to which any shares of
common stock of Operator are entitled to vote under the laws of the State of
Texas and Operator's articles of incorporation and bylaws, free of any right in
any other person.
(d) No Conflicts. To the best of Selling Stockholder's knowledge, the
execution and delivery of this Agreement by Selling Stockholder does not, and
the performance of its obligations hereunder will not, constitute a violation
of, conflict with, or result in a default under, any agreement or instrument to
which Selling Stockholder is a party or by which Selling Stockholder is bound,
or any judgment, decree or order applicable to Selling Stockholder which would
have a material adverse effect on Selling Stockholder or its Purchased Shares.
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(e) Approvals. To the best of Selling Stockholder's knowledge, except
for filings under the HSR Act, neither the execution and delivery of this
Agreement by Selling Stockholder nor the performance by Selling Stockholder of
its obligations hereunder will require any consent, authorization or approval
of, or waiver or exemption by, or filing with or notice to, any governmental
agency, instrumentality or authority under any provision of law applicable to
Selling Stockholder or other third party.
(f) S Corporation Status. Selling Stockholder is not a nonresident
alien of the United States and Selling Stockholder is either an individual or a
"qualified subchapter S trust" within the meaning of sections 1361(c)(2) and
1361(d) of the Code.
(g) Brokers. No broker or finder has acted for or on behalf of Selling
Stockholder in connection with this Agreement or the transactions contemplated
by this Agreement. No broker or finder is entitled to any brokerage or finder's
fee, or to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Selling Stockholder for which Buyer has
or will have any liabilities or obligations (contingent or otherwise).
(h) Investment. Prior to entering into this Agreement, Selling
Stockholder was advised by and relied on its own legal, tax and other
professional counsel concerning this Agreement, the Subject Assets and the value
thereof. Selling Stockholder acknowledges that Buyer is entering into other
purchase agreements with other owners of interests in certain of the properties
which are covered by this Agreement, and that the terms and conditions of such
agreements may differ from those contained herein and from those contained among
the various other agreements.
Section 5.3 Representations and Warranties of Operator. Operator
represents and warrants on the date hereof and (except as expressly provided
herein) on the Closing Date as follows:
(a) Existence and Good Standing; Power and Authority. Operator is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, with all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Operator does not have any subsidiaries. Operator is duly qualified or licensed
as a foreign corporation and in good standing in each jurisdiction in which the
character or location of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on its business, prospects, financial condition or
results of operations. Operator is qualified or licensed to transact business as
a foreign corporation in Texas and Louisiana.
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(b) Due Authorization; Enforceability. Operator has full corporate
power, capacity and authority to execute this Agreement and all other agreements
and documents contemplated hereby. The execution and delivery of this Agreement
and such other agreements and documents by Operator and the consummation by
Operator of the transactions contemplated hereby have been duly authorized by
Operator and no other corporate action on the part of Operator is necessary to
authorize the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Operator and constitutes the legal, valid and binding
obligation of Operator, enforceable in accordance with its terms, except that
(i) enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) the remedies of specific performance and injunctive relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings may be brought, and (iii) rights to indemnification
hereunder may be limited under applicable securities laws.
(c) Capital Stock. Operator's authorized capital stock consists of
1,000,000 shares of common stock, $.10 par value, of which 68,440 shares are
issued and outstanding. All of the Purchased Shares, which constitute all of the
issued and outstanding shares of capital stock of Operator, have been validly
issued and fully paid and are nonassessable and no holder thereof is entitled to
any preemptive rights. There are no outstanding conversion or exchange rights,
subscriptions, options, warrants, or other arrangements or commitments
obligating Operator to issue any shares of capital stock or any other
securities. Other than the articles of incorporation and bylaws, there are no
agreements or instruments among, or otherwise governing the relations of, the
shareholders of Operator.
(d) Financial Statements. Set forth on Schedule 5.3(d) is a true and
complete copy of the compiled balance sheet of Operator at December 31, 1994 and
the related income statement and statement of retained earnings for the period
then ended and the unaudited balance sheet at October 31, 1995 and the related
income statement and statement of retained earnings for the period then ended
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with GAAP, and present fairly the financial condition of
Operator at and as of such dates.
(e) Operator Subject Assets.
(i) No Defaults. Operator has no knowledge of any default with
respect to any Producing Properties, the Contracts or any other material
agreement, which has not been remedied or waived and which would have a material
adverse effect on such Producing Properties, and to the best of Operator's
knowledge, the Producing Properties are being held, developed, operated and
produced substantially in compliance with the terms and conditions of the
Contracts and all other applicable agreements.
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(ii) Royalties. To the best of Operator's knowledge, all
rentals, royalties and other payments due with respect to the Producing
Properties have been properly and timely paid, except those amounts in suspense,
and, all conditions necessary to keep the Producing Properties in effect have
been duly performed.
(iii) Prepayments and Gas Balancing. Operator is receiving on
a current basis the payments required under gas contracts or other contractual
arrangements for the delivery, transportation or sale of natural gas from its
interest in the Producing Properties. There are no "take-or-pay" prepayments for
which an obligation exists to deliver gas after the Effective Time. Operator is
not obligated under any material prepayment arrangement, "take-or-pay" contract,
production payment agreement, well head or plant balancing agreement or other
arrangement to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor, and as of the Effective Time there
are no material "pipeline" or other imbalances with respect to any contract or
agreement which would require settlement by cash from Operator at sometime in
the future.
(iv) Calls on Production. Except as provided in the Contracts
listed in Exhibit A and lessors' rights to take production in kind, no person
has any call upon, option to purchase, right of refusal or similar unexecuted
right with respect to the purchase of Hydrocarbon production from the Producing
Properties.
(v) Wells and Units. To the best of Operator's knowledge,
every well comprising a part of the Producing Properties has been drilled and
completed within the applicable lease or within the limits otherwise permitted
by contract, pooling or unit agreement and by law. To the best of Operator's
knowledge, no well comprising a part of the Producing Properties is subject to
penalties on allowables after the date hereof because of any overproduction
permitted by applicable laws, rules, regulations or permits, orders or decrees
of any governmental body or agency, which would prevent such well from being
entitled to its full, legal and regular allowable, from and after the date
hereof, as prescribed by any court or governmental body or agency.
(vi) Taxes. All ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the ownership
of the Operator Subject Assets or the production of Hydrocarbons or the receipt
of proceeds therefrom on the Operator Subject Assets that have become due and
payable have been properly and timely paid.
(vii) Title. At the Closing, Operator's interest in the
Operator Subject Assets is free and clear of all claims, liens and encumbrances
created by, through or under Operator, except for the Existing Encumbrances.
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(f) Non-Resident Status. Operator is not a nonresident alien of the
United States.
(g) Additional Contracts. Except with respect to the Excluded Assets,
the Contracts listed on Exhibit A and those having a term of 90 days or less (or
terminable on notice of 90 days or less), there are no material contracts,
arrangements and commitments (whether oral or written) to which Operator is a
party or by which any of Operator's assets or business are bound including,
without limitation, contracts, arrangements or commitments which relate to (1)
the sale, lease or other disposition by Operator of all or any substantial part
of the business or assets of Operator (otherwise than in the ordinary course of
business), (2) the purchase or lease by Operator of a substantial amount of
assets (otherwise than in the ordinary course of business), (3) the supply by
Operator of any customer's requirements for any oil, gas or other goods or
services or the purchase by Operator of its requirements for any item or of a
vendor's output of any item, in each case in which the aggregate annual payments
to Operator by such customers or by Operator to such vendor exceed $25,000, (4)
lending or advancing funds by Operator, (5) borrowing of funds or guarantying
the borrowing of funds by any other person, whether under an indenture, note,
loan agreement or otherwise, (6) any transaction or matter with any affiliate of
Operator, (7) noncompetition or employment, or (8) any other matter which is
material to the business, assets or operations of Operator (other than any
Contracts) ("Additional Contracts").
(h) No Violations. The execution and delivery of this Agreement by
Operator and the consummation of the transactions contemplated hereby will not
(a) violate any provision of its articles of incorporation or bylaws or (b)
violate any statute, rule, regulation, judgment, order or decree of any public
body or authority by which Operator or its properties or assets are bound.
(i) Litigation and Related Matters. Except for Black Stone Oil Company
v. C.C. Lilley, Inc., there are no actions, suits, proceedings or investigations
pending against Operator or, to the knowledge of Operator, threatened against
Operator, Operator's business or any property or rights of Operator, at law or
in equity, before or by any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Agencies"). Operator is not subject to any continuing
court or Agency order, writ, injunction or decree applicable specifically to the
business, operations or assets of Operator or employees of Operator, nor in
default with respect to any order, writ, injunction or decree of any court or
Agency with respect to its assets, business, operations or employees. There are
no worker's compensation claims outstanding against Operator as of the date
hereof.
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(j) Taxes.
(i) Operator and the Selling Stockholders have made a valid
election for Operator to be taxed under subchapter S of the Code, effective as
of January 1, 1992. Such election has been and will continue to be in effect for
Operator for all taxable years of Operator ending on or before the Closing Date.
(ii) Operator has filed all income tax returns or tax
information returns required to be filed by it and all returns of other Taxes
required to be filed by it and has paid or provided for all Taxes shown to be
due by Operator on such returns except where the failure to file such returns or
pay such Taxes would not have a material adverse effect on the Operator or its
business. No action or proceeding for the assessment or collection of any Taxes
is pending against Operator, no deficiency, assessment or other formal claim for
any Taxes has been asserted or made against Operator that has not been fully
paid or finally settled, and no issue, including the status of Operator as an S
Corporation, has been formally raised by any taxing authority in connection with
an audit or examination of any return of Taxes. No federal or state income tax
or tax information returns of Operator have been examined, and there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for such Taxes for any period. All Taxes which Operator has been
required to collect or withhold have been duly withheld or collected and, to the
extent required, have been paid to the proper taxing authority except where the
failure to file such returns or pay such Taxes would not have a material adverse
effect on the Operator or its business. No federal income Taxes will be assessed
on or after the Closing Date against Operator for any tax period ending on or
prior to the Closing Date.
(k) Patents, Trademarks. Except for geophysical and software licences,
Operator does not own or use in the operation of its business any patents,
patent licenses, software licenses, trade names, trademarks, service marks or
copyrights (collectively, "Intellectual Property").
(l) Compliance with Laws. Except as set forth on Schedule 5.1(l), to
the best of Operator's knowledge, Operator (a) is in compliance with all
applicable laws, regulations (including federal, state and local procurement
regulations), orders, judgments and decrees except where the failure to so
comply would not have a material adverse effect on the business, operations,
financial condition, results of operations of Operator or the Subject Assets,
and (b) possesses all necessary licenses, franchises, permits and governmental
authorizations to conduct its business in the manner in which and in the
jurisdictions and places where such business is now conducted, except where the
failure to possess the same would not have a material adverse effect on the
business, operations, financial condition, results of operations of Operator or
the Subject Assets.
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(m) Employee Benefit Plans. Operator does not maintain, nor has it ever
maintained any employee benefit plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Operator
has not incurred any liability or taken any action, nor has any knowledge of any
action or event, that could cause it to incur any liability (i) under Section
412 of the Code or Title IV of ERISA with respect to any "single employer plan"
(within the meaning of Section 4001(a)(15) of ERISA), (ii) on account of a
partial or complete withdrawal (within the meaning of Section 4205 and 4203 of
ERISA, respectively) with respect to any "multiemployer plan" (within the
meaning of Section 3(37) of ERISA), (ii) on account of unpaid contributions to
any such multiemployer plan, or (iv) to provide health benefits or other
non-pension benefits to retired or former employees, except as specifically
required by Section 4980B(f) of the Code. Neither the execution and delivery of
this Agreement by Operator nor the consummation of the transactions contemplated
thereby will (i) entitle any current or former employee of Operator to severance
pay, unemployment compensation or any similar payment, (ii) accelerate the time
of payment or vesting, or increase the amount of, any compensation due to any
such employee or former employee, or (iii) directly or indirectly result in any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" (within the meaning of Section 280G of the Code).
(n) Insurance. Schedule 5.3(n) contains a list of the policies and
contracts for fire, casualty, liability, well control and other forms of
insurance maintained by Operator. All such policies are in full force and effect
and are adequate for the business in which Operator engages. Operator has not
received any notice of cancellation or non-renewal or of significant premium
increases with respect to any such policy. Except as disclosed on Schedule
5.3(n), no pending claims made by or on behalf of Operator under such policies
have been denied or are being defended against third parties under a reservation
of rights by an insurer of Operator. All premiums due prior to the date hereof
for periods prior to the date hereof with respect to such policies have been
timely paid, and all premiums due before the Closing Date for periods between
the date hereof and the Closing Date will be timely paid.
(o) Consents. To the best of Operator's knowledge and except as set
forth on Schedule 5.1(p) or as required pursuant to the HSR Act, no consent,
approval or other authorization of any governmental authority or under any
Contract, Additional Contract or other material license, franchise, permit of
Operator to which Operator is a party or by which its assets are bound is
required as a result of or in connection with the execution or delivery of this
Agreement by Operator or the consummation by Operator of the transactions
contemplated thereby, other than those that the failure to obtain would not have
a material adverse effect on Operator.
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(p) Employees. As of Closing:
(i) All employees of Operator shall have been transferred to
BSHP or an entity designated by BSHP and Operator shall have no employees.
(ii)There shall be no outstanding loans or advances owed to
Operator by any director, officer or employee.
(iii) Operator shall not be a party to, nor bound by, the
terms of any collective bargaining agreement, and Operator has not experienced
any material labor difficulties. There shall be no labor disputes existing, or
to the best knowledge of Operator, threatened involving, by way of example,
strikes, work stoppages, slowdowns, picketing, or any other interference with
work or production, or any other concerted action by employees. No grievance or
other legal action arising out of any collective bargaining agreement or
relationship exists, or to the best knowledge of Operator, is threatened. No
charges or proceedings before the National Labor Relations Board, or similar
agency, exist, or to the best knowledge of Operator, are threatened.
(iv) Except for arrangements with field personnel which Buyer
has agreed to retain by notice delivered in writing to Operator at least 30 days
prior to the Closing Date, Operator shall not be a party to any employment
contract with any individual or employee, either express or implied. No legal
proceedings, charges, complaints, or similar actions exist under any federal,
state or local laws affecting the employment relationship; and no proceedings,
charges, or complaints are threatened under any such laws or regulations and no
facts or circumstances exist which would give rise to any such proceedings,
charges, complaints, or claims. Operator shall not be subject to any settlement
or consent decree with any present or former employee, employee representative
or any government or Agency relating to claims of discrimination or other claims
in respect to employment practices and policies; no government or Agency has
issued a judgment, order, decree or finding with respect to the labor and
employment practices (including practices relating to discrimination) of
Operator.
(q) Brokers. No broker or finder has acted for or on behalf of Operator
in connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Operator for which Buyer has or will have
any liabilities or obligations (contingent or otherwise).
(r) Accuracy of Information Furnished. To the best of Operator's
knowledge, all Contracts with respect to the Producing Properties can be found
either of record in Polk County, Texas or in, or referenced in, Operator's
files. To the best of Operator's knowledge, all Contracts located in Operator's
files are true, accurate and complete copies.
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ARTICLE VI
Representations and Warranties of Buyer and Guarantor
Section 6.1 Representations and Warranties of Buyer. Buyer represents
and warrants to Sellers as follows:
(a) Existence. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. Buyer has full legal
power, right and authority to carry on its business as such is now being
conducted and as contemplated to be conducted. Buyer's headquarters and
principal offices are all located in the State of Texas.
(b) Legal Power. Buyer has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with:
(i) any provision of Buyer's articles of incorporation or
by-laws;
(ii) any material agreement or instrument to which Buyer is a
party or by which Buyer is bound; or
(iii) any judgment, order, ruling or decree applicable to Buyer
as a party in interest or any law, rule or regulation applicable to Buyer.
(c) Execution. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Buyer. This
Agreement constitutes the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except that (i) enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally, (ii) the
remedies of specific performance and injunctive relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings may be brought, and (iii) rights to indemnification hereunder may be
limited under applicable securities laws.
(d) Brokers. No broker or finder has acted for or on behalf of Buyer or
any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any brokerage
or finder's fee, or to any commission, based in any way on agreements,
arrangements or understandings made by or on behalf of Buyer or any affiliate of
Buyer for which Sellers have or will have any liabilities or obligations
(contingent or otherwise).
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(e) Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, or to the knowledge of Buyer, threatened against Buyer.
(f) Suits. There is no suit, action, claim, investigation or inquiry
by any person or entity or by any administrative agency or governmental body and
no legal, administrative or arbitration proceeding pending or, to Buyer's
knowledge, threatened against Buyer or any affiliate of Buyer which has or will
materially affect Buyer's ability to consummate the transactions contemplated
herein.
(g) Qualifications. Buyer is now, and at Closing shall continue to be,
qualified with all applicable governmental entities to own the Purchased Subject
Assets.
(h) Investment. Prior to entering into this Agreement, Buyer was
advised by and has relied solely on its own legal, tax and other professional
counsel concerning this Agreement, the Purchased Subject Assets, Purchased
Shares and the value thereof. Buyer is acquiring the Purchased Subject Assets
and Purchased Shares for its own account and not for distribution or resale in
any manner that would violate any state or federal securities law, rule,
regulation or order.
(i) Funds. Buyer has arranged to have available by the Closing
Date sufficient funds to enable Buyer to pay in full the Adjusted Purchase Price
as herein provided and otherwise to perform its obligations under this
Agreement.
Section 6.2 Representations and Warranties of Guarantor. Guarantor
represents and warrants to Sellers as follows:
(a) Existence. Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. Guarantor
has full legal power, right and authority to carry on its business as such is
now being conducted and as contemplated to be conducted. Guarantor's
headquarters and principal offices are all located in the State of Texas.
(b) Legal Power. Guarantor has the legal power and right to enter into
and perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with:
(i) any provision of Guarantor's articles of incorporation or
by-laws;
(ii) any material agreement or instrument to which Guarantor is a
party or by which Guarantor is bound; or
(iii)any judgment, order, ruling or decree applicable to
Guarantor as a party in interest or any law, rule or regulation applicable to
Guarantor.
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(c) Execution. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Guarantor. This
Agreement constitutes the legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms, except that (i) enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally, (ii) the
remedies of specific performance and injunctive relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceedings may be brought, and (iii) rights to indemnification hereunder may be
limited under applicable securities laws.
(d) Brokers. No broker or finder has acted for or on behalf of
Guarantor or any affiliate of Guarantor in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled to
any brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Guarantor or
any affiliate of Guarantor for which Sellers have or will have any liabilities
or obligations (contingent or otherwise).
(e) Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, or to the knowledge of Guarantor, threatened against
Guarantor.
(f) Suits. There is no suit, action, claim, investigation or inquiry by
any person or entity or by any administrative agency or governmental body and no
legal, administrative or arbitration proceeding pending or, to Guarantor's
knowledge, threatened against Guarantor or any affiliate of Guarantor which has
or will materially affect Guarantor's ability to consummate the transactions
contemplated herein.
(g) Investment. Prior to entering into this Agreement, Guarantor was
advised by and has relied solely on its own legal, tax and other professional
counsel concerning this Agreement, the Purchased Subject Assets, Purchased
Shares and the value thereof. Guarantor is acquiring the Purchased Subject
Assets and Purchased Shares for its own account and not for distribution or
resale in any manner that would violate any state or federal securities law,
rule, regulation or order.
ARTICLE VII
Operation of the Subject Assets and Other Covenants
Section 7.1 Operation of the Subject Assets Prior to Closing.
(a) From and after the date of execution of this Agreement, and subject
to the provisions of applicable operating and other agreements, Operator shall
operate and administer the Subject Assets in a good and workmanlike manner
consistent with its past
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practices, and Operator and Working Interest Owners shall carry on their
businesses with respect to the Producing Properties in substantially the same
manner as before execution of this Agreement. Operator and Working Interest
Owners shall use their reasonable efforts to preserve in full force and effect
all oil and gas leases, operating agreements, easements, rights-of-way, permits,
licenses and agreements that relate to the Producing Properties. Without the
prior written consent of Buyer (which shall not be unreasonably withheld),
Operator and Working Interest Owner shall not modify, terminate or settle any
dispute arising out of any of the agreements relating to the Producing
Properties and will not encumber, sell, transfer, assign, convey, farmout or
otherwise dispose of any of the Producing Properties other than personal
property which is replaced by equivalent property or consumed in the operation
of the Producing Properties.
(b) Except for (i) emergency action taken in the face of risk to life,
property or the environment, (ii) capital costs in connection with drilling,
completing or equipping operations with respect to the Champion International C
No. 1, Champion International C No. 2, Carter E No. 11, Alabama Coushatta No. 5,
Alabama Coushatta No. 6 or Alabama Coushatta No. 7 wells and (iii) the Camden
Tram Leases, the North Double A Leases and the Center Grove Leases (for which
Operator shall notify Buyer of any proposed expenditures), Operator and Working
Interest Owner shall submit to Buyer for prior written approval, all requests
for operating or capital expenditures and all proposed contracts and agreements
relating to the Producing Properties that involve individual commitments of more
than $50,000. If Buyer does not respond to any such request in writing within
forty-eight (48) hours of the time the request is submitted, such matter will be
deemed approved. Buyer acknowledges that Operator and Working Interest Owners
own undivided interests in the Subject Assets, and Buyer agrees that the acts or
omissions of the other working interests owners shall not constitute a violation
of the provisions of this Article VII, nor shall any action required by a vote
of working interest owners constitute such a violation so long as Operator and
Working Interest Owners have voted their interests in a manner that complies
with the provisions of this Article VII. The obligations of Working Interest
Owners and Operator under this Article VII with respect to any portion of the
Subject Assets not operated by either the Working Interest Owners or Operator
shall be construed to require that Working Interest Owners and Operator use
reasonable efforts (without being obligated to incur any expense or institute
any cause of action) to cause the operator of the Subject Assets to take such
actions or render such performance within the constraints of the applicable
operating agreements and other applicable agreements.
Section 7.2 Operation of Certain Areas After the Closing. Operator is
the operator of the Subject Assets under the terms of existing operating
agreements which have been furnished to Buyer. The parties hereby agree that
BSHP or its designee may, at any time before or after the Closing elect to
become the operator under the operating agreements covering the lands covered by
the Camden Tram Leases, Center Grove Leases, or North Double A Portion/Camden
Tram Leases, or any of them, and at the request of
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BSHP, Buyer shall (i) cause Operator to resign as operator of any such lands and
(ii) vote its interests, including the interests of Operator, to support BSHP or
its designee as operator of such areas; provided, however, that any such
resignation shall not result in the Operator's right to continue to operate any
of the Producing Properties. If Operator does not resign at BSHP's request,
Buyer shall cause Operator to fully cooperate with BSHP to implement a mutually
acceptable plan to permit BSHP or its designee to become Operator of such Leases
and will cause Operator to conduct such operations in such areas as BSHP may
direct. Each Working Interest Seller agrees to vote its interest under the
operating agreement for such Leases to support BSHP or its designee as operator
of any such Leases that BSHP elects to operate.
Section 7.3 Operator's Geophysical Data. Operator owns interests in all
geophysical data now held by Operator and/or BSHP. Operator shall have access to
and the right to use all tapes and records thereof for all purposes, subject
only to BSHP's continuing right, as custodian, to hold, access and protect such
data and the terms of any licenses or other agreements applicable thereto. BSHP
shall calculate the Operator's actual level of ownership of such data and inform
Buyer thereof on or before Closing.
Section 7.4 Course of Conduct by Operator. From the date hereof through
and until the Closing Date, Operator shall comply with the following covenants:
(a) Articles of Incorporation; Bylaws. Operator shall not make any
change to its articles of incorporation or bylaws.
(b) Stock Issuance; Redemptions; Reorganizations. Operator shall not
(i) issue, grant, or dispose of, or make any agreement, arrangement, or
commitment obligating Operator to issue, grant, or dispose of any capital shares
or other securities of Operator, (ii) redeem or acquire, or make any agreement,
arrangement, or commitment obligating Operator to redeem or acquire, any shares
of capital stock or other securities of Operator, or (iii) authorize or effect
or make any agreement, arrangement or commitment obligating Operator to effect,
any reorganization, recapitalization, or split-up of such capital stock of
Operator; provided, that Operator may create one or more subsidiaries to hold
the Excluded Assets and other properties and interests described in Section
10.3, and distribute the stock of such subsidiaries to the Selling Stockholders
prior to Closing. Operator shall advise Buyer of any plans to create and
distribute the stock of any subsidiaries pursuant hereto.
(c) Employee Matters. Operator shall not make, amend, or enter into any
employment contract or any bonus, incentive, stock option, profit sharing,
pension, retirement, stock purchase, hospitalization, medical reimbursement,
insurance, severance benefit, or other similar plan or arrangement or make any
voluntary contribution to any such plan or arrangement.
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(d) Insurance Coverage. Operator shall maintain, or have maintained on
its behalf, insurance coverage for the benefit of Operator and the Subject
Assets on the same basis as, or on a substantially equivalent basis to, the
current insurance coverage described in Schedule 5.3(n). Effective as of the
Closing Date Operator shall transfer the insurance policies maintained pursuant
to Schedule 5.3(n) with the assets distributed pursuant to Section 10.3.
Operator shall be allowed to maintain copies of said policies.
(e) Business Organization. Operator shall use reasonable efforts to
preserve intact its business organization and to keep available until the
Closing the services of its present officers and employees.
(f) Incurrence of Debt. Except as otherwise provided herein, Operator
shall not voluntarily incur or assume, whether directly or by way of guaranty or
otherwise, any material obligation or liability, except obligations and
liabilities incurred in the ordinary course of business, consistent with past
practice.
(g) Liens. Operator will not mortgage, pledge, encumber, create or
allow any Liens not existing on the date hereof upon any properties or assets,
tangible or intangible, except Liens created in the ordinary course of business,
consistent with past practice or, Liens constituting Existing Encumbrances.
(h) Accounting Practices. Operator will not make any material changes
in its accounting methods, principles or practices, except as required by GAAP.
(i) Changes in Business Practice. Operator will not take any action,
the purpose or effect of which is to shift income from post-closing periods to
the pre-closing period or to defer expenses from the pre-closing period to
post-closing periods which action is not in the ordinary course of business,
consistent with past practice.
Section 7.5 Approvals and Consents. Each Working Interest Owner and
Operator shall use their respective reasonable efforts (i) to cause all
conditions to the obligations of Buyer under this Agreement over which each is
able to exercise influence or control to be satisfied prior to the Closing Date
and (ii) to obtain promptly and to comply with all requisite statutory,
regulatory or court approvals, third party releases and consents, and other
requirements necessary for the valid and legal consummation of the transactions
contemplated hereby.
Section 7.6 Investigations. Subject to Buyer's obligations under the
Confidentiality Agreement, each Working Interest Owner and Operator shall
provide Buyer and its representatives and agents (including, without limitation,
any financing sources) such access to the books and records of Operator,
including without limitation the articles of incorporation, bylaws, corporate
minute books and stock records, and those relating to the
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Subject Assets and furnish to Buyer and such representatives and agents such
financial and operating data and other information with respect to the
businesses and property of Operator and the Subject Assets as they may
reasonably request from time to time and as may be in the Working Interest
Owner's or Operator's possession, and permit Buyer and its representatives and
agents to make such inspections of the Subject Assets as they may reasonably
request.
Section 7.7 Final S Corporation Federal Income Tax Return. Buyer and
the Selling Stockholders agree that Operator's books will be closed as of the
end of the Closing Date and that the Selling Stockholders will assign Operator's
items of income, loss, deduction and credit for the 1996 taxable year between
the Operator's short taxable year ending on the Closing Date (the "S Year") and
Operator's short taxable year beginning on the day after Closing Date and ending
on December 31, 1996 (the "C Year") on the basis of Operator's normal method of
accounting. Buyer shall fully cooperate with the Selling Stockholders and will
make available to them at reasonable times and places Operator's business and
tax records and any appropriate employees to enable the Selling Stockholders to
make the assignment of income, loss, deduction and credit between Operator's S
Year and C Year and to prepare Operator's federal income tax return for the S
Year within ninety (90) days after the Closing Date.
Section 7.8 Compiled Financials. On or before April 1, 1996, Operator
shall have delivered to Buyer compiled financial statements of Operator for the
fiscal year ended December 31, 1995.
Section 7.9 Distributions. Except for the transactions described in
Sections 7.4(b) and 10.3, Operator shall not make any dividend or distribution
to the Selling Stockholders prior to the Closing.
ARTICLE VIII
Conditions to Obligations of Sellers
The obligations of each Seller to consummate the transactions provided
for herein are subject, at the option of Sellers, to the fulfillment on or prior
to the Closing Date of each of the following conditions:
Section 8.1 Representations. The representations and warranties of
Buyer herein contained shall have been true and correct when made and shall be
true and correct in all material respects on the Closing Date as though made on
and as of such date.
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Section 8.2 Performance. Buyer shall have performed in all material
respects all obligations, covenants and agreements contained in this Agreement
to be performed or complied with by it at or prior to the Closing.
Section 8.3 Pending Matters. No suit, action or other proceeding shall
be pending or threatened that seeks to restrain, enjoin or otherwise prohibit
the consummation of the transactions contemplated by this Agreement.
Section 8.4 Hart-Scott-Rodino. Any applicable waiting period under the
HSR Act relating to the transactions contemplated hereby shall have expired or
been terminated.
Section 8.5 Adjusted Purchase Price. Buyer shall have delivered to
Sellers the Adjusted Purchase Price as estimated pursuant to the terms hereof.
Section 8.6 Execution and Delivery of Closing Documents. Buyer shall
have executed, acknowledged and delivered, as appropriate, to Sellers all
closing documents described in Section 10.10.
Section 8.7 Certificates. Buyer shall have delivered to Sellers (i)
certificates of the appropriate governmental authorities, dated as of a date not
more than ten (10) days prior to the Closing Date, attesting to the existence
and good standing of Buyer in the States of Nevada and Texas; (ii) a copy,
certified by the Secretary of State of Nevada as of a date not more than ten
(10) days prior to the Closing Date, of the articles of incorporation and all
amendments thereto of Buyer; (iii) a copy certified by the Secretary of Buyer,
dated the Closing Date, of the bylaws of Buyer; and (iv) a certificate, dated
the Closing Date, of the Secretary of Buyer relating to the incumbency and
corporate proceedings in connection with the consummation of the transactions
contemplated hereby.
Section 8.8 Opinion. Locke Purnell Rain Harrell shall have delivered
to Sellers an opinion in the form of Exhibit I.
ARTICLE IX
Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions provided for
herein are subject, at the option of Buyer, to the fulfillment on or prior to
the Closing Date of each of the following conditions:
Section 9.1 Representations. The representations and warranties of each
Seller and Operator herein contained and in any Schedule hereto shall be true
and correct in all material respects on the Closing Date as though made on and
as of such date.
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Section 9.2 Performance. Operator and each Seller shall have performed
in all material respects all obligations, covenants and agreements contained in
this Agreement to be performed or complied with by it at or prior to the
Closing.
Section 9.3 Pending Matters. No suit, action or other proceeding shall
be pending or threatened that seeks to restrain, enjoin, or otherwise prohibit
the consummation of the transactions contemplated by this Agreement.
Section 9.4 Hart-Scott-Rodino. Any applicable waiting period under the
HSR Act relating to the transactions as contemplated hereby shall have expired
or been terminated.
Section 9.5 Execution and Delivery of Closing Documents. Each Seller
shall have executed, acknowledged and delivered, as appropriate, to Buyer all
closing documents described in Section 10.9.
Section 9.6 Certificates. Operator shall have delivered to Buyer (i)
certificates of the appropriate governmental authorities, dated as of a date not
more than ten (10) days prior to the Closing Date, attesting to the existence
and good standing of Operator in the States of Texas and Louisiana; (ii) a copy,
certified by the Secretary of State of Texas as of a date not more than ten (10)
days prior to the Closing Date, of the articles of incorporation and all
amendments thereto of Operator; (iii) a copy certified by the Secretary of
Operator, dated the Closing Date, of the bylaws of Operator; and (iv) a
certificate, dated the Closing Date, of the Secretary of Operator relating to
the incumbency and corporate proceedings in connection with the consummation of
the transactions contemplated hereby.
Section 9.7 Consents and Approvals. All material authorizations,
consents, approvals, waivers and releases, if any, necessary for Operator to
consummate the transactions contemplated hereby shall have been obtained and
copies thereof shall be delivered to Buyer.
Section 9.8 All Sellers to Close. Each Selling Stockholder shall have
tendered its certificate(s) representing its Purchased Shares and each Working
Interest Owner shall have delivered an Assignment assigning its interest in the
Purchased Subject Assets.
Section 9.9 Nonforeign Affidavit. Each Selling Stockholder and Working
Interest Owner shall have furnished Buyer an affidavit stating under penalties
of perjury the United States taxpayer identification number of such Selling
Stockholder or Working Interest Owner and that such Selling Stockholder or
Working Interest Owner, as applicable, is not a foreign person, pursuant to
Section 1445(b)(2) of the Code.
Section 9.10 Operator. Operator shall be the Operator of the Producing
Properties and not of any other oil and gas properties.
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Section 9.11 Opinion. Vinson & Elkins L.L.P. shall have delivered to
Buyer an opinion in the form of Exhibit J.
ARTICLE X
Closing
Section 10.1 Time and Place of Closing. If the conditions referred to
in Articles VIII and IX of this Agreement have been satisfied or waived in
writing, the Closing shall take place at the offices of Operator at 1001 Fannin,
Suite 4750, Houston, Texas 77002, at 10:00 a.m. on the Closing Date.
Section 10.2 Extension. The Closing Date may be extended by mutual
written agreement of the parties.
Section 10.3 Actions to be Taken Prior to Closing. Prior to the
Closing, Operator shall dividend to its shareholders or, spin off to its
shareholders in a reorganization or otherwise dispose of for nominal
consideration the following: (a) Operator's interest in the Excluded Assets; (b)
an undivided 70% of Operator's interest as of the Effective Time in the Camden
Tram Leases, the Center Grove Leases, and the North Double A Portion/Camden Tram
Leases; (c) all Working Capital of Operator, in excess of the Closing Working
Capital; and (d) all other assets of the Operator, except for its interest in
the Subject Assets.
Section 10.4 Adjustments to Purchase Price at Closing.
(a) At Closing, the Purchase Price of the Purchased Subject Assets
shall be increased by the following amounts:
(i) the amount as of the Effective Time of all prepaid ad
valorem, property or similar taxes and assessments based upon or measured by
ownership of the Purchased Subject Assets, insofar as such prepaid taxes relate
to periods of time after the Effective Time;
(ii) all costs and expenses (including rentals, royalties,
production and severance taxes, capital expenditures (other than the Excluded
Capital Costs), lease operating expenses authorized under joint operating
agreements applicable to the Purchased Subject Assets) paid by Working Interest
Owners or Operator that are attributable to the Purchased Subject Assets and
attributable to the period of time from and after the Effective Time;
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(iii) any amount required pursuant to Section 4.6 as the value of
any Title Benefit; and
(iv) any other amount provided for in this Agreement or agreed
upon by Buyer and Working Interest Owners.
(b) At Closing, the Purchase Price of the Purchased Subject Assets
shall be decreased by the following amounts:
(i) an amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments based upon or measured
by the ownership of the Purchased Subject Assets that are attributable to
periods of time prior to the Effective Time, which amounts shall, to the extent
not actually assessed, be computed based on such taxes and assessments for the
preceding tax year (such amount to be prorated for the period of Working
Interest Owners' and Buyer's ownership before and after the Effective Time);
(ii) an amount equal to all revenues collected by Working
Interest Owners with respect to the Purchased Subject Assets and attributable to
the period of time after the Effective Time;
(iii) any amount required pursuant to Section 4.4 in connection
with Title Defects;
(iv) any amount required pursuant to Section 4.9 in connection
with Disqualifying Environmental Conditions;
(v) any amount required pursuant to Section 13.3 in connection
with casualty losses;
(vi) any other amount provided for in this Agreement or agreed
upon by Buyer and Working Interest Owners.
(c) If an aggregate net gas imbalance relative to Working Interest
Owners' interests in the Producing Properties exists as of the Effective Time,
the Purchase Price shall be increased, if such interests in the Producing
Properties are underproduced, or decreased, if such interests in the Producing
Properties are overproduced, by the product of (i) the amount (measured in
British thermal units ("BTU") of such aggregate net gas imbalance, and (ii)
$1.75 per million BTU.
(d) The Purchase Price of the Purchased Shares shall be increased by
the value of any Title Benefit determined in accordance with Section 4.6
attributable to the Operator
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Subject Assets. The Purchase Price of the Purchased Shares shall be decreased by
the sum of the following: (i) the value of any Title Defect adjustment
determined in accordance with Section 4.4 attributable to the Operator Subject
Assets, (ii) any amount determined pursuant to Section 4.9(a)(iv) attributable
to the Operator Subject Assets, (iii) any amount determined pursuant to Section
13.3 attributable to the Operator Subject Assets, and (iv) any amount by which
the Working Capital of Operator as of the Closing Date is less than the Closing
Working Capital.
(e) The adjustments described in Section 10.4(a), (b), (c) and (d) are
hereinafter referred to as the "Purchase Price Adjustments".
Section 10.5 Statement. Not later than three business days prior to
the Closing Date, Seller shall prepare and deliver to Buyer a statement of the
estimated Purchase Price Adjustments (the "Statement"). At Closing, Buyer shall
pay the Purchase Price, as adjusted by the estimated amounts reflected on the
Statement.
Section 10.6 Post-Closing Adjustments to Purchase Price.
(a) On or before 90 days after the Closing Date, BSHP shall prepare a
revised Statement setting forth the actual Purchase Price Adjustments. The
parties shall provide each other such data and information as any party may
reasonably request supporting the amounts reflected on the revised Statement in
order to permit such party to perform or cause to be performed an audit. The
revised Statement shall become final and binding upon the parties on the 60th
day following receipt thereof by Buyer (the "Final Settlement Date") unless
Buyer gives written notice of its disagreement (a "Notice of Disagreement") to
Seller prior to such date. Any Notice of Disagreement shall specify in detail
the dollar amount, nature and basis of any disagreement so asserted. If a Notice
of Disagreement is received by Seller in a timely manner, then the Statement (as
revised in accordance with clause (i) or (ii) below) shall become final and
binding on the Parties and the Final Settlement Date shall be the earlier of (i)
the date Seller and Buyer agree in writing with respect to all matters specified
in the Notice of Disagreement or (ii) the date on which the Final Statement (as
hereinafter defined) is issued by the Arbitrator (as hereinafter defined).
(b) During the 30 days following the date of receipt by Seller of the
Notice of Disagreement, Seller and Buyer shall attempt to resolve in writing any
differences that they may have with respect to all matters specified in the
Notice of Disagreement. If, at the end of such 30 day period, Buyer and Seller
have not reached agreement on such matters, the matters that remain in dispute
shall be submitted to an arbitrator (the "Arbitrator") for review and
resolution. The Arbitrator shall be Arthur Andersen & Co., or if such firm is
unable or unwilling to act, such other nationally recognized independent public
accounting firm as shall be agreed upon by Buyer and Seller in writing. The
Arbitrator shall render a decision resolving the matters in dispute within 60
days following their submission to the
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Arbitrator. The cost of any arbitration (including the fees and expenses of the
Arbitrator) pursuant to this Section 10.6 shall be borne equally by Buyer and
Seller. The fees and disbursements of Seller's independent auditors incurred in
connection with the procedures performed with respect to the Statement, as
requested by Seller shall be borne by Seller, and the fees and disbursements of
Buyer's independent auditors incurred in connection with their preparation of
the Notice of Disagreement shall be borne by Buyer. As used in this Agreement
the term "Final Statement" shall mean the revised Statement described in Section
10.6(a), as prepared by Seller and as may be subsequently adjusted to reflect
any subsequent written agreement between the parties with respect thereto, or if
submitted to the Arbitrator, the revised Statement issued by the Arbitrator.
(c) If the amount of the Adjusted Purchase Price as set forth on the
Final Statement exceeds the amount of the estimated Adjusted Purchase Price paid
at Closing, then Buyer shall pay to Seller the amount by which the Adjusted
Purchase Price as set forth on the Final Statement exceeds the amount of the
estimated Adjusted Purchase Price paid at Closing within five business days
after the Final Settlement Date. If the amount of the Adjusted Purchase Price as
set forth on the Final Statement is less than the amount of the estimated
Adjusted Purchase Price paid at Closing, then Seller shall pay to Buyer the
amount by which the Adjusted Purchase Price as set forth on the Final Statement
is less than the amount of the estimated Adjusted Purchase Price paid at Closing
within five business days after the Final Settlement Date.
Section 10.7 Transfer Taxes. All sales, use or other taxes (other than
taxes on gross income, net income or gross receipts) and duties, levies or other
governmental charges incurred by or imposed with respect to the property
transfers undertaken pursuant to this Agreement shall be the responsibility of,
and shall be paid by, Buyer.
Section 10.8 Ad Valorem and Similar Taxes. Ad valorem, property and
similar taxes and assessments based upon or measured by the value of the Subject
Assets shall be divided or prorated between Seller and Buyer as of the Effective
Time. Seller shall assume responsibility for such taxes attributable to the
period of time prior to the Effective Time and Buyer shall assume responsibility
for the periods of time from the Effective Time and thereafter.
Section 10.9 Actions of Sellers at Closing. At the Closing, Seller
shall:
(a) Execute, acknowledge and deliver to Buyer the Assignment and/or
such other conveyances, assignments, transfers, bills of sale, stock powers,
stock certificates and other instruments (in form and substance mutually agreed
upon by Buyer and Seller) as may be necessary or desirable for Seller to
transfer its interest in the Purchased Subject Assets and Purchased Shares to
Buyer; and
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(b) Execute, acknowledge and deliver any other agreements provided for
herein or necessary or desirable to effectuate the transactions contemplated
hereby.
Section 10.10 Actions of Buyer at Closing. At the Closing, Buyer
shall:
(a) Deliver to Seller the Adjusted Purchase Price, as estimated
pursuant to the provisions hereof by wire transfer as set forth in Section 2.2;
and
(b) Execute, acknowledge and deliver any other agreements provided for
herein or necessary or desirable to effectuate the transactions contemplated
hereby.
Section 10.11 Further Cooperation.
(a) At Closing, the Records shall be delivered to Buyer at the offices
of Operator. Seller shall have the right to copy, at Seller's expense, each of
the Records, but Buyer shall retain the originals thereof. For a period of six
(6) years after Closing, Buyer will retain or cause Operator to retain the
Records delivered to it pursuant hereto and will make such Records available to
BSHP upon reasonable notice at Buyer's headquarters at reasonable times and
during office hours. Notwithstanding the foregoing, (i) BSHP shall retain the
original Records relating to the Camden Tram Interest and the Center Grove
Interest and (ii) Seller shall retain all Records of Operator that pertain to
the Excluded Assets for a period of 6 years after Closing and Buyer shall have
access thereto and the right to make copies thereof.
(b) After the Closing Date, each party at the request of the other and
without additional consideration, shall execute and deliver, or shall cause to
be executed and delivered from time to time such further instruments of
conveyance and transfer and shall take such other action as the other party may
reasonably request to convey and deliver the Purchased Subject Assets and
Purchased Shares to Buyer. After the Closing, the Parties will cooperate to have
all proceeds received attributable to the Subject Assets to be paid to the
proper party hereunder and to have all expenditures to be made with respect to
the Subject Assets to be made by the proper party hereunder.
Section 10.12 Confidentiality Agreement. If the Closing occurs, the
confidentiality agreement dated November 16, 1995 between Black Stone Oil
Company and Black Stone Holdings Partnership and Guarantor (the "Confidentiality
Agreement") shall terminate and be of no further force or effect.
Section 10.13 Letter of Intent. This Agreement shall supersede in its
entirety, and there is hereby terminated, that certain letter agreement dated
January 9, 1996 between Buyer and BSHP.
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ARTICLE XI
Termination
Section 11.1 Right of Termination.
This Agreement may be terminated at any time at or prior to the
Closing:
(a) by mutual written consent of the Parties;
(b) by Seller on the Closing Date if the conditions set forth in
Article VIII have not been satisfied in all respects by Buyer or waived by
Seller in writing by the Closing Date;
(c) by Buyer on the Closing Date if the conditions set forth in
Article IX have not been satisfied in all respects by Seller or waived by Buyer
in writing by the Closing Date;
(d) by any party if the Closing shall not have occurred on or before
May 8, 1996; provided, however, that no party hereto can so terminate this
Agreement if such party is at such time in material breach of any provision of
this Agreement;
(e) by any party if any Governmental Authority shall have issued an
order, judgment or decree or taken any other action challenging, delaying,
restraining, enjoining, prohibiting or invalidating the consummation of any of
the transactions contemplated herein;
(f) by Seller if (i) the Total Defect Adjustment exceeds 14% of the
Purchase Price; or (ii) the aggregate amount of Title Defects asserted by Buyer
pursuant to Section 4.3 exceeds 5.6% of the Purchase Price, (iii) the Aggregate
Environmental Defect Value and the aggregate Allocated Value of Excluded Assets
pursuant to Section 4.9(a)(i) exceeds 5.6% of the Purchase Price; or (iv) the
total adjustments to the Purchase Price under Section 13.3 (Casualty Losses)
exceeds 10% of the Purchase Price;
(g) by Buyer if (i) the Total Defect Adjustment exceeds 14% of the
Purchase Price, (ii) the aggregate amount of all adjustments to the Purchase
Price for Title Defects exceeds 5.6% of the Purchase Price; (iii) the Aggregate
Environmental Defect Value of Disqualifying Environmental Conditions not cured
prior to Closing and the aggregate Allocated Value of Excluded Assets pursuant
to Section 4.9(a)(ii) exceeds 5.6% of the Purchase Price; (iv) the total
adjustments to the Purchase Price under Section 13.3 (Casualty Losses) exceeds
10% of the Purchase Price;
(h) by Seller if Buyer submits a Title Defect Notice directly related
to the Escobeda Title Matter; or
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(i) as otherwise provided in the Agreement.
Section 11.2 Effect of Termination. In the event that Closing does not
occur as a result of any party exercising its right to terminate pursuant to
Section 11.1, then this Agreement shall be null and void and no party shall have
any rights or obligations under this Agreement, except that nothing herein shall
relieve any party from any liability for any breach hereof.
Section 11.3 Attorney's Fees, Etc. If any party to this Agreement
resorts to legal proceedings to enforce this Agreement, the prevailing party in
such proceedings shall be entitled to recover all costs incurred by such party
including reasonable attorney's fees, in addition to any other relief to which
such party may be entitled; provided, however, and notwithstanding anything to
the contrary in this Agreement, in no event shall any party be entitled to
receive any punitive, indirect or consequential damages.
ARTICLE XII
Assumption and Indemnification
Section 12.1 Assumption. By the consummation of the transactions
contemplated hereby and subject to each Working Interest Owner's indemnification
obligation set forth in Section 12.2, Buyer shall assume all duties and
obligations of every kind whatsoever of each Working Interest Owner relative to
its ownership or operation of the Producing Properties to be performed after the
Effective Time, including, without limitation, (a) all gas imbalances to the
extent that appropriate adjustments have been made pursuant to Section 10.4(c)
above, (b) all obligations relative to all suspense accounts of Working Interest
Owner relative to the Producing Properties, to the extent that such suspense
accounts are held by Operator, (c) all obligations relative to all ad valorem,
property or similar taxes or assessments based upon or measured by ownership of
the Producing Properties due and payable after the Effective Time; (d) all
obligations to plug and abandon all wells and facilities located on or used in
connection with the Producing Properties in accordance with the requirements of
all applicable Governmental Authorities and the terms of all applicable leases
and agreements; and (e) all obligations under all Environmental Laws applicable
to the Producing Properties; provided, however, that Buyer shall not assume any
duties or obligations and shall have no liability (contingent or otherwise)
whatsoever with respect to the Excluded Assets.
Section 12.2 Indemnification.
(a) Buyer shall indemnify, defend and hold harmless each Working
Interest Owner and its respective officers, directors, partners, spouse,
employees, agents, representatives and successors (collectively, the "Working
Interest Owner Indemnitees") from and against any
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and all claims, liabilities, losses, causes of actions, costs and expenses
(including, without limitation, involving theories of negligence or strict
liability and including court costs and reasonable attorneys' fees) ("Losses")
asserted against, imposed upon or incurred by any Working Interest Owner
Indemnitee which result from, or arise out of (i) the material breach of any of
the representations, warranties, covenants or agreements of Buyer contained in
this Agreement, the Assignment or any other instrument executed in connection
herewith, (ii) events, conditions or matters (other than Environmental Matters
(as defined below)) occurring from and after the Closing Date in connection with
the ownership or operation of Working Interest Owner's interest in the Producing
Properties; (iii) events, conditions or matters (other than Environmental
Matters) occurring prior to the Closing Date in connection with the ownership or
operation of Working Interest Owner's interest in the Producing Properties, to
the extent a claim is asserted on or after the third anniversary of the Closing
Date; (iv) any event, condition or matter relating to Environmental Laws or the
release of materials into the environment or protection of the environment or
health ("Environmental Matters") occurring in connection with Working Interest
Owner's interest in the Producing Properties and arising for the first time
after the Closing Date, (v) any Environmental Matters occurring prior to the
Closing Date, with respect to Working Interest Owner's interest in the Producing
Properties, to the extent the claim is asserted on or after January 1, 1997, or
(vi) any matter which Buyer is responsible for correcting under Section 4.9(c),
regardless in each case whether known or unknown, and WITHOUT REGARD TO THE
SOLE, PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY WORKING
INTEREST OWNER INDEMNITEE, but in no event shall Buyer indemnify any Working
Interest Owner Indemnitee for Losses resulting from such Working Interest Owner
Indemnitee's own gross negligence or willful misconduct. Buyer shall indemnify,
defend and hold harmless each Selling Stockholder and its respective officers,
directors, spouse, employees, agents, representatives and successors
(collectively, the "Selling Stockholder Indemnitees") from and against any and
all Losses asserted against, imposed upon or incurred by any Selling Stockholder
Indemnitee which result from, or arising out of, material breach of any of the
representations, warranties, covenants or agreements of Buyer contained in this
Agreement or any other instrument executed by Buyer in connection herewith;
regardless in each case whether known or unknown, and WITHOUT REGARD TO THE
SOLE, PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY SELLING
STOCKHOLDER INDEMNITEE; but in no event shall Buyer indemnify any Selling
Stockholder Indemnitee for Losses resulting from such Selling Stockholder
Indemnitee's own gross negligence or willful misconduct.
(b) Subject to Section 12.2(e) and (f), each Working Interest Owner
severally and not jointly shall indemnify, defend and hold harmless Buyer and
its officers, directors, employees, agents, representatives and successors
(collectively, the "Buyer Indemnitees") from and against any and all Losses
asserted against, imposed upon or incurred by any Buyer Indemnitee which result
from or arise out of (i) the material breach of any of the representations,
warranties, covenants or agreements of such Working Interest Owner
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contained in this Agreement, the Assignment or any other instrument executed by
such Working Interest Owner in connection herewith; (ii) events, conditions or
matters (other than Environmental Matters and title matters, title matters being
solely covered by the indemnity in Section 12.2(b)(i)) occurring or in existence
prior to the Closing Date in connection with the ownership or operation of
Working Interest Owner's interest in the Producing Properties, to the extent a
claim is asserted prior to the third anniversary of the Closing Date; or (iii)
any Environmental Matters occurring or in existence prior to the Closing Date
(except those matters which Buyer is responsible for correcting under Section
4.9(c)) with respect to Working Interest Owner's interest in the Producing
Properties, to the extent a claim is asserted on or prior to December 31, 1996,
regardless in each case whether known or unknown, and WITHOUT REGARD TO THE
SOLE, PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY BUYER
INDEMNITEE, but in no event shall Working Interest Owners indemnify any Buyer
Indemnitees for Losses resulting from such Buyer Indemnitee's own gross
negligence or willful misconduct.
(c) Subject to Sections 12.2 (e) and (f), Thomas L. Carter, Jr. and
Alexander D. Stuart (the "Stockholder Indemnitors") shall severally and not
jointly, in proportion to their respective interests in the Purchased Shares,
indemnify, defend and hold harmless Buyer Indemnitees from and against any and
all Losses asserted against, imposed upon or incurred by any Buyer Indemnitee
which result from or arise out of (i) the material breach of any of the
representations and warranties of Operator contained in this Agreement or any
other instrument executed by Operator in connection herewith; (ii) the material
breach by Operator of any of the covenants and agreements of Operator contained
in this Agreement or any other instrument executed by Operator in connection
herewith which covenant or agreement was to be performed by Operator prior to
the Closing, (iii) any obligations, liabilities or duties of Operator not
relating to the Subject Assets; (iv) any Environmental Matters occurring or in
existence prior to the Closing Date with respect to Operator's interest in the
Producing Properties to the extent the claim is asserted on or prior to December
31, 1996 (except those matters which Buyer is responsible for correcting under
Section 4.9(c)); (v) Operator's ownership or operation of the Producing
Properties prior to the Closing Date (other than Environmental Matters and title
matters, title matters being solely covered by the indemnity in Section
12.2(c)(i)), to the extent the Claim is asserted prior to the third anniversary
of the Closing Date; (vi) Black Stone Oil Company v. C.C. Lilley, Inc.; or (vii)
Tax Losses; regardless in each case whether known or unknown, and WITHOUT REGARD
TO THE SOLE, PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY OF ANY BUYER
INDEMNITEE, but in no event shall Stockholder Indemnitors indemnify any Buyer
Indemnitee for Losses resulting from such Buyer Indemnitee's own gross
negligence or willful misconduct.
(d) Subject to Sections 12.2(e) and (f), each Selling Stockholder
severally and not jointly shall indemnify, defend and hold harmless Buyer
Indemnitees from and against any and all Losses asserted against, imposed upon
or incurred by any Buyer Indemnitee which
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result from or arise out of the material breach of any of the representations,
warranties, covenants or agreements of such Selling Stockholder contained in
this Agreement, or any other instrument executed by such Selling Stockholder in
connection herewith; regardless in each case whether known or unknown, and
WITHOUT REGARD TO THE SOLE, PARTIAL OR CONCURRENT NEGLIGENCE OR STRICT LIABILITY
OF ANY BUYER INDEMNITEE, but in no event shall Selling Stockholders indemnify
any Buyer Indemnitees for losses resulting from such Buyer Indemnitee's own
gross negligence or willful misconduct.
(e) Notwithstanding anything to the contrary in this Agreement, in no
event shall Buyer or any Seller be liable hereunder for any exemplary, punitive,
special, indirect, consequential, remote or speculative damages.
(f) Notwithstanding anything to the contrary in this Agreement, the
liability of the Sellers and the Stockholder Indemnitors under this Agreement
and any documents delivered in connection herewith or contemplated hereby shall
be several and not joint or collective, and further limited as follows:
(i) In no event shall any amounts be recovered from a Working
Interest Owner
(A) under Sections 12.2(b)(i) and (ii) for any
matter for which a written notice of claim
specifying in reasonable detail the specific nature
of and specific basis of the Losses and the
estimated amount of such Losses ("Claim Notice") is
not delivered to the indemnifying party prior to
the close of business on the day three years
following the Closing Date, and the indemnities
granted by the Working Interest Owners in Sections
12.2(b)(i) and (ii) shall terminate on such date;
(B) under Section 12.2(b)(iii) for any matter for
which a Claim Notice is not delivered to the
indemnifying party prior to the close of business
on December 31, 1996, and the indemnities granted
by the Working Interest Owners in Sections
12.2(b)(iii) shall terminate on such date;
(C) for any Losses (other than matters described in
Section 12.2(b)(iii)) until the Buyer Indemnitees
have suffered Losses attributable to such Working
Interest Owner in the aggregate amount in excess of
a deductible of 0.6% of the Adjusted Purchase Price
attributable to such Working Interest Owner, after
which point such Working Interest Owner will be
obligated only to indemnify the Buyer
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Indemnitees from and against further such Losses
in excess of such deductible;
(D) for any Losses described in Section
12.2(b)(iii), until the Buyer Indemnitees have
suffered Losses attributable to such Working
Interest Owner in the aggregate amount in excess of
a deductible equal to the sum of (x) 0.6% of the
Adjusted Purchase Price, plus (y) the Environmental
Deductible Balance, in each case attributable to
such Working Interest Owner, after which point such
Working Interest Owner will be obligated only to
indemnify the Buyer Indemnitees from and against
further Losses in excess of such deductible; or
(E) for any Losses suffered by Buyer Indemnitees in
an aggregate amount in excess of 50% of the
Adjusted Purchase Price attributable to such
Working Interest Owner.
(ii) In no event shall any amounts be recovered from a
Stockholder Indemnitor
(A) under Sections 12.2(c)(i), (ii) or (v) for any
matter for which a Claim Notice is not delivered to
the indemnifying party prior to the close of
business on the date three years following the
Closing Date, and the indemnities granted by the
Stockholder Indemnitors in Sections 12.2(c)(i),
(ii) and (v) shall terminate on such date;
(B) under Section 12.2(c)(iii), (vi) or (vii) for
any matter for which a Claim Notice is not
delivered to the indemnifying party prior to the
expiration of the applicable statute of
limitations;
(C) under Section 12.2(c)(iv) for any matter for
which a Claim Notice is not delivered to the
indemnifying party prior to the close of business
on the December 31, 1996, and the indemnities
granted by the Stockholder Indemnitors in Section
12.2(c)(iv) shall terminate on such date;
(D) for any Losses (other than matters described in
Section 12.2(c)(iv), (vi) and (vii)) until the
Buyer Indemnitees have suffered Losses attributable
to such Stockholder Indemnitor in the aggregate
amount in excess of a deductible of .6% of the
Adjusted Purchase Price attributable to the
Purchased Shares of such Stockholder Indemnitor,
after which point the Stockholder Indemnitor will
be
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obligated only to indemnify the Buyer Indemnitees
from and against further Losses in excess of such
deductible;
(E) for any Losses for matters under Section
12.2(c)(iv) until the Buyer Indemnitees have
suffered Losses attributable to such Stockholder
Indemnitor in the aggregate amount in excess of a
deductible equal to the sum of (x) .6% of the
Adjusted Purchase Price, and (y) the Environmental
Deductible Balance, in each case as attributable to
the Purchased Shares of such Stockholder
Indemnitor, after which point the Stockholder
Indemnitor will be obligated only to indemnify the
Buyer Indemnitees from and against further Losses
in excess of such deductible; or
(F) for any Losses resulting from matters described
in Sections 12.2(c)(i), (ii), (iii), (iv) or (v) or
12.2(d) after Buyer Indemnitees have suffered
Losses in the aggregate amount in excess of 50% of
the Adjusted Purchase Price attributable to the
Purchased Shares of such Stockholder Indemnitor.
(iii) In no event shall any amounts be recovered from a Selling
Stockholder (other than pursuant to Section 12.2(f)(ii))
(A) under this Agreement for any matter for which a
Claim Notice is not delivered to the indemnifying
party prior to the close of business on the date
three years following the Closing Date, and the
indemnities granted by the Selling Stockholders in
this Agreement shall terminate on such date;
(B) for any Losses until the Buyer Indemnitees have
suffered Losses resulting from matters described in
Section 12.2(d) for any Selling Stockholder in the
aggregate amount in excess of a deductible of .6%
of the Adjusted Purchase Price attributable to the
Purchased Shares of such Selling Stockholder, after
which point such Selling Stockholder will be
obligated only to indemnify the Buyer Indemnitees
from and against further Losses in excess of such
deductible; or
(C) for any Losses after Buyer Indemnitees have
suffered Losses resulting from matters described in
Section 12.2(d) in the aggregate amount in excess
of 50% of the Adjusted Purchase Price attributable
to the Purchased Shares of such Selling
Shareholder.
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provided, however, that such indemnities shall survive (subject to any
applicable deductible or cap) with respect only to the specific matter that is
the subject of any Claim Notice delivered in good faith in compliance with the
requirements of this Section 12.2(f) until the earlier to occur of (x) the date
on which a final nonappealable resolution of the matter described in such Claim
Notice has been reached or (y) the date on which the matter described in such
Claim Notice has otherwise reached final resolution. Notwithstanding the
foregoing, the Stockholder Indemnitors shall be jointly and severally liable for
the indemnity granted in Section 12.2(c)(vii) with respect to Tax Losses and
Section 12.2(c)(vi) with regard to Black Stone Oil Company v. C.C. Lilley, Inc.
(g) All claims for indemnification under this Section 12.2 shall be
asserted and resolved pursuant to this Section 12.2(g). Any person claiming
indemnification hereunder is hereinafter referred to as the "Indemnified Party"
and any person against whom such claims are asserted hereunder is hereinafter
referred to as the "Indemnifying Party." In the event that any Losses are
asserted against or sought to be collected from an Indemnified Party by a third
party, said Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. Notwithstanding the preceding sentence,
failure of the Indemnified Party to give notice hereunder shall not release the
Indemnifying Party from its obligations under this Article XII, except to the
extent the Indemnifying Party is actually prejudiced by such failure to give
notice. The Indemnifying Party shall have 30 days from the personal delivery or
receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) whether or not it disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such Losses and/or (ii) whether
or not it desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against such Losses; provided, however, that any
Indemnified Party is hereby authorized prior to and during the Notice Period to
file any motion, answer or other pleading that it shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party (and of
which it shall have given notice and opportunity to comment to the Indemnifying
Party) and not prejudicial to the Indemnifying Party. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such Losses, the Indemnifying
Party shall have the right to defend all appropriate proceedings, and with
counsel of its own choosing, which proceedings shall be promptly settled or
prosecuted by them to a final conclusion. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement it may do so at
its sole cost and expense. If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any Losses that the Indemnifying Party elects to contest
or, if appropriate and related to the claim in question, in making any
counterclaim against the person asserting the third party Losses, or any
cross-complaint against any person. No claim may be settled or otherwise
compromised without the prior written consent of the Indemnifying Party.
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(h) Notwithstanding anything to the contrary contained herein, the
amount of any Losses for which indemnification is provided under this Section
12.2 shall be net of any amounts actually recovered by the Indemnified Party
under insurance policies in effect at or prior to the Closing Date. The
Indemnified Party shall use its reasonable efforts to enforce any such insurance
policies and shall give such notices under such policies as the Indemnifying
Party reasonably may request by notice in writing. The Indemnified Party and the
Indemnifying Party shall cooperate in connection with any claim under any such
insurance policies covered by this Section 12.2(h).
(i) THE TERM "LOSSES" SHALL SPECIFICALLY INCLUDE STRICT LIABILITY
IMPOSED ON AN INDEMNIFIED PARTY WHETHER UNDER ENVIRONMENTAL LAWS OR OTHERWISE
AND IT IS THE INTENT OF THE PARTIES THAT THE INDEMNIFICATION OBLIGATIONS SET
FORTH IN THIS ARTICLE XII SHALL INCLUDE AN OBLIGATION ON THE PART OF THE
INDEMNIFYING PARTY TO INDEMNIFY THE INDEMNIFIED PARTY AGAINST STRICT LIABILITY
ARISING IN CONNECTION WITH A MATTER FOR WHICH SUCH PARTY IS ENTITLED TO
INDEMNIFICATION UNDER THIS ARTICLE.
ARTICLE XIII
Limitations on Representations and Warranties
Section 13.1 Disclaimers of Representations and Warranties.
The express representations and warranties of Seller contained in this
Agreement are exclusive and are in lieu of all other representations and
warranties, express, implied or statutory. BUYER ACKNOWLEDGES THAT SELLER HAS
NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON
LAW, BY STATUTE OR OTHERWISE RELATING TO (a) PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES, OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES
OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE SUBJECT ASSETS, (b) EXCEPT AS
OTHERWISE PROVIDED HEREIN, THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR
HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, AND (c) THE
ENVIRONMENTAL CONDITION OF THE SUBJECT ASSETS. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER
HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND
FIXTURES CONSTI-
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TUTING A PART OF THE SUBJECT ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE,
(v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM VICES OR DEFECTS, WHETHER
KNOWN OR UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE
LAW, AND (vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE
RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR
HEALTH, IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER THAT (EXCEPT TO THE
EXTENT EXPRESSLY PROVIDED IN HEREIN) THE REAL AND PERSONAL PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY, AND FIXTURES CONSTITUTING PART OF THE ASSETS SHALL BE
CONVEYED TO BUYER AS IS AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR AND
BUYER REPRESENTS TO SELLER THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH
INSPECTIONS WITH RESPECT TO THE REAL AND PERSONAL PROPERTY, EQUIPMENT,
MACHINERY, INVENTORY AND FIXTURES AS BUYER DEEMS APPROPRIATE AND BUYER WILL
ACCEPT SAME AS IS, WHERE IS, WITH ALL FAULTS, IN THEIR PRESENT CONDITION AND
STATE OF REPAIR. Seller and Buyer agree that, to the extent required by
applicable law to be effective, the disclaimers of certain warranties contained
in this section are "conspicuous" disclaimers for the purposes of any applicable
law, rule or order.
Section 13.2 Waiver of Texas DTPA.
(a) It is the intent of the Parties that Buyer's rights and remedies
with respect to this Agreement and the transactions contemplated hereby and with
respect to all acts or practices of Seller, past, present or future, in
connection with this Agreement and the transactions contemplated hereby shall be
governed by legal principles other than the Texas Deceptive Trade Practices
Consumer Protection Act, Tex. Bus. & Com. Code Ann. ss. 17.41 et seq. (Vernon
1987 and Supp. 1994) (the "DTPA"). As such, Buyer hereby waives the
applicability of the DTPA to this Agreement and the transactions contemplated
hereby and any and all duties, rights or remedies that might be imposed by the
DTPA, whether such duties, rights or remedies are applied directly by the DTPA
itself or indirectly in connection with other statutes; provided, however, Buyer
does not waive Section 17.555 of the DTPA. Buyer acknowledges, represents and
warrants that it is purchasing the Purchased Subject Assets and Purchased Shares
for commercial or business use; that Buyer has assets of Five Million Dollars
($5,000,000) or more according to its most recent financial statement prepared
in accordance with generally accepted accounting principles; that Buyer has
knowledge and experience in financial and business matters that enable it to
evaluate the
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merits and risks of a transaction such as this; and that it is not in a
significantly disparate bargaining position with Seller.
(b) Buyer expressly recognizes that the price for which Seller has
agreed to perform its obligations under this Agreement has been predicated upon
the inapplicability of the DTPA and this waiver of the DTPA. Buyer further
recognizes that Seller, in determining to proceed with the entering into of this
Agreement, has expressly relied on this waiver and the inapplicability of the
DTPA.
Section 13.3 Casualty Loss.
(a) Buyer shall assume all risk of loss with respect to, and any
change in the condition of, the Subject Assets from the Effective Time until
Closing for production of oil, gas and/or other hydrocarbons through depletion
(including the watering-out of any well, collapsed casing or sand infiltration
of any well) or otherwise.
(b) If after the Effective Time and prior to the Closing any part of
the Subject Assets shall be damaged or destroyed by fire or other casualty or if
any part of the Subject Assets shall be taken in condemnation or under the right
of eminent domain or if proceedings for such purposes shall be pending or
threatened ("Casualty Loss"), Buyer may elect to (i) cause the Subject Assets
affected by the Casualty Loss to be treated as Excluded Assets and reduce the
Purchase Price by the Allocated Value of the Subject Asset affected, in which
case Seller shall retain all insurance proceeds, condemnation proceeds, claims,
awards and other payments arising out of such Casualty Loss, or (ii) require
Working Interest Owner to (y) transfer to Buyer the Purchased Subject Asset
affected notwithstanding such Casualty Loss and (z) transfer to Buyer Working
Interest Owner's share of any insurance proceeds and condemnation proceeds,
claims, awards and other payments arising out of such Casualty Loss and require
Operator to retain and not distribute to the Selling Stockholders Operator's
share of any such insurance proceeds, condemnation proceeds, claims, awards or
payments. Working Interest Owner and Operator shall not voluntarily compromise,
settle or adjust any amounts payable by reason of a Casualty Loss without first
obtaining the consent of Buyer. Notwithstanding the foregoing, if following any
Casualty Loss, Working Interest Owner or Operator repairs or replaces the
damaged or destroyed property to substantially its original condition, Buyer
shall be required to purchase the Subject Assets affected without any reduction
in the Purchase Price and Seller shall retain all insurance proceeds and other
amounts arising out of such Casualty Loss.
Section 13.4 Exclusive Remedies. THE PARTIES ACKNOWLEDGE AND AGREE
THAT THE REMEDIES SET FORTH IN THIS AGREEMENT, INCLUDING THE DEDUCTIBLES,
LIABILITY LIMITS, SURVIVAL PERIODS, DISCLAIMERS AND LIMITATIONS ON REMEDIES, ARE
INTENDED TO BE, AND SHALL BE, THE EXCLUSIVE REMEDIES WITH RESPECT TO ANY ASPECT
OF THE TRANSACTIONS
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CONTEMPLATED BY THIS AGREEMENT. EACH PARTY HEREBY RELEASES, WAIVES AND
DISCHARGES, AND COVENANTS NOT TO SUE WITH RESPECT TO, ANY CAUSE OF ACTION OR
CLAIM NOT EXPRESSLY PROVIDED FOR IN THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, CLAIMS UNDER STATE OR FEDERAL SECURITIES LAWS, AVAILABLE AT COMMON
LAW OR BY STATUTE (INCLUDING FRAUD CLAIMS UNDER CHAPTER 27 OF THE TEXAS BUSINESS
AND COMMERCE CODE).
Section 13.5 Texas Revised Partnership Act. Buyer agrees that if any
Seller which is a Texas general partnership adopts the Texas Revised Partnership
Act ("TRPA") prior to the Closing Date, TRPA shall have the same effect on any
claim of Buyer arising under this Agreement against such partnership and the
partners thereof as if TRPA had been adopted by such partnership prior to the
date of execution of this Agreement.
ARTICLE XIV
Miscellaneous
Section 14.1 HSR Act. Within 10 days after the execution hereof, each
party will file or cause its ultimate parent entity (within the meaning of the
HSR Act) to file all materials required to be filed by it under the HSR Act and
will promptly file any supplemental materials required and will comply in all
material respects with the requirements of the HSR Act. Each of the parties
shall request early termination of the HSR Act waiting period and any filings to
be made. None of the parties shall take any action that is reasonably likely to
have the effect of delaying, impairing or impeding the receipt of any required
approvals and will use their commercially reasonable efforts to secure such
approvals as promptly as possible.
Section 14.2 Expenses. Each party shall be solely responsible for all
expenses, including due diligence expenses, incurred by it in connection with
this transaction, and no party shall be entitled to any reimbursement for such
expenses from the other party hereto.
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Section 14.3 Independent Investigation. Buyer represents and
acknowledges that (i) it is knowledgeable of the oil and gas business and of the
usual and customary practices of producers such as Seller, (ii) it has had
access to the Subject Assets, the officers and employees of Seller and Operator,
and the books, records and files of Seller and Operator relating to the
Purchased Subject Assets and Operator, and (iii) in making the decision to enter
into this Agreement, Buyer has relied solely on the basis of its own independent
due diligence investigation and upon the representations and warranties made
herein. Accordingly, Buyer acknowledges that Sellers have not made, and Sellers
hereby expressly disclaim and negate, any representation or warranty (other than
those express representations and warranties contained herein), express,
implied, at common law, by statute or otherwise, relating to the Purchased
Subject Assets or the Purchased Shares.
Section 14.4 Document Retention. As used in this Section 14.4, the term
"Documents" shall mean all files, documents, books, records and other data of
Operator (other than those that Seller has retained a copy of), including, but
not limited to: financial and tax accounting records; land, title and division
of interest files; contracts; engineering and well files; and books and records
related to the business of Operator or the operation of the Subject Assets prior
to the Closing Date. Buyer agrees that, to the extent the Documents are in
Buyer's or Operator's possession, the Documents shall be open for inspection by
representatives of Seller at reasonable times and upon reasonable notice during
regular business hours for a period of 6 years following the Closing Date (or
for such longer period as may be required by law or governmental regulation),
and that Seller may during such period at its expense make such copies thereof
as it may reasonably request.
Section 14.5 Entire Agreement. This Agreement, the documents to be
executed hereunder, and the exhibits attached hereto constitute the entire
agreement between the Parties hereto pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties pertaining to the subject matter hereof.
No supplement, amendment, alteration, modification or waiver of this Agreement
shall be binding unless executed in writing by the Parties hereto and expressly
referencing this Agreement.
Section 14.6 Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
Section 14.7 No Solicitation. Sellers shall, prior to the Closing Date,
neither solicit bids for the Subject Assets or Purchased Shares nor negotiate
the sale of the Subject Assets or Purchased Shares with any party other than
Buyer or Guarantor.
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Section 14.8 Publicity. Sellers and Buyer shall consult with each
other with regard to all publicity and other releases concerning this Agreement
and the transactions contemplated hereby and, except as required by applicable
law or the applicable rules or regulations of any governmental body or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party hereto.
Section 14.9 Captions. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
Section 14.10 No Third Party Beneficiaries. Nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
Parties that this Agreement shall not be construed as a third party beneficiary
contract.
Section 14.11 Assignment. Except as provided in the following sentence,
no party may assign or delegate any of its rights or duties hereunder, without
the prior written consent of the other parties, and any assignment or delegation
made without such consent shall be void. Buyer shall have the right to assign
its rights hereunder to an affiliate and may effect the acquisition of the
Purchased Shares pursuant to a merger of Operator with and into an affiliate of
Buyer, provided in each instance that Guarantor guarantees all of such
assignee's obligations hereunder pursuant to a form of guaranty agreement
substantially the same as that attached as Exhibit G to be executed and
delivered by Guarantor to Seller prior to such assignment or merger. Except as
otherwise provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors, assigns
and legal representatives.
Section 14.12 Governing Law. This Agreement, other documents delivered
pursuant hereto and the legal relations between the Parties shall be governed
and construed in accordance with the laws of the State of Texas, without giving
effect to principles of conflicts of laws that would result in the selection of
an alternate jurisdiction.
Section 14.13 Notices. Any notice, communication, request, instruction
or other document required or permitted hereunder shall be given in writing and
delivered in person or sent by U.S. Mail postage prepaid, return receipt
requested, or by telex, facsimile or telecopy to the addresses of Seller and
Buyer set forth below. Any such notice shall be effective only upon receipt.
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Seller: Black Stone Holdings Partnership
1001 Fannin, Suite 4750
Houston, Texas 77002
Attention: Mr. Thomas L. Carter, Jr.
Telecopy No.: (713) 658-0943
Buyer: Comstock Oil & Gas, Inc.
5005 LBJ Freeway, Suite 1000
Dallas, Texas 75244
Attention: Mr. M. Jay Allison
Telecopy No.: (214) 701-2111
with copies to: Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attention: Guy Kerr, Esq.
Telecopy No.: (214) 740-8800
Either party may, by written notice so delivered, change its address for notice
purposes hereunder.
Section 14.14 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to either party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
Section 14.15 Counterpart Execution. This Agreement may be executed in
any number of counterparts, and each counterpart hereof shall be effective as to
each party which executes the same whether or not all of the Parties execute the
same counterpart. If counterparts of this Agreement are executed, the signature
pages from various counterparts may be combined into one composite instrument
for all purposes. All counterparts together shall constitute only one Agreement,
but each counterpart shall be considered an original.
Section 14.16 Authority of BSHP. Each Seller hereby authorizes BSHP to
make and receive payments hereunder on behalf of such Seller, to give and
receive notices on behalf of such Seller hereunder (and promptly send copies of
any notices to each affected
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Seller), to agree upon any adjustments to the Purchase Price hereunder
consistent with the terms of this Agreement on behalf of such Seller, to agree
on any extensions to the Closing Date on behalf of such Seller and to select
title and environmental consultants on behalf of such Seller. BSHP's authority
does not include the ability to modify or amend this Agreement in any manner
without each Seller's consent. Buyer may rely upon any instrument executed or
other action taken by BSHP on behalf of Seller pursuant to this Section 14.16 to
the same extent as if such instrument had been executed or action had been taken
by each Seller.
Section 14.17 W.T. Carter & Bro. Buyer acknowledges that W.T. Carter &
Bro. is the lessor with respect to certain of the Properties. Buyer hereby
acknowledges and agrees that the terms of the relevant leases permit W.T. Carter
& Bro. to take in kind and separately dispose of its royalty share of the
production therefrom or attributable thereto free and clear of any costs and
expenses of gathering, handling, treating or transporting such production to the
final point of sale by lessee and/or lessee's assigns, and that W.T. Carter &
Bro. will have the right, but not the obligation, to market its royalty share of
production on the same terms as Buyer's production from such leases is marketed
free and clear of said costs and expenses of gathering, handling, treating and
transportation.
Section 14.18 Champion C-2.
(a) Operator has commenced the drilling of the Champion International
C No. 2 well. Promptly after such well reaches its total depth (as defined in
the existing drilling contract for such well), the current operator of such well
(Operator, BSHP or its designee, as applicable) shall run or cause to be run in
such well an induction log and porosity log as a reasonably prudent operator
(provided that conditions permit such logs to be run) and promptly deliver
copies of such logs to Buyer. Buyer shall have forty-eight hours after receipt
of such logs (the "C-2 Notice Period") to notify Sellers whether it elects to
reject the Champion C-2 Assets.
(b) If Buyer elects to reject the Champion C-2 Assets, and such notice
of rejection is received by Sellers prior to Closing, the Purchase Price shall
not be adjusted upward by the costs and expenses thereof. If Buyer elects to
reject the Champion C-2 Assets, and such notice of rejection is received by
Sellers after Closing, Sellers shall pay Buyer an amount equal to the actual
costs and expenses incurred by Sellers after the Effective Time to drill such
well to total depth.
(c) BSHP or its designee shall have the sole right to operate the well
after Closing until the end of the C-2 Notice Period. If Buyer elects to reject
the Champion C-2 Assets, BSHP or its designee shall have the sole right to
continue to operate said well.
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(d) In the event that Sellers receive notice, within the C-2 Notice
Period, of Buyer's election to reject the Champion C-2 Assets, and Sellers
complete the Champion International C No. 2 well as a producer, then (i) if such
completion occurs prior to Closing, the Champion C-2 Assets shall be treated as
Excluded Assets, and (ii) if such completion occurs after Closing, Buyer shall
convey to Sellers, the Champion C-2 Assets promptly after such completion.
Section 14.19 Guaranty Agreement. Pursuant to the terms of the
Guaranty Agreement of even date herewith executed by Guarantor, Guarantor has
guaranteed all of the obligations of Buyer hereunder.
Section 14.20 Joint Operating Agreement/AMI. Buyer, Operator and
Working Interest Owners shall execute the Center Grove JOA and the North Double
A JOA. Buyer's interest under the Center Grove JOA shall be 30% (being 30% of
Operator's and Working Interest Owner's interests in said area as of the
Effective Time). Buyer's interest under the North Double A JOA shall be 12.825%
(being 30% of Working Interest Owners' and Operator's interests in said area as
of the Effective Time). Buyer's interest in the Camden Tram JOA shall be 18.6%
(being 30% of Working Interest Owners' and Operator's interest thereunder as of
the Effective Time). The area of mutual interest with respect to each of the
foregoing joint operating agreements shall be as shown on Exhibit "H". Operator
shall be designated as operator thereunder, subject to the provisions of Section
7.2 hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Sellers, Buyer and Guarantor have executed and
delivered this Agreement as of the date first set forth above.
WORKING INTEREST OWNERS:
BLACK STONE HOLDINGS PARTNERSHIP
By C & S Holdings, Managing Partner
By: /s/THOMAS L. CARTER, JR.
------------------------
Thomas L. Carter, Jr.
Managing Partner
By North Star Oil & Gas, General Partner
By: /s/ALEXANDER D. STUART
-----------------------
Alexander D. Stuart
Managing General Partner
C & S HOLDINGS
By: /s/THOMAS L. CARTER, JR.
------------------------
Name: Thomas L. Carter, Jr.
Title: Managing Partner
By North Star Oil & Gas, General Partner
By: /s/ALEXANDER D. STUART
------------------------
Alexander D. Stuart
Managing General Partner
C. D. LANGHORNE, JR., INC.
By: /s/C. D. LANGHORNE, JR.
------------------------
Name: C. D. Langhorne, Jr.
Title: President
/s/ALAN DALBY
------------------------
Alan Dalby
/s/PAMELA BURNEY
------------------------
Pamela Burney
-63-
ETOCO, INC.
By: /s/JAMES E. THORP
------------------------
James E. Thorp
President
HENNIG PRODUCTION COMPANY
By: /s/Don E. Hennig
------------------------
Don E. Hennig
President
/s/Hugh J. Idstein
------------------------
HUGH J. IDSTEIN
/s/MARGARET A. S. IDSTEIN
------------------------
Margaret A. S. Idstein
KERRCO INC.
By: /s/J. ROBINSON KERR
------------------------
J. Robinson Kerr
President
WOOLLY BUGGER PARTNERS, LTD.
By CASTLETON ENERGY CORPORATION, GENERAL PARTNER
By: /s/ROBERT SINCLAIR
------------------------
Robert Sinclair
President
W. T. CARTER & BRO.
By: /s/THOMAS L. CARTER
------------------------
Thomas L. Carter
Managing Partner
-64-
SELLING STOCKHOLDERS:
/s/THOMAS L. CARTER, JR.
------------------------
Thomas L. Carter
/s/ALEXANDER D. STUART
------------------------
Alexander D. Stuart
/s/ROBERT D. STUART, JR.
------------------------
Robert D. Stuart, Jr.
/s/DONALDSON C. PILLSBURY
------------------------
Donaldson C. Pillsbury
/s/JAMES M. STUART
------------------------
James M. Stuart
/s/PHIL BROXSON
------------------------
Phil Broxson
/s/JOHN MARTIN
------------------------
John Martin
/s/NENETTE G. CARTER
------------------------
Nenette G. Carter
/s/AUBREY CARTER
------------------------
Aubrey Carter
/s/SARA C. WALNE
------------------------
Sara C. Walne
/s/GEORGIA C. HERZOG
------------------------
Georgia C. Herzog
/s/MAUDE C. TRIONE
------------------------
Maude C. Trione
/s/MARJORIE C. CAIN
------------------------
Marjorie C. Cain
-65-
OPERATOR:
BLACK STONE OIL COMPANY
By: /s/THOMAS L. CARTER, JR.
------------------------
Thomas L. Carter, Jr.
President
BUYER:
COMSTOCK OIL & GAS, INC.
By: /s/M. JAY ALLISON
------------------------
M. Jay Allison
President
GUARANTOR:
COMSTOCK RESOURCES, INC.
By: /s/M. JAY ALLISON
------------------------
M. Jay Allison
President
-66-
E:\CORP\21512\52110\DOCS\PSA.009
SCHEDULE I
WORKING INTEREST OWNERS
Black Stone Holdings Partnership, a Texas general partnership C&S Holdings, a
Texas general partnership C. D. Langhorne, Jr., Inc., a Texas corporation Alan
Dalby and wife Pamela Burney ETOCO, Inc., a Texas corporation Hennig Production
Company, a sole proprietorship Hugh J. Idstein and wife Margaret A.S. Idstein
Kerrco, Inc., a Delaware corporation Woolly Bugger Partners, Ltd., a Texas
limited partnership W.T. Carter & Bro., a Texas general partnership
SCHEDULE II
SELLING STOCKHOLDERS
Stockholder Number of Shares
Thomas L. Carter, Jr. 34,534
Robert D. Stuart, Jr. 6,063
Alexander D. Stuart 18,313
Donaldson C. Pillsbury 1,637
James M. Stuart 1,275
Phil Broxson 1,190
John Martin 1,190
Nenette G. Carter 707
Aubrey Carter 707
Sara C. Walne 706
Georgia C. Herzog 706
Maude C. Trione 706
Marjorie C. Cain 706
68,440
Execution Copy
CREDIT AGREEMENT
dated as of May 1, 1996
COMSTOCK RESOURCES, INC.,
COMSTOCK OIL & GAS, INC.,
COMSTOCK OIL & GAS - LOUISIANA, INC.
COMSTOCK OFFSHORE ENERGY, INC.,
THE BANKS PARTY HERETO
BANK ONE, TEXAS, N.A., CO-AGENT
AND
THE FIRST NATIONAL BANK OF CHICAGO, AS AGENT
TABLE OF CONTENTS
Section 1. Definitions......................................................2
1.1 Certain Definitions.........................................2
1.2 Other Definitions; Rules Of Construction...................14
SECTION 2. The Commitments.................................................14
2.1 Advances...................................................14
SECTION 3. The Advances....................................................16
3.1 Disbursement of Advances...................................16
3.2 Conditions of Advances.....................................18
3.3 Letter of Credit Reimbursement Payments....................20
3.4. Withholding Tax Exemption..................................23
SECTION 4. Payment and Prepayment; Fees; Change in
Circumstances...................................................24
4.1 Principal Payments.........................................24
4.2 Interest Payment...........................................25
4.3 Fees.......................................................25
4.4 Payment Method.............................................26
4.5 No Setoff or Deduction.....................................26
4.6 Payment on Non-Business Day; Payment
Computations...............................................27
4.7. Yield Protection...........................................27
4.8. Changes in Capital Adequacy Regulations....................27
4.9. Availability of Types of Advances..........................28
4.10.Funding Indemnification....................................28
4.11.Bank Statements; Survival of Indemnity.....................28
SECTION 5. Security........................................................29
5.1 Security Documents.........................................29
5.2 Guaranty...................................................30
5.3 Additional Security Documents..............................30
SECTION 6. Representations and Warranties..................................30
6.1 Corporate Existence and Power..............................30
6.2 Corporate Authority........................................31
6.3 Binding Effect.............................................31
6.4 Subsidiaries...............................................31
6.5 Liens......................................................31
6.6 Litigation.................................................31
6.7 Financial Condition........................................31
6.8 Use of Advance.............................................32
6.9 Security Documents.........................................32
6.10 Consents, Etc..............................................32
SECTION PAGE
6.11 Taxes..................................................... 32
6.12 Title to Properties....................................... 32
6.13 ERISA..................................................... 33
6.14 Environmental and Safety Matters.......................... 33
6.15 Direct Benefit............................................ 34
6.16 Solvency.................................................. 34
6.17 Disclosure................................................ 34
SECTION 7. Covenants.......................................................34
7.1 Affirmative Covenants......................................34
(a) Preservation of Corporate Existence,
7.2 Negative Covenants.........................................38
(a) Current Ratio..........................................38
(b) Tangible Net
Worth..................................................38
(c) Interest Coverage Ratio................................39
(d) Indebtedness...........................................39
(e) Liens..................................................39
(f) Merger; Acquisitions; Etc..............................40
(g) Disposition of Assets; Etc.............................41
(h) Nature of Business.....................................41
(i) Investments, Advance and Advances,
Contingent Liabilities.................................41
(j) Dividends..............................................42
(k) Transactions with Affiliates...........................42
(l) Subordinated Debt......................................42
(m) Payments and Modification
of Debt................................................42
(n) Additional Covenants...................................43
SECTION 8. Default.........................................................43
8.1 Events of Default..........................................43
8.2 Remedies...................................................45
CREDIT AGREEMENT Page ii
SECTION PAGE
8.3 Distribution of Proceeds...................................46
8.4 Letter of Credit Liabilities...............................47
SECTION 9. The Agent and the Banks.........................................48
9.1 Appointment; Nature of Relationship........................48
9.2 Powers.....................................................48
9.3 General Immunity...........................................48
9.4 No Responsibility for Loans, Recitals, Etc. ...............48
9.5 Action on Instruction of Banks.............................49
9.6 Employment of Agents and Counsel...........................49
9.7 Reliance on Documents; Counsel.............................49
9.8 Agent's Reimbursement and Indemnification..................49
9.9 Notice of Default .........................................50
9.10 Rights as a Bank...........................................50
9.11 Bank Credit Decision.......................................50
9.12 Successor Agent............................................50
9.13 Pro Rata Sharing by Banks..................................51
9.14 Determination of Borrowing Base, Etc.......................51
9.15 Co-Agent...................................................52
SECTION 10. Miscellaneous...................................................52
10.1 Amendments; Etc...........................................52
10.2 Notices...................................................52
10.3 Conduct No Waiver; Remedies Cumulative....................53
10.4 Reliance on and Survival of Various
Provisions................................................53
10.5 Expenses; Indemnification.................................53
10.6 Successors and Assigns....................................55
10.7 CHOICE OF LAW.............................................58
10.8 Table of Contents and Headings............................58
10.9 Construction of Certain Provisions........................58
10.10 Integration and Severability..............................59
10.11 Interest Rate Limitation..................................59
10.12 Counterparts..............................................9
10.13 Independence of Covenants.................................59
10.14 Consent to Jurisdiction...................................59
10.15 JURY TRIAL WAIVER.........................................60
10.16 Joint and Several Obligations; Contribution
Rights; Savings Clause....................................60
CREDIT AGREEMENT Page iii
10.17 Consents to Renewals, Modifications and
Other Actions and Events..................................62
10.18 Waivers, Etc..............................................63
10.19 Confidentiality...........................................63
EXHIBIT
A.......Bridge Note
B.......Consent and Amendment of Security Documents
C.......Revolving Credit Note
D.......Term Note
E.......Request for Loan
F.......Assignment and Acceptance
G.......Assumption Agreement
SCHEDULES
6.4.....Subsidiaries
7.2(d)..Permitted Indebtedness
7.2(e)..Permitted Liens
7.2(i)..CRI Guaranteed Indebtedness
CREDIT AGREEMENT Page iv
CREDIT AGREEMENT
THIS AGREEMENT, dated as of May 1, 1996, is among COMSTOCK RESOURCES, INC.
a Nevada corporation ("CRI"), COMSTOCK OIL & GAS, INC., a Nevada corporation
("COG"), COMSTOCK OIL & GAS - LOUISIANA, INC., a Nevada corporation ("COGL"),
COMSTOCK OFFSHORE ENERGY, INC., a Delaware corporation ("COE") (CRI, COG, COGL
and COE may hereinafter collectively be referred to as the "Borrowers"), the
lenders party hereto from time to time (collectively, the "Banks" and
individually, a "Bank"), BANK ONE, TEXAS, N.A., as co-agent for the Banks (in
such capacity, the "co-agent") and THE FIRST NATIONAL BANK OF CHICAGO, as agent
for the Banks (in such capacity, the "Agent").
RECITALS
A. The Borrowers, Bank One, Texas, N.A., NBD Bank and NBD Bank, as agent
for Bank One, Texas, N.A. and itself executed a Credit Agreement dated July 31,
1995, as amended (the "Existing Credit Agreement"), which amended and restated a
Credit Agreement dated as of September 30, 1994, as amended, which in turn
amended and restated a Credit Agreement dated as of November 15, 1993, as
amended. The First National Bank of Chicago is the assignee of all rights and
interests of NBD Bank under the Existing Credit Agreement, both in NBD Bank's
capacity as a bank and as agent thereunder and under all agreements and
documents executed in connection therewith.
B. The Borrowers have requested that the Banks amend and restate the
Existing Credit Agreement as herein provided, replacing and refinancing the
indebtedness thereunder with a three year secured revolving credit facility
providing for revolving credit loans in the aggregate principal amount of
$166,000,000 converting to a two year term loan, and a bridge loan in the
aggregate principal amount of $10,000,000 in order to provide bridge financing
for the Borrowers' acquisition of properties from Black Stone Oil Company, and
the Banks are willing to establish such a credit facility and loans in favor of
the Borrowers and amend and restate the Existing Credit Agreement on the terms
and conditions herein set forth.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree that the Existing Credit Agreement shall be
amended and restated as follows:
SECTION 1. Definitions
1.1 Certain Definitions. As used herein, the following terms shall have the
following respective meanings:
"Advances" shall mean the Loans and the Letter of Credit Advances.
"Advance Date" shall mean each date for the making, continuation or
conversion of an Advance as specified in the notice delivered by the Borrowers,
or any of them, permitted by this Agreement.
"Affiliate", when used with respect to any person shall mean any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person or any other person which is owned 5% or more by
such person or any Subsidiary or other Affiliate of such person. For purposes of
this definition "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), with respect to any person,
shall mean 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 otherwise.
"Applicable Margin" shall mean, with respect to any Eurodollar Loan,
Floating Rate Loan and Commitment Fee, as the case may be, the applicable
percentage set forth in the table below based upon a fraction, expressed as a
percentage, determined as of the last day of each fiscal quarter of CRI, the
numerator of which is the daily average of the Advances outstanding during such
fiscal quarter and the denominator of which is the daily average of the
Borrowing Base during such fiscal quarter (the "Utilization Percentage"):
================================================================================
Utilization Eurodollar Floating Commitment
Percentage "UP" Rate Loan Rate Loan Fee under
Section 4.3(a)(i)
- ------------------------------------------------------------------------------
UP>90% 2.00% 0.50% .50%
- ------------------------------------------------------------------------------
UP 75% to 90% 1.75% 0.50% .375%
- ------------------------------------------------------------------------------
UP 55% to 75% 1.50% 0.25% .375%
- ------------------------------------------------------------------------------
UP Less than 55% 1.25% 0% .25%
==============================================================================
The Utilization Percentage shall be determined by the Agent at the end of each
fiscal quarter and shall remain in effect for the following fiscal quarter of
CRI, provided that the Agent shall also determine the Utilization Percentage
promptly after the initial issuance of any Subordinated Debt
CREDIT AGREEMENT Page 2
and adjust the Applicable Margin upon such determination, and the Applicable
Margin in effect on the first day of any Interest Period of any Eurodollar Loan
shall remain in effect for the entire Interest Period. Notwithstanding the above
or anything else in this Agreement, (a) upon and during the continuance of any
Event of Default, the Applicable Margin shall be based on the highest possible
Applicable Margin described in the table above, regardless of the Utilization
Percentage and (b) at any time any amount is outstanding under the Bridge Loan,
the Applicable Margin with respect to Floating Rate Loans and Commitment Fees
shall be 0.50% and the Borrowers shall not be entitled to obtain Eurodollar
Loans.
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now or hereafter arising, of the Borrowers to the Agent or
any Bank pursuant to any of the Loan Documents.
"Black Stone" shall mean Black Stone Oil Company, a Texas corporation.
"Borrowing Base" shall mean an amount equal to the value of the Collateral
determined by the Agent and the Co-Agent (or by each of the Banks as described
in Section 9.14) in their sole discretion, based on the Agent's, the Co-Agent's
or each Bank's, as the case may be, customary and standard practices in lending
to oil and gas companies generally, including without limitation their standard
engineering criteria and oil and gas lending criteria (and it is acknowledged
and agreed that such customary and standard practices, including without
limitation such engineering criteria and oil and gas lending criteria, shall be
determined by the Agent, the Co-Agent and each Bank, as the case may be, in
their sole discretion, and such determination shall be conclusive and binding).
"Bridge Loan" means any borrowing under Section 3.1 evidenced by the Bridge
Note and made pursuant to Section 2.1(c).
"Bridge Note" means any promissory note of the Borrowers evidencing the
Bridge Loan, in substantially the form annexed hereto as Exhibit A, as amended
or modified from time to time and together with any promissory note or notes
issued in exchange or replacement therefor. "Business Day" means (i) with
respect to any borrowing, payment or rate selection of Eurodollar Loans, a day
(other than a Saturday or Sunday) on which banks generally are open in Chicago
and New York for the conduct of substantially all of their commercial lending
activities and on which dealings in United States dollars are carried on in the
London interbank market and (ii) for all other purposes, a day (other than a
Saturday or Sunday) on which banks generally are open in Chicago for the conduct
of substantially all of their commercial lending activities.
"Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities
CREDIT AGREEMENT Page 3
and Exchange Commission under the Securities Exchange Act of 1934) of more than
50% of the outstanding shares of voting stock of CRI.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations thereunder.
"CMC" shall mean Comstock Management Corporation, a Nevada corporation.
"CNG" shall mean Comstock Natural Gas, Inc., a Nevada corporation.
"CNG/CRI Guaranty Formula" shall mean, as of any date, the sum of (a) an
amount equal to 70% of the amount of Eligible CNG Accounts Receivable (other
than those described in clause (b)) plus (b) an amount equal to 90% of the
amount of Eligible CNG Accounts Receivable supported by letters of credit
confirmed by a financial institution acceptable to the Agent in its reasonable
discretion; provided, that, the amount of Eligible CNG Accounts Receivable
described in this clause (b) included in the CNG Borrowing Base may not exceed
50% of the aggregate amount of Eligible CNG Accounts Receivable.
"Collateral" shall have the meaning ascribed thereto in Section 5.1(a)
hereof.
"Commitments" shall mean, with respect to each Bank, the commitment of each
such Bank to make Revolving Credit Advances and the Term Loan pursuant to
Sections 2.1(a) and (b), in amounts not exceeding in aggregate principal amount
outstanding at any time the respective commitment amount for each Bank set forth
next to the name of each such Bank on the signature pages hereof or established
pursuant to Section 10.6, as the case may be, as such amount may be reduced from
time to time pursuant to Sections 2.1(a) or (b).
"Consent and Amendment of Security Documents" shall mean the consent and
amendment of security documents entered into by the Borrowers, the Guarantors
and the Agent pursuant to this Agreement in substantially the form of Exhibit B,
as amended or modified from time to time.
"Consolidated" or "consolidated" shall mean, when used with reference to
any financial term in this Agreement, the aggregate for two or more Persons of
the amount signified by such term for all such Persons determined on a
consolidated basis and in accordance with GAAP.
"Consolidated Adjusted Cash Flow" shall mean, for any period, the
Consolidated Net Income for such period taken as a single accounting period,
plus, to the extent deducted in determining such Consolidated Net Income, all
depreciation, amortization and depletion expense, and other non cash charges,
provided that in determining Consolidated Net Income as used in this definition
the following shall be excluded, without duplication: (a) the income of any
Person accrued prior to the date such Person is merged into or consolidated with
a Borrower or such
CREDIT AGREEMENT Page 4
Person's assets are acquired by a Borrower, (b) the proceeds of any insurance
policy, (c) gains or losses from the sale, exchange, transfer or other
disposition of property or assets of any Borrower and related tax effects in
accordance with GAAP and (d) any extraordinary or non-recurring gains of any
Borrower, and related tax effects in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period, total interest
and related expense (including, without limitation, that portion of any
capitalized lease obligation attributable to interest expense in conformity with
GAAP, amortization of debt discount, all capitalized interest, the interest
portion of any deferred payment obligations, all commissions, discounts and
other fees and charges owed with respect to letters of credit (other than
letters of credit for CNG utilized for purchasing natural gas in aggregate
amount not exceeding $1,000,000) and bankers acceptance financing, the net costs
and net payments under any interest rate hedging, cap or similar agreement or
arrangement, prepayment charges, agency fees, administrative fees, commitment
fees and capitalized transaction costs allocated to interest expense) paid,
payable or accrued during such period, without duplication for any period, with
respect to all outstanding Indebtedness of CRI and its Subsidiaries, all as
determined for CRI and its Subsidiaries on a consolidated basis for such period
in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net income of CRI
and its Subsidiaries for such period, determined in accordance with GAAP, minus,
to the extent not deducted from such net income, the amount of allowable cash
dividends paid during such period on the 1994 Preferred Stock and on the 1995
Preferred Stock.
"Contingent Liabilities" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business and
indemnifications typical and customary in the ordinary course of such person's
oil and gas business in connection with operating agreements and other
agreements executed in the ordinary course of such person's oil and gas
business), including without limitation all reimbursement obligations of such
person in respect of any letters of credit, surety bonds or similar obligations
and all obligations of such person to advance funds to, or to purchase assets,
property or services from, any other person in order to maintain the financial
condition of such other person.
"Continuing Directors" of any person shall mean the directors of such
person on the Effective Date and each other director of such person if such
other director's nomination for election to the Board of Directors of such
person is recommended by a majority of the then Continuing Directors of such
Board of Directors.
"CPI" shall mean Crosstex Pipeline, Inc., a Texas corporation.
CREDIT AGREEMENT Page 5
"Current Assets" and "Current Liabilities" shall mean all assets or
liabilities of CRI and its Subsidiaries, on a consolidated basis respectively,
which should be classified as current assets and current liabilities in
accordance with GAAP; provided that the calculation of Current Assets shall not
include receivables of the Borrowers owing by any Affiliate in excess of 90 days
or subject to any dispute or offset or otherwise unacceptable, advances by the
Borrowers to any Affiliate or any asset classified as a Current Asset solely
because it is held for sale, and Current Liabilities shall not include the
current maturities of any Indebtedness or the Bridge Note.
"Default" shall mean any Event of Default or any event or condition which
might become an Event of Default with notice or lapse of time or both.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Eligible CNG Accounts Receivable" shall mean, as of any date, those trade
accounts receivable owned by CNG which are payable in Dollars, valued at the
face amount thereof less sales, excise or similar taxes and less returns,
discounts, claims, credits and allowances of any nature at any time issued,
including without limitation rebates and advertising allowances receivable,
owing, granted, outstanding, available or claimed, but shall not include any
such account receivable (a) that is not a bona fide existing obligation created
by the sale and actual delivery of inventory, goods or other property or the
furnishing of services or other good and sufficient consideration to customers
of CNG in the ordinary course of business, (b) that is more than 60 days past
due, (c) that is subject to any known dispute, contra-account, defense, offset
or counterclaim or any lien, encumbrance or security interest, (d) that is
payable by any person located outside the United States (which shall not be
deemed to include any territories of the United States) and is not supported by
a letter of credit issued by banks acceptable to the Agent in its reasonable
discretion, (e) that is payable by the United States or any of its departments,
agencies or instrumentalities, (f) that is payable by any person that is the
subject of any proceeding seeking to adjudicate it a bankrupt or insolvent or
seeking liquidation, winding up or reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief or protection of debtors or
seeking the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property, or that is not
generally paying its debts as they become due or has admitted in writing its
inability to pay its debts generally or has made a general assignment for the
benefit of creditors, (g) which is evidenced by a promissory note or other
instrument, (h) that is payable by any person, the aggregate accounts owing to
CNG aggregate, are in excess of 10% of all Eligible CNG Accounts Receivable (but
only to the extent of the amount in excess of 10%), unless such receivable is
secured by a letter of credit, or (i) for which the prospect of payment or
performance is or will be impaired as determined by the Agent in its reasonable
discretion.
CREDIT AGREEMENT Page 6
"Environmental Laws" at any date shall mean all provisions of law, statute,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards promulgated by the government of the United States of
America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with any successor statute thereto and the
regulations thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which (i) together with the Borrowers or any Subsidiary, would be
treated as a single employer under Section 414(b) or (c) of the Code or (ii) for
purposes of liability under Section 412(C)(11) of the Code, the lien created
under Section 412(n) of the Code or for a tax imposed for failure to meet
minimum funding standards under Section 4971 of the Code, a member of the same
affiliated service group (within the meaning of Section 401(m) of the Code) as
the Borrowers or any Subsidiary, or any other trade or business described in
clause (i) above.
"Eurodollar Base Rate" shall mean, with respect to a Eurodollar Loan for
the relevant Eurodollar Interest Period, the rate determined by the Agent to be
the rate at which First Chicago offers to place deposits in Dollars with
first-class banks in the London interbank market at approximately 11 a.m.
(London time) two Business Days prior to the first day of such Eurodollar
Interest Period, in the approximate amount of First Chicago's relevant
Eurodollar Loan and having a maturity approximately equal to such Eurodollar
Interest Period.
"Eurodollar Interest Period" or "Interest Period" shall mean, with respect
to a Eurodollar Loan, a period of one, two, three or six months commencing on a
Business Day selected by the Borrowers pursuant to this Agreement. Such
Eurodollar Interest Period shall end on the day which corresponds numerically to
such date one, two, three or six months thereafter, provided, however, that if
there is no such numerically corresponding day in such next, second, third or
sixth succeeding month, such Eurodollar Interest Period shall end on the last
Business Day of such next, second, third or sixth succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Eurodollar Interest Period shall end on the immediately
preceding Business Day.
"Eurodollar Loan" shall mean a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" shall mean, with respect to a Eurodollar Loan for the
relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable
CREDIT AGREEMENT Page 7
to such Eurodollar Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Eurodollar Interest
Period, plus (ii) the Applicable Margin.
"Event of Default" shall mean any of the events or conditions described in
Section 8.1.
"Federal Funds Rate" shall mean, for any day, an interest rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Floating Rate" shall mean the per annum rate equal to the sum of (a) (i)
with respect to Revolving Credit Loans, the Term Loan and any other amounts
owing hereunder other than the Bridge Loan, the Applicable Margin, and (ii) with
respect to the Bridge Loan, three percent (3.0%) per annum, plus (b) the greater
of (i) the per annum rate announced by the Agent from time to time as its
"corporate base rate", and (ii) the sum of one-half percent (1/2%) per annum
plus the Federal Funds Rate, such Floating Rate to change simultaneously with
any change in such "corporate base rate" or Federal Funds Rate, as the case may
be;
all as conclusively determined in good faith by the Agent, such sum to be
rounded up, if necessary, to the nearest whole multiple of 1/16 of 1%.
"Floating Rate Loan" shall mean any Loan bearing interest at the Floating
Rate.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with that reflected in the financial statements referred to in
Section 6.7 hereof.
"Guarantor" shall mean each present and future Subsidiary of any of the
Borrowers (other than any Borrower and Comstock DR-II Oil and Gas Acquisition
Limited Partnership).
"Guaranty" shall mean each guaranty of each Guarantor delivered at any time
pursuant to Section 5.2.
"Hydrocarbons" shall mean oil, gas casinghead, gas, drip gasoline, natural
gas and condensates and all other liquid or gaseous hydrocarbons.
"Indebtedness" of any person shall mean, as of any date, (a) all
obligations of such Person for borrowed money, (b) all obligations which are
secured by any lien or
CREDIT AGREEMENT Page 8
encumbrance existing on property owned by such Person whether or not the
obligation secured thereby shall have been assumed by such Person, other than
those obligations which are incurred in the ordinary course of business and are
not required to be shown as a liability on a balance sheet in accordance with
GAAP, (c) all obligations as lessee under any lease which, in accordance with
GAAP, is or should be capitalized on the books of the lessee, (d) the deferred
purchase price for goods, property or services acquired by such Person, and all
obligations of such Person to purchase such goods, property or services where
payment therefore is required regardless of whether or not delivery of such
goods or property or the performance of such services is ever made or tendered,
other than unsecured trade payables incurred in the ordinary course of business
(e) all obligations of such Person to advance funds to, or to purchase property
or services from, any other Person in order to maintain the financial condition
of such Person, (f) all obligations of such person in respect of any interest
rate or currency swap, rate cap or other similar transaction (valued in an
amount equal to the highest termination payment, if any, that would be payable
by such person upon termination for any reason on the date of termination), and
(g) all obligations of such person or of others for which such person is
contingently liable, as guarantor, surety or in any other similar capacity, or
in respect of which obligations such person assures a creditor against loss or
agrees to take any action to prevent any such loss (other than endorsements of
negotiable instruments for collection in the ordinary course of business),
including without limitation all reimbursement obligations of such person in
respect of any letters of credit, surety bonds or similar obligations and all
obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the condition, financial
or otherwise, of such other person.
"Interest Payment Date" shall mean (a) with respect to each Eurodollar
Loan, the last day of each Eurodollar Interest Period with respect to such
Eurodollar Loan and, in the case of any Eurodollar Interest Period exceeding
three months, those days that occurred during such Eurodollar Interest Period at
intervals of three months after the first day of such Eurodollar Interest
Period, (b) in all other cases, the last Business Day of each month, commencing
with the first such day after the Effective Date, and (c) the Termination Date
with respect to Revolving Credit Loans, Maturity Date - Bridge Loan with respect
to the Bridge Loan and the Maturity Date - Term Loan with respect to the Term
Loan.
"Lending Installation" shall mean, with respect to a Bank or the Agent, any
office, branch, subsidiary or affiliate of such Bank or the Agent.
"Letter of Credit" shall mean a standby letter of credit having a stated
expiry date not later than twelve months after the date of issuance and not
later than the fifth Business Day before the Termination Date, issued by the
Agent on behalf of the Banks for the account of the Borrowers under an
application and related documentation acceptable to the Agent requiring, among
other things, immediate reimbursement by the Borrowers to the Agent in respect
of all drafts or other demand for payment honored thereunder and all expenses
paid or incurred by the Agent relative thereto.
CREDIT AGREEMENT Page 9
"Letter of Credit Advance" shall mean any issuance of a Letter of Credit
pursuant to this Agreement, in which each Bank acquires a pro rata risk
participation.
"Letter of Credit Documents" shall have the meaning ascribed thereto in
Section 3.3(b)(i).
"Lien" shall mean any pledge, assignment, hypothecation, mortgage, security
interest, deposit arrangement, option, conditional sale or title retaining
contract, sale and leaseback transaction, financing statement filing, lessor's
or lessee's interest under any lease, subordination of any claim or right, or
any other type of lien, charge, encumbrance, preferential arrangement or other
claim or right.
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, the environmental certificate and any other agreement, instrument or
document executed at any time pursuant to, in connection with, or otherwise
relating to this Agreement.
"Loans" mean the Revolving Credit Loans, the Term Loan and the Bridge Loan.
"Majority Banks" shall mean Banks holding not less than 66% of the
aggregate principal amount of the Loans then outstanding (or 66% of the
Commitments if no Loans are then outstanding).
"Material Adverse Effect" shall mean a material adverse effect on or change
in (a) the business, property (including without limitation the Collateral and
further including without limitation the Purchased Black Stone Assets),
operations or condition, financial or otherwise, of the Borrowers and the
Guarantors on a consolidated basis, (b) the ability of any Borrower or any
Guarantor to perform its obligations under any Loan Document or (c) the validity
or enforceability or the rights and remedies of the Agent or any Bank under any
Loan Document.
"Maturity Date - Bridge Loan" shall mean, with respect to the Bridge Loan,
the earlier to occur of (a) December 31, 1996 and (b) the date on which the
Bridge Loan shall be accelerated pursuant to Section 8.2.
"Maturity Date - Term Loan" shall mean, with respect to the Term Loan, the
earlier to occur of (a) the second anniversary of the date the Term Loan is
made, which in any event shall be no later than the fifth anniversary of the
Effective Date, and (b) the date on which the Term Loan shall be accelerated
pursuant to Section 8.2.
"Mortgages" shall have the meaning ascribed thereto in Section 5.1.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
CREDIT AGREEMENT Page 10
"1995 Preferred Stock" shall mean the 1,500,000 shares of Series 1995
Convertible Preferred Stock issued by CRI.
"1994 Preferred Stock" shall mean the 600,000 shares of Series 1994
Convertible Preferred Stock issued by CRI and the 1,000,000 shares of 1994
Series B Convertible Preferred Stock issued by CRI.
"Notes" means the Revolving Credit Notes and the Term Notes.
"Oil and Gas Interests" shall mean all leasehold interests, mineral fee
interest, overriding royalty and royalty interests, net revenue and net working
interest and all other rights and interests relating to Hydrocarbons, including
without limitation any reserves thereof.
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Eurodollar Loans, a rate
per annum that is equal to the sum of three percent (3%) per annum plus the per
annum rate in effect thereon until the end of the then current Eurodollar
Interest Period for such Loan and, thereafter, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Floating Rate, and (c) in
respect of other amounts payable by the Company hereunder (other than interest),
a per annum rate that is equal to the sum of three percent (3%) per annum plus
the Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean the Liens permitted by Section 7.2(e) hereof.
"Person" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a government (foreign or domestic), and any
agency or political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any Person, any employee benefit or
other plan (other than a Multiemployer Plan) maintained by such Person for its
employees and covered by Title IV of ERISA or to which Section 412 of the Code
applies.
"Pro Rata Share" shall mean, as to obligations of the Banks, the percentage
set forth opposite its name on the signature pages hereof or otherwise
established pursuant to Section 10.6. As to obligations owing to the Banks,
shall mean: (a) in the case of payments of principal and interest on the Loans,
in an amount with respect to each Bank equal to the product of such amount
received times the ratio which the outstanding principal balance of its Note or
Notes bears to the outstanding principal balance of all Notes, and (b) in the
case of all other amounts payable hereunder (other than as otherwise noted with
respect to fees) and other
CREDIT AGREEMENT Page 11
amounts, in an amount with respect to each Bank equal to the product of such
amount received times the ratio which the Commitment of such Bank bears to the
Commitments of all Banks.
"Proved Developed Reserves" shall mean all Oil and Gas Interests which, to
the satisfaction of the Agent, are estimated, with reasonable certainty, and as
demonstrated by geological and engineering data acceptable to the Agent, to be
economically recoverable from existing wells requiring no more than minor
workover operations from existing completion intervals open for production and
which are producing, and have proven reserves of, Hydrocarbons.
"Purchase Documents" shall mean all purchase agreements, purchase and sale
agreements and other agreements and documents between CRI and Black Stone and
certain working interest owners for the purchase by CRI of the properties
described therein, together with all other agreements and documents delivered
pursuant to Section 3.2(a)(xii).
"Purchased Black Stone Assets" shall mean all oil and gas interests,
capital stock and other assets being purchased pursuant to the Purchase
Documents.
"Reportable Event" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Reserve Requirement" means, with respect to a Eurodollar Interest Period,
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Revolving Credit Advance" shall mean any Revolving Credit Loan or any
Letter of Credit Advance.
"Revolving Credit Loan" means any loan under Section 3.1 evidenced by the
Revolving Credit Notes and made pursuant to Section 2.1(a).
"Revolving Credit Note" shall mean any promissory note of the Borrowers
evidencing the Revolving Credit Loans, in substantially the form annexed hereto
as Exhibit C, as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor.
"Security Agreements" shall have the meaning ascribed thereto in Section
5.1.
"Security Documents" shall have the meaning ascribed thereto in Section
5.1.
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by
CREDIT AGREEMENT Page 12
law) at least a majority of the securities or other ownership interests of each
class having ordinary voting power or analogous right (other than securities or
other ownership interests which have such power or right only by reason of the
happening of a contingency), at the time as of which any determination is being
made, are owned, beneficially and of record, by such person or by one or more of
the other Subsidiaries of such person or by any combination thereof. Unless
otherwise specified, reference to "Subsidiary" shall mean a Subsidiary of CRI.
"Subordinated Debt" shall mean Indebtedness of CRI which satisfies each of
the following:
(a) the aggregate principal amount thereof does not exceed $100,000,000;
(b) the final maturity thereof shall be no earlier than 10 years after its
issuance, and there shall be no required payments, prepayments (other than
required prepayments upon a change of control and upon a disposal of a
substantial amount of assets, in each case on terms and conditions acceptable to
the Majority Banks) or other defeasance thereof, directly or indirectly, prior
to such final maturity; and
(c) such Indebtedness shall be subordinated to the Bank Obligations
pursuant to written subordination provisions in form and substance satisfactory
to the Majority Banks.
"Swap Agreement" shall mean any interest rate or oil and gas commodity swap
agreement, interest cap or collar agreement or other financial agreement or
arrangement designed to protect the Borrowers or CNG against fluctuations in
interest rates or oil and gas prices.
"Tangible Net Worth" of any Person shall mean, as of any date, (a) the
amount of any capital stock or similar ownership liability plus (or minus in the
case of a deficit) the capital surplus and retained earnings of such Person and
the amount of any foreign currency translation adjustment account shown as a
capital account of such Person, less (b) the net book value of all items of the
following character which are included in the assets of such Person: (i)
goodwill, including without limitation, the excess of cost over book value of
any asset, (ii) organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) stock discount and expense, (v) patents, trademarks,
trade names and copyrights, (vi) treasury stock, (vii) deferred taxes and
deferred charges, (viii) franchises, licenses and permits, and (ix) all other
assets which are deemed intangible assets under GAAP; provided, that such
calculation of Tangible Net Worth under this definition shall not include
receivables of such Person which are owing by any Affiliate or advances by such
Person to any Affiliate.
"Term Loan" means any borrowing under Section 3.1 evidenced by the Term
Note and made pursuant to Section 2.1(b).
CREDIT AGREEMENT Page 13
"Term Note" means any promissory note of the Borrowers evidencing the Term
Loan, in substantially the form annexed hereto as Exhibit D, as amended or
modified from time to time and together with any promissory note or notes issued
in exchange or replacement therefor.
"Termination Date" shall mean the earlier to occur of (a) the third
anniversary of the Effective Date or such earlier date as the Borrowers may
elect, with five Business Days prior written notice to the Banks, to convert the
Revolving Credit Advances to the Term Loan under Section 2.1(b), and (b) the
date on which the Commitments shall be terminated pursuant to Section 2.1(a) or
8.2.
"Total Liabilities" of any Person shall mean, as of any date, all
obligations which, in accordance with GAAP, are or should be classified as
liabilities on a balance sheet of such Person.
"Type" shall mean, with respect to any Advance, its nature as a Floating
Rate Loan, Eurodollar Loan or Letter of Credit Advance.
1.2 Other Definitions; Rules of Construction. As used herein, the terms
"Agent," "Banks," "CRI", "COG", "COGL", "COE", "Borrowers" and "this Agreement"
shall have the respective meanings ascribed thereto in the introductory
paragraph of this Agreement. Such terms, together with the other terms defined
in Section 1.1, shall include both the singular and the plural forms thereof and
shall be construed accordingly. All computations required hereunder and all
financial terms used herein shall be made or construed in accordance with GAAP
unless such principles are inconsistent with the express requirements of this
Agreement.
SECTION 2. The Commitments.
2.1 Advances. (a) Each Bank agrees, for itself only, to advance and to
readvance, subject to the terms and conditions herein set forth, to the
Borrowers at any time and from time to time from the Effective Date hereof until
the Termination Date amounts equal to such Bank's Pro Rata Share of such
aggregate amounts as any Borrower may from time to time request, provided that
no Revolving Credit Loans may be made if the aggregate outstanding amount of all
Revolving Credit Loans to all Borrowers would exceed the lesser of the
Commitments or the Borrowing Base, and the aggregate Letter of Credit Advances
may not exceed the lesser of $1,000,000 or the CNG/CRI Guaranty Formula. Each
Loan made hereunder shall be evidenced by the Notes, which shall mature and bear
interest as set forth in Section 4 hereof and in such Notes. On the Effective
Date, the Borrowers shall issue and deliver to each Bank a Revolving Credit Note
in the principal amount of such Banks' Commitment for the period beginning on
the Effective Date. Each Revolving Credit Loan which is a Floating Rate Loan
shall be in a minimum amount of $500,000 and in integral multiples of $100,000
and each Revolving Credit Loan which is a Eurodollar Loan shall be in a minimum
CREDIT AGREEMENT Page 14
amount of $3,000,000 and in integral multiples of $1,000,000. Subject to the
terms and conditions of this Agreement, the Borrowers may borrow, prepay
pursuant to Section 4.1(b) and reborrow under this Section 2.1(a). The Borrowers
shall have the right to terminate or reduce the Commitments at any time and from
time to time, provided that (i) the Borrowers shall give notice of such
termination or reduction to the Agent specifying the amount and effective date
thereof, (ii) each partial reduction of the Commitments shall be in a minimum
amount of $1,000,000 and in integral multiples of $1,000,000 and shall reduce
the Commitments of all of the Banks proportionally in accordance with the
respective Commitment amounts of each such Bank, (iii) no such termination or
reduction, either in whole or part and including without limitation any
termination, shall be permitted with respect to any portion of the Commitments
as to which a request for a Revolving Credit Advances is then pending, and (iv)
the Commitments may not be terminated if any Revolving Credit Advances are then
outstanding and may not be reduced below the principal amount of Revolving
Credit Advances then outstanding, for the benefit of Banks. Notwithstanding
anything in this Agreement to the contrary, the Commitments shall be mandatorily
and automatically reduced to an aggregate amount not to exceed $110,000,000 or
such other greater amount agreed to in writing by the Majority Banks, upon the
issuance or other incurrence of any Subordinated Debt, and such reduction shall
reduce the Commitments of all the Banks proportionally in accordance with the
respected Commitment amounts of each such Bank. The Commitments or any portion
thereof so terminated or reduced may not be reinstated. Any Borrower may request
Revolving Credit Advances without the consent of any other Borrower, and each
Borrower consents to and approves any Revolving Credit Advances requested by any
other Borrower. The Revolving Credit Advances hereunder replace the revolving
credit loans outstanding pursuant to Section 2.1(a) of the Existing Credit
Agreement and provide additional credit as described above.
(b) Each Bank further agrees, for itself only, subject to the terms
and conditions of this Agreement to make its Pro Rata Share of a single term
loan to the Borrowers on the Termination Date, but not at any time thereafter,
in an amount not to exceed the lesser of the amount of the Borrowing Base as of
the Termination Date and the aggregate outstanding principal amount of the
Revolving Credit Advances.
(c) Each Bank further agrees, for itself only, subject to the terms
and conditions of this Agreement, to make its Pro Rata Share of a single bridge
loan to the Borrowers on the Effective Date, but not at any time thereafter, in
an aggregate amount not to exceed $10,000,000. This term loan replaces the
$10,000,000 term loan outstanding under the Existing Credit Agreement and
provides additional credit.
(d) Nothing in this Agreement shall be construed to require or
authorize any Bank to issue any Letter of Credit, it being recognized that the
Agent has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Banks, and the Commitment of each Bank with respect to Letter of
Credit Advances is expressly conditioned upon the Agent's performance of such
obligations. Upon such issuance by the Agent, each Bank shall automatically
acquire a pro rata risk participation interest in such Letter of Credit Advance
based
CREDIT AGREEMENT Page 15
on its respective Commitment. If the Agent shall honor a draft or other demand
for payment presented or made under any Letter of Credit, the Agent shall
provide notice thereof to each Bank on the date such draft or demand is honored
unless the Borrowers shall have satisfied their reimbursement obligation under
Section 3.3 by payment to the Agent on such date. Each Bank, not later than the
Business Day after the Agent shall have given the notice specified in the
previous sentence, shall make its pro rata share of the amount paid by the Agent
available in immediately available funds at the principal office of the Agent
for the account of the Agent. If and to the extent such Bank shall not have made
any required pro rata portion available to the Agent or made its portion of
Revolving Credit Loan available pursuant to Section 3.3(a)(i), such Bank and the
Borrowers severally agree to pay to the Agent forthwith on demand such amount
together with interest thereon, for each day from the date such amount was paid
by the Agent until such amount is so made available to the Agent at (i) the rate
per annum equal to the interest rate applicable to the related Loan disbursement
under Section 3.3 for such day in the case of the Company and (ii) the rate per
annum equal to the Federal Funds Rate for such day in the case of any Bank. If
such Bank shall pay such amount to the Agent together with such interest, such
amount so paid shall constitute a Revolving Credit Loan by such Bank as part of
the Revolving Credit Loans disbursed in respect of the reimbursement obligation
of the Company under Section 3.3 for purposes of this Agreement. The failure of
any Bank to make its pro rata portion of any such amount paid by the Agent
available to the Agent shall not relieve any other Bank of its obligation to
make available its pro rata portion of such amount, but no Bank shall be
responsible for failure of any other Bank to make such pro rata portion
available to the Agent.
SECTION 3. The Advances.
3.1 Disbursement of Advances. (a) Borrowers shall give notice to the Agent
of each requested Advance in substantially the form of Exhibit E hereto, which
notice given shall be received by the Agent not later than 10:00 a.m. (Chicago
time), (i) three Business Days prior to the date such Loan is requested to be
made if such Loan is to be made as a Eurodollar Loan, (ii) one Business Day
prior to the date such Loan is requested to be made if such Loan is to be made
as a Floating Rate Loan, (iii) three Business Days prior to the date any Letter
of Credit Advance is requested to be made, and (iv) five Business Days prior to
the date the Term Loan is requested to be made. Each such notice given shall be
irrevocable and binding on the Borrowers, any such notice must specify the
Advance Date, which shall be a Business Day, the aggregate amount of such
Advance, the Type of Advance selected, in the case of any Eurodollar Loan, the
Eurodollar Interest Period applicable thereto, and in the case of any Letter of
Credit Advance such other information with respect thereto as may be required by
the Agent. The Agent shall provide notice of such requested Loan to each Bank on
the same Business Day such notice is received from the Borrowers. Subject to the
terms and conditions of this Agreement, the Agent shall, on the date any Letter
of Credit Advance is requested to be made, issue the related Letter of Credit on
behalf of the Banks for the account of the Borrowers, provided that in the case
of each Letter of Credit Advance the Borrowers provide such information as may
be
CREDIT AGREEMENT Page 16
necessary for the issuance thereof by the Agent and execute any document in
connection therewith as may be requested by the Agent. Notwithstanding anything
herein to the contrary, the Agent may decline to issue any requested Letter of
Credit on the basis that the beneficiary, the purpose of issuance or the terms
or conditions of drawing are illegal or contrary to a policy of the Agent.
(b) Floating Rate Loans shall continue as Floating Rate Loans unless
and until such Floating Rate Loans are converted into Eurodollar Loans. Each
Eurodollar Loan of any Type shall continue as a Eurodollar Loan of such Type
until the end of the then applicable Interest Period therefor, at which time
such Eurodollar Loan shall be automatically converted into a Floating Rate Loan
unless the Borrower shall have given the Agent a Conversion/Continuation Notice
requesting that, at the end of such Interest Period, such Eurodollar Loan either
continue as a Eurodollar Loan of such Type for the same or another Interest
Period or be converted into a Loan of another Type. Subject to the terms of
Section 2.1, the Borrower may elect from time to time to convert all or any part
of a Loan of any Type into any other Type or Types of a Loan; provided that any
conversion of any Eurodollar Loan shall be made on, and only on, the last day of
the Interest Period applicable thereto. The Borrowers shall give the Agent
irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a
Loan or continuation of a Eurodollar Loan not later than 10:00 a.m. (Chicago
time) at least one Business Day, in the case of a conversion into a Floating
Rate Loan, or three Business Days, in the case of a conversion into or
continuation of a Eurodollar Loan, prior to the date of the requested conversion
or continuation, specifying:
(i) the requested date which shall be a Business Day, of such conversion
or continuation,
(ii) the aggregate amount and Type of the Loan which is to be converted or
continued, and
(iii)the amount and Type(s) of Loan(s) into which such Loan is to be
converted or continued and, in the case of a conversion into or
continuation of a Eurodollar Loan, the duration of the Interest Period
applicable thereto.
(c) Subject to the terms and conditions of this Agreement, the
proceeds of such requested Loan shall be made available to the Borrowers by
depositing the proceeds thereof, in immediately available funds, on the Advance
Date for such Loan in an account maintained and designated by the Borrowers at
the principal office of the Agent. Each Bank, on the Advance Date of each such
Loan shall make its Pro Rata Share of such Loan available in immediately
available funds at the principal office of the Agent for disbursement to the
Borrowers. Unless the Agent shall have received notice from any Bank prior to
the date of any requested Loan under this Section 3.1 that such Bank will not
make available to the Agent such Bank's Pro Rata Share, the Agent may assume
that such Bank has made such share available to
CREDIT AGREEMENT Page 17
the Agent on the Advance Date of such Loan in accordance with this Section
3.1(b). If and to the extent such Bank shall not have so made such Pro Rata
Share available to the Agent, the Agent may (but shall not be obligated to) make
such amount available to the Borrowers on the relevant Advance Date, and such
Bank agrees to pay to the Agent forthwith on demand such amount together with
interest thereon, for each day from the date such amount is made available to
the Borrowers by the Agent until the date such amount is paid to the Agent, at
the Federal Funds Rate. If such Bank shall pay to the Agent such amount, such
amount so paid shall constitute a Loan by such Bank as a part of such borrowing
for purposes of this Agreement. The failure of any Bank to make its Pro Rata
Share of any such Loan available to the Agent shall not relieve any other Bank
of its obligations to make available its Pro Rata Share of such Loan on the
Advance Date of such Loan, but no Bank shall be responsible for failure of any
other Bank to make such Pro Rata Share available to the Agent on the Advance
Date of any such Loan.
(d) Notwithstanding anything in this Agreement to the contrary, the
Borrowers may not obtain a Eurodollar Loan or convert any Floating Rate Loan to
a Eurodollar Loan if there is any amount outstanding under the Bridge Loan.
(e) Each Bank may book its Loans at any Lending Installation selected
by such Bank and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Notes shall be deemed held by each Bank for the benefit of such Lending
Installation. Each Bank may, by written or telex notice to the Agent and the
Borrowers, designate a Lending Installation through which Loans will be made by
it and for whose account Loan payments are to be made.
3.2 Conditions of Advances. The Banks and the Agent shall not be obligated
to make any Advance hereunder at any time unless:
(a) Prior to or simultaneously with the first Advance hereunder, there
shall have been delivered to each Bank the following documents, in form and
substance satisfactory to the Agent:
(i) The favorable opinion of such counsel for the Borrowers and
each Guarantor, as shall be approved by the Banks, with respect to the matters
as requested by the Banks, including down-dated title opinions on 80% of the
value of the assets acquired by the Borrowers from Black Stone and opinions as
to such other matters as the Banks shall reasonably request, all in form and
substance satisfactory to the Majority Banks;
(ii) certified copies of such corporate documents of each
Borrower and each Guarantor, including each Borrower's and each Guarantor's
articles of incorporation, by-laws and a good standing certificate, and such
documents evidencing necessary corporate action with respect to this Agreement,
the Loans, the Notes and the Security Documents, and certifying to the
incumbency of, and attesting to the genuineness of the
CREDIT AGREEMENT Page 18
signatures of, those officers authorized to act on behalf of each Borrower and
each Guarantor, as the Banks shall request;
(iii) the Security Documents required as of the Effective Date
under Section 5.1 duly executed on behalf of the Borrowers and each Guarantor,
together with evidence of the recordation, filing and other action in such
jurisdictions as the Banks may deem necessary or appropriate with respect to the
Security Documents and evidence of the first-priority of the Banks' liens and
security interests under the Security Documents, subject only to Permitted
Liens, including without limitation such additional mortgages, security
agreements, pledge agreements, other documents and opinions of counsel required
by the Banks and original stock certificates and assignments separate from
certificate of each person whose stock is required to be pledged;
(iv) the Notes duly executed on behalf of the Borrowers, and it
is acknowledged and agreed that the Notes: (A) are issued in exchange and
replacement for the promissory notes issued pursuant to the Existing Credit
Agreement, (B) shall not be deemed a novation or to have satisfied such
promissory notes and (C) evidence the same indebtedness evidenced by such
promissory notes plus additional indebtedness;
(v) the Consent and Amendment of Security Documents duly executed
by the Borrowers and the Guarantors;
(vi) Payment of such fees agreed to among the Borrowers and the
Agent;
(vii) the execution by the Borrowers and each Guarantor of the
Agent's standard environmental certificate;
(viii) the Banks shall have determined that the Loans to be made
are equal to or less than the Borrowing Base, and such determination shall be
made by the Banks in their sole discretion and based upon their evaluation of
the Borrowing Base;
(ix) copies of all agreements relating to any material
Indebtedness for borrowed money, any preferred stock, any joint ventures or
partnerships or any other material documents requested by the Banks;
(x) the originals of all promissory notes payable to any Borrower
or any Guarantor, other than promissory notes in an aggregate amount less than
$50,000;
(xi) such other agreements, documents, conditions and
certificates as reasonably requested by the Banks, including without limitation,
releases and terminations of all other Liens which are not permitted hereunder,
assignment of the Purchase
CREDIT AGREEMENT Page 19
Documents, amendments of existing Security Documents, the establishment of all
primary bank accounts of each Borrower and each Guarantor at a Bank (and each
agrees to maintain such accounts at a Bank), all in form and substance
satisfaction to the Banks;
(xii) certified copies of all purchase agreements, purchase and
sale agreements and all other agreements and documents executed or to be
executed and delivered in connection with the acquisition by CRI of certain oil
and gas properties and other assets from Black Stone and certain working
interest owners; and
(xiii) evidence satisfactory to the Majority Banks that, but for
the payment of a portion of the purchase price to be paid by the initial Loans
under this Agreement, the representations and warranties in the last sentence of
Section 6.12 are accurate.
(b) The aggregate outstanding principal amount of all Revolving Credit
Loans or the Term Loan, whichever is outstanding, after giving effect to the
proposed Loan, does not exceed the lesser of the Commitments or the Borrowing
Base, and the aggregate outstanding principal amount of all Letter of Credit
Advances, after giving effect to the proposed Letter of Credit Advance, does not
exceed the lesser of $1,000,000 or the CNG/CRI Guaranteed Formula.
(c) On and as of the date of each such Advance, the representations
and warranties contained in Section 6 hereof shall be true and correct in all
material respects as if made on such date; provided, however, that for purposes
of this Section 3.2(c) the representations and warranties contained in Section
6.7 hereof shall be deemed made with respect to both the financial statements
referred to therein and the most recent financial statements delivered pursuant
to Section 7.1(d)(ii) and (iii).
(d) No Default or event or condition which could cause a Material
Adverse Effect has occurred and is continuing or will exist upon the
disbursement of such Advance.
Acceptance of the proceeds of any Advance hereunder by the Borrowers shall be
deemed to be a certification by the Borrowers at such time with respect to the
matters set forth in subparagraphs (b), (c) and (d) of this Section 3.2.
3.3 Letter of Credit Reimbursement Payments. (a)(i) The Borrowers agree to
pay to the Agent, on the day on which the Agent shall honor a draft or other
demand for payment presented or made under any Letter of Credit, an amount equal
to the amount paid by the Agent in respect of such draft or other demand under
such Letter of Credit and all expenses paid or incurred by the Agent relative
thereto. Unless the Borrowers shall have made such payment to the Agent on such
day, upon each such payment by the Agent, the Agent shall be deemed to have
disbursed to the Borrowers, and the Borrowers shall be deemed to have elected to
satisfy its reimbursement obligation by borrowing, a Revolving Credit Loan for
the account
CREDIT AGREEMENT Page 20
of the Banks in an amount equal to the amount so paid by the Agent in respect of
such draft or other demand under such Letter of Credit. Such Revolving Credit
Loan shall be disbursed, and each Bank shall advance its Pro Rata Share thereof,
notwithstanding any failure to satisfy any conditions for disbursement of any
Loan set forth in Section 3.2 or any other condition and, to the extent of the
Revolving Credit Loan so disbursed, the reimbursement obligation of the
Borrowers under this Section 3.3 shall be deemed satisfied; provided, however,
that such disbursement shall not be deemed to be a waiver of any Event of
Default or Default, if any.
(ii) If for any reason (including without limitation as a result
of the occurrence of an Event of Default with respect to the Borrowers or any of
its Subsidiaries pursuant to Section 8.1(g), Revolving Credit Loans may not be
made by the Banks as described in Section 3.3(a)(i), then (A) the Borrowers
agree that each reimbursement amount not paid pursuant to the first sentence of
Section 3.3(a)(i) shall bear interest, payable on demand by the Agent, at the
interest rate then applicable to Revolving Credit Loans, and (B) effective on
the date each such Revolving Credit Loan would otherwise have been made, each
Bank severally agrees that it shall unconditionally and irrevocably, without
regard to the occurrence of any Default or Event of Default, in lieu of a deemed
disbursement of Revolving Credit Loans, to the extent of such Bank's Pro Rata
Share, purchase a participating interest in each reimbursement amount. Each Bank
will immediately transfer to the Agent, in same day funds, the amount of its
participation. Each Bank shall share on a pro rata basis (calculated by
reference to the Bank Commitments) in any interest which accrues thereon and in
all repayments thereof. If and to the extent that any Bank shall not have so
made the amount of such participating interest available to the Agent, such Bank
and the Borrowers agree to pay to the Agent forthwith on demand such amount
together with interest thereon, for each day from the date of demand by the
Agent until the date such amount is paid to the Agent, at (x) in the case of the
Borrowers, the interest rate then applicable to Loans and (y) in the case of
such Bank, the Federal Funds Rate.
(b) The reimbursement obligations of the Borrowers under this Section
3.3 shall be absolute, unconditional and irrevocable and shall remain in full
force and effect until all obligations of the Borrowers to the Agent and the
Banks hereunder shall have been satisfied, and such obligations of the Borrowers
shall not be affected, modified or impaired upon the happening of any event,
including without limitation, any of the following, whether or not with notice
to, or the consent of, the Borrowers:
(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii) Any amendment, modification, waiver or consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
CREDIT AGREEMENT Page 21
(iii) The existence of any claim, setoff, defense or other right
which the Borrowers may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting) , the Agent or any Bank or any
other person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
(iv) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms of
the Letter of Credit, including failure of any documents to bear any reference
or adequate reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of the
Agent or any Bank or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred upon the Agent,
any Bank or any such party under this Agreement or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the Agent, any Bank or
any such party; or
(vii) Any other event or circumstance that would, in the absence
of this clause, result in the release or discharge by operation of law or
otherwise of the Borrowers from the performance or observance of any obligation,
covenant or agreement contained in this Section 3.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Borrowers has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the
Borrowers against the Agent or any Bank. Nothing in this Section 3.3 shall limit
the liability, if any, of the Banks to the Borrowers pursuant to Section
10.5(c).
(c) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in this Section 3.3 and (ii) shall be deemed outstanding at all times on and
before such stated expiry date or such earlier date on which all amounts
available to be drawn under such Letter of Credit have been fully drawn, and
thereafter until all related reimbursement obligations have been paid pursuant
to Section 3.3. As provided in this Section 3.3, upon each payment made by the
Agent in respect of any draft or other demand for payment under any Letter of
Credit, the amount of any Letter of Credit Advance
CREDIT AGREEMENT Page 22
outstanding immediately prior to such payment shall be automatically reduced by
the amount of each Revolving Credit Loan deemed advanced in respect of the
related reimbursement obligation of the Borrowers.
(d) Each Bank's obligation to purchase participating interests
pursuant to Section 2.1(c) and this Section 3.3, and to comply with the terms of
Section 2.1(c) and this Section 3.3, shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such Bank or
the Borrowers may have against the Agent, the Borrowers or anyone else for any
reason whatsoever; (ii) the occurrence or continuance of a Default or an Event
of Default; (iii) any adverse change in the condition (financial or otherwise)
of the Borrowers; (iv) any breach of this Agreement by the Borrowers or any
other Bank; or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
3.4. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Bank, each Bank that is not incorporated under the laws of the United States
of America, or a state thereof, agrees that it will deliver to each of the
Borrowers and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Bank is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Bank
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrowers and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrowers or the Agent,
in each case certifying that such Bank is entitled to receive payments under
this Agreement and the Notes without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises the Borrowers
and the Agent that it is not capable of receiving payments without any deduction
or withholding of United States federal income tax.
CREDIT AGREEMENT Page 23
SECTION 4. Payment and Prepayment; Fees; Change in Circumstances.
4.1 Principal Payments.
(a) Unless earlier payment is required under this Agreement, the
Borrowers shall pay (i) the entire outstanding principal amount of the Revolving
Credit Advances on the Termination Date, (ii) the Term Loan in consecutive
quarterly installments each in an amount equal to 5% of the original outstanding
principal amount of the Term Loan, commencing with the date three months after
the Termination Date and each three months thereafter until the Maturity Date of
the Term Loan and shall pay the entire remaining outstanding principal amount of
the Term Loan on the Maturity Date - Term Loan and (iii) the entire outstanding
principal amount of the Bridge Loan on the Maturity Date - Bridge Loan.
(b) The Borrowers may from time to time prepay all or a portion of the
Advances without premium or penalty, provided, however, that (i) the Borrowers
shall have given not less than one Business Day's prior written notice thereof
to the Agent, (ii) other than mandatory payments, each such prepayment, in the
case of prepayment of Floating Rate Loans, shall be in the minimum amount of
$500,000 and in integral multiples of $100,000 and, in the case of prepayment of
Eurodollar Loans, shall be in the minimum amount of $1,000,000 and in increment
integral multiples thereof, (iii) any prepayment of any Eurodollar Loan shall be
accompanied by any amount required pursuant to Section 4.10.
(c) If it should be determined by the Agent at any time and from time
to time that the principal amount of the Revolving Credit Advances or the Term
Loan, whichever is outstanding, exceeds the lesser of the then Borrowing Base or
the Commitments, the Borrowers shall promptly do one of the following:
(i) In addition to all other payments of principal and interest
required to be paid on the Revolving Credit Advances and the Term Loan,
whichever is outstanding, prepay, upon demand and without premium or penalty,
the Revolving Credit Notes or the Term Notes, whichever are outstanding, in an
amount by which, in the determination of the Agent, such aggregate principal
amount outstanding exceeds the lesser of the then Borrowing Base or the
Commitments; or
(ii) Grant a lien and security interest to the Agent, for the
benefit of the Banks, in form and substance satisfactory to the Majority Banks,
additional interests in Proved Developed Reserves of the Borrowers which, in the
determination of the Majority Banks, will increase the Borrowing Base by an
amount such that the then aggregate principal amount of the Revolving Credit
Advances does not exceed the lesser of the then Borrowing Base or the
Commitments; or
(iii) Any combination of the foregoing acceptable to the Majority
Banks.
CREDIT AGREEMENT Page 24
(d) In addition to all other payments required hereunder, if CRI shall
at any time issue or otherwise incur any Subordinated Debt, the Borrowers shall
prepay the Advances by an amount equal to 100% of the net proceeds (net only of
reasonable and customary fees and costs of the issuance of such Subordinated
Debt) of such Subordinated Debt, payable upon receipt of such proceeds, provided
that the amount of such proceeds shall be first applied to the Bridge Loan until
paid in full, and thereafter applied to the other outstanding Advances.
(e) In addition to all other payments of the Bridge Loan required
hereunder, upon any sale or other disposition of any assets the Borrowers shall
prepay the Bridge Loan by an amount equal to 100% of the net proceeds (net only
of reasonable and customary costs of such sale or other disposition) of such
sale or disposition which prepayment is due upon receipt of such net proceeds.
All determinations made pursuant to this Section 4.1 shall be
made by the Agent or the Majority Banks, as the case may be, and shall be
conclusively binding on the parties absent manifest error.
4.2 Interest Payment. (a) The Borrowers shall pay interest to the Banks on
the unpaid principal amount of each Revolving Credit Loan and the Term Loan for
the period commencing on the date such Loan is made until such Loan is paid in
full, on each Interest Payment Date and at maturity (whether at stated maturity,
by acceleration or otherwise), and thereafter on demand, at the following rates
per annum: (i) during such periods that such Loan is a Floating Rate Loan, the
Floating Rate, and (ii) during such periods that such Loan is a Eurodollar Loan,
the Eurodollar Rate applicable to such Loan for each related Eurodollar Interest
Period.
(b) The Borrowers shall pay interest to the Banks on the unpaid
principal amount of the Bridge Loan, for the period commencing on the date such
Bridge Loan is made until the Bridge Loan is paid in full, and at maturity
(whether at stated maturity, by acceleration or otherwise), and thereafter on
demand, at the Floating Rate.
(c) Notwithstanding the foregoing paragraphs (a) and (b), the
Borrowers hereby agree, if requested by the Majority Banks, to pay interest on
demand at the Overdue Rate on the outstanding principal amount of any Loan and
any other amount payable by the Borrowers hereunder (other than interest) upon
and during the continuance of any Default.
4.3 Fees. (a) The Borrowers agree to pay to the Agent, for the pro rata
account of the Banks, a commitment fee computed at the per annum rate equal to
the Applicable Margin on the amount by which the Commitments exceed the
aggregate outstanding principal amount of the Revolving Credit Loans, for the
period from the Effective Date until the Termination Date, which fees shall be
paid quarterly, on the last day of each March, June,
CREDIT AGREEMENT Page 25
September and December commencing on the first such date after the Effective
Date, and on the Termination Date.
(b) The Borrowers agree (i) to pay to the Agent, for the benefit of
the Banks, a fee equal to 1-1/2% per annum of the maximum amount available to be
drawn under each Letter of Credit at the time such fee is to be paid for the
period from and including the date of issuance of such Letter of Credit to and
including the stated expiry date of such Letter of Credit, provided that the
amount payable for any quarter under this clause (i) shall be not less than
$500, and (ii) to pay an additional fee to the Agent for its own account
computed at the rate of one-quarter of one percent (1/4 of 1%) per annum of such
maximum amount for such period. Such fees shall be payable quarterly in advance,
payable on the date of the issuance of any Letter of Credit and each three month
interval thereafter. Such fees are nonrefundable and the Borrowers shall not be
entitled to any rebate of any portion thereof if such Letter of Credit does not
remain outstanding through the date for which such fees have been paid. The
Borrowers further agree to pay to the Agent, on demand, such other customary
administrative fees, charges and expenses of the Agent in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of each
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
(c) The Borrowers agree to pay to the Agent agency and servicing fees
for its services under this Agreement in such amounts as it may from time to
time be agreed upon between the Borrowers and the Agent, which fee shall be
retained solely by the Agent.
4.4 Payment Method. All payments to be made by the Borrowers hereunder will
be made in Dollars and in immediately available funds to the Agent at its
address set forth in Section 10.2 not later than 11:00 a.m. Chicago time on the
date on which such payment shall become due. Payments received after 11:00 a.m.
Chicago time shall be deemed to be payments made prior to 11:00 a.m. Chicago
time on the next succeeding Business Day. At the time of making each such
payment, the Borrowers shall specify to the Agent that obligation of the
Borrowers hereunder to which such payment is to be applied, or, in the event
that the Borrowers fails to so specify or if an Event of Default shall have
occurred and be continuing, the Agent may apply such payments as it may
determine in its sole discretion. On the day such payments are received, the
Agent shall remit to the Banks their respective Pro Rata Shares of such
payments, in immediately available funds.
4.5 No Setoff or Deduction. All payments of principal of and interest on
the Advances and other amounts payable by the Borrowers hereunder shall be made
by the Borrowers without setoff or counterclaim, and free and clear of, and
without deduction or withholding for, or on account of, any present or future
taxes, levies, imposts, duties, fees, assessments, or other charges of whatever
nature, imposed by any governmental authority, or by any department, agency or
other political subdivision or taxing authority.
CREDIT AGREEMENT Page 26
4.6 Payment on Non-Business Day; Payment Computations. Except as otherwise
provided in this Agreement to the contrary, whenever any installment of
principal of, or interest on, any Advances outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under this
Agreement shall be made on the basis of a year of 360 days for the actual number
of days elapsed, including the first day but excluding the last day of the
relevant period.
4.7. Yield Protection. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof, or the compliance of any Bank
therewith,
(i) subjects any Bank or any applicable Lending Installation to any tax,
duty, charge or withholding on or from payments due from the Borrowers
(excluding federal taxation of the overall net income of any Bank or
applicable Lending Installation), or changes the basis of taxation of
payments to any Bank in respect of its Loans or other amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
any Bank or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Loans), or
(iii)imposes any other condition the result of which is to increase the
cost to any Bank or any applicable Lending Installation of making,
funding or maintaining loans or reduces any amount receivable by any
Bank or any applicable Lending Installation in connection with loans,
or requires any Bank or any applicable Lending Installation to make
any payment calculated by reference to the amount of loans held or
interest received by it, by an amount deemed material by such Bank,
then, within 30 days of demand by such Bank, the Borrowers shall pay such Bank
that portion of such increased expense incurred or reduction in an amount
received which such Bank determines is attributable to making, funding and
maintaining its Loans and its Commitment.
4.8. Changes in Capital Adequacy Regulations. If a Bank determines the
amount of capital required or expected to be maintained by such Bank, any
Lending Installation of such Bank or any corporation controlling such Bank is
increased as a result of a Change,
CREDIT AGREEMENT Page 27
then, within 15 days of demand by such Bank, the Borrowers shall pay such Bank
the amount necessary to compensate for any shortfall in the rate of return on
the portion of such increased capital which such Bank determines is attributable
to this Agreement, its Loans or its obligation to make Loans hereunder (after
taking into account such Bank's policies as to capital adequacy). "Change" means
(i) any change after the date of this Agreement in the Risk-Based Capital
Guidelines or (ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Bank or any Lending Installation or any corporation
controlling any Bank. "Risk-Based Capital Guidelines" means (i) the risk-based
capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
4.9. Availability of Types of Advances. If any Bank determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Majority Banks determine that (i) deposits of
a type and maturity appropriate to match fund Eurodollar Loans are not available
or (ii) the interest rate applicable to a Type of Advance does not accurately
reflect the cost of making or maintaining such Advance, then the Agent shall
suspend the availability of the affected Type of Advance and require any
Eurodollar Loans of the affected Type to be repaid.
4.10. Funding Indemnification. If any payment of a Eurodollar Loan occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a Eurodollar Loan is not
made on the date specified by the Borrowers for any reason other than default by
the Banks, the Borrowers will indemnify each Bank for any loss or cost incurred
by it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the Eurodollar
Loan.
4.11. Bank Statements; Survival of Indemnity. To the extent reasonably
possible, each Bank shall designate an alternate Lending Installation with
respect to its Eurodollar Loans to reduce any liability of the Borrowers to such
Bank under Sections 4.7 and 4.8 or to avoid the unavailability of a Type of
Advance under Section 3.3, so long as such designation is not disadvantageous to
such Bank. Each Bank shall deliver a written statement of such Bank to the
Borrowers (with a copy to the Agent) as to the amount due, if any, under
Sections 4.7, 4.8 or 4.10. Such written statement shall set forth in reasonable
detail the calculations upon which such Bank determined such amount and shall be
final, conclusive and binding on the Borrowers in the absence of manifest error.
Determination of amounts payable under such Sections in
CREDIT AGREEMENT Page 28
connection with a Eurodollar Loan shall be calculated as though each Bank funded
its Eurodollar Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Loan, whether in fact that is the case or not. Unless
otherwise provided herein, the amount specified in the written statement of any
Bank shall be payable on demand after receipt by the Borrowers of such written
statement. The obligations of the Borrowers under Sections 4.7, 4.8 and 4.10
shall survive payment of the Bank Obligations and termination of this Agreement.
SECTION 5. Security.
5.1 Security Documents. To secure amounts due under this Agreement, the
Notes, and to secure all other Indebtedness and obligations of the Borrowers to
the Agent and the Banks, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, the Borrowers shall, and
shall cause each Guarantor to:
(a) Execute and deliver to the Agent, on or before the Effective Date,
such indentures of mortgage, deeds of trust, security agreements, financing
statements and assignment of production and other agreements, including without
limitation any amendments to any such documents previously executed and
delivered in favor of the Agent or any Bank (as amended or modified from time to
time, the "Mortgages" and together with the Security Agreements, the Guaranties
and all agreements and documents described in this Section 5.1(a) and in 5.1(b),
5.2 and 5.3 and all other agreements and documents securing or guaranteeing any
of the Bank obligations at any time or otherwise executed by any Borrower or
Guarantor with or in favor of the Agent and the Banks, and including without
limitation the Letter of Credit Documents, as amended or modified from time to
time, the "Security Documents"), in form and substance satisfactory to the
Majority Banks, granting the Agent, for the benefit of the Banks, a
first-priority, perfected and enforceable lien and security interest, subject
only to the Permitted Liens, in the following (collectively, with all other
assets described in Section 5.1(b), the "Collateral"): all oil, gas and mineral
properties and all other assets of the Borrowers and each Guarantor, including
without limitation all leasehold and royalty interests and all other rights in
connection therewith, and all interests in machinery, equipment, materials,
improvements, hereditaments, appurtenances and other property, real, personal
and/or mixed, now or hereafter a part of or obtained in or used in connection
with such properties and all interests in and to any and all oil, gas and other
minerals now in storage or now or hereafter located in, under, on or produced
from, such properties and an assignment of production from such properties to
the Agent;
(b) Execute and deliver to the Agent, on or before the Effective Date,
such security agreements, pledge agreement, financing statements and other
agreements, including without limitation the Consent and Amendment of Security
Documents confirming the continuing effectiveness of previously executed and
delivered to the Agent or any Bank (as amended or modified from time to time,
the "Security Agreements"), in form and substance
CREDIT AGREEMENT Page 29
satisfactory to the Majority Banks, granting to the Agent, for the benefit of
the Banks, a first- priority, perfected and enforceable lien and security
interest, subject only to the Permitted Liens, in all other assets, whether
real, personal or mixed, and whether now owned or hereafter existing and
wherever located, of the Borrowers and each Guarantor; provided, however, that
the Borrowers and the Guarantors shall not be required to grant a lien on, or
security interest in, the assets described on Schedule 5.1 for so long as they
are contractually prohibited from doing so, and each of the Borrowers and each
of the Guarantors represent that they are contractually prohibited from granting
liens on, or security interest in, the assets described on Schedule 5.1 and
agree not to enter into any further restrictions with respect thereto.
5.2 Guaranty. To confirm its guarantee of all indebtedness, obligations and
liabilities of the Borrowers owing to the Banks, whether under this Agreement or
otherwise, the Borrowers shall cause each Guarantor to deliver the Consent and
Amendment of Security Documents confirming the continuing effectiveness of the
guaranty agreements previously executed by each Guarantor (the "Guaranties") in
favor of the Agent or Banks, in form and substance satisfactory to the Majority
Banks.
5.3 Additional Security Documents. If at any time requested by the Agent or
the Majority Banks, the Borrowers shall, and shall cause each Guarantor to,
execute and deliver such additional documents, and shall take such other action,
as the Agent or the Majority Banks may reasonably consider necessary or proper
to evidence or perfect the liens and security interests described in Section 5.1
hereof and grant the guaranties described in Section 5.2. Immediately after the
acquisition is completed pursuant to the Purchase Documents, the Borrowers agree
that they shall cause Black Stone to execute a Guaranty and all Security
Documents in order to grant a lien and security interest in all assets of Black
Stone, and COG shall execute such documents to grant a first lien and security
interest on all capital stock of Black Stone, together with delivery to the
Agent of the original of all stock certificates pledged thereby and other
documents in connection therewith requested by the Agent, including without
limitation all board resolutions, officer certificates and legal opinions.
SECTION 6. Representations and Warranties.
Each of the Borrowers and each of the Guarantors represent and warrant
that:
6.1 Corporate Existence and Power. It is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to do business and in good standing in each
additional jurisdiction where failure to so qualify would have a Material
Adverse Effect. It has all requisite corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted,
and to execute and deliver this Agreement, the Notes and the Security Documents
and to engage in the transactions contemplated by this Agreement, the Notes and
the Security Documents.
CREDIT AGREEMENT Page 30
6.2 Corporate Authority. The execution, delivery and performance by it of
this Agreement, the Notes and the Security Documents are within its corporate
powers, have been duly authorized by all necessary corporate action and are not
in contravention of any law, rule or regulation, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental authority,
or of the terms of its charter or by-laws, or of any contract or undertaking to
which it is a party or by which it or its property may be bound or affected.
6.3 Binding Effect. This Agreement is, and the Notes and the Security
Documents to which it is a party when delivered hereunder will be, legal, valid
and binding obligations of each Borrower and each Guarantor, enforceable against
each in accordance with their respective terms.
6.4 Subsidiaries. All Subsidiaries of CRI are duly organized, validly
existing and in good standing under the laws of their jurisdictions of
incorporation and are duly qualified to do business in each jurisdiction where
failure to so qualify would have a Material Adverse Effect. All outstanding
shares of capital stock of each class of each Subsidiary of CRI have been and
will be validly issued and are and will be fully paid and nonassessable and are
and will be owned, beneficially and of record, by CRI, free and clear of any
Liens. Schedule 6.4 is a complete list of all Subsidiaries of CRI. Each of COG,
COE, CMC (provided that notwithstanding anything herein to the contrary it is
acknowledged and agreed that CMC may be dissolved or liquidated if all of its
assets are transferred to a Borrower) and CNG is and will remain a wholly-owned
Subsidiary of CRI, COGL is and will remain a wholly-owned Subsidiary of COG,
after completion of the acquisition of the Purchase Documents, Black Stone will
be wholly-owned subsidiary of COG and will remain a wholly-owned subsidiary of
COG, and CPI is and, without the prior written consent of the Agent, will remain
a wholly-owned Subsidiary of CNG.
6.5 Liens. The properties of each Borrower and each Guarantor (including
without limitation the Collateral) are not subject to any Lien except Permitted
Liens.
6.6 Litigation. There is no action, suit or proceeding pending or, to the
best of its knowledge, threatened against or affecting it before or by any
court, governmental authority, or arbitrator which would be reasonably likely to
result in, either individually or collectively, a Material Adverse Effect and,
to the best of the Borrowers' knowledge, there is no basis for any such action,
suit or proceeding.
6.7 Financial Condition. The consolidated balance sheet of CRI and its
Subsidiaries and the consolidated statements of income and cash flow of CRI and
its Subsidiaries for the fiscal year ended December 31, 1995 and reported on by
Arthur Andersen, LLP, copies of which have been furnished to the Bank, fairly
present, and the financial statements of CRI and its Subsidiaries to be
delivered pursuant to Section 7.1(d) will fairly present, the consolidated
financial position of CRI and its Subsidiaries and is at their respective dates
thereof, and the consolidated results of operations of CRI and its Subsidiaries
for their respective periods
CREDIT AGREEMENT Page 31
indicated, all in accordance with generally accepted accounting principles
consistently applied. There has been no event or development which has had or
would be reasonably likely to have a Material Adverse Effect since December 31,
1995. There is no material Contingent Liability of CRI or any of its
Subsidiaries that is not reflected in such financial statements or in the notes
thereto.
6.8 Use of Advance. Neither any Borrower nor any Guarantor extends or
maintains, in the ordinary course of business, credit for the purpose, whether
immediate, incidental, or ultimate, of buying or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of each Advance will be used for the
purpose, whether immediate, incidental, or ultimate, of buying or carrying any
such margin stock or maintaining or extending credit to others for such purpose.
After applying the proceeds of the Advances, such margin stock will not
constitute more than 25% of the value of the assets that are subject to any
provisions of this Agreement or any Security Document that may cause the
Advances to be secured, directly or indirectly by margin stock.
6.9 Security Documents. The Security Documents create a valid and
enforceable first-priority lien on and perfected security interest in all right,
title and interest of each Borrower and each Guarantor in and to the Collateral
described therein, securing all amounts intended to be secured thereby
(including without limitation all principal of and interest on the Notes)
subject only to the Permitted Liens. The respective net revenue interests of
each Borrower in and to the Oil and Gas Interests as set forth in the Security
Documents are true and correct and accurately reflect the interests to which
each Borrower is legally entitled, subject only to the Permitted Liens.
6.10 Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any creditor or
stockholder of it, is required on the part of it in connection with the
execution, delivery and performance of this Agreement, the Notes, the Security
Documents or the transactions contemplated hereby or as a condition to the
legality, validity or enforceability of this Agreement, the Notes or any of the
Security Documents.
6.11 Taxes. It has filed all tax returns (federal, state and local)
required to be filed and has paid all taxes shown thereon to be due, including
interest and penalties, or has established adequate financial reserves on their
respective books and records for payment thereof, except where the failure to do
so would not have a Material Adverse Effect.
6.12 Title to Properties. It has good and defensible title to, and a valid
indefeasible ownership interest in, all of its properties and assets (including,
without limitation, the Collateral subject to the Security Documents) free and
clear of any Lien except the Permitted Liens, and it is the owner of all the
Collateral described in the Security Documents to which it is a party. All wells
on any of the mortgaged premises have been drilled, operated, shut-in,
CREDIT AGREEMENT Page 32
abandoned or suspended in accordance with good oil and gas field practices and
in compliance with all applicable laws, permits, statutes, orders, licenses,
rules and regulations. All leases with respect to any Oil and Gas Interests
owned by the Borrowers or any Guarantor are in good standing and are in full
force and effect, all royalties, rents, taxes, assessments and other payments
thereunder or with respect thereto have been properly and timely paid and all
conditions necessary to keep such leases in full force have been fully
performed, including without limitation any condition to maintain continuous
production or other activity with respect thereto. All transactions contemplated
pursuant to the Purchase Documents have been completed, including without
limitation the acquisition by COG of the Purchased Black Stone Assets and have
been completed in accordance with all applicable laws and regulations and COG
owns the Purchased Black Stone Assets free and clear of all Liens other than the
first priority, perfected and enforceable lien and security interest in favor of
the Agent for the benefit of the Banks.
6.13 ERISA. CRI and its Subsidiaries and their Plans are in compliance in
all material respects with those provisions of ERISA and of the Code which are
applicable with respect to any Plan. No prohibited transaction (as defined in
Section 406 of ERISA and Section 9975 of the Code) and no reportable event (as
defined in ERISA) has occurred with respect to any Plan. Neither CRI, any of its
Subsidiaries nor any of its ERISA Affiliates is an employer with respect to any
multiemployer plan (as defined in Section 4001(a)(3) of ERISA). CRI, its
Subsidiaries and the ERISA Affiliates have met the minimum funding requirements
under ERISA and the Code with respect to each of the respective Plans, if any,
and have not incurred any liability to the PBGC or any Plan. There is no
unfunded benefit liability with respect to any Plan.
6.14 Environmental and Safety Matters. It is in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
relating to safety and industrial hygiene or to the environmental condition,
including without limitation all Environmental Laws in jurisdictions in which it
owns any interest in or operates, a well, a facility or site, or arranges for
disposal or treatment of hazardous substances, solid waste, or other wastes,
accepts for transporting any hazardous substances, solid waste, or other wastes,
or holds any interest in real property or otherwise, except where any such
noncompliance would not have a Material Adverse Effect. No demand, claim,
notice, suit, suit in equity, action, administrative action, investigation or
inquiry whether brought by any governmental authority, private person or entity
or otherwise, arising under, relating to or in connection with any Environmental
Laws is pending or its best of any Borrower's knowledge threatened against it,
any real property in which it holds or has held an interest or any past or
present operation of it. It (a) does not know of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic substances, radioactive materials, hazardous wastes or
related materials into the environment, (b) has not received any notice of any
toxic substances, radioactive materials, hazardous waste or related materials
in, or upon any of its properties in violation of any Environmental Laws, and
(c) does not know of any basis for any such investigation, notice or violation.
No material release, threatened release or disposal of
CREDIT AGREEMENT Page 33
hazardous waste, solid waste or other wastes is occurring or has occurred on,
under or to any real property in which it holds any interest or performs any of
its operations, in violation of any Environmental Law which would have a
Material Adverse Effect.
6.15 Direct Benefit. The initial Advances hereunder and all additional
Advances are for the direct benefit of each of the Borrowers and the Guarantors,
and the initial Advances hereunder are used to acquire the Purchased Black Stone
Assets and to refinance and replace indebtedness owing, directly or indirectly,
by the Borrowers and the Guarantor to the Banks under the Existing Credit
Agreement. The Borrowers and the Guarantors are engaged as an integrated group
in the business of oil and gas exploration and related fields, and any benefits
to any Borrower or any Guarantor is a benefit to all of them, both directly or
indirectly, inasmuch as the successful operation and condition of the Borrowers
and the Guarantors is dependent upon the continued successful performance of the
functions of the integrated group as a whole.
6.16 Solvency. Each of the following is true for each Borrower and each
Guarantor and the Borrowers and the Guarantors on a consolidated basis: (a) the
fair saleable value of its property is (i) greater than the total amount of its
liabilities (including contingent liabilities), and (ii) greater than the amount
that would be required to pay its probable aggregate liability on its then
existing debts as they become absolute and matured; (b) its property is not
unreasonable in relation to its business or any contemplated or undertaken
transaction; and (c) it does not intend to incur, or believe that it will incur,
debts beyond its ability to pay such debts as they become due.
6.17 Disclosure. This Agreement and all other documents, certificates,
reports or statements or other information furnished to any Bank or the Agent in
writing by or on behalf of any Borrower in connection with the negotiation or
administration of this Agreement or any transactions contemplated hereby when
read together do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to any Borrower which has
caused, or which likely would in the future in the reasonable judgment of the
Borrowers, cause a Material Adverse Effect (except for any economic conditions
which affect generally the industry in which the Borrowers and their
Subsidiaries conduct business), which has not been set forth in this Agreement
or in the other documents, certificates, statements, reports and other
information furnished in writing to the Banks by or on behalf of any Borrower in
connection with the transactions contemplated hereby.
SECTION 7. Covenants.
7.1 Affirmative Covenants. Each Borrower covenants and agrees that, until
the Termination Date and expiration of all Letters of Credit and thereafter
until the payment in full of the principal of and accrued interest on the Notes
and the performance of all other
CREDIT AGREEMENT Page 34
obligations of the Borrowers under this Agreement, the Notes and the Security
Documents, unless the Majority Banks shall otherwise consent in writing, each of
the Borrowers and each of the Guarantors shall:
(a) Preservation of Corporate Existence, Etc. Preserve and maintain
its corporate existence, rights and privileges and its material licenses,
franchises and permits, and qualify and remain qualified as a validly existing
corporation in good standing in each jurisdiction in which such qualification is
necessary under applicable law.
(b) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which adequate
financial reserves have been established on its books and records.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of its business and keep
such property in good repair, working order and condition and from time to time
make, or cause to be made all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
comply with all applicable permits, statutes, laws, orders, licenses, rules and
regulations relating to the Oil and Gas Interests owned by it, unless any non
compliance would not cause a Material Adverse Effect, and ensure that all wells
and other properties operated by it, either in its own name or as a partner, are
operated in accordance with good oil and gas field practices; comply with all of
its duties and obligations under, and take all actions to maintain, consistent
with prudent oil and gas practices, all leases and other rights in full force
and effect; and, in addition to that insurance required under the Security
Documents, maintain in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, as is usually carried by companies engaged in similar businesses and
owning similar properties similarly situated and maintain in full force and
effect public liability insurance, insurance against claims for personal injury
or death or property damage occurring in connection with any of its activities
or any of any properties owned, occupied or controlled by it, in such amount as
it shall reasonably deem necessary, and maintain such other insurance as may be
required by law or as may be reasonably requested by the Banks for purposes of
assuring compliance with this Section 7.1(c).
CREDIT AGREEMENT Page 35
(d) Reporting Requirements. Furnish to each Bank, in form and sub-
stance satisfactory to the Majority Banks, the following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Default, (B) the
commencement of any material litigation against, by or
affecting the Borrowers and, upon request by any Bank, any
material developments therein, or (C) any development in the
business or affairs of the Borrowers which has resulted in,
or which is likely in the reasonable judgment of the
Borrowers to result in (including without limitation the
entering into of any material contract and/or undertaking by
the Borrowers) a Material Adverse Effect or (D) any
"reportable event" (as defined in ERISA) under, or the
institution of steps by the Borrowers or any Subsidiary to
withdraw from, or the institution of any steps to terminate,
any Plan, a statement of the chief financial officer of the
Borrowers setting forth details of such Default or such
event or condition or such litigation and the action which
CRI or any Subsidiary has taken and proposes to take with
respect thereto;
(ii) As soon as available and in any event within 45 days after
the end of each fiscal quarter of CRI, the consolidated
balance sheets of CRI and its Subsidiaries as of the end of
such quarter, and the related consolidated statements of
income and cash flow for the period commencing at the end of
the previous fiscal year and ending with the end of such
quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period
of the preceding fiscal year, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by an
appropriate officer of the Borrowers as having been prepared
in accordance with generally accepted accounting principles,
together with a certificate of an appropriate officer of the
Borrowers with a computation in reasonable detail
calculating the covenants contained in Sections 7.2(a), (b),
(c), (i), (j) and (l) hereof;
(iii)As soon as available and in any event within 120 days after
the end of each fiscal year, a copy of the consolidated
balance sheet of CRI and its Subsidiaries for the fiscal
year and related statements of income and cash flow with a
customary audit report thereon by Arthur Andersen LLP or
other independent certified public accountants selected by
CRI and acceptable to the Banks, without qualifications
unacceptable to the Banks together with a certificate of
such accountants stating that they have reviewed this
Agreement and stating further that in making their review in
accordance with generally accepted accounting principles
nothing came to their attention that made them believe that
any Default exists, or if their examination has disclosed
the existence of any Default, specifying the nature, period
of existence and status thereof, together with a certificate
of an appropriate officer of the Borrowers with a
computation
CREDIT AGREEMENT Page 36
in reasonable detail calculating the covenants contained
in Sections 7.2(a), (b), (c), (i), (j) and (l) hereof;
(iv) Upon the request of the Majority Banks or the Agent, a
schedule of all oil, gas, and other mineral production
attributable to all material Oil and Gas Interest of the
Borrowers and each Guarantor, and in any event all such Oil
and Gas Interests included in the Borrowing Base;
(v) Promptly, all title or other information received after the
Effective Date by the Borrowers or any Guarantor which
discloses any material defect in the title to any material
asset included in the Borrowing Base;
(vi) As soon as practicable and in any event within 30 days after
the sending or filing thereof, copies of all such financial
statements and reports as it shall send to its security
holders and of all final prospectuses under the Securities
Act of 1933 (other than Form S-8), reports on Forms 10-Q,
10-K and 8-K and all similar regular and periodic reports
filed by it (i) with any federal department, bureau,
commission or agency from time to time having jurisdiction
with respect to the sale of securities or (ii) with any
securities exchange;
(vii)As soon as available and in any event within 105 days after
the end of each calendar year, an annual reserve report with
respect to all Hydrocarbon reserves of the Borrowers and the
Guarantors prepared by an independent engineering firm of
recognized standing acceptable to the Majority Banks in
accordance with accepted industry practices and otherwise
acceptable and in form and substance satisfactory to the
Majority Banks, and including without limitation all assets
included in the Borrowing Base;
(viii) Upon the request of the Banks, an updated reserve report
with respect to all Hydrocarbon reserves of the Borrowers
and the Guarantors prepared by the Borrowers in accordance
with accepted industry practices and otherwise acceptable
and in form and substance satisfactory to the Majority
Banks, and including without limitation all assets included
in the Borrowing Base;
(ix) Promptly, any management letter from the auditors for any
Borrower and all other information respecting the business,
properties or the condition or operations, financial or
otherwise, including, without limitation, geological and
engineering data of any Borrower or any Guarantor and any
title work with respect to any Oil and Gas Interests of any
Borrowers or any Guarantor as any Bank may from time to time
reasonably request;
(x) At all times after the date ninety (90) days after the
Effective Date, if requested by the Majority Banks, provide
title opinions and
CREDIT AGREEMENT Page 37
other opinions of counsel, in each case in form and
substance acceptable to the Majority Banks, with respect to
at least eighty (80%) percent of the value of the assets
included in the Borrowing Base; and
(xi) As soon as available and in any event within 45 days after
the end of each month, (A) the balance sheet of CNG as of
the end of each month, and the related statements of income
for the period commencing at the end of the previous fiscal
year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for
the corresponding date or period of the preceding fiscal
year, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by an appropriate officer of
CNG as having been prepared in accordance with generally
accepted accounting principles, (B) a schedule of accounts
receivable of CNG, certified by an appropriate officer of
CNG, as of the end of such month, indicating the totals of
accounts receivable by type, and by age, describing any
returns, defenses, setoffs or other pertinent information in
connection therewith, together with evidence of letters of
credit supporting Eligible CNG Accounts Receivable, and (C)
a computation, certified by an appropriate officer of CNG,
of the CNG/CRI Guaranty Formula as of the end of such month.
(e) Access to Records, Books, Etc. At any reasonable time and
from time to time, permit any Bank or any agents or representatives thereof, at
the Borrowers' own expense, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrowers and
the Guarantors, and to discuss the affairs, finances and accounts of the
Borrowers and the Guarantors with their respective officers and employees.
Without limiting the foregoing, the Borrowers and the Guarantors agree that any
reasonable time and from time to time, the Borrowers will permit any Bank or any
agents or representatives thereof to inspect, at the office of the Borrowers and
the Guarantors listed on its signature page hereto, all opinions with respect to
title and other material work received by the Borrowers or the Guarantors with
respect to any asset included in the Borrowing Base.
7.2 Negative Covenants. Until payment in full of the principal of and
accrued interest on the Notes, the expiration of this Agreement and all Letters
of Credit and the payment and performance of all other obligations of the
Borrowers and each Guarantor under this Agreement, the Notes and the Security
Documents, each Borrower and each Guarantor agree that, unless the Majority
Banks shall otherwise consent in writing, none of them shall:
(a) Current Ratio. Permit or suffer the ratio of (i) the sum of
Current Assets plus the unused availability under the revolving credit facility
established by Section 2.1(a), to (ii) Current Liabilities at any time to be
less than 1.0 to 1.0.
(b) Tangible Net Worth. Permit or suffer Consolidated Tangible
Net Worth of CRI and its Subsidiaries to be less than, at any time, the sum of
(i) $25,000,000, plus
CREDIT AGREEMENT Page 38
(ii) 50% of Consolidated Net Income of CRI and its
Subsidiaries for any fiscal year, commencing with the fiscal
year ending December 31, 1996, and to be added as of the
last day of each such fiscal year, provided that if such
Consolidated Net Income is negative in any fiscal year the
amount added pursuant to this clause (ii) shall be zero and
shall not reduce the amount added pursuant to this clause
(ii) for any other fiscal year, plus (iv) 75% of the net
cash proceeds of any equity offering or other sale of equity
of CRI or any of its Subsidiaries.
(c) Interest Coverage Ratio. Permit or suffer, as of the last day
of any fiscal quarter of CRI, the ratio of (i) Consolidated Adjusted Cash Flow
plus, to the extent deducted in determining such Consolidated Adjusted Cash
Flow, Consolidated Interest Expense and income taxes, as calculated for the four
fiscal quarters then ending, to (ii) Consolidated Interest Expense, as
calculated for the four fiscal quarters then ending, to be less than (A) 2.5 to
1.0 as of the last day of any fiscal quarter ending prior to the initial
issuance of any Subordinated Debt of at least $75,000,000 in principal amount
and (B) 2.0 to 1.0 as of the last day of any fiscal quarter thereafter.
(d) Indebtedness. Create, incur, assume, guaranty or in any
manner become liable in respect of, or suffer to exist, any Indebtedness other
than:
(i) The Advances;
(ii) The Indebtedness described in Schedule 7.2(d) hereto,
including any refinancing or extension thereof but no
increase in the amount thereof shall be permitted;
(iii)Other Indebtedness in aggregate outstanding amount not
to exceed $1,000,000;
(iv) Unsecured insurance premium financing incurred in the
ordinary course of business;
(v) Indebtedness pursuant to any Swap Agreement with any
Bank, any person with an investment grade debt rating
acceptable to the Agent and any other person acceptable
to the Agent;
(vi) Indebtedness permitted pursuant to Section 7.2(i); and
(vii)Subordinated Debt in aggregate outstanding principal
amount not to exceed $100,000,000.
(e) Liens. Create, incur or suffer to exist, any Lien to exist on
any assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, other than:
CREDIT AGREEMENT Page 39
(i) Liens for taxes not delinquent or for
taxes being contested in good faith by appropriate proceedings
and as to which adequate financial reserves have been
established on its books and records;
(ii) Liens (other than any Lien imposed by
ERISA) created and maintained in the ordinary course of
business which are not material in the aggregate, and which
would not have a Material Adverse Effect and which constitute
(A) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or
leases to which any Borrower or any Guarantor is a party for a
purpose other than borrowing money or obtaining credit,
including rent security deposits, (C) liens imposed by law,
such as those of carriers, warehousemen, operators and
mechanics, if payment of the obligation secured thereby is not
yet due, (D) Liens securing taxes, assessments or other
governmental charges or levies not yet subject to penalties
for nonpayment, and (E) pledges or deposits to secure public
or statutory obligations of any Borrower or any Guarantor, or
surety, customs or appeal bonds to which such Borrower or such
Guarantor is a party;
(iii)Liens created pursuant to the Security Documents
and Liens expressly permitted by the Security Documents;
(iv) Each Lien described on Schedule 7.2(e) hereto may
be suffered to exist upon the same terms as those existing
on the date hereof, but no increase in the amount of
Indebtedness secured thereby; and
(v) Liens securing Indebtedness permitted pursuant to
Section 7.2(d)(iii) created to secure payment of a portion
of the purchase price of, or existing at the time of
acquisition of, any tangible fixed asset acquired by any
Borrower or any Guarantor if the outstanding principal
amount of the Indebtedness secured by such Lien does not at
any time exceed the purchase price paid by such Borrower or
such Guarantor for such assets, provided that such Lien does
not encumber any other asset at any time owned by such
Borrower or such Guarantor.
(f) Merger; Acquisitions; Etc. Purchase or otherwise acquire,
whether in one or a series of transactions, unless the Majority Banks shall
otherwise consent in writing, all or any substantial portion of the business
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, of any person, or all or any substantial portion of the capital
stock of or other ownership interest in any other person, provided that
Borrowers may make such purchases or other acquisitions provided that the Bridge
Loan has been fully paid and the aggregate amount paid or payable or otherwise
transferred for all such purchases or other acquisitions after the Effective
Date shall not exceed $20,000,000 (excluding the Purchased
CREDIT AGREEMENT Page 40
Black Stone Assets) in aggregate amount in any fiscal year; nor merge or
consolidate or amalgamate with any other person or take any other action having
a similar effect, nor enter into any joint venture or similar arrangement with
any other person, other than a joint venture or similar arrangement in
connection with oil and gas drilling ventures, oil and gas leases, natural gas
transportation or processing or otherwise in connection with oil and gas
properties in the ordinary course of business. Each of the Banks acknowledges
and agrees that it has previously provided consent to each acquisition by each
Borrower and each Guarantor prior to the Effective Date pursuant to the terms of
the Existing Credit Agreement.
(g) Disposition of Assets; Etc. Without the prior written consent
of the Majority Banks, sell, lease, license, transfer, assign or otherwise
dispose of any Collateral or any of its other business, assets, rights, revenues
or property, real, personal or mixed, tangible or intangible, whether in one or
a series of transactions, other than (i) inventory sold in the ordinary course
of business upon customary credit terms, and (ii) if no Default has occurred and
is continuing or would be caused thereby, other sales of assets in (A) aggregate
amount not to exceed $1,000,000 in any twelve month period and (B) aggregate
amount exceeding $1,000,000 in any twelve month period provided that in
connection with any such sale all the proceeds thereof are used to prepay the
Advances and reduce the Commitments by a like amount.
(h) Nature of Business. Make any substantial change in the nature
of its business from that engaged in on the date of this Agreement or engage in
any other businesses other than those in which it is engaged on the date of this
Agreement.
(i) Investments, Advance and Advances, Contingent Liabilities.
Purchase or otherwise acquire any capital stock of or other ownership interest
in, or debt securities of or other evidences of Indebtedness of, any other
person; nor make any loan or advance of any of its funds or property or make any
other extension of credit to, or make any investment or acquire any interest
whatsoever in, any other person, except (i) loans and advances to officers of
the Borrowers, provided that the aggregate amount of all such loans and advances
does not exceed $5,000, (ii) loans and advances among the Borrowers only, (iii)
other loans and advances, provided that the aggregate amount of all such loans
and advances, together with Indebtedness allowed under Section 7.2(d)(iii),
shall not exceed $1,000,000 and (iv) loans and advances by CRI to CNG in an
aggregate amount not to exceed $5,000,000, the proceeds of which shall be used
in connection with the purchase of pipeline and marketing operations and to
provide ongoing working capital for such entity; nor incur any Contingent
Liability except for any guaranty of the permitted Indebtedness described in
Section 7.2(d)(i), guarantees by CRI of obligations of CNG to purchase natural
gas in an aggregate amount outstanding at any time not to exceed the lesser of
(A) $2,000,000 minus the aggregate outstanding Letters of Credit or (B) the
CNG/CRI Guaranty Formula minus the aggregate outstanding Letters of Credit and
(v) the indebtedness described on Schedule 7.2(i), if any.
CREDIT AGREEMENT Page 41
(j) Dividends. With respect to CRI only, make, pay, declare or
authorize any dividend, payment or other distribution in respect of any class of
its capital stock or any dividend, payment or distribution in connection with
the redemption, repurchase, defeasance, conversion, retirement or other
acquisition, directly or indirectly, of any shares of its capital stock, except
(i) solely in shares of capital stock of CRI and (ii) cash dividends in respect
of 1994 Preferred Stock only in aggregate amount not to exceed $1,174,000 in any
twelve month period and only if both before the payment of such cash dividend
and after giving effect to the payment of such cash dividend no Default or Event
of Default shall have occurred and be continuing and the Bridge Loan shall have
been paid in full and (iii) cash dividends in respect to the 1995 Preferred
Stock only in an aggregate amount not to exceed $1,372,500 in any twelve month
period and only if both before the payment of such dividend and after giving
effect to the payment of such dividend to no Default or Event of Default shall
have occurred and be continuing and the Bridge Loan shall have been paid in
full. For purposes of this Section 7.2(j), "capital stock" shall include capital
stock (preferred, common or other) and any securities exchangeable for or
convertible into capital stock and any warrants, rights or other options to
purchase or otherwise acquire capital stock or such securities.
(k) Transactions with Affiliates. Enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Borrowers' or the Guarantors' business and
upon fair and reasonable terms no less favorable to such Borrower or such
Guarantor than would be obtained in a comparable arms-length transaction with a
Person other than an Affiliate and except the loans and advances described in
Section 7.2(i).
(l) Subordinated Debt. Make, or permit any Subsidiary to make any
amendment or modification to the indenture, note or other agreement or
instrument evidencing or governing any Subordinated Debt, other than amendments
which do not affect any of the material terms of the Subordinated Debt as
determined by the Agent and which require only the approval of the trustee under
the indenture under which the Subordinated Debt was issued and do not require
the approval of any holder of the Subordinated Debt, or directly or indirectly
voluntarily prepay, defease or in substance defease, purchase, redeem, retire or
otherwise acquire or make any other optional payment on, any Subordinated Debt,
other than prepayments of Subordinated Debt which satisfy both of the following
conditions: (i) both prior to and after giving effect to such prepayment no
Default exists or would be caused thereby and (ii) such prepayment is solely
from proceeds received by CRI from the issuance of common stock of CRI or from
proceeds received by CRI from the issuance of Subordinated Debt permitted under
this Agreement.
(m) Payments and Modification of Debt. Other than Indebtedness to
the Banks and the Agent pursuant hereto and prepayments of Subordinated Debt to
the extent permitted by Section 7.2(l), make, or permit any Subsidiary to make,
any optional payment,
CREDIT AGREEMENT Page 42
prepayment or redemption, directly or indirectly, of any of its Indebtedness or
enter into any agreement or arrangement providing for the defeasance of any such
Indebtedness, or amend or modify, or consent or agree to any amendment or
modification of, any instrument or agreement under which any of its Indebtedness
is issued or created or otherwise related thereto, provided that this Section
7.2(m) shall not prohibit the prepayment of such Indebtedness (other than
Subordinated Debt which is governed by Section 7.2(l)) if no Default exists or
would exist after giving effect to such prepayment and the aggregate amount of
all such prepayments since the Effective Date does not exceed $2,000,000 in
aggregate amount.
(n) Additional Covenants. If at any time any Borrower shall enter
into or be a party to any instrument or agreement, including all such
instruments or agreements in existence as of the date hereof and all such
instruments or agreements entered into after the date hereof, relating to or
amending any terms or conditions applicable to any of its Indebtedness which
includes covenants, terms, conditions or defaults not substantially provided for
in this Agreement or more favorable to the lender or lenders thereunder than
those provided for in this Agreement, then the Borrowers shall promptly so
advise the Agent and the Banks. Thereupon, if the Agent shall request, upon
notice to the Borrowers, the Agents and the Banks shall enter into an amendment
to this Agreement or an additional agreement (as the Agent may request),
providing for substantially the same covenants, terms, conditions and defaults
as those provided for in such instrument or agreement to the extent required and
as may be selected by the Agents. In addition to the foregoing, any covenants,
terms, conditions or defaults in any existing agreements or other documents
evidencing or relating to any Indebtedness of any Borrower not substantially
provided for in this Agreement or more favorable to the holders of such
Indebtedness, are hereby incorporated by reference into this Agreement to the
same extent as if set forth fully herein, and no subsequent amendment, waiver or
modification thereof shall effect any such covenants, terms, conditions or
defaults as incorporated herein.
SECTION 8. Default.
8.1 Events of Default. The occurrence of any one of the
following events or conditions shall be deemed an "Event of Default" hereunder
unless waived by the Majority Banks pursuant to Section 10.1:
(a) Any Borrower shall fail to pay within 2 Business Days of when
due any principal of or interest on the Notes (whether pursuant to Section
4.1(a), Section 4.1(c) or otherwise), any fees or any other amount payable
hereunder or under any Security Document; or
(b) Any representation or warranty made by any Borrowers or any
Guarantor in Section 6 hereof, in any Security Document or any other document or
certificate furnished by or on behalf of any Borrower or any Guarantor in
connection with this Agreement, shall prove to have been incorrect in any
material respect when made; or
CREDIT AGREEMENT Page 43
(c) (i) Any Borrower or any Guarantor shall fail to perform or
observe any term, covenant or agreement contained in Sections 7.1(b), 7.1(c)
(other than the agreement to maintain continuous insurance coverage), 7.1(d),
7.2(a), 7.2(b), 7.2(c) or 7.2(l) hereof or in any Security Document, any other
Loan Document or any other agreement among the Borrowers, Guarantors, the Banks
and the Agent, or any of them, and such failure shall remain unremedied for 30
calendar days after the earlier of the date notice thereof shall have been given
to Borrowers by the Agent or any Bank or any Borrower knows of such failure, or
(ii) any Borrower or any Guarantor shall fail to perform or observe any other
term, covenant, or agreement contained in this Agreement; or
(d) Any Borrower or any Guarantor shall fail to pay any part of
the principal of, the premium, if any, or the interest on, or any other payment
of money due under any of its Indebtedness (other than Indebtedness hereunder),
beyond any period of grace provided with respect thereto, which individually or
together with other such Indebtedness as to which any such failure exists has an
aggregate outstanding principal amount in excess of $1,000,000; or if any
Borrower or any Guarantor fails to perform or observe any other term, covenant
or agreement contained in any agreement, document or instrument evidencing or
securing any such Indebtedness, or under which any such Indebtedness was issued
or created, beyond any period of grace, if any, provided with respect thereto if
the effect of such failure is either (i) to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness to become due prior to its due date or (ii) to
permit the holders of such Indebtedness (or a trustee on behalf of such holder)
to elect a majority of the board of directors of any Borrower or any Guarantor;
or
(e) A judgment or order for the payment of money, which together
with other such judgments or orders exceeds the aggregate amount of $1,000,000,
shall be rendered against any Borrower or any Guarantor and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and such judgment or order shall have remained unsatisfied and
such proceedings shall have remained unstayed for a period of 30 consecutive
days, or (ii) for a period of 30 consecutive days, such judgment or order shall
have remained unsatisfied and a stay of enforcement thereof, by reason of
pending appeal or otherwise, shall not have been in effect; or
(f) The occurrence or existence with respect to any Borrower or
any Guarantor or any of their ERISA Affiliates of any of the following: (i) any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any Reportable event shall occur with respect
to any Plan, (iii) the filing under ERISA of a notice of intent to terminate any
Plan or the termination of any Plan, (iv) any event or circumstance exists which
might constitute grounds entitling the PBGC to institute proceedings under ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or the institution of the PBGC of any such proceedings, or (v) complete or
partial withdrawal under ERISA from any Multiemployer Plan or the
reorganization, insolvency, or termination of any Multiemployer Plan, and in
each of the foregoing cases, such event or condition, together with
CREDIT AGREEMENT Page 44
all other events or conditions, if any, could in the opinion of the Banks
subject any Borrower or any Guarantor to any tax, penalty, or other liability to
a Plan, the PBGC, or otherwise (or any combination thereof); or
(g) Any Borrower or any Guarantor shall generally not pay its
debts as they become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute, or there shall be instituted against any Borrower
or any Guarantor, any proceeding or case seeking to adjudicate it a bankrupt or
insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, and, if such proceeding is instituted against
any Borrower or any Guarantor and is being contested by such Borrower or such
Guarantor, as the case may be, in good faith by appropriate proceedings, such
proceedings shall remain undismissed or unstayed for a period of 30 days; or the
any Borrower or any Guarantor shall take any action (corporate or other) to
authorize or further any of the actions described above in this subsection; or
(h) Any event of default described in any Security Document shall
have occurred and be continuing, or any material provision of any Security
Document shall at any time for any reason cease to be valid and binding and
enforceable against any obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested by any person, or any obligor, shall
deny that it has any or further liability or obligation thereunder, or any
Security Document shall be terminated, invalidated or set aside, or be declared
ineffective or inoperative or in any way cease to give or provide to the Bank
the benefits purported to be created thereby; or
(i) (A) COG or COE shall fail to be a wholly-owned Subsidiary of
CRI, (B) COGL shall fail to be a wholly-owned subsidiary of COG or, after the
acquisition is completed pursuant to the Purchase Documents, Black Stone shall
fail to be a wholly-owned subsidiary of COG, or (C) the Board of Directors of
CRI shall not consist of a majority of the Continuing Directors of CRI; or
(j) Any Change in Control shall occur.
8.2 Remedies.
(a) Upon the occurrence and during the continuance of any Event
of Default, the Agent may, and upon being directed to do so by the Majority
Banks, shall, by notice to the Borrowers terminate the Commitments or declare
the outstanding principal of, and accrued interest on, the Notes and all other
amounts due under this Agreement and all other
CREDIT AGREEMENT Page 45
Loan Documents, to be immediately due and payable, or demand immediate delivery
of cash collateral, and the Borrowers agree to deliver such cash collateral upon
such demand, in an amount equal to the maximum amount that may be available to
be drawn at any time prior to the stated expiry of all outstanding Letters of
Credit, or all of the above, whereupon the Commitments shall terminate forthwith
and all such amounts shall become immediately due and payable, or both, as the
case may be, provided that in the case of any event or condition described in
Section 8.1(g), the Commitments shall automatically terminate forthwith and all
such amounts shall automatically become immediately due and payable without
notice; in each case without demand, presentment, protest, diligence, notice of
dishonor or other formality, all of which are hereby expressly waived.
(b) Upon the occurrence and during the continuance of such Event
of Default, the Agent may, and upon being directed to do so by the Majority
Banks, shall, in addition to the remedies provided in Section 8.2(a), enforce
its rights either by suit in equity, or by action at law, or by other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Agreement or in
any then outstanding Note or any Security Document or in aid of the exercise of
any power granted in this Agreement, any then outstanding Notes or any Security
Document, and may enforce the payment of any then outstanding Notes and any of
the other rights of the Agent and the Banks in any other agreement or available
at law or in equity.
(c) Upon the occurrence and during the continuance of any Event
of Default hereunder, each Bank may at any time and from time to time, without
notice to the Borrowers (any requirement for such notice being expressly waived
by the Borrowers and Guarantors) set off and apply against any and all of the
obligations of any Borrower or any Guarantor now or hereafter existing under
this Agreement, any of the Notes or the Security Documents, any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Bank to or for the credit or the
account of any Borrower or any Guarantor and any property of any Borrower or any
Guarantor from time to time in possession of such Bank, irrespective of whether
or not any Bank shall have made any demand hereunder and although such
obligations may be contingent and unmatured. The rights of the Banks under this
Section 8.2(c) are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Banks may have.
8.3 Distribution of Proceeds. All proceeds of any realization on the
Collateral received by the Agent pursuant to the Security Documents or any
payments on any of the liabilities secured by the Security Documents received by
the Agent or any Bank upon and during the continuance of any Event of Default
shall be allocated and distributed as follows:
(a) First, to the payment of all costs and expenses, including
without limitation all attorneys' fees, of the Agent in connection with the
enforcement of the Security Documents and otherwise administering this
Agreement;
CREDIT AGREEMENT Page 46
(b) Second, to the payment of all costs, expenses and fees,
including without limitation, commitment fees and attorneys' fees, owing to the
Banks pursuant to the Bank Obligations on a pro rata basis in accordance with
the Bank Obligations consisting of fees, costs and expenses owing to the Banks
under the Bank Obligations for application to payment of such liabilities;
(c) Third, to the Banks on a pro rata basis in accordance with
the Bank Obligations consisting of interest and principal (including without
limitation any cash collateral for any outstanding Letters of Credit) owing to
the Banks under the Bank Obligations and to any Bank owing pursuant to any Swap
Agreement to which it is a party (whether pursuant to a termination thereof or
otherwise), for application to payment of such liabilities;
(d) Fourth, to the payment of any and all other amounts owing to
the Banks on a pro rata basis in accordance with the total amount of such
Indebtedness owing to each of the Banks, for application to payment of such
liabilities; and
(e) Fifth, to the Borrowers or such other person as may be
legally entitled thereto.
8.4 Letter of Credit Liabilities. For the purposes of payments and
distributions under Section 8.3, the full amount of Bank Obligations on account
of any Letter of Credit then outstanding but not drawn upon shall be deemed to
be then due and owing. Amounts distributable to the Banks on account of such
Bank Obligations under such Letter of Credit shall be deposited in a separate
interest bearing collateral account in the name of and under the control of the
Agent and held by the Agent first as security for such Letter of Credit Bank
Obligations and then as security for all other Bank Obligations and the amount
so deposited shall be applied to the Letter of Credit Bank Obligations at such
times and to the extent that such Letter of Credit Bank Obligations become
absolute liabilities and if and to the extent that the Letter of Credit Bank
Obligations fail to become absolute Bank Obligations because of the expiration
or termination of the underlying Letters of Credit without being drawn upon then
such amounts shall be applied to the remaining Bank Obligations in the order
provided in Section 8.3. Each Borrower hereby grants to the Agent, for the
benefit of the Banks, a lien and security interest in all such funds deposited
in such separate interest bearing collateral account, as security for all the
Bank Obligations as set forth above.
CREDIT AGREEMENT Page 47
SECTION 9. The Agent, the Co-Agent and the Banks.
9.1 Appointment; Nature of Relationship. The First National Bank of
Chicago is hereby appointed by the Lenders as the Agent hereunder and under each
other Loan Document, and each of the Lenders irrevocably authorizes the Agent to
act as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this Section 9. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall have not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the representative of the
Lenders with only those duties as are expressly set forth in this Agreement and
the other Loan Documents. In its capacity as the Lenders' contractual
representative, the Agent (i) does not hereby assume any fiduciary duties to any
of the Lenders, (ii) is a "representative" of the Lenders within the meaning of
Section 9- 105 of the Uniform Commercial Code and (iii) is acting as an
independent contractor, the rights and duties of which are limited to those
expressly set forth in this Agreement and the other Loan Documents. Each of the
Lenders hereby agrees to assert no claim against the Agent on any agency theory
or any other theory of liability for breach of fiduciary duty, all of which
claims each Lender hereby waives.
9.2 Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
9.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrowers, any Borrower,
the Lenders or any Lender for any action taken or omitted to be taken by it or
them hereunder or under any other Loan Document or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct.
9.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Section 3.2 or
otherwise hereunder; (iv) the validity, enforceability, effectiveness,
sufficiency or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith; or (v) the value, sufficiency,
creation, perfection or priority of any interest in any collateral security. The
Agent shall have no duty to disclose to the Lenders information that is not
required to be furnished by the Borrowers to the Agent at
CREDIT AGREEMENT Page 48
such time, but is voluntarily furnished by the Borrowers to the Agent (either in
its capacity as Agent or in its individual capacity).
9.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Majority Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement or any other Loan Document unless it shall be
requested in writing to do so by the Majority Lenders. The Agent shall be fully
justified in failing or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified to its satisfaction by
the Lenders pro rata against any and all liability, cost and expense that it may
incur by reason of taking or continuing to take any such action.
9.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
9.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
9.8 Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrowers for which the Agent is entitled to reimbursement by
the Borrowers under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents and
(iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of the Loan Documents or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents,
provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence
CREDIT AGREEMENT Page 49
or willful misconduct of the Agent. The obligations of the Lenders under this
Section 9.8 shall survive payment of the Bank Obligations and termination of
this Agreement.
9.9 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received written notice from a Lender or a Borrower referring to
this Agreement describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give prompt notice thereof to the Lenders.
9.10 Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with any Borrower or any of their respective Subsidiaries in which any Borrower
or such Subsidiary is not restricted hereby from engaging with any other Person.
The Agent, in its individual capacity, is not obligated to remain a Lender.
9.11 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrowers and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
9.12 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrowers, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Majority Lenders shall have
the right to appoint, on behalf of the Borrowers and the Lenders, a successor
Agent. If no successor Agent shall have been so appointed by the Majority
Lenders within thirty days after the resigning Agent's giving notice of its
intention to resign, then the resigning Agent may appoint, on behalf of the
Borrowers, and the Lenders, a successor Agent. If the Agent has resigned and no
successor Agent has been appointed, the Lenders may perform all the duties of
the Agent hereunder and the Borrowers shall make all payments in respect of the
Bank Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Agent shall be deemed to be appointed
hereunder until such successor Agent has accepted the appointment. Any such
successor Agent shall be a commercial bank having capital and retained earnings
of at least $50,000,000. Upon the acceptance of any
CREDIT AGREEMENT Page 50
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Agent. Upon the effectiveness of the resignation of
the Agent, the resigning Agent shall be discharged from its duties and
obligations hereunder and under the Loan Documents. After the effectiveness of
the resignation of an Agent, the provisions of this Section 9 shall continue in
effect for the benefit of such Agent in respect of any actions taken or omitted
to be taken by it while it was acting as the Agent hereunder and under the other
Loan Documents.
9.13 Pro Rata Sharing by Banks. Each Bank agrees with every other Bank
that, in the event that it shall receive and retain any payment on account of
the Borrowers's obligations under this Agreement, the Notes or the Security
Documents in a greater proportion than that received by any other Bank, whether
such payment be voluntary, involuntary or by operation of law, by application of
set-off of any indebtedness or otherwise, then such Bank shall promptly purchase
a participation interest from the other Banks, without recourse, for cash and at
face value, ratably in accordance with its Pro Rata Share, in such an amount
that each Bank shall have received payment in respect of such obligations in
accordance with its Pro Rata Share; provided, that if any such purchase be made
by any Bank and if any such excess payment relating thereto or any part thereof
is thereafter recovered from such Bank, appropriate adjustment in the related
purchase from the other Banks shall be made by rescission and restoration of the
purchase price as to the portion of such excess payment so recovered. It is
further agreed that, to the extent there is then owing by the Borrowers to any
Bank indebtedness other than that evidenced by this Agreement, the Notes and the
Security Documents to which such Bank may apply any involuntary payments of
indebtedness by the Borrowers, including those resulting from exercise of rights
of set-off or similar rights, such Bank shall apply all such involuntary
payments first to obligations of the Borrowers to the Banks hereunder and under
the Notes and the Security Documents and then to such other indebtedness owed to
it by the Borrowers. In addition, it is further agreed that any and all proceeds
resulting from a sale or other disposition of any collateral which may be
hereafter granted for the benefit of the Banks to secure the obligations of the
Borrowers hereunder, shall be applied first to obligations of the Borrowers to
the Banks hereunder and under the Notes and the Security Documents, and then
ratably to any other indebtedness owed by the Borrowers to the Banks which is
secured by such collateral.
9.14 Determination of Borrowing Base, Etc. Any redetermination of the
Borrowing Base shall be made mutually by the Agent and the Co-Agent (provided
that if the Agent and the Co-Agent cannot so mutually agree, such
redetermination of Borrowing Base shall be the lower of such redetermination
made by the Agent or the Co-Agent individually) and submitted to the Banks. The
redetermined Borrowing Base shall then be effective when approved by the
Majority Banks. The Borrowing Base may be re-evaluated from time to time as
determined by the Majority Banks, and will be re-evaluated upon the request of
the Borrowers (provided that the Borrowers cannot request any re-evaluation of
the Borrowing Base more than four times in any twelve month period), and, in
addition, on or within 20 days prior to the date any Subordinated Debt is issued
or otherwise incurred and at least twice annually as follows:
CREDIT AGREEMENT Page 51
promptly upon receipt of the annual reserve report referred to in Section
7.1(d)(ix) hereof and each six months thereafter. Except for the scheduled
re-evaluations of the Borrowing Base, each Bank requesting a re-evaluation of
the Borrowing Base agrees to give notice to the Borrowers of such request.
9.15 Co-Agent. Bank One, Texas, N.A., as Co-Agent hereunder, shall
have no duties or liabilities.
SECTION 10. Miscellaneous.
10.1 Amendments; Etc. (a) This Agreement and any term or provision
hereof may be amended, waived or terminated by an instrument in writing executed
by the Borrowers and the Majority Banks, provided, that, notwithstanding
anything in this Agreement to the contrary, except by an instrument in writing
executed by the Borrowers and all of the Banks, no such amendment, waiver or
termination shall authorize or permit the extension of the time or times of
payment of the principal of, or interest on, the Notes or the reduction in
principal amount thereof or the rate of interest thereon, or any fees payable
hereunder, or increase the respective Commitments of any Bank, or release any
Guaranty or Borrower, or release any material amount of the Collateral from the
Liens granted pursuant hereto, or amend this Section 10.1.
(a) Any such amendment, waiver or termination shall be effective
only in the specific instance and for the specific purpose for which given.
(c) Notwithstanding anything herein to the contrary, any Bank
that has failed to fund any Advance or other amount required to be funded by
such Bank hereunder shall not be entitled to vote (whether to consent or to
withhold its consent) with respect to any amendment, modification, termination
or waiver of any provision of any Loan Document or a departure therefrom or any
direction from the Banks to the Agent and, for purposes of determining the
Majority Banks, the Commitments and Advances of such Bank shall be disregarded.
10.2 Notices. (a) Except as otherwise provided in Section 10.2(c)
hereof, all notices, requests, consents and other communications hereunder shall
be in writing and shall be delivered or sent to the Borrowers, the Banks and the
Agent at the respective addresses for notices set forth on the signature pages
hereof, or to such other address as may be designated by the Borrowers, the
Agent or any Bank by notice to the other parties hereto. All notices shall be
deemed to have been given at the time of actual delivery thereof to such
address, or if sent by the Agent or any Bank to the Borrowers by certified or
registered mail, postage prepaid, to such address, on the fifth day after the
date of mailing.
CREDIT AGREEMENT Page 52
(b) Notices by the Borrowers to the Agent with respect to
requests for Advances pursuant to Section 3.1 and notices of prepayment pursuant
to Section 4.1(c) shall be irrevocable and binding on the Borrowers.
(c) Any notice to be given by the Borrowers to the Agent pursuant
to Section 4.1(c) or Section 3.1 and any notice to be given by the Agent or any
Bank hereunder, may be given by telephone, by telex or by facsimile transmission
and must be immediately confirmed in writing in the manner provided in Section
10.2(a). Any such notice given by telephone, telex or facsimile transmission
shall be deemed effective upon receipt thereof by the party to whom such notice
is given.
10.3 Conduct No Waiver; Remedies Cumulative. No course of dealing on
the part of the Agent or the Banks, nor any delay or failure on the part of the
Agent or any Bank in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice the
Agent's or the Banks' rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Agent or the Banks under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy given hereunder or now
or hereafter existing under any applicable law. Every right and remedy given by
this Agreement or by applicable law to the Agent or the Banks may be exercised
from time to time and as often as may be deemed expedient by them.
10.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Borrowers made
herein or in any certificate or other document delivered pursuant hereto shall
be deemed to be material and to have been relied upon by the Banks,
notwithstanding any investigation heretofore or hereafter made by any Bank or on
any Bank's behalf, and those covenants and agreements of the Borrowers set forth
in Section 10.5 hereof shall survive the repayment in full of the Advances and
other obligations of the Borrowers hereunder and under Security Documents and
the termination of the Commitments. 10.5 Expenses; Indemnification. (a) The
Borrowers agree to pay and save the Agent harmless from liability for the
payment of the reasonable fees and expenses of any counsel the Agent shall
employ, in connection with the preparation, execution and delivery of this
Agreement, the Notes and the Security Documents and the consummation of the
transactions contemplated hereby and in connection with any amendments, waivers
or consents and other matters in connection therewith, and all reasonable costs
and expenses of the Agent and the Banks (including reasonable fees and expenses
of counsel) in connection with any enforcement of this Agreement, the Notes or
the Security Documents.
(b) Each of the Borrowers hereby indemnifies and agrees to hold
harmless the Banks and the Agent, and their respective officers, directors,
employees and agents, harmless from and against any and all claims, damages,
losses, liabilities, costs or expenses of
CREDIT AGREEMENT Page 53
any kind or nature whatsoever which the Banks or the Agent or any such person
may incur or which may be claimed against any of them by reason of or in
connection with any Letter of Credit, and neither any Bank nor the Agent or any
of their respective officers, directors, employees or agents shall be liable or
responsible for: (i) the use which may be made of any Letter of Credit or for
any acts or omissions of any beneficiary in connection therewith; (ii) the
validity, sufficiency or genuineness of documents or of any endorsement thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (iii) payment by the Agent to the
beneficiary under any Letter of Credit against presentation of documents which
do not comply with the terms of any Letter of Credit, including failure of any
documents to bear any reference or adequate reference to such Letter of Credit;
(iv) any error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection with any
Letter of Credit; or (v) any other event or circumstance whatsoever arising in
connection with any Letter of Credit; provided, however, that the Borrowers
shall not be required to indemnify the Banks and the Agent and such other
persons, and the Banks and the Agent shall be liable to the Borrowers to the
extent, but only to the extent, of any direct, as opposed to consequential or
incidental, damages suffered by any Borrower which were caused by (A) the
Agent's wrongful dishonor of any Letter of Credit after the presentation to it
by the beneficiary thereunder of a draft or other demand for payment and other
documentation strictly complying with the terms and conditions of such Letter of
Credit, or (B) the payment by the Agent to the beneficiary under any Letter of
Credit against presentation of documents which do not comply with the terms of
the Letter of Credit to the extent, but only to the extent, that such payment
constitutes gross negligence or wilful misconduct of the Agent. It is understood
that in making any payment under a Letter of Credit the Agent will rely on
documents presented to it under such Letter of Credit as to any and all matters
set forth therein without further investigation and regardless of any notice or
information to the contrary, and such reliance and payment against documents
presented under a Letter of Credit substantially complying with the terms
thereof shall not be deemed gross negligence or wilful misconduct of the Agent
in connection with such payment. It is further acknowledged and agreed that a
Borrower may have rights against the beneficiary or others in connection with
any Letter of Credit with respect to which the Agent is alleged to be liable and
it shall be a precondition of the assertion of any liability of the Agent under
this Section that such Borrower shall first have taken reasonable steps to
enforce remedies in respect of the alleged loss against such beneficiary and any
other parties obligated or liable in connection with such Letter of Credit and
any related transactions.
(c) In consideration of the execution and delivery of this
Agreement by each Bank and the extension of the Commitments, the Borrowers
hereby indemnify, exonerate and hold the Agent, each Bank and each of their
respective officers, directors, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable
CREDIT AGREEMENT Page 54
attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to:
(i) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of any Advance;
(ii) the entering into and performance of this Agreement and
any other agreement or instrument executed in connection herewith by any of the
Indemnified Parties (including any action brought by or on behalf of the
Borrowers as the result of any determination by the Majority Banks not to fund
any Advance in compliance with this Agreement);
(iii) any investigation, litigation or proceeding related to
any acquisition or proposed acquisition by the Borrowers or any of their
Subsidiaries of any portion of the stock or assets of any Person, whether or not
the Agent or such Bank is party thereto;
(iv) any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to any
release by the Borrowers or any of their Subsidiaries of any hazardous material
or any violations of Environmental Laws; or
(v) the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrowers or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under any Environmental Law), regardless
of whether caused by, or within the control of, the Borrowers or such
Subsidiary, except for any such Indemnified Liabilities arising for the account
of a particular Indemnified Party by reason of the activities of the Indemnified
Party on the property of the Borrowers conducted subsequent to a foreclosure on
such property by the Banks or by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct or breach of this Agreement, and if and to
the extent that the foregoing undertaking may be unenforceable for any reason,
the Borrowers hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The Borrowers shall be obligated to indemnify the Indemnified
Parties for all Indemnified Liabilities subject to and pursuant to the foregoing
provisions, regardless of whether the Borrowers or any of its Subsidiaries had
knowledge of the facts and circumstances giving rise to such Indemnified
Liability.
10.6 Successors and Assigns. (a) This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that the Borrowers may not, without the prior
consent of the Majority Banks, assign their rights or obligations hereunder or
under the Notes and the Banks shall not be obligated to make any Advance
hereunder to any entity other than the Borrowers.
CREDIT AGREEMENT Page 55
(b) Any Bank may sell a participation interest to any
financial institution or institutions, and such financial institution or
institutions may further sell, a participation interest (undivided or divided)
in, the Advances and such Bank's rights and benefits under this Agreement, the
Notes and the Security Documents and to the extent of that participation, such
participant or participants shall have the same rights and benefits against the
Borrowers under Section 6.2(c) as it or they would have had if participation of
such participant or participants were the Bank making the Advances to the
Borrowers hereunder, provided, however, that (i) such Bank's obligations under
this Agreement shall remain unmodified and fully effective and enforceable
against such Bank, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Bank shall
remain the holder of its Note for all purposes of this Agreement, (iv) the
Borrowers, the Agent and the other Banks shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement, and (v) such Bank shall not grant to its participant any
rights to consent or withhold consent to any action taken by such Bank or the
Agent under this Agreement other than action requiring the consent of all of the
Banks hereunder. The Agent from time to time in its sole discretion may appoint
agents for the purpose of servicing and administering this Agreement and the
transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under this Agreement, the Notes, or otherwise. In
furtherance of such agency, the Agent may from time to time direct that the
Borrowers provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. The Borrowers hereby consents
to the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Agent in the same manner as would be required if dealing with the Agent
itself.
(c) Each Bank may, with the prior consent of the Borrowers
(which consent shall not be unreasonably withheld) and the Agent, assign to one
or more banks or other entities all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes and the Security
Documents held by it); provided, however, that (i) each such assignment shall be
of a uniform, and not a varying, percentage of all rights and obligations, (ii)
except in the case of an assignment of all of a Bank's rights and obligations
under this Agreement, (A) the amount of the Commitment of the assigning Bank
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment) shall in no event
be less than $1,000,000, and in integral multiples of $500,000 thereafter, or
such lesser amount as the Borrowers and the Agent may consent to and (B) after
giving effect to each such assignment, the amount of the Commitment of the
assigning Bank shall in no event be less than $1,000,000, and (iii) the parties
to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance in the
form of Exhibit F hereto (an "Assignment and Acceptance"), together with any
Note or Notes subject to such assignment and a processing and recordation fee of
$3,500. Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in such Assignment and Acceptance, (x) the assignee
thereunder shall be a party
CREDIT AGREEMENT Page 56
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder and (y) the Bank assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
(d) By executing and delivering an Assignment and
Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to
and agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrowers or the performance or observance by the Borrowers of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 6.7 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance under the Agent, such assigning Bank or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement as are delegated to the Agent by the terms hereof, together with
such powers and discretion as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement are required to be performed by
it as a Bank.
(e) The Agent shall maintain at its address designated on
the signature pages hereof a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and addresses
of the Banks and the Commitment of, and principal amount of the Advances owing
to, each Bank from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrowers, the Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrowers or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
CREDIT AGREEMENT Page 57
(f) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and an assignee, together with any Note or Notes
subject to such assignment, the Agent shall, if such Assignment and Acceptance
has been completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrowers. Within five Business Days after its receipt of such
notice, the Borrowers, at its own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note or Notes a new Note to the order of
such assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Bank has retained a
Commitment hereunder, a new Note to the order of the assigning Bank in an amount
equal to the Commitment retained by it hereunder. Such new Note or Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit F hereto.
(g) The Banks may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.6, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrowers provided that such
proposed assignee or participant has agreed to hold such information
confidential under the terms described in Section 10.19.
(h) Additional lenders may also become Banks hereunder, with
the prior written consent of the Borrowers and the Agent, by executing an
Assumption Agreement substantially in the form of Exhibit G hereto, provided
that without the prior written consent of the Majority Banks, the aggregate
Commitments of all Banks may not exceed $200,000,000. Any Bank, subject to the
prior written approval of the Majority Banks, the Agent and the Borrowers and
subject to being paid in full for all outstanding liabilities owing to such
Bank, may be terminated as a Bank hereunder and upon such termination the
Borrowers shall have the option to select a bank to replace such terminating
bank and to assume the rights and obligations of such terminated Bank hereunder,
provided that such replacement bank is acceptable to the Agent and executes an
Assumption Agreement substantially in the form of Exhibit G hereto. Upon any
Bank being added hereto or terminated, a new schedule will be distributed by the
Agent to all Banks and the Borrowers showing the Commitment amount, the Bridge
Loan amount and the Pro Rata Share of each Bank.
10.7 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE
CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
10.8 Table of Contents and Headings. The table of contents and
the headings of the various subdivisions hereof are for the convenience of
reference only and shall in no way modify any of the terms or provisions hereof.
CREDIT AGREEMENT Page 58
10.9 Construction of Certain Provisions. All computations
required hereunder and all financial terms used herein shall be made or
construed in accordance with GAAP unless such principles are inconsistent with
the express requirements of this Agreement. If any provision of this Agreement
refers to any action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person, whether or not expressly
specified in such provision.
10.10 Integration and Severability. This Agreement embodies the
entire agreement and understanding between the Borrowers and the Banks, and
supersedes all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of the Borrowers under
this Agreement, the Notes or any Security Documents shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining obligations of the Borrowers shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of the Borrowers under this Agreement, the Notes or any Security
Documents in any other jurisdiction.
10.11 Interest Rate Limitation. Notwithstanding any provisions of
this Agreement, the Notes or any Security Documents, in no event shall the
amount of interest paid or agreed to be paid by the Borrowers exceed an amount
computed at the highest rate of interest permissible under applicable law. If,
from any circumstances whatsoever, fulfillment of any provision of this
Agreement, the Notes or any Security Documents at the time performance of such
provision shall be due, shall involve exceeding the interest rate limitation
validly prescribed by law which a court of competent jurisdiction may deem
applicable hereto, then, ipso facto, the obligations to be fulfilled shall be
reduced to an amount computed at the highest rate of interest permissible under
applicable law, and if for any reason whatsoever the Banks shall ever receive as
interest an amount which would be deemed unlawful under such applicable law such
interest shall be automatically applied to the payment of principal of the
Advances outstanding and other obligations of the Borrowers hereunder (whether
or not then due and payable) and not to the payment of interest, or shall be
refunded to the Borrowers if such principal has been paid in full. Anything
herein to the contrary notwithstanding, the obligations of the Borrowers under
this Agreement shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt of any such payment by the
Banks would be contrary to provisions of law applicable to the Banks which
limits the maximum rate of interest which may be charged or collected by the
Banks.
10.12 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.13 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by an
exception to, or would be otherwise within
CREDIT AGREEMENT Page 59
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or any event or condition which with notice or lapse of time, or
both, could become such an Event of Default if such action is taken or such
condition exists.
10.14 Consent to Jurisdiction. Notwithstanding the place where
any liability originates or arises, or is to be repaid, any suit, action or
proceeding arising out of or relating to this Agreement, any Security Documents,
or the Notes may be instituted in any court of competent jurisdiction in the
State of Illinois, the Borrowers and each Guarantor hereby irrevocably waives
any objection which it may have or hereafter has to the laying of such venue of
any such suit, action or proceeding and any claim that any such suit, action or
proceeding has been brought in an inconvenient forum, and the Borrowers and each
Guarantor hereby irrevocably submits its person and property to the jurisdiction
of any such court in any such suit, action or proceedings. Nothing in this
Section 10.14 shall affect the right of the Bank to bring proceedings against
the Borrowers and each Guarantor or any of their property in the courts of any
other court of competent jurisdiction.
10.15 JURY TRIAL WAIVER. THE AGENT, THE BANKS, EACH BORROWER AND
EACH GUARANTOR, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH
COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE NOTES, THE SECURITY DOCUMENTS, OR ANY RELATED INSTRUMENT OR
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE NOTES
OR THE SECURITY DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER THE AGENT, THE BANKS, ANY
BORROWER NOR ANY GUARANTOR SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY
EITHER THE AGENT AND THE BANKS OR THE BORROWERS AND THE GUARANTORS EXCEPT BY A
WRITTEN INSTRUMENT EXECUTED BY ALL OF THEM.
10.16 Joint and Several Obligations; Contribution Rights; Savings
Clause. (a) Notwithstanding anything to the contrary set forth herein or in any
Note or in any other Loan Document, the obligations of the Borrowers hereunder
and under the Notes and the other Loan Documents are joint and several.
(b) If any Borrower makes a payment in respect of the Bank
Obligations it shall have the rights of contribution set forth below against the
other Borrowers; provided that such Borrower shall not exercise its right of
contribution until all the Bank Obligations shall have been finally paid in full
in cash. If any Borrower makes a payment in
CREDIT AGREEMENT Page 60
respect of the Bank Obligations that is smaller in proportion to its Payment
Share (as hereinafter defined) than such payments made by the other Borrowers
are in proportion to the amounts of their respective Payment Shares, the
Borrower making such proportionately smaller payment shall, when permitted by
the preceding sentence, pay to the other Borrowers an amount such that the net
payments made by the Borrower in respect of the Bank Obligations shall be shared
among the Borrowers pro rata in proportion to their respective Payment Shares.
If any Borrower receives any payment that is greater in proportion to the amount
of its Payment Shares than the payments received by the other Borrowers are in
proportion to the amounts of their respective Payment Shares, the Borrower
receiving such proportionately greater payment shall, when permitted by the
second preceding sentence, pay to the other Borrowers an amount such that the
payments received by the Borrowers shall be shared among the Borrowers pro rata
in proportion to their respective Payment Shares. Notwithstanding anything to
the contrary contained in this paragraph or in this Agreement, no liability or
obligation of any Borrower that shall accrue pursuant to this paragraph shall be
paid nor shall it be deemed owed pursuant to this paragraph until all of the
Bank Obligations shall be finally paid in full in cash.
For purposes hereof, the "Payment Share" of each Borrower shall
be the sum of (a) the aggregate proceeds of the Bank Obligations received by
such Borrower plus (b) the product of (i) the aggregate Bank Obligations
remaining unpaid on the date such Bank Obligations become due and payable in
full, whether by stated maturity, acceleration, or otherwise (the "Determination
Date") reduced by the amount of such Bank Obligations attributed to all or such
Borrowers pursuant to clause (a) above, times (ii) a fraction, the numerator of
which is such Borrower's net worth on the effective date of this Agreement
(determined as of the end of the immediately preceding fiscal reporting period
of such Borrower), and the denominator of which is the aggregate net worth of
all Borrowers on such effective date.
(c) It is the intent of each Borrower, the Agent and the
Banks that each Borrower's maximum Bank Obligations shall be in, but not in
excess of:
(i) in a case or proceeding commenced by or against
such Borrower under the Bankruptcy Code on or within one year from the date on
which any of the Bank Obligations are incurred, the maximum amount that would
not otherwise cause the Bank Obligations (or any other obligations of such
Borrower to the Agent and the Banks) to be avoidable or unenforceable against
such Borrower under (A) Section 548 of the Bankruptcy Code or (B) any state
fraudulent transfer or fraudulent conveyance act or statute applied in such case
or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against
such Borrower under the Bankruptcy Code subsequent to one year from the date on
which any of the Bank Obligations are incurred, the maximum amount that would
not otherwise cause the Bank Obligations (or any other obligations of such
Borrower to the Agent and the Banks) to be avoidable or unenforceable against
such Borrower under any state fraudulent transfer or
CREDIT AGREEMENT Page 61
fraudulent conveyance act or statute applied in any such case or proceeding by
virtue of Section 544 of the Bankruptcy Code;
(iii) in a case or proceeding commenced by or against
such Borrower under any law, statute or regulation other than the Bankruptcy
Code (including, without limitation, any other bankruptcy, reorganization,
arrangement, moratorium, readjustment of debt, dissolution, liquidation or
similar debtor relief laws), the maximum amount that would not otherwise cause
the Bank Obligations (or any other obligations of such Borrower to the Agent and
the Banks) to be avoidable or unenforceable against such Borrower under such
law, statute or regulation including, without limitation, any state fraudulent
transfer or fraudulent conveyance act or statute applied in any such case or
proceeding.
(d) The Borrowers acknowledge and agree that they have
requested that the Banks make credit available to the Borrowers with each
Borrower expecting to derive benefit, directly and indirectly, from the Advances
and other credit extended by the Banks to the Borrowers.
10.17 Consents to Renewals, Modifications and Other Actions and
Events. This Agreement and all of the obligations of the Borrowers hereunder
shall remain in full force and effect without regard to and shall not be
released, affected or impaired by: (a) any amendment, assignment, transfer,
modification of or addition or supplement to the Bank Obligations, this
Agreement, any Note or any other Loan Document; (b) any extension, indulgence,
increase in the Bank Obligations or other action or inaction in respect of any
of the Loan Documents or otherwise with respect to the Bank Obligations, or any
acceptance of security for, or guaranties of, any of the Bank Obligations or
Loan Documents, or any surrender, release, exchange, impairment or alteration of
any such security or guaranties including without limitation the failing to
perfect a security interest in any such security or abstaining from taking
advantage or of realizing upon any guaranties or upon any security interest in
any such security; (c) any default by any Borrower under, or any lack of due
execution, invalidity or unenforceability of, or any irregularity or other
defect in, any of the Loan Documents; (d) any waiver by the Banks or any other
person of any required performance or otherwise of any condition precedent or
waiver of any requirement imposed by any of the Loan Documents, any guaranties
or otherwise with respect to the Bank Obligations; (e) any exercise or
non-exercise of any right, remedy, power or privilege in respect of this
Agreement or any of the other Loan Documents; (f) any sale, lease, transfer or
other disposition of the assets of any Borrower or any consolidation or merger
of any Borrower with or into any other person, corporation, or entity, or any
transfer or other disposition by any Borrower or any other holder of any shares
of capital stock of any Borrower; (g) any bankruptcy, insolvency, reorganization
or similar proceedings involving or affecting any Borrower; (h) the release or
discharge of any Borrower from the performance or observance of any agreement,
covenant, term or condition under any of the Bank Obligations or contained in
any of the Loan Documents by operation of law; or (i) any other cause whether
similar or dissimilar to the foregoing which, in the absence of this provision,
would release, affect or impair the obligations, covenants, agreements and
duties of any Borrower hereunder,
CREDIT AGREEMENT Page 62
including without limitation any act or omission by the Agent, or the Bank or
any other any person which increases the scope of such Borrower's risk; and in
each case described in this paragraph whether or not any Borrower shall have
notice or knowledge of any of the foregoing, each of which is specifically
waived by each Borrower. Each Borrower warrants to the Agent and the Banks that
it has adequate means to obtain from each other Borrower on a continuing basis
information concerning the financial condition and other matters with respect to
the Borrowers and that it is not relying on the Agent or the Banks to provide
such information either now or in the future.
10.18 Waivers, Etc. Each Borrower unconditionally waives: (a)
notice of any of the matters referred to in Section 10.17 above; (b) all notices
which may be required by statute, rule or law or otherwise to preserve any
rights of the Agent or the Banks including, without limitation, presentment to
and demand of payment or performance from the other Borrowers and protect for
non-payment or dishonor; (c) any right to the exercise by the Agent or the Banks
of any right, remedy, power or privilege in connection with any of the Loan
Documents; (d) any requirement that the Agent or the Banks in the event of any
default by any Borrower, first make demand upon or seek to enforce remedies
against, such Borrower or any other Borrower before demanding payment under or
seeking to enforce this Agreement against any other Borrower; (f) any right to
notice of the disposition of any security which the Agent or the Banks may hold
from any Borrower or otherwise and any right to object to the commercial
reasonableness of the disposition of any such security; and (g) all errors and
omissions in connection with the Agent's or any Bank's administration of any of
the Bank Obligations, any of the Loan Documents, or any other act or omission of
the Agent or any Bank which changes the scope of the Borrower's risk, except as
a result of the gross negligence or willful misconduct of the Agent or any Bank.
The obligations of each Borrower hereunder shall be complete and binding
forthwith upon the execution of this Agreement and subject to no condition
whatsoever, precedent or otherwise, and notice of acceptance hereof or action in
reliance hereon shall not be required.
10.19 Confidentiality. The Banks and the Agent shall hold all
confidential information obtained pursuant to the requirements of this Agreement
which has been identified as such by any Borrower or any Guarantor in accordance
with their customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure to its examiners, affiliates, outside auditors, counsel and
other professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee or participant in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process. Without limiting the foregoing, it is expressly understood that
such confidential information shall not include information which, at the time
of disclosure is in the public domain or, which after disclosure, becomes part
of the public domain or information which is obtained by any Bank or the Agent
had obtained prior to the time of disclosure and identification by any Borrowers
or any Guarantor under this Section, or information received by any Bank or the
Agent from a third party. Nothing in this
CREDIT AGREEMENT Page 63
Section or otherwise shall prohibit any Bank or the Agent from disclosing any
confidential information to the other Banks or the Agent or render any of them
liable in connection with any such disclosure.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of this 1st day of May, 1996, which shall
be the Effective Date of this Agreement.
Address for Notices:
COMSTOCK RESOURCES, INC.
By: /s/ M. JAY ALLISON
5005 LBJ Freeway, Suite 1000 ----------------------
Dallas, Texas 75244 M. Jay Allison, its president and chief
Attention: M. Jay Allison executive officer
Telephone: (214) 701-2000
Telecopy: (214) 701-2111
Address for Notices:
COMSTOCK OIL & GAS, INC.
By: /s/ M. JAY ALLISON
5005 LBJ Freeway, Suite 1000 ----------------------
Dallas, Texas 75244 M. Jay Allison, its president and chief
Attention: M. Jay Allison executive officer
Telephone: (214) 701-2000
Telecopy: (214) 701-2111
Address for Notices:
COMSTOCK OIL & GAS - LOUISIANA, INC.
By: /s/ M. JAY ALLISON
----------------------
5005 LBJ Freeway, Suite 1000
Dallas, Texas 75244 M. Jay Allison, its president and chief
Attention: M. Jay Allison executive officer
Telephone: (214) 701-2000
Telecopy: (214) 701-2111
CREDIT AGREEMENT Page 64
COMSTOCK OFFSHORE ENERGY, INC.
5005 LBJ Freeway, Suite 1000 By: M. Jay Allison
Dallas, Texas 75244 -----------------------
Attention: M. Jay Allison M. Jay Allison, its president and chief
Telephone: (214) 701-2000 executive officer
Telecopy: (214) 701-2111
One First National Plaza THE FIRST NATIONAL BANK OF CHICAGO,
Suite 0362 as a Bank and as Agent
Chicago, Illinois 60670
Attention: Andrew Bateman By: /s/CARL SKOOG
Telephone No: (312) 732-8011 ---------------------
Facsimile No: (312) 732-3055 Its: Second vice president
Commitment Amount: $85,829,545.46
Bridge Loan Amount: $5,170,454.54
Pro Rata Share: 51.7045%
1717 Main Street BANK ONE, TEXAS, NA,
Dallas, Texas 75201 as a Bank and as Co-Agent
Attention: Mark Cranmer By: /s/MARK CRANMER
Telephone No: (214) 290-2212 ---------------------
Facsimile No: (214) 290-2627
Commitment Amount: $80,170,454.54
Bridge Loan Amount: $4,829,545.46
Pro Rata Share: 48.2955%
CREDIT AGREEMENT Page 65
CONSENT AND ACKNOWLEDGEMENT
Each of the undersigned Guarantors is hereby executing this
Agreement for the purpose of agreeing to all of the terms and provisions hereof
applicable to it, and making the representaions and warranties applicable to
it.
IN WITNESS WHEREOF, the undersigned Guarantors have caused this
Agreement to be duly executed and delivered as of this 1st day of May, 1996.
COMSTOCK MANAGEMENT CORPORATION
By:/s/M. JAY ALLISON
--------------------
M. Jay Allsion, its president and chief
executive officer
COMSTOCK NATURAL GAS, INC.
By:/s/ROLAND O. BURNS
----------------------
Roland O. Burns, its senior vice-
president and chief financial officer
CREDIT AGREEMENT Page 66
