0000950134-01-507322.txt : 20011019
0000950134-01-507322.hdr.sgml : 20011019
ACCESSION NUMBER: 0000950134-01-507322
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20011001
ITEM INFORMATION: Acquisition or disposition of assets
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20011016
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PANHANDLE ROYALTY CO
CENTRAL INDEX KEY: 0000315131
STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311]
IRS NUMBER: 731055775
STATE OF INCORPORATION: OK
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-09116
FILM NUMBER: 1760086
BUSINESS ADDRESS:
STREET 1: 5400 NW GRAND BLVD
STREET 2: GRAND CENTRE STE 210
CITY: OKLAHOMA CITY
STATE: OK
ZIP: 73112
BUSINESS PHONE: 4059481560
8-K
1
d91257e8-k.txt
FORM 8-K
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) OCTOBER 1, 2001
PANHANDLE ROYALTY COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 0-9116 73-1055775
------------------------- ------------------- ---------------------
(State of Incorporation) (Commission File) (I.R.S. Employer
Number Identification No.)
GRAND CENTRE SUITE 210, 5400 NORTH GRAND BLVD., OKLAHOMA CITY, OK 73112
--------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code: (405) 948-1560
------------------------------
Panhandle Royalty Company
FORM 8-K
OCTOBER 16,2001
ITEM 1. NONE
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 1, 2001 Panhandle Royalty Company acquired
privately held Wood Oil Company ("Wood") of Tulsa, Oklahoma. The acquisition was
made pursuant to an Agreement and Plan of Merger among Panhandle Royalty
Company, PHC, Inc., and Wood Oil Company, dated August 9, 2001. Wood merged with
Panhandle's wholly owned subsidiary PHC, Inc., on October 1, 2001, with Wood
being the surviving Company. Prior to the acquisition, Wood was a privately held
company engaged in oil and gas exploration and production and fee mineral
ownership and owned interests in certain oil and gas and real estate
partnerships and an office building in Tulsa. Wood will continue to operate as a
subsidiary of Panhandle and will be moved to Oklahoma City in early 2002. Wood
and its shareholders were unrelated parties to Panhandle.
Wood's assets, in addition to those mentioned above, included
approximately 71,000 net acres of fee minerals and 14,923 net leasehold acres
located primarily in Oklahoma, Texas and 17 additional states. Wood owns
non-operating, royalty and working interests in approximately 2,000 producing
wells with estimated net proven reserves of 11.03 billion cubic feet of natural
gas equivalents. Daily production is approximately 4,700 mcf and
166 barrels of oil.
The adjusted purchase price was $22,603,886, which included
working capital assumed of $4,195,794. Funding for the acquisition was obtained
from BancFirst of Oklahoma City, Oklahoma in the form of a $20,000,000 five year
term loan. $3,000,000 of Wood's cash was used to reduce Panhandle's debt on the
date of closing.
The acquisition will be accounted for as a purchase,
accordingly, Wood's financial results will be consolidated with Panhandle's
beginning October 1, 2001.
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. NONE
(1)
Panhandle Royalty Company
FORM 8-K
OCTOBER 16,2001
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
As of October 15, 2001, audited historical financial
statements of Wood were not available. The Company will file the required
audited financial statements on FORM 8-K/A as soon as practicable upon
completion of the audit of Wood, but not later than 60 days from October
16, 2001.
(b) Pro Forma Financial Information.
The preparation of the required pro forma information pursuant
to Article 11 of Regulation S-X is dependant on the preparation of the
audited historical financial statements described under Item 7(a) above.
The Company will file the required pro forma financial information on FORM
8-K/A as soon as practicable upon completion of the audit of such financial
statements, but not later than 60 days from October 16, 2001.
(c) Exhibits
10.1 Agreement and Plan of Merger Among Panhandle Royalty
Company, PRC, Inc. and Wood Oil Company Dated August 9, 2001.
10.2 Name Correction Agreement Among Panhandle Royalty
Company, PHC, Inc. and Wood Oil Company.
10.3 Amended and Restated Loan Agreement By and Among
Panhandle Royalty Company, Wood Oil Company and BancFirst,
Dated October 1, 2001.
ITEM 8. NONE
(2)
Panhandle Royalty Company
FORM 8-K
OCTOBER 16,2001
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PANHANDLE ROYALTY COMPANY
October 16, 2001 /s/ H W Peace II
--------------------- --------------------------------------
DATE H W PEACE II, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
October 16, 2001 /s/ Michael C. Coffman
--------------------- --------------------------------------
DATE MICHAEL C. COFFMAN,
VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND
SECRETARY AND TREASURER
(3)
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Agreement and Plan of Merger Among Panhandle Royalty Company, PRC, Inc.
and Wood Oil Company Dated August 9, 2001.
10.2 Name Correction Agreement Among Panhandle Royalty Company, PHC, Inc.
and Wood Oil Company.
10.3 Amended and Restated Loan Agreement By and Among Panhandle Royalty
Company, Wood Oil Company and BancFirst, Dated October 1, 2001.
EX-10.1
3
d91257ex10-1.txt
AGREEMENT AND PLAN OF MERGER
EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AMONG
PANHANDLE ROYALTY COMPANY,
PRC, INC.
AND
WOOD OIL COMPANY
AUGUST 9, 2001
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of the 9th day of August, 2001, by and among Panhandle Royalty Company,
an Oklahoma corporation ("PARENT"); PRC, Inc., an Oklahoma corporation ("MERGER
SUB"); and Wood Oil Company, an Oklahoma corporation (the "COMPANY")
(collectively the "PARTIES" and individually, "PARTY").
RECITALS
A. The board of directors of each of Parent and the Company has determined
that it is in the best interests of its respective stockholders to approve the
strategic alliance of Parent and the Company by means of the merger of Merger
Sub with and into the Company, upon the terms and subject to the conditions set
forth in this Agreement.
B. Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger.
In consideration of the recitals and the mutual covenants and agreements
set forth in this Agreement, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Sections referred to below
(such meanings applicable to both the singular and plural forms of the terms
defined):
"AFFILIATE" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person.
"AGREEMENT" means this Agreement and Plan of Merger, as amended,
supplemented or modified from time to time.
"ALLOCATED VALUE" means the allocation of values for all of the assets of
the Company shown on SCHEDULE 1.1A.
"ASSETS" means all of the assets, rights, properties and goodwill of any
kind or type, tangible or intangible, wheresoever located, of the Company.
"BASE MERGER CONSIDERATION" means $25,000,000.
"BEST EFFORTS" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.
"CERTIFICATE OF MERGER" means the certificate of merger, prepared and
executed in accordance with the applicable provisions of the OGCA, filed with
the Secretary of State of Oklahoma to reflect the consummation of the Merger.
"CLAIM" has the meaning specified in Section 8.3.
"CLOSING" means the closing and consummation of the Merger and the other
transactions contemplated by this Agreement.
"CLOSING DATE" means the date on which the Closing occurs, which shall be
October 1, 2001, except as Parent and the Company shall mutually agree.
"CLOSING DATE MERGER CONSIDERATION" shall have the meaning set forth in
Section 5.10(b).
"COBRA" means the Consolidated Omnibus Reconciliation Act of 1985, as
amended, as contained in section 4980B of the Code.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the introductory paragraph of this
Agreement.
"COMPANY CERTIFICATE" means a certificate representing shares of the
Company Common Stock.
"COMPANY COMMON STOCK" means the common stock, par value $1.00 per share,
of the Company.
"COMPANY EMPLOYEE BENEFIT PLANS" has the meaning specified in Section
3.11(a).
"COMPANY FINANCIAL STATEMENTS" means the unaudited financial statements of
the Company (including the related notes) as of July 31, 2000, and for the year
then ended, and the unaudited financial statements of the Company as of March
31, 2001, and for the eight months then ended.
"COMPANY INDEMNIFIED PERSONS" has the meaning specified in Section 5.7.
"COMPANY PERMITS" has the meaning specified in Section 3.15.
"COMPANY REPRESENTATIVE" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors) or other
representative of the Company.
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"COMPETING BUSINESS" has the meaning specified in Section 3.9.
"CONFIDENTIALITY AGREEMENT" means the letter agreement dated May 14, 2001,
between the Company and Parent relating to the Company's furnishing of
information to Parent in connection with Parent's evaluation of the possibility
of acquiring the Company.
"DAMAGES" has the meaning specified in Section 8.1.
"DEBT" means, for any Person, without duplication: (a) all obligations of
such Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (c) all indebtedness of
such Person on which interest charges are customarily paid or accrue; (d) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person; (e) the present value of all obligations in respect of leases
that are capitalized on the books and records of such Person; (f) any obligation
of such Person representing the deferred purchase price of property or services
purchased by such Person other than trade payables incurred in the Ordinary
Course of Business and which are not more than 90 days past invoice date; (g)
any indebtedness, liability or obligation secured by a Lien on the assets of
such Person whether or not such indebtedness, liability or obligation is
otherwise non-recourse to such Person; (h) liabilities with respect to payments
received in consideration of oil, gas or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); and (i)
all liability of such Person as a general partner or joint venturer for
obligations of the nature described in clauses (a) through (h) preceding.
"DEFENSIBLE TITLE" means such right, title and interest that is: (a) with
respect to Ownership Interests of record, evidenced by an instrument or
instruments filed of record in accordance with the conveyance and recording laws
of the applicable jurisdiction to the extent necessary to give the Company and
Parent, through its ownership of the Company Common Stock, the right to enjoy
the benefits of possession (as further described in Section 3.14) of the
Ownership Interests reflected on SCHEDULE 1.1A; (b) with respect to Ownership
Interests not yet earned under a farmout agreement, described in and subject to
a farmout agreement containing terms and provisions reasonably consistent with
terms and provisions used in the domestic oil and gas business and under which
there exists no default by the Company; and (c) subject to Permitted
Encumbrances, free and clear of all Liens.
"DISCLOSURE SCHEDULE" means the DISCLOSURE SCHEDULE delivered by the
Company to Parent concurrently with the execution and delivery of this Agreement
and any documents listed on such DISCLOSURE SCHEDULE and expressly incorporated
therein by reference. Each section thereof shall qualify the correspondingly
numbered representation and warranty or covenant in this Agreement and not any
other representation, warranty or covenant herein unless specifically stated
with appropriate specific cross references to other numbered sections of the
Disclosure Schedule.
"EARNEST MONEY" has the meaning specified in Section 2.9.
3
"EFFECTIVE TIME" has the meaning specified in Section 2.2.
"ENVIRONMENTAL LAW" means any law, common law, ordinance, regulation or
policy of any Governmental Authority, as well as any order, decree, permit,
judgment or injunction issued, promulgated, approved or entered thereunder,
relating to the environment, health and safety, Hazardous Material (including
the use, handling, transportation, production, disposal, discharge or storage
thereof), industrial hygiene, the environmental conditions on, under, or about
any Oil and Gas Interests or real property owned, leased or operated at any time
by the Company, including soil, groundwater, and indoor and ambient air
conditions or the reporting or remediation of environmental contamination.
Environmental Laws include, without limitation, the Clean Air Act, as amended
(the "CLEAN AIR ACT"), the Federal Water Pollution Control Act, as amended, the
Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, as amended ("SARA"), the Resource Conservation and Recovery Act of 1976,
as amended ("RCRA"), the Hazardous and Solid Waste Amendments Act of 1984, as
amended, the Toxic Substances Control Act, as amended, the Occupational Safety
and Health Act, as amended ("OSHA"), the Hazardous Materials Transportation Act,
as amended, and any other federal, state and local law whose purpose is to
conserve or protect human health, the environment, wildlife or natural
resources.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated thereunder.
"ESCROW AGENT" has the meaning specified in Section 2.6(a).
"ESCROW AGREEMENT" has the meaning specified in Section 2.6(a).
"EXCLUDED ASSETS" means all rights of the Company in and to the assets
described on SCHEDULE 1.1B.
"GOVERNMENTAL AUTHORITY" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Parties or any of their
respective properties or assets.
"GUARANTY" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions, by "comfort
letter" or other similar undertaking of support of otherwise); or (b) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, that the term "GUARANTY"
shall not include endorsements for collection or deposit in the Ordinary Course
of Business. For
4
purposes of this Agreement, the amount of any Guaranty shall be the probable
amount that the guarantor would be legally required to pay under such Guaranty.
"HAZARDOUS MATERIAL" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
RCRA; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law; (d) any
asbestos-containing materials in any form or condition; (e) any polychlorinated
biphenyls in any form or condition; (f) petroleum, petroleum hydrocarbons, or
any fractions or byproducts thereof; or (g) any air pollutant which is so
designated by the U.S. Environmental Protection Agency as authorized by the
Clean Air Act.
"HYDROCARBONS" means oil, condensate, gas, casinghead gas and other liquid
or gaseous hydrocarbons.
"INDEMNIFIED PERSON" has the meaning specified in Section 8.5.
"INDEMNIFYING PARTY" has the meaning specified in Section 8.5.
"KNOWLEDGE" (whether or not capitalized) means an individual will be deemed
to have "Knowledge" of a particular fact or other matter if such individual is
actually aware of such fact or other matter or could be expected to discover or
otherwise become aware of such fact or matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has
since January 1, 2001, served as a director, executive officer, partner,
executor or trustee of such Person (or in any similar capacity) has, at any time
had, Knowledge of such fact or other matter.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute or treaty.
"LIEN" means any lien, mortgage, security interest, pledge, charge, claim,
equitable interest, option, deposit, restriction, burden, encumbrance, rights of
a vendor under any title retention or conditional sale agreement, or lease or
other arrangement substantially equivalent thereto, but does not include any
production payment obligation.
"MATERIAL ADVERSE EFFECT" means (a) when used with respect to the Company,
a result or consequence that would or could reasonably be expected to materially
adversely affect the financial condition, results of operations or business of
the Company, taken as a whole, or the aggregate value of the Company's Assets;
and (b) when used with respect to Parent, a result or consequence that would
materially adversely affect its ability to perform its respective obligations
hereunder or consummate the transactions contemplated hereby or prevent or
materially delay the performance of this Agreement; provided, however, "Material
Adverse Effect" shall not include results or consequences from changes or trends
generally prevalent in or affecting the oil and gas industry, including changes
in commodity prices.
"MATERIAL AGREEMENT" means, with respect to any Person, any written or oral
agreement, contract, commitment, or understanding, including all amendments and
modifications thereto, to
5
which such Person is a party, by which such Person is directly or indirectly
bound, or to which any assets of such Person may be subject (other than oil, gas
and mineral leases and oil and gas leases and other than joint operating
agreements that are in the form of the 1989, 1982 or earlier versions of the
A.A.P.L. Form 610 Model Form Operating Agreement), involving total value or
consideration in excess of $200,000: (a) which is not cancelable by such Person
upon notice of 60 days or less without liability for further payment other than
nominal penalty; (b) pursuant to which such Person acquires any portion of the
raw materials, supplies or services used or consumed by such Person in the
operation of its business (unless such raw materials, supplies or services are
readily available to such Person from other sources on comparable terms); or (c)
pursuant to which such Person derives any part of its revenues.
"MERGER" has the meaning specified in Section 2.1.
"MERGER SUB" has the meaning set forth in the introductory paragraph of
this Agreement.
"MERGER SUB COMMON STOCK" means the common stock, par value $1.00 per
share, of Merger Sub.
"OGCA" means the Oklahoma General Corporation Act, as amended.
"OIL AND GAS INTEREST(S)" means (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating interests; (b)
interests in and rights with respect to Hydrocarbons and other minerals or
revenues therefrom and contracts in connection therewith and claims and rights
thereto (including oil and gas leases, operating agreements, unitization and
pooling agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, exchange and processing contracts and
agreements, and in each case interests thereunder), surface interests, fee
interests, reversionary interests, reservations and concessions; (c) easements,
rights of way, licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; and (d)
interests in equipment and machinery (including well equipment and machinery),
oil and gas production, gathering, transmission, compression, treating,
processing and storage facilities (including tanks, tank batteries, pipelines
and gathering systems), pumps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal property and fixtures
associated with, appurtenant to, or necessary for the operation of any of the
foregoing. References in this Agreement to the "OIL AND GAS INTERESTS OF THE
COMPANY" or "THE COMPANY'S OIL AND GAS INTERESTS" mean the collective Oil and
Gas Interests of the Company.
"ORDINARY COURSE OF BUSINESS" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
6
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"OWNERSHIP INTERESTS" means the ownership interests of the Company in its
Oil and Gas Interests, as set forth on SCHEDULE 1.1A.
"PARENT" has the meaning set forth in the introductory paragraph of this
Agreement.
"PARENT CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of Parent and its Subsidiaries that is not already
generally available to the public.
"PARENT INDEMNIFIED PARTY" has the meaning specified in Section 8.1.
"PARENT LOSSES" has the meaning specified in Section 8.1.
"PARENT REPRESENTATIVE" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of Parent or its Subsidiaries.
"PARTIES" and "PARTY" have the meanings set forth in the introductory
paragraph of this Agreement.
"PER SHARE AMOUNT" means the amount of the Closing Date Merger
Consideration or the Post Closing Escrow Fund, as the case may be, divided by
the number of outstanding shares of the Company's Common Stock as of the Closing
Date.
"PERMITTED ENCUMBRANCES" means (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distraint sale or other
similar proceedings shall not have been commenced or, if commenced, shall have
been stayed) are being contested in good faith by appropriate proceedings; (b)
Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords,
vendors, workmen and operators arising by operation of law in the Ordinary
Course of Business or by a written agreement existing as of the date hereof and
necessary or incident to the exploration, development, operation and maintenance
of Hydrocarbon properties and related facilities and assets for sums not yet due
or being contested in good faith by appropriate proceedings; (c) Liens incurred
in the Ordinary Course of Business in connection with worker's compensation,
unemployment insurance and other social security legislation (other than ERISA)
which would not, individually or in the aggregate, result in a Material Adverse
Effect on the Company; (d) Liens incurred in the Ordinary Course of Business to
secure the performance of bids, tenders, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance and repayment bonds and other
obligations of a like nature; (e) Liens, easements, rights-of-way, restrictions,
servitudes, permits, conditions, covenants, exceptions, reservations and other
similar encumbrances incurred in the Ordinary Course of Business or existing on
property not materially impairing the value of the Assets of the Company or
interfering with the ordinary conduct of the business of the Company or rights
to any of its Assets; (f) Liens created or arising by operation
7
of law to secure a Party's obligations as a purchaser of oil and gas; (g) all
rights to consent by, required notices to, filings with, or other actions by
Governmental Authorities to the extent customarily obtained subsequent to
closing; (h) farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales and similar agreements relating to the
exploration or development of, or production from, Hydrocarbon properties
entered into in the Ordinary Course of Business and not in violation of Section
5.1, provided the effect thereof on the working and net revenue interest of the
Company has been properly reflected in the Ownership Interests; (i) any defects,
irregularities or deficiencies in title to the Oil and Gas Interests of the
Company that do not reduce the Company's net revenue interest, or increase the
Company's working interest, in any Oil and Gas Interest of the Company from that
set forth on SCHEDULE 1.1A; (j) preferential rights to purchase and Third-Party
Consents; (k) the terms and provisions of all leases, joint operating agreements
and other documents and instruments disclosed to Parent to the extent required
to be disclosed under the terms of this Agreement; (l) valid, subsisting and
applicable laws, rules and orders of any Governmental Authorities; and (m) Liens
and other burdens described in the DISCLOSURE SCHEDULE.
"PERSON" (whether or not capitalized) means any natural person,
corporation, company, limited or general partnership, joint stock company, joint
venture, association, limited liability company, trust, bank, trust company,
land trust, business trust or other entity or organization, whether or not a
Governmental Authority.
"POST CLOSING ESCROW FUND" has the meaning specified in Section 2.6(a).
"PROCEEDING" means any action, arbitration, hearing, investigation,
litigation, suit (whether civil, criminal, administrative or investigative),
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Authority or arbitrator.
"RELATED PERSON" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
8
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "FAMILY" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "MATERIAL INTEREST" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 50% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 50% of the outstanding equity securities or
equity interests in a Person.
"RESERVE REPORT" means that certain report dated April 30, 2001, and
effective May 1, 2001, prepared by Ralph E. Davis Associates, Inc. relating to
the Oil and Gas Interests of the Company.
"RESPONSIBLE OFFICER" means, with respect to any entity, the Chief
Executive Officer, President, Chief Operating Officer, Chief Financial Officer,
Secretary, Treasurer or any Vice President of such entity.
"STOCKHOLDER INDEMNIFIED PARTY" has the meaning specified in Section 8.2.
"STOCKHOLDER LOSSES" has the meaning specified in Section 8.2.
"STOCKHOLDERS" means the stockholders of the Company.
"SUBSIDIARY(IES)" means, as to a particular Person, an entity more than 50
percent owned, directly or indirectly, by such Person.
"SURVIVING CORPORATION" has the meaning specified in Section 2.3.
"TAX RETURNS" has the meaning specified in Section 3.13.
"TAXES" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and gains taxes or other governmental taxes imposed
or payable to the United States or any state, local or foreign governmental
subdivision or agency
9
thereof, and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax, including penalties for the
failure to file any Tax Return or report.
"THIRD-PARTY CLAIM" means any claim, action or proceeding made or brought
by any Person who or which is not a party to this Agreement or an Affiliate of a
party to this Agreement.
"THIRD-PARTY CONSENT" means the consent or approval of any Person other
than the Company, Parent, Merger Sub or any Governmental Authority.
"THREATENED" means a litigation, arbitration, investigation or other
Proceeding will be deemed to have been "Threatened" if any demand or statement
has been made (orally or in writing) or any notice has been given (orally or in
writing), that would lead a prudent Person to conclude that such a litigation,
arbitration, investigation or other Proceeding is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
"TITLE OR ENVIRONMENTAL DEFECT" has the meaning specified in Section
5.9(a).
"WORKING CAPITAL ADJUSTMENT" has the meaning specified in Section 5.10(a).
1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language
hereof. The words "THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER" and
"HEREOF," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "THIS
ARTICLE," "THIS SECTION" and "THIS SUBSECTION," and words of similar import,
refer only to the Article, Section or subsection hereof in which such words
occur. The word "OR" is not exclusive, and the word "INCLUDING" (in its various
forms) means including without limitation. Pronouns in masculine, feminine or
neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
ARTICLE 2
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Merger Sub shall be merged with and into the
Company in accordance with the provisions of this Agreement. Such merger is
referred to herein as the "MERGER."
2.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of Oklahoma or at such time thereafter as is provided in the
Certificate of Merger (the "EFFECTIVE TIME"). As soon as practicable after the
Closing, the Certificate of Merger shall be filed, and the Effective Time
10
shall occur, on the Closing Date; provided, however, that the Certificate of
Merger may be filed prior to the Closing Date or prior to the Closing so long as
it provides for an effective time that occurs on the Closing Date immediately
after the Closing.
2.3 EFFECT OF THE MERGER. Upon the Effective Time, the separate existence
of Merger Sub shall cease and the Company, as the surviving corporation in the
Merger (the "SURVIVING CORPORATION"), shall continue its corporate existence
under the laws of the State of Oklahoma. The Merger shall have the effects
specified in this Agreement and the OGCA.
2.4 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance
with its terms and applicable law.
(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
duly amended in accordance with their terms and applicable law.
(c) The directors and officers of the Parent at the Effective Time
shall be the directors and officers, respectively, of the Surviving
Corporation from the Effective Time until their respective successors have
been duly elected or appointed in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation and applicable law.
2.5 EFFECT ON SECURITIES.
(a) MERGER SUB STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof, each share of
Merger Sub Common Stock outstanding immediately prior to the Effective Time
shall remain outstanding and continue as one share of capital stock of the
Surviving Corporation, and each certificate evidencing ownership of any
such shares shall continue to evidence ownership of the same number of
shares of the capital stock of the Surviving Corporation.
(b) COMPANY SECURITIES.
(i) COMPANY COMMON STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof, each
share of Company Common Stock that is issued and outstanding
immediately prior to the Effective Time shall be converted into the
right to receive the Per Share Amount of the Closing Date Merger
Consideration. Each share of Company Common Stock, when so converted,
shall automatically be cancelled and retired, shall cease to exist and
shall no longer be outstanding, and the holder of any certificate
representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the Closing Date Merger
Consideration upon the surrender of such certificate in accordance
with Section 2.6.
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(ii) COMPANY TREASURY STOCK. At the Effective Time, by virtue of
the Merger, all shares of Company Common Stock that are issued and
held as treasury stock, if any, shall be cancelled and retired and
shall cease to exist, and no Closing Date Merger Consideration or
other consideration shall be paid or payable in exchange therefor.
(iii) OTHER PLANS. At the Effective Time, except as provided in
this Section 2.5(b): (A) the provisions of any other plan, program or
arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company shall become null and
void; and (B) the Company shall use its Best Efforts to ensure that,
following the Effective Time, no holder of options or rights or any
participant in any plan, program or arrangement shall have any right
thereunder to acquire any equity securities of the Company, Merger
Sub, Parent or any direct or indirect Subsidiary thereof.
2.6 SURRENDER AND EXCHANGE OF CERTIFICATES; SEVERANCE PAYMENTS.
(a) EXCHANGE PROCEDURES. At the Closing: (i) the Stockholders shall
surrender to Parent all Company Certificates which, immediately prior to
the Effective Time, represented all issued and outstanding shares of
Company Common Stock; (ii) Parent shall pay or cause to be paid to each
Stockholder in whose name a Company Certificate shall have been registered,
in exchange therefor, cash in an amount equal to the product of (A) the Per
Share Amount of the difference between the Closing Date Merger
Consideration and the Post Closing Escrow Fund, times (B) the number of
shares of Company Common Stock represented by such Company Certificate
(each Company Certificate so surrendered shall forthwith be cancelled); and
(iii) as security for the satisfaction of the indemnification obligation of
the Stockholders provided for in Article 8, Parent shall deliver the amount
of $750,000 in cash (the "POST CLOSING ESCROW FUND") to Bank of Oklahoma,
N.A., as escrow agent ("ESCROW AGENT"), to be held for a period of one year
following the date of this Agreement in an account created pursuant to the
terms of that certain escrow agreement (the "ESCROW AGREEMENT"), in the
form attached hereto as EXHIBIT A and the provisions of Section 2.11.
(b) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The Closing
Date Merger Consideration paid upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. After the date three (3) days prior to the
Effective Time, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, a Company Certificate is presented to the
Surviving Corporation for any reason, it shall be cancelled and exchanged
as provided in this Section 2.6.
(c) LOST, STOLEN, OR DESTROYED COMPANY CERTIFICATES. If any Company
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Company Certificate
to be lost, stolen or destroyed and, if required by Parent, the written
agreement by such Person in form and substance
12
satisfactory to Parent to indemnify until the applicable statute of
limitations expires Parent and the Surviving Corporation against any claim
that may be made against it with respect to such Company Certificate,
Parent shall pay to such holder, in exchange for such lost, stolen or
destroyed Company Certificate the Closing Date Merger Consideration
deliverable with respect thereto pursuant to this Agreement.
(d) SEVERANCE PAYMENTS AND BROKERAGE FEES. Immediately prior to the
Closing, the Company shall pay (subject to all applicable withholding taxes
and in accordance with and to the extent then due) all severance and other
amounts set forth in Section 3.11 of the DISCLOSURE SCHEDULE and all
brokerage fees set forth in Section 3.20 of the DISCLOSURE SCHEDULE.
2.7 CLOSING. The Closing shall take place on the Closing Date at such time
and place as is agreed upon by Parent and the Company.
2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent, Merger Sub,
and the Company shall use all reasonable efforts to take all such actions as may
be necessary or appropriate in order to effectuate the Merger on or after
October 1, 2001, under the OGCA as promptly as commercially practicable. If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Merger Sub and the Company, the
present and future officers and directors of the Surviving Corporation are fully
authorized, in the name of the Surviving Corporation or otherwise, to take, and
shall take, all such lawful and necessary action.
2.9 EARNEST MONEY. Contemporaneous with the execution of this Agreement,
Parent or Merger Sub shall deposit with Escrow Agent the amount of $3,750,000
(the "EARNEST MONEY"). In the event the Closing occurs, the Earnest Money shall
be returned to Parent or Merger Sub (with interest). If the Closing does not
occur, the Earnest Money shall be paid to the Company or returned to Parent or
Merger Sub in accordance with this Section 2.9. In the event Parent or Merger
Sub breaches this Agreement by failing or refusing to close the transaction
contemplated hereby on the Closing Date and each of the conditions contained in
Article 6 has been either fulfilled in all material respects or waived, the
Earnest Money (with interest) shall be paid to the Company as liquidated damages
in lieu of all other damages (and as the Company's sole remedy in such event).
The Parties hereby acknowledge that the extent of damages to the Company
occasioned by such failure or refusal by Parent or Merger Sub would be
impossible or extremely impractical to ascertain and that the amount of the
Earnest Money is a fair and reasonable estimate of such damages under the
circumstances. In the event the Closing does not occur and the Earnest Money is
not retained pursuant to the foregoing provisions of this Section 2.9, the
Earnest Money shall be returned to Parent or Merger Sub (with interest).
2.10 EXCLUDED ASSETS. Except as set forth in Schedule 1.1B, prior to the
Closing, the Excluded Assets will be distributed by the Company to its
Stockholders or otherwise transferred to one or more of the Stockholders of the
Company or their nominee(s). None of the representations or warranties set forth
in this Agreement nor any of the other provisions of this Agreement shall be
applicable to the Excluded Assets.
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2.11 RELEASE FROM ESCROW. If no claim for indemnification is then pending
or unresolved, the Post Closing Escrow Fund shall terminate upon the expiration
of twelve months after the date of this Agreement. Within three days after such
termination, the Escrow Agent shall pay to each Stockholder an amount equal to
the Per Share Amount of the Post Closing Escrow Fund (as reduced by amounts
distributed to Parent in satisfaction of any claims for indemnification pursuant
to Article 8) times the number of shares of Company Common Stock surrendered by
each such Stockholder pursuant to Section 2.6(a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Parent and Merger Sub to enter into this
Agreement and consummate the transactions contemplated herein, except as set
forth in the DISCLOSURE SCHEDULE the Company represents and warrants to Parent
and Merger Sub as of the date of this Agreement and as of the Closing Date (as
if made on such date without giving effect to any supplement or update to the
DISCLOSURE SCHEDULE after the date hereof) as follows:
3.1 ORGANIZATION. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oklahoma, (b) has
the requisite power and authority to own, lease and operate its Assets and
properties and to conduct its business as it is presently being conducted, and
(c) is duly qualified to do business as a foreign corporation and is in good
standing, in each jurisdiction where the character of the properties owned or
leased by it or the nature of its activities makes such qualification necessary
(except where any failure to be so qualified or to be in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company). Copies of the certificate of incorporation and by-laws of the Company
have heretofore been delivered to Parent, and such copies are accurate and
complete as of the date hereof. The Company has no Subsidiaries. The Company
does not own any equity interest in any corporation or limited liability company
or any general or limited partnership interest in any general or limited
partnership (other than joint ventures, joint operating or ownership
arrangements or tax partnerships which have been entered into in the Ordinary
Course of Business).
3.2 AUTHORITY AND ENFORCEABILITY. The Company has the requisite corporate
power and authority to enter into and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company, including approval by the board of directors and Stockholders of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and (assuming that this
Agreement constitutes a valid and binding obligation of Parent and Merger Sub)
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms.
3.3 NO VIOLATIONS. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by the
Company with the
14
provisions hereof will not, conflict with, result in any violation of or default
(with or without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any Lien on any of the
properties or Assets of the Company under, any provision of: (a) its certificate
of incorporation or by-laws; (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or other
agreement or instrument applicable to the Company; or (c) assuming the consents,
approvals, authorizations, permits, filings and notifications referred to in
Section 3.4 are duly and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or Assets.
3.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for such filings and
approvals as may be required by any securities, corporate or other law, rule or
regulation. No Third-Party Consent is required by or with respect to the Company
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for any such
Third-Party Consent which the failure to obtain would not, individually or in
the aggregate, result in a loss of any Ownership Interest and/or an increase in
any of the Company's obligations or liabilities having an individual value of
$100,000 or more or an aggregate value of $350,000 or more.
3.5 FINANCIAL STATEMENTS. The Company Financial Statements which have been
delivered to Parent were prepared on the basis of accounting the Company uses
for federal income tax purposes, and fairly present, in accordance with
applicable requirements of such basis of accounting (subject to normal,
recurring adjustments), the financial position of the Company as of their
respective dates and the results of operations and the cash flows of the Company
for the periods presented therein. The Company Financial Statements are
consistent with the books and records of the Company.
The financial statements of the Company to be delivered to Parent pursuant
to Section 5.12 will, when delivered, have been prepared in accordance with
generally accepted accounting principles and will show all material liabilities
required to be shown in accordance with such principles. The balance sheet
included in such financial statements will fairly present the financial
condition of the Company as at the date thereof, and the statements of
operations and cash flows included in such financial statements will fairly
present the results of operations and cash flows for the periods indicated.
3.6 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists solely of
2,000,000 shares of the Company Common Stock, par value $1.00 per share.
(b) There are, as of the execution date of this Agreement, issued and
outstanding, 615,701 shares of the Company Common Stock. No shares of the
Company Common Stock are held by the Company as treasury stock. Section
3.6(b) of the
15
DISCLOSURE SCHEDULE sets forth the number of shares of Company Common Stock
owned of record and beneficially by each of the Stockholders.
(c) Except as set forth in Section 3.6(b), there are issued and
outstanding (i) no shares of capital stock or other voting securities of
the Company, (ii) no securities of the Company or any other Person
convertible into or exchangeable or exercisable for shares of capital stock
or other voting securities of the Company, and (iii) no subscriptions,
options, warrants, calls, rights (including preemptive rights),
commitments, understandings or agreements to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting
securities of the Company (or securities convertible into or exchangeable
or exercisable for shares of capital stock or other voting securities of
the Company) or obligating the Company to grant, extend or enter into any
such subscription, option, warrant, call, right, commitment, understanding
or agreement.
(d) All outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and not
subject to any preemptive right.
(e) At the Closing there will be no stockholder agreement, voting
trust or other agreement or understanding to which the Company is a party
or by which it is bound relating to the voting of any shares of the capital
stock of the Company.
(f) There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.
3.7 MATERIAL AGREEMENTS. The DISCLOSURE SCHEDULE contains a complete and
accurate list of the Material Agreements to which the Company is a party (other
than this Agreement and related agreements) or by which the Company or its
Assets are bound. The Company has made available to Parent or provided Parent
with true and correct copies of all Material Agreements. No right or obligation
of any party to any of such Material Agreements has been waived, and no party to
any of such Material Agreements is in default of its obligations thereunder. No
event has occurred and no condition exists which, with the giving of notice or
the lapse of time or both, would constitute any such breach or default. Each of
such Material Agreements is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and effect.
3.8 OUTSTANDING DEBT. The Company Financial Statements and the DISCLOSURE
SCHEDULE, together provide a complete and accurate description of all Debt and
Guaranties of the Company outstanding as of the date hereof. The Company is not
in default in payment of any Debt with respect to which it is an obligor or in
default of any covenant, agreement, representation, warranty or other term of
any document, instrument or agreement evidencing, securing or otherwise
pertaining to any such Debt.
3.9 RELATIONSHIPS WITH RELATED PERSONS. Except for interests owned in oil
and gas properties, neither the Company nor any Related Person of the Company or
of any Stockholder of the Company has any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the Company's business. Neither the Company
16
nor any Related Person of the Company or of any Stockholder of the Company is,
or since March 30, 2001 has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with the
Company, or (ii) engaged in competition with the Company with respect to any
business of the Company (a "COMPETING BUSINESS") in any market presently served
by the Company (except for less than one percent of the outstanding capital
stock of any Competing Business that is publicly traded on a recognized exchange
or in the over-the-counter market). Neither the Company nor any Related Person
of or any Stockholder of the Company is a party to any contract with, or has any
claim or right against, the Company.
3.10 EMPLOYMENT MATTERS. The DISCLOSURE SCHEDULE contains a complete and
accurate list of all employees of the Company. The Company is not a party to or
obligated under any consulting, employment, severance, termination or similar
arrangement with respect to any of its employees, or any bonus, profit sharing,
pension, stock option, stock purchase or similar plan or other arrangement or
other fringe benefit plan entered into or maintained for the benefit of its
employees, which plan or arrangement will extend beyond or obligate the Company
after the Closing to pay, vest or accelerate any benefit. The Company is in
material compliance with all laws, rules, regulations and orders relating to the
employment of labor, including all such laws, rules, regulations and orders
relating to wages, hours, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding or Social Security Taxes and similar Taxes.
3.11 EMPLOYEE BENEFIT PLANS.
(a) The DISCLOSURE SCHEDULE sets forth a complete and accurate list of
all "employee benefit plans," as defined in Section 3(3) of ERISA,
including severance pay, sick leave, vacation pay, salary continuation for
disability, retirement, deferred compensation, bonus, long-term incentive,
stock option, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs, maintained by the Company or to which
the Company contributed or is obligated to contribute (the "COMPANY
EMPLOYEE BENEFIT PLANS"). Except for the Company Employee Benefit Plans,
the Company does not maintain, or have any fixed or contingent liability
with respect to, any employee benefit, pension or other plan that is
subject to ERISA.
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Company Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Company Employee
Benefit Plans. With respect to the Company Employee Benefit Plans, there
exists no condition or set of circumstances that could reasonably be
expected to result in liability which is reasonably likely to have a
Material Adverse Effect on the Company under ERISA, the Code or any
applicable law.
(c) Except as set forth in the DISCLOSURE SCHEDULE, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment becoming due to
any employee or group of employees of the Company, which payment will not
be made or accrued at or prior to the Closing.
17
(d) The Company does not maintain nor has it established any welfare
benefit plan which provides for retiree medical liabilities or continuing
benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment, except as
may be required by COBRA.
(e) The Company has not maintained, established or participated in any
multiple employer welfare benefit arrangement within the meaning of Section
3(40)(A) of ERISA.
3.12 LITIGATION. Except as set forth in the DISCLOSURE SCHEDULE: (a) no
litigation, arbitration, investigation or other Proceeding is pending or, to the
Knowledge of the Company, Threatened against the Company or any of its Assets
before any court, arbitrator or Governmental Authority; (b) no basis exists for
any such litigation, arbitration, investigation or other Proceeding; and (c) the
Company is not subject to any outstanding injunction, judgment, order, decree or
ruling (other than routine oil and gas field regulatory orders). There is no
litigation, Proceeding or investigation pending or, to the Knowledge of the
Company, Threatened against or affecting the Company that questions the validity
or enforceability of this Agreement or any action taken or to be taken by the
Company in connection with this Agreement or any other document, instrument or
agreement to be executed and delivered by the Company in connection with the
transactions contemplated hereby.
3.13 TAXES AND TAX RETURNS.
(a) The Company has filed all federal, state, local and foreign
returns, declarations, reports, estimates, information returns and
statements ("TAX RETURNS") required to be filed by it and has paid all
Taxes shown to be due and payable on the Tax Returns, including interest
and penalties and has paid all other Taxes which are payable by the
Company. All such Tax Returns were correct and complete in all material
respects.
(b) There is no dispute or claim concerning any Tax liability of the
Company either claimed or raised by any authority in writing or as to which
any of the Stockholders and the directors and officers of the Company has
Knowledge. No Tax liability of the Company has been asserted or Threatened
by the Internal Revenue Service or any other Governmental Authority for
Taxes in excess of those already paid or reserved against in the Company
Financial Statements. All Tax liabilities of the Company are adequately
provided for in the Company Financial Statements and will be adequately
provided for in the audited financial statements of the Company to be
delivered to Parent pursuant to Section 5.12.
(c) The DISCLOSURE SCHEDULE lists all income tax returns filed with
respect to the Company for taxable periods ended on or after July 30, 1998,
indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. The Company has provided
Parent with access to copies of all federal income Tax Returns, examination
reports and statements of deficiency assessed or agreed to by the Company
since January 1, 1998. The Company has not waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to a
tax assessment or deficiency.
18
3.14 OWNERSHIP OF OIL AND GAS INTERESTS AND OTHER ASSETS.
(a) The Company has Defensible Title to all Oil and Gas Interests of
the Company included or reflected in the Ownership Interests. Each Oil and
Gas Interest of the Company included or reflected in the Ownership
Interests entitles the Company to receive not less than the undivided
interest set forth in (or derived from) the Ownership Interests of all
Hydrocarbons produced, saved and sold from or attributable to such Oil and
Gas Interest, and the portion of the costs and expenses of operation and
development of such Oil and Gas Interest that is borne or to be borne by
the Company is not greater than the undivided interest set forth in the
Ownership Interests. No fact, circumstance or condition of the title to an
Oil and Gas Interest of the Company shall be considered to effect a
reduction in the value of such Oil and Gas Interest, unless due
consideration has been given to (i) the length of time that such Oil and
Gas Interest has been producing Hydrocarbon substances and has been
credited to and accounted for by the Company and its predecessors in title,
if any, and (ii) whether any such fact, circumstance or condition is of the
type that can generally be expected to be encountered in the area involved
and is usually and customarily acceptable to reasonable and prudent
operators, interest owners and purchasers engaged in the business of the
ownership, development and operation of oil and gas properties. All
proceeds from the sale of the Company's share of the Hydrocarbons being
produced from its Oil and Gas Interests are currently being paid in full to
the Company by the purchasers thereof on a timely basis, and none of such
proceeds are currently being held in suspense by such purchaser or any
other party.
(b) With respect to all Assets (other than Oil and Gas Interests of
the Company), the Company has good and marketable title to its Assets, free
and clear of all Liens excepting only liabilities expressly reflected or
reserved against on the Company Financial Statements and Permitted
Encumbrances.
3.15 COMPLIANCE WITH LAWS AND PERMITS. The Company is not in violation of,
or in default in any respect under, and no event has occurred that (with notice
or the lapse of time or both) would constitute a violation of or default under:
(a) its certificate of incorporation or by-laws, (b) any applicable law, rule,
regulation, order, writ, decree or judgment of any Governmental Authority, or
(c) any Material Agreement to which the Company is a party or by which its
properties are bound. The Company has obtained and holds all permits, licenses,
variances, exemptions, orders, franchises, approvals and authorizations of all
Governmental Authorities necessary for the lawful conduct of its business or the
lawful ownership, use and operation of its Assets (the "COMPANY PERMITS"). The
Company is in compliance with the terms of the Company Permits. No investigation
or review by any Governmental Authority with respect to the Company is pending
or, to the Knowledge of the Company, Threatened. None of the Company Permits
will be adversely affected by consummation of the transactions contemplated
hereby.
3.16 PROPRIETARY RIGHTS. The Company has ownership of, or valid licenses to
use, all trademarks, copyrights, patents and other proprietary rights and
intellectual property (including seismic data) used in its business. To the
Knowledge of the Company, the operation of the business of the Company does not
infringe any patent, copyright, trademark or other proprietary
19
rights of others, and, the Company has not received any notice from any third
party of any such alleged infringement by the Company.
3.17 ENVIRONMENTAL MATTERS.
(a) The Company (or its agents) has conducted its business and
operated its Assets, and is conducting its business and operating its
Assets, and the condition of all facilities and properties (including
off-site storage or disposal of any Hazardous Materials from such
facilities or properties) currently or formerly owned, leased or operated
by the Company (or its agents) is, in material compliance with all
Environmental Laws;
(b) The Company has not been notified by any Governmental Authority or
other third party that any of the operations or Assets of the Company is
the subject of any investigation or inquiry by any Governmental Authority
or other third party evaluating whether any material remedial action is
needed to respond to a release or threatened release of any Hazardous
Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material;
(c) Neither the Company nor any other Person has filed any notice
under any federal, state or local law indicating that (i) the Company is
responsible for the improper release into the environment, or the improper
storage or disposal, of any Hazardous Material, or (ii) any Hazardous
Material is improperly stored or disposed of upon any property of the
Company;
(d) The Company does not have any material contingent liability in
connection with (i) the release or threatened release into the environment
at, beneath or on any property now or previously owned or leased by the
Company, or (ii) the storage or disposal of any Hazardous Material;
(e) The Company has not received any claim, complaint, notice, inquiry
or request for information involving any matter which remains unresolved as
of the date hereof with respect to any alleged violation of any
Environmental Law or regarding potential liability under any Environmental
Law relating to operations or conditions of any facilities or property
(including off-site storage or disposal of any Hazardous Material from such
facilities or property) currently or formerly owned, leased or operated by
the Company;
(f) No property now or previously owned, leased or operated by the
Company is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) The Company is not directly transporting, has not directly
transported, and is not directly arranging for the transportation of, any
Hazardous Material to any location which is listed on the National
Priorities List pursuant to CERCLA, on the CERCLIS, or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material
claims against the Company for remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
20
(h) There are no sites, locations or operations at which the Company
is currently undertaking, or has completed, any remedial or response action
relating to any such disposal or release, as required by Environmental
Laws;
(i) All underground storage tanks and solid waste disposal facilities
owned or operated by the Company are used and operated in compliance with
Environmental Laws; and
(j) There are no physical or environmental conditions existing on any
property owned or leased by the Company resulting from the Company's
operations or activities, past or present, at any location, that would give
rise to any on-site or off-site remedial obligations under any applicable
Environmental Laws, other than normal and ordinary remedial work associated
with plugging and abandoning of oil and gas facilities.
3.18 INSURANCE.
(a) Section 3.18 of the DISCLOSURE SCHEDULE sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, liability, title, life, business interruption
and workers' compensation coverage and bond and surety arrangements) with
respect to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage:
(i) the name, address and telephone number of the agent;
(ii) the name of the insurer, the name of the policy holder and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
is on a claims made, occurrence or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect in all
respects; (ii) neither the Company nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (iii) no
party to the policy has repudiated any provision thereof. Section 3.18 of
the DISCLOSURE SCHEDULE describes any self-insurance arrangements affecting
the Company.
21
3.19 GOVERNMENTAL REGULATION. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Investment Company Act
of 1940 or any state public utilities laws.
3.20 BROKERS. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of the Company and for which
Parent, or the Company will have any obligation or liability.
3.21 OIL AND GAS OPERATIONS. All wells included in the Oil and Gas
Interests of the Company have been drilled and (if completed) completed,
operated and produced in accordance with generally accepted oil and gas field
practices and in compliance in all material respects with applicable oil and gas
leases, pooling and unit agreements, and applicable laws, rules, regulations,
judgments, orders and decrees issued by any court or Governmental Authority. In
addition:
(a) there are no wells that have been plugged and abandoned but have
not been plugged in accordance with all applicable requirements of each
regulatory authority having jurisdiction over the Company's Oil and Gas
Interests;
(b) with respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other
documents creating interests comprising the Company's Oil and Gas
Interests: (i) the Company has fulfilled all requirements for filings,
certificates, disclosures of parties in interest, and other similar matters
contained in such leases or other documents (or otherwise applicable
thereto by Law, rule or regulation) and is fully qualified to own and hold
all such leases and other interests; (ii) there are no provisions
applicable to such leases and other documents which increase the royalty
share of the lessor thereunder; and (iii) upon the establishment and
maintenance of production in commercial quantities, such leases and other
interests are to be in full force and effect over the economic life of the
property involved and do not have terms fixed by a certain number of years;
(c) proceeds from the sale of Hydrocarbons produced from the Company's
Oil and Gas Interests are being received by the Company in a timely manner
and are not being held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $50,000 and held in
suspense in the Ordinary Course of Business); and
(d) no Person has any call upon, option to purchase, preferential
right to purchase or similar rights with respect to the Company's Oil and
Gas Interests or to the production therefrom.
3.22 GAS IMBALANCES. There are no aggregate production, transportation or
processing imbalances existing with respect to the Company or the Company's Oil
and Gas Interests, and the Company has received no deficiency payments under gas
contracts for which any party has a right to take deficiency gas from the
Company, nor has the Company received any payments for production which are
subject to refund or recoupment out of future production.
22
3.23 ROYALTIES. All royalties, overriding royalties, compensatory royalties
and other payments due from or in respect of production with respect to the
Company's Oil and Gas Interests, have been or will be, prior to the Closing,
properly and correctly paid or provided for.
3.24 PREPAYMENTS. No prepayment for Hydrocarbon sales has been received by
the Company for Hydrocarbons which have not been delivered as of the date
hereof.
3.25 CAPITAL EXPENDITURES. As of the execution date of this Agreement, the
presently approved face amount of any currently outstanding and effective
authorities for expenditure with respect to the Company's Oil and Gas Interests
would not require the Company to make or incur after the Closing capital
expenditures with respect to any one property in excess of $50,000 net to the
Company's interest.
3.26 OTHER MINERAL RELATED MATTERS. As of the execution date of this
Agreement, the Company was not obligated by virtue of any prepayment
arrangement, "take or pay" arrangement, production payment arrangement, gas
balancing agreement or otherwise, to deliver or to suffer the delivery of
Hydrocarbons produced in connection with any of the Company's Oil and Gas
Interests at some future time (or make a cash payment in lieu thereof) without
then or thereafter receiving full payment therefor without deduction or credit
on account of such arrangement from the price that would otherwise be received.
3.27 ADDITIONAL DRILLING OBLIGATIONS. The Company has no obligation,
including obligations implied in law, to drill additional wells or conduct other
material development operations in order to earn or continue to hold during the
primary term of any lease any portion of the Company's Oil and Gas Interests,
and the Company has not been advised by a lessor under any lease affecting any
of the Company's Oil and Gas Interests of any requirements or demands to drill
additional wells or conduct additional development operations.
3.28 BOOKS AND RECORDS. All books of account, records and files of the
Company (including those pertaining to the Company's Oil and Gas Interests,
wells and other Assets, those pertaining to the production, gathering,
transportation and sale of Hydrocarbons, and corporate, accounting, financial
and employee records): (a) have been prepared, assembled and maintained in
accordance with sound business policies and procedures and (b) fairly and
accurately reflect all material transactions with respect to the ownership, use,
enjoyment and operation by the Company of its Assets and liabilities.
3.29 RESERVE REPORT. The Company has delivered to Parent a copy of the
Reserve Report. The factual information underlying the estimates of reserves in
the Reserve Report (including production, volumes, sales prices for production,
contractual pricing provisions under oil or gas sales or marketing contracts or
under hedging arrangements, costs of operations and development, and working
interest and net revenue information relating to the Company's Ownership
Interests) has been made available to Parent, and was true and correct in all
material respects on the date of the Reserve Report; provided, however: (i) the
reserves included in such report are estimates only and should not be construed
as exact quantities, (ii) such reserves may or may not be recovered and, if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts, (iii) the sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in
23
the Reserve Report, and (iv) estimates of such reserves may increase or decrease
as a result of future operations.
3.30 DISCLOSURE AND INVESTIGATION. No representation or warranty by the
Company contained in this Agreement, and no statement contained in any documents
(including, without limitation, the Disclosure Schedule, the Company Financial
Statements referenced in Section 3.5, the financial statements of the Company to
be delivered to Parent pursuant to Section 5.12 and the closing documents
delivered pursuant to Section 6), list, certificate or other instrument
furnished or to be furnished by or on behalf of the Company to Parent or
Parent's Representatives in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading in order to fully and fairly provide the information
required to be provided in any such document, list, certificate or other
instrument.
3.31 RECEIVABLES. All receivables (including, without limitation, accounts
receivable, loans receivable and advances) of the Company which are reflected on
the Company Financial Statements or arising since the date thereof: (a)
represent valid and genuine obligations, and (b) are collectible at the full
recorded amount thereof in the Ordinary Course of Business without the necessity
of legal proceedings less the recorded allowance for collection losses
specifically reflected on the Company Financial Statements. The allowance for
collection losses on the Company Financial Statements has been, and the
allowance for collection losses on the financial statements delivered pursuant
to Section 5.12 will be, determined in accordance with the standards described
in Section 3.5.
3.32 REAL PROPERTY. The Company has good and marketable title in fee simple
to the real property described in Section 3.32 of the DISCLOSURE SCHEDULE, free
and clear of all Liens.
3.33 NO MATERIAL ADVERSE EFFECT. Since March 31, 2001, no event has
occurred or circumstance exists that, individually or collectively, has had or
may result in a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company as follows:
4.1 ORGANIZATION. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Oklahoma, and has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma.
4.2 AUTHORITY AND ENFORCEABILITY. Each of Parent and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and to consummate the
24
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, including approval by the boards of directors of Parent and Merger
Sub and the stockholders of Merger Sub, and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize the execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and (assuming that this Agreement constitutes a valid and
binding obligation of the Company) constitutes a valid and binding obligation of
Parent and Merger Sub enforceable against Parent and Merger Sub in accordance
with its terms.
4.3 NO VIOLATIONS. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by
Parent and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of Parent or Merger Sub under,
any provision of: (a) the certificate or articles of incorporation or by-laws or
other governing documents of Parent or Merger Sub; (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other agreement or instrument applicable to Parent or
Merger Sub; or (c) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 4.4 are duly and timely
obtained or made, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Merger Sub or any of their respective
properties or assets, other than, in the case of clause (b) or (c) above, any
such conflict, violation, default, right, loss or Lien that, individually or in
the aggregate, would not have a Material Adverse Effect on Parent.
4.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the failure to
obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; and (b) such filings and approvals as may be required
by any securities, corporate or other law, rule or regulation. No Third-Party
Consent is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for any Third-Party Consent which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
4.5 LITIGATION. There is no litigation, Proceeding or investigation pending
or, to the Knowledge of Parent, threatened against or affecting Parent or Merger
Sub that questions the validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered by Parent or
Merger Sub in connection with the transactions contemplated hereby.
4.6 FUNDING. Parent has available adequate funds or the means to obtain
adequate funds in an aggregate amount sufficient to pay (a) all amounts required
to be paid by Parent and
25
Merger Sub under this Agreement, and (b) all expenses which have been or will be
incurred by Parent or Merger Sub in connection with this Agreement and the
transactions contemplated hereby.
4.7 BROKERS. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of Parent or Merger Sub and for
which the Company will have any obligation or liability. Parent shall indemnify
and hold the Company harmless from any and all claims, liabilities, damages,
costs and expenses asserted against the Company by any Person claiming to have
acted on behalf of Parent or Merger Sub, or to have been retained by Parent or
Merger Sub, as a broker in connection with the transaction contemplated by this
Agreement.
4.8 DISCLOSURE AND INVESTIGATION. No representation or warranty of Parent
or Merger Sub set forth in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein not misleading.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING CLOSING. Except as
contemplated by this Agreement or to the extent that Parent shall otherwise
consent in writing, during the period from July 31, 2001, to the Closing, the
Company will not take any action except in the Ordinary Course of Business and
the Company will use all reasonable efforts to preserve intact in all material
respects its business organization, Assets, prospects and advantageous business
relationships and to maintain satisfactory relationships with its operators,
lessors, general partners, managing members, licensors, licensees, suppliers,
contractors, distributors, customers and others having advantageous business
relationships with it. Without limiting the generality of the foregoing, except
as contemplated by this Agreement, the Company will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Company will not
take any of the following actions, except as set forth in the DISCLOSURE
SCHEDULE, without the written consent of Parent:
(a) Authorize or effect any change in its certificate of incorporation
or bylaws;
(b) Grant any options, warrants, or other rights to purchase or obtain
any of its capital stock or issue, sell or otherwise dispose of any of its
capital stock;
(c) Declare, set aside or pay any dividend or distribution with
respect to its capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of its capital stock, except that,
prior to Closing, the Company may declare and distribute to its
Stockholders a dividend consisting of the Excluded Assets;
26
(d) Issue any note, bond, or other Debt security or create, incur,
assume, or guarantee any indebtedness for borrowed money, capitalized lease
obligation or other liability outside the Ordinary Course of Business;
(e) Impose any security interest upon any of its Assets outside the
Ordinary Course of Business;
(f) Make any capital investment in, make any loan to, or acquire the
securities or assets of any other Person outside the Ordinary Course of
Business;
(g) Make any change in employment terms for any of its officers or
employees outside the Ordinary Course of Business, except for such actions
as are otherwise provided for or permitted in this Agreement;
(h) Enter into, adopt or amend any employment agreement or employee
benefit or pension plan, or grant, or become obligated to grant, any
increase in the compensation payable or to become payable to any of its
officers or employees or any general increase in the compensation payable
or to become payable to its employees, except for such actions as are
otherwise provided for herein;
(i) Pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than (A)
the payment, discharge or satisfaction in the Ordinary Course of Business
of liabilities reflected or reserved against on the Company Financial
Statements, subsequently incurred in the Ordinary Course of Business or
disclosed pursuant to this Agreement, (B) payments of current liabilities,
and (C) other payments that are considered in the adjustment set forth in
Section 5.10;
(j) Acquire (including by lease) any material Assets or properties or
dispose of, mortgage or encumber any material Assets or properties, other
than in the Ordinary Course of Business;
(k) Waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease,
contract or other document, other than in the Ordinary Course of Business,
and other than actions otherwise contemplated by this Agreement;
(l) Make any single capital expenditure of $50,000 or more net to the
Company's interest, except for capital expenditures pursuant to commitments
disclosed under or not covered by Section 3.25; or
(m) Commit to any of the foregoing.
5.2 ACCESS TO ASSETS, PERSONNEL AND INFORMATION.
(a) From the date hereof until the Closing, the Company will afford to
Parent and the Parent Representatives and prospective lenders and their
representatives, at Parent's sole risk and expense, full and free access to
any of the Assets, books and records, contracts, facilities, audit work
papers and payroll records of the Company and
27
any of the officers of the Company and furnish the Company copies thereof.
Notwithstanding the foregoing, no investigation pursuant to this Section
5.2(a) will affect or be deemed to modify any of the representations or
warranties made by the Company in this Agreement.
(b) Parent and the Parent Representatives shall have the right and
opportunity to make an environmental and physical assessment of the Assets
of the Company and, in connection therewith, shall have the right to enter
and inspect such Assets and all buildings and improvements thereon. Parent
may not, without the prior written consent of the Company, conduct any soil
or water tests or borings or other invasive tests or examinations with
respect to the Assets of the Company. The Company shall be provided 48
hours prior notice of any such inspection, and the Company Representatives
shall have the right to witness all such inspections. Parent shall (and
shall cause the Parent Representatives to) keep any data or information
acquired by any such examinations and the results of any analyses of such
data and information strictly confidential and will not (and will cause the
Parent Representatives not to) disclose any of such data, information or
results to any Person unless otherwise required by law or regulation and
then only after written notice to the Company of the determination of the
need for disclosure. Parent shall indemnify, defend and hold the Company
and the Company Representatives harmless from and against any and all
claims to the extent arising out of or as a result of the activities of
Parent and the Parent Representatives on the Assets of the Company in
connection with conducting such environmental and physical assessment,
except to the extent of and limited by the negligence or willful misconduct
of the Company or any Company Representative.
(c) From the date hereof until the Closing, the Company shall fully
and accurately disclose to Parent and Parent Representatives all
information that is (i) reasonably requested by Parent or any of the Parent
Representatives and (ii) to which the Company has Knowledge.
(d) The Company will not (and will cause the Company Representatives
not to), and Parent will not (and will cause the Parent Representatives not
to), use any information obtained pursuant to this Section 5.2 for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement.
5.3 ADDITIONAL ARRANGEMENTS. Subject to the terms and conditions herein
provided, each of the Parties shall take, or cause to be taken, all action and
shall do, or cause to be done, all things necessary, appropriate or desirable
under any applicable laws and regulations or under applicable governing
agreements to consummate and make effective the transactions contemplated by
this Agreement, including using reasonable efforts to obtain all necessary
waivers, consents and approvals and effecting all necessary registrations and
filings. Each of the Parties shall take, or cause to be taken, all action or
shall do, or cause to be done, all things necessary, appropriate or desirable to
cause the covenants and conditions applicable to the transactions contemplated
hereby to be performed or satisfied as soon as practicable. In addition, if any
Governmental Authority shall have issued any order, decree, ruling or
injunction, or taken any other action that would have the effect of restraining,
enjoining or otherwise prohibiting or preventing the consummation of the
transactions contemplated hereby, each of the Parties shall
28
use reasonable efforts to have such order, decree, ruling or injunction or other
action declared ineffective as soon as practicable.
5.4 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Prior to the Closing, the
Company and Parent shall consult with each other before any of them issues any
press release or otherwise makes any public statement with respect to the
transactions contemplated by this Agreement, and no Party shall issue any press
release or make any such public statement prior to obtaining the approval of the
other Parties which shall not be unreasonably withheld; provided, however, that
such approval shall not be required where such release or announcement is
required by applicable law; and provided further, that any Party may respond to
inquiries by the press or others regarding the transactions contemplated by this
Agreement, so long as such responses are consistent with such party's previously
issued press releases. The Company acknowledges that Parent's securities are
publicly traded and accordingly it has disclosure obligations under the Federal
securities laws. The Company will not use or disclose to any third party any
Parent Confidential Information. The Parties each acknowledge and agree that
non-public information concerning the progress of the transaction contemplated
by this Agreement is confidential information.
5.5 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing Date, the Company shall give prompt notice to Parent of: (a) any
representation or warranty contained in Article 3 being untrue or inaccurate
when made, (b) the occurrence of any event or development that would cause (or
could reasonably be expected to cause) any representation or warranty contained
in Article 3 to be untrue or inaccurate on the Closing Date, (c) any failure of
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and/or (d) the Company's becoming
aware of any representation and warranty contained in Article 4 being or
becoming untrue or inaccurate when made or as of a later date. Parent shall give
prompt notice to the Company of: (w) any representation or warranty contained in
Article 4 being untrue or inaccurate when made, (x) the occurrence of any event
or development that would cause (or could reasonably be expected to cause) any
representation or warranty contained in Article 4 to be untrue or inaccurate on
the Closing Date, (y) any failure of Parent to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by it
hereunder, and/or (z) Parent's becoming aware of any representation and warranty
contained in Article 3 being or becoming untrue or inaccurate when made or as of
a later date. No disclosure by any party pursuant to this Section 5.5, however,
shall be deemed to amend or supplement the DISCLOSURE SCHEDULE or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
5.6 PAYMENT OF EXPENSES. Each Party shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not Closing
occurs.
5.7 CONTINUATION OF THE COMPANY'S EXISTING INDEMNIFICATION OBLIGATIONS.
From and after the Closing, the Company or its successor shall indemnify and
hold harmless each Person who has been at any time prior to the Closing, an
officer, director or controlling stockholder of the Company (collectively, the
"COMPANY INDEMNIFIED PERSONS") but only to the extent that such Company
Indemnified Person was entitled to indemnification from the Company immediately
prior to the date hereof under applicable law or the certificate of
incorporation and/or bylaws of the Company. The procedures associated with such
29
indemnification shall be the same as those associated with the Company
Indemnified Persons' indemnification from the Company immediately prior to the
date hereof (provided, however, that Parent shall be under no obligation to
deposit trust funds pursuant to any "change-in-control" or similar provisions).
The provisions of this Section 5.7 are intended to be for the benefit of, and
shall be enforceable by, the Parties and each Company Indemnified Person and
their respective heirs and representatives.
5.8 RESIGNATION OF DIRECTORS AND OFFICERS. Each director and officer of the
Company shall resign his or her position with the Company effective at Closing.
5.9 TITLE AND ENVIRONMENTAL DEFECTS.
(a) Parent may conduct, at its sole cost, such title examination or
investigation, and other examinations and investigations, as it may in its
sole discretion choose to conduct with respect to the Company's Oil and Gas
Interests in order to determine whether any Title or Environmental Defects
exist. Parent must deliver to the Company in writing on or before September
8, 2001, at 5:00 p.m. C.D.T., a written notice specifying each defect
associated with the Oil and Gas Interests of the Company that it asserts
constitutes a violation of the representations set forth in Section 3.14 or
3.17 (a "TITLE OR ENVIRONMENTAL DEFECT"), a description of each such Title
or Environmental Defect, the amount of the adjustment to the Base Merger
Consideration that it asserts based on such defect and its method of
calculating such adjustment. If such notice is not timely submitted, Parent
will be deemed to have waived its basis for a purchase price adjustment
under this Section 5.9 based on a violation of the representations set
forth in Section 3.14 or 3.17. For the purpose of determining an
Environmental Defect under this Section 5.9 only, the representations and
warranties set forth in Section 3.17 shall be deemed not to be qualified by
the Knowledge of the Company.
(b) Upon timely delivery of a notice under Section 5.9(a), Parent and
the Company will in good faith negotiate the validity of the claim and the
amount of any adjustment to the Base Merger Consideration using the
following criteria:
(i) No adjustment will be made to the Base Merger Consideration
under this Section 5.9 except to the extent that the net total of all
individual adjustments under this Section 5.9 exceed $250,000 in the
aggregate; by way of example, if the net total of all individual
adjustments under this Section 5.9 equals $300,000, then an adjustment
of $50,000 shall, subject to Section 5.9(d), be made to the Base
Merger Consideration.
(ii) If the requested adjustment is based on the Company owning a
net revenue interest for a well, unit rights or leasehold rights less
than that shown in SCHEDULE 1.1A, then a downward adjustment shall be
calculated by multiplying the Allocated Value set forth for such well,
unit rights or leasehold rights on SCHEDULE 1.1A by a fraction (A) the
numerator of which is an amount equal to the net revenue interest
shown on SCHEDULE 1.1A for such well, unit rights or leasehold rights
less the decimal share to which the Company would be entitled as a
result of its ownership interest in such well, unit rights or
leasehold rights which is unaffected by such Title Defect, and (B) the
denominator of which is the net
30
revenue interest shown for such well, unit rights or leasehold rights
on SCHEDULE 1.1A. Any downward adjustments requested by Parent may be
offset by upward adjustments if it is determined that the Company's
net revenue interest for any other well, unit rights or leasehold
rights shown on SCHEDULE 1.1A is greater than that shown on SCHEDULE
1.1A.
(iii) If the adjustment is based on the Company owning a working
interest that is larger than the working interest shown on SCHEDULE
1.1A, but without a proportionate increase in the Company's net
revenue interest, then the adjustment is calculated by determining the
effective net revenue interest that results from such larger working
interest, determining what the net revenue interest would be using
such effective net revenue interest and the working interest shown on
SCHEDULE 1.1A and then calculating the adjustment in the manner set
forth in clause (iii) preceding.
(iv) If the adjustment is based on a Lien or other monetary
charge upon an Oil and Gas Interest or a liability to remediate or
otherwise cure an environmental defect related to an Oil and Gas
Interest that is liquidated in amount, then the adjustment is the
lesser of (A) the amount necessary to remove such Lien or other
monetary charge from, or a liability to remediate or otherwise cure an
environmental defect relating to, the affected Oil and Gas Interest,
or (B) the Allocated Value of the affected Oil and Gas Interest.
(v) If the adjustment is based on an obligation, burden or
liability upon the affected Oil and Gas Interest for which Parent's
economic detriment is not liquidated but can be estimated with
reasonable certainty, then the adjustment is the amount necessary to
compensate Parent at Closing for the adverse economic effect on the
affected Oil and Gas Interest.
(c) If the value of a Title or Environmental Defect and, consequently,
the adjustment to the Base Merger Consideration cannot be determined based
on the above criteria, or if the Parties cannot otherwise agree on the
amount of an adjustment, the Company may convey the affected Oil and Gas
Interest to another entity and reduce the Base Merger Consideration by the
Allocated Value of such interest.
(d) In the event that the aggregate potential adjustments to the Base
Merger Consideration pursuant to this Section 5.9 could reduce the Base
Merger Consideration by more than $2,000,000, either the Company or Parent
may terminate this Agreement.
5.10 ADJUSTMENT TO BASE MERGER CONSIDERATION.
(a) The Base Merger Consideration will be adjusted (i) upward or
downward, as applicable, by the Company's positive or negative Working
Capital Adjustment as of the Closing Date, (ii) upward by an amount equal
to all capital expenditures paid by the Company on or after July 17, 2001
(which, if required under Section 5.1(l) to be approved by Parent, have
been so approved), (iii) upward or downward, as applicable, as required by
Section 5.9, (iv) downward by the amount of the severance payments
described in Section 3.11 of the DISCLOSURE SCHEDULE, (v) downward by the
amount of
31
the brokerage fee described in Section 3.20 of the DISCLOSURE SCHEDULE, and
(vi) downward by the estimated amount of all accrued but unpaid income
taxes relating to the Company's fiscal year ending July 31, 2001, and
relating to the sale of properties by Staghorn Resources, LLC in May, 2001,
as reasonably determined by the Company. For purposes hereof, the "WORKING
CAPITAL ADJUSTMENT" as of the Closing Date shall be equal to the Company's
aggregate cash, accounts receivable and other current Assets as of such
date, less the Company's accounts payable, and other current liabilities as
of the Closing Date, as determined in accordance with the Company's usual
basis of accounting, and less the amount of $4,527,000. Obligations of the
Company for the payment of capital expenditures shall not be considered a
current liability for the purpose of the Working Capital Adjustment.
Accrued income taxes deducted from the Base Merger Consideration pursuant
to subparagraph (vi) above shall not be considered a current liability for
the purpose of the Working Capital Adjustment. The severance payments
described in Section 3.11 of the DISCLOSURE SCHEDULE and the brokerage fee
described in Section 3.20 of the DISCLOSURE SCHEDULE shall be paid prior to
Closing by the Company and shall be deducted from the Company's cash for
the purpose of the Working Capital Adjustment. Any excise tax due and
payable on such severance payments shall be deducted for the purpose of the
Working Capital Adjustment. The expenses of the audit described in Section
5.12 shall not be deducted for the purpose of the Working Capital
Adjustment.
(b) Immediately prior to the Closing, the Company will determine the
Working Capital Adjustment and will deliver to Parent a statement setting
forth all of the adjustments to the Base Merger Consideration that are
required pursuant to this Agreement. Payments at the Closing shall be on
the basis of the Base Merger Consideration as so adjusted (the "CLOSING
DATE MERGER CONSIDERATION").
5.11 COMPANY EMPLOYEES. Following the Closing, Parent intends to retain
certain employees of the Company for the purpose of the transition of ownership.
Such employment shall continue at least through December 31, 2001. Such
employees who are employed on a full-time basis during such transition period by
the Surviving Corporation shall receive health insurance benefits equivalent to
the benefits now provided by the Company at the cost of the Surviving
Corporation. Prior to the Closing, the Company shall pay to all employees any
accrued vacation pay. Parent shall interview all personnel of the Company
interested in being employed by Parent in its Oklahoma City office. Parent shall
pay the reasonable moving expenses of any employee accepting a job with Parent.
The Parties acknowledge that, after the Effective Time, Parent may or may not,
in its sole discretion, offer employment to, or cause the Surviving Corporation
to continue the employment of, employees of the Company. In connection with the
Wood Oil Company 401(k) Plan, which shall have been terminated immediately prior
to the Closing, Parent agrees to obtain a favorable determination letter as to
the qualification of such plan as of the date of termination of such plan, to
administer such plan in compliance with its terms and applicable law, and to
make final distribution of the assets of such plan promptly after obtaining such
favorable determination letter. The Company shall prepay to General American
Life Insurance Company prior to Closing the amount of $2,500 for services
relating to termination of such 401(k) plan. The provisions of this Section 5.11
are intended to be for the benefit of, and shall be enforceable by, the Parties
and the employees of the Company covered by the Company Employee Benefit Plans
at the Effective Time and their respective heirs and representatives.
32
5.12 AUDIT. The Company shall use its Best Efforts to deliver to Parent on
or before October 1, 2001, audited financial statements of the Company comprised
of balance sheets as of the fiscal years ending July 31, 2000 and 2001 and the
related statements of operations and cash flows for the fiscal years ending July
31, 1999, 2000 and 2001, together with the unqualified audit reports of Ernst &
Young prepared in accordance with generally accepted accounting principles and
Regulation S-X of the Securities and Exchange Commission. Parent will be allowed
to monitor the audit proceedings. Parent shall bear the costs of obtaining such
audited financial statements. A failure to obtain such financial statements by
October 1, 2001, shall not be deemed to be a breach of this Agreement and shall
not result in a delay of the Closing.
5.13 NONSOLICITATION. Following the execution of this Agreement, neither
the Company nor any of its Stockholders, representatives or advisors shall
directly or indirectly solicit or entertain offers from, provide information to,
negotiate with or in any manner encourage, discuss or consider any proposal of
any other Person relating to the acquisition of the capital stock of the
Company, its Assets or business, in whole or in part.
5.14 BEST EFFORTS. Between the date of this Agreement and the Closing Date,
the Company and Parent will each use its Best Efforts to cause the conditions in
Article 6 to be satisfied.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO PROCEED WITH CLOSING. The
respective obligations of each Party to proceed with Closing shall be subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(a) APPROVALS. All filings required to be made prior to the Closing
with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Closing from, any Governmental Authority or other
person in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by the Parties
shall have been made or obtained (as the case may be), except where the
failure to obtain such consents, approvals, permits and authorizations
would not be reasonably likely to result in a Material Adverse Effect on
Parent or to materially adversely affect the consummation of the
transaction contemplated by this Agreement.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transaction contemplated by this Agreement shall be
in effect; provided, however, that prior to invoking this condition, each
Party shall use all reasonable efforts to have any such decree, ruling,
injunction or order vacated, and, if necessary, the Closing shall be
delayed for up to 60 days while such efforts are taking place.
33
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to proceed with Closing are subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in part
by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in Article 3 considered both collectively and
individually (disregarding all qualifications and exceptions contained
therein relating to materiality, Material Adverse Effect and Knowledge)
shall be true and correct in all material respects as of the Closing Date
as if made on and as of the Closing Date (except that any such
representations and warranties which expressly relate only to an earlier
date shall be true and correct on the Closing Date as of such earlier date
without giving effect to any supplement to the DISCLOSURE SCHEDULE). The
representations and warranties set forth in Section 3.6(b) shall be true
and correct as of the Closing Date as if made on and as of the Closing
Date, except for changes necessitated by the administration of the Estate
of Dale Smith and changes relating to estate planning by the Stockholders.
The Company shall deliver to Parent at Closing a list of the Stockholders
and the number of shares of Company Common Stock owned of record and
beneficially by each of them as of the Closing Date certified as true and
correct by the Secretary of the Company. Parent shall have received a
certificate signed by the chief executive officer or the chief operating
officer of the Company to such effect; provided, however, that the
condition set forth in this Section 6.2(a) shall not be applicable to the
representations and warranties set forth in Section 3.14 (Ownership of Oil
and Gas Interests) and Section 3.17 (Environmental Matters), which are
addressed in Section 5.9.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY THE COMPANY. The
Company shall have performed and complied with in all material respects all
covenants and agreements required to be performed by it under this
Agreement at or prior to the Closing Date, and Parent shall have received a
certificate signed by the chief executive officer or the chief operating
officer of the Company to such effect.
(c) LEGAL OPINION. Parent shall have received an opinion of Conner &
Winters, counsel for the Company, dated the Closing Date, in form and
substance reasonably acceptable to Parent, covering the subjects set forth
in Sections 3.1, 3.2, 3.3, 3.4 and 3.6.
(d) DISMISSAL OF LITIGATION. The lawsuit styled Dale J. Smith v. Joe
W. Smith and Wood Oil Company, Case No. CJ-98-03050, in the District Court
in and for Tulsa County, State of Oklahoma, shall have been dismissed with
prejudice.
(e) PAYMENT OF DEBT OWED BY STOCKHOLDERS. All Debt owed to the Company
by Stockholders and employees of the Company shall have been paid in full.
(f) TERMINATION OF PLANS. The Company shall have terminated,
immediately prior to the Closing, all of the employee benefit plans listed
in Section 3.11 of the DISCLOSURE SCHEDULE, except for any plans providing
for health insurance to employees.
34
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to proceed with Closing are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent set forth in Article 4 considered both collectively and
individually (disregarding all qualifications and exceptions contained
therein relating to materiality and Knowledge) shall be true and correct in
all material respects as of the Closing Date as if made on and as of the
Closing Date (except that any such representations and warranties which
expressly relate only to an earlier date shall be true and correct on the
Closing Date as of such earlier date) without giving effect to any
supplement to the DISCLOSURE SCHEDULE. The Company shall have received a
certificate signed by the chief executive officer or the chief operating
officer of Parent to such effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY PARENT. Parent shall
have performed in all material respects all covenants and agreements
required to be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed by
the chief executive officer, the chief operating officer or the chief
financial officer of Parent to such effect.
(c) LEGAL OPINION. The Company shall have received an opinion of
counsel to Parent, dated the Closing Date, in form and substance reasonably
acceptable to the Company, covering the subjects set forth in Sections 4.1,
4.2, 4.3 and 4.4.
ARTICLE 7
TERMINATION
7.1 TERMINATION RIGHTS. This Agreement may be terminated at any time prior
to the Closing:
(a) By mutual written consent of Parent and the Company;
(b) By either Parent or the Company if (i) the Closing has not
occurred by November 15, 2001 (provided, however, that the right to
terminate this Agreement pursuant to this clause (i) shall not be available
to any Party whose breach of any representation or warranty or failure to
perform any covenant or agreement under this Agreement has been the cause
of or resulted in the failure of Closing to occur on or before such date);
or (ii) any Governmental Authority shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting Closing and such order, decree, ruling or other
action shall have become final and nonappealable (provided, however, that
the right to terminate this Agreement pursuant to this clause (ii) shall
not be available to any Party until such Party has used all reasonable
efforts to remove such injunction, order or decree);
(c) By Parent if (i) the Company has failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement
and such failure has
35
not been, or cannot be, cured within a reasonable time after notice and
demand for cure thereof; or (ii) Parent elects to exercise its right to
terminate this Agreement pursuant to Section 5.9(d).
(d) By the Company if (i) Parent or Merger Sub has failed to comply in
any material respect with any of its respective covenants or agreements
contained in this Agreement, and such failure has not been, or cannot be,
cured within a reasonable time after notice and a demand for cure thereof;
or (ii) the Company elects to exercise its right to terminate this
Agreement pursuant to Section 5.9(c) or (d).
(e) (i) By Parent if any of the conditions in Sections 6.1 and 6.2 has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Parent to comply with its obligations under this Agreement) and Parent has
not waived such condition on or before the Closing Date; or (ii) by the
Company, if any of the conditions in Sections 6.1 and 6.3 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of the Company to
comply with its obligations under this Agreement) and the Company has not
waived such condition on or before the Closing Date.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated by either Parent
or the Company pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void except for, and there shall be no further obligation on
the part of any Party or its respective Affiliates, directors, officers, or
stockholders except pursuant to, the provisions of Sections 2.9 (with respect to
the Earnest Money), 4.7 (with respect to the indemnification provisions
contained therein), 5.2(b) (but only to the extent of the confidentiality and
indemnification provisions contained therein), 5.4 (with respect to the
confidentiality provisions contained therein), 5.6 and the Confidentiality
Agreement (which shall continue pursuant to their terms); provided, however,
that a termination of this Agreement shall not relieve any Party from any
liability for damages or specific performance incurred as a result of a breach
by such Party of its covenants, agreements or other obligations hereunder
occurring prior to such termination.
ARTICLE 8
INDEMNIFICATION
8.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. The right
to indemnification, payment of Damages, or other remedy based on the
representations, warranties, covenants and obligations in this Agreement will
not be affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired), at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to, the accuracy or inaccuracy of or compliance with, any such representation or
warranty, or the performance of or compliance with any such covenant or
obligation, and will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants
and obligations; provided, however, Parent agrees to (a) notify the Company in
writing promptly after obtaining any Knowledge with respect to the inaccuracy or
noncompliance by the Company with any representation or warranty in this
Agreement or any
36
failure to perform a covenant or obligation in this Agreement, and (b) permit
the Company a reasonable period of time to cure any such inaccuracy or failure,
prior to asserting any rights of Parent to indemnification set forth in this
Agreement,
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE STOCKHOLDERS. The
Stockholders will indemnify and hold harmless Parent and its directors,
officers, employees, agents and advisors, stockholders, controlling persons, and
Affiliates for, and will pay to such Indemnified Persons the amount of, any
loss, liability, obligation, debt, claim, damage, expense (including costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a Third-Party Claim (collectively "Damages"), arising, directly or
indirectly, from and in connection with:
(a) any breach of any representation or warranty made by the Company
in this Agreement (which representations and warranties shall each be read
without giving effect to any update or supplement to the Schedules), the
Schedules, the updates and supplements to the Schedules, or any other
certificate or document delivered by the Company pursuant to this
Agreement;
(b) any estimate of taxes owed pursuant to Section 5.10(a)(vi) which
is insufficient to cover the actual amount of such taxes; and
(c) any breach of any covenant made by the Company in Section 5.1 of
this Agreement.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY PARENT. Parent will indemnify
and hold harmless the Stockholders and will pay to the Stockholders the amount
of any Damages arising, directly or indirectly, from and in connection with (a)
any breach of any representation or warranty made by Parent in this Agreement or
in any certificate delivered by Parent pursuant to this Agreement, or (b) any
breach by Parent of any covenant or obligation of Parent in this Agreement.
8.4 SURVIVAL.
(a) If the Closing occurs, the representations and warranties of the
Company and Parent will survive the Closing for a period of one year after
the date of this Agreement.
(b) The Stockholders shall have no liability under Section 8.2 unless,
before the time period set forth in (a) above, Parent notifies the
Stockholders of a claim specifying the factual basis for the claim in
reasonable detail to the extent then known by Parent.
If any claim for indemnification made is still pending or unresolved
at the expiration of the survival period, such claim shall continue to be
subject to the indemnification provisions of this Agreement.
(c) If the Closing occurs, Parent will have no liability (for
indemnification or otherwise) with respect to any representation, warranty,
or covenant or obligation to be
37
performed and complied with prior to the Closing Date, unless on or before
one year after the date of this Agreement, the Stockholders notify Parent
of a claim specifying the factual basis of that claim in reasonable detail
to the extent then known by the Stockholders.
8.5 PROCEDURE FOR INDEMNIFICATION - THIRD-PARTY CLAIMS.
(a) Promptly after receipt by a Party entitled to indemnification
under Section 8.2 or 8.3 (an "Indemnified Person") of notice of the
commencement of any Proceeding against it, such Indemnified Person will, if
a claim is to be made against any Party required to provide indemnification
under Section 8.2 or 8.3 (an "Indemnifying Party"), give notice to the
Indemnifying Party of the commencement of such claim, but the failure to
notify the Indemnifying Party will not relieve the Indemnifying Party of
any liability that it may have to any Indemnified Person, except to the
extent that the Indemnifying Party demonstrates that the defense of such
action is prejudiced by the Indemnified Person's failure to give such
notice.
(b) If any Proceeding referred to in Section 8.5(a) is brought against
an Indemnified Person and it gives notice to the Indemnifying Party of the
commencement of such Proceeding, the Indemnifying Party will be entitled to
participate in such Proceeding and, to the extent that is wishes (unless
(i) the Indemnifying Party is also a party to such Proceeding and the
Indemnified Person determines in good faith that joint representation would
be inappropriate, or (ii) the Indemnifying Party fails to provide
reasonable assurance to the Indemnified Person of its financial capacity to
defend such Proceeding and provide indemnification with respect to such
Proceeding) to assume the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Person and, after written notice
from the Indemnifying Party to the Indemnified Person of its election to
assume the defense of such Proceeding and confirming its obligation to
indemnify the Indemnified Person for the liability asserted in the claim,
the Indemnifying Party will not, as long as it diligently conducts such
defense, be liable to the Indemnified Person under this Article 8 for any
fees of other counsel or any other expenses with respect to the defense of
such Proceeding, in each case subsequently incurred by the Indemnified
Person in connection with the defense of such Proceeding. If the
Indemnifying Party assumes the defense of a Proceeding: (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the Indemnifying Party without Indemnified Person's consent
(which consent shall not be unreasonably withheld) unless (A) there is no
finding or admission of any violation of Legal Requirements or any
violation of the rights of any person and no effect on any other claims
that may be made against the Indemnified Person, and (B) the sole relief
provided is monetary damages that are paid in full by the Indemnifying
Party; and (iii) the Indemnified Person will have no liability with respect
to any compromise or settlement of such claims effected without its
consent. If notice is given to an Indemnifying Party of the commencement of
any Proceeding and the Indemnifying Party does not, within ten (10) days
after the Indemnified Person's notice is given, give notice to the
Indemnified Person of its election to assume the defense of such
Proceeding, the Indemnifying Party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the
Indemnified Person,
38
provided, however, the Indemnified Person may not compromise or settle such
Proceeding without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld).
(c) Notwithstanding the foregoing, if any Indemnified Person
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a result
of monetary damages for which it would be entitled to indemnification under
this Agreement, the Indemnified Person may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the Indemnifying Party will not be bound by any compromise
or settlement effected without its consent, which may not be unreasonably
withheld.
8.6 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim may be asserted
by notice to the Party from whom indemnification is sought.
8.7 LIMITS ON INDEMNITY OBLIGATIONS.
(a) If the total amount of all Damages which the Indemnified Parties
have the right to assert against the Stockholders under this Article 8 does
not exceed $100,000 in the aggregate, then the Stockholders shall have no
obligation under this Article 8 with respect to any such Damages. If the
total amount of all Damages exceeds $100,000 in the aggregate, then the
Stockholders' obligations under this Article 8 shall be limited to the
amount by which the aggregate amount of all Damages exceeds $100,000.
(b) Notwithstanding anything contained herein to the contrary, the
sole recourse and exclusive remedy for the recovery of Damages from the
Stockholders shall be against the Post Closing Escrow Fund. The
Stockholders shall have no liability for Damages in excess of the amounts
contained in the Post Closing Escrow Fund.
ARTICLE 9
MISCELLANEOUS
9.1 AMENDMENT. This Agreement may not be amended except by a written
instrument signed on behalf of each of the Parties.
9.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally (effective upon
delivery), by facsimile transmission (effective on the next day after
transmission), by recognized overnight delivery service (effective on the next
day after delivery to the service), or by registered or certified mail, postage
prepaid and return receipt requested (effective on the fifth day after being so
mailed), at the following addresses or facsimile transmission numbers (or at
such other address or facsimile transmission number for a Party as shall be
specified by like notice):
39
(a) If to Parent or Merger Sub:
Panhandle Royalty Company
5400 North Grand Blvd.
Suite 210
Oklahoma City, Oklahoma 73112
Attention: H. W. Peace II, President
Facsimile: (405) 948-2038
With a copy (which shall not constitute notice) to:
Lon Foster, III
320 South Boston, Suite 1120
Tulsa, Oklahoma 74103
Facsimile: (918) 587-8868
(b) If to the Company:
Wood Oil Company
1419 East 15th Street, Suite A
Tulsa, Oklahoma 74120
Attention: Joe W. Smith
Facsimile: (918) 583-0422
With a copy (which shall not constitute notice) to:
Conner & Winters
3700 First Place Tower
15 East 5th Street
Tulsa, Oklahoma 74103-4344
Attention: Joseph J. McCain, Jr.
Facsimile: (918) 586-8549
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
9.4 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the Parties
40
in connection with this Agreement): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof; and (b) except as
provided in Sections 5.2, 5.7 and 5.11, is solely for the benefit of the Parties
and their respective successors, legal representatives and assigns and does not
confer on any other Person any rights or remedies hereunder.
9.6 APPLICABLE LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Oklahoma, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
9.7 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each Party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any Party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article 7. Except as otherwise contemplated by this Agreement, to
the extent that a Party took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent Governmental Authority, such Party shall not incur
any liability or obligation unless such Party breached its obligations under
Section 5.6 or did not in good faith seek to resist or object to the imposition
or entering of such order or judgment.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties, except that Parent may assign, in its sole discretion, its rights,
interests and obligations hereunder to any wholly-owned Subsidiary of Parent,
provided that Parent shall notify the Company of any such assignment and remain
responsible for all of its obligations hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
9.9 WAIVERS. At any time prior to the Closing, the Parties may, to the
extent legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of the other Parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such Party. Except
as provided in this Agreement, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
9.10 CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement is hereby
incorporated herein by reference and shall constitute a part of this Agreement
for all purposes
41
and shall remain in full force and effect following the execution of this
Agreement until terminated in accordance with its terms; provided, however, to
the extent the terms of this Agreement conflict with the terms of the
Confidentiality Agreement, the terms of this Agreement shall control. Any and
all information received by Parent or Merger Sub pursuant to the terms and
provisions of this Agreement shall be governed by the applicable terms and
provisions of the Confidentiality Agreement.
9.11 INCORPORATION BY REFERENCE. Exhibits and Schedules referred to herein
are attached to and by this reference incorporated herein for all purposes.
9.12 COOPERATION AFTER CLOSING. Each Party shall, at any time and from time
to time after Closing, execute, acknowledge where appropriate and deliver such
further instruments and documents and take such other action as may be
reasonably requested by another Party in order to carry out the intent and
purpose of this Agreement.
9.13 SPECIFIC PERFORMANCE; ATTORNEYS' FEES. The Parties recognize that if
the Company refuses to perform under the provisions of this Agreement, monetary
damages alone will not be adequate to compensate Parent for its injury. Parent
shall therefore be entitled, in addition to any other remedies that may be
available, to obtain specific performance of the terms of this Agreement. If any
action is brought by Parent to enforce this Agreement, the Company and the
Company's Stockholders shall waive the defense that there is an adequate remedy
at law. In the event of a default by either Party which results in the filing of
a lawsuit relating to such default, the prevailing Party in such lawsuit shall
be entitled to reimbursement from the non-prevailing Party of all reasonable
legal fees and expenses incurred by the prevailing Party.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives, on the date first written above.
"PARENT" "COMPANY"
PANHANDLE ROYALTY COMPANY WOOD OIL COMPANY
By: By:
------------------------------- --------------------------------
H. W. Peace II Joe W. Smith
President President
"MERGER SUB"
PRC, Inc.
By:
-------------------------------
H. W. Peace II
President
42
EX-10.2
4
d91257ex10-2.txt
NAME CORRECTION AGREEMENT
EXHIBIT 10.2
NAME CORRECTION AGREEMENT
This Agreement (this "Agreement") is made and entered into as of the
1st day of October, 2001, by and among Panhandle Royalty Company, an Oklahoma
corporation ("Parent), PHC, Inc., an Oklahoma corporation ("Merger Sub"), and
Wood Oil Company, an Oklahoma corporation (the "Company").
RECITALS:
A. Parent, Merger Sub and the Company are parties to an Agreement and
Plan of Merger dated August 9, 2001 (the "Merger Agreement").
B. In the Merger Agreement, the name of Merger Sub was incorrectly
stated as "PRC, Inc." The use of PRC, Inc. as the name of Merger Sub was
erroneous and inadvertent.
C. The parties hereto now desire to correct the name of the Merger Sub
as used in the Merger Agreement and the various other documents relating
thereto, including without limitation the documents listed on the List of
Documents attached hereto as Exhibit A (the "Related Documents").
In consideration of the mutual covenants and agreements set forth in
this Agreement and other good and valuable consideration, the parties hereto
hereby agree as follows:
1. Parent and Merger Sub hereby represent and warrant to the Company
that the correct name of Merger Sub is PHC, Inc., instead of PRC, Inc.
2. Merger Sub hereby ratifies and confirms the Merger Agreement and the
Related Documents and agrees to be bound thereby in the capacity of the party
previously identified as PRC, Inc.
3. Parent, Merger Sub and the Company hereby agree that the Merger
Agreement and the Related Documents shall each be deemed amended to reflect the
correction of the name of Merger Sub as described herein. Accordingly, the words
"PHC, Inc." shall replace all references to the words "PRC, Inc." in the Merger
Agreement and the Related Documents. As so amended, the parties hereto hereby
ratify and confirm the Merger Agreement and the Related Documents.
4. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. This Agreement shall
be governed by the laws of the State of Oklahoma.
EXECUTED as of the date first above written.
PANHANDLE ROYALTY COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PHC, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WOOD OIL COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
2
EX-10.3
5
d91257ex10-3.txt
AMENDED AND RESTATED LOAN AGREEMENT
EXHIBIT 10.3
AMENDED AND RESTATED
LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (hereinafter referred to the
"AGREEMENT") is effective as of October 1, 2001, by and among PANHANDLE ROYALTY
COMPANY, an Oklahoma corporation (hereinafter referred to as "PANHANDLE"), PHC,
INC., an Oklahoma corporation (hereinafter referred to as "MERGER SUB"), WOOD
OIL COMPANY, an Oklahoma corporation (hereinafter referred to as "WOOD OIL"),
(Panhandle, Merger Sub and Wood Oil are hereinafter individually referred to as
a "BORROWER" and collectively referred to as the "BORROWERS") and BANCFIRST, an
Oklahoma banking corporation (hereinafter referred to as "BANK").
WITNESSETH:
That for and in consideration of the sum of Ten and No/100s Dollars
($10.00) and the mutual covenants and agreements hereinafter contained, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
RECITATIONS. On December 29, 1999 Panhandle and the Bank executed that
certain Loan Agreement providing for, among other things, that certain revolving
loan commitment in an amount not to exceed the lesser of (i) a borrowing base,
or (ii) the sum of $5,000,000. Pursuant to such Loan Agreement, Panhandle made,
executed and delivered to Bank its December 29, 1999 Adjustable Rate Promissory
Note in the stated principal sum of $5,000,000 and maturing December 31, 2002.
On August 9, 2001, Panhandle, Merger Sub and Wood Oil executed that certain
Agreement and Plan of Merger wherein the Merger Sub, a wholly owned subsidiary
of Panhandle, will enter into a merger transaction with Wood Oil and Wood Oil
will become the surviving constituent corporation resulting from such corporate
merger. The Agreement and Plan of Merger provides that, as a consequence of the
merger transaction, Wood Oil will be a wholly owned subsidiary of Panhandle.
Panhandle, Merger Sub and Wood Oil have jointly and severally requested the
Bank amend and restate the December 29, 1999 Loan Agreement to, among other
things, provide the Borrowers (a) a $20,000,000 secured term loan with a
maturity date of September 30, 2006, and (b) a $5,000,000 secured revolving
credit facility which is intended to replace Panhandle's December 29, 1999
Adjustable Rate Promissory Note and contain a maturity date of December 31,
2003. Bank is willing to grant Borrowers' joint and several request for credit
on the terms and conditions hereinafter contained.
This Agreement is intended to amend, restate, replace and modify the
December 29, 1999 Loan Agreement. In addition, Panhandle's December 29, 1999
Adjustable Rate Promissory Note in the stated principal sum of $5,000,000 and
maturing December 31, 2002 is intended to be amended and restated as
contemplated herein.
1. DEFINITIONS. When used herein, the terms "Agreement," "Panhandle,"
"Merger Sub," "Wood Oil," "Borrower," "Borrowers," and "Bank" shall have the
meanings indicated above. When used herein the following terms shall have the
following meanings:
(a) Prime Rate - The fluctuating per annum rate of interest (expressed
as a percentage) designated as the "Prime Rate" in the "Money Rates"
section as published in the most recent issue of The Wall Street Journal.
If more than one Prime Rate is designated in The Wall Street Journal, then
the Index Rate will be the highest rate so determined. The Prime Rate as of
September 17, 2001 is _.__%.
(b) Borrowing Base - The value assigned by the Bank from time to time
to the Oil and Gas Properties. Until the next determination of the
Borrowing Base pursuant to Section 5 hereof, the aggregate Borrowing Base
shall be $25,000,000.
(c) Business Day - The normal banking hours during any day (other than
Saturdays or Sundays) that banks are legally open for business in Oklahoma
City, Oklahoma.
(d) Effective Date - October 1, 2001.
(e) Environmental Laws - The Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Super Fund
Amendments and Reauthorization Act of 1986, 42 U.S.C.A. Section 9601, et
seq., the Resource Conservation and Recovery Act, as amended by the
Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. Section 6901, et
seq., the Clean Air Act, 42 U.S.C.A. Section 1251, et seq., the Toxic
Substances Control Act, 15 U.S.C.A. Section 2601, et seq., and all other
laws relating to air pollution, water pollution, noise control and/or the
handling, discharge, disposal or recovery of on-site or off-site hazardous
substances or materials, as each of the foregoing may be amended from time
to time.
(f) Environmental Liability - Any claim, demand, obligation, cause of
action, accusation, allegation, order, violation, damage, injury, judgment,
penalty or fine, cost of enforcement, cost of remedial action or any other
costs or expense whatsoever, including reasonable attorneys' fees and
disbursements, resulting from the violation or alleged violation of any
Environmental Law or the imposition of any Environmental Lien (as
hereinafter defined) which would individually or in the aggregate have a
Material Adverse Effect.
(g) Environmental Lien - A Lien in favor of any court, governmental
agency or instrumentality or any other person (i) for any liability under
any Environmental Law or (ii) for damages arising from or cost incurred by
such court or governmental agency or instrumentality or other person in
response to a
2
release or threatened release of any hazardous waste, substance or
constituent into the environment.
(h) ERISA - The Employee Retirement income Security Act of 1974, as
amended.
(i) Financial Statements - Balance sheets, income statements,
statements of cash flow and appropriate footnotes and schedules prepared in
accordance with GAAP.
(j) GAAP - Generally accepted accounting principles, consistently
applied.
(k) Lien - Any mortgage, deed of trust, pledge, security interest,
assignment, encumbrance or lien (statutory or otherwise) of every kind and
character.
(l) Loan Documents - This Agreement, the Notes, the Security
Instruments and all other documents contemplated or executed in connection
with the transaction described in this Agreement.
(m) Material Adverse Effect - Any material adverse effect on (i) the
assets or properties, liabilities, financial condition, business or
operations of Borrowers taken as a whole on a consolidated basis or from
those reflected in the consolidated Financial Statements of Panhandle or
from the facts represented or warranted in this Agreement, or (ii) the
ability of Borrowers to carry out their businesses taken as a whole on a
consolidated basis as of the effective date of this Agreement or as
proposed at the date of this Agreement to be conducted or to meet its
obligations under the Loan Documents on a timely basis.
(n) Notes - Both the $20,000,000 secured term adjustable rate
promissory note (the "Term Note") and the $5,000,000 secured revolving
credit adjustable rate promissory note (the "Revolving Note") described in
Section 3 hereof. Either the Term Note or the Revolving Note described in
Section 3 hereof may be hereinafter as a "Note."
(o) Oil and Gas Properties - All proved oil, gas and mineral
properties and interests, and related personal properties, in which each
Borrower has granted and hereinafter grants (to the satisfaction of Bank)
to Bank a negative pledge.
(p) Permitted Liens - The term Permitted Lien shall mean (i)
royalties, overriding royalties, reversionary interests, production
payments and similar burdens if the net cumulative effect of such burdens
does not (when considered cumulatively with the matters discussed in clause
(ii) below) operate to deprive any Borrower of any material right in
respect of any such Borrower's assets or properties (except for rights
customarily granted with respect to such interests); (ii) sales contracts
or other arrangements for the sale of production of oil, gas or associated
liquid or gaseous hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i) above) deprive any
3
Borrower of any material right in respect of any of such Borrower's assets
or properties (except for rights customarily granted with respect to such
contracts and arrangements); (iii) statutory liens for taxes or other
assessments that are not yet delinquent (or that, if delinquent, are being
contested in good faith by appropriate proceedings and for which any such
Borrower has set aside on their books adequate reserves in accordance with
GAAP); (iv) easements, rights of way, servitudes, permits, surface leases
and other rights in respect to surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like, conditions, covenants and
other restrictions, and easements of streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other easements and rights of
way on, over or in respect of any Borrower's assets or properties; (v)
materialmen's, mechanic's, repairman's, employee's, contractor's,
sub-contractor's, operator's and other Liens incidental to the
construction, maintenance, development or operation of any Borrower's
assets or properties to the extent not delinquent (or which, if delinquent,
are being contested in good faith by appropriate proceedings and for which
any such Borrower have set aside on its books adequate reserves in
accordance with GAAP); (vi) all contracts, agreements and instruments, and
all defects and irregularities and other matters affecting any Borrower's
assets and properties which were in existence at the time any such
Borrower's assets and properties were originally acquired by such Borrower
and all routine operational agreements entered into in the ordinary course
of business, which contracts, agreements, instruments, defects,
irregularities and other matters and routine operational agreements are not
such as to, individually or in the aggregate, interfere materially with the
operation, value or use of any such Borrower's assets and properties,
considered in the aggregate; (vii) liens in connection with workmen's
compensation, unemployment insurance or other social security, old age
pension or public liability obligations; (viii) legal or equitable
encumbrances deemed to exist by reason of the existence of any litigation
or other legal proceeding or arising out of a judgment or award with
respect to which an appeal is being prosecuted in good faith; (ix) rights
reserved to or vested in any municipality, governmental, statutory or other
public authority to control or regulate any Borrower's assets and
properties in any manner, and all applicable laws, rules and orders from
any governmental authority; (x) Liens created by or pursuant to this
Agreement or pursuant to Security Instruments between the Bank and any
Borrower; and (xi) Liens existing at the date of this Agreement which have
been disclosed to Bank in any Borrower's Financial Statements or otherwise
in writing to Bank.
(q) Plan - Any plan subject to Title IV of ERISA and maintained by any
Borrower, or any such plan to which any such Borrower is required to
contribute on behalf of their respective employees.
(r) Revolving Loan - The secured revolving adjustable rate credit Loan
or loans made under the Revolving Loan Commitment pursuant to Section 2
hereof.
(s) Revolving Loan Amount - $5,000,000.
4
(t) Revolving Loan Commitment - The secured revolving adjustable rate
credit loan commitment contained in Section 2 of this Agreement.
(u) Revolving Maturity Date - December 31, 2003.
(v) Security Instrument(s) - Each and every assignment, security
agreement, pledge, financing statement, mortgage, deed of trust or other
document or instrument evidencing a Lien on the assets of Borrowers in
favor of Bank including, without limitation, the "Collateral", as that term
is defined in Section 10(q) herein.
(w) Term Loan - The single Advance secured term adjustable rate Loan
made under the Term Loan Commitment pursuant to Section 2 hereof.
(x) Term Loan Amount - $20,000,000.
(y) Term Loan Commitment - The secured term adjustable rate loan
commitment contained in Section 2 of this Agreement.
(z) Term Maturity Date - November 1, 2006.
2. COMMITMENT OF THE BANK; TERMS OF LOAN COMMITMENT. On the terms and
conditions hereinafter set forth, Bank agrees to make loans (hereinafter
sometimes referred to as "ADVANCES" and individually as an "ADVANCE") to the
Borrowers jointly and severally, from time to time, during the period beginning
on the Effective Date and ending on the Revolving Maturity Date in such amounts
as Borrowers may request up to an amount not to exceed, in the aggregate
principal amount outstanding, at any time, of the lesser of (i) the Borrowing
Base or (ii) the sum of the Revolving Loan Amount plus the Term Loan Amount.
Notwithstanding any other provision of this Agreement, no Advance shall be
required to be made hereunder if any Event of Default (as hereinafter defined)
has occurred and is continuing or if any event or condition has occurred that
may, with notice, the passage of time, or both be an Event of Default.
(a) Procedure for Borrowing - Revolving Loan. Whenever Borrowers
desire an Advance in respect of the Revolving Loan Commitment, they shall
give Bank written notice via facsimile ("NOTICE OF BORROWING") of such
requested Advance.
(b) Reduction of Revolving Loan Commitment. Borrowers may at any time,
or from time to time, upon not less than three (3) Business Days prior
written notice to Bank, reduce or terminate the Revolving Loan Commitment;
provided, however, that each reduction in the Revolving Loan Commitment
must be in the amount of $250,000 or if more, in increments of $100,000.
Borrowers shall be under a continuing obligation to reduce, from time to
time, the Revolving Note by a prepayment of the Revolving Note in an amount
by which the principal balance of the Revolving Note plus the principal
balance of the Term Note exceeds the Borrowing Base.
5
(c) Procedure for Borrowing - Term Loan. Borrowers may request a
single Advance in respect of the Term Loan Commitment in a Notice of
Borrowing issued to Bank contemporaneous with the "Closing," as that term
is defined in the Agreement and Plan of Merger more particularly described
in Section 1 of this Agreement, in an amount not exceeding the lesser of
(i) the Term Loan Amount plus any remaining principal balance in respect of
the December 29, 1999 Adjustable Rate Promissory Note in the stated
principal sum of $5,000,000 and maturing December 31, 2002 which is
intended to be renewed by Borrowers' execution of the Revolving Note, or
(ii) the Borrowing Base. No further or additional advances shall be
permitted in respect of the Term Loan Commitment.
(d) Reduction of Term Loan Commitment. Borrowers may at any time, or
from time to time, upon not less than three (3) Business Days prior written
notice to Bank, reduce or terminate the Term Loan Commitment; provided,
however, that each reduction in the Term Loan Commitment must be in the
amount of $250,000 or if more, in increments of $100,000. Borrowers shall
be under a continuing obligation to reduce, from time to time, the Term
Note by a prepayment of the Term Note in an amount by which the principal
balance of the Term Note exceeds the Borrowing Base.
(e) Participating Bank. The Bank's commitment to lend is contingent
upon and subject to: (a) the execution of a loan participation agreement
with respect to the Term Note, with terms and conditions acceptable to the
Bank, by Americrest Bank, an Oklahoma banking corporation, in an amount not
less than $6,000,000; and (b) the funding of such participation agreement.
3. NOTES EVIDENCING LOANS. The Revolving Loan and the Term Loan shall each
be evidenced by a promissory note made payable by Borrowers, jointly and
severally, to the order of the Bank as follows:
(a) Form of Revolving Note - The Revolving Loan shall be evidenced by
a Revolving Note in the face amount of $5,000,000, and shall be in the form
of EXHIBIT "A-1," annexed hereto. Notwithstanding the principal amount of
the Note, as stated on the face thereof, the actual principal amount due
from Borrowers jointly and severally on account of the Revolving Note, as
of any date of computation, shall be the sum of Advances then and
theretofore made on account thereof, less all principal payments actually
received by Bank in collected funds with respect thereto. Although the Note
shall be dated as of the Effective Date, interest in respect thereof shall
be payable only for the period during which the loans evidenced thereby are
outstanding and, although the stated amount of the Note may be higher, the
Note shall be enforceable, with respect to Borrowers' joint and several
obligation to pay the principal amount thereof, only to the extent of the
unpaid principal amount of the such loans.
6
(b) Form of Term Note - The Term Loan shall be evidenced by a Term
Note in the face amount of $20,000,000, and shall be in the form of EXHIBIT
"A-2," annexed hereto. Notwithstanding the principal amount of the Term
Note, as stated on the face thereof, the actual principal amount due from
Borrowers jointly and severally on account of the Term Note, as of any date
of computation, shall be the sum of initial and single Advance then and
theretofore made on account thereof, less all principal payments actually
received by Bank in collected funds with respect thereto. Although the Term
Note shall be dated as of the Effective Date, interest in respect thereof
shall be payable only for the period commencing with the single Advance and
continuing thereafter so long as any portion of principal balance remains
unpaid.
(c) Interest Rate - The unpaid principal balance of the Notes shall
bear interest from time to time as set forth in Section 4 hereof.
(d) Payment of Interest - Interest on the Notes shall be payable
monthly in arrears on the first Business Day of each calendar month,
beginning December 1, 2001.
(e) Payment of Revolving Note Principal - Principal in respect of the
Revolving Note shall be repayable in full on the Revolving Maturity Date.
(f) Payment of Term Note Principal - Principal in respect of the Term
Note shall be repayable in fifty-nine (59) consecutive monthly installment
payments of $333,000.00 commencing on the first Business Day of each
calendar month, beginning December 1, 2001, and the remaining unpaid
principal balance, if any, shall be repaid in full at the Term Maturity
Date. Commencing March 31, 2002 and on each successive March 31 and
September 30, Borrowers may request the Term Note be reamortized if
prepayments of principal have been made. Any new amortization will divide
the then existing principal balance of the Term Note by the number of
months then remaining prior to the Term Loan Maturity Date to determine the
new amount of the consecutive monthly payments for the Term Note.
4. INTEREST RATES.
(a) Basic Rate. The unpaid principal balance of the Notes shall bear
interest at a fluctuating rate per annum from day to day equal to the Prime
Rate minus 1/4 of one percent.
(b) Default Rate. After maturity (whether by acceleration or
otherwise), the principal balance of the Note shall bear interest at a rate
of two percent (2%) higher than the Basic Rate but in no event more than
18% per year.
7
5. BORROWING BASE.
(a) Initial Borrowing Base. From the Effective Date to the first
Determination Date (as hereinafter defined), the Borrowing Base shall be
$25,000,000.
(b) Subsequent Determinations of Borrowing Base. Subsequent
determinations of the Borrowing Base shall be made by the Bank at least
semi-annually on the dates set forth herein below and the Bank may make
additional redeterminations at any time it appears to the Bank, in the
exercise of its discretion, that there has been a material change in the
value of the Oil and Gas Properties ("UNSCHEDULED REDETERMINATIONS").
Effective as of September 30 of each year, Borrowers shall furnish to the
Bank on or prior to December 1 each year, beginning December 1, 2001, for
Panhandle and beginning December 1, 2002 for Wood Oil and if the Bank so
requests, within sixty days of April 1 of each year beginning April 1, 2002
for Panhandle and for Wood Oil and at such other times as Bank shall
request for an Unscheduled Redetermination, all information, reports and
data which the Bank has then requested concerning the Oil and Gas
Properties, said information to include, but not be limited to, (i) revenue
and lifting costs summary report for all Oil and Gas Properties, (ii) as of
September 30 and March 31, respectively, of each such year, an engineering
report in form and substance satisfactory to Bank prepared by an
independent petroleum engineer as is acceptable to Bank, covering the Oil
and Gas Properties, (iii) the most recently available production curves and
tabular production updates, including economic projections on any new
production from acquired or drilled acreage, and (iv) such other
information concerning the value of the Oil and Gas Properties as Bank may
reasonably deem necessary. Bank shall by written notice to Borrowers, no
later than sixty (60) days after receipt of such information set forth
above, designate the new Borrowing Base available to Borrowers hereunder
during the period beginning on each December 31 and June 30 (herein called
the "DETERMINATION DATE") and continuing until but not including the next
date as of which the Borrowing Base is redetermined. Notwithstanding the
foregoing, the first such Determination Date will be January 1, 2002. If an
Unscheduled Redetermination is made by the Bank, the Bank shall notify
Borrowers within a reasonable time after receipt of all requested
information of the new Borrowing Base, if any, and such new Borrowing Base
shall continue until redetermined pursuant to the provisions hereof. If
Borrowers do not furnish all such information, reports and data by the date
specified in the first sentence of this Section 5(b), unless such failure
is of no fault of Borrowers, the Bank may nonetheless designate the
Borrowing Base at any amount which the Bank determines in its reasonable
discretion and may redesignate the Borrowing Base from time to time
thereafter until the Bank receives all such information, reports and data,
whereupon the Bank shall designate a new Borrowing Base as described above.
The Bank shall determine the amount of the Borrowing Base based upon the
loan collateral value which it in its reasonable discretion assigns to such
Oil and Gas Properties of Borrowers at the time in question and based upon
such other credit factors consistently applied
8
(including, without limitation, the assets, liabilities, cash flow,
business, properties, prospects, management and ownership of Borrowers and
its affiliates) as the Bank customarily considers in evaluating similar oil
and gas credits. It is expressly understood that the Bank has no obligation
to designate the Borrowing Base at any particular amount, except in the
exercise of its good faith discretion, whether in relation to the Revolving
Loan Commitment made herein or otherwise, and that the Bank's commitment to
advance funds hereunder is determined by reference to the Borrowing Base
from time to time in effect.
6. COMMITMENT FEES. In consideration of the Term Loan Commitment, Borrowers
shall pay to the Bank, upon execution hereof and as a condition to any Advances
being requested hereunder, a Term Loan Commitment Fee (hereinafter referred to
as the "TERM LOAN COMMITMENT FEE") equal to Twelve Thousand Five Hundred and
No/100s Dollars ($12,500.00)
In consideration of the Revolving Loan Commitment, Borrowers shall pay,
jointly and severally, to the Bank a Revolving Loan Commitment Fee (hereinafter
referred to as the "REVOLVING LOAN COMMITMENT FEE") equivalent to 1/16 of 1% per
annum on the average daily amount of the unadvanced amount of the Revolving
Note. The Commitment Fee shall commence to accrue on the Effective Date and
shall be payable quarterly in arrears hereafter on the first Business Day of
each calendar quarter commencing January 1, 2001, with the final fee payment due
at the Revolving Maturity Date for any period then ending for which the
Revolving Loan Commitment Fee shall not have been theretofore paid. In the event
the Commitment terminates on any date prior to the end of any calendar quarter
as a result of either (i) Borrowers terminating the Revolving Loan Commitment or
(ii) Borrowers' default hereunder followed by the termination of the Revolving
Loan Commitment by the Bank as a result of such default, Borrowers, jointly and
severally, will pay to Bank, on the date of such termination, the total
Revolving Loan Commitment Fee due for the quarter in which such termination
occurs. Bank shall invoice Borrowers for the Revolving Loan Commitment Fee
provided that the failure to do so shall not relieve the Borrowers of their
obligation to pay the same in the time and manner set forth hereinabove after
receipt of each such invoice.
7. PREPAYMENTS.
(a) Voluntary Prepayments. The Borrowers may at any time and from time
to time, without penalty or premium, prepay the Notes in whole or in part.
(b) Mandatory Prepayment. In the event the aggregate principal amount
outstanding in respect of the Notes ever exceeds the Borrowing Base as
determined by Bank pursuant to Section 5 hereof, Borrowers shall, within
thirty (30) days after notification from the Bank, either (A) provide
additional Oil and Gas Properties with value and quality in amounts
satisfactory to the Bank in its sole discretion in order to increase the
Borrowing Base by an amount at least equal to such excess, or (B) prepay,
without premium or penalty, the principal amount of the Notes in an amount
at least equal to such excess.
9
8. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Agreement, Borrowers hereby represent and warrant to the Bank (which
representations and warranties will survive the delivery of the Notes) that:
(a) Corporate Existence. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it was incorporated and is duly qualified as a
foreign corporation in all jurisdictions wherein the failure to qualify may
result in Material Adverse Effect.
(b) Corporate Power and Authorization. Each Borrower is duly
authorized and empowered to create and issue the Notes; and each Borrower
is duly authorized and empowered to execute, deliver and perform the
Security Instruments, including this Agreement; and all corporate and other
action on Borrowers' part, respectively, requisite for the due creation and
issuance of the Notes and this Agreement, has been duly and effectively
taken.
(c) Binding Obligations. The Loan Documents, upon their creation,
issuance, execution and delivery will, constitute valid and binding
obligations of each Borrower enforceable in accordance with its terms
(except that enforcement may be subject to any applicable bankruptcy,
insolvency or similar laws generally affecting the enforcement of
creditors' rights and subject to availability of equitable remedies).
(d) No Legal Bar or Resultant Lien. None of the Loan Documents violate
any provisions of any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which any Borrower is subject, or
result in the creation or imposition of any lien or other encumbrance upon
any assets or properties of any Borrower, other than those contemplated by
this Agreement.
(e) No Consent. The execution, delivery and performance by each
Borrower of the Loan Documents do not require the consent or approval of
any other person or entity, including without limitation any regulatory
authority or governmental body of the United States or any state thereof or
any political subdivision of the United States or any state thereof except
for consents required for federal, state and, in some instances, private
leases, right of ways and other conveyances or encumbrances of oil and gas
leases.
(f) Financial Condition. The audited Financial Statements of (i)
Panhandle dated as of September 30, 2000, and (ii) the unaudited financial
statements of Wood Oil dated as of July 31, 2001, each of which have
heretofore been delivered to Bank, are complete and correct in all material
respects and fully and accurately reflect in all material respects the
financial condition, results of the operations and contingent liabilities
of Panhandle and Wood Oil, respectively, as of such dates and for the
period or periods stated, except for those contingent liabilities disclosed
in the footnotes to Panhandle's September 30, 2000 Form 10-k filing and its
June 30, 2001 10-Q filing with the U.S. Securities and Exchange Commission.
No change has since occurred in the
10
condition, financial or otherwise, of either Panhandle or Wood Oil which is
reasonably expected to have a Material Adverse Effect, except as disclosed
to the Bank in EXHIBIT "B" attached hereto. Panhandle will deliver to Bank
a copy of the audited Financial Statements of Wood Oil dated as of July 31,
2001 as soon as the same are available, but in no event later than December
1, 2001.
(g) Liabilities. Borrowers do not have any material (individually or
in the aggregate) liability, direct or contingent, except as disclosed to
the Bank in their respective Financial Statements identified in the
preceding paragraph or in EXHIBIT "B" attached hereto. No unusual or unduly
burdensome restriction, restraint, or hazard exists by contract, law or
governmental regulation or otherwise relative to the business, assets or
properties of any Borrower which is reasonably expected to have a Material
Adverse Effect.
(h) Litigation. Except as described in the notes to the Financial
Statements, or as otherwise disclosed to the Bank in EXHIBIT "C" attached
hereto, there is no litigation, legal or administrative proceeding,
investigation or other action of any nature pending or, to the knowledge of
the officers of any Borrower, threatened against or affecting any Borrower
which involves the possibility of any judgment or liability not fully
covered by insurance, and which is reasonably expected to have a Material
Adverse Effect.
(i) Taxes; Governmental Charges. Each Borrower has filed all tax
returns and reports required to be filed and has paid all taxes,
assessments, fees and other governmental charges levied upon it or its
assets, properties or income which are due and payable, including interest
and penalties, or has provided adequate reserves, if required, in
accordance with GAAP for the payment thereof, except such as are being
contested in good faith by appropriate proceedings and for which adequate
reserves for the payment thereof as required by GAAP have been provided.
(i) Titles, Etc. Each Borrower has good and marketable title to its
assets and properties, including without limitation, the Oil and Gas
Properties, free and clear of all liens or other encumbrances, except
Permitted Liens. Furthermore, revenue is being received, or is expected to
be received, on each of the Oil and Gas Properties and no material revenue
from the Oil and Gas Properties has been suspended because of title
challenges or defects.
(k) Defaults. No Borrower is in default and no event or circumstance
has occurred which, but for the passage of time or the giving of notice, or
both, would constitute a default under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement or other agreement
or instrument to which any Borrower is a party in any respect that would be
reasonably expected to have a Material Adverse Effect. No Event of Default
hereunder has occurred and is continuing.
11
(l) Casualties; Taking of Properties. Since the dates of the latest
Financial Statements of each Borrower provided to Bank, none of the
business or the assets or properties of any Borrower have been materially
or adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of property or cancellation of contracts,
permits or concessions by any domestic or foreign government or any agency
thereof, riot, activities of armed forces or acts of God or of any public
enemy.
(m) Use of Proceeds; Margin Stock. The proceeds of the loans hereunder
will be used by Borrowers for working capital and general corporate
purposes. No Borrower is engaged in the business of extending credit for
the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U of the Board of Governors of the Federal Reserve System (12
C.F.R. Part 221), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a margin
stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation U. No Borrower is
engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock.
No Borrower nor any person or entity acting on behalf of any Borrower
has taken or will take any action which might cause the loans hereunder or
any of the Loan Documents to violate Regulation U or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each case as now in effect or as the same may hereafter be in effect.
(n) Location of Business and Offices. The principal place of business
and executive offices of each Borrower is located at the address stated in
Section 14 hereof.
(o) Compliance with the Law. Each Borrower:
(i) is not in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which any Borrower,
or any of their assets or properties are subject; or
(ii) has not failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of any of
its assets or properties or the conduct of its business;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) No Material Misstatements. No information, exhibit or report
furnished by Borrowers to the Bank in connection with the negotiation of
this Agreement
12
contained any material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statement contained therein not
misleading.
(q) Not A Utility. No Borrower is an entity engaged in any state in
which it operates in the (i) generation, transmission, or distribution and
sale of electric power; (ii) transportation, distribution and sale through
a local distribution system of natural or other gas for domestic,
commercial, industrial, or other use; (iii) ownership or operation of a
pipeline for the transmission or sale of natural or other gas, crude oil or
petroleum products to other pipeline companies, refineries, local
distribution systems, municipalities, or industrial consumers; (iv)
provision of telephone or telegraph service to others; (v) production,
transmission, or distribution and sale of steam or water; (vi) operation of
a railroad; or (vii) provision of sewer service to others.
(r) ERISA. Each Borrower is in compliance in all material respects
with the applicable provisions of ERISA, and no "reportable event", as such
term is defined in Section 4043 of ERISA, has occurred with respect to any
Plan of any Borrower.
(s) Public Utility Holding Company Act. No Borrower is a "holding
company," or "subsidiary company" of a "holding company", or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company,"
or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(t) Environmental Matters. Except as disclosed on EXHIBIT "D", no
Borrower: (i) has received notice or otherwise learned of any Environmental
Liability which would individually or in the aggregate have a Material
Adverse Effect arising in connection with (A) any non-compliance with or
violation of the requirements of any Environmental Law or (B) the release
or threatened release of any toxic or hazardous waste into the environment;
(ii) to its knowledge has any threatened or actual liability in connection
with the release or threatened release of any toxic or hazardous waste into
the environment which would individually or in the aggregate have a
Material Adverse Effect; or (iii) has received notice or otherwise learned
of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic
or hazardous waste into the environment for which any Borrower is or may be
liable.
9. CONDITIONS OF LENDING.
(a) The obligation of the Bank to make the initial Advance under the
Term Loan or under the Revolving Loan shall be subject to the following
conditions precedent:
(i) Borrowers' Execution and Delivery - Borrowers shall have
executed and delivered to the Bank this Agreement, each Note, the
13
Security Instruments and other required documents, all in form and
substance satisfactory to the Bank;
(ii) Corporate Documentation - Bank shall have received (i)
certified copies of the Articles of Incorporation and By-Laws of each
Borrower and all amendments thereto, (ii) appropriate corporate
resolutions of each Borrower, (iii) evidence of good standing and
existence for each Borrower, and (iv) a certificate of the Secretary
of each Borrower certifying the names of each of the officers of each
Borrower authorized to sign on its behalf, together with the true
signatures of each such officer.
(iii) Other Documents - The Bank shall have received such other
instruments and documents incidental and appropriate to the
transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance satisfactory to the Bank; and
(iv) Opinion of Counsel - The Bank shall have received an opinion
of each Borrower's counsel that the Loan Documents are authorized,
duly executed and enforceable.
(v) Merger Transaction - The Bank shall have received such
information on the acquisition and merger transactions contemplated in
the Agreement and Plan of Merger among Borrowers as Bank may
reasonably request including, without limitation, access to all due
diligence material.
(vi) Participation Agreement - The Bank shall have received an
executed participation agreement for not less than $6,000,000 from a
bank acceptable to Bank and in form and substance acceptable to Bank
in its sole discretion.
(vii) Legal Matters Satisfactory - All legal matters incident to
the consummation of the transactions contemplated hereby shall be
satisfactory to special counsel for the Bank.
(b) The obligation of the Bank to make any Advance (including the
initial Advance) in respect of the Revolving Loan Commitment or the Term
Loan Commitment shall be subject to the following additional conditions
precedent that, at the date of making each such Advance and after giving
effect thereto:
(i) Representation and Warranties - With respect to any Advance,
the representations and warranties of each Borrower under this
Agreement are true and correct in all material respects as of such
date, as if then made (except to the extent that such representations
and warranties related solely to an earlier date);
14
(ii) No Event of Default - No Event of Default shall have
occurred and be continuing nor shall any event have occurred or failed
to occur which, with the passage of time or service of notice, or
both, would constitute an Event of Default;
(iii) Other Documents - The Bank shall have received such other
instruments and documents incidental and appropriate to the
transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance satisfactory to the Bank; and
(iv) Legal Matters Satisfactory - All legal matters incident to
the consummation of the transactions contemplated hereby shall be
satisfactory to special counsel for the Bank.
10. AFFIRMATIVE COVENANTS. A deviation from the provisions of this Section
10 shall not constitute an Event of Default under this Agreement if such
deviation is consented to in writing by the Bank. Without the prior written
consent of the Bank, each Borrower will at all times comply with the covenants
contained in this Section 10 from the date hereof and for so long as the either
Note evidences an outstanding obligation payable to the Bank.
(a) Financial Statements and Reports. Borrowers shall promptly furnish
to the Bank from time to time upon written request such information
regarding the business and affairs and financial condition of the
Borrowers, as the Bank may reasonably request, and will furnish to the
Bank:
(i) Annual Consolidated and Consolidating Financial Statements -
As soon as available, and in any event within ninety (90) days after
the close of each fiscal year, the annual audited consolidated
Financial Statements and the unaudited consolidating financial
statements of Panhandle showing the results of Borrowers' operations
on a consolidated and consolidating basis under GAAP, including an
opinion from the auditors regarding the fair presentation of such
Financial Statements;
(ii) Quarterly Financial Statements - As soon as available, and
in any event within sixty (60) days after the end of each fiscal
quarter (except the last such quarter in any fiscal year) of each
year, the quarterly unaudited Financial Statements of the Borrowers;
(iii) Report on Properties - As soon as available and in any
event on or before December 1 of each calendar year, and at such other
times as the Bank may reasonably request, the engineering reports
required to be furnished to the Bank under Section 5 hereof on the Oil
and Gas Properties.
15
(iv) Additional Information - Promptly upon request of the Bank
from time to time any additional financial information or other
information that the Bank may reasonably request.
All such reports, balance sheets and Financial Statements referred to in
Subsection 10(a) above shall be in such detail as the Bank may reasonably
request and shall be prepared in a manner consistent with the Financial
Statements.
(b) Certificates of Compliance. Concurrently with the furnishing of
the annual audited Financial Statements pursuant to Subsection 10(a)(i)
hereof and each of the quarterly unaudited Financial Statements pursuant to
Subsection 10(a)(ii) hereof, Borrowers will furnish or cause to be
furnished to the Bank a certificate signed by the chief executive officer
or chief financial officer of each Borrower (i) stating that each Borrower
has fulfilled in all material respects its obligations under the Loan
Documents including, but not limited to, its obligations under Section
10(j) hereof, and that all representations and warranties made herein
continue to be true and correct in all material respects (or specifying the
nature of any change), or if an Event of Default has occurred, specifying
the Event of Default and the nature and status thereof; (ii) to the extent
requested from time to time by the Bank, specifically affirming compliance
of each Borrower in all material respects with any of its representations
or obligations under said instruments; (iii) setting forth the computation,
in reasonable detail as of the end of each period covered by such
certificate, of compliance with Sections 11(d) and (g); and (iv) containing
or accompanied by such financial or other details, information and material
as the Bank may reasonably request to evidence such compliance.
(c) Taxes and Other Liens. The Borrowers will pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed
upon any Borrower or upon the income or any assets or property of any
Borrower as well as all claims of any kind (including claims for labor,
materials, supplies and rent) which, if unpaid, might become a lien or
other encumbrance upon any or all of the assets or property of any
Borrower; provided, however, that Borrowers shall not be required to pay
any such tax, assessment, charge, levy or claim (i) if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings diligently conducted or (ii) if the
failure to pay would result only in the imposition of a lien or other
encumbrance which is a Permitted Lien.
(d) Compliance with Laws. Borrowers will observe and comply, in all
material respects, with all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
orders and restrictions relating to environmental standards or controls or
to energy regulations of all federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign.
16
(e) Further Assurances. Borrowers will cure promptly any defects in
the creation and issuance of the Notes and the execution and delivery of
the Notes and the Loan Documents. Borrowers at their sole expense will
promptly execute and deliver to Bank upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in the Loan Documents, or to
correct any omissions in the Notes or more fully to state the obligations
set out herein.
(f) Performance of Obligations. Borrowers, jointly and severally,
agree to pay the Notes and other obligations incurred by any of them under
the Loan Documents according to the reading, tenor and effect thereof and
hereof; and each of Borrowers will do and perform every act and discharge
all of the obligations provided to be performed and discharged by each of
them under the Loan Documents, at the time or times and in the manner
specified.
(g) Insurance. Borrowers now maintain and will continue to maintain
insurance with financially sound and reputable insurers with respect to its
assets against such liabilities, fires, casualties, risks and contingencies
and in such types and amounts as is customary in the case of persons
engaged in the same or similar businesses and similarly situated. Upon
request of the Bank, Borrowers will furnish or cause to be furnished to the
Bank from time to time a summary of the respective insurance coverage of
Borrowers in form and substance satisfactory to the Bank, and, if
requested, will furnish the Bank copies of the applicable policies. Upon
written demand by Bank, any insurance policies covering any such property
shall be amended (i) to provide that such policies may not be canceled,
reduced or affected in any manner for any reason without fifteen (15) days
prior notice to Bank, (ii) to provide for insurance against fire, casualty
and other hazards normally insured against, in the amount of the full value
(less a reasonable deductible not to exceed amounts customary in the
industry for similarly situated business and properties) of the property
insured, and (iii) to provide for such other matters as the Bank may
reasonably require. Each Borrower shall at all times maintain adequate
insurance with respect to its properties against its liability for injury
to persons or property, which insurance shall be by financially sound and
reputable insurers and shall without limitation provide the following
coverage: comprehensive general liability (including coverage for damage to
underground resources and equipment, damage caused by blowouts or
cratering, damage caused by explosion, damage to underground minerals or
resources caused by saline substances, broad form property damage coverage,
broad form coverage for contractually assumed liabilities and broad form
coverage for acts of independent contractors), worker's compensation and
automobile liability. Borrowers shall at all times maintain cost of control
of well insurance with respect to its properties which shall insure
Borrowers against seepage and pollution expense if deemed economical in the
reasonable discretion of Borrowers; redrilling expense; and cost of control
of well; fires, blowouts, etc. Additionally, Borrowers shall at all times
maintain adequate insurance with respect to all of its other assets and
wells in accordance with prudent business practices.
17
(h) Accounts and Records. Borrowers will keep books, records and
accounts in which full, true and correct entries will be made of all
dealings or transactions in relation to their business and activities,
prepared in a manner consistent with prior years.
(i) Right of Inspection. Borrowers will permit any officer, employee
or agent of the Bank to examine Borrowers' books, records and accounts, and
take copies and extracts therefrom, all at such reasonable times and as
often as the Bank may reasonably request. Bank will keep all such
information confidential and will not without prior written consent
disclose or reveal the information or any part thereof to any person other
than the Bank's officers, employees, legal counsel, regulatory authorities,
any participants in the Loan, or advisors to whom it is necessary to reveal
such information for the purpose of effectuating the agreements and
undertakings specified herein.
(j) Notice of Certain Events. Borrowers shall promptly notify the Bank
if Borrowers learn of the occurrence of (i) any event which constitutes an
Event of Default, together with a detailed statement by Borrowers of the
steps being taken to cure the Event of Default; or (ii) any legal, judicial
or regulatory proceedings affecting any Borrower, or any of the assets or
properties of any Borrower which, if adversely determined, could reasonably
be expected to have a Material Adverse Effect; or (iii) any dispute between
any Borrower and any governmental or regulatory body or any other person or
entity which, if adversely determined, might reasonably be expected to
cause a Material Adverse Effect; or (iv) any other matter which in its
reasonable opinion could have a Material Adverse Effect.
(k) ERISA Information and Compliance. Borrowers will promptly furnish
to the Bank immediately upon becoming aware of the occurrence of any
"reportable event," as such term is defined in Section 4043 of ERISA, or of
any "prohibited transaction", as such term is defined in Section 4975 of
the Internal Revenue Code of 1954, as amended, in connection with any Plan
or any trust created thereunder, a written notice signed by the President
or the chief financial officer of such Borrower, specifying the nature
thereof, what action such Borrower is taking or proposes to take with
respect thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto.
(l) Environmental Reports and Notices. Borrowers will deliver to the
Bank (i) promptly upon its becoming available, one copy of any material
report sent by any Borrower to any court, governmental agency or
instrumentality pursuant to any Environmental Law, (ii) notice, in writing,
promptly upon any Borrower's learning that it has received notice or
otherwise learned of any claim, demand, action, event, condition, report or
investigation indicating any potential or actual liability arising in
connection with (x) the non-compliance with or violation of the
requirements of any Environmental Law which reasonably could be expected to
have a Material Adverse Effect; (y) the release or threatened release of
any toxic or hazardous waste into the environment which reasonably could be
expected to
18
have a Material Adverse Effect or which release any Borrower would have a
duty to report to any court or government agency or instrumentality, or
(iii) the existence of any Environmental Lien on any properties or assets
of any Borrower, and Borrowers shall immediately deliver a copy of any such
notice to Bank.
(m) Maintenance. Borrowers will (i) observe and comply with all valid
laws, statutes, codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, orders and restrictions relating to
environmental standards or controls or to energy regulations of all
federal, state, county, municipal and other governments, departments,
commissions, boards, agencies, courts, authorities, officials and officers,
domestic or foreign; (ii) except as provided in Subsections 10(n) and 10(o)
below, consistent with Borrower's prior practice, maintain the Oil and Gas
Properties and other assets and properties in good and workable condition
at all times and make all repairs, replacements, additions, betterments and
improvements to the Oil and Gas Properties and other assets and properties
as are needed and proper so that the business carried on in connection
therewith may be conducted properly and efficiently at all times in the
opinion of the Borrowers exercised in good faith; (iii) take or cause to be
taken whatever actions are reasonably necessary or desirable to prevent an
event or condition of default by any Borrower under the provisions of any
gas purchase or sales contract or any other contract, agreement or lease
comprising a part of the Oil and Gas Properties; and (iv) furnish Bank upon
written request evidence satisfactory to Bank that there are no liens,
claims or encumbrances on the Oil and Gas Properties, except laborers',
vendors', repairmen's, mechanics', workers', or materialmen's liens arising
by operation of law or incident to the construction or improvement of
property if the obligations secured thereby are not yet due or are being
contested in good faith by appropriate legal proceedings or Permitted
Liens.
(n) Operation of Properties. Except as provided in Subsection 10(p)
below, Borrowers will operate, or cause to be operated, all Oil and Gas
Properties in a careful and efficient manner in accordance with the
practice of the industry and in compliance in all material respects with
all applicable laws, rules, and regulations, and in compliance in all
material respects with all applicable proration and conservation laws of
the jurisdiction in which the properties are situated, and all applicable
laws, rules, and regulations, of every other agency and authority from time
to time constituted to regulate the development and operation of the
properties and the production and sale of hydrocarbons and other minerals
therefrom; provided, however, that Borrowers shall have the right to
contest, in good faith by appropriate proceedings, the applicability or
lawfulness of any such law, rule or regulation and pending such contest may
defer compliance therewith, as long as such deferment shall not subject the
properties or any part thereof to foreclosure or loss.
(o) Compliance with Leases and Other Instruments. Borrowers will pay
or cause to be paid and discharged all rentals, delay rentals, royalties,
production
19
payment, and indebtedness required to be paid by the Borrowers accruing
under, and perform or cause to be performed in all material respects each
and every act, matter, or thing required of any Borrower by each and all of
the assignments, deeds, leases, subleases, contracts, and agreements in any
way relating to any Borrower and do all other things necessary of the
Borrowers to keep unimpaired in all material respects the rights of the
Borrowers thereunder and to prevent the forfeiture thereof or default
thereunder; provided, however, that nothing in this Subsection 10(o) shall
be deemed to require the Borrowers to perpetuate or renew any oil and gas
lease or other lease by payment of rental or delay rental or by
commencement or continuation of operations or to prevent the Borrowers from
abandoning or releasing any oil and gas lease or other lease or well
thereon when, in any of such events, in the opinion of Borrowers exercised
in good faith, it is not in the best interest of the Borrowers to
perpetuate the same.
(p) Certain Additional Assurances Regarding Maintenance and Operations
of Properties. With respect to those Oil and Gas Properties which are being
operated by operators other than Borrowers, Borrowers shall not be
obligated to perform any undertakings contemplated by the covenants and
agreement contained in Subsections 10(n) or 10(o) hereof which are
performable only by such operators and are beyond the control of Borrowers;
however, Borrowers agree to promptly take all actions available under any
operating agreements or otherwise to bring about the performance of any
such undertakings required to be performed thereunder.
(q) Collateral. Payment of the Notes and all other obligations
evidenced by the Loan Documents, and the performance by the Borrowers under
the Loan Documents, shall be secured by one or more Security Instruments,
all in form and substance acceptable to the Bank, by which the Borrowers
convey, mortgage and grant a Lien to the Bank upon the all assets of
Borrowers now owned or hereafter acquired (the "Collateral") including,
without limitation, the Oil and Gas Properties and the following categories
of assets as defined by the Uniform Commercial Code: Accounts; As-extracted
collateral; Chattel Paper; Deposit Accounts; Documents; Equipment; General
Intangibles including Payment Intangibles; Instruments, including
Promissory Notes; Inventory; Investment Property; Letter of Credit Rights;
and Supporting Obligations.. Should the Bank elect to accept Security
Instruments as of the Effective Date encumbering less than all of
Borrowers' Oil and Gas Properties or other Collateral, Borrowers covenant
and agree, from time to time, during the term of this Agreement, the Bank,
may require and Borrowers agree to execute and deliver for recordation such
other and further Security Instruments to confirm and further secure the
interest of the Bank in all of Borrowers' assets, including the Collateral.
11. NEGATIVE COVENANTS. A deviation from the provisions of this Section 11
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by the Bank. Without the prior written consent of the
Bank, Borrowers will at all times comply with the covenants contained in this
Section 11 from the date hereof and for so long as the Note is in existence.
20
(a) Liens. Borrowers will not create, incur, assume or permit to exist
any lien, security interest or other encumbrance on any of its materials,
assets or properties, including, but not limited to, Oil and Gas
Properties, except Permitted Liens or Liens in favor of Bank.
(b) Sales of Assets. The Borrowers will not sell, lease or otherwise
transfer, directly or indirectly, all or any material part of the Oil and
Gas Properties or oil and gas assets, to any other person or entity, except
sales, leases or other transfers (i) made in the ordinary course of
business by Borrowers, or (ii) sales of Oil and Gas Properties or oil and
gas assets, the gross sales proceeds of which do not exceed $250,000 in the
aggregate in any fiscal year.
(c) Debts, Guaranties and Other Obligations. Borrowers will not incur,
create, assume or in any manner become or be liable in respect of any
indebtedness, nor will the Borrowers guarantee or otherwise in any manner
become or be liable in respect of any indebtedness, liabilities or other
obligations of any other person or entity, whether by agreement to purchase
the indebtedness of any other person or entity or agreement for the
furnishing of funds to any other person or entity through the purchase or
lease of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
indebtedness of any other person or entity, or otherwise, except that the
foregoing restrictions shall not apply to:
(i) the Notes, or other indebtedness of Borrowers heretofore
disclosed to Bank in writing;
(ii) taxes, assessments or other government charges which are not
yet due or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by generally accepted accounting principles shall have
been made therefore; and
(iii) indebtedness incurred in the ordinary course of business.
(d) Dividends. The aggregate cash dividends paid on the stock of
Panhandle shall not exceed an amount equal to 50% of Panhandle's
consolidated cash flow from operations (as determined in accordance with
GAAP) after payment of any debt service requirements on a consolidated
basis, to be tested quarterly at the end of each fiscal quarter using the
fiscal quarter ended just prior to the testing date plus the previous three
fiscal quarters. Wood Oil may pay any dividends to Panhandle without any
restriction or limitation so long as Wood Oil remains a wholly owned
subsidiary of Panhandle.
(e) Stock Acquisitions. Borrowers shall not acquire in any fiscal year
treasury stock with a value exceeding $75,000 in the aggregate and on a
21
consolidated basis. This limitation shall not apply to purchases of stock
from the Employee Stock Ownership Plan. Borrowers' right to purchase stock
through or from the Employee Stock Ownership Plan or treasury stock shall
end upon the occurrence of an Event of Default.
(f) Other Negative Pledges. Borrowers will not grant a negative pledge
on any of their assets except the negative pledge granted herein to Bank.
(g) Net Income. Borrowers shall not allow their consolidated net
income (calculated in accordance with GAAP), to ever be less than zero
($0.00), excluding therefrom: (i) the effect of any oil and gas property
asset writedowns mandated by the Securities and Exchange Commission
regulations regarding capitalized assets, and (ii) costs for exploratory
wells determined to be incapable of producing oil, gas or other
hydrocarbons in commercially paying quantities or so called "dry holes."
Net income under this provision will be tested quarterly using the fiscal
quarter ending just prior to the testing date plus the previous three
fiscal quarters.
12. EVENTS OF DEFAULT. Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Borrowers shall fail to pay within five (5) days of when due or
declared due the principal of or interest on the Notes or any fee or any
other indebtedness of Borrowers incurred pursuant to the Loan Documents; or
(b) Any representation or warranty made by Borrowers under the Loan
Documents, or in any certificate or statement furnished or made to Bank
pursuant thereto, or in connection herewith, or in connection with any
document furnished hereunder, shall prove to be untrue in any material
respect as of the date on which such representation or warranty is made (or
deemed made), or any representation, statement (including financial
statements), certificate, report or other data furnished or to be furnished
or made by any Borrower under the Loan Documents, proves to have been
untrue in any material respect, as of the date on which the facts therein
set forth were stated or certified, and such untruth shall continue for
more than thirty (30) days; or
(c) Default shall be made in the due observance or performance of any
of the covenants or agreements of the Borrowers contained in the Loan
Documents, and such default shall continue for more than thirty (30) days;
or
(d) Default shall be made in respect of any obligation for borrowed
money, other than the Notes, for which any Borrower is liable (directly, by
assumption, as guarantor or otherwise), or any obligations secured by any
mortgage, pledge or other security interest, lien, charge or encumbrance
with respect thereto, on any asset or property of any Borrower or in
respect of any agreement relating to any such obligations, and such default
shall continue beyond the applicable grace period, if any; or
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(e) Any Borrower shall commence a voluntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking an appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action authorizing the
foregoing; or
(f) An involuntary case or other proceeding shall be commenced against
any Borrower seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of sixty (60)
days; or an order for relief shall be entered against any Borrower under
the federal bankruptcy laws as now or hereinafter in effect; or
(g) A final judgment or order for the payment of money in excess of
$100,000.00 (or judgments or orders aggregating in excess of $100,000.00)
shall be rendered against any Borrower and such judgment or order shall
continue unsatisfied and unstayed for a period of thirty (30) days; or
(h) In the event the aggregate principal amount outstanding under the
Notes shall at any time exceed the Borrowing Base established for the
Notes, Borrowers shall fail to provide such additional Oil and Gas
Properties or prepay the principal of the Notes, or either of them, in
compliance with the provisions of Section 7 hereof.
Upon occurrence of any Event of Default specified in Subsections 12(e) and
12(f) hereof, the Revolving Loan Commitment and the Term Loan Commitment shall
terminate and the entire principal amount due under the Notes and all interest
then accrued thereon, and any other liabilities of Borrowers hereunder, shall
become immediately due and payable all without notice and without presentment,
demand, protest, notice of protest or dishonor or any other notice of default of
any kind, all of which are hereby expressly waived by Borrowers. In any other
Event of Default, the Bank may by notice to Borrowers terminate the Revolving
Loan Commitment and the Term Loan Commitment and declare the principal of, and
all interest then accrued on, the Notes and any other liabilities hereunder to
be forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest or other notice of any kind, all of
which Borrowers hereby expressly waive, anything contained herein or in the
Notes to the contrary notwithstanding. Nothing contained in this Section 12
shall be construed to limit or amend in any way the Events of Default enumerated
in the Notes, or any other of the Loan Documents.
23
Upon the occurrence and during the continuance of any Event of Default, the
Bank is hereby authorized at any time and from time to time, without notice to
Borrowers (any such notice being expressly waived by Borrowers), to set off and
apply 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 the Bank to
or for the credit or the account of the Borrowers against any and all of the
indebtedness of the Borrowers under the Notes and the Loan Documents,
irrespective of whether or not the Bank shall have made any demand under the
Loan Documents, including this Agreement or the Notes and although such
indebtedness may be unmatured. Any amount set off by the Bank shall be applied
against the indebtedness owed the Bank by Borrowers. The Bank agrees promptly to
notify Borrowers after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Bank under this Section 12 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which the Bank may have. None of the rights granted to the Bank in this
Section 12 shall apply to any deposits held by the Bank constituting trust funds
and so identified to the Bank at the time the applicable deposit account is
created. Within three (3) Business Days after such setoff or appropriation by
the Bank, the Bank shall give Borrowers written notice thereof. However, a
failure to give such notice will not affect the validity of the setoff or
appropriation.
13. EXERCISE OF RIGHTS. No failure to exercise, and no delay in exercising,
on the part of the Bank, any right under any of the Loan Documents shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right. The
rights of the Bank under the Loan Documents shall be in addition to all other
rights provided by law. No modification or waiver of any provision of the Loan
Documents or consent to departure therefrom, shall be effective unless in
writing, and no such consent or waiver shall extend beyond the particular case
and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other
circumstances without such notice or demand.
14. NOTICES. Any notices or other communications required or permitted to
be given by this Agreement or any other Loan Documents and instruments referred
to herein must be given in writing and must be: (a) personally delivered; (b)
mailed by prepaid certified or registered mail, or (c) sent by (i) overnight
express mail and (ii) telecopier or facsimile machine, to the party to whom such
notice or communication is directed at the address of such party as follows: (a)
BORROWERS: PANHANDLE ROYALTY COMPANY and PHC, INC., Suite 210 Grand Centre, 5400
N.W. Grand Blvd., Oklahoma City, Oklahoma 73112-5088, Attention: Michael C.
Coffman, Vice President/Treasurer; (b) WOOD OIL COMPANY, Suite 210 Grand Centre,
5400 N.W. Grand Blvd., Oklahoma City, Oklahoma 73112-5088, Attention: Michael C.
Coffman, Vice President/Treasurer; (c) BANCFIRST, 101 N. Broadway, Oklahoma
City, Oklahoma 73102, Attention: E.G. Alexander, Senior Vice President. Any such
notice or other communication shall be deemed to have given (whether actually
received or not) on the day it is personally delivered, if personally delivered
as aforesaid or, if mailed, on the fifth day after it is mailed as aforesaid or,
if sent overnight or by fax as aforesaid,
24
one day thereafter. Any party may change its address for purposes of this
Agreement by giving notice of such change to the other party pursuant to this
Section 14. Upon receipt by Bank of any such notice, Bank shall promptly provide
copies of such notice or notices to the Bank.
15. EXPENSES.
(a) Borrowers agree, jointly and severally, to pay, in immediately
available funds, to the Bank (i) all reasonable attorney's fees incurred by
the Bank in respect of the preparation, documentation, recordation,
amendments and the enforcement of rights of the Bank under the terms of
this Agreement and the Loan Documents, (ii) all out-of-pocket costs and
expenses of the Bank incurred in connection with the filing, recording,
refiling or re-recording of any Security Instruments relating to the
Collateral and all amendments or supplements to any thereof and any and all
other documents or instruments or further assurances required to be filed
or recorded or refiled or re-recorded, and (iii) the reasonable costs and
expenses incurred by the Bank to enforce the rights of the Bank under the
terms of the Loan Documents including, without limitation, reasonable
attorney's fees. The Borrower hereby authorizes the Bank to, in Bank's
discretion, charge Borrower's deposit accounts with Bank or, in the
alternative, advance funds from the Notes to pay any such fees, costs or
expenses. In addition, the Borrower agrees to pay, and to save the Bank
harmless from all liability for any stamp or other taxes which may be
payable in connection with the execution or delivery of this Agreement or
the issuance of the Notes or of any other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection
herewith. All fees, costs and expenses chargeable to the Borrower under the
terms of the Loan Documents shall be payable immediately upon receipt of an
invoice or other notification thereof from the Bank to Borrowers.
(b) Borrowers shall pay (i) any waiver or consent hereunder or any
amendment hereof or any default or Event of Default and (ii) if a default
or an Event of Default occurs, all reasonable and necessary out-of-pocket
expenses incurred by the Bank, including fees and disbursements of counsel,
in connection with such default and Event of Default and collection and
other enforcement proceedings resulting therefrom. The Borrowers shall
indemnify the Bank against any transfer taxes, document taxes, assessments
or charges made by any governmental authority by reason of the execution
and delivery of the Loan Documents.
(c) Borrowers agree to indemnify and hold harmless the Bank from and
against any loss, cost, liability, damage or expense (including the
reasonable fees and out-of-pocket expenses of counsel to the Bank,
including all local counsel hired by such counsel) incurred by the Bank in
investigating or preparing for, defending against, or providing evidence,
producing documents or taking any other action in respect of any commenced
or threatened litigation, administrative proceeding or investigation under
any federal securities law or any other statute of any jurisdiction, or any
regulation, or at common law or otherwise, which is
25
alleged to arise out of or is based upon any acts, practices or omissions
or alleged acts, practices or omissions of any Borrower or its agents. The
indemnity set forth herein shall be in addition to any other obligations or
liabilities of the Borrowers to the Bank hereunder or at common law or
otherwise, and shall survive any termination of this Agreement, the
expiration of the Revolving Loan Commitment, the expiration of the Term
Loan Commitment, and the payment of all indebtedness of the Borrowers to
the Bank under the Notes or the Loan Documents; provided that the Borrowers
shall have no obligation under this Section 15 to the Bank with respect to
any of the foregoing arising out of the gross negligence, or willful
misconduct of the Bank.
16. GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN OKLAHOMA CITY, OKLAHOMA, AND THE SUBSTANTIVE LAWS
OF OKLAHOMA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS OF
ANOTHER STATE REQUIRE THE APPLICATION OF THE LAWS OF SUCH STATE. THIS AGREEMENT
SHALL GOVERN AND CONTROL OVER ANY INCONSISTENT PROVISIONS, IF ANY, CONTAINED IN
ANY OF THE OTHER LOAN DOCUMENTS.
17. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
18. MAXIMUM INTEREST RATE. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the Bank
shall never be deemed to have contracted for or be entitled to receive, collect
or apply as interest on the Notes any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and in the event the Bank
ever receives, collects or applies as interest any such excess, or if an
acceleration of the maturities of the Notes or if any prepayment by Borrowers
results in Borrowers having paid any interest in excess of the maximum rate,
such amount which would be excessive interest shall be applied to the reduction
of the unpaid principal balance of the Notes for which such excess was received,
collected or applied, and, if the principal balance of such Notes is paid in
full, any remaining excess shall forthwith be paid to Borrowers. All sums paid
or agreed to be paid to the Bank for the use, forbearance or detention of the
indebtedness evidenced by the Notes and/or the Loan Documents shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
maximum lawful rate permitted under applicable law. In determining whether or
not the interest paid or payable under any specific contingency exceeds the
maximum rate of interest permitted by law, Borrowers
26
and the Bank shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or premium, rather
than as interest; and (ii) exclude voluntary prepayments and the effect thereof;
and (iii) compare the total amount of interest contracted for, charged or
received with the total amount of interest which could be contracted for,
charged or received throughout the entire contemplated term of the Notes at the
maximum lawful rate under applicable law.
19. AMENDMENTS. This Agreement may be amended only by an instrument in
writing executed by an authorized officer of the party against whom such
amendment is sought to be enforced.
20. MULTIPLE COUNTERPARTS. This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
21. SURVIVAL. All covenants, agreements, undertakings, representations and
warranties made in this Agreement, the Notes or other Loan Documents referred to
herein shall survive all closings hereunder and shall not be affected by any
investigation made by any party.
22. PARTIES BOUND. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that no Borrower may,
without the prior written consent of the Bank, assign any rights, powers, duties
or obligations hereunder.
23. PARTICIPATIONS. The Bank shall have the right at any time and from time
to time to sell one or more participations in the Notes or any Advance
thereunder. Except for the participation referred to in Section 2(e) herein, the
Bank shall notify Panhandle in writing of the sale of any such participations.
To the extent of any such participation, the provisions of this Agreement shall
inure to the benefit of, and be binding on, each participant, including, but not
limited to, any indemnity from Borrowers to the Bank. The Borrowers shall have
no obligation or liability to and no obligation to negotiate or confer with, any
participant, and Borrowers shall be entitled to treat the Bank as the sole owner
of the Notes without regard to notice or actual knowledge of any such
participation. Upon the occurrence of a default or an Event of Default, each
participant will have and is hereby granted the right to set off against and to
appropriate and apply from time to time, without prior notice to the Borrowers
or any other party, any such notice being hereby expressly waived, any and all
deposits (general or special or other indebtedness or claims, direct or
indirect, contingent or otherwise), at any time held or owing by the participant
to or for the credit or account of any Borrower against the payment of the Notes
and any other obligations of the Borrowers hereunder, provided, however, none of
the rights granted in this Section 23 shall apply to any deposits held by any
participant constituting trust funds and so identified to such participant at
the time the applicable deposit account is created. Within three (3) Business
Days after such setoff or appropriation by a participant, that participant shall
give Borrowers written notice
27
thereof. However, a failure to give any such notices will not affect the
validity of this setoff or appropriation.
24. OTHER AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"BORROWERS": PANHANDLE ROYALTY COMPANY,
an Oklahoma corporation
By:
--------------------------------------
Name: H W Peace, II
Title: President and CEO
PHC, INC., an Oklahoma corporation
By:
--------------------------------------
Name: H W Peace, II
Title: President and CEO
WOOD OIL COMPANY,
an Oklahoma corporation
By:
--------------------------------------
Name: H W Peace, II
Title: President and CEO
"BANK": BANCFIRST, an Oklahoma banking corporation
By:
--------------------------------------
Ed Alexander, Senior Vice President
28