-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I25bcwWf9bcMwTRSL7gSwnMqD7k3D+sKR70QJyaaN05xWIW6lPzZt5aDNGMVO0AD 4gRwg9V/Vync1U1bDoJI5w== 0000950136-97-000871.txt : 19970708 0000950136-97-000871.hdr.sgml : 19970708 ACCESSION NUMBER: 0000950136-97-000871 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970707 SROS: NYSE GROUP MEMBERS: FIRST RESERVE CORP /CT/ /ADV GROUP MEMBERS: FIRST RESERVE FUND VII, LIMITED PARTNERSHIP GROUP MEMBERS: JOHN A. HILL GROUP MEMBERS: WILLIAM R. MACAULAY SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DOMAIN ENERGY CORP CENTRAL INDEX KEY: 0001037192 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760526147 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-51215 FILM NUMBER: 97636641 BUSINESS ADDRESS: STREET 1: 1100 LOUISIANA SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7137575662 MAIL ADDRESS: STREET 1: P O BOX 2511 CITY: HOUSTON STATE: TX ZIP: 77252 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST RESERVE CORP /CT/ /ADV CENTRAL INDEX KEY: 0000814313 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061210123 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 7132277890 MAIL ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: FIRST RESERVE CORP /CT/ /ADV DATE OF NAME CHANGE: 19950630 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )* DOMAIN ENERGY CORPORATION - ------------------------------------------------------------------------------- (NAME OF ISSUER) COMMON STOCK, PAR VALUE $.01 PER SHARE - ------------------------------------------------------------------------------- (TITLE OF CLASS OF SECURITIES) 257-027-102 ------------------------------------------------------------ (CUSIP NUMBER) FIRST RESERVE CORPORATION 475 STEAMBOAT ROAD GREENWICH, CONNECTICUT 06830 (203) 661-6601 - ------------------------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) JUNE 27, 1997 ------------------------------------------------------------ (DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT) IF THE FILING PERSON HAS PREVIOUSLY FILED A STATEMENT ON SCHEDULE 13G TO REPORT THE ACQUISITION WHICH IS THE SUBJECT OF THIS SCHEDULE 13D, AND IS FILING THIS SCHEDULE BECAUSE OF RULE 13D-1(B)(3) OR (4), CHECK THE FOLLOWING BOX [ ]. CHECK THE FOLLOWING BOX IF A FEE IS BEING PAID WITH THIS STATEMENT [X] (A FEE IS NOT REQUIRED ONLY IF THE REPORTING PERSON: (1) HAS A PREVIOUS STATEMENT ON FILE REPORTING BENEFICIAL OWNERSHIP OF MORE THAN FIVE PERC NT OF THE CLASS OF SECURITIES DESCRIBED IN ITEM 1; AND (2) HAS FILED NO AMENDMENT SUBSEQUENT THERETO REPORTING BENEFICIAL OWNERSHIP OF FIVE PERCENT OR LESS OF SUCH CLASS.) (SEE RULE 13D-7.) NOTE: SIX COPIES OF THIS STATEMENT, INCLUDING ALL EXHIBITS, SHOULD BE FILED WITH THE COMMISSION. SEE RULE 13D-1(A) FOR OTHER PARTIES TO WHOM COPIES ARE TO BE SENT. * THE REMAINDER OF THIS COVER PAGE SHALL BE FILLED OUT FOR A REPORTING PERSON'S INITIAL FILING ON THIS FORM WITH RESPECT TO THE SUBJECT CLASS OF SECURITIES, AND FOR ANY SUBSEQUENT AMENDMENT CONTAINING INFORMATION WHICH WOULD ALTER DISCLOSURES PROVIDED IN A PRIOR COVER PAGE. THE INFORMATION REQUIRED ON THE REMAINDER OF THIS COVER PAGE SHALL NOT BE DEEMED TO BE "FILED" FOR THE PURPOSE OF SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 ("ACT") OR OTHERWISE SUBJECT TO THE LIABILITIES OF THAT SECTION OF THE ACT BUT SHALL BE SUBJECT TO ALL OTHER PROVISIONS OF THE ACT (HOWEVER, SEE THE NOTES). PAGE 1 OF 128 PAGES SCHEDULE 13D - --------------------- ----------------------- CUSIP NO. 257-027-102 PAGE 2 OF 128 PAGES - --------------------- ----------------------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON First Reserve Fund VII, Limited Partnership - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 7,820,718 NUMBER OF ----------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 0 EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 7,820,718 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,820,718 - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 54.7 - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - ------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION SCHEDULE 13D - --------------------- ----------------------- CUSIP NO. 257-027-102 PAGE 3 OF 128 PAGES - --------------------- ----------------------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON First Reserve Corporation I.R.S. Identification No.: 06-1210123 - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 7,820,718 NUMBER OF ----------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 0 EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 7,820,718 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,820,718 - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 54.7 - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - ------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION SCHEDULE 13D - --------------------- ----------------------- CUSIP NO. 257-027-102 PAGE 4 OF 128 PAGES - --------------------- ----------------------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON William E. Macaulay - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* Not Applicable - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF ----------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 0 EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0 - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - ------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION SCHEDULE 13D - --------------------- ----------------------- CUSIP NO. 257-027-102 PAGE 5 OF 128 PAGES - --------------------- ----------------------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON John A. Hill - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* Not Applicable - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - ------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF ----------------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY 0 EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 - ------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0 - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - ------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION Page 6 of 128 Pages Item 1. Security and Issuer. This statement relates to shares of Common Stock, $.01 par value per share (the "Common Stock"), of Domain Energy Corporation, a Delaware corporation (the "Issuer"). The principal executive offices of the Issuer are located at 1100 Louisiana, Suite 1500, Houston, Texas 77002. Item 2. Identity and Background. This statement is being filed jointly by First Reserve Fund VII, Limited Partnership ("Fund VII"), First Reserve Corporation ("First Reserve"), William E. Macaulay and John A. Hill (together with Mr. Macaulay, Fund VII and First Reserve, the "Reporting Persons") to report the acquisition by Fund VII of shares of Common Stock. First Reserve is the sole general partner of Fund VII. The agreement among the Reporting Persons relating to the joint filing of this statement is attached as Exhibit 1 hereto. Fund VII is a Delaware limited partnership. Its principal purpose is to make equity and debt investments in companies engaged in various energy and energy related activities, including, but not limited to, energy production, processing, transmission, distribution, marketing, equipment manufacturing, electrical generation, and technical services, and in energy assets such as oil and gas reserves or processing and transmission facilities. First Reserve is a Delaware corporation which raises funds for and manages Fund VII along with a number of limited partnerships similar in purpose to Fund VII (together with Fund VII, the "Funds"). The principal business of First Reserve is to act as general partner and provide investment management services to the Funds. Page 7 of 128 Pages The principal business and office address of Fund VII and First Reserve is 475 Steamboat Road, Greenwich, Connecticut 06830. William E. Macaulay is the President, Chief Executive Officer, a Managing Director and a Director of First Reserve. John A. Hill is the Chairman, a Managing Director and a Director of First Reserve. Messrs. Macaulay and Hill are each United States citizens and the principal occupation or employment of each is as an officer and director of First Reserve. The business address of Messrs. Macaulay and Hill is 475 Steamboat Road, Greenwich, Connecticut 06830. Information with respect to the executive officers and directors of First Reserve, including name, business address, present principal occupation or employment and the organization in which such employment is conducted, and their citizenship is listed on the schedule attached hereto as Schedule I, which is incorporated into this Schedule 13D by reference. During the last five years, none of the Reporting Persons nor, to the best knowledge of the Reporting Persons, any of the other persons named in this Item 2 nor any of the executive officers or directors of First Reserve: (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Page 8 of 128 Pages Item 3. Source and Amount of Funds or Other Consideration. On June 27, 1997, the Issuer sold 6,000,000 shares of Common Stock in an initial public offering (the "Offering") at a per share price of $13.50. Concurrently with the consummation of the Offering, the Issuer sold 643,037 shares of Common Stock, at a per share price equal to $13.50, to Fund VII for an aggregate purchase price of $8,681,000. Prior to June 27, 1997, Fund VII was the record owner of 7,177,681 shares of Common Stock of the Issuer. After giving effect to the sale of 643,037 shares of Common Stock to Fund VII by the Issuer on June 27, 1997, Fund VII is the record holder of 7,820,718 shares of Common Stock. As more fully described in Item 6 hereof, the $8,681,000 aggregate purchase price represents the sum of (i) the principal amount of an $8.0 million note between Fund VII, the obligee, and a subsidiary of the Issuer, the obligor, plus the accrued interest thereon through June 15, 1997 (all of which was deemed paid in full by the issuance of the shares of Common Stock) and (ii) $500,000 paid in cash by Fund VII. The $500,000 in cash and the $8,000,000 initially loaned to the Issuer were obtained by Fund VII through equity contributions by the partners of Fund VII. Item 4. Purpose of Transaction. Fund VII acquired the 643,037 shares of Common Stock on June 27, 1997 disclosed in Item 3 of this Schedule 13D in order to increase its ownership interest in the Issuer. Fund VII and First Reserve intend to review on a continuing basis Fund VII's investment in the Issuer, and Fund VII and First Reserve may decide to increase or decrease Fund VII's investment in the Page 9 of 128 Pages Issuer depending upon the price and availability of the Issuer's securities, subsequent developments affecting the Issuer, the Issuer's business and prospects, other investment and business opportunities available to Fund VII, general stock market and economic conditions, tax considerations and other factors. Except as described above, at the present time the Reporting Persons do not have any plans or proposals that would relate to any transaction, change or event specified in clauses (a) through (j) of Item 4 of the Schedule 13D form (although they reserve the right to develop such plans). Item 5. Interest in Securities of the Issuer. (a) and (b) As of June 23, 1997, Fund VII directly beneficially owns 7,820,718 shares of Common Stock (the "Fund VII Shares") which constitutes 54.7% of the currently outstanding Common Stock after giving effect to the Offering and concurrent sale of 643,037 shares of Common Stock by the Issuer to Fund VII. First Reserve, as the sole general partner of Fund VII, has the power to direct the voting of and disposition of any shares of Common Stock deemed to be beneficially owned by Fund VII. As a result, as of June 23, 1997, under the definition of "beneficial ownership" as set forth in Rule 13d-3 under the Exchange Act, First Reserve may be deemed to beneficially own the Fund VII Shares. Messrs. Macaulay and Hill may be deemed to share beneficial ownership of the shares beneficially owned by First Reserve as a result of Messrs. Macaulay and Hill's ownership of common stock of First Reserve. Messrs. Macaulay and Hill disclaim beneficial ownership of such shares. Except as set forth otherwise in this Schedule 13D, Page 10 of 128 Pages neither the filing of this Schedule 13D nor any of its contents shall be deemed to constitute an admission that Mr. Macaulay or Mr. Hill is the beneficial owner of the Common Stock referred to in this paragraph for purposes of Section 13(d) of the Exchange Act or for any other purpose, and such beneficial ownership is expressly disclaimed. (c) Except as set forth in this Item 5, to the best knowledge of each of the Reporting Persons, none of the Reporting Persons and no other person described in Item 2 hereof has beneficial ownership of, or has engaged in any transaction during the past 60 days in, any shares of Common Stock. (d) To the best knowledge of the Reporting Persons, no other person has the right to receive, or the power to direct the receipt of dividend from, or the power to direct the receipt of proceeds of the sale of the Fund VII Shares. (e) Not applicable. Item 6. Contracts, Arrangements or Understandings with Respect to Securities of the Issuer. The Issuer, Fund VII and certain of the Issuer's officers (the "Management Investors") are parties to a Securityholders Agreement dated as of December 31, 1996 (the "Securityholders Agreement"). The Securityholders Agreement contains provisions governing the management of the Issuer, voting of shares, election of directors and restrictions on transfer of shares, all of which terminated automatically upon the completion of the Offering. In addition, the Securityholders Agreement provides Fund VII the right on four occasions to require the Issuer to register all or part of Fund VII's registrable shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), Page 11 of 128 Pages and the Issuer is required to use its reasonable best efforts to effect such registration, subject to certain conditions and limitations. Upon the Issuer's receipt of a demand from Fund VII to register all or part of its registrable shares, the Issuer is required to notify the other parties to the Securityholders Agreement of the demand, and such parties shall, subject to certain conditions and limitations, have the right to include the registrable shares held by them in such registration. The Securityholders Agreement also provides all the parties thereto with piggyback registration rights on any offering by the Issuer of any of its securities to the public except a registration on Forms S-4 or S-8 under the Securities Act; provided, however, that until two years after the date of the Offering, the Management Investors will not have piggyback registration rights with respect to any registration in which Fund VII or any of its permitted transferees are not participating. The Issuer will bear the expenses of all registrations under the Securityholders Agreement. In connection with the Issuer's acquisition (the "Acquisition") of all of the outstanding capital stock of its operating subsidiaries, Domain Energy Ventures Corporation and Domain Energy Production Corporation, Fund VII loaned $8,000,000 to Domain Energy Guarantor Corporation, a Delaware corporation and a wholly-owned subsidiary of the Issuer ("Domain Guarantor"). The $8,000,000 loan was evidenced by a Subordinated Promissory Note dated December 31, 1996 (the "Note"). Pursuant to the Subscription Agreement dated December 31, 1996 (the "First Reserve Subscription Agreement"), between the Issuer and Fund VII, the Issuer granted to Fund VII an option (the "First Page 12 of 128 Pages Reserve Option") to acquire 1,914,048 shares of Common Stock for an aggregate purchase price of $8,000,000 plus any cash interest payment on the Note actually received by Fund VII (the "Option Price"). The Option Price could be paid by Fund VII at its option (i) prior to the date on which the Note had been paid in full, by delivery to the Issuer of the Note together with the payment in cash of any principal or interest payments on the Note previously received by Fund VII and (ii) after the date on which the Note has been paid in full, by payment of the Option Price in cash. In connection with the Offering, the Issuer and Fund VII agreed to restructure the terms of the First Reserve Option as set forth below. Pursuant to a Letter Agreement dated June 6, 1997 (the "Letter Agreement"), the Issuer and Fund VII agreed that concurrently with the consummation of the Offering, Fund VII would purchase 643,037 shares of Common Stock, at a price per share of $13.50, for an aggregate purchase price of $8,681,000. The amount of $8,681,000 represents the sum of (i) the outstanding principal balance of the Note plus estimated accrued interest thereon through June 15, 1997 and (ii) $500,000 to be paid in cash by Fund VII. The Securityholders Agreement, the First Reserve Subscription Agreement and the Letter Agreement are attached as Exhibits to this Schedule 13D and are incorporated herein by reference. The above summaries of the material provisions of the Securityholders Agreement, the First Reserve Subscription Agreement and the Letter Agreement are qualified in their entirety by reference to the Securityholders Agreement, the First Reserve Subscription Agreement and the Letter Agreement. Page 13 of 128 Pages Except as set forth in this Item 6, to the best knowledge of the Reporting Persons, there are no other contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities of the Issuer, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies, or a pledge or contingency the occurrence of which would give another person voting power over the securities of the Issuer. Item 7. Material to be Filed as Exhibits. 1. Joint Filing Agreement, dated July 2, 1997, between First Reserve Fund VII, Limited Partnership ("Fund VII") and First Reserve Corporation ("First Reserve") relating to the filing of a joint statement on Schedule 13D. 2. Securityholders Agreement, dated December 31, 1996, among the Domain Energy Corporation (the "Issuer"), Fund VII and the Issuer's officers who have purchased Common Stock (the "Management Investors"). 3. First Reserve Subscription Agreement, dated December 31, 1996, between the Issuer and Fund VII. 4. Letter Agreement, dated June 6, 1997, between the Issuer and Fund VII. Page 14 of 128 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. FIRST RESERVE CORPORATION By: /s/ Jonathan S. Linker -------------------------------- Name: Jonathan S. Linker Title: Managing Director FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By First Reserve Corporation, as General Partner By: /s/ David H. Kennedy -------------------------------- Name: David H. Kennedy Title: Managing Director /s/ William E. Macaulay ----------------------------------- Name: WILLIAM E. MACAULAY /s/ John A. Hill ----------------------------------- Name: JOHN A. HILL DATED: July 2, 1997 SCHEDULE I First Reserve Corporation Officers: - --------- Business Principal Name Address Occupation Office Citizenship - ---- -------- ---------- ------ ----------- William E. 475 Steamboat Employee of President, Chief U.S. Macaulay Road, Greenwich, First Reserve Executive Connecticut Corporation, a Officer, 06830 private Managing investment Director and company ("First Director Reserve") John A. 475 Steamboat Employee, First Chairman, U.S. Hill Road, Greenwich, Reserve Managing Connecticut Director and 06830 Director David H. 475 Steamboat Employee, First Managing U.S. Kennedy Road, Greenwich, Reserve Director and Connecticut Director 06830 Jonathan 475 Steamboat Employee, First Managing U.S. S. Linker Road, Greenwich, Reserve Director and Connecticut Director 06830 Bruce M. 475 Steamboat Employee, First Managing U.S. Rothstein Road, Greenwich, Reserve Director and Connecticut Director 06830 Elizabeth 475 Steamboat Employee, First Managing U.S. C. Foley Road, Greenwich, Reserve Director, Connecticut Secretary and 06830 Treasurer INDEX TO EXHIBITS ----------------- Exhibit Number Description of Exhibits - -------------- ----------------------- 1. Joint Filing Agreement, dated July 2, 1997, between First Reserve Fund VII, Limited Partnership ("Fund VII") and First Reserve Corporation ("First Reserve") relating to the filing of a joint statement on Schedule 13D. 2. Securityholders Agreement dated as of December 31, 1996, among the Domain Energy Corporation (the "Issuer"), Fund VII and the Issuer's officers who have purchased Common Stock (the "Management Investors"). 3. First Reserve Subscription Agreement, dated as of December 31, 1996, between the Issuer and Fund VII. 4. Letter Agreement, dated June 6, 1997, between the Issuer and Fund VII. EX-1 2 JOINT FILING AGREEMENT EXHIBIT 1 --------- JOINT FILING AGREEMENT ---------------------- We, the signatories of the statement on Schedule 13D to which this Agreement is attached, hereby agree that such statement is, and any amendments thereto filed by any of us will be, filed on behalf of each of us. FIRST RESERVE CORPORATION By: /s/ Jonathan S. Linker --------------------------- Name: Jonathan S. Linker Title: Managing Director FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By First Reserve Corporation, as General Partner By: /s/ David H. Kennedy --------------------------- Name: David H. Kennedy Title: Managing Director /s/ William E. Macaulay ------------------------------ Name: WILLIAM E. MACAULAY /s/ John A. Hill ------------------------------ Name: JOHN A. HILL DATED: July 2, 1997 EX-2 3 SECURITYHOLDERS AGREEMENT EXHIBIT 2 - ------------------------------------------------------------------------------ SECURITYHOLDERS AGREEMENT among DOMAIN ENERGY CORPORATION and its SECURITYHOLDERS Dated as of December 31, 1996 - ------------------------------------------------------------------------------ TABLE OF CONTENTS Page ---- ARTICLE I. Certain Definitions............................. 2 ARTICLE II. Management Agreements.......................... 10 Section 2.1. Conduct of Business......................................... 10 Section 2.2. Stock Purchase and Option Plan.............................. 13 Section 2.3. Registration of Common Stock................................ 14 ARTICLE III. Corporate Governance.......................... 14 Section 3.1. Board of Directors.......................................... 14 Section 3.2. Removal..................................................... 17 Section 3.3. Vacancies................................................... 17 ARTICLE IV. Transfers of Securities........................ 17 Section 4.1. Restrictions on Transfer.................................... 18 Section 4.2. Exceptions to Restrictions.................................. 18 Section 4.3. Legending of Certificates................................... 18 Section 4.4. Improper Transfer........................................... 19 ARTICLE V. Purchase Rights................................. 20 Section 5.1. Transfers by a Management Investor.......................... 20 Section 5.2. Puts and Calls.............................................. 21 Section 5.3. Right of First Refusal for New Securities................... 25 Section 5.4. Right to Join in Sale....................................... 26 Section 5.5. Rights to Compel Sale....................................... 27 ARTICLE VI. Registration Rights............................ 29 Section 6.1. Demand Registrations........................................ 29 Section 6.2. Piggyback Registrations..................................... 31 Section 6.3. Registration Procedures..................................... 33 Section 6.4. Indemnification............................................. 37 Section 6.5. Contribution................................................ 40 Section 6.6. Rule 144.................................................... 41 ARTICLE VII. Termination................................... 42 Section 7.1. Certain Terminations........................................ 42 -i- Page ---- ARTICLE VIII. Miscellaneous................................ 42 Section 8.1. Successors and Assigns...................................... 42 Section 8.2. Amendment and Modification; Waiver of Compliance............ 42 Section 8.3. Notices..................................................... 43 Section 8.4. Entire Agreement; Governing Law............................. 44 Section 8.5. Injunctive Relief........................................... 44 Section 8.6. Inspection.................................................. 44 Section 8.7. Headings.................................................... 44 Section 8.8. Recapitalizations, Exchanges, Etc., Affecting the Securities.................................... 44 Section 8.9. Counterparts................................................ 45 Section 8.10. Additional Management Investors............................. 45 -ii- SECURITYHOLDERS AGREEMENT SECURITYHOLDERS AGREEMENT, dated as of December 31, 1996, among DOMAIN ENERGY CORPORATION, a Delaware corporation (together with its successors and assigns, the "Company"), FIRST RESERVE FUND VII, LIMITED PARTNERSHIP (together with its successors and Permitted Transferees, the "First Reserve Stockholders"), and the individuals named on the signature page hereof under "Management Investors" (collectively, together with their respective successors and assigns and any other individuals who become a party to this agreement and are designated as "Management Investors" and their successors and assigns, the "Management Investors"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company is authorized by its Certificate of Incorporation (the "Certificate of Incorporation") (a true and correct copy of which, as in effect on the date hereof, has been delivered to each Securityholder) to issue capital stock consisting of 20,000 shares of Common Stock, par value $.01 per share (the "Common Stock"); WHEREAS, on the date hereof an aggregate of 9,519.4717 shares of Common Stock are owned of record and beneficially by the First Reserve Stockholders and no other shares of Common Stock, or warrants, options, rights or other securities exercisable for or convertible into Common Stock are issued or outstanding (except pursuant to the First Reserve Option (as defined below) and the Stock Option Agreements under the Stock Option and Purchase Plan); WHEREAS, pursuant to a Management Investor's Agreement Subscription Agreement of even date herewith, Michael V. Ronca, President and Chief Executive Officer of the Company and a Management Investor, has subscribed for the purchase of 206.2552 shares of Common Stock, subject to the terms and conditions set forth therein; WHEREAS, subject to compliance with the Securities Act, and all relevant state securities acts, rules and regulations, promptly after the date hereof, the Company intends to offer for sale to the other Management Investors 274.2731 shares of Common Stock; WHEREAS, the parties hereto deem it in their best interests and in the best interests of the Company to provide consistent and uniform management for the Company and desire to enter into this Agreement in order to effectuate that purpose and to set forth their respective rights and obligations in connection with their investment in the Company; and 2 WHEREAS, the parties hereto also desire to restrict the sale, assignment, transfer, encumbrance or other disposition of the shares of Common Stock and of any outstanding options therefor, including issued and outstanding shares of Common Stock as well as shares of Common Stock that may be issued hereafter, and to provide for certain rights and obligations in respect thereto as hereinafter provided; NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, the parties hereto hereby agree as follows: ARTICLE I. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "Acquiror" shall have the meaning assigned to such term in Section 5.5(a). "affiliate" shall mean with respect to any Person, (a) any Person which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, (b) any Person who is a director or executive officer (i) of such Person, (ii) of any subsidiary of such Person, or (iii) of any Person described in the foregoing clause (a), or (c) any spouse, parent, sibling, mother-in-law, father-in-law, brother-in-law, sister-in-law, aunt, uncle, first cousin or direct descendant of any Person described in the foregoing clause (b). For purposes of this definition, "control" of a Person shall mean the power, direct or indirect, (i) to vote or direct the voting of 50% or more of the outstanding shares of voting Capital Stock of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agreement" shall mean this Agreement as in effect on the date hereof and as hereafter from time to time amended, modified or supplemented in accordance with the terms hereof. "Board of Directors" shall mean the Board of Directors of the Company as from time to time hereafter constituted. "Book Value" means in respect of each share of Fully Diluted Common Stock an amount equal to the quotient of (a) the sum of (i) $30 million plus (ii) the aggregate net income of the Company from and after the Closing Date (as decreased by any net losses from and after the Closing Date) plus (iii) the aggregate dollar amount contributed to the Company after the date of the Closing Date as equity by the stockholders of the Company (including consideration to be received upon exercise of Stock Rights) plus (iv) to the extent reflected as deductions to Book Value in clause (ii) above, or minus, to the extent reflected as 3 additions to Book Value in clause (ii) above, extraordinary or unusual items recognized by the Company, if and to the extent determined in the sole discretion of the Compensation Committee of the Board of Directors of the Company, minus, (v) the aggregate dollar amount of any dividends paid by the Company after the Closing Date, divided by (b) the sum of the number of shares of Fully Diluted Common Stock. The calculations set forth in clauses (a)(ii), (a)(iii), (a)(iv) and (a)(v) of the immediately preceding sentence shall be determined in accordance with GAAP applied on a basis consistent with any prior periods as reflected in the consolidated financial statements of the Company. For purposes of clause (iii), the amount contributed to the Company upon any exercise of the First Reserve Option shall be deemed to equal $8 million. "By-Laws" shall mean the By-Laws of the Company as in effect on the date hereof and as hereafter amended in accordance with the terms hereof and thereof. "Call" shall have the meaning assigned to such term in Section 5.2(b)(i). "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person's capital stock or equity capital, including, without limitation, shares of common stock, shares of preferred or preference stock, general and limited partnership interests, and any rights, warrants or options exercisable for or convertible into such capital stock or equity capital. "Cause" shall have the meaning set forth in the Stock Option Agreements. "Certificate of Incorporation" is defined in the Recitals. Such term shall also include the Certificate of Incorporation as hereafter from time to time amended in accordance with the terms thereof and of this Agreement. "Closing Date" shall have the meaning specified in the First Reserve Subscription Agreement. "Common Stock" shall have the meaning set forth in the preamble. "Company" shall have the meaning assigned to such term in the preamble. "Company Securities" shall have the meaning assigned to such term in Section 6.1(g). "Compelled Sale Transfer Notice" shall have the meaning assigned to such term in Section 5.5(b)(i). 4 "Cost" shall have the meaning assigned to such term in Section 5.2(b)(ii). "Consolidated Total Capitalization" shall mean consolidated total stockholders' equity plus consolidated total long-term debt of the Company and its subsidiaries, all as determined in accordance with GAAP. "Credit Agreement" shall mean that credit agreement dated as of December 31, 1996 among Domain Energy Corporation, the parties thereto and The Chase Manhattan Bank, as Administrative Agent. "DGCL" shall have the meaning assigned to such term in Section 2.3. "Disposing Stockholder" shall have the meaning assigned to such term in Section 5.4(a). "Event" shall have the meaning assigned to such term in Section 5.2(c). "Exchange Act" shall mean, as of any date, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Fair Market Value" shall mean, if not otherwise agreed upon by the Company and the Management Investor or his Permitted Transferee at such time the valuation is made, with respect to the Common Stock, (A) if on the date as of which Fair Market Value is being determined such class of capital stock is listed on a national securities exchange or is quoted in the NASDAQ System or the over-the-counter market, the last sale price, regular way, of such security on the principal national securities exchange on which such security is at the time listed, or (B) if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on such exchange at the end of such day, or (C) if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or (D) if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case of clauses (A)-(D) averaged over a period of 20 days consisting of the day as of which Fair Market Value is being determined and the latest 19 consecutive trading days prior to such day, or (E) if the Common Stock is not publicly traded and the number of shares of Common Stock being valued is greater than or equal to 3% of the Fully Diluted Common Stock, then the fair market value of the Common Stock to be purchased as determined by a nationally recognized investment bank (the fees and expenses of which will be paid by the Company) selected by the Board of Directors and 5 reasonably acceptable to the Management Investor or his Permitted Transferee or (F) if the Common Stock is not publicly traded and the number of shares of Common Stock being valued is less than 3% of the Fully Diluted Common Stock, then the fair market value of the Common Stock as determined in good faith by the Board of Directors. If fair market value is determined by reference to (E) or (F) above, the Common Stock shall be valued on a per share basis as if the entire Company were being sold. "First Reserve" shall mean First Reserve Corporation, a Delaware corporation, and its successors. "First Reserve Option" means the option to purchase 2,538.5258 shares of Common Stock (subject to adjustment as provided in the First Reserve Subscription Agreement) granted by the Company to the First Reserve Stockholders pursuant to the First Reserve Subscription Agreement. "First Reserve Stockholders" shall have the meaning specified in the preamble. "First Reserve Subscription Agreement" means the Subscription Agreement, dated as of December 31, 1996, between the Company and the First Reserve Stockholders, as amended, supplemented or otherwise modified from time to time. "Fully Diluted Common Stock" at any time shall mean all shares of Common Stock then issued and outstanding plus all shares of Common Stock issuable upon the exercise of any Stock Rights. "GAAP" means generally accepted accounting principles from time to time in effect in the United States. "Good Reason" shall have the meaning set forth in the Form of Non-Qualified Stock Option Agreement attached hereto as Exhibit A. "Holder Request" shall have the meaning assigned to such term in Section 6.1(a). "initial shares" shall have the meaning assigned to such term in Section 6.3(f). "Liens" shall mean any lien, mortgage, pledge, charge, security interest or similar encumbrance. "Management Investors" shall have the meaning specified in the preamble. "Marketable Securities" shall mean securities that are publicly traded and have a total market valuation for all outstanding securities of the same publicly traded class after the relevant transaction of at least $150 million. 6 "NASD" means the National Association of Securities Dealers, Inc., or any successor regulatory body exercising similar functions. "New Securities" shall have the meaning assigned to such term in Section 5.3(b). "Normal Retirement" shall have the meaning assigned to such term in Section 5.2(a)(ii). "Notice Designee" shall have the meaning assigned to such term in Section 5.5(b)(i). "Option Put Price" shall have the meaning assigned to such term in Section 5.2(a). "option shares" shall have the meaning assigned to such term in Section 6.3(f). "permanent disability" shall mean a disability which renders an individual unable to engage in the activities required by such individuals job by reason of any medically determined physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. "Permitted Indebtedness" shall mean indebtedness for money borrowed under the Credit Agreement, other indebtedness for borrowed money existing on the date hereof and other indebtedness for borrowed money totalling less than $100,000 in the aggregate and incurred in the ordinary course of business. "Permitted Liens" shall mean "Permitted Encumbrances," as such term is defined in the Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including hydrocarbons) and Fixture Filing dated as of December 31, 1996 for each of Tenneco Ventures Corporation and Tenneco Gas Production Corporation in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders party to the Credit Agreement. "Permitted Number" shall have the meaning set forth in Section 5.2(c) "Permitted Transferee" shall mean, with respect to any Management Investor or First Reserve Stockholder, those Persons to whom transfers of Securities are permitted to be made by such Management Investor or First Reserve Stockholder, as the case may be, pursuant to Subsection (a), (b) or (c) of Section 4.2 hereof. "Person" shall mean an individual or a corporation, association, partnership, joint venture, organization, business, individual, trust, or any other entity or organization, including a government or any subdivision or agency thereof. 7 "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Proposed Purchaser" shall have the meaning assigned to such term in Section 5.4(b). "Public Offering" shall mean the sale of shares of Common Stock to the public subsequent to the date hereof pursuant to a registration statement under the Securities Act which has been declared effective by the SEC (other than a registration statement on Form S-8 or any other successor form). "Purchase Offer" shall have the meaning assigned to such term in Section 5.4(b). "Put" shall have the meaning assigned to such term in Section 5.2(a). "Put Price" shall have the meaning assigned to such term in Section 5.2(a). "Qualified Public Offering" shall mean a Public Offering of Common Stock, at the conclusion of which the aggregate number of issued and outstanding shares of Common Stock that have been sold to the public pursuant to one or more effective registration statements under the Securities Act is equal to at least 20% of the Fully Diluted Common Stock after giving effect to such sale and the listing of the Common Stock on the New York Stock Exchange, Inc., the American Stock Exchange, the Nasdaq Stock Market or the National Association of Securities Dealers, Inc., Automated Quotation System. "Registrable Securities" shall mean the following: (a) all shares of Common Stock (i) outstanding on the date hereof or hereafter acquired by any Securityholder or (ii) issuable under warrants or options outstanding on the date hereof or hereafter issued to any Securityholder; and (b) any shares of Common Stock issued or issuable by the Company in respect of any shares of Common Stock referred to in the foregoing clause (a) by way of a pay-in-kind dividend, stock dividend or stock split or in connection with a combination or subdivision of shares, reclassification, recapitalization, merger, consolidation or other reorganization of the Company. As to any particular Registrable Securities that have been issued, such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the 8 sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of under such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144 under the Securities Act, (iii) they shall have been otherwise transferred or disposed of, and new certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company, and subsequent transfer or disposition of them shall not require their registration or qualification under the Securities Act or any similar state law then in force, or (iv) they shall have ceased to be outstanding. "Registration Expenses" shall mean any and all out-of-pocket expenses incident to the Company's performance of or compliance with Article VI hereof, including, without limitation, all SEC, stock exchange or NASD registration and filing fees, all fees and expenses of complying with all applicable federal and state securities laws and blue sky laws (including the reasonable fees and disbursements of underwriters' counsel in connection with blue sky qualifications and NASD filings), all fees and expenses of the transfer agent and registrar for the Registrable Securities, all printing expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or "cold comfort" letters required by or incident to such performance and compliance, and, if any Registrable Securities owned by the First Reserve Stockholders or the Management Investors are included in such offering, the reasonable fees and disbursements of one firm of counsel retained by the First Reserve Stockholders or the Management Investors, respectively, but excluding underwriting discounts and commissions and applicable transfer and documentary stamp taxes, if any, which shall be borne by the seller of the securities in all cases. "Remaining Securityholders" shall have the meaning assigned to such term in Section 5.5(a). "Repurchase Eligibility Date" shall have the meaning assigned to such term in Section 5.2(c). "Sale" shall have the meaning assigned to such term in Section 5.2(b). "SEC" shall mean the Securities and Exchange Commission. "Section 512(b)(ii) Call Price" shall have the meaning assigned to such term in Section 5.2(b)(ii). "Securities" shall mean the Stock and the Stock Rights. 9 "Securities Act" shall mean, as of any date, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Securityholder" shall mean any one of (i) the First Reserve Stockholders, (ii) any Management Investor, and (iii) any Permitted Transferee of any such Person, or of any other Permitted Transferee, who becomes a party to or bound by the provisions of this Agreement in accordance with the terms hereof. "significant subsidiary" shall mean any subsidiary of the Company or any other Person that constitutes a significant subsidiary within the meaning of Rule 1-02 of Regulation S-X of the SEC. "Significant Transaction" shall have the meaning assigned to such term in Section 2.1(b) hereof. "Stock" shall mean with respect to any Person, Capital Stock of such Person of any class or classes, the holders of which are ordinarily (and not only upon the happening of a contingency) entitled to vote for the election of members of the board of directors (or Persons performing similar functions) of such Person, including, without limitation, the Common Stock. "Stock Option Agreements" means Non-Qualified Stock Option Agreements to be entered into between the Company and key executives of the Company, substantially in the form of Exhibit A hereto. "Stock Purchase and Option Plan" shall mean the 1996 Stock Purchase and Option Plan for Key Employees of Teleo Ventures, Inc. and Affiliates attached hereto as Exhibit B. "Stock Rights" shall mean at any time any and all warrants, options and other rights outstanding at such time to purchase or otherwise acquire Common Stock of the Company of any class, whether or not such warrants, options or rights are exercisable at such time, including, without limitation, all options now outstanding or hereafter granted pursuant to the First Reserve Subscription Agreement or the Stock Purchase and Option Plan. "subsidiary" shall mean as to any Person a corporation, partnership, or similar entity of which (i) a majority of the outstanding shares of voting Capital Stock, limited liability company interests, or other similar securities are at the time owned, directly or indirectly through one or more intermediaries, or both, by such Person or (ii) such Person is the general partner (or performs a role similar to a general partner). "Subsidiary Board" shall have the meaning assigned to such term in Section 3.1(a). 10 "Substantial Assets" shall mean assets having a gross fair market value in excess of, or assets to be acquired for consideration in excess of, 10% of the Consolidated Total Capitalization of the Company and its subsidiaries, as reflected on the consolidated balance sheet of the Company and its subsidiaries as at the end of the last full fiscal quarter prior to the date such determination is made. "Tag-Along Offeree" shall have the meaning assigned to such term in Section 5.4. "transfer" shall, for the purposes of Articles IV and V hereof, have the meaning assigned to such term in Section 4.1. "Transfer Stock" shall have the meaning assigned to such term in Section 5.5(a). "Underwritten Offering" shall have the meaning assigned to such term in Section 6.1(g). "Vested Stock Rights" shall mean, at any time, those Stock Rights that are then currently exercisable or which will become exercisable as a result of the consummation of the relevant transaction. ARTICLE II. MANAGEMENT AGREEMENTS SECTION 2.1. CONDUCT OF BUSINESS. (a) Each of the parties hereto agrees that, after the date hereof, except in the case of (i) issuances of New Securities (as that term is defined in Section 5.3), (ii) the issuance of shares of Common Stock pursuant to the First Reserve Option and (iii) transactions expressly contemplated by this Agreement, the Stock Purchase and Option Plan, or employment agreements between the Company and its executive management approved by the Board of Directors, neither the Company nor any of its subsidiaries will enter into any written or oral contract, agreement or other arrangement to engage in business or enter into any transaction, or will engage in business or enter into any transaction, with any Securityholder or any affiliate of a Securityholder (other than the Company and its subsidiaries) unless the relevant transaction (A) has been approved by a majority of the directors voting on such matter, excluding any director designees of the Securityholder who (or whose affiliate) has an interest in the transaction and such interest was disclosed to the Board of Directors prior to such approval or (B) is a commercial transaction entered into in the ordinary course of business by the Company or such subsidiary and (x) such transaction has been negotiated on an arm's length basis between the operating management or employees of the Company or such subsidiary and the other party to the transaction and (y) the other party to the transaction is not an affiliate of the 11 managers or employees of the Company who negotiated such transaction on behalf of the Company or such subsidiary. (b) Notwithstanding the fact that no vote may be required, or that a lesser percentage vote may be specified by law, by the Certificate of Incorporation or By-Laws, by any agreement with any national securities exchange or otherwise, except as hereinafter provided in this paragraph (b) or elsewhere in this Agreement, the Company and the Securityholders shall not take or permit any of the following actions (individually, a "Significant Transaction") unless otherwise authorized by a vote of at least a majority of the whole Board of Directors: (i) Any recapitalization, merger, consolidation or other similar transaction involving the Company or any subsidiary of the Company (other than transactions involving the merger or consolidation of a wholly-owned subsidiary of the Company into the Company or with or into another wholly-owned subsidiary of the Company). (ii) Any sale, lease, exchange, transfer or other disposition, directly or indirectly, in a single transaction or series of related transactions, of all or substantially all, or a substantial part of, the assets of the Company or any of its subsidiaries, or of any of the outstanding Capital Stock of the Company or any subsidiary of the Company, to or with any Person other than to or with the Company or a wholly owned subsidiary of the Company. The term "substantial part" means assets having a gross fair market value which exceeds 10% of the Consolidated Total Capitalization of the Company and its subsidiaries, as reflected on the consolidated balance sheet of the Company and its subsidiaries as at the end of the last full fiscal quarter prior to the date such determination is made. (iii) Any purchase, lease, exchange or other acquisition of assets (including securities) by the Company or any subsidiary of the Company, in a single transaction or a series of related transactions, if such assets constitute or would constitute Substantial Assets. (iv) Any increase or reduction of the number of shares of any class of the Company's authorized Capital Stock or the creation of any additional class of Capital Stock of the Company, or the issuance or sale of shares of Capital Stock of the Company or any of its subsidiaries (or warrants, options or rights to acquire shares of Capital Stock or securities convertible into or exchangeable for Capital Stock or any type of debt instrument which has equity features), except the issuance or sale of shares of Capital Stock of a wholly-owned subsidiary of the Company to the Company or to another wholly-owned subsidiary of the Company or the issuance or sale of Capital Stock under the 12 Stock Purchase and Option Plan in accordance with the applicable provisions of the Stock Purchase and Option Plan. (v) Any amendment to or modification or repeal of any provision of the Certificate of Incorporation or By-Laws of the Company. (vi) The dissolution of the Company; the adoption of a plan of liquidation of the Company or any significant subsidiary; any action by the Company or any subsidiary of the Company to commence any suit, case, proceeding or other action (A) under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors seeking to have an order for relief entered with respect to the Company or such subsidiary, or seeking to adjudicate the Company or such subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to the Company or such subsidiary, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for such Company or such subsidiary or for all or any substantial part of its assets, or making a general assignment for the benefit of its creditors. (vii) Any redemption or offer to purchase made by the Company or any of its subsidiaries or other acquisition of Capital Stock of the Company or any of its subsidiaries, except (A) the purchase of Stock or Stock Rights held by any of the Management Investors in accordance with Section 5.2 of this Agreement or (B) the purchase or redemption of Stock or Stock Rights issued under the Stock Purchase and Option Plan, in each case in accordance with the applicable provisions of the Stock Purchase and Option Plan. (viii) Any amendment, modification or supplement to the Stock Purchase and Option Plan. (ix) Adopt, or cause or permit any subsidiary to adopt, any operating or capital budget or business plan for any fiscal year or other period, amend or materially deviate from, or cause or permit any of its subsidiaries to amend or materially deviate from, any such budget or business plan as to expenditures; (x) Become subject to, or cause or permit any of its subsidiaries to become subject to (in each case including, by way of amendment to or modification of), any agreement or instrument (other than the Credit Agreement and the security instruments executed and delivered in connection therewith) which by its terms would (under any circumstances) (a) restrict the right of any subsidiary to make loans or advances or pay dividends to, transfer property to, or repay any indebtedness owed to, the Company 13 or any subsidiary or (b) restrict the ability of the Company or any subsidiary thereof to perform the provisions of, or performance of which would otherwise conflict with, any provision of this Agreement or the documents entered into in connection with this Agreement; (xi) Establish or acquire after the date hereof, or cause or permit any subsidiary to establish or acquire after the date hereof, (a) any subsidiary other than a wholly-owned subsidiary or (b) any subsidiary organized outside of the United States and its territorial possessions; (xii) Create, incur, assume or suffer to exist, or cause or permit or cause any subsidiary to create, incur, assume or suffer to exist, any indebtedness other than Permitted Indebtedness, or amend or modify after the date hereof, or cause or permit any subsidiary to amend or modify after the date hereof, the Credit Agreement or any other any bank loan agreement or any other agreement or instrument relating to any indebtedness or establish or modify any banking relationship; (xiii) Create, incur, assume or suffer to exist, or cause or permit any subsidiary to create, incur, assume or suffer to exist, any Liens on any of its properties or assets other than Permitted Liens; (xiv) Institute or settle, or cause or permit any subsidiary to institute or settle, any claim or lawsuit (or series of related claims and/or lawsuits) for any amount in excess of $100,000 individually, or involving equitable relief; or (xv) Agree to, or cause or permit any of its subsidiaries to agree to, do any of the foregoing prohibited acts. SECTION 2.2. STOCK PURCHASE AND OPTION PLAN. (a) The Board of Directors has adopted the Stock Purchase and Option Plan. Options and other rights granted under the Stock Purchase and Option Plan shall be granted to such persons, in such amounts and on such terms as shall be approved by a majority of the whole Board of Directors, which majority shall include at least one director designated by the First Reserve Securityholders, one director designated by the Management Investors and the Chief Executive Officer of the Company (which Chief Executive Officer and which director designated by the Management Investors may be the same person). The persons participating in the Stock Purchase and Option Plan and the amount and other terms of such participation shall be approved by a majority of the whole Board of Directors, which majority shall include at least one director designated by the First Reserve Stockholders, one director designated by the Management Investors and the Chief Executive 14 Officer of the Company (which Chief Executive Officer and which director designated by the Management Investors may be the same person). (b) The Board of Directors of the Company has authorized the issuance of up to 1,000 options to purchase shares of Common Stock on the terms set forth in the Stock Option Agreements. The Company will not issue any such options except upon the terms and subject to the conditions of the Stock Option Agreements and will not enter into any Stock Option Agreement unless the optionee thereunder and his/her spouse (if applicable) becomes a "Management Investor" party to this Agreement pursuant to a written instrument in form and substance satisfactory to the First Reserve Stockholders and the Company. The Securityholders acknowledge that, subject to the foregoing, the Chief Executive Officer is authorized to cause such options to be issued to key managers of the Company and its affiliates, provided that the number of such options to be issued to the Chief Executive Officer will not exceed 450. SECTION 2.3. REGISTRATION OF COMMON STOCK. In the event of a Public Offering of Common Stock, each Securityholder shall, at a meeting convened for the purpose of amending the Certificate of Incorporation (or by means of written consent pursuant to the applicable provisions of the Delaware General Corporation Law (the "DGCL")), vote to increase the number of issued and outstanding shares of Common Stock, whether by stock split, stock dividend or otherwise, or change in its par value or increase the authorized number of shares of stock, as recommended by a majority of the members of the Board of Directors in order to facilitate such Public Offering. ARTICLE III. CORPORATE GOVERNANCE SECTION 3.1. BOARD OF DIRECTORS. (a) The Securityholders and the Company hereby agree that at all times after the Closing Date, the Board of Directors of the Company and the board of directors (or comparable governance body of any partnership or similar entity) of each significant subsidiary (each, a "Subsidiary Board"), shall consist entirely of the members described in this Section 3.1(a), except that (i) the First Reserve Stockholders may in their discretion elect (which election may be revoked at any time by the First Reserve Stockholders) to designate fewer than three persons, or no persons at all, to be members of any Subsidiary Board and (ii) the Management Investors may in their discretion elect (which election may be revoked at any time by the Management Investors) to designate fewer than two persons, or no persons at all, to be members of any Subsidiary Board, provided, however, that if the Management Investors designate only one person to any such board of directors, such person must be the Chief Executive Officer of the Company. On the Closing Date, and 15 from time to time thereafter, the Securityholders shall take all such actions as may be necessary or appropriate to cause the persons described below to be elected or re-elected as the members of the Board of Directors and each Subsidiary Board and to be maintained in such positions at all times: (i) three persons designated by the First Reserve Stockholders; and (ii) two persons designated by the Management Investors, one of whom must be the Chief Executive Officer of the Company; provided, however, that (i) if Michael V. Ronca is not the Chief Executive Officer of the Company, the First Reserve Stockholders shall have the right to designate all of the members of the Board of Directors and the right of the Management Investors to designate members of the Subsidiary Boards shall terminate, (ii) if the First Reserve Stockholders own less than 50% of the outstanding Common Stock, calculated on a fully diluted basis, the First Reserve Stockholders shall have the right to designate two members of the Board of Directors and (iii) if the First Reserve Stockholders own less than 10% of the outstanding Common Stock, calculated on a fully diluted basis, the First Reserve Stockholders shall have the right to designate one member of the Board of Directors. For the purposes of this Article III, all actions to be taken by the First Reserve Stockholders shall be taken only by the holders of a majority of the Stock owned by the First Reserve Stockholders at the time such action is taken. For the purposes of this Article III, all actions to be taken by the Management Investors will be taken only by the holders of a majority of the Stock owned by the Management Investors at the time such action is taken. (b) Each Securityholder hereby agrees to vote all shares of Stock owned or held of record by such Securityholder, at each annual or special meeting of stockholders of the Company at which directors of the Company are to be elected, in favor of, or to take all actions by written consent in lieu of any such meeting as are necessary to cause, the election or re-election as members of the Board of Directors of those individuals described in Section 3.1(a), and to otherwise effect the intent of the provisions of Section 3.1(a). (c) Each committee of the Board of Directors and each Subsidiary Board shall include a number of directors designated by the First Reserve Stockholders and the Management Investors (rounded up to the nearest whole number) equivalent in each case to the proportion of directors designated by each of them who are then serving on the whole Board of Directors or such whole Subsidiary Board, as applicable; provided, however that the Management Investors shall not have the right to designate any directors to serve on any audit committee or similar committee of the Board of Directors or any Subsidiary Board and the 16 Compensation Committee of the Board of Directors will be constituted as described below. The committees of the Board of Directors shall consist of an Audit Committee and a Compensation Committee each of which shall, subject to Section 2.1, have functions customarily performed by such committees. The Audit Committee shall consist of two directors, each of whom were designated by the First Reserve Stockholders to sit on the Board of Directors. The Compensation Committee shall consist of three directors, two of whom were designated by the First Reserve Stockholders to sit on the Board of Directors and one of whom is the Chief Executive Officer of the Company. (d) Unless otherwise agreed by the parties hereto, the Board of Directors and each Subsidiary Board shall follow the following procedures: (i) Meetings. Special Meetings of the applicable board of directors may be held at any time upon the call of at least two directors, including (in the event the First Reserve Stockholders have a designee on such board of directors) one designee of the First Reserve Stockholders, by oral, telephonic, telegraphic or facsimile notice duly given or sent at least one day, or by written notice sent by express mail at least three days, before the meeting to each director. Reasonable efforts shall be made to ensure that each director actually receives timely notice of any meeting. The annual meeting of the Board of Directors and each Subsidiary Board shall be held without notice immediately following the annual meeting of stockholders of the Company or such subsidiary, as the case may be. (ii) Agenda. A reasonably detailed agenda shall be supplied to each director reasonably in advance of each meeting of the applicable board of directors, together with other appropriate documentation with respect to agenda items calling for board action, to inform adequately directors regarding matters to come before the board. Any director wishing to place a matter on the agenda for any meeting of the applicable board of directors may do so by communicating with the chairman of such board of directors sufficiently in advance of the meeting of the applicable board of directors so as to permit timely dissemination to all directors of information with respect to the agenda items. (e) Each of the First Reserve Stockholders that is not directly represented on the Board of Directors or any Subsidiary Board shall be entitled to designate a nonvoting observer to attend meetings of any such Board of Directors or Subsidiary Board (which designation shall be provided in writing to the Company or a Subsidiary, as the case may be, a reasonable time in advance of such meetings). The Company or the subsidiary, as the case may be, shall provide each such observer with the same notice of, and information regarding, meetings of the Board of Directors or Subsidiary Board as that provided to directors. 17 Each such observer shall be provided reasonable access to the books, records and properties of the Company or the subsidiary and shall be provided with a reasonable opportunity to discuss the business and affairs of the Company or subsidiary with the officers of the Company or subsidiary, provided that the First Reserve Stockholders shall cause all information relating to the Company or the subsidiary that is provided to such observer to be held in strict confidence. (f) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending (i) the meetings of the Board of Directors, any Subsidiary Board and any committee thereof and (ii) any other meetings at the request of the Company or any of its subsidiaries. So long as any director designated pursuant to Section 3.1(a) serves on the Board of Directors or a Subsidiary Board and for six years thereafter, the Company shall maintain directors and officers indemnity insurance coverage satisfactory to the holders of a majority of the then outstanding Common Stock and the organizational documents of each of the Company and each of its subsidiaries, as appropriate, shall provide for indemnification and exculpation of directors to the fullest extent permitted under applicable law. SECTION 3.2. REMOVAL. If a director designated and elected pursuant to Section 3.1, (i) has been designated pursuant to Section 3.1(a)(i), and, during such director's term as director, the First Reserve Stockholders request by written notice to the other Securityholders that such director be removed; (ii) has been designated pursuant to Section 3.1(a)(ii), and, during such director's term as director, the Management Investors request by written notice to the other Securityholders that such directors be removed; or (iii) has been designated pursuant to Section 3.1(a)(ii) and Michael V. Ronca is not the Chief Executive Officer of the Company, and the First Reserve Stockholders request by written notice to the other Securityholders that such director be removed; then such director shall be removed upon the affirmative vote of the holders of a majority of the outstanding shares of Stock, and each Securityholder hereby agrees promptly to vote all shares of Stock owned or held of record by it and to take all such other actions as may be necessary or appropriate to effect such removal in accordance with such request. SECTION 3.3. VACANCIES. In the event that a vacancy is created on the Board of Directors at any time by the death, disability, retirement, resignation or removal of any director or for any other reason there shall exist or occur any vacancy on 18 the Board of Directors, each Securityholder hereby agrees to take such actions as will result in the election or appointment of a new director or directors in accordance with Section 3.1. ARTICLE IV. TRANSFERS OF SECURITIES. SECTION 4.1. RESTRICTIONS ON TRANSFER. (a) Each Securityholder agrees that it will not, directly or indirectly, offer, sell, transfer, assign or otherwise dispose of (or make any exchange, gift, assignment or pledge of) (collectively, for purposes of Articles IV and V hereof only, a "transfer") any of its shares of Stock or Stock Rights, except (i) as provided in Section 4.2, (ii) in accordance with Article V or (iii) other than in connection with an exercise of any Stock Right in accordance with its terms. (b) In addition to the other restrictions prescribed by this Article IV, each Securityholder agrees that it will not, directly or indirectly, offer, sell, transfer, assign or otherwise dispose of any of its Securities except as permitted under the Securities Act and other applicable securities laws. SECTION 4.2. EXCEPTIONS TO RESTRICTIONS. The provisions of Section 4.1 (a) shall not apply to any of the following transfers: (a) From any First Reserve Stockholder to any affiliate of the First Reserve Stockholders, provided that such affiliate shall assume in writing the obligations hereunder of a First Reserve Stockholder, which writing shall in form and substance be reasonably satisfactory to the Company and the Management Investors' board designees. (b) From any Management Investor to a trust solely for such Person's benefit or the benefit of such Person's spouse or children (a "Purchaser's Trust"), provided that such Person acts as trustee and retains the sole power to direct voting and disposition of such shares; and, provided, further, that any such Purchaser's Trust shall agree in a writing in form and substance reasonably satisfactory to the Company and the First Reserve Stockholders to be bound and shall become bound by the terms of this Agreement; (c) From any First Reserve Stockholder to any Person, subject only to the requirements of Section 5.4, provided that such transferee shall assume in writing the obligations hereunder of a First Reserve Stockholder; and (d) Pursuant to any merger or consolidation of the Company; and (e) To the public pursuant to a Public Offering. 19 SECTION 4.3. LEGENDING OF CERTIFICATES. (a) In addition to any other legend which the Company may reasonably deem advisable under the Securities Act and applicable state securities laws, the certificates representing all shares of Stock and all Stock Rights subject to this Agreement shall be legended at all times during the term of this Agreement as follows: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND ARE SUBJECT TO THE PROVISIONS (INCLUDING THE RESTRICTIONS ON TRANSFER) SET FORTH IN THAT CERTAIN SECURITYHOLDERS AGREEMENT DATED AS OF DECEMBER 31, 1996 AMONG DOMAIN ENERGY CORPORATION (THE "COMPANY"), FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, AND THE INDIVIDUALS AND TRUSTS SIGNATORY THERETO, AS SUCH AGREEMENT MAY BE AMENDED (AS AMENDED, IF AMENDED, THE "SECURITYHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT (AND THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES THAT SUCH SECURITIES MAY NOT AND WILL NOT) BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (1) EXCEPT IN COMPLIANCE WITH THE SECURITYHOLDERS AGREEMENT AND (2) EXCEPT AS OTHERWISE PROVIDED IN THE SECURITYHOLDERS AGREEMENT, UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. ADDITIONALLY, IF THE HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR THE HOLDER DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY MUST BE FURNISHED WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH COUNTRY." (b) The obligations of each party hereto shall be binding upon each transferee to whom shares of Stock or Stock Rights are transferred by any party hereto (including, without limitation, any third party to whom shares are transferred pursuant to Article V) except shares transferred pursuant to a Public Offering. Prior to consummation of any applicable transfer, such party shall cause the transferee to execute an agreement in form and substance reasonably satisfactory to the other parties hereto, providing that such transferee shall fully comply with the terms of this Agreement. Prompt notice shall be given to the Company, the First Reserve Stockholders and by the transferor of any transfer of any of its Stock or Stock Rights. 20 SECTION 4.4. IMPROPER TRANSFER. Any attempt to transfer any shares of Stock or any Stock Rights not in accordance with this Agreement shall be null and void and neither the Company nor any transfer agent shall give any effect to such attempted transfer or encumbrance in its stock records. ARTICLE V. PURCHASE RIGHTS. SECTION 5.1. TRANSFERS BY A MANAGEMENT INVESTOR. Except for transfers permitted by Section 4.2(b) or a sale of shares of Stock pursuant to an effective registration statement under the Securities Act filed by the Company or pursuant to Sections 5.2, 5.4 or 5.5 of this Agreement, each Management Investor agrees that he will not transfer any shares of the Stock of the Company at any time prior to the fifth anniversary of the date hereof. No transfer of any such shares in violation hereof shall be made or recorded on the books of the Company and any such transfer shall be void and of no effect. If at any time after the fifth anniversary of the date hereof and prior to a Public Offering, a Management Investor receives a bona fide offer to purchase any or all of his shares of Stock (the "Offer") from a third party (the "Offeror") which such Management Investor wishes to accept, such Management Investor shall cause the Offer to be reduced to writing and shall notify the Company in writing of his wish to accept the Offer. A Management Investor's notice shall contain an irrevocable offer to sell such shares of Stock to the Company (in the manner set forth below) at a purchase price equal to the price contained in, and on the same terms and conditions of, the Offer, and shall be accompanied by a true copy of the Offer (which shall identify the Offeror). At any time within 30 days after the date of the receipt by the Company of a Management Investor's notice, the Company shall have the right and option to purchase, or to arrange for a third party to purchase, all of the shares of Stock covered by the Offer either (i) at the same price and on the same terms and conditions as the Offer or (ii) if the Offer includes any consideration other than cash, then at the sole option of the Company, at the equivalent all cash price, determined in good faith by the Company's Board of Directors, by delivering a certified bank check or checks in the appropriate amount (and any such non-cash consideration to be paid) to the applicable Management Investor at the principal office of the Company against delivery of certificates or other instruments representing the shares of the Stock so purchased, appropriately endorsed by the applicable Management Investor. If at the end of such 30 day period, the Company has not tendered the purchase price for such shares in the manner set forth above, the applicable Management Investor may during the succeeding 60 day period sell not less than all of the shares of Stock covered by the Offer to the Offeror at a price and on terms no less favorable to such Management Investor than those contained in the 21 Offer. Promptly after such sale, the applicable Management Investor shall notify the Company of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Company. If, at the end of 60 days following the expiration of the 30 day period for the Company to purchase the Stock, the applicable Management Investor has not completed the sale of such shares of the Stock as aforesaid, all the restrictions on sale, transfer or assignment contained in this Agreement shall again be in effect with respect to such shares of the Stock. SECTION 5.2. PUTS AND CALLS. The Company and each Management Investor (which term, for purpose of this Section 5.2, shall include all Permitted Transferees thereof as the context may require) shall be subject to the following purchase and sale obligations and rights: (a) Subject to Section 5.2(c), upon any termination of employment of a Management Investor by reason of: (i) death or permanent disability, (ii) retirement from the Company and its subsidiaries at age 62 or over (or such other age as may be approved by the Board of Directors of the Company) after having been employed by the Company or any subsidiary for at least three years after the Closing Date ("Normal Retirement"), or (iii) involuntary termination from the Company and its subsidiaries without Cause or voluntary termination from the Company and its subsidiaries for Good Reason, the Management Investor and his Permitted Transferees or his or their representative shall be entitled for a period of 120 days following the effective date of such termination of employment to exercise a put (any such put, a "Put") to the Company of all of the Stock and Vested Stock Rights of such Management Investor or Permitted Transferees by requiring the Company to (A) purchase such Stock at a price per share (the "Put Price") equal to (i) if such purchase is consummated prior to the second anniversary of the Closing Date, the Book Value or (ii) if such purchase is consummated on or after the second anniversary of the Closing Date, the Fair Market Value and (B) purchase such Vested Stock Rights at a price (the "Option Put Price") equal to the excess of (x) the product of the Put Price multiplied by the number of shares to be received upon exercise of the Vested Stock Rights over (y) the aggregate exercise price of those shares. A Put shall be exercised by delivery of written notice to the Company. The purchase shall be consummated within 30 days after receipt of such notice by the Company. 22 (b) (i) Subject to Section 5.2(c), upon the termination of employment of any Management Investor for any reason, including, without limitation, death or permanent disability, and provided such Management Investor or his Permitted Transferee shall not have previously exercised a Put pursuant to Section 5.2(a), the Company shall be entitled for a period of one year after the effective date of such termination of employment to exercise a call (any such call, a "Call") on all of the shares of Stock and all Vested Stock Rights owned by such Management Investor and his Permitted Transferees by requiring such Management Investor and his Permitted Transferees to sell to the Company all of such shares at the Put Price and all of such Vested Stock Rights at the Option Put Price; provided, however, if a Management Investor's employment is terminated by the Company without Cause or by the Management Investor for Good Reason and the Management Investor does not desire to exercise a Put pursuant to Section 5.2(a), the Company shall defer its Call pursuant to this Section 5.2(b)(i) until the second anniversary of the date of this Agreement. The Company may exercise its Call by delivery of written notice to such Management Investor and his Permitted Transferees. Consummation of the sale shall occur within 30 days after delivery of such notice, at a purchase price per share, subject to Section 5.2(b)(ii), determined in accordance with the provisions of Section 5.2(a). (ii) Notwithstanding Section 5.2(b)(i), any purchase of Stock by the Company pursuant to the exercise of any Call as a result of termination by the Company for Cause or termination by the Management Investor without Good Reason shall be made at a purchase price per share (the "Section 5.2(b)(ii) Call Price") equal to (1) if such purchase is consummated prior to the second anniversary of the Closing Date, the lower of (x) Book Value and (y) the price per share originally paid by such Management Investor (appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the Closing Date) ("Cost"), or (2) if such purchase is consummated on or after the second anniversary of the Closing Date, the lower of (x) Book Value and (y) Fair Market Value. (iii) Notwithstanding Section 5.2(b)(i), any purchase of Vested Stock Rights by the Company pursuant to any Call as a result of termination by the Company for Cause or termination by the Management Investor without Good Reason shall be made at a price equal to the excess of (x) the product of the Section 5.2(b)(ii) Call Price multiplied by the number of shares to be received upon exercise of the Vested Stock Rights over (y) the aggregate exercise price of those shares. 23 (c) Notwithstanding anything in Section 5.2(a) or 5.2(b) to the contrary, if there exists and is continuing a default or an event of default on the part of the Company or any subsidiary of the Company under any loan, guarantee or other agreement under which the Company or any subsidiary of the Company has borrowed money or if the repurchases referred to in Section 5.2(a) or 5.2(b) would result in a default or an event of default on the part of the Company or any subsidiary of the Company under any such agreement or if a repurchase would not be permitted under the DGCL (or if the Company reincorporates in another state, the business corporation law of such state) (each such occurrence being an "Event"), the Company shall not be obligated to repurchase any of the Stock or the Vested Stock Rights from the Management Investor or the Permitted Transferee, as the case may be, until the first business day which is 10 calendar days after all of the foregoing Events have ceased to exist (the "Repurchase Eligibility Date"); provided, that the Company shall repurchase an amount of Stock or Stock Rights (the "Permitted Number") which is less than all of the Stock or Stock Rights held by such Management Investor or Permitted Transferee but as to which, the purchase of a single additional share of Stock would violate applicable law or any loan, guarantee or other agreement described above. (d) The Board of Directors shall determine whether the Company will exercise its call rights to purchase a Management Investor's (or Permitted Transferee's) Stock pursuant to Sections 5.2(b) or 5.2(c) hereof. (e) If any Management Investor's marital relationship is terminated by the death of his spouse or divorce and he does not succeed to his or her spouse's interest in any Stock or Stock Rights, he shall have the option to purchase all such spouse's interest and the interests of any of his or her Permitted Transferees in any shares of Stock or Stock Rights, but only to the extent such interests arise from such spouse's community or marital property rights and such spouse or the executor or administrator of his or her estate and any such Permitted Transferees (any such spouse, executor, administrator or Permitted Transferee, the "Spouse") shall be obligated to sell such Stock or Stock Rights to such Management Investor. The price per share at which such Stock and Stock Rights shall be purchased shall be determined in accordance with the provisions of Section 5.2(a). Such option must be exercised within 90 days after such death or divorce. If such Management Investor should fail to exercise such option within such 90 day period, the Spouse shall give prompt written notice of such failure to the Company and each of the other Management Investors, which notice shall describe the nature of the above referenced interests of the Spouse in such Stock and Stock Rights. The Company shall be entitled to exercise a call (a "Spouse Call") on all of the shares of such Stock and on all Stock Rights owned by such Spouse, within 120 days after receiving such notice, by requiring such Spouse to sell to the Company all of such shares. The 24 Company may exercise its call by delivery of written notice to such Spouse. Consummation of the sale shall occur within 30 days after delivery of such notice at a purchase price per share determined in accordance with the provisions of Section 5.2(a). (f) If by reason of Section 5.2(c) above the Company purchases less than all (or none) of the shares of Stock and Vested Stock Rights held by a Seller (provided that the Company shall have purchased the Permitted Number), then notwithstanding anything to the contrary in Section 5.2(a), 5.2(b) or 5.2(c), the Company may elect, in the case of any such Call or Spouse Call, and shall elect, in the case of any such Put, by delivering written notice to such Seller at the time of such purchase (or, if no such shares are purchased, within 30 days after delivery of the notice, in accordance with the provisions of Sections 5.2(a), 5.2(b) or 5.2(c), as the case may be, of the Put or Call in respect of such Seller), to purchase, as soon as possible after all of the Events have ceased to exist, the remainder of such Stock and Vested Stock Rights, up to but in no event more than the Permitted Number at the time of each purchase and each subsequent purchase necessary to allow purchase of all the shares and Vested Stock Rights subject to the Put or Call. In such event the Company shall deliver to such Seller as soon as it is possible to purchase such shares a written notice of such purchase, and such purchase shall be on the terms and subject to the limitations contained in this Section 5.2 (including Section 5.2(c) above), except that the purchase price to be paid shall be the price determined with reference to the first notice given exercising the Put or Call with respect to such Seller, plus interest thereon from the 31st day after the date of delivery of the first notice to the closing of the applicable purchase at the Prime Rate. (g) The Company shall exercise its call rights to purchase a Management Investor's (or a Spouse's or Permitted Transferee's) Stock and Vested Stock Rights pursuant to Sections 5.2(b), 5.2(c) or 5.2(d) hereof. Notwithstanding the foregoing, the Company may request, but not require, the First Reserve Stockholders to exercise the Company's rights and obligations to purchase such Stock and Vested Stock Rights (and, if such request is made, the First Reserve Stockholders may decide in their sole discretion whether to exercise the Company's rights and obligations). Should the Board of Directors fail to exercise a call on the Stock as provided in Sections 5.2(b), 5.2(c) or 5.2(d), or be unable to purchase all of the Stock and Vested Stock Rights for cash pursuant to a Put or Call, (an "Unexercised Right"), each Management Investor (and his Permitted Transferees) then owning Stock, other than the Management Investor (and his Permitted Transferees) subject to the call, shall be entitled to exercise a call (any such call, a "Management Call"), on up to a pro rata basis (based upon the number of shares of Fully Diluted Common Stock then beneficially owned, within 10 days after notice by the Company to the Management Investor that it will not exercise its call or is unable to purchase all of the Stock for 25 cash and Vested Stock Rights pursuant to a Put or a Call. A Management Call shall be exercised by delivery of written notice to the Company and to the Management Investor (or Spouse or Permitted Transferee) whose shares and Vested Stock Rights were subject to the Unexercised Right. SECTION 5.3. RIGHT OF FIRST REFUSAL FOR NEW SECURITIES. (a) The Company hereby grants to the Securityholders a pro rata right of first refusal to purchase shares of any New Securities (as defined below) which the Company may, from time to time, propose to sell and issue. Such right of first refusal shall allow each Securityholder to purchase a pro rata portion of the shares of Stock or Stock Rights or other securities as may be included in the New Securities proposed to be issued. Such pro rata portions shall be determined by reference to the aggregate number of shares of (i) Fully Diluted Common Stock in the case of issuances to the First Reserve Stockholders or any of their affiliates or (ii) outstanding Common Stock in the case of issuances to Persons other than to the First Reserve Stockholders or any of their affiliates, as the case may be, owned in each case by each Securityholder (including the First Reserve Stockholders) before the proposed issuance of New Securities. The right of first refusal granted hereunder shall terminate if unexercised within thirty (30) days after receipt of the notice described in Section 5.3(c) below. (b) "New Securities" shall mean any authorized but unissued shares, and any treasury shares, of Capital Stock (including, without limitation, Common Stock) of the Company and all rights, options or warrants to purchase Capital Stock of the Company (including, without limitation, Stock Rights), and securities of any type whatsoever that are, or may become, convertible into Capital Stock of the Company; provided, however, that the term "New Securities" does not include (i) shares of Common Stock issued upon the exercise of Stock Rights or other rights to acquire Stock that are (x) outstanding on the date hereof (including, without limitation, the First Reserve Option) or (y) issued after the date hereof in a transaction in which the Securityholders have the right to purchase their respective pro rata portions of the relevant Stock Rights or other rights pursuant to Section 5.3(a) hereof, in each such case in accordance with the terms thereof or (ii) shares of Stock issued in connection with any stock split, stock dividend or recapitalization of the Company, (iii) securities issued by the Company pursuant to the acquisition of another corporation or other entity by merger, purchase of all or substantially all of the assets or other recapitalization, reorganization or business combination, (iv) shares of Common Stock and Options to purchase shares of Common Stock issued to employees, officers or directors of the Company pursuant to the Stock Purchase and Option Plan, provided that the aggregate number of shares of Common Stock issued pursuant to the Stock Purchase and Option Plan shall not 26 exceed 1,000 or (v) up to 529 shares of Common Stock issued and sold by the Company to the Management Investors at a price per share of $3,151.4354, provided, such issuance and sale shall have been consummated on or before February 15, 1997. (c) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Securityholder written notice of its intention, describing the number of shares of Stock and/or Stock Rights or other securities it intends to issue as New Securities, the purchase price therefor (which shall be payable solely in cash) and the terms upon which the Company proposes to issue the same. Each Securityholder shall have 30 days from the date such notice is received to determine whether to purchase all or any portion of the Securityholder's pro rata share of such New Securities for the purchase price and upon the terms specified in the Company's notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (d) The obligations of the Company under this Section 5.3 shall terminate immediately prior to any Public Offering pursuant to a firm underwriting commitment. SECTION 5.4. RIGHT TO JOIN IN SALE. (a) If any Securityholder or group of Securityholders proposes to sell, dispose of or otherwise transfer in any single transaction or series of related transactions any Securities representing more than 10% of the Fully Diluted Common Stock (each a "Disposing Stockholder") other than (i) to the Company, (ii) to the Company or its designee pursuant to Section 5.1 hereof or (iii) any transfer by a First Reserve Stockholder to any affiliate of such First Reserve Stockholder, such Disposing Stockholder shall refrain from effecting such transaction unless, prior to the consummation thereof, each other Securityholder shall have been afforded the opportunity to join in such sale on a pro rata basis, as hereinafter provided. (b) Prior to consummation of any proposed sale, disposition or transfer (a "Sale") of the Securities described in Section 5.4(a), the Disposing Stockholder shall cause the Person or group that proposes to acquire such shares (the "Proposed Purchaser") to offer (the "Purchase Offer") in writing to each other Securityholder (each, a "Tag-Along Offeree") to purchase shares of Stock and/or Stock Rights owned by such Tag-Along Offeree which are the same type, class or series proposed to be sold by the Disposing Stockholders, such that the sum of the number of shares of such Stock so offered to be purchased and the number of shares of Stock then represented by the Stock Rights so offered to be purchased from such Tag-Along Offeree shall be equal to the product obtained by multiplying the total number of shares of the same type, class or series of Stock or other Securities being sold by the Disposing Stockholder then owned by 27 such Tag-Along Offeree by a fraction, the numerator of which is the aggregate number of shares of each type, class or series of Stock or other Securities proposed to be purchased by the Proposed Purchaser from the Disposing Stockholder and the denominator of which is the aggregate number of outstanding shares of each type, class or series of Stock or other Securities that are owned by the Disposing Stockholder; provided, however, that if after the consummation of such Sale the First Reserve Stockholders will own less than 50% of the outstanding Common Stock, then each Tag-Along Offeree may elect to include in such Sale all of the shares of Stock and/or Stock Rights owned by such Tag-Along Offeree and any Purchase Offer shall be amended to reflect any such election by the Tag-Along Offeree. Such purchase shall be made at the price per share and on such other terms and conditions as the Proposed Purchaser has offered to purchase each type, class or series of Stock or other Securities, as the case may be, to be sold by the Disposing Stockholder. Each Tag-Along Offeree shall have 20 calendar days from the date of receipt of the Purchase Offer in which to accept such Purchase Offer, and the closing of such purchase shall occur at the same time as the closing of the Sale. The number of shares of Stock and/or Stock Rights, as the case may be, to be sold to the Proposed Purchaser by the Disposing Stockholder shall be reduced by the aggregate number of shares of Stock and/or Stock Rights, as the case may be, purchased by the Proposed Purchaser from the Tag-Along Offerees pursuant to the acceptance by them of Purchase Offers in accordance with the provisions of this Section 5.4(b). In the event that a sale or other transfer subject to this Section 5.4 is to be made to a Proposed Purchaser who is not a Securityholder, the Disposing Stockholder shall notify the Proposed Purchaser that the sale or other transfer is subject to this Section 5.4 and shall ensure that no sale or other transfer is consummated without the Proposed Purchaser first complying with this Section 5.4. It shall be the responsibility of each Disposing Stockholder to determine whether any transaction to which it is a party is subject to this Section 5.4. SECTION 5.5. RIGHTS TO COMPEL SALE. (a) If the First Reserve Stockholders and their respective affiliates propose to make a transfer of 100% of their Stock in the Company, at any time when the First Reserve Stockholders and their affiliates own at least 50% of the Fully Diluted Common Stock, to a Person that is neither an affiliate of the First Reserve Stockholders nor a Person with respect to which the First Reserve Stockholders or any of their affiliates has a direct or indirect economic interest, then the First Reserve Stockholders shall have the right, exercisable as set forth below, to require all of the other Securityholders (the "Remaining Securityholders") to sell all of the Stock and Vested Stock Rights then owned by such Remaining Securityholders (the "Transfer Stock") to the proposed transferee (the "Acquiror") for the same consideration per share of Stock or Vested Stock Right as is being paid to the First Reserve Stockholders, which 28 consideration shall consist entirely of cash and/or Marketable Securities and otherwise on the same terms as are applicable to the First Reserve Stockholders. The purchase price for each Vested Stock Right in any such transfer shall equal the "spread" between the exercise price for such Vested Stock Right and the purchase price per share of Stock. The terms and conditions other than the consideration to be received by the Remaining Securityholders for Stock and Vested Stock Rights sold pursuant to this Section 5.5 shall be as set forth in the applicable Purchase Agreement between the First Reserve Stockholders and the Acquiror. (b) (i) the First Reserve Stockholders shall cause the terms of the transfer to be reduced to writing and shall provide a written notice (the "Compelled Sale Transfer Notice") of such transfer to the Company and the Company shall provide such Compelled Sale Transfer Notice to the Remaining Securityholders. The Compelled Sale Transfer Notice shall contain written notice of the exercise of the First Reserve Stockholders rights pursuant to Section 5.5(a) hereof, setting forth the consideration to be paid by the Acquiror for each type of Stock and Stock Right and the other terms and conditions of the transfer. Within 20 calendar days following the date of receipt of the Compelled Sale Transfer Notice, each of the Remaining Securityholders shall deliver to the First Reserve Stockholders (the "Notice Designee") certificates representing the Stock and instruments representing Stock Rights owned by such Remaining Stockholder, duly endorsed, together with all other documents required to be executed in connection with such transfer or, if such delivery is not permitted by applicable law, an unconditional agreement to deliver such certificates pursuant to this Section 5.5(b) at the closing for such transfer against delivery to such Remaining Securityholder of the consideration therefor. Such certificates shall be held by the First Reserve Stockholders in escrow for the benefit of the appropriate Remaining Securityholder and, if requested by the Remaining Securityholder, the First Reserve Stockholders shall execute such form of escrow agreement as is reasonably satisfactory to the First Reserve Stockholders and such Remaining Securityholder and which assures that the relevant Stock and/or Stock Rights are not considered property of the First Reserve Stockholders. In the event that a Remaining Securityholder should fail to deliver such certificates as aforesaid, the Company shall cause the books and records of the Company to show that such Stock and Stock Rights are bound by the provisions of this Section 5.5(b) and that such Stock and Stock Rights shall be transferred only to the Acquiror upon surrender for transfer by the Remaining Securityholder thereof. (ii) If, within 150 calendar days (or such longer period not exceeding 210 calendar days as may be necessary 29 to comply with any applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or to obtain other required regulatory approval) after the First Reserve Stockholders give the Compelled Sale Transfer Notice, it has not completed the sale of all the Transfer Stock, the First Reserve Stockholders shall return to each of the Remaining Securityholders all certificates representing Stock and Stock Rights that such Remaining Securityholders delivered for sale pursuant hereto, and all the restrictions on sale or other disposition contained in this Agreement with respect to such Stock and Stock Rights and the Stock owned by the First Reserve Stockholders shall again be in effect. (iii) Upon the consummation of the sale of Stock held by the First Reserve Stockholders and the Remaining Securityholders pursuant to this Section 5.5, the First Reserve Stockholders shall give notice thereof to the Remaining Securityholders, shall (or shall cause the purchaser to) remit to each of the Remaining Securityholders a net amount with respect to the Stock and Stock Rights of such Remaining Securityholders sold pursuant thereto, after deduction of a pro rata portion of any related out-of-pocket fees and expenses payable to Persons other than the First Reserve Stockholders or any of its affiliates, and shall furnish such other evidence of the completion and time of completion of such sale or other disposition and the terms thereof as may be reasonably requested by such Remaining Securityholders, provided that if the cash or the fair market value of the Marketable Securities payable to any Remaining Securityholder exceeds $5,000,000, such Remaining Securityholder shall be entitled to have such cash and/or Marketable Securities (net of any fees and expenses that are to be deducted in accordance with this Section) paid directly to the Remaining Securityholder by the Acquiror at the closing of the transaction. ARTICLE VI. REGISTRATION RIGHTS. SECTION 6.1. DEMAND REGISTRATIONS. (a) At any time after the first to occur of (1) a Qualified Public Offering or (2) the first anniversary of the Closing Date, the First Reserve Stockholders may request in writing that the Company effect the registration under the Securities Act (other than a shelf registration made pursuant to Rule 415 of the Securities Act) of all or part of their Registrable Securities, specifying in the request the number and types of Registrable Securities to be registered by each such holder and the intended method of disposition thereof (such notice is hereinafter referred to as a "Holder Request"). Upon receipt of such Holder Request, the Company will promptly give written notice of such requested registration to all other 30 holders of Registrable Securities, which other holders shall have the right, subject to the provisions of Section 6.1(h) hereof, to include the Registrable Securities held by them in such registration and thereupon the Company will, as expeditiously as possible, use reasonable best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by the First Reserve Stockholders; and (ii) all other Registrable Securities which the Company has been requested to register by any other holder thereof by written request given to the Company within 30 calendar days after the giving of such written notice by the Company, all to the extent necessary to permit the disposition of the Registrable Securities so to be registered pursuant to an Underwritten Offering or by such other method of disposition as the First Reserve Stockholders may specify in the Holder Request; provided, however, that the Company shall not be obligated to file a registration statement pursuant to any Holder Request under this Section 6.1(a): (A) Unless the Company shall have received requests for such registration with respect to at least 10% of the Fully Diluted Common Stock; or (B) Other than a registration statement on Form S-3 or a successor short form registration statement, within a period of 6 months after the effective date of any other registration statement relating to any registration request under this Section 6.1(a) that was not effected on Form S-3 (or any successor short form). (C) Within the six month period immediately following the effective date of a registration previously effected by the Company pursuant to this Section 6.1. (b) Notwithstanding the foregoing provisions of Section 6.1(a), and except as provided in Section 6.1(h), the Company shall not be obligated to file more than an aggregate of four (4) registration statements pursuant to this Section 6.1. (c) If the Company proposes to effect a registration requested pursuant to this Section 6.1 by the filing of a registration statement on Form S-3 (or any successor short-form registration statement), the Company will comply with any request by the managing underwriter to effect such registration on another permitted form if such managing underwriter advises the Company that, in its opinion, the use of another form of 31 registration statement is of material importance to the success of such proposed offering. (d) A registration requested pursuant to Section 6.1 (a) will not be deemed to have been effected unless the applicable registration statement has become effective; provided, that, if after it has become effective, the offering of Registrable Securities pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected. (e) The Company will pay all Registration Expenses in connection with each of the registrations of Registrable Securities effected by it pursuant to this Section 6.1. (f) Subject to any existing commitments of the Company, the First Reserve Stockholders shall have the right to select the investment bank (or investment banks) that shall manage the offering (collectively, the "managing underwriter") involving a registration under this Section 6.1; provided that such managing underwriter is reasonably acceptable to the Company. (g) Whenever a requested registration pursuant to this Section 6.1 involves a firm commitment underwriting (an "Underwritten Offering"), the only shares that may be included in such Underwritten Offering are (i) Registrable Securities, and (ii) securities of the Company which are not Registrable Securities included in such Underwritten Offering upon the written consent of the First Reserve Stockholders ("Company Securities"). (h) If a registration pursuant to this Section 6.1 involves an Underwritten Offering and the managing underwriter shall advise the Company that, in its judgment, the number of shares proposed to be included in such Underwritten Offering should be limited due to market conditions, then the Company will promptly so advise each holder of Registrable Securities that has requested registration, and the Company Securities, if any, shall first be excluded from such Underwritten Offering to the extent necessary to meet such limitation; and if further exclusions are necessary to meet such limitation, Registrable Securities requested to be registered pursuant to Section 6.1(a)(i) or Section 6.1(a)(ii) shall be excluded pro rata, based on the respective numbers of shares of Common Stock as to which registration shall have been requested by such Persons. If the number of Registrable Securities requested to be registered pursuant to Section 6.1(a)(i), but that are excluded from registration pursuant to this Section 6.1(h), is equal or greater to 10% of the total number of Registrable Securities requested to be so registered, then such registration by the Company shall not count as a registration for the purposes of Section 6.1(b) only. 32 (i) Notwithstanding the foregoing, this Section 6.1 shall not apply at such time as the First Reserve Stockholders own less than 5% of the Fully Diluted Common Stock. SECTION 6.2. PIGGYBACK REGISTRATIONS. (a) If the Company at any time proposes to register any of its equity or debt securities under the Securities Act (other than a registration on Form S-4 or S-8 or any successor or similar forms thereto and other than pursuant to a registration under Section 6.1), whether or not for sale for its own account, on a form and in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, it will give written notice to all the holders of Registrable Securities promptly of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts involved in such proposed registration (including, without limitation, (x) whether or not such registration will be in connection with an underwritten offering of Registrable Securities and, if so, the identity of the managing underwriter and whether such offering will be pursuant to a "best efforts" or "firm commitment" underwriting and (y) the price (net of any underwriting commissions, discounts and the like) at which the Registrable Securities are reasonably expected to be sold) if such disclosure is acceptable to the managing underwriter. Upon the written request of any such holder delivered to the Company within 30 calendar days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its reasonable best efforts to effect the registration under the Securities Act of all of the Registrable Securities that the Company has been so requested to register; provided, however, that: (i) If, at any time after giving such written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities who made a request as provided herein and thereupon the Company shall be relieved of its obligation to register any Registerable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of the holders of the Registrable Securities to request that such registration be effected as a registration under Section 6.1; and (ii) If such registration involves an Underwritten Offering, all holders of Registrable Securities requesting some or all of their Registrable Securities to be included 33 in the Company's registration must sell that portion of their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company. No registration effected under this Section 6.2 shall relieve the Company of its obligation to effect registration upon request under Section 6.1. (b) The Company shall not be obligated to effect any registration of Registrable Securities under this Section 6.2 incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, dividend reinvestment plans or stock option or other employee benefit plans. (c) The Registration Expenses incurred in connection with each registration of Registrable Securities requested pursuant to this Section 6.2 shall be paid by the Company. (d) If a registration pursuant to this Section 6.2 involves an Underwritten Offering and the managing underwriter advises the Company that, in its opinion, the number of securities proposed to be included in such registration should be limited due to market conditions, then the Company will include in such registration (i) first, the securities the Company proposes to sell, and (ii) second, the number of shares of Common Stock requested to be included in such registration that, in the opinion of such managing underwriter, can be sold, such amount to be allocated pro rata among all such requesting holders on the basis of the class of securities and the relative number of shares of Registrable Securities, as the case may be, each such holder has requested to be included in such registration. (e) In connection with any Underwritten Offering with respect to which holders of Registrable Securities shall have requested registration pursuant to this Section 6.2, the Company shall have the right to select the managing underwriter with respect to the offering; provided that such managing underwriter is reasonably acceptable to the First Reserve Stockholders if Registrable Securities of such First Reserve Stockholders are being registered in connection therewith. (f) Notwithstanding the foregoing, until the earlier of (i) the second anniversary of the date of a Qualified Public Offering and (ii) January 1, 2000, Management Investors and their Permitted Transferees shall not have piggyback registration if none of the First Reserve Stockholders are participating in the Public Offering to which this Section 6.2 could apply. 34 SECTION 6.3. REGISTRATION PROCEDURES. (a) If and whenever the Company is required to use its reasonable best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in Section 6.1 or 6.2, the Company will, as expeditiously as possible: (i) Prepare and, in any event within 60 calendar days after the end of the period within which requests for registration may be given to the Company, file with the SEC a registration statement with respect to such Registrable Securities and use reasonable best efforts to cause such registration statement to become and remain effective, provided that the Company may discontinue any registration of its securities that is being effected pursuant to Section 6.2 at any time prior to the effective date of the registration statement relating thereto. (ii) Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period as may be requested by the First Reserve Stockholders (if Registrable Securities of such First Reserve Stockholders are being registered) not exceeding nine months and to comply with the provisions of the Securities Act with respect to the disposition of all Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement, provided, that before filing a registration statement or prospectus relating to the sale of Registrable Securities, or any amendments or supplements thereto, the Company will furnish to counsel and to each holder of Registrable Securities covered by such registration statement or prospectus, copies of all documents proposed to be filed, which documents will be subject to the review of such counsel, and the Company will give reasonable consideration in good faith to any comments of such counsel. (iii) Furnish to each holder of Registrable Securities covered by the registration statement and to each underwriter, if any, of such Registrable Securities, such number of copies of a prospectus and preliminary prospectus for delivery in conformity with the requirements of the Securities Act, and such other documents, as such Person may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities. (iv) Use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities or blue 35 sky laws of such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition of the Registrable Securities owned by such seller, in such jurisdictions, except that the Company shall not for any such purpose be required (A) to qualify to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 6.3(a)(iv), it is not then so qualified, or (B) to subject itself to taxation in any such jurisdiction, or (C) to take any action which would subject it to general or unlimited service of process in any such jurisdiction where it is not then so subject. (v) Use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities. (vi) Immediately notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 6.3(a)(ii), if the Company becomes aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such seller, deliver a reasonable number of copies of an amended or supplemented prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) Otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC and make generally available to its security holders, in each case as soon as practicable, but not later than 45 calendar days after the close of the period covered thereby (90 calendar days in case the period covered corresponds to a fiscal year of the Company), an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act. (viii) Use its reasonable best efforts in cooperation with the underwriters to list such Registrable Securities on each securities exchange as they may reasonably designate. 36 (ix) In the event the offering is an Underwritten Offering, use its reasonable best efforts to obtain a "cold comfort" letter from the independent public accountants for the Company in customary form and covering such matters of the type customarily covered by such letters and as the First Reserve Stockholders may reasonably request (if Registrable Securities of such First Reserve Stockholder are being registered), in order to effect an underwritten public offering of such Registrable Securities. (x) Execute and deliver all instruments and documents (including in an Underwritten Offering an underwriting agreement in customary form) and take such other actions and obtain such certificates and opinions as the First Reserve Stockholders may reasonably request (if Registrable Securities of such First Reserve Stockholders are being registered) in order to effect an underwritten public offering of such Registrable Securities. (xi) Make available for inspection by the seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. (xii) Obtain for delivery to the underwriter or agent an opinion or opinions from counsel for the Company in customary form and in form and scope reasonably satisfactory to such underwriter or agent and their counsel. (b) Each holder of Registrable Securities will, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6.3(a)(vi), forthwith discontinue disposition of the Registrable Securities pursuant to the registration statement and prospectus covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 6.3(a)(vi). (c) If a registration pursuant to or described in Section 6.1 or 6.2 involves an Underwritten Offering, each holder of Registerable Securities agrees, whether or not such holder's Registrable Securities are included in such registration, not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, or of any security convertible into or exchangeable or exercisable for any Registrable Securities (other than as part 37 of such Underwritten Offering), without the consent of the managing underwriter, during a period commencing seven calendar days before and ending 180 calendar days (or such lesser number as the managing underwriter shall designate) after the effective date of such registration. (d) If a registration pursuant to or described in Section 6.1 or 6.2 involves an Underwritten Offering, the Company agrees, if so required by the managing underwriter, not to effect any public sale or distribution of any of its equity or debt securities, as the case may be, or securities convertible into or exchangeable or exercisable for any of such equity or debt securities, as the case may be, during a period commencing seven calendar days before and ending 180 calendar days (or such lesser number as the managing underwriter shall designate) after the effective date of such registration, except for such Underwritten Offering or except in connection with a stock option plan, stock purchase plan, savings or similar plan, or an acquisition, merger or exchange offer. (e) If a registration pursuant to or described in Section 6.1 or 6.2 involves an Underwritten Offering, any holder of Registrable Securities requesting to be included in such registration may elect, in writing, prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration, unless such holder has agreed with the Company or the managing underwriter to limit its rights under this Section 6.3. (f) It is understood that in any Underwritten Offering in addition to any shares of stock (the "initial shares") the underwriters have committed to purchase, the underwriting agreement may grant the underwriters an option to purchase up to a number of additional shares of stock (the "option shares") equal to 15% of the initial shares (or such other maximum amount as the NASD may then permit), solely to cover overallotments. Shares of stock proposed to be sold by the Company and the other sellers shall be allocated between initial shares and option shares as agreed or, in the absence of agreement, pro rata among the Company and all such Sellers on the basis of the relative number of shares to be included by each in such registration. SECTION 6.4. INDEMNIFICATION. (a) In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 6.1 or 6.2, the Company will, and it hereby agrees to, indemnify and hold harmless, to the extent permitted by law, each seller of any Registrable Securities covered by such registration statement, each affiliate of such seller and their respective directors, officers, employees and agents or general and limited partners (and directors, officers, employees and agents thereof) and, if such seller is a portfolio or investment fund, its investment 38 advisors or agents, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act, as follows: (i) against any and all loss, liability, claim, damage or expense whatsoever arising out of or based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto), including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense reasonably incurred by them in connection with investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission to the extent that any such expense is not paid under subparagraph (i) or (ii) above; Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, employee, agent, general or limited partner, investment advisor or agent, underwriter or controlling Person and shall survive the transfer of such securities by such seller. Notwithstanding the foregoing, the Company shall not be liable to any person described in Section 6.4(a) in any such case to the extent that any such loss, liability, claim, damage or expense whatsoever arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary 39 prospectus in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such person specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such person or the Company and shall survive the transfer of such securities by such seller. (b) The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 6.1 or 6.2, that the Company shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registrable Securities or any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6.4(a)) the Company and its directors, officers, employees, agents and controlling Persons with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such seller or underwriter specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer, employee, agent or controlling Person and shall survive the transfer of such securities by such seller. In that event, the obligations of the Company and such sellers pursuant to this Section 6.4 are to be several and not joint; provided, however, that, with respect to each claim pursuant to this Section, the Company shall be liable for the full amount of such claim, and each such seller's liability under this Section 6.4 shall be limited to an amount equal to the net proceeds (after deducting the underwriting discount and expenses) received by such seller from the sale of Registrable Securities held by such seller pursuant to this Agreement. (c) Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding involving a claim referred to in this Section 6.4, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to such indemnifying party of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 6.4, except to the extent (not including any such notice of an underwriter) that the indemnifying party is materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable 40 judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim (in which case the indemnifying party shall not be liable for the fees and expenses of, with respect to the First Reserve Stockholders, more than one firm of counsel selected by the First Reserve Stockholders, or with respect to the underwriters, more than one firm of counsel for the underwriters in connection with any one action or separate but similar or related actions), the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnifying party in connection with the defense thereof provided that the indemnifying party will not agree to any settlement without the prior consent of the indemnified party (which consent shall not be unreasonably withheld) unless such settlement requires no more than a monetary payment for which the indemnifying party agrees to indemnify the indemnified party and includes a full, unconditional and complete release of the indemnified party, provided, however, that the indemnified party shall be entitled to take control of the defense of any claim as to which, in the reasonable judgment of the indemnifying party's counsel, representation of both the indemnifying party and the indemnified party would be inappropriate under the applicable standards of professional conduct due to actual or potential differing interests between them. In the event that the indemnifying party does not assume the defense of a claim pursuant to this Section 6.4(c), the indemnified party will have the right to defend such claim by all appropriate proceedings, and will have control of such defense and proceedings, and the indemnified party shall have the right to agree to any settlement without the prior consent of the indemnifying party. Each indemnified party shall, and shall cause its legal counsel to, provide reasonable cooperation to the indemnifying party and its legal counsel in connection with its assuming the defense of any claim, including the furnishing of the indemnifying party with all papers served in such proceeding. In the event that an indemnifying party assumes the defense of an action under this Section 6.4(c), then such indemnifying party shall, subject to the provisions of this Section 6.4, indemnify and hold harmless the indemnified party from any and all losses, claims, damages or liabilities by reason of such settlement or judgment. (d) The Company and each seller of Registerable Securities shall provide for the foregoing indemnity (with appropriate modifications) in any underwriting agreement with respect to any registration or other qualification of securities under any federal or state law or regulation of any governmental authority. 41 SECTION 6.5. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances under which the indemnity contemplated by Section 6.4 is for any reason not available or insufficient for any reason to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, the parties required to indemnify by the terms thereof shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, any seller of Registrable Securities and one or more of the underwriters, except to the extent that contribution is not permitted under Section 11(f) of the Securities Act. In determining the amounts which the respective parties shall contribute, there shall be considered the relative benefits received by each party from the offering of the Registrable Securities by taking into account the portion of the proceeds of the offering realized by each, and the relative fault of each party by taking into account the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and any other equitable considerations appropriate under the circumstances. The Company and each Person selling securities agree with each other that no seller of Registrable Securities shall be required to contribute any amount in excess of the amount such seller would have been required to pay to an indemnified party if the indemnity under Section 6.4(b) were available. The Company and each such seller agree with each other and the underwriters of the Registrable Securities, if requested by such underwriters, that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the underwriters were treated as one entity for such purpose) or for the underwriters' portion of such contribution to exceed the percentage that the underwriting discount bears to the initial public offering price of the Registrable Securities. For purposes of this Section 6.5, each Person, if any, who controls an underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such underwriter, and each director and each officer of the Company who signed the registration statement, and each Person, if any, who controls the Company or a seller of Registrable Securities within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company or a seller of Registrable Securities, as the case may be. SECTION 6.6. RULE 144. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available 42 other information), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements, ARTICLE VII. TERMINATION. SECTION 7.1. CERTAIN TERMINATIONS. (a) Except to the extent specifically provided elsewhere in this Agreement, the provisions of Articles II, III, IV and V shall terminate on the date on which there occurs a Qualified Public Offering. (b) Notwithstanding the foregoing, and except as specifically provided elsewhere in this Agreement, this Agreement shall in any event terminate with respect to any Securityholder when such Securityholder no longer owns any shares of Common Stock or Stock Rights. ARTICLE VIII. MISCELLANEOUS. SECTION 8.1. SUCCESSORS AND ASSIGNS. Except as provided in Section 4.2 and as otherwise provided herein, all of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. No Securityholder may assign any of its rights hereunder to any Person other than a transferee that has complied with the requirements of Sections 4.1 and 4.2 as provided therein in all respects. The Company may not assign any of its rights hereunder to any Person other than an affiliate of the Company. If any transferee of any Securityholder shall acquire any shares of Stock or Stock Rights, in any manner, whether by operation of law or otherwise, such Stock or Stock Rights shall be held subject to all of the terms of this Agreement, and by taking and holding such Securities such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to comply with all of the terms and provisions of this Agreement, provided, however, that any transferee from a Management Investor shall have only those rights, benefits and obligations of a Management Investor hereunder. 43 SECTION 8.2. AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE. (a) This Agreement may be amended only by a written instrument duly executed by the First Reserve Stockholders. No amendment to this Agreement which adversely affects the rights of the Management Investors hereunder may be effected without the prior written consent of Management Investors holding a majority of the shares of Stock or Stock Rights at the time held by the Management Investors, calculated on the basis of Fully Diluted Common Stock. In the event of the amendment or modification of this Agreement in accordance with its terms, the Securityholders shall cause the Board of Directors of the Company to meet within 30 calendar days following such amendment or modification or as soon thereafter as is practicable for the purpose of adopting any amendment to the Certificate of Incorporation and By-Laws of the Company that may be required as a result of such amendment or modification to this Agreement, and, if required, proposing such amendments to the Securityholders entitled to vote thereon, and the Securityholders agree to vote in favor of such amendments. (b) Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. (c) In the event of any conflict between the provisions of this Agreement and the provisions of any other agreement, the provisions of this Agreement shall govern and prevail, except as otherwise provided herein. SECTION 8.3. NOTICES. Any notice, request, claim, demand, document or other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex or telecopy (with such telex or telecopy confirmed promptly in writing sent by first class mail), or first class mail, or other similar means of communication, as follows: (i) If to the Company, addressed to its principal executive offices to the attention of its Secretary; (ii) If to a Securityholder other than the First Reserve Stockholders to the address of such Securityholder set forth in the stock records of the Company; and (iii) If to the First Reserve Stockholders or to First Reserve, to: 44 First Reserve Corporation 475 Steamboat Road Greenwich, CT 06830 Attn: William E. Macaulay Telecopy: (203) 661-6729 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017-3954 Attn: Richard Capelouto Telecopy: (212) 455-2502 or, in each case, to such other address or telex or telecopy number as such party may most recently designate, in writing to the Company and each Securityholder in the manner specified above. All such communications shall be deemed to have been given or made when so delivered by hand or sent by telex (answer back received) or telecopy, or if mailed, five business days after being so mailed. SECTION 8.4. ENTIRE AGREEMENT; GOVERNING LAW. (a) This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire agreement among the parties hereto with respect to the subject transactions contemplated hereby and supersede all prior oral and written agreements and memoranda and undertakings among the parties hereto with regard to this subject matter. The Company represents to the Securityholders that the rights granted to the holders hereunder do not in any way conflict with and are not inconsistent with the rights granted or obligations accepted under any other agreement (including the Certificate of Incorporation) to which the Company is a party. (b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN DELAWARE). SECTION 8.5. INJUNCTIVE RELIEF. The Securityholders acknowledge and agree that a violation of any of the terms of this Agreement will cause the Securityholders irreparable injury for which adequate remedy at law is not available. Therefore, the Securityholders agree that each Securityholder shall be entitled to an injunction, restraining order or other equitable relief from any court of competent jurisdiction, restraining any Securityholder from committing any violations of the provisions of this Agreement. 45 SECTION 8.6. INSPECTION. For so long as this Agreement shall be in effect, this Agreement shall be made available for inspection by any Securityholder at the principal executive offices of the Company. SECTION 8.7. HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 8.8. RECAPITALIZATIONS, EXCHANGES, ETC., AFFECTING THE SECURITIES. The provisions of this Agreement shall apply to the full extent set forth herein with respect to the Stock and the Stock Rights, and to any and all equity or debt securities of the Company or any successors or assigns of the Company (whether by merger, consolidation, sale of assets, or otherwise) which may be issued in respect of, in exchange for, or in substitution of, such Stock and Stock Rights or equity or debt securities and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, reclassifications, recapitalizations, reorganizations and the like occurring after the date hereof. SECTION 8.9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 8.10. ADDITIONAL MANAGEMENT INVESTORS. If the Company shall at any time issue, grant, sell or otherwise transfer any options, shares of Common Stock or other equity securities of the Company to any employee of the Company or its Affiliates then, prior to such issuance such employee and his/her spouse (if applicable) will become a "Management Investor" party to this Agreement pursuant to a written instrument in form and substance reasonably satisfactory to the First Reserve Investors and the Company. Upon execution and delivery of such written instrument, such employee shall become a "Management Investor" party to this Agreement and have all of the rights and obligations of a Management Investor hereunder. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date first above written. DOMAIN ENERGY CORPORATION By: /s/ Michael V. Ronca ------------------------------ Name: Michael V. Ronca Title: President and Chief Executive Officer 46 FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By: First Reserve Corporation, as Managing General Partner By: /s/ Jonathan S. Linker ---------------------------- Name: Jonathan S. Linker Title: Managing Director 47 MANAGEMENT INVESTOR SPOUSE - ------------------- ------ By: /s/ Michael V. Ronca By: -------------------------- ------------------------------ Name: Michael V. Ronca Name: EX-3 4 FIRST RESERVE SUBSCRIPTION AGREEMENT EXHIBIT 3 - ------------------------------------------------------------------------------ SUBSCRIPTION AGREEMENT between FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, AND DOMAIN ENERGY CORPORATION Dated as of December 31, 1996 - ------------------------------------------------------------------------------ TABLE OF CONTENTS Page ---- ARTICLE I PURCHASE AND SALE OF STOCK................................... 2 1.1. General ..................................................... 2 1.2. Consideration From the Buyer................................. 2 1.3. Delivery of the Company Shares............................... 3 ARTICLE II DEFINITIONS.................................................. 3 2.1. Defined Terms................................................ 3 ARTICLE III INITIAL CLOSING.............................................. 10 3.1. Time and Place............................................... 10 ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK................... 10 4.1. Option ..................................................... 10 4.2. Exercise..................................................... 11 4.3. Notice ..................................................... 11 4.4. Conditions Precedent......................................... 11 ARTICLE V REPRESENTATIONS AND WARRANTIES............................... 11 5.1. Representations and Warranties of the Company................ 11 (a) Execution and Validity of Agreement..................... 11 (b) Corporate Organization.................................. 12 (c) Investments............................................. 12 (e) Capital Structure of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries................ 13 (f) Financial Statements.................................... 14 (g) Absence of Certain Changes or Events.................... 15 (h) Title to Properties; Encumbrances....................... 17 (i) Absence of Liens........................................ 20 (j) Insurance and Bonds..................................... 20 (k) Contracts............................................... 20 (l) Compliance with Contracts, Etc. ........................ 22 (m) Litigation.............................................. 22 (n) Compliance with Laws.................................... 23 (o) Employment Agreement and Related Matters................ 23 (p) Licenses and Government Approvals....................... 25 (q) Broker's or Finder's Fees............................... 26 (r) Transactions with Affiliates............................ 26 (s) Corporate Records....................................... 27 (t) Labor Matters........................................... 27 (u) Tax Matters............................................. 28 (v) Environmental Matters................................... 30 (w) Oil and Gas Reserve Information......................... 31 (x) Engineering Reports..................................... 32 (y) Not Subject to Utility Regulatory Authorities........... 33 (z) Worker's Compensation and Occupational Disease Reserve.. 33 (aa) Omissions............................................... 33 -i- Page ---- 5.2. Representations and Warranties of the Buyer.................. 33 (a) Due Organization and Power of the Buyer................. 33 (b) Authorization and Validity of Agreement................. 33 (c) No Conflict............................................. 34 (d) Purchase for Investment................................. 34 (e) Litigation.............................................. 35 (f) Ownership of Buyer Subordinated Note.................... 35 (g) Omissions............................................... 35 5.3. Limitations on Survival...................................... 35 ARTICLE VI COVENANTS.................................................... 36 6.1. Conduct of Business Pending the Initial Closing Date......... 36 6.2. Access to Information Concerning Properties and Records; Confidentiality................................... 39 6.3. Releases..................................................... 40 6.4. Further Actions.............................................. 40 6.5. Application of Proceeds...................................... 40 6.6. Option Shares................................................ 40 ARTICLE VII CONDITIONS PRECEDENT......................................... 40 7.1. Conditions Precedent to Obligations of the Buyer............. 40 7.2. Conditions Precedent to Obligations of the Company........... 43 ARTICLE VIII INDEMNIFICATION.............................................. 44 8.1. Indemnification by the Company............................... 44 8.2. Indemnification by the Buyer................................. 44 8.3. Procedure for General Claims................................. 44 (a) General Claims by the Buyer............................. 44 (b) General Claims by the Company........................... 45 8.4. Procedure for Third Party Claims............................. 45 (a) Claims by the Buyer and the Company..................... 45 (b) Settlement or Decision of Third Party Claims................................................ 47 8.5. Indemnification Matters...................................... 47 8.6. General Provisions........................................... 48 (a) Limitations on Indemnification.......................... 48 (b) Termination of Indemnification.......................... 48 ARTICLE IX MISCELLANEOUS................................................ 49 9.1. Termination and Abandonment.................................. 49 (a) General................................................. 49 (b) Procedure Upon Termination.............................. 49 9.2. Fees and Expenses............................................ 49 9.3. Transfer Taxes............................................... 49 9.4. Notices ..................................................... 49 9.5. Binding Effect; Benefit...................................... 50 9.6. Assignability................................................ 50 9.7. Amendment and Modification; Waiver........................... 51 9.8. Section Headings............................................. 51 9.9. Arbitration.................................................. 51 9.10. Counterparts................................................. 51 9.11. GOVERNING LAW................................................ 51 -ii- Page ---- SCHEDULES 5.1(c) -- Investments 5.1(d)(ii) -- No Conflict 5.1(e)(i) -- Capital Stock of the Company 5.1(e)(ii)(a) -- Capital Structure of the Tenneco Entities and the Subsidiaries -- Pre-Closing 5.1(e)(ii)(b) -- Capital Structure of the Tenneco Entities and the Subsidiaries -- Post-Closing 5.1(e)(iii) -- Liens in Respect of the Company, the Tenneco Entities and the Subsidiaries 5.1(e)(v) -- Capital Structure of the Company, the Tenneco Entities and the Subsidiaries -- Outstanding Rights 5.1(f) -- Financial Statements 5.1(g) -- Absence of Certain Changes or Events 5.1(h)(i) -- Title to Properties 5.1(h)(iv) -- Encumbrances 5.1(i) -- Absence of Liens 5.1(k) -- Contracts 5.1(m) -- Litigation 5.1(o) -- Employment Agreements and Related Matters 5.1(p) -- Licenses and Government Approvals 5.1(r) -- Transactions With Affiliates 5.1(t) -- Labor Matters 5.1(u) -- Tax Matters 5.1(v) -- Environmental Matters 5.1(w) -- Oil and Gas Reserve Information EXHIBITS A -- Buyer Subordinated Loan Note B -- Employment Agreement C -- Securityholders Agreement D -- Legal Opinion of Weil, Gotshal & Manges LLP -iii- SUBSCRIPTION AGREEMENT ---------------------- SUBSCRIPTION AGREEMENT, dated as of December 31, 1996, between Domain Energy Corporation, a Delaware corporation (the "Company") and First Reserve Fund VII, Limited Partnership, a Delaware limited partnership (together with its successors and assigns, the "Buyer"). WHEREAS, Teleo Ventures, a Delaware corporation ("Teleo"), has entered into a Stock Purchase Agreement, dated as of December 24, 1996 (the "Stock Purchase Agreement"), with El Paso Natural Gas Company, a Delaware corporation ("El Paso"); and WHEREAS, pursuant to a Master Assignment and Assumption Agreement of December 31, 1996 between Teleo and Company, and as permitted by the Stock Purchase Agreement, Teleo has assigned, and Company has assumed, all of Teleo's rights and obligations thereunder; and WHEREAS, the Stock Purchase Agreement provides for, among other things, the acquisition by the Company of all of the outstanding capital stock of Tenneco Ventures Corporation, a Delaware corporation ("Ventures"), and all of the outstanding capital stock of Tenneco Gas Production Corporation, a Delaware corporation ("TGP" and, collectively with Ventures, the "Tenneco Entities") (hereinafter the "Stock Purchase"); and WHEREAS, in connection with the Stock Purchase and the transactions contemplated hereby, it is contemplated that each of Michael V. Ronca, Herbert A. Newhouse, Catherine L. Sliva, Rick G. Lester, Douglas H. Woodul, Steven M. Curran, Dean R. Bouillion and Lucynda S. Herrin (the "Management Investors"), may purchase shares of Common Stock (as defined below); WHEREAS, the Company has entered into a Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), with the banks parties thereto (the "Banks") and The Chase Manhattan Bank, as administrative agent; and WHEREAS, the Buyer wishes to purchase from the Company and the Company wishes to issue and to sell to the Buyer 9,519.4717 shares (the "Firm Common Shares" and, together with the Option Shares (as hereinafter defined), the "Company Shares") of common stock, par value $0.01 per share (the "Common Stock"), of the Company, representing 100% of the outstanding Common Stock (such issuance, sale and purchase referred to herein as the "Firm Share Purchase"); WHEREAS, the Company has requested that the Buyer loan $8,000,000 to Domain Energy Guarantor Corporation, a wholly-owned subsidiary of the Company (the "Buyer Subordinated Loan") and the Buyer has agreed to make the Buyer Subordinated Loan upon the terms and conditions of a Subordinated Promissory Note in the 2 form attached hereto as Exhibit A (the "Buyer Subordinated Loan Note") and in consideration of, among other things the grant by the Company of the Option (as hereinafter defined); WHEREAS, in partial consideration for the Buyer agreeing to make the Buyer Subordinated Loan the Company has agreed to provide the Buyer with the Option (as hereinafter defined) to purchase 2,538.5258 shares of Common Stock; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF STOCK 1.1. General. (a) Upon the terms and subject to the conditions of this Agreement, the Company agrees to issue and to sell to the Buyer, and the Buyer agrees to buy from the Company, at the Initial Closing (as hereinafter defined) described in Section 3.1 hereof, 9,519.4717 Firm Common Shares. (b) Upon the terms and subject to the conditions of this Agreement, if the Buyer elects to exercise the Option (as hereinafter defined), the Company will issue and sell to the Buyer, and the Buyer will buy from the Company, at the Subsequent Closing (as hereinafter defined) described in Section 3.1(b) hereof, 2,538.5258 shares of Common Stock, subject to adjustment pursuant to Section 4.1 (the "Option Shares"). 1.2. Consideration From the Buyer. (a) Upon the terms and subject to the conditions of this Agreement, at the Initial Closing, the Buyer will deliver by wire transfer to the Company at a bank account to be designated in writing by the Company (which account may be an account of El Paso; it being acknowledged and agreed that payment to an account of El Paso for the benefit of the Company shall constitute payment to the Company) prior to the Initial Closing Date (as hereinafter defined) an amount equal to $30 million, in immediately available funds, in full consideration for the issuance and sale of the Firm Common Shares. (b) Upon the terms and subject to the conditions of this Agreement, if the Buyer elects to exercise the Option described in Article IV, at the Subsequent Closing, the Buyer will deliver to the Company the Option Purchase Price (as hereinafter defined) as provided in Section 4.1 in full consideration for the issuance and sale of the Option Shares. To the extent the Option Purchase Price is being satisfied in whole or in part by the delivery to the Company of the Buyer Subordinated Note, at the Subsequent Closing 3 the Buyer will deliver the Buyer Subordinated Note to the Company together with a duly executed instrument of assignment transferring all of the Buyer's right, title and interest in and to the Buyer Subordinated Note to the Company. 1.3. Delivery of the Company Shares. (a) On the Initial Closing Date, upon the terms and subject to the conditions of this Agreement, the Company will deliver to the Buyer a validly issued certificate registered in the name of the Buyer representing 9,519.4717 Firm Common Shares. (b) If the Buyer exercises the Option, on the Subsequent Closing Date (as hereinafter defined), upon the terms and subject to the conditions of this Agreement, the Company will deliver to the Buyers validly issued certificates registered in the name of the Buyer representing the number of Option Shares to be purchased by the Buyers on the Subsequent Closing Date in the denominations designated by the Buyer. ARTICLE II DEFINITIONS 2.1. Defined Terms. As used in this Agreement, the following capitalized terms have the meanings ascribed to them in this section or in those sections of this Agreement cross-referenced below: "Affiliate" means, with respect to any Person, (i) any Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, such Person, or (ii) any director, officer or partner of such Person or any Person specified in clause (i) above, or (iii) any Immediate Family Member of any Person specified in clause (i) or (ii) above. "Agreement" means this Subscription Agreement, as the same may be further amended, supplemented or otherwise modified from time to time. "Balance Sheets" has the meaning assigned to such term in Section 5.1(f) hereof. "Banks" has the meaning assigned to such term in the recitals hereof. "Benefit Plans" has the meaning assigned to such term in Section 5.1(o)(i) hereof. "Buyer" has the meaning assigned to such term in the preamble hereof. 4 "Buyer Indemnified Party" and "Buyer Indemnified Parties" have the meanings assigned to such terms in Section 8.1 hereof. "Buyer Subordinated Loan" has the meaning assigned to such term in the recitals hereof. "Buyer Subordinated Loan Note" has the meaning assigned to such term in the recitals hereof. "Buyer Subordinated Note" has the meaning assigned to such term in the recitals hereof. "Buyer Subordinated Note Repayment Date" means the date on which the principal amount of the Buyer Subordinated Note, together with all interest thereon, has been repaid in full. "Code" has the meaning assigned to such term in Section 5.1(o)(iii) hereof. "Common Stock" has the meaning assigned to such term in the recitals hereof. "Company" has the meaning assigned to such term in the preamble herein. "Company Indemnified Party" and "Company Indemnified Parties" have the respective meanings assigned to such terms in Section 8.2 hereof. "Company Shares" has the meaning assigned to such term in the recitals hereof. "Contract" has the meaning assigned to such term in Section 5.1(k) hereof. "Controlled Group" has the meaning assigned to such term in Section 5.1(o)(ii) hereof. "Credit Agreement" has the meaning assigned to such term in the recitals hereof. "De Golver" has the meaning assigned to such term in Section 5.1(x) hereof. "Demand for Arbitration" has the meaning assigned to such term in Section 8.9 hereof. "El Paso" has the meaning assigned to such term in the recitals hereof. 5 "Employment Agreement" means the Employment Agreement, dated as of December 31, 1996, between Michael V. Ronca and the Company, attached hereto as Exhibit B. "Engineering Report" has the meaning assigned to such term in Section 5.1(x) hereof. "Environmental Claim" means any notice by any Person alleging potential liability (including without limitation potential liability for investigatory costs, cleanup costs, remedial activity or removal costs, government response costs, natural resource damages, property damages, personal injuries, fines or penalties) arising out of, based on or resulting from (A) the presence, or release or threatened release into the environment, of any Material of Environmental Concern at any location, whether or not owned by the Company or the Tenneco Entities, or (B) circumstances forming the basis of any violation or alleged violation of, or any liability or alleged liability under, any Environmental Law. "Environmental Laws" means all statutes, codes, treaties and other laws (including without limitation common law) and regulations, rules, ordinances, decrees, orders and other pronouncements having the force and effect of law, by any federal, state, local, foreign or other Governmental Authority, relating to pollution or protection of human health or the environment (including without limitation ambient and indoor air, surface water, groundwater, land surface, subsurface strata, and flora and fauna). "ERISA" has the meaning assigned to such term in Section 5.1(o)(i) hereof. "Event of Default" means the failure to pay principal or interest of the Indemnification Note when due or the occurrence of customary bankruptcy or insolvency events. "Exercise Notice" has the meaning assigned to such term in Section 4.3 hereof. "Exercise Period" has the meaning assigned to such term in Section 4.2 hereof. "Fair Market Value per Share" has the meaning assigned to such term in Section 8.3 hereof. "Fee Properties" has the meaning assigned to such term in Section 5.1(h)(i) hereof. "Fee Reserves" has the meaning assigned to such term in Section 5.1(h)(i) hereof. 6 "Firm Common Shares" has the meaning assigned to such term in the recitals hereof. "Firm Share Purchase" has the meaning assigned to such term in the recitals hereof. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hydrocarbons" means oil, condensate, gas, casinghead gas, helium, carbon dioxide and other liquid or gaseous hydrocarbons. "Immediate Family Member" means, with respect to any Person, a spouse, parent, child or sibling of such Person or a trust created for any of their benefit, the benefit of any Immediate Family Member or the estate of any Immediate Family Member. "Indemnification Note" means, with respect to any indemnification payment made by the Company to Buyer Indemnified Parties pursuant to Article VII of this Agreement, a subordinated promissory note containing the following terms: the principal amount of the note shall bear interest from the date of the note, until paid in full; the Company agrees to repay the entire principal amount of the note, and all accrued and unpaid interest thereon, in a single payment on the earlier of (a) one month following the payment in full of all amounts under the Credit Agreement whether for principal, interest, premium, if any or any other reason (b) the four year anniversary of the issuance of the note and (c) the occurrence of an event of default (to be defined to consist of a failure to pay principal or interest on the Indemnification Note when due or the occurrence of specified bankruptcy or insolvency-related events; interest shall be calculated at the rate of the prime rate of Chase Manhattan Bank plus 2% per annum, on the basis of a 365 day year and the actual number of days elapsed; the Company may prepay the note at any time without prepayment penalty or premium; and other terms (including subordination provisions) in form and substance reasonably satisfactory to the Company and the Buyer and satisfactory to the Banks under the Credit Agreement. "Indemnified Party" has the meaning assigned to such term in Section 8.4(a) hereof. 7 "Indemnifying Party" has the meaning assigned to such term in Section 8.4(a) hereof. "Initial Closing" has the meaning assigned to such term in Section 3.1(a) hereof. "Initial Closing Date" has the meaning assigned to such term in Section 3.1(a) hereof. "Investment" means each corporation, association, partnership, joint venture or other entity in which the Company, the Tenneco Entities or any Tenneco Entities' Subsidiary has a debt or equity investment, in each case other than the Tenneco Entities' Subsidiaries. "Knowledge", including the usage "to the Knowledge of the Company" and variations thereof, means knowledge which exists to the extent of the actual knowledge of the Management Investors in whatever capacity such knowledge was obtained, with respect to the representation and warranty being made. "Leased Reserves" has the meaning assigned to such term in Section 5.1(h)(ii) hereof. "License" has the meaning assigned to such term in Section 5.1(p) hereof. "Lien" has the meaning assigned to such term in Section 5.1(d) hereof. "Loss" and "Losses" have the respective meanings assigned to such terms in Section 8.1 hereof. "Management Investors" has the meaning assigned to such term in the recitals hereof. "Material Adverse Effect" means a material adverse effect on the business, operations, properties, financial condition or results of operations of (a) the Company or (b) the Tenneco Entities and the Tenneco Entities' Subsidiaries on a consolidated basis. "Materials of Environmental Concern" means any and all chemicals, pollutants, contaminants, wastes, toxic or hazardous substances or materials, petroleum and petroleum products and other materials that are regulated under, or could result in the imposition of liability under, any Environmental Laws. "Multiemployer Plan" has the meaning assigned to such term in Section 5.1(o)(ii) hereof. 8 "1996 Budget" means the Company's 1996 budget, a copy of which has been provided to the Buyer prior to the execution of this Agreement. "Notice of Claim" has the meaning assigned to such term in Section 8.3 hereof. "Oil and Gas Interests" means direct and indirect interests in and rights with respect to oil, gas, helium, carbon dioxide, 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 profit interests, other nonworking interests, and nonoperating interests; all interests in and rights with respect Hydrocarbons and other minerals or revenues therefrom and all contracts in connection therewith and claims and rights thereto (including all 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; all 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 all interests in equipment and machinery (including well equipment and machinery), oil and gas production, gathering, transmissions, 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. "Oil and Gas Leases" has the meaning assigned to such term in Section 5.1(h)(ii) hereof. "Option" has the meaning assigned to such term in Section 4.1 hereof. "Option Purchase Price" has the meaning assigned to such term in Section 4.1 hereof. "Option Share Purchase" has the meaning assigned to such term in Section 4.3 hereof. "Option Shares" has the meaning assigned to such term in Section 1.1(b) hereof. "Payout" has the meaning assigned to such term in Section 4.1 hereof. 9 "Pension Plan" has the meaning assigned to such term in Section 5.1(o)(iii) hereof. "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity of any nature whatsoever. "Predecessors" has the meaning assigned to such term in Section 5.1(f) hereof. "Properties" has the meaning assigned to such term in Section 5.1(h)(ii) hereof. "Reserves" has the meaning assigned to such term in Section 5.1(h)(ii) hereof. "Securityholders Agreement" means the Securityholders Agreement, dated as of December 31, 1996, among the Company, the Buyer and the Management Investors and the other stockholders of the Company, attached hereto as Exhibit C. "Stock Purchase Agreement" has the meaning assigned to such term in the recitals hereof. "Subsequent Closing" has the meaning assigned to such term in Section 3.1(a) hereof. "Subsequent Closing Date" has the meaning assigned to such term in Section 3.1(a) hereof. "subsidiaries" means as to any Person a corporation, partnership, or similar entity of which (i) a majority of the outstanding shares of voting stock, limited liability company interests or similar securities or interests are at the time owned, directly or indirectly through one or more intermediaries, or both, by such Person or (ii) such Person is the general partner (or performs a role similar to a general partner). "Subsidiary Stock" has the meaning assigned to such term in Section 5.1 (e)(ii) hereof. "Tax" or "Taxes" has the meaning assigned to such term in Section 5.1(v)(i) hereof. "Tax Return" or "Tax Returns" has the meaning assigned to such term in Section 5.1(v)(i) hereof. "Teleo" has the meaning assigned to such term in the recitals hereof. 10 "Tenneco Entities" has the meaning assigned to such term in the recitals hereof. "Tenneco Entities' Subsidiaries" has the meaning assigned to such term in Section 5.1(c) hereof. "TGP" has the meaning assigned to such term in the recitals herein. "Third Party Claims" has the meaning assigned to such term in Section 8.4(a) hereof. "Transaction Documents" shall mean, collectively, this Agreement, the Securityholders Agreement, the Credit Agreement, the Stock Purchase Agreement, the Buyer Subordinated Note and the Employment Agreement. "Transactions" has the meaning assigned to such term in Section 5.1(d) hereof. "Ventures" has the meaning assigned to such term in the recitals hereof. ARTICLE III INITIAL CLOSING 3.1. Time and Place. (a) The closing of the Firm Share Purchase (the "Initial Closing") will take place at the offices of Weil, Gotshal & Manges LLP, 700 Louisiana, Suite 1600, Houston, Texas, or at such other location as the parties hereto mutually agree, at 10:00 a.m. Houston time on December 31, 1996, or on such other time and date as may be mutually agreed upon by the parties hereto (the "Initial Closing Date"). (b) The closing of the Option Share Purchase (a "Subsequent Closing") will take place at the offices of Weil, Gotshal & Manges LLP, 700 Louisiana, Suite 1600, Houston, Texas, or at such other location as the parties hereto mutually agree, at such time and date as may be mutually agreed upon by the parties hereto in accordance with the provisions of Section 4.4 (a "Subsequent Closing Date"). ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK 4.1. Option. Subject to the terms and conditions of this Agreement, the Company hereby grants to the Buyer an option (the "Option") to purchase the Option Shares for an aggregate purchase price (the "Option Purchase Price") of $8,000,000 plus any cash interest payment on the Buyer Subordinated Note actually 11 received by the Buyer; provided, that the number of the Option Shares shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, reclassifications, recapitalizations, reorganizations and the like occurring after the date hereof. The Option Purchase Price shall be satisfied in full (i) prior to the Buyer Subordinated Note Repayment date, the delivery to the Company of the Buyer Subordinated Note together with the payment of an amount in cash equal to any repayments of principal of, and all payments of interest on, the Buyer Subordinated Note previously received by the Buyer and (ii) after the Buyer Subordinated Note Repayment Date, by the payment of the Option Purchase Price in cash. The Company acknowledges and agrees that the Option Purchase Price may be satisfied by the delivery of the Buyer Subordinated Note as provided in this Agreement irrespective of the validity, regularity or enforceability of the Buyer Subordinated Note, the bankruptcy, insolvency or other condition of the obligor under the Buyer Subordinated Note or any breach by such obligor of its obligations under the Buyer Subordinated Note. The Company acknowledges that the Buyer Subordinated Note shall be delivered to the Company on an "as is, where is" basis without any representation, warranty or indemnity by the Buyer except as set forth in Section 5.2. 4.2. Exercise. The Option may be exercised by the Buyer, in its sole discretion, by the Buyer delivering an Exercise Notice (as hereinafter defined) to the Company at any time during the period (the "Exercise Period") commencing on the Initial Closing Date and ending on the earlier of (a) the third year anniversary of the Initial Closing Date or (b) the 30th day after the Buyer Subordinated Note Repayment Date. 4.3. Notice. If the Buyer wishes to exercise the Option (the "Option Share Purchase"), the Buyer shall send a written notice (an "Exercise Notice") to the Company of its intention to exercise the Option. The Subsequent Closing Date for the Option Share Purchase shall be not less than 5 nor more than 60 days (or such longer period as may be required by applicable law or regulation) from the date on which such notice is delivered to the Company. 4.4. Conditions Precedent. The obligation of the Buyer to purchase Option Shares pursuant to the Buyer's exercise of the Option shall be subject to the satisfaction of the conditions set forth in paragraph 8.1(b) hereof. ARTICLE V REPRESENTATIONS AND WARRANTIES 5.1. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as follows: (a) Execution and Validity of Agreement. The Company has all requisite corporate power and authority to execute 12 and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. This Agreement and the other Transaction Documents to which the Company is a party have been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the other parties to the Transaction Documents, constitute the legal, valid and binding agreements of the Company. Assuming due authorization, execution and delivery by the other parties hereto and thereto, each of this Agreement and the Securityholders Agreement are enforceable against the Company in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (b) Corporate Organization. (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware, has the corporate power and authority to own, use and operate its properties and to carry on its business as the same is now being conducted and is duly qualified or licensed to do business as a foreign corporation in each jurisdiction in which the nature of its business or properties makes such qualification necessary. (ii) Each of the Tenneco Entities and the Tenneco Entities' Subsidiaries (as hereinafter defined) is a corporation or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of its State of organization, has the corporate power and authority to own, use and operate its properties and to carry on its business as the same is now being conducted and is duly qualified or licensed to do business as a foreign corporation in each jurisdiction in which the nature of its business or properties makes such qualification necessary, except any such jurisdiction in which the failure to so qualify or be licensed would not have a Material Adverse Effect. (c) Investments. As of the date hereof, the Company does not have any direct or indirect subsidiaries other than its wholly-owned subsidiary, Domain Energy Guarantor Corporation, a Delaware corporation. Other than those subsidiaries listed in Schedule 5.1(c) (the "Tenneco Entities' Subsidiaries"), the Tenneco Entities do not have any direct or indirect subsidiaries. The Tenneco Entities own the percentage of the outstanding capital stock or ownership units of the Tenneco Entities' Subsidiaries as set forth in Schedule 5.1(c). Immediately following the Initial Closing, the Company will own all of the outstanding capital stock of the Tenneco Entities. Except for the interests set 13 forth on Schedule 5.1(c) neither the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries have any debt or equity investment, or other interest, direct or indirect, in any corporation, association, partnership, joint venture or other entity. (d) No Conflict. Neither the execution and delivery by the Company or either of the Tenneco Entities of the Transaction Documents to which it is a party, nor the performance by the Company or the Tenneco Entities of the transactions contemplated hereby and thereby, including without limitation the sale of the Company Shares to the Buyer, the initial borrowings under the Credit Agreement and the issuance of the Buyer Subordinated Note (collectively the "Transactions"), will (i) violate or conflict with any of the provisions of the certificate of incorporation or by-laws of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries, (ii) except as set forth in Schedule 5.1(d)(ii), with or without the giving of notice or the lapse of time or both, violate or constitute a default under, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under any mortgage, indenture, deed of trust, lease, contract, agreement, license or other instrument or violate any provision of any law, order, judgment, decree, restriction or ruling of any Governmental Authority to which the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is a party or by which any of their respective property is bound or encumbered or (iii) except as provided in the Transaction Documents, result in the creation of any lien, mortgage, pledge, charge, security interest or similar encumbrance ("Lien") upon any of the assets of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries or the loss of any license or other contractual right with respect thereto. (e) Capital Structure of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries. (i) The authorized capital stock of the Company as of the date hereof consists of 20,000 shares of Common Stock, no shares of which are issued and outstanding as of the date hereof. Immediately following the Initial Closing and consummation of the Stock Purchases, the authorized, issued and outstanding capital stock of the Company will be as set forth on Schedule 5.1(e)(i). (ii) Set forth on Schedule 5.1(e)(ii)(a) is the authorized, issued and outstanding capital stock of the Tenneco Entities as of the date hereof and the authorized capital stock or partnership or limited liability company interests, as the case may be (collectively, the "Subsidiary Stock"), and the issued and outstanding Subsidiary Stock of 14 each Tenneco Entities' Subsidiary as of the date hereof. Immediately following the Initial Closing and consummation of the Stock Purchases, the authorized, issued and outstanding capital stock of the Tenneco Entities and Subsidiary Stock will be as set forth on Schedule 5.1(e)(ii)(b). (iii) Except as set forth on Schedule 5.1(e)(iii), all issued and outstanding shares or units of Authorized Common Stock and common stock of the Tenneco Entities and the Subsidiary Stock have been duly authorized and validly issued, are fully paid and nonassessable and free of preemptive rights with no personal liability attaching to the ownership thereof, and such ownership is free and clear of all Liens. (iv) The Company Shares have been duly authorized by the Company and, upon payment and delivery in accordance with this Agreement, will be validly issued, fully paid and nonassessable and free of preemptive rights with no personal liability attaching to the ownership thereof. (v) Except as set forth on Schedule 5.1(e)(v), and except for the Securityholders Agreement and rights contained in the Company's Certificates of Incorporation, there are no outstanding options, warrants, calls, rights or other securities or commitments or any other agreements of any character relating to the sale, issuance or voting of any shares of the capital stock or limited liability company interests, as the case may be, of the Company, the Tenneco Entities or any Tenneco Entities' Subsidiary, whether issued or unissued, or any securities convertible into or evidencing the right to purchase any shares of capital stock or limited liability company interests, as the case may be, of the Company, the Tenneco Entities or any Tenneco Entities' Subsidiary. (f) Financial Statements. The Company has heretofore furnished to the Buyer consolidated and consolidating balance sheets (the "Balance Sheets") of TGP and Ventures, as predecessors in interest of the Company and its subsidiaries (in such capacity, the "Predecessors") as at December 31, 1995 and the related consolidated and consolidating statements of income, retained earnings and cash flows of the predecessors for the fiscal year ended on said date, and the consolidated and consolidating balance sheets of the Predecessors as at September 30, 1996 and the related consolidated and consolidating statements of income, retained earnings and cash flows of the Predecessors for the nine-month period ended on such date. All such financial statements are complete and correct and fairly present the consolidated financial condition of the Predecessors and (in the case of said consolidating financial statements) the respective unconsolidated financial condition of the 15 Predecessors, as at said dates and the consolidated and unconsolidated results of their operations for the fiscal year and nine-month period ended on said dates (subject, in the case of such financial statements as at September 30, 1996, to normal year-end audit adjustments), all in accordance with generally accepted accounting principles and practices applied on a consistent basis. Except as disclosed on Schedule 5.1(f), there is no material liability or obligation of any kind, whether accrued, absolute, fixed or contingent, of the Tenneco Entities and the Tenneco Entities' Subsidiaries which would be required to be presented in financial statements or notes thereto prepared in accordance with generally accepted accounting principles that is not reflected or reserved against in the Balance Sheets (or the notes thereto), other than liabilities or obligations incurred in the ordinary course of business since December 31, 1995. The Company does not have any liability or obligation of any kind, whether accrued, absolute, fixed or contingent, other than obligations and liabilities arising under the Transaction Documents. (g) Absence of Certain Changes or Events. Since December 31, 1995, except as disclosed in Schedule 5.1(g), and except for the conclusion of, and preparation for, the Transactions, the Tenneco Entities and the Tenneco Entities' Subsidiaries have operated their respective businesses only in the ordinary course consistent with past practice and there has not been, with respect to the Tenneco Entities or any of the Tenneco Entities' Subsidiaries: (i) any change in the business or financial condition of the Tenneco Entities or any of the Tenneco Entities' Subsidiaries which has had, or would reasonably be expected to have, either in any case or in the aggregate, a Material Adverse Effect; (ii) the incurrence of any indebtedness for money borrowed in excess of $500,000 (other than borrowings under the Credit Agreement and indebtedness permitted under the Credit Agreement) or the creation of any Lien on any properties or assets (whether tangible or intangible) having an aggregate value in excess of $500,000, other than Liens required or permitted under the Credit Agreement; (iii) other than as set forth in the 1996 Budget: (A) any general increase, or any announcement of any general increase, in the wages, salaries, compensation, bonuses, commissions, incentives, pension or other benefits payable by the Tenneco Entities or any of the Tenneco Entities' Subsidiaries to its directors or employees, or (B) any specific increase, or any announcement of any specific increase in any of the foregoing payable by the Tenneco Entities or any of the 16 Tenneco Entities' Subsidiaries to any director or any employee, except in either case (I) as set forth in the Employment Agreement, and (II) increases in salaries and salary bonuses not greater than 3% in the aggregate since December 31, 1995; (iv) any new agreement, plan, policy, program or arrangement to pay pensions, retirement allowances or other employee benefits to any director, employee or agent or sales representative, whether past or present, including any severance or consulting arrangement; (v) any commitment or amendment to any additional pension, profit-sharing, deferred compensation, group insurance, severance pay, retirement or other employee benefit plan, fund or similar arrangement in existence on the date hereof; (vi) any termination, discontinuance, closing or disposition of any plant, facility or business operation (other than sales or other dispositions in the ordinary course of business or as previously disclosed to the Buyer) of Oil and Gas Interests, any layoffs of employees or implementation of any early retirement, separation or window program or planning or announcement of any such action or program for the future; (vii) any material transfer or grant of any rights under any concessions, property leases, licenses, agreements, trademarks, tradenames, service marks, brandmarks, brand names, copyrights, patents, inventions, processes, technical know-how or other proprietary rights either within or outside the United States; (viii) any capital expenditure in excess of $250,000 other than as set forth in the 1996 Budget; (ix) any damage, destruction or loss (whether or not covered by insurance) to any asset of the Tenneco Entities or any of the Tenneco Entities' Subsidiaries, other than damage, destruction or losses which, individually or in the aggregate, have not had and would not reasonably be expected to have, a Material Adverse Effect; or (x) except for such transactions reflected in the Shareholder Advance Account (as such term is defined in the Stock Purchase Agreement), any declaration, setting aside or payment of any dividend or other distribution on or in respect of its shares of capital stock or limited liability company interests, as the case may be, or any direct or indirect redemption, retirement, 17 purchase or other acquisition of any such shares or interests, as the case may be. (h) Title to Properties; Encumbrances. (i) The Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries have good and marketable title to the respective real properties and oil and gas reserves that they own and which are reflected on the Balance Sheet and other 1995 financial statements referred to in Section 5.1(f) or were acquired since December 31, 1995, including all joint ventures and other investments (collectively, the "Fee Properties") free and clear of all Liens except (a) capitalized financing leases, (b) Liens for ad valorem real property taxes not yet due or payable, due but not yet payable or due and payable but not yet delinquent, (c) mechanics', materialmen's, operators, tax or similar Liens affecting the Fee Properties (but not excepting any such Liens which secure obligations which are delinquent unless such delinquent obligations are being contested in good faith by appropriate legal proceedings), (d) purchase money Liens arising in the ordinary course of business which may be delinquent provided, such delinquent Liens are being contested in good faith by appropriate legal proceedings, (e) those mortgages, pledges and other Liens identified on Schedule 5.1(h)(i), (f) the mortgages, security interests and Liens granted pursuant to the Credit Agreement or any documents executed in connection therewith and (g) such imperfections of title, easements and other similar encumbrances, if any, which do not in the aggregate materially detract from the value or materially interfere with the present use by the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries, as the case may be, of the Fee Properties. Fee Properties consisting of oil and gas reserves are sometimes hereinafter referred to as "Fee Reserves." (ii) The Company has made available to the Buyer all agreements (collectively, with any and all amendments, supplements or other modifications thereto, the "Oil and Gas Leases") pursuant to which the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries lease, sublease or otherwise possess any occupancy, usage rights or Oil and Gas Interests with respect to any real property (such properties are hereinafter referred to collectively as the "Leased Properties"; the Leased Properties together with the Fee Properties, collectively, the "Properties") or the reserves of oil and gas described on the 1995 financial statements referred to in Section 5.1(f) (the "Leased Reserves"). The Leased Reserves together with the Fee 18 Reserves are hereinafter collectively referred to as the "Reserves". Except with respect to the Reserves, the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries have no reserves of oil and gas and the Reserves are all of the oil and gas reserves utilized by the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries in its business. (iii) The Tenneco Entities or one of the Tenneco Entities' Subsidiaries is a party to each of the Oil and Gas Leases pursuant to which the Tenneco Entities or one of the Tenneco Entities' Subsidiaries leases the Leased Properties and the Leased Reserves. Each of the Oil and Gas Leases is validly executed by the lessee, in full force and effect and represents a binding obligation of the Tenneco Entities, the Tenneco Entities' Subsidiary (as the case may be) and, to the Knowledge of the Company, the lessor thereunder in accordance with the terms thereof. Except as set forth in Schedule 5.1(h)(i), there is no default by the Tenneco Entities or any of the Tenneco Entities' Subsidiaries under the Oil and Gas Leases or to the Knowledge of the Company by any of the other parties to the Oil and Gas Leases, nor, to the Knowledge of the Company, has any event occurred which with notice, the passage of time or both would constitute such a default. The Company has no Knowledge of any adverse claims to the Leased Reserves or the rights described in the Oil and Gas Leases, nor have the Tenneco Entities received any notice of default under the Oil and Gas Leases and the quiet and peaceful possession of the Leased Reserves by the Tenneco Entities or one of the Tenneco Entities' Subsidiaries has not been disturbed. Except as disclosed on Schedule 5.1(h)(i), the Tenneco Entities have no Knowledge of any facts which, through notice or the passage or time, would constitute grounds for a forfeiture of any of the Leased Reserves under any of the Oil and Gas Leases. Except as otherwise may be set forth in any of the Oil and Gas Leases, to the Knowledge of the Company, each of the lessors or sub-lessors under the Oil and Gas Leases has title to the Leased Reserves leased pursuant thereto. For purposes hereof, the term "title" shall mean that the party possessing the same has good and marketable title to all oil and gas to which such expression is directed, together with all rights necessary to remove such oil and gas, the necessary rights to conduct such removal and the right to lease or sublease same to the Tenneco Entities and the Tenneco Entities' Subsidiaries in accordance with the terms of the Oil and Gas Leases. (iv) Except as set forth in Schedule 5.1(h)(iv), to the Knowledge of the Company, (i) the operations of 19 the Tenneco Entities and the Tenneco Entities' Subsidiaries are not dependent upon any rights to the use of real properties of others except under the Oil and Gas Leases, the Licenses and the Contracts and (ii) all buildings, structures, machines and equipment used in the operations of the Tenneco Entities and the Tenneco Entities' Subsidiaries have been maintained in all respects in a state of adequate repair and are otherwise generally adequate for their normal operation, except for such failures that, individually or in the aggregate, would not have a Material Adverse Effect. Except as set forth in Schedule 5.1(h)(iv), (A) the Tenneco Entities have not received any notice that (1) any of such buildings, structures, machines, equipment or (2) the current use of the Properties does not conform in all material respects with all applicable ordinances, regulations and zoning or other laws, (B) such machinery and equipment is in all material respects in useable condition, and (C) to the Knowledge of the Company, there is no pending or threatened condemnation, eminent domain or similar proceeding affecting any part of the Properties or the Reserves. (v) Other than in the ordinary course of business, neither the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries have leased, subleased, optioned, assigned or otherwise transferred or entered into any agreement to lease, sublease, option, assign or otherwise transfer any interest in the Reserves so as to materially reduce its interest in the Reserves as reflected in the financial statements referred to in Section 5.1(f). No rights of reassignment, preferential purchase rights, option rights, back-in rights or other rights to transfer any material interest in any of the Reserves to any third party exist that would be triggered or violated by this Agreement. (vi) To the Knowledge of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries own or control all material ancillary rights, including surface access rights, rights-of-way, water rights, access to utilities and the like necessary to gain vehicular and pedestrian access to, produce, process and market Reserves from the Properties in the same manner and at the same rates as were in effect as of December 31, 1995. (vii) With respect to the Fee Reserves, there are no parties in possession or, to the Knowledge of the Company, asserting a right of possession adverse to the possession of the Tenneco Entities or the Tenneco Entities' Subsidiaries, and, to the Knowledge of the 20 Tenneco Entities, there are no parties asserting title adverse to the title of the Tenneco Entities or any of the Tenneco Entities' Subsidiaries which, if successful, would materially detract from the value or materially interfere with the present use by the Tenneco Entities and the Tenneco Entities' Subsidiaries of the Fee Reserves and the Fee Properties. (i) Absence of Liens. Except as described in Schedule 5.1(i), each of the Tenneco Entities and the Tenneco Entities' Subsidiaries has good title, free of all Liens, to all equipment, machinery and fixtures (to the extent they constitute personal property) owned or utilized in its business (or a valid and binding lease therefor) and all its receivables (the "Personal Properties") except for (A) capitalized financing leases, (B) Liens for ad valorem personal property taxes not yet due or payable, due but not yet payable, or due and payable but not yet delinquent, (C) landlords' or similar Liens affecting the Personal Properties, (D) purchase money Liens arising in the ordinary course of business, (E) the mortgages, security interests and Liens granted pursuant to the Credit Agreement or any documents executed in connection therewith, (F) Liens permitted under the Credit Agreement and (G) Liens which do not, individually or in the aggregate, materially detract from the value of the Personal Properties or materially interfere with the present uses thereof. (j) Insurance and Bonds. All policies of insurance, self-insurance permits (other than insurance provided to employees) and reclamation, workers compensation and other bonds relating to the Tenneco Entities and the Tenneco Entities' Subsidiaries and their respective businesses, assets and employees as of the date hereof (including carriers, policy numbers, effective and termination dates and coverage and self-insured retention amounts) are in full force and effect, all premiums due thereon have been paid and each of the Tenneco Entities and the Tenneco Entities' Subsidiaries has, to the Knowledge of the Company, complied with the material provisions of such policies, permits and bonds. All properties of the Tenneco Entities and the Tenneco Entities' Subsidiaries are insured in such amounts and against such risks as are usually insured against by Persons owning or operating similar properties in the localities where such properties are located. (k) Contracts. Except for the Transaction Documents, the Oil and Gas Leases, the insurance policies and bonds referred to in Section 5.1(j) and plans listed on Schedule 5.1(o), Schedule 5.1(k) hereto accurately lists the material contracts, leases, agreements, plans, policies, indentures, licenses and arrangements having any other legally binding basis to which the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is a party or by which it 21 or any of its property is bound (other than those to which the only parties are the Company, the Tenneco Entities and/or the Tenneco Entities' Subsidiaries) meeting any of the following criteria (each such contract, lease, agreement, plan, policy, indenture, license or arrangement (other than the Oil and Gas Leases, the insurance policies and bonds referred to in Section 5.1(j) and plans listed on Schedule 5.1(o)) referred to in this Section 5.1(k) and in Section 5.1(l) below a "Contract") (for purposes of this Section 5.1(k), "material" shall mean material to the business, operations, properties, financial condition or results of operations of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries on a consolidated basis)): (i) any such contract, lease, agreement, plan, policy, indenture or other such arrangement involving commitments to others to make capital expenditures or purchases or sales involving $250,000 or more in any one case, except commitments which may be terminated without liability or penalty by the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries on not more than 90 days notice; (ii) any such contract, lease, agreement, plan, policy, indenture or other such arrangement relating to any direct or indirect indebtedness for borrowed money (including but not limited to loan agreements, lease-purchase arrangements, guarantees of payment or collection, agreements to purchase goods or services or to supply funds or other undertakings on which others rely in extending credit) or any conditional sales contracts, chattel mortgages, equipment lease agreements and other security arrangements with respect to personal property with a value in excess of $500,000 in each instance used or owned by the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries; (iii) any such contract, lease, agreement, plan, policy, indenture or other such arrangement containing covenants limiting the freedom of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries to compete in any line of business with any person or in any area or territory; (iv) any such contract, lease, agreement, plan, policy, indenture or other such arrangement containing express terms and conditions with any sales agent, representative, franchisee or distributor of any of the products of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries; 22 (v) other than the Oil and Gas Leases, any such contract, lease, agreement, plan, policy, indenture or other such arrangement which requires the payment of royalties; and (vi) any other such contract, lease, agreement, plan, policy, indenture or other such arrangement not of the type covered by any of the other items of this Section 5.1(k) which is not in the ordinary course of business or which is material to the business, operations, properties, financial condition or results of operations of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries (as opposed to the prospects of the economy in general) on a consolidated basis. True, correct and complete copies of the written Contracts listed on Schedule 5.1(k) hereto have been made available to the Buyer. (l) Compliance with Contracts, Etc. The Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries is in material compliance with all material terms and provisions of all Contracts listed in Schedule 5.1(k) and to the Knowledge of the Company, all such Contracts are valid and binding in accordance with their terms and in full force and effect in all material respects, and to the Knowledge of the Company, no material breach or default by the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries or event which, with notice or lapse of time or both, could constitute a breach or default by the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries, exists with respect thereto, and no party thereto has given notice or asserted to the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries that the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is in default thereunder and, to the Knowledge of the Company, no other party thereto is in material breach or default thereunder. (m) Litigation. Except as disclosed in Schedule 5.1(m), there are no lawsuits, actions, arbitrations or legal or administrative or regulatory proceedings, or investigations pending or, to the Knowledge of the Company, threatened against the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries, or, to the Knowledge of the Company, any Investment. Neither the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries, nor, to the Knowledge of the Company, any Investments is a party to, nor are any of them or any of their respective assets subject to or bound by, any order, judgment, injunction, stipulation, order or decree (whether rendered by a court or administrative agency or by 23 arbitration) which, if adversely determined, could, individually or in the aggregate, have a Material Adverse Effect or materially adversely affect the ability of the Company to sell the Company Shares to be sold by the Company hereunder or to consummate the other transactions contemplated hereby. There are no material citations, fines or penalties heretofore asserted against the Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries, or, to the Knowledge of the Company, any Investments, under any foreign, federal, state or local law that remain unpaid or that otherwise bind any assets of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries or Investments. (n) Compliance with Laws. None of the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the Company, any of the Investments, has violated or failed to comply with any applicable statute, law, ordinance, regulation, rule or order of any Governmental Authority, or any judgment, decree or order of any court, applicable to its business or operations, except where such violations or failures would not, individually or in the aggregate, have a Material Adverse Effect; and the conduct of the Company's, the Tenneco Entities', the Tenneco Entities' Subsidiaries' and, to the Knowledge of the Company, the Investments' businesses is in material conformity with all applicable foreign, federal, state and local energy, public utility, health and employee health and safety requirements and all other applicable foreign, federal, state and local governmental and regulatory requirements, except where the failures to be in such conformity would not, individually or in the aggregate, have a Material Adverse Effect. The Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries and, to the Knowledge of the Company, the Investments have all permits, licenses, authorizations, consents, approvals and franchises from Governmental Authorities required to conduct their respective businesses as they are now being and during the past year have been conducted, and as they are planned to be conducted, except where the failure to have any such permits, licenses, authorizations, consents, approvals or franchises would not, individually or in the aggregate, have a Material Adverse Effect. (o) Employment Agreement and Related Matters. (i) Each "employee benefit plan", as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including each multiemployer plan within the meaning of 3(37) of ERISA), each bonus, fringe benefit, incentive, stock option, deferred compensation, employment, consulting, severance and all other employee benefit plans, programs, policies, agreements and arrangements, 24 whether or not covered by ERISA under which the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries has or could have any present or future material obligation or liability (collectively, the "Benefit Plans") are listed in Schedule 5.1(o). The Company or the Tenneco Entities have delivered to the Buyer, to the extent requested by the Buyer, current, correct and complete copies of each Benefit Plan and any related agreements or funding instruments (or, to the extent no such copy exists, a current, correct and complete description thereof) and, to the extent applicable, (A) the most recent summary plan description and Internal Revenue Service determination letter, if any, relating to each Benefit Plan and (B) for the two most recent plan years (I) the form 5500 and attached schedules; (II) audited financial statements; (III) actuarial valuation reports; and (IV) attorney's response to an auditor's request for information. (ii) No Benefit Plan is a "multiemployer plan" as such term is defined in Section 4001(a)(3) of ERISA ("Multiemployer Plan"). Neither the Company, the Tenneco Entities, nor any of the Tenneco Entities' Subsidiaries nor any trade or business, whether or not incorporated, which is under common control with the Company or the Tenneco Entities within the meaning of Code Section 414(b), (c), (m) or (o) or ERISA Section 4001 (excluding El Paso and its subsidiaries other than the Tenneco Entities and the Tenneco Entities Subsidiaries') (collectively, the "Controlled Group") have incurred any liability in connection with a complete or partial withdrawal from a Multiemployer Plan. To the Knowledge of the Company and the Tenneco Entities, no such Multiemployer Plan is in "reorganization" or is "insolvent"(as those terms are defined in Section 4241 and Section 4245 of ERISA, respectively). (iii) Each Benefit Plan, which is intended to be "qualified" within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") (a "Pension Plan"), is so qualified and has received a favorable determination letter as to its qualification, and nothing has occurred which would cause the loss of such qualification, in each case except for such circumstances that, individually or in the aggregate, would not have a Material Adverse Effect. (iv) Each Benefit Plan is intended by the Company and the Tenneco Entities to have been, and to the Knowledge of the Company has been, established, maintained and administered in all material respects in accordance with its terms and the requirements of 25 applicable law, including without limitation ERISA and the Code. There are not now, nor have there been, any "accumulated funding deficiencies" as defined in Section 412 of the Code (whether or not waived) with respect to any Benefit Plan which have not been fully satisfied. No "reportable event" (as that term is defined in Section 4043(b) of ERISA) has occurred with respect to any Benefit Plan. (v) No Pension Plan maintained by a member of the Controlled Group which is subject to Title IV of ERISA has been terminated, in whole or in part, and no proceedings to terminate a Benefit Plan pursuant to Subtitle C of Title IV of ERISA have been instituted or, to the Knowledge of the Company, threatened. As of the date of this Agreement, there are no pending or threatened claims, actions, suits, complaints or proceedings by or before any court, Governmental Authority, administrative agency or commission alleging a breach or breaches of fiduciary duties or violation of other applicable laws with respect to such Benefit Plans, or otherwise involving the Benefit Plans, which could result in material liability on the part of the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries or on a Benefit Plan or a Pension Plan maintained by a member of the Controlled Group (other than benefit claims in the ordinary course), nor, to the Knowledge of the Company, is there any basis for any such claims, actions, suits, complaints or proceedings. (vi) There has been no material adverse change in the funded status of any Benefit Plan that is subject to Title IV of ERISA since the most recent valuation date. (vii) No Benefit Plan exists which could result in the payment by the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries, any member of its Controlled Group or the Buyer of money or any other property or rights, or accelerate or provide any other rights or benefits, to any person as a result of the Transactions, including without limitation the sale of Company Shares hereunder, whether or not such payment would constitute a parachute payment within the meaning of Section 280G of the Code, other than as expressly provided for in the Transaction Documents. (viii) The maximum liability under the obligations being assumed by the Company under Section 9.04 of the Stock Purchase Agreement does not exceed $1,400,000. (p) Licenses and Government Approvals. Except as set forth on Schedule 5.1(p), the Company does not have 26 Knowledge of any impediment to the renewal of any license, permit, approval, consent, franchise and other authorization of any federal, state, local or foreign Governmental Authority (collectively, "Licenses") possessed by or granted to the Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries and material to their respective businesses as currently and during the past year have been conducted. To the Knowledge of the Company, all such Licenses are valid and in full force and effect and no proceeding is pending or, to the Knowledge of the Company, threatened seeking the suspension, modification, revocation or limitation of any such License. The Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries have all the necessary Licenses that are required to permit the continued operation after the date hereof of the businesses of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries as they are now being and during the past year have been conducted, with the exception of any change or changes in the operation of such businesses as would not, individually or in the aggregate, have a Material Adverse Effect. The Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries reasonably believe that, other than for such exceptions that would not, individually or in the aggregate, have a Material Adverse Effect: each of their Licenses will be timely renewed and complied with, without material expense; and that any additional Licenses that may be required of any of them to permit any of their operations as planned will be timely obtained and complied with, without material expense. Except as disclosed on Schedule 5.1(p) and except for the expiration or termination of all applicable waiting periods under the HSR Act, the execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation by the Company and the Tenneco Entities of the transactions contemplated hereby and thereby (including without limitation the sale of the Company Shares contemplated hereby and the borrowings contemplated by the Credit Agreement) will not require the consent, approval or authorization of any Governmental or regulatory Authority or any other Person under any License, agreement, indenture or other instrument to which the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is a party or to which any of their respective properties are subject that have not already been obtained, and no declaration, filing or registration with any Governmental or regulatory Authority is required in connection with such transactions. (q) Broker's or Finder's Fees. Except for PaineWebber Incorporated, neither the Company or the Tenneco Entities nor any Affiliate or agent of either of them have authorized any Person to act as a broker or finder or in any similar capacity in connection with the transactions contemplated by this Agreement. The Company has previously delivered to the Buyer a true, correct and complete copy of all agreements, 27 arrangements and undertakings between the Company and PaineWebber Incorporated. (r) Transactions with Affiliates. Except as disclosed in Schedule 5.1(r), neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries has any outstanding contract, agreement or other arrangement with the Company, the Tenneco Entities, or any of the Affiliates of the Company or the Tenneco Entities (other than those to which the only parties are the Company, the Tenneco Entities and/or the Tenneco Entities' Subsidiaries). Except as disclosed in Schedule 5.1(r), neither El Paso nor any of its Affiliates has issued any performance bonds, payment bonds, bid bonds, letters of credit, guaranties or similar instruments for the benefit of the Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries nor the Investments. (s) Corporate Records. The books and records of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries are complete and correct in all material respects and have been maintained in accordance with good business practices. (t) Labor Matters. Except as set forth in Schedule 5.1(t), neither the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries nor any member of the Controlled Group is subject to or a party to any collective bargaining agreement, employment contract or consulting agreement and no collective bargaining agreement, employment agreement or consulting agreement is being negotiated. Except as disclosed in Schedule 5.1(t), there are no strikes, slowdowns, work stoppages or other material labor controversies pending or, to the Knowledge of the Company, threatened against or otherwise affecting the Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries. Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries has experienced any labor strike, slowdown, work stoppage or other material labor controversy within the past three years. Other than certain severance payments and retention bonuses due to certain employees of the Company which will be paid in due course, the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries have paid in full to all their respective employees all wages, salaries, commissions, bonuses, benefits and other compensation due to such employees or otherwise arising under any policy, agreement, program, statute or other law. Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries is a party to, or otherwise bound by, any consent decree with, or citation by, any court or Governmental Authority relating to employees or employment practices. To the Knowledge of the Company, during the past three years none of the Company, the Tenneco Entities or any 28 of the Tenneco Entities' Subsidiaries has received any petition from any employees to form, join, or assist labor organizations to bargain collectively through representatives of the employees' choosing or has received information about employees engaging in other concerted activities for the purpose of collective bargaining. (u) Tax Matters. Except as set forth in the last sentence of this Section 4.1(u) and in Schedule 5.1(u): (i) All Tax Returns (as hereinafter defined) required by law to be filed (and/or maintained) on or prior to the date hereof by, or with respect to the operations, activities or assets of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries (other than any consolidated, combined or unitary income or franchise tax returns filed by either Tenneco, Inc. or El Paso (as common parent) on behalf of any of the Tenneco Entities or the Tenneco Entities' Subsidiaries) have been properly and timely filed with the appropriate governmental agencies (and/or maintained, as the case may be), and all such Tax Returns are correct, accurate and complete in all material respects. All Taxes (as hereinafter defined) shown as due on such Tax Returns have been paid. For purposes of this Agreement, "Tax" or "Taxes" will mean any and all federal, state, local, foreign and other taxes and tax withholding obligations (including interest, additions to tax, penalties and fines with respect thereto) including, without limitation, taxes imposed on, or measured by, income, franchise, profits, or gross receipts, and also ad valorem, value added, sales, use, service, real or personal property, capital stock, license, payroll, withholding, employment, social security, workers' compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transaction, and joint taxes, and customs duties. "Tax Return" or "Tax Returns" will mean any report, return or other information, or any amendment thereof, filed or required to be filed, maintained or supplied in connection with the calculation, determination, assessment, collection or remittance of any Tax. (ii) With respect to the Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries, except as set forth in Schedule 5.1(u), (A) no audit of any Tax Return is in progress or pending or, to the Knowledge of the Company, threatened, (B) no waiver of any statute of limitations has been given and is in effect with respect to the assessment of any Tax and (C) no deficiency has been assessed for any Tax by any Governmental Authority. 29 (iii) Set forth in Schedule 5.1(u) is a list of all current deficiencies asserted and assessments made by the IRS or the state equivalent with respect to the Tenneco Entities and the Tenneco Entities' Subsidiaries which deficiencies and assessments have not been paid, settled, withdrawn, overturned or dismissed. (iv) True, correct and complete copies of all notices of deficiencies, assessments, audit reports, closing agreements with and other notices from any taxing authority for all years with respect to which the statute of limitations has not expired will be delivered to the Buyer prior to the Initial Closing Date. (v) Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries has adopted a plan of complete liquidation and no consent has been filed on behalf of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries pursuant to Section 341(f) of the Code or any predecessor provision. (vi) The Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries have collected all sales and use Taxes required to be collected, and have remitted, or will remit on a timely basis, such amounts to the appropriate Governmental Authorities where the failure to collect or remit would in the aggregate have a Material Adverse Effect, or have been furnished properly completed exemption certificates for all exempt transactions. Each of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries has maintained in its possession all records and supporting documents required by applicable sales Tax statutes and regulations regarding the collection and payment of all sales and use Taxes required to be collected and paid over and regarding all exempt transactions for all periods open under the applicable statutes of limitations as of the Initial Closing Date. (vii) The liabilities for Taxes reflected in the Balance Sheet set forth on Schedule 5.1(f) are accurate and the amounts reflected for Taxes therein are sufficient for the payment of all accrued, unpaid or deferred Taxes of the Tenneco Entities and the Tenneco Entities' Subsidiaries for all periods ended on or prior to December 31, 1995, whether or not disputed. (viii) The Company (a) has not been a member of an affiliated group filing a consolidated federal income Tax Return (other then a group the common parent of which is the Company) and (b) has no liability for Taxes of any Person (other than the Company, the 30 Tenneco Entities and the Tenneco Entities' Subsidiaries) under U.S. Treasury regulation ss. 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise. (ix) Neither the Company nor the Tenneco Entities is a United States real property holding corporation within the meaning of Section 897 of the Code, or will have been a U.S. real property holding corporation within the five years preceding the date hereof or the Initial Closing Date. The shares of capital stock of the Tenneco Entities acquired by the Company pursuant to the Stock Purchase Agreement are not United States real property interests within the meaning of Section 897 of the Code. (x) The Company and the Tenneco Entities will promptly notify or arrange for the notification of the Buyer of any event materially affecting the continuing accuracy of any representation in this Section 5.1(u) between the date hereof and the Initial Closing Date. The foregoing representations and warranties contained in this Section 4.1(u) shall not apply to any Taxes attributable to any consolidated Tax Return filed or required to be filed by El Paso or by Tenneco, Inc. as the common parent or parent corporation of a group including the Tenneco Entities or the Tenneco Entities' Subsidiaries. (v) Environmental Matters. (i) Except as set forth on Schedule 5.1(v), other than exceptions to the following that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (A) The Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries and, to the Knowledge of the Company, the Investments are in compliance with all applicable Environmental Laws; neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries has received any written communication from any source within any applicable limitations period that alleges that the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is not in such compliance; and all Licenses required pursuant to the Environmental Laws to operate the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries any of the Investments as they are now and during the past year have been conducted have been obtained and are currently in force, and will be timely renewed and complied with, without material expense; and any additional such Licenses that may be required of any of them to permit any of their operations as 31 planned will be timely obtained and complied with, without material expense. (B) There is no Environmental Claim against the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the Company, any of the Investments which is pending or, to the Knowledge of the Company, threatened against or involving the Company, or, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the Company, against any Person whose liability for such claim the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries has or may have retained or assumed either contractually or by operation of law. (C) There are no past or present actions, activities, circumstances, conditions, events or incidents, including without limitation the release, threatened release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claim (I) against the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the Company, any of the Investments or (II) against any person or entity whose liability for any Environmental Claim the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries may have retained or assumed either contractually or by operation of law. (ii) The Company has made available to the Buyer all written reports evaluating issues of actual or potential noncompliance with, liability under, or costs otherwise related to any Environmental Law that have been prepared by or for the Company, the Tenneco Entities, any of the Tenneco Entities' Subsidiaries or, to the Knowledge of the Company, any of the Investments that are otherwise in any of their possession or control. (w) Oil and Gas Reserve Information. Except as otherwise set forth in Schedule 5.1(w) and except as would not, individually or in the aggregate, have a Material Adverse Effect: (i) None of the wells included in the Oil and Gas Interests of the Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries has been overproduced such that it is subject or liable to being shut-in or to any other overproduction penalty; (ii) There have been no changes proposed in the production allowables for any wells included in the Oil and Gas Interests of Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries; 32 (iii) All wells included in the Oil and Gas Interests of Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries have been drilled and (if completed) completed, operated, and produced in accordance with good oil and gas field practices and in compliance in all material respects with applicable Oil and Gas Leases and applicable laws, rules, and regulations; (iv) Neither the Company, the Tenneco Entities nor each of the Tenneco Entities' Subsidiaries has agreed to or is now obligated to abandon any well included in the Oil and Gas Interests of the Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries that is not or will not be abandoned and reclaimed in accordance with the applicable laws, rules, and regulations and good oil and gas industry practices; (v) Proceeds from the sale of Hydrocarbons produced from the Oil and Gas Interests of Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries are being received by Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries in a timely manner and are not being held by third parties in suspense for any reason (except for amounts, individually or in the aggregate, not in excess of $1,000,000 and held in suspense in the ordinary course of business); and (vi) No person has any call on, option to purchase, or similar rights with respect to the Oil and Gas Interests of the Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries or to the production attributable thereto, and upon consummation of the transactions contemplated by this Agreement, the Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries will have the right to market production from the Oil and Gas Interests of Company, the Tenneco Entities and each of the Tenneco Entities' Subsidiaries on terms no less favorable than the terms upon which such company is currently marketing such production. (x) Engineering Reports. All information supplied to De Golver & MacNaughton and Netherland & Sewell and Associates Ltd. (the "De Golver") by or on behalf of the Tenneco Entities and the Tenneco Entities' Subsidiaries that was material to such firm's review of the Tenneco Entities and the Tenneco Entities' Subsidiaries estimates of oil and gas reserves attributable to the Oil and Gas Interests of the Tenneco Entities and the Tenneco Entities' Subsidiaries in connection with the preparation of the oil and oil reserve engineering report concerning the Oil and Gas Interests of the Tenneco Entities and the Tenneco Entities' Subsidiaries as of July 1, 1996 by De Golver (the 33 "Engineering Report") was (at the time supplied or as modified or amended prior to the issuance of the Engineering Report) true and correct in all material respects. Except for changes in the classification or values of oil and gas reserve or property interests that occurred in the ordinary course of business since July 1, 1996, and except for changes (including changes in commodity prices) generally affecting the oil and gas industry on a nationwide basis, there has been no Material Adverse Effect in respect of the Tenneco Entities or the Tenneco Entities' Subsidiaries regarding the matters addressed in the Engineering Report. (y) Not Subject to Utility Regulatory Authorities. Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries owns or has any interest in as owner, operator or otherwise in any properties, businesses, entities or operations that are subject to regulation as a utility by federal, state or local utility regulatory authorities. (z) Worker's Compensation and Occupational Disease Reserve. There are no presently pending claims against the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries not fully covered by insurance for workers' compensation benefits and for federal and state occupational disease benefits. To the Knowledge of the Company, the Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries, their respective insurers or the funds listed in the preceding sentence have timely paid in full all such benefits due. (aa) Omissions. To the Knowledge of the Company, no representation or warranty of the Company contained 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 herein or therein, when read together, not materially misleading in light of the circumstances under which they were made. With respect to any Oil and Gas Interest, including the wells thereon, not operated by Ventures, it is understood and agreed that the representations and warranties set forth above in Sections 5.1(j) (to the extent the operator carries insurance for the joint account), 5.1(n) and 5.1(p) are understood to be made to the Knowledge of the Company only. 5.2. Representations and Warranties of the Buyer. The Buyer represents and warrants to the Company as follows: (a) Due Organization and Power of the Buyer. The Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite power and authority to execute and deliver this Agreement and the 34 Securityholders Agreement and to perform its obligations hereunder and thereunder. (b) Authorization and Validity of Agreement. The execution, delivery and performance by the Buyer of this Agreement and the Securityholders Agreement and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized, and no other action on the part of the Buyer or its partners is necessary for the execution, delivery and performance by the Buyer of this Agreement and the Securityholders Agreement and the consummation by it of the transactions contemplated hereby and thereby. This Agreement and the Securityholders Agreement have been duly executed and delivered by the Buyer and, assuming due authorization, execution and delivery by the parties other than the Buyer hereto and thereto, constitute the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (c) No Conflict. Neither the execution and delivery of this Agreement and the Securityholders Agreement nor the performance by the Buyer of the transactions contemplated hereby and thereby, including without limitation the purchase of the Company Shares hereunder, will: (i) violate or conflict with any provision of the Articles of Limited Partnership or limited partnership agreement of the Buyer; (ii) require any consent or approval of, or filing with or notice to, any Governmental or regulatory Authority under any provision of any law applicable to the Buyer, except for the expiration or termination of all applicable waiting periods under the HSR Act; (iii) result in any violation of or default under any provision of any law, rule, regulation, order, judgment or decree to which the Buyer is a party or by which the Buyer is bound; or (iv) with or without the giving of notice or the lapse of time or both, violate or constitute a default under, or result in the acceleration of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any obligation under any mortgage, indenture, deed of trust, lease, contract, agreement, license or other instrument or violate any provision of any law, order, judgment, decree, restriction or ruling of any Governmental Authority to which the Buyer or by which any of the Buyer's assets is bound or encumbered. (d) Purchase for Investment. The Buyer acknowledges that the Company Shares purchased hereunder have not been registered or qualified under the Securities Act of 1933, as amended or any state securities law and may be sold or otherwise disposed of in the absence of such registration 35 only pursuant to an exemption from such registration and any other applicable securities laws. The Buyer is purchasing the Company Shares solely for its own account for the purpose of investment and not with a view to or for sale in connection with any disposition thereof, and has no present intention or plan to effect any resale, assignment or distribution of any of the Company Shares. The Buyer acknowledges that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Company Shares, making an informed investment decision and of bearing the economic risk of the purchase of the Company Shares. (e) Litigation. No action, claim, suit or legal proceeding is now pending, or, to the knowledge of the Buyer, threatened, against the Buyer at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any Federal, state or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, which would adversely affect the Buyer's ability to perform the obligations under this Agreement, the Securityholders Agreement and other documents related hereto and thereto to which the Buyer is a party. (f) Ownership of Buyer Subordinated Note. On the date of any Subsequent Closing, the Buyer will own the Buyer Subordinated Note free and clear of all Liens and upon the delivery of the Buyer Subordinated Note to the Company in accordance with Section 1.2(b) and the issuance and delivery to the Buyer of the Option Shares, the Company will acquire all right, title and interest of the Buyer in the Buyer Subordinated Note, free and clear of all Liens other than Liens arising out of the actions of the Company. (g) Omissions. To the knowledge of the Buyer, no representation or warranty of the Buyer contained 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 herein or therein, in light of the circumstances under which they were made, not misleading. 5.3. Limitations on Survival. Each of the representations and warranties made by the Company in Section 5.1(u) of this Agreement (including the Schedules, insofar as the Schedules relate to such representations and warranties) and in the certificates delivered pursuant to Section 7.1(a)(ii) (insofar as they relate to such representations and warranties) shall survive the Initial Closing to and until the date on which the statute of limitations (taking into account any tolling agreements with respect thereto) with respect to enforcement of any relevant sections of the Code and the regulations promulgated thereunder against the Company, its subsidiaries and Affiliates 36 has expired (at which time they will terminate). Each of the representations and warranties made by the Company in Section 5.1(v) of this Agreement (including the Schedules, insofar as the Schedules relate to such representations and warranties) and in the certificates delivered pursuant to Section 7.1(a)(ii) (insofar as they relate to such representations and warranties) shall survive the Initial Closing to and until the first to occur of: (i) the completion of a Qualified Public Offering (as such term is defined in the Securityholders Agreement) and (ii) the date which is two years after the Initial Closing Date (at which time they will terminate). Each of the representations and warranties made by the Company in Sections 5.1(a), (b)(i), (d) and (e)(iv) of this Agreement (including the Schedules, insofar as the Schedules relate to such representations and warranties) and in the certificates delivered pursuant to Section 7.1(b) (insofar as they relate to such representations and warranties) and by the Buyer in Sections 5.2(a), (b), (c), (d) and (f) and the certificate delivered pursuant to Section 7.2(b) (insofar as they relate to such representations and warranties) shall survive the Initial Closing to and until the first to occur of: (x) the completion of a Qualified Public Offering (as such term is defined in the Stockholders Agreement) and (y) the date which is twelve months after the Subsequent Closing Date or, if the Option is not exercised prior to the end of the Exercise Period, the day after the expiration of the Exercise Period (at which time they will terminate). All other representations and warranties made by the parties in Article V of this Agreement (including the Schedules, insofar as the Schedules relate to such representations and warranties) and in the certificates delivered pursuant to Sections 7.1(a)(ii) and 7.2(b) (insofar as they relate to such representations and warranties) shall survive the Initial Closing to and until the first to occur of: (i) the completion of a Qualified Public Offering (as such term is defined in the Securityholders Agreement) and (ii) the date which is twelve months after the Initial Closing Date (at which time they will terminate). ARTICLE VI COVENANTS 6.1. Conduct of Business Pending the Initial Closing Date. The Company agrees that, prior to the Initial Closing, unless specifically provided for herein, unless expressly contemplated in any of the other Transaction Documents or unless the Buyer has specifically given its prior written consent: (a) The business of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries will be conducted only in the ordinary course in compliance with applicable laws, regulations and contractual obligations; (b) No change will be made in the certificate of incorporation or the by-laws of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries; 37 (c) No change will be made in the authorized, issued or outstanding capital stock of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries, no additional shares of such capital stock will be issued and no subscriptions, options, rights, warrants, claims, commitments or agreements relating to the authorized, issued or outstanding capital stock of the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries will be issued, granted, created or entered into; (d) No dividend or other distribution or payment will be declared, set aside, paid or made in respect of shares of the capital stock of the Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries, nor will the Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries, directly or indirectly, redeem, retire, purchase or otherwise acquire any of such capital stock; (e) Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries will merge, amalgamate or consolidate with any other corporation or acquire all or any substantial part of the business or assets of any other Person, or acquire ownership or control of any capital stock, bonds, or other securities of, or any property interest in, any Person or acquire control of the management or policies thereof. Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries will enter into any negotiations with respect to any of the actions described in this subsection (e); (f) Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries will, except as may be expressly contemplated in any of the Transaction Documents and (other than with respect to clause (i) below) except in the ordinary course of business: (i) amend, supplement or otherwise modify any Transaction Document or waive any condition to the Company's obligations under the Stock Purchase Agreement; (ii) except for transactions reflected in the Shareholder Advance Account (as such term is defined in the Stock Purchase Agreement), enter into, create or assume: (A) any obligation for borrowed money; or (B) any security agreement, Lien, encumbrance, mortgage, deed of trust, pledge, conditional sale or other title retention agreement; or (C) any Lien upon any of its properties or assets whether now owned or hereafter acquired; (iii) assume, guarantee, endorse or otherwise become liable with respect to the obligations of any Person; 38 (iv) make any loan or advance to, or assume, guarantee, endorse or otherwise become liable with respect to the capital stock or dividends of, any Person; (v) except for the Employment Agreement, enter into any transaction with or for the benefit of, or create or assume any obligation or liability to, any Affiliate (other than the Tenneco Entities and the Tenneco Entities' Subsidiaries); (vi) effect any increase in salaries, bonuses, commissions or wages payable; (vii) cancel or compromise any debt or claim or waive any rights of substantial value; or (viii) make any Tax election or settle or compromise any material federal, state, local or foreign Tax liability. (g) Other than in the ordinary course of business as heretofore conducted, neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries will sell, lease, abandon, exchange, assign, transfer, license or otherwise dispose of any property, intangible assets or any machinery, equipment or other operating property or tangible assets; (h) Neither the Company, the Tenneco Entities nor any of the Tenneco Entities' Subsidiaries will enter into or assume any contract, agreement or commitment which, by reason of its size, term or other factor, is not in the ordinary course of business as heretofore conducted; (i) The Company will use all reasonable efforts to preserve the business organization of the Tenneco Entities and the Tenneco Entities' Subsidiaries intact and to keep available the services of the present employees and agents of the Tenneco Entities and the Tenneco Entities' Subsidiaries and to preserve the good will of customers, suppliers, employees, agents and sales representatives, distributors and others having business relations with the Tenneco Entities and the Tenneco Entities' Subsidiaries and no change will be made in existing practices relating to profit sharing, bonuses or commissions; (j) Each of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries will maintain all assets owned, leased or regularly used by it in operable condition and repair, ordinary wear and tear excepted, and will maintain existing insurance coverage on such assets as well as other existing insurance coverage; and 39 (k) Each of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries will maintain its books, accounts and records in the usual and ordinary manner, on a basis consistent with prior years. With respect to the covenants set forth in Section 5.1, to the extent such covenants pertain to the Tenneco Entities or the Tenneco Entities' Subsidiaries, it is understood that the Company's obligation with respect thereto is only to use all reasonable efforts to cause El Paso to cause the Tenneco Entities and the Tenneco Entities' Subsidiaries to observe and comply with such covenants. 6.2. Access to Information Concerning Properties and Records; Confidentiality. (a) During the period commencing on the date hereof and ending on the Initial Closing Date, the Company will, and will use all reasonable efforts to cause El Paso and its Affiliates to, and to cause the Tenneco Entities and the Tenneco Entities' Subsidiaries to, upon reasonable request, afford to the Buyer, its counsel, accountants and other professional advisers reasonable access during normal business hours to the offices, plants, properties, contracts, books and records of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries (and permit the Buyer and its counsel, accountants and other authorized representatives to make copies of such contacts, books and records at their own expense), in order that the Buyer may have the full opportunity to make such reasonable investigations as it desires to make of the affairs of the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries, provided that no investigation pursuant to this Section 7.2 will affect any representations or warranties or the conditions to the obligations of the parties hereto to consummate the purchase of the Company Shares as contemplated hereby or the other transactions contemplated hereby. The Company agrees that it will, and will cause the Tenneco Entities and the Tenneco Entities' Subsidiaries and their respective officers, accountants and other professional advisers, to, furnish to the Buyer such additional information as the Buyer may from time to time reasonably request. (b) The Buyer agrees that it will, and will cause its officers, employees, advisors and representatives to, hold in strict confidence all data and information obtained from the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries or on their behalf (other than information which (i) is or becomes publicly available or (ii) which was already in the possession of the Buyer, in each case other than as a result of a breach by the Buyer or any of its officers, employees, advisors and representatives of this covenant or other confidentiality agreement or legal or fiduciary obligation of secrecy to the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries) and will not, and will insure that such other persons do not, disclose such data and information to others without the prior written consent of the Company, except that the 40 Buyer may provide such data and information in response to legal process or applicable governmental regulations, but only that portion of the data and information which, in the opinion of counsel for the Buyer, is legally required to be furnished, and provided that the Buyer notifies the Company in writing of its obligation to provide such confidential data and information and fully cooperate with the Company to protect the confidentiality of such data and information. 6.3. Releases. Each party hereto agrees that it will not, without the consent of the Buyer and the Company, issue any press release or make any other public statement or disclosure with respect to the transactions contemplated hereby or their terms. 6.4. Further Actions. Subject to the terms and conditions contained herein, each of the parties hereto agrees to use all reasonable efforts promptly to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts to satisfy the conditions precedent to the obligations of the parties hereto, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings and to proceed with the Initial Closing as expeditiously as practicable; provided that this obligation will not require any party to take any action materially adverse to such party, including, without limitation, agreeing to divest or hold separate any assets, and provided further that no contract or other agreement will be amended to increase the amount payable thereunder or to otherwise modify the terms thereof in a manner adverse to the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries in order to obtain any such consent, approval, authorization or otherwise without first obtaining the written approval of the Buyer. 6.5. Application of Proceeds. The payments to be made by the Buyer pursuant to Section 1.2 shall be used by the Company exclusively for the purpose of paying a portion of the purchase price for the shares of the Tenneco Entities pursuant to the Stock Purchase Agreement. 6.6. Option Shares. At all times prior to the earlier of the expiration of the Exercise Period without the Option having been exercised or the issuance of the Option Shares, the Company shall reserve and keep available for issuance pursuant to the Option a number of duly authorized shares of Common Stock equal to the number of Option Shares. 41 ARTICLE VII CONDITIONS PRECEDENT 7.1. Conditions Precedent to Obligations of the Buyer. (a) The obligation of the Buyer to consummate the purchase of the Firm Common Shares at the Initial Closing is subject to the satisfaction at or prior to the Initial Closing of each of the following conditions: (i) No preliminary or permanent injunction or other order issued by any court of competent jurisdiction or by any Governmental Authority nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Authority which restrains, enjoins or otherwise prohibits any of the Transactions shall be in effect. (ii) (A) The representations and warranties of the Company contained herein will be true and correct in all material respects on and as of the Initial Closing Date, with the same force and effect as though made on and as of the Initial Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty will be true and correct in all material respects as of such date, and (B) the Buyer shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (iii) (A) The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement and the other Transaction Documents to be performed or complied with by it prior to or on the Initial Closing Date (provided that the provisions of Section 5.1 shall have been complied with in all material respects without giving effect to the last sentence of Section 5.1), and (B) the Buyer shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (iv) The Company and all other securityholders of the Company each shall have executed and delivered the Securityholders Agreement. (v) The Credit Agreement will be in full force and effect, will not have been breached in any material respect by any of the parties thereto, and all of the conditions precedent to the initial borrowings thereunder (other than the receipt by the Company of the proceeds of the issuance of stock pursuant to this 42 Agreement) shall have been satisfied or waived. The Company shall have delivered a certificate from its chief financial officer stating that the conditions under this subsection (v) have been satisfied. (vi) The Stock Purchase Agreement will be in full force and effect, will not have been breached in any material respect by any of the respective parties thereto, all conditions to the obligation of the Company to purchase the stock (as defined in the Stock Purchase Agreement) shall have been satisfied in full and all conditions to the obligations of El Paso to sell the Stock shall have been satisfied or waived. (vii) The Buyer shall have received evidence satisfactory to the Buyer that all obligations of the Company set forth in Section 5.03 of the Stock Purchase Agreement will be satisfied in full at or prior to the Initial Closing. (viii) The Employment Agreement will be in full force and effect, will not have been breached in any material respect by any of the parties thereto. (ix) The Buyer shall have received a legal opinion from Weil, Gotshal & Manges LLP dated the Initial Closing Date, substantially in the form attached hereto as Exhibit D. (b) The obligation of the Buyers to purchase Option Shares following the Buyer's exercise of the Option is subject to the satisfaction at or prior to the Subsequent Closing of such purchase of each of the following additional conditions: (i) No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States or by any United States federal or state governmental or regulatory body nor any statute, rule, regulation or executive order promulgated or enacted by any United States federal or state governmental authority which restrains, enjoins or otherwise prohibits the purchase of the Option Shares shall be in effect. (ii) (A) The representations and warranties of the Company contained in paragraphs 5.1(a), 5.1(b)(i), 5.1(d) and 5.1(e)(iv) shall be true and correct in all material respects on and as of the Subsequent Closing Date, with the same force and effect as though made on and as of the Subsequent Closing Date, and (B) the Buyer shall have received a certificate signed on behalf of the Company by the chief executive officer 43 and the chief financial officer of the Company to such effect. (iii) (A) The Company shall have performed all obligations and agreements, and complied with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Subsequent Closing Date, and (B) the Buyer shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (iv) All consents, approvals, authorizations or permits of, actions by, or filings with or notifications to, and all expirations of waiting periods imposed by, any Governmental Authority which are necessary for the consummation of the Option Purchase shall have been fulfilled, occurred or obtained, as applicable, on terms reasonably satisfactory to the Buyer and shall be in full force and effect. 7.2. Conditions Precedent to Obligations of the Company. The obligation of the Company to consummate the transactions contemplated by this Agreement is subject to the satisfaction at or prior to the Initial Closing of each of the following additional conditions: (a) No preliminary or permanent injunction or other order issued by any court of competent jurisdiction or by any Governmental Authority nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Authority which restrains, enjoins or otherwise prohibits any of the Transactions shall be in effect. (b) (A) The representations and warranties of the Buyer contained herein shall be true and correct in all material respects on and as of the Initial Closing Date, with the same force and effect as though made on and as of the Initial Closing Date, except to the extent that any representation or warranty is made as of a specified date, in which case such representation or warranty will be true and correct in all material respects as of such date, and (B) the Company shall have received a certificate signed on behalf of the Buyer by the Managing General Partner of the Buyer to such effect. (c) (A) The Buyer shall have performed all obligations and agreements, and complied with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Initial Closing Date, and (B) the Company shall have received a certificate signed on behalf of the Buyer by the Managing General Partner of the Buyer to such effect. 44 (d) The Buyer shall have executed and delivered the Securityholders Agreement. (e) The Credit Agreement will be in full force and effect, will not have been breached in any material respect by any of the parties thereto other than the Company, and all of the conditions precedent to the initial borrowings thereunder (other than the receipt by the Company of the proceeds of the issuance of stock pursuant to this Agreement) shall have been satisfied or waived. (f) The Stock Purchase Agreement will be in full force and effect and will not have been breached in any material respect by any of the respective parties thereto. ARTICLE VIII INDEMNIFICATION 8.1. Indemnification by the Company. Subject to the limitations set forth in Sections 8.6(a) and (b), the Company hereby agrees to indemnify the Buyer and its Affiliates, and each of their respective officers, directors, employees and representatives (each a "Buyer Indemnified Party" and collectively the "Buyer Indemnified Parties") against, and agrees to protect, save and keep harmless the Buyer Indemnified Parties from payment, and hereby assumes liability for the payment, of any and all liabilities (including liabilities for Taxes), obligations, losses, damages, penalties, claims, actions, suits, judgments or settlements of any nature or kind, whether known or unknown, absolute or contingent, accrued or unaccrued, realized or unrealized, direct or indirect, liquidated or unliquidated and including all costs, expenses and disbursements (including reasonable cost of investigation by, and reasonable attorneys', accountants' and expert witnesses' fees and expenses payable to, third parties) (collectively, "Loss" or "Losses"), arising out of, resulting from or in connection with (a) any breach by the Company of a representation or warranty contained herein or in any certificate delivered pursuant to Section 7.1 or (b) any failure by the Company to perform any agreement or covenant contained herein. 8.2. Indemnification by the Buyer. Subject to the limitations set forth in Sections 8.6(a) and (b), the Buyer hereby agrees to indemnify the Company and its officers, directors, and employees, and their Affiliates and representatives (each a "Company Indemnified Party" and collectively the "Company Indemnified Parties") against, and agrees to protect, save and keep harmless the Company Indemnified Parties from payment, and hereby assumes liability for the payment, of any or all Losses or Loss arising out of or resulting from (a) any breach by the Buyer of a representation or warranty contained herein or in any certificate delivered pursuant to Section 7.2 or (b) any failure by the Buyer to perform any agreement or covenant contained herein. 45 8.3. Procedure for General Claims. (a) General Claims by the Buyer. The Buyer will give prompt written notice to the Company of any claim or event other than a Third Party Claim (as defined in Section 8.4) with respect to which the Buyer believe it is or may be entitled to indemnification pursuant to Section 8.1 hereof (a "Notice of Claim"), provided that the failure to provide a Notice of Claim shall not relieve the Company of its obligations under this Section 8 except to the extent the Company is actually prejudiced thereby. The Notice of Claim will state the nature and basis of such claim or event, the amount thereof to the extent known and the basis of the Buyer's belief that a Buyer Indemnified Party is or may be entitled to indemnification with respect thereto. The Company shall be entitled, at its option, to satisfy its indemnification obligations with respect to any claim under this Section 8.3(a) either (i) in cash, (ii) in shares of Common Stock or (iii) with an Indemnification Note, provided that as long as any amounts remain outstanding under the Credit Agreement, the Company shall satisfy its indemnity obligations in Common Stock. If the Company elects to satisfy its obligations in shares of Common Stock, the number of shares of Common Stock to be delivered in satisfaction of such indemnification obligation shall be equal to the dollar amount of the Loss or Losses divided by the Fair Market Value per Share as of the date the Notice of Claim is delivered. For the purposes of this Section 8.3(a), the "Fair Market Value per Share" shall be the Fair Market Value (as such term is defined in the Securityholders Agreement) per share of Common Stock. If the Company and such Buyer Indemnified Party are unable to reach an agreement on a Fair Market Value per Share within 30 days following the receipt by the Company of the Notice of Claim, the Company and such Buyer Indemnified Party shall engage a nationally-recognized investment banking firm familiar with the oil and gas industry in the Gulf Coast/U.S. Gulf of Mexico and as mutually agreed by them to determine as expeditiously as possible the aggregate fair market value of all outstanding shares of Common Stock as if the entire Company were being sold in a private sale and such aggregate market value for all outstanding shares of Common Stock divided by the number of shares of Common Stock outstanding immediately prior to the issuance of shares under this Section 8.3(a) shall be the Fair Market Value per Share. The fees of such investment banking firm shall be paid by the Company. (b) General Claims by the Company. The Company will give prompt written notice to the Buyer with respect to any claim or event with respect to which the Company believes a Company Indemnified Party is or may be entitled to indemnification pursuant to Section 8.2 hereof. The notice will state the nature and basis of said claim or event, the amount thereof to the extent known, and the basis of the Company's belief that a Company Indemnified Party is or may be entitled to indemnification with respect thereto. 46 8.4. Procedure for Third Party Claims. (a) Claims by the Buyer and the Company. The Buyer, on behalf of itself or any Buyer Indemnified Party, on the one hand, or the Company, on behalf of itself or any Company Indemnified Party on the other hand (the "Indemnified Party"), will give prompt written notice to the party from whom indemnification is sought (the "Indemnifying Party") pursuant to Section 8.1 or Section 8.2 hereof of any and all Losses or Loss arising out of or resulting from any claim, action, suit or proceeding brought by any third party relating to litigation, administrative proceedings or similar actions (collectively, "Third Party Claims") with respect to which such Indemnified Party believes it is entitled to indemnification hereunder, together with an estimate of the amount in dispute thereunder and a copy of any claim, process, legal pleadings or correspondence with respect thereto received by the Indemnified Party. In connection with any such Third Party Claim, the Indemnifying Party may, at its election and expense, participate in the defense of such Third Party Claim and no such Third Party Claim will be settled without the consent of the Indemnifying Party, which will not be unreasonably withheld. With respect to any Third Party Claim relating solely to the payment of money damages and which will not result in the Indemnified Party becoming subject to injunctive or other equitable relief, within 30 days of receipt of notice of such Third Party Claim, the Indemnifying Party may, by written notice to the Indemnified Party, assume the defense of such Third Party Claim through counsel of its own choosing which is reasonably acceptable to the Indemnified Party, which will not be unreasonably withheld, and with all expenses thereof to be paid by the Indemnifying Party, in which event the Indemnifying Party will control the defense of such Third Party Claim and the Indemnified Party may participate in the defense thereof with all expenses thereof to be paid by such Indemnified Party, provided that such Indemnified Party will have the right to employ separate counsel to represent such Indemnified Party if, in such Indemnified Party's reasonable judgment, a conflict of interest between the Indemnifying Party and such Indemnified Party exists with respect to such Third Party Claim in which event all reasonable expenses of such separate counsel will be paid by the Indemnifying Party. If the Indemnifying Party fails to assume the defense of such Third Party Claim by delivering a written notice of the Indemnifying Party's intention to assume such defense within 30 days of receipt of the initial notice thereof, or thereafter abandons or fails to diligently pursue such defense, the Indemnified Party may assume such defense. In the event the Indemnifying Party exercises its right to undertake the defense against any such Third Party Claim as provided above, the Indemnified Party will cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party all pertinent records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnifying Party, with all expenses incurred in connection therewith to be paid by the Indemnifying Party. Similarly, in 47 the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim as provided above, the Indemnifying Party will cooperate with the Indemnified Party in such defense and make available to the Indemnified Party all such records, materials and information in the Indemnifying Party's possession or under the Indemnifying Party's control relating thereto as is reasonably required by the Indemnified Party, with all expenses incurred in connection therewith to be paid by the Indemnifying Party. Notwithstanding anything in this Section 8.4 to the contrary, however, in the event of a claim with respect to which the Indemnifying Party has agreed to assume the defense thereof, the Indemnifying Party will not thereafter be entitled to dispute, and hereby agrees not to dispute, the Indemnified Party's right to indemnification therefor pursuant to Section 8.1 or Section 8.2 hereof or any subsequent claims of the Indemnified Party with respect to such Third Party Claim. (b) Settlement or Decision of Third Party Claims. The Indemnifying Party will not, without the written consent of the Indemnified Party, (i) settle or compromise any Third Party Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a written release from all liability in respect of such Third Party Claim or (ii) settle or compromise any Third Party Claim in any manner that may, in the reasonable judgment of the Indemnified Party, adversely affect the Indemnified Party (including without limitation any settlement or compromise that includes any admission of negligence or other malfeasance on the part of the Indemnified Party). Similarly, no Third Party Claim which is being defended in good faith by the Indemnified Party in accordance with the terms of this Agreement will be settled by the Indemnified Party without the written consent of the Indemnifying Party, which consent will not be unreasonably withheld. Upon the settlement or compromise of any Third Party Claim, the order of a court of competent jurisdiction or arbitrator with respect thereto or the final, non-appealable order of any appellate court with respect thereto, as the case may be, any resulting settlement, award, damages or judgment will be paid (i) in the case of any such Third Party Claim with respect to which the Indemnifying Party is the Buyer, by the Buyer and (ii) in the case of any such Third Party Claim with respect to which the Company is the Indemnifying Party, by the Company. 8.5. Indemnification Matters. In cases where any Indemnified Party has made a prior payment with respect to any liability that is the subject of indemnification under Section 8.1 or 8.2 hereof, the Indemnifying Party will also pay interest on such funds at a rate per annum equal to the published prime rate of The Chase Manhattan Bank in effect from time to time during the relevant period, such interest to be due from the date of such prior payment to the date of payment of any such funds by the Indemnifying Party. The parties agree that payments by an 48 Indemnifying Party made under Section 8.1 or 8.2 hereof will be treated as an adjustment to the Purchase Price for Tax purposes. The provisions of this Article VII will not be deemed to be a limitation or waiver of any other remedy afforded by law to the Buyer or the Company for indemnification under Section 8.1 or 8.2 hereof. 8.6. General Provisions. (a) Limitations on Indemnification. (i) Notwithstanding anything in this Article VII to the contrary other than the next succeeding sentence, an Indemnifying Party will be required to indemnify and hold harmless an Indemnified Party under Section 8.1 or Section 8.2 hereof with respect to any Loss or Losses incurred by any such Indemnified Party only to the extent that the aggregate amount of all Losses of the applicable Indemnified Parties (that is, either the Buyer Indemnified Parties or the Company Indemnified Parties, as the case may be) exceeds $2,000,000 in the aggregate, in which event the Indemnifying Party will only be liable for the excess of such Loss or Losses over $2,000,000. The foregoing limitations will not be applicable to any willful breach by any party of any representation, warranty, covenant or agreement hereunder. (ii) With respect to any claim by the Buyer Indemnified Parties, Losses (a) will include any Loss or Losses incurred by the Buyer which arises from or relates to the diminution in the value per share of Common Stock caused by any breach by the Company of a representation or warranty contained herein and (b) will fully take into account the diminution in value of the Company Shares held by the Buyer Indemnified Parties in the aggregate (determined by reference to the number of shares of Common Stock outstanding on a fully diluted basis) resulting from the indemnification payment made by the Company (whether made in cash, in stock or in the form of a note). As an example of the operation of clause (b) of the preceding sentence, if the Losses suffered by the Buyer Indemnified Parties prior to the operation of clause (b) were $100,000 and the Buyer Indemnified Parties in the aggregate owned 90% of the total issued and outstanding Common Stock at the time of delivery of their Notice of Claim, the indemnification payment made by the Company pursuant to this Article VII would be $1 million (or its equivalent in stock if paid in stock pursuant to Section 8.3). Notwithstanding anything to the contrary in this Section 8.6, for the purpose of determining whether a Loss or Losses to a Buyer Indemnified Party resulting from a diminution in the value per share of Common Stock exceeds $2,000,000, such Loss or Losses shall be measured as the amount of such Loss or Losses without giving effect to clause (b) of this Section 8.6(a)(ii). As an example of the operation of the preceding sentence, total Losses to the Company of $1,800,000 would not be indemnifiable by the Company to the Buyer Indemnified Parties despite the fact that the operation of clause (b) of this Section 8.6(a)(ii) would 49 otherwise have caused the indemnification payment to exceed $2,000,000. (b) Termination of Indemnification. The obligations to indemnify and hold harmless an Indemnified Party pursuant to Sections 8.1 and 8.2 will terminate with respect to any theretofore unasserted claim when the applicable representation or warranty terminates pursuant to Section 5.3; provided, however, that such obligations to indemnify and hold harmless will not terminate with respect to any item as to which the Person to be indemnified will have, before the expiration of the applicable period, previously made a claim by delivering a notice pursuant to Section 8.3 or Section 8.4 hereof to the Indemnifying Party. ARTICLE IX MISCELLANEOUS 9.1. Termination and Abandonment. (a) General. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time, but not later than the Initial Closing Date: (i) by mutual consent of the parties hereto; (ii) by the Buyer or the Company, if any court of competent jurisdiction or any Governmental Authority will have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby or with respect to any of the other Transactions and such order, decree, ruling or other action will have become final and nonappealable; or (iii) if the Initial Closing will not have occurred by January 31, 1997, despite the reasonable efforts of the parties hereto to close. (b) Procedure Upon Termination. In the event of the termination and abandonment of this Agreement, written notice thereof will promptly be given to the other parties hereto and this Agreement will terminate and the transactions contemplated hereby will be abandoned without further action by any of the parties hereto. 9.2. Fees and Expenses. If the transactions contemplated hereby are consummated, the Company shall pay all fees and expenses incident to the negotiation, preparation and execution of this Agreement and all other Transaction Documents and consummation of transactions contemplated hereby, including attorneys' fees and expenses and other reasonable out of pocket expenses. 9.3. Transfer Taxes. The Company will be responsible for the payment of any and all sales, use, transfer, recording or 50 similar taxes required to be paid in connection with the consummation of the transactions contemplated by this Agreement. 9.4. Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement will be in writing and will be deemed to have been duly given (i) when delivered by hand, (ii) two business days after being mailed, certified or registered mail, return receipt requested, with postage prepaid, (iii) when sent by telegram or telecopy (the receipt of which is confirmed) or (iv) one business day after being sent by Express Mail, Federal Express or other courier service, as follows: (a) if to the Company, to it at: 1100 Louisiana, 15th Floor Houston, TX 77002 Attention: Michael V. Ronca Telecopy: (713) 757-8253 with a copy to: Weil, Gotshal & Manges LLP 700 Louisiana, Suite 1600 Houston, TX 77002 Attention: James L. Rice III Telecopy: 713-224-9511 (b) if to the Buyer, to it at: 475 Steamboat Road Greenwich, Connecticut 06830 Attention: William E. Macaulay Telecopy: 203-661-6729 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Richard Capelouto Telecopy: 212-455-2502 or to such other persons or addresses as any party will specify as to itself by notice in writing to the other parties. 9.5. Binding Effect; Benefit. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 51 9.6. Assignability. Without the prior written consent of the other parties hereto no party to this Agreement may assign any of its or his rights or obligations hereunder to any other person. Notwithstanding the foregoing, the Buyer may assign any of its rights or obligations hereunder to any Affiliate but no such assignment will release the Assignor of any obligations hereunder. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors in interest and assigns. 9.7. Amendment and Modification; Waiver. Subject to applicable law, this Agreement may be amended, modified and supplemented by a written instrument authorized and executed on behalf of the parties at any time prior to the Initial Closing Date with respect to any of the terms contained herein. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein, and in any documents delivered or to be delivered pursuant to this Agreement and in connection with the Initial and the Subsequent Closing hereunder. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any other or subsequent breach. 9.8. Section Headings. The section headings contained in this Agreement are inserted for reference purposes only and will not affect the meaning or interpretation of this Agreement. 9.9. Arbitration. Any controversy, dispute or claim arising out of, in connection with, or in relation to, the interpretation, performance or breach of this Agreement, including without limitation the validity, scope and enforceability of this Section 8.9, may at the election of any of the parties hereto be solely and finally settled by arbitration conducted in accordance with the then existing rules for commercial arbitration of the American Arbitration Association, or any successor organization. Judgement upon any award rendered by the arbitrator(s) may be entered by the State or Federal Court having jurisdiction thereof. Any of the parties may demand arbitration by written notice to the others and to the American Arbitration Association ("Demand for Arbitration"). Any Demand for Arbitration pursuant to this Section 8.9 will be made within one year from the date that the dispute upon which the demand is based arose. The parties intend that this agreement to arbitrate be valid, enforceable and irrevocable. 9.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an 52 original, and all of which together will be deemed to be one and the same instrument. 9.11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. DOMAIN ENERGY CORPORATION By: /s/ Michael V. Ronca -------------------------------- Name: Michael V. Ronca Title: President and Chief Executive Officer FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By: FIRST RESERVE CORPORATION, its managing general partner By: /s/ Jonathan S. Linker -------------------------------- Name: Jonathan S. Linker Title: Managing Director EX-4 5 LETTER AGREEMENT DATED JUNE 6, 1997 Exhibit 4 --------- DOMAIN ENERGY CORPORATION 1100 Louisiana, Suite 1500 Michael V. Ronca P.O. Box 2511 President and CEO Houston, TX 77252-2511 Tel 713 757 5662 Fax 713 757 8253 June 6, 1997 First Reserve Fund VII, Limited Partnership 475 Steamboat Road Greenwich, Connecticut 06830 Attention: William E. Macaulay Re: Domain Energy Corporation ------------------------- Gentlemen: Reference is made to the Subscription Agreement between First Reserve Fund VII, Limited Partnership ("Fund VII") and Domain Energy Corporation ("Domain") dated as of December 31, 1996 (the "Subscription Agreement"); the U.S. $8,000,000 Subordinated Promissory Note from Domain Energy Guarantor Corporation ("Domain Guarantor") made payable to your order dated December 31, 1996 (the "Note"); the Securityholders Agreement among Domain and its securityholders dated December 31, 1996 (the "Securityholders Agreement"); and the letter agreement between Domain and Fund VII dated April 9, 1997 (the "Existing Letter Agreement"). Capitalized terms used and not otherwise defined herein are used with the respective meanings ascribed thereto in the Subscription Agreement, the Note, the Securityholders Agreement or the Existing Letter Agreement. 1. The Michigan Transaction. As a result of the consummation of the transactions (the "Michigan Transaction") contemplated by the Purchase and Sale Agreement among Michigan Gas Fund I, Encap Ventures 1993 Limited Partnership, Domain and Energy Acquisition Corporation and the repayment of the Bank One Loan in connection therewith, the obligation of Domain Guarantor to pledge the Collateral to the Bank has terminated. However, notwithstanding Section 5(b) of the Note, Fund VII agrees that Domain Guarantor shall not be required to liquidate the Collateral and repay the principal amount of the Loan in the amount of the Collateral so liquidated until the first to occur of (i) written notice from Domain to Fund VII and First Reserve Corporation ("First Reserve") that Domain has suspended the registration process for the Subject Qualified Public Offering ("Suspension Notice") (which notice Domain agrees to give promptly upon its decision to suspend the registration process for such offering); and (ii) September 30, 1997. In consideration of the foregoing, Domain agrees to cause Domain Guarantor not to pay any dividend or otherwise 2 advance, pay or distribute any funds to Domain representing the Collateral or the proceeds of any liquidation of the Collateral until the Note is repaid or the Option is exercised. 2. The Option. To facilitate the Subject Qualified Public Offering process, Fund VII agrees to exercise the Option concurrently with the consummation of the Subject Qualified Public Offering; provided, however, notwithstanding Section 1.1(b) of the Subscription Agreement, the number of Option Shares to be issued upon such exercise of the Option shall equal the quotient of $8,681,000 divided by the initial price per share for which shares of Domain's Common Stock are offered and sold to the public in the Subject Qualified Public Offering (the "Public Offering Price"), rounded to the nearest whole number. If Domain consummates the Subject Qualified Public Offering, the Option will be deemed to have been exercised and the Option Shares will be issued upon (i) delivery to Domain of the Buyer Subordinated Note as otherwise provided in the Subscription Agreement and (ii) payment by Fund VII of $500,000 in cash to Domain (the "Exercise Date"). If Domain provides Funds VII with a Suspension Notice, or in the event that the Subject Qualified Public Offering shall not have been consummated by September 30, 1997, Domain may within thirty (30) days thereof request Fund VII to exercise the Option as otherwise provided in the Subscription Agreement, in which case Fund VII will comply with such request; provided, in such event, upon such exercise the Company will pay Fund VII interest in cash at the rate provided in paragraph 3 below. At the election of Fund VII, Domain's obligation to pay such cash interest upon exercise of the Option may be satisfied in whole or in part by issuance of such number of shares at $3,151.4354 per share as will equal the amount of the cash interest payment obligation satisfied thereby. 3. Interest. If the principal amount of the Loan is repaid or discharged other than upon exercise of the Option concurrently with consummation of the Subject Qualified Public Offering, such repayment shall include interest accrued through the date that the Bank One Loan is repaid at the rate provided in the Note, and interest accrued thereafter to the date of repayment of the Loan at the weighted average interest rate during such period applicable to outstanding borrowings under the Credit Agreement dated as of December 31, 1996 among Domain and its Subsidiary Guarantors, the Lenders party thereto and The Chase Manhattan Bank, as agent. If the principal amount of the Loan is discharged upon exercise of the Option concurrently with consummation of the Subject Qualified Public Offering, Domain shall pay to Fund VII in cash on the Exercise Date an amount equal to interest accrued on the Loan from June 16, 1997 to the Exercise Date at the rate provided in the Note. 4. Transaction Fee. Domain hereby confirms its agreement to pay First Reserve a fee of $500,000 for services rendered in connection with the Stock Purchase Agreement and the consummation of the transactions contemplated thereby (the "Transaction Fee"). The Transaction Fee will be payable as follows: (i) if the Subject Qualified Public Offering is consummated on or before September 30, 1997, the Transaction Fee shall be paid in cash on the date on which the Subject Qualified Public Offering is consummated and (ii) if (A) the Subject Qualified Public Offering shall not have been consummated by September 30, 1997, or (B) if Domain shall at an earlier date provide First Reserve with a Suspension Notice, payment of the Transaction Fee shall be made in cash no later than October 31, 1997. 3 5. Purchase for Investment. Fund VII acknowledges that the Option Shares have not been and will not be registered or qualified under the Securities Act of 1933, as amended, or any state securities law and may be sold or otherwise disposed of in the absence of such registration only pursuant to an exemption from such registration and any other applicable securities laws. Fund VII is acquiring the Option Shares solely for its own account and for the purpose of investment and not with a view to or for sale in connection with any disposition thereof and there is no present intention or plan to effect any resale, assignment or distribution of any of the Option Shares. Domain confirms that the Option Shares will be Registrable Securities for all purposes of the Securityholders Agreement. 6. Piggyback Registration Rights. Fund VII hereby acknowledges that, as required by Section 6.2 of the Securityholders Agreement, it received notice of Domain's intention to register Common Stock under the Securities Act pursuant to the Subject Qualified Public Offering. Fund VII hereby acknowledges that it has waived its right to request that Domain register any of Fund VII's Registrable Securities pursuant to the Subject Qualified Public Offering. 7. Existing Letter Agreement. To the extent inconsistent herewith, the terms of the Existing Letter Agreement are superseded by the terms of this letter agreement. Without limiting the foregoing, paragraph 5 of the Existing Letter Agreement shall have no force or effect. 4 If the foregoing accurately sets forth our understanding with respect to the matters covered above, please so indicate by executing each copy hereof and returning one fully executed copy to the undersigned. DOMAIN ENERGY CORPORATION By: /s/ Michael V. Ronca --------------------------- Michael V. Ronca President & CEO Agreed to and accepted this 6th day of June 1997 FIRST RESERVE FUND VII, LIMITED PARTNERSHIP by First Reserve Corporation, Managing General Partner By: /s/ Jonathan S. Linker ---------------------------- Jonathan S. Linker Managing Director FIRST RESERVE CORPORATION By: /s/ Jonathan S. Linker ---------------------------- Jonathan S. Linker Managing Director -----END PRIVACY-ENHANCED MESSAGE-----