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EXHIBIT 4.4
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STOCK PURCHASE AGREEMENT
BY AND AMONG
ENCORE ACQUISITION PARTNERS, INC.,
AND
THE PARTIES LISTED ON ANNEX A HERETO AS ITS STOCKHOLDERS
DATED AS OF AUGUST 18, 1998
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TABLE OF CONTENTS
ARTICLE I...........................................................................................1
SECTION 1.1 SUBSCRIPTIONS FOR MANAGEMENT STOCK................................................1
SECTION 1.2 SUBSCRIPTIONS FOR INVESTOR STOCK..................................................1
SECTION 1.3 PURCHASE PRICE....................................................................2
ARTICLE II..........................................................................................2
SECTION 2.1 INITIAL CLOSING...................................................................2
SECTION 2.2 SUBSEQUENT CLOSINGS...............................................................2
ARTICLE III.........................................................................................2
SECTION 3.1 AGREEMENT TO MAKE CAPITAL CONTRIBUTIONS...........................................2
SECTION 3.2 CAPITAL CONTRIBUTIONS.............................................................4
SECTION 3.3 EXCLUSIVE OBLIGATIONS TO MAKE CAPITAL CONTRIBUTIONS...............................5
SECTION 3.4 EARLY TERMINATION OF THE TAKEDOWN PERIOD..........................................5
ARTICLE IV..........................................................................................6
SECTION 4.1 NON-PARTICIPATION BY A STOCKHOLDER................................................6
SECTION 4.2 DEFAULT BY A STOCKHOLDER..........................................................6
SECTION 4.3 LOSS OF CERTAIN RIGHTS............................................................7
SECTION 4.4 TREATMENT OF I. ▇▇▇ ▇▇▇▇▇▇▇.......................................................8
ARTICLE V...........................................................................................8
SECTION 5.1 ORGANIZATION. GOOD STANDING AND QUALIFICATION.....................................8
SECTION 5.2 CAPITALIZATION AND VOTING RIGHTS..................................................8
SECTION 5.3 SUBSIDIARIES......................................................................8
SECTION 5.4 AUTHORIZATION; ISSUANCE...........................................................8
SECTION 5.5 OFFERING..........................................................................9
SECTION 5.6 GOVERNMENTAL CONSENTS.............................................................9
SECTION 5.7 COMPLIANCE WITH OTHER INSTRUMENTS.................................................9
SECTION 5.8 DIRECTORS AND OFFICERS............................................................9
SECTION 5.9 REGISTRATION RIGHTS...............................................................9
SECTION 5.10 TITLE TO PROPERTY AND ASSETS.....................................................10
SECTION 5.11 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE BENEFITS; PLANS...........................10
SECTION 5.12 TAX MATTERS......................................................................10
SECTION 5.13 MINUTE BOOKS.....................................................................10
SECTION 5.14 INVESTMENT COMPANY ACT...........................................................10
SECTION 5.15 NO PRIOR ACTIVITIES..............................................................10
SECTION 5.16 LITIGATION.......................................................................11
SECTION 5.17 CERTAIN AGREEMENTS OF OFFICERS AND EMPLOYEES.....................................11
SECTION 5.18 BROKERS OR FINDERS...............................................................11
ARTICLE VI.........................................................................................11
SECTION 6.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...............................11
SECTION 6.2 CERTAIN AGREEMENTS OF MANAGEMENT STOCKHOLDERS....................................12
SECTION 6.3 LITIGATION.......................................................................12
SECTION 6.4 BROKERS OR FINDERS...............................................................12
ARTICLE VII........................................................................................12
SECTION 7.1 CONFIDENTIALITY..................................................................12
SECTION 7.2 REGISTRATION RIGHT AGREEMENT.....................................................13
SECTION 7.3 STOCKHOLDERS' AGREEMENT..........................................................13
SECTION 7.4 CONFIDENTIALITY AND NON-COMPLETE AGREEMENT.......................................13
SECTION 7.5 PUBLIC ANNOUNCEMENTS.............................................................13
SECTION 7.6 FEES AND EXPENSES................................................................13
SECTION 7.7 USE OF PROCEEDS..................................................................13
SECTION 7.8 UNALLOCATED COMMON STOCK.........................................................13
ARTICLE VIII.......................................................................................14
SECTION 8.1 REPRESENTATIONS AND WARRANTIES...................................................14
SECTION 8.2 PERFORMANCE......................................................................14
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SECTION 8.3 COMPLIANCE CERTIFICATE...........................................................14
SECTION 8.4 STOCKHOLDERS' AGREEMENT..........................................................14
SECTION 8.5 CONFIDENTIALITY AND NON-COMPETE AGREEMENT........................................14
SECTION 8.6 REGISTRATION RIGHTS AGREEMENT....................................................14
SECTION 8.7 SUBSCRIPTION AGREEMENTS..........................................................14
SECTION 8.8 OPTION PLAN AND MANAGEMENT STOCK OWNERSHIP PLAN..................................14
SECTION 8.9 CORPORATE EXISTENCE..............................................................14
SECTION 8.10 280G APPROVALS...................................................................15
SECTION 8.11 LEGAL OPINION....................................................................15
SECTION 8.12 SMALL BUSINESS SIDELETTERS.......................................................15
ARTICLE IX.........................................................................................15
SECTION 9.1 REPRESENTATIONS AND WARRANTIES...................................................15
SECTION 9.2 PERFORMANCE......................................................................15
SECTION 9.3 COMPLIANCE CERTIFICATE...........................................................15
SECTION 9.4 STOCKHOLDERS' AGREEMENT..........................................................15
ARTICLE X..........................................................................................15
SECTION 10.1 SURVIVAL OF REPRESENTATIONS......................................................15
SECTION 10.2 AGREEMENT TO INDEMNIFY...........................................................15
SECTION 10.3 LIMITATION OF LIABILITY..........................................................16
SECTION 10.4 CONDITIONS OF INDEMNIFICATION....................................................16
ARTICLE XI.........................................................................................17
SECTION 11.1 TERMINATION OF AGREEMENT.........................................................17
SECTION 11.2 EFFECT OF TERMINATION............................................................17
ARTICLE XII........................................................................................18
SECTION 12.1 NOTICES..........................................................................18
SECTION 12.2 ENTIRE AGREEMENT.................................................................18
SECTION 12.3 BINDING EFFECT: ASSIGNMENT: NO THIRD PARTY BENEFIT...............................18
SECTION 12.4 SEVERABILITY.....................................................................18
SECTION 12.5 GOVERNING LAW....................................................................18
SECTION 12.6 FURTHER ASSURANCES...............................................................18
SECTION 12.7 DESCRIPTIVE HEADINGS.............................................................19
SECTION 12.8 GENDER...........................................................................19
SECTION 12.9 REFERENCES.......................................................................19
SECTION 12.10 INJUNCTIVE RELIEF................................................................19
SECTION 12.11 CONSENT TO JURISDICTION..........................................................19
SECTION 12.12 AMENDMENT........................................................................20
SECTION 12.13 WAIVER...........................................................................20
SECTION 12.14 COUNTERPARTS.....................................................................20
SECTION 12.15 SECTION 83(b) ELECTION...........................................................20
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 18th day of August, 1998, by and among Encore Acquisition Partners,
Inc., a Delaware corporation (the "Company"), each of the parties listed on
Annex A attached hereto under the heading "Management Stockholders" (the
"Management Stockholders") and each of the parties listed on Annex A attached
hereto under the heading "Investor Stockholders" (the "Investor Stockholders"
and, together with the Management Stockholders, the "Stockholders").
WITNESSETH:
WHEREAS, each Management Stockholder desires to purchase such number of
shares of Class A Common Stock, par value $.01 per share, of the Company (the
"Class A Common Stock"), and to purchase such number of shares of Class B Common
Stock, par value $.01 per share (the "Class B Common Stock" and, together with
the Class A Common Stock, the "Capital Stock"), as set forth on Annex A
(collectively, the "Management Shares"); and
WHEREAS, each Investor Stockholder desires to purchase such number of
shares of Class B Common Stock as set forth on Annex A (collectively, the
"Investor Shares" and, together with the Management Shares, the "Shares"); and
WHEREAS, the Company desires to enter into this Agreement for the
purpose of setting forth all of the terms, limitations and conditions pursuant
to which (i) the Stockholders have subscribed, and the Company shall be required
to issue and sell, the Shares, and (ii) each Stockholder has made the binding
obligation to make capital contributions to the Company subject to the
conditions as set forth herein;
NOW, THEREFORE, for and in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions set
forth herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR SHARES
SECTION 1.1 SUBSCRIPTIONS FOR MANAGEMENT STOCK. Prior to the date of
this Agreement, the Management Stockholders have purchased, and the Company has
issued and sold, the number of shares of Class A Common Stock and Class B Common
Stock (collectively, the "Initial Management Shares") as set forth opposite each
Management Stockholder's name on Annex A attached hereto. At the Initial Closing
(as defined below), and on the terms and subject to the conditions set forth in
this Agreement, the Company and each Stockholder shall enter into a Subscription
Agreement (each, a "Subscription Agreement"), pursuant to which each Management
Stockholder shall agree to certain terms and conditions relating to such
Management Stockholder's purchase of Initial Management Shares.
SECTION 1.2 SUBSCRIPTIONS FOR INVESTOR STOCK. At the Initial Closing
and on the terms and subject to the conditions set forth in this Agreement and
the Subscription Agreement, each Investor Stockholder shall acquire that number
of shares of the Class B Common Stock as set forth opposite such Investor
Stockholder's name on Annex A and payment therefor shall be made by wire
transfer to a bank account designated by the Company.
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SECTION 1.3 PURCHASE PRICE.
(a) The purchase price for each share of Class B Common Stock to be
purchased by each Stockholder pursuant to the terms hereof (the "Class B Common
Stock Purchase Price") shall be equal to $6.71412 per share. In addition, each
Investor Stockholder shall have the binding obligation (subject to the terms,
limitations and conditions set forth in this Agreement) to make capital
contributions to the Company pursuant to Article III of this Agreement.
(b) The purchase price for each share of Class A Common Stock to be
purchased by each Management Stockholder pursuant to the terms hereof (the
"Class A Common Stock Purchase Price" and, together with the Class B Common
Stock Purchase Price, the "Purchase Price") shall be equal to $0.27128 per
share. In addition, each Management Stockholder shall have the binding
obligation (subject to the terms, limitations and conditions set forth in this
Agreement) to make capital contributions to the Company pursuant to Article III
of this Agreement.
ARTICLE II
CLOSINGS
SECTION 2.1 INITIAL CLOSING. The admittance of each Stockholder as a
Stockholder of the Company, the purchase and sale of the Shares, the acceptance
by the Company of each Subscription Agreement pursuant to which each Stockholder
has agreed to purchase and the Company has agreed to issue and sell the Shares
and the execution of the additional agreements described in this Agreement,
shall take place at the offices of the Company, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, at 10:00 a.m., on August 18, 1998, or at such other time and
place as the Stockholders and the Company shall mutually agree, either orally or
in writing (which time and place are designated as the "Initial Closing").
Notwithstanding the immediately preceding sentence, the Initial Closing shall
not occur until such time as (a) the Company accepts an aggregate of at least
$245,000,000 in Total Commitments from Stockholders, and (b) the conditions set
forth in Article VIII and Article IX are fulfilled or waived by the Stockholders
and the Company, respectively.
SECTION 2.2 SUBSEQUENT CLOSINGS. After the Initial Closing, the Company
may admit additional persons as Stockholders in the Company only through such
period expiring on the earlier to occur of (i) December 31, 1998 and (ii) the
date upon which Stockholders have subscribed for Total Commitments in an
aggregate amount of $300,000,000, provided that such additional Investor
Stockholders shall be admitted on the same terms as the Investor Stockholders
admitted at the Initial Closing, and such additional Investor Stockholders shall
be required to contribute the same percentage of their respective Total
Commitments to the Company as all such Investor Stockholders admitted to the
Company at the Initial Closing and each Capital Call preceding its date of
admission. Each Stockholder that is admitted as a Stockholder shall also execute
a counterpart of the other documents expressly contemplated in this Agreement to
be executed by the Investor Stockholders.
ARTICLE III
FINANCIAL COMMITMENT
SECTION 3.1 AGREEMENT TO MAKE CAPITAL CONTRIBUTIONS.
(a) Set forth beside each Stockholder's name on Annex A is the maximum
amount that such Stockholder hereby makes the binding obligation to contribute
to the capital of the Company,
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inclusive of the initial Purchase Price paid for his Shares (each, a "Total
Commitment"), pursuant to a validly instituted Capital Call (as defined below)
by the Company and subject to the terms, limitations and conditions of this
Agreement. During the time period commencing on the Initial Closing and
continuing until the earlier to occur of (i) the fifth anniversary of the
Initial Closing, (ii) the date on which the Stockholders have made capital
contributions in the amount of the Total Commitment of each Stockholder (net of
the initial Purchase Price paid by such Stockholder for his Shares) or (iii)
such earlier date as provided in Section 3.4 (such time period, the "Takedown
Period"), upon 12 business days' prior written notice substantially in the form
of Exhibit 3.1 hereto (each, a "Call Notice") from the Company (unless all of
the Stockholders have waived such 12-day period), the Company may require
(subject to the terms, limitations and conditions of this Agreement (including
Section 4.1 hereof), the Company's authority and Board of Director approval
procedures set forth in the Bylaws of the Company) the Stockholders to
contribute capital to the Company (a "Capital Call") for the purposes described
in Section 7.7 hereof. Shares owned by the Company or by any Trust established
pursuant to Section 4.2(d) of the Stockholders' Agreement shall not be required
to participate in any Capital Call. Each Capital Call shall be apportioned
ratably among the aggregate Total Commitments of all Stockholders, and each
Stockholders ratable portion shall be divided equally among the number of Shares
owned by such Stockholder ("Call Amount Per Share"); provided that in
calculating the Call Amount Per Share, each Management Stockholders portion of a
Capital Call shall be divided among the shares of Class A Common Stock and Class
B Common Stock owned by such Management Stockholder on the basis of $.040404 for
each share of Class A Common Stock and $1 for each share of Class B Common
Stock; and provided further that the first $12,068,970 of Capital Calls shall be
allocated entirely to the Investor Stockholders on a pro rata basis according to
their Total Commitments. The Call Amount Per Share paid on each share pursuant
to each Capital Call shall be designated as additional paid-in capital on such
share and, with respect to each share of Class B Common Stock, shall be added to
such share's Unreturned Original Cost (as such term is defined in the
Certificate of Incorporation). Such Capital Calls in the aggregate may not
exceed a Stockholder's aggregate Total Commitment less any amount originally
paid by such Stockholder as the Purchase Price for his Shares.
(b) All Capital Calls shall be in an aggregate minimum amount of at
least $2,000,000 and shall be pro rata to the Stockholders based upon their
respective Total Commitments. The Company shall attempt to manage the number of
Capital Calls from the Stockholders in such a manner so that no more than one
call is made during a particular calendar quarter; provided, however, that
notwithstanding such attempts, calls may occur as often as necessary; and
provided further, that no Capital Call will be valid without the consent of 75%
of the Investor Stockholders if at such time (i) the Company is in default under
its repayment obligations arising from indebtedness for money borrowed or (ii)
the Company is in default under payment obligations arising from purchase money
indebtedness or capital lease obligations totaling in excess of $10,000,000.
(c) Each Capital Call for funding shall be accompanied by a Call Notice
and shall specify in reasonable detail the purpose of such capital
contributions, and shall provide such information to any Stockholder with
respect to such capital contributions as any Stockholder shall reasonably
request. In the event that the Company shall be subject to a written
confidentiality obligation to a third party not to furnish any such requested
information, the Company shall provide notice of the existence of such
confidentiality agreement to such Stockholder, and the Company shall use its
reasonable efforts to limit such confidentiality obligations in a manner which
allows such information or a summary of such information to be disclosed to the
requesting Stockholder or otherwise use its reasonable efforts to obtain the
necessary permission to make such disclosure. Notwithstanding the furnishing of
the information described in this Section 3.1(c), no Stockholder in its capacity
as such will have any right to decline to make any of the capital contributions
described
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in such Capital Call for so long as such Capital Call has been made in
accordance with this Agreement and the Bylaws of the Company unless such
Stockholder is an Investor Stockholder and such Stockholder elects to become a
Non-Participating Stockholder pursuant to Section 4.1.
(d) At each date when any Stockholder shall be required to fund any
Capital Call hereunder, the Company shall delay the date of the funding date of
such Capital Call to allow the Company and each Investor Stockholder that
delivers a written opinion of counsel (if requested by the Company) reasonably
acceptable to the Company to the effect that such Investor Stockholder must make
a required governmental filing in connection with such Capital Call to make such
required governmental filing (provided that such Investor Stockholder shall make
such required governmental filing as promptly as possible), for the expiration
of governmentally imposed waiting periods and the obtaining of governmental
approvals, pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti-Trust Improvements Act, if
any; provided, however, that the Stockholders may waive the requirements of this
Section 3.1 (d) in writing at the time of such Capital Call.
(e) Each Investor Stockholder shall have the right to (i) transfer its
Shares in accordance with the Stockholders' Agreement and thereby assign its
obligation to make capital contributions on such transferred Shares of Class B
Common Stock pursuant to this Section 3.1; provided, however, that no such
assignment shall relieve any such assignor from its liabilities and obligations
hereunder, and (ii) enter into a Participation (as defined in the Stockholders'
Agreement) for any or all of its obligation to make capital contributions on
Shares of Class B Common Stock; provided, however, that no Shares or any rights
(other than economic interests permitted to be transferred under the
Stockholders' Agreement in connection with a Participation) or obligations
(other than the funding of Capital Calls) associated therewith shall be
transferred in connection with any such Participation.
(f) It is the intention of the parties to this Agreement that
subsequent to the termination of the Takedown Period, the Company shall continue
to conduct its operations in the manner determined by the Board of Directors of
the Company, acting pursuant to the authority granted pursuant to the Bylaws,
and in accordance with the Stockholders' Agreement.
SECTION 3.2 CAPITAL CONTRIBUTIONS.
(a) Within the time period specified in Section 3.1(a), and subject to
an Investor Stockholder exercising its rights pursuant to Section 4.1 hereof,
each Stockholder shall make a wire transfer of immediately available funds to
the bank account(s) specified in the Call Notice to each Stockholder.
(b) In the event the Company makes Capital Calls pursuant to Section
3.1 (a) for 40% or more of the Total Commitments on or before the second
anniversary of the Initial Closing, each Management Stockholder (other than I.
▇▇▇ ▇▇▇▇▇▇▇) shall have the option in his sole discretion, but not the
obligation, to fund the portion of such Capital Calls that is in excess of 40%
of such Management Stockholder's Total Commitment (the "Deferred Amount") with a
promissory note or notes (each, a "Management Note") payable to the Company.
One-third of the principal balance of any such promissory note will be due two
years from the date of issuance of such Management Note, one-third of the
principal amount of any such promissory note will be due three years from the
date of issuance of such Management Note, and the balance will be due four years
from the date of issuance of such Management Note. Interest will accrue on such
Management Notes at the rate of 7% per annum and will be added to the principal
amount thereof. Any promissory note and associated security documents will be
(a) prepared by the Company, (b) approved by the Board of Directors, and (c)
secured by such Management Stockholder's Capital Stock and will be a full
recourse
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obligation of such Management Stockholder. All promissory notes will be prepaid
from all proceeds of the sale of collateral, including, without limitation, the
sale of such Management Stockholder's Capital Stock to the Company pursuant to
the provisions of the Stockholders' Agreement, and will provide for optional
prepayments without penalty. After the second anniversary of the Initial
Closing, the Management Stockholders shall fund all Capital Calls with cash.
(c) Upon the payment by a Stockholder of required amounts pursuant to
each Capital Call, the Company shall immediately deliver a statement of the
Unreturned Original Cost and Unpaid Yield (as such terms are defined in the
Certificate of Incorporation) of each share of Class B Common Stock.
SECTION 3.3 EXCLUSIVE OBLIGATIONS TO MAKE CAPITAL CONTRIBUTIONS. No
Stockholder shall be required or obligated to make any contributions of capital
to the Company other than as provided in this Agreement and such Stockholder's
Subscription Agreement or to lend any funds to the Company.
SECTION 3.4 EARLY TERMINATION OF THE TAKEDOWN PERIOD.
(a) Subject to Section 3.4(b), the Takedown Period shall terminate upon
the earliest to occur of any of the following events:
(i) the election by 75% of the outstanding shares of Class B
Common Stock held by Investor Stockholders to terminate the Takedown
Period upon 15 days prior written notice to the Company and the other
Stockholders;
(ii) the occurrence of an Insolvency Event (as defined below);
and
(iii) the election by a majority of the outstanding shares of
Class B Common Stock held by the Investor Stockholders following the
Company notifying the Stockholders (the Company hereby agrees to so
promptly notify) that (A) I. ▇▇▇ ▇▇▇▇▇▇▇ has ceased to be actively
involved in, or devote a substantial amount of time to, the management
of the Company for a continuous period of at least 90 days or (B) any
two of the other Management Stockholders have ceased to be actively
involved in, or devote substantially all of their business time to, the
management of the Company for a continuous period of at least 90 days.
As used in Section 3.4(a)(ii), an "Insolvency Event" means (1) the Company or
any of its subsidiaries shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall
take any corporate action to authorize any of the foregoing; (2) an involuntary
case or other proceeding shall be commenced against the Company or any of its
subsidiaries seeking liquidation, reorganization or other relief with respect to
it or its debts under bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or (3) an order for relief
shall be entered against the Company or any of its subsidiaries under the
federal bankruptcy laws now or hereafter in effect.
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(b) Notwithstanding Section 3.4 (a), the Takedown Period may not be
terminated pursuant to clauses (i) or (iii) of Section 3.4(a) with respect to
any Capital Calls necessary for the Company to perform its obligations with
respect to any proposed acquisition cost or other capital expenditure of the
type described in Section 7.7(i) with respect to which the Company has entered
into a legally binding agreement prior to the date of the notice referred to in
clauses (i) or (iii), as the case may be.
ARTICLE IV
NON-PARTICIPATION; EVENT OF DEFAULT
SECTION 4.1 NON-PARTICIPATION BY A STOCKHOLDER. An Investor Stockholder
shall be deemed to become a "Non-Participating Stockholder" in the event that
(a) the Company has made a Call Notice to the Stockholders for capital
contributions in an aggregate amount in excess of the amount permissible under
Article IV, Section 1(f) of the Bylaws and either (i) the capital contributions
that are the subject of such Call Notice were properly approved by the Board of
Directors pursuant to the Bylaws of the Company, and the Investor Director or
Observer Director nominated by a Stockholder (as such terms are defined in the
Stockholders' Agreement) notified the Company prior to or at the meeting at
which such capital-contributions were approved that such Stockholder would not
make its share of such capital contributions or (ii) in the event that the
capital contributions that are the subject of such Call Notice were not required
to be approved by the Board of Directors pursuant to the Bylaws of the Company,
such Investor Stockholder notifies the Company in writing within 24 hours after
its receipt of such Call Notice that it will not make its share of such capital
contributions, and (b) such capital contributions are actually funded by other
Stockholders under Section 3.2(a). No Investor Stockholder may elect to become a
Non-Participating Stockholder in the event that the Call Notice requests
aggregate capital contributions in an amount below the amount permissible under
Article IV, Section 1(f) of the Bylaws.
SECTION 4.2 DEFAULT BY A STOCKHOLDER.
(a) An "Event of Default" shall be deemed to have occurred if (i) any
Stockholder (any such Stockholder, a "Defaulting Stockholder") fails or refuses
to make when due its complete portion of any Capital Call validly made and
actually funded by other Stockholders under Section 3.2(a) (other than as
permitted by Section 4.1), whether pursuant to such Stockholder's obligations on
his or its shares of Class B Common Stock or Class A Common Stock, and (ii) such
default has continued in whole or in part for not less than five days after
written notice thereof given by the Company has been received by such Defaulting
Stockholder.
(b) (i) Upon an Event of Default, the Company may, at its option (A)
institute suit against a Defaulting Stockholder for the amount of the Capital
Call precipitating such Event of Default (and not for the amount of any Capital
Call subsequent to such Event of Default), as well as (x) interest on past due
amounts at a rate equal to the lesser of the maximum amount permitted by
applicable law and eighteen percent (18%) per annum and (y) reasonable costs and
expenses of the Company in connection with such Event of Default, or (B)
implement the repurchase provisions of Section 4.4 of the Stockholders'
Agreement with respect to the Class B Common Stock eligible to be repurchased
upon such Capital Call. In addition, the Company may pursue any other rights and
remedies available to the Company at law or equity.
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(ii) Upon each Capital Call subsequent to the Event of Default
referred to in clause (i) above, the Company may exercise the repurchase
provisions of Section 4.4 of the Stockholders' Agreement with respect to the
Class B Common Stock owned by such Defaulting Stockholder eligible to be
repurchased upon such Capital Call, and the Company may not institute suit
against such Defaulting Stockholder for the amount of such subsequent Capital
Call.
(iii) Notwithstanding anything to the contrary contained
herein, with respect to a Management Stockholder who is no longer an employee of
the Company, the Company shall have the right to exercise the repurchase
provisions of Section 4.4 of the Stockholders' Agreement with respect to the
Class B Common Stock eligible to be repurchased upon such Capital Call, and the
Company may institute suit against such Management Stockholder for the unpaid
amount, if any, of the Capital Call attributable to such Management
Stockholder's Class A Common Stock (and not for the amount of any subsequent
Capital Call), as well as (A) interest on past due amounts at a rate equal to
the lesser of the maximum amount permitted by applicable law and eighteen
percent (18%) per annum and (B) reasonable costs and expenses of the Company in
connection with such unpaid Capital Call.
SECTION 4.3 LOSS OF CERTAIN RIGHTS. (i) A Defaulting Stockholder or
Non-Participating Stockholder shall have no right to participate in funding its
portion of any future Capital Call; and (ii) a Defaulting Stockholder or a
Non-Participating Stockholder shall have no rights to place its representative
on the Board of Directors of the Company pursuant to the Stockholders'
Agreement, and such Defaulting Stockholder's or such Non-Participating
Stockholder's representative shall be removed upon the occurrence of an Event of
Default or at the time it becomes a Non-Participating Stockholder, nor shall
such Defaulting Stockholder or such Non-Participating Stockholder have any
additional rights to vote on matters or consent to actions pursuant to the
Stockholders' Agreement other than as specifically provided therein; provided,
however, that the foregoing provision shall not be construed as limiting or
restricting the rights of a Defaulting Stockholder or Non-Participating
Stockholder to vote its shares of Capital Stock owned by such Defaulting
Stockholder or Non-Participating Stockholder on matters with respect to which
holders of Capital Stock have the right to vote under the Certificate of
Incorporation, the Bylaws or the Registration Rights Agreement. In addition, the
Shares of Class B Common Stock owned by a Non-Participating Stockholder or an
Investor Stockholder who is a Defaulting Stockholder shall be subject to
repurchase pursuant to Section 4.4 of the Stockholders' Agreement.
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SECTION 4.4 TREATMENT OF I. ▇▇▇ ▇▇▇▇▇▇▇. For purposes of this Article
IV, I. ▇▇▇ ▇▇▇▇▇▇▇ shall be treated as an Investor Stockholder with respect to
1,921.91 shares of his Class B Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with each of the
Stockholders that:
SECTION 5.1 ORGANIZATION. GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
corporate authority to carry on its business as now conducted and as proposed to
be conducted. The Company is duly licensed or qualified to transact business and
is in good standing in each jurisdiction in which the nature of the business
transacted by it (including the contracts of its employees) or the character of
the properties owned or leased by it requires such licensing or qualification,
except for jurisdictions where the failure to be so licensed, qualified or in
good standing would not have a material adverse effect on the business,
prospects, condition, affairs, properties or assets of the Company.
SECTION 5.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of
the Company consists, or will consist immediately prior to the Initial Closing,
of (i) 375,000 shares of Common Stock, par value $.01 per share, consisting of
75,000 shares of Class A Common Stock and 300,000 shares of Class B Common
Stock, of which 64,140.87 shares of Class A Common Stock and 294,513.46 shares
of Class B Common Stock, respectively, are issued and outstanding immediately
after the Initial Closing and (ii) 1,000 shares of Preferred Stock, of which
none were issued and outstanding prior to the Initial Closing. Except as
contemplated by this Agreement and the agreements contemplated herein, there is
not outstanding any option, warrant, right (contingent or other, including
conversion, exchange, participation, right of first refusal, co-sale or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any options, warrants or rights
convertible into or exchangeable for any thereof. Except as contemplated by this
Agreement and the agreements contemplated herein, there is no commitment by the
Company to issue shares, subscriptions, warrants, options, convertible or
exchangeable securities or other such rights or to distribute to holders of its
equity securities any evidence of indebtedness or asset. Except as contemplated
by this Agreement and the agreements contemplated herein, the Company is not a
party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which effects or relates to the voting or giving of written consents
with respect to any security or matter, or by a director of the Company.
SECTION 5.3 SUBSIDIARIES. The Company has no subsidiaries and does not
own of record or beneficially any capital stock or equity interest or investment
in any other corporation, association or business entity.
SECTION 5.4 AUTHORIZATION; ISSUANCE. This Agreement has been duly and
validly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement may be limited
by applicable bankruptcy laws, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law). The execution
and delivery by the Company of
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this Agreement and the other agreements contemplated herein, the issuance, sale
and delivery of the Class A Common Stock and the Class B Common Stock which is
being purchased by the Stockholders hereunder and the performance by the Company
of its other obligations hereunder and other the other agreements contemplated
herein have been duly authorized by all required corporate action on the part of
the Company, and when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, the shares of Class A Common
Stock and Class B Common Stock will be duly and validly issued, fully paid and
non-assessable.
SECTION 5.5 OFFERING. Subject to the accuracy of the Stockholders'
representations set forth in their respective Subscription Agreements, the
offer, sale and issuance of the Shares as contemplated by this Agreement and
each Subscription Agreement are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and will be issued in
compliance with all applicable federal and state securities laws. Neither the
Company nor anyone acting on its behalf will take any action hereafter that
would cause the loss of such exemption. The outstanding shares of Capital Stock
are duly and validly authorized and issued, fully paid, and non-assessable, and
were issued in compliance with all applicable federal and state securities laws.
SECTION 5.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the execution, delivery and
performance by the Company of this Agreement and issuance, sale and delivery of
the Shares, other than with respect to the registration of the Shares
contemplated by the Registration Rights Agreement and compliance with state
securities laws upon issuance of the Shares.
SECTION 5.7 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Certificate of Incorporation, as
amended, or Bylaws or of any instrument, agreement, lease, arrangement,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or of any provision of any federal or state statute, rule or
regulation, license or permit applicable to the Company, the violation or
default of which would have a material adverse effect on the Company. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice or both, either a default or loss of rights under, acceleration of, or
give rise to right of termination, acceleration or modification under, any such
provision, agreement, lease, arrangement, instrument, judgment, order, writ,
decree, or contract or an event which results in the creation of any lien,
charge, or encumbrance upon any material assets of the Company. The Company does
not have any knowledge of any termination or material breach or anticipated
termination or material breach by the other party to any material contract or
commitment to which it is a party or to which any of its assets is subject.
SECTION 5.8 DIRECTORS AND OFFICERS. Except for any Management Notes,
the Company does not have any outstanding loans or advances to or any guarantee
for the credit enhancement for the benefit of any director or officer of the
Company, nor is the Company obligated or committed to make any such loans,
advances, guarantees or credit enhancements. There are no material agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates, or any affiliate thereof other than those
documents expressly contemplated by this Agreement.
SECTION 5.9 REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement (as defined below), the Company has not granted or agreed to
grant any registration
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rights relative to the registration of its securities under the Securities Act,
including piggyback registration rights, to any person or entity.
SECTION 5.10 TITLE TO PROPERTY AND ASSETS. The Company has indefeasible
title to its properties and assets free and clear of all mortgages, liens,
loans, and encumbrances, except for such mortgages, encumbrances and liens which
arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such properties or assets. With respect to the
property and assets it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free of any liens, claims, or encumbrances,
except such liens and encumbrances which arise in the ordinary course of
business and do not materially impair the Company's use of such leased property.
SECTION 5.11 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE BENEFITS; PLANS.
The Company is not bound by or subject to (and none of its assets or properties
are bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees of the Company. There is no strike or other labor dispute involving
the Company pending or, to the knowledge of the Company, threatened, which could
have a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. With respect to each
employee plan presently in force within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") that is sponsored or
maintained by the Company, the Company is in compliance in all material respects
with the applicable requirements of ERISA. The Company has not contributed to or
is not required to contribute to any multi-employer plan within the meaning of
section 3(37) of ERISA.
SECTION 5.12 TAX MATTERS. The Company (i) has timely filed all tax
returns that are required to have been filed by it with all appropriate
governmental agencies (and all such returns are true and correct in all material
respects and fairly reflect operations for tax purposes); and (ii) has timely
paid all taxes or assessments owed by it (other than taxes or assessments the
validity of which are being contested in good faith by appropriate proceedings).
The assessment of any additional taxes for periods for which returns have been
filed is not expected to exceed the recorded liability therefor and, to the
Company's knowledge, there are no material unresolved questions or claims
concerning the Company's tax liability. The Company's tax returns have not been
reviewed or audited by any taxing authority. There is no pending dispute with
any taxing authority relating to any of said returns which, if determined
adversely to the Company, would result in the assertion by any taxing authority
of any valid deficiency in a material amount for taxes.
SECTION 5.13 MINUTE BOOKS. The minute books of the Company contain a
complete and accurate record of all meetings of directors and stockholders since
the date of incorporation and all actions by written consent.
SECTION 5.14 INVESTMENT COMPANY ACT. The Company is not an "investment
company" as that term is defined in, and is not otherwise subject to regulation
under, the Investment Company Act of 1940.
SECTION 5.15 NO PRIOR ACTIVITIES. The Company was incorporated on April
22, 1998, and since such date the Company has not, directly on indirectly, (a)
engaged in any business, (b) entered
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into any agreements, contracts or other commitments or (c) incurred any
liabilities of any nature (matured or unmatured, fixed or contingent), except:
(i) the Company has issued the Initial Management Shares;
(ii) the Company has negotiated, executed and delivered this
Agreement and the agreements contemplated hereby or annexed hereto;
(iii) the Company has incurred general and administrative
expenses and entered into agreements with respect to obtaining office
space, its employees and outside attorneys and agents;
(iv) the Company has pursued its strategy of seeking
acquisitions of oil and gas properties, and in connection therewith,
has reviewed potential acquisitions, executed confidentiality
agreements, retained consultants and entered into related obligations
and incurred related expenses; and
(v) the Company has incurred debt in an amount not in excess
of $130,000.
SECTION 5.16 LITIGATION. There is no litigation or governmental
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company affecting any of its properties or assets, or
against any officer, director or Management Stockholder, nor, to the best
knowledge of the Company, has there occurred any event or does there exist any
condition on the basis of which any material litigation, proceeding or
investigation might properly be instituted.
SECTION 5.17 CERTAIN AGREEMENTS OF OFFICERS AND EMPLOYEES. To the
Company's best knowledge, no officer, employee or consultant of the Company is,
or is now, to the Company's knowledge, expected to be, in violation of any term
of any employment contract, patent disclosure agreement, proprietary information
agreement, noncompetition agreement, nonsolicitation agreement, confidentiality
agreement or any other similar contract or agreement or any restrictive
covenant, relating to the right of any such officer, employee, or consultant to
be employed or engaged by the Company because of the nature of the business
conducted or to be conducted by the Company or relating to the use of trade
secrets or proprietary information of others, and to the Company's best
knowledge and belief, the continued employment or engagement of the Company's
officers, employees or consultants does not subject the Company to any liability
with respect to any of the foregoing matters.
SECTION 5.18 BROKERS OR FINDERS. No person has or will have, as a
result of the issuance of the Capital Stock pursuant to this Agreement, any
right, interest or valid claim against or upon the Company for any commission,
fee or other compensation as a finder or broker because of any act or omission
by the Company or its respective agents.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
SECTION 6.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of
the Stockholders, severally and not jointly, represents and warrants to, and
agrees with the Company and each other Stockholder that each of the
representations and warranties made by such Stockholder in the Subscription
Agreement of such Stockholder is true and correct as of the date hereof.
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SECTION 6.2 CERTAIN AGREEMENTS OF MANAGEMENT STOCKHOLDERS. To the best
knowledge of each Management Stockholder, he is not now, or is not expected to
be in violation of any term of any employment contract, patent disclosure
agreement, proprietary information agreement, noncompetition agreement,
nonsolicitation agreement, confidentiality agreement or any other similar
contract or agreement or any restrictive covenant, relating to the right of such
Management Stockholder to be employed or engaged by the Company because of the
nature of the business conducted or to be conducted by the Company or relating
to the use of trade secrets or proprietary information of others, and to such
Management Stockholder's best knowledge and belief, his continued employment or
engagement by the Company will not-subject the Company to any liability with
respect to any of the foregoing matters.
SECTION 6.3 LITIGATION. There are no actions or proceedings pending
against any Stockholder or, to such Stockholder's knowledge, threatened in
writing, which is reasonably likely to call into question the validity of this
Agreement, any of the Capital Stock, or any action taken or to be taken pursuant
hereto or thereto.
SECTION 6.4 BROKERS OR FINDERS. No person has or will have, as a result
of the issuance of the Capital Stock pursuant to this Agreement, any right,
interest or valid claim against or upon the Company for any commission, fee or
other compensation as a finder or broker because of any act or omission by any
Stockholder or his or its respective agents.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 CONFIDENTIALITY. Each of the Stockholders agrees that all
Confidential Information (as defined below) shall be kept confidential by such
Stockholder and shall not be disclosed by such Stockholder in any manner
whatsoever; provided, however, that (i) any of such Confidential Information may
be disclosed to such directors, officers, employees and authorized
representatives (including without limitation attorneys, accountants,
consultants, bankers and financial advisors) of such Stockholder (collectively,
for purposes of this Section, "Stockholder Representatives") as need to know
such information for the purpose of evaluating the transactions contemplated
hereby, (ii) any disclosure of Confidential Information may be made to the
extent to which the Company consents in writing and (iii) Confidential
Information may be disclosed by any Stockholder or any Stockholder
Representative to the extent that the Stockholder or Stockholder Representative
is legally compelled to do so, provided that, prior to making such disclosure,
the Stockholder or Stockholder Representative, as the case may be, advises and
consults with the Company regarding such disclosure and provided further that
the Stockholder or Stockholder Representative, as the case may be, discloses
only that portion of the Confidential Information as is legally required. The
term "Confidential Information," as used herein, means all information
(irrespective of the form of communication) obtained by or on behalf of
Stockholder from the Company or its representatives, other than information
which (i) was or becomes generally available to the public other than as a
result of improper disclosure by such Stockholder or any Stockholder
Representative, (ii) was or becomes available to such Stockholder on a
nonconfidential basis prior to disclosure to the Stockholder by the Company or
its representatives or (iii) was or becomes available to the Stockholder from a
source other than the Company and its representatives, provided that such source
is not known by the Stockholder to be bound by a confidentiality agreement with
the Company.
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SECTION 7.2 REGISTRATION RIGHT AGREEMENT. The Company and the
Stockholders shall enter into the Registration Rights Agreement at the Initial
Closing pursuant to which the Company shall agree to register the Shares under
the Securities Act on the terms and subject to the conditions set forth therein.
The Registration Rights Agreement shall be in substantially the form set forth
as Exhibit 7.2.
SECTION 7.3 STOCKHOLDERS' AGREEMENT. The Company and the Stockholders
shall enter into the Stockholders' Agreement (the "Stockholders' Agreement") at
the Initial Closing pursuant to which the Company and the Stockholders shall
agree to certain terms and conditions regarding the disposition and repurchase
of shares of Capital Stock and the management of the Company. The Stockholders'
Agreement shall be in substantially the form set forth as Exhibit 7.3.
SECTION 7.4 CONFIDENTIALITY AND NON-COMPLETE AGREEMENT. The Company and
each Management Stockholder shall enter into a Confidentiality and Non-Compete
Agreement at the Initial Closing pursuant to which the Company and each
Management Stockholder shall agree to certain terms and conditions regarding the
Management Stockholder's ability to use confidential information of, or compete
with, the Company. The Confidentiality and Non-Compete Agreement shall be in
substantially the form set forth as Exhibit 7.4.
SECTION 7.5 PUBLIC ANNOUNCEMENTS. The Company may issue press releases
and public announcements, provided that except as may be required by applicable
law, the Company shall not issue any press release that identifies any
Stockholder or otherwise make any public statement with respect to any
Stockholder without the prior written consent of such Stockholder (which consent
shall not be unreasonably withheld). No Stockholder shall, except as required by
applicable law, issue any press release that describes the transactions
contemplated herein or identifies the Company or any other Stockholder without
the prior consent of the Company and the identified party. Any such press
release or public statement required by applicable law shall only be made after
reasonable notice to the other parties.
SECTION 7.6 FEES AND EXPENSES. Except as otherwise expressly provided
in this Agreement, all fees and expenses, including fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby,
shall be paid by the party incurring such fee or expense; provided, however,
that the Company shall pay the reasonable legal fees and expenses of ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, P.C., counsel to the Company and the Management Stockholders, and the
legal fees and expenses of ▇'▇▇▇▇▇▇▇▇ Graev & Karabell, LLP, counsel to the
Investor Stockholders.
SECTION 7.7 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Shares and each Capital Call for: (i) acquisition costs and other
capital expenditures associated with the Company's business of acquiring
(directly or indirectly) oil and gas producing and nonproducing properties and
leasehold interests and costs associated with the exploration or development
thereof (or acquiring business entities whose primary business and assets are to
own, operate explore or develop such assets), (ii) working capital needs,
including the establishment or replenishment of a working capital reserve, (iii)
general and administrative expenses (including costs of organizing the Company),
and (iv) general corporate purposes. The Company and the Stockholders
acknowledge that it is their intention that the Company become a fully
integrated operating company with all of its assets, rights, benefits, goodwill
and ancillary business and other components of its affairs being owned, directly
or indirectly through any subsidiaries, by the Company.
SECTION 7.8 UNALLOCATED COMMON STOCK. The Company shall authorize
9,584.27 shares of Class A Common Stock and 387.24 shares of Class B Common
Stock to be reserved pursuant
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to this Agreement for issuance to employees of the Company including, but not
limited to new and existing Management Stockholders. Such issuance shall be made
pursuant to the Management Stock Ownership Plan substantially in the form set
forth as Exhibit 7.9.
ARTICLE VIII
CONDITIONS OF THE STOCKHOLDERS' OBLIGATIONS AT CLOSING
The obligations of the Stockholders under this Agreement are subject to
the fulfillment on or before the Initial Closing of each of the following
conditions, the waiver of which shall not be effective against any Stockholder
unless such Stockholder consents in writing thereto:
SECTION 8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Article V shall be true in all material
respects on and as of the Initial Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Initial Closing.
SECTION 8.2 PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Initial Closing.
SECTION 8.3 COMPLIANCE CERTIFICATE. The chief executive officer of the
Company shall deliver to the Stockholders at the Initial Closing a certificate
certifying that the conditions specified in Sections 8.1 and 8.2 have been
fulfilled.
SECTION 8.4 STOCKHOLDERS' AGREEMENT. The Stockholders and the Company
shall have entered into the Stockholders' Agreement.
SECTION 8.5 CONFIDENTIALITY AND NON-COMPETE AGREEMENT. Each of the
Management Stockholders and the Company shall have entered into a
Confidentiality and Non-Compete Agreement.
SECTION 8.6 REGISTRATION RIGHTS AGREEMENT. The Stockholders and the
Company shall have entered into the Registration Rights Agreement.
SECTION 8.7 SUBSCRIPTION AGREEMENTS. Each Stockholder and the Company
shall have entered into a Subscription Agreement.
SECTION 8.8 OPTION PLAN AND MANAGEMENT STOCK OWNERSHIP PLAN. The Board
of Directors of the Company and the Stockholders shall have approved and adopted
(i) an equity incentive stock option plan for non-management employees and (ii)
a plan whereby executive officers and other persons designated as "management"
by the Board of Directors will acquire additional Common Stock (as described in
Section 7.8), in form and substance reasonably acceptable to Stockholders.
SECTION 8.9 CORPORATE EXISTENCE. The Company shall provide the
Stockholders with (a) a copy of the filed Certificate of Designations and a copy
of the Certificate of Incorporation of the Company, in each case certified by
the Secretary of State for the State of Delaware and (b) a good standing
certificate of the most recent practicable date.
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SECTION 8.10 280G APPROVALS. To the extent applicable, the Board of
Directors of the Company and the Stockholders shall have approved and adopted
all resolutions necessary to exempt the accelerated vesting of Class A Common
Stock held by Management Stockholders upon a Change in Control (as such term is
defined in the Stockholders' Agreement) pursuant to the Stockholders' Agreement
in accordance with Section 280G(b)(5) of the Internal Revenue Code of 1986, as
amended.
SECTION 8.11 LEGAL OPINION. The Investor Stockholders shall have
received the favorable opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
SECTION 8.12 SMALL BUSINESS SIDELETTERS. The Company and each of First
Union Capital Partners, Inc. and Chase Venture Capital Associates, L.P. shall
have entered into a letter agreement in connection with various small business
matters and the Company shall deliver the SBA forms referred to therein.
ARTICLE IX
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Stockholders under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by the Stockholders:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the Stockholders contained in Article VI shall be true on
and as of the Initial Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Initial Closing.
SECTION 9.2 PERFORMANCE. Each of the Stockholders shall have performed
and complied in all material respects with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it or him on or before the Initial Closing.
SECTION 9.3 COMPLIANCE CERTIFICATE. Each of the Stockholders shall
deliver to the Company at the Closing a certificate certifying that the
conditions specified in Sections 9.1 and 9.2 have been fulfilled.
SECTION 9.4 STOCKHOLDERS' AGREEMENT. Each of the Stockholders and the
Company shall have entered into the Stockholders' Agreement.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 10.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties made by the Company contained in Article V of this Agreement and the
representations and warranties made by the Stockholders contained in Article VI
of this Agreement and shall survive the Initial Closing for a period of one (1)
year.
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SECTION 10.2 AGREEMENT TO INDEMNIFY.
(a) Subject to the terms and conditions of this Article X, the Company
hereby agrees to indemnify, defend and hold harmless each of the Stockholders
and its successors and assigns, representatives and affiliates (collectively,
the "Stockholder Group") from and against all claims, actions or causes of
action, assessments, demands, losses, damages, judgments, settlements,
liabilities, costs and expenses, including, without limitation, interest,
penalties and reasonable attorneys' and accounting fees and expenses of any
nature whatsoever, whether actual or consequential (collectively, "Damages"),
asserted against, imposed upon or incurred directly by any member of the
Stockholder Group by reason of or resulting from a breach of any representation
or warranty or covenant by the Company contained herein or any of the agreements
contemplated herein.
(b) Subject to the terms and conditions of this Article X, each of the
Stockholders (severally and not jointly) hereby agrees to indemnify, defend and
hold harmless the Company and its subsidiaries, and each officer and director of
the Company or of any of its subsidiaries and each affiliate thereof
(collectively, the "Company Group"), and their successors and assigns, from and
against all Damages, asserted against, resulting to, imposed upon or incurred by
any member of the Company Group, directly or indirectly, by reason of or
resulting from a breach of any representation, warranty or covenant by such
Stockholder contained herein or any of the agreements contemplated herein.
SECTION 10.3 LIMITATION OF LIABILITY. The obligations and liabilities
of each Stockholder with respect to claims under Section 10.2 hereof ("Company
Claims") to the Company Group and the Company with respect to claims under
Section 10.2 hereof ("Stockholder Claims") to the Stockholder Group shall be
subject to the following limitations:
(a) No indemnification shall be required to be made by any Stockholder
under this Article X with respect to any Company Claim which results from the
breach of any representation, except to the extent that the aggregate amount of
Damages with respect to all of such claims incurred by the Company Group exceeds
$25,000, in which case, such Stockholder shall be liable only for Damages in
excess of such amount. No indemnification shall be required to be made by the
Company under this Article X with respect to any Stockholder Claim which results
from the breach of any representation, except to the extent that the aggregate
amount of Damages with respect to all of such claims incurred by the Stockholder
Group exceeds $25,000, in which case, the Company shall be liable only for
Damages in excess of such amount.
(b) The amount of Damages any party is required to pay to indemnify any
other party pursuant to Section 10.2 as a result of any Company Claim or
Stockholder Claim shall be reduced to the extent of any amounts actually
received by the party seeking indemnification after the Initial Closing pursuant
to the terms of insurance policies (if any) covering such claim.
SECTION 10.4 CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Company to indemnify the Stockholder Group and the
Stockholders to indemnify the Company Group under Section 10.2 hereof with
respect to Company Claims and Stockholders Claims, respectively, resulting from
the assertion of liability by third parties shall be subject to the following
terms and conditions:
(a) The indemnified party will give the indemnifying party prompt
notice of any such claim, and the indemnifying party will undertake the defense
thereof by representatives of its own choosing reasonably satisfactory to the
indemnified party, provided that failure to provide such notice will not relieve
the indemnifying party of its obligations hereunder unless it is actually
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prejudiced by such failure to receive such notice. If the indemnifying party,
within ten (10) days after notice of any such claim, fails to defend such claim,
the indemnified party will (upon further notice to the indemnifying party) have
the right to undertake the defense, compromise or settlement of such claim on
behalf of and for the account and risk of indemnifying party.
(b) Anything in this Section 10.4 to the contrary notwithstanding, (i)
an indemnified party shall have the right, at its own cost and expense, to
participate in the defense, compromise or settlement of such claim, (ii) the
indemnifying party shall not, without the written consent of the indemnified
party, settle or compromise any claim or consent to the entry of any judgment
(x) which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the indemnified party a release from all liability
in respect of such claim or (y) as a result of which injunctive or other
equitable relief would be imposed against the indemnified party, and (iii) the
indemnified party shall have the right to control the defense or settlement of
that portion of any claim which seeks an order, injunction or other equitable
relief against the indemnified party which, if successful, could materially
interfere with the business, operations, assets, financial condition or
prospects of the indemnified party; provided, however, that in connection with
the defense or settlement of the portion of such claim which seeks equitable
relief, the indemnified party shall cooperate with the indemnifying party and
use its reasonable best efforts to limit the liability of the indemnifying party
for the damages portion of such claim.
ARTICLE XI
TERMINATION
SECTION 11.1 TERMINATION OF AGREEMENT. This Agreement may be terminated
at any time prior to the Initial Closing:
(a) By mutual written agreement of the Company and each of the
Stockholders;
(b) By any of the Stockholders, with respect to such Stockholder, or
the Company, in each case if the Initial Closing shall not have occurred on or
before October 31, 1998, unless such failure to close shall be due to a breach
of this Agreement by the party seeking to terminate the Agreement pursuant to
this Section;
(c) If a United States court of competent jurisdiction shall
permanently enjoin the consummation of the transactions contemplated hereby and
such injunction shall be final and nonappealable; or
(d) by election of Investor Stockholders pursuant to Section 3.4
hereof.
SECTION 11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto (or any of their
respective officers or directors). Nothing contained in this Section 11.2 shall
relieve any party from liability for any breach of this Agreement.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.1 NOTICES. Any notice, demand or other communication which
any party to this Agreement may be required, or may elect, to give to anyone
interested hereunder shall be validly given if personally delivered or sent by
facsimile, registered or certified mail, return receipt requested, or reputable
overnight courier service (providing next business day service), addressed to
the recipient, (i) if to the Company, to the address set forth at the head of
this Agreement, and (ii) if to a Stockholder, to the address set forth opposite
such Stockholder's name on Annex A attached hereto, or, in either case, to such
other address as such party may designate by written notice to the other in
accordance with the provisions of this Section 12.1. Notice shall be deemed to
have been given when delivered personally or on the first business day following
confirmation of the receipt of a facsimile, five (5) business days following the
date of deposit with the U.S. Post Office or on the first business day following
deposit with the office of such reputable courier service.
SECTION 12.2 ENTIRE AGREEMENT. This Agreement, together with the
Exhibits and Annexes and other writings referred to herein or delivered pursuant
hereto, constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 12.3 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and permitted
assigns. Except as otherwise expressly provided in this Agreement or the
Stockholders' Agreement, neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except that any
Stockholder may assign to any affiliate of such Stockholder any of such
Stockholder's rights, interests or obligations hereunder, upon notice to the
other party or parties, provided that no such assignment shall relieve such
Stockholder of its obligations hereunder. Except as provided in Section 10.2,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any person other than the parties hereto, and their respective heirs, legal
representatives, successors, and permitted assigns, any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 12.4 SEVERABILITY. If any provision of this Agreement is held
to be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law. ,
SECTION 12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
SECTION 12.6 FURTHER ASSURANCES. From time to time following the
Initial Closing, at the request of any party hereto and without further
consideration, the other party hereto shall execute and deliver to such
requesting party such instruments and documents and take such other action (but
without incurring any material financial obligation) as such requesting party
may reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
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SECTION 12.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect in any manner the meaning or interpretation of
this Agreement.
SECTION 12.8 GENDER. Pronouns in masculine, feminine, and neuter
genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
SECTION 12.9 REFERENCES. All references in this Agreement to Sections
and other subdivisions refer to the Sections and other subdivisions of this
Agreement unless expressly provided otherwise. The words "this Agreement,"
"herein," "hereof," "hereby," "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. Whenever the words "include," "includes" and "including" are used in
this Agreement, such words shall be deemed to be followed by the words "without
limitation." Each reference herein to an Exhibit or Annex refers to the item
identified separately in writing by the parties hereto as the described Exhibit
or Annex to this Agreement. All Exhibits and Annexes are hereby incorporated in
and made a part of this Agreement as if set forth in full herein.
SECTION 12.10 INJUNCTIVE RELIEF. The parties hereto acknowledge and
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
SECTION 12.11 CONSENT TO JURISDICTION.
(a) The parties hereto hereby irrevocably submit to the exclusive
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in Delaware, and appropriate appellate
courts therefrom, over any dispute arising out of or relating to this Agreement
or any of the transactions contemplated hereby, and each party hereby
irrevocably agrees that all claims in respect of such dispute or proceeding may
be heard and determined in such courts. The parties hereby irrevocably waive, to
the fullest extent permitted by applicable law, any objection which they may now
or hereafter have to the laying of venue of any dispute arising out of or
relating to this Agreement, the Stockholders' Agreement, the Registration Rights
Agreement and the Subscription Agreement or any of the transactions contemplated
hereby brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. This consent to jurisdiction is
being given solely for purposes of this Agreement, the Stockholders' Agreement,
the Registration Rights Agreement and the Subscription Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action, or proceeding of the nature
specified in subsection (a) above by the mailing of a copy thereof in the manner
specified by the provisions of Section 12.1.
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(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
SECTION 12.12 AMENDMENT. The provisions of this Agreement may only be
amended, waived or modified with the affirmative vote of (a) if I. ▇▇▇ ▇▇▇▇▇▇▇
is chief executive officer of the Company, then I. ▇▇▇ ▇▇▇▇▇▇▇ and Investor
Stockholders holding at least 75% of the Class B Common Stock held by all of the
Investor Stockholders (other than Non-Participating Stockholders and Defaulting
Stockholders), or (b) in the event I. ▇▇▇ ▇▇▇▇▇▇▇ is not chief executive officer
of the Company for any reason, 66 2/3% of all of the Shares of Common Stock held
by all the Stockholders (other than Non-Participating Stockholders and
Defaulting Stockholders) (either (a) or (b), the "Requisite Stockholders");
provided, however, that any vote requiring Requisite Stockholders' approval
which adversely affects the rights of any Stockholder (including a
Non-Participating Stockholder or Defaulting Stockholder), in its capacity as
Stockholder, without adversely affecting the rights of all Stockholders of the
same class (i.e., Management or Investor), in their capacities as Stockholders
of such class, shall not be effective as to such Stockholder without its prior
written consent. Notwithstanding the immediately preceding sentence, with
respect to any change, modification or amendment to Annex A to this Agreement
which is necessary to admit an additional Stockholder in the manner expressly
permitted by this Agreement, such change, modification or amendment may be
contained in a written instrument executed solely by the Company, provided that
the Company notifies the Stockholders of such change, modification or amendment.
SECTION 12.13 WAIVER. No failure or delay by a party hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
SECTION 12.14 COUNTERPARTS. This Agreement may be executed by the
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
SECTION 12.15 SECTION 83(B) ELECTION. Each Management Stockholder shall
be exclusively responsible for making his or her timely election under Section
83(b) of the Internal Revenue Code of 1986, as amended, to the extent applicable
to the transactions described in this Agreement, the Stockholders' Agreement and
the Subscription Agreements, and no liability arising therefrom or
responsibility therefor shall be incurred or indemnified by the other
Stockholders or the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INVESTOR STOCKHOLDERS:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its general
partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
WARBURG, ▇▇▇▇▇▇ EQUITY PARTNERS, L.P.
By: ▇.▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co., LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
NATURAL GAS PARTNERS V, L.P.
By: G.F.W. Energy V, L.P., its general
partner
By: GFW V, L.L.C., its general partner
By: /s/
-----------
Name:
Title:
FIRST UNION CAPITAL PARTNERS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
MANAGEMENT STOCKHOLDERS:
/s/ I. ▇▇▇ ▇▇▇▇▇▇▇
------------------
I. ▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------
▇▇▇▇ ▇▇▇▇▇▇▇
COMPANY:
ENCORE ACQUISITION PARTNERS, INC.
By: /s/ I. ▇▇▇ ▇▇▇▇▇▇▇
------------------
Name: I. ▇▇▇ ▇▇▇▇▇▇▇
Title:
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