EXHIBIT 10.1
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NOTE AND WARRANT PURCHASE AGREEMENT
BETWEEN
BLUE DOLPHIN ENERGY COMPANY
AND
CERTAIN INVESTORS
SEPTEMBER 8, 2004
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TABLE OF CONTENTS
PAGE
ARTICLE I. TERMS OF THE TRANSACTION.....................................................................1
1.1 Issuance of Notes and Warrants...............................................................1
1.2 Sale and Purchase............................................................................1
ARTICLE II. CLOSING......................................................................................2
2.1 Initial Closing..............................................................................2
2.2 Additional Closing...........................................................................2
2.3 Closing Deliveries...........................................................................2
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................2
3.1 Corporate Organization.......................................................................2
3.2 Capitalization of the Company................................................................2
3.3 Authority Relative to This Agreement.........................................................3
3.4 Noncontravention.............................................................................4
3.5 Consents and Approvals.......................................................................4
3.6 Authorization of Issuance; Reservation of Shares.............................................4
3.7 Financial Condition..........................................................................5
3.8 Litigation...................................................................................5
3.9 ERISA ....................................................................................5
3.10 Taxes ....................................................................................6
3.11 Titles, etc..................................................................................7
3.12 No Material Misstatements....................................................................7
3.13 Investment Company Act.......................................................................8
3.14 Public Utility Holding Company Act...........................................................8
3.15 Subsidiaries.................................................................................8
3.16 Defaults 8
3.17 Environmental Matters........................................................................8
3.18 Compliance with the Law.....................................................................10
3.19 Insurance...................................................................................10
3.20 Hedging Agreements..........................................................................11
3.21 Material Agreements.........................................................................11
3.22 Gas Imbalances..............................................................................11
3.23 Brokerage Fees..............................................................................11
3.24 SEC Filings.................................................................................11
3.25 NASDAQ Listing..............................................................................11
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF INVESTORS.................................................12
4.1 Organization................................................................................12
4.2 Authority Relative to This Agreement........................................................12
4.3 Noncontravention............................................................................12
4.4 Consents and Approvals......................................................................13
4.5 Purchase for Investment.....................................................................13
4.6 No Other Shares.............................................................................14
4.7 Financial Resources.........................................................................15
4.8 Brokerage Fees..............................................................................15
4.9 Proxy Statement.............................................................................15
4.10 No General Solicitations....................................................................15
4.11 Exchange Act Filings........................................................................15
ARTICLE V. ADDITIONAL AGREEMENTS.......................................................................15
5.1 Reasonable Best Efforts.....................................................................15
5.2 Press Releases..............................................................................16
5.3 Fees and Expenses...........................................................................16
5.4 Survival 16
5.5 Transfer Restrictions.......................................................................16
5.6 Special Meeting of Stockholders.............................................................17
5.7 Cost Savings Plan...........................................................................19
5.8 Engagement of SMH...........................................................................19
5.9 [RESERVED]..................................................................................19
5.10 Lock-up 19
5.11 Consulting Agreement........................................................................19
5.12 Registration of Warrant Shares..............................................................19
5.13 Confidentiality.............................................................................23
5.14 Directors Warrants..........................................................................23
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF THE COMPANY....................................................23
6.1 Representations and Warranties..............................................................23
6.2 Covenants and Agreements....................................................................23
6.3 Legal Proceedings...........................................................................23
6.4 Consents 23
6.5 Stockholder Approval........................................................................23
6.6 Purchase Price..............................................................................23
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ARTICLE VII. CONDITIONS TO OBLIGATIONS OF INVESTORS......................................................24
7.1 Representations and Warranties..............................................................24
7.2 Covenants and Agreements....................................................................24
7.3 Legal Proceedings...........................................................................24
7.4 Consents 24
7.5 Stockholder Approval........................................................................24
7.6 Cost Savings Plan...........................................................................24
7.7 No Material Misstatements...................................................................24
7.8 Closing Deliveries..........................................................................24
ARTICLE VIII. COVENANTS..........................................................................................25
8.1 Affirmative Covenants.......................................................................25
ARTICLE IX. AMENDMENT AND WAIVER........................................................................25
9.1 Amendment...................................................................................25
9.2 Waiver ...................................................................................25
ARTICLE X. MISCELLANEOUS...............................................................................25
10.1 Notices 25
10.2 Entire Agreement............................................................................26
10.3 Binding Effect; Assignment; No Third Party Beneficiaries....................................26
10.4 Severability................................................................................27
10.5 Injunctive Relief...........................................................................27
10.6 Governing Law...............................................................................27
10.7 Jurisdiction................................................................................27
10.8 Counterparts................................................................................27
ARTICLE XI. DEFINITIONS.................................................................................27
11.1 Certain Defined Terms.......................................................................27
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NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is entered
into as of September 8, 2004, among Blue Dolphin Energy Company, a Delaware
corporation (the "Company"), and the investors identified on Schedule I (each,
an "Investor" and collectively, the "Investors").
WHEREAS the Company has authorized the sale and issuance of promissory
notes in the aggregate principal amount of seven hundred fifty thousand dollars
($750,000), in the form attached hereto as Exhibit A (each a "Note" and
collectively the "Notes");
WHEREAS, the Company has authorized the sale and issuance of warrants
in the form attached hereto as Exhibit B (the "Warrants") to acquire an
aggregate of up to two million eight hundred thousand (2,800,000) shares of its
Common Stock, of which (i) Warrants to acquire up to one million two hundred
fifty thousand (1,250,000) shares of Common Stock shall be sold and issued
concurrently with the sale and issuance of the Notes (the "Initial Warrants")
and (ii) Warrants to acquire up to one million five hundred fifty thousand
(1,550,000) shares may be sold and issued thereafter (the "Additional
Warrants").
WHEREAS, the Investors desire to purchase the Notes and the Warrants on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes and the
Warrants to the Investors on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Investors hereby agree as follows:
ARTICLE I.
TERMS OF THE TRANSACTION
1.1 Issuance of Notes and Warrants. Upon the terms and subject to the
conditions contained in this Agreement, the Company has authorized (a) the sale
and issuance to the Investors of the Notes and the Warrants and (b) the issuance
of such shares of Common Stock to be issued upon exercise of the Warrants (the
"Warrant Shares").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
each Closing the Company hereby agrees to issue and sell to the Investors and
each Investor shall purchase from the Company (a) a Note in the aggregate
principal amount and at the purchase price set forth opposite its name in
Schedule I and (b) the number of Initial Warrants and Additional Warrants set
forth opposite its name in Schedule I at a price of $0.003 per Warrant. The
Company and the Investors agree that the purchase price of the Warrants reflects
the fair value of the Warrants.
ARTICLE II.
CLOSING
2.1 Initial Closing. The closing of the sale and purchase of the Notes
and the Initial Warrants under this Agreement (the "Initial Closing") shall
occur simultaneously with the execution and delivery hereof at the offices of
Gardere Wynne Sewell LLP, 1000 Louisiana, Suite 3400, Houston, Texas 77002 (the
"Initial Closing Date").
2.2 Additional Closing. The closing of the sale and purchase of the
Additional Warrants under this Agreement (the "Additional Closing" and together
with the Initial Closing a "Closing") shall take place at the offices of Gardere
Wynne Sewell LLP, 1000 Louisiana, Suite 3400, Houston, Texas 77002 at 10:00
a.m., local time, on the third day after the Special Meeting (as hereinafter
defined), or at such other time or place as the Company and the Investors may
mutually agree (the "Additional Closing Date" and together with the Initial
Closing Date, each a "Closing Date").
2.3 Closing Deliveries. At the Initial Closing, subject to the terms
and conditions hereof, the Company will deliver to each Investor, against
payment of the purchase price therefore by wire transfer made payable to the
Company, a Note and Initial Warrant representing the applicable Initial Warrants
to purchase Warrant Shares as provided in Section 1.2 above. At the Additional
Closing, subject to the terms and conditions hereof, the Company will deliver to
each Investor, against payment of the purchase price therefor by wire transfer
made payable to the Company, an Additional Warrant representing the applicable
Additional Warrants to purchase Warrant Shares as provided in Section 1.2 above.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors, as of the date
hereof, that:
3.1 Corporate Organization. The Company is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own, lease,
and operate its properties and to carry on its business in all material respects
as now being conducted. No actions or proceedings to dissolve the Company are
pending or, to the best knowledge of the Company, threatened. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where such qualification is necessary, except where the
failure to so qualify or to be in good standing would not reasonably be expected
to have a Material Adverse Effect on the Company.
3.2 Capitalization of the Company.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock and 2,500,000 shares of preferred
stock, $0.10 par value, 210,526 of which are designated as Series A Preferred
Stock. As of the date hereof, (i) 6,712,438 shares of Common Stock are
outstanding and no shares of preferred stock are outstanding, and (ii) 487,084
shares of Common Stock are
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reserved for issuance upon exercise of outstanding employee, officer and
director stock options and no shares of Common Stock are reserved for issuance
upon exercise of outstanding warrants or conversion rights. All outstanding
shares of capital stock of the Company have been validly issued and are fully
paid and nonassessable, and no shares of capital stock of the Company are
subject to, nor have any been issued in violation of, preemptive or similar
rights.
(b) Except as set forth above in subparagraph (a) of this Section 3.2,
there are outstanding (i) no shares of capital stock or other voting securities
of the Company; (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or other voting securities of the
Company; (iii) no options or other rights to acquire from the Company, and no
obligation of the Company to issue or sell, any shares of capital stock or other
voting securities of the Company or any securities of the Company convertible
into or exchangeable for such capital stock or voting securities; and (iv) no
equity equivalents, interests in the ownership or earnings, or other similar
rights of or with respect to the Company.
(c) Neither the execution of this Agreement nor the performance of the
Company's obligations hereunder, nor the consummation of any other transaction
currently contemplated by the Company or any of its Subsidiaries, will trigger
or cause any adjustment under any anti-dilution provisions or any other similar
provisions contained in any agreement as currently in effect that have the
effect of (i) causing a decrease in any exercise price or conversion price in
any security exercisable for or convertible into shares of Common Stock (a
"Common Stock Equivalent"), or (ii) causing an increase in the number of shares
of Common Stock that may be acquired upon conversion or exercise of a Common
Stock Equivalent.
3.3 Authority Relative to This Agreement. Subject to the Company
obtaining the Stockholder Approval required by the rules, regulations and
interpretations of the Nasdaq Stock Market, Inc. with respect to the issuance of
the Additional Warrants, the Company has requisite corporate power and authority
to execute, deliver, and perform this Agreement and to execute, deliver, and
where applicable, perform the Ancillary Documents to which it is a party and to
consummate the transactions contemplated hereby and thereby. Subject to the
Company obtaining the Stockholder Approval required by the rules, regulations
and interpretations of the Nasdaq Stock Market, Inc. ("Nasdaq") with respect to
the issuance of the Additional Warrants, the execution, delivery and performance
by the Company of this Agreement and the execution, delivery, and where
applicable, performance by it of the Ancillary Documents to which it is a party,
and the consummation by it of the transactions contemplated hereby and thereby,
have been (or prior to the Closing will have been) duly authorized by all
necessary corporate action of the Company. Notwithstanding the foregoing, the
Company has requisite corporate power and authority to perform the Company's
obligations pursuant to Article V, and such performance has been duly authorized
by all necessary corporate action of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes, and each Ancillary
Document executed or to be executed by the Company has been, or when executed
will be, duly executed and delivered by the Company and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally, and (ii) general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
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3.4 Noncontravention. The execution, delivery, and performance by the
Company of this Agreement and the execution, delivery, and where applicable, the
performance by it of Ancillary Documents to which it is a party and the
consummation by it of the transactions contemplated hereby and thereby do not
and will not (i) conflict with or result in a violation of any provision of the
Company's Certificate of Incorporation, as amended, or the Company's Bylaws, as
amended, or the charter, bylaws or other governing instruments of any
Subsidiary, (ii) conflict with or result in a violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or both)
a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any loss of material benefit, or of any right of
termination, cancellation, or acceleration under, any Material Agreement, (iii)
result in the creation or imposition of any Encumbrance upon the properties of
the Company or any Subsidiary or (iv) assuming compliance with the matters
referred to in Section 3.5, violate any Applicable Law binding upon the Company
or any Subsidiary, except, in the case of clauses (ii), (iii) and (iv) above,
for any such conflicts, violations, defaults, terminations, cancellations,
accelerations, or Encumbrances which would not, or would not reasonably be
likely to, individually or in the aggregate, have a Material Adverse Effect on
the Company.
3.5 Consents and Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by the Company or any Subsidiary in
connection with the execution, delivery, or performance by the Company of this
Agreement and the execution, delivery, and where applicable, performance of
Ancillary Documents to which it is a party or the consummation of the
transactions contemplated hereby and thereby, other than (i) compliance with any
applicable requirements of the Securities Act, (ii) compliance with any
applicable requirements of the Exchange Act, (iii) compliance with any
applicable state securities laws; (iv) compliance with any applicable rules,
regulations, interpretations or other requirements of Nasdaq; (v) compliance
with any applicable requirements of the HSR Act as a result of the exercise of
any of the Warrants, and (vi) with respect to the Additional Warrants, filing of
the Amended and Restated Certificate of Incorporation. Except for stockholder
approval required (1) by Nasdaq related to the Issuance of the Additional
Warrants and (ii) to approve the amendment and restatement of the Certificate of
Incorporation, no consent or approval of any person other than the Company, the
Investors or any Governmental Entity is required to be obtained or made by the
Company or any Subsidiary in connection with the execution, delivery, or
performance by the Company of this Agreement and execution, delivery and, where
applicable, performance of the Ancillary Documents to which it is a party or the
consummation of the transactions contemplated hereby and thereby, other than
such consents, approvals, orders, or authorizations which, if not obtained, and
such declarations, filings, or registrations which, if not made, would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
3.6 Authorization of Issuance; Reservation of Shares. The issuance,
sale and delivery of the Notes and the Warrants in accordance with this
Agreement, and the issuance and delivery of the Warrant Shares upon exercise of
the Warrants, have been duly authorized by all necessary corporate action on the
part of the Company. Subject to the Company obtaining the Stockholder Approval,
the Warrant Shares issuable upon exercise of an Additional Warrant have been
duly and validly reserved and, when issued upon exercise of an Additional
Warrant, will be duly and validly issued, fully paid and nonassessable. The
issuances of the Warrants are not subject to any preemptive or similar rights.
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3.7 Financial Condition. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) fairly presents in all material respects the
consolidated financial position of the Company and its Subsidiaries as of its
date, and each of the consolidated statements of income, cash flows and changes
in shareholders' equity included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presents in
all material respects the results of operations, stockholders' equity, and cash
flow of the Company for the periods set forth therein (subject, in the case of
unaudited statements, to (x) such exceptions as may be permitted by Form 10-QSB
and Regulation S-B of the SEC and (y) normal year end audit adjustments), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein. Except as and to the extent set forth on the most recent consolidated
balance sheet of the Company and its Subsidiaries included in the Company
Reports, including all notes thereto, as of the date of such balance sheet,
neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on, or reserved against in, a balance
sheet of the Company or in the notes thereto prepared in accordance with
generally accepted accounting principles consistently applied, other than
liabilities or obligations which do not and are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Since June 30, 2004, there has been no change or event having or reasonably
likely to have a Material Adverse Effect on the Company, except as set forth in
the Disclosure Letter delivered by the Company to the Investors
contemporaneously with the execution and delivery of this Agreement (the
"Disclosure Letter").
3.8 Litigation. Except as disclosed in the Company's annual report on
Form 10-KSB for the fiscal year ended December 31, 2003, or quarterly reports on
Form 10-QSB for the quarters ended March 31, 2004 and June 30, 2004, filed with
the SEC (collectively, the "Company Reports") or as set forth in the Disclosure
Letter, as of the date hereof there is no Proceeding or other action of any
nature pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary which may reasonably have a Material
Adverse Effect on the Company.
3.9 ERISA.
(a) The Company and each ERISA Affiliate have complied in all material
respects with ERISA and, where applicable, the Code regarding each Plan. Each
Plan is, and has been, maintained in substantial compliance with ERISA and,
where applicable, the Code.
(b) No act, omission or transaction has occurred which could result in
imposition on the Company or any ERISA Affiliate (whether directly or
indirectly) of an amount of $10,000 or more as (i) either a civil penalty
assessed pursuant to section 502(c), (i) or (1) of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary
duty liability damages under section 409 of ERISA.
(c) No Plan that is subject to Title IV of ERISA or any trust created
under any such Plan has been terminated since September 2, 1974. No liability to
the Pension Benefit Guaranty Corporation in excess of $10,000 (other than for
the payment of current premiums which are not
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past due) by the Company or any ERISA Affiliate has been or is expected by the
Company or any ERISA Affiliate to be incurred with respect to any Plan.
(d) Full payment when due has been made of all amounts which the
Company or any ERISA Affiliate is required under the terms of each Plan or
applicable law to have paid as contributions to such Plan, and no accumulated
funding deficiency in an amount of $10,000 or more (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan.
(e) The actuarial present value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of the
Company's most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities by $10,000 or more.
The term "actuarial present value of the benefit liabilities" shall have the
meaning specified in section 4041 of ERISA.
(f) None of the Company or any ERISA Affiliate sponsors, maintains, or
contributes to an employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by the
Company or any ERISA Affiliate in its sole discretion at any time without any
material liability (other than run off liability in the ordinary course of
payment of benefits or as mandated by Applicable Law).
(g) None of the Company or any ERISA Affiliate sponsors, maintains or
contributes to, or has at any time in the preceding six calendar years,
sponsored, maintained or contributed to, any Multiemployer Plan.
(h) None of the Company or any ERISA Affiliate is required to provide
security under section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the Plan.
(i) The Disclosure Letter lists all Plans that the Company or any ERISA
Affiliate has had at any time in the prior six (6) years.
3.10 Taxes. Except as described in the Disclosure Letter, the Company
has filed all United States Federal income tax returns and all other tax returns
which are required to be filed by it and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company, except for any
taxes which are being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained. The charges, accruals and
reserves in respect of taxes and other governmental charges set forth on the
face of the most recent balance sheet included in the most recent Company Report
are, in the opinion of the Company, adequate. No tax lien has been filed and, to
the knowledge of the Company, no claim is being asserted with respect to any
such tax, fee or other charge, except for any taxes, fees or other charges which
are being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained.
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3.11 Titles, etc.
(a) Except as set forth in the Company Reports or in the Disclosure
Letter, each of the Company and the Subsidiaries has good and defensible title,
or valid leasehold interests to its assets and Properties, including, without
limitation, the Oil and Gas Properties, free and clear of all Liens, other than
Excepted Liens, except for minor defects and irregularities in title that are
not substantial in character, amount, or extent. Except for immaterial
divergences, after giving full effect to the Excepted Liens, the Company owns,
in all material respects, the net interests in production attributable to the
Hydrocarbon Interests, and the ownership of such Hydrocarbon Interests shall not
in any material respect obligate the Company to bear the costs and expenses
relating to the maintenance, development and operations of each such Hydrocarbon
Interest in an amount in excess of the working interest of such Hydrocarbon
Interest (without a corresponding increase in net revenue interest).
(b) All leases, licenses, permits, authorizations and agreements
necessary for the conduct of the business of the Company and the Subsidiaries
are valid and subsisting, in full force and effect and there exists no default
or event or circumstance which with the giving of notice or the passage of time
or both would give rise to a default under any such leases, licenses, permits,
authorizations and agreements, which would have a Material Adverse Effect on the
conduct of the business of the Company or its Subsidiaries.
(c) The Properties, including, without limitation, the Oil and Gas
Properties, presently owned, leased or licensed by the Company and the
Subsidiaries, including, without limitation, all easements, licenses, permits,
authorizations and rights of way, include all Properties necessary to permit the
Company and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the Closing Date.
(d) Except as described in the Disclosure Letter, all of the Properties
of the Company and the Subsidiaries which are reasonably necessary for the
operation of their business are in good working condition in all material
respects and are maintained in accordance with prudent business standards.
3.12 No Material Misstatements. Taken as a whole, the written
information, statements, exhibits, certificates, documents and reports furnished
to the Investors by the Company or any Subsidiary in connection with the
negotiation of this Agreement do not contain any material misstatement of fact
or omit to state a material fact or any fact necessary to make the statements
contained therein not materially misleading in the light of the circumstances in
which made and with respect to the Company or any Subsidiary. The Company does
not represent or warrant that any occurrences, developments or facts, including,
without limitation, projections and forecasts, will in fact occur or eventuate
after such date, but the Company represents and warrants that such occurrences,
developments or facts, including, without limitation, such projections and
forecasts, were prepared by the Company in good faith based on its best
knowledge, information and belief. There is no fact peculiar to the Company or
Subsidiary which has a Material Adverse Effect relative to the Company or in the
future may reasonably have a Material Adverse Effect and which has not been
disclosed in this Agreement or the other documents, certificates and statements
furnished to the Investors by or on behalf of
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the Company or any Subsidiary prior to, or on, each Closing Date in connection
with the transactions contemplated hereby.
3.13 Investment Company Act. Neither the Company nor any Subsidiary is
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
3.14 Public Utility Holding Company Act. The Company and its affiliates
and Subsidiaries are not, and after giving effect to the performance of the
terms of this Agreement will not be, subject to regulation (i) as a "holding
company," a "subsidiary company" of a "holding company," an "affiliate" of a
"holding company," an "affiliate" of a "subsidiary company" of a "holding
company," or an "associate company" of a "holding company," in each case as such
terms are defined in PUHCA or (ii) under any state law or regulation with
respect to rates or the financial or organizational regulation of a
"public-utility company," as defined in PUHCA. Neither the Company, nor any
"subsidiary company" (as defined in PUHCA) of the Company, directly or
indirectly owns, controls or holds with power to vote, five percent (5%) or more
of the outstanding voting securities of (A) any "holding company," (B) any "gas
utility company," or (C) any "electric utility company" (as such terms are
defined in PUHCA).
3.15 Subsidiaries. Except as set forth in the Company Reports or the
Disclosure Letter, the Company has no Subsidiaries. Each Subsidiary is a
corporation or limited liability company, duly incorporated or organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, as applicable, and has all requisite corporate or
other power and authority in all material respects to own, lease, and operate
its properties and to carry on its business as now being conducted. Each
Subsidiary is duly qualified to do business as a foreign corporation or limited
liability company, as applicable, and is in good standing in each jurisdiction
where such qualification is necessary, except where the failure to so qualify or
to be in good standing would not reasonably be expected to have a Material
Adverse Effect on the Company or such Subsidiary. Except as set forth in the
Disclosure Letter, there are outstanding (i) no securities of any Subsidiary
convertible into or exchangeable for shares of capital stock or other voting
securities of any Subsidiary and (ii) no options or other rights to acquire from
any Subsidiary, and no obligation of any Subsidiary to issue or sell, any shares
of capital stock or other voting securities of any Subsidiary or any securities
of any Subsidiary convertible into or exchangeable for such capital stock or
voting securities.
3.16 Defaults. Neither the Company nor any Subsidiary is in default nor
has any event or circumstance occurred which, but for the expiration of any
applicable grace period or the giving of notice, or both, would constitute a
default under any Material Agreement to which the Company is a party or by which
the Company is bound.
3.17 Environmental Matters.
(a) No Property owned, leased or operated by the Company or any of its
Subsidiaries, including, without limitation, any Oil and Gas Property of the
Company or any of its Subsidiaries, and no operations conducted thereon violate
any applicable order or requirement of any court or Governmental Entity or any
Environmental Laws;
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(b) Without limitation of clause (a) above, no Property owned, leased
or operated by the Company or any of its Subsidiaries, including, without
limitation, any Oil and Gas Property of the Company or any of its Subsidiaries,
nor the operations currently conducted thereon or, to the best knowledge of the
Company, by any prior owner or operator of such Property or operation, are in
violation of or subject to any existing, pending or threatened Proceeding by or
before any court or Governmental Entity or the subject of any remedial
obligations under applicable Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed by the Company or any of its Subsidiaries in
connection with the operation or use of any and all Property of the Company and
each of its Subsidiaries, including without limitation present, or to the best
of Company's knowledge, past treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly obtained
or filed, and the Company and each Subsidiary are in substantial compliance with
the terms and conditions of all such applicable notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas exploration
and production wastes, if any, generated at any and all Properties, including,
without limitation, Oil and Gas Properties, owned, leased or operated by the
Company and each of its Subsidiaries have in the past, during the tenure of
ownership of the Company and its Subsidiaries and, to the best of the Company's
knowledge, prior thereto, been transported, treated and disposed of in
accordance with applicable Environmental Laws and so as not to pose an imminent
and substantial endangerment to public health or welfare or the environment,
and, to the best knowledge of the Company, all such transport carriers and
treatment and disposal facilities have been and are operating in compliance with
applicable Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not the
subject of any existing, pending or threatened action, investigation or inquiry
by any Governmental Entity in connection with any applicable Environmental Laws;
(e) The Company has taken all steps reasonably necessary to determine
and has determined that no hazardous substances, solid waste, or oil and gas
exploration and production wastes, have been disposed of or otherwise released,
and there has been no threatened release of any hazardous substances, on or to
any Properties, including, without limitation, Oil and Gas Properties, owned,
leased or operated by the Company or any of its Subsidiaries, except in
compliance with applicable Environmental Laws and so as not to pose an imminent
and substantial endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Oil and Gas Property of the Company
and each of its Subsidiaries currently satisfies all design, operation, and
equipment requirements imposed by the OPA; and
(g) Neither the Company nor any of its Subsidiaries has any known
contingent liability in connection with any release or threatened release of any
oil, hazardous substance or solid waste into the environment.
9
(h) Notwithstanding anything in this Section 3.17 to the contrary, the
representations and warranties in this Section 3.17 regarding the Oil and Gas
Properties of the Company and the Subsidiaries shall be limited to the knowledge
of the Company and its Subsidiaries.
3.18 Compliance with the Law. Neither the Company nor any Subsidiary
has violated any Governmental Requirement or failed to obtain any license,
permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties, including, without limitation, its Oil and
Gas Properties, or the conduct of its business, which violation or failure would
have (in the event such violation or failure were asserted by any Person through
appropriate action) a Material Adverse Effect. Except for such acts or failures
to act as would not have a Material Adverse Effect, the Properties, including,
without limitation, the Oil and Gas Properties (and properties unitized
therewith), have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having jurisdiction
and in conformity with the provisions of agreements and other instruments
comprising a part of the Properties, including, without limitation, all leases,
subleases or other contracts comprising a part of the Hydrocarbon Interests and
other contracts and agreements forming a part of the Oil and Gas Properties;
specifically in this connection, but subject to the Material Adverse Effect
qualification set forth above, (i) after the date hereof, no Oil and Gas
Property is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to
the date hereof, and (ii) none of the wells comprising a part of the Oil and Gas
Properties (or properties unitized therewith) are deviated from the vertical
more than the maximum permitted by applicable laws, regulations, rules and
orders, and such wells are, in fact, bottomed under and are producing from, and
the well bores are wholly within, the Oil and Gas Properties (or in the case of
wells located on properties unitized therewith, such unitized properties). This
Section 3.18 does not apply to compliance with ERISA or applicable Environmental
Laws, which are instead subject to Section 3.9 and Section 3.17, respectively.
3.19 Insurance. The Disclosure Letter contains an accurate and complete
description of all material policies of fire, liability, workmen's compensation
and other forms of insurance owned or held by the Company and each Subsidiary as
of the date hereof. Except as set forth in the Disclosure Letter, all such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date hereof and the Additional
Closing Date have been, or will be, paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and of all agreements to
which the Company or any Subsidiary is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business for the assets and operations of the
Company and each Subsidiary; will remain in full force and effect through the
respective dates set forth in the Disclosure Letter with the payment of
additional premiums; and, except as set forth in the Disclosure Letter, will not
in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. There are no material risks that the Company,
the Subsidiaries or their respective Board of Directors or officers have
designated as being self-insured. Neither the Company nor any Subsidiary has
been refused any insurance with respect to its assets or operations, nor has its
10
coverage been limited below usual and customary policy limits, by an insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last three years. Without limiting the foregoing,
the Company has in effect directors and officers insurance coverage in an annual
aggregate amount of not less than $5 million.
3.20 Hedging Agreements. As of the date hereof, there are no Hedging
Agreements (including commodity price swap agreements, forward agreements or
contracts of sale which provide for prepayment for deferred shipment or delivery
of oil, gas or other commodities) of the Company or any Subsidiary.
3.21 Material Agreements. Set forth on the Disclosure Letter hereto is
a complete and correct list of all Material Agreements, purchase agreements,
obligations in respect of letters of credit, guarantees, joint venture
agreements, and other instruments in effect or to be in effect as of the date
hereof (other than Hedging Agreements) providing for, evidencing, securing or
otherwise relating to any material Debt of the Company or any Subsidiary, and
all obligations of the Company or any Subsidiary to issuers of surety or appeal
bonds (excluding operator's bonds, plugging and abandonment bonds, and similar
surety obligations obtained in the ordinary course of business) issued for
account of the Company or any such Subsidiary.
3.22 Gas Imbalances. As of the date hereof, on a net basis there are no
gas imbalances, take or pay or other prepayments with respect to the Company's
or any Subsidiary's Hydrocarbon Interests which would require the Company or
such Subsidiary to deliver five percent (5%) or more of the monthly production
from the Company's and its Subsidiaries' Hydrocarbons produced on a monthly
basis from the Hydrocarbon Interests, at some future time without then or
thereafter receiving full payment therefor.
3.23 Brokerage Fees. The Company has not retained any financial
advisor, broker, agent, or finder or paid or agreed to pay any financial
advisor, broker, agent, or finder on account of the sale by the Company and the
purchase by the Investors of the Notes and the Warrants pursuant to this
Agreement, except for Sanders Morris Harris, Inc. ("SMH").
3.24 SEC Filings. During the preceding three (3) years, the Company has
complied in all material respects with its obligations to file with the SEC all
forms, reports, schedules, statements and other documents required to be filed
by it under the Securities Act and the Exchange Act. All forms, reports,
schedules, statements, and other documents (including all amendments thereto)
filed by the Company with the SEC since such date are herein collectively
referred to as the "SEC Filings." The SEC Filings, at the time filed, complied
in all material respects with all applicable requirements of federal securities
laws. None of the SEC Filings, including, without limitation, any financial
statements or schedules included therein, at the time filed or as same may have
been amended, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
3.25 NASDAQ Listing. The Common Stock is listed on the Nasdaq Smallcap
Market and the Company has taken no action designed to, or likely to have the
effect of, de-listing the Common Stock from the Nasdaq Smallcap Market. Except
as set forth in the Disclosure Letter,
11
the Company has not been contacted regarding any listing qualification issues
within the twelve (12) month period preceding the date of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Each Investor, severally but not jointly, represents and warrants to
the Company that:
4.1 Organization. If such Investor is a corporation or limited
partnership, such Investor (i) is duly organized, validly existing and in good
standing under the laws of the state of its formation, (ii) has all requisite
corporate or partnership power and authority in all material respects to own,
lease, and operate its properties and to carry on its business as now being
conducted, and (iii) no actions or proceedings to dissolve such Investor are
pending or, to the best knowledge of such Investor, threatened.
4.2 Authority Relative to This Agreement. Such Investor has all
requisite power, authority and capacity to execute, deliver, and perform this
Agreement and execute, deliver and, where applicable, perform the Ancillary
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery, and performance by such Investor of
this Agreement and execution, delivery, and, where applicable, performance of
the Ancillary Documents to which it is a party, and the consummation by it of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary action on the part of such Investor. This Agreement has been duly
executed and delivered by such Investor and constitutes, and each Ancillary
Document executed or to be executed by such Investor has been, or when executed
will be, duly executed and delivered by such Investor and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of such Investor, enforceable against such Investor in accordance with its
terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally, and (ii) general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
4.3 Noncontravention. The execution, delivery, and performance by such
Investor of this Agreement and the execution, delivery and, where applicable,
performance of Ancillary Documents to which it is a party and the consummation
by it of the transactions contemplated hereby and thereby do not and will not
(i) if such Investor is an entity, conflict with or result in a violation of any
provision of its Certificate of Incorporation or Bylaws, or its Certificate of
Limited Partnership or partnership agreement, as applicable, (ii) conflict with
or result in a violation of any provision of, or constitute (with or without the
giving of notice or the passage of time or both) a default under, or give rise
(with or without the giving of notice or the passage of time or both) to any
right of termination, cancellation, or acceleration under, any bond, debenture,
note, mortgage, indenture, lease, agreement or other instrument or obligation to
which such Investor is a party or by which such Investor or any of its
properties may be bound, (iii) result in the creation or imposition of any
Encumbrance upon the properties of such Investor, or (iv) violate any Applicable
Law binding upon such Investor, except, in the case of clauses (ii), (iii) and
(iv) above, for any such conflicts, violations, defaults, terminations,
cancellations, accelerations, or Encumbrances which would not, individually or
in the aggregate, have a Material Adverse Effect on such Investor.
12
4.4 Consents and Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by such Investor in connection with
the execution, delivery, or performance by such Investor of this Agreement. No
consent or approval of any person other than any Governmental Entity is required
to be obtained or made by such Investor in connection with the execution,
delivery or performance by such Investor of this Agreement and the execution,
delivery and, where applicable, performance of the Ancillary Documents to which
it is a party.
4.5 Purchase for Investment. Such Investor understands that none of the
Notes, the Warrants or the Warrant Shares have been registered under the
Securities Act. Such Investor also understands that the Notes, the Warrants and
the Warrant Shares are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon such Investors'
representations contained in this Agreement. Such Investor hereby represents and
warrants as follows:
(a) Investor Bears Economic Risk. Such Investor has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Without limiting the generality of the
foregoing, such Investor further represents that it has such knowledge regarding
the pipeline and the oil and gas industries and the business of the Company and
the current circumstances surrounding such industries and business that it is
capable of evaluating the merits and risks of the acquisition of the Notes, the
Warrants and the Warrant Shares. Such Investor must bear the economic risk of
this investment indefinitely unless the Notes, the Warrants or the Warrant
Shares are registered pursuant to the Securities Act, or an exemption from
registration is available. Such Investor understands that, except as provided in
Section 5.12, the Company has no present intention of registering the Warrants
or the Warrant Shares. Such Investor also understands that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow such Investor to
transfer all or any portion of the Notes, the Warrants or the Warrant Shares
under the circumstances, in the amounts or at the times such Investor might
propose.
(b) Acquisition for Own Account. Such Investor is acquiring the Notes,
the Warrants and the Warrant Shares for such Investor's own account for
investment only, and not with a view towards their distribution.
(c) Investor Can Protect Its Interest. Such Investor represents that by
reason of its, or of its management's, business or financial experience, such
Investor has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement and the Ancillary Documents.
Further, such Investor is not aware of any publication of any advertisement in
connection with the transactions contemplated in this Agreement.
(d) Accredited Investor. Such Investor represents that (i) it is an
accredited investor within the meaning of Regulation D under the Securities Act
and, (ii) if such Investor is an entity all of its equity owners are accredited
investors.
13
(e) Company Information. Such Investor has had access to the Company's
SEC Filings and has had an opportunity to discuss the Company's business,
management and financial affairs with directors, officers and management of the
Company and has had the opportunity to review the Company's operations and
facilities. Such Investor has also had the opportunity to ask questions of, and
receive answers from, the Company and its management regarding the terms and
conditions of this investment. Such Investor hereby acknowledges and affirms
that it has completed its own independent investigation, analysis, and
evaluation of the Company and its subsidiaries, that it has made all such
reviews and inspections of the business, assets, results of operations,
condition (financial or otherwise), and prospects of the Company and its
subsidiaries as it has deemed necessary or appropriate, and that in making its
decision to enter into this Agreement and to consummate the transactions
contemplated hereby it has relied solely on its own independent investigation,
analysis, and evaluation of the Company and its subsidiaries, or that of its own
independent advisers in evaluating its investment in the Notes, the Warrants and
the Warrant Shares.
(f) Rule 144. Such Investor acknowledges and agrees that the Warrants,
and, if issued, the Warrant Shares, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Investor has been advised or is aware of the
provisions of Rule 144, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public information about
the Company, the resale occurring following the required holding period under
Rule 144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(g) Transfer Restrictions. Such Investor acknowledges and agrees that
the Warrants and the Warrant Shares are subject to restrictions on transfer as
set forth in Section 5.5, and further understands that the Notes, the Warrants
and the Warrant Shares will not have been registered pursuant to the Securities
Act or any applicable state securities laws, that the Notes, the Warrants and
the Warrant Shares will be characterized as "restricted securities" under
federal securities laws, and that under such laws and applicable regulations the
Notes, the Warrants and the Warrant Shares cannot be sold or otherwise disposed
of without registration under the Securities Act or an exemption therefrom. In
this connection, such Investor represents that it is familiar with Rule 144
promulgated under the Securities Act, as currently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. Appropriate
stop transfer instructions may be issued to the transfer agent for securities of
the Company (or a notation may be made in the appropriate records of the
Company) in connection with the Warrants or the Warrant Shares.
(h) Confirmation. The acquisition of the Notes, the Warrants by an
Investor at the Closing shall constitute such Investor's confirmation of the
foregoing representations.
4.6 No Other Shares. Except for such rights as may be conferred on an
Investor by this Agreement and the Ancillary Documents and certain Common Stock
and options to acquire Common Stock owned by Michael S. Chadwick, the Investors
do not beneficially own, directly or indirectly, any shares of capital stock or
other securities of the Company or any of its Subsidiaries.
14
4.7 Financial Resources. Such Investor has the financial resources
available to it as are necessary to perform its obligations to acquire the Notes
and the Warrants pursuant to the terms of this Agreement.
4.8 Brokerage Fees. Such Investor has not retained any financial
advisor, broker, agent, or finder or paid or agreed to pay any financial
advisor, broker, agent, or finder on account of the sale by the Company and the
purchase by the Investors of the Warrants pursuant to this Agreement.
4.9 Proxy Statement. None of the information supplied or to be supplied
by such Investor for inclusion or incorporation by reference in the proxy
statement relating to the Company's special stockholders meeting convened for
the purpose of obtaining the Stockholder Approval (the "Special Meeting") will,
at the date the proxy statement is mailed to the Company's stockholders and at
the time of the Special Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If prior to the Special Meeting any of such
information supplied by such Investor is no longer accurate, such Investor shall
promptly notify the Company of such inaccuracy and shall provide such additional
information as reasonably requested by the Company to correct such inaccuracy.
4.10 No General Solicitations. Neither the Investor, nor any of its
officers, directors, employees, agents, stockholders or partners, if applicable,
has either directly or indirectly, including through a broker or a finder (a)
engaged in any general solicitations, or (b) published any advertisement in
connection with the offer and sale of the Warrants.
4.11 Exchange Act Filings. The Investors agree to comply with their
obligations under the Exchange Act. None of the information included in any such
filing will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If any event shall occur which is required to be described in any
such filing, such event shall so be described, and an amendment shall be filed
promptly with the SEC.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 Reasonable Best Efforts. Each party hereto agrees that it will use
its reasonable best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things reasonably necessary, proper, or advisable under
Applicable Laws to consummate the transactions contemplated by this Agreement,
including, without limitation, (i) cooperation in determining whether any
consents, approvals, orders, authorizations, waivers, declarations, filings, or
registrations of or with any Governmental Entity or third party are required in
connection with the consummation of the transactions contemplated hereby; (ii)
reasonable best efforts to obtain any such consents, approvals, orders,
authorizations, and waivers and to effect any such declarations, filings, and
registrations; (iii) reasonable best efforts to cause to be lifted or rescinded
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby; (iv)
reasonable best efforts to
15
defend, and cooperation in defending, all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby; and (v) the execution of any additional instruments necessary to
consummate the transactions contemplated hereby.
5.2 Press Releases. Except as may be required by Applicable Law or by
the rules of Nasdaq, any national securities exchange or registered securities
association, none of the Investors or the Company shall issue any press release
with respect to this Agreement or the transactions contemplated hereby without
the prior consent of the other parties (which consent shall not be unreasonably
withheld under the circumstances). Any such press release required by Applicable
Law or by the rules of Nasdaq, any national securities exchange or registered
securities association shall only be made after reasonable notice to the other
parties.
5.3 Fees and Expenses. Except as otherwise expressly provided in this
Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fee or expense. Notwithstanding the foregoing, an amount equal to all
reasonable out-of-pocket expenses incurred by the Investors, including
attorneys' fees, shall be paid by the Company to the Investors on the Initial
Closing Date.
5.4 Survival. The representations and warranties made herein shall
survive the Closing, regardless of any investigation made by or on behalf of any
party, until the second anniversary of the Additional Closing Date; provided,
however, the representations and warranties contained in Section 3.17 shall
survive until the sixth anniversary of the Initial Closing Date and the
representations and warranties contained in Sections 3.9 and 3.10 shall survive
until the expiration of the applicable statute of limitations relating to the
subject matters of such representations and warranties (the "Survival Date").
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company herein for purposes of this
Section 5.4. No action may be brought with respect to a breach of any
representation or warranty after the Survival Date unless, prior to such time,
the party seeking to bring such an action has notified the other parties of such
claim, specifying in reasonable detail the nature of the loss suffered.
5.5 Transfer Restrictions.
(a) Notwithstanding any provision contained in this Agreement to the
contrary, each Investor agrees that it will not, directly or indirectly, sell,
assign, transfer, pledge, encumber, or otherwise dispose of any of the Warrants
or the Warrant Shares except:
(i) In compliance with Rule 144; provided, however, that the
Investor shall provide the Company with copies of all filings made with
the Securities and Exchange Commission with respect to sales of
securities under Rule 144 and with such other information and documents
as the Company shall reasonably require in order to assure full
compliance with Rule 144; or
(ii) Pursuant to a no-action letter or other interpretive
statement reasonably acceptable to the Company and its counsel or
release of the SEC to the effect that the
16
proposed sale or other disposition may be effected without registration
under the Securities Act satisfactory to the Company and its counsel;
or
(iii) Pursuant to an applicable exemption (other than Rule
144) under the Securities Act; provided, however, that the Investor
shall have furnished the Company with an opinion of counsel, which
opinion and counsel must be reasonably acceptable to the Company, to
the effect that such disposition does not require registration of such
securities under the Securities Act, provided further, however, that no
opinion of counsel shall be required in the case of a transfer to
Affiliates (as hereinafter defined) of an Investor if such affiliates
shall have furnished the Company with the representations contained in
Section 4.5 of this Agreement and shall have agreed with the Company to
be subject to the terms of this Agreement to the same extent as if an
original holder of securities pursuant hereto. For purposes of this
Section 5.5(a)(iii), "affiliates" shall mean one or more of (A) equity
owners of the Investor, provided that the disposition is in accordance
with the percentage ownership interests of the equity owners in the
Investor, (B) Affiliates as defined in Section 12.1, or (C) any other
Investor; or pursuant to an effective registration statement filed
under the Securities Act; or
(iv) Pursuant to an effective registration statement filed
under the Securities Act.
(b) It is agreed and understood by each Investor that the certificates
or instruments representing the Warrants and the Warrant Shares shall each be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. SUCH SECURITIES ARE SUBJECT TO THE
RESTRICTIONS AND PRIVILEGES SPECIFIED IN A NOTE AND WARRANT PURCHASE AGREEMENT,
DATED AS OF _______, 2004, BETWEEN BLUE DOLPHIN ENERGY COMPANY AND THE INITIAL
HOLDERS OF SECURITIES NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF BLUE DOLPHIN ENERGY COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO
THE HOLDER HEREOF UPON WRITTEN REQUEST, AND THE HOLDER OF THIS CERTIFICATE
AGREES TO BE BOUND THEREBY."
5.6 Special Meeting of Stockholders.
(a) The Company shall take all action necessary in accordance with
applicable law and the Company's Certificate of Incorporation, as amended, and
Bylaws, as amended, to duly call, give notice of, convene, and hold the Special
Meeting as soon as practicable after the date of this Agreement, but in any
event within twenty business (20) days after the Proxy Statement (as hereinafter
defined) is mailed to its stockholders, to consider and vote upon (i) the
issuance of Additional Warrants to purchase up to 1,550,000 shares of Common
Stock in consideration for the agreement by each Investor to extend the maturity
date of its Note to a date that is not later
17
than the first anniversary of this Agreement, (ii) election of the directors of
the Company, including those appointed pursuant to Section 5.6(e), (iii) the
amendment and restatement of the Certificate of Incorporation of the Company to,
among other things, increased the Company's authorized capital from 10,000,000
shares of Common Stock to 25,000,000, and (iv) the grant of Warrants to acquire
100,000 shares of Common Stock to each of the Investor Nominees (as hereinafter
defined) and Michael S. Chadwick, and (v) any other matters required to be voted
upon by the SEC or Nasdaq (the "Stockholder Approval").
(b) The Company shall promptly prepare and file a preliminary proxy
statement (the "Proxy Statement") under the Exchange Act with the SEC as soon as
practicable, but in any event with twenty (20) days of this Agreement, with
respect to the meeting of the stockholders of the Company in connection with the
transactions contemplated by this Agreement. The Company will cause the Proxy
Statement to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder. The
Company shall use commercially reasonable best efforts so as to have the Proxy
Statement cleared by the SEC for mailing to its stockholders as promptly as
practicable. The Company shall use commercially reasonable best efforts to
obtain, prior to the Closing Date, all necessary state securities law or "Blue
Sky" permits or approvals required to carry out the transactions contemplated by
this Agreement. The Company will advise the Investor, promptly after it receives
notice thereof, requests by the SEC for additional information or comments on
the Proxy Statement.
(c) The Company and the Investor shall ensure that the information
provided by it for inclusion or incorporation by reference in the Proxy
Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the meeting of stockholders of the Company (i) will
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,
in light of the circumstances under which they were made, not misleading and
(ii) will comply as to form in all material respects with the provisions of the
Exchange Act.
(d) The Company shall not mail or otherwise distribute the proxy
statement or information statement (or any related proxy materials or amendments
or supplements thereto, if any) relating to such special meeting to its
stockholders without consultation with the Investors and their counsel, and such
proxy statement or information statement and such other items shall be in such
form as the Investors and their counsel shall approve (such approval not to be
unreasonably withheld). The Company shall use commercially reasonable best
efforts to mail the Proxy Statement to its stockholders within three (3)
business days after the Proxy Statement is cleared by the SEC.
(e) The Company covenants (i) to set the number of directors
constituting the Board of Directors of the Company (the "Board") at six (6)
directors (ii) to appoint on the Initial Closing Date F. Gardner Parker and
Laurence N. Benz (the "Investor Nominees"), to serve as members of the Board,
(iii) nominate the Investor Nominees for election at the Special Meeting to
serve, if elected, as members of the Board until the next election of directors,
or until such directors' earlier death, resignation or removal and (iv) to
nominate the Investor Nominees for election at any meeting of Stockholders that
occurs, within eighteen (18) months of the date hereof, where the election of
directors will be voted upon.
18
5.7 Cost Savings Plan. The Company shall implement the Cost Savings
Plan as described in Schedule I to the Disclosure Letter (the "Cost Savings
Plan").
5.8 Engagement of SMH. The Company agrees to (i) pay SMH a fee of
twenty-five thousand dollars ($25,000) on the Initial Closing Date with respect
to the transactions contemplated by this Agreement and (ii) retain SMH as its
financial advisor to provide, among other services, a fairness opinion in
connection with the Company's next merger, acquisition or similar transaction
upon terms mutually acceptable to the Company and SMH.
5.9 [RESERVED].
5.10 Lock-up. Each Investor agrees that, during the nine (9) month
period following the Additional Closing Date, the Investors shall not sell,
transfer or assign any of the Warrants or the Warrant Shares without the prior
written consent of the Company.
5.11 Consulting Agreement. The Company shall enter into a Consulting
Agreement with F. Gardner Parker ("FGP"), under which FGP shall provide
consulting services to the Company during the period from the date of this
Agreement through the consummation of a merger by the Company at (i) a rate
payable by the Company to FGP of $2,000 per month and (ii) a bonus which shall
accrue at a rate of $3,000 per month and be payable upon consummation of an
acquisition or a merger by the Company of a sufficient magnitude to have a
material effect on the financial condition of the Company, as determined by the
audit committee of the Board, in its sole discretion.
5.12 Registration of Warrant Shares.
(a) The Company shall prepare and file with the SEC a registration
statement on Form S-3, or any similar short-form registration under the
Securities Act (the "Form S-3"), to register for resale from time to time, the
Common Stock representing the Warrant Shares and the Director Warrants (the
"Registrable Securities") promptly, but in no event more than 60 days following
the Company's first Form 10-KSB filing after the Closing Date, and use its best
efforts to cause the Form S-3 to become effective and remain effective for the
period described in Section 5.12(c)(ii). As used herein, "register,"
"registered" and "registration" refer to a registration effected by preparing
and filing the Form S-3, a registration statement or similar document (a
"Registration Statement") in compliance with the Securities Act, and the
declaration or order of effectiveness of such Registration Statement.
If the Company at any time proposes to file on its behalf
and/or on behalf of any of its security holders other than the
Investors ("Demanding Security Holders") a Registration Statement under
the Securities Act on any form (other than a Registration Statement
filed on Form S-4, Form S-8 or any similar or successor form or any
other Registration Statement relating to an offering of securities
solely to the Company's existing security holders or employees) to
register the offer and sale of its Common Stock for cash, it will give
written notice to the Investors at least twenty (20) days before the
anticipated date of initial filing with the SEC of such Registration
Statement, which notice shall set forth the Company's intention to
effect such a registration, the class or series and number of equity
securities proposed to be registered and the intended method
19
of disposition of the securities proposed to be registered by the
Company. The notice shall offer to include in such filing all of the
Registrable Securities.
(i) If any Investor desires to have Registrable Securities
registered under this Section 5.12(b), it shall advise the Company in
writing within fifteen (15) days after the date of receipt of such
offer from the Company, setting forth the amount of such Registrable
Securities for which registration is requested. The Company shall
thereupon include in such filing the number of Registrable Securities
for which registration is so requested, subject to the next sentence,
and shall use commercially reasonable efforts to effect registration
under the Securities Act of such Registrable Securities. If the
managing underwriter of a proposed public offering shall advise the
Company in writing that, in its opinion, the distribution of the
Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company or any
Demanding Security Holder would materially and adversely affect the
distribution of such securities by the Company or such Demanding
Security Holders, then all selling security holders (but not the
Company or the Demanding Security Holders) shall reduce the amount of
Registrable Securities of each intended to be distributed through such
offering on a pro rata basis to the greatest aggregate amount that, in
the opinion of such managing underwriter, would not materially and
adversely affect the distribution of such securities.
(ii) Nothing in this Section 5.12(b) shall preclude the
Company from discontinuing the registration of its securities being
affected on its behalf under this Section 5.12(b) at any time prior to
the effective date of the registration relating thereto.
(b) In connection with the Company's registration obligations pursuant
to this Section 5.12, the Company shall keep each Registration Statement
continuously effective to permit the sale of Registrable Securities covered by
such Registration Statement in accordance with the intended method or methods of
distribution thereof specified in such Registration Statement or in the related
prospectus(es), and shall:
(i) prepare and file with the SEC a Registration Statement
with respect to such securities and use commercially reasonable efforts
to cause such Registration Statement to become and remain effective for
the period described in paragraph (f) below;
(ii) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all securities
covered by such Registration Statement until such time as all of such
securities have been disposed of in a public offering;
(iii) furnish to such selling security holders such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as
20
such selling security holders may reasonably request to facilitate the
disposition of all Registrable Securities covered by the Registration
Statement;
(iv) use commercially reasonable efforts to register or
qualify the securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions within the
United States as each holder of such securities shall reasonably
request (provided, however, the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified to file any general
consent to service or process), and do such other reasonable acts and
things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such
Registration Statement;
(v) use commercially reasonable efforts to cause all
Registrable Securities covered by each Registration Statement to be
listed on the Nasdaq SmallCap Market, or, if the Common Stock of the
Company is not listed thereon, on any national securities exchange, or
inter-dealer quotations system (including Nasdaq) if any, on which the
Common Stock is then listed or authorized for trading; and
(vi) otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC or
over-the-counter market where the Common Stock is then listed.
(c) All expenses incurred in complying with this Section 5.12,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section
5.12(b)(iv), shall be paid by the Company.
(d) With respect to any Registration Statement filed or to be filed
pursuant to this Section 5.12, if the Company's Board of Directors determines
that, in its good faith judgment, it would (because of the existence of, or in
anticipation of, any acquisition or corporate reorganization or other
transaction, financing activity, stock repurchase or other development involving
the Company, or the unavailability for reasons substantially beyond the
Company's control of any required financial statements, or any other event or
condition of similar significance to the Company) be disadvantageous (a
"Material Development Condition") to the Company or its stockholders for such a
Registration Statement to become effective or to be maintained effective or for
sales of Registrable Securities to continue pursuant to the Registration
Statement, the Company shall, notwithstanding any other provisions of this
Agreement, be entitled, upon the giving of a written notice that a Material
Development Condition has occurred (a "Delay Notice") from an officer of the
Company to all affected holders of Registrable Securities, (i) to cause sales of
Registrable Securities pursuant to such Registration Statement to cease, (ii) to
cause such Registration Statement to be withdrawn and the effectiveness of such
Registration Statement terminated, or (iii) in the event no such Registration
Statement has yet been filed or declared effective, to delay filing or
effectiveness of any such Registration Statement until, in the good faith
judgment of the Company's Board
21
of Directors, such Material Development Condition no longer exists (notice of
which the Company shall promptly deliver to all affected holders of Registrable
Securities). Notwithstanding the foregoing provisions of this Section 5.12(e):
(1) in no event may any cessation or delay by the Company pursuant to this
Section 5.12(e) be for a period of more than one hundred twenty (120)
consecutive days from the giving of the Delay Notice with respect to a Material
Development Condition, as above provided, and in no event may such right be
exercised by the Company on more than two (2) occasions during any period of
twelve (12) consecutive months; and (2) in the event a Registration Statement is
filed and subsequently withdrawn by reason of any existing or anticipated
Material Development Condition as hereinbefore provided, the Company shall cause
a new Registration Statement covering the same Registrable Securities as those
covered by the original Registration Statement to be filed with the SEC as soon
as practicable after such Material Development Condition expires or, if sooner,
as soon as practicable after such 120 day period expires.
(e) The registration rights granted under this Section 5.12 shall
terminate as to each Investor when all of the Registrable Securities of such
Investor (i) shall have been effectively registered under the Securities Act and
disposed of in a public offering pursuant to a Registration Statement, (ii)
shall have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) shall have been otherwise transferred and a new
certificate for such Warrant Shares not bearing a legend restricting further
transfer shall have been delivered by the Company, (iv) with respect to a
particular Investor, at any time when all of such Investor's remaining Warrant
Shares can be sold in a single transaction in compliance with Rule 144 under the
Securities Act, or (v) when the Warrants, and all of the associated Warrant
Shares, shall have ceased to be outstanding.
(f) Except as contemplated in this Agreement as required by applicable
securities laws, the Common Stock registered pursuant to the Registration
Statement shall not be subject to any blackout, suspension or other trading
restrictions. The Company shall give notice to the holders of Registrable
Securities by email and/or facsimile of the Company's request for acceleration
and of the effectiveness of the Registration Statement with the SEC,
respectively, on the respective days that each of those events occur.
(g) The prospectus included in the Registration Statement (the
"Prospectus") shall not be considered to be "current" at any time when, by
reason of occurrence of any event or by reason of the passage of time, the
Prospectus does not meet the requirements of Section 10 of the Securities Act,
or the Prospectus contains 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. The Prospectus shall disclose that holders of
Registrable Securities may elect to resell Registrable Securities without
registration of such sales under the Registration Statement, by making such
sales under and as permitted by Rule 144 of the SEC under the Act.
(h) Each Investor agrees in connection with any registration of the
Company's securities upon the request of the Company and the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time not to exceed one
hundred twenty
22
(120) days from the effective date of such registration as the Company and the
underwriters may specify, so long as all officers and directors of the Company
are bound by a comparable obligation provided, however, that nothing herein
shall prevent any Investor from making a distribution of Registrable Securities
to the partners or shareholders thereof that is otherwise in compliance with
applicable securities laws, so long as such distributees agree to be so bound.
5.13 Confidentiality. Each Investor hereto agrees to treat all
non-public information concerning the Company and its affiliates and
Subsidiaries which was furnished by or on behalf of the Company, whether
furnished before, on or after the date hereof confidential.
5.14 Directors Warrants. The Company agrees to issue Warrants to
acquire 100,000 shares of Common Stock to each Investor Nominee and Michael S.
Chadwick as promptly as practicable after the Special Meeting.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to each Closing Date of the following conditions:
6.1 Representations and Warranties. All the representations and
warranties of the Investors contained in this Agreement shall be true and
correct in all material respects, except as affected by transactions
contemplated or permitted by this Agreement.
6.2 Covenants and Agreements. The Investors shall have performed and
complied with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date.
6.3 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
6.4 Consents. All consents, approvals, orders, authorizations and
waivers of, and all declarations, filings and registrations with, third parties
(including Governmental Entities) required to be obtained or made by or on the
part of the parties hereto, or otherwise reasonably necessary for the
consummation of the transactions contemplated hereby, shall have been obtained
or made, and all thereof shall be in full force and effect at the time of
Closing.
6.5 Stockholder Approval. With respect to the Additional Warrants, the
Company shall have obtained stockholder approval as required by the rules,
regulations and interpretations of Nasdaq.
6.6 Purchase Price. The Company shall have received the aggregate
purchase price for the Notes, Initial Warrants and Additional Warrants, as
applicable.
23
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF INVESTORS
The obligations of the Investors to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to each Closing Date of the following conditions:
7.1 Representations and Warranties. All the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects, except as affected by transactions contemplated or
permitted by this Agreement (or the announcement thereof).
7.2 Covenants and Agreements. The Company shall have performed and
complied with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
7.3 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.4 Consents. All consents, approvals, orders, authorizations and
waivers of, and all declarations, filings and registrations with, third parties
(including Governmental Entities) required to be obtained or made by or on the
part of the parties hereto, or otherwise reasonably necessary for the
consummation of the transactions contemplated hereby, shall have been obtained
or made, and all thereof shall be in full force and effect at the time of
Closing.
7.5 Stockholder Approval. With respect to the Additional Warrants, the
Company shall have obtained stockholder approval as required by the rules,
regulations and interpretations of Nasdaq.
7.6 Cost Savings Plan. The Company shall have implemented the Cost
Savings Plan.
7.7 No Material Misstatements. There shall be no fact peculiar to the
Company or any Subsidiary which has a Material Adverse Effect relative to the
Company or in the future may reasonably have a Material Adverse Effect and which
has not been disclosed in this Agreement or the other documents, certificates
and statements furnished to the Investors by or on behalf of the Company or any
Subsidiary prior to, or on, a Closing Date in connection with the transactions
contemplated hereby.
7.8 Closing Deliveries. The Investors shall have received the
certificates, instruments and documents required to be delivered by the Company
by Article II.
24
ARTICLE VIII.
COVENANTS
8.1 Affirmative Covenants. The Company covenants and agrees that, so
long as any of the Warrants are outstanding:
(a) Financial Statements and Other Reports. The Company shall deliver,
or shall cause to be delivered, to the Investors promptly, upon its becoming
available, each financial statement, report, notice or proxy statement sent by
the Company to stockholders generally.
(b) Exchange Act Reports. The Company will at all times timely file all
forms, reports, schedules, statements and other documents required to be filed
by the Company under the Exchange Act and the rules and regulations thereunder.
(c) Nasdaq Listing. The Company will take such actions within the
Company's control as historically taken by the Company to maintain at all times
a valid listing for the Common Stock on the Nasdaq SmallCap Market.
(d) Further Assurances. The Company at its expense will promptly
execute and deliver to the Investors upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and
agreements of the Company in this Agreement or any other agreements and
documents executed by and between the Company and the Investors.
ARTICLE IX.
AMENDMENT AND WAIVER
9.1 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
9.2 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. Subject to the
foregoing, at any time, the parties hereto may (a) extend the time for
performance of any of the obligations or other acts of the parties hereto, (b)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto, or (c) except as prohibited by law,
waive compliance with any of the agreements or conditions contained herein, the
benefit of which such party is entitled. Any agreement on the part of the party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X.
MISCELLANEOUS
10.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if (i) delivered
personally, (ii) sent by prepaid overnight courier service, or (iii) sent by
telecopy or facsimile transmission, answer back
25
requested, to the parties at the following addresses (or at such other addresses
as shall be specified by the parties by like notice):
(a) If to the Company:
Blue Dolphin Energy Company
801 Travis, Suite 2100
Houston, Texas 77002
Attention: President
Telefax: 713-227-7626
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Attention: Nick D. Nicholas
Telefax: 713-226-0291
(b) If to the Investors at their addresses listed on Schedule I
with a copy to counsel for Western Gulf Pipeline Partners:
Gardere Wynne Sewell LLP
1000 Louisiana, Suite 3400
Houston, Texas 77002
Attention: N.L. Stevens III
Telefax: 713-276-5807
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, or (ii) if sent by telecopy or facsimile transmission, when
the answer back is received.
10.2 Entire Agreement. This Agreement, together with the Schedules,
Exhibits, Annexes and Ancillary Documents, and other writings referred to herein
or delivered pursuant hereto, constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both written and oral, between the parties
and their Affiliates with respect to the subject matter hereof.
10.3 Binding Effect; Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as otherwise
expressly provided in this 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 party. 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.
26
10.4 Severability. If any provision of this Agreement is held to be
unenforceable, then 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
to the maximum extent permitted by Applicable Law.
10.5 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. The parties accordingly agree that the parties shall be
entitled to injunctive relief 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.
10.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
10.7 Jurisdiction. Except as otherwise expressly provided in this
Agreement or as otherwise required by Applicable Law, venue for any suit, action
or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be exclusively in the state or federal courts in
Harris County, Texas, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 10.01
shall be deemed effective service of process on such party.
10.8 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.
ARTICLE XI.
DEFINITIONS
11.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:
"Additional Closing" is defined in Section 2.2.
"Additional Closing Date" is defined in Section 2.2.
27
"Affiliate" of any Person means (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above, and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person which owns
directly or indirectly 50% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
50% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") such corporation or other Person.
"Ancillary Documents" means each agreement, instrument, and document
(other than this Agreement) executed or to be executed by the Company or any
Investor in connection with the sale and purchase of the Warrants and the other
transactions contemplated by this Agreement.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to which
a specified person or property is subject.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in Houston, Texas are authorized or obligated by
law or executive order to close.
"Closing" is defined in Section 2.2.
"Closing Date" is defined in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time and any successor statute.
"Common Stock" means the common stock, par value of $0.01 per share, of
the Company, and such other class of securities as shall represent the common
equity of the Company.
"Common Stock Equivalent" is defined in Section 3.2.
"Company Reports" is defined in Section 3.8.
"Debt" means, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money) excluding Trade Payables; (iv) all obligations under leases
which shall have been, or should have been, in accordance with GAAP, recorded as
capital leases in respect of which such Person is liable
28
(whether contingent or otherwise); (v) all obligations under leases (other than
capital leases and oil and gas leases) which require such Person or its
Affiliate to make payments exceeding $25,000 over the term of such lease,
including payments at termination, which are substantially equal to at least
eighty percent (80%) of the purchase price of the Property subject to such lease
plus interest at an imputed market rate of interest; (vi) all Debt (as described
in the other clauses of this definition) of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person; (vii)
all Debt (as described in the other clauses of this definition) of others
guaranteed by such Person or in which such Person otherwise assures a creditor
against loss of the Debt of others; (viii) all obligations or undertakings of
such Person to maintain or cause to be maintained the financial position or
covenants of others including without limitation agreements expressed as an
agreement to purchase the Debt or Property of others or otherwise; (x)
obligations to pay for goods or services whether or not such goods or services
are actually received or utilized by such Person; (xi) any capital stock of such
Person in which such Person has a mandatory obligation to redeem such stock
(xii) the undischarged balance of any production payment created by such Person
or for the creation of which such Person directly or indirectly received
payment; and (xiii) all obligations of such Person under Hedging Agreements.
"Disclosure Letter" is defined in Section 3.7.
"Demanding Security Holders" is defined in Section 5.12(b).
"Encumbrances" means liens, charges, pledges, options, mortgages, deeds
of trust, security interests, claims, restrictions (whether on voting, sale,
transfer, disposition, or otherwise), easements, and other encumbrances of every
type and description, whether imposed by law, agreement, understanding, or
otherwise.
"Environmental Laws" means any and all Governmental Requirements
pertaining to the environment in effect in any and all jurisdictions in which
the Company or any Subsidiary is conducting or at any time has conducted
business, or where any Property, including, without limitation, Oil and Gas
Property, of the Company or any Subsidiary is located, including without
limitation, OPA, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), the Safe Drinking Water ACT, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. As used in the
provisions hereof relating to Environmental Laws, the term "oil" shall have the
meaning specified in OPA, the terms "hazardous substance" and "release" (or
"threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposal") have the meanings specified in
RCRA; provided that to the extent the laws of the state in which any Oil and Gas
Property of the Company or any Subsidiary is located establish a meaning for
"oil," "hazardous substance," "release," "solid waste" or "disposal" which is
broader than that specified in either OPA, CERCLA or RCRA, such broader meaning
shall apply.
29
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with the Company would be deemed to be a "single
employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.
"Excepted Liens" means: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (ii) Liens in connection with workmen's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or
customary landlord's liens, each of which is in respect of obligations that have
not been outstanding more than 60 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP; (iv) any Liens reserved in leases or farmout
agreements for rent or royalties and for compliance with the terms of the
farmout agreements or leases in the case of leasehold estates, to the extent
that any such Lien referred to in this clause does not materially impair the use
of the property covered by such Lien for the purposes for which such property is
held or materially impair the value of such property subject thereto; (v)
encumbrances (other than to secure the payment of borrowed money or the deferred
purchase price of property or services), easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any rights of way
or other property for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any rights of
way or other property which in the aggregate do not materially impair the use of
such rights of way or other property for the purposes of which such rights of
way and other property are held or materially impair the value of such property
subject thereto; and (vi) deposits of cash or securities to secure the
performance of bids, trade contracts, leases, statutory obligations and other
obligations of a like nature incurred in the ordinary course of business.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body, agency,
department, commission, board, bureau, or other authority or instrumentality
(domestic or foreign).
"Governmental Requirement" means any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other legally binding directive
or requirement (in the case of banking regulatory authorities whether or not
having the force of law), including, without limitation, Environmental Laws,
energy regulations and occupational, safety and health standards or controls, of
any Governmental Entity.
30
"Hedging Agreements" means any commodity, interest rate or currency
swap, cap, floor, collar, forward agreement or other exchange or protection
agreements or any option with respect to any such transaction.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hydrocarbon Interests" means all rights, titles, interests and estates
now or hereafter acquired in and to oil and gas leases, oil, gas and mineral
leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, net profit interests and production
payment interests, including any reserved or residual interests of whatever
nature.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
"Investor Nominees" is defined in Section 5.6(e).
"Initial Closing" is defined in Section 2.1.
"Initial Closing Date" is defined in Section 2.1.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, a person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, or (ii) production payments and the like payable
out of Oil and Gas Properties. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property. For the purposes of this Agreement, a Person shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement, or leases under a financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person in a transaction intended to create a financing.
"Material Adverse Effect" means, relative to the Company or any
Investor, as the case may be, any change, development, or effect (individually
or in the aggregate) which is, or is reasonably likely to be, materially adverse
(i) to the business, assets, results of operations, condition (financial or
otherwise), or prospects of the Company and the Subsidiaries considered as a
whole, or the Investor, as the case may be, or (ii) to the ability of the
Company or the Investor, as the case may be, to perform on a timely basis any
material obligation of the Company or the Investor, as the case may be, under
this Agreement or any agreement, instrument, or document entered into or
delivered in connection herewith.
"Material Agreement" means (a) any written agreement, contract, lease,
commitment, understanding, instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties may be bound
31
involving total value or consideration or liability in excess of $50,000, (b)
any loan or credit agreement, bond, debenture, note, mortgage or indenture by
which the Company or any Subsidiary or any of their respective properties may be
bound, or (c) any agreement set forth as an exhibit to the Company's Form 10-K
for the fiscal year ended December 31, 2003.
"Material Development Condition" is defined in Section 5.12(e).
"Oil and Gas Properties" means Hydrocarbon Interests; the Properties
now or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of Hydrocarbons from or attributable to such Hydrocarbon Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, appliances, tools, implements, cables, wires, towers, casing,
tubing and rods, similar equipment, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"OPA" means the Oil Pollution Act of 1990, as amended.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Plan" means any employee pension benefit plan, as defined in Section
3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or
contributed to by the Company, or an ERISA Affiliate, or (ii) was at any time
during the preceding six calendar years sponsored, maintained or contributed to,
by the Company, or an ERISA Affiliate.
"Proceeding" means any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal in such an
action, suit or proceeding, and any inquiry or investigation that could lead to
such an action, suit or proceeding.
32
"Property" means all assets, including all personal (tangible and
intangible) and real property rights, titles and interests.
"Prospectus" is defined in Section 5.12(h).
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
"reasonable best efforts" means a party's best efforts in accordance
with reasonable commercial practice and without the incurrence of unreasonable
expense.
"Registrable Securities" is defined in Section 5.12(a).
"Registration Statement" is defined in Section 5.12(a).
"Rule 144" means Rule 144 promulgated under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SMH" is defined in Section 3.23.
"Special Meeting" is defined in Section 4.9.
"Stockholder Approval" is defined in Section 5.6(a).
"Subsidiaries" means all Persons controlled directly or indirectly by
the Company, or in which the Company directly or indirectly owns an equity or
voting interest of ten percent (10%) or more. For purposes hereof, "controlled"
means the power to direct the management or policies of a person, whether
through voting securities, by contract or otherwise.
33
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement, which may be executed in multiple counterparts, to be executed
by their duly authorized representatives, all as of the day and year first above
written.
THE COMPANY:
BLUE DOLPHIN ENERGY COMPANY
By: /s/ Ivar Siem
----------------------------------------
Name: Ivar Siem
Title: Chairman and Chief Executive Officer
INVESTORS:
WESTERN GULF PIPELINE PARTNERS, LP
By: PEREGRINE MANAGEMENT, LLC,
Its General Partner
By: /s/Barrett L. Webster
------------------------------------
Barrett L. Webster, its Manager
/s/ Gardner Parker
-------------------------------------------
F. Gardner Parker
/s/ Ramsay H. Gilman
-------------------------------------------
Ramsay H. Gilman
/s/ Laurence N. Binz
-------------------------------------------
Laurence N. Binz
/s/ David R. Bolton
-------------------------------------------
David R. Bolton
/s/ Lee Moore
-------------------------------------------
Lee Moore
/s/ Macille G. Moore
-------------------------------------------
Macille G. Moore
/s/ W. Tyler Moore, Jr.
-------------------------------------------
W. Tyler Moore, Jr.
34
Schmid Family Trust U/D/T 09-05-97
By: /s/ Lewis B. Schmid
----------------------------------------
, Trustee
-------------------
/s/ Michael S. Chadwick
-------------------------------------------
Michael S. Chadwick
/s/ Ben T. Morris
-------------------------------------------
Ben T. Morris
/s/ Don A. Sanders
-------------------------------------------
Don A. Sanders
/s/ Katherine U. Sanders
-------------------------------------------
Katherine U. Sanders
SANDERS 1998 CHILDREN'S TRUST
By: /s/ Don Weir
----------------------------------------
SANDERS OPPORTUNITY FUND, LP
By: /s/ Don A. Sanders
----------------------------------------
SANDERS OPPORTUNITY FUND
(INSTITUTIONAL)
By: /s/ Don A. Sanders
----------------------------------------
35
DON WEIR AND JULIE ELLEN WEIR,
tenants in common
/s/ Don Weir
-------------------------------------------
Don Weir
/s/ Julie Ellen Weir
-------------------------------------------
Julie Ellen Weir
36
SCHEDULE I
<Table>
<Caption>
PURCHASE PURCHASE
PRINCIPAL PURCHASE PRICE FOR PRICE FOR
AMOUNT PRICE INITIAL INITIAL ADDITIONAL ADDITIONAL
INVESTORS OF NOTES FOR NOTES WARRANTS WARRANTS WARRANTS WARRANTS
--------- --------- --------- -------- --------- ---------- ----------
Western Gulf Pipeline Partners, LP $275,000 $275,000 458,334 $1,375 458,333 $1,375
c/o Peregrine Management, LLC
General Partner
14701 St. Mary's Lane, #800
Houston, Texas 77079
Ramsay H. Gillman $50,000 $50,000 83,334 $250 83,334 $250
Gillman Companies
10595 W. Sam Houston Pkwy. S.
Houston, Texas 77099
Laurence N. Benz $25,000 $25,000 41,667 $125 41,667 $125
15211 Champion Lakes Pl.
Louisville, Kentucky 40245
David R. Bolton $25,000 $25,000 41,667 $125 41,667 $125
1717 West 6th Street, Suite 292
Austin, Texas 78703
Lee Moore $25,000 $25,000 41,667 $125 41,667 $125
1032-A Greenbore Road
Eatonton, Georgia 31024
Macille G. Moore $25,000 $25,000 41,667 $125 41,667 $125
1204 Sul Ross
Bryan, Texas 77802
W. Tyler Moore, Jr. $25,000 $25,000 41,667 $125 41,667 $125
401 Avondale
Houston, Texas 77006
F. Gardner Parker $25,000 $25,000 41,663 $125 41,665 $125
3601 Piping Rock
Houston, Texas 77027
Schmid Family Trust U/D/T $25,000 $25,000 41,667 $125 41,667 $125
09-05-97
1725 South Douglas Road
Anaheim, California 92806
Attn: Lewis R. Schmid and Judith
E. Schmid, Trustees
Michael S. Chadwick $12,500 $12,500 20,834 $62.50 20,833 $62.50
Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Ben T. Morris $12,500 $12,500 20,834 $62.50 20,833 $62.50
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
1
<Table>
<Caption>
PURCHASE PURCHASE
PRINCIPAL PURCHASE PRICE FOR PRICE FOR
AMOUNT PRICE INITIAL INITIAL ADDITIONAL ADDITIONAL
INVESTORS OF NOTES FOR NOTES WARRANTS WARRANTS WARRANTS WARRANTS
--------- --------- --------- -------- --------- ---------- ----------
Don A. Sanders $50,000 $50,000 83,333 $250 83,333 $250
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
Katherine U. Sanders $12,500 $12,500 20,834 $62.50 20,833 $62.50
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
Sanders 1998 Children's Trust $50,000 $50,000 83,333 $250 83,333 $250
dated December 1, 1997
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
Sanders Opportunity Fund, LP $24,228 $24,228 40,380 $121 40,380 $121
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
Sanders Opportunity Fund $75,772 $75,772 126,286 $379 126,287 $379
(Institutional), LP
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
Don Weir and Julie Ellen Weir $12,500 $12,500 20,833 $62.50 20,834 $62.50
c/o Sanders Morris Harris
3100 Chase Tower
600 Travis, Suite 3100
Houston, Texas 77002
Attn: Michael S. Chadwick, Sr. VP
and Managing Director
F. Gardner Parker 300,000 $900
3601 Piping Rock
Houston, Texas 77027
--------- --------- ---------- ------ ---------- ------
TOTAL $ 750,000 $ 750,000 $1,250,000 $3,750 $1,550,000 $4,650
========= ========= ========== ====== ========== ======
</Table>
2