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EXHIBIT 1.1
EXECUTION COPY
$175,000,000
KCS ENERGY, INC.
7 1/8% SENIOR NOTES DUE 2012
PURCHASE AGREEMENT
March 25, 2004
CREDIT SUISSE FIRST BOSTON LLC
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
JEFFERIES & COMPANY, INC.
HARRIS NESBITT CORP.
BANC ONE CAPITAL MARKETS, INC.
BNP PARIBAS SECURITIES CORP.
c/o: Credit Suisse
First Boston LLC
Eleven Madison Avenue
New York, New York 10010-3629
Dear Sirs:
1. Introductory. KCS Energy, Inc., a Delaware corporation (the
"COMPANY"), proposes, subject to the terms
and conditions stated herein, to
issue and sell to the several initial
purchasers named in Schedule A hereto (the
"PURCHASERS") U.S.$175,000,000 aggregate
principal amount of its 7 1/8% Senior
Notes due 2012 (the "OFFERED SECURITIES")
to be issued under an indenture, dated
as of April 1, 2004 (the "INDENTURE"),
among the Company, KCS Resources, Inc., a
Delaware corporation, Medallion California
Properties Company, a Texas
corporation, KCS Energy Services, Inc., a
Delaware corporation, and Proliq,
Inc., a New Jersey corporation
(collectively, the "GUARANTORS") and U.S. Bank
National Association, as Trustee.
The holders of the Offered Securities will be entitled to the
benefits
of a Registration Rights Agreement, to be
dated as of the Closing Date (as
defined below), among the Company, the
Guarantors and the Purchasers (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant
to which the Company agrees to file a
registration statement with the Securities
Exchange Commission (the
"COMMISSION") registering the resale of the
Offered Securities under the United
States Securities Act of 1933, as amended
(the "SECURITIES ACT").
The Company and the Guarantors hereby agree with the several
Purchasers
as follows:
2. Representations and Warranties of the Company and the
Guarantors.
The Company and the Guarantors, jointly and
severally, represent and warrant to,
and agree with, the several Purchasers
that:
(a) A preliminary offering circular and an offering circular
relating to the Offered Securities to be offered by the Purchasers
have
been prepared by the Company. Such preliminary offering circular
and
offering circular (the "OFFERING CIRCULAR"), as supplemented as of
the
date of this Agreement, together with any other document approved
by
the Company for use in connection with the contemplated resale of
the
Offered Securities are hereinafter collectively referred to as
the
"OFFERING DOCUMENT." On the date of this Agreement, the
Offering
Document does not include 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 the light of
the
circumstances under which they were made, not misleading. The
preceding
sentence does not apply to statements in or omissions from the
Offering
Document based upon written information furnished to the Company by
any
Purchaser through Credit Suisse First Boston LLC ("CSFB")
specifically
for use therein, it being understood and agreed that the only
such
information is that described as such in Section 7(b) hereof.
Except as
disclosed in the Offering Document, on the date of this Agreement,
the
Company's Annual Report on Form 10-K most recently filed with
the
Commission and all subsequent reports (collectively, the "EXCHANGE
ACT
REPORTS") that have been filed by the Company with the Commission
or
sent to stockholders pursuant to the Securities Exchange Act of
1934
(the "EXCHANGE ACT") do not include any untrue statement of a
material
fact or omit to state any material fact necessary to make the
statements therein, in
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the light of the circumstances under which they were made, not
misleading. Such documents, when they were filed with the
Commission,
conformed in all material respects to the requirements of the
Exchange
Act and the rules and regulations of the Commission thereunder.
(b) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State
of
Delaware, with corporate power and authority to own or lease
and
operate its properties and conduct its business as described in
the
Offering Document and to enter into and perform its obligations
under
this Agreement; the Company is duly qualified to transact business
as a
foreign corporation and is in good standing in all other
jurisdictions
in which its ownership or lease of property or the conduct of
its
business requires such qualification, except where the failure to
be so
qualified would not have a material adverse effect on the
condition
(financial or other), business, properties or results of operations
of
the Company and its subsidiaries taken as a whole ("MATERIAL
ADVERSE
EFFECT"); and, to the Company's knowledge, no proceeding has
been
instituted in any jurisdiction revoking, limiting or curtailing
or
seeking to revoke, limit or curtail, such power and authority
or
qualification; and the Company does not own, lease or license any
asset
or property or conduct any material business outside of the
United
States.
(c) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company (the
"SUBSIDIARIES").
(d) Each Subsidiary has been duly incorporated and is a
validly existing corporation in good standing under the laws of
the
jurisdiction of its incorporation, with corporate power and
authority
to own and lease and operate its properties and conduct its
business as
described in the Offering Document and to enter into and perform
its
obligations under this Agreement; each Subsidiary is duly qualified
to
transact business as a foreign corporation in good standing in
all
other jurisdictions in which its ownership or lease of property or
the
conduct of its business requires such qualification, except where
the
failure to be so qualified would not have a Material Adverse
Effect;
and all of the issued and outstanding capital stock of each
Subsidiary
has been duly authorized and validly issued and is fully paid
and
nonassessable and is owned by the Company, directly or through
subsidiaries, free from liens, encumbrances and defects, except
for
liens resulting from the Company's credit facility and pledges
under
such credit facility.
(e) Except for the Registration Rights Agreement, there are no
contracts, agreements or understandings between the Company or
any
Subsidiary and any person granting such person the right to require
the
Company or such Subsidiary to file a registration statement under
the
Securities Act with respect to any securities of the Company or
such
Subsidiary or to require the Company or such Subsidiary to include
such
securities with the Offered Securities and Subsidiary
Guarantees
registered pursuant to any registration statement.
(f) The Indenture has been duly authorized by all necessary
corporate action; the Offered Securities have been duly authorized
by
all necessary corporate action; and when the Offered Securities
are
delivered and paid for pursuant to this Agreement on the Closing
Date
(as defined in Section 3), the Indenture will have been duly
executed
and delivered, such Offered Securities will have been duly
executed,
authenticated, issued and delivered and will conform in all
material
respects to the description thereof contained in the Offering
Document
and the Indenture and such Offered Securities will constitute valid
and
legally binding obligations of the Company, enforceable in
accordance
with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of
general
applicability relating to or affecting creditors' rights and to
general
equity principles.
(g) On the Closing Date, the Indenture will conform in all
material respects to the requirements of the United States
Trust
Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), and
the
rules and regulations of the Commission applicable to an
indenture
which is
qualified thereunder.
(h) On the Closing Date, the Exchange Securities (as defined
in the Registration Rights Agreement) will have been duly
authorized by
the Company and the Guarantors; and when the Exchange Securities
are
issued, executed and authenticated in accordance with the terms of
the
Registration Rights Agreement and the Indenture, the Exchange
Securities will be entitled to the benefits of the Indenture and
will
be the valid and legally binding obligations of the Company and
the
Guarantors, enforceable in accordance with their
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terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability
relating to or affecting creditors' rights and to general
equity
principles.
(i) The Subsidiary Guarantee (as defined in the Indenture) to
be
endorsed on the Exchange Securities by each Guarantor has been
duly
authorized by such Guarantor and, when issued, will have been
duly
executed and delivered by each such Guarantor and will conform to
the
description thereof contained in the Offering Document; and when
the
Exchange Securities have been issued, executed and authenticated
in
accordance with the terms of the Registration Rights Agreement and
the
Indenture, the Subsidiary Guarantee of each Guarantor endorsed
thereon
will constitute valid and legally binding obligations of such
Guarantor, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium
and similar laws of general applicability relating to or
affecting
creditors' rights and to general equity principles.
(j) There are no contracts, agreements or understandings
between the Company and any person that would give rise to a
valid
claim against the Company or any Purchaser for a brokerage
commission,
finder's fee or other like payment, other than the fees and
compensation to be paid to the Purchasers in accordance with
this
Agreement.
(k) The Registration Rights Agreement has been duly authorized
by the Company and each of the Guarantors and, on the Closing
Date,
will have been duly executed and delivered by the Company and each
of
the Guarantors; when the Registration Rights Agreement has been
duly
executed and delivered by the Company and the Guarantors and
duly
authorized, executed and delivered by the Purchasers, the
Registration
Rights Agreement will be a valid and binding agreement of the
Company
and each of the Guarantors, enforceable against the Company and
each
Guarantor in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar
laws of general applicability relating to or affecting
creditors'
rights and to general equity principles; and on the Closing Date,
the
Registration Rights Agreement will conform in all material respects
as
to legal matters to the description thereof in the Offering
Circular.
(l) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is
required
for the consummation of the transactions contemplated by this
Agreement
or the Registration Rights Agreement in connection with the
issuance
and sale of the Offered Securities by the Company except for (i)
such
consents as may be required under applicable state securities laws
in
connection with the purchase and resale of the Notes by the
Purchasers
and (ii) such consents, with respect to the Exchange Securities
(including the related Guarantee), as may be required under
applicable
state securities laws and the Securities Act, including the order
of
the Commission declaring the Exchange Offer Registration Statement
or
the Shelf Registration Statement (each as defined in the
Registration
Rights Agreement) effective.
(m) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter or by-laws or in default in
the
performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or
other
agreement or instrument that is material to the Company and the
Subsidiaries, taken as a whole, to which the Company or any of
the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or their respective property is bound
(collectively,
"AGREEMENTS AND INSTRUMENTS"), except for such defaults that would
not
result in a Material Adverse Effect; the execution, delivery
and
performance by the Company of its obligations under the Indenture,
this
Agreement and the Registration Rights Agreement, and the issuance
and
sale of the Offered Securities and compliance with the terms
and
provisions thereof, do not and will not, whether with or without
the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as
defined
below) under, or result in the creation or imposition of any
lien,
charge or encumbrance upon any property or assets of the Company or
any
of the Subsidiaries pursuant to, the Agreements and Instruments,
nor
will such action result in any violation of (i) the provisions of
the
charter or by-laws of the Company or any of the Subsidiaries or
(ii)
any applicable law, statute, rule, regulation, judgment, order,
writ or
decree of any government, government instrumentality or court,
domestic
or foreign, having jurisdiction over the Company or any of the
Subsidiaries or any of their assets, properties or operations,
which
violations, in the case of clause (ii), would, individually or in
the
aggregate,
either have a Material Adverse Effect or a material adverse
effect on the consummation of the transactions contemplated herein;
and
the Company has full power and authority to authorize, issue and
sell
the Offered Securities as contemplated by this Agreement.
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As used herein, "REPAYMENT EVENT" means any event or condition
that
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the
right
to require the repurchase, redemption or repayment of all or a
portion
of such indebtedness by the Company or any of the Subsidiaries.
(n) This Agreement has been duly authorized, executed and
delivered by the Company and each of the Guarantors.
(o) The Company and the Subsidiaries have good and
indefeasible title to all of their interests in oil and gas
properties
(other than interests earned under farm-out, participation or
similar
agreements in which an assignment or transfer is pending) and all
other
real property owned by the Company and the Subsidiaries and good
title
to all other properties owned by them, in each case, free and clear
of
all mortgages, pledges, liens, security interests, claims,
restrictions
or encumbrances of any kind except such as (i) are described in
the
Offering Document, (ii) liens and encumbrances under operating
agreements, unitization and pooling agreements, production
sales
contracts, farm-out agreements and other oil and gas
exploration
participation and production agreements, in each case that
secure
payment of amounts not yet due and payable for the performance of
other
unmatured obligations and are of a scope and nature customary in
the
oil and gas industry or arise in connection with drilling and
production operations, or (iii) do not, individually or in the
aggregate, materially affect the value of the affected property and
do
not interfere with the use made and proposed to be made of such
property by the Company or the Subsidiaries, as the case may be;
all of
the leases and subleases of real property that are material to
the
business of the Company or any of the Subsidiaries and under which
the
Company or any of the Subsidiaries holds properties described in
the
Offering Document, are in full force and effect, and neither
the
Company nor any of the Subsidiaries has received notice of any
material
claim of any sort that has been asserted by anyone adverse to
the
rights of the Company or any of the Subsidiaries under any of
such
leases or subleases, or affecting or questioning the rights of
the
Company or such Subsidiary to the continued possession of the
leased or
subleased premises under any such lease or sublease.
(p) The Company and the Subsidiaries possess such permits,
licenses, approvals, consents and other authorizations
(collectively,
"GOVERNMENTAL LICENSES") issued by the appropriate federal,
state,
local or
foreign regulatory agencies or bodies necessary to conduct the
business in the manner described in the Offering Document, subject
to
such qualifications as may be set forth in the Offering Document
and
except for such Governmental Licenses which, if not obtained,
would
not, individually or in the aggregate, have a Material Adverse
Effect;
the Company and the Subsidiaries are in compliance with the terms
and
conditions of all such Governmental Licenses, subject to such
qualifications as may be set forth in the Offering Document and
except
for such noncompliance which would not, individually or in the
aggregate, have a Material Adverse Effect; all of the
Governmental
Licenses are valid and in full force and effect, subject to
such
qualifications as may be set forth in the Offering Document and
except
for such Governmental Licenses which, if not valid and in full
force
and effect, would not, individually or in the aggregate, have a
Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of proceedings relating to
the
revocation or modification of any such certificate, authority or
permit
that, if determined adversely to the Company or any of the
Subsidiaries, would, individually or in the aggregate, have a
Material
Adverse Effect.
(q) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent
that
could reasonably be expected to result in a Material Adverse
Effect.
(r) The Company and the Subsidiaries own or possess, or can
acquire on reasonable terms, adequate trademarks, trade names and
other
rights to inventions, know-how (including unpatented and/or
unpatentable proprietary or confidential information, systems
or
procedures), patents, copyrights, confidential information and
other
intellectual property (collectively, "INTELLECTUAL PROPERTY
RIGHTS")
necessary to conduct the business now operated by them, or
presently
employed by them, and have not received any notice of infringement
of
or conflict with asserted rights of others with respect to any
intellectual property rights that, if determined adversely to
the
Company or any of the Subsidiaries, would, individually or in
the
aggregate,
have a Material Adverse Effect.
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(s) (i) neither the Company nor any of the Subsidiaries is in
violation of any federal, state, local or foreign statute, law,
rule,
regulation, ordinance, code, policy or rule of common law or
any
judicial or administrative interpretation thereof, including
any
judicial or administrative order, consent, decree or judgment,
relating
to pollution or protection of human health, the environment
(including,
without limitation, ambient air, surface water, groundwater,
land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or
threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum
products
(collectively, "HAZARDOUS MATERIALS") or to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport
or handling of Hazardous Materials (collectively,
"ENVIRONMENTAL
LAWS"); (ii) the Company and the Subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their
requirements;
(iii) to the knowledge of the Company, there are no pending or
threatened administrative, regulatory or judicial actions,
suits,
demands, demand letters, claims, liens, notices of noncompliance
or
violation, investigation or proceedings relating to any
Environmental
Law against the Company or any of the Subsidiaries; and (iv) there
are
no events or circumstances that could reasonably be expected to
form
the basis of an order for clean-up or remediation, or an action,
suit
or proceeding by any private party or governmental body or
agency,
against or affecting the Company or any of the Subsidiaries
relating to
Hazardous Materials or any Environmental Laws, except in the case
of
clauses (i), (ii), (iii) or (iv) where such violation, failure
to
receive required permits, authorizations and approvals or failure
to
comply with the requirements of such permits, authorizations
and
approvals, action or liabilities related to Hazardous Materials or
any
Environmental Laws would not, individually or in the aggregate,
have a
Material Adverse Effect.
(t) As of the date hereof, (i) all royalties, rentals,
deposits and other amounts owed under the oil and gas leases
constituting the oil and gas properties of the Company and the
Subsidiaries have been properly and timely paid (other than
amounts
held in routine suspense accounts pending payments), and no
material
amount of proceeds from the sale or production attributable to the
oil
and gas properties of the Company and the Subsidiaries are
currently
being held in suspense by any purchaser thereof, except where
such
amounts due could not, individually or in the aggregate, have a
Material Adverse Effect on the Company or any of the Subsidiaries,
and
(ii) there are no claims under take-or-pay contracts pursuant to
which
natural gas purchasers have any make-up rights affecting the
interests
of the Company or the Subsidiaries in their oil and gas
properties,
except where
such claims could not, individually or in the aggregate,
have a Material Adverse Effect on the Company or any of the
Subsidiaries.
(u) There are no pending actions, suits or proceedings against
or affecting the Company, any of the Subsidiaries or any of
their
respective properties that, if determined adversely to the Company
or
any of the Subsidiaries, that, individually or in the aggregate,
would
reasonably be expected to have a Material Adverse Effect, or that
might
reasonably be expected to materially and adversely affect the
ability
of the Company or any Guarantor to perform its obligations under
the
Indenture, this Agreement or the Registration Rights Agreement,
or
which are otherwise material in the context of the sale of the
Offered
Securities; to the Company's knowledge, no such actions, suits
or
proceedings are threatened or contemplated; and the aggregate of
all
pending legal or governmental proceedings to which the Company or
any
of the Subsidiaries is a party or of which any of their
respective
properties or assets is the subject that are not described in
the
Offering Document, including ordinary routine litigation incidental
to
the business, could not reasonably be expected to result in a
Material
Adverse Effect.
(v) The financial statements included in the Offering
Document, together with the related schedules and notes
thereto,
present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results
of
operations and cash flows for the periods shown, and, except as
otherwise disclosed in the Offering Document, such financial
statements
have been prepared in conformity with the generally accepted
accounting
principles in the United States ("GAAP") applied on a consistent
basis
throughout the periods involved.
(w) Since the date of the latest audited financial statements
included in the Offering Document, there has been no material
adverse
change, nor any development or event involving a prospective
material
adverse change, in the condition (financial or other),
business,
properties, results of operations or business prospects of the
Company
and the Subsidiaries taken as a whole; the Company and the
Subsidiaries
have not incurred any
5
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liability or obligations, direct or contingent, nor entered into
any
transaction, other than those in the ordinary course of business,
which
are
material with respect to the Company or the Subsidiaries; there
has
been no dividend or distribution of any kind declared, paid or made
by
the Company on any class of its capital stock; and there has not
been
any material adverse change in the capital stock, short-term debt
or
long term debt of the Company or any of the Subsidiaries.
(x) The Company is subject to the reporting requirements of
either Section 13 or Section 15(d) of the Exchange Act and
files
reports with the Commission on the Electronic Data Gathering,
Analysis,
and Retrieval (EDGAR) system.
(y) Neither the Company nor any of the Guarantors is an
open-end investment company, unit investment trust or
face-amount
certificate company that is, or is required to be, registered
under
Section 8 of the United States Investment Company Act of 1940
(the
"INVESTMENT COMPANY ACT"); and the Company and each of the
Guarantors
are not and, after giving effect to the offering and sale of
the
Offered Securities and the application of the proceeds thereof
as
described in the Offering Document, will not be an "investment
company"
as defined in the Investment Company Act.
(z) No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Offered Securities
are
listed on any national securities exchange registered under Section
6
of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system.
(aa) Neither the Company nor any of the Subsidiaries nor any
agent thereof acting on the behalf of them has taken, and none of
them
will take, any action that could reasonably be expected to cause
this
Agreement or the issuance or sale of the Offered Securities to
violate
Regulation T, Regulation U or Regulation X of the Board of
Governors of
the Federal Reserve System.
(bb) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule
436(g)(2)
under the Securities Act (i) has imposed (or has informed the
Company
or any Guarantor that it is considering imposing) any condition
(financial or otherwise) on the Company's or any Guarantor's
retaining
any rating assigned to the Company or any Guarantor, any securities
of
the Company or any Guarantor or (ii) has indicated to the Company
or
any Guarantor that it is considering (A) the downgrading,
suspension,
or withdrawal of, or any review for a possible change that does
not
indicate the direction of the possible change in, any rating so
assigned or (B) any change in the outlook for any rating of the
Company, any Guarantor or any securities of the Company or any
Guarantor.
(cc) No form of general solicitation or general advertising
(as defined in Regulation D under the Securities Act) was used by
the
Company, the Guarantors or any of their respective
representatives
(other than the Purchasers, as to whom the Company and the
Guarantors
make no representation or warranty) in connection with the offer
and
sale of the Offered Securities contemplated hereby, including, but
not
limited to, articles, notices or other communications published in
any
newspaper, magazine, or similar medium or broadcast over television
or
radio, or any seminar or meeting whose attendees have been invited
by
any general solicitation or general advertising.
(dd) The sale of the Offered Securities pursuant to Regulation
S under the Securities Act ("REGULATION S") is not part of a plan
or
scheme to evade the registration provisions of the Securities
Act.
(ee) No registration under the Securities Act of the Offered
Securities or the Subsidiary Guarantees is required for the sale of
the
Offered Securities and the Subsidiary Guarantees to the Purchasers
as
contemplated hereby or for the Exempt Resales assuming the accuracy
of
the
Purchaser's representations set forth in Section 4 hereof.
(ff) Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf (i) has, within the
six-month
period prior to the date hereof, offered or sold in the United
States
or to any U.S. person (as such terms are defined in Regulation S
under
the Securities Act) the Offered Securities or any security of the
same
class or series as the Offered Securities or (ii) has offered or
will
offer or sell the Offered Securities (A) in the United States by
means
of any form of general solicitation or general advertising within
the
meaning of Rule 502(c) under the Securities Act or (B) with respect
to
any such securities sold in reliance on Rule 903
6
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of Regulation S, by means of any directed selling efforts within
the
meaning of Rule 902(c) of Regulation S. The Company, its affiliates
and
any person acting on its or their behalf (other than the
Purchasers, as
to whom the Company and the Guarantors make no representation)
have
complied and will comply with the offering restrictions requirement
of
Regulation S. The Company has not entered and will not enter into
any
contractual arrangement with respect to the distribution of the
Offered
Securities except for this Agreement.
(gg) Ernst & Young LLP, which is reporting on certain of
the
audited financial statements of the Company included in the
Offering
Document, are independent public accountants within the meaning of
the
Securities Act; and Arthur Andersen LLP, who certified certain of
the
financial statements included in the Offering Document, were at
the
time of the certification of such reports independent public
accountants as required by the Securities Act.
(hh) There are no contracts or documents that are required to
be described in the Offering Document or the documents incorporated
by
reference therein or to be filed as exhibits thereto that have not
been
so described and filed as required.
(ii) The statistical and market-related data included or
incorporated by reference in the Offering Document are based on
or
derived from sources that the Company believes to be reliable
and
accurate or represent the Company's good faith estimates that are
made
on the basis of data derived from such sources.
(jj) All United States federal income tax returns of the
Company and the Subsidiaries required by law to be filed have
been
filed (or extensions with respect to such tax returns have been
obtained); all taxes shown by such filed tax returns or
otherwise
assessed, that are due and payable, have been paid, except those
which
are being contested in good faith and as to which adequate
reserves
have been provided in accordance with generally accepted
accounting
principles; the Company has not received any notice from the
Internal
Revenue Service that it intends to audit the Company's federal
income
tax returns for any year during the three year period ended
December
31, 2003 and no audit proceeding by the Internal Revenue Service
has
been conducted during such period; the Company and the
Subsidiaries
have filed all other tax returns (or obtained extensions with
respect
to such tax returns) that are required to have been filed by
them
pursuant to applicable foreign, state, local or other law, and
have
paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company and the Subsidiaries, except
those
which are being contested in good faith and as to which
adequate
reserves have been provided in accordance with generally
accepted
accounting principles; and the charges, accruals and reserves on
the
books of the Company in respect of any income and corporation
tax
liability for any years not finally determined are adequate in
all
material respects to meet any assessments or reassessments for
additional income tax for any years not finally determined.
(kk) The Company and the Subsidiaries carry or are covered by
insurance, with financially sound and reputable insurers, in
such
amounts and covering such risks as is generally maintained by
companies
similar to the Company engaged in the same or similar business, and
all
such insurance is in full force and effect.
(ll) No relationship, direct or indirect, exists between or
among any of the Company or any affiliate of the Company, on the
one
hand, and any director, officer, stockholder, customer or supplier
of
any of them, on the other hand, which is required by the Exchange
Act
to be described in the Company's Annual Report on Form 10-K for
the
year ended December 31, 2003, which is not so described or is
not
described as required.
(mm)
The written engineering report audited by Netherland,
Sewell & Associates, Inc., an oil and gas engineering
consulting firm
("NSAI"), dated February 19, 2004, setting forth the proved
reserves
attributed to the oil and gas properties of the Company and the
Subsidiaries accurately reflect in all material respects the
ownership
interests of the Company and the Subsidiaries in the properties
therein
as of December 31, 2003, except as otherwise disclosed in the
Offering
Document; the information furnished by the Company to NSAI for
purposes
of conducting its audit, including, without limitation,
production,
costs of operation and development, current prices for
production,
agreements relating to current and future operations and sales
of
production, was true, correct and complete in all material respects
on
the date supplied and was prepared in accordance with customary
industry practices, as indicated in the letter of NSAI dated
February
13, 2004; and NSAI is independent with respect to the Company.
7
<PAGE>
(nn) The principal executive officer and principal financial
officer of the Company have made all certifications required by
the
Sarbanes-Oxley Act of 2002 (the "SARBANES-OXLEY ACT") or any
related
rules and regulations promulgated by the Commission, and the
statements
contained in any such certification are complete and correct;
the
Company maintains "disclosure controls and procedures" (as defined
in
Rule 13a-15(e) under the Exchange Act), and such controls and
procedures are designed (i) to ensure that material information
required to be disclosed by the Company in the reports that it
files or
submits under the Exchange Act is recorded, processed, summarized
and
reported, within the time periods specified in the Commission's
rules
and forms and (ii) to ensure that material information required to
be
disclosed by the Company in the reports that it files or submits
under
the Exchange Act is accumulated and communicated to the
Company's
management, including its principal executive officer and
principal
financial officer, as appropriate to allow timely decisions
regarding
required disclosure; the Company does not have any material
weaknesses
in internal control over financial reporting (as defined in
Rule
13a-15(f) under the Exchange Act), and there has been no fraud,
whether
or not material, that involves management or other employees who
have a
significant role in the Company's internal control over
financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act);
and
the Company is otherwise in compliance in all material respects
with
all applicable effective provisions of the Sarbanes-Oxley Act and
the
rules and
regulations promulgated by the Commission.
3. Purchase, Sale and Delivery of Offered Securities. On the basis
of
the representations, warranties and
agreements herein contained, but subject to
the terms and conditions herein set forth,
the Company agrees to sell to the
Purchasers, and the Purchasers agree,
severally and not jointly, to purchase
from the Company, at a purchase price of
97.75% of the principal amount thereof
plus accrued interest from April 1, 2004 to
the Closing Date (as defined below),
the respective principal amounts of the
Offered Securities set forth opposite
the names of the several Purchasers in
Schedule A hereto.
The Company will deliver against payment of the purchase price
the
Offered Securities to be offered and sold
by the Purchasers in reliance on
Regulation S (the "REGULATION S
SECURITIES") in the form of one or more
permanent global Securities in registered
form without interest coupons (the
"REGULATION S GLOBAL SECURITIES"), which
will be deposited with the Trustee as
custodian for The Depository Trust Company
("DTC") and registered in the name of
Cede & Co., as nominee for DTC. The
Company will deliver against payment of the
purchase price the Offered Securities to be
purchased by each Purchaser
hereunder and to be offered and sold by
each Purchaser in reliance on Rule 144A
under the Securities Act (the "144A
SECURITIES") in the form of one or more
permanent global securities in definitive
form without interest coupons (the
"RESTRICTED GLOBAL SECURITIES") deposited
with the Trustee as custodian for DTC
and registered in the name of Cede &
Co., as nominee for DTC. The Regulation S
Global Securities and the Restricted Global
Securities shall be assigned
separate CUSIP numbers. The Restricted
Global
