SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: May 11, 2006
Date of Earliest Event Reported: May 9, 2006
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NATURAL GAS SYSTEMS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
0-27862 41-1781991
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(Commission File Number) (I.R.S. Employer Identification No.)
820 Gessner, Suite 1340, Houston, Texas 77024
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(Address of Principal Executive Offices) (Zip Code)
(713) 935-0122
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(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
TABLE OF CONTENTS
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Item 1.01 Entry into a Material Definitive Agreement
Item 2.01 Completion of Acquisition or Disposition of Assets
Item 9.01 Financial Statements and Exhibits.
Signatures
Item 1.01 Entry into a Material Definitive Agreement
On May 9, Natural Gas Systems, Inc. ("NGS" or the "Company"), through
our wholly-owned subsidiary NGS Sub Corp, entered into a Purchase and Sale
Agreement (the "Sale Agreement") with Denbury Onshore, LLC., an indirect
subsidiary of Denbury Resources, Inc. (NYSE symbol: DNR, hereinafter referred to
as "Denbury") to conduct an enhanced oil recovery project in the Company's Delhi
Holt Bryant Unit within the Delhi Field in northeast Louisiana (the "Delhi
Unit"). NGSY will contribute its working interest in the Delhi Unit, and Denbury
will contribute all development capital, technical expertise and required
amounts of proven reserves of carbon dioxide that will be injected into the oil
reservoirs. The principal terms of the Sale Agreement call for NGS to receive
$50 million at closing, subject to adjustments, if any, following normal due
diligence inspections. The closing is subject to customary closing conditions
and is scheduled to occur on May 31, 2006. At closing, NGS will deliver to
Denbury an initial 100% working interest and 80% net revenue interest in the
Delhi Unit, while retaining a separate 4.8% royalty interest within the Delhi
Unit and a 25% working interest in other depths. After the project generates
$200 million of net cash flows before capital expenditures for Denbury, NGS will
regain a 25% working interest (20% net revenue interest) in the Delhi Unit.
The foregoing description is qualified by reference to Exhibit 10.1 to
this Current Report on Form 8-K, which Exhibit is incorporated herein by
reference. In connection with the Sale Agreement, the Company issued a press
release on May 9, 2006, which is included herewith as Exhibit 10.2.
Item 2.01 Completion of Acquisition or Disposition of Assets
See Item 1.01 above.
Item 9.01 Financial Statements and Exhibits
Exhibits.
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The following exhibit is filed as an exhibit to this Current Report on
Form 8-K:
Exhibit No. Description
10.1 Purchase and Sale Agreement, by and between NGS Sub Corp.
and Denbury Onshore, LLC, dated May 9, 2006.
10.2 Press Release, dated May 9, 2006
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURAL GAS SYSTEMS, INC.
Date: May 11, 2006 By: /s/ Robert Herlin
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Robert Herlin, Chief Executive Officer
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement"), dated as of May 8, 2006,
is by and between NGS SUB CORP., whose address is Two Memorial City Plaza, 820
Gessner Road, Suite 1340, Houston, TX 77024 ( "Seller"), and DENBURY ONSHORE,
LLC, whose address is 5100 Tennyson Parkway, Suite 1200, Plano, Texas 75024
("Buyer"). Seller and Buyer are sometimes together referred to herein as
"Parties".
RECITALS
WHEREAS, Seller owns certain oil and gas leasehold interests and related
assets more fully described on the exhibits hereto; and
WHEREAS, Seller desires to sell and Buyer desires to acquire these
interests and related assets on the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Seller and Buyer hereby agree as follows:
ARTICLE 1. - DEFINITIONS
1.1. "AGREEMENT" shall mean this Purchase and Sale Agreement between
Seller and Buyer.
1.2. "ASSETS" shall mean the following described assets and properties
(except to the extent constituting Excluded Assets):
(a) the Leases;
(b) the Real Property, Personal Property and Incidental Rights; and
(c) the Inventory Hydrocarbons; and
(d) the Delhi Holt Bryant Unit.
1.3. "ASSUMED OBLIGATIONS" shall mean:
(a) all Environmental Obligations or Liabilities arising after the
Effective Time;
(b) all obligations with respect to gas production, sales or, subject to
Article 18, processing imbalances with third parties;
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(c) all liabilities, duties, and obligations that arise out of the
ownership, operation or use of the Assets after the Effective Time, including,
but not limited to, all liabilities, duties, and obligations, express or
implied, imposed upon Seller herein under the provisions of the Leases and any
and all assignments, subleases, farmout agreements, assignments of overriding
royalty, joint operating agreements, easements, rights-of-way, and all other
contracts, agreements and instruments affecting the Leases, or the premises
covered thereby, whether recorded or unrecorded, and under all applicable laws,
rules, regulations, orders and ordinances, excluding, but not limited to, the
claims and suits set forth in Exhibit "F".
(d) the obligations of Seller under that certain Site Specific Trust
Account as previously set up for the plugging of abandoned wellbores in the
Delhi Holt Bryant Unit. Buyer shall within sixty (60) days after the Closing
Date (as hereinafter defined) provide the requested cash or irrevocable stand-by
letter of credit sufficient to assume all of Sellers obligations under the Site
Specific Trust Account and to cause the Seller to be released from its financial
obligations thereunder.
1.4. "CLOSING" shall be as defined in Section 13.1.
1.5. "CLOSING DATE" shall be as defined in Section 13.1.
1.6. "EFFECTIVE TIME" shall mean 7:00 a.m., local time, on June 1, 2006.
1.7. "ENVIRONMENTAL DEFECT" shall mean: (i) a condition or activity with
respect to an Asset that is in material violation, or reasonably likely to
materially violate, any federal, state or local statute, or any rule, order,
ruling or regulation entered, issued or made by any court, administrative
agency, or other governmental body or entity, federal, state, or local, or any
arbitrator ("ENVIRONMENTAL LAW"), or surface or mineral lease obligation,
whether an express or implied obligation, relating to natural resources,
conservation, the environment, or the emission, release, storage, treatment,
disposal, transportation, handling or management of industrial or solid waste,
hazardous waste, hazardous or toxic substances, chemicals or pollutants,
petroleum, including crude oil, natural gas, natural gas liquids, or liquefied
natural gas, and any wastes associated with the exploration and production of
oil and gas ("REGULATED SUBSTANCES"); or (ii) the presence of Regulated
Substances in the soil, groundwater, or surface water in, on, at or under an
Asset in any manner or quantity which is required to be remediated by
Environmental Law or by any applicable action or guidance levels or other
standards published by any governmental agency with jurisdiction over the
Assets, or by a surface or mineral lease obligation, whether an express or
implied obligation. Buyer and Seller agree that for a condition to be in
violation of any statute or regulation it shall not be necessary that Seller
shall be under notice of violation from a federal or state regulatory agency or
lessor.
The Parties agree and acknowledge that Buyer will be provided an
opportunity to examine the Assets for potential naturally occurring radioactive
materials ("NORM"), and any potential obligations with respect to NORM and that
the presence of NORM on any of the Assets, except with respect to inactive
wells, facilities, pipelines and other equipment, may not be raised by Buyer as
the subject of an Environmental Defect.
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1.8. "ENVIRONMENTAL OBLIGATIONS OR LIABILITIES" shall mean all
liabilities, obligations, expenses (including, without limitation, all
attorneys' fees), fines, penalties, costs, claims, suits or damages (including
natural resource damages) of any nature, associated with the Assets, and
attributable to or resulting from: (i) pollution or contamination of soil,
groundwater or air, on, in or under the Assets or lands in the vicinity thereof,
and any other contamination of or adverse effect upon the environment, (ii)
underground injection activities and waste disposal, (iii) clean-up responses,
remedial, control or compliance costs, including the required cleanup or
remediation of spills, pits, lakes, ponds, or lagoons, including any subsurface
or surface pollution caused by such spills, pits, lakes, ponds, or lagoons, (iv)
noncompliance with applicable land use, permitting, surface disturbance,
licensing or notification requirements, including those in a surface or mineral
lease, whether an express or implied obligation, (v) all obligations, whether
pursuant to an Environmental Law or a surface or mineral lease obligation,
whether express or implied, for plugging, replugging and abandoning any wells,
the restoration of any well sites, tank battery sites and gas plant sites, and
any other surface locations or sites, the proper removal, disposal and
abandonment of any wastes or fixtures, and the proper capping and burying of all
flow lines, which are included in the Assets; (vi) violation of any federal,
state or local Environmental Law or land use law, or surface or mineral lease
obligation, whether an express or implied obligation, and (vii) any other
violation which could qualify as an Environmental Defect. Notwithstanding
anything to the contrary set forth in, or implied by, this Section 1.8,
"Environmental Obligations or Liabilities" does not include (i) personal injury
or wrongful death occurring prior to the Effective Time or (ii) offsite waste
disposal occurring prior to the Effective Time.
1.9. "EXCLUDED ASSETS" shall mean the following:
(A) an overriding royalty interest in the Delhi Holt Bryant Unit equal to
the difference between twenty percent (20.0%) and the lessors' royalty,
overriding royalty and other burdens on production encumbering the Delhi Holt
Bryant Unit as of the Effective Time, which overriding royalty interest shall be
reserved by Seller in the Assignment and Conveyance attached as Exhibit "C".
Said reserved overriding royalty interest shall be free of any and all costs and
expenses associated with the exploration, production or operation of the Delhi
Holt Bryant Unit and shall be paid in the same manner as provided for with
respect to lessors.
(b) an undivided twenty five percent of eight eighths (25% of 8/8ths)
working interest in and to the Assets which are not included in the Delhi Holt
Bryant Unit. It being the intent of the Parties that the Seller shall convey to
the Buyer, at Closing, an undivided seventy five percent of eight eighths (75%
of 8/8ths) working interest in the Assets which are not included in the Delhi
Holt Bryant Unit, proportionately reduced to the interest owned by Seller, if
any.
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(c) any acquisitions of, or agreements to acquire, royalty interests in
the Leases, made by Seller prior to the Effective Time, which are identified and
described in Exhibit "K", and no additional offers to acquire such royalty
interest have been or will be made by Seller after May 1, 2006.
(d) an undivided reversionary working interest of twenty-five percent of
eight eighths (25.0% of 8/8ths ) and a net revenue interest of twenty percent of
eight eighths (20.0% of 8/8ths), in the Delhi Holt Bryant Unit, (collectively,
the "Reversionary Interests"), at such time as the Buyer has achieved "Payout"
of the Delhi Holt Bryant Unit. "Payout" shall be defined as that point in time
when Buyer has received "Total Net Cash Flow" from Buyer's operation in and on
the Delhi Holt Bryant Unit in the amount of two hundred million and no/100
dollars ($200,000,000.00). It being the intent of the parties that the Seller
shall convey to the Buyer at Closing an undivided one hundred percent (100%)
working interest and an eighty percent (80%) net revenue interest in the Delhi
Holt Bryant Unit, subject to the Seller's Reversionary Interests. Seller's
Reversionary Interests as set forth above will be proportionately reduced in the
event Buyer's actual working interest and/or net revenue interest, respectively,
acquired by virtue of this Agreement are less than the interest set forth above.
Seller's Reversionary Interests shall automatically revert to the Seller once
"Payout" has been achieved, without any further action on the part of the
Seller. Seller's Reversionary Interests will be effective on the first day of
the month next succeeding the point in time in which "Payout" has occurred.
Within fifteen (15) days after "Payout" has occurred, Buyer shall provide Seller
with an Assignment of the Seller's Reversionary Interests, which will be free
and clear of all liens and encumbrances of any kind. Seller's Reversionary
Interests shall be subject to the following additional terms and provisions:
(1) Total Net Cash Flow for purposes of this Agreement and as
utilized in determining when "Payout" has occurred, is defined as being
the excess of Net Revenues from the Delhi Holt Bryant Unit over all
Operating Costs for the Delhi Holt Bryant Unit, being all costs and
expenses to operate, maintain and produce the Delhi Holt Bryant Unit, but
excluding capital costs and capital expenditures (including those set
forth in Section 3.4). Net Revenues are defined as being gross revenues
from the Delhi Holt Bryant Unit operations less any applicable federal,
state and local taxes (including excise, production, severance, sales, and
ad valorem taxes, but excluding any income based taxes) and less revenue
attributable to royalties, Seller's reserved overriding royalty interest,
and any other overriding royalty interests, production payments, net
profit interest and similar interests or burdens of record prior to or as
of the Effective Time. Operating Costs used in computing Total Net Cash
Flow shall be the total Delhi Holt Bryant Unit operating costs and
expenses (including administrative overhead charges) actually incurred and
expended by the Operator and charged to the joint account by the Operator,
as set forth in the Accounting Procedure of the Unit Operating Agreement,
deemed transportation costs to deliver CO2 to the Delhi Holt Bryant Unit
[being the stipulated and agreed costs set forth in subparagraph 1.9
(b)(2) below], deemed costs for CO2 delivered to the Delhi Holt Bryant
Unit [being the stipulated and agreed costs set forth in subparagraph 1.9
(b)(2) below]. An "mcf" of CO2 shall be 1000 cubic feet of CO2 at standard
conditions.
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(2) If CO2 is used by Buyer for enhanced oil production from the
Delhi Holt Bryant Unit, Buyer shall act as a reasonable prudent operator
in delivering C02 to the Delhi Holt Bryant Unit in a timely manner and in
sufficient quantities to efficiently conduct operations to enhance oil
production Buyer will deliver CO2 to the Delhi Holt Bryant Unit at a
pipeline pressure of 1100 psi for a fixed transportation cost per standard
mcf of twenty cents ($.20), for a period of time not to exceed ten (10)
years from the date of first pipeline deliveries of CO2 to the Delhi Holt
Bryant Unit. The agreed cost for the CO2 delivered to the Delhi Holt
Bryant Unit will be equal to one percent (1%) of the price per barrel of
crude oil sold from the Delhi Holt Bryant Unit per standard mcf of CO2 as
determined each month. The agreed cost of the CO2 delivered by the Buyer
to the Delhi Holt Bryant Unit shall not increase for the entire life of
the CO2 operations conducted on the Delhi Holt Bryant Unit. The above
transportation costs and costs for CO2 are stipulated by the Parties to be
the deemed costs for purposes of the Delhi Holt Bryant Unit, regardless of
actual costs or other factors or circumstances. All CO2 injected into the
Delhi Holt Bryant Unit shall be owned by the working interest owners
proportionate to their interests. Any CO2 delivered to the Delhi Holt
Bryant Unit and used by Buyer for any purpose other than in the Delhi Holt
Bryant Unit shall be credited to the Total Net Cash Flow calculation as
revenue at the same cost that the CO2 is charged as provided above.
(3) Costs associated with building, owning, operating, and
maintaining CO2 pipelines used by Buyer to deliver CO2 to the Delhi Holt
Bryant Unit and within the Delhi Holt Bryant Unit, including pipelines
from the source field for the CO2, shall not be included in the
computation of the costs used to determine Total Net Cash Flow or
"Payout", but shall only be used in computing the capital expenditure
commitment set forth in Section 3.4. All such CO2 pipelines shall be owned
solely by Buyer, and Seller shall not have or be entitled to any interest
in such pipelines, reversionary or otherwise.
(4) Seller's Reversionary Interests in the Delhi Holt Bryant Unit,
after it reverts shall be subject to the terms and provisions of the Unit
Operating Agreement. After such Reversionary Interests revert to Seller,
Seller shall be liable for and shall assume and pay its proportionate
working interest share of all subsequent costs associated with its working
interest in the Delhi Holt Bryant Unit, including capital costs.
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(5) If for any reason Seller desires not to accept the Reversionary
Interests provided for in this Paragraph (b), and the obligations and
liabilities associated with such Reversionary Interests, Seller may
decline to accept such Interests by notifying Buyer in writing on or
before fifteen (15) days after the effective date of reversion. After
receipt of such a notice, Seller's right to the Reversionary Interests
will terminate.
(6) Prior to Payout Buyer shall provide to Seller (i) on a monthly
basis operating reports covering revenues, operating expenses, capital
expenditures, production and injection volumes and product prices
received; and (ii) a quarterly statement (with all supporting
documentation) identifying the status of Total Net Cash Flow amounts and
Payout Statement for the Delhi Holt Bryant Unit; and (iii) Buyer shall
further provide Seller with quarterly reports including historical and
prospective technical information relating to the Delhi Holt Bryant Unit
including, but not limited to injection and production data on a field and
well basis, well logs, cores, tests and any other data necessary for
Seller to perform its own technical analysis; and (iv) the right to
request an annual technical presentation to be presented to Seller by the
appropriate technical staff of Buyer. Seller shall have the right to
conduct an annual audit of the accounts and records of Buyer (at a
mutually convenient time during Assignor's normal business hours and in
accordance with the Council of Petroleum Accountants Society guidelines
and practices for audits by working interest owners) to verify the
accounting for the Total Net Cash Flow amount and Payout. Such audits may
be performed by Seller directly or through an independent accounting firm
of its choice, but in each case at the Seller's sole cost and expense.
Notwithstanding the above, all Payout accounting by Buyer during any
calendar year shall conclusively be presumed true and correct after twenty
four months following the end of any such calendar year, unless within the
said twenty four month period, Seller takes written exception thereto and
makes claim on Buyer for adjustments.
(c) (i) all trade credits, accounts receivable, notes receivable and other
receivables attributable to Seller's interest in the Assets with respect to any
period of time prior to the Effective Time; (ii) all deposits, cash, checks in
process of collection, cash equivalents and funds attributable to Seller's
interest in the Assets with respect to any period of time prior to the Effective
Time; and (iii) all proceeds, benefits, income or revenues accruing with respect
to the Assets prior to the Effective Time;
(d) all corporate, financial, and tax records of Seller; however, Buyer
shall be entitled to receive copies of any tax records which directly relate to
any Assumed Obligations, or which are necessary for Buyer's ownership,
administration, or operation of the Assets;
(e) all claims and causes of action of Seller arising from acts, omissions
or events, or damage to or destruction of the Assets, occurring prior to the
Effective Time; provided, however, Seller shall transfer to Buyer all claims and
causes of action of Seller against prior owners of the Assets or third parties
for Environmental Obligations or Liabilities that are not Retained Environmental
Obligations or Liabilities;
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(f) except as otherwise provided in Article 15, all rights, titles, claims
and interests of Seller relating to the Assets prior to the Effective Time (i)
under any policy or agreement of insurance or indemnity; (ii) under any bond; or
(iii) to any insurance or condemnation proceeds or awards;
(g) all Hydrocarbons produced from or attributable to the Assets with
respect to all periods prior to the Effective Time, together with all proceeds
from or of such Hydrocarbons, except the Inventory Hydrocarbons and the unsold
inventory of gas plant products, if any, attributable to the Leases as of the
Effective Time;
(h) claims of Seller for refund of or loss carry forwards with respect to
production, windfall profit, severance, ad valorem or any other taxes
attributable to any period prior to the Effective Time, or income or franchise
taxes;
(i) all amounts due or payable to Seller as adjustments or refunds under
any contracts or agreements (including take-or-pay claims) affecting the Assets
with respect to any period prior to the Effective Time;
(j) all amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets with respect to any period prior to the Effective
Time;
(k) all proceeds, benefits, income or revenues accruing (and any security
or other deposits made) with respect to the Assets, and all accounts receivable
attributable to the Assets, prior to the Effective Time; and
(l) all of Seller's intellectual property, including, but not limited to,
proprietary computer software, patents, trade secrets, copyrights, names, marks
and logos.
1.10. "HYDROCARBONS" shall mean crude oil, natural gas, casinghead gas,
condensate, sulphur, natural gas liquids and other liquid or gaseous
hydrocarbons (including CO2), and shall also refer to all other minerals of
every kind and character which may be covered by or included in the Leases and
Assets.
1.11. "INVENTORY HYDROCARBONS" shall mean all merchantable oil and
condensate (for oil or liquids in storage tanks, being only that oil or liquids
physically above the top of the inlet connection into such tanks) produced from
or attributable to the Leases prior to the Effective Time which have not been
sold by Seller and are in storage at the Effective Time.
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1.12. "LEASES" shall mean, except to the extent constituting Excluded
Assets, any and all interests owned by Seller, including but without limitation
those set forth on Exhibit "A," or which Seller is entitled to receive by reason
of any participation, joint venture, farmin, farmout, joint operating agreement,
unitization agreement, or other agreement, in and to the oil, gas and/or mineral
leases, permits, licenses, concessions, leasehold estates, royalty interests,
overriding royalty interests, net revenue interests, executory interests, net
profit interests, working interests, reversionary interests, mineral interests,
and any other interests of Seller in Hydrocarbons, in the Delhi Holt Bryant
Unit, Franklin, Madison and Richland Parishes, Louisiana (referred to herein as
the "Delhi Holt Bryant Unit" as more fully described below), and in those lands
located within the aerial boundaries of the Delhi Holt Bryant Unit (the "Delhi
Holt Bryant Unit Lands" as more fully described below) , it being the intent
hereof that the leases, properties and interests and the legal descriptions and
depth limitations set forth on Exhibit "A," or in instruments described in
Exhibit "A," if any, are for information only and the term "Leases" includes all
of Seller's right, title and interest in the above described Hydrocarbon
interests in the Delhi Holt Bryant Unit and in the Delhi Holt Bryant Unit Lands,
other than the Excluded Assets, including but not limited to those described on
Exhibit "A," or in instruments described in Exhibit "A," even though such
interests may be incorrectly described in Exhibit "A" or omitted from Exhibit
"A". For purposes of this Agreement, the Delhi Holt Bryant Unit in Franklin,
Madison and Richland Parishes, Louisiana, shall be as described in and governed
by Louisiana Department of Natural Resources, Office of Conservation Orders
Nos.96-F, 96-F-1, 96-G-4 and 96-G-5, as amended and supplemented. The Delhi Holt
Bryant Unit Lands, being those lands within the aerial boundaries of the Delhi
Holt Bryant Unit, as to all depths, are described in Exhibit "A-1",
1.13. "PERFORMANCE DEPOSIT" shall be as defined in Section 3.2.
1.14. "REAL PROPERTY, PERSONAL PROPERTY AND INCIDENTAL RIGHTS" shall mean
all right, title and interest of Seller in and to or derived from the following
insofar as the same do not constitute Excluded Assets and are attributable to,
appurtenant to, incidental to, or used for the operation of the Leases:
(a) all interests in the surface estate in Delhi Holt Bryant Unit Lands,
including but not limited to those described on Exhibit "A";
(b) all easements, rights-of-way, surface leases, permits, licenses,
servitudes or other interests relating to the use of the surface, including but
not limited to those described on Exhibit "A," or in instruments described in
Exhibit "A";
(c) all wells, including but not limited to those listed on Exhibit "A-2"
attached hereto, whether or not such wells are active or inactive, along with
all equipment and other personal property, inventory, spare parts, tools,
fixtures, pipelines, dehydration facilities, platforms, tank batteries,
appurtenances, and improvements situated upon the Leases as of the Effective
Time and used or held for use in connection with the development or operation of
the Leases or the production, treatment, storage, compression, processing or
transportation of Hydrocarbons from or in the wells or Leases;
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(d) all unit agreements, orders and decisions of state and federal
regulatory authorities establishing units, joint operating agreements, enhanced
recovery and injection agreements, farmout agreements and farmin agreements,
options, drilling agreements, exploration agreements, assignments of operating
rights, working interests, subleases and rights above or below certain footage
depths or geological formations, to the extent same is attributable to the
Assets, as of the Effective Time, including but not limited to those described
on Exhibit "A";
(e) all contracts, agreements, and title instruments to the extent
attributable to and affecting the Assets in existence at Closing, including all
Hydrocarbon sales, purchase, gathering, transportation, treating, marketing,
exchange, processing, disposal and fractionating contracts, joint operating
agreements, including but not limited to those described on Exhibit "A"; and
(f) originals of all lease files, land files, well files, production
records, division order files (including paysheets and supporting files),
abstracts, title opinions, and contract files, insofar as the same are directly
related to the Leases; including, without limitation, all geological,
information and data, to the extent that such data is not subject to any third
party restrictions, but excluding Seller's proprietary interpretations of same.
1.15. "PURCHASE PRICE" shall be as defined in Section 3.1.
1.16 "RETAINED ENVIRONMENTAL OBLIGATIONS OR LIABILITIES" shall mean, (i)
any Environmental Obligations or Liabilities of any nature related to the
Excluded Assets, and (ii) any Environmental Obligations or Liabilities
associated with the Assets which arose prior to the Effective Time.
Notwithstanding anything herein to the contrary, Retained Environmental
Obligations or Liabilities shall not include any Environmental Obligations or
Liabilities that (a) relate to NORM, or (b) relate to the plugging and
abandonment of the wells listed on Exhibit "A-2" and any related surface
restoration of these well sites, or (c) resulted from or relate to an activity
or a condition with the Assets first occurring after the Effective Time.
1.17. "RETAINED OBLIGATIONS" shall mean all liabilities, duties, and
obligations that arise out of the ownership, operation or use of the Assets
prior to the Effective Time, including, but not limited to, all liabilities,
duties, and obligations, express or implied, imposed upon Seller herein under
the provisions of the Leases and any and all assignments, subleases, farmout
agreements, assignments of overriding royalty, joint operating agreements,
easements, rights-of-way, and all other contracts, agreements and instruments
affecting the Leases, or the premises covered thereby, whether recorded or
unrecorded, and under all applicable laws, rules, regulations, orders and
ordinances, including but not limited to the claims and suits set forth in
Exhibit "F", except for those specifically included in the definition of
"Assumed Obligations."
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1.18. "UNIT OPERATING AGREEMENT" shall mean that certain unit operating
agreement dated August 5, 1952, covering the Delhi Holt Bryant Unit, as may be
amended, and which is attached hereto as Exhibit J.
ARTICLE 2. - AGREEMENT TO PURCHASE AND SELL
Subject to the terms and conditions of this Agreement, Seller agrees to
sell and convey to Buyer and Buyer agrees to purchase and pay for the Assets and
to assume the Assumed Obligations.
ARTICLE 3. - PURCHASE PRICE AND PAYMENT
3.1. PURCHASE PRICE.
Subject to adjustment as set forth below, the Purchase Price for the
Assets shall be fifty million dollars ($50,000,000.00), allocated among the
Assets as provided in Exhibit "B."
3.2. PERFORMANCE DEPOSIT.
Immediately upon the execution hereof, Buyer shall tender to Seller, by
bank wire transfer, a Performance Deposit equal to five million dollars
($5,000,000.00), being ten percent (10.0%) of the Purchase Price, which
Performance Deposit shall be non-interest-bearing and non-refundable except as
provided herein. If the Performance Deposit is not received by Seller by the
close of business on the second business day after the execution of this
Agreement, this Agreement shall be null and void, and the Parties shall have no
further obligation to each other hereunder.
3.3. FINAL SETTLEMENT/PURCHASE PRICE ADJUSTMENTS.
Within one hundred twenty (120) days after Closing, Seller shall provide
to Buyer, for Buyer's concurrence, an accounting (the "Final Settlement
Statement") of the actual amounts of Seller's and Buyer's Credits for the
adjustments set out in this Section 3.3. Buyer shall have the right for thirty
(30) days after receipt of the Final Settlement Statement to audit and take
exceptions to such adjustments. The Parties shall attempt to resolve any
disagreements on a best efforts basis. Those credits agreed upon by Buyer and
Seller shall be netted and the final settlement shall be paid as directed in
writing by the receiving party, on final adjustment by the party owing it (the
"FINAL SETTLEMENT").
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The Purchase Price shall be adjusted as follows:
(a) The Purchase Price shall be adjusted upward by the following
("SELLER'S CREDITS"):
(1) the value of (i) all Inventory Hydrocarbons, such value to be
based upon the existing contract price for crude oil in effect as of the
Effective Time, less severance taxes, transportation fees and other fees
deducted by the purchaser of such oil, such oil to be measured at the
Effective Time by the operators of the Assets; and (ii) the value of all
of Seller's unsold inventory of gas plant products, if any, attributable
to the Leases at the Effective Time valued in the same manner as if such
products had been sold under the contract then in existence between Seller
and the purchaser of such products or, if there is no such contract,
valued in the same manner as if said products had been sold at the posted
price in the field for said products;
(2) the amount of all production expenses, operating expenses and
all expenditures attributable to the operation of the Assets after the
Effective Time and accrued by Seller prior to the Closing Date in
accordance with generally accepted accounting principles and Section 11.1;
(3) an amount equal to the sum of any upward adjustments provided
elsewhere in this Agreement; and
(4) any other amount agreed upon by Seller and Buyer in writing
prior to Closing.
(b) The Purchase Price shall be adjusted downward by the following
("Buyer's Credits"):
(1) the total collected sales value of all Hydrocarbons sold by the
Seller after the Effective Time, all of which are attributable to the
Assets, and any other monies collected by the Seller with respect to the
ownership of the Assets after the Effective Time, but excepting interest
income.
(2) the amount of all unpaid ad valorem, property, production,
excise, severance and similar taxes and assessments (but not including
income taxes), which taxes and assessments become due and payable or
accrue to the Assets prior to the Effective Time, which amount shall,
where possible, be computed based upon the tax rate and values applicable
to the tax period in question; otherwise, the amount of the adjustment
under this paragraph shall be computed based upon such taxes assessed
against the applicable portion of the Assets for the immediately preceding
tax period just ended;
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(3) an amount equal to the sum of any downward adjustments provided
elsewhere in this Agreement; and
(4) any other amount agreed upon by Seller and Buyer in writing
prior to Closing.
(c) Seller shall prepare and deliver to Buyer, at least five business days
prior to Closing, Seller's estimate of the adjusted Purchase Price to be paid at
Closing, together with a preliminary statement setting forth Seller's estimate
of the amount of each adjustment to the Purchase Price to be made pursuant to
this Section 3.3. The Parties shall negotiate in good faith and attempt to agree
on such estimated adjustments prior to Closing. In the event any estimated
adjustment amounts are not agreed upon prior to Closing, the estimate of the
adjusted Purchase Price for purposes of Closing shall be calculated based on
Seller's and Buyer's agreed upon estimated adjustments and Seller's good faith
estimate of any disputed amounts (and any such disputes shall be resolved by the
Parties in connection with the resolution of the Final Settlement Statement).
3.4 ADDITIONAL CAPITAL EXPENDITURE COMMITMENT BY BUYER.
(a) As additional consideration for the execution of this Agreement
by Seller, Buyer agrees to spend one hundred million dollars ($100,000,000.00)
of cumulative capital expenditures (the "Required Cumulative Capital Expenditure
Amounts") for the development of enhanced production operation of the Delhi Holt
Bryant Unit, which will include but is not limited to the cost of field
development, facilities and CO2 delivery pipelines. Buyer shall make the
Required Cumulative Capital Expenditures Amounts on or before the Commitment
Dates set forth below:
"COMMITMENT DATE" "REQUIRED CUMULATIVE CAPITAL EXPENDITURE AMOUNT"
- --------------------------------------------------------------------------------
December 31, 2007 $17,500,000
December 31, 2008 $35,000,000
December 31, 2009 $52,500,000
December 31, 2010 $70,000,000
December 31, 2011 $87,500,000
December 31, 2012 $100,000,000
If the Buyer spends in excess of one hundred million dollars ($100,000,000.00)
prior to the end of December 31, 2012, the development obligation has been
fulfilled.
(b) In the event Buyer fails to expend the Required Cumulative Capital
Expenditure Amounts by the Commitment Dates set forth in (b) above, Seller shall
be entitled to a cash payment equal to ten percent, (10.0%) of the difference
between the Required Cumulative Capital Expenditure Amounts for the applicable
Commitment Date and the cumulative capital expenditures actually expended by
Buyer from the Effective Date through such applicable Commitment Date
(hereinafter referred to as the "SHORTAGE PAYMENT"). Said Shortage Payment shall
be paid by Buyer to Seller within thirty (30) days after each Commitment Date.
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ARTICLE 4. - SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer as of the date hereof, and the
Closing Date that:
(a) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and is duly qualified to carry
on its business in Louisiana;
(b) Seller has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the other documents and
agreements contemplated hereby, and to perform its obligations under this
Agreement and the other documents and agreements contemplated hereby. Effective
as of Closing, the consummation of the transactions contemplated by this
Agreement will not violate, nor be in conflict with, any provision of its
governing documents or any agreement or instrument to which it is a party or by
which it is bound (except any provision contained in agreements customary in the
oil and gas industry relating to (1) the Preferential Purchase Rights (defined
below) as to all or any portion of the Assets; (2) required consents to transfer
and related provisions; (3) maintenance of uniform interest provisions; and (4)
any other third-party approvals or consents contemplated herein), or any
judgment, decree, order, statute, rule, or regulation applicable to Seller;
(c) This Agreement, and all documents and instruments required hereunder
to be executed and delivered by Seller at Closing, constitute legal, valid and
binding obligations of Seller in accordance with its respective terms, subject
to applicable bankruptcy and other similar laws of general application with
respect to creditors;
(d) There are no bankruptcy, reorganization or receivership proceedings
pending, being contemplated by, or to the actual knowledge of Seller threatened
against Seller;
(e) The execution, delivery and performance (effective as of Closing) of
this Agreement, and the transaction contemplated hereunder have been duly and
validly authorized by all requisite authorizing action, corporate, partnership
or otherwise, on the part of Seller.
(f) Seller has not incurred any obligation or liability, contingent or
otherwise, for brokers' or finders' fees in connection with this Agreement and
the transaction provided herein;
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(g) Other than as set forth in Exhibit "F", there are no claims,
investigations, demands, actions, suits, or administrative, legal or arbitration
proceedings (including condemnation, expropriation, or forfeiture proceedings)
pending, or to the knowledge of Seller threatened, against Seller or any of its
affiliates, or any Asset: (i) seeking to prevent the consummation of the
transactions contemplated hereby, or (ii) which, individually or in the
aggregate, would adversely affect the Assets.
(h) Seller has not intentionally or willfully misrepresented or omitted
any material information requested by Buyer about the Assets;
(i) The transfer of the Assets to Buyer will not violate at the Closing
Date any covenants or restrictions imposed on Seller by any bank or other
financial institution in connection with a mortgage or other instrument, and
will not result in the creation or imposition of a lien on any portion of the
Assets;
(j) Except as disclosed by Seller in writing, if Seller is the operator of
an Asset, to Seller's knowledge, it is in material compliance with all laws,
rules, regulations and orders pertaining to the Assets, including Environmental
Laws, which representation and warranty shall not survive the Closing of the
transaction contemplated by this Agreement;
(k) Except as disclosed by Seller in writing, if Seller is the operator of
an Asset, to Seller's knowledge, it has all governmental permits necessary for
the operation of the Asset and is not in material default under any permit,
license or agreement relating to the operation and maintenance of the Assets,
which representation and warranty shall not survive the Closing of the
transaction contemplated by this Agreement;
(l) Except as set forth on Exhibit "H", there are no waivers, consents to
assign, approvals or similar rights owned by third parties and required in
connection with the conveyance of the Assets from Seller to Buyer;
(m) Except as set forth on Exhibit "H", there are no rights of first
refusal, preferential rights, preemptive rights or contracts, or other
commitments or understandings of a similar nature to which Seller is a part or
to which the Assets are subject;
(n) No Hydrocarbons produced or to be produced from the Leases are subject
to any gas sales contracts other than those identified on Exhibit "H" and, no
third party has any call upon, option to purchase, dedication rights or similar
rights with respect to the hydrocarbons produced to be produced from Seller's
interest in the Leases; and
(o) Except as set forth on Exhibit "G", there are no oil or gas production
imbalances with respect to the Leases;
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ARTICLE 5. - BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as of the date hereof, and the
Closing Date that:
(a) Buyer is a limited liability company duly organized, validly existing,
and in good standing under the laws of the state of Delaware, and is duly
qualified to carry on its business in those states where it is required to do
so;
(b) Buyer has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the other documents and
agreements contemplated hereby, and to perform its obligations under this
Agreement and the other documents and agreements contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, nor be in conflict with, any provision of Buyer's articles of
incorporation, partnership agreement(s), by-laws or governing documents or any
agreement or instrument to which it is a party or by which it is bound, or any
judgment, decree, order, statute, rule, or regulation applicable to Buyer;
(c) the execution, delivery and performance of this Agreement and the
transactions contemplated hereunder have been duly and validly authorized by all
requisite authorizing action, corporate, partnership or otherwise, on the part
of Buyer;
(d) this Agreement, and all documents and instruments required hereunder
to be executed and delivered by Buyer at Closing, constitute legal, valid and
binding obligations of Buyer in accordance with their respective terms, subject
to applicable bankruptcy and other similar laws of general application with
respect to creditors;
(e) there are no bankruptcy, reorganization or receivership proceedings
pending, being contemplated by, or to the actual knowledge of Buyer threatened
against Buyer;
(f) Buyer has not incurred any obligation or liability, contingent or
otherwise, for brokers' or finders' fees in connection with this Agreement and
the transaction provided herein;
(g) Buyer is an experienced and knowledgeable investor and operator in the
oil and gas business. Prior to entering into this Agreement, Buyer was advised
by and has relied solely on its own expertise and legal, tax, reservoir
engineering, accounting, and other professional counsel concerning this
Agreement, the Assets and the value thereof;
15
(h) Buyer has, or by Closing will have, the financial resources to close
the transaction contemplated by this Agreement, whether by third party financing
or otherwise; and
(i) Buyer acknowledges the existence of the claims and suits described in
Exhibit "F" and that these claims and suits are Permitted Encumbrances as set
forth in Section 8.1(e). Buyer further acknowledges that Buyer has, or by
Closing will have, legal counsel of its choice fully review those claims and
suits identified on Exhibit "F".
ARTICLE 6. - ACCESS TO INFORMATION AND INSPECTIONS
6.1. TITLE FILES.
Promptly after the execution of this Agreement and until the Closing Date,
Seller shall permit Buyer and its representatives at reasonable times during
normal business hours to examine, in Seller's offices at their actual location,
all abstracts of title, title opinions, title files, ownership maps, lease
files, assignments, division orders, payout statements, title curative, other
title materials and agreements pertaining to the Assets as requested by Buyer,
insofar as the same may now be in existence and in the possession of Seller. No
warranty of any kind is made by Seller as to the information so supplied, and
Buyer agrees that any conclusions drawn therefrom are the result of its own
independent review and judgment.
6.2. OTHER FILES.
Promptly after the execution of this Agreement and until the Closing Date,
Seller shall permit Buyer and its representatives at reasonable times during
normal business hours to examine, in Seller's offices at their actual location,
all production, well, regulatory, engineering and geological information,
accounting information, environmental information, inspections and reports, and
other information, files, books, records, and data pertaining to the Assets as
requested by Buyer, insofar as the same may now be in existence and in the
possession of Seller, excepting economic evaluations and Seller's proprietary
interpretations of same, reserve reports and any such information that is
subject to confidentiality agreements or to the attorney/client and work product
privileges. No warranty of any kind is made by Seller as to the information so
supplied, and Buyer agrees that any conclusions drawn therefrom are the result
of its own independent review and judgment.
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6.3. CONFIDENTIALITY AGREEMENT.
All information made available to Buyer pursuant to Article 6 shall be
maintained confidential by Buyer until Closing. The information protected by
such confidentiality obligation does not include any information that (i) at the
time of disclosure is generally available to and known by the public (other than
as a result of a disclosure by Buyer), or which after such disclosure comes into
the public domain through no fault of Buyer or its representatives, or (ii) is
or was available to Buyer on a nonconfidential basis, or (iii) is already known
to Buyer, as evidenced by Buyer's written records, at the time of its disclosure
by Seller to Buyer. Buyer may disclose the information or portions thereof to
those employees, agents or representatives of Buyer who need to know such
information for the purpose of assisting Buyer in connection with its
performance of this Agreement. Further, in the event that Buyer is requested or
required (by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process) to disclose any of the information,
Buyer shall provide Seller with prompt written notice of such request or
requirement, so that Seller may seek such protective order or other appropriate
remedy as it may desire. Buyer shall further take reasonable steps to ensure
that Buyer's employees, consultants and agents comply with the provisions of
this Section 6.3.
6.4. INSPECTIONS.
Promptly after the execution of this Agreement and until Closing, Seller,
subject to any necessary third-party operator approval, shall permit Buyer and
its representatives at reasonable times and at their sole risk, cost and
expense, to conduct reasonable inspections of the Assets for all purposes,
including any Environmental Defects.
6.5. NO WARRANTY OR REPRESENTATION ON SELLER'S INFORMATION.
EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE ACCURACY, COMPLETENESS,
OR MATERIALITY OF THE INFORMATION, RECORDS, AND DATA NOW, HERETOFORE, OR
HEREAFTER MADE AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS OR THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, QUALITY
OR QUANTITY OF HYDROCARBON RESERVES, IF ANY, PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES, GAS BALANCING INFORMATION, ALLOWABLES OR OTHER
REGULATORY MATTERS, POTENTIAL FOR PRODUCTION OF HYDROCARBONS FROM THE ASSETS, OR
ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY OTHER MATERIAL FURNISHED TO
BUYER BY SELLER. ANY AND ALL SUCH DATA, INFORMATION AND MATERIAL FURNISHED BY
SELLER IS PROVIDED AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR USE OF SAME IS
AT BUYER'S SOLE RISK.
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6.6. AMENDMENTS TO EXHIBITS.
Seller and Buyer acknowledge that Buyer's inspection of Seller's records
and files, or further review by Seller, prior to Closing may indicate that some
or all of the Exhibits attached to this Agreement were not complete or entirely
correct at the time of execution of this Agreement. Accordingly, Seller and
Buyer agree to revise and amend the Exhibits, as needed, so that they will be
complete and accurate at Closing and shall be given effect as if made on the
Closing Date prior to Closing, in the event Closing occurs. It is understood,
however, that such revisions or amendments shall not otherwise be taken into
account in giving effect to any representations, rights, options, conditions,
covenants and obligations of the Parties contained in this Agreement as
originally executed unless and until after Closing occurs.
ARTICLE 7. - ENVIRONMENTAL MATTERS AND ADJUSTMENTS
7.1. Upon execution of and pursuant to the terms of this Agreement, Buyer
shall have the right, at reasonable times during normal business hours, to
conduct its investigation into the status of the physical and environmental
condition of the Assets. If, in the course of conducting such investigation,
Buyer discovers that any Asset is subject to a material Environmental Defect,
Buyer may raise such Environmental Defect in the manner set forth hereafter. For
purposes hereof, the term "material" shall mean that the Buyer's good faith
estimate, supported by documentation, of the cost of remediating any single
Environmental Defect, or the net reduction in value of the Asset affected by
such Defect, whichever is lesser, exceeds twenty five thousand dollars
($25,000.00), the Parties agreeing that such amount will be a per Asset
deductible rather than a threshold. No later than 5:00 p.m. Central Time on May
22, 2006 (the "Environmental Defect Notice Date"), Buyer shall notify Seller in
writing specifying such Environmental Defects, if any, the Assets affected
thereby, and Buyer's good faith estimate of the costs of remediating such
defects, or the net reduction in value of the Assets affected by such defects,
whichever is lesser, together with supporting documentation. Seller may, but
shall be under no obligation to, correct at its own cost and expense such
defects on or before the Closing Date, in which case there shall be no reduction
to the Purchase Price. Prior to Closing, Buyer and Seller shall treat all
information regarding any environmental conditions as confidential, whether
material or not, and shall not make any contact with any governmental authority
or third party regarding same without the written consent of the other party
unless required by law.
7.2. If Buyer fails to notify Seller prior to or on the Environmental
Defect Notice Date, of any Environmental Defects, all defects, whether known or
unknown, will be deemed waived for purposes of adjustments pursuant to this
Article 7, the Parties shall proceed with Closing, Seller shall be under no
obligation to correct the defects, and Buyer shall assume the risks, liability
and obligations associated with such defects, unless such defects constitute
Retained Environmental Obligations or Liabilities of Seller.
7.3. In the event any Environmental Defect, for which notice has been
timely given as provided hereinabove, remains uncured as of Closing, Seller, at
its sole option, shall, (i) agree to cure or remediate any Defect within a
reasonable time after Closing and without any reduction to the Purchase Price in
a manner acceptable to both Parties, or (ii) reduce the Purchase Price by the
amount of the Environmental Defect Value as determined pursuant to Section 8.4,
and subject to application of the twenty five thousand dollars ($25,000.00)
deductible and the Aggregate Defect Basket described in Section 7.4.
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7.4 The Parties agree that adjustments to the Purchase Price under this
Article 7 and Article 8 shall only occur to the extent that the aggregate
Environmental Defects and Title Defects, collectively, exceed five hundred
thousand dollars ($500,000.00) (the "Aggregate Defect Basket") after taking the
applicable materiality deductible into account. For the avoidance of doubt and
by way of example only, if there are a total of two (2) Environmental Defects of
three hundred thousand dollars ($300,000.00) and two hundred thousand dollars
($200,000.00) and two (2) Title Defects of one hundred fifty thousand dollars
($150,000.00) and ten thousand dollars ($10,000.00), the total adjustment would
be seventy five thousand dollars ($75,000.00) [being two hundred seventy five
thousand dollars ($275,000.00) for Environmental Defect #1, plus one hundred
seventy five thousand dollars ($175,000.00) for Environmental Defect #2, plus
one hundred twenty five thousand dollars ($125,000.00) for Title Defect #1 and
zero ($0) for Title Defect #2, minus five hundred thousand dollars ($500,000.00)
for the Aggregate Defect Basket].
7.5 In the event any adjustment to the Purchase Price is made due to an
Environmental Defect raised by Buyer, the Parties shall proceed with Closing,
Seller shall be under no obligation to correct the Defect, and the Defect shall
become an Assumed Obligation of Seller.
ARTICLE 8. - TITLE DEFECTS AND ADJUSTMENTS
8.1. DEFINITIONS.
For purposes hereof, the terms set forth below shall have the meanings
assigned thereto.
(a) "ALLOCATED VALUE" shall mean the dollar amount allocated to each Asset
as set forth on Exhibit "B."
(b) "DEFENSIBLE TITLE", subject to and except for the Permitted
Encumbrances (as hereinafter defined), means:
(1) As to the Leases, such title held by Seller and reflected by
appropriate documentation properly filed in the official records of the
jurisdiction in which the Lease or Leases are located that (a) entitles
Seller and will entitle Buyer, after Closing, to own and receive and
retain, without suspension, reduction or termination, payment of revenues
for not less than a net revenue interest of at least eighty percent
(80.0%) of all oil and gas produced, saved and marketed from or
attributable to the Delhi Holt Bryant Unit, excluding Permitted
Encumbrances; (b) obligates Seller, and will obligate Buyer after Closing,
to bear one hundred percent (100.0%) of the costs and expenses relating to
the maintenance, development and operation of such Delhi Holt Bryant Unit,
; (c) the Leases are free and clear of any liens, claims or encumbrances
of any kind or character as of the Closing, except permitted encumbrances;
and (d) the Seller is not in default under a material provision of any
Lease, Unit Operating Agreement, or other contract or agreement affecting
the Leases;
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(2) As to personal property included in the Assets, record title to
such property is free and clear of any liens, claims or encumbrances of
any kind or character as of the Closing, except Permitted Encumbrances;
and
(3) As to all other Assets, (a) such Assets are free and clear of
any liens, claims or encumbrances of any kind or character as of the
Closing; and (b) the Seller is not in default under a material provision
of any Lease, operating agreement, or other contract or agreement
affecting such Assets.
(c) "Title Defect" shall mean (i) any matter which causes Seller to have
less than Defensible Title to any of the Assets as of the Closing Date, or (ii)
any matter that causes one or more of the following statements to be untrue,
except for Permitted Encumbrances:
(1) Seller has not received written notice from any governmental
authority or any other person (including employees) claiming any violation
of any law, rule, regulation, ordinance, order, decision or decree of any
governmental authority with respect to the Assets.
(2) Seller, or the Operator of an Asset, has complied in all
material respects with the provisions and requirements of all orders,
regulations and rules issued or promulgated by governmental authorities
having jurisdiction with respect to the Assets and has filed for and
obtained all governmental certificates, permits and other authorizations
necessary for Seller's current operation of the Assets other than permits,
consents and authorizations required for the sale and transfer of the
Assets to Buyer;
(3) Seller has not materially defaulted or materially violated any
agreement to which Seller is a party or any obligation to which Seller is
bound affecting or pertaining to the Assets other than as disclosed
hereunder or on any exhibit attached hereto;
(4) The Leases included within the Assets are in full force and
effect; and
20
(5) All taxes, rentals, royalties, operating costs and expenses, and
other costs and expenses related to the Assets which are due from or are
the responsibility of Seller have been paid.
(d) "TITLE DEFECT PROPERTY" shall mean any Lease or Asset or portion
thereof burdened by a Title Defect.
(e) "PERMITTED ENCUMBRANCES" shall mean any of the following matters:
(1) defects in the early chain of title consisting of failure to
recite marital status or the omission of succession or heirship
proceedings;
(2) defects or irregularities arising out of uncancelled mortgages,
judgments or liens, the inscriptions of which, on their face, have expired
as a matter of law prior to the Effective Time, or prior unreleased oil
and gas leases which, on their face, expired more than ten (10) years
prior to the Effective Time and have not been maintained in force and
effect by production or operations pursuant to the terms of such leases;
(3) tax liens and operator's liens for amounts not yet due and
payable, or those that are being contested in good faith by Seller in the
ordinary course of business;
(4) to the extent any of the following do not materially diminish
the value of, or impair the conduct of operations on, any of the Assets
and do not impair Seller's right to receive the revenues attributable
thereto: (i) easements, rights-of-way, servitudes, permits, surface leases
and other rights in respect of surface operations, pipelines, grazing,
hunting, fishing, logging, canals, ditches, lakes, reservoirs or the like,
(ii) easements for streets, alleys, highways, pipelines, telephone lines,
power lines, railways and other similar rights-of-way, on, over or in
respect of property owned or leased by Seller or over which Seller owns
rights of way, easements, permits or licenses, and (iii) the terms and
conditions of all leases, agreements, orders, instruments and documents
pertaining to the Assets;
(5) all lessors' royalties, overriding royalties, net profits
interests, carried interest, production payments, reversionary interests
and other burdens on or deductions from the proceeds of production if the
net cumulative effect of such burdens or deductions does not reduce the
net revenue interest of Seller in any well affected thereby to the extent
that Seller will not be able to deliver to Buyer at Closing, a net revenue
interest of at least eighty percent (80.0%) of all oil and gas produced,
saved and marketed from or attributable to the Delhi Holt Bryant Unit or
impair the right to receive revenues attributable thereto, it being
understood that the McGowan wellbores are not being delivered to Buyer;
21
(6) preferential rights to purchase and required third party
consents to assignments and similar agreements with respect to which
waivers or consents are obtained from the appropriate parties, or the
appropriate time period for asserting the rights has expired without an
exercise of the rights prior to the Closing Date;
(7) all rights to consent by, required notices to, filings with, or
other actions by governmental entities and tribal authorities in
connection with the sale or conveyance of oil and gas leases or interests
if they are customarily obtained subsequent to the sale or conveyance;
(8) defects or irregularities of title arising out of events or
transactions which have been barred by limitations or by acquisitive or
liberative prescription;
(9) any encumbrance or other matter having an aggregate adverse
effect on the value of the Assets of less than twenty five thousand
dollars ($25,000), the Parties agreeing that such amount will be a per
Asset deductible rather than a threshold;
(10) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any of
the Assets in any manner, and all applicable laws, rules and orders of
governmental authority; and
(11) any encumbrance or other matter (whether or not constituting a
"Title Defect") expressly waived in writing by Buyer or listed on Exhibit
"F", including the McGowan wellbores not delivered by Seller.
8.2. NOTICE OF TITLE DEFECTS.
No later than 5:00 p.m. Central Time on May 22, 2006 (the "TITLE DEFECT
NOTICE DATE"), Buyer may provide Seller written notice of any Title Defect along
with a description of those matters which, in Buyer's reasonable opinion,
constitute Title Defects and setting forth in detail Buyer's calculation of the
value for each Title Defect. Seller may elect, at its sole cost and expense, but
without obligation, to cure all or any portion of such Title Defects prior to
Closing, in a manner acceptable to both Parties, in which case no reduction in
the Purchase Price shall be made. Buyer's failure to deliver to Seller such
notice on or before the Defect Notice Date shall be deemed a waiver by Buyer of
all Title Defects, known or unknown, that Seller does not have notice of from
Buyer on such date. Any defect or deficiency concerning Seller's title to the
Assets not asserted by Buyer on or prior to the Title Defect Notice Date shall
be deemed waived by Buyer for purposes of any adjustment to the Purchase Price,
the Parties shall proceed with Closing, Seller shall be under no obligation to
correct the defects, and Buyer shall assume the risks, liability and obligations
associated with such defects. However, such waiver shall not effect or impair
the warranties of Seller set forth in Section 8.5 or the indemnity obligations
of Seller as set forth in Article 17.
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8.3. TITLE DEFECT ADJUSTMENT.
(a) In the event any Title Defect, for which notice has been timely given
as provided hereinabove, remains uncured as of Closing, Seller shall have the
opportunity to cure, until sixty (60) days after Closing ("CURE PERIOD"), such
Title Defect. In the alternative, Seller may elect to (i) cure such Title Defect
by indemnifying Buyer against any damages, claims or expenses that may arise out
of such Title Defect, subject to the provisions of Section 8.3(c) below, with no
reduction in the Purchase Price; or (ii) reduce the Purchase Price by an amount
equal to the Title Defect Value as determined pursuant to Section 8.4, and
subject to application of the twenty five thousand dollars ($25,000.00)
deductible and the Aggregate Defect Basket described in Section 7.4. Should
Seller elect either alternative "(i)" (indemnity) or "(ii)" (price reduction) in
this Section 8.3(a), those Assets affected by the Title Defect shall be
transferred to Buyer at Closing.
(b) If Seller elects to attempt to cure a Title Defect after Closing,
Closing with respect to the portion of the Assets affected by such Title Defect
will be deferred (the "Closing Deferred Property"). Closing with respect to all
other Assets will proceed as provided in this Agreement, but the Base Purchase
Price delivered to Seller at such initial Closing shall be reduced by the
Allocated Value of all Closing Deferred Properties. If Seller cures any Title
Defect within the Cure Period, then the Closing with respect to the Closing
Deferred Property for which such Title Defect has been cured will proceed and
will be finalized within seven (7) days following the end of the Cure Period. If
Seller fails or refuses to cure any Title Defect prior to the expiration of the
Cure Period, Seller shall notify Buyer in writing of such failure or refusal
promptly upon the expiration of the Cure Period. In this event, Buyer shall have
the right to elect by written notice to Seller, which notice shall be delivered
within seven (7) days after receipt by Buyer of Notice from Seller of such
failure or refusal to cure any such Title Defect, to waive all of the Title
Defects applicable to any Closing Deferred Property (which waived Title Defects
shall be deemed Permitted Encumbrances) and proceed to Closing on such Closing
Deferred Property. If Buyer does not elect to waive an existing Title Defect,
Seller shall retain the Closing Deferred Property and the Parties shall have no
further obligation with respect thereto. In the event that any such property is
retained by Seller and such property has been receiving revenue, without
complaint, for a period in excess of two (2) years, then Buyer agrees (i) not to
take any action to interfere with such revenue stream, and (ii) to the extent
that Buyer becomes payor of such revenue, to pay Seller such revenue upon
receipt of an indemnity agreement from Seller.
(c) The following provisions shall apply to an election by Seller under
the second sentence of Section 8.3(a) to cure a Title Defect by indemnifying
Buyer with regard to such Title Defect:
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(1) Seller's indemnity shall be limited to a period of two (2) years
from the Effective Time.
(2) In no event shall Seller's indemnity exceed the amount of the
Title Defect Value as determined under Section 8.4 hereof.
(3) Seller's indemnity shall be freely transferable by Buyer to its
successors and assigns of the Assets affected by such Title Defect,
including without limitation, any lender to Buyer and any purchaser of
such Assets, whether directly from Buyer or through any foreclosure
proceeding; and
(4) If the Title Defect Value, as determined under Section 8.4
hereof, individually or in the aggregate, for one or more Title Defects to
be covered by the Seller's indemnity exceeds seven hundred fifty thousand
dollars ($750,000.00) (after application of the appropriate deductible(s)
and without application of the Aggregate Defect Basket provided for in
Section 7.4), Seller shall have no right under the second sentence of
Section 8.3(a) to indemnify Buyer with regard to such Title Defects
without Buyer's consent.
(d) In the event any adjustment to the Purchase Price is made due to a
Title Defect raised by Buyer, the Parties shall proceed with Closing, Seller
shall be under no obligation to correct the Defect, and such Defect shall become
an Assumed Obligation of Seller.
8.4. ENVIRONMENTAL DEFECT AND TITLE DEFECT VALUES.
Upon timely delivery of notice of an Environmental or Title Defect, Buyer
and Seller shall use their best efforts to agree on the validity and value of
the claim for the purpose of making any adjustment to the Purchase Price based
on the provisions herein ("ENVIRONMENTAL OR TITLE DEFECT VALUE").
Notwithstanding anything to the contrary set forth herein, the Environmental or
Title Defect Value and any related adjustment to the Purchase Price shall in no
event exceed the Allocated Value of the affected Asset. In determining the Value
of an Environmental or Title Defect, it is the intent of the Parties to include,
to the extent possible, only that portion of the lands, leases and wells, or
other Assets, whether an undivided interest, separate interest or otherwise,
materially and adversely affected by the Defect. The following guidelines shall
be followed by the Parties in establishing the Value of any Environmental or
Title Defect for the purpose of adjusting the Purchase Price if (a) the validity
of the claim is agreed to by the Parties, (b) proper notice has been timely
given, and (c) subject to (i) application of the appropriate deductibles as set
forth in this agreement for Environmental Defects and Title Defects , and (ii)
application of the Aggregate Defect Basket requirement as set forth in Section
7.4 for Environmental and Title Defects:
(a) If the Title Defect is based on a difference in net revenue interest
or expense interest from that shown on Exhibit "B" for the affected property,
then the Purchase Price shall be proportionately reduced or increased as the
case may be.
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(b) If the Environmental or Title Defect is liquidated in amount (for
example, but not limited to, a lien, encumbrance, charge or penalty), then the
adjustment to the Purchase Price shall be the lesser of (1) the sum necessary to
be paid to the obligee to remove the Defect from the property, or (2) the
decrease in the fair market value of the Asset as a result of the Defect.
(c) If the Environmental or Title Defect represents an obligation or
burden upon the affected property for which the economic detriment is not
liquidated but can be estimated with reasonable certainty as agreed to by the
Parties, the adjustment to the Purchase Price shall be the sum necessary to
compensate Buyer at Closing for the adverse economic effect which the
Environmental or Title Defect will have on the affected property. This sum shall
be the lesser of (1) the cost of remediating the Defect, or (2) the decrease in
the fair market value of the Asset as a result of the Defect. The fair market
value determination shall be made by the Parties in good faith taking into
account all relevant factors, including, but not limited to, the following:
(1) the Allocated Value of the leases, lands, wells and other Assets
affected by the Environmental or Title Defect;
(2) the productive status of the affected Asset (i.e., proved
developed producing, etc.) and the present value of the future income
expected to be produced therefrom;
(3) if the Title Defect represents only a possibility of title
failure, the probability that such failure will occur; and
(4) the economic effect of the Environmental or Title Defect.
(d) If the Value of the Environmental or Title Defect cannot be determined
using the above guidelines, and if the Parties cannot otherwise agree on the
amount of an adjustment to the Purchase Price, or if the validity of the claim
as to an Environmental or Title Defect cannot be agreed upon, then the Closing
shall include the Asset(s) affected thereby. If the validity of the claim is in
dispute, there shall be no adjustment to the Purchase Price at Closing. If the
value of the claim is in dispute, the Purchase Price at Closing shall be
adjusted by Seller's good faith estimate of the value thereof. In either case,
Buyer shall have the right, exercisable within ninety (90) days after the
Closing Date, to refer the disputed matter to mediation and arbitration in
accordance with the dispute resolution procedures set forth in Exhibit "I."
Subject to the terms of Exhibit "I", the decision of the arbitrator regarding
any Environmental or Title Defect Dispute shall be final as between the Parties,
provided in no event shall the value of the disputed Environmental or Title
Defect exceed the Allocated Value of the affected Asset.
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8.5. TITLE WARRANTY.
SELLER SHALL CONVEY SELLER'S INTERESTS IN AND TO THE ASSETS TO BUYER AS
PROVIDED IN THE FORM OF CONVEYANCE, ASSIGNMENT AND BILL OF SALE ATTACHED AS
EXHIBIT "C" HERETO. THE CONVEYANCE, ASSIGNMENT AND BILL OF SALE SHALL BE MADE
WITHOUT WARRANTY OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND
WITHOUT RECOURSE, EVEN AS TO THE RETURN OF THE PURCHASE PRICE OR OTHER
CONSIDERATION, EXCEPT THAT SELLER SHALL WARRANT TITLE TO THE ASSETS WITHIN THE
DELHI HOLT BRYANT UNIT (AND ONLY SUCH ASSETS) AGAINST ALL CLAIMS, LIENS, BURDENS
AND ENCUMBRANCES ARISING BY, THROUGH OR UNDER SELLER, BUT NOT OTHERWISE AND NOT
WITH RESPECT TO ANY IMPAIRMENT OR FAILURE OF TITLE RELATED TO ANY LACK OF
PRODUCTION IN PAYING QUANTITIES. THE CONVEYANCE, ASSIGNMENT AND BILL OF SALE
SHALL BE MADE WITH FULL SUBSTITUTION AND SUBROGATION TO BUYER IN AND TO ALL
COVENANTS AND WARRANTIES BY OTHERS HERETOFORE GIVEN OR MADE TO SELLER WITH
RESPECT TO THE ASSETS.
IMBALANCES WITH RESPECT TO OIL OR NATURAL GAS ARE GOVERNED BY ARTICLE 18
HEREOF. THE PARTIES AGREE THAT THE EXISTENCE OF ANY SUCH IMBALANCES SHALL NOT BE
DEEMED A TITLE DEFECT.
ARTICLE 9. - OPTION TO TERMINATE
If (a) the aggregate of the Values attributable to all Environmental and
Title Defects determined pursuant to Articles 7 and 8 and the provisions of the
next paragraph below, shall exceed five million dollars ($5,000,000.00) after
the application of the Aggregate Defect Basket set forth in Section 7.4, or (b)
the Values attributable to either such Title Defects or Environmental Defects
determined in the same manner, considered separately and excluding application
of the Aggregate Defect Basket, exceed two million five hundred thousand dollars
($2,5000,000.00), then either Buyer or Seller may, at its sole option, terminate
this Agreement without any further obligation by giving written notice of
termination to the other Party at any time prior to Closing. In the event of
such termination, Seller shall return the Performance Deposit to Buyer, without
interest, within five (5) days of receipt of the notice of termination and
neither party shall have any further obligation or liability hereunder.
In the event of a dispute between Seller and Buyer as to an Environmental
or Title Defect Value, the Parties shall negotiate in good faith as to estimates
of the values attributable to Environmental and Title Defects for purposes of
this Article 9 only. Should the Parties be unable to agree on a value, the
Buyer's good faith estimate of the value shall be utilized.
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ARTICLE 10. - PREFERENTIAL PURCHASE RIGHTS
AND CONSENTS OF THIRD PARTIES
10.1. ACTIONS AND CONSENTS.
(a) Seller and Buyer agree that each shall use all reasonable efforts to
take or cause to be taken all such action as may be necessary to consummate and
make effective the transaction provided in this Agreement and to assure that it
will not be under any material corporate, legal, or contractual restriction that
could prohibit or delay the timely consummation of such transaction.
(b) Seller shall notify all holders of (i) preferential rights to purchase
the Assets ("PREFERENTIAL PURCHASE RIGHTS"), (ii) rights of consent to the
assignment, or (iii) rights of approval to the assignment of the Assets, and of
such terms and conditions of this Agreement to which the holders of such rights
are entitled. Seller shall promptly notify Buyer if any Preferential Purchase
Rights are exercised, any consents or approvals denied, or if the requisite
period has elapsed without said rights having been exercised or consents or
approvals having been received. If prior to Closing, any such Preferential
Purchase Rights are timely and properly exercised, or Seller is unable to obtain
a necessary consent or approval prior to Closing, the interest or part thereof
so affected shall be eliminated from the Assets and the Purchase Price reduced
by the portion of the Purchase Price allocated to such interest or part thereof
as provided in Exhibit "B." If any additional Preferential Purchase Rights are
discovered after Closing, or if a third party Preferential Purchase Rights
holder alleges improper notice, then Buyer agrees to cooperate with Seller in
giving effect to any such valid third party Preferential Purchase Rights. In the
event any such valid third party preferential purchase rights are validly
exercised after Closing, Buyer's sole remedy against Seller shall be return by
Seller to Buyer of that portion of the Purchase Price allocated under Exhibit
"B" to the portion of the assets on which such rights are exercised and lost by
Buyer to such third party. The Parties agree that the Allocated Values for
properties subject to Preferential Purchase Rights shall be the sole
responsibility of Buyer, and Buyer agrees to indemnify and hold Seller harmless
from all liability and claims related to the reasonableness of such values.
(c) With respect to any portion of the Assets for which a Preferential
Purchase Right has not been asserted prior to Closing or a consent or other
approval to assign has not been granted and for which the time for election to
exercise such Preferential Purchase Right or to grant such consent has not
expired, Closing with respect to the portion of the Assets subject to such
outstanding obligations will be deferred (the "Third Party Interests"). Closing
with respect to all other Assets will proceed as provided in this Agreement, but
the Base Purchase Price delivered to Seller at Closing will be reduced by the
allocated value of the Third Party Interests. In the event that within ninety
(90) days after Closing any such Preferential Purchase Right is waived or
consent or approval is obtained or the time for election to purchase or to
deliver a consent or approval passes (such that under the applicable documents,
Seller may sell the affected Third Party Interest to Buyer), then the Closing
with respect to the applicable portion of the Third Party Interests will proceed
promptly. If such waivers, consents or approvals as are necessary are not
received by Seller within the applicable ninety (90) day period, Seller shall
retain such Third Party Interests and the Parties shall have no further
obligation to each other with respect thereto.
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ARTICLE 11. - COVENANTS OF SELLER
11.1. COVENANTS OF SELLER PENDING CLOSING.
(a) From and after the date of execution of this Agreement and until the
Closing, and subject to Section 11.2 and the constraints of applicable operating
and other agreements, Seller shall operate, manage, and administer the Assets as
a reasonable and prudent operator and in a good and workmanlike manner
consistent with its past practices, and shall carry on its business with respect
to the Assets in substantially the same manner as before execution of this
Agreement. Prior to Closing, Seller shall use all reasonable efforts to preserve
in full force and effect all Leases, operating agreements, easements,
rights-of-way, permits, licenses, and agreements which relate to the Assets in
which Seller owns an interest, and shall perform all obligations of Seller in or
under all such agreements relating to the Assets; provided, however, Buyer's
sole remedy for Seller's breach of its obligations under this Section 11.1(a)
shall be limited to the amount of that portion of the Purchase Price allocated
in Exhibit "B" to that portion of the Assets affected by such breach. Seller
shall, except for emergency action taken in the face of serious risk to life,
property, or the environment (1) submit to Buyer, for prior written approval,
all requests for operating or capital expenditures and all proposed contracts
and agreements relating to the Assets which involve individual commitments of
more than twenty five thousand dollars ($25,000.00); (2) consult with, inform,
and advise Buyer regarding all material matters concerning the operation,
management, and administration of the Assets; (3) obtain Buyer's written
approval prior to voting under any operating, unit, joint venture, partnership
or similar agreement; and (4) not approve or elect to go nonconsent as to any
proposed well or plug and abandon or agree to plug and abandon any well without
Buyer's prior written approval. On any matter requiring Buyer's approval under
this Section 11.1(a), Buyer shall respond within five (5) days to Seller's
request for approval and failure of Buyer to respond to Seller's request for
approval within such time shall release Seller from the obligation to obtain
Buyer's approval before proceeding on such matter. With respect to emergency
actions taken by Seller in the face of serious risk to life, property, or the
environment, without prior approval of Buyer pursuant to the provisions above,
Seller will advise Buyer of its actions as promptly as reasonably possible and
consult with Buyer as to any further related actions.
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(b) Seller shall promptly notify Buyer of any suit, lessor demand action,
or other proceeding before any court, arbitrator, or governmental agency and any
cause of action which relates to the Assets or which might result in impairment
or loss of Seller's interest in any portion of the Assets or which might hinder
or impede the operation of the Assets.
11.2. LIMITATIONS ON SELLER'S COVENANTS PENDING CLOSING.
To the extent Seller is not the operator of any of the Assets, the
obligations of Seller in Section 11.1 concerning operations or activities which
normally or pursuant to existing contracts are carried out or performed by the
operator, shall be construed to require only that Seller use all reasonable
efforts (without being obligated to incur any expense or institute any cause of
action) to cause the operator of such Assets to take such actions or render such
performance as would a reasonable prudent operator and within the constraints of
the applicable operating agreements and other applicable agreements.
ARTICLE 12. - CLOSING CONDITIONS
12.1. SELLER'S CLOSING CONDITIONS.
The obligations of Seller under this Agreement are subject, at the option
of Seller, to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) all representations and warranties of Buyer contained in this
Agreement shall be true, accurate, and not misleading in all material respects
at and as of the Closing as if such representations and warranties were made at
and as of the Closing, and Buyer shall have performed, satisfied and complied
with all agreements and covenants required by this Agreement to be performed,
satisfied and complied with by Buyer at or prior to the Closing;
(b) the execution, delivery, and performance of this Agreement and the
transactions contemplated thereby have been duly and validly authorized by all
necessary action, corporate, partnership or otherwise, on the part of Buyer, and
an officer's certificate of Buyer confirming the same;
(c) all necessary consents of and filings with any state or federal
governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, except to the extent that such consents and filings are
normally obtained, accomplished or waived after Closing; and
(d) as of the Closing Date, no suit, action or other proceeding (excluding
any such matter initiated by Seller) shall be pending or threatened before any
court or governmental agency seeking to restrain Seller or prohibit the Closing
or seeking damages against Seller as a result of the consummation of this
Agreement.
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12.2. BUYER'S CLOSING CONDITIONS.
The obligations of Buyer under this Agreement are subject, at the option
of Buyer, to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) all representations and warranties of Seller contained in this
Agreement shall be true, accurate, and not misleading in all material respects
at and as of the Closing as if such representations and warranties were made at
and as of the Closing, and Seller shall have performed, satisfied and complied
with all agreements and covenants required by this Agreement to be performed,
satisfied and complied with by Seller at or prior to the Closing;
(b) the execution, delivery, and performance of this Agreement and the
transactions contemplated thereby have been duly and validly authorized by all
necessary action, corporate, partnership or otherwise, on the part of Seller,
and an officer's certificate of Seller confirming the same;
t 6 0 (c) all necessary consents of and filings with any state or federal
governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, except to the extent that such consents and filings are
normally obtained, accomplished or waived after Closing; and
(d) as of the Closing Date, no suit, action or other proceeding (excluding
any such matter initiated by Buyer) shall be pending or threatened before any
court or governmental agency seeking to restrain Buyer or prohibit the Closing
or seeking damages against Buyer as a result of the consummation of this
Agreement.
ARTICLE 13. - CLOSING
13.1. CLOSING.
The closing of this transaction (the "CLOSING") shall be held at the
offices of Seller on May 31, 2006, or at such earlier date or place as the
Parties may agree in writing (herein called "CLOSING DATE"). Time is of the
essence and the Closing Date shall not be extended unless by written agreement
of the Parties. On or before five (5) business days prior to Closing, Buyer and
Seller shall use their best efforts to provide each other copies of all closing
documents.
13.2. SELLER'S CLOSING OBLIGATIONS.
At Closing, except to the extent comprising the Excluded Assets, Seller
shall deliver to Buyer the following:
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(a) the Assignment and Conveyance substantially in the form attached
hereto as Exhibit "C" and such other documents as may be reasonably necessary to
convey all of Seller's interest in the Assets to Buyer in accordance with the
provisions hereof;
(b) a nonforeign affidavit executed by Seller in the form attached as
Exhibit "D";
(c) appropriate regulatory forms appointing Buyer as the operator for
those Assets which Seller operates;
(d) copies of all third-party waivers, consents, approvals, permits and
actions obtained;
(e) exclusive possession of the Assets;
(f) letters-in-lieu of transfer orders in form acceptable to Seller and
Buyer;
(g) a Reporting and Accounting Memorandum executed by Seller in the form
attached as Exhibit "E"; and
(h) releases of all mortgages, liens and similar encumbrances burdening
the Assets in form and substance reasonably satisfactory to Buyer.
13.3. BUYER'S CLOSING OBLIGATIONS.
At Closing, Buyer shall deliver to Seller (i) by wire transfer in
immediately available funds to a bank account or accounts designated by Seller,
the Purchase Price (less the Performance Deposit) as adjusted by Section 3.3,
and (ii) a Reporting and Accounting Memorandum executed by Buyer in the form
attached as Exhibit "E."
13.4. JOINT CLOSING OBLIGATIONS.
Both Parties at Closing shall execute a Settlement Statement evidencing
the amount actually wire transferred and all adjustments to the Purchase Price
taken into account at Closing. All events of Closing shall each be deemed to
have occurred simultaneously with the other, regardless of when actually
occurring, and each shall be a condition precedent to the other.
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ARTICLE 14. - LIMITATIONS ON WARRANTIES AND REMEDIES
THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS
AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY OR VOLUME OF
THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR UNDER THE LEASES,
OR THE ENVIRONMENTAL CONDITION OF THE ASSETS. THE ITEMS OF PERSONAL PROPERTY,
EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART OF THE
ASSETS ARE SOLD HEREUNDER "AS IS, WHERE IS, AND WITH ALL FAULTS" AND NO
WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONDITION, ARE GIVEN BY OR ON BEHALF OF SELLER. IT IS UNDERSTOOD AND
AGREED THAT PRIOR TO CLOSING BUYER SHALL HAVE INSPECTED THE ASSETS FOR ALL
PURPOSES AND HAS SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL
CONDITION, BOTH SURFACE AND SUBSURFACE, AND THAT BUYER ACCEPTS SAME IN ITS "AS
IS, WHERE IS AND WITH ALL FAULTS" CONDITION. BUYER HEREBY WAIVES ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, OR CONFORMITY TO
SAMPLES.
BUYER EXPRESSLY WAIVES THE WARRANTY OF FITNESS FOR INTENDED PURPOSES OR
GUARANTEE AGAINST HIDDEN OR LATENT REDHIBITORY VICES UNDER LOUISIANA LAW,
INCLUDING LOUISIANA CIVIL CODE ARTICLES 2520 (1870) THROUGH 2548 (1870), AND THE
WARRANTY IMPOSED BY LOUISIANA CIVIL CODE ARTICLE 2475; BUYER WAIVES ALL RIGHTS
IN REDHIBITION PURSUANT TO LOUISIANA CIVIL CODE ARTICLE 2520, ET SEQ; BUYER
ACKNOWLEDGES THAT THIS EXPRESS WAIVER IS A MATERIAL AND INTEGRAL PART OF THIS
SALE AND THE CONSIDERATION THEREOF; AND BUYER ACKNOWLEDGES THAT THIS WAIVER HAS
BEEN BROUGHT TO THE ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER
HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS
AND/OR WARRANTY AGAINST REDHIBITORY VICES AND DEFECTS FOR THE ABOVE DESCRIBED
PROPERTY.
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ARTICLE 15. - CASUALTY LOSS AND CONDEMNATION
If, prior to the Closing, all or any portion of the Assets is destroyed by
fire or other casualty or if any portion of the Assets shall be taken by
condemnation or under the right of eminent domain (all of which are herein
called "Casualty Loss" and limited to property damage or taking only), Buyer and
Seller must agree prior to Closing either (i) to delete that portion of the
Assets which is subject to the Casualty Loss from the Assets, and the Purchase
Price shall be reduced by the value allocated to the deleted interest as set out
in Exhibit "B," or (ii) for Buyer to proceed with the purchase of such Assets,
notwithstanding any such destruction or taking (without reduction of the
Purchase Price) in which case Seller shall pay, at the Closing, to Buyer all
sums paid to Seller by third parties by reason of the destruction or taking of
such Assets and shall assign, transfer and set over unto Buyer all insurance
proceeds received by Seller as well as all of the right, title and interest of
Seller in and to any claims, causes of action, unpaid proceeds or other payments
from third parties arising out of such destruction or taking. If the allocated
value of that portion of the Assets affected by the casualty Loss as shown on
Exhibit "B" exceeds two million five hundred thousand dollars ($2,500,000.00),
Buyer and Seller shall each have the right to terminate this Agreement upon
written notification to the other, the transaction shall not close and
thereafter neither Buyer nor Seller shall have any liability or further
obligations to the other hereunder. In the event of such termination, Seller
shall return the Performance Deposit to Buyer, without interest. Prior to
Closing, Seller shall not voluntarily compromise, settle or adjust any amounts
payable by reason of any Casualty Loss without first obtaining the written
consent of Buyer.
ARTICLE 16. - DEFAULT AND REMEDIES
16.1. SELLER'S REMEDIES.
If Seller and Buyer close the transaction contemplated by this Agreement
on or before the Closing Date, as it may be extended in accordance herewith, the
Performance Deposit will be applied to the Purchase Price and the amount due
from Buyer at Closing will be reduced by the amount of the Performance Deposit.
If the transaction contemplated by this Agreement does not close on or before
the Closing Date, as it may be extended in accordance herewith, because (a)
Seller is unable, unwilling or refuses to close, or because (b) a condition to
Buyer's obligation to close, as set forth in Section 12.2, is not satisfied, or
because (c) Buyer terminates this Agreement under the provisions of Articles 9
or 15, or as elsewhere provided for and allowed in this Agreement, unless Buyer
chooses the remedy of specific performance, if applicable, as set forth in
Section 16.2, Seller will refund the Performance Deposit to Buyer, without
interest, within five (5) days following the later of the Closing Date or any
extension thereof in accordance with the provisions of this Agreement. If for
any reason other than those set forth in subparagraphs (a), (b) and (c) above,
Buyer fails, refuses or is unable to close the transaction contemplated by this
Agreement on or before the Closing Date, as it may be extended in accordance
herewith, Seller shall retain the Performance Deposit as a liquidated damage and
not as a penalty, and terminate this Agreement, as Seller's sole and exclusive
remedies for such default, all other remedies (except as expressly retained in
Section 16.3) being expressly waived by Seller.
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16.2. BUYER'S REMEDIES.
Upon failure of Seller to comply herewith by the Closing Date, as it may
be extended in accordance herewith, Buyer, at its sole option and in addition to
any other remedies it may have at law or equity, may (i) enforce specific
performance, or (ii) terminate this Agreement. In the event Buyer elects to
terminate this Agreement as set forth above, Seller shall immediately return the
Performance Deposit to Buyer, without interest.
16.3. OTHER REMEDIES.
Notwithstanding the foregoing, termination of this Agreement shall not
prejudice or impair Buyer's obligations under Section 6.3 (and the
confidentiality agreements referenced therein). The prevailing party in any
legal proceeding brought under or to enforce this Agreement shall be
additionally entitled to recover court costs and reasonable attorneys' fees from
the non-prevailing party. Notwithstanding the provisions of Sections 16.1 and
16.2, the remedy of mediation and arbitration provided in Section 8.4(d) shall
be the exclusive remedy for the matters provided for in such Section.
16.4. EFFECT OF TERMINATION.
In the event of termination of this Agreement under this Article 16, the
transaction shall not close and neither Buyer nor Seller shall have any further
obligations, remedies, liabilities, rights or duties to the other hereunder,
except as expressly provided herein.
ARTICLE 17. - ASSUMPTION AND INDEMNITY
17.1. ASSUMED OBLIGATIONS; PRE-CLOSING LIABILITIES.
Upon and after Closing Buyer shall own the Assets, together with all the
rights, duties, obligations, and liabilities accruing after Closing, including
the Assumed Obligations and Buyer's indemnity obligations hereunder. Buyer
agrees to assume and pay, perform, fulfill and discharge all Assumed Obligations
and Buyer's indemnity obligations. Seller agrees to retain and pay, perform,
fulfill and discharge all Retained Obligations, and Seller's indemnity
obligations.
17.2. BUYER'S INDEMNITY.
BUYER AGREES TO INDEMNIFY, DEFEND AND HOLD SELLER AND SELLER'S EMPLOYEES,
OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LOSSES, DAMAGES, PUNITIVE DAMAGES, COSTS, EXPENSES, CAUSES OF ACTION OR
JUDGMENTS OF ANY KIND OR CHARACTER INCLUDING, WITHOUT LIMITATION, ANY INTEREST,
PENALTY, REASONABLE ATTORNEYS' FEES AND OTHER COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH OR THE DEFENSE THEREOF (COLLECTIVELY THE "CLAIMS"), WITH
RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES
AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF THE
ASSUMED OBLIGATIONS.
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17.3. SELLER'S INDEMNITY.
SELLER AGREES TO INDEMNIFY, DEFEND AND HOLD BUYER AND BUYER'S EMPLOYEES,
OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH RESPECT
TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND
OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF THE
RETAINED OBLIGATIONS.
17.4. NEGLIGENCE.
THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED FOR IN
THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES, COSTS, EXPENSES
AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE,
COMPARATIVE, OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE
PARTIES HERETO.
17.5. BROKER OR FINDER'S FEE.
Each party hereby agrees to indemnify and hold the other harmless from and
against any claim for a brokerage or finder's fee or commission in connection
with this Agreement or the transactions contemplated by this Agreement to the
extent such claim arises from or is attributable to the actions of such
indemnifying party, including, without limitation, any and all losses, damages,
punitive damages, attorneys' fees, costs and expenses of any kind or character
arising out of or incurred in connection with any such claim or defending
against the same.
ARTICLE 18. - GAS IMBALANCES
Seller and Buyer will use their best efforts to update (to the Effective
Time) the gas imbalance volume amounts listed on Exhibit "G." If, prior to the
Final Settlement Date, either party hereto notifies the other party hereto that
the volumes set forth in Exhibit "G" are incorrect, then Buyer or Seller will
pay the other at the Final Settlement, as appropriate, an amount equal to the
NYMEX price at the end of the month in which the variance occurs, per net mmbtu
variance from the net imbalance shown on Exhibit "G." Subject to such adjustment
on the Final Settlement Date, as of the Closing Buyer agrees to assume any
liability and obligation for gas production imbalances (whether over or under)
attributable to the Assets. Except as set forth in this Article 18, in assuming
this liability at Closing, Buyer shall not be obligated to make any additional
payment over the Purchase Price to Seller, and Seller shall not be obligated to
refund any of said price to reimburse Buyer for any over-balances existing at
the time of sale.
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ARTICLE 19. - PREFERENTIAL RIGHT TO PURCHASE
AND AREA OF MUTUAL INTEREST PROVISION
19. 1 PREFERENTIAL RIGHT TO PURCHASE.
This Agreement is also made expressly subject to a Preferential Right to
Purchase, the terms and conditions of which are as follows:
(a) In the event Seller or Buyer receives a bona fide offer from a third
party to purchase all or a part of the interests of Seller (reserved overriding
royalty interest or reversionary working interest, before or after reversion) or
Buyer (the "SELLING PARTY") in the Delhi Holt Bryant Unit, Delhi Holt Bryant
Unit Lands, or other jointly owned lands within the Area of Mutual Interest
(including interests hereafter owned or acquired), and once the Selling Party
and a proposed transferee have fully negotiated the principal terms and
conditions of a transfer (which principal terms shall include all material terms
and conditions necessary for a purchaser to make an informed decision including,
but not necessarily limited to, price, timing, scope, character and description
of the interests to be transferred, agreed indemnities, reservations and
exclusions), Selling Party shall disclose such principal terms and conditions in
detail to the other party to this Agreement (the "RECEIVING PARTY") in a written
notice. Receiving Party shall have the right to acquire the interest proposed to
be transferred from the Selling Party on the same terms and conditions agreed to
by the proposed transferee if, within ten (10) Days after receipt of Selling
Party's written notice, the Receiving Party delivers to the Selling Party a
counter-notification that Receiving Party accepts the agreed upon terms and
conditions of the transfer without reservations or conditions. If the Receiving
Party does not deliver such counter-notification, the transfer to the proposed
transferee may be made, subject to the provisions of this Agreement, under terms
and conditions no more favorable to the transferee than those set forth in the
notice to Receiving Party, provided that the transfer shall be concluded within
one hundred eighty (180) days from the date of Buyer's receipt of Selling
Party's written notice. In the event the proposed sale of the interest to a
third party is timely consummated, the preferential right to purchase shall no
longer attach to the interest transferred to the third party. In the event the
proposed sale of the interest to the third party is not consummated, then the
preferential right to purchase such interest shall be reinstated as to any
future offers to purchase the interest.
(b) In the event Selling Party's proposed transfer of part or all of its
interest in the Delhi Holt Bryant Unit, Delhi Holt Bryant Unit Lands, or other
jointly owned lands within the Area of Mutual Interest, involves consideration
other than cash or involves other properties included in a wider transaction
(package deal), then the interest to be assigned by Selling Party (or part
thereof) shall be allocated a reasonable and justifiable cash value in the
notification to Receiving Party. Receiving Party may satisfy the requirements of
this Article 19.1 by agreeing to pay such cash value in lieu of the
consideration payable in the third-party offer.
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(c) The preferential right to purchase shall be applicable to any transfer
of all or a portion of a Selling Party's interest in the Delhi Holt Bryant Unit,
Delhi Holt Bryant Unit Lands, or other jointly owned lands within the Area of
Mutual Interest, whether directly or indirectly by assignment, merger,
consolidation, or sale of stock, or other conveyance, other than with or to an
affiliate, subsidiary, or parent company existing as of the date of this
Agreement, and provided further, the preferential right to purchase shall not
apply if the Selling Party is selling or transferring all or substantially all
of its oil and gas assets, and such oil and gas assets being sold include oil
and gas assets other than interests in the Delhi Holt Bryant Unit, Delhi Holt
Bryant Unit Lands, or other jointly owned lands within the Area of Mutual
Interest.
19.2 AREA OF MUTUAL INTEREST PROVISION.
(a) The Parties hereby agree to the establishment of an Area of Mutual
Interest which shall encompass all those lands within the area outlined in red
on the plat attached hereto as Exhibit "L" (as further described in Exhibit
"L-1") as to all depths which shall constitute and shall hereinafter sometimes
be referred to as an "AREA OF MUTUAL INTEREST".
(b) If, after the date of this Agreement, either party to this Agreement
("ACQUIRING PARTY") acquires either an oil and gas lease or mineral interest (or
any interest therein), royalty interest, or an option to acquire an oil and gas
lease, or any other oil and/or gas interest covering lands lying within the Area
of Mutual Interest, including oil, gas and mineral leases acquired pursuant to
the exercise of any options (all of the foregoing hereinafter sometimes being
referred to as "OIL AND GAS INTERESTS"), or if the Acquiring Party enters into
any type of agreement by which an Oil and Gas Interest may be acquired or
otherwise earned by conducting drilling, seismic, or other operations on the
lands lying within the Area of Mutual Interest, then the Acquiring Party shall
promptly notify the other party of such acquisition or such agreement. If either
party to this Agreement acquires an Oil and Gas Interest covering lands within
the geographical confines of the Area of Mutual Interest, the other party shall
have the right to participate in any such acquisition of such Oil and Gas
Interest to the extent of its then existing ownership interest in the Area of
Mutual Interest by paying its proportionate share of the actual costs of
acquiring such Oil and Gas Interests. Any interest acquired by a party to this
Agreement in lands outside of the Area of Mutual Interest, however, shall not be
subject to the terms of this Article. If, after the date of this Agreement,
additional parties acquire an interest from the original Parties in the Area of
Mutual Interest, in the event not all parties elect to participate in an
acquisition, then any such non-participating party's interests shall be offered
in writing to the other participating parties in the proportions that their
ownership interests in the Area of Mutual Interest at the time of the
acquisition bear to the total of the ownership interests of all participating
parties in the acquisition.
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(c) The notification provided for in Paragraph (b) above shall contain all
available title information and copies of leases, agreements by which the Oil
and Gas Interest may be acquired, and all other pertinent instruments and
information regarding the proposed acquisition. It shall also describe in detail
the cost and expense of such acquisition and any other obligation that may be
incurred pursuant thereto.
(d) If drilling, seismic, or other operations are not required to acquire
the Oil and Gas Interest, the party entitled to receive notice set forth in
Paragraph (b) shall have fifteen (15) days from receipt of notice thereof in
which to elect to participate in such acquisition to the extent of its interest.
In the event a drilling or workover rig is on location at the time of the
acquisition, such notice period shall be forty-eight (48 hours). Failure to give
written notice to the Acquiring Party of its election, as specified herein,
shall constitute an election not to participate. If a party elects to
participate in such acquisition as set forth herein, such party ("PARTICIPATING
PARTY") shall reimburse the Acquiring Party for its proportionate share of the
costs thereof within fifteen (15) days of receipt of an invoice from the
Acquiring Party setting forth in detail the cost and expense of such
acquisition. The Acquiring Party shall, within thirty (30) days after receipt of
payment from a Participating Party, assign to the Participating Party the
Participating Party's proportionate interest in the acquisition, subject to any
applicable burdens on such Participating Party's interest in the acquisition.
All Participating Parties shall be entitled to participate in any acquisition
within the Area of Mutual Interest on a ground floor basis and subject to no
additional burdens placed on an acquisition by the Acquiring Party, with
Seller's original ownership interest in the Area of Mutual Interest being twenty
five percent (25.0%) and Buyer's original interest being seventy five percent
(75.0%). Likewise, Acquiring Party's interest in an acquisition shall not be
subject to any additional burdens on production in favor of Participating
Parties.
(e) If the acquisition requires drilling, seismic, or other operations on
the lands lying within the Area of Mutual Interest, the election of a party to
participate in such operations shall constitute an election to participate in
the agreement governing such operations, to the extent necessary to acquire the
interest. No party shall be required to make such an election more than sixty
(60) days or less than thirty (30) days prior to the commencement of initial
operations.
(f) To receive an assignment of its proportionate share of the Oil and Gas
Interest acquired as a result of conducting drilling, seismic, or other
operations on the Area of Mutual Interest, a Participating Party must have:
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(1) Participated in all operations necessary for the acquisition of
the Oil and Gas Interest, and also must have paid all costs and expenses
incurred in connection therewith;
(2) Participated in any previous drilling, seismic, or other
operations that were necessary or were a condition precedent to the
operations resulting in the acquisition of the Oil and Gas Interest; and
(3) Participated in accordance with the terms, provisions,
covenants, and conditions of the agreements governing the acquisition of
an Oil and Gas Interest.
(g) If both Parties elect to participate in any acquisition of an Oil and
Gas Interest, then any such acquired Oil and Gas Interest shall thereafter be
subject to the Operating Agreement attached to this Agreement. If, after the
date of this Agreement, additional parties acquire an interest from the original
Parties in the Area of Mutual Interest, and if more than one, but fewer than all
such parties participate in the acquisition of an Oil and Gas Interest, such
Participating Parties agree that the acquisition shall be subject to such
Operating Agreement, with adjustments made to the interests of the parties as
applicable. If the Acquiring Party shall be the sole party electing to
participate in an acquisition of an Oil and Gas Interest, then such acquisition
shall not be subject to the terms of this Area of Mutual Interest provision or
the Operating Agreement.
(h) For purposes of this Section 19.2, the term "OIL AND GAS INTEREST"
shall also include surface rights or interests (including easements,
rights-of-way, and surface ownership) in lands lying within the Area of Mutual
Interest , and options to acquire such surface rights or interests, and any
surface rights or interests acquired pursuant to the exercise of any options.
(i) Notwithstanding anything to the contrary in the provisions above, only
Buyer shall have the right to commence acquisitions of Oil and Gas Interests in
the Area of Mutual Interest commencing on the Closing Date, and for a period of
two (2) years thereafter.
(j) Notwithstanding anything herein to the contrary, the above Area of
Mutual Interest provisions shall not apply to any acquisitions of, or agreements
to acquire, royalty interests made by Seller within the Area of Mutual Interest
prior to the Effective Time, which are identified and described in Exhibit "K"
and no additional offers to acquire such royalty interest have been or will be
made by Seller after May 1, 2006.
(k) In the event that either party should acquire any interest from
McGowan Working Partners, Inc.(or its successors, subsidiaries, affiliates, or
assigns) which is located within the aerial boundaries of the Delhi Holt Bryant
Unit prior to Payout, the Parties shall in good faith mutually agree to the
value of the acquisition that is attributable to the Delhi Holt Bryant Unit for
the purposes of determining a value for the Capital Expenditure Commitment and
Seller shall only retain its Reversionary Interests, until Payout, in any
interest located in the Delhi Holt Bryant Unit.
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(l) The terms of this Section 19.2. [except for 19.2(j) and (i)] shall
remain in full force and effect covering the lands lying within the Area of
Mutual Interest for a period of eight (8) years commencing from the Effective
Time, unless extended for an additional period or terminated earlier by written
agreement of the Parties.
ARTICLE 20. - MISCELLANEOUS
20.1 RECEIVABLES AND OTHER EXCLUDED FUNDS.
Buyer shall be under no obligation to collect on behalf of Seller any
receivables or other funds included in the Excluded Assets and described in
Section 1.9(c) above. With respect to receivables, Buyer shall be free to treat
the interests of any party with a delinquent receivable in any manner deemed
appropriate by Buyer.
20.2. PUBLIC ANNOUNCEMENTS.
The Parties hereto agree that prior to Closing, each may publicly disclose
the principal terms of this Agreement following its execution (excluding the
cost for CO2 and the transportation costs for CO2), provided that prior to
making any public announcement or statement with respect to the transaction
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto and exercise
its best efforts to (i) agree upon the text of a joint public announcement or
statement to be made by both of such Parties; or (ii) obtain written approval of
the other party hereto to the text of a public announcement or statement to be
made solely by Seller or Buyer, as the case may be. Nothing contained in this
paragraph shall be construed to require either party to obtain approval of the
other party hereto to disclose information with respect to the transaction
contemplated by this Agreement to any state or federal governmental authority or
agency to the extent (i) required by applicable law or by any applicable rules,
regulations or orders of any governmental authority or agency having
jurisdiction; or (ii) necessary to comply with disclosure requirements of the
New York Stock Exchange or other recognized exchange or over the counter, and
applicable securities laws. .
20.3. FILING AND RECORDING OF ASSIGNMENTS, ETC.
Buyer shall be solely responsible for all filings and the prompt recording
of assignments and other documents related to the Assets and for all fees
connected therewith, including the fees charged by any regulatory authority in
connection with the change of operator, and Buyer shall furnish certified copies
of all such filed and/or recorded documents to Seller. Seller shall not be
responsible for any loss to Buyer because of Buyer's failure to file or record
documents correctly or promptly. Buyer shall not be responsible for any loss to
Seller because of Seller's failure to record this document correctly or
promptly. Buyer shall promptly file all appropriate forms, declarations or bonds
with federal and state agencies relative to its assumption of operations and
Seller shall cooperate with Buyer in connection with such filings.
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20.4. FURTHER ASSURANCES AND RECORDS.
(a) After the Closing each of the Parties will execute, acknowledge and
deliver to the other such further instruments, and take such other action, as
may be reasonably requested in order to more effectively assure to said party
all of the respective properties, rights, titles, interests, estates, and
privileges intended to be assigned, delivered or inuring to the benefit of such
party in consummation of the transactions contemplated hereby. Without limiting
the foregoing, in the event Exhibit "A" incorrectly or insufficiently describes
or references or omits the description of a property or interest intended to be
conveyed hereby as described in Sections 1.12 or 1.14 above, Seller agrees to,
within twenty (20) days of Seller's receipt of Buyer's written request, together
with supporting documentation satisfactory to Seller, correct such Exhibit
and/or execute an amended assignment or other appropriate instruments necessary
to transfer the property or interest intended to be conveyed hereby to Buyer.
(b) Buyer agrees to maintain the files and records of Seller that are
acquired pursuant to this Agreement for seven (7) years after Closing. Buyer
shall provide Seller and its representatives reasonable access to and the right
to copy such files and records for the purposes of (i) preparing and delivering
any accounting provided for under this Agreement and adjusting, prorating and
settling the charges and credits provided for in this Agreement; (ii) complying
with any law, rule or regulation affecting Seller's interest in the Assets prior
to the Closing Date; (iii) preparing any audit of the books and records of any
third party relating to Seller's interest in the Assets prior to the Closing
Date, or responding to any audit prepared by such third parties; (iv) preparing
tax returns; (v) responding to or disputing any tax audit; or (vi) asserting,
defending or otherwise dealing with any claim or dispute under this Agreement or
as to the Assets.
(c) Buyer agrees that within thirty (30) days after Closing or within
thirty (30) days after operations are actually transferred, whichever is later,
it will remove or cause to be removed its signs and the names and marks used by
Seller and all variations and derivatives thereof and logos relating thereto
from the Assets and will not thereafter make any use whatsoever of such names,
marks and logos.
(d) To the extent not obtained or satisfied as of Closing, Seller agrees
to continue to use all reasonable efforts, but without any obligation to incur
any cost or expense in connection therewith, and to cooperate with Buyer's
efforts to obtain for Buyer (i) access to files, records and data relating to
the Assets in the possession of third parties; and (ii) access to wells
constituting a part of the Assets operated by third parties for purposes of
inspecting same.
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(e) Buyer shall comply with all current and subsequently amended
applicable laws, ordinances, rules, and regulations applicable to the Assets and
shall promptly obtain and maintain all permits required by governmental
authorities in connection with the Assets.
20.5. NOTICES.
Except as otherwise expressly provided herein, all communications required
or permitted under this Agreement shall be in writing and may be given by
personal delivery, facsimile, US mail (postage prepaid), or commercial delivery
service, and any communication hereunder shall be deemed to have been duly given
and received when actually delivered to the address of the Parties to be
notified as set forth below and addressed as follows:
If to Seller, as follows:
NGS SUB CORP.
Two Memorial City Plaza
820 Gessner Road
Suite 1340
Houston, TX 77024
Attention: Robert S. Herlin
President & CEO
Telephone: (713) 935-0122
Facsimile: (713) 935-0199
If to Buyer, as follows:
DENBURY ONSHORE, LLC
5100 Tennyson Parkway
Suite 1200
Plano, Texas 75024
Attention: Ray Dubuisson
Vice President-Land
Telephone: (972)-673-2044
Facsimile: (972)-673-2299
Provided, however, that any notice required or permitted under this Agreement
will be effective if given verbally within the time provided, so long as such
verbal notice is followed by written notice thereof in the manner provided
herein within twenty-four (24) hours following the end of such time period. Any
party may, by written notice so delivered to the other, change the address to
which delivery shall thereafter be made.
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20.6. INCIDENTAL EXPENSES.
Buyer shall bear and pay (i) all state or local government sales,
transfer, gross proceeds, or similar taxes incident to or caused by the transfer
of the Assets to Buyer, (ii) all documentary, transfer and other state and local
government taxes incident to the transfer of the Assets to Buyer; and (iii) all
filing, recording or registration fees for any assignment or conveyance
delivered hereunder. Each party shall bear its own respective expenses incurred
in connection with the negotiation and Closing of this transaction, including it
own consultants' fees, attorneys' fees, accountants' fees, and other similar
costs and expenses.
20.7. WAIVER.
Any of the terms, provisions, covenants, representations, warranties or
conditions hereof may be waived only by a written instrument executed by the
party waiving compliance. Except as otherwise expressly provided in this
Agreement, the failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect such party's right to enforce
the same. No waiver by any party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
20.8. BINDING EFFECT; ASSIGNMENT.
All the terms, provisions, covenants, obligations, indemnities,
representations, warranties and conditions of this Agreement shall be covenants
running with the land and shall inure to the benefit of, and be binding upon,
and shall be enforceable by, the parties hereto and their respective successors
and assigns. The rights of Buyer under this Agreement to acquire the Assets are
personal and this Agreement may not be assigned or transferred by Buyer to any
other party, firm, corporation or other entity, without the prior, express and
written consent of Seller, and such consent may be withheld for any reason,
including convenience. Any attempt to assign this Agreement by Buyer over the
objection or without the express written consent of the Seller shall be
absolutely void. Seller may condition its consent to assign this Agreement on
Buyer providing Seller with an appropriate guarantee of its assignee's
performance. Any subsequent transfer of this Agreement or of all or any part of
the Assets shall be made expressly subject to the terms and provisions of this
Agreement.
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20.9. TAXES.
(a) Seller and Buyer agree that this transaction may be subject to the
reporting requirement of Section 1060 of the Internal Revenue Code of 1986, as
amended, and that, therefore, IRS Form 8594, Asset Acquisition Statement, will
be filed for this transaction. The Parties will confer and cooperate in the
preparation and filing of their respective forms to reflect a consistent
reporting of the agreed upon allocation.
(b) Seller shall be responsible for all state, local and federal property,
ad valorem, excise, and severance taxes attributable to or arising from the
ownership or operation of the Assets prior to the Effective Time. Buyer shall be
responsible for all property and severance taxes attributable to or arising from
the ownership or operation of the Assets after the Effective Time. Any party
which pays such taxes for the other party shall be entitled to prompt
reimbursement upon evidence of such payment. Each party shall be responsible for
its own federal and state income taxes, if any, as may result from this
transaction.
(c) If this transaction is determined to result in state sales or transfer
taxes, Buyer shall be solely responsible for any and all such taxes due on the
Assets acquired by Buyer by virtue of this transaction. If Buyer is assessed
such taxes, Buyer shall promptly remit same to the taxing authority. If Seller
is assessed such taxes, Buyer shall reimburse Seller for any such taxes paid by
Seller to the taxing authority.
20.10. INTENTIONALLY DELETED
20.11. AUDITS.
It is expressly understood and agreed that Seller retains its right to
receive its proportionate share of the proceeds from any audits relating to
activities prior to the Effective Time, and Seller shall likewise pay its share
of any costs attributable to the period prior to the Effective Time resulting
from any such audits.
20.12. LIKE-KIND EXCHANGES.
Each party consents to the other party's assignment of its rights and
obligations under this Agreement to its Qualified Intermediary (as that term is
defined in Section 1.1031(k)-l(g)(4)(v) of the Treasury Regulations) in
connection with effectuation of a like-kind exchange. However, Seller and Buyer
acknowledge and agree that any assignment of this Agreement to a Qualified
Intermediary does not release either party from any of their respective
liabilities and obligations to each other under this Agreement. Each party
agrees to cooperate with the other to attempt to structure the transaction as a
like-kind exchange.
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20.13. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.
20.14. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement between the Parties and
replaces and supersedes all prior agreements, arrangements and understandings
related to the subject matter hereof, whether written or oral. No other
agreement, statement, or promise made by any party, or to any employee, officer
or agent of any party, which is not contained in this Agreement shall be binding
or valid. This Agreement may be supplemented, altered, amended, modified or
revoked by a writing only, signed by the Parties hereto. The headings herein are
for convenience only and shall have no significance in the interpretation
hereof. The Parties stipulate and agree that this Agreement shall be deemed and
considered for all purposes, as prepared through the joint efforts of the
Parties, and shall not be construed against one party or the other as a result
of the preparation, submittal or other event of negotiation, drafting or
execution thereof. It is understood and agreed that there shall be no
third-party beneficiary of this Agreement, and that the provisions hereof do not
impart enforceable rights in anyone who is not a direct, initial party hereto.
20.15. SEVERABILITY.
If any provision of this Agreement is found by a court of competent
jurisdiction to be invalid or unenforceable, that provision will be deemed
modified to the extent necessary to make it valid and enforceable, and if it
cannot be so modified, it shall be deemed deleted and the remainder of the
Agreement shall continue and remain in full force and effect.
20.16. EXHIBITS.
All Exhibits attached to this Agreement, and the terms of those Exhibits
which are referred to in this Agreement, are made a part hereof and incorporated
herein by reference.
20.17. DELIVERY OF FILES AFTER CLOSING.
The Assets set out in Section 1.14(f) shall be provided by Seller to Buyer
within five (5) business days after the Closing Date at a location to be
specified by Seller. Any transportation, postage, or delivery costs from
Seller's offices shall be at Buyer's sole cost, risk and expense.
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20.18. SURVIVAL.
UNLESS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, ALL OF THE
REPRESENTATIONS, WARRANTIES, INDEMNITIES, COVENANTS AND AGREEMENTS OF OR BY THE
PARTIES HERETO SHALL SURVIVE THE EXECUTION AND DELIVERY OF THE CONVEYANCE,
ASSIGNMENT AND BILL OF SALE. ADDITIONALLY, THOSE PROVISIONS SET FORTH IN
ARTICLES 1.9, 3.4 AND 19 SHALL SURVIVE THE EXECUTION AND DELIVERY OF THE
CONVEYANCE, ASSIGNMENT AND BILL OF SALE, AND SHALL BE DEEMED AS BETWEEN THE
PARTIES, THERE SUCCESSORS AND ASSIGNS TO BE COVENANTS RUNNING WITH THE LAND.
20.19. SUBSEQUENT ADJUSTMENTS.
Regardless of the date set for the Final Settlement, Buyer and Seller
agree that their intent is to allow for the earliest practical forwarding of
revenue and reimbursement of expenses between them, and Seller and Buyer
recognize that either may receive funds or pay expenses after the Final
Settlement Date which are properly the property or obligation of the other.
Therefore, upon receipt of net proceeds or payment of net expenses due to or
payable by the other party hereto, whichever occurs first, Seller or Buyer, as
the case may be, shall submit a statement to the other party hereto showing the
relevant items of income and expense with supporting documentation. Payment of
any net amount due by Seller or Buyer, as the case may be, on the basis thereof
shall be made within ten (10) days of receipt of the statement.
20.20 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each and
every counterpart shall be deemed for all purposes one (1) agreement.
20.21 SUBROGATION.
To the fullest extent allowed by law and the applicable agreements with
third parties, Seller grants Buyer a right of subrogation in all claims or
rights Seller may have against third parties to the extent they relate to the
Assumed Obligations.
20.22 SUSPENDED MONIES.
At Closing, Seller shall deliver to Buyer the monies held in suspense by
Seller for the account of third parties, or relate to a title dispute or
question as to ownership, along with any documentation in Seller's possession or
available to Seller in support of such suspended funds. Any additional monies of
this nature received by Seller after Closing shall be remitted to Buyer within
one hundred twenty (120) days after the Closing hereof. At Closing, Buyer shall
assume the obligation for the payment of these monies.
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20.23. BUYER AS OPERATOR.
After the Closing Date, Buyer shall operate, manage, and administer the
Assets as a reasonable prudent operator and in a good and workmanlike manner in
accordance with the Unit Operating Agreement. The Parties acknowledge that
changes and amendments to the Unit Operating Agreement are necessary and
required by both Parties and will be negotiated prior to the Closing Date. These
changes and amendments may be in the form of changes and amendments to the
existing Unit Operating Agreement, a new unit operating agreement, or a side
letter agreement. The Unit Operating Agreement, as so amended or supplemented,
will include, among other provisions, the following:
(a) language giving Seller the right to make reasonable site visits to the
Delhi Holt Bryant Unit with its employees, agents, or investors, after
reasonable notice to Buyer, and at Seller's sole cost, risk and expense, and
this right will not be unreasonably withheld;
(b) the provisions Section 1.9 (d) (6);
(c) the right of Seller to take its share of production in kind, subject
to Buyer reserving a competitive call on Seller's share of production that
provides Buyer the right to match any third party offers to purchase Seller's
production, provided that this competitive call is limited to Seller's working
interest share of production, but not applicable to its overriding royalty
interest;
(d) a CO2 gas balancing agreement; and,
(e) After Closing and prior to Payout, Seller may vote its Reversionary
Interests with respect to any changes or amendments to the Unit Operating
Agreement.
47
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
WITNESSES: SELLER:
_________________________ NGS SUB CORP.
_________________________ By: ________________________________
Robert S. Herlin
President & CEO
BUYER:
_________________________ DENBURY ONSHORE, LLC
By: ________________________________
_________________________ H. Raymond Dubuisson
Vice President-Land
48
[LOGO OF NATURAL GAS SYSTEMS]
News Release May 9, 2006
Natural Gas Systems Announces Agreement to Sell Interest in Delhi Field and
Participate in Enhanced Oil Recovery Project
(Houston, Texas) Natural Gas Systems, Inc. (OTC: NGSY) today announced that it
has entered into a definitive agreement with Denbury Resources, Inc. (NYSE:DNR)
to conduct an enhanced oil recovery project in the Delhi Holt Bryant Unit within
the Delhi Field in northeast Louisiana (the "Delhi Unit"). NGSY will contribute
its working interest in the Delhi Unit and Denbury will contribute all
development capital, technical expertise and required amounts of proven reserves
of carbon dioxide ("CO2") that will be injected into the oil reservoirs. Since
its discovery in 1945, the Delhi Unit has produced approximately 190 million
barrels of oil, which NGS estimates to be less than half of the original oil in
place in the targeted reservoirs.
The principal terms of the agreement call for NGS to receive $50 million at
closing, subject to adjustments, if any, following normal due diligence
inspections. NGS will deliver to Denbury an initial 100% working interest and
80% net revenue interest in the Delhi Unit, while retaining a separate 4.8%
royalty interest within the Delhi Unit and a 25% working interest in other
depths. After the project generates $200 million of net cash flows before
capital expenditures, NGS will regain a 25% working interest (20% net revenue
interest) in the Delhi Unit.
Denbury has estimated that its capital expenditures in the overall project will
likely reach or exceed $200 million and that potential reserves are estimated to
range between 30 and 40 million barrels of oil, net to Denbury's interests. NGS
estimates the potential oil recovery from the project may range from 9 million
to 14 million barrels of oil over the project life, net to NGS's interests and
at no capital cost to NGS.
Robert Herlin, President of NGS, stated "This agreement is a major development
for NGS and its shareholders and demonstrates the value in our business model of
re-developing mature oil and gas fields using modern technology and capital. We
believe that our reversionary and overriding royalty interests will generate
substantial value and net reserves for NGS and its shareholders with minimal or
no capital risk, while allowing redeployment of the cash proceeds to other
attractive projects."
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Natural Gas Systems, Inc. o Two Memorial City Plaza
o 820 Gessner, Suite 1340 o Houston, Texas 77024
Tel: 713-935-0122 FAX: 713-935-0199
Natural Gas Systems, Inc. (www.natgas.us) acquires and develops oil and gas
resources and applies conventional and specialized technology to accelerate
production and develop incremental reserves. NGS owns a 100% working interest in
the 13,636 acre Delhi Field in northeastern Louisiana and a 100% working
interest in smaller fields in north central Louisiana. The Company is further
developing two projects in central Texas and certain proprietary technology for
oil field development.
Safe Harbor Statement
All statements contained in this press release regarding potential results and
future plans and objectives of the Company are forward-looking statements that
involve various risks and uncertainties. There can be no assurance that such
statements will prove to be accurate and actual results and future events could
differ materially from those anticipated in such statements. The Company
undertakes no obligation to update or review any forward-looking statement,
whether as a result of new information, future events, or otherwise. Important
factors that could cause actual results to differ materially from our
expectations include, but are not limited to, those factors that are disclosed
under the heading "Risk Factors" and elsewhere in our documents filed from time
to time with the United States Securities and Exchange Commission and other
regulatory authorities. Statements regarding our ability to completed
transactions, successfully apply technology applications in the re-development
of oil and gas fields, future production volumes, success in our drilling and
development activity, prices, future revenues and income and cash flows and
other statements that are not historical facts contain predictions, estimates
and other forward-looking statements. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved and these statements will prove to be accurate.
Important factors could cause actual results to differ materially from those
included in the forward-looking statements.
For additional information contact:
Investor Contact: John Liviakis, Liviakis Financial Communications, Inc.
(415) 389-4670
NGS Contact: Sterling McDonald, Chief Financial Officer
(713) 935-0122
- --------------------------------------------------------------------------------
Natural Gas Systems, Inc. o Two Memorial City Plaza
o 820 Gessner, Suite 1340 o Houston, Texas 77024
Tel: 713-935-0122 FAX: 713-935-0199