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: June 15, 2006
Date
of Earliest Event Reported: June 12, 2006
NATURAL
GAS SYSTEMS, INC.
(Exact
Name of Registrant as Specified in its Charter)
Nevada
(State
or
Other Jurisdiction of Incorporation)
|
0-27862
|
41-1781991
|
|
(Commission
File Number)
|
(I.R.S.
Employer Identification
No.)
|
|
820
Gessner, Suite 1340, Houston,
Texas
|
77024
|
|
(Address
of Principal Executive
Offices)
|
(Zip
Code)
|
(713)
935-0122
(Registrant's
Telephone Number, Including Area Code)
(Former
Name or Former Address, if Changed Since Last Report)
TABLE
OF CONTENTS
Item
1.02 Termination of a Material Definitve
Agreement
Item
2.01
Completion of Acquisition or Disposition of Assets
Item
9.01 Financial Statements and Exhibits
Signatures
ITEM
1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT
As
previously reported in a Current Report on Form 8-K filed by Natural Gas
Systems, Inc. ("NGS" or the "Company") with the SEC on March 8, 2006, the
Company entered a subordinated loan agreement with Laird Q. Cagan, the Chairman
of the Board of Directors of the Company, whereby Mr. Cagan loaned the Company
$250,000 (the "Subordinated Note"). The Subordinated Note had a one year
term
and accrued interest at 10%, payable at maturity. On June 13, 2006, the Company
voluntarily prepaid all amounts due under the Loan Agreement totaling $257,058,
representing the then-outstanding principal balance and all accrued and unpaid
interest.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
As
previously reported in a Current Report on Form 8-K filed by the Company with
the SEC on May 11, 2006, NGS, through our wholly-owned subsidiary NGS Sub Corp,
entered into a Purchase and Sale Agreement (the “Sale Agreement”) with
Denbury Onshore, LLC., a subsidiary of Denbury Resources, Inc. (NYSE symbol:
DNR, hereinafter referred to as “Denbury”) on May 8, 2006 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”). On June 12, 2006, NGS
received $50 million and delivered to Denbury an initial 100% working interest
and 80% net revenue interest in the Delhi Unit, and
a 75%
working interest and an 80% net revenue interest (proportionately reduced to
60%) in certain other depths in the Delhi Field. NGS retained a
separate 4.8% royalty interest in the Delhi Field (including the Delhi Unit)
and
a 25% working interest in certain other depths of the Delhi Field (excluding
the
Delhi Unit, except as described below). Under the terms of the Sale Agreement,
Denbury has agreed to contribute all development capital, technical expertise
and required amounts of proven reserves of carbon dioxide that will be injected
into the Delhi Unit oil reservoirs. 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.
For
tax
purposes, the parties to the Sale Agreement made certain non-material changes
and bifurcated the original Sale Agreement into two (2) separate agreements
in
order to assist in the consummation of a like-kind exchange. The final closing
documents for the revised Sale Agreement are attached hereto as the Purchase
and
Sale Agreement I, the Purchase and Sale Agreement II, the Unit Operating
Agreement, and the Conveyance, Assignment and Bill of Sale Agreement, attached
hereto as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively. The foregoing
descriptions are qualified by reference to Exhibit 10.1, 10.2 10.3 and 10.4
to
this Current Report on Form 8-K, which Exhibits are incorporated herein by
reference.
ITEM
9.01 FINANCIAL STATEMENTS AND EXHIBITS
Exhibits.
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 I, by and between NGS Sub Corp. and Denbury
Onshore,
LLC, dated May 8, 2006.
|
| 10.2 |
Purchase
and Sale Agreement II, by and between NGS Sub Corp. and Denbury
Onshore,
LLC, dated May 8, 2006.
|
| 10.3 |
Unit
Operating Agreement, by and between NGS Sub Corp. and Denbury
Onshore,
LLC, dated May 8, 2006.
|
| 10.4 |
Conveyance,
Assignment and Bill of Sale Agreement, by and between NGS
Sub Corp. and
Denbury Onshore, LLC, dated May 8,
2006.
|
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:
June 14, 2006
|
By: | /s/ Robert Herlin |
|
Robert
Herlin, Chief Executive Officer
|
||
PURCHASE
AND SALE AGREEMENT I
This
Purchase and Sale Agreement I ("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".
R
E C I T A L S
WHEREAS,
Seller owns certain oil and gas leasehold interests and related assets more
fully described on the exhibits hereto;
WHEREAS,
Seller desires to sell and Buyer desires to acquire these interests and related
assets on the terms and conditions hereinafter provided;
WHEREAS,
the Parties have previously executed a certain Purchase And Sale Agreement
dated
as of May 8, 2006 (the “Original Purchase and Sale Agreement”), which conveyed
one hundred percent (100%) of Seller’s interest in the Delhi Holt Bryant Unit to
Buyer (subject to other express terms and conditions contained
therein);
WHEREAS,
the Seller desires to bifurcate the Original Purchase and Sale Agreement into
two (2) separate agreements in order to assist in the consummation of a
Like-Kind Exchange and Buyer has agreed to cooperate in said
revisions;
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 I between Seller and Buyer, and said
Agreement does hereby amend, supersede and replace the Original Purchase and
Sale Agreement.
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-
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;
(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.
-2-
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.
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) Seller
saves and excepts from the Assignment and Conveyance , the lessors’ royalty, all
overriding royalty and other burdens on production encumbering the Delhi Holt
Bryant Unit as of the Effective Time (including, without limiting the foregoing,
that certain Act of Sale And Assignment executed on January 31, 2006 but
effective as of December 1, 2005, by and between James H. Jones and Kristi
S
Jones, as Vendors and NGS Sub Corp., as Vendee). It being the intention of
the
Seller to convey to Buyer a net revenue interest of not less than fifty six
percent (56%) in the Delhi Holt Bryant Unit.
-3-
(b) an
undivided seventeen and one-half percent of eight eighths (17.5% 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 fifty two and one-half percent of eight
eighths (52.5% 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.
(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 seventeen and one-half percent of
eight eighths (17.5% of 8/8ths ) and a net revenue interest of not less than
fourteen percent of eight eighths (14.0% 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) to the one hundred percent (100%)
Working Interest. It being the intent of the parties that the Seller shall
convey to the Buyer at Closing an undivided seventy percent (70.0%) working
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 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.
-4-
(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.
-5-
(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.
(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;
-6-
(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;
(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.
-7-
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.
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 an undivided seventy percent (70%) of 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:
-8-
(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;
(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.
-9-
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.”
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
thirty five million dollars ($35,000,000.00), allocated among the Assets as
provided in Exhibit “B.”
3.2. Performance
Deposit.
Intentionally
deleted.
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").
-10-
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;
-11-
(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 the one hundred percent (100%) Working Interest for the
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 seventy percent (70%) of 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.
-12-
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.
-13-
(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;
(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
-14-
(o) Except
as
set forth on Exhibit “G”, there are no oil or gas production imbalances with
respect to the Leases;
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.
6.3. Confidentiality
Agreement.
-16-
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.
-17-
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.
-18-
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.
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:
-19-
(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 fifty six percent (56.0%) 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 seventy percent (70.0%) 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;
(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;
-20-
(4) The
Leases included within the Assets are in full force and effect; and
(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 fifty six percent (56.0%)
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.
-22-
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.
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(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:
(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:
-24-
(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.
(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.
-26-
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.
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.
(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.
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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
-29-
(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.
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;
(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 June 12, 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.
-30-
13.2. Seller's
Closing Obligations.
At
Closing, except to the extent comprising the Excluded Assets, Seller shall
deliver to Buyer the following:
(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.
-31-
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.
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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.
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 (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.
-36-
(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.
(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.
-37-
(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 seventeen and one-half
percent (17.5%) and Buyer’s original interest being fifty two and one-half
percent (52.5%). 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.
-38-
(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:
(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.
-39-
(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.
(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.
.
-40-
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.
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.
-41-
(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.
(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
-42-
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.
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 agree that, for all Tax purposes: the fair
market value of the personal property acquired by the Buyer constitutes less
than five percent of the Purchase Price and the Parties will take no tax
reporting position to the contrary. 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.
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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)(iii) 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.
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.
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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.
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.
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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.
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.
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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-
PURCHASE
AND SALE AGREEMENT II
This
Purchase and Sale Agreement II ("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".
R
E C I T A L S
WHEREAS,
Seller owns certain oil and gas leasehold interests and related assets more
fully described on the exhibits hereto;
WHEREAS,
Seller desires to sell and Buyer desires to acquire these interests and related
assets on the terms and conditions hereinafter provided;
WHEREAS,
the Parties have previously executed a certain Purchase And Sale Agreement
dated
as of May 8, 2006 (the “Original Purchase and Sale Agreement”), which conveyed
one hundred percent (100%) of Seller’s interest in the Delhi Holt Bryant Unit to
Buyer (subject to other express terms and conditions contained
therein);
WHEREAS,
the Seller desires to bifurcate the Original Purchase and Sale Agreement into
two (2) separate agreements in order to assist in the consummation of a
Like-Kind Exchange and Buyer has agreed to cooperate in said
revisions;
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 I between Seller and Buyer, and said
Agreement does hereby amend, supersede and replace the Original Purchase and
Sale Agreement.
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
|
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| (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;
(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.
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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.
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) Seller
saves and excepts from the Assignment and Conveyance , the lessors’ royalty, all
overriding royalty and other burdens on production encumbering the Delhi Holt
Bryant Unit as of the Effective Time (including, without limiting the foregoing,
that certain Act of Sale And Assignment executed on January 31, 2006 but
effective as of December 1, 2005, by and between James H. Jones and Kristi
S
Jones, as Vendors and NGS Sub Corp., as Vendee). It being the intention of
the
Seller to convey to Buyer a net revenue interest of not less than twenty four
percent (24%) in the Delhi Holt Bryant Unit.
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(b) an
undivided seven and one-half percent of eight eighths (7.5% 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 twenty two and one-half percent of eight eighths
(22.5% 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.
(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 seven and one-half percent of eight
eighths (7.5% of 8/8ths ) and a net revenue interest of not less than six
percent of eight eighths (6.0% 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) to the one hundred percent (100%)
Working Interest. It being the intent of the parties that the Seller shall
convey to the Buyer at Closing an undivided thirty percent (30.0%) working
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 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.
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(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.
(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;
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6
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(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;
(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.
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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.
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 an undivided thirty percent (30%) of 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:
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(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;
(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.
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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.”
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
fifteen million dollars ($15,000,000.00), 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), 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.
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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").
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.
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(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;
(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 the one hundred percent (100%) Working Interest for the
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
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
December 31, 2012
|
$17,500,000
$35,000,000
$52,500,000
$70,000,000
$87,500,000
$100,000,000
|
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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 thirty percent (30%) of 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.
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;
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(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;
(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;
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(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;
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;
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(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;
(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.
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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.
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.
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(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 twenty four percent (24.0%) 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 thirty percent (30.0%) 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;
(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;
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(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
(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;
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(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 twenty four percent (24.0%)
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;
(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.
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(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:
(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:
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(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.
(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.
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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.
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.
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(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.
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;
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(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.
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;
(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.
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ARTICLE
13. - CLOSING
13.1.
Closing.
The
closing of this transaction (the "Closing")
shall
be held at the offices of Seller on June 12, 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:
(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.”
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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.
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.
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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.
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.
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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.
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 (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.
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(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.
(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 seven and one-half
percent (7.5%) and Buyer’s original interest being twenty two and one-half
percent (22.5%). 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.
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(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:
(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.
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(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.
(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.
.
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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.
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.
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(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.
(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
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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.
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 agree that, for all Tax purposes: the fair
market value of the personal property acquired by the Buyer constitutes less
than five percent of the Purchase Price and the Parties will take no tax
reporting position to the contrary. 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.
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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)(iii) 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.
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.
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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.
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.
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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.
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.
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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: | ||
| NGS SUB CORP. | ||
|
|
|
|
|
|
By:
|
|
|
H.
Raymond Dubuisson
Vice
President-Land
|
||
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