STOCK PURCHASE AGREEMENT among EAGLE ROCK ENERGY PARTNERS, L.P. (“Purchaser”), STANOLIND HOLDINGS, L.P. (“Seller”) and STANOLIND OIL AND GAS CORP. (the “Company”)
EXHIBIT
2.8
EXECUTION
COPY
among
EAGLE
ROCK ENERGY PARTNERS, L.P.
(“Purchaser”),
STANOLIND
HOLDINGS, L.P.
(“Seller”)
and
STANOLIND
OIL AND GAS CORP.
(the
“Company”)
Page
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Definitions
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1
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Defined
Terms
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1
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References
and Titles
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10
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Purchase
and Sale
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11
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Agreement
to Purchase and Sell
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11
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▇▇▇▇▇▇▇
Money Escrow Deposit
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11
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Payments
on Closing; Adjustments to Purchase Price
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11
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Excluded
Assets/Excluded Liabilities
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12
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Closing
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12
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Taking
of Necessary Action; Further Action
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13
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Representations
and Warranties of Seller and the Company
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13
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Representations
of Seller
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13
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Representations
of the Company
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14
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Representations
and Warranties of Purchaser
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31
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Organization
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31
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Authority
and Enforceability
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31
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No
Violations
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31
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Consents
and Approvals
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31
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Litigation
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32
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Funding
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32
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Brokers
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32
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Investment
Intent
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32
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Covenants
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32
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Conduct
of Business by the Company and its Subsidiaries Pending
Closing
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32
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Access
to Assets, Personnel and Information
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34
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No
Solicitation
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36
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Additional
Arrangements
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36
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Public
Announcements; Confidentiality
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36
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Payment
of Expenses
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37
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Continuation
of the Company's Existing Indemnification Obligations
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37
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Termination
of Certain Agreements
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37
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Resignation
of Directors and Officers; Termination of Agreements
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37
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Adjustments
to Base Purchase Price for Title and Environmental Defects
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38
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Additional
Adjustments to Base Purchase Price
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44
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Purchase
Price Calculation
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46
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No
Duplicate Adjustments
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46
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Escrow
Disbursements
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46
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Company
Employees
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47
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Termination
of Company Credit Agreement
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47
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Excluded
Assets/Excluded Liabilities
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47
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Covenant
on SEC Compliance
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48
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Unwinding
of Product Hedging Contracts
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48
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Indemnification
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49
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Procedures
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50
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Payment
of Indemnification Payments
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51
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No
Consequential Damages
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51
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Scope
of Representations of Seller and the Company
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51
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Mitigation
of Damages/Minimization of Claim
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52
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Exclusive
Remedy
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52
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Conditions
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52
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Conditions
to Each Party's Obligation to Proceed with Closing
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52
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Conditions
to Obligations of Purchaser
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53
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Conditions
to Obligations of Seller
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55
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Termination
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55
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Termination
Rights
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55
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Effect
of Termination
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56
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Default
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56
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Arbitration
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57
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Taxes
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57
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Tax
Matters
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57
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Miscellaneous
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58
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Survival
of Representations and Warranties
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58
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Amendment
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59
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Notices
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59
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Counterparts
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60
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Severability
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60
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Entire
Agreement; No Third Party Beneficiaries
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60
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Applicable
Law
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60
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No
Remedy in Certain Circumstances
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60
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Designation
of Third Party in Event of Disagreement
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60
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Assignment
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61
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Waivers
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61
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Confidentiality
Agreement
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61
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Incorporation
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61
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Cooperation
After Closing
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61
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Mutual
Release
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62
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Fair
Construction
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62
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Schedules
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62
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Purchaser’s
Reassignment of Undeveloped Acreage
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62
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EXHIBITS
Exhibit
A — ▇▇▇▇▇▇▇ Money Escrow Agreement
Exhibit
B — Form of Defect and Warranties Escrow Agreement
Exhibit
C — Forms of Goodwill Protection Agreement, with exhibit
SCHEDULES
Company
Disclosure Schedule
iii
This
Stock Purchase Agreement is made and entered into as of April 2, 2008, by and
among Eagle Rock Energy Partners, L.P., a Delaware limited partnership (“Purchaser”); Stanolind
Holdings, L.P., a Texas limited partnership (“Seller”); and Stanolind Oil
and Gas Corp., a Delaware corporation (the “Company”; Purchaser, Seller
and the Company, individually, a “Party”, and, collectively,
the
“Parties”).
Recitals
A.
Purchaser desires to buy and Seller desires to sell all of the issued and
outstanding capital stock of the Company, upon the terms and subject to the
conditions set forth in this Agreement.
B.
Purchaser and Seller desire to make certain representations, warranties,
covenants and agreements in connection with such purchase and sale of stock
provided for in this Agreement and also to prescribe various conditions to
such
purchase and sale of stock.
C.
The Company desires to join in the execution of this Agreement for the purpose
of evidencing consent to the consummation of the foregoing transaction and
for
the purpose of making certain representations and warranties to and covenants
and agreements with Purchaser.
IN
CONSIDERATION of the recitals and the mutual covenants and agreements set forth
in this Agreement, the Parties hereby agree as follows:
DEFINITIONS
Section
1.1
Defined Terms
.
As used
in this Agreement, each of the following terms has the meaning given in this
Section 1.1 or
in the Sections referred to below:
“Accountant”
means
Elms, Faris
& Company, LLP, Midland, Texas.
“Accounts
Receivable” has the
meaning specified in Section
3.2(kk).
“Advisory
Services Agreement”
means the Advisory Services, Reimbursement and Indemnification Agreement,
effective as of August 30, 2004, between the Company and NGP.
“Affiliate”
means,
with respect
to any Person, each other Person that directly or indirectly (through one or
more intermediaries or otherwise) controls, is controlled by, or is under common
control with such Person; provided, however, that Seller, the Company and
Stanolind Operating Corp. shall not be considered Affiliates of Purchaser,
and
Purchaser, its direct and indirect subsidiaries and its general partner and
the
owners of its general partner, will not be considered Affiliates of each other,
by virtue of their common ownership and common control by NGP.
“Aggregate
Defect Threshold”
has the meaning specified in Section
5.10(b)(ii).
“Agreement”
means
this Stock
Purchase Agreement, as amended, supplemented or modified from time to
time.
“Allocated
Values” means the
allocation of values for all of the assets of the Company shown in Section 1.1 of the
Company Disclosure Schedule.
“Base
Purchase Price” has the
meaning specified in Section
2.3.
“CERCLA”
means
the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
“CERCLIS”
means
the
Comprehensive Environmental Response, Compensation and Liability Information
System List.
“Closing”
means
the closing and
consummation of the transactions contemplated by this Agreement.
“Closing
Date” means April 30,
2008, or such later date as may be mutually agreed by the Parties.
“Closing
Statement” has the
meaning specified in Section
5.12.
“COBRA”
means
the requirements
of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B and of any
similar state law.
“Code”
means
the Internal
Revenue Code of 1986, as amended.
“Company”
has
the meaning
specified in the introductory paragraph to this Agreement.
“Company
Certificate” means a
certificate representing shares of Company Common Stock.
“Company
Common Stock” means
the common stock, par value of $.01 per share, of the Company.
“Company
Credit Agreement”
means the Credit Agreement, entered into effective as of December 15,
2004,
among the Company, Bank of America, N.A., successor by merger to Fleet National
Bank, as Administrative Agent, and the other financial institution parties
thereto, as amended by First Amendment to Credit Agreement, dated April 7,
2005,
Second Amendment to Credit Agreement, dated June 29, 2007, and Third Amendment
to Credit Agreement, dated January 18, 2008.
“Company
Disclosure Schedule”
means the Disclosure Schedule of the Company delivered in connection
with this
Agreement and any documents listed on such Disclosure Schedule and expressly
incorporated therein by reference.
“Company
Employee Benefit
Plans” has the meaning specified in Section
3.2(n)(i).
“Company
Financial Statements”
means the audited consolidated financial statements of the Company and
its
Subsidiaries (including the related notes) as of and for the year ended December
31, 2006; and the unaudited (and when delivered, the audited) consolidated
financial statements of the Company and its Subsidiaries (including the related
notes) as of, and for the year ended, December 31, 2007.
“Company
Indemnified
Parties” has the
meaning specified in Section 5.7.
“Company
Permits” has the
meaning specified in Section
3.2(q).
“Company
Representative” means
any director, officer, employee, agent, advisor (including legal, accounting
and
financial advisors) or other representative of the Company.
“Confidentiality
Agreement”
means the letter agreement entered into the 27th
day of
November, 2007, between Purchaser and Seller relating to Seller’s furnishing of
information to Purchaser in connection with Purchaser’s evaluation of the
possibility of acquiring the Company.
“Confidentiality
and Noncompete
Agreements” means the Confidentiality and Noncompete Agreements, dated as
of August 30, 2004, among Seller, the Company and each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇.
“Damages”
means any and all
liabilities, damages and losses, and all costs or expenses, including costs
of
investigation and defense and reasonable attorneys’ and consultants’ fees and
expenses incurred in respect of Third Party claims or claims between or among
the Parties, but excluding special, incidental, indirect, consequential,
punitive or exemplary damages (unless such amount is recovered from an
Indemnified Party pursuant to a claim by a Third Party).
“Debt”
means,
for any Person,
without duplication: (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all indebtedness of such Person on which
interest charges are customarily paid or accrued, (d) all Guarantees of such
Person, (e) the unfunded or unreimbursed portion of all letters of credit issued
for the account of such Person, (f) the present value of all obligations in
respect of leases that are capitalized on the books and records of such Person,
(g) all obligations of such Person representing the deferred purchase price
of
property or services purchased by such Person other than trade payables incurred
in the ordinary course of business and which are not more than 90 days past
invoice date (which trade payables are current liabilities for purposes of
calculating Working Capital), (h) all indebtedness, liabilities and obligations
secured by a Lien (other than a Permitted Encumbrance) on the assets of such
Person whether or not such indebtedness, liability or obligation is otherwise
non-recourse to such Person, and (i) all liabilities of such Person as a general
partner or joint venturer for obligations of the nature described in (a) through
(h) preceding.
“December
31 Financial
Statements” has the meaning specified in Section 5.11(e).
“Defects
Escrow” has the
meaning specified in Section 5.10(c)(ii).
“Defects
and Warranties Escrow”
has the meaning specified in Section 2.2.
“Defects
and Warranties Escrow
Agreement” has the meaning specified in Section 2.2.
“Defensible
Title” means such
right, title and interest that (a) with respect to an Ownership Interest in
any
lease, unit or well reflected in Section 1.1 of the
Company Disclosure Schedule: (i) is evidenced by an instrument or instruments
filed of record in accordance with the conveyance and recording laws of the
applicable jurisdiction to the extent necessary to give the Company and
Purchaser, through its ownership of the Company Common Stock, the right to
enjoy
the benefits of possession of (x) the presently producing formation in such
Ownership Interest and (y) any other depths in such Ownership
Interests to which value has been allocated by Purchaser as shown in
Section 1.1 of
the Company Disclosure Schedule, based on the title to such Ownership Interest
as it exists on the date of this Agreement (subject to royalties, overriding
royalties, net profits interests or other burdens on or measured by production
of oil and gas resulting in the NRI reflected in Section 1.1 of the
Company Disclosure Schedule) throughout the duration of the productive life
of
the relevant lease, unit or well, and with respect to any specific Ownership
Interest not yet earned under a farmout agreement, is described in and subject
to a farmout agreement, identified in Section 1.1 of the
Company Disclosure Schedule, containing terms and provisions reasonably
consistent with terms and provisions used in the domestic oil and gas business
and under which there exists no default by the Company and which is identified
on the Company Disclosure Schedule; (ii) is free and clear of all Liens, with
the exception of Permitted Encumbrances and except as disclosed in Section 1.1 of the
Company Disclosure Schedule; and (iii) obligates the Company or any of its
Subsidiaries to bear a percentage of the costs and expenses of the maintenance
and development of, and operations relating to the specific Ownership Interest
that is not greater than the interest set forth in Section 1.1 of the
Company Disclosure Schedule, based on the title to the Ownership Interest as
it
exists on the date of this Agreement, without increase throughout the productive
life of such Ownership Interest, except as reflected in Section 1.1 of the
Company Disclosure Schedule, and (b) with respect to all other assets such
title
that is good and defensible and is free and clear of all Liens, with the
exception of Permitted Encumbrances.
“Direct
Claim” has the meaning
specified in Section 5.21(c).
“▇▇▇▇▇▇▇
Money Escrow” has the
meaning specified in Section
2.2.
“▇▇▇▇▇▇▇
Money Escrow
Agreement” has the meaning specified in Section 2.2(a).
“Effective
Date” means 12:01
a.m., January 1, 2008.
“Environmental
Defect” has the
meaning specified in Section
5.10(a).
“Environmental
Law” means any
law, common law, ordinance, regulation or policy of any Governmental Authority,
as well as any order, decree, permit, judgment or injunction issued,
promulgated, approved, or entered thereunder, relating to the environment,
health and safety, Hazardous Material (including the use, handling,
transportation, production, disposal, discharge or storage thereof), industrial
hygiene, or the environmental conditions on, under, or about any real property
owned, leased or operated at any time by the Company or any of its
Subsidiaries. Environmental Laws include the Clean Air Act, as
amended, the Federal Water Pollution Control Act, as amended, the Rivers and
Harbors Act of 1899, as amended, the Safe Drinking Water Act of 1980, as
amended, CERCLA, the Superfund Amendments and Reauthorization Act of 1986,
as
amended, RCRA, the Hazardous and Solid Waste Amendments Act of 1984, as amended,
the Toxic Substances Control Act, as amended, the Occupational Safety and Health
Act, as amended, the Hazardous Materials Transportation Act, as amended, and
any
other federal, state and local law whose purpose is to conserve or protect
human
health, the environment, wildlife or natural resources.
“ERISA”
means
the Employee
Retirement Income Security Act of 1974, as amended from time to time and the
regulations promulgated thereunder.
“Escrow
Agent” means ▇▇▇▇▇
Fargo Bank, National Association, Houston, Texas.
“Escrow
Agreement” has the
meaning specified in Section
2.2.
“Estimated
Adjustments” has the
meaning specified in Section
5.12.
“Excess”
has
the meaning
specified in Section
5.12.
“Excluded
Assets” has the
meaning specified in Section
2.4.
“Expiring
Acreage” has the
meaning specified in Section
9.18.
“Final
Adjustments” has the
meaning specified in Section
5.12.
“GAAP”
means
generally accepted
accounting principles, as recognized by the U.S. Financial Accounting Standards
Board (or any generally recognized successor).
“Goodwill
Protection
Agreements” means the agreements referred to in Section
6.2(d).
“Governmental
Authority” means
any national, state, county or municipal government, domestic or foreign, or
any
agency, board, bureau, commission, court, department or other instrumentality
of
any such government.
“Guaranty”
by
any Person means
any obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance
or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreements to
keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain
financial statement conditions, by “comfort
letter” or other similar undertaking of support of otherwise); or (b) entered
into for the purpose of assuring in any other
manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against
loss
in respect thereof (in whole or in part); provided, that the term “Guaranty”
shall not include endorsements for collection or deposit in the ordinary course
of business. For purposes of this Agreement, the amount of any Guaranty shall
be
the maximum amount that the guarantor could be legally required to pay under
such Guaranty.
“Hazardous
Material” means (a)
any “hazardous substance,” as defined by CERCLA; (b) any “hazardous waste” or
“solid waste,” in either case as defined by RCRA; (c) any solid, hazardous,
dangerous or toxic chemical, material, waste or substance, within the meaning
of
and regulated by any Environmental Law; (d) any asbestos-containing materials
in
any form or condition; (e) any polychlorinated biphenyls in any form or
condition; (f) petroleum, Hydrocarbons, or any fractions or byproducts thereof;
or (g) any air pollutant which is so designated by the U.S. Environmental
Protection Agency as authorized by the Clean Air Act.
“Hedging
Transaction” means any
transaction involving a Product Hedging Contract.
“Hydrocarbons”
means
oil,
condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons.
“Indemnified
Party” has the
meaning specified in Section
5.21(a).
“Indemnifying
Party” has the
meaning specified in Section
5.21(a).
“Individual
Defect Threshold”
has the meaning specified in Section
5.10(b)(i).
“Investment”
in
any Person
means any investment, whether by means of securities purchase (whether by direct
purchase from such Person or from an existing holder of securities of such
Person), loan, advance, extension of credit, capital contribution or otherwise,
in or to such Person, the Guaranty of any Debt or other obligation of such
Person, or the subordination of any claim against such Person to other Debt
or
other obligation of such Person; provided, that “Investments” shall not include
advances made to employees of such Person for reasonable travel, entertainment
and similar expenses incurred in the ordinary course of business.
“Lien”
means
any lien,
mortgage, security interest, pledge, deposit, restriction, burden, encumbrance,
rights of a vendor under any title retention or conditional sale agreement,
or
lease or other arrangement substantially equivalent thereto, but does not
include any production payment obligation.
“Material
Adverse Effect” means
(a) when used with respect to the Company, a result or consequence that would
materially adversely affect the condition (financial or otherwise), results
of
operations or business of the Company and its Subsidiaries, taken as a whole,
or
the aggregate value of the assets of the Company and its Subsidiaries, taken
as
a whole, would materially impair the ability of the Company or any of
its Subsidiaries to own, hold, develop or operate its assets, or would impair
the Company’s ability to perform its obligations hereunder or consummate the
transactions contemplated hereby or prevent or materially delay the performance
of this Agreement, excluding, however, changes resulting from commodity price
movements, normal oilfield operating, drilling and producing occurrences or
changes resulting from legislation, regulatory action or general economic
conditions that may impact the energy industry; and (b) when used with respect
to Purchaser, a result or consequence that would materially adversely affect
its
ability to perform its obligations hereunder or consummate the transactions
contemplated hereby or prevent or materially delay the performance of this
Agreement.
“Material
Agreement” means any
written or oral agreement, contract, commitment, or understanding to which
a
Person is a party, by which such Person is directly or indirectly bound, or
to
which any assets of such Person may be subject (other than oil, gas and mineral
leases, oil and gas leases and joint operating agreements), involving
consideration with a total value in excess of $50,000 (a) which is not
cancelable by such Person upon notice of 60 days or less without liability
for
further payment other than nominal penalty, (b) pursuant to which such Person
acquires any material portion of the raw materials, supplies or services used
or
consumed by such Person in the operation of their respective businesses (unless
such raw materials, supplies or services are readily available to such Person
from other sources on comparable terms), or (c) pursuant to which such Person
derives any material part of its revenues.
“NGP”
means
Natural Gas
Partners VII, L.P., a Delaware limited partnership.
“NRI”
means
the fractional
interest in Hydrocarbons produced from or allocated to a well or unit that
the
Company or its Subsidiaries, as the case may be, is entitled to receive,
including any royalties or overriding royalties that the Company owns, after
deduction of all royalties, overriding royalties and other burdens and payments
out of production that burden the Company's interest.
“Oil
and Gas Interest(s)” means
(a) direct and indirect interests in and rights with respect to Hydrocarbons,
minerals and related properties and assets of any kind and nature, direct or
indirect, including working interests, production payments, operating rights,
net profits interests, carried interests, and any non-WI's and non-operating
interests, but excluding mineral, royalty and overriding royalty interests
listed in Section
2.4 of the Company Disclosure Schedule; (b) interests in and rights with
respect to Hydrocarbons and other minerals or revenues therefrom and contracts
in connection therewith and claims and rights thereto (including oil and gas
leases, operating agreements, unitization and pooling agreements and orders,
division orders, transfer orders, mineral deeds, royalty deeds, oil and gas
sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), surface interests, fee interests, servitudes,
reversionary interests, reservations and concessions; (c) easements, rights
of
way, licenses, permits, leases, and other interests associated with, appurtenant
to, or necessary for the operation of any of the foregoing; and (d) interests
in
equipment and machinery (including well equipment and machinery), oil and gas
production, gathering, transmission, compression, treating, processing and
storage facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing
plants, salt water disposal ▇▇▇▇▇ and related equipment, refineries and other
tangible personal property and fixtures associated with, appurtenant to, or
necessary for the operation of any of the foregoing. References in
this Agreement to the “Oil and Gas Interests of the Company” or “Company’s Oil
and Gas Interests” mean the collective Oil and Gas Interests of the Company and
its Subsidiaries.
“Ownership
Interests” means the
ownership interests of the Company and its Subsidiaries in their assets (other
than Excluded Assets), as set forth in Section 1.1 of the
Company Disclosure Schedule which, in the case of the Company's Oil and Gas
Interests, are designated as "NRI" and "WI".
“Party”
or
“Parties”
has
the meaning
specified in the recitals to this Agreement.
“Permitted
Encumbrances” means
(a) Liens for Taxes, assessments or other governmental charges or levies if
the
same shall not at the particular time in question be due and delinquent or
(if
foreclosure, distraint sale or other similar proceedings shall not have been
commenced or, if commenced, shall have been stayed) are being contested in
good
faith by appropriate proceedings; (b) Liens of carriers, warehousemen,
mechanics, laborers, materialmen, landlords, vendors, workmen and operators
arising by operation of law in the ordinary course of business or by a written
agreement existing as of the date hereof and necessary or incident to the
exploration, development, operation and maintenance of Hydrocarbon properties
and related facilities and assets for sums not yet due or being contested in
good faith by appropriate proceedings; (c) Liens incurred in the ordinary course
of business in connection with workers’ compensation, unemployment insurance and
other social security legislation (other than ERISA) which would not,
individually or in the aggregate, result in a Material Adverse Effect on the
Company; (d) Liens incurred in the ordinary course of business to secure the
performance of bids, tenders, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance and repayment bonds and other obligations
of a like nature; (e) Liens, easements, rights of way, restrictions, servitudes,
permits, conditions, covenants, exceptions, reservations and other similar
encumbrances incurred in the ordinary course of business or existing on property
not materially impairing the value of the assets of the Company and its
Subsidiaries, taken as a whole, or interfering with the ordinary conduct of
the
business of the Company and its Subsidiaries, taken as a whole, or rights to
any
of their assets; (f) Liens created or arising by operation of law to secure
the
Company's obligations as a purchaser of oil and gas; (g) all rights to consent
by, required notices to, filings with, or other actions by Governmental
Authorities to the extent customarily obtained subsequent to closing; (h)
farmout, carried working interest, joint operating, unitization, royalty,
overriding royalty, sales and similar agreements relating to the exploration
or
development of, or production from, Hydrocarbon properties entered into in
the
ordinary course of business; (i) any defects, irregularities or deficiencies
in
title to the Oil and Gas Interests of the Company or any of its Subsidiaries
that do not reduce the Company's or its Subsidiaries’ NRI, or increase the
Company's or its Subsidiaries’ WI, in any Oil and Gas Interest of the Company
set forth in Section
1.1 of the Company Disclosure Schedule; (j) title problems or title
requirements commonly encountered in the oil and gas business which would not
be
considered material by a reasonably prudent operator engaged in the business
of
owning, developing and operating oil and gas properties with knowledge of all
the facts and appreciation of their legal significance and giving due
consideration to the existence and duration of pay status; (k) preferential
rights to purchase and Third Party Consents (to the extent not triggered by
the
consummation of the transaction contemplated by this Agreement); (l) the terms
and provisions of leases and other documents and instruments affecting title
disclosed in Section
1.1 of the Company Disclosure Schedule; (m) valid, subsisting and
applicable laws, rules and orders of any Governmental Authorities; and (n)
Liens
described in Section
1.1 of the Company Disclosure Schedule.
“Person”
(whether
or not
capitalized) means any natural person, corporation, company, limited or general
partnership, joint stock company, joint venture, association, limited liability
company, limited liability partnership, trust, bank, trust company, land trust,
business trust or other entity or organization, whether or not a Governmental
Authority.
“Product
Hedging Contract”
means any agreement providing for options, swaps, floors, caps, collars,
forward
sales or forward purchases involving commodities or commodity prices, or indexes
based on any of the foregoing and any other similar agreement or
arrangement.
“Proposed
Adjustments” has the
meaning specified in Section
5.12.
“Purchase
Price” has the
meaning specified in Section
2.3.
“Purchaser”
has
the meaning
specified in the introductory paragraph of this Agreement.
“RCRA”
means
the Resource
Conservation and Recovery Act of 1976, as amended.
“Representative”
means
any
director, officer, manager, employee, agent, advisor (including legal,
accounting and financial advisors), Affiliate or other representative of such
Person or its Subsidiaries.
“Responsible
Officer” means,
with respect to any corporation or other entity having officers, the Chief
Executive Officer, President, Chief Operating Officer, Chief Financial Officer
or any Vice President of such corporation or entity.
“Rights
Agreement” means the
Voting and Transfer Restriction Agreement, dated as of August 30, 2004, by
and
among the Company, Seller, NGP, and certain other parties.
“SEC”
means
the U.S. Securities
and Exchange Commission.
“Securities
Act” means the
Securities Act of 1933, as amended.
“Seller”
has
the meaning
specified in the introductory paragraph of this Agreement.
“Shares”
has
the meaning
specified in Section
2.1.
“Shortfall”
has
the meaning
specified in Section
5.12.
“Subsidiaries”
or
“Subsidiary”
means,
with
respect to any Person, each entity as to which such Person (either alone or
through or together with any other Subsidiary of such Person) (i) owns
beneficially or of record or has the power to vote or control, 50 percent or
more of the voting securities of such entity or of any class of equity interests
of such entity the holders of which are ordinarily entitled to vote for the
election of the members of the board of directors or other persons performing
similar functions, (ii) in the case of partnerships, serves as a general
partner, (iii) in the case of a limited liability company, serves as a managing
member or owns a majority of the equity interests or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
“Tax
Returns” has the meaning
specified in Section
3.2(p).
“Taxes”
means
taxes of any
kind, levies or other like assessments, customs, duties, imposts, charges or
fees, including income, gross receipts, ad valorem, value added, excise, real
or
personal property, asset, sales, use, federal royalty, license, payroll,
transaction, capital, net worth and franchise taxes, estimated taxes,
withholding, employment, social security, workers’ compensation, utility,
severance, production, unemployment compensation, occupation, premium, windfall
profits, transfer and gains taxes or other governmental taxes imposed or payable
to the United States or any state, local or foreign governmental subdivision
or
agency thereof, and in each instance such term shall include any interest,
penalties or additions to tax attributable to any such Tax, including penalties
for the failure to file any Tax Return or report.
“Third
Party” means any Person
other than the Company, Purchaser or Seller.
“Third
Party Consent” means the
consent or approval of any Third Party.
“Title
Defect” has the meaning
specified in Section
5.10(a).
“Transition Services
Agreement” means the
agreement referred to in Section
6.2(e).
“Treasury
Regulations” means
the regulations promulgated by the U.S. Treasury Department under the
Code.
“Warranties
Escrow” has the
meaning specified in Section
2.2(b).
“WI”
means the fractional
interest of the costs and expenses associated with the exploration, development
and operation of a well or unit that the Company or its Subsidiaries, as the
case may be, is obligated to bear.
“Working
Capital” means all
current assets minus all current liabilities, each as calculated in accordance
with GAAP; provided, however, that Working Capital shall specifically (a) exclude any
receivables and payables created or incurred in connection with Excluded Assets
(as they shall be Excluded Assets and Excluded Liabilities) and (b) exclude any Hedging
Transaction, any liabilities or obligations associated with the Company Credit
Agreement and any deferred taxes.
Section
1.2
References and Titles.
All
references in this Agreement to Exhibits, Schedules, Articles, Sections,
subsections and other subdivisions refer to the corresponding Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions of or to
this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any Articles, Sections, subsections or other subdivisions of this Agreement
are for convenience only, do not constitute any part of this Agreement, and
shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words
of similar import, refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The words “this Article,” “this
Section” and “this subsection,” and words of
similar import, refer only to the Article, Section or subsection hereof in
which
such words occur. The word “or” is not exclusive,
and the
word “including” (in its
various forms) means including without limitation. Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
As
used
in the representations and warranties contained in this Agreement, the phrase
“to the knowledge” of
the representing Party or similar variations thereof shall mean that
Responsible Officers of such representing Person, individually or collectively,
either (a) have knowledge that the matter being represented and warranted is
true and accurate or (b) would reasonably be expected to have knowledge of
the
matter based on similarly situated Persons within similar companies operating
under similar circumstances.
PURCHASE
AND SALE
Section
2.1
Agreement to Purchase and Sell.
At the
Closing, Seller shall sell, transfer, convey, assign, and deliver to Purchaser,
and Purchaser shall purchase, acquire and accept from Seller, all of the issued
and outstanding shares of Company Common Stock (the “Shares”) upon the terms and
subject to the conditions set forth in this Agreement. Seller shall
at Closing deliver to Purchaser Company Certificates for all of the Shares,
free
and clear of all Liens, claims, charges, restrictions, equities or encumbrances
of any kind, other than restrictions arising under the
Securities Act and other applicable securities laws, which Company
Certificates shall be duly endorsed to Purchaser or accompanied by duly executed
stock powers in a form satisfactory to Purchaser.
Section
2.2 Escrow Deposit.
(a)
▇▇▇▇▇▇▇ Money Escrow
Deposit. Contemporaneous with the execution of this Agreement,
Purchaser will deposit the sum of $3,950,000, representing five
percent of the Base Purchase Price (the “▇▇▇▇▇▇▇ Money Escrow”), with
the Escrow Agent pursuant to the terms and conditions of an ▇▇▇▇▇▇▇ Money Escrow
Agreement in form and substance substantially identical to that attached hereto
as Exhibit A
(the “▇▇▇▇▇▇▇ MoneyEscrow
Agreement”). If the
Parties consummate the purchase and sale of the Shares in accordance with the
terms hereof, the ▇▇▇▇▇▇▇ Money Escrow funds shall be applied to the Purchase
Price in accordance with the terms of this Agreement and the ▇▇▇▇▇▇▇ Money
Escrow Agreement. If the Closing does not occur, the ▇▇▇▇▇▇▇ Money Escrow funds
shall be paid to Purchaser in accordance with Section 7.2 unless
the provisions of Section 7.3 require
the payment thereof to Seller, in which event the ▇▇▇▇▇▇▇ Money Escrow funds
will be paid to Seller.
(b)
Defects and Warranties
Escrow Deposit. Contemporaneously with the Closing, Purchaser
will deposit (i) an amount equal to the amount attributable to Title Defects
and
Environmental Defects pursuant to Section 5.10(c)(ii)
(the “Defects
Escrow”) and (ii) an amount equal to 10% of the Base Purchase Price as
provided in Section
5.10 (the “Warranties
Escrow” and together with the Defects Escrow, the “Defects and Warranties
Escrow”), with the Escrow Agent pursuant to the terms and conditions of a
Defects and Warranties Escrow Agreement in form and substance substantially
identical to that attached hereto as Exhibit B (the “Defects
and Warranties Escrow
Agreement”).
Section
2.3 Payments on Closing;
Adjustments to
Purchase Price. At the Closing on the Closing Date, Purchaser
shall, in consideration for good and defensible title to the Company Shares,
free and clear of all Liens, claims, charges, restrictions or encumbrances
of
any kind, other than restrictions arising under the Securities Act and other
applicable securities laws, pay to Seller in cash by wire transfer in
immediately available federal funds the aggregate amount of $79,000,000 (the
“Base Purchase Price”),
plus or minus the adjustments to the Base Purchase Price determined pursuant
to
Section
5.6,Section
5.10, Section
5.11 and Section 5.12 (the
Base Purchase Price, as so adjusted, is the “Purchase
Price”). The Purchase
Price shall be funded in part by the ▇▇▇▇▇▇▇ Money Escrow (pursuant to Section 2.2) and
shall be diverted from full payment at the Closing to Seller, in part, to fund
the Defects Escrow, if applicable, and the Warranties Escrow, as described
in
Section 2.2(b).
Section
2.4
Excluded Assets/Excluded Liabilities.
The
assets listed in Section 2.4 of the
Company Disclosure Schedule (which shall include any undeveloped Oil and Gas
Interests described in Section 2.4 of the
Company Disclosure Schedule) and the other assets identified in this Agreement
as excluded assets (collectively with any other assets that become excluded
assets under Section
5.10(c) or Section 5.10(d),
and
any receivables or other assets that are created on account of said assets,
the
“Excluded Assets”) will
be, prior to or at Closing, sold, assigned, distributed or otherwise transferred
by the Company or its Subsidiaries to Seller or its nominee; provided, however,
any asset that becomes an Excluded Asset under Section 5.10(c) or
Section
5.10(d)
shall be assigned by the Company or its Subsidiary after the
Closing. Excluded Assets will not include any undeveloped Oil and Gas
Interests described in Section 9.18 of the
Company Disclosure Schedule. All obligations, debts, or liabilities incurred
in
connection with or associated with the Excluded Assets (and any other known
or
unknown, ▇▇▇▇▇▇ or inchoate, claims, obligations, debts or other liabilities
that accrue or arise from the ownership or operation of the Excluded Assets
at
any time in the history of the Company or its Subsidiaries, the “Excluded Liabilities”) shall
be assumed by Seller or its nominee without any reservation as of the
Closing. None of the representations or warranties set forth in this
Agreement or any of the other provisions of this Agreement shall be applicable
to the Excluded Assets and Excluded Liabilities. Notwithstanding
anything to the contrary in the foregoing, all Taxes, if any, resulting from
the
transfer of the Excluded Assets shall be considered an Excluded Liability only
after utilization of the Company's available tax attribute carry
forwards.
Section
2.5
Closing.
The
Closing shall take place on the Closing Date at 9:00 a.m. at the offices of
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, Midland, Texas, or at such other time and place as
is agreed by Purchaser and Seller. At the Closing,
(a) Seller
shall deliver
or cause
to be
delivered to
Purchaser:
|
(i)
|
stock
certificates representing all of the Shares endorsed in blank or
accompanied by separate stock powers and the certificates referred
to in
Section
6.2(a) and Section
6.2(b);
|
|
(ii)
|
the
releases and other documents described in Section
5.9;
|
|
(iii)
|
the
delivery of the consents described on Section
3.2(e)
of the Company Disclosure Schedule;
|
|
(iv)
|
recordable
releases and terminations covering all Liens on the Oil and Gas Interests
owned by the Company or its Subsidiaries arising under the Company
Credit
Agreement;
|
|
(v)
|
evidence
of the resignation or removal of all of the directors and officers
of the
Company and its Subsidiaries;
|
|
(vi)
|
the
Goodwill Protection Agreements as described in Section
6.2(d);
|
|
(vii)
|
the
Transition Services Agreements as described in Section
6.2(e);
and
|
|
(viii)
|
Evidence
of assignment of the Excluded Assets to, and assumption of the Excluded
Liabilities by, Seller.
|
(b) Purchaser
shall deliver
or cause
to be
delivered to
Seller:
|
(i)
|
the
Purchase Price (subject to Section
2.3 and
Section
5.14);
|
|
(ii)
|
the
certificates referred to in Section
6.3(a)
and Section
6.3(b);
|
|
|
(iii)
|
the
Goodwill Protection Agreements as described in Section
6.2(d);
and
|
|
|
(iv)
|
Transition
Services Agreements as described in Section
6.2(e).
|
Section
2.6
Taking of Necessary Action; Further Action.
Seller
and Purchaser shall use all reasonable efforts to take all such actions as
may
be necessary or appropriate in order to effectuate the Closing as promptly
as
commercially practicable. Further, the Parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each
other
such other documents, and (c) to do such other acts and things, all as any
other
Party may reasonably request for the purpose of carrying out the intent of
this
Agreement; provided that the party requesting any such information, documents
or
other acts and things shall bear and be responsible for all costs and expenses
associated with any such request.
REPRESENTATIONS
AND WARRANTIES OF
SELLER
AND THE COMPANY
Section
3.1
Representations of Seller.
Seller
hereby represents and warrants to Purchaser as follows:
(a) Organization of
Seller. Seller (i) is a limited partnership duly organized and
validly existing under the laws of the State of Texas, and (ii) has
the requisite
power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted.
(b) Authority and
Enforceability.
Seller
has the requisite power and authority to enter into and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary partnership action
on the part of Seller, and no other partnership proceedings on the part of
Seller are necessary to authorize the execution or delivery of this Agreement
or
to consummate the transactions contemplated hereby. This Agreement has been
duly
and validly executed and delivered by Seller and (assuming that this Agreement
constitutes a valid and binding obligation of Purchaser) constitutes a valid
and
binding obligation of Seller enforceable against Seller in accordance with
its
terms.
(c) No
Violations.
The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance by Seller with the provisions
hereof will not, conflict with, result in any violation of or default (with
or
without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss
of a
material benefit under, or result in the creation of any Lien on any of the
properties or assets of Seller under any provision of (i) Seller’s
organizational documents, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or other
agreement or instrument applicable to Seller, or (iii) assuming the consents,
approvals, authorizations, permits, filings and notifications referred to in
Section 3.2(e)
are duly
and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Seller or its
properties or assets.
(d) Title to
Shares.
Seller
is (and at the Closing will be) the sole record and beneficial owner of, and
upon consummation of the transactions contemplated hereby Purchaser will
acquire, the Shares, free and clear of all Liens, other than (i) those that
may
arise by virtue of any actions taken by or on behalf of Purchaser or its
Affiliates or (ii) restrictions on transfer that may be imposed by federal
or
state securities laws.
Section
3.2
Representations of the Company.
The
Company hereby represents and warrants to Purchaser as follows:
(a) Organization
of the
Company.
The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, (ii) has the requisite
corporate power and authority to own, lease and operate its properties and
to
conduct its business as it is presently being conducted, and (iii) is duly
qualified to do business as a foreign corporation and is in good standing in
the
State of Texas and in each other jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified or to
be in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect on the Company). Copies of the certificate of incorporation
and
bylaws of the Company have heretofore been made available to Purchaser, and
such
copies are accurate and complete as of the date hereof.
(b) Organization
of the
Subsidiaries.
The
Company’s sole Subsidiary (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, (ii) has the
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as it is presently being conducted, and (iii) is
duly qualified to do business as a foreign corporation and is in good standing
in the State of Texas and in each other jurisdiction where the character of
the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified or to
be in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect on the Subsidiaries). Copies of the certificate of
incorporation and bylaws of such Subsidiary have heretofore been made available
to Purchaser, and such copies are accurate and complete as of the date
hereof.
(c) Authority
and
Enforceability.
The
Company has the requisite corporate power and authority to enter into and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
or delivery of this Agreement or to the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and (assuming that this Agreement constitutes a valid
and binding obligation of Purchaser) constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms.
(d) No
Violations.
The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance by the Company with the
provisions hereof will not, conflict with, result in any violation of or default
(with or without notice or lapse of time or both) under, give rise to a right
of
termination, cancellation or acceleration of any obligation or to the loss
of a
material benefit under, or result in the creation of any Lien on any of the
properties or assets of the Company or any of its Subsidiaries under any
provision of (i) its certificate of incorporation or bylaws, (ii) any loan
or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other agreement or instrument applicable to the Company,
or (iii) assuming the consents, approvals, authorizations, permits, filings
and
notifications referred to in Section 3.2(e) are
duly and timely obtained or made, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets, other than (x) in the case of clause (ii) above, any such conflict,
violation, default, right, loss or Lien that may arise under the Company Credit
Agreement, and (y) in the case of clause (ii) or (iii) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company.
(e) Consents
and
Approvals.
No
consent, approval, order or authorization of, registration, declaration or
filing with, or permit from, any Governmental Authority is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for the following: (i) any such consent, approval,
order, authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate, have
a
Material Adverse Effect on the Company; and (ii) such filings and approvals
as
may be required by any securities, corporate or other law, rule or regulation.
Except as set forth in Section 3.2(e) of the
Company Disclosure Schedule, no Third Party Consent is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (x) any such Third Party Consent which the failure to obtain would not,
individually or in the aggregate, result in a loss of any Ownership Interest
and/or an increase in any of the Company’s obligations or liabilities having an
individual value of $50,000 or more and (y) any consent, approval or
waiver required by the terms of the Company Credit Agreement.
(f) Financial
Statements.
The
Company Financial Statements (including the related notes) were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto and the unaudited financial
statements are not accompanied by notes or other textual disclosure required
by
GAAP) and fairly present, in accordance with GAAP (in the case of the unaudited
statements, subject to normal, recurring adjustments), the consolidated
financial position of the Company and its Subsidiaries as of their respective
dates and the consolidated results of operations and the consolidated cash
flows
of the Company and its Subsidiaries for the periods presented therein. Since
December 31, 2007, no event has occurred and no condition exists which has
had
or would have a Material Adverse Effect on the Company. Neither the Company
nor
any of its Subsidiaries is a party to any off-balance sheet arrangement. All
material transactions have been properly recorded in the accounting records
underlying the Company Financial Statements. To the knowledge of the Company,
no
member of management of the Company or any of its Subsidiaries has committed
any
act of fraud, and neither the Company nor any of its Subsidiaries has received
or otherwise had or obtained knowledge of any complaint, allegation, assertion
or claim, whether written or oral, alleging fraud or suspected fraud by the
Company or any of its Subsidiaries. Except as set forth in Section 3.2(f) of the
Company Disclosure Schedule, there is no significant deficiency or material
weakness in the design or operation of internal control over financial reporting
of the Company or any of its Subsidiaries.
(g) Capital
Structure.
|
(i)
|
The
authorized capital stock of the Company consists of 10 shares of
Company
Common Stock.
|
|
(ii)
|
There
are issued and outstanding 10 shares of Company Common
Stock.
|
|
(iii)
|
There
are issued and outstanding (1) no other shares of capital stock or
other
voting securities of the Company, (2) no securities of the Company
or any
other Person convertible into or exchangeable or exercisable for
shares of
capital stock or other voting securities of the Company, and (3)
no
subscriptions, options, warrants, calls, rights (including preemptive
rights), commitments, understandings or agreements to which the Company
is
a party or by which it is bound obligating the Company to issue,
deliver,
sell, purchase, redeem or acquire shares of capital stock or other
voting
securities of the Company (or securities convertible into or exchangeable
or exercisable for shares of capital stock or other voting securities
of
the Company) or obligating the Company to grant, extend or enter
into any
such subscription, option, warrant, call, right, commitment, understanding
or agreement.
|
|
(iv)
|
All
outstanding shares of Company Common Stock, and all issued and outstanding
shares of capital stock of the Company’s Subsidiaries, are validly issued,
fully paid and nonassessable.
|
|
(v)
|
Other
than the Rights Agreement, which will be terminated at the Closing,
there
is no stockholder agreement, voting trust or other agreement or
understanding to which the Company or any of its Subsidiaries is
a party
or by which it is bound relating to the voting of any shares of the
capital stock of the Company or any of its
Subsidiaries.
|
|
(vi)
|
There
are no outstanding or authorized stock appreciation, phantom stock,
profit
participation, or similar rights with respect to the Company or any
of its
Subsidiaries.
|
|
|
(vii)
|
Other
than the Rights Agreement, which will be terminated at the Closing,
there
is no stockholder agreement, voting trust or other agreement or
understanding to which the Company or any of its Subsidiaries is
a party
or by which any of them is bound relating to the voting of any shares
of
the capital stock of the Company or any of its Subsidiaries.
|
(h) Material
Agreements.
|
|
(i)
|
Section
3.2(h)
of the Company Disclosure Schedule contains a complete list of the
Material Agreements to which the Company or any of its Subsidiaries
is a
party (other than this Agreement and related agreements) or by which
the
Company, any of its Subsidiaries or their respective assets are bound,
including all amendments and modifications thereto.
|
|
|
(ii)
|
The
Company has made available to Purchaser or provided Purchaser with
a true
and correct copy of all such Material Agreements, including all amendments
and modifications thereof.
|
|
|
(iii)
|
Except
as set forth in Section
3.2(h)
of the Company Disclosure Schedule: (1) each Material Agreement is
in full
force and effect and is valid and enforceable in accordance with
its
terms; (2) the Company or the relevant Subsidiary is, and at all
times has
been, in compliance in all material respects with the applicable
terms and
requirements of each Material Agreement under which such Company
or
Subsidiary, as applicable, has or had any obligation or liability
or by
which such Company or Subsidiary, as applicable, or any of the assets
owned or used by such Company or Subsidiary, as applicable, is or
was
bound; (3) at the date of this Agreement there are pending no
renegotiations of, or attempts to renegotiate, any amounts paid or
payable
to the Company or any of its Subsidiaries under any current or completed
Material Agreement with any Person and, to the knowledge of Seller
and the
Company, no such Person has made written demand for such renegotiation;
and (4) no event has occurred and no circumstance exists that (with
or
without notice or lapse of time) may contravene, conflict with, or
result
in a violation or breach of, or give the Company or any of its
Subsidiaries, as applicable, or any other Person the right to declare
a
default or exercise any remedy under, or to accelerate the maturity
or
performance of, or to cancel, terminate, or modify, any Material
Agreement, and neither the Company nor any of its Subsidiaries has
given
to or received from any other Person, at any time, any notice or
other
communication (whether oral or written) regarding any violation or
breach
of, or default under, any Material Agreement which has not been waived.
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(i) Company
Credit
Agreement.
The
Company has provided to or made available to Purchaser a true and correct copy
of the Company Credit Agreement including all amendments and modifications
thereto. No rights or obligations of any party to the Company Credit Agreement
have been waived, and no party to the Company Credit Agreement is in default
of
its obligations thereunder. The Company Credit Agreement is a valid, binding
and
enforceable obligation of the parties thereto in accordance with its terms
and
is in full force and effect.
(j) Investments.
Except
as set forth in Section 3.2(j) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has
any outstanding Investment that is not disclosed in the Company Financial
Statements.
(k) Outstanding
Debt.
The
Company Financial Statements and Section 3.2(k) of the
Company Disclosure Schedule, together provide a complete and accurate
description of all Debt of the Company and its Subsidiaries outstanding as
of
the respective dates thereof. Neither the Company nor any of its
Subsidiaries is in default in payment of any Debt with respect to which it
is an
obligor or in default of any covenant, agreement, representation, warranty
or
other term of any document, instrument or agreement evidencing, securing or
otherwise pertaining to any such Debt.
(l) Affiliate
Transactions.
Section
3.2(l) of the
Company Disclosure Schedule contains a complete and accurate description of
all
contracts, agreements and other arrangements (whether written, oral, express
or
implied) between the Company or any of its Subsidiaries and any Affiliate of
the
Company that will be in existence on the Closing Date.
(m) Employment
Matters.
Section
3.2(m) of the
Company Disclosure Schedule contains a complete and accurate list of all
officers of the Company and its Subsidiaries and all employees of the Company
and its Subsidiaries (other than those that service the Company and its
Subsidiaries in connection with the Excluded Assets who will be terminated
by
the Company at Closing), together with their estimated base salaries,
exempt/non-exempt status, and accrued and unused vacation or sick
time. Except as set forth in Section 3.2(m) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is
a party to or obligated under any consulting, employment, severance, termination
or similar arrangement, any employee benefit, incentive or deferred compensation
plan with respect to any of its employees, or any bonus, profit sharing,
pension, stock option, stock purchase or similar plan or other arrangement
or
other fringe benefit plan entered into or maintained for the benefit of its
employees. The Company and its Subsidiaries are currently, and have
been for the last three years, in material compliance with all laws, rules,
regulations and orders relating to the employment of labor, including all such
laws, rules, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers’
compensation and the collection and payment of withholding or Social Security
Taxes and similar Taxes. Each officer and director of the Company and
its Subsidiaries will resign as of the Closing Date, and the Confidentiality
and
Noncompete Agreements shall be terminated on the Closing Date. Except
as set forth in Section 3.2(m) of the
Company Disclosure Schedule, there is no current or former employee, consultant,
or independent contractor of the Company or any of its Subsidiaries that has
filed a demand letter or a complaint (either written or verbally) against it
for
wrongful discharge, defamation, fraud, negligent misrepresentation, negligence,
intentional infliction of emotional distress, assault, battery, sexual
harassment, discrimination, retaliation or breach of contract claims including
claims for unpaid wages, bonuses, benefits, commissions, stock options,
royalties, deferred compensation, or wrongful discharge.
(n) Employee
Benefit
Plans
.
Except
as set forth in Section 3.2(n) of the
Company Disclosure Schedule:
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(i)
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Neither
the Company nor any of its Subsidiaries maintains, sponsors, has
contributed to or is obligated to contribute to any “employee benefit
plan,” as defined in section 3(3) of ERISA, including severance pay, sick
leave, vacation pay, salary continuation for disability, compensation
agreements, retirement, deferred compensation, bonus, long term incentive,
stock option, stock purchase, hospitalization, medical insurance,
life
insurance and scholarship programs, whether or not subject to ERISA
(the
“Company Employee
Benefit
Plans”). The Company has made available to Purchaser
correct and complete copies of each Company Employee Benefit Plan,
current
summary plan descriptions for each plan, and all related trusts,
insurance, and other funding contracts which implement each Company
Employee Benefit Plan. Each Company Employee Benefit Plan (and each
related trust, insurance contract or fund) complies in form and in
operation in all material respects with all applicable laws, rules
and
regulations.
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(ii)
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With
respect to the Company Employee Benefit Plans, there exists no condition
or set of circumstances in connection with the Company or any of
its
Subsidiaries that would result in a liability that would have a Material
Adverse Effect on the Company under ERISA, the Code or any applicable
law.
With respect to the Company Employee Benefit Plans, individually
and in
the aggregate, there are no unfunded benefit obligations which have
not
been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, on the Company Financial
Statements.
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(iii)
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The
Company Employee Benefit Plans have been maintained, in all material
respects, in accordance with their terms and in accordance with all
applicable federal and state laws.
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(iv)
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Neither
the execution and delivery of this Agreement nor the consummation
of the
transactions contemplated hereby will result in any payment becoming
due
to any employee or group of employees of the Company or any of its
Subsidiaries.
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(v)
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Neither
the Company nor any of its Subsidiaries maintains nor have any of
them
established any welfare benefit plan which provides for retiree medical
liabilities or continuing benefits or coverage for any participant
or any
beneficiary of any participant after such participant’s termination of
employment, except as may be required by
COBRA.
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(vi)
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Neither
the Company nor any of its Subsidiaries has maintained, or established,
or
has ever participated in, a multiple employer welfare benefit arrangement
within the meaning of section 3(40)(A) of ERISA or multiemployer
plan
within the meaning of Section 3(37) of
ERISA.
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(vii)
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The
Company’s 401k plan is tax qualified, and the Company does not have, nor
have they ever had, any deferred compensation plans within the meaning
of
Section 409A of the Code.
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(o) Litigation.
Except
as otherwise set forth in Section 3.2(o) of the
Company Disclosure Schedule, (i) no litigation, arbitration, investigation
or
other proceeding is pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries or any of their assets before
any
court, arbitrator or any Governmental Authority; and (ii) neither the Company
nor any of its Subsidiaries is subject to any outstanding injunction, judgment,
order, decree or ruling (other than routine oil and gas field regulatory
orders). There is no litigation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the Company
that questions the validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered by Seller or
the
Company in connection with the transactions contemplated hereby.
(p) Taxes
and Tax
Returns.
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(i)
|
Except
as otherwise set forth in Section
3.2(p)
of the Company Disclosure Schedule, the Company and its Subsidiaries
have
timely filed all federal, state, local and foreign returns, declarations,
reports, estimates, information returns and statements (“Tax Returns”) required
to be filed by them and all of such Tax Returns are true, correct
and
complete in all material respects, and the Company and its Subsidiaries
have paid all Taxes due and payable in respect of such Tax Returns,
including interest and penalties, and all other Taxes which are payable
by
the Company or any of its Subsidiaries. The Company has no knowledge
of
any proposed Tax assessment against the Company or any of its Subsidiaries
and all Tax liabilities of the Company and its Subsidiaries are adequately
provided for in the Company Financial Statements and no Tax liability
of
the Company or any of its Subsidiaries has been asserted by the Internal
Revenue Service or any other Governmental Authority for Taxes in
excess of
those already paid. Ninety percent or more of the income generated,
or
projected to be generated, by the Company during calendar year 2007
and
through the Closing Date will be “qualifying income” within the meaning of
Section 7704(d) of the Code.
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(ii)
|
Except
as otherwise set forth in Section
3.2(p)
of the Company Disclosure Schedule, neither the Company nor any of
its
Subsidiaries is currently the beneficiary of any extension of time
within
which to file any Tax Return.
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(iii)
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No
claim has ever been made by an authority in a jurisdiction where
the
Company or any of its Subsidiaries does not file Tax Returns that
the
Company or any of its Subsidiaries is or may be subject to taxation
by
that jurisdiction.
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(iv)
|
The
Company and each of its Subsidiaries has withheld and paid all Taxes
that
they are required to withhold and pay in connection with amounts
paid or
owing to any Person.
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(v)
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Neither
the Company nor any of its Subsidiaries is a party to any Tax indemnity
agreement or arrangement or has any obligation to indemnify or make
a
payment to any Person in respect of any Tax for any past, current
or
future period.
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(vi)
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Neither
the Company nor any of its Subsidiaries has waived any statute of
limitations with respect to any Taxes or agreed to any extension
of time
with respect to a Tax assessment or deficiency, and no power of attorney
granted by the Company or any of its Subsidiaries with respect to
any Tax
matter is currently in force.
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(vii)
|
There
are no Tax audits or other administrative proceedings or court proceedings
concerning any liability for Taxes of the Company or any of its
Subsidiaries pending, claimed or threatened by any Governmental Authority.
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(viii)
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Neither
the Company nor any of its Subsidiaries has participated in any
“reportable transaction” within the meaning of section 1.6011-4 of the
Treasury Regulations.
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(ix)
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The
Company is not a party to any joint venture, partnership or other
arrangement or contract that could be treated as a partnership for
federal
income Tax purposes.
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(x)
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Seller
is not a “foreign person” as that term is defined in section 1.1445-2 of
the Treasury Regulations.
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(xi)
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Neither
the Company nor any of its Subsidiaries has been a member of any
affiliated, consolidated, combined, unitary or similar group other
than a
group in which the Company was the common parent. Neither the Company
nor
any of its Subsidiaries has any liability for Taxes of another Person
(other than the Company and its Subsidiaries) under Treasury Regulation
section 1.1502-6, or any similar provision of state or local law,
as a
transferee, by contract or otherwise.
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(q) Compliance
with Laws and
Permits.
Neither
the Company nor any of its Subsidiaries is in any material respect in violation
of, or in default in any material respect under, and no event has occurred
that
(with notice or the lapse of time or both) would constitute a violation of
or
default under: (i) its certificate of incorporation or bylaws, (ii) any
applicable law, rule, regulation, order, writ, decree or judgment of any
Governmental Authority, or (iii) any Material Agreement to which the Company
or
any of its Subsidiaries is a party or by which it or any of its properties
are
bound, except (in the case of clause (ii) or (iii) above) for any violation
or
default that would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. The Company and its Subsidiaries have obtained
and hold all permits, licenses, variances, exemptions, orders, franchises,
approvals and authorizations of all Governmental Authorities necessary for
the
lawful conduct of business or the lawful ownership, use and operation of their
assets (“Company
Permits”), except for Company Permits which the failure to obtain or hold
would not, individually or in the aggregate, have a Material Adverse Effect
on
the Company. The Company and its Subsidiaries are in compliance with
the terms of the Company Permits, except where the failure to comply would
not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. No investigation or review by any Governmental Authority
with respect to the Company or any of its Subsidiaries is pending or, to the
knowledge of the Company and its Subsidiaries, threatened, except as set forth
in Section
3.2(q) of the Company Disclosure Schedule. Anything in this
Section 3.2(q)
to the contrary notwithstanding, Section 3.2(s) sets
forth the Company’s sole representations and warranties with respect to
environmental matters.
(r) Proprietary
Rights.
The
Company and its Subsidiaries have ownership of, or valid licenses to use, all
trademarks, copyrights, patents and other proprietary rights and intellectual
property (including seismic data) used in their business. To the knowledge
of
the Company, the operation of the business of the Company and its Subsidiaries
does not infringe any patent, copyright, trademark or other proprietary rights
of others. Neither the Company nor any of its Subsidiaries has received any
notice from any Third Party of any such alleged infringement by the Company
or
any of its Subsidiaries.
(s) Environmental
Matters.
Except
as set forth in Section 3.2(s) of the
Company Disclosure Schedule and except for such matters as would not have a
Material Adverse Effect on the Company, to the knowledge of the
Company:
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(i)
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the
Company and its Subsidiaries have conducted their business and operated
their assets, and are conducting their business and operating their
assets, and the condition of all facilities and properties (including
off
site storage or disposal of any Hazardous Materials from such facilities
or properties) currently or formerly owned, leased or operated by
the
Company or its Subsidiaries, are in material compliance with all
Environmental Laws;
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(ii)
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neither
the Company nor any of its Subsidiaries has been notified by any
Governmental Authority or other Third Party that any of the operations
or
assets of the Company or any of its Subsidiaries are the subject
of any
investigation or inquiry by any Governmental Authority or other Third
Party evaluating whether any material remedial action is needed to
respond
to a release or threatened release of any Hazardous Material or to
the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous
Material;
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(iii)
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neither
the Company, any of its Subsidiaries nor other Person has filed any
notice
under any federal, state or local law indicating that (1) the Company
or
any of its Subsidiaries is responsible for the improper release into
the
environment, or the improper storage or disposal, of any Hazardous
Material, or (2) any Hazardous Material is improperly stored or disposed
of upon any property of the Company or any of its
Subsidiaries;
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(iv)
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neither
the Company nor any of its Subsidiaries has any material contingent
liability in connection with (1) the release or threatened release
into
the environment at, beneath or on any property now or previously
owned or
leased by the Company or any of its Subsidiaries, or (2) the storage
or
disposal of any Hazardous Material;
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(v)
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neither
the Company nor any of its Subsidiaries has received any claim, complaint,
notice, inquiry or request for information involving any matter which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding potential liability
under
any Environmental Law relating to operations or conditions of any
facilities or property (including off site storage or disposal of
any
Hazardous Material from such facilities or property) currently or
formerly
owned, leased or operated by the Company or any of its
Subsidiaries;
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(vi)
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no
property now or previously owned, leased or operated by the Company
or any
of its Subsidiaries is listed on the national priorities list pursuant
to
CERCLA or on the CERCLIS or on any other federal or state list as
sites
requiring investigation or cleanup;
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(vii)
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neither
the Company nor any of its Subsidiaries is directly transporting,
has
directly transported, is directly arranging for the transportation
of, or
has directly arranged for the transportation of, any Hazardous Material
to
any location which is listed on the national priorities list pursuant
to
CERCLA, on the CERCLIS, or on any similar federal or state list or
which
is the subject of federal, state or local enforcement actions or
other
investigations that may lead to material claims against the Company
or any
of its Subsidiaries for remedial work, damage to natural resources
or
personal injury, including claims under
CERCLA;
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(viii)
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there
are no sites, locations or operations at which the Company or any
of its
Subsidiaries is currently undertaking, or has completed, any remedial
or
response action relating to any such disposal or release, as required
by
Environmental Laws; and
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(ix)
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there
are no physical or environmental conditions existing on any property
owned
or leased by the Company or any of its Subsidiaries resulting from
the
Company’s or any of its Subsidiaries’ operations or activities, past or
present, at any location, that could reasonably be expected to give
rise
to any on site or off site remedial obligations under any applicable
Environmental Laws, other than normal and ordinary remedial work
associated with naturally occurring radioactive materials and plugging
and
abandoning of oil and gas facilities that are not material, individually
or in the aggregate.
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(x)
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neither
the Company nor any of its Subsidiaries owns or operates any underground
storage tank or any property on which any underground storage tank
is
located
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(t) Insurance.
The
Company maintains, and through the Closing Date will maintain, insurance with
reputable insurers (or pursuant to self-insurance programs) in such amounts
and
covering such risks as are in accordance with normal industry practice for
companies engaged in businesses similar to those of the Company and its
Subsidiaries and owning properties in the same general area in which the Company
and its Subsidiaries conduct their businesses. There are no billed but unpaid
premiums past due under any such policy or binder. Except as set forth in Section 3.2(t) of the
Company Disclosure Schedule: (a) there are no outstanding claims
under any such policies or binders, and (b) no notice of cancellation or
non-renewal of any such policy or binder has been received.
(u) Governmental
Regulation.
Neither
the Company nor any of its Subsidiaries is subject to regulation under the
Investment Company Act of 1940 or any state public utilities laws.
(v) Brokers
.
Except
as set forth in Section 3.2(v) of the
Company Disclosure Schedule, no broker, finder, investment banker or other
Person is or will be, in connection with the transactions contemplated by this
Agreement, entitled to any brokerage, finder’s or other fee or compensation
based on any arrangement or agreement made by or on behalf of the Company or
any
of its Subsidiaries and for which Purchaser, the Company or any of its
Subsidiaries will have any obligation or liability.
(w) Oil
and Gas
Operations
.
Except
as otherwise set forth in Section 3.2(w) of the
Company Disclosure Schedule, and except for matters as would not have a Material
Adverse Effect on the Company, to the knowledge of the Company, all ▇▇▇▇▇
included in the Company’s Oil and Gas Interests have been drilled and (if
completed) completed, operated and produced in accordance with generally
accepted oil and gas field practices and in compliance in all material respects
with applicable oil and gas leases, pooling and unit agreements, and applicable
laws, rules, regulations, judgments, orders and decrees issued by any court
or
Governmental Authority. To the knowledge of the Company, no
well included in the
Company’s Oil and Gas Interests is subject to penalties on
allowables because of any overproduction or any other violation of applicable
laws that would prevent such well from being entitled to its full legal and
regular allowable from and after the Closing Date as prescribed by any
Governmental Authority. Except as otherwise set forth in Section 3.2(w) of the
Company Disclosure Schedule, to the knowledge of the Company, with respect
to
the Company's Oil and Gas Interests:
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(i)
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there
are no ▇▇▇▇▇ that the Company or any of its Subsidiaries are currently
obligated by law or contract to plug and abandon;
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(ii)
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there
are no ▇▇▇▇▇ that have been plugged and abandoned but have not been
plugged in accordance, in all material respects, with all applicable
requirements (at the time the well was plugged and abandoned) of
each
Governmental Authority having jurisdiction over the Company’s Oil and Gas
Interests; and
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(iii)
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proceeds
from the sale of Hydrocarbons produced from the Company’s Oil and Gas
Interests are being received by the Company and its Subsidiaries
in a
timely manner and are not being held in suspense for any reason (except
for amounts, individually or in the aggregate, not in excess of $50,000
and held in suspense in the ordinary course of business).
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(x) Gas
Imbalances.
To the
knowledge of the Company, except as reflected in Section 3.2(x) of the
Company Disclosure Schedule: (i) there are no material aggregate
production, pipeline, transportation or processing imbalances existing with
respect to the Company’s Oil and Gas Interests, and (ii) neither the Company nor
any of its Subsidiaries has received deficiency payments under gas contracts
for
which any party has a right to take deficiency gas from the Company or any
of
its Subsidiaries, nor has the Company or any of its Subsidiaries received any
payments for production which are subject to refund or recoupment out of future
production.
(y) Royalties.
Except
as set forth in Section 3.2(y) of the
Company Disclosure Schedule, to the knowledge of the Company, all royalties,
overriding royalties, compensatory royalties and other payments due from or
in
respect of production with respect to the Company’s Oil and Gas Interests, have
been or will be, prior to the Closing, properly and correctly paid or provided
for in all material respects.
(z) Prepayments.
Except
as reflected in Section 3.2(z) of the
Company
Disclosure Schedule, no prepayment for Hydrocarbon
sales has been received by the Company or any
of its Subsidiaries for Hydrocarbons which have not been delivered as of the
date hereof.
(aa) Capital
Expenditures.
As of
the execution date of this Agreement, the presently approved face amount of
any
currently outstanding and effective authorizations for expenditure with respect
to the Company’s Oil and Gas Interests would not require the Company or any of
its Subsidiaries to make or incur after the Effective Date, capital expenditures
with respect to any one property in excess of $50,000, except as set forth
in
Section 3.2(aa)
of the Company Disclosure Schedule.
(bb) Other
Mineral Related
Matters.
Except
as set forth in Section 3.2(bb) of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is obligated by virtue of any prepayment arrangement, “take or pay” arrangement
or production payment arrangement, to deliver or to suffer the delivery of
Hydrocarbons produced in connection with any of the Company’s Oil and Gas
Interests at some future time (or make a cash payment in lieu thereof) without
then or thereafter receiving full payment therefor without deduction or credit
on account of such arrangement from the price that would otherwise be
received.
(cc) Additional
Drilling
Obligations
.
Except
as set forth in Section 3.2(cc) of
the Company Disclosure Schedule, (i) neither the Company nor any of its
Subsidiaries has any obligation to drill additional ▇▇▇▇▇ or conduct other
material development operations in order to earn or continue to hold during
the
primary term of any lease any portion of the Company’s Oil and Gas Interests,
and (ii) neither the Company nor any of its Subsidiaries has been advised by
a
lessor under any lease affecting the Company’s Oil and Gas Interests of any
requirements or demands to drill additional ▇▇▇▇▇ or conduct additional
development operations.
(dd) Financial
and Product
Hedging Contracts
.
Section
3.2(dd) of
the Company Disclosure Schedule summarizes the outstanding hedging positions
under all outstanding Product Hedging Contracts and financial hedging positions
of the Company and its Subsidiaries (including fixed price controls, collars,
swaps, caps, ▇▇▇▇▇▇ and puts) as of the date reflected in Section 3.2(dd) of
the Company Disclosure Schedule.
(ee) Books
and
Records
.
All
books, records and files of the Company and its Subsidiaries (including those
pertaining to the Company’s Oil and Gas Interests, ▇▇▇▇▇ and other assets, those
pertaining to the production, gathering, transportation and sale of
Hydrocarbons, and those pertaining to corporate, accounting, financial and
employee records) (i) are complete and accurate in all material respects, (ii)
have been prepared, assembled and maintained in accordance with usual and
customary policies and procedures, and (iii) fairly and accurately reflect
the
ownership, use, enjoyment and operation by the Company and its Subsidiaries
of
their assets in all material respects. The minute books of the Company and
its
Subsidiaries are accurate and complete in all material respects and contain
records of all meetings held of, and action taken by, the stockholders and
directors of the Company and its Subsidiaries and no meeting of such
stockholders or of any such directors has been held for which minutes have
not
been prepared and are not contained in such minute books. At the Closing, all
of
those books and records will be in the possession of Seller.
(ff) Conduct
of Business by the
Company and its Subsidiaries from the Effective Date through Signing
Date
.
Except
for transactions involving the Excluded Assets, during the period from the
Effective Date to the date of this Agreement, the Company has not, and has
not
permitted any of its Subsidiaries to, engage in any practice, take any action,
or enter into any transaction, except in the ordinary course of business, and
the Company has used all commercially reasonable efforts consistent with its
past practices to preserve in all material respects its business organization,
assets and satisfactory business relationships and to maintain satisfactory
relationships with its licensors, licensees, suppliers, contractors,
distributors, customers and others having satisfactory business relationships
with it. Without limiting the generality of the foregoing, during the period
from the Effective Date to the date of this Agreement, the Company has not
taken, and has not permitted any of its Subsidiaries to take, any of the
following actions, except as set forth in Section 3.2(ff) of
the Company Disclosure Schedule:
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(i)
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authorize
or effect any change in its certificate of incorporation or bylaws;
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(ii)
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grant
any options, warrants or other rights to purchase or obtain any of
its
capital stock or issue, sell or otherwise dispose of any of its capital
stock;
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(iii)
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declare,
set aside, or pay any dividend or distribution with respect to its
capital
stock (whether in cash or in kind), or redeem, repurchase or otherwise
acquire any of its capital stock, except for inter-company transfers
among
the Company and its Subsidiaries;
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|
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(iv)
|
issue
any note, bond or other Debt security or create, incur, assume or
guarantee any indebtedness for borrowed money or capitalized lease
obligation, except in the ordinary course of business, including
Debt
incurred under the Company Credit Agreement and Debt incurred under
any
Product Hedging Contracts;
|
|
|
(v)
|
impose
any security interest upon any of its assets, except in the ordinary
course of business, including pursuant to the Company Credit Agreement
and
any Product Hedging Contracts;
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|
|
(vi)
|
make
any capital investment in, make any loan to, or acquire the securities
or
assets of any other Person, except to the extent that investments
with
others in the acquisition of oil and gas properties, and the exploration
for, development and production of oil and natural gas may be deemed
to be
investments in a “joint venture”;
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(vii)
|
make
any change in employment terms for any of its officers or employees,
except for increases in base salaries of not more than $500 per month
per
person;
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|
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(viii)
|
enter
into, adopt or amend any employment agreement or Company employee
Benefit
Plan, or grant any increase in the compensation payable or to become
payable to any of its officers, managers or directors or any general
increase in the compensation payable or to become payable to its
employees;
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(ix)
|
pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction of claims, liabilities or obligations incurred
in the ordinary course of business or disclosed pursuant to this
Agreement
and other than payments under the Company Credit Agreement and any
Product
Hedging Contracts;
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|
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(x)
|
acquire
(including by lease) any assets or properties exceeding in the aggregate
$100,000;
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(xi)
|
dispose
of, mortgage or encumber any assets or properties having an aggregate
value in excess of $100,000;
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|
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(xii)
|
make
capital expenditures exceeding $100,000 in the aggregate;
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(xiii)
|
modify
the terms of any Product Hedging Contract or enter into any new hedging
position not otherwise disclosed to Purchaser;
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(xiv)
|
enter
into a Material Agreement or change or modify a Material
Agreement;
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|
(xv)
|
enter
into, or alter, modify or extend, any transaction or arrangement
with
Seller or any of its Affiliates that adversely impacts Purchaser
in any
manner; or
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(xvi)
|
commit
to any of the foregoing.
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(gg) No Undisclosed
Liabilities. Except as set forth in Section 3.2(gg) of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has any liability or obligation of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities
or
obligations reflected or reserved against in the Company Financial Statements,
current liabilities in the ordinary course of business since the respective
dates thereof and other individual liabilities and obligations that are in
each
case for an amount not greater than $50,000.
(hh)
DISCLAIMER.
EXCEPT
AS EXPRESSLY SET FORTH IN THIS ARTICLE III, SELLER,
THE COMPANY AND THEIR ADVISORS, INCLUDING ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & CO., HAVE MADE
AND MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY,
IN RESPECT OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, OR ANY OF THE COMPANY’S OR
ANY OF ITS SUBSIDIARIES’ RESPECTIVE ASSETS, LIABILITIES OR
OPERATIONS, INCLUDING WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE, AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE
EXPRESSLY DISCLAIMED. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT
TO THE EXTENT SPECIFICALLY SET FORTH IN THIS ARTICLE III,
PURCHASER IS PURCHASING THE SHARES ON AN “AS-IS, WHERE-IS” BASIS. THE
COMPANY AND SELLER EXPRESSLY DISCLAIM ANY AND ALL LIABILITY AND RESPONSIBILITY
OF AND ASSOCIATED WITH THE QUALITY, ACCURACY, COMPLETENESS OR MATERIALITY OF
THE
DATA, INFORMATION AND MATERIALS, FURNISHED AT ANY TIME TO PURCHASER, ITS
OFFICERS, AGENTS, EMPLOYEES OR AFFILIATES IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREIN EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR THE
COMPANY DISCLOSURE SCHEDULE. EXCEPT AS EXPRESSLY PROVIDED IN THIS
ARTICLE III,
THE COMPANY’S OIL AND GAS INTERESTS AND OTHER ASSETS ARE “AS-IS,
WHERE-IS,” AND WITH ALL FAULTS IN THEIR PRESENT
CONDITION AND STATE OF REPAIR, WITHOUT RECOURSE, AND THE COMPANY AND
SELLER DISCLAIM ANY AND ALL REPRESENTATIONS CONCERNING THE COMPANY’S OIL AND GAS
INTERESTS, EXPRESS, STATUTORY, IMPLIED OR OTHERWISE.
(ii) Disclosure. No
representation or warranty made by the Company in this Agreement, and no
statement of Seller or the Company contained in any document, certificate,
or
other writing furnished to or to be furnished by Seller or the Company pursuant
hereto or in connection herewith, contains or will contain, at the time of
delivery, any intentionally untrue statement of a material fact or an
intentional omission, at the time of delivery, of any material fact necessary
in
order to make the statements contained therein, in light of the circumstances
under which they are made, not misleading. The Company knows of no
matter which has not been disclosed to Buyer pursuant to this Agreement which
has or, so far as the Company can now reasonably foresee, will have a Material
Adverse Effect, excluding for purposes hereof any matters related to general
economic conditions in the domestic oil and gas natural gas exploration and
production industry. To the Company’s knowledge, the Company has
delivered or made available to Purchaser accurate and complete copies of all
agreements, documents, and other writings expressly identified or listed in
this
Agreement or in the Disclosure Schedule. Neither the Company’s
representations or warranties contained in this Section 3.2(ii), nor
the delivery or making available of any information by Seller or the Company
to
Purchaser constitutes a representation or warranty of any kind (express or
implied) by Seller or the Company with respect to title to, or the environmental
condition of, any of the Company’s Oil and Gas Interests or other
assets.
(jj) Condition
of Fixed
Assets. To the Company's knowledge, the structures, equipment
and other tangible property comprising any portion of the Company's and its
Subsidiaries' fixed assets are useable for the purposes for which they are
intended and are in sufficient repair and operating condition for such use,
normal maintenance, wear and tear excluded. The Company's representations and
warranties contained in this Section 3.1(jj)
terminate at Closing.
(kk) Accounts
Receivable. All accounts receivable of the Company and its
Subsidiaries that are reflected on the Company Financial Statements
(collectively, the “Accounts
Receivable”) represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of
business. Unless paid prior to the Closing Date, the Accounts
Receivable are or will be as of the Closing Date current and collectible net
of
the respective reserves shown on the Company Financial Statements as of the
Closing Date (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserves as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing
Date
than the reserves reflected in the Company Financial Statements as of December
31, 2007, and will not represent a material adverse change in the composition
of
such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within 90 days after the day on which it
first becomes due and payable. There
is no outstanding claim, contest or right of set-off under any contract with
any
obligor of an Account Receivable relating to the amount or validity of such
Account Receivable. Section 3.2(kk) of
the Company Disclosure Schedule contains a complete and accurate aging (in
the
aggregate) of all Accounts Receivable as of December 31, 2007.
REPRESENTATIONS
AND WARRANTIES
OF
PURCHASER
Purchaser
hereby represents and warrants to the Company and Seller as
follows:
Section
4.1
Organization.
Purchaser (a) is a limited partnership duly organized and validly existing
under
the laws of the State of Delaware, (b) has the requisite partnership power
and
authority to own, lease and operate its properties and to conduct its business
as it is presently being conducted, and (c) is duly qualified to do business
as
a foreign corporation and is in good standing in each jurisdiction where the
character of the properties owned or leased by it or the nature of its
activities makes such qualification necessary (except where any failure to
be so
qualified or to be in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on Purchaser).
Section
4.2 Authority and
Enforceability. Purchaser
has the
requisite corporate power and authority to enter into and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser, including approval by the board
of
directors of Purchaser, and no other corporate proceedings on the part of
Purchaser are necessary to authorize the execution or delivery of this Agreement
or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Purchaser and (assuming
that
this Agreement constitutes a valid and binding obligation of Seller and the
Company) constitutes a valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms.
Section 4.3 No
Violations.
The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance by Purchaser with the provisions
hereof will not, conflict with, result in any violation of or default (with
or
without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss
of a
material benefit under, or result in the creation of any Lien on any of the
properties or assets of Purchaser under, any provision of (a) the certificate
or
articles of incorporation or bylaws or other governing documents of Purchaser;
(b) any loan or credit agreement, note, bond, mortgage, indenture, lease,
permit, concession, franchise, license or other agreement or instrument
applicable to Purchaser; or (c) assuming the consents, approvals,
authorizations, permits, filings and notifications referred to in Section 4.4 are duly
and timely obtained or made, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or any of its properties
or assets, other than, in the case of clause (b) or (c) above, any such
conflict, violation, default, right, loss or Lien that, individually or in
the
aggregate, would not have a Material Adverse Effect on Purchaser.
Section 4.4 Consents and Approvals.
No
consent, approval, order or authorization of, registration, declaration or
filing with, or permit from, any Governmental Authority is required by or with
respect to Purchaser in connection with the execution and delivery of this
Agreement by Purchaser or the consummation by Purchaser of the transactions
contemplated hereby, except for the following: (a) any such consent, approval,
order, authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate, have
a
Material Adverse Effect on Purchaser, and (b) such filings and approvals as
may
be required by any securities, corporate or other law, rule or regulation.
No
Third Party Consent is required by or with respect to Purchaser in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for any Third Party Consent which
the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Purchaser.
Section 4.5 Litigation.
There
is no litigation, proceeding or investigation pending or, to the knowledge
of
Purchaser, threatened against or affecting Purchaser that questions the validity
or enforceability of this Agreement or any other document, instrument or
agreement to be executed and delivered by Purchaser in connection with the
transactions contemplated hereby.
Section
4.6 Funding.
Purchaser has available adequate funds or the means to obtain adequate funds
in
an aggregate amount sufficient to pay (a) all amounts required to be paid by
Purchaser under this Agreement, and (b) all expenses incurred by Purchaser
in
connection with this Agreement and the transactions contemplated
hereby.
Section
4.7 Brokers.
No
broker, finder, investment banker or other Person is or will be, in connection
with the transactions contemplated by this Agreement, entitled to any brokerage,
finder’s or other fee or compensation based on any arrangement or agreement made
by or on behalf of Purchaser and for which Seller, the Company or any of its
Subsidiaries will have any obligation or liability. Purchaser shall
indemnify and hold Seller and the Company harmless from any and all claims,
liabilities, damages, costs and expenses asserted against Seller and the Company
by any Person claiming to have acted on behalf of Purchaser, or to have been
retained by Purchaser, as a broker in connection with the transaction
contemplated by this Agreement.
Section 4.8 Investment
Intent.
Purchaser acknowledges that the Shares being purchased by Purchaser under this
Agreement are not registered under the Securities Act or registered or qualified
for sale under any state securities law and cannot be resold without
registration under or an exemption from the Securities Act. Purchaser is
acquiring the Shares for its own account for investment and not with a view
toward the sale or distribution of the Shares. Purchaser has sufficient
knowledge and experience in financial and business matters to enable it to
evaluate the risks of investment in the Shares and has the ability to bear
the
economic risks of such investment.
COVENANTS
Section
5.1
Conduct of Business by the Company and its Subsidiaries Pending
Closing
.
Except
for transactions involving the Excluded Assets which shall not be subject to
the
provisions of this Section 5.1, and
except as contemplated by this Agreement or to the extent that Purchaser shall
otherwise consent in writing, during the period from the date of this Agreement
to the Closing, the Company shall not, and will not permit any of its
Subsidiaries to, engage in any practice, take any action, or enter into any
transaction, except in the ordinary course of business and the Company will
use
all commercially reasonable efforts to preserve in all material respects its
business organization, assets, prospects and satisfactory business relationships
and to maintain satisfactory relationships with its licensors, licensees,
suppliers, contractors, distributors, customers and others having satisfactory
business relationships with it. Without limiting the generality of
the foregoing, the Company will not, and will not permit any of its Subsidiaries
to, take any of the following actions, except as otherwise permitted by this
Agreement or as set forth in Section 5.1 of the
Company Disclosure Schedule, without the prior written consent of
Purchaser:
|
(a)
|
authorize
or effect any change in its certificate of incorporation or
bylaws;
|
|
(b)
|
grant
any option, warrant, or other right to purchase or obtain any of
its
capital stock or issue, sell or otherwise dispose of any of its capital
stock;
|
|
(c)
|
declare,
set aside, or pay any dividend or distribution with respect to its
capital
stock (whether in cash or in kind), or redeem, repurchase, or otherwise
acquire any of its capital stock, except that, at or prior to Closing,
the
Company or its Subsidiaries may declare and distribute to Seller
or its
nominee a dividend consisting of the Excluded
Assets;
|
|
(d)
|
issue
any note, bond, or other Debt security or create, incur, assume,
or
guarantee any indebtedness for borrowed money or capitalized lease
obligation, except in the ordinary course of business, including
Debt
incurred under the Company Credit Agreement and Debt incurred under
any
Product Hedging Contracts;
|
|
(e)
|
impose
any security interest upon any of its assets, except in the ordinary
course of business, including pursuant to the Company Credit Agreement
and
any Product Hedging Contracts;
|
|
(f)
|
make
any capital investment in, make any loan to, or acquire the securities
or
assets of any other Person, in excess of
$50,000;
|
|
(g)
|
make
any change in employment terms for any of its officers or employees,
except for such actions as are otherwise provided for or permitted
in this
Agreement;
|
|
(h)
|
enter
into, adopt or amend any employment agreement or Company Employee
Benefit
Plan, or grant, or become obligated to grant, any increase in the
compensation payable or to become payable to any of its officers,
managers
or directors or any general increase in the compensation payable
or to
become payable to its employees except for such actions as are otherwise
specifically provided for herein;
|
|
(i)
|
pay,
discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against on the Company Financial
Statements or subsequently incurred in the ordinary course of business,
or
disclosed pursuant to this Agreement and other than payments under
the
Company Credit Agreement and any Product Hedging Contracts, payments
of
current liabilities and other payments that are considered in the
Purchase
Price adjustment set forth in Section
5.11;
|
|
(j)
|
acquire
(including by lease) any material assets or properties or dispose
of,
mortgage or encumber any material assets or properties, other than
in the
ordinary course of business or other than as disclosed and described
in
Section
5.1(j) of the Company Disclosure Schedule and except that, prior
to
Closing, the Company or its Subsidiaries may transfer to Seller or
its
nominee the Excluded Assets or those assets described in Section
5.1(j)
of the Company Disclosure Schedule;
|
|
|
(k)
|
make
any capital expenditure, unless such expenditure is disclosed in
Section
5.1(k)
of the
Company Disclosure Schedule or is less than $100,000 in the aggregate
with
all other capital expenditures;
|
|
|
(l)
|
modify
the terms of or close out of any of its positions on any Product
Hedging
Contracts or enter into any new hedging positions;
|
|
(m)
|
enter
into a Material Agreement or change or modify a Material Agreement
other
than in connection with transactions described in Section
5.1(m)
of the Company Disclosure Schedule;
|
|
|
(n)
|
make,
change, or revoke any Tax election, settle or compromise any Tax
claim or
liability with respect to Taxes, or change any method of accounting
for
GAAP or Tax purposes; or
|
(o)
commit to any of the foregoing.
Section
5.2
Access to Assets, Personnel and Information.
|
(a)
|
From
the date hereof until the Closing, the Company will afford to Purchaser
and Purchaser's Representatives, at Purchaser’s sole risk and expense,
access at reasonable times to any of the assets, books and records,
contracts, facilities, audit work papers and payroll records of the
Company and its Subsidiaries and shall, upon request, furnish promptly
to
Purchaser or Purchaser's Representatives (at Purchaser’s expense) a copy
of any file, book, record, contract, permit, correspondence, or other
written information, document or data concerning the Company or its
Subsidiaries (or their assets) that is within the possession or control
of
the Company or any of its Subsidiaries. During such period, the Company
will make available to a reasonable number of Purchaser's Representatives
adequate office space and facilities at the office facilities of
the
Company. The confidentiality of all such documents and information
furnished to Purchaser shall be maintained by Purchaser in accordance
with
the Confidentiality Agreement.
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|
(b)
|
Prior
to the Closing, Purchaser and Purchaser's Representatives shall have
the
right to make or perform at any reasonable times, at Purchaser’s own risk,
cost and expense, inspections of the Company’s Oil and Gas Interests,
including the well sites, equipment and facilities included therein;
provided, however, that Purchaser must make previous arrangements
with the
Company for each such inspection; and provided, further, that each
such
inspection shall be limited to a visual inspection of the Company’s Oil
and Gas Interests, it being understood that no soil or water tests,
other
samplings, borings or other invasive inspections thereof may be conducted
without the Company’s prior consent. Purchaser acknowledges
that the permission of the operator (if other than the Company or
a
Subsidiary) or another third party may be required before Purchaser
and
Purchaser's Representatives will be able to inspect portions of the
Company’s Oil and Gas Interests and that such permission must be obtained
prior to the inspection of such portions. PURCHASER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, THE COMPANY, THE COMPANY'S
SUBSIDIARIES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
CONTRACTORS AND AGENTS FROM ANY AND ALL LIABILITIES, CLAIMS, CAUSES
OF
ACTION, INJURIES TO PURCHASER'S REPRESENTATIVES OR TO PURCHASER’S OR
PURCHASER'S REPRESENTATIVES’ PROPERTY, AND/OR INJURY TO THE COMPANY’S OR
ITS SUBSIDIARY’S PROPERTY, EMPLOYEES, AGENTS
OR CONTRACTORS WHICH MAY ARISE OUT OF PURCHASER’S
INSPECTIONS REGARDLESS OF THE COMPANY’S OR ITS SUBSIDIARY’S NEGLIGENCE OR
FAULT (INCLUDING STRICT LIABILITY). The foregoing indemnity shall
continue
in full force and effect notwithstanding any termination of this
Agreement. Purchaser agrees to provide to the Company, upon
request, a copy of any environmental assessments of the Company’s Oil and
Gas Interests conducted by or on behalf of Purchaser, including any
reports, data, and conclusions, and to maintain the confidentiality
of the
information set forth therein until the Closing except to the extent
disclosure is required under applicable law. Purchaser agrees
to comply with the rules, regulations and instructions issued by
the
Company, a Subsidiary and operators regarding the actions of Purchaser
and
Purchaser's Representatives while entering, upon or leaving the Company’s
Oil and Gas Interests.
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(c)
|
Each
Party agrees that it will not (and will cause its officers not to)
use any
information obtained pursuant to this Section
5.2 for
any purpose unrelated to the consummation of the transactions contemplated
by this Agreement.
|
|
(d)
|
Notwithstanding
anything in this Section
5.2(d)
to the contrary: (i) the Company shall not be obligated under
the terms of this Section
5.2(d)
to disclose to Purchaser or Purchaser's Representatives, or grant
Purchaser or Purchaser's Representatives access to, information that
is
within the possession or control of the Company or any of its Subsidiaries
but subject to a valid and binding confidentiality agreement with
a Third
Party that prohibits such disclosure without first obtaining the
consent
of such Third Party, and the Company, to the extent reasonably requested
by Purchaser, will use reasonable efforts to obtain any such consent;
and
(ii) Purchaser shall not be obligated under the terms of this Section
5.2(d)
to disclose to the Company or the Company Representatives, or grant
the
Company or the Company Representatives access to, information that
is
within Purchaser’s possession or control but subject to a valid and
binding confidentiality agreement with a Third Party that prohibits
such
disclosure without first obtaining the consent of such Third Party,
and
Purchaser, to the extent reasonably requested by Seller or the Company,
will use its reasonable efforts to obtain any such
consent.
|
Section
5.3
No Solicitation.
Following the execution of this Agreement, the Company and Seller shall not
solicit, initiate, knowingly encourage the submission of, or conduct discussions
or negotiations with respect to any offer or proposal to acquire all or any
part
of the Company Common Stock or all or any material portion of the assets or
business of the Company or its Subsidiaries (other than the transactions
contemplated by this Agreement, the sale of Hydrocarbons in the ordinary course
of business or as set forth in Section 5.3 of the
Company Disclosure Schedule), whether by merger, purchase of assets, tender
offer, exchange offer or otherwise. The Company shall notify
Purchaser immediately if any Third Party makes any offer with respect to the
foregoing.
Section
5.4
Additional Arrangements.
Subject
to the terms and conditions herein provided, each of the Parties shall take,
or
cause to be taken, all actions and shall do, or cause to be done, all things
necessary, appropriate or desirable under any applicable laws and regulations
or
under applicable governing agreements to consummate and make effective the
transactions contemplated by this Agreement, including using reasonable efforts
to obtain all necessary waivers, consents and approvals and effecting all
necessary registrations and filings. Each of the Parties shall take, or cause
to
be taken (including actions which Seller shall cause the Company and/or its
Subsidiaries to take), all actions or shall do, or cause to be done, all things
necessary, appropriate or desirable to cause the covenants and conditions
applicable to the transactions contemplated hereby to be performed or satisfied
as soon as practicable. In addition, if any Governmental Authority shall have
issued any order, decree, ruling or injunction, or taken any other action that
would have the effect of restraining, enjoining or otherwise prohibiting or
preventing the consummation of the transactions contemplated hereby, each of
the
Parties shall use reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable. If,
at
any time after the Closing Date, any further commercially reasonable actions
are
necessary or desirable to (a) carry out the purposes of this Agreement, (b)
vest
Purchaser with full title to all properties, assets, rights, approvals,
immunities, and franchises of the Company and its Subsidiaries, and/or (c)
vest
Seller or its nominee with full title to all properties, assets, rights,
approvals, immunities and franchises that are part of the Excluded Assets and,
where curative title or corrective action may be required, the Parties will
take
those necessary actions, including executing and delivering such further
agreements, conveyances, assignments, certificates, instruments and documents
and perform such other actions as the requesting Party may reasonably request
in
order to fully consummate the foregoing actions.
Section
5.5
Public Announcements; Confidentiality.
Prior
to the Closing, the Parties shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and none of the Parties shall
issue
any press release or make any such public statement prior to obtaining the
approval of the other Parties; provided, however, that such approval shall
not
be required where such release or announcement is required by applicable law
(in
which case Purchaser and Seller shall have the right to review and provide
suggested comments concerning the disclosure contained in such press release,
announcement or communication prior to issuance, distribution or publication);
and provided further, that any Party may respond to inquiries by the press
or
others regarding the transactions contemplated by this Agreement, so long as
such responses are consistent with such Party’s previously issued press
releases. Except as otherwise provided for in this Section 5.5, the
terms and provisions of the Confidentiality Agreement shall remain in full
force
and effect in accordance with the provisions of Section 9.12.
Section
5.6
Payment of Expenses.
Each
Party shall pay its own expenses incident to preparing, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby, whether or not Closing occurs and to the extent such
expenses are paid for by the Company or any of the Subsidiaries, whether at
or
prior to Closing (including, specifically, any fee paid by the Company to
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & Co.), the amount of such payment shall be a downward Base
Purchase Price adjustment as provided in Section 2.3, to the
extent not accrued or paid prior to the Effective Date.
Section
5.7
Continuation of the Company’s Existing Indemnification Obligations.
From
and after the Closing, the Company or its successor shall indemnify and hold
harmless Seller and each Person who has been at any time prior to the Closing,
an officer, director or controlling shareholder of the Company (collectively,
the “CompanyIndemnified
Parties”) but only
to the extent that such Indemnified Party was entitled to indemnification from
the Company immediately prior to the date hereof under applicable law, the
certificate of incorporation and bylaws of the Company or under contracts
between such Company Indemnified Party and the Company (including
indemnification as provided to NGP under the Advisory Services Agreement and
indemnification as provided to ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & Co. under the Financial
Advisory Engagement Contract dated November 5, 2007), regardless of whether
such
contracts are terminated on or after the Closing. The procedures
associated with such indemnification shall be the same as those associated
with
the Company Indemnified Parties’ indemnification from the Company immediately
prior to the date hereof (provided, however, that Purchaser shall be under
no
obligation to deposit trust funds pursuant to any “change
in control” or similar provisions). The provisions of this Section 5.7 are
intended to be for the benefit of, and shall be enforceable by, the Parties,
each Company Indemnified Party and their respective heirs and
representatives. Notwithstanding the above, the indemnification
obligation set forth in this Section 5.7 shall not
apply to claims for indemnification resulting from litigation, arbitration,
investigations or proceedings that should have been disclosed to Purchaser
in
Section 3.2(o)
of the Company Disclosure Schedule in connection with the representation and
warranty given under Section 3.2.(o) and
were not so disclosed.
Section
5.8
Termination of Certain Agreements.
Effective upon the Closing, the Advisory Services Agreement, the Rights
Agreement and the Confidentiality and Noncompete Agreements shall be terminated
in all respects and no Party shall have further rights or obligations
thereunder, except for the continuation of indemnity rights as provided in
Section
5.7.
Section
5.9
Resignation of Directors and Officers; Termination of Other
Agreements.
Each
director and officer of the Company and its Subsidiaries shall resign his or
her
position with the Company and its Subsidiaries effective at Closing, and all
outstanding agreements between the Company, its Subsidiaries and any director,
officer or employee, in addition to those described in Section 5.8, shall be
terminated in all respects by the Company and its Subsidiaries at or prior
to
Closing.
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(a)
|
Subject
to Section
5.2, Purchaser may conduct, at its sole cost and expense, such
title and environmental examinations or investigations, and other
examinations and investigations, as it may in its sole discretion
choose
to conduct with respect to the Company’s Oil and Gas Interests in order to
determine whether any Title Defects or Environmental Defects
exist. Purchaser must deliver to the Company in writing on or
before the close of business on April 23, 2008, a written notice
specifying in detail (i) each defect associated with the Company’s Oil and
Gas Interests or other assets that it asserts causes the Company
or any of
its Subsidiaries not to have Defensible Title to any of the Company’s Oil
and Gas Interests or other assets (each, a “Title Defect”) or
constitutes a breach of, or inaccuracy in, the representations and
warranties set forth in Section
3.2(s)
(each, an “Environmental
Defect”), (ii) a description of each such Title Defect or
Environmental Defect, (iii) the amount of the adjustment to the Base
Purchase Price that it asserts based on such defect and (iv) its
method of
calculating such adjustment. If such notice is not timely
submitted, Purchaser shall be deemed to have waived its basis for
a Base
Purchase Price adjustment based on Section
3.2(s)
and this Section
5.10(a), as well as waived its basis for any claim or other
assertion of rights or damages based on such provisions. Any notice
of a
Title Defect or Environmental Defect delivered to the Company shall
be
accompanied by copies of all of Purchaser’s written data supporting
Purchaser’s assertion of any such defect, including, without limitation,
title opinions, title reports and environmental assessments and reports.
Notwithstanding anything in this Section
5.10(a)
or elsewhere in this Agreement to the contrary, a defect associated
with
the Company's Oil and Gas Interests shall not be considered to be
a Title
Defect or Environmental Defect if such defect is described in the
Company
Disclosure Schedule.
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(b)
|
Upon
timely delivery of a notice under Section
5.10(a), Purchaser and Seller will, prior to Closing, in good faith
negotiate and attempt to agree upon the validity of the claim and
the
amount of any adjustment to the Base Purchase Price using the following
criteria.
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(i)
|
No
single Title Defect shall be taken into account as an adjustment
to the
Base Purchase Price unless the value of such defect is determined
to be
more than $50,000 and no single Environmental Defect shall be taken
into
account as an adjustment to the Base Purchase Price unless the full
value
of such defect is determined to be more than $50,000 (the “Individual Defect
Threshold”), but in both instances, once it is determined to meet
that level, the full value of the defect shall be taken into
account. Any representations and warranties that are made
subject to materiality, Material Adverse Effect or dollar
qualifications/limitations shall not be subject to such
qualifications/limitations for purposes of determining the value
of any
Title Defect or Environmental Defect under this Section
5.10(b)(i).
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(ii)
|
No
adjustment will be made to the Base Purchase Price under this Section 5.10
unless the net total of all individual adjustments that exceed the
Individual Defect Threshold under this Section
5.10
exceeds $790,000 and then only by the amount exceeding said
amount (the “Aggregate
Defect Threshold”). By way of example, if the net total
of all individual adjustments that exceed the Individual Defect Threshold
equals $1,500,000, then an adjustment of
$710,000 may, subject to Section
5.10(d), be made to the Base Purchase Price. Any
representations and warranties that are made subject to materiality
qualifications shall not be subject to such qualifications for purposes
of
determining the Aggregate Defect
Threshold.
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(iii)
|
If
the requested adjustment is based on the Company or any of its
Subsidiaries owning a NRI for a well, unit rights or leasehold rights
less
than that shown in Section
1.1 of
the Company Disclosure Schedule and the Aggregate Defect Threshold
has
been met (after including the requested adjustment), then a downward
adjustment shall be calculated by multiplying the Allocated Value
set
forth for such well, unit rights or leasehold rights in Section
1.1 of
the Company Disclosure Schedule by a fraction (A) the numerator of
which
is an amount equal to the NRI shown in Section
1.1 of
the Company Disclosure Schedule for such well, unit rights or leasehold
rights less the decimal share to which the Company or a Subsidiary
would
be entitled as a result of its Ownership Interest in such well, unit
rights or leasehold rights which is unaffected by such Title Defect
and
(B) the denominator of which is the NRI shown for such well, unit
rights
or leasehold rights in Section
1.1 of
the Company Disclosure Schedule. Any downward adjustments
requested by Purchaser may be offset by upward adjustments if it
is
determined by Purchaser or the Company that the Company’s or a
Subsidiary’s NRI for any other Oil and Gas Interests of the Company is
greater than that shown in Section
1.1 of
the Company Disclosure Schedule. The value of an upward adjustment
will be
determined based on the Allocated Value for such well, unit rights
or
leasehold rights.
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(iv)
|
If
the requested adjustment is based on the Company or any of its
Subsidiaries owning a WI that is larger than the WI shown in Section
1.1 of
the Company Disclosure Schedule, but without a proportionate increase
in
the Company’s or a Subsidiary’s NRI and the Aggregate Defect Threshold has
been met (after including the requested adjustment), then the adjustment
is calculated by determining the effective NRI that results from
such
larger WI, determining what the NRI would be using such effective
NRI and
the WI shown in Section
1.1 of
the Company Disclosure Schedule and then calculating the adjustment
in the
manner set forth in clause (iii)
preceding.
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(v)
|
If
the requested adjustment is based on a Lien (that is not a Permitted
Encumbrance) or other monetary charge upon an Oil and Gas Interest
of the
Company or a liability to remediate or otherwise cure an Environmental
Defect related to an Oil and Gas Interest of the Company that the
Parties
agree is liquidated in amount and the Aggregate Defect Threshold
has been
met (after including the requested adjustment), then the adjustment
is the
lesser of (1) the amount necessary to remove such Lien or other monetary
charge from or a liability to remediate or otherwise cure an Environmental
Defect relating to, the affected Oil and Gas Interest of the Company,
or
(2) the Allocated Value of the affected Oil and Gas
Interest.
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(vi)
|
If
the requested adjustment is based on an obligation, burden or liability
upon the affected Oil and Gas Interest not addressed by clause (iii),
(iv)
and (v) above, and the Parties cannot agree on the amount of such
adjustment, the Parties shall immediately submit the matter to a
Third
Party agreed upon by the Parties to determine the amount of the
adjustment. The cost of the Third Party shall be borne one-half by
Purchaser and one-half by Seller. The decision of the Third Party
shall be
conclusive and binding on Seller and Purchaser and shall be enforceable
against any party in any court of competent jurisdiction.
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(c)
|
If
the Parties have not agreed upon the validity and amount of a requested
adjustment in accordance with Section
5.10(b), and if the value of a Title Defect or Environmental Defect
that remains uncured by Closing and, consequently, the adjustment
to the
Base Purchase Price cannot be determined based on the above criteria
or if
the Parties cannot otherwise agree on the amount of an adjustment,
then
Seller in its sole discretion and upon written notice to Purchaser,
may
select any of the following options or a combination thereof to resolve
the impasse:
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(i)
|
The
Base Purchase Price shall be reduced by an amount determined by a
Third
Party agreed to by Seller and Purchaser, subject to the provisions
of
Section
9.9, as being the value of the asserted Title Defect or
Environmental Defect, taking into consideration the Allocated Value
of the
affected property, the portion of the affected property subject to
such
Title Defect or Environmental Defect and the legal affect of such
Title
Defect or Environmental Defect on the affected property;
or
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(ii)
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Seller
may elect to attempt to cure after Closing some or all of the Title
Defects or Environmental Defects, in which case this transaction
will
close as provided in this Agreement, and the amount asserted by Purchaser
to be attributable to such Title Defect or Environmental Defect,
the
Defects Escrow, will be withheld from the Base Purchase Price paid
at
Closing and retained with the Warranties Escrow, together constituting
the
Defects and Warranties Escrow, until such Title Defect or Environmental
Defect is cured or the amount thereof is distributed from the Defects
and
Warranties Escrow to Purchaser as provided in this Section
5.10.
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Seller
and Purchaser will reasonably cooperate with each other after the Closing to
cure a Title Defect or Environmental Defect that Seller has elected to attempt
to cure. If Seller and Purchaser mutually agree that a Title Defect or
Environmental Defect has been cured, then promptly thereafter, the amount
withheld in the Defects and Warranties Escrow with respect thereto (together
with any interest earned thereon) shall be released to Seller in accordance
with
the Defects and Warranties Escrow Agreement. If Seller and Purchaser mutually
agree that a Title Defect or Environmental Defect has been partially cured,
then
Seller and Purchaser shall determine the portion of the amount retained in
the
Defects and Warranties Escrow with respect thereto (together with any interest
earned thereon) that should be paid to Purchaser to compensate it for the
uncured portion thereof, applying the principles set forth in this Section 5.10, and the
remaining portion of such amount (together with any interest earned thereon)
shall be paid to Seller in accordance with the Defects and Warranties Escrow
Agreement. If Seller and Purchaser mutually agree that a Title Defect or
Environmental Defect has not been cured, then promptly thereafter, the amount
withheld in the Defects and Warranties Escrow with respect thereto (together
with any interest earned thereon) shall be paid to Purchaser and the affected
property shall become an Excluded Asset and assigned to Seller or its nominee.
If, during the period beginning upon the Closing and ending on the 120th
day
following the Closing (the “Cure Period”), Seller and
Purchaser are unable to agree whether there has been satisfactory resolution
of
a Title Defect or Environmental Defect with respect to any affected property
under this Section
5.10 that Seller has elected to attempt to cure, then Seller and
Purchaser will submit the dispute to a Third Party agreed on by Seller and
Purchaser, subject to the provisions of Section 9.9, not
later than the 150th
day
following the Closing. The cost of any such Third Party shall be paid one-half
by Seller and one-half by Purchaser. Seller and Purchaser shall each present
to
the Third Party a written statement of its position on the Title Defect or
Environmental Defect in question not later than the third day after
the disagreement has been submitted to the Third Party. By the 10th
day
following the submission of the matter to the Third Party, the Third Party
shall
make a written determination as to whether or not the Title Defect or
Environmental Defect in question has been cured, or if the Title Defect or
Environmental Defect in question has been partially cured. If the Title Defect
or Environmental Defect in question has been partially cured, the Third Party
shall determine in writing the portion of the amount retained in the Defects
and
Warranties Escrow with respect to such Title Defect or Environmental Defect
that
should be paid to Purchaser to compensate it for the uncured portion of such
defect (together with any interest earned thereon), applying the criteria set
forth in this Section
5.10, and the remaining portion of such amount (together with any
interest earned thereon) shall be paid to Seller in accordance with this
Agreement and the Escrow Agreement. If the Third Party determines that the
Title
Defect or Environmental Defect has not been cured, then promptly thereafter,
the
amount withheld in the Defects and Warranties Escrow with respect thereto
(together with interest earned thereon) shall be paid to Purchaser and the
affected property shall become an Excluded Asset and assigned to Seller or
its
nominee. The decision of the Third Party shall be conclusive and binding on
Seller and Purchaser and shall be enforceable against any party in any court
of
competent jurisdiction. The funds retained in the Defects and Warranties Escrow
with respect to such defect (together with any interest earned thereon) shall
be
disbursed by the Escrow Agent to Purchaser or Seller, as applicable, based
upon
the decision of the Third Party.
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(iii)
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Seller
may exclude the affected property, in which event the affected property
shall be deleted from this Agreement (and shall become Excluded Assets
and
assigned to Seller or its nominee) and the Base Purchase Price shall
be
reduced by an amount equal to the Allocated Value of such affected
property.
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(d)
|
If
the Aggregate Defect Threshold is exceeded by the net total of asserted
Title Defects and Environmental Defects which each exceeds the Individual
Defect Threshold and would therefore cause the Base Purchase Price
to be
decreased by adjustments made pursuant to this Section
5.10,
Seller in its sole discretion and upon written notice to Purchaser,
may
select any of the following options or a combination thereof:
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(i)
|
The
Base Purchase Price shall be reduced by an amount determined by a
Third
Party agreed to by Seller and Purchaser, subject to the provisions
of
Section
9.9 as being the value of the asserted Title Defects and
Environmental Defects, taking into consideration the Allocated Value
of
each affected property, the portion of each affected property subject
to
such Title Defects and Environmental Defects and the legal affect
of such
Title Defects and Environmental Defects on each affected
property.
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(ii)
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Seller
may elect to attempt to cure after Closing some or all of the Title
Defects or Environmental Defects, in which case this transaction
will
close as provided in this Agreement, and the amount asserted by Purchaser
to be attributable to such defects will be withheld from the Base
Purchase
Price paid at Closing and retained in the Defects and Warranties
Escrow
until such defect is cured or the amount thereof is distributed from
the
Defects and Warranties Escrow to Purchaser as provided in this Section
5.10.
|
Seller
and Purchaser will reasonably cooperate with each other after the Closing to
cure Title Defects or Environmental Defects that Seller has elected to attempt
to cure. If Seller and Purchaser mutually agree that a Title Defect or
Environmental Defect has been cured, then promptly thereafter, the amount
withheld from the Defects and Warranties Escrow with respect thereto (together
with any interest earned thereon) and the amount deducted from the Base Purchase
Consideration (if any) shall be released and paid to Seller in accordance with
this Agreement and the Defects and Warranties Escrow Agreement. If Seller and
Purchaser mutually agree that a Title Defect or Environmental Defect has been
partially cured, then Seller and Purchaser shall determine the portion of the
amount retained as part of the Defects and Warranties Escrow with respect
thereto (together with any interest earned thereon) and the portion of the
Base
Purchase Price withheld (if any) that should be paid to Purchaser to compensate
it for the uncured portion thereof, applying the principles set forth in this
Section 5.10,
and the remaining portion of such amount (together with any interest earned
thereon) shall be paid to Seller in accordance with this Agreement and the
Escrow Agreement. If Seller and Purchaser mutually agree that a Title Defect
or
Environmental Defect has not been cured, then promptly thereafter, the amount
withheld in the Defects and Warranties Escrow with respect thereto (together
with any interest earned thereon) shall be paid to Purchaser in accordance
with
the Defects and Warranties Escrow Agreement and the affected property shall
become an Excluded Asset and assigned to Seller or its nominee. If, during
the
Cure Period, Seller and Purchaser are unable to agree whether there has been
satisfactory resolution of a Title Defect or Environmental Defect with respect
to any affected property under this Section 5.10 that
Seller has elected to attempt to cure, then Seller and Purchaser will submit
the
dispute to a Third Party agreed on by Seller and Purchaser, subject to the
provisions of Section
9.9, not later than the 150th
day
following the Closing. The cost of any Third Party shall be paid one-half by
Seller and one-half by Purchaser. Seller and Purchaser shall each present to
the
Third Party a written statement of its position on the Title Defect or
Environmental Defect in question not later than the third day after the
disagreement has been submitted to the Third Party. By the 10th
day
following the submission of the matter to the Third Party, the Third Party
shall
make a written determination as to whether or not the Title Defect or
Environmental Defect in question has been cured, or if the Title Defect or
Environmental Defect in question has been partially cured. If the Title Defect
or Environmental Defect in question has been partially cured, the Third Party
shall determine in writing the portion of the amount retained in the Defects
and
Warranties Escrow with respect to such Title Defect or Environmental Defect
that
should be paid to Purchaser to compensate it for the uncured portion of such
defect (together with any interest earned thereon), applying the criteria set
forth in this Section
5.10, and the remaining portion of such amount (together with any
interest earned thereon) including any amount withheld from the Base Purchase
Price (if any), shall be paid to Seller in accordance with this Agreement and
the Defects and Warranties Escrow Agreement. If the Third Party determines
that
the Title Defect or Environmental Defect has not been cured, then promptly
thereafter, the amount withheld in the Defects and Warranties Escrow with
respect thereto (together with interest earned thereon) shall be paid to
Purchaser and the affected property shall become an Excluded Asset and assigned
to Seller or its nominee. The decision of the Third Party shall be conclusive
and binding on Seller and Purchaser and shall be enforceable against any party
in any court of competent jurisdiction. The funds retained in the Defects and
Warranties Escrow with respect to such defect (together with any interest earned
thereon) shall be disbursed by the Escrow Agent to Purchaser or Seller, as
applicable, based upon the decision of the Third Party.
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(iii)
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Seller
may exclude any affected property, in which event the affected property
selected by Seller shall be deleted from this Agreement (and shall
become
Excluded Assets and assigned to Seller or its nominee) and the Base
Purchase Price shall be reduced by an amount equal to the Allocated
Value
of such selected affected property.
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(e)
|
If
the total amount of Title Defects and Environmental Defects is an
amount
equal to or greater than 20 percent of the Base Purchase Price, then
either Seller or Purchaser may elect, in its sole discretion, to
terminate
this Agreement upon written notice to the other Party on or before
April
28, 2008, and upon delivery of such notice this Agreement shall be
void
and of no further force or effect, except for the provisions of Section
5.7
(with respect to indemnification), Section
5.2(b)
(but only to the extent of the confidentiality and indemnification
provisions), Section
5.5
(with respect to the indemnification provisions) and Section
5.6
(regarding payment of expenses) and the Confidentiality
Agreement. In such case, Seller shall be free to immediately
enjoy all rights of ownership and to sell, transfer, encumber or
otherwise
dispose of the Shares or any of the Company’s Oil and Gas Interests to any
Person without any restriction under this Agreement.
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(f)
|
The
Company and Purchaser will reasonably cooperate with Seller after
the
Closing to cure Title Defects and Environmental Defects that Seller
has
elected to cure.
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Section
5.11 Additional
Adjustments to Base Purchase Price.
In
addition to any adjustments to the Base Purchase Price under Section 5.10, the
Base Purchase Price will also be adjusted:
|
(a)
|
upward
by any positive balance of Working Capital as of the Effective Date,
or
downward by any negative balance of Working Capital as of the Effective
Date, as the case may be;
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(b)
|
downward
by the aggregate amount of (x) all outstanding Debt (other than Excluded
Liabilities that may constitute Debt) that is not included as a current
liability for purposes of calculating Working Capital and (y) all
outstanding obligations, including obligations under letters of credit,
under or relating to the Company Credit Agreement (including the
fees and
expenses of bank legal counsel in order to completely extinguish
all
outstanding obligations, terminate the facility and release Liens)
as of
the Effective Date;
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(c)
|
upward
by the amount of (i) cash consideration received by the Company after
the
Effective Date (net of expenses associated with such sale) with respect
to
the sale of Excluded Assets, to the extent not accrued as of the
Effective
Date and to the extent the cash is not distributed prior to the Closing
Date, plus (ii) the income, net of associated expenses, attributable
to
the Excluded Assets after the Effective Date, to the extent not accrued
as
of the Effective Date and to the extent the cash is not distributed
prior
to the Closing Date;
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(d)
|
upward
by the value of all liquid Hydrocarbons in storage tanks above the
pipeline connection at 7:00 a.m. (local time) on the Effective Date
valued
at market or contract price in effect as of the Effective Date after
deducting royalty and tax obligations;
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(e)
|
downward
by the aggregate amount of all interest paid by the Company after
the
Effective Date and prior to Closing for long term debt set forth
on the
unaudited consolidated financial statements of the Company and the
Subsidiaries as of December 31, 2007 (the “December 31 Financial
Statements”), except to the extent accrued as a current liability
on the December 31 Financial Statements;
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(f)
|
downward
by the aggregate amount of fees and expenses paid or payable by the
Company to ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & Co., and the Company's other advisors and
representatives, including legal counsel, in connection with the
transactions contemplated by this Agreement, to the extent not accrued
or
paid prior to the Effective Date;
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(g)
|
downward
by one-half of the aggregate amount of the cost to unwind and terminate
the Company's Product Hedging Contracts in accordance with Section
5.19;
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(h)
|
downward
by the sum of all cash amounts expended (including capitalized
expenditures) on the Excluded Liabilities and/or Excluded Assets
between
the Effective Date and the Closing Date, to the extent not accrued
or
paid prior to the Effective Date;
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(i)
|
upward
by the sum of all cash amounts received by the Company on account
of, or
in satisfaction of, the Excluded Assets between the Effective Date
and the
Closing Date, to the extent not accrued as of the Effective Date;
and
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(j)
|
downward
by the sum of all cash amounts paid by the Company prior on or prior
to
Closing (whether or not approved by Purchaser) to any employee or
consultant, that are in excess of base salaries, in consideration
of the
Closing or consideration of time served with existing management
or
otherwise.
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Section
5.12
Purchase Price Calculation.
No
later than three business days before Closing, Seller will prepare and deliver
to Purchaser a statement (the “Closing Statement”) setting
forth the Base Purchase Price as adjusted pursuant to Section 5.6,Section
5.10 and
Section
5.11. If information disclosed by the audited financial
statements of the Company for the year ended December 31, 2007 (which Seller
anticipates having available on or before May 30, 2008) or other information
becomes available that causes either Purchaser or Seller to determine that,
on a
“look-back” basis, the adjustments that should have been made to the Base
Purchase Price as of the Closing Date pursuant to Sections 5.6, 5.10
and
5.11 (“Proposed
Adjustments”) vary from the estimated amount set forth in the Purchase
Price calculation pursuant to this Section 5.12 used
to prepare
the Closing Statement (the “Estimated Adjustments”), the
Parties shall in good faith work together to reconcile any discrepancy between
the Proposed Adjustments (including their respective views as to the Proposed
Adjustments) and the Estimated Adjustments. If the Parties have not
agreed and entered into a cash settlement of any such discrepancy
within 120 days following the Closing Date, either Seller or Purchaser may
instruct Accountant to review and determine what the final adjustments should
have been pursuant to Sections 5.6, 5.10
and
5.11 (the “Final
Adjustments”). The Parties agree that Accountant’s review and
determination of the Final Adjustments shall be conclusive, and Accountant’s
fees associated with its review and determination of such Final Adjustments
shall be paid one-half by Seller and one-half by Purchaser. No later
than three business days following the Accountant's determination of the Final
Adjustments: (a) if it is determined that, based upon the Final
Adjustments, the Base Purchase Price was increased more than it should have
been
increased, or should have been decreased instead of increased (such amount,
including both the erroneous increase and the amount that it should have been
decreased is referred to as the “Excess”), Seller will pay
to
Purchaser an amount equal to the Excess; or (b) if it is determined that, based
upon the Final Adjustments, the Base Purchase Price was decreased more than
it
should have been decreased, or should have been increased instead of decreased
(such amount, including both the erroneous decrease and the amount it should
have been increased is referred to as the “Shortfall”), Purchaser will
pay to Seller an amount equal to the sum of the Shortfall. Any Excess
payable by Seller to Purchaser or any Shortfall payable by Purchaser to Seller
will include interest on such amount computed at six percent per
annum from the Closing Date to the date of such payment.
Section
5.13 No Duplicate
Adjustments. Anything in this Agreement to the contrary
notwithstanding: (a) an adjustment to the Base Purchase Price will only be
made
once for each item and no item will be included in more than one category;
(b)
Purchaser will only be entitled to one recovery for a matter which constitutes
a
Title Defect, an Environmental Defect or a breach of any of the provisions
of
this Agreement by Seller even if such matter breaches another provision of
this
Agreement; and (c) Purchaser may not assert a claim after the Closing for breach
of this Agreement by Seller as to which Purchaser had knowledge prior to the
Closing Date if such breach is based on an Environmental Defect or a Title
Defect.
Section
5.14 Defects and Warranties
Escrow
Disbursements. All disbursements of the Defects and Warranties Escrow
will be made pursuant to the terms of the Defects and Warranties Escrow
Agreement.
Section 5.15 Company
Employees.
Purchaser shall notify Seller within three business days of Closing as to which
employees listed on Section 3.2(m) of the
Company Disclosure Schedule that Purchaser intends to retain as employees of
an
entity of Purchaser, and Seller shall terminate all other employees of the
Company on the Closing Date. Purchaser shall, to the extent Purchaser
is able to cause its existing insurance provider to administer the obligation,
fulfill the coverage continuation obligations described in section 4980B of
the
Code and section 601 of ERISA (with respect to the Company) for a period of
18
months following the Closing for all of the employees of the Company and its
Subsidiaries at the Closing Date; provided, that Purchaser is not required
to
bear the cost of such coverage but may charge such employees reasonable premiums
with respect to such coverage. If Purchaser is unable to cause its
existing insurance provider to administer the obligations, and Section 4980B
of
the Code or Section 601 of ERISA actually applies to the Company, then Purchaser
shall cause the Company to fulfill the coverage continuation obligations (as
set
forth above, including with respect to charging employees reasonable premiums
with respect to such coverage), and any cost to the Company of continuing its
insurance for such purposes shall be born equally by Seller and Purchaser.
Seller shall cause the Company to, and the Company shall, terminate its existing
401k plan on the Closing Date, effective 11:59 pm on the day prior to
Closing.
Section
5.16 Termination of
Company Credit
Agreement. Purchaser shall use all commercially reasonable
efforts to make arrangements with the lender under the Company Credit
Agreement so that concurrently with the Closing, with any associated payments,
costs and fees incurred to be a reduction to the Purchase Price in accordance
with Section
5.11, (a) all outstanding letters of credit issued under the
Company Credit Agreement are terminated (whether pursuant to replacement with
letters of credit issued pursuant to Purchaser's credit agreement or otherwise),
(b) Purchaser pays in full the outstanding principal, interest, fees and
expenses due on loans outstanding under the Company Credit Agreement, and (c)
all Liens held by the agent or lender under the Company Credit Agreement are
released and terminated. Seller shall use all commercially reasonable
efforts to cause the lender under the Company Credit Agreement to deliver to
Purchaser, at least five days prior to Closing, a payoff letter, in terms
reasonably satisfactory to Purchaser, that reflects that, upon payment in full
of a specified or easily calculated/quantifiable amount as of the Closing Date,
all debt, fees and expenses due and owing under the Company Credit Agreement
will be fully discharged and all Liens held by the agent or lender under the
Company Credit Agreement will be released and terminated.
Section
5.17 Excluded Assets/Excluded
Liabilities. Prior to or at the Closing, the Excluded Assets
will be (a) distributed by the Company to Seller or its nominee or otherwise
transferred to Seller or its nominee or their nominee(s); and (b) all Excluded
Liabilities will be assumed by Seller or its nominee.
If
any of
the Company's Accounts Receivable included in the December 31 Financial
Statements have not been collected on or before the Closing Date, the Company
shall assign all such Accounts Receivable (but only to the extent of the
uncollected portion thereof) to Seller or its nominee, and such assigned
Accounts Receivable shall become Excluded Assets and will therefore not be
included in the calculation of Working Capital as of the Effective
Date.
Purchaser
(and the Company) covenant and agree that on and after the date of Closing
they
will, and will cause the Subsidiaries to, cease using the name “Stanolind” and
that, no later than 90 days following the Closing, they will file or cause
to be
filed amendments to the Company and the Subsidiaries respective Certificates
of
Incorporation reflecting such name changes with the Delaware Secretary of State
or other state of domicile and make such filings as may be appropriate
reflecting such name changes with the states and in the counties in which they
continue to do business. Purchaser will notify Seller upon filing the
amendments. After the Closing, the name “Stanolind” shall be
considered an Excluded Asset.
All
liabilities under that certain employment letter agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
as disclosed in the Company Disclosure Schedule, shall be considered Excluded
Liabilities.
If
any
penalty is owed, or other liability is created, on account of the delinquent
New
Mexico income tax filings disclosed in the Company Disclosure Schedule, such
liability or penalty shall be born by Seller as an Excluded
Liability.
None
of
the representations or warranties set forth in this Agreement nor any of the
other provisions of this Agreement shall be applicable to the Excluded Assets
or
Excluded Liabilities. Any receipts or payments made on account of the
Excluded Assets and Excluded Liabilities after the Effective Date but prior
to
the Closing Date shall be adjustments to the Base Purchase Price as set forth
in
Section
5.11. Notwithstanding the fact that Section 5.12 calls
for a Final Settlement of all adjustments set forth in Section 5.11 within a
prescribed period after the Closing Date, both Parties agree to work together
to
ensure that all cash collections on account of Excluded Assets and cash payments
on account of all Excluded Liabilities are properly credited to Seller’s account
and satisfied by Seller. In furtherance of this agreement, Seller
agrees to reimburse Purchaser, within a reasonable amount of time, for
Purchaser’s satisfaction of Excluded Liabilities, and Purchaser agrees to remit
to Seller, within a reasonable amount of time, all dollars collected on Excluded
Assets.
Section
5.18 Covenant on SEC
Compliance. To the extent reasonably necessary for
Purchaser or its parent company to comply with Purchaser’s or its parent
company’s tax and financial reporting requirements pursuant to rules and
regulations of the SEC (including Regulation S-X) in connection with any
registration statement or other filing made by Purchaser or its parent company
under the Securities Act, Seller shall, from Closing through the 180th day
following the Closing Date, make available to Purchaser or its parent company
(at the cost and expense of Purchaser) and its registered independent auditors
such information (including revenues and operating expenses, property detail,
standardized measure data, reserve information and other financial information)
as Seller or any of its Affiliates may have in its possession or control
relating to the assets of the Company and its Subsidiaries and the operations
thereof for a period not exceeding the three year period ended December 31
prior
to the Effective Date. Seller shall use its commercially reasonable efforts
to
cause the independent public accountants of the Company and its Subsidiaries
to
provide any consent necessary for the filing of financial statements with the
SEC and to provide such customary representation letters as are necessary in
connection therewith.
Section
5.19 Unwinding of Product
Hedging
Contracts. As soon as practicable following the execution of
this Agreement by all Parties, the Company and Purchaser shall enter into good
faith negotiations with respect to the Company entering into new Product Hedging
Contracts on mutually acceptable terms. If Purchaser and Seller are able to
reach a mutually acceptable agreement with respect thereto, the existing Product
Hedging Contracts shall be unwound, the cost of which shall be borne one-half
by
Purchaser and one-half by Seller.
Section 5.20 Indemnification.
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(a)
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Seller
shall indemnify, defend and hold harmless Purchaser against any Damages
incurred or suffered as a result of or arising out of (i) the failure
of
any representation or warranty made by Seller or the Company in Article
II
and Article III or in any certificate or document delivered by Seller
or
the Company pursuant to this Agreement to be true and correct as
of the
date of this Agreement and as of the Closing Date (as if made on
and as of
the Closing Date), (ii) the breach of any covenant or agreement made
or to
be performed by Seller pursuant to this Agreement, and (iii) the
Excluded
Liabilities; provided,
however, that Seller shall not be liable under this Section
5.20(a)(i) unless the amount of Damages with respect to a claim (or
group of related claims that result from substantially the same
circumstance) exceeds $25,000 (the “De Minimus Threshold”);
provided,
further, that Seller shall not be liable under this Section
5.20(a)(i) unless the aggregate amount of Damages exceeds $500,000
(not counting any claim or group of related claims that do not exceed
the
De Minimus Threshold) and then to the extent of such Damages exceeding
such amount.
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(b)
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Notwithstanding
anything herein to the contrary, (i) Seller's aggregate liability
under
Section
5.20(a)(i) and Section
5.20(a)(ii) shall not exceed, in the aggregate, an amount equal to
the amount then held in the Defects and Warranties Escrow for any
and all
claims made hereunder and (ii) for purposes of determining whether
or not
a representation or warranty of Seller and/or the Company in Article
II
and/or Article III or in any certificate or document delivered by
Seller
or the Company pursuant to this Agreement has failed to be true and
correct (and for purposes of determining the requisite measure of
resulting Damages), any materiality, Material Adverse Effect or dollar
limitation or qualification in a particular representation/warranty
shall
be disregarded.
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(c)
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Purchaser
shall indemnify, defend and hold harmless the Company and Seller
against
Damages incurred or suffered as a result of or arising out of (i)
the
failure of any representation or warranty made by Purchaser in Article
IV
or in any certificate or document delivered by Purchaser pursuant
to this
Agreement to be true and correct as of the date of this Agreement
and as
of the Closing Date (as if made on and as of the Closing Date), and
(ii)
the breach of any covenant or agreement made or to be performed by
Purchaser pursuant to this Agreement.
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(d)
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Payments
of all amounts owing by an Indemnifying Party under this Section 5.20
through and including Section
5.26
shall take into account and be appropriately reduced by amounts actually
received by the Indemnified Party under insurance, indemnification,
contribution, reimbursement or similar contracts.
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Section 5.21 Indemnification
Procedures.
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(a)
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If
any Party who or which is entitled to seek indemnification under
Section
5.20
(an “Indemnified
Party”) receives notice of the assertion or commencement of any
Third Party Claim against such Indemnified Party with respect to
which the
Party against whom or which such indemnification is being sought
(an
“Indemnifying
Party”) is obligated to provide indemnification under this
Agreement, the Indemnified Party will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event not later
than
30 days after receipt of such written notice of such Third Party
Claim. Such notice by the Indemnified Party will describe the
Third Party Claim in reasonable detail, will include copies of all
available material written evidence thereof and will indicate the
estimated amount, if reasonably estimable, of the Damages that have
been
or may be sustained by the Indemnified Party. The Indemnifying
Party will have the right to participate in, or, by giving written
notice
to the Indemnified Party, to assume, the defense of any Third Party
Claim
at such Indemnifying Party’s own expense and by such Indemnifying Party’s
own counsel (which will be reasonably satisfactory to the Indemnified
Party), and the Indemnified Party will cooperate in good faith in
such
defense.
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(b)
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If,
within 30 days after giving notice of a Third Party Claim to an
Indemnifying Party pursuant to Section
5.21(a), an Indemnified Party receives written notice from the
Indemnifying Party that the Indemnifying Party has elected to assume
the
defense of such Third Party Claim as provided in the last sentence
of
Section
5.21(a), the Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnified Party in connection
with
the defense thereof; provided, however, that
if the Indemnifying Party fails to take reasonable steps necessary
to
defend diligently such Third Party Claim within 20 days after receiving
written notice from the Indemnified Party, the Indemnified Party
may
assume its own defense, and the Indemnifying Party will be liable
for all
reasonable costs and expenses paid or incurred in connection therewith;
provided,
however, that the Indemnifying Party shall not be liable for the
costs and expenses of more than one counsel for all Indemnified Parties
in
any one jurisdiction. Without the prior written consent of the
Indemnified Party, the Indemnifying Party will not enter into any
settlement of any Third Party Claim which would lead to liability
or
create any financial or other obligation on the part of the Indemnified
Party for which the Indemnified Party is not entitled to indemnification
hereunder, or which provides for injunctive or other non-monetary
relief
applicable to the Indemnified Party, or does not include an unconditional
release of all Indemnified Parties. If a firm offer is made to
settle a Third Party Claim without leading to liability or the creation
of
a financial or other obligation on the part of the Indemnified Party
for
which the Indemnified Party is not entitled to indemnification hereunder
and the Indemnifying Party desires to accept and agree to such offer,
the
Indemnifying Party will give written notice to the Indemnified Party
to
that effect. If the Indemnified Party fails to consent to such
firm offer within 10 days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party
Claim
and, in such event, the maximum liability of the Indemnifying Party
as to
such Third Party Claim will not exceed the amount of such settlement
offer. The Indemnified Party will provide the Indemnifying
Party with reasonable access during normal business hours to books,
records and employees of the Indemnified Party necessary or desirable
in
connection with the Indemnifying Party’s defense of any Third Party Claim
which is the subject of a claim for indemnification by an Indemnified
Party hereunder.
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(c)
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Any
claim by an Indemnified Party on account of Damages which does not
result
from a Third Party Claim (a “Direct Claim”) will be
asserted by giving the Indemnifying Party written notice thereof.
Such
notice by the Indemnified Party will describe the Direct Claim in
reasonable detail, will include copies of all available material
written
evidence thereof and will indicate the estimated amount, if reasonably
practicable, of Damages that has been or may be sustained by the
Indemnified Party. The Indemnifying Party will have a period of
30 days within which to respond in writing to such Direct Claim.
If the
Indemnifying Party does not so respond within such 30 day period,
the
Indemnifying Party will be deemed to have rejected such Direct Claim,
in
which event the Indemnified Party will be free to pursue such remedies
as
may be available to the Indemnified Party on the terms and subject
to the
provisions of this Agreement.
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(d)
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A
failure to give timely notice or to include any specified information
in
any notice as provided in Section
5.21(a), Section
5.21(b)
or Section
5.21(c) (in contrast to the notice deadlines in Section
5.20)
shall not affect the rights or obligations of any Party, except and
only
to the extent that, as a result of such failure, any Party which
was
entitled to receive such notice was deprived of its right to recover
any
payment under its applicable insurance coverage or was otherwise
materially prejudiced as a result of such failure.
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Section 5.22
Payment of Indemnification Payments.
Any and
all Damages payable by Seller or the Company hereunder shall first be paid
or
otherwise satisfied by a payment of funds pursuant to the Defects and Warranties
Escrow.
Section 5.23 No
Consequential Damages.
Notwithstanding any other provision of this Agreement, no Indemnified Party
shall be entitled to any consequential damages, including exemplary, punitive,
incidental, indirect or special damages (collectively, “Excluded Damages”) suffered by
an Indemnified Party except to the extent such Excluded Damages were incurred
by
a Third Party and are the subject of a Third Party Claim asserted by that Third
Party after the Closing Date, and Purchaser hereby releases Seller and the
Company, and Seller and the Company hereby release Purchaser, in each case,
to
the fullest extent applicable Law permits, from liabilities for all Excluded
Damages.
Section 5.24 Scope of
Representations and Warranties of Seller and the Company.
Purchaser acknowledges that, except as expressly provided in this Agreement,
neither Seller nor the Company has made, and Seller and the Company hereby
expressly disclaim and negate, and Purchaser hereby expressly waives, any
representation or warranty, express, implied, at common law, by statute or
otherwise relating to, and Purchaser hereby expressly waives and relinquishes
any and all rights, claims and causes of action against Seller, the Company
and
their representatives in connection with the accuracy, completeness or
materiality of any information, data or other materials (written or oral),
heretofore furnished to Purchaser and its representatives by or on behalf of
Seller and/or the Company. Except as expressly provided in this Agreement,
Seller and the Company expressly disclaim and negate, and Purchaser hereby
waives, as to personal property, equipment and fixtures constituting a part
of
the assets owned or operated by the Company (a) any implied or express warranty
of merchantability, (b) any implied or express warranty of fitness for a
particular purpose, (c) any implied or express warranty of conformity to models
or samples of materials, (d) any rights of purchasers under appropriate legal
requirements to claim diminution of consideration, (e) any claims by Purchaser
for damages because of any latent or patent defects or other defects, whether
known or unknown and (f) any and all implied warranties existing under
applicable legal requirements. Seller, the Company and Purchaser agree that,
to
the extent required by applicable legal requirements to be effective, the
disclaimers of the warranties contained in this Section 5.24 are
“conspicuous.”
Section 5.25 Mitigation of Damages/Minimization of
Claim.
Purchaser, Seller and Company agree to use reasonable commercial efforts (a)
to
resolve all Third Party Claims and Direct Claims for which indemnification
is
sought under Section
5.20 through and including Section 5.26 on
the
lowest-cost basis that complies with the requirements of applicable laws and
this Agreement and (b) to mitigate the costs and expenses of, as well as any
Damages arising out of, any Third Party Claim or Direct Claim.
Section
5.26 Remedy. Notwithstanding
any
other provisions of this Agreement to the contrary, after the Closing,
Purchaser's sole and exclusive remedy with respect to, arising out of, or
resulting from this Agreement (including for any inaccuracy of any
representation or warranty or any failure or breach of any covenant, obligation,
condition or agreement contained in this Agreement) shall be to exercise
Purchaser's rights (without duplication) as provided for in Section 5.14, this
Section
5.20
through and including Section 5.26 and the
Escrow Agreement; provided,
however, that the foregoing shall not (i) limit the rights of Purchaser
to seek any equitable remedy available to enforce its rights under this
Agreement or (ii) limit the right of Purchaser to seek any available remedy
for
fraud. Purchaser covenants and agrees that, following the Closing, it shall
not
seek or assert any other remedy hereunder, other than any equitable remedy
available to enforce its rights under this Agreement and its right to seek
any
available remedy for fraud. Purchaser specifically waives and releases Seller
and the Company from any liability and any rights it might otherwise have
pursuant to law other than any liability arising from fraud.
CONDITIONS
Section
6.1
Conditions to Each Party’s Obligation to Proceed with Closing.
The
respective obligations of each Party to proceed with Closing shall be subject
to
the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) Approvals.
All
filings required to be made prior to the Closing with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing from, any Governmental Authority or other Person in connection with
the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Parties shall have been made or obtained
(as the case may be), except where the failure to obtain such consents,
approvals, permits and authorizations would not have a Material Adverse Effect
on the Company or its Subsidiaries, on Seller, or on Purchaser and its
Subsidiaries, as the case may be, or would not materially adversely affect
the
consummation of the transactions contemplated by this Agreement.
(b) No
Injunctions or
Restraints.
No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions contemplated by
this
Agreement shall be in effect; provided, however, that prior to invoking this
condition, each Party shall use all reasonable efforts to have any such decree,
ruling, injunction or order vacated, and, if necessary, the Closing shall be
delayed for up to 30 days while such efforts are taking place.
Section
6.2
Conditions to Obligations of Purchaser.
The
obligation of Purchaser to proceed with Closing is subject to the satisfaction
of the following conditions, any or all of which may be waived in whole or
in
part by Purchaser:
(a) Representations
and
Warranties.
The
representations and warranties of Seller set forth in Article III shall be
true and correct in all material respects as of the Closing Date as though
made
on and as of that time (except that any such representation and warranty
which expressly relates only to an earlier date shall be true and
correct on the Closing Date as of such earlier date and any representation
and
warranty that is made subject to a materiality qualification shall not be
subject to such qualification for purposes of making this determination), and
Purchaser shall have received a certificate signed by a Responsible Officer
of
Seller to such effect. The representations and warranties of the
Company set forth in Article III shall be
true and correct in all material respects as of the Closing Date as though
made
on and as of that time (except that any such representation and warranty which
expressly related only to an earlier date shall be true and correct on the
Closing Date as of such earlier date and any representation and warranty that
is
made subject to a materiality qualification shall not be subject to such
qualification for purposes of making this determination), and Purchaser shall
have received a certificate signed by a Responsible Officer of the Company
to
such effect; provided, however, that the condition set forth in this Section 6.2(a) shall
not be applicable to the representation and warranty regarding Environmental
Matters in Section
3.2(s) (which representation and warranty is addressed in Section
5.10).
(b) Performance
of Covenants and
Agreements.
Seller
shall have performed in all material respects all covenants and agreements
required to be performed by it under this Agreement at or prior to the Closing
Date, and Purchaser shall have received a certificate signed by a Responsible
Officer of Seller to such effect. The Company shall have performed in all
material respects all covenants and agreements required to be performed by
it
under this Agreement at or prior to the Closing Date, and Purchaser shall have
received a certificate signed by a Responsible Officer of the Company to such
effect.
(c) Escrow
Agreement. The Defects and Warranties Escrow Agreement shall
have been executed and delivered by the parties thereto (other than
Purchaser).
(d) Goodwill Protection
Agreements. Each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, J.
▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have executed and delivered a Goodwill
Protection Agreement in substantially the forms attached hereto as Exhibit
B.
(e) Transition Services
Agreements. Seller and the Company shall have executed a
master service agreement as pertains to the Company’s use of Seller’s pulling
units, in a form mutually agreed upon with an initial term of 12 months and
pricing as set forth on Section 6.2(e) of the
Company Disclosure Schedule. Such master service agreement shall
provide to the Company the right to use, but not the obligation to use, one
or
more of the three pulling units that are included in the Excluded Assets, and
shall provide that if the Company has availed itself of a particular pulling
unit, then the Company shall be allowed continual use of such pulling unit
(without interruption for other jobs of third parties) until the point at which
the Company releases the pulling unit; provided, however, that the Company
shall
be allowed up to 7 consecutive business days (which consist of the 5 work days,
and not the 2 weekend days, in each week) of standy day rate payments of $2,850
per day without it being deemed release. The master service agreement
shall also provide that the Company can gain/re-gain the use of any pulling
unit
by sending a notice to the Seller (or the then current owner of the pulling
units) and the pulling unit shall be moved to the Company’s identified location
immediately after completion of the project (and not the entire job) on which
it
is then located, and the project will be defined, with a definite ending point,
by Seller (or the then current owner of the pulling units) at the time of such
notice. The obligations of Seller under this master service agreement
shall be assignable by Seller only with the consent of the Company, which will
not be unreasonably withheld, conditioned or delayed, and shall provide the
Company with a right of first refusal to purchase the pulling units if Seller
determines to sell them.
In
addition, each of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, J. ▇▇▇▇▇ ▇▇▇▇▇▇, and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into an agreement with the Company whereby
each person agrees to provide the Company with transition assistance, as a
consultant and not an employee, and agrees to be available to the Company for
such purpose (for a reasonable amount of time) for six months, with the actual
time spent on assisting the Company to be compensated at a nominal hourly
rate.
Notwithstanding
anything to the contrary in this Agreement, if Purchaser or Seller notifies
the
other in writing not less than one day prior to Closing that Seller's
representations and warranties (other than title and environmental, which are
handled by the defecting mechanism) set forth in this Agreement will not be
true
and correct in all material respects on and as of the Closing Date, in the
alternative to terminating this Agreement as provided in Section 7.1,
Purchaser will have the right, to the extent Purchaser determines in good faith
that the loss in value due to such breach or change is $1,000,000.00 or less,
to
proceed with the Closing and pursue recovery for the loss attributable to such
breach or change out of the Defects and Warranties Escrow as provided in Section 5.14. If
Purchaser determines in good faith that the loss in value attributable to such
breach or change is in excess of $1,000,000.00, and Purchaser and Seller acting
in good faith are unable to mutually agree on an adjustment to the Base Purchase
Price, Purchaser may waive such breach or change in excess of $1,000,000.00
and
proceed with Closing or terminate this Agreement as provided in Section 7.1; provided
that, if Purchaser proceeds with Closing as provided herein, any claims against
the Defects and Warranties Escrow with respect to such representations or
warranties the breach of which is discovered or disclosed at or prior to Closing
will not exceed $1,000,000.00 in the aggregate.
Section
6.3
Conditions to Obligations of Seller.
The
obligation of Seller to proceed with Closing is subject to the satisfaction
of
the following conditions, any or all of which may be waived in whole or in
part
by Seller:
(a) Representations
and
Warranties.
The
representations and warranties of Purchaser set forth in Article IV shall be
true and correct in all material respects as of the Closing Date as though
made
on and as of that time (except that any such representations and warranties
which expressly relate only to an earlier date shall be true and correct on
the
Closing Date as of such earlier date), and Seller shall have received a
certificate signed by a Responsible Officer of Purchaser to such
effect.
(b) Performance
of Covenants and
Agreements.
Purchaser shall have performed in all material respects all covenants and
agreements required to be performed by it under this Agreement at or prior
to
the Closing Date, and Seller shall have received a certificate signed by a
Responsible Officer of Purchaser to such effect.
(c) Escrow Agreement. The
Defects and Warranties Escrow Agreement shall have been executed and delivered
by the parties thereto (other than Seller).
TERMINATION
Section
7.1
Termination Rights.
This
Agreement may be terminated at any time prior to the Closing:
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(a)
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By
mutual written agreement of Purchaser and
Seller;
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(b)
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By
either Seller or Purchaser if (i) the Closing has not occurred by May 15,
2008 (provided,
however, that the right to terminate this Agreement pursuant to this
clause (i) shall not be available to any Party whose breach of any
representation or warranty or failure to perform any covenant or
agreement
under this Agreement (which, in the case of Seller, shall include
breach
or failure by the Company) has been the cause of or resulted in the
failure of Closing to occur on or before such date); or (ii) any
Governmental Authority shall have issued an order, decree or ruling
or
taken any other action permanently restraining, enjoining or otherwise
prohibiting Closing and such order, decree, ruling or other action
shall
have become final and nonappealable (provided, however, that the
right to
terminate this Agreement pursuant to this clause (ii) shall not be
available to any Party until such Party has used all reasonable efforts
to
remove such injunction, order or decree and such efforts may continue
up
to 30 days after the Closing Date);
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(c)
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By
Purchaser if Seller has failed to comply in any material respect
with any
of Seller’s covenants or agreements contained in this Agreement and (x)
such failure has not been cured within 10 business days after notice
and
demand for cure thereof, and (y) such failure is not on account of
the
failure of a condition to Seller's obligations set forth in Section
6.3(b);
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(d)
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By
Seller if Purchaser has failed to comply in any material respect
with any
of Purchaser's covenants or agreements contained in this Agreement
and (x)
such failure has not been, or cannot be, cured within 10 business
days
after notice and demand for cure thereof, and (y) such failure is
not on
account of the failure of a condition to Purchaser’s obligations set forth
in Section
6.2(b); or
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(e)
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By
Seller or Purchaser if the total amount of Title Defects and Environmental
Defects is an amount equal to or greater than 20 percent of the Base
Purchase Price.
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Section
7.2
Effect of Termination.
If this
Agreement is terminated by either Seller or Purchaser pursuant to the provisions
of Section 7.1,
this Agreement shall forthwith become void without liability to any Party to
this Agreement except for, and there shall be no further obligation on the
part
of any Party or its respective Affiliates except pursuant to, the provisions
of
Section 2.2
(with respect to the ▇▇▇▇▇▇▇ Money Escrow funds), Section 5.7 (with
respect to the indemnification provisions contained therein), Section 5.2(b) (but
only to the extent of the confidentiality and indemnification provisions
contained therein), Section 5.5 (with
respect to the confidentiality provisions contained therein) and Section 5.6
(regarding payment of expenses) and the Confidentiality Agreement (all of which
provisions shall continue pursuant to their terms); provided, however, subject
to the provisions of Section 2.2, that a
termination of this Agreement shall not relieve any Party from any liability
for
damages incurred as a result of a breach by such Party of its covenants,
agreements or other obligations hereunder occurring prior to such termination;
and provided further, in no event will any Party be liable to any other Party
for incidental, consequential, exemplary, punitive or special damages of any
kind or for lost or imputed profits. Upon such termination, Seller
shall be free to immediately enjoy all rights of ownership and to sell,
transfer, encumber or otherwise dispose of the Shares or any of the Company’s
Oil and Gas Interests to any other Person without any restriction under this
Agreement. Except as specifically provided in Section 7.3, upon
termination of this Agreement the ▇▇▇▇▇▇▇ Money Escrow funds will be paid to
Purchaser.
Section
7.3 Default. If
any
Party fails to perform any obligation contained in this Agreement, the Party
claiming default will serve written notice to the other Party or Parties
specifying the nature of such default and demanding performance. If
such a default by Seller has not been cured within 10 business days after
receipt of such default notice, Purchaser will be entitled to (a) receive the
▇▇▇▇▇▇▇ Money Escrow funds or (b) exercise all remedies arising at law or in
equity by reason of such default, including specific performance of this
Agreement. If Purchaser breaches this Agreement by failing or
refusing to close the transaction contemplated hereby on the Closing Date in
accordance with the terms hereof and each of the conditions contained in Section 6.1 and Section
6.2(a)(b) and
(c) has
been
either fulfilled in all material respects or waived in writing by Purchaser,
the
▇▇▇▇▇▇▇ Money Escrow funds and all interest earned thereon will be paid to
Seller as liquidated damages in lieu of all other damages (and as Seller's
sole
remedy in such event). The Parties hereby acknowledge that the extent
of damages to Seller occasioned by such failure or refusal by Purchaser would
be
impossible or extremely impractical to ascertain and that the amount of the
▇▇▇▇▇▇▇ Money Escrow is a fair and reasonable estimate of such damages under
the
circumstances, and that such a retention of the ▇▇▇▇▇▇▇ Money Escrow does not
constitute a penalty. If the Closing does not occur and the ▇▇▇▇▇▇▇
Money Escrow funds are not paid to Seller pursuant to the foregoing provisions
of this Section
7.3, the ▇▇▇▇▇▇▇ Money Escrow funds and any interest earned thereon shall
be returned to Purchaser.
Section
7.4 Arbitration. Any
dispute under
this Agreement not involving a Title Defect or an Environmental Defect will
be
submitted to binding arbitration to be conducted in Dallas, Texas, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
except that there will be one arbitrator selected by Purchaser, one arbitrator
selected by Seller and a third arbitrator selected by those two
arbitrators. The arbitrators will be instructed and empowered to take
reasonable steps to expedite the arbitration and the arbitrators' judgment
will
be final and binding upon the Parties subject solely to challenge on the grounds
of fraud or gross misconduct. Judgment upon any verdict in arbitration may
be
entered in any court of competent jurisdiction. Unless otherwise
expressly set forth in this Agreement, the procedures specified in this Section 7.4 will be
the sole and exclusive procedures for the resolution of disputes and
controversies between the Parties arising out of or relating to this
Agreement. Notwithstanding the foregoing, a Party may seek a
preliminary injunction or other provisional judicial relief if in such Party's
judgment such action is necessary to avoid irreparable damage or to preserve
the
status quo. The costs of the arbitrators shall be paid one-half by Seller and
one-half by Purchaser.
TAXES
Section 8.1 Tax Matters.
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(a)
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Purchaser
shall prepare and file, or cause to be prepared and filed, the federal
income Tax Return for the short period that ends on the Closing Date.
Purchaser shall also prepare and file the federal and state income
Tax
Returns for the Company for the 2007 taxable year. Seller shall pay
Purchaser the excess, if any, of the Taxes due on such 2007 Tax Returns
over the accrual for such Taxes on the Closing Statement at least
five
days before the due date for such Tax Returns. Seller shall provide
Purchaser with all information reasonably necessary to prepare all
Tax
Returns with respect to the Company due after the Closing Date. Purchaser
shall prepare such Tax Returns in a manner reasonably consistent
with the
Company’s past practice. Purchaser shall provide Seller with
copies of such Tax Returns at least 15 days prior to the due date
(as may
be extended) for the filing of such Tax Returns for Seller’s review and
comment. Purchaser shall consider comments received from Seller
prior to the due date of such Tax Returns in good faith.
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(b)
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Seller
shall control and bear the cost of any audit or contest with respect
to
income Taxes of the Company for periods ended prior to the Effective
Time.
Purchaser shall control and bear the cost of any other audit or contest.
Purchaser, the Company and its Subsidiaries, and Seller shall cooperate
fully, as and to the extent reasonably requested by the other Party,
in
connection with the filing of Tax Returns and any audit, litigation
or
other proceeding with respect to Taxes. Such cooperation shall include
the
retention and (upon the other Party’s request) the provision of records
and information reasonably relevant to any such audit, litigation
or other
proceeding and making employees available without charge on a mutually
convenient basis to provide additional information and explanation
of any
material provided hereunder. The Company and its Subsidiaries,
Seller, and Purchaser agree (i) to retain all books and records with
respect to Tax matters pertinent to the Company and its Subsidiaries
relating to any taxable period beginning before the Closing Date
until
expiration of the statute of limitations (and, to the extent notified
by
Purchaser or Seller, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered
into with
any taxing authority, and (ii) to give the other Party reasonable
written
notice prior to transferring, destroying or discarding any such books
and
records and, if the other Party so requests, the Company and its
Subsidiaries or Seller, as the case may be, shall allow the other
Party to
take possession of such books and records.
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(c)
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Any
transfer, sales, use or other similar Taxes resulting from the
transactions contemplated by this Agreement shall be paid by Seller.
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(d)
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As
part of the Excluded Liabilities, Seller shall be responsible for
all
Taxes attributable to the transfer of the Excluded Assets and attributable
to income received by the Company from the Excluded Assets; however,
the
Taxes, if any, resulting from the transfer of the Excluded Assets
shall
only be considered an Excluded Liability to the extent of any remaining
liability after utilization of the Company's available tax attribute
carry
forwards.
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MISCELLANEOUS
Section
9.1 Survival of Representations
and
Warranties. Except as otherwise set forth in Section 3.2(jj)
and Section 5.10(a), the representations and warranties of Seller, the Company
and Purchaser contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith will survive the Closing
but
shall terminate 12 months after the Closing. Notwithstanding the immediately
preceding sentence, any representation or warranty in respect of which indemnity
may be sought under this Agreement will survive the time at which it would
otherwise terminate pursuant to the immediately preceding sentence if written
notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given to the Party against whom such indemnity may
be
sought prior to such time; provided, however, that the
applicable representation or warranty will survive only with respect to the
particular inaccuracy or breach specified in such written notice. All
covenants and agreements of the Parties contained in this Agreement, including
those set forth in Section 5.7, Section
7.4, Section 9.1,
Section 9.18
and Article IX,
shall survive the Closing.
Section 9.2 Amendment.
This
Agreement may not be amended except by a written instrument signed on behalf
of
each of the Parties.
Section
9.3 Notices.
Any
notice or other communication required or permitted hereunder shall be in
writing and either delivered personally, by facsimile transmission or by
registered or certified mail (postage prepaid and return receipt requested)
and
shall be deemed given when received (or, if mailed, five business days after
the
date of mailing) at the following addresses or facsimile transmission numbers
(or at such other address or facsimile transmission number for a Party as shall
be specified by like notice):
(a) If
to Purchaser:
Eagle Rock Energy Partners, L.P.
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, SVP, Corporate Development
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
Eagle Rock Energy Partners, L.P.
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, SVP and General Counsel
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
(b) If
to Seller or the Company:
Stanolind Holdings, L.P.
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax:
▇▇▇-▇▇▇-▇▇▇▇ (prior to Closing only)
with
copies (which shall not constitute
notice) to:
▇▇▇▇▇,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C.
Attn: ▇. ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.4 Counterparts.
This
Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
Section
9.5 Severability.
Any
term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this
Agreement or affecting the validity or enforceability of any of the terms
or
provisions of this Agreement in any other jurisdiction. If any provision
of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
Section
9.6 Entire
Agreement; No Third Party
Beneficiaries.
This
Agreement (together with the Confidentiality Agreement and the documents and
instruments delivered by the Parties in connection with this Agreement): (a)
constitutes the entire agreement and supersedes all other prior agreements
and
understandings, both written and oral, between or among the Parties with respect
to the subject matter hereof; and (b) except as provided in Section 5.2 or Section
5.7, is
solely for the benefit of the Parties and their respective successors, legal
representatives and assigns and does not confer on any other Person any rights
or remedies hereunder. No Party is entering into this Agreement on a
basis of any promise or representation other than those appearing within the
four corners of this Agreement.
Section 9.7 Applicable Law.
This
Agreement shall be governed in all respects, including validity, interpretation
and effect, by the laws of the State of Texas regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof.
Section 9.8 No Remedy in Certain
Circumstances.
Each
Party agrees that, should any court or other competent authority hold any
provision of this Agreement or part hereof to be null, void or unenforceable,
or
order any Party to take any action inconsistent herewith or not to take an
action consistent herewith or required hereby, the validity, legality and
enforceability of the remaining provisions and obligations contained or set
forth herein shall not in any way be affected or impaired thereby, unless the
foregoing inconsistent action or the failure to take an action constitutes
a
material breach of this Agreement or makes this Agreement impossible to perform,
in which case this Agreement shall terminate pursuant to Article
VII. Except as otherwise contemplated by this Agreement, to
the extent that a Party took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent Governmental Authority, such Party shall not
incur
any liability or obligation unless such Party breached its obligations under
Section 5.3 or
did not in good faith seek to resist or object to the imposition or entering
of
such order or judgment.
Section
9.9 Designation of
Third Party in Event
of Disagreement. Whenever this Agreement provides that Seller
and Purchaser shall submit a matter to a Third Party to be agreed upon by Seller
and Purchaser, but Seller and Purchaser are unable to so agree, then one Third
Party shall be selected by Seller, and one Third Party shall be selected by
Purchaser and those two Third Parties shall then select a Third Party who shall
act and serve as the sole Third Party for the purpose of resolving any matter
required to be submitted to and determined by such Third Party.
Section 9.10 Assignment.
Neither
this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the Parties
(whether by operation of law or otherwise) without the prior written consent
of
the other Parties, except that (a) the Excluded Assets may be assigned by the
Company and (b) Purchaser may assign, in its sole discretion, its rights,
interests and obligations hereunder to any wholly-owned Subsidiary of Purchaser,
provided that Purchaser shall notify Seller of any such assignment and remain
responsible for all of Purchaser's obligations hereunder. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of
and be enforceable by the Parties and their respective successors and
assigns.
Section
9.11 Waivers.
At any
time prior to the Closing, the Parties may, to the extent legally allowed:
(a)
extend the time for the performance of any of the obligations or other acts
of
the other Parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive performance of any of the covenants or agreements, or satisfaction
of
any of the conditions, contained herein. Any agreement on the part of a Party
to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such Party. Except as provided in this Agreement,
no action taken pursuant to this Agreement, including any investigation by
or on
behalf of any Party, shall be deemed to constitute a waiver by the Party taking
such action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any Party of a breach
of
any provision hereof shall not operate or be construed as a waiver of any prior
or subsequent breach of the same or any other provisions hereof.
Section 9.12 Confidentiality Agreement.
The
Confidentiality Agreement is hereby incorporated herein by reference and shall
constitute a part of this Agreement for all purposes and shall remain in full
force and effect following the execution of this Agreement until the earlier
of
the Closing or termination of the Confidentiality Agreement in accordance with
its terms. Any and all information received by any Party pursuant to the terms
and provisions of this Agreement shall be governed by the applicable terms
and
provisions of the Confidentiality Agreement.
Section
9.13 Incorporation.
Exhibits and Schedules referred to herein are attached to and by this reference
incorporated herein for all purposes.
Section 9.14 Cooperation After Closing.
Each
Party shall, at any time and from time to time after Closing, execute,
acknowledge (where appropriate) and deliver such further instruments and
documents and take such other action as may be reasonably requested by another
Party in order to carry out the intent and purpose of this Agreement. Seller
agrees that, upon receipt after Closing of checks, mail or other property or
documents which are the property of the Company, Seller will promptly forward
such items to the Company at Purchaser’s address as set forth in Section
9.3.
Section 9.15 Mutual Release
(a)
Subject
to the occurrence of the Closing and as of the Closing Date, Purchaser and
the
Company release and forever discharge Seller and its Affiliates and the
shareholders, director, officers, agents, controlling persons, representatives,
advisors and employees of Seller and its Affiliates, and their respective heirs,
executors, administrators, successors and assigns, from any and all actions,
causes of action, suits, debts, claims and demands of the Company or Purchaser,
or their Affiliates, related to the Company (except for rights or obligations
arising under this Agreement) that arise out of acts, events, conditions or
omissions occurring or existing at any time prior to and including the Closing
Date.
(b)
Subject
to the occurrence of the Closing and as of the Closing Date, Seller releases
and
forever discharges Purchaser and the Company from any and all actions, causes
of
action, suits, debts, claims and demands of Seller or its Affiliates related
to
the Company (except for rights or obligations arising under this Agreement)
that
arise out of acts, events, conditions or omissions occurring or existing at
any
time prior to and including the Closing Date.
Section 9.16 Fair
Construction.
This
Agreement shall be deemed to be the joint work product of Purchaser and Seller
without regard to the identity of the draftsperson, and any rule of construction
that a document shall be interpreted or construed against the drafting Party
shall not be applicable.
Section 9.17 Schedules.
Nothing
in the Schedules, including the Company Disclosure Schedule, is intended to
broaden the scope of any representation or warranty contained in this Agreement
or to create any covenant unless clearly specified to the contrary herein.
Inclusion of any item in the Schedules (a) does not represent a determination
that such item is material nor shall it be deemed to establish a standard of
materiality, (b) does not represent a determination that such item did not
arise
in the ordinary course of business, (c) does not represent a determination
that
the transactions contemplated by this Agreement require the consent of third
parties, and (d) shall not constitute, or be deemed to be, an admission to
any
third party concerning such item. The Schedules include descriptions of
instruments or brief summaries of certain aspects of the Company and its
business and operations. The descriptions and brief summaries are not
necessarily complete and are provided in the Schedules to identify documents
or
other materials previously delivered or made available.
Section
9.18
Expiring Prospects and Expiring
Leases. Section 9.18 of
the
Company Disclosure Schedule sets forth a list of certain prospects and leases
for oil and gas acreage that support each prospect, with each lease of oil
and
gas acreage identified to a particular prospect thereon and specifying the
expiration date and other relevant terms (each prospect, an “Expiring Prospect” and each
lease, an “Expiring
Lease”). If at the expiration of 180 days following the
Closing Date, the Company has not commenced drilling of a well in search of
oil
or natural gas with respect to a particular Expiring Prospect, has not extended
a single Expiring Lease related to that Expiring Prospect, and any Expiring
Lease related to that Expiring Prospect is set to expire within 210 days
following the Closing Date, then at the time of such determination the Company
shall automatically forfeit and relinquish any and all rights to such Expiring
Prospect and to all related
Expiring
Leases, and from time to time, at Seller’s request, assign to Seller, or
Seller’s nominee, all of Company’s leasehold rights in the Expiring Leases
related to such Expiring Prospect, without reservation of any kind and for
$10
per lease. Company’s obligations under this Section 9.18 will
survive closing and will be incorporated in a separate document for execution
at
Closing. If at any time for the period from 210 days following the Closing
Date and continuing thereafter, the Company has not commenced drilling of a
well
in search of oil or natural gas with respect to a particular Expiring Prospect,
has not extended a single Expiring Lease related to that Expiring Prospect,
and
any Expiring Lease related to that Expiring Prospect is set to expire within
the
subsequent 180 day period, then at the time of such determination the Company
shall automatically forfeit and relinquish any and all rights to such Expiring
Prospect and to all related Expiring Leases, and from time to time, at Seller's
request, assign to Seller, or Seller's nominee, all of Company's leasehold
rights in the Expiring Leases related to such Expiring Prospect, without
reservation of any kind and for $10 per lease.
IN
WITNESS WHEREOF, the
Parties have caused this Agreement to be executed by their duly authorized
representatives, as of the date first written above.
Purchaser
EAGLE ROCK ENERGY PARTNERS, L.P.
By: Eagle Rock Energy GP, L.P.
By: Eagle Rock Energy G&P, LLC
By: /s/ ▇▇▇▇▇▇
▇.
▇▇▇▇▇
Name:
▇▇▇▇▇▇▇
▇▇▇▇▇▇
Title: Chief
Executive
Officer
Seller
STANOLIND HOLDINGS, L.P.
By: Stanolind GP, LLC, its general partner
By: /s/
▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇
Name: ▇▇▇▇▇
▇.
▇▇▇▇▇▇▇
Title: President
Company
STANOLIND
OIL AND GAS CORP.
By: /s/
▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇
Name: ▇▇▇▇▇
▇.
▇▇▇▇▇▇▇
Title: President