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EXHIBIT 99.(a)(19)
SAN ▇▇▇▇ PARTNERS, L.L.C.
PURCHASE AGREEMENT
by
DOMINION ENERGY, INC., as Buyer
and
▇'▇▇▇▇▇▇▇▇ OIL & GAS COMPANY, INC., et al., as Sellers
Dated: JANUARY 19, 1999,
BUT EFFECTIVE AS OF
JANUARY 1, 1999
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TABLE OF CONTENTS
PAGE
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1. DEFINITIONS...................................................................................1
2. SALE AND TRANSFER OF LLC UNITS; CLOSING
............................................................................................11
2.1 LLC UNITS..................................................................11
2.2 CONSIDERATION..............................................................11
2.2.1 TOTAL CONSIDERATION.......................................11
2.2.2 CASH CONSIDERATION........................................11
2.2.3 CONTINGENT CONSIDERATION..................................13
2.2.4 RETAINED INTEREST IN INFILL ▇▇▇▇▇.........................13
2.3 CLOSING....................................................................14
2.4 CLOSING OBLIGATIONS........................................................14
2.5 THE DEVON OPTION...........................................................15
2.6 PURCHASE OF REMAINING ROYALTY INTERESTS....................................15
2.6.1 LIQUIDATION OF THE TRUST..................................15
2.6.2 REQUIRED BID OF THE COMPANY...............................16
2.6.3 PURCHASE FOR 105% OF HIGHEST ACCEPTABLE
OFFER ....................................................16
2.6.4 SELLERS' OBLIGATION TO REPURCHASE.........................17
2.6.5 STANDSTILL................................................18
3. REPRESENTATIONS AND WARRANTIES OF SELLERS....................................................19
3.1 ORGANIZATION AND GOOD STANDING.............................................19
3.2 AUTHORITY; NO CONFLICT.....................................................19
3.3 CAPITALIZATION.............................................................20
3.4 FINANCIAL STATEMENTS.......................................................21
3.5 BOOKS AND RECORDS..........................................................21
3.6 TITLE TO PROPERTIES; ENCUMBRANCES..........................................21
3.7 NO UNDISCLOSED LIABILITIES.................................................22
3.8 TAXES......................................................................22
3.9 NO MATERIAL ADVERSE CHANGE.................................................23
3.10 EMPLOYEES .................................................................23
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.............................................................23
3.12 LEGAL PROCEEDINGS; ORDERS..................................................24
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS......................................25
3.14 CONTRACTS; NO DEFAULTS.....................................................26
3.15 INSURANCE..................................................................27
3.16 ENVIRONMENTAL MATTERS......................................................28
3.17 DISCLOSURE.................................................................29
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3.18 AFFILIATE CONTRACTS........................................................29
3.19 BROKERS OR FINDERS.........................................................29
3.20 SECTION 29 TAX CREDIT ▇▇▇▇▇................................................30
3.21 CERTAIN PRODUCTION MATTERS.................................................30
3.22 SEC FILINGS................................................................30
3.23 BURLINGTON PURCHASE AGREEMENT..............................................30
4. REPRESENTATIONS AND WARRANTIES OF BUYER......................................................31
4.1 ORGANIZATION AND GOOD STANDING.............................................31
4.2 AUTHORITY; NO CONFLICT.....................................................31
4.3 INVESTMENT INTENT..........................................................31
4.4 CERTAIN PROCEEDINGS........................................................31
4.5 BROKERS OR FINDERS.........................................................32
4.6 FINANCING..................................................................32
4.7 ACKNOWLEDGMENTS............................................................32
5. INDEMNIFICATION; REMEDIES ...................................................................33
5.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE..................................................................33
5.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS..........................33
5.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER............................34
5.4 LIMITATIONS ON SELLERS' LIABILITY..........................................34
5.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS...........................36
6. POST-CLOSING COVENANTS.......................................................................37
6.1 SECURITIES FILINGS.........................................................37
6.2 PREPARATION AND FILING OF 1998 TAX RETURN..................................37
6.3 ASSISTANCE IN CONNECTION WITH TRANSITION MATTERS AND
THE PURCHASE OF THE REMAINING ROYALTY INTERESTS ...........................37
7. GENERAL PROVISIONS...........................................................................37
7.1 EXPENSES...................................................................37
7.2 PUBLIC ANNOUNCEMENTS.......................................................38
7.3 SELLERS' REPRESENTATIVE; NOTICES...........................................38
7.4 JURISDICTION; SERVICE OF PROCESS...........................................39
7.5 FURTHER ASSURANCES.........................................................39
7.6 WAIVER.....................................................................39
7.7 ENTIRE AGREEMENT AND MODIFICATION..........................................40
7.8 DISCLOSURE LETTER..........................................................40
7.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.........................40
7.10 SEVERABILITY...............................................................41
7.11 SECTION HEADINGS, CONSTRUCTION.............................................41
7.12 TIME OF ESSENCE............................................................41
7.13 GOVERNING LAW..............................................................41
7.14 COUNTERPARTS...............................................................41
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SAN ▇▇▇▇ PARTNERS, L.L.C.
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made January 19, 1999, but
effective as of January 1, 1999, by Dominion Energy, Inc., a Virginia
corporation ("Buyer"), ENCAP Energy Capital Fund III, L.P., a Texas limited
partnership, ENCAP Energy Acquisition III-B, Inc., a Texas corporation, ECIC\
Corporation, a Texas corporation, BOCP Energy Partners, L.P., a Texas limited
partnership, First Union Investors, Inc., a North Carolina corporation,
▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc., a Texas corporation, ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
an individual resident in Houston, Texas, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III, an individual
resident in Houston, Texas, ▇▇▇▇▇ ▇. ▇▇▇▇▇ Funding, LLC, a Texas limited
liability company, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, an individual resident in Houston, Texas,
and Andover Group, Inc., a Texas corporation (all of the above listed parties,
other than Buyer, are called herein collectively "Sellers" and individually
"Seller").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding units (the "LLC Units"), regardless of type, of limited
liability company membership interests of San ▇▇▇▇ Partners, L.L.C., a Texas
limited liability company (the "Company") and become a member of the Company as
a result thereof, for the consideration and on the terms set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACCOUNTING FIRM"--As defined in Section 2.2.2 of this Agreement.
"AFE"--As defined in Section 2.2.4 of this Agreement.
"AGREED RATE"--a floating per annum rate of interest equal to the
ninety (90) day federal treasury ▇▇▇▇ rate as set forth in the Key Interest
Rates table of the Wall Street Journal for each week during the calculation
period.
"AGREEMENT"--as defined in the first paragraph of this Agreement.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, including, without limitation, authorities for
expenditures and joint operating agreements, or (c) by which the Company or any
of the assets owned or used by it is or may become bound.
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"ASSETS"--all assets of the Company, including without limitation the
following: (i) the New Mexico Properties, (ii) all other rights, benefits,
duties and obligations acquired by the company pursuant to the Burlington
Purchase Agreement including, without limitation, rights in, to and under the
Unit Agreement, Unit Operating Agreement, Leases, Equipment, Trust Agreement and
the Net Profits Conveyance (as each of the foregoing are defined in the
Burlington Purchase Agreement), (iii) all rights, benefits, duties and
obligations of the Company in and to the Burlington Purchase Agreement, (iv) the
South Texas Properties, (v) 5,702,968 Trust Units, (vi) all Records of the
Company, and (vii) all Contracts to which the Company is a party.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"BROKER LETTER"--As defined in Section 3.19.
"BURLINGTON PURCHASE AGREEMENT"-that certain Purchase and Sale
Agreement dated October 21, 1998 between Burlington Resources Oil & Gas Company
and the Company.
"BUYER"--as defined in the first paragraph of this Agreement.
"CASH CONSIDERATION"-- as defined in Section 2.2.1.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"COMPANY"--as defined in the Recitals of this Agreement.
"COMPANY'S BID DISTRIBUTION"--as defined in Section 2.6.2.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the LLC Units by Sellers to Buyer;
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(b) the performance by Buyer and Sellers of their respective covenants
and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the LLC Units, admission as
the sole member of the Company and exercise of control over the Company.
"CONTINGENT CONSIDERATION"--As defined in Section 2.2.3 of this
Agreement.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DAMAGES"--as defined in Section 5.2.
"DEVON"--as defined in Section 2.5.
"DEVON AGREEMENT"--as defined in Section 2.5.
"DEVON HOLDBACK AMOUNT"--the amount set forth in Section 2.5(d) of the
Disclosure Letter.
"DEVON INTEREST"--as defined in Section 2.5.
"DEVON OPTION"--as defined in Section 2.5.
"DEVON PAYMENT"--the amount paid by Devon to the Company if Devon
exercises the Devon Option.
"DEVON SHORTFALL"--as defined in Section 2.5.
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to
Buyer concurrently with the execution and delivery of this Agreement.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL ASSESSMENT"-- the Phase I Environmental Site Assessment
Report, 121 Sites in the Northeast ▇▇▇▇▇▇ Unit San ▇▇▇▇ and Rio Arriba Counties,
New Mexico, dated December 14, 1998 and Addendum No. 1, dated December 15, 1998
prepared by AGRA Earth & Environmental ("AGRA") together with letter dated
January 6, 1994 from AGRA to the Company.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as
amended ("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
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(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"EXCHANGE ACT"--as defined in Section 3.5 hereof.
"FINAL ADJUSTED BASE PRICE"--as defined in Section 2.2.2.
"FINAL ADJUSTMENT"--as defined in Section 2.2.2.
"FINAL REPURCHASE AMOUNT"--as defined in Section 2.6.4(c).
"FINAL SETTLEMENT STATEMENT"--as defined in Section 2.2.2.
"FRUITLAND COAL FORMATION" --the coal seam with vertical limits
comprising all coal seams within the equivalent of the stratigraphic interval
from a depth of approximately 2,450 feet to 2,880 feet as shown on the Gamma
Ray/Bulk Density Log from Amoco Production Company's ▇▇▇▇▇▇▇▇▇ Gas Company "B"
Well No. 1 located 1,110 feet from the South line and 1,185 feet from the West
line of Section 28, Township 32 North, Range 10 West, NMPM, San ▇▇▇▇ County, New
Mexico.
"GAAP"--United States generally accepted accounting principles in
effect from time to time.
"GATHERING AGREEMENT"--the Gas Gathering Dehydrating and Treating
Agreement dated May 3, 1990 between Meridian Oil Gathering, Inc. and Meridian
Oil Trading, Inc., as amended to date.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
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(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof.
"HIGHEST ACCEPTABLE OFFER"-pursuant to Section 9.03(e) of the Trust
Agreement, after termination of the Trust, the highest offer, net of any
commissions or other fees payable by the Trust, made for the purchase of the
Remaining Royalty Interests.
"INDEMNIFIED PERSONS"--as defined in Section 5.2.
"INFILL WELL PROVISIONS"--as defined in Section 2.2.4.
"INFILL ▇▇▇▇▇"-all ▇▇▇▇▇ drilled in the Northeast ▇▇▇▇▇▇ Unit after the
date hereof as a result of a change to existing spacing regulation for the
Fruitland Coal Formation or a change allowing additional ▇▇▇▇▇ to be drilled on
a drilling or spacing unit for the Fruitland Coal Formation, in each case after
the date hereof, together with all replacement ▇▇▇▇▇ drilled for any such
additional ▇▇▇▇▇.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, member, executor, or
trustee of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"LLC UNITS"--as defined in the Recitals of this Agreement.
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"NET PROFITS CONVEYANCE"--that certain Net Profits Interest Conveyance
dated as of May 1, 1993 from Meridian Oil Production Inc. in favor of the Trust.
"NEW MEXICO PROPERTIES"-- all of the Company's working and net revenue
interest in and to the Northeast ▇▇▇▇▇▇ Unit as more particularly set forth in
Section 1 of the Disclosure Letter.
"NORTHEAST ▇▇▇▇▇▇ UNIT"--the unit formed for the exploration and
production of hydrocarbons from the Fruitland Coal Formation pursuant to that
certain Unit Agreement for the Development and Operation of the Northeast ▇▇▇▇▇▇
Unit Area dated July 16, 1951, recorded in Book 182, Page 52 of the real
property records of San ▇▇▇▇ County, New Mexico and Volume 11, Page 361 of the
real property records of Rio Arriba County, New Mexico.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; (e) any limited
liability company articles of organization, certificate of organization and
regulations; and (f) any amendment to any of the foregoing.
"PERMITTED ENCUMBRANCES"--As defined in Section 3.6 of this Agreement.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PRELIMINARY ADJUSTED BASE PRICE"--as defined in Section 2.2.2.
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"PRELIMINARY ADJUSTMENT"--as defined in Section 2.2.2.
"PRELIMINARY CLOSING STATEMENT"-- as defined in Section 2.2.2.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPERTIES"--the New Mexico Properties and South Texas Properties,
collectively.
"RECORDS"--all lease files, land files, well files, gas and oil sales
contract files, gas treating, gathering and processing files, division order
files, abstracts, title opinions, land surveys, technical information, insurance
policies and bonds, contracts, evidence that Taxes have been paid, computer
sensible copies of all computer records, written plans for exploration and
development, applications, inspection reports, environmental impact statements,
assessments and studies, permits, licenses, orders, consents, and all other
books, records, intangibles, files, maps and accounting records with respect to
the Properties or the business of the Company to the extent owned by or under
the control of the Company or Sellers..
"RELATED PERSON"--with respect to a particular individual:
(a) each other member of such individual's Family (as hereinafter
defined);
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest (as
hereinafter defined); and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
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(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 10% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests in a Person.
"REMAINING ROYALTY HOLDBACK AMOUNT"--$6,194,064.
"REMAINING ROYALTY INTERESTS"-all of the Royalty Interests owned by the
Trust on the date of termination of the Trust pursuant to Section 9.03(b) of the
Trust Agreement.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"REPURCHASE AMOUNT"--as defined in Section 2.6.4 hereof.
"REPURCHASE FINAL SETTLEMENT STATEMENT"--as defined in Section 2.6.4(c)
hereof.
"REPURCHASE SETTLEMENT STATEMENT DELIVERY DATE"--as defined in Section
2.6.4(c) hereof.
"REQUIRED BID AMOUNT"--as defined in Section 2.6.2 of this Agreement.
"RETAINED INTEREST"--as defined in Section 2.2.4 of this Agreement.
"ROYALTY INTERESTS"-has the same meaning given such term in Article II
of Net Profit Conveyance.
"SEC DOCUMENTS"--As defined in Section 3.22.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
"SELLERS' ACCOUNT"--as defined in Section 2.2.1 of this Agreement.
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"SELLERS' REPRESENTATIVE"--▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc., a Texas
corporation, or upon thirty (30) days prior written notice to Buyer, such other
Person as shall be designated by Sellers.
"SETTLEMENT STATEMENT DELIVERY DATE"--As defined in Section 2.2.2 of
this Agreement.
"SOUTH TEXAS PROPERTIES"-- all, right, title and interest of the
Company in and to the properties located in Goliad, Kleberg, ▇▇▇ ▇▇▇▇ and Lavaca
Counties in the State of Texas as more particularly set forth in Section 1 of
the Disclosure Letter.
"SPECIAL DISTRIBUTION"--as defined in the Trust Agreement.
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAXES" -- all federal, foreign, state, local or other net or gross
income (whether measured by or based on income), gross receipts, profits,
capital, wealth, social security, sales, use, stamp, documentary, transfer,
occupation, environmental, service, rental, lease, real property gains or
transfer, ad valorem, property (including in-lieu-of taxes), value added,
franchise, production, severance, withholding, payroll, employment, excise or
similar taxes, assessments, duties, fees, levies or other governmental charges,
together with any interest thereon, any penalties, additions to tax or
additional amounts with respect thereto and any interest in respect of such
penalties, additions or additional amounts.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Taxes or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Taxes.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"TRIGGER DATE"--As defined in Section 2.6.4 of this Agreement.
"TRUST"-Burlington Resources Coal Seam Gas Royalty Trust created
pursuant to the Trust Agreement.
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14
"TRUST AGREEMENT"-the Trust Agreement of Burlington Resources Coal Seam
Gas Royalty Trust dated May 1, 1993 among Meridian Oil Production Inc.,
Burlington Resources Inc, Mellon Bank (DE) National Association, and NationsBank
of Texas, N.A.
"TRUST UNITS"-certificated, undivided pro rata fractional interests in
the beneficial rights of the Trust, as determined pursuant to the Trust
Agreement.
"UNADJUSTED BASE PRICE"--$90,176,164.
"UNRESOLVED CLAIM"--As defined in Section 2.7.
2. SALE AND TRANSFER OF LLC UNITS; CLOSING
2.1 LLC UNITS
Subject to the terms and conditions of this Agreement, at the Closing,
Sellers will sell and transfer the LLC Units to Buyer, and Buyer will purchase
the LLC Units from Sellers.
2.2 CONSIDERATION
2.2.1 TOTAL CONSIDERATION
The total consideration for the LLC Units is the Unadjusted Base Price,
as adjusted pursuant to Section 2.2.2 (the "Cash Consideration"), together with
the Contingent Consideration and Retained Interest set forth in Sections 2.2.3
and 2.2.4. The Cash Consideration shall be paid by Buyer to Sellers collectively
at Closing by wire transfer of immediately available funds to the SJP Stub
Liquidating Trust, Account No. 1566568059 at Bank One, Houston, Texas (the
"Sellers' Account") or as otherwise directed by Sellers' Representative.
2.2.2 CASH CONSIDERATION
(a) The Unadjusted Base Price shall be increased by:
(i) The Devon Payment;
(ii) The revenues received by or credited to Buyer
attributable to periods prior to January 1, 1999 other than
distributions received by the Company from the Trust with
respect to the fourth quarter of 1998 and operating costs
charged to and paid by Sellers attributable to periods after
January 1, 1999.
(b) The Unadjusted Base Price shall be decreased by:
(i) $305,426 being the value of tax credits
attributable to the 479R Well included in the New Mexico
Properties if it were to qualify for tax credits pursuant to
Section 29 of the IRC;
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15
(ii) Revenues received by or credited to Sellers
attributable to periods after January 1, 1999 and all
operating costs or capital expenses charged to and paid by
Buyer attributable to periods prior to January 1, 1999;
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16
(iii) Any fees charged by the Trust to the Company in
connection with the liquidation of the Remaining Royalty
Interests including, without limitation, the fees of ▇▇▇▇▇▇▇▇
& Associates; and
(iv) Any general and administrative costs incurred
by or on behalf of the Company solely in connection with this
Agreement or the Contemplated Transactions other than any
expenses incurred by Buyer in connection therewith; and
(v) The Devon Shortfall.
(c) Not later than two (2) days prior to Closing,
Sellers' Representative shall prepare a preliminary calculation of all
adjustments to be made pursuant to Sections 2.2.2(a) and (b) in the
form attached hereto as Exhibit A (the "Preliminary Closing Statement")
based on Sellers' Representative's good faith estimate of the
adjustments. The Unadjusted Base Price shall be adjusted for Closing
purposes by the net adjustment (the "Preliminary Adjustment") set forth
in the Preliminary Closing Statement. (The Unadjusted Base Price as
adjusted by the Preliminary Adjustment is referred to as the
"Preliminary Adjusted Base Price"). Nothing in this Section 2.2.2(c)
shall diminish Buyer's or Sellers' rights to a full accounting as set
forth in Section 2.2.2(d), it being the agreement of the parties that
the Final Adjusted Base Price will be determined in accordance with the
procedures set forth in Section 2.2.2(d).
(d) Not later than the later to occur of (i) ten (10)
days following the closing of the sale of the Devon Interest to Devon,
if Devon exercises the Devon Option or (ii) May 15, 1999, if Devon does
not exercise the Devon Option, Buyer shall prepare and deliver to
Sellers' Representative a proposed settlement statement setting forth
any required additional adjustments to the Preliminary Adjusted Base
Purchase Price (the "Final Adjustment"). The date on which such
proposed settlement statement is delivered is called the "Settlement
Statement Delivery Date." Sellers' Representative shall have the right
for fifteen (15) days after the Settlement Statement Delivery Date to
take exception to any proposed adjustments. The settlement statement
shall become final and binding upon the parties on the fifteenth (15th)
day following the Settlement Statement Delivery Date except with
respect to matters as to which Sellers' Representative shall have given
written notice of disagreement to Buyer on or prior to such date. If
not resolved by Sellers' Representative and Buyers within 30 days after
the Settlement Statement Delivery Date, all such matters shall be
submitted for review and resolution, in accordance with Section
2.2.2(f). The settlement statement that becomes final and binding on
the parties either pursuant to this Section 2.2.2(d) or Section
2.2.2(f) shall be referred to as the "Final Settlement Statement." The
Preliminary Adjusted Base Price shall be adjusted by the Final
Adjustment set forth in the Final Settlement Statement, and the
Preliminary Adjusted Base Price, as adjusted by the Final Adjustment is
referred to as the "Final Adjusted Base Price".
(e) If, at the Settlement Date, the Final Adjusted Base
Price exceeds the Preliminary Adjusted Base Price, then, within ten
(10) days after the Settlement Date, Buyer shall pay Sellers by deposit
into Sellers' Account the excess together with interest thereon
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17
at the Agreed Rate from the Closing Date to the date of payment. If at
the Settlement Date, the Final Adjusted Base Price is less than the
Preliminary Adjusted Base Price, then, within ten (10) days after the
Settlement Date, Sellers' Representative, on behalf of all Sellers,
shall pay Buyer the difference together with interest thereon at the
Agreed Rate from the Closing Date to the date of payment.
(f) If the Sellers' Representative and Buyer are unable
to agree on the settlement statement as described in Section 2.2.2(d),
the Sellers' Representative and Buyer shall engage Deloitte & Touche or
another nationally recognized accounting firm mutually acceptable to
the parties (the "Accounting Firm") to resolve any disputed items and
the Accounting Firm shall be required to render its decision within 30
days after the dispute is referred to it. The decision of the
Accounting Firm shall be final and binding on the parties. The fees and
expenses of the Accounting Firm shall be paid 50% by Buyer and 50% by
Sellers as a group.
2.2.3 CONTINGENT CONSIDERATION
In addition to the Cash Consideration set forth in Section 2.2.2
hereof, Buyer shall pay Sellers by deposit into Sellers Account, and Sellers
shall be entitled to receive from Buyer, the following (collectively the
"Contingent Consideration"):
(a) The Excess Gas Payment described in Exhibit B
attached hereto and made a part hereof for all purposes,
(b) Any amount required to be paid by Buyer to Sellers
pursuant to Section 2.5;
(c) All or a portion of the Remaining Royalty Holdback
Amount to the extent required to be paid to Sellers in accordance with
Section 2.6.2 or 2.6.3 together with any additional payments to be made
by Buyer to Sellers pursuant to Section 2.6.2 or 2.6.3; and
(d) Any amounts required to be paid by Buyer to Sellers
pursuant to Section 2.7.
2.2.4 RETAINED INTEREST IN INFILL ▇▇▇▇▇
(a) In addition to the Cash Consideration and the
Contingent Consideration described above, Sellers shall have the right
to participate, on a well by well basis in and to any and all ▇▇▇▇▇
drilled or completed as Infill ▇▇▇▇▇ in the Northeast ▇▇▇▇▇▇ Unit from
and after the Closing Date for an aggregate undivided forty seven and
one-half percent (47.5%) of the working and net revenue interests owned
by the Company on the date hereof, or acquired by the Company in
accordance with Section 2.6 of this Agreement, less the Devon Interest
if Devon exercises the Devon Option as set forth in Section 2.5 (the
"Retained Interest").
(b) The procedures and conditions under which each Seller
shall participate in each Infill Well shall be governed by the Unit
Operating Agreement and by the
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18
provisions set forth on Exhibit C attached hereto and made a part
hereof for all purposes (the "Infill Well Provisions"). The Infill Well
Provisions shall apply only to the relationship between Sellers and
Buyer with respect to Infill ▇▇▇▇▇. In the event of a conflict between
the Unit Operating Agreement and the Infill Well Provisions, as between
Sellers and Buyers, the Infill Well Provisions shall govern and
control.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Sellers' counsel at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ at 11:00 a.m. (local time) on January 19, 1999, or at such
other time and place as Sellers' Representative and Buyer may agree. Failure to
consummate the purchase and sale provided for in this Agreement on the date and
time and at the place determined pursuant to this Section 2.3 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement. In the event Closing occurs on or after 12:00
a.m. Houston time on January 25, 1999 solely as a result of Sellers' delay, the
Cash Consideration shall be reduced by $300,000 for each week after such date
that Closing is delayed; provided, however, if Closing is delayed for less than
a full week, the Cash Consideration shall be reduced by an amount equal to
$300,000 multiplied by a fraction the numerator of which is the number of days
the Closing is delayed and the denominator of which is seven (7).
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer
(i) An assignment of the LLC Units in the form
attached hereto as Exhibit D executed by each of the Sellers;
(ii) all of the Records of the Company;
(iii) full releases of liens with respect to any
indebtedness of the Company;
(iv) opinions of counsel with respect to each Seller
which is an entity in a form previously reviewed by Buyer's
counsel; and
(v) Certificates of Non-Foreign Status in the form
attached hereto as Exhibit E, executed by each of the Sellers.
(b) Buyer will deliver:
(i) the Preliminary Adjusted Purchase Price to
Sellers by wire transfer to Sellers' Account; and
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(ii) an opinion of counsel with respect to
Buyer in a form previously reviewed by Sellers'
counsel.
2.5 THE DEVON OPTION
(a) Pursuant to that certain letter agreement dated July
9, 1998 between the Company and Devon Acquisition Corporation
("Devon"), a copy of which is attached hereto as Exhibit F and made a
part hereof for all purposes (the "Devon Agreement"), Devon has the
option (the "Devon Option") to purchase from the Company an undivided
6.7% of 19.647531% working interest and 6.7% of 16.539598% net revenue
interest in the Northeast ▇▇▇▇▇▇ Unit (the "Devon Interest") owned by
the Company if the Company, within eighteen (18) months of the date,
the Devon Agreement (i) acquires the underlying working interests
burdened by the Trust from Burlington and (ii) acquires the Remaining
Royalty Interests of the Trust. The Devon Option may be exercised by
Devon by paying to the Company 6.7% of the Acquisition Costs as defined
in the Devon Agreement. The Company has notified Devon that the
conditions precedent to the triggering of the Devon Option may occur,
and Devon has indicated that it may exercise the Devon Option at such
time.
(b) If Devon timely exercises the Devon Option, and the
amount actually paid to the Company by Devon for the Devon Interest
exceeds the sum of (i) estimated Devon Payment set forth on the
Preliminary Closing Statement plus (ii) costs incurred by Buyer or the
Company after January 1, 1999 that were not included in calculating the
estimated Devon Payment, then Buyer shall pay Sellers by deposit into
Sellers' Account the excess within ten (10) days after Buyer's receipt
of the Devon Payment.
(c) If Devon exercises the Devon Option, and the amount
actually paid to the Company by Devon for the Devon Interest is less
than the estimated Devon Payment set forth on the Preliminary Closing
Statement, then Sellers shall pay Buyer the difference (the "Devon
Shortfall") within ten (10) days after Buyer notifies Sellers'
Representative of the Devon Shortfall.
(d) If Devon does not exercise the Devon Option, Buyer
shall pay Sellers by deposit into Sellers' Account, within ten (10)
days after the earlier to occur of Buyer's receipt of notice thereof or
the expiration of the period in which Devon may exercise the Devon
Option, an amount equal to the Devon Holdback Amount as set forth in
Section 2.5(d) of the Disclosure Letter together with interest on the
Devon Holdback Amount at the Agreed Rate from the Closing Date to the
date of payment.
2.6 PURCHASE OF REMAINING ROYALTY INTERESTS
2.6.1 LIQUIDATION OF THE TRUST
The Company owns or controls the voting interest of more than sixty-six
and two-thirds percent (66 2/3%) of the issued and outstanding Trust Units and
on December 28, 1998, pursuant to a meeting duly called and noticed, voted, in
accordance with the Trust Agreement, to terminate the Trust. There remain
3,097,032 Trust Units (or 35.19354% of the issued and outstanding Trust
- 16 -
20
Units) which are not owned by the Company. In accordance with the Trust
Agreement, after termination of the Trust, the Remaining Royalty Interests,
constituting all of the assets of the Trust, are to be liquidated and the
proceeds distributed to the holders of the Trust Units. The Trustee is
contemporaneously conducting the liquidation process through its adviser,
▇▇▇▇▇▇▇▇ & Associates.
2.6.2 REQUIRED BID OF THE COMPANY
(a) Buyer and Sellers hereby agree that the Company shall
bid, pursuant to the general bid procedure conducted by the Trustee for
the purchase of the Remaining Royalty Interests, an amount not less
than $61,600,000 and not more than $74,800,000 for the Remaining
Royalty Interests (the "Required Bid Amount").
(b) In the event the Company is the successful bidder for
the Required Bid Amount, such amount shall be paid by Buyer to the
Trustee in consideration for the purchase of the Remaining Royalty
Interests, it being agreed that if the Company is the successful
bidder, and the Trustee requires the Company to pay the portion of the
Required Bid Amount that would be distributed to the Company as owner
of 5,702,968 Trust Units (the "Company's Bid Distribution") to the
Trustee, Sellers shall pay Buyer interest on the Company's Bid
Distribution at the Agreed Rate from the date Buyer pays the Required
Bid Amount to the Trust through the date the Company receives the
Special Distribution (as defined in the Trust Agreement).
(c) Contemporaneously with the payment to the Trustee,
Buyer shall pay to Sellers, by deposit to Sellers' Account, the
Remaining Royalty Hold Back Amount together with interest thereon at
the Agreed Rate from the Closing Date to the date of payment.
(d) In the event the successful Required Bid Amount is
between $70,400,000 and $74,800,000, no further payments shall be owing
by Buyer to Sellers other than the payment required pursuant to Section
2.6.2(c) hereinabove and so otherwise provided for in this Agreement.
However, in the event the successful Required Bid Amount is less than
$70,400,000, Buyer shall make an additional payment to Sellers, by
deposit into the Sellers' Account, of an amount equal to fifty percent
(50%) of the difference between $70,400,000 U.S.D. and the amount of
the successful Required Bid Amount multiplied by 35.19354%.
2.6.3 PURCHASE FOR 105% OF HIGHEST ACCEPTABLE OFFER
(a) If (i) the Company's Required Bid Amount is not the
Highest Acceptable Offer for the Remaining Royalty Interests, (ii)
Buyer elects to cause the Company to exercise its rights under Section
9.03(e) of the Trust Agreement to purchase the Remaining Royalty
Interests for 105% of the Highest Acceptable Offer, and (iii) such
amount is equal to or less than $92,400,000, Buyer shall pay such
amount to the Trustee in consideration for the purchase of the
Remaining Royalty Interests.
(b) Contemporaneously with the payment to the Trustee,
Buyer shall pay to Sellers, by deposit to the Sellers' Account, an
amount equal to the excess, if any, of (i) the Remaining Royalty Hold
Back Amount over (ii) the product of (A) the actual amount paid
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21
for the Remaining Royalty Interests less $74,800,000 multiplied by (B)
35.19354%, together with interest on such excess at the Agreed Rate
from the Closing Date to the date of payment.
(c) If the amount required to purchase the Remaining
Royalty Interests for 105% of the Highest Acceptable Offer is greater
than $92,400,000, Buyer shall have the option, but not the obligation,
to pay such additional amount required in excess of the Remaining
Royalty Hold Back Amount. Buyer may exercise this option by providing
written notice thereof to Sellers' Representative within twenty-four
(24) hours after receipt of notice from the Trustee of the final price
required to purchase the Remaining Royalty Interests. If Buyer elects
not to exercise the option described above, the Sellers' Representative
and Buyer shall attempt to agree upon a mutually acceptable resolution
of whether the Company shall buy the Remaining Royalty Interests and,
if so, which party shall pay what portion of the acquisition costs. If
Buyer elects not to exercise its option and Sellers' Representative and
Buyer are unable to agree upon a resolution, Sellers shall have the
option, but not the obligation, to pay to Buyer such additional amount
required in excess of the Remaining Royalty Hold Back Amount to
purchase the Remaining Royalty Interests. Sellers may exercise this
option by providing written notice thereof to Buyer (together with
payment of the additional amount to Buyer) on or before twenty-four
(24) hours after failure of Buyer and Sellers' Representative to reach
a mutually agreeable resolution. If Sellers exercise this option, Buyer
shall cause the Company to purchase the Remaining Royalty Interests. If
Sellers fail to exercise this option or deliver the additional amount
to Buyer in a timely fashion, Buyer shall again have the option, but
not the obligation, to pay such additional amount required in excess of
the Remaining Royalty Hold Back Amount, which option may be exercised
by providing written notice thereof to Sellers' Representative within
twenty-four (24) hours after Sellers decline or fail to exercise their
option.
2.6.4 SELLERS' OBLIGATION TO REPURCHASE
In the event Buyer elects not to exercise its second option provided
for in Section 2.6.3 hereof, Buyer shall not exercise its right to purchase the
Remaining Royalty Interests for 105% of the Highest Acceptable Offer pursuant to
Section 9.03(e) of the Trust Agreement. After the sale by the Trust of the
Remaining Royalty Interests to the third party submitting the Highest Acceptable
Offer and upon receipt by the Company of the proceeds therefrom pursuant to the
final Special Distribution (as defined in the Trust Agreement), Sellers shall
repurchase from Buyer the New Mexico Properties and the South Texas Properties
for the Repurchase Amount (as hereinafter defined). Such repurchase shall be
effective as of the first day of the month following the month in which the
Special Distribution occurs (the "Trigger Date"). Contemporaneously with the
repurchase, the Contingent Consideration and the Retained Interest shall be
terminated. As used herein, the term "Repurchase Amount" shall mean the
Preliminary Adjusted Base Price adjusted as follows :
(a) The Preliminary Adjusted Base Price shall be
increased by
(i) The net cash received by Sellers attributable
to periods beginning January 1, 1999 and ending on the Trigger
Date;
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(ii) a fee of Two Hundred Fifty Thousand Dollars
($250,000) to reimburse Buyer for the value of the time and
effort incurred internally, both directly and indirectly; and
(iii) any capital expenditures related to the
Properties incurred by Buyer attributable to the period
beginning 1/1/99 and ending on the Trigger Date.
(b) The Preliminary Adjusted Base Price shall be
decreased by:
(i) The production from the Properties for periods
beginning January 1, 1999 and ending on the Trigger Date
multiplied by $1.30/mmbtu;
(ii) Any costs, including capital expenditures,
attributable to the periods beginning January 1, 1999 and
ending on the Trigger Date not paid by the Buyer; and
(iii) Any amount received by the Company pursuant to
the final Special Distribution.
(c) Not later than one hundred and twenty (120) days
after the date of the repurchase, Sellers shall prepare and deliver to
Buyer a proposed settlement statement setting forth any required
additional adjustments to the Repurchase Amount (the "Final Repurchase
Adjustment"). The date on which such proposed settlement statement is
delivered is called the "Repurchase Settlement Statement Delivery
Date." Buyer shall have the right for fifteen (15) days after the
Repurchase Settlement Statement Delivery Date to take exception to any
proposed adjustments. The settlement statement shall become final and
binding upon the parties on the fifteenth (15th) day following the
Repurchase Settlement Statement Delivery Date except with respect to
matters as to which Buyer shall have given written notice of
disagreement to Sellers on or prior to such date. If not resolved by
Sellers' Representative and Buyer within 30 days after the Repurchase
Settlement Statement Delivery Date, all such matters shall be submitted
for review and resolution, in accordance with Section 2.2.2(f). The
repurchase settlement statement that becomes final and binding on the
parties either pursuant to this Section 2.6.4(c) or Section 2.2.2(f)
shall be referred to as the "Repurchase Final Settlement Statement."
The Repurchase Amount shall be adjusted by the Repurchase Final
Adjustment set forth in the Repurchase Final Settlement Statement, and
the Repurchase Amount, as adjusted by the Final Repurchase Adjustment
is referred to as the "Final Repurchase Amount".
The Properties shall be conveyed to Sellers without warranty of any
kind whatsoever except a limited, by, through or under warranty of title. From
and after the date of the repurchase, (i) Buyer shall have the right to receive
and retain all proceeds of production, tax credits and other benefits, and shall
bear and pay all costs expenses and other liabilities attributable to the New
Mexico Properties and the South Texas Properties for the period commencing
January 1, 1999 and ending with the Trigger Date and (ii) Sellers shall have the
right to receive and retain all proceeds of production, tax credits and other
benefits, and shall bear and pay all costs expenses and other
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23
liabilities attributable to the New Mexico Properties and the South Texas
Properties for the period commencing on the Trigger Date.
2.6.5 STANDSTILL. From and after the date hereof, except as
set forth in Section 2.6.3 hereof, neither Sellers nor any Related Person will
in any manner acquire, agree to acquire or make any proposal to acquire the
Remaining Royalty Interests or advise, encourage, provide assistance (including
financial assistance) or information or hold discussions with any other Person
in connection with the sale of the Remaining Royalty Interests.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a limited liability company duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of organization, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, including the
Assets, and to perform all its obligations under Applicable Contracts.
The Company is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it,
requires such qualification.
(b) Sellers have delivered to Buyer true, correct and
complete copies of the Organizational Documents of the Company, as
currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and
binding obligation of Sellers, enforceable against Sellers in
accordance with its terms. Sellers have the absolute and unrestricted
right, power, authority, and capacity to execute and deliver, and the
Sellers have duly executed and delivered, this Agreement and any other
documents contemplated hereby and to perform their obligations under
this Agreement.
(b) Except as set forth in Section 3.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of the Company, or (B) any resolution adopted by the members
of the Company;
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24
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person
the right to challenge any of the Contemplated Transactions or
to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company or any of
Sellers, or any of the assets owned or used by the Company,
may be subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the
Company;
(iv) cause Buyer or the Company to become subject
to, or to become liable for the payment of, any Taxes;
(v) cause any of the assets owned by the Company to
be reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any 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 Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Company.
Except as set forth in Section 3.2 of the Disclosure Letter,
no Seller nor the Company is or will be required to give any notice to
or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity ownership interests of the Company consist of (i)
22,587,443 Class A Units and (ii) 5,646,841 Class B Units, $1.00 par value per
unit, all of which are issued and outstanding. Such Class A and Class B Units
constitute all of the LLC Units of the Company. Sellers are and will be on the
Closing Date the record and beneficial owners and holders of all of the LLC
Units, free and clear of all Encumbrances. Each of Sellers own the number and
class of LLC Units set forth opposite such Seller's name in the chart in Exhibit
G hereto and made a part hereof for all purposes representing the percentage
ownership interest in the Company set forth opposite such Seller's name in the
chart in Exhibit A. There are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company. None of
the LLC Units of the Company was issued in violation of the Securities Act or
any other Legal Requirement. There are not any member agreements, voting trusts
or other agreements or understandings to which any Seller is a party or by which
it is bound relating to the voting of the LLC Units that will limit in any way
the Closing of the Contemplated Transactions. The Company does not own, nor does
it have any
- 21 -
25
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business. The
LLC Units constitute all of the right, title and interest of Sellers or any
other Person in the Company.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer true, correct and complete copies of
the following financial statements: (i) the unaudited balance sheets of the
Company as of December 31, 1998, and the related unaudited statements of income,
changes in members' equity, and cash flow for the fiscal year then ended,
together with the report thereon of Easley, Endres, ▇▇▇▇▇▇▇▇ and Brackendorff,
P.C., independent certified public accountants, and (ii) an unaudited balance
sheet of the Company as of the Closing Date. Such financial statements and notes
fairly present the financial condition and the results of operations, changes in
members' equity, and cash flow of the Company as at the date of and for the
period referred to in such financial statements, all in accordance with GAAP.
The financial statements referred to in this Section 3.4 reflect the consistent
application of GAAP throughout the periods involved. No financial statements of
any Person other than the Company are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
The books and records of the Company are complete and correct and have
been maintained in accordance with sound business practices and the requirements
of Section 13(b)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Texas Limited Liability Company Act, including the
maintenance of an adequate system of internal controls. The Records contain
accurate and complete records of all meetings held of, and limited liability
company action taken by, the members or managers and no meeting of any such
members or managers has been held for which minutes have not been prepared and
are not contained in the Records. At the Closing, all of the Records will be in
the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
(a) The Company's interests in the Properties are such
that, after giving effect to existing Encumbrances (i) the Company is
entitled, during the respective lives of the Properties, to a share of
all oil, gas and other minerals produced from each of the Properties
which is not less than the net revenue interest described in Section
3.6(a) of the Disclosure Letter for such Properties except with respect
to any changes in such interests which may result from the expansion or
contraction of any applicable units pursuant to the terms of the Unit
Agreement, the Unit Operating Agreement or applicable statutes, rules
or regulations, (ii) the Company owns an undivided interest equal to
the working interest described in Section 3.6 of the Disclosure Letter
in and to all property and rights incident such working interest
including all rights in, to and under all agreements, leases permits
and easements, licenses and orders in any way relating thereto, and in
and to all ▇▇▇▇▇, personal property, fixtures and improvements thereon,
appurtenant thereto or used or obtained in connection therewith or with
the production or treatment or sale or disposal of hydrocarbons or
water produced therefrom or attributable thereto, (iii) the Company is
obligated, during the respective lives of the Properties, for a
fraction of the costs relating to the exploration,
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development, operation and maintenance of each of the Properties no
greater than the working interest described in Section 3.6(a) of the
Disclosure Letter without a proportionate increase in the net revenue
interest attributable thereto except with respect to any changes in
such interests which may result from the expansion or contraction of
any applicable units pursuant to the terms of the Unit Agreement, the
Unit Operating Agreement or applicable statutes, rules or regulations,.
(b) Neither the Sellers nor the Company has ever been
advised by any lessor under any of the leases, nor by the operator of
the Properties of a breach or default, which claim of breach or default
has not been resolved.
(c) Except as set forth in Section 3.6(c) of the
Disclosure Letter, the Properties are not subject to any Encumbrance
except (i) imperfections of title, if any, as do not materially detract
from the value or interfere with the use of the Properties for the
purposes for which they are presently used or otherwise materially
impair the business operations of the Company, (ii) liens for taxes and
general and special assessments not in default and payable without
penalty or interest, (iii) liens which have not materialized that are
created by or arise under contracts for the sale, purchase, exchange or
processing of hydrocarbons, (iv) liens which have not materialized that
are created by or arise under any operating agreement, pipeline,
gathering or transportation agreement or other agreement pursuant to
which the Properties are otherwise subject, and (v) easements,
rights-of-way, servitudes, permits, surface leases and other
conditions, restrictions or rights in respect of surface operations,
timber leases, pipelines, roads, highways railways, power lines,
grazing, logging, canals ditches, and the like on, over or in respect
of any of such interests for the purposes for which they are presently
used (collectively together with the items set forth in Section 3.6(c)
of the Disclosure Letter, the "Permitted Encumbrances").
3.7 NO UNDISCLOSED LIABILITIES
Except as set forth in Section 3.7 of the Disclosure Letter, to the
Knowledge of Sellers, as of the date hereof, there is not and has not been any
event or occurrence (or lack of event or occurrence) which, with notice or the
passage of time or both, would give rise to liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent, or
otherwise) of the Company, and the consummation or performance of the
Contemplated Transactions will not create any such liabilities or obligations.
3.8 TAXES
(a) The Company has filed or caused to be filed (on a
timely basis since its inception) all Tax Returns that are or were
required to be filed by or with respect to it pursuant to applicable
Legal Requirements and the members will (on a timely basis) report
their allocable share of the Company's income, gain, loss, deduction
and credits to be reported on any such Tax Returns and will cause to be
paid all Taxes shown to be due on their individual Tax Returns for the
relevant periods. The Company has paid, or made provision for the
payment of, all Taxes that have or may have become due pursuant to
those Tax Returns or otherwise, or pursuant to any assessment received
by Sellers or the Company.
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(b) The charges, accruals, and reserves with respect to
Taxes on the respective books of the Company are adequate (determined
in accordance with GAAP) and are at least equal to the Company's
liability for Taxes. There exists no proposed tax assessment against
the Company. All Taxes that the Company is or was required by Legal
Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(c) There is no tax sharing agreement that will require
any payment by the Company after the date of this Agreement.
3.9 NO MATERIAL ADVERSE CHANGE
Since January 1, 1999, there has not been any material adverse change
in the business, operations, properties, prospects, assets, or condition of the
Company, and no event has occurred or circumstance exists that may result in
such a material adverse change.
3.10 EMPLOYEES
The Company has no employees nor has it ever had any employees.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS
(a) Except as set forth in Section 3.11 of the Disclosure
Letter:
(i) the Company is, and at all times since the date
of its formation, has been, in full compliance with each Legal
Requirement that is or was applicable to it or to the conduct
or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by the Company of, or a
failure on the part of the Company to comply with, any Legal
Requirement, or (B) to the Knowledge of Sellers, may give rise
to any obligation on the part of the Company to undertake, or
to bear all or any portion of the cost of, any remedial action
of any nature; and
(iii) the Company has not received, at any time since
the date of its formation, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or
potential obligation of the Company to undertake, or to bear
all or any portion of the cost of, any remedial action of any
nature.
(b) Section 3.11 of the Disclosure Letter contains a
complete and accurate list of each Governmental Authorization that is
held by the Company or that otherwise relates to
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the business of, or to any of the assets owned or used by, the Company.
Each Governmental Authorization listed or required to be listed in
Section 3.11 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Section 3.11 of the Disclosure Letter:
(i) the Company is, and at all times since the date
of its formation, has been, in full compliance with all of the
terms and requirements of each Governmental Authorization
identified or required to be identified in Section 3.11 of the
Disclosure Letter;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of
or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in
Section 3.11 of the Disclosure Letter, or (B) result directly
or indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed in
Section 3.11 of the Disclosure Letter;
(iii) the Company has not received, at any time since
the date of its formation, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed
for the renewal of the Governmental Authorizations listed or
required to be listed in Section 3.11 of the Disclosure Letter
have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations
have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Section 3.11 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in the manner it
currently conducts and operates such business and to permit the Company to own
and use its assets, including the Assets, in the manner in which it currently
owns and uses such assets.
3.12 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Section 3.12(a) of the
Disclosure Letter, there is no pending Proceeding:
(i) that has been commenced by or against the
Company or that otherwise relates to or may materially,
adversely affect the business of, or any of the assets owned
or used by, the Company; or
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(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
To the Knowledge of Sellers, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding. Sellers have delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed
in Section 3.12(a) of the Disclosure Letter. The Proceedings listed in
Section 3.12(a) of the Disclosure Letter will not have a material
adverse effect on the business, operations, assets, condition, or
prospects of the Company.
(b) Except as set forth in Section 3.12(b) of the
Disclosure Letter:
(i) there is no Order to which the Company, or any
of the assets owned or used by the Company, is subject; and
(ii) none of Sellers is subject to any Order that
relates to the business of, or any of the assets owned or used
by, the Company.
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Section 3.13 of the Disclosure Letter, since its
inception, the Company has conducted its business only in the Ordinary Course of
Business and there has not been any:
(a) change in the Company's authorized or issued units;
grant of any option or right to purchase units of the Company; issuance
of any security convertible into such units or membership interests;
grant of any registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any units or membership interests
of the Company; or declaration or payment of any dividend or other
distribution or payment in respect of units;
(b) amendment to the Organizational Documents of the
Company;
(c) payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer,
member, manager, or employee or entry into any employment, severance,
or similar Contract with any of the foregoing;
(d) damage to or destruction or loss of any asset or
property of the Company, whether or not covered by insurance,
materially and adversely affecting the properties, assets, business,
financial condition, or prospects of the Company, taken as a whole;
(e) except the Gas Contract (as defined in the Burlington
Purchase Agreement) that was terminated in connection with the
termination of the Trust, or as disclosed in Section 3.13(e) of the
Disclosure Letter, entry into of any Contract or transaction that
continues after the Closing or, termination of, or receipt of notice of
termination of any Contract or transaction which would have continued
after the Closing, but for such termination;
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(f) sale, lease, or other disposition of any asset or
property of the Company or mortgage, pledge, or imposition of any lien
or other encumbrance on any material asset or property of the Company;
(g) except to the extent canceled or waived in connection
with the closing of the transactions described in the Burlington
Purchase Agreement and in connection with the termination of the Trust,
cancellation or waiver of any claims or rights which would otherwise
continue after the Closing;
(h) material change in the accounting methods used by the
Company;
(i) any election not to participate in any operation
proposed to be conducted with respect to the Assets; or
(j) agreement, whether oral or written, by the Company to
do any of the foregoing.
3.14 CONTRACTS; NO DEFAULTS
(a) Section 3.14(a) of the Disclosure Letter contains a
complete and accurate list, and Sellers have delivered to Buyer true
and complete copies, of each Applicable Contract whether for
performance of services, delivery of goods or materials, capital
expenditures or otherwise, which will be binding on the Company after
the Closing.
(b) Except as set forth in Section 3.14 of the Disclosure
Letter, each Contract identified or required to be identified in
Section 3.14 of the Disclosure Letter is in full force and effect and
is valid and enforceable in accordance with its terms.
(c) Except as set forth in Section 3.14 of the Disclosure
Letter:
(i) the Company is, and at all times since the date
of its formation has been, in full compliance with all
applicable terms and requirements of each Contract under which
the Company has or had any obligation or liability or by which
the Company or any of the assets owned or used by the Company
is or was bound;
(ii) each other Person that has or had any
obligation or liability under any Contract under which the
Company has or had any rights is, and at all times since the
date of its formation has been, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or 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 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
Applicable Contract; and
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31
(iv) the Company has not given to or received from
any other Person, at any time since the date of its formation,
any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(d) There are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any amounts paid or
payable to the Company under current or completed Contracts with any
Person and, to the Knowledge of Sellers and the Company, no such Person
has made written demand for such renegotiation.
3.15 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which the Company is a party or under which the
Company, or any manager or member of the Company, is or has
been covered at any time within the one year preceding the
date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of the Company's
financial statements with regard to the adequacy of such
entity's coverage or of the reserves for claims.
(b) Except as set forth on Section 3.15 of the Disclosure
Letter:
(i) All policies to which the Company is a party or
that provide coverage to either Sellers, the Company, or any
manager or member of the Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate insurance
coverage for the assets and the operations of the
Company for all risks normally insured against by a
Person carrying on the same business or businesses as
the Company;
(D) are sufficient for compliance with all
Legal Requirements and Contracts to which the Company
is a party or by which it is bound;
(E) will continue in full force and effect
following the consummation of the Contemplated
Transactions; and
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(F) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of the Company.
(ii) None of the Sellers or the Company has received
(A) any refusal of coverage or any notice that a defense will
be afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) The Company has paid all premiums due, and has
otherwise performed all of its obligations, under each policy
to which the Company is a party or that provides coverage to
the Company or managers thereof.
(iv) The Company has given notice to the insurer of
all claims that may be insured thereby.
3.16 ENVIRONMENTAL MATTERS
Except as set forth in Section 3.16 of the Disclosure Letter:
(a) The Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. None of the Sellers or the Company has
any basis to expect, nor has any of them, or, to the Knowledge of
Sellers or the Company, any other Person for whose conduct they are or
may be held to be responsible received, any actual or Threatened order,
notice, or other communication from any Governmental Body or private
citizen acting in the public interest, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
the Assets or any other properties or assets (whether real, personal,
or mixed) in which Sellers or the Company has had an interest, or with
respect to any property or facility at or to which Hazardous Materials
were generated, manufactured, refined, transferred, imported, used, or
processed by Sellers, the Company, or any other Person for whose
conduct they are or may be held responsible, or from which Hazardous
Materials have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers
or the Company, Threatened claims, Encumbrances, or other restrictions
of any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law, with
respect to or affecting any of the properties and assets (whether real,
personal, or mixed) in which Sellers or the Company has or had an
interest.
(c) None of the Sellers nor the Company has Knowledge of
any basis to expect, nor has any of them or any other Person for whose
conduct they are or may be held responsible, received any citation,
directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials,
or any alleged,
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33
actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the properties or assets (whether
real, personal, or mixed) in which Sellers or the Company has an
interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred,
imported, used, or processed by Sellers, the Company, or any other
Person for whose conduct they are or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled,
or received.
(d) None of the Sellers nor the Company, nor, to the
Knowledge of Sellers and the Company, any other Person for whose
conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the properties and
assets (whether real, personal, or mixed) in which Sellers or the
Company (or any predecessor), has or had an interest, or at any
property geologically or hydrologically adjoining any such property or
assets.
(e) Sellers have delivered to Buyer true and complete
copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Sellers or the Company pertaining
to Hazardous Materials or Hazardous Activities in, on, or under the
properties or assets owned by the Company, or concerning compliance by
Sellers, the Company, or any other Person for whose conduct they are or
may be held responsible, with Environmental Laws, including the
Environmental Assessment.
3.17 DISCLOSURE
(a) No representation or warranty of Sellers in this
Agreement, no statement in the Disclosure Letter, and no information
provided to Buyer by Sellers, the Company or, to the Knowledge of
Sellers and the Company, their Representatives contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to any of the Sellers that has
specific application to any of the Sellers or the Company (other than
general economic or industry conditions) and that, as far as any Seller
can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company
that has not been set forth in this Agreement or the Disclosure Letter.
3.18 AFFILIATE CONTRACTS
Except as set forth in Section 3.18 of the Disclosure Letter, none of
the Sellers or any Related Person of Sellers or of the Company is a party to any
Contract with, or has any claim or right against, the Company.
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3.19 BROKERS OR FINDERS
Except with respect to those fees provided for in that certain letter
agreement between the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. agreed to and
accepted by the Company on January 7, 1999 (the "Broker Letter"), Sellers and
their agents have incurred no obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement. All fees provided for in the Broker Letter
shall be the sole obligation and responsibility of Sellers.
3.20 SECTION 29 TAX CREDIT ▇▇▇▇▇
To the Knowledge of Sellers, except as set forth in Section 3.20 of the
Disclosure Letter, all production from each well included in the New Mexico
Properties qualifies for the federal income tax credit set forth in Section 29
of the IRC.
3.21 CERTAIN PRODUCTION MATTERS
(a) The Company has not received, and neither the Company
nor any of the Sellers have Knowledge of any operator receiving, any
claim, notice or order from any Governmental Body due to hydrocarbon
production from the Properties being in excess of allowables or similar
violations which could result in curtailment of hydrocarbon production
from the Properties after Closing.
(b) The Company is not obligated, by virtue of a "take or
pay" or other prepayment arrangement, a production payment, or any
other Contract, to deliver any volume of hydrocarbons, or permit any
other person to take any volume of hydrocarbons, produced from or
attributable to the Properties at any time without receiving full
payment therefor.
(c) Except as set forth in Section 3.21(c) of the
Disclosure Letter, as of January 1, 1999 and as of the Closing Date,
there were no outstanding authority for expenditures or other
commitments to make capital expenditures which were binding on the
Properties or the Company.
(d) The Company has not received any notice that any
Governmental Body or Person intends or seeks to reform, amend, cancel,
restate or terminate or alter the Unit Agreement or the Unit Operating
Agreement and has no reason to believe any Governmental Body or Person
intends or seeks to do so.
3.22 SEC FILINGS
The Company and Sellers have filed all statements, forms, reports and
other documents with the SEC required to be filed pursuant to the Securities Act
or the Exchange Act since the Company's formation (collectively, the "SEC
Documents"). The SEC Documents, as of their respective filing dates, complied as
to form in all material respects with all applicable Legal Requirements and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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3.23 BURLINGTON PURCHASE AGREEMENT
Other than as set forth in Section 3.23 of the Disclosure Letter, there
are no contracts, agreements or other understandings between the Company and
Burlington which would affect the Company's ability to seek indemnity from
Burlington under the Burlington Purchase Agreement for any matter thereunder for
which Burlington is obligated to indemnify the Company. To Sellers' Knowledge,
the representations and warranties made by Burlington under the Burlington
Purchase Agreement were true and correct at the closing of the acquisition
contemplated thereunder and remain true and correct as of the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Virginia, and has full corporate
power and authority to own its properties and carry on its business as it is now
being conducted.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement has been duly executed and delivered
by Buyer and constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer
has the absolute and unrestricted right, power, and authority to
execute and deliver this Agreement and to perform its obligations under
this Agreement.
(b) Neither the execution and delivery of this Agreement
nor the consummation or performance of any of the Contemplated
Transactions will (with the giving of notice or the passage of time or
both) give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of
directors or the stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer
may be subject; or
(iv) any Contract to which Buyer is a party or by
which Buyer may be bound.
Buyer is not and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated
Transactions, except for consents already obtained.
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36
4.3 INVESTMENT INTENT
Buyer is acquiring the LLC Units for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions. To
Buyer's Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.
4.6 FINANCING
Buyer now has and, on the Closing Date and on each subsequent date on
which a payment is required to be made by Buyer pursuant to the terms of this
Agreement, will have sufficient funds available to pay the Cash Consideration
and the Contingent Consideration.
4.7 ACKNOWLEDGMENTS
(a) Except as and to the extent specifically set forth in
this Agreement, Buyer acknowledges and agrees that the Sellers make no
representations or warranties whatsoever, and except as specifically
set forth herein, that Sellers disclaim all liability and
responsibility for any representation, warranty, statement or
information made or communicated (orally or in writing) to Buyer or to
Buyer's Representatives (including, without limitation, any opinion,
information or advice which may have been provided to Buyer by any
Representative of Sellers or any of them). Without limiting the
generality of the foregoing, Buyer acknowledges and agrees that Sellers
make no representations or warranties as to (i) the amount of
petroleum, gas, condensate, or other reserves attributable to any
properties of the Company or (ii) any geological, geophysical,
engineering, economic, or other interpretations, forecasts, or
evaluations.
(b) In determining to acquire the LLC Units, Buyer has
made its own investigation, analysis, and evaluation of the Assets of
the Company (including, without limitation, visual onsite inspection of
the surface of such properties and assets), and based thereon and on
the representations, warranties, covenants and agreements made by
Sellers in this Agreement, Buyer has formed an independent judgment
concerning the Company and its Assets (including its own estimate and
appraisal of the extent and value of its petroleum
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37
and gas reserves), results of operations and prospects and the inherent
risks associated with owning and operating said Assets.
(c) Except for the representations, warranties, covenants
and indemnities made in this Agreement or in any document delivered
pursuant to this Agreement by Sellers, the Assets of the Company are
accepted by Buyer "AS IS" and "WHERE IS".
5. INDEMNIFICATION; REMEDIES
5.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, and any other certificate or document
delivered pursuant to this Agreement will survive the Closing to the extent set
forth in this Article 5. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
5.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Subject to the provisions of Section 5.4 hereof, each of the Sellers
will indemnify and hold harmless Buyer, the Company, and their respective
Representatives, unitholders, controlling persons, and affiliates (collectively,
the "Indemnified Persons") for, and will pay to the Indemnified Persons the
amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by
Sellers in this Agreement, the Disclosure Letter, or any other
certificate or document delivered by Sellers pursuant to this
Agreement;
(b) any Breach by any of the Sellers of any covenant or
obligation of such Seller in this Agreement;
(c) any claim by any Person for brokerage or finder's
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any of
the Sellers or the Company (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions;
(d) the Company's or any Seller's failure to pay any
Taxes that are imposed on the Company or Sellers for the periods prior
to January 1, 1999;
(e) any claim by any Person with respect to any act or
omission of the Company or Sellers with regard to the Company prior to
January 1, 1999;
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38
(f) subject to the limitations of Section 5.4(d) hereof,
the failure of gas delivered under the Gathering Agreement to conform
to the CO2 specification set forth therein. In the event Buyer receives
notice that its gas will be shut-in pursuant to Section 4.2 of the
Gathering Agreement solely as a result of BRGI (as defined in the
Gathering Agreement) electing to exercise its rights under Article 4.2
of Appendix A to the Gathering Agreement for high CO2 content and not
as a result of any force majeure event, Buyer shall provide written
notice to Sellers thereof no later than forty-eight (48) hours after
receipt of notification from BRGI under the Gathering Agreement. Buyer
and Sellers shall jointly cooperate with one another to find a mutually
acceptable resolution to BRGI's refusal to accept the gas as a result
of high CO2 content that will minimize Sellers' liability under this
indemnity provision. Buyer shall take no action with respect thereto
without Sellers having adequate opportunity to exercise its rights
under Section 5.4(d) hereof; provided, however, if Sellers are unable
to timely provide an alternative pursuant to section 5.4(d), Buyer
shall have the right to enter into another agreement with a third
Person giving due regard to minimizing Sellers obligations under this
indemnity provision.
The remedies provided in this Section 5.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons;
provided, however, the limitations set forth in Section 5.4 hereof shall limit
all liabilities of Sellers to Buyer or any Indemnified Person under this
Agreement, the Disclosure Letter or any other certificate or document delivered
to Sellers pursuant to this Agreement.
5.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate or document delivered by Buyer pursuant to this
Agreement, (b) any Breach by Buyer of any covenant or obligation of Buyer in
this Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions, or (d) any
claim by any Person with respect to any act or omission of the Company or Buyer
on or after the Closing Date.
5.4 LIMITATIONS ON SELLERS' LIABILITY
(a) Notwithstanding anything else to the contrary
contained herein, Sellers shall have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with under the
terms of this Agreement, other than those set forth in Sections 3.7
(only to the extent same are not covered by another representation or
warranty set forth in Article 3 hereof), 3.8, 3.20, 3.23, 5.2(d) and
5.2(f) unless on or before the first anniversary of the date hereof,
Buyer notifies Sellers of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Buyer. Sellers
shall have no liability (for indemnification or otherwise) with respect
to claims made with respect to matters covered by Section 3.7 which are
not also covered by another representation or warranty set forth in
Article 3 hereof and Sections 3.8,
- 35 -
39
3.20, 3.23 and 5.2(d) unless on or before the fifth anniversary of the
date hereof, Buyer notifies Sellers of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by
Buyer. Unless sooner terminated pursuant to Section 5.4(d) hereof,
Sellers shall have no liability (for indemnification or otherwise) with
respect to claims made with respect to matters covered by Section
5.2(f) unless on or before the stated expiration date of the Gathering
Agreement (not taking into account any amendment thereto subsequent to
the date hereof which would extend the termination date thereof, i.e.
December 31, 2007), Buyer notifies Sellers of a claim thereunder
specifying the factual basis of that claim in reasonable detail to the
extent then know by Buyer. Sellers shall have no liability whatsoever
to Buyer or any other Person under the terms of this Agreement from and
after such stated expiration date of the Gathering Agreement except as
set forth in Section 5.4(e) hereof.
(b) Sellers' aggregate liability to Indemnified Persons
under this Agreement shall not exceed $28,000,000 for claims for which
notice is received from Buyer during the one (1) year period
immediately following the date hereof; provided, however, that with
respect to claims for which notice is first received after the first
anniversary of the date hereof, Sellers' aggregate liability to
Indemnified Persons under this Agreement shall not exceed $10,000,000
with respect to such claims.
(c) Sellers liability to Indemnified Persons under this
Article 5 shall be joint and several only with respect to the first
$10,000,000 of liability during the one year period from and after the
date hereof. All liability of Sellers under this Agreement in excess of
$10,000,000 or for which notice is provided to Sellers after the one
year anniversary hereof shall be borne by Sellers severally and
individually, but not jointly, such that each Seller shall only be
liable and responsible for such Seller's pro rata share, as set forth
in Section 5.4(c) of the Disclosure Letter, of any Damages arising
hereunder in excess of $10,000,000 or for which notice is given after
the one year anniversary hereof.
(d) Sellers's indemnification obligations pursuant to
Section 5.2(f) hereof shall terminate upon delivery to Buyer of one of
the following:
(1) An amendment to the Gathering Agreement
acceptable to Buyer that eliminates the rights of BRGI (as
defined in the Gathering Agreement) thereunder to refuse gas
if the CO2 content of the gas is less than 20% and otherwise
upon the same terms and conditions as currently contained in
the Gathering Agreement;
(2) A second or backup gathering agreement
acceptable to Buyer upon substantially similar terms and
conditions as the Gathering Agreement with a third Person
other than BRGI that would become effective upon the
termination of the Gathering Agreement as to certain receipt
points, cover any period of time that Buyer is shut-in under
the Gathering Agreement due to excess CO2 content and allows
such back-up Person to refuse the gas for excess CO2 only when
and to the extent such CO2 exceeds 20%; or
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40
(3) Any other enforceable arrangement that is
reasonably acceptable to Buyer and eliminates Buyer's risk
with respect to the treatment of gas up to a CO2 content of
20%.
(e) With respect to any liabilities arising from or related to any
actions or inactions by a Seller which are finally determined in a court of
competent jurisdiction to be intentional misrepresentation or fraud, the
limitations set forth in Sections 5.4(a), (b) and (c) hereof shall not apply and
there shall be no limitation on such Seller's liabilities hereunder arising
therefrom or related thereto.
5.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under
Section 5.2 or 5.3 of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such claim, but the failure
to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 5 is brought
against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party
will, unless the claim involves Taxes, be entitled to participate in
such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will not, as
long as it diligently conducts such defense, be liable to the
indemnified party under this Section 5 for any fees of other counsel or
any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection
with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a
Proceeding, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the
scope of and subject to indemnification; (ii) no compromise or
settlement of such claims may be effected by the indemnifying party
without the indemnified party's consent unless (A) there is no finding
or admission of any violation of Legal Requirements or any violation of
the rights of any Person and no effect on any other claims that may be
made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and
(iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent.
If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within
- 37 -
41
ten days after the indemnified party's notice is given, give notice to
the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination
made in such Proceeding or any compromise or settlement effected by the
indemnified party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable probability
that a Proceeding may adversely affect it or its affiliates other than
as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person
may have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agree that process may be served on
Sellers with respect to such a claim anywhere in the world.
5.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
6. POST-CLOSING COVENANTS
6.1 SECURITIES FILINGS
Buyer and Sellers agree to use their respective good faith efforts to
cooperate with each other in connection with all securities filings required to
be made by Sellers, Buyer and the Company in connection with this Agreement and
the Contemplated Transactions, including, without limitation, any filings or
amendments thereto required under Section 13(d) of the Exchange Act.
6.2 PREPARATION AND FILING OF 1998 TAX RETURN
Buyer and Sellers agree to fully cooperate with one another in the
preparation, review and timely filing of the Company's 1998 tax return. In
connection therewith, Sellers' Representative shall prepare and submit same to
Buyer for Buyer's review and ultimate filing with the IRS.
6.3 ASSISTANCE IN CONNECTION WITH TRANSITION MATTERS AND THE
PURCHASE OF THE REMAINING ROYALTY INTERESTS
Sellers agree to use their reasonable best efforts to assist Buyer in
connection with all transition matters and the Company's participation in the
liquidation process of the Remaining
- 38 -
42
Royalty Interests. Such activities may include, without limitation, maintaining
communications with ▇▇▇▇▇▇▇▇ & Associates in connection with the sale process.
7. GENERAL PROVISIONS
7.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Sellers will cause the Company not to incur any
out-of-pocket expenses in connection with this Agreement or the Contemplated
Transactions except Buyer's costs associated therewith or, except as otherwise
set forth in this Agreement, any costs after the Closing Date. Sellers shall pay
one hundred percent (100%) of the Company's pro rata share of the fees charged
to the Trust in connection with the liquidation of the Remaining Royalty
Interest. In the event of termination of this Agreement, the obligation of each
party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by another party.
7.2 PUBLIC ANNOUNCEMENTS
Unless required by Legal Requirements, neither Buyer nor Sellers shall
issue any press release, public announcement or similar publicity with respect
to this Agreement or the Contemplated Transactions without the prior consent of
the other party.
7.3 SELLERS' REPRESENTATIVE; NOTICES
(a) Each Seller hereby authorizes the Sellers'
Representative to take all actions, execute and deliver all documents
and notices, and receive all payments and notices contemplated under
this Agreement to be taken, executed, delivered or received by Sellers
or on behalf of Sellers. The foregoing grant of authority is
irrevocable and a power coupled with an interest and shall survive the
death of any Seller. Buyer shall be entitled to rely conclusively on
the power and authority of the Sellers' Representatives and will not be
obligated to ascertain that any agreement among the Sellers has been
complied with or inquire into the necessity or expedience of any act or
action of the Sellers' Representative.
(b) All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be
deemed to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
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43
SELLERS:
c/o ▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc.
Attention: C.N. ▇'▇▇▇▇▇▇▇▇
▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
BUYER:
Dominion Energy, Inc.
Attention: ▇.▇. ▇▇▇▇, ▇▇.
Sr. Vice President - Oil and Gas
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Dominion Resources, Inc.
Attention: ▇▇▇▇ ▇. ▇▇▇▇
Assistant General Counsel
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
7.4 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Texas, County of ▇▇▇▇▇▇, or, if it has or
can acquire jurisdiction, in the United States District Court for the Southern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
7.5 FURTHER ASSURANCES
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 the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
- 40 -
44
7.6 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
7.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents referred
to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement
may not be amended except by a written agreement executed by the party to be
charged with the amendment.
7.8 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those
in any Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly
relate and not to any other representation or warranty in this
Agreement.
(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure
Letter (other than an exception expressly set forth as such in the
Disclosure Letter with respect to a specifically identified
representation or warranty), the statements in the body of this
Agreement will control.
7.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld;
provided, however, (a) Sellers shall have the right to convey (i) at closing,
their respective rights and obligations hereunder to the SJP Stub Liquidating
Trust; provided, however Sellers shall remain obligated for all of the duties
and obligations of Sellers hereunder and (ii) all or any portion of the
Contingent Consideration without the prior consent of Buyer; provided, however,
no such transfers of the Contingent Consideration shall be binding upon Buyer
until written notice thereof has been provided to Buyer; and (b) Buyer
- 41 -
45
shall have the right to assign its rights and obligations hereunder to an
affiliated entity provided, however Buyer shall remain obligated for all of the
duties and obligations of Buyer hereunder.
- 42 -
46
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
7.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
7.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
7.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
7.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
7.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
Dominion Energy, Inc.
By: /s/ ▇. ▇. ▇▇▇▇, ▇▇.
------------------------------------------
▇.▇. ▇▇▇▇, ▇▇.
Senior Vice President - Oil and Gas
- 43 -
47
SELLERS:
EnCap Energy Capital Fund III, L.P.
By: EnCap Investments L.C.,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
EnCap Energy Acquisition III-B, Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
ECIC Corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
BOCP Energy Partners, L.P.
By: EnCap Investments L.C.,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
First Union Investors, Inc.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Partner
▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc.
By: /s/ Christomer ▇. ▇'▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇
President
- 44 -
48
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
▇▇▇▇▇ ▇. ▇▇▇▇▇ Funding, L.L.C.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Manager
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Andover Group, Inc.
By: /s/ A. ▇▇▇▇ ▇▇▇▇▇, Jr.
----------------------------------------
A. ▇▇▇▇ ▇▇▇▇▇, Jr.
President
- 45 -
49
Each of the parties listed below hereby executes this Agreement to evidence
their intent and agreement to be bound hereby with respect to their respective
community property interest herein.
/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Spouse of ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Spouse of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Spouse of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
- 46 -
50
SELLERS' REPRESENTATIVE'S JOINDER
The undersigned, intending to be legally bound, joins in the execution of this
Agreement to evidence its agreement to undertake the duties and obligations of
the Sellers' Representative and agrees to be bound by the provisions of this
Agreement relating to Sellers' Representative.
▇'▇▇▇▇▇▇▇▇ Oil & Gas Company, Inc.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇
President
- 47 -
51
EXHIBIT B
to Stock Purchase Agreement dated as of January 19, 1999
but effective as of January 1, 1999
between Dominion Energy, Inc., as Buyer, and the Sellers named therein
EXCESS GAS PAYMENT
During the Contingent Payment Period (as hereinafter defined), Sellers shall be
entitled to receive from the Company and/or Buyer, and Buyer shall pay or cause
the Company to pay to Sellers by deposit into Sellers' Account in the manner
hereinafter set forth, an aggregate cash sum the "Excess Gas Payment" equal to
One Dollar and Thirty Cents ($1.30) per mmbtu of Excess Gas (as hereinafter
defined). As used herein, the term "Contingent Payment Period" shall mean that
period of time commencing at 12:01 a.m. on January 1, 1999 and ending at 12:00
midnight on December 31, 2002. The term "Excess Gas" shall mean fifty percent
(50%) of the total annual production volume (as measured in Mmbtu's)
attributable to the Company's net revenue interests in (i) the New Mexico
Properties (including, however, the Remaining Royalty Interests if purchased
from the Trust as contemplated herein, said interest being an aggregate
undivided 16.718% in and to the Northeast ▇▇▇▇▇▇ Unit) and (ii) the South Texas
Properties, which is in excess of one hundred seventeen and six and one half
tenth percent (117.65%) of the Annual Production Floor (as hereinafter defined).
The total annual production attributable to the Company's interest shall be all
gross production volumes from the wellheads attributable to such interests less
(i) burdens on production attributable to the Company's interest as of the date
hereof (other than the Remaining Royalty Interests) and (ii) shrinkage for CO2.
As used herein, the term "Annual Production Floor" shall mean for each year
within the Contingent Payment Period that quantity of production set forth in
the table below opposite such year which is attributable to the Company's
interest in the New Mexico Properties and the South Texas Properties; provided,
however, if Devon exercises the Devon Option, the Annual Production Floor for
each year set forth below shall be reduced by 6.7%.
ANNUAL PRODUCTION FLOOR FOR NEW MEXICO PROPERTIES
AND THE SOUTH TEXAS PROPERTIES
Year mmbtu's Net to Company's Interest
---- ---------------------------------
1999 12,325,000
2000 11,985,000
2001 9,945,000
2002 8,245,000
The Excess Gas Payment shall be calculated annually based upon each calendar
year within the Contingent Payment Period and shall be due and payable to
Sellers, in cash or immediately available
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funds by deposit in Sellers' Account, annually on or before ninety (90) days
after the end of the calendar year for which such payment is calculated. The
Excess Gas Payment, if and when accrued, will become an obligation of Buyer and
the Company provided however, the Excess Gas Payment shall survive the transfer
of the Company's interest in the Properties to any third party and shall be
binding upon Buyer, its successors and assigns to the full extent described
herein.
EXAMPLE OF CALCULATION: In the event the total aggregate production attributable
to the Company's interest in the New Mexico Properties and the South Texas
Properties as described above, for 1999 is 18,000,000 mmbtus, the Excess Gas
Payment for 1999 shall be calculated as follows:
18,000,000 mmbtu's - (12,325,000 x 1.1765) mmbtu's = 3,499,637.5 mmbtu's x 50% =
1,749,818.75 mmbtu's x $1.30 mmbtu= $2,274,764.38.
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