PURCHASE AND SALE AGREEMENT
by and among
TOWER COLOMBIA CORPORATION, NORTH ▇▇▇▇, LLC
and
AMERICAN OIL & GAS, INC., as SELLERS
and
DOLPHIN ENERGY CORPORATION, as BUYER
July 15, 2004
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement"), dated July 15,
2004, is by and among Tower Colombia Corporation, a Colorado corporation, North
▇▇▇▇, LLC, a Wyoming limited liability company, and American Oil & Gas Inc., a
Nevada corporation (individually, a "Seller" and collectively, "Sellers") and
Dolphin Energy Corporation, a Nevada corporation ("Buyer"). Buyer and Sellers
are sometimes referred to herein collectively as the "Parties" and individually
as a "Party."
RECITALS:
A. Sellers own interests in the Assets.
▇. ▇▇▇▇▇▇▇ and Buyer have entered into the Letter Agreement.
C. This Agreement contemplates a transaction in which Buyer will
purchase from Sellers, and Sellers will sell to Buyer, a
portion of Sellers' interests in the Assets, subject to the
terms and conditions contained herein and in the Letter
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made, and in consideration of the representations, warranties, covenants
and indemnities herein contained, the Parties agree as follows:
Article 1
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. Unless the context otherwise
requires, the respective terms defined in Appendix A attached hereto and
incorporated herein shall, when used herein, have the respective meanings
therein specified, with each such definition to be equally applicable both to
the singular and plural forms of the term so defined.
Article 2
SALE AND PURCHASE OF ASSETS
Section 2.1 SALE AND PURCHASE. On and subject to the terms and
conditions of this Agreement, Sellers agree to sell and convey to Buyer, and
Buyer agrees to purchase from Sellers, the Assets, effective as of the Effective
Date.
Article 3
PURCHASE PRICE
Section 3.1 PURCHASE PRICE. The total consideration for the sale and
conveyance to Buyer of the Assets shall be One Million Nine Hundred Thousand
Dollars ($1,900,000) cash (the "Purchase Price"), subject to adjustment in
accordance with the terms of this Agreement, plus the Drilling Commitment and
the Carried Interest.
Section 3.2 ADJUSTMENTS TO PURCHASE PRICE. At closing, the Purchase
Price shall be adjusted as follows and the resulting amount shall be referred to
herein as the "Adjusted Purchase Price."
(a) The Purchase Price shall be adjusted upward by the following:
(i) The amount of all actual operating or capital expenditures
or prepaid expenses attributable to the Assets paid by or on
behalf of Sellers in connection with the operation of the Assets
and which are, according to GAAP, attributable to the period of
time between the Effective Date and the Closing Date. Such
expenditures and expenses shall include, without limitation,
royalties, rentals and other charges; ad valorem, property, excise
and any other taxes based upon or measured by the ownership of the
Assets, the production of Hydrocarbons or the receipt of proceeds
therefrom; and expenses payable to a third person under applicable
joint operating agreements, including, without limitation,
overhead charges and royalty disbursement fees payable to
operator, or similar payments to third party operators, or, in the
absence of any joint operating agreement, those items customarily
billed under such an agreement.
(ii) The value, less taxes (other than taxes on net income),
of all marketable Hydrocarbons attributable to the Assets in
storage facilities above or upstream from the pipeline connection
in each storage facility, or downstream of delivery point, sales
meters on gas pipelines, as of the Effective Date, at the
prevailing market value at the time of sale in the area, adjusted
for grade and gravity.
(iii) An amount equal to the value (determined by Buyer and
Sellers prior to the Closing Date) of the underproduction as of
the Effective Date of Hydrocarbons produced from the Assets under
any operating agreement, gas balancing and storage agreement, gas
processing or dehydration agreement or similar agreement.
(iv) Expenditures incurred by Sellers and not described above
that are directly associated or connected with owning, developing,
exploring, operating or maintaining the Assets or producing,
transporting and marketing the Hydrocarbons therefrom for all
periods on and after the Effective Date.
(v) Any Seller Title Credits pursuant to Section 7.4.
(v) Any other amounts agreed upon by Sellers and Buyer.
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(b) The Purchase Price shall be adjusted downward by the following:
(i) An amount equal to the value (determined by Buyer and
Sellers prior to the Closing Date) of the overproduction as of the
Effective Date of Hydrocarbons produced from the Assets under any
operating agreement, gas balancing and storage agreement, gas
processing or dehydration agreement or similar agreement.
(ii) Any Environmental Defects pursuant to Section 6.5.
(iii) Any Title Defects pursuant to Sections 7.2 and 7.5.
(iv) For the exercise of any Preferential Rights pursuant to
Section 8.3.
(iv) The gross proceeds received by Sellers, net of applicable
severance and production taxes and compression charges, from the
sale of Hydrocarbons derived from the Assets attributable to the
period of time after the Effective Date.
(v) An amount equal to all expenditures, liabilities and costs
relating to the Assets that are unpaid as of the Closing Date and
are assessed for or attributable to the period of time prior to
the Effective Date.
(vi) An amount equal to all unpaid ad valorem, property,
production, severance and similar taxes and assessments (but not
including income taxes) based upon or measured by the ownership of
the Assets, the production of Hydrocarbons, or the receipt of
proceeds therefrom, which taxes or assessment become due and
payable or accrue (but have not yet become due and payable) with
respect to the Assets prior to the Effective Date, which amount
shall, where possible, be computed based upon the tax rate and
values applicable to the tax period in question; otherwise, the
amount of the adjustment under this paragraph shall be computed
based upon such taxes addressed against the applicable portion of
the Assets for the immediately preceding tax period just ended.
(vii) Any other amounts agreed upon by Sellers and Buyer.
Section 3.3 PAYMENT AND CALCULATION OF ESTIMATED ADJUSTED PURCHASE
PRICE; PAYMENT AT CLOSING. Sellers shall prepare and deliver to Buyer, at least
three (3) Business Days prior to the Closing Date, Sellers' estimate of the
Adjusted Purchase Price, together with a statement setting forth Sellers'
estimate of the amount of each adjustment to the Purchase Price to be made
pursuant to Section 3.2. The Parties shall negotiate in good faith and attempt
to agree on such estimated adjustments prior to Closing. In the event any
estimated adjustment amounts are not agreed upon prior to Closing, the Adjusted
Purchase Price shall be established based on Sellers' and Buyer's agreed upon
estimated adjustments and Sellers' good faith estimation of any disputed or
undetermined amount.
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Article 4
DRILLING COMMITMENT AND CARRIED INTEREST
Section 4.1 DRILLING COMMITMENT. Irrespective of whether the Parties
have executed this Agreement and Closing occurs hereunder, Buyer has agreed in
the Letter Agreement to drill, complete, equip, and connect (or, if dry, to
properly plug and abandon and reclaim), either as producers or dry holes, not
less than twelve (12) new oil and gas ▇▇▇▇▇ on the Leases and Lands on or before
September 1, 2004 (the "Commitment ▇▇▇▇▇"), at locations of Buyer's choice. Each
Commitment Well shall be drilled at Buyer's sole cost and expense to a depth at
least sufficient to test the Canyon Formation. North ▇▇▇▇, LLC, shall act as
contract operator for the drilling of each Commitment Well and shall conduct
such drilling operations in compliance with applicable laws and in a good and
workmanlike manner.
Section 4.2 CARRIED INTEREST. Sellers shall have a ten percent (10%)
"carried interest," i.e., Buyer shall pay Sellers' ten percent (10%) Working
Interest share of all costs and expenses incurred, through completion and
connection to the sales line of each of the ▇▇▇▇▇ described below (the "Carried
Interest"), without recoupment by Buyer of such costs and expenses from the
production proceeds from each such well. The Carried Interest shall apply to the
following ▇▇▇▇▇ (collectively, the "▇▇▇▇▇"):
(i) the Existing ▇▇▇▇▇ (but not as to amounts already
expended by Sellers with respect to the Existing
▇▇▇▇▇);
(ii) the Commitment ▇▇▇▇▇ (irrespective of whether the
Parties have executed this Agreement and Closing
occurs); and
(iii) all additional ▇▇▇▇▇ drilled by Buyer or its successors
and assigns on the Lands (including renewals and
extensions of the Leases covering such Lands) from the
date of this Agreement to and including September 30,
2019 (the "Development ▇▇▇▇▇").
Section 4.3 ASSIGNMENT OF WELLBORE INTERESTS. As set forth in the
Letter Agreement, as to each Commitment Well that is connected to the sales line
prior to Closing, Sellers shall assign to Buyer an undivided fifty percent (50%)
wellbore Working Interest in such Well, limited to the depth drilled and
proportionately reduced to the extent Sellers own less than the entire Working
Interest in such Well, using the form of Wellbore Assignment attached hereto as
Exhibit "D" (the "Wellbore Assignment"). If production proceeds from any such
Well are received prior to Closing, Sellers shall receive ten percent (10%) of
such proceeds, Buyer shall receive fifty percent (50%) of such proceeds and the
remaining forty percent (40%) of such proceeds shall be held in escrow pending
Closing (the "Escrowed Amount"). If Closing occurs or if Closing fails to occur
through no fault of Buyer, the Escrowed Amount shall be released from escrow and
remitted to Buyer and Sellers shall assign to Buyer an undivided forty percent
(40%) wellbore Working Interest in each such Well, limited to the depth drilled
and proportionately reduced, using the Wellbore Assignment. If Closing fails to
occur because of a breach or default by Buyer hereunder, the Escrowed Amount
shall be paid to Sellers and no additional wellbore Working Interest shall be
assigned to Buyer.
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Section 4.4 OPERATING AGREEMENT. Subject to the Carried Interest, the
form of Operating Agreement attached hereto as Exhibit "E" shall govern the
operations of each Well in which Sellers and Buyer have an interest.
Section 4.5 GATHERING FEES. In no event shall Sellers be required to
pay gathering fees with respect to their share of production from the ▇▇▇▇▇ that
exceed fees charged for comparable gathering services performed under
arm's-length contracts in the geographical area in which the Assets are located.
Section 4.6 MAINTENANCE OF LEASES. Buyer shall not be required to
maintain, renew or extend any of the Leases which, in Buyer's good faith
judgment, should not be maintained, renewed or extended. Sellers' Carried
Interest shall, however, burden any renewal or extension leases that Buyer may
obtain. For this purpose, a renewal or extension lease is a lease obtained prior
to, or within six months after, the expiration or termination of an older lease
that covered all or a portion of the oil and gas interest leased under the new
lease.
Article 5
REPRESENTATIONS AND WARRANTIES
Section 5.1 REPRESENTATIONS AND WARRANTIES OF SELLERS. Each Seller
represents and warrants to Buyer as follows:
(a) ORGANIZATION AND QUALIFICATION. Each Seller is duly
organized, validly existing, in good standing under the laws of its
state of incorporation or organization, as the case may be.
(b) POWER AND AUTHORITY. Each Seller has all requisite power
and authority to enter into this Agreement and to perform its
obligations hereunder. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite action on the part of each Seller.
(c) ENFORCEABILITY. This Agreement constitutes a valid and
binding agreement of each Seller enforceable against each Seller in
accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of
general application with respect to creditors, (ii) general principles
of equity, and (iii) the power of a court to deny enforcement of
remedies generally based upon public policy.
(d) NO CONFLICT OR VIOLATION. Neither the execution and
delivery of this Agreement nor the consummation of the transactions and
performance of the terms and conditions contemplated hereby by a Seller
will (i) conflict with or result in a violation or breach of any
provision of its governing documents, or of any other material
agreement, indenture or other instrument under which a Seller is bound,
or (ii) violate or conflict with any law applicable to a Seller or the
Assets.
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(e) CONSENTS. To the Knowledge of Sellers, no consent,
approval, authorization or permit of, or filing with or notification
to, any person is required for or in connection with the execution and
delivery of this Agreement by any Seller or for or in connection with
the consummation of the transactions and performance of the terms and
conditions contemplated hereby by any such Seller, except for such
consents, approvals, authorizations, permits, filings and notifications
the failure of which to obtain or make are not reasonably likely to
have a material adverse effect on the ability of that Seller to
consummate and perform the transactions contemplated by this Agreement.
(f) MATERIAL CONTRACTS. To the Knowledge of Sellers, Schedule
5.1(f) attached hereto sets forth a list of all contracts to which any
Seller is a party or by which any Seller is bound or subject which are
material to the conduct and operations of the Assets (collectively, the
"Material Contracts"). All of the Material Contracts are valid and
binding upon such Seller in accordance with their terms, and, to the
Knowledge of Sellers, neither Seller nor any other Person is in default
in any material way, nor has Seller received or sent notice of default
or of any unresolved claim, under any such Material Contracts.
(g) LITIGATION. To the Knowledge of Sellers, except for
matters disclosed on Schedule 5.1(g) attached hereto, there is no
action, suit or proceeding pending or, to the Knowledge of Sellers,
threatened against or affecting the Asset.
(h) LICENSES, PERMITS, ETC. To the Knowledge of Sellers, the
Sellers possess such valid franchises, certificates of convenience and
necessity, operating rights, rights of way, licenses, permits,
consents, authorizations, exemptions and orders of Governmental
Authorities as are necessary to operate the Assets as they currently
are being operated.
(i) ENCUMBRANCES. To the Knowledge of Sellers, no Seller has
caused or allowed any mortgage, lien or other encumbrance to be placed
upon or against the Assets that will not be released at or prior to
Closing, other than Permitted Encumbrances.
(j) COMPLIANCE WITH LAW. To the Knowledge of Sellers,
operations on the Assets have been and are being conducted in material
accordance with all applicable Laws.
(k) ENVIRONMENTAL MATTERS. Except for matters disclosed on
Schedule 5.1(k) attached hereto, operations conducted by Sellers on the
Assets, and, to the Knowledge of Sellers, by any Person conducting
operations on the Assets, have been conducted in material compliance
with Environmental Laws. Except for matters disclosed on Schedule
5.1(k), to the Knowledge of Sellers, the Assets are not the subject of
any existing, pending or, to the Knowledge of Sellers, threatened
Environmental Claim. To the Knowledge of Sellers, all material notices,
permits, licenses, and similar authorizations, required to be obtained
or filed in connection with Sellers ownership or current operations of
the Assets, and each item of personal property owned, leased or
operated by Sellers which is included in the Assets, including, without
limitation, notices, licenses, permits and authorizations required in
connection with treatment, storage,
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disposal, or release of Hazardous Materials into the environment, have
been duly obtained or filed. To the Knowledge of Sellers, all Hazardous
Materials generated at each tract of real property and by each item of
personal property owned, leased or operated by Sellers which are
included in the Assets have been transported, treated, and disposed of
only by carriers or facilities maintaining valid permits under RCRA and
all other Environmental Laws for the conduct of such activities. Except
for matters disclosed on Schedule 5.1(k), to the Knowledge of Sellers,
there have been no Hazardous Discharges which were not in compliance
with Environmental Laws. Except for matters disclosed on Schedule
5.1(k), to the Knowledge of Sellers, Sellers have no contingent
liability in connection with any Hazardous Discharge from the Assets.
(l) AFE'S. Schedule 5.1(l) attached hereto sets forth the
outstanding authorizations for expenditures ("AFE's") that (i) require
the drilling of ▇▇▇▇▇ or other development operations in order to earn
or to continue to hold all or any portion of the Assets, or (ii)
obligate a Seller to make payments of any amounts in connection with
the drilling of ▇▇▇▇▇ or other capital expenditures affecting the
Assets.
(m) TAXES. To the Knowledge of Sellers, all excise,
occupation, franchise, severance, production, sales and other taxes,
duties or charges levied, assessed or imposed upon or against the
Assets by any Governmental Authority have been duly paid or adequately
provided for or are being timely and properly contested, as described
on Schedule 5.1(m) attached hereto, and all excise, franchise and other
tax reports or other reports required by law or regulation with respect
thereto have been duly filed or extensions have been duly obtained.
(n) GAS IMBALANCES, PREPAYMENTS. Except as shown on Schedule
5.1(n) attached hereto, there are no gas imbalances affecting the
Assets which would require Buyer to deliver any gas without receiving
full payment therefor, nor has any Seller received any prepayments or
other payments which would require Buyer to deliver any oil or gas
without receiving full payment therefor.
(o) WELL STATUS. To the Knowledge of Sellers, as of the date
of this Agreement, with respect to Assets for which a Seller is the
operator, there are no Existing ▇▇▇▇▇ that (i) a Seller is currently
obligated by law or contract to presently plug and abandon, or (ii) to
Sellers' Knowledge, have been plugged and abandoned but have not been
plugged in accordance in all material respects with all applicable
requirements of each regulatory authority having jurisdiction over the
Assets.
(p) PREFERENTIAL RIGHTS. To the Knowledge of Sellers, except
as shown on Schedule 5.1(q) attached hereto, there are no Preferential
Rights or Transfer Requirements required to be obtained or complied
with prior to the Closing.
(q) EVENTS SUBSEQUENT TO EFFECTIVE DATE. Except in each case
as set forth in Schedule 5.1(r) attached hereto, since the Effective
Date, to the Knowledge of Sellers, there has not been any:
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(i) destruction, material damage to, or material
loss of the Assets;
(ii) sale or other disposition of any of the
Assets except (a) in the ordinary course or
business, or (b) any item of personal
property or equipment having a value of more
than $10,000; or
(iii) material adverse change in the aggregate
production volumes from the Existing ▇▇▇▇▇
beyond the production decline reasonably to
be anticipated under the forecast production
decline curve.
(r) ROYALTIES. To the Knowledge of Sellers, all royalties,
overriding royalties and other similar payments due and payable on
production with respect to a Lease have been timely and fully paid,
except amounts that are being held in suspense which will not result in
grounds for cancellation of Sellers' rights in such Lease.
(s) DISCLOSURE. To the Knowledge of Sellers, neither this
Agreement nor any Appendix, Schedule, Exhibit or certificate delivered
in accordance with the terms hereof, or any document or statement in
writing which has been supplied by or on behalf of Sellers in
connection with the transactions contemplated hereby, contain any
untrue statement of a material fact. Sellers have provided, and will
continue to provide Buyer to the Closing Date, access to all of
Sellers' Records that Buyer has requested or reasonably requests in
connection with the transactions contemplated by this Agreement.
(t) ADVISORS' AND BROKERS' FEES. Sellers have not retained any
advisor or broker in respect of the transactions contemplated by this
Agreement for which Buyer shall incur any liability.
(u) BANKRUPTCY. There are no bankruptcy or reorganization
proceedings pending against, being contemplated by, or, to the
Knowledge of Sellers, threatened against any Seller.
Section 5.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer agrees,
represents and warrants to Sellers as follows:
(a) ORGANIZATION AND QUALIFICATION. Buyer is a corporation,
duly organized, validly existing and in good standing under the laws of
the State of Colorado, and is duly qualified to carry on its business
and is in good standing under the laws of the State of Wyoming.
(b) AUTHORITY. Buyer has all requisite power and authority to
execute and deliver this Agreement and to perform its obligations under
this Agreement. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite action on the part of Buyer.
(c) ENFORCEABILITY. This Agreement constitutes a valid and
binding agreement of Buyer enforceable against Buyer in accordance with
its terms, subject to (i) applicable
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bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application with respect to creditors, (ii) general
principles of equity, and (ii) the power of a court to deny enforcement
of remedies generally based upon public policy.
(d) NO CONFLICT OR VIOLATION. Neither the execution and
delivery of this Agreement nor the consummation of the transactions and
performance of the terms and conditions contemplated hereby by Buyer
will (i) conflict with or result in a violation or breach of any
provision of the certificate of incorporation, bylaws or other similar
governing documents of Buyer or any material agreement, indenture or
other instrument under which Buyer is bound, or (ii) violate or
conflict with any law applicable to Buyer or the properties or assets
of Buyer.
(e) CONSENTS. No consent, approval, authorization or permit
of, or filing with or notification to, any person is required for or in
connection with the execution and delivery of this Agreement by Buyer
or for or in connection with the consummation of the transactions and
performance of the terms and conditions contemplated hereby by Buyer,
except for such consents, approvals, authorizations, permits, filings
and notifications the failure of which to obtain or make are not
reasonably likely to have a material adverse effect on the ability of
Buyer to consummate and perform the transactions contemplated by this
Agreement.
(f) ACTIONS. There is no action, suit or proceeding pending
or, to the Knowledge of Buyer, threatened against Buyer which would be
likely to have a material adverse effect on the ability of Buyer to
consummate and perform the transactions contemplated by this Agreement.
(g) ADVISORS' AND BROKERS' FEES. Buyer has not retained any
advisor or broker in respect of the transactions contemplated by this
Agreement for which Sellers shall incur any liability.
(h) INDEPENDENT INVESTIGATION. Buyer has been advised by and
has relied upon its own legal counsel, tax, engineering and other
professional counsel and consultants concerning this Agreement, the
Assets and the value thereof. By reason of Buyer's knowledge and
experience in the evaluation, acquisition, and operation of oil and gas
properties, it has evaluated the merits and risks of purchasing the
Assets from Sellers and has formed an opinion based solely on Buyer's
knowledge and experience and not on any representations or warranties
by Sellers, other than those representations and warranties expressly
set forth herein. Buyer acknowledges that Sellers have made no warranty
or representation, express or implied, statutory or otherwise, as to
the accuracy or completeness of any description of pricing assumptions,
quality or quantity of the Hydrocarbon reserves, if any, attributable
to the Assets, the ability or potential of the Assets to produce
Hydrocarbons, or geologic and/or geophysical data and any
interpretations thereof.
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(i) FUNDS AVAILABLE. The Buyer has sufficient cash to pay the
Purchase Price at the Closing, and the necessary funds are readily
available to the Buyer and are not subject to any financing
contingencies, other conditions or Encumbrances.
Article 6
ACCESS TO INFORMATION; ENVIRONMENTAL MATTERS
Section 6.1 GENERAL ACCESS AND SPECIAL INDEMNITY. Through and until the
Closing Date, Sellers shall permit Buyer and its representatives to have, upon
reasonable advance notice, access at reasonable times in Sellers' offices and,
in a manner so as not to interfere unduly with the business operations of
Sellers, to Sellers' Records, insofar as the Sellers may do so without violating
legal constraints or any legal obligation, or waiving any attorney/client work
product or like privilege, and subject to any required consent of any third
person. Buyer hereby indemnifies and agrees to release, defend, indemnify and
hold harmless Sellers from and against any and all claims arising from Buyer's
inspecting and observing the Assets, including (a) claims for personal injuries
to or death of employees of the Buyer, its contractors, agents, consultants and
representatives, and damage to the property of Buyer or others acting on behalf
of Buyer; and (b) claims, demands, losses, damages, liabilities, judgments,
causes of action, costs or expenses for personal injuries to or death of
employees of Sellers or third parties, and damage to the property of the Sellers
or third parties. The foregoing indemnity includes, and the Parties intend it to
include, an indemnification of the Sellers from and against claims arising out
of or resulting, in whole or part, from the condition of the Assets caused by
Buyer's inspection thereof or by the Sellers' sole, joint, comparative, or
concurrent negligence, strict liability or fault.
Section 6.2 CONFIDENTIAL INFORMATION. Buyer agrees to maintain all
information made available to it pursuant to this Agreement confidential, and to
cause its officers, employees, representatives, consultants and advisors to
maintain all information made available to them pursuant to this Agreement
confidential if this Agreement terminates for a period of one (1) year following
such termination. Notwithstanding anything to the contrary, any information
pertaining to or relating to the "tax treatment" or "tax structure" (in each
case, within the meaning of Treasury Regulation Sec. 1.6011-4) arising from or
in respect of this Agreement and any related transactions contemplated pursuant
thereto, shall not be subject to the confidentiality obligation imposed
hereunder.
Section 6.3 ▇▇▇▇▇ ▇▇▇▇▇ STUDIES. As set forth in the Letter Agreement,
Sellers have provided Buyer's consultant, ▇▇▇▇▇ ▇▇▇▇▇ Company ("▇▇▇▇▇ ▇▇▇▇▇"),
with such information in Sellers' possession that ▇▇▇▇▇ ▇▇▇▇▇ has requested in
connection with the studies of the Assets (individually, a "▇▇▇▇▇ ▇▇▇▇▇ Study"
and collectively, the "▇▇▇▇▇ ▇▇▇▇▇ Studies") that have been requested prior to
the date hereof by Buyer. The costs of the ▇▇▇▇▇ ▇▇▇▇▇ Studies have been shared
equally by Sellers and Buyer, i.e., each Party has paid fifty percent (50%) of
such costs. Buyer has provided Sellers with a copy of each ▇▇▇▇▇ ▇▇▇▇▇ Study
after it has been completed. There shall be no restrictions on either Buyer or
Sellers with respect to their use or dissemination of the ▇▇▇▇▇ ▇▇▇▇▇ Studies.
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Section 6.4 ENVIRONMENTAL REVIEW AND AUDIT.
(a) ENVIRONMENTAL ACCESS. From the date of this Agreement
until five (5) Business Days prior to Closing (the "Examination
Period"), and subject to the restrictions contained in this Agreement
and any required consent or waiver of any third person, Sellers shall
(i) permit Buyer and its representatives to have, upon reasonable
advance notice, reasonable access at reasonable times in Sellers'
offices, and in a manner so as not to interfere unduly with the
business operations of Sellers, to Sellers' environmental files and
records relating to the Assets insofar as Sellers may do so without
waiving any attorney/client, work product or like privilege, and (ii)
permit Buyer and its representatives or consultants to have reasonable
access to the Assets for the purpose of allowing Buyer and such
representatives or consultants to inspect and/or audit the Assets for
any Environmental Defects (collectively, "Buyer's Environmental
Review"), all at Buyer's sole risk, cost and expense. Sellers or their
representatives shall have the right to be present during any
inspection of the Assets and shall have the right, at their option and
expense, to split samples with Buyer. Buyer shall provide Sellers with
a copy of each environmental report and any other written information
concerning inspections by its environmental consultants promptly after
Buyer receives such material.
(b) BUYER'S RESPONSIBILITY FOR REVIEW. In connection with
Buyer's Environmental Review, Buyer agrees that Buyer and its
representatives or consultants shall comply with all laws and shall
exercise due care with respect to the Assets and their condition,
taking into consideration the characteristics of any wastes or
substances found thereon, and in light of all relevant facts and
circumstances. Promptly after completing Buyer's Environmental Review,
Buyer shall, at its sole cost and expense, restore the Assets to
substantially the same condition the Assets were in at the time of
Buyer's entry thereon, in accordance with good engineering practice, if
changed due to Buyer's Environmental Review. Buyer shall maintain, and
shall cause its representatives or consultants to maintain, all
information obtained by Buyer pursuant to the Buyer's Environmental
Review as confidential and shall not disclose same to any third party
without the prior written consent of Sellers, except to the extent
required by law.
Section 6.5 ENVIRONMENTAL DEFECTS.
(a) BUYER'S ASSERTIONS OF ENVIRONMENTAL DEFECTS. On or prior
to September 15, 2004, Buyer shall notify Sellers in writing of any
matters which, in Buyer's reasonable opinion, constitute Environmental
Defects; provided, however, that Buyer shall not assert any
Environmental Defects until the aggregate Remediation Amount of all
alleged Environmental Defects exceeds one-half of one percent (0.5%) of
the Purchase Price, and, if not exceeded, such alleged Environmental
Defects will be deemed waived. Buyer's written notice must include: (i)
a specific description of each Asset (or portion thereof) that is
affected by the alleged Environmental Defect, (ii) a description of the
alleged Environmental Defect, and (iii) a calculation of the
Remediation Amount that Buyer asserts is attributable to such
Environmental Defect.
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(b) SELLERS' RIGHTS AND ELECTIONS. If Buyer timely notifies
Sellers in writing of any Environmental Defect as required by Section
6.5(a), Sellers shall have the right to dispute the existence of such
Environmental Defect and/or the alleged Remediation Amount asserted
with respect thereto in accordance with the provisions of Section 7.5
of this Agreement. In addition, Sellers, at their option, may elect, at
or prior to the Closing, one of the following options with respect to
the Asset or portion thereof (the "Environmental Defect Property"):
(i) leave such Environmental Defect Property in
the Assets and assume responsibility for the
Remediation of such Environmental Defect; or
(ii) withdraw such Environmental Defect Property
from this Agreement, delete it from the
Assets, and retain and not sell the
Environmental Defect Property.
(c) REMEDIATION. If Sellers elect the option set forth in
clause (b)(i) above, Sellers shall use commercially reasonable efforts
to implement such Remediation in a manner which is consistent with the
requirements of Environmental Laws and the provisions of any applicable
Lease, and Sellers shall have access to the Environmental Defect
Property after the Closing Date to implement and complete such
Remediation in accordance with this Section. Sellers will be deemed to
have adequately completed the Remediation required in the immediately
preceding paragraph (a) upon receipt of a certificate from a licensed
professional engineer.
(d) REDUCTION AMOUNT. If Sellers elect the option set forth in
Section 6.5(b)(ii) with respect to one or more Environmental Defects,
then as Buyer's sole and exclusive remedy with respect to such
Environmental Defects, Buyer shall be entitled to reduce the Purchase
Price by the Allocated Value for such Environmental Defect Property,
subject to Section 6.5(a).
Article 7
TITLE ADJUSTMENTS
Section 7.1 TITLE WARRANTY. Sellers shall warrant Defensible Title to
the Assets in the Wellbore Assignments and in the Conveyance, Assignment and
▇▇▇▇ of Sale referred to in Sections 10.2(a) and (b) from and against all
Persons claiming by, through and under Sellers, but not otherwise.
Section 7.2 BUYER'S TITLE REVIEW.
(a) BUYER'S ASSERTION OF TITLE DEFECTS. Until September 15,
2004, Buyer shall have the right to furnish Sellers written notice
meeting the requirements of this Section 7.2(a) (the "Title Defects
Notice") setting forth any matters which, in Buyer's reasonable
opinion, constitute Title Defects and which Buyer asserts as a Title
Defect with respect to any Assets pursuant to this Article 7; provided
however Buyer shall not assert any Title
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Defect until the aggregate Title Defect Amount of all alleged Title
Defects exceeds one-half of one percent (0.5%) of the Purchase Price,
and if not exceeded, such alleged Title Defects will be deemed waived.
For all purposes of this Agreement, Buyer shall be deemed to have
waived any Title Defect which Buyer fails to assert as a Title Defect
by a Title Defect Notice given to Sellers on or before the expiration
of the Examination Period. To be effective, Buyer's Title Defect Notice
of a Title Defect must include (i) a brief description of the matter
constituting the asserted Title Defect, (ii) the claimed Title Defect
Amount attributable thereto, and (iii) reference to supporting
documents reasonably necessary for Sellers to verify the existence of
such asserted Title Defect.
(b) PURCHASE PRICE ALLOCATIONS. The Purchase Price has been
allocated to the Assets in accordance with the respective values set
forth in Exhibit "E" (individually, an Allocated Value and
collectively, the "Allocated Values"). If any adjustment is made to the
Purchase Price pursuant to this Section 7.2, a corresponding adjustment
shall be made to the Allocated Value for the affected Assets. Buyer and
Sellers shall prepare and file all tax returns consistent with the
Allocated Values.
(c) SELLERS' RIGHTS AND OPPORTUNITY TO CURE. If Buyer timely
gives Sellers Title Defect Notice(s) of one or more Title Defects,
Sellers shall have the right to then or thereafter dispute the
existence of such Title Defect and/or the alleged Title Defect Amount
asserted with respect thereto in accordance with the provisions of
Section 7.5 of this Agreement. In addition, the following terms and
conditions shall apply with respect to any Title Defect asserted by
Buyer in a timely Title Defect Notice:
(i) Sellers shall have until the Closing Date, at
their cost and expense, if they so elect but without
obligation, to cure all or a portion of such asserted Title
Defects. Any asserted Title Defects which are waived by Buyer
within such time shall be deemed "Permitted Encumbrances"
hereunder. Subject to Section 7.2(c)(ii) and Sellers' right to
dispute the existence of a Title Defect and/or the Title
Defect Amount asserted with respect thereto under Section 7.5,
if Sellers within such time fail to cure any Title Defect of
which Buyer has given timely written notice as required above,
and Buyer has not and does not waive same on or before the
Closing Date, each Asset affected by such uncured and unwaived
Title Defect shall be a "Title Defect Property."
(ii) If Buyer furnishes to Sellers timely Title
Defect Notice(s) of one or more Title Defects and the same are
not waived or cured as provided in Section 7.2(c)(i), as
applicable, Sellers may elect to close the transactions
contemplated hereby and retain the right to cure any such
Title Defects after Closing. In such event, but subject to
Sellers' right to dispute the existence of a Title Defect
and/or the Title Defect Amount asserted with respect thereto
under Section 7.5, the Purchase Price shall be subject to
reduction pursuant to Section 7.2(d), taking into account all
Title Defect Amounts attributable to the Title Defect
Properties affected by the Title Defects which Sellers may
elect to cure after Closing. Sellers shall have ninety (90)
calendar days after the Closing Date in which to attempt to
cure any such Title Defect. If Sellers cure any such Title
Defect, then
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Buyer shall promptly pay Sellers the Title Defect Amount with
respect to the Title Defect that is so cured, but not
exceeding the aggregate amount of the reductions in the
Purchase Price as a result of any Title Defects.
(d) BUYER'S TITLE ADJUSTMENTS. As Buyer's sole and exclusive
remedy with respect to Title Defects, Buyer shall be entitled to reduce
the Purchase Price by the aggregate Title Defect Amounts. "Title Defect
Amount" shall mean, with respect to a Title Defect Property, the amount
by which the value of such Title Defect Property is impaired as a
result of the existence of one or more uncured and unwaived Title
Defects, which amount shall be determined as follows and subject to the
following conditions:
(i) If the Title Defect results from Sellers having a
lesser Net Revenue Interest in such Title Defect Property than
the Net Revenue Interest specified therefor in Exhibit "A,"
the Title Defect Amount shall be equal to the product obtained
by multiplying the Allocated Value for such Title Defect
Property by a fraction, the numerator of which is the
reduction in the Net Revenue Interest and the denominator of
which is the Net Revenue Interest specified for such Title
Defect Property in Exhibit "A."
(ii) If the Title Defect results from Sellers having
a greater Working Interest in such Title Defect Property than
the Working Interest specified therefor in Exhibit "A," the
Title Defect Amount shall be equal to the product obtained by
multiplying the Allocated Value for such Title Defect Property
by a fraction, the numerator of which is the increase in the
Working Interest and the denominator of which is the Working
Interest specified for such Title Defect Property in Exhibit
"A."
(iii) If the Title Defect results from the existence
of a mortgage, lien or other encumbrance, the Title Defect
Amount shall be an amount sufficient to discharge same.
(iv) If the Title Defect results from any matter not
described in paragraphs (i) or (ii) above, the Title Defect
Amount shall be an amount equal to the difference between the
value of the Title Defect Property affected by such Title
Defect with such Title Defect and the value of such Title
Defect Property without such Title Defect (taking into account
the Allocated Value for such Title Defect Property); provided,
that if such Title Defect is reasonably susceptible of being
cured, the Title Defect Amount shall be the reasonable cost
and expense of curing such Title Defect, if less.
(v) The Title Defect Amount attributable to a Title
Defect Property shall not exceed the Allocated Value for such
Title Defect Property.
(e) TITLE ADJUSTMENT THRESHOLD. Notwithstanding anything
herein to the contrary, any downward adjustment to the Purchase Price
provided for in 7.2(d) shall be
14
made only to the extent and only as to that amount by which the
aggregate amount of the Title Defect Amounts exceeds one-half of one
percent (0.5%) of the Purchase Price.
Section 7.3 DETERMINATION OF TITLE DEFECTS. An Asset shall not be
deemed to have a "Title Defect" if the following statements are true in all
material respects with respect to such Asset as of the Closing Date:
(i) Sellers have Defensible Title thereto;
(ii) all rentals, ▇▇▇▇ clause payments, shut-in gas
payments and other similar payments (other than royalties,
overriding royalties and other similar payments on production)
due with respect to such Asset have been properly and timely
paid; and
(iii) Sellers are not in default under the material
terms of any Leases, farmout agreements or other contracts or
agreements respecting such Asset which could (a) prevent
Sellers from receiving the proceeds of production attributable
to Sellers' interest therein, or (b) result in cancellation of
Sellers' interest therein.
Notwithstanding any other provision in this Agreement to the contrary,
the following matters shall not be asserted as, and shall not constitute, Title
Defects:
(a) defects in the chain of title such as minor name
discrepancies, the mere failure to recite marital status in a document,
or omissions of successions of heirship proceedings, unless Buyer
provides affirmative evidence that such failure or omission results in
another party's superior claim of title to the relevant Asset portion
thereof;
(b) defects arising out of lack of survey;
(c) defects arising out of a lack of corporate authorization,
unless Buyer provides affirmative evidence that such lack of
authorization results in another party's superior claim of title to the
relevant Assets or portion thereof;
(d) defects that have been cured by possession under the
applicable statutes of limitations or statutes for prescription; and
(e) defects that have a Title Defect Amount less than $5,000.
Section 7.4 SELLERS' TITLE CREDIT. A "Seller Title Credit" shall mean,
with respect to an Asset, the amount by which the value of such Asset is
increased by virtue of (a) Sellers having a greater Net Revenue Interest in such
Asset than the Net Revenue Interest specified therefor in Exhibit "A"; or (b)
Sellers having a lesser Working Interest in such Asset than the Working Interest
specified therefor in Exhibit "A" without a corresponding decrease in the Net
Revenue Interest in such Asset from the Net Revenue Interest specified therefor
in Exhibit "A." Seller Title Credits will first be applied dollar for dollar
against any Title Defect Amounts. After such application, any remaining Seller
Title Credits shall be the basis for a Purchase Price adjustment
15
as provided in Section 3.2(a); provided, however, that any upward adjustment
to the Purchase Price shall be made only to the extent and only as to that
amount by which the aggregate amount of Seller Title Credits exceeds one-half of
one percent (0.5%) of the Purchase Price.
Section 7.5 DEFERRED CLAIMS AND DISPUTES. Sellers shall notify Buyer of
any Title Defects or Environmental Defects that it disputes no later than
October 1, 2004. Otherwise, Sellers shall be deemed to have accepted such
Defects. In the event that Buyer and Sellers have not agreed upon (i) the
existence of one or more Title Defects or one or more adjustments, credits or
offsets claimed by Buyer or Sellers pursuant to and in accordance with the
requirements of this Article 7, or (ii) the existence of one or more
Environmental Defects, any Remediation, Remediation Amount or plan therefore,
any such dispute or claim (a "Disputed Defect") shall be settled pursuant to
this Section 7.5, and shall not prevent or delay Closing.
The amount attributable to any Disputed Defects shall be a reduction in
the Purchase Price. Buyer shall place such amount in an escrow account pending
resolution of the dispute as provided for herein. If the Parties have not
resolved the dispute by informal discussions fourteen (14) days before Closing,
then the arbitration procedure set forth in Section 16.10 shall apply.
Article 8
COVENANTS OF SELLERS AND BUYER
Section 8.1 CONDUCT OF BUSINESS PENDING CLOSING. Subject to the
constraints of applicable operating agreements and other existing agreements
with third parties, from the date of this Agreement through the Closing, except
as consented to or approved by Buyer, Sellers covenant and agree that:
(a) LIENS. Sellers shall not create any new liens or security
interests on the Assets, except to the extent required or permitted
incident to the exploration, operation or development of the Assets.
(b) OPERATION OF ASSETS. Sellers shall:
(i) cause the Assets to be maintained and operated in
the ordinary course of business in accordance with Sellers'
past practices (including the repair or replacement of
damaged, destroyed, obsolete, depreciated, non-working or
non-economical items of equipment or other personal property),
maintain insurance now in force with respect to the Assets and
pay or cause to be paid all costs and expenses in connection
therewith promptly when due;
(ii) cause, or, in the event Sellers are not the
operator, use reasonable efforts to cause, the Assets to be
maintained and operated in material compliance with all laws;
(iii) (A) not commit to participate in the drilling
of any new well or other new capital expenditure on the
Assets, without Buyer's consent, which
16
consent shall not be unreasonably withheld, delayed or
conditioned, or (B) elect to become a non-consenting party
with respect to any operation or capital expenditure proposed
by a third party;
(iv) maintain and keep the Assets in full force and
effect, except where such failure is due to the failure to pay
a delay rental, royalty, shut in royalty or other payment by
mistake or oversight, unless caused by Sellers' willful
misconduct; and
(v) use reasonable diligence to maintain their
relationships with suppliers, customers and others having
material business relations with Sellers with respect to the
Assets so that they will be preserved for Buyer on and after
the Closing Date.
(c) CONTRACTS AND AGREEMENTS. Sellers shall not:
(i) enter into any Hydrocarbon sales, exchange,
processing or transportation contract with respect to the
Assets having a term in excess of one year which is not
terminable without penalty on notice of thirty (30) days or
less; or
(ii) voluntarily relinquish Sellers' position as
operator with respect to any of the Assets.
Section 8.2 NOTICES AND CONSENTS. Sellers agree to give any notices to,
make any filings with, and use their reasonable best efforts to obtain any
Transfer Requirements in connection with the transactions contemplated by this
Agreement.
Section 8.3 PREFERENTIAL RIGHTS. Sellers have identified all
preferential rights known to Sellers which are applicable to the transactions
contemplated hereby, and will request, from the Persons holding such
preferential rights (and in accordance with the documents creating such rights),
execution of waivers thereof. If the holders of a preferential right exercise
such right, Sellers shall tender to such Person the required interest in the
affected Asset at a price equal to the Allocated Value (reduced appropriately,
as determined by mutual agreement of Buyer and Sellers, if less than the entire
Asset must be tendered), and to the extent that such preferential right is
exercised and such interest in such Asset is actually sold to the Person so
exercising such right, such interest in the Asset will be excluded from the
transactions contemplated hereby and the Purchase Price will be adjusted
downward by the amount actually paid to Sellers by the Person exercising the
preferential right. If, on the Closing Date, the holder of a preferential right
has not indicated whether or not it will exercise such preferential right and
the time period within which the holder of the preferential right must exercise
its right has not lapsed, the Parties shall proceed with Closing on those Assets
affected by the preferential right and Buyer shall assume the responsibility for
conveying the Assets to the holder of the preferential right should the holder
timely exercise its preferential right.
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Section 8.4 ACTIONS BY PARTIES. The Parties agree to use reasonable
diligence to satisfy the conditions to Closing set forth in Article 9 and to
refrain from taking any action within their control which would cause a breach
by a Party of a representation or warranty set forth herein; provided, however,
that Sellers shall not be required to expend any funds nor incur any costs to
prevent or cure a breach of the representations and warranties set forth in
Section 5.1.
Section 8.5 CASUALTY LOSS. In the event of a Casualty to an Asset prior
to Closing, this Agreement shall remain in full force and effect, and (unless
Buyer and Sellers shall otherwise agree), at Buyer's election, such Asset shall
be treated as if it had a Title Defect associated with it and the procedure
provided for in Section 7.2 shall be applicable thereto.
Article 9
CLOSING CONDITIONS
Section 9.1 SELLERS' CLOSING CONDITIONS. The obligation of Sellers to
proceed with the Closing contemplated hereby is subject, at the option of
Sellers, to the satisfaction on or prior to the Closing Date of all of the
following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The (i)
representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects on and as of the
Closing Date, and (ii) covenants and agreements of Buyer to be
performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all material respects.
(b) NO ACTION. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Sellers or an
Affiliate) shall be pending or threatened before any court or
governmental agency or body of competent jurisdiction seeking to enjoin
or restrain the consummation of the Closing or recover damages from
Sellers resulting therefrom.
(c) COMMITMENT ▇▇▇▇▇. Buyer shall have timely satisfied its
commitment to drill, complete, equip and connect (or plug, abandon and
reclaim) at least twelve (12) Commitment ▇▇▇▇▇, as described in Section
4.1.
Section 9.2 BUYER'S CLOSING CONDITIONS. The obligations of Buyer to
proceed with the Closing contemplated hereby is subject, at the option of Buyer,
to the satisfaction on or prior to the Closing Date of all of the following
conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of each Seller contained in this
Agreement shall be true and correct on and as of the Closing Date as
though made as of the Closing Date, and (ii) the covenants and
agreements of Sellers to be performed on or before the Closing Date in
accordance with this Agreement shall have been duly performed in all
material respects.
(b) NO ACTION. On the Closing Date, no suit, action or other
proceeding (excluding any such matter initiated by Buyer) shall be
pending or threatened before any
18
court or governmental agency or body of competent jurisdiction seeking
to enjoin or restrain the consummation of the Closing or recover
damages from Buyer or resulting therefrom.
(c) RELEASES. Buyer shall have been provided with copies of
releases in forms reasonably satisfactory to Buyer and its counsel, of
any mortgages, security interests, indebtedness or similar encumbrances
or burdens affecting the Assets.
(d) NO ADVERSE CHANGE. There shall have been no adverse change
in the aggregate volumes of production of Hydrocarbons from the Assets
since the Effective Date.
9.3 REGULATORY APPROVALS. If Buyer or Sellers determine that approval
is required to permit Buyer to continue to use any governmental permits with
respect to the Assets after Closing, Buyer and Sellers shall, as promptly as
practicable after the date of this Agreement, cooperate in filing the required
applications and notices with the appropriate governmental authorities seeking
authorization to confirm Buyer's continued right to use such permits or to
transfer or assign such permits to Buyer as necessary.
Article 10
CLOSING
Section 10.1 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall be held at 10:00 a.m., MST, on or before
November 1, 2004 (the "Closing Date"), at the offices of Sellers in Denver,
Colorado, or at such other time or place as Sellers and Buyer may otherwise
agree in writing.
Section 10.2 SELLERS' CLOSING OBLIGATIONS. At Closing, Sellers shall
execute and deliver, or cause to be executed and delivered, to Buyer the
following:
(a) a Wellbore Assignment for each Well that has been
connected to the sales line prior to the Closing Date, conveying to
Buyer an additional undivided forty percent (40%) wellbore Working
Interest in such Well, limited to the depth drilled in such Well and
proportionately reduced;
(b) a Conveyance, Assignment and ▇▇▇▇ of Sale, substantially
in the form attached hereto as Exhibit "F," assigning to Buyer an
undivided ninety percent (90%) Working Interest in the remaining
Assets, proportionally reduced to the extent Sellers do not own the
entire Working Interest in a particular Asset;
(c) the Escrowed Amount;
(d) the releases, if any, referred to in Section 9.2(c);
19
(e) on forms supplied by Buyer, transfer orders or letters in
lieu thereof, directing the operator to make payment of proceeds
attributable to production from the Assets after the Effective Date to
Buyer; and
(f) a non-foreign affidavit, as such affidavit is referred to
in Section 1445(b)(2) of the Code, dated as of the Closing Date.
Section 10.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall
deliver, or cause to be delivered, to Sellers the Adjusted Purchase Price in
immediately available funds.
Section 10.4 SUSPENSE PROCEEDS. Sellers shall remit to Buyer at Closing
all proceeds from production attributable to the Assets which are held in
suspense by Sellers as of the Effective Date. Buyer shall be responsible for the
proper distribution of all such suspended proceeds and agrees to indemnify,
defend and hold harmless Sellers from and against any and all claims,
liabilities and losses related to such suspended proceeds unless the claims
allege that the proceeds were improperly suspended by Sellers.
Article 11
POST-CLOSING MATTERS
Section 11.1 SELLERS' RECORDS. Within five (5) business days after
Closing, Sellers shall deliver to Buyer the Sellers' Records. Sellers shall be
entitled to keep a copy of any such Sellers' Records for their files. Buyer
agrees to maintain the Sellers' Records until the seventh (7th) anniversary of
the Closing Date (or for such longer period of time as Sellers shall advise
Buyer is necessary in order to have the Sellers' Records available with respect
to open years for tax audit purposes), or, if any of the Sellers' Records
pertain to any claim or dispute pending on the seventh (7th) anniversary of the
Closing Date, Buyer shall maintain any of the Sellers' Records designated by
Sellers until such claim or dispute is finally resolved and the time for all
appeals has been exhausted. Buyer shall provide Sellers and their
representatives reasonable access at reasonable times to, and the right to copy
all or any portion of, the Sellers' Records.
Section 11.2 FINAL SETTLEMENT STATEMENT. As soon as practicable after
the Closing, but in no event later than ninety (90) days after Closing, Sellers
shall prepare and deliver to Buyer, in accordance with this Agreement and GAAP,
a statement (the "Final Settlement Statement") setting forth each adjustment,
finally determined as of Closing, and showing the calculation of such
adjustments. Within thirty (30) days after receipt of the Final Settlement
Statement, Buyer shall deliver to Sellers a written report containing any
changes that Buyer proposes be made in good faith to resolve any questions with
respect to the amounts due pursuant to such Final Settlement Statement. If the
Parties reach agreement on such Final Settlement Statement, the obligor Party
thereunder shall immediately pay the other Party(s) the amount owed. If the
Parties fail to agree upon such Final Settlement Statement within one hundred
fifty (150) days after the Closing, the matters in dispute shall be submitted to
arbitration pursuant to Section 16.10.
Section 11.3 REMITTANCE OF PROCEEDS BY SELLERS. Notwithstanding the
provisions of Section 11.2, if, following Closing, Sellers receive proceeds
attributable to production from the
20
Assets after the Effective Date that Buyer is entitled to under this Agreement,
they shall immediately remit such proceeds to Buyer, together with a copy of the
purchaser detail.
Section 11.4 Buyer's Assumption. Buyer shall, from and after the
Closing, assume and perform its Working Interest share of all duties and
obligations arising in connection with the Assets and all contracts and
agreements relating thereto.
Section 11.5 FURTHER ASSURANCES. Sellers and Buyer agree that, from
time to time after the Closing Date, they will execute and deliver such further
instruments, and take or cause to take, such other action as may be necessary to
carry out the purposes and intents of this Agreement.
Article 12
SURVIVAL
Section 12.1 SURVIVAL. The representations, warranties, indemnities and
the covenants and agreements made herein by the Parties shall not survive the
Closing, except that the covenants, representations, warranties and indemnities
in Sections 4.1, 5.1 (but excluding Section 5.1(k) to the extent that the acts
or omissions giving rise to the Environmental Claim arose prior to the Effective
Date), 5.2, 6.2, 8.1, 16.2 and 16.10 and in Articles 11, 13 and 14 shall survive
for a period of one year following the Closing and, if no arbitration proceeding
is then pending in respect of such surviving covenants, representations,
warranties and indemnities, all such surviving covenants, representations,
warranties and indemnities shall then terminate and be of no further force or
effect. If such arbitration proceeding is pending on the one year anniversary of
the Closing, then the representations, warranties and indemnities in Sections
4.1, 5.1 (subject to the limitation set forth above in respect of Section
5.1(k)), 5.2, 6.2, 8.1, 16.2 and 16.10 and in Articles 11, 13 and 14 shall
survive solely for purposes of the pending arbitration proceeding, and then only
until such arbitration proceeding is finally and fully resolved.
Article 13
LIMITATIONS
Section 13.1 DISCLAIMER OF WARRANTIES. IT IS THE EXPLICIT INTENT OF
EACH PARTY HERETO THAT SELLERS ARE NOT MAKING ANY REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, BEYOND THOSE
REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN THIS AGREEMENT, AND IT IS
UNDERSTOOD THAT, SUBJECT TO SUCH EXPRESS REPRESENTATIONS AND WARRANTIES, BUYER
TAKES THE ASSETS "AS IS" AND "WHERE IS." WITHOUT LIMITING THE GENERALITY OF THE
IMMEDIATELY PRECEDING SENTENCE, SELLERS HEREBY (i) EXPRESSLY DISCLAIM, AND
NEGATE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW, BY
STATUTE OR OTHERWISE, RELATING TO (a) THE CONDITION OF THE ASSETS (INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIAL), or (b) ANY INFRINGEMENT BY SELLERS OF ANY PATENT OR PROPRIETARY RIGHT
OF ANY
21
THIRD PARTY, and (ii) NEGATE ANY RIGHTS OF BUYER UNDER STATUTES TO CLAIM
DIMINUTION OF CONSIDERATION AND ANY CLAIMS BY BUYER FOR DAMAGES BECAUSE OF
REDHIBITORY VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION
OF SELLERS AND BUYER THAT THE ASSETS ARE TO BE ACCEPTED BY BUYER IN THEIR
PRESENT CONDITION AND STATE OF REPAIR.
Section 13.2 DAMAGES. NOTWITHSTANDING ANYTHING CONTAINED TO THE
CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, SELLERS AND BUYER AGREE THAT
THE RECOVERY OF ANY DAMAGES SUFFERED OR INCURRED AS A RESULT OF ANY BREACH BY
ANY PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS
AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR INCURRED (WHICH
SHALL INCLUDE ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE
DAMAGES AWARDED AGAINST OR PAID BY THE INDEMNIFIED PARTY SEEKING INDEMNITY
HEREUNDER TO ANY THIRD PARTY) AS A RESULT OF THE BREACH BY THE BREACHING PARTY
OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER AND IN NO EVENT
SHALL THE BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR ANY INDIRECT,
CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT
LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR LOST OR
DELAYED PRODUCTION) SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT
OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES
OR OBLIGATIONS HEREUNDER.
Article 14
INDEMNIFICATION
Section 14.1 INDEMNIFICATION BY SELLERS. Sellers shall to the fullest
extent permitted by law, release, defend, indemnify and hold harmless Buyer and
its Affiliates, and their respective directors, officers, employees, agents and
other representatives, from and against the following:
(a) All claims, demands, damages, liabilities, judgments,
losses and reasonable costs, expenses and attorneys' fees (individually
a "Loss" and collectively, the "Losses") proximately caused by the
breach by Sellers of any surviving representation, warranty or covenant
of the Seller under Section 12.1; and
(b) All Losses arising from the ownership or operation of the
Assets prior to the Effective Date, but excluding (i) Environmental
Claims, except to the extent covered in Section 4.1, and (ii) losses
arising from documents, instruments, conduct, acts or omissions of
which Buyer had Knowledge at Closing.
Section 14.2 INDEMNIFICATION BY BUYER. Buyer shall to the fullest
extent permitted by law, release, defend, indemnify and hold harmless, Sellers
and their Affiliates, and their
22
respective directors, officers, employees, agents and other representatives,
from and against the following:
(a) All Losses proximately caused by the breach by Buyer of
any surviving representation, warranty or covenant of the Buyer under
Section 12.1; and
(b) Buyer's Working Interest share of all Losses arising from
the ownership or operation of the Assets on and after the Effective
Date.
Section 14.3 NOTIFICATION. As soon as reasonably practical after
obtaining knowledge thereof, an indemnified Party shall notify the indemnifying
Party of any claim or demand which the indemnified Party has determined has
given or could give rise to a claim for indemnification under this Article 14.
Such notice shall specify the agreement, representation or warranty with respect
to which the claim is made, the facts giving rise to the claim and the alleged
basis for the claim, and the amount (to the extent then determinable) of
liability for which indemnity is asserted. In the event any action, suit or
proceeding is brought with respect to which a Party may be liable under this
Article 14, the defense of the action, suit or proceeding (including all
settlement negotiations and arbitration, trial, appeal, or other proceeding)
shall be at the discretion of and conducted by the indemnifying Party. If an
indemnified Party shall settle any such action, suit or proceeding without the
written consent of the indemnifying Party (which consent shall not be
unreasonably withheld), the right of the indemnified Party to make any claim
against the indemnifying Party on account of such settlement shall be deemed
conclusively denied. An indemnified Party shall have the right to be represented
by its own counsel at its own expense in any such action, suit or proceeding,
and if an indemnified Party is named as the defendant in any action, suit or
proceeding with respect to itself at its own expense. Subject to the foregoing
provisions of this Article 14, a Party shall, without the other Party's written
consent, settle, compromise, confess judgment or permit judgment by default in
any action, suit or proceeding if such action would create or attach any
liability or obligation to the other Party. The Parties agree to make available
to each other, and to their respective counsel and accountants, all information
and documents reasonably available to them which relate to any action, suit or
proceedings, and the Parties agree to render to each other such assistance as
they may reasonably require of each other in order to ensure the proper and
adequate defense of any such action, suit or proceeding.
Article 15
TERMINATION; REMEDIES; LIMITATIONS
Section 15.1 TERMINATION.
(a) TERMINATION OF AGREEMENT. This Agreement and the
transactions contemplated hereby may be terminated at any time at or
prior to the Closing:
(i) by mutual written consent of Sellers and Buyer;
23
(ii) by either Sellers or Buyer if the combined total
of all Remediation Amounts asserted under Article 6 above and
all Title Defect Amounts asserted under Article 7 above exceed
twenty-five percent (25%) of the Purchase Price;
(iii) by Sellers if any condition specified in
Section 9.1 have not been satisfied on or before Closing and
shall not have been waived by Sellers; or
(iv) by Buyer if any condition specified in Section
9.2 has not been satisfied on or before Closing and shall not
have been waived by Buyer.
(b) EFFECT OF TERMINATION. In the event of termination of this
Agreement by Sellers, on the one hand, or Buyer, on the other hand,
pursuant to Section 15.1(a), written notice thereof shall forthwith be
given by the terminating Party to the other Party, and this Agreement
shall thereupon terminate; provided, however, that following such
termination Buyer will continue to be bound by its obligations set
forth in Sections 4.1 and 6.2. If this Agreement is terminated as
provided herein, all filings, applications and other submissions made
to any Governmental Authority shall, to the extent practicable, be
withdrawn from the Governmental Authority to which they were made.
Section 15.2 REMEDIES.
(a) SELLERS' REMEDIES. Notwithstanding anything herein
provided to the contrary, upon the failure by Buyer to satisfy the
conditions to Closing or the Closing obligations, as the case may be,
on account of breaches of any of the representations and warranties
made by Buyer in this Agreement, or the failure to comply with the
covenants or other obligations of Buyer set forth herein, Sellers may
enforce their legal and equitable remedies for such breach or failure
including specific performance of this Agreement.
(b) BUYER'S REMEDIES. Notwithstanding anything herein provided
to the contrary, upon failure of the Sellers to satisfy the conditions
to Closing or the Closing obligations, as the case may be, on account
of breaches of any of the representations and warranties made by
Sellers in this Agreement, or the failure by Sellers to comply with the
covenants or other obligations of Sellers set forth herein, Buyer may
enforce its legal and equitable remedies for such breach or failure,
including specific performance of this Agreement.
Article 16
MISCELLANEOUS
Section 16.1 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original instrument, but which
together shall constitute but one and the same instrument. Any counterpart of
this Agreement or any document or other instrument delivered hereunder may be
delivered by facsimile. Any facsimile signature shall be replaced with an
original signature as promptly as practical.
24
Section 16.2 GOVERNING LAW; JURISDICTION; PROCESS.
(a) THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF COLORADO WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW RULES THAT WOULD DIRECT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION.
(b) SUBJECT TO THE ARBITRATION AGREEMENT SET FORTH IN SECTION
16.10, BUYER AND SELLERS CONSENT TO PERSONAL JURISDICTION IN ANY LEGAL
ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT IN ANY COURT,
FEDERAL OR STATE, LOCATED IN THE CITY AND COUNTY DENVER, HAVING SUBJECT
MATTER JURISDICTION AND WITH RESPECT TO ANY SUCH CLAIM, BUYER AND
SELLERS IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
CLAIM, OR ANY OBJECTION THAT BUYER OR SELLERS MAY NOW OR HEREAFTER
HAVE, THAT VENUE OR JURISDICTION IS NOT PROPER WITH RESPECT TO ANY SUCH
LEGAL ACTION, SUIT OR PROCEEDING BROUGHT IN SUCH COURT, INCLUDING ANY
CLAIM THAT SUCH LEGAL ACTION, SUIT OR PROCEEDING BROUGHT IN SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND ANY CLAIM THAT BUYER OR
SELLERS ARE NOT SUBJECT TO PERSONAL JURISDICTION OR SERVICE OF PROCESS
IN SUCH FORUM.
Section 16.3 ENTIRE AGREEMENT. This Agreement and the Appendices,
Schedules and Exhibits hereto and the Letter Agreement contain the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes all prior written or oral understandings pertaining to the subject
matter hereof. There are no agreements, understandings, representations or
warranties between the Parties other than those set forth or referred to herein.
To the extent the provisions of the Letter Agreement are in conflict with the
provisions of this Agreement or the Appendices, Schedules and Exhibits hereto,
the provisions of this Agreement or such Appendices, Schedules or Exhibits shall
control.
Section 16.4 EXPENSES. Buyer shall be responsible for (i) all transfer,
stamp, documentary and similar taxes imposed on the parties hereto with respect
to the purchase and sale of the Assets contemplated pursuant to this Agreement
and, (ii) all recording, filing or registration fees for any assignment or
conveyance delivered to Buyer under or pursuant to this Agreement. Buyer shall
be responsible for all sales tax, if any, resulting from the purchase and sale
of the Assets; provided Sellers shall join in a sales tax return, if any,
required to be filed. Buyer shall file any required sales tax return. As
provided in the Letter Agreement, Buyer has agreed to reimburse Sellers for
Sellers' attorneys' fees and related costs and expenses in connection with the
preparation and negotiation of the Letter Agreement, this Agreement and the
Appendices, Schedules and Exhibits hereto up to a maximum of $15,000. In
addition, as provided in Section 6.3, Sellers and Buyer have shared equally the
costs of the ▇▇▇▇▇ ▇▇▇▇▇
25
Studies. All other costs and expenses incurred by the Parties hereunder,
including the expense of environmental and title examination, shall be borne by
the Party incurring same.
Section 16.5 NOTICES. All notices hereunder shall be sufficiently given
for all purposes hereunder if in writing and delivered personally, sent by
documented overnight delivery service or, to the extent receipt is confirmed, by
United States mail, telecopy, telefax or other electronic transmission service
to the appropriate address or number as set forth below:
TO SELLERS:
Tower Colombia Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
TO BUYER:
Dolphin Energy Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman and CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
or at such other address and to the attention of such other person as a Party
may designate by written notice to the other Party.
Section 16.6 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its or its Affiliates' publicly-traded securities (in which case the
disclosing Party shall use all reasonable efforts to advise the other Party, and
give the other Party an opportunity to comment on the proposed disclosure, prior
to making the disclosure).
Section 16.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by any
Party except with the prior written consent of the other Party, which consent
shall not be unreasonably withheld or delayed, and any such assignment without
such consent shall be void and of no force or effect.
26
Section 16.8 AMENDMENTS AND WAIVERS. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the Party
against whom enforcement of any such modification or amendment is sought. A
Party may, only by an instrument in writing, waive compliance by the other Party
with any term or provision of this Agreement on the part of such other Party to
be performed or complied with. The waiver by a Party of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
Section 16.9 APPENDICES, SCHEDULES AND EXHIBITS. All Appendices,
Schedules and Exhibits hereto which are referred to herein are hereby made a
part hereof and incorporated herein by such reference.
Section 16.10 ARBITRATION. Except as otherwise expressly provided
herein, any dispute, controversy, or claim (a "Dispute") arising out of or in
connection with this Agreement, except for a suit to enforce specific
performance, shall be referred to and determined by binding arbitration, as the
sole and exclusive remedy of the Parties as to the Dispute, conducted in
accordance with the AAA Rules, which are deemed to be incorporated herein by
reference, except that in the event of any conflict between the Rules and the
arbitration provisions set forth below, the provisions set forth below shall
govern and control. Any Party may submit a Dispute to arbitration by written
notice (the "Arbitration Notice") provided the other Party. The arbitration
shall be heard and determined by one arbitrator agreed to by the Parties. If the
Parties cannot agree on a single arbitrator within ten (10) days after the
receipt of the Arbitration Notice, then the AAA shall submit to the Parties a
list of arbitrators who are knowledgeable experts in the oil and gas industry.
Sellers (acting collectively) and Buyer shall each rank the arbitrators on the
AAA list and shall submit such ranking to the AAA within ten (10) days after
receipt of the AAA list. The AAA shall select the arbitrator with the highest
ranking on both the Sellers' and Buyer's ranking lists. The AAA shall disqualify
any arbitrator if the AAA determines that such arbitrator has a financial
interest in the outcome of the dispute, controversy or claim or has any
business, social or family relationship with any of the Parties or is otherwise
not disinterested. The arbitration shall be held in Denver, Colorado, and the
proceedings shall be conducted and concluded as soon as reasonably practicable,
based upon the schedule established by the arbitrator, but in any event the
decision of the arbitrator shall be rendered within sixty (60) days following
his or her selection. The decision of the arbitrator shall be final and binding
upon the Parties. Judgment upon the award rendered by the arbitrator may be
entered in, and enforce by, any court of competent jurisdiction.
Section 16.11 ATTORNEYS' FEES. The prevailing Party in any legal
proceeding brought under or to enforce this Agreement shall be additionally
entitled to recover court costs, reasonable costs of arbitration and reasonable
attorneys' fees from the nonprevailing Party.
Section 16.12 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to any Party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the Parties shall negotiate in
good faith to modify
27
this Agreement so as to effect the original intent of the Parties as closely
as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each Party as of the date first above written.
BUYER:
DOLPHIN ENERGY CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, President
SELLERS:
TOWER COLOMBIA CORPOATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, President
NORTH ▇▇▇▇, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Manager
AMERICAN OIL & GAS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
28
Appendix A, page 8
APPENDIX A
TO
PURCHASE AND SALE AGREEMENT
DEFINITIONS
"AAA" shall mean the American Arbitration Association.
"AAA Rules" shall mean the AAA arbitration rules for commercial disputes.
"Adjusted Purchase Price" shall mean as defined in Section 3.2.
"Affiliate" shall mean, as to the Party specified, any entity controlling,
controlled by or under common control with such specified Party or a partner of
such Party. Control, controlling or controlled as used herein means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of another, whether through the ownership of voting
securities, by contract or otherwise.
"Allocated Value" or "Allocated Values" shall mean as defined in Section 7.2(b).
"Arbitration Notice" shall mean as defined in Section 16.10.
"Assets" shall mean Sellers' interest in the Leases, Lands, Units, Equipment and
Incidental Rights, but shall exclude the Excepted Property.
"Business Days" shall mean any day which is not a Saturday, Sunday or legal
holiday recognized in Denver, Colorado.
"Carried Interest" shall mean as defined in Section 4.2.
"Casualty" shall mean volcanic eruptions, acts of God, fire, explosion,
earthquake, windstorm, flood, drought, condemnation, the exercise of any right
of eminent domain, confiscation and seizure. A Casualty does not include
depletion due to normal production and depreciation or failure of equipment or
casing.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation and
Liability Act, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment ▇▇▇▇▇" shall mean as defined in Section 4.1.
"Defensible Title" shall mean, respectively as to each Asset, such title held by
Sellers that, subject to and except for the Permitted Encumbrances, (i) entitles
Sellers, and will entitle Buyer after Closing, to own and receive and retain,
without suspension, reduction or termination, not less than the Net Revenue
Interest specified for such Asset on Exhibit
Appendix A, page 1
"A"; (ii) obligates Sellers, and will obligate Buyer after Closing, to bear the
costs and expenses relating to such Asset in an amount not greater than the
Working Interest specified for such Asset on Exhibit "A" (unless Sellers' Net
Revenue Interest therein is proportionately increased); and (iii) is free and
clear of all liens and encumbrances.
"Development ▇▇▇▇▇" shall mean as defined in Section 4.2.
"Dispute" shall mean as defined in Section 16.10.
"Effective Date" shall mean June 1, 2004.
"Environmental Claim" shall mean any action or written notice threatening same
by any third party alleging potential liability of Sellers arising out of or
resulting from any actual or alleged violation of, or liability under, or any
remedial obligation under, any Environmental Law as a result of an Environmental
Condition with respect to the Assets or an Offsite Environmental Matter.
"Environmental Condition" shall mean an existing condition or circumstance with
respect to the air, soil, subsurface, surface waters, groundwaters, and/or
sediments that causes (i) an Asset not to be in compliance with any
Environmental Law, including any permits issued thereunder, in all material
respects, or (ii) the Asset to be required to be remediated (or other corrective
action taken with respect to such Asset) under any Environmental Law.
"Environmental Defect" shall mean an Environmental Condition with respect to the
Assets, provided that if, after taking into account any Remediation performed by
or on behalf of Sellers, the reasonably anticipated Remediation Amount with
respect to such Environmental Condition (or all Environmental Conditions with
respect to an Asset) is not in excess of $5,000, such Environmental Condition
shall not constitute an Environmental Defect.
"Environmental Laws" shall mean all Laws relating to (a) the control of any
potential pollutant, or protection of the air, water, land, wetlands, natural
resources, wildlife and endangered species, (b) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation, and (c)
exposure to hazardous, toxic, radioactive or other substances alleged to be
harmful. "Environmental Laws" shall include, but are not limited to, the Clean
Air Act, the Clean Water Act, the RCRA, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, the Safe Drinking Water
Act, and CERCLA and shall also include all state, local and municipal Laws
dealing with the subject matter of the above listed Federal statutes or
promulgated by any governmental or quasigovernmental agency thereunder in order
to carry out the purposes of any Federal, state, local or municipal Law. The
above reference to Laws relating to natural resources is not intended to include
non-Environmental Laws relating to the exploration, development, production,
proration, allocation, pooling, unitization or correlative rights relating to
oil, gas and other Hydrocarbons.
Appendix A, page 2
"Environmental Liabilities" shall mean any and all costs (including costs of
Remediation), damages, settlements, expenses, penalties, fines, taxes,
prejudgment and post-judgment interest, court costs and attorneys' fees incurred
or imposed (i) pursuant to any order, notice of responsibility, directive
(including requirements embodied in Environmental Laws), injunction, judgment or
similar act (including settlements) by any Governmental Authority to the extent
arising out of or under Environmental Laws or (ii) pursuant to any claim or
cause of action by a Governmental Authority or third party for personal injury,
property damage, damage to natural resources, remediation or response costs to
the extent arising out of or attributable to any violation of, or any remedial
obligation under, any Environmental Law.
"Environmental Matters" shall mean (i) any order, notice of responsibility,
directive (including requirements embodied in Environmental Laws), injunction,
judgment or similar act (including settlements) by any Governmental Authority
arising out of or under any Environmental Laws or (ii) pursuant to any claim or
cause of action by a Governmental Authority or third party for personal injury,
property damage, damage to natural resources, remediation or response costs
arising out of or attributable to any Hazardous Materials or any violation of,
or any remedial obligation under, any Environmental Law.
"Equipment" shall mean all the tangible personal property, tools, machinery,
materials, pipelines, gas plants, gathering systems, equipment, fixtures and
improvements, or interests therein, which are owned by Sellers and held for use
solely in connection with the other Assets, or with the production, treatment,
sale or disposal of Hydrocarbons produced from the Lands or water produced
therefrom or attributable thereto, on the Effective Date.
"Escrowed Amount" shall mean as defined in Section 4.3.
"Excepted Property" means the following:
(a) (i) all trade credits, accounts receivable, notes receivable
and other receivables attributable to the Assets with respect
to any period of time prior to the Effective Date, and (ii)
all deposits, cash, checks in process of collection, cash
equivalents and funds attributable to the Assets with respect
to any period prior to the Effective Date;
(b) all claims and causes of action of Sellers arising from acts,
omissions or events, or damage to or destruction of property,
occurring prior to the Effective Date with respect to any of
the Assets;
(c) all rights, titles, claims and interests of Sellers (i) under
any policy or agreement of insurance or indemnity, (ii) under
any bond or (iii) to any insurance or condemnation proceeds or
awards attributable to the Assets with respect to any period
prior to the Effective Date;
Appendix A, page 3
(d) all (i) Hydrocarbons produced from or attributable to the
Assets with respect to all periods prior to the Effective
Date, together with all proceeds from or of such Hydrocarbons,
and (ii) Hydrocarbons which, at the Effective Date, are owned
by Sellers and are in storage, within processing plants, or in
gathering lines or pipelines;
(e) seismic data or license agreements, which are subject to
prohibitions on assignment by Sellers;
(f) claims of Sellers for refund of or credits with respect to
production, severance, ad valorem, or any other taxes
attributable to the Assets with respect to any period prior to
the Effective Date;
(g) all amounts due or payable to Sellers as adjustments or
refunds under any contracts or agreements relating to the
Assets (including joint operating agreements) with respect to
any period prior to the Effective Date (excluding adjustments
for gas imbalances for which Purchase Price adjustment has
been made hereunder);
(h) all amounts due or payable to Sellers as adjustments to
insurance premiums related to the Assets with respect to any
period prior to the Effective Date; and
(i) all proceeds, benefits, income or revenues accruing (and any
security or other deposits made) with respect to the Assets
prior to the Effective Date.
"Existing ▇▇▇▇▇" means each oil and gas well (whether or not completed,
producing, or abandoned) located on the Leases and Lands on the Effective Date,
including the ▇▇▇▇▇ described on Exhibit "B" to the Agreement.
"Final Settlement Statement" shall mean as defined in Section 11.2.
"Governmental Authority" shall mean (i) the United States of America, (ii) any
state, county, municipality or other governmental subdivision within the United
States of America, and (iii) any court or any governmental department,
commission, board, bureau, agency or other instrumentality of the United States
of America or of any state, county, municipality or other governmental
subdivision within the United States of America.
"Hazardous Discharge" means any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging injecting, escaping, leaching, disposing or
dumping of any Hazardous Materials from or onto any real property owned, leased
or operated at any time by Seller or any real property owned, leased or operated
by any other Person.
Appendix A, page 4
"Hazardous Materials" shall mean any explosives, radioactive materials, asbestos
material, urea formaldehyde, hydrocarbon contaminants, underground tanks,
pollutants, contaminants, hazardous, corrosive or toxic substances, special
waste or waste of any kind, including compounds known as chlorobiophenyls and
any material or substance the storage, manufacture, disposal, treatment,
generation, use, transport, mediation or release into the environment of which
is prohibited, controlled, regulated or licensed under Environmental Laws,
including, but not limited to, (i) all "hazardous substances" as that term is
defined in Section 101(14) of CERCLA, and (ii) petroleum and petroleum products.
"Hydrocarbons" means crude oil, natural gas, casinghead gas, coalbed methane,
condensate, helium, ▇▇▇▇▇▇▇, ▇▇▇, ▇▇▇, natural gas liquids, and other gaseous
and liquid hydrocarbons or any combination thereof.
"Incidental Rights" shall mean all right, title and interest of Sellers in and
to or derived from the following: (a) all rights with respect to the use and
occupancy of the surface of and the subsurface depths under the Lands; (b) all
rights with respect to any pooled, communitized or unitized acreage by virtue of
any of the Assets being a part thereof; (c) all agreements and contracts,
easements, rights-of-way, servitudes and other estates related or attributable
to the Assets or Equipment.
"Knowledge" shall mean, as to each Seller (and, in Section 14.(b), as to the
Buyer), the actual knowledge of its chief operating officer of any fact,
circumstance or condition.
"Lands" shall mean the lands covered by or subject to the Leases.
"Law" or "Laws" shall mean any applicable statute, law (including common law),
ordinance, regulation, rule, ruling, order, writ, injunction, decree or other
official act of or by any Governmental Authority.
"Leases" shall mean the fee mineral interests, leasehold interests, royalty and
overriding royalty interests described on Exhibit "A" attached to the Agreement.
"Letter Agreement" shall mean that certain letter agreement dated June 16, 2004,
among Sellers and Buyer pertaining to the Assets attached to the Agreement as
Exhibit "C."
"Material Contracts" shall be as defined in Section 5.1(f) and as set forth in
Schedule 5.1(f).
"Net Revenue Interest" shall mean an interest (expressed as a percentage or
decimal fraction) in and to all Hydrocarbons produced and saved from or
attributable to an Asset.
"Permitted Encumbrances" shall mean any of the following matters:
(a) all agreements, instruments, documents, liens,
encumbrances, and other matters which are described in any Schedule or
Exhibit to the Agreement, to
Appendix A, page 5
the extent that the net cumulative effect of such matter does not
operate to reduce the Net Revenue Interest in the affected Asset to
less than the Net Revenue Interest specified in Exhibit "A" for such
Asset;
(b) preferential Rights and required third party consents to
assignment and similar agreements with respect to which waivers or
consents are obtained from the appropriate parties, or the appropriate
time period for asserting any such right has expired without an
exercise of the right;
(c) any liens for taxes not yet delinquent or, if delinquent,
that are being contested in good faith in the ordinary course of
business and which are described on Schedule 5.1(m);
(d) materialman's, mechanic's, repairman's, employee's,
contractor's, operator's and other similar liens or charges arising in
the ordinary course of business for obligations that are not delinquent
or that will be paid and discharged in the ordinary course of business,
or if delinquent, that are being contested in good faith by appropriate
action of which Buyer is notified in writing before Closing;
(e) all Transfer Requirements with respect to which (i)
waivers or consents are obtained from the appropriate parties, or (ii)
the appropriate time period for asserting such rights has expired
without an exercise of such rights;
(f) all rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection with the
sale or conveyance of oil and gas leases or interests therein if they
are routinely obtained subsequent to the sale or conveyance;
(g) any easements, rights-of-way, servitudes, permits,
licenses, surface leases and other rights with respect to surface
operations to the extent such matters do not interfere in any material
respect with Sellers' operation of the portion of the Assets burdened
thereby;
(h) all royalties, overriding royalties, net profits
interests, carried interests, reversionary interests and other burdens
to the extent that the net cumulative effect of such burdens, as to a
particular Asset, does not operate to reduce the Net Revenue Interest
of Seller in such Asset as specified in Exhibit "A";
(i) rights of reassignment requiring notice and/or the
reassignment (or granting an opportunity to receive a
reassignment) of a leasehold interest to the holders of such
reassignment rights prior to surrendering or releasing such
leasehold interest; and
Appendix A, page 6
(j) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the Assets that individually or in the aggregate are not such
as to materially interfere with the operation, value or use of any of
the Assets, do not prevent Buyer from receiving the proceeds of
production from any of the ▇▇▇▇▇, do not reduce the interest of Seller
with respect to all Hydrocarbons produced from any Well below the Net
Revenue Interest set forth in Exhibit "A" for such Asset, and/or do not
materially increase the portion of the costs and expenses relating to
any Asset that Seller is obligated to pay above the Working Interest
set forth in Exhibit "A" for such Asset (without a proportionate
increase in Net Revenue Interest).
"Person" means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a Government Authority.
"Preferential Right" shall mean any right or agreement that enables any third
party to purchase or acquire any Asset or any interest therein or portion
thereof as a result of or in connection with the sale, assignment, encumbrance
or other transfer of any Asset or any interest therein or portion thereof.
"RCRA" shall mean the Resource Conservation Recovery Act, as amended.
"Remediation" shall mean, with respect to an Environmental Condition, the
implementation and completion of any actions required under Environmental Laws
to correct or remove such Environmental Condition. "Remediation Amount" shall
mean, with respect to an Environmental Condition, the present value as of the
Closing Date (using an annual discount rate of 10%) of the cost of the most cost
effective Remediation of such Environmental Condition which is reasonable under
the circumstances.
"▇▇▇▇▇ ▇▇▇▇▇ Studies" shall mean as defined in Section 6.3.
"Sellers' Records" shall mean any of the Sellers' books, records, contracts,
agreements and files that are directly related to the Assets.
"Transfer Requirement" shall mean any consent, approval, authorization or permit
of, or filing with or notification to, any person which is required to be
obtained, made or complied with for or in connection with any sale, assignment,
transfer or encumbrance of any Asset or any interest therein other than any such
consent, approval, authorization or permit of, or filing with or notification
to, any person which is required to be obtained, made or complied with for or in
connection with the sale of the Assets to Buyer as contemplated by the
Agreement.
"Units" means all unitization, communitization, pooling agreements, working
interest units created by operating agreements, and orders covering the Lands or
Leases or any portion thereof, and the units and pooled or communitized areas
created thereby.
Appendix A, page 7
"Wellbore Assignment" shall mean as defined in Section 4.3.
"Working Interest" shall mean the percentage of costs and expenses attributable
to the maintenance, development and operation of an Asset.
Appendix A, page 8