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NATURAL GAS INVENTORY FORWARD SALE CONTRACT
DATED
DECEMBER 17, 1999
BETWEEN
EEX E&P COMPANY, L.P.,
as Seller
AND
▇▇▇ ▇▇▇▇ TREASURE L.L.C.,
as Purchaser
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TABLE OF CONTENTS
Page No.
ARTICLE I - INTERPRETATION ........................................ 1
1.01. Definitions................................................ 1
1.02. Headings................................................... 7
1.03. Number..................................................... 7
1.04. Non-Business Days.......................................... 7
ARTICLE II - SALE AND PURCHASE OF NATURAL GAS ..................... 8
2.01. Sale and Purchase of Natural Gas........................... 8
2.02. Measurement and Quality.................................... 8
2.03. Delivery and Receipt of Natural Gas........................ 8
2.04. Payment of Costs and Fees.................................. 9
2.05. Default Delivery Points; OFO's............................. 9
2.06. Failure to Deliver/Liquidated Damages...................... 9
2.07. Possession, Title and Risk................................. 10
2.08. Royalties.................................................. 10
2.09. Taxes...................................................... 10
ARTICLE III - MARKETING............................................ 10
3.01. Designation of Agent....................................... 10
3.02. Available Gas.............................................. 10
3.03. Third Party Contracts...................................... 10
3.04. Purchase Price............................................. 11
3.05. Marketing Fee.............................................. 11
3.06. SWAP/Hedge Counterparty.................................... 11
3.07. Accounting................................................. 12
ARTICLE IV - REPRESENTATIONS AND WARRANTIES ....................... 12
4.01. Representations and Warranties of the Seller............... 12
4.02. Representations and Warranties of the Purchaser............ 15
4.03. Mutual Representations and Warranties...................... 16
ARTICLE V - AFFIRMATIVE AND NEGATIVE COVENANTS .................... 16
5.01. Affirmative Covenants of the Seller........................ 16
5.02. Negative Covenants of the Seller........................... 19
ARTICLE VI -EVENTS OF DEFAULT, TERMINATION AND LIQUIDATED DAMAGES.. 20
6.01. Events of Default.......................................... 21
6.02. Termination by the Purchaser............................... 21
6.03. Other Remedies............................................. 21
ARTICLE VII - MISCELLANEOUS ....................................... 22
7.01. Notice..................................................... 22
7.02. Interest................................................... 23
7.03. Governing Law.............................................. 24
7.04. Severability............................................... 24
7.05. Currency................................................... 24
7.06. Purchaser Not an Agent..................................... 24
7.07. Benefit of the Agreement................................... 24
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7.08. Assignment and Transfer.................................... 24
7.09 Entire Agreement........................................... 24
7.10 Amendments................................................. 24
7.11 No Waivers, Remedies....................................... 24
7.12. Time of the Essence........................................ 25
7.13. Counterparts............................................... 25
7.14 Third-Party Expenses....................................... 25
7.15. Disclosure of Information.................................. 25
7.16. Indemnity.................................................. 25
7.17. Arbitration................................................ 26
Annex I Conditions Precedent to Purchaser's Obligations
Annex II Conditions Precedent to Seller's Obligations
Schedule 4.01(n) Litigation
Schedule 4.01(o)(i) Obligations to Third Parties
Schedule 4.01(o)(ii) HPL Pipelines Connections
Schedule 4.01(p) Environmental Matters
Schedule 4.01(q) Pipeline and Production Balances and Penalties
Exhibit A Form of Opinion of General Counsel of EEX E&P Company,
L.P. and EEX
Exhibit B Form of Opinion of Akin Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇,
L.L.P., Special Counsel to EEX E&P Company, L.P. and EEX
Exhibit C Form of Opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., Special Counsel
to Purchaser
Exhibit 3.07 Form of Excess Gas Sales Agreements
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NATURAL GAS PREPAID FORWARD SALE CONTRACT
This NATURAL GAS PREPAID FORWARD SALE CONTRACT (this "Agreement") is
entered into as of December 17, 1999, by and between EEX E&P Company, L.P., a
Delaware limited partnership, formerly known as Tesoro E&P Company, L.P., having
its principal place of business in Houston, Texas (hereinafter referred to as
the "Seller"), and ▇▇▇ ▇▇▇▇ Treasure L.L.C., a Delaware limited liability
company and having its principal place of business in Houston, Texas
(hereinafter referred to as the "Purchaser").
WHEREAS, Seller desires to sell and Purchaser desires to purchase certain
quantities of Natural Gas on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the respective covenants and agreements
of the parties hereinafter set forth and for good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by each of the
parties), the parties hereby agree as follows:
ARTICLE I
INTERPRETATION
1.01 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings indicated:
"A-1 Volumes" shall mean the volume of Natural Gas designated as such
in the Confirmation Letter.
"Agreement" shall have the meaning ascribed thereto in the
introductory paragraph hereto, as it may be amended, restated, extended or
otherwise modified from time to time.
"Applicable Instruments" of any Person shall mean its Regulations or
Articles of Organization, Certificate or Articles of Incorporation or the
Certificate of Limited Partnership, by-laws, partnership agreement and other
organizational documents of such Person and all contracts, indentures,
agreements, instruments and documents to which such Person is a party or by
which such Person or any assets of such Person may be bound or affected.
"Bankruptcy Code" means the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Basis Differential" shall mean for each year during the term hereof
the amount designated as such for each Delivery Point for such year in the
Confirmation Letter.
"Btu" shall mean the amount of energy required to raise the
temperature of one pound of pure water one degree Fahrenheit from 59 degrees
Fahrenheit to 60 degrees Fahrenheit at one atmospheric pressure.
"Business Day" shall mean a day, other than a Saturday or a Sunday, on
which commercial banks are not authorized or required to be closed in New
York, New York and Houston, Texas.
"Confirmation Letter" shall mean a letter to be executed by Purchaser
and Seller pursuant to Section 2.01 which contains certain terms and
conditions pertaining to the Sales Transaction.
"Dedicated Gas" shall mean natural gas that is currently dedicated and
sold to third parties under contracts existing as of the date hereof.
"Deficiency Quantity" shall mean in respect of a particular Delivery
Month the amount by which the Required Delivery Quantity of Natural Gas for
that Delivery Month exceeds the quantity of Natural Gas actually delivered
and received hereunder in respect of such Delivery Month.
"Default" shall mean the occurrence of any event which with the giving
of notice or the passage of time, or both, would become an Event of Default.
"Definitive Agreements" shall mean this Agreement, each Excess Gas
Sales Purchase Agreement, the EEX Undertaking, the Mortgage, the Letter
Agreement, the Fee Letter and any other documents executed in connection
herewith or therewith.
"Delivery Month" shall mean each calendar month commencing with the
month of January, 2000, through and including December, 2004.
"Delivery Point" shall mean a delivery point as set forth in the
Confirmation Letter.
"Designated Properties" shall mean each kind and character of right,
title, interest or estate, whether now owned or hereafter acquired, which
Seller has in and to all fee interests, oil and gas leaseholds and mineral
fee rights including, without limitation, all Properties (as such term is
defined in the Stock Purchase Agreement) and the Mortgaged Property (as such
term is defined in the Mortgage) and including all overriding royalty
interests, mineral interests, royalty interests, net profits interests, oil
payments, production payments, carried interests, operating rights, and all
other properties or interests of every kind or character which relate to any
fee, leasehold or mineral fee rights, whether such right, title, interest or
estate be under and by virtue of a lease, a unitization or pooling
agreement, a unitization or pooling order, an operating agreement, a revenue
sharing agreement, a division order, a transfer order, a farmout agreement,
a fee simple conveyance or any other type of contract, conveyance or
instrument or under any other type of claim or title, legal or equitable,
recorded or unrecorded, all as the same shall be enlarged by the discharge
of any payments out of production or by the removal of any charges or
encumbrances to which any of same are subject.
"Dispute" shall have the meaning specified in Section 7.17.
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"$" shall mean the lawful currency of the United States of America in
immediately available funds.
"EEX" shall mean EEX Corporation, a Texas corporation.
"EEX Reserves Funding" shall mean EEX Reserves Funding LLC, a Delaware
limited liability company.
"EEX Undertaking Agreement" shall mean that certain EEX Undertaking
Agreement dated the date of this Agreement executed by EEX for the benefit
of Purchaser.
"ENA" shall mean Enron North America Corp., a Delaware corporation.
"Environmental Laws" shall mean all final laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any governmental
authority, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened
release of any Hazardous Material or to health and safety matters to the
extent binding on Seller or affecting Purchaser or the Designated
Properties.
"Environmental Liability" shall mean any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnitees), of Seller directly or
indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment
or disposal of any Hazardous Materials in a manner that results in damage to
the environment, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e)
any contract, agreement or other consensual arrangement pursuant to which
liability is assumed or imposed with respect to any of the foregoing.
"Event of Default" shall have the meaning ascribed thereto in Section
6.01.
"Excess Gas Sales Purchase Agreements" shall mean that certain Enfolio
Master Firm Purchase/Sale Agreement and that certain Enfolio Master "Spot"
Purchase/Sale Agreement, each between Purchaser and Seller and dated the
date of this Agreement.
"Federal Funds Rate" shall mean, for any day, a fluctuating interest
rate per annum equal for such day to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if
such day is not a Business Day, for the immediately preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not so published
for any day that is a Business Day, the average of the quotations for such
day on such transactions received by Purchaser from three Federal funds
brokers of recognized standing selected by Purchaser.
"Fee Letter" shall mean that certain letter agreement dated the date
of this Agreement among Seller, EEX and ECT Securities Limited Partnership.
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"Force Majeure" shall mean a failure by either party to perform
obligations hereunder, except for the obligation to make payment due
hereunder, to the extent that such failure is caused by war, riots,
insurrections, fires, explosions, sabotage, strikes and other labor or
industrial disturbances, acts of God or the elements, including, but not
limited to, freezing of ▇▇▇▇▇, government laws, regulations or requests,
disruption or breakdown of production or transportation facilities, failures
of transporters in receiving and delivering Natural Gas tendered, compliance
with OFO's or other similar notices from a transporter, or by any other
cause reasonably beyond the control of such party, but does not include the
failure to perform obligations solely as a result of the fact that to do so
will result in economic loss or hardship to such party.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Requirement" shall mean all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations,
rules, franchises, permits, certificates, licenses, authorizations and the
like of any government or any commission, board, court, agency,
instrumentality or political subdivision thereof.
"Hazardous Material" shall mean all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical
wastes and all other substances or wastes of any nature regulated pursuant
to any Environmental Law.
"Index Price" shall mean, for any Delivery Month, the arithmetic
average of the closing settlement price for the last three scheduled trading
days for natural gas for the 1st Nearby Month Futures Contract deliverable
at ▇▇▇▇▇ Hub corresponding to the relevant Delivery Month as listed on the
NYMEX, provided that if such price cannot be determined or is not otherwise
available, such price shall be determined by averaging the equivalent
quotations from four leading dealers (excluding ENA or any of its
affiliates), as selected by Purchaser in its sole discretion, in the natural
gas market.
"Lease" shall have the meaning specified in the Mortgage.
"Letter Agreement" shall mean that certain letter agreement dated the
date hereof, between Seller, EEX, ENA and Purchaser relating to the matters
contained therein.
"Lien" shall mean any mortgage, lien, charge, pledge, security
interest, hypothecation or encumbrance of any kind (whether voluntary or
involuntary and whether imposed or created by operation of law or otherwise)
or the interest of any vendor or lessor under any conditional sale
agreement, capital lease or title retention agreement relating to any asset,
or having the effect of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MMBtu" shall mean one million Btus.
"Marketing Fee" has the meaning specified in Section 3.06.
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"Mortgage" shall mean that certain Mortgage, Deed of Trust, Assignment
of Production, Security Agreement and Financing Statement dated the date of
this Agreement (or the equivalent thereof) executed and delivered by Seller,
as mortgagor, for the benefit of Purchaser, as mortgagee, covering all of
Seller's interest in certain Designated Properties located in, or offshore
from, the States of Louisiana, Texas, North Dakota and New Mexico, together
with all related accounts, equipment, oil and gas inventory, fixtures,
contract rights, general intangibles and all proceeds of any of the
foregoing.
"Natural Gas" shall mean a mixture of gaseous hydrocarbons consisting
primarily of methane and meeting the quality standards and specifications
required pursuant to Section 2.02.
"NRI" shall mean, with respect to each well or unit located on or
attributable to the Designated Properties, the decimal net revenue interest
of Seller in the natural gas and other hydrocarbons produced from such well
or unit (after deducting Seller=s share of all royalties, overriding
royalties, and other similar burdens payable out of, or measured by,
production).
"NYMEX" shall mean the New York Mercantile Exchange, Inc. and any
successor thereto by merger, consolidation, or sale of assets.
"OFO's" shall have the meaning specified in Section 2.05 (b).
"Payment Date" shall mean for any Delivery Month, the last Business
Day of the month immediately following such Delivery Month.
"Permitted Encumbrances" shall have the meaning specified in the
Mortgage.
"Person" shall mean any individual, corporation, company, partnership,
joint venture, trust, unincorporated association, government or any
commission, board, court, agency, instrumentality or political subdivision
thereof, any other entity or any trustee, receiver, custodian or similar
official.
"Prepaid Price" shall be the dollar amount set forth as such in the
Confirmation Letter.
"Purchaser" shall have the meaning ascribed thereto in the
introductory paragraph hereto.
"Purchaser Gas" shall have the meaning specified in Section 2.07.
"Required Delivery Quantity" shall mean the number of MMBtu's of
Natural Gas to be delivered and received during a given Delivery Month
pursuant to this Agreement as agreed upon in the Confirmation Letter.
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"Sales Transaction" shall mean the sale, delivery, payment and
marketing of Natural Gas produced from the Designated Properties by Seller
and all related activities, in accordance with the terms of this Agreement
and the Definitive Agreements.
"Seller" shall have the meaning ascribed thereto in the introductory
paragraph hereto.
"Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated October 8, 1999, but effective as of July 1, 1999 entered
into among EEX, EEX Operating LLC, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation,
as amended by that certain First Amendment to Stock Purchase Agreement dated
December 16, 1999, but effective as of October 8, 1999 between such parties,
as such may be further amended or otherwise modified from time to time.
"Taxes" shall mean all ad valorem, property, occupation, severance,
production, energy, Btu, gathering, pipeline, utility, gross production,
sales, use, excise and transaction taxes and any other governmental charges
and assessments, other than taxes based on net income or net worth.
"Termination Date" shall have the meaning specified in Section 6.02.
"Termination Payment" shall mean the amount for the applicable month
set forth as such in the Confirmation Letter.
"Third Party Contract" shall have the meaning specified in Section
3.03.
"Third Party Purchaser" shall have the meaning set forth in Section
3.03(a).
"Unpaid Amounts" shall mean, with respect to the Termination Date, the
aggregate of the amounts that became payable to Purchaser hereunder prior to
the occurrence of the Termination Date and that remain payable as of the
Termination Date and any costs or expenses incurred by Purchaser in
exercising its remedies hereunder, any loss or costs incurred because of the
breakage or early termination of any ISDA or similar commodity or interest
rate hedge agreement entered into or assumed or accepted by Purchaser in
connection with any of this Agreement, the Definitive Agreements, the Sales
Transaction or the syndicated financing of this Agreement with any
unaffiliated third party of any of the above, provided, however, that if
there is a gain on such ISDA or similar commodity or interest rate hedge
agreements, the gain will offset the amounts described above and any excess
of such gain shall be paid to Seller.
"U.S. Base Rate" shall mean, at any time, a fluctuating interest rate
per annum as shall be in effect from time to time, which rate per annum
shall at all times be equal to the highest of:
(i) the rate of interest announced publicly by Chase Bank of
Texas, N.A., Houston, Texas from time to time, as its prime commercial
lending rate; or
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(ii) one-half of one percent per annum above the latest three-
week moving average of secondary market morning offering rates in the
United States for three-month certificates of deposit of major United
States money center banks, such three-week moving average being
determined weekly on each Monday (or, if any such day is not a
Business Day, on the next succeeding Business Day) for the three-week
period ending on the previous Friday by Purchaser on the basis of such
rates reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Purchaser from three New York certificate of deposit
dealers of recognized standing selected by Purchaser, in either case
adjusted to the nearest one-quarter of one percent or, if there is no
nearest one-quarter of one percent, to the next higher one-quarter of
one percent; or
(iii) one-half of one percent per annum above the Federal Funds
Rate in effect from time to time.
"Wellhead Price" shall mean per MMBtu of Natural Gas, the Index Price
minus the Basis Differential.
1.02 HEADINGS. The division of this Agreement into Articles and Sections
and the insertion of an index and headings are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement. The
terms "this Agreement," "hereof," "hereunder" and similar expressions refer to
this Agreement and not to any particular Article, Section, paragraph, Annex,
Schedule or other portion hereof and include any agreement supplemental hereto.
Unless something in the subject matter or context is inconsistent therewith,
references herein to Articles, Sections and paragraphs are to Articles, Sections
and paragraphs of this Agreement.
1.03 NUMBER. Words importing the singular number shall include the
plural and vice versa, and words importing the masculine gender shall include
the feminine and neuter genders and vice versa.
1.04 NON-BUSINESS DAYS. Whenever any action to be taken hereunder shall
be stated to be required to be taken or any payment to be made hereunder shall
be stated to be due on a day other than a Business Day, unless otherwise
specifically provided for herein, such payment shall be made or such action
shall be taken on the next succeeding Business Day if the due date was a Sunday
or a New York bank holiday which occurs on a Monday or on the last preceding
Business Day if the due date was a Saturday or a New York bank holiday other
than a Monday, and in the case of the payment of any monetary amount, the
extension or curtailment of time shall be taken into account for the purposes of
computation of interest or fees thereon.
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ARTICLE II
SALE AND PURCHASE OF NATURAL GAS
2.01 SALE AND PURCHASE OF NATURAL GAS. Seller hereby agrees to sell to
Purchaser and Purchaser hereby agrees to purchase from Seller the Required
Delivery Quantity of Natural Gas for each Delivery Month during the term of this
Agreement at the price designated herein. On or before December 17, 1999,
Purchaser and Seller shall agree upon and execute a Confirmation Letter. The
Confirmation Letter shall specify a mutually acceptable Prepaid Price (which
shall be approximately U.S. $105,000,000 in the aggregate for A-1 Volumes), the
date on which the Prepaid Price shall be paid (which date shall not be later
than December 17, 1999), and for each Delivery Month, the Delivery Points, the
Required Delivery Quantity, and the amount thereof to be delivered and received
at the Delivery Points, each as mutually agreed by Purchaser and Seller. On the
date specified for such purpose in the Confirmation Letter, Purchaser shall pay
to Seller the Prepaid Price by wire transfer of immediately available funds to
an account designated by Seller, provided that the conditions precedent set out
in Annex I have been satisfied by Seller and no Event of Default shall have
occurred. In consideration of the payment to Seller of the Prepaid Price,
Seller hereby agrees to sell and deliver, or cause to be delivered to the
Purchaser or to the account of Purchaser, in each Delivery Month, at the
Delivery Points, the Required Delivery Quantity of Natural Gas (in the amounts
set forth in the Confirmation Letter) on and subject to the terms and conditions
set forth in this Agreement, and the Purchaser hereby agrees to accept delivery
of such Natural Gas and to fulfill the conditions precedent set forth on Annex
II. Payment of the Prepaid Price shall constitute payment in full of the
purchase price of the Natural Gas to be delivered hereunder.
2.02 MEASUREMENT AND QUALITY. Natural Gas delivered pursuant to this
Agreement to a specific Delivery Point hereunder shall be measured by the
operator of such Delivery Point in accordance with its standard practices. All
such Natural Gas shall meet or exceed the requirements of any Third Party
Purchaser from the Delivery Point including, without limitation, requirements of
quality, composition, temperature and pressure.
2.03 DELIVERY AND RECEIPT OF NATURAL GAS. (a) Seller agrees to deliver
to Purchaser, and, except as otherwise provided in this Agreement, Purchaser
agrees to accept delivery from Seller in each Delivery Month at the Delivery
Points determined pursuant to this Agreement, the Required Delivery Quantity of
Natural Gas required to be delivered hereunder in such Delivery Month.
(b) Seller shall take such action as shall be necessary to schedule
properly the delivery and receipt of such Natural Gas at the Delivery Points in
each Delivery Month in compliance with all rules, regulations and procedures
applicable at such Delivery Points.
(c) Each Delivery Month, Seller shall arrange for delivery, and, except as
otherwise provided in Article III hereof, Purchaser shall arrange for receipt,
of Natural Gas to begin at the Delivery Points no later than the first calendar
day of the Delivery Month and to be completed no later than the last calendar
day of the Delivery Month. All deliveries and receipts shall be at hourly and
daily rates that are as uniform as possible over the course of the Delivery
Month in accordance with generally accepted pipeline scheduling practices.
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2.04 PAYMENT OF COSTS AND FEES. Seller shall pay all costs in connection
with transportation of the Natural Gas to the Delivery Points. Seller shall be
responsible for the payment of all hub fees (whether charged to Seller or
Purchaser) payable in connection with delivery of Natural Gas hereunder at any
Delivery Point. Seller shall be responsible hereunder for all insurance,
storage, processing, separation, compression, handling, treating, gathering,
transportation or other costs, fees or expenses in respect of the Natural Gas
delivered hereunder until such delivery.
2.05 DEFAULT DELIVERY POINTS; OFO'S. (a) Seller is obligated to deliver
to Purchaser and Purchaser is obligated to receive from the Seller, at the
Delivery Points, the Required Delivery Quantity of Natural Gas in accordance
with the terms and conditions of this Agreement and the Confirmation Letter. If
Seller is unable, after using all reasonable business efforts, to deliver the
Required Delivery Quantity of Natural Gas to the Purchaser at the Delivery
Points in the amounts agreed upon pursuant to this Agreement or Purchaser is
unable, after using all reasonable business efforts, to receive the Required
Delivery Quantity of Natural Gas from Seller at the Delivery Points in the
amounts agreed upon pursuant to this Agreement and the Confirmation Letter,
Seller shall be obligated to deliver and Purchaser shall be obligated to
receive, the relevant Required Delivery Quantity of Natural Gas at a comparable
delivery point reasonably acceptable to Purchaser, provided Seller hereby agrees
to pay and shall pay to Purchaser, as liquidated damages, any additional
transportation costs (including additional basis differential) based on said
acceptable comparable delivery point for all volumes delivered thereto.
(b) Should either party receive an operational flow order ("OFO") or other
order or notice from a transporter requiring action to be taken in connection
with this Agreement or Natural Gas flowing under this Agreement, such party
shall immediately notify the other party of the OFO and provide the other party
a copy of same by facsimile. The parties shall take all actions required by the
OFO within the time prescribed therein. Each party shall indemnify, defend and
hold harmless the other party from any damages or liability, including, without
limitation, all non-compliance penalties and attorneys' fees, associated with an
OFO (i) of which the indemnifying party failed to give the indemnified party the
notice required hereunder or (ii) under which the indemnifying party failed to
take the action required by the OFO within the time prescribed therein.
2.06 FAILURE TO DELIVER/LIQUIDATED DAMAGES. (a) If for any reason,
including as a result of Force Majeure, Seller does not or is unable to meet its
delivery obligation in respect of a Delivery Month at the Delivery Points or at
a comparable delivery point or points, then Seller shall pay and hereby agrees
to pay to Purchaser, as liquidated damages, the Wellhead Price per MMBtu times
the Deficiency Quantity of Natural Gas in respect of that Delivery Month.
Seller shall pay any and all amounts due under this Section 2.06 by wire
transfer of immediately available funds to such account as Purchaser may
designate not later than 5:00 p.m., Houston, Texas, time on the applicable
Payment Date.
(b) If a party is unable to perform any of its obligations to deliver or
receive gas hereunder for any reason, such party shall give notice and full
particulars of such event to the other party as soon as reasonably possible and,
if such failure is a result of Force Majeure, shall take all reasonable actions
necessary to remedy the event of Force Majeure.
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2.07 POSSESSION, TITLE AND RISK. Possession of and title to Natural Gas
delivered pursuant hereto, excluding any Dedicated Gas, shall pass from Seller
to Purchaser at the Delivery Points when the Natural Gas is accepted by the
pipeline for transport for Purchaser's account and is recorded by the proper
metering device (upon acceptance, such Natural Gas, excluding any Dedicated Gas,
being "Purchaser Gas"). Until such time, Seller shall be deemed to be in control
and possession of, have title to, and be responsible for such Natural Gas and,
after such time, Purchaser shall be deemed to have title to such Natural Gas
until such time as same is sold to any Third Party Purchaser.
2.08 ROYALTIES. Seller shall at all times have the obligation to make
settlements for all royalties and payments to mineral and royalty owners and all
other Persons having an ownership interest in the Natural Gas delivered by
Seller to Purchaser hereunder. SELLER HEREBY AGREES TO INDEMNIFY AND HEREBY
DOES INDEMNIFY PURCHASER AND SAVE IT HARMLESS FROM ALL SUITS, ACTIONS, DEBTS,
ACCOUNTS, DAMAGES, COSTS, LOSSES AND EXPENSES ARISING FROM OR OUT OF ADVERSE
CLAIMS OF ANY AND ALL PERSONS IN RESPECT OF ROYALTIES, TAXES, LICENSE FEES OR
CHARGES THEREON THAT ARE APPLICABLE BEFORE THE TITLE PASSES TO THE PURCHASER OR
THAT MAY BE LEVIED AND ASSESSED UPON SELLER IN RESPECT OF A SALE OF THE NATURAL
GAS TO PURCHASER.
2.09 TAXES. Seller is liable for and shall pay, cause to be paid or
reimburse Purchaser if Purchaser shall have paid, all Taxes applicable to the
Natural Gas sold hereunder prior to the time title to the Natural Gas has passed
to Purchaser.
ARTICLE III
MARKETING
3.01 DESIGNATION OF AGENT. Purchaser hereby designates Seller to be the
agent for Purchaser and authorizes Seller to take such actions on Purchaser's
behalf and to exercise such power to effect the sale of Purchaser Gas to third-
party purchasers and Seller hereby accepts such appointment.
3.02 AVAILABLE GAS. Seller, as Purchaser's agent, hereby agrees to and
will market, pursuant to this Article III for each Delivery Month during the
term of this Agreement, all Purchaser Gas accepted at the respective Delivery
Points or any acceptable comparable delivery point agreed to by Purchaser.
3.03 THIRD PARTY CONTRACTS. Seller will arrange for and effect on behalf
of Purchaser the sale of Purchaser Gas, pursuant to a firm contract (a "Third
Party Contract"), satisfying the following requirements:
(a) any Third Party Contract counterparty ("Third Party Purchaser")
must be a Person with a long-term unsecured debt rating of at least BBB-
from Standard & Poor's Ratings Group or Baa3 from ▇▇▇▇▇'▇ Investors Service
or otherwise approved by Purchaser in writing, provided that Seller, on
behalf of Purchaser, may enter into any Third Party Contract with any
counterparty if such Third Party Contract (i) provides for a simultaneous
delivery of Natural Gas and payment in cash or (ii) provides
10
for an unconditional, irrevocable letter of credit to secure the payment of
the Natural Gas to be delivered thereunder issued by a banking institution
with a BBB- rating or better.
(b) each Third Party Contract must be entered into prior to the time
Purchaser Gas is accepted at any Delivery Point, and all title to, and all
risk of loss, damage, or contamination to or of in respect of the Purchaser
Gas must be transferred to such Third Party Purchaser at the respective
Delivery Points immediately upon the delivery of the Natural Gas thereto.
(c) each Third Party Purchaser must be obligated for all
compression, transportation, storage, handling and other costs, fees or
expenses, and all Taxes applicable to Purchaser Gas at or after the time
title passes to such Third Party Purchaser at the respective Delivery
Points.
(d) (i) each Third Party Contract, the term of which is not in
excess of one (1) year, shall be in the form of a GISB contract with a bona
fide third party on an arms-length basis, and (ii) each Third Party
Contract, the term of which is one (1) year or greater, shall be in form
and substance mutually agreeable to Purchaser and Seller.
3.04 GUARANTEED PRICE. Seller agrees to pay and will pay to Purchaser
during the term of this Agreement the Wellhead Price per MMBtu of all Required
Delivery Quantity (it being recognized that some Natural Gas so delivered is
subject to previously existing sales contract with third parties) accepted by
Purchaser and available at the Delivery Points for each Delivery Month
irrespective of the resale price paid by any Third Party Purchaser pursuant to
any Third Party Contract or whether Seller collects said resale price from any
such Third Party Purchaser. Seller shall pay any and all amounts due under this
Section 3.04 by wire transfer of immediately available funds to such account as
Purchaser may designate not later than 5:00 p.m., Houston, Texas, time on the
applicable Payment Date.
3.05 MARKETING FEE. With respect to all volumes of Purchaser Gas
delivered and marketed by Seller hereunder during any Delivery Month, Seller
will be entitled to retain, as a marketing fee hereunder, all amounts received
from any Third Party Contract that are in excess of the Wellhead Price (the
"Marketing Fee"), if any. To the extent said amounts from Third Party Contracts
are less than the Wellhead Price, Seller shall be solely liable for said
shortfall.
3.06 SWAP/HEDGE COUNTERPARTY. Seller will use reasonable efforts to
notify and to give ENA, within a reasonable period of time to effect the
transaction, the opportunity to bid to become the counterparty on any Natural
Gas swap or hedge agreement that Seller enters into with respect to the Natural
Gas to be delivered hereunder, provided the failure to do so shall not be
considered a Default or Event of Default hereunder.
3.07 OPTION. Within a reasonable period of time to effect the transaction,
Seller shall offer to ENA, for purchase on a competitive basis pursuant to
customary industry practices, all volumes of Natural Gas produced from the
Designated Properties in excess of the Required Delivery Quantity, any such sale
to be documented by an Excess Gas Sales Purchase Agreement substantially in the
form of Exhibit 3.07 hereto, provided that Seller shall not be required to
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dedicate any such volumes to ENA and shall have no obligation to sell any such
volumes to ENA.
3.08 ACCOUNTING. Seller shall provide by facsimile to Purchaser on each
Payment Date an accounting of the payment made on such Payment Date, including
(a) the volume of Purchaser Gas, (b) the volume of Dedicated Gas and (c) the
volume of Deficiency Quantity, if any, (the sum of (a), (b) and (c) must equal
the Required Delivery Quantity), (d) the Wellhead Price for such Delivery Month
and (e) any basis differential in respect of any volumes delivered to any
acceptable comparable delivery point pursuant to Section 2.05.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller represents and
warrants to Purchaser as follows:
(a) CORPORATE STATUS AND AUTHORITY. Seller is a limited partnership,
duly formed, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own its
properties, to conduct its business as conducted at present and to execute,
deliver and perform this Agreement .
(b) POWER AND AUTHORITY. The execution, delivery and performance by
Seller of this Agreement and the consummation of the transactions
contemplated by this Agreement are within Seller's power and authority and
have been duly authorized by all necessary partnership action.
(c) CONSENTS AND APPROVALS. No authorization, consent or approval
of, or other action by, or notice to or filing with, any governmental
authority, regulatory body or any other Person is required for the due
authorization, execution, delivery or performance by Seller of this
Agreement, any other Definitive Document to which it is a party or the
consummation of the transactions contemplated by this Agreement, except
those approvals that have been obtained, and those notices and filings that
have been made, copies of all of which have been delivered to Purchaser.
(d) EXECUTION AND DELIVERY. This Agreement has been duly executed
and delivered to Purchaser by Seller and is the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by the effect of
any applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of equity.
(e) COMPLIANCE WITH LAWS. Neither the execution, delivery and
performance by Seller of this Agreement nor the consummation of the
transactions contemplated by this Agreement (i) does or will violate any
provision of any Applicable Instrument of Seller or any Governmental
Requirement or (ii) does or will result in or require the creation or
imposition of any Lien on any properties, assets or revenues of Seller
except
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for Permitted Liens. Seller is in compliance in all material respects with
the Applicable Instruments of Seller and all Governmental Requirements
applicable to Seller.
(f) INVESTMENT COMPANY. Seller is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(g) PUBLIC UTILITY HOLDING COMPANY. Seller is not subject to
regulation as, or is exempt from regulation as. a "holding company" or a
"subsidiary company" of a "holding company," in each case as such term is
defined in the Public Utility Holding Company Act of 1935, as amended.
(h) COMMERCIAL PURPOSE. Seller has entered into this transaction for
commercial purposes related to its business as a producer, processor, or
merchandiser of Natural Gas or natural gas liquids. Seller has the
capacity, and intends, to make delivery of the Natural Gas to be delivered
hereunder. Seller is selling the Natural Gas in the ordinary course of
business.
(i) OWNERSHIP OF NATURAL GAS. The Natural Gas to be delivered by
Seller to Purchaser hereunder shall be delivered to Purchaser free and
clear of all Liens including Taxes and royalties for which Seller is
responsible, except for those in favor of Purchaser.
(j) OWNERSHIP AND TITLE STATUS OF DESIGNATED PROPERTIES. Seller has
good and indefeasible title to the Designated Properties, free and clear of
all Liens which individually or in the aggregate (i) operate to reduce
Seller's NRI in any Lease in respect of any Designated Property to less
than the NRI warranted to Purchaser in the Mortgage, (ii) increase Seller's
share of the cost of operations of any such Lease to more than the working
interest portion warranted to Purchaser in the Mortgage, or (iii) impair,
impede or prohibit (X) the granting of a Lien therein to Purchaser, (Y) the
foreclosure of such Lien, or (Z) the sale of the Natural Gas produced
thereon to Purchaser.
(k) SUFFICIENCY OF RESERVES. To the best of Seller's knowledge and
belief, the Designated Properties contain readily recoverable Natural Gas
reserves in excess of those required to meet all of Seller's obligation to
deliver Natural Gas to Purchaser hereunder in the Required Delivery
Quantities at the designated Delivery Points during each Delivery Month.
(l) SOLVENCY. Seller (i) has assets that exceed its liabilities,
(ii) has or has access to sufficient capital to carry on its business as
presently conducted and (iii) is able to pay its debts as they become due.
(m) ACCURACY OF INFORMATION. All information, engineering and other
reports and data delivered by Seller in connection with this Agreement and
the transactions are accurate in all material respects, do not contain any
material misstatement of fact or omit any fact necessary to make said
information or reports not misleading. Each delivery of any such material,
report or information shall automatically constitute a reaffirmation of
this warranty.
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(n) LITIGATION AND SIMILAR PROCEEDINGS. There are no suits,
investigations or proceedings pending, or to Seller's knowledge, threatened
against Seller or the Designated Properties except those disclosed on
Schedule 4.01(n). None of said lawsuits can reasonably be expected to have
a material adverse effect on Seller's ability to perform its obligation
hereunder.
(o) THIRD-PARTY ENCUMBRANCES OR REGULATORY REQUIREMENTS.
(i) The Designated Properties are unencumbered by any gas
contracts or other obligations to third parties that require delivery
of any Natural Gas produced therefrom to any third parties, except
for the royalty interests described in the Leases and as disclosed on
Schedule 4.01(o)(i) hereto, which contracts or obligations do not, as
of the date hereof, exceed 15% of the monthly production from the
Designated Properties; and
(ii) The Designated Properties described on Schedule 4.01(o)(ii)
hereto are the only Designated Properties connected to Houston Pipe
Line Company and none of such properties are dedicated or committed
to interstate commerce, within the meaning of the Natural Gas Act.
(p) ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4.01(p),
Seller (i) has not failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has not become subject to any
Environmental Liability, and (iii) has not received notice of any claim
with respect to any Environmental Liability.
(q) PRODUCTION AND PIPELINE BALANCES AND PENALTIES. Schedule 4.01(q)
accurately sets forth all material pipeline and production imbalances and
penalties arising with respect to the Designated Properties. Except as
disclosed in Schedule 4.01(q) and except for short-term operational
imbalances, (i) no purchaser is entitled to "make-up" or otherwise take or
receive deliveries of Natural Gas attributable to Seller's interest in the
Designated Properties without paying at the time of such deliveries the
full contract price therefor; (ii) no Person is entitled to receive any
portion of Seller's Natural Gas or to receive cash or other payments to
"balance" any disproportionate allocation of Natural Gas produced from the
Designated Properties under any operating agreement, gas balancing or
storage agreement, gas processing or dehydration agreement, gas
transportation agreement, gas purchase agreement, or other agreements,
whether similar or dissimilar; (iii) Seller is not obligated to deliver any
quantities of gas, or to pay any penalties or other amounts, in connection
with the violation of any of the terms of any gas transportation contract
or other agreement with shippers; (iv) no claim, notice, or order in
respect of any Governmental Regulation has been received by Seller due to
Natural Gas production from the Designated Properties being in excess of
allowables or similar violations which could result in curtailment of
Natural Gas production from the Designated Properties after the date
hereof; and (v) Seller is not obligated to pay any penalties or other
payments under any gas transportation or other agreement as a result of the
delivery of quantities of gas from the Designated Properties in excess of
the contract requirements.
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(r) YEAR 2000. All services and products used or useful in the
ownership, operation, use and maintenance of the Designated Properties
owned or leased by Seller will perform in all material respects date
sensitive functions before, during and after the year 2000.
4.02 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Seller as follows:
(a) CORPORATE STATUS AND AUTHORITY. Purchaser is a limited liability
company formed under the laws of the state of Delaware and has all
necessary corporate power and authority to carry on its business as now
being conducted by it. Purchaser has full power and authority to enter
into this Agreement and to do all acts and things and execute and deliver
all other documents as are required hereunder to be done, observed or
performed by it in accordance with the terms hereof.
(b) VALID AUTHORITY. Purchaser has taken all necessary corporate
action to authorize the creation, execution, delivery and performance by it
of this Agreement and for it to observe and perform the provisions of this
Agreement in accordance with its terms.
(c) VALIDITY OF DOCUMENTS AND ENFORCEABILITY. This Agreement
constitutes a valid and legally binding obligation of Purchaser enforceable
against it in accordance with its terms, except as the enforceability
thereof may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and by general principles of equity. Neither the execution
and delivery of this Agreement nor compliance with the terms and conditions
hereof by Purchaser (i) does or will result in a violation of the terms of
any Applicable Instrument of the Purchaser or any Governmental Requirement,
or (ii) requires any approval or consent of any governmental authority or
agency having jurisdiction except such as has already been obtained.
(d) COMMERCIAL PURPOSE. Purchaser has entered into this transaction
for commercial purposes related to its business as a producer, processor,
fabricator, or merchandiser of Natural Gas or natural gas liquids.
Purchaser has the capacity to take delivery of the Natural Gas to be
delivered hereunder. Purchaser is acquiring the Natural Gas in the ordinary
course of business.
(e) SOLVENCY. Purchaser (i) has assets that exceed its liabilities,
(ii) has or has access to sufficient capital to carry on its business as
presently conducted and (iii) is able to pay its debts as they become due.
4.03 MUTUAL REPRESENTATIONS AND WARRANTIES. Seller and Purchaser
mutually represent to each other that this Agreement and all transactions under
this Agreement constitute a "Forward Contract" under and in all proceedings
related to the United States Bankruptcy Code, as the same may be amended,
restated, replaced or re-enacted from time-to-time, and will be treated
similarly under and in all proceedings related to any bankruptcy, insolvency or
similar law (regardless of the jurisdiction of application or competence of such
law) or any ruling, order,
15
directive or pronouncement made pursuant thereto and constitute a "Forward
Contract" under the Final Forward Contract Rules (also known as the Energy
Products Exemption) of the Commodity Futures Trading Commission as described in
58 Federal Register 21, 286 (1993).
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
5.01 AFFIRMATIVE COVENANTS OF THE SELLER. The Seller covenants and
agrees with the Purchaser that so long as any obligation of the Seller to
deliver Natural Gas or to make any payment is outstanding hereunder:
(a) COMPLIANCE WITH LAWS. Seller will comply in all material
respects with all Governmental Requirements hereunder (including all
applicable Environmental Laws) and all material agreements (including
operating agreements and field agreements) applicable to its concessions
and other exploration, exploitation and development rights with respect to
the Designated Properties, and to the lifting, treating, storing, handling,
and transporting of the Natural Gas. The Seller will comply in all material
respects with the Applicable Instruments of the Seller.
(b) MAINTENANCE OF CORPORATE EXISTENCE. Seller shall (i) maintain in
effect its partnership existence and all registrations necessary therefor,
(ii) maintain in good standing and full force and effect its concessions
and other exploration, exploitation and production rights with respect to
the Designated Properties and (iii) take all reasonable actions to maintain
all rights, privileges, titles, franchises and the like necessary to lift,
treat, store, handle, and transport the Natural Gas and shall not cause the
revocation, cancellation, lapsing, expiration or termination of its rights
in the Designated Properties.
(c) NOTICE OF EVENT OF DEFAULT. Seller will notify the Purchaser of
the occurrence of any event which with the passage of time or the giving of
notice, or both, would be an Event of Default promptly after becoming aware
of the same.
(d) QUALIFICATION. Seller will maintain its status as a foreign
entity duly qualified under the laws of all jurisdictions in which the
failure to be so qualified could have a material adverse effect on the
Seller by or before the first Delivery Month.
(e) PERFORMANCE. Seller shall unconditionally, fully, and faithfully
perform and carry out all of its obligations in respect of the Sales
Transaction under this Agreement and the Definitive Agreements and shall
deliver and market the Natural Gas in accordance with the terms of this
Agreement and the Definitive Agreements.
(f) REPORTING REQUIREMENTS. Seller shall deliver to Purchaser the
following:
(i) within one hundred and twenty (120) days after the close of
each fiscal year of Seller, the balance sheet of Seller as of the
end of such year which has been reviewed by EEX's independent public
accountants and the related statement of income and statement of
cash flows for such year of Seller, all prepared in accordance with
GAAP, which financial statements shall be certified
16
by the chief financial officer of Seller as fairly presenting in all
material respects the financial condition of Seller as of the end of
such fiscal year and the results of its operations for such fiscal
year in accordance with GAAP.
(ii) Within sixty (60) days after the close of each of the
first three fiscal quarters of each fiscal year of Seller, the
balance sheet of Seller as of the end of such quarter and the
related statement of income and statement of cash flows for such
quarter of Seller, all prepared in accordance with GAAP, which
financial statements shall be certified by the chief financial
officer of Seller as fairly presenting in all material respects the
financial condition of Seller as of the end of such quarter and the
results of its operations for such quarter (subject to normal year-
end audit adjustments) in accordance with GAAP.
(iii) on each January 1 and July 1 during the term of this
Agreement commencing January 1, 2000, an engineering report prepared
as of such date covering the Designated Properties, prepared by EEX
and reviewed and approved by Netherland and ▇▇▇▇▇▇ or a nationally
recognized engineering firm acceptable to Purchaser, setting forth
information regarding the reserves and production of the Designated
Properties, all in form and substance similar to that presented in
the initial report of Netherlands and ▇▇▇▇▇▇ dated December 13,
1999, and reasonably satisfactory to Purchaser; provided that during
the continuance of any Default or Event of Default hereunder, such
engineering reports shall be prepared by Netherland and ▇▇▇▇▇▇ or a
nationally recognized engineering firm acceptable to Purchaser.
(iv) immediately upon the occurrence of any material violation
of any Environmental Laws, written notification by any regulatory or
governmental authority of any investigation of any incident relating
thereto or any similar event, a written notice to Purchaser of the
occurrence of such event and the actions Seller is taking in respect
thereof. Upon receipt of any such notice, Purchaser accompanied by
Seller's representative shall be entitled to conduct an
environmental review or audit of the affected properties.
(g) TAXES. Seller shall duly pay and discharge, or cause to be paid
or discharged, before the same shall become delinquent, all taxes,
assessments and other governmental charges imposed upon the Designated
Properties or the Natural Gas produced therefrom, except (i) such taxes,
assessments, or charges as are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with GAAP and (ii) income taxes imposed on Purchaser as a result
of the transactions hereunder.
(h) MAINTENANCE OF PROPERTIES. Seller shall maintain the Designated
Properties in a good and workmanlike manner as would a prudent operator,
without regard to the fact that the Natural Gas has been sold to Purchaser
hereunder, and in accordance with customary industry practices and all
applicable laws, rules and regulations.
17
(i) PAYMENT OF COSTS AND FEES. Seller will pay or cause to be paid
in accordance with their terms:
(i) all royalties (including overriding royalties, production
payments, net profit interests and other similar burdens on
production affecting any of the Designated Properties;
(ii) all costs of production and lease operating expenses incurred
in connection with the Designated Properties or the production of any
hydrocarbons therefrom;
(iii) all brokerage, finders or similar third-party fees incurred
or charged in connection with any of the Sales Transactions;
(iv) all Taxes incurred in connection with any Sales Transaction
regardless of where or when incurred; and
(v) all costs for treatment, compression, separation, processing,
storing and other handling of the Natural Gas required for delivery
into the pipeline and all gathering and transportation costs to
transport same to the relevant Delivery Point.
(j) CAPITAL EXPENDITURES. Seller will make capital expenditures into
the Designated Properties sufficient to provide a level of production
therefrom at least equal to the volumes projected in the engineering report
delivered to Purchaser prior to the execution of this Agreement.
Notwithstanding the foregoing, capital expenditures for exploration
activities shall not exceed in any calendar year the total of (i) net
revenue produced from the sale of Hydrocarbons from the Designated
Properties plus (ii) any infusion of subordinated debt into Seller, minus
the sum of: (X) other capital expenditures made pursuant to the preceding
sentence, (Y) expenses of operating the Designated Properties and (Z) the
actual general and administrative expenses of Seller incurred in the
operation of the Designated Properties.
(k) PURCHASER GAS. Prior to the time any Purchaser Gas for any
Delivery Month is accepted at any Delivery Point, Seller shall have entered
into valid and enforceable Third Party Contracts for all such volumes of
Purchaser Gas.
(l) G&A EXPENSES. Seller will spend a maximum of $1,900,000.00 per
calendar year during the term hereof for general and administrative
expenses (exclusive of exploration and production expenses).
(m) OPERATOR OF DESIGNATED PROPERTIES. Seller will either: (i)
remain as the operator of the Designated Properties during the term of this
Agreement, (ii) cause EEX or an affiliate of EEX approved by Purchaser to
be such operator or (iii) engage a substitute operator with such financial
strength, operating history and technical and engineering expertise as is
reasonably satisfactory to Purchaser.
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(n) MODIFICATION OF PRODUCTION RATES. Seller will maintain the
current production rates of the Designated Properties, provided Seller may
(i) accelerate or reduce said rate if Seller demonstrates to Purchaser's
reasonable satisfaction that Seller will remain capable of delivering all
Required Delivery Quantities hereunder in a timely manner and with reserve
coverage satisfactory to Purchaser, and (ii) make minor modifications to
production rates in accordance with customary industry practice or as
dictated by prudent operating requirements to preserve or enhance the value
of the Designated Properties. In the event Seller adjusts production rates
in a manner that results in the Designated Properties not being able to
deliver all of the Required Delivery Quantities in a timely manner and with
reserve coverage reasonably satisfactory to Purchaser, as determined by
Purchaser to its reasonable satisfaction, Purchaser may unilaterally modify
the Required Delivery Quantity for any or all Delivery Months (either
upward or downward) in any amount, such change to be effective immediately
upon notice thereof to Seller.
(o) SUPPLEMENTAL MORTGAGES. If Seller spends any funds on additional
seismic work, exploration or production of hydrocarbons on, or enters into
any assignment or farmout agreement in respect of, any of the Designated
Properties not covered by the Mortgage, Seller will execute a Mortgage on
said properties to the extent of its retained interest therein in favor of
Seller, within thirty (30) days of commencing such activity.
5.02 NEGATIVE COVENANTS OF THE SELLER. Seller covenants and agrees with
the Purchaser that so long as any obligation of Seller to deliver Natural Gas or
to make any payment is outstanding hereunder:
(a) ASSIGNMENTS OF DESIGNATED PROPERTIES. Seller will not assign or
otherwise transfer any interest in any of the Designated Properties, other
than sales to third parties for fair market value, in cash in an arms
length transaction. In the event of any such sale, unless the sold
Designated Properties are immediately replaced with properties containing
similar reserves of Natural Gas, similar production profiles and comparable
risks of production, all as determined by Purchaser in its sole and
absolute discretion, Purchaser may unilaterally modify the Required
Delivery Quantity for any or all Delivery Months (either upward or
downward) in any amount, such change to be effective immediately upon
notice thereof to Seller.
(b) ENCUMBRANCES. Seller will not grant or permit any Liens on the
Designated Properties other than the Permitted Encumbrances.
(c) DISTRIBUTION. Seller will not make any dividends or
distributions of cash or any other assets during the term of this
Agreement, except for one (1) initial distribution of approximately
$105,000,000 made on the date hereof, for the purpose for repaying the
financing provided by EEX for a part of the purchase price of the equity
interests of certain of Seller's partners.
(d) DEBT. Seller will not incur any debt for borrowed money other
than subordinated debt on terms generally comparable to those contained in
that certain
19
Subordinated Note dated as of the date hereof executed by EEX Reserves
Funding in the face amount of $176,277,533 with a discounted principal
amount of $100,000,000, which terms, among other items, (i) will not
require or permit any principal payment or any cash interest payment
thereon of any kind, but (ii) which may require or permit payment of
interest in kind and (iii) may provide for conversion of such debt to
equity in EEX Reserves Funding, after all of Seller's obligations under
this Agreement and the Definitive Agreements have been satisfied in full.
ARTICLE VI
EVENTS OF DEFAULT, TERMINATION AND LIQUIDATED DAMAGES
6.01 EVENTS OF DEFAULT. Each of the following events shall constitute
an "Event of Default" by the Seller under this Agreement:
(a) Seller shall fail to pay when due any amounts owed to Purchaser
pursuant to this Agreement and such failure shall continue for five (5)
days; or
(b) Seller shall fail to perform or observe any term, covenant or
agreement contained in Section 5.02 of this Agreement; or
(c) Seller shall fail to perform or observe any material term,
covenant or agreement herein contained or contained in any Definitive
Agreement to which Seller is a party (other than any term, covenant or
agreement whose breach or default in performance is specifically dealt with
elsewhere in this Section 6.01) and such failure shall remain unremedied
for thirty (30) days; or
(d) any representation or warranty made by the Seller in this
Agreement or by Seller or EEX in any other Definitive Agreement shall prove
to have been incorrect in any material respect when made or deemed made, it
being agreed that the representations in the last sentence of Section
4.01(h) and in Section 4.01(i) are deemed made upon each delivery of
Natural Gas hereunder; or
(e) EEX shall fail to perform or observe any material term, covenant
or agreement contained in the EEX Undertaking Agreement or any other
Definitive Agreement to which it is a party and such event failure shall
remedied for ten (10) days; or
(f) Either Seller or EEX shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against Seller or EEX seeking
to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, and in
the case of any such proceeding instituted against it (but not yet
instituted by it), shall remain undismissed or unstayed for a period of
thirty (30) days or
20
the Seller or EEX, as appropriate, shall take any partnership or corporate
action to authorize any of the actions set forth above in this subsection
(f); or
(g) any interpretation, enactment or change or amendment to any
Governmental Requirement occurring after the date of this Agreement that
results or would result in the performance of any obligation of Seller to
deliver Natural Gas under this Agreement being prohibited or unlawful.
6.02 REMEDIES AND TERMINATION BY THE PURCHASER. If at any time an Event
of Default has occurred and is continuing, Purchaser may, by notice to Seller
specifying the relevant Event of Default, designate a day not earlier than the
day such notice is effective as a termination date ("Termination Date");
provided, however, that if an Event of Default pursuant to Section 6.01(f) shall
have occurred, the Termination Date shall occur immediately on the occurrence of
such Event of Default. Upon the designation or occurrence of a Termination Date,
the obligation of Seller to make any further deliveries of Natural Gas to
Purchaser under this Agreement will terminate, and Seller's appointment as
Purchaser's agent under Article III hereunder, together with all rights of
Seller as Purchaser's agent, shall immediately terminate, without prejudice to
the other provisions of this Agreement. If notice of the Termination Date is
given, or if the Termination Date is deemed to occur, Seller shall pay to the
Purchaser an amount equal to the Termination Payment together with any Unpaid
Amounts. All amounts payable under this Section 6.02 shall become due and shall
be payable on the day after the Termination Date. Such amount will be paid
together with (to the maximum extent permitted by applicable law) interest
thereon (before as well as after judgment) from (and including) the Termination
Date to (but excluding) the date such amount is paid, at the rate specified in
Section 7.02. The parties agree that the sum of the Termination Payment plus any
Unpaid Amounts is a reasonable pre-estimate of the damages that would be
incurred by Purchaser as a result of an Event of Default and not a penalty.
6.03 OTHER REMEDIES. If all amounts payable on the Termination Date
shall not have been received on such date by Purchaser, Purchaser may proceed to
protect and enforce its rights, either by suit in equity or by action at law or
both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in any other Definitive Agreement or in aid of
the exercise of any power, right or remedy granted in this Agreement or any
other Definitive Agreement (including, without limitation, the Mortgage) or may
proceed to enforce the payment of all amounts owing to Purchaser under this
Agreement or any other Definitive Agreement (including, without limitation, any
sums specified as liquidated damages, any sums owing based on unpaid Wellhead
Price payments or any Unpaid Amounts, together with interest thereon to the
extent provided herein); it being intended that no remedy conferred herein or in
any of the other Definitive Agreements is to be exclusive of any other remedy,
and each and every remedy contained herein or in any other Definitive Agreement
shall be cumulative and shall be in addition to every other remedy given
hereunder and under the other Definitive Agreements or now or hereafter existing
at law or in equity.
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ARTICLE VII
MISCELLANEOUS
7.01 NOTICE. All notices and other communications provided for hereunder
shall be in writing and mailed, delivered or telecopied:
To Seller:
EEX E&P Company, L.P.,
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Vice President, Finance
Telecopier No.: ▇▇▇-▇▇▇-▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
EEX Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
To Purchaser:
▇▇▇ ▇▇▇▇ Treasure L.L.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Enron North America Corp.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall, if mailed, be effective three
days after being deposited in the mails, if sent by telecopier, upon receipt of
legible and complete copies by the receiving telecopier equipment; if sent by
courier other than overnight courier, upon receipt; if sent by overnight
courier, one Business Day after delivery to the courier company; provided, that
22
telecopied communications received by any party after its normal business hours
(or on other than a Business Day) shall be effective on the next Business Day.
Either party may change its address or telecopy number for receipt of
communications hereunder by giving notice of such change to the other party in
accordance with this Section 7.01.
7.02 INTEREST. (a) If any monetary amounts payable under this Agreement
are not paid when due, then such overdue amounts shall bear interest for each
day until paid in full, payable on demand, both before and after default,
judgment and the Termination Date, at the lesser of the U.S. Base Rate plus four
percent (4%) per annum, as it changes from time to time or the highest non-
usurious rate allowed by applicable law.
(b) Any and all amount payable by Seller under this Agreement which may be
deemed to be interest are expressly limited so that in no event whatsoever shall
any amount paid, or agreed to be paid to Purchaser, or charged, contracted for,
reserved, taken or received by Purchaser for the use, forbearance or detention
of money paid under this Agreement exceed that amount of money which would cause
the effective rate of interest to exceed the highest nonusurious rate of
interest allowed by applicable law. Any amounts owed under this Agreement shall
be held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid, charged, contracted for, reserved, taken or received for the
use, forbearance or detention of money under this Agreement shall in no event
exceed that amount of money which would cause the effective rate of interest to
exceed the highest nonusurious rate of interest allowed by applicable law.
Seller shall not be required to pay any unearned interest or to pay interest in
excess of the highest nonusurious rate of interest allowed by applicable law. If
the effective rate of interest which would be payable under this Agreement
exceeds the highest nonusurious rate allowed by applicable law, or if Purchaser
receives any unearned interest, or receives any monies deemed to be constitute
interest which would increase the effective rate of interest to a rate in excess
of the highest nonusurious rate allowed by applicable law, then (a) the amount
of interest which would otherwise be payable by Seller shall be reduced to the
amount allowed under applicable law and (b) any unearned interest or interest in
excess of the highest nonusurious rate shall be credited on any amounts owing to
Purchaser (or if such shall have been paid in full, refunded to Seller). All
calculations of the rate of interest hereunder are made for the purpose of
determining whether such rate exceeds the highest nonusurious rate allowed by
applicable law and shall be made by amortizing, prorating and spreading in equal
parts during the full term of the Agreement.
7.03 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD RESULT IN THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION.
7.04 SEVERABILITY. In the event that one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect under any applicable law the validity, legality or enforceability of the
remaining provisions hereof shall not be affected or impaired thereby. Each of
the provisions of this Agreement is hereby declared to be separate and distinct.
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7.05 CURRENCY. Unless otherwise stated, all amounts expressed herein in
terms of money refer to the United States Dollar and all payments to be made
hereunder shall be made in such currency.
7.06 PURCHASER NOT AN AGENT. Purchaser acknowledges and confirms that
all purchases of Natural Gas hereunder are being made by it as a principal and
that it is not acting as agent for any other Person in connection with purchases
of Natural Gas hereunder.
7.07 BENEFIT OF THE AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the Seller, the Purchaser and their respective successors
and assigns.
7.08 ASSIGNMENT AND TRANSFER. Seller may not assign any rights or
delegate any obligations hereunder, except to an affiliate of Seller, without
the prior written consent of Purchaser in its sole discretion. Prior to any
Default hereunder, Purchaser may not assign its rights hereunder to any third
party without the prior written consent of Seller, which consent shall not be
unreasonably withheld, except to affiliates of Purchaser or to financial
institutions, to whom it may assign without consent.
7.09 ENTIRE AGREEMENT. THIS AGREEMENT AND THE DEFINITIVE AGREEMENTS
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT HEREOF AND SUPERSEDE ANY PRIOR AGREEMENT, UNDERTAKING, DECLARATIONS,
COMMITMENTS OR REPRESENTATIONS, WRITTEN OR ORAL, IN RESPECT THEREOF.
7.10 AMENDMENTS. This Agreement may not be modified or amended except
by an instrument in writing signed by the Purchaser and the Seller or by their
respective successors or permitted assigns.
7.11 NO WAIVERS, REMEDIES. No failure to exercise and no delay in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law except
as otherwise expressly provided herein.
7.12 TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement.
7.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which may be delivered in original or facsimile form but each of which so
executed shall be deemed to be an original and such counterparts together shall
constitute one and the same instrument.
7.14 THIRD-PARTY EXPENSES. Seller agrees to pay all of Purchaser's
third party expenses and reasonable professional fees (incurred with the prior
approval of Seller or EEX), all reasonable legal fees and other transaction
costs incurred in the evaluation and negotiation of the proposed Sales
Transaction, this Agreement and the other Definitive Agreements within thirty
(30) days of the date of invoice and all fees and expenses of Purchase in
connection with the enforcement of Purchaser's rights hereunder or thereunder.
7.15 DISCLOSURE OF INFORMATION. Seller agrees that it will not disclose,
without the prior consent of Purchaser (other than to its employees, auditors or
counsel or its holding or parent
24
company), any information with respect to Purchaser or any affiliate thereof or
in respect of the Sales Transaction, this Agreement or any Definitive Agreement,
provided that Seller may disclose any such information (a) as has become
generally available to the public, (b) as may be required or appropriate in
response to any summons or subpoena or in connection with any litigation, or (c)
in order to comply with any law, order, regulation or ruling applicable to such
party.
7.16 INDEMNITY. Seller will, and hereby does, indemnify Purchaser, its
affiliates and their respective directors, officers, agents, representatives,
and employees (the "Indemnitees") against all claims, losses, actions,
liabilities, judgments, costs, reasonable attorneys' fees and other charges of
whatsoever kind or nature, including, without limitation, consequential and
punitive damages (collectively, "Claims") made against or incurred by them or
any of them which arise out of or in connection with this Agreement (including
the marketing provisions contained herein), the Sales Transaction or any of the
Definitive Agreements. IT IS THE EXPRESS INTENTION OF SELLER THAT SELLER'S
INDEMNIFICATION OBLIGATIONS WITH RESPECT TO THE FOREGOING MATTERS SHALL INCLUDE
ANY CLAIMS RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE OF ANY
INDEMNITEE OR ANY CLAIM ARISING UNDER ANY THEORY OF STRICT LIABILITY; PROVIDED,
THAT NO INDEMNITEE SHALL BE ENTITLED TO INDEMNIFICATION FOR ANY CLAIM RESULTING
FROM ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED BY A COURT OF
COMPETENT JURISDICTION IN A FINAL, NONAPPEALABLE JUDGMENT. If any Claim is
asserted against any Indemnitee and such Indemnitee intends to claim
indemnification from Seller under this Section 7.16, such Indemnitee shall
promptly notify Seller, but the failure to so promptly notify Seller shall not
affect Seller's obligations under this Section 7.16. Each Indemnitee may, and
if requested by Seller in writing shall, in good faith contest the validity,
applicability, and amount of such claim, demand, action, or cause of action with
counsel selected by such Indemnitee and reasonably acceptable to Seller, the
cost of which defense shall be borne by Seller, and shall permit Seller to
participate in such contest. Any Indemnitee that proposes to settle or
compromise any claim or proceeding for which Seller may be liable for payment of
indemnity hereunder shall give Seller written notice of the terms of such
proposed settlement or compromise reasonably in advance of settling or
compromising such claim or proceeding and shall obtain Seller's prior written
consent, which consent shall not be unreasonably withheld, provided, any
Indemnified Party may settle such claim without Seller's consent if such
Indemnitee simultaneously releases Seller for any liability therefor. In
connection with any claim, demand, action, or cause of action covered by this
Section 7.16 against more than one Indemnitee, each Indemnitee shall be
represented by legal counsel selected by it. The terms and provisions of this
Section 7.16 shall specifically survive the termination or expiration of this
Agreement.
7.17 ARBITRATION. (a) DISPUTES TO BE ARBITRATED. If a dispute
("Dispute") between the parties to this Agreement arises out of or in connection
with this Agreement and the parties hereto have not been successful in resolving
such Dispute through negotiation, such Dispute shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act. The arbitration may be
initiated by either party by providing to the other a written notice of
arbitration specifying the Disputes to be arbitrated. If a party refuses to
honor its obligations to arbitrate, the other party may seek to compel
arbitration in either federal or state court. The arbitration proceeding shall
be conducted in Houston, Texas, or other location mutually agreed upon by the
parties. Within thirty (30) days of the notice initiating the arbitration
procedure, each party shall designate one arbitrator, who need not be impartial.
If either party fails to designate an
25
arbitrator, the other party may have an arbitrator appointed by applying to the
senior active United States District Judge for the Southern District of Texas.
The two arbitrators shall select a third arbitrator. If the two arbitrators
chosen by the parties fail to agree upon the third arbitrator, both or either of
the parties may apply to the senior active United States District Judge for the
Southern District of Texas for the appointment of a third arbitrator. The third
arbitrator shall take an oath of neutrality.
(b) ARBITRATION PROCEDURES. The three arbitrators shall make all of their
decisions by majority vote. The enforcement of this Agreement to arbitrate, the
validity, construction and interpretation of this Agreement to arbitrate, and
all procedural aspects of the proceeding pursuant to this Agreement to
arbitrate, including, without limitation, the issues subject to arbitration, the
scope of the arbitrable issues, allegations of "fraud in the inducement" to
enter into this entire Agreement or to enter into this Agreement to arbitrate,
allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act. In deciding the substance of the
parties' Disputes, the arbitrators shall apply the substantive laws of the State
of Texas (excluding Texas choice of law principles that might call for the
application of some other state's law). The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, except as modified in this Agreement. It is contemplated that
although the arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, the arbitration
proceeding will be self-administered by the parties, provided, if a party
believes the process will be enhanced if it is administered by the American
Arbitration Association, such party shall have the right to cause the process to
become administered by the American Arbitration Association by applying to the
American Arbitration Association and, thereafter, the arbitration shall be
conducted pursuant to the administration of the American Arbitration
Association. In determining the extent of discovery, the number and length of
depositions, and all other pre-hearing matter, the arbitrators shall endeavor to
the extent possible to streamline the proceedings and minimize the time and cost
of the proceedings. There shall be no transcript of the hearing. The final
hearing shall be conducted with 120 days of the selection of the third
arbitrator. The final hearing shall not exceed ten (10) Business Days, with each
party to be granted one-half of the allocated time to present its case to the
arbitrators. All proceedings conducted hereunder and the decision of the
arbitrators shall be kept confidential by the parties.
(c) ARBITRATION AWARD. Only damages allowed pursuant to the Agreement may
be awarded. It is expressly agreed that the arbitrators shall have no authority
to award treble, exemplary or punitive damages of any type under any
circumstances regardless of whether such damages may be available under Texas
law, each of the parties hereby waving their right, if any, to recover treble,
exemplary or punitive damages in connection with any Dispute, either in
arbitration or in litigation. The arbitrators shall render their final decision
within twenty (20) days of the completion of the final hearing fully resolving
all of the Disputes that are the subject of the arbitration proceeding. The
arbitrators' ultimate decision after final hearing shall be in writing. The
arbitrators shall certify in their decision that no part of their award includes
any amount for treble, exemplary or punitive damages not allowed hereunder. The
arbitrators' decision shall be final and non-appealable to the maximum extent
permitted by law. Any and all of the arbitrators' orders and decisions may be
enforceable in, and judgment upon any award
26
rendered in the arbitration proceeding may be confirmed and entered by, any
federal or state court having jurisdiction.
27
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first written above.
SELLER
EEX E&P COMPANY, L.P. (formerly known as
Tesoro E&P Company, L.P.)
By: EEX Exploration & Production Company,
LLC (formerly known as Tesoro
Exploration & Production Company,
LLC), its General Partner
By:_____________________
▇. ▇. ▇▇▇▇▇
Title:__________________
PURCHASER
▇▇▇ ▇▇▇▇ TREASURE L.L.C.
By:_____________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President
Annex I
TO NATURAL GAS INVENTORY FORWARD SALE CONTRACT
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Execution by Seller and delivery to Purchaser of each of the following in each
case in form and substance satisfactory to Purchaser in its sole discretion:
1) (a) the Agreement,
(b) the Excess Gas Sales Purchase Agreements,
(c) the Mortgage,
(d) Fee Letter,
(e) Letter Agreement,
(f) UCC-1 Financing Statements as required by Purchaser, and
(g) the Confirmation Letter.
2) Execution by EEX and deliver to Purchaser of each of the following
documents:
(a) the EEX Undertaking Agreement in favor of Purchaser,
(b) Fee Letter and
(c) Letter Agreement.
3) Delivery to Purchaser of a certificate of the secretary and other
appropriate officer of each of Seller, EEX Reserves Funding and EEX
certifying a copy of the resolutions of the Board of Directors of each of
Seller, EEX Reserves Funding and EEX, as the case may be (a) approving the
execution of this Agreement and the documents listed above to which such
Person is a party, together with any other documents requested by Seller in
contemplation of the transactions evidenced by such documents and (b)
authorizing the execution of such documents by the parties thereto, as
applicable.
4) Delivery to Purchaser of a legal opinion of Akin, Gump, Strauss, ▇▇▇▇▇ &
▇▇▇▇, L.L.P., Special Counsel to EEX, EEX Reserves Funding and Seller
substantially in the form of Exhibit B hereto.
5) Delivery to Purchaser of a legal opinion of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General
Counsel to Seller substantially in the form of Exhibit A hereto.
6) Delivery to Purchaser of an executed copy of Stock Purchase Agreement,
including all schedules and exhibits attached thereto and a certificate of
an appropriate officer of each of EEX and EEX Operating LLC that such
agreement is in full force and effect and no default exists thereunder.
7) Purchase by EEX of the Subordinated Note of EEX Reserves Funding in the face
amount of $176,277,533 with a discounted principal amount of $100,000,000
and advance of the proceeds thereof to EEX Reserves Funding.
8) Evidence satisfactory to Purchaser that EEX has made an equity infusion into
EEX Reserves Funding of not less than $3,000,000.00.
9) Delivery of all title opinions covering at least 70% of the net present
value of future production of Natural Gas (discounted at 10% per annum) from
the Designated Properties in the possession of Seller and satisfactory title
information on the balance of the Designated Properties.
10) Delivery of engineering reports prepared by Netherland and ▇▇▇▇▇▇ dated on
or about the date of this Agreement, together with any subsequent updates of
such reports, covering the Designated Properties.
11) Delivery to Purchaser of an executed copy of the Operating Services
Agreement between Seller and EEX or an affiliate of EEX covering the
Designated Properties.
12) Delivery to Purchaser of copies of all gas gathering, transportation,
processing and treating, operating and other arrangements with all
transporting pipelines and/or other third parties and all existing
dedications by Seller or any predecessor in title.
13) Delivery to Purchaser of an environmental report prepared by CRA Services
covering the Designated Properties.
14) All matters disclosed on any Schedule and Exhibit hereto to this Agreement
being acceptable to Purchaser.
15) Purchaser shall have received such consents and waivers as required by
Purchaser.
16) Purchaser shall have completed to its reasonable satisfaction a due
diligence review of Seller, its partners and the Designated Properties
including without limitation title, engineering, environmental, financial,
tax and operating matters and all related contracts.
17) Delivery to Purchaser of the Applicable Instruments for each of Seller; EEX;
EEX Reserves Funding; EEX Operating LLC; Tesoro Grande Company, LLC; Tesoro
Southeast Company, LLC; Tesoro Exploration and Production Company, LLC and
Tesoro Reserves Company, LLC.
18) Seller and EEX shall have performed all of their respective obligations
under the Fee Letter.
19) Seller and EEX shall each have performed all of its obligations under the
Letter Agreement.
20) Seller shall have provided evidence to Purchase that all Liens incurred in
connection with any financing arrangements burdening the Designated
Properties will be released upon Seller's acquisition of the Designated
Properties.
21) Local counsel opinions with respect to the Mortgage from counsel in each of
Texas, New Mexico, North Dakota and Louisiana.
22) Delivery to Purchaser of any other information, documentation and/or
material as reasonably requested by Purchaser.
Annex II
TO NATURAL GAS INVENTORY FORWARD SALE CONTRACT
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
1) Execution by Purchaser and delivery to Seller of each of the following, each
in form and substance satisfactory to Seller:
(a) this Agreement,
(b) the Excess Gas Sales Purchase Agreements,
(c) the Fee Letter, and
(d) the Confirmation Letter
2) Evidence satisfactory to Seller that Purchaser or its affiliate or designee
has made an equity infusion into EEX Reserves Funding of $3,000,000.00
3) Delivery to Seller of a legal opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P.,
substantially in the form of Exhibit C attached hereto.