TERM ROYALTY AGREEMENT
This Term Royalty Agreement (the "Agreement") is made and entered into this
17th day of May, 2005, by and between Energy Corporation of America, a West
Virginia corporation ("ECA"), and Eastern American Energy Corporation, a West
Virginia corporation ("Eastern" or "Seller"), and Black Stone Minerals Company,
L.P., a Delaware limited partnership, or its designees ("Buyer").
BACKGROUND
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WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Term Royalty Interest in accordance with the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants and
conditions contained herein, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I. DEFINITIONS.
1. This Section 1 defines certain capitalized words, terms, and phrases
used in this Agreement. Certain other capitalized words, terms, and phrases
used in this Agreement may be defined elsewhere in this Agreement.
"Additional Lease" is defined in Section 12.01 of the Term Royalty
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Conveyance.
"Adjusted Completed Development Well Value" means, with respect to each
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Completed Development Well, the value obtained by multiplying for each Completed
Development Well drilled or caused to be drilled by Seller during any Annual
Period one (1) times the Working Interest (stated as a decimal fraction or 1.00,
where Seller holds a 100% Working Interest), that Seller is required to bear in
such Completed Development Well. For example, if Seller holds an eighty-five
percent (85%) Working Interest in a Completed Development Well, the computation
would be:
1 x .85 = .85
therefore, such Completed Development Well would have a .85 Adjusted Completed
Development Well Value.
"Affiliate" means, for any specified Person, another Person that controls,
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is controlled by, or is under common control with, the specified Person.
"Control," in the preceding sentence, refers to the possession by one Person,
directly or indirectly, of the right or power to direct or cause the direction
of the management and policies of another Person, whether through the ownership
of voting securities, by contract, or otherwise.
"AMI Areas" mean the areas depicted on the map set forth on Exhibit "B" as
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the Yawkey ▇▇▇▇▇▇▇ ▇▇▇ and the PK AMI.
"Annual Period" means the annual period commencing on April 1 of each year
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and ending on March 31 of the succeeding year.
"Business Day" means any day that is not a Saturday, Sunday, a holiday
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determined by the New York Stock Exchange, Inc. as "affecting 'ex' dates" or any
other day on which national banking institutions in New York, New York are
closed as authorized or required by law.
"Buyer" means Black Stone Minerals Company, L. P., a Delaware limited
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partnership or its permitted designees.
"Closing Date" shall have the meaning assigned in Section 10(a).
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"Completed Development Well" means the Wellbore of any Development Well
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that is completed pursuant to Section 2.02 of the Development Agreement in the
Big Lime formation or deeper formations.
"Deed of Trust" means the Credit Line Deed of Trust from Seller to Buyer
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referenced in Section 12(b), substantially in the form attached hereto as
Exhibit "C".
"Development Agreement" means that certain Development Agreement between
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Seller and the Buyer referenced in Section 12(a) herein, substantially in the
form attached hereto as Exhibit "D".
"Development Well" means any Gas well drilled, within the meaning of
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Section 2.01(b) of the Development Agreement, after the Effective Time of the
Development Agreement on the Subject Development Lands.
"Drilling Obligation Completion Date" means March 31, 2008.
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"Effective Time" is defined in Section 2 hereof.
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"Encumbrance" means any mortgage, lien, security interest, pledge, charge,
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encumbrance, limitation, preferential right to purchase, consent to assignment,
irregularity, burden, or defect.
"Existing Gas Purchase Contract" means that certain Natural Gas Sales
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Agreement dated March 16, 1993 by and between Mountaineer Gas Services, Inc. and
Mountaineer Gas Company as heretofore and may hereafter be amended, modified or
restated.
"Farmout Agreements" means any farmout agreement, participation agreement,
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exploration agreement, development agreement or any similar agreement.
"Gas" means natural gas and all other gaseous hydrocarbons, and all
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non-combustible gas that are contained in the full wellstream.
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"Governmental Authority" means the United States of America, any state,
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commonwealth, territory, or possession thereof, and any political subdivision of
any of the foregoing, including courts, departments, commissions, boards,
bureaus, agencies, and other instrumentalities.
"Kentucky Conveyance" means the Term Royalty Conveyance (Kentucky) by and
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between Seller and Buyer contemplated by Section 2 herein, in substantially
similar form as the Term Royalty Conveyance.
"Legal Requirement" means any law, statute, ordinance, decree, requirement,
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order, judgment, rule, or regulation of, including the terms of any license or
permit issued by, any Governmental Authority.
"Mcf" means thousand cubic feet of Gas and "MMcf" means million cubic feet
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of Gas, measured and expressed in each case at the same temperature, pressure,
and other conditions of measurement (a) provided in any contract for the
purchase of Gas from the Subject Interests or, (b) if no such contract exists,
provided by applicable state law for purposes of reporting production to
Governmental Authorities.
"Net Revenue Interest" means, the interest, stated as a decimal fraction,
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in Subject Gas production from a Well that Seller is entitled to take with
respect to Seller's Subject Interests in that Well and the associated Subject
Lands, subject only to the Permitted Production Burdens.
"Non-Affiliate" means, for any specified Person, any other Person that is
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not an Affiliate of the specified Person.
"Party," when capitalized, refers to Seller or Buyer.
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"Parties," when capitalized, refers to Seller and Buyer.
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"Pennsylvania Conveyance" means the Term Royalty Conveyance (Pennsylvania)
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by and between Seller and Buyer contemplated by Section 2 herein, in
substantially similar form as the Term Royalty Conveyance.
"Permitted Encumbrances" means:
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(a) the Permitted Production Burdens;
(b) the Existing Gas Purchase Contract;
(c) Encumbrances that arise under operating agreements, Farmout
Agreements, leases, assignments, and other instruments and agreements to
secure payments of amounts not yet delinquent and that are of the type and
nature customary in the oil and gas industry, as conducted in the
Appalachian Basin;
(d) Encumbrances that arise as a result of pooling and unitization
agreements, declarations, orders, or Legal Requirements to secure payment
of amounts not yet delinquent;
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(e) Encumbrances securing payments to mechanics and materialmen and
Encumbrances securing payment of Taxes or assessments that are, in either
case, not yet delinquent or, if delinquent, are being contested in good
faith in the normal course of business;
(f) conventional rights of reassignment that obligate Seller to
reassign all or part of any Subject Interest to a Third Person if Seller
intends to release or abandon such interest before the expiration of the
primary term or other termination of such interest;
(g) easements, rights-of-way, servitudes, permits, surface leases,
surface use restrictions, and other surface uses and impediments on, over,
or in respect of the Subject Interests that are not such as to interfere
materially with the operation, value, or use of the Subject Interests;
(h) covenants, conditions, and other terms subject to which Seller
acquired the Subject Interests;
(i) rights reserved to or vested in any Governmental Authority to
control or regulate any Subject Interests in any manner, and all applicable
Legal Requirements;
(j) the terms of the instruments creating the Subject Interests and
Subject Lands;
(k) any Prior Reversionary Interests disclosed in writing to Seller
prior to the execution of this Agreement that affect the Subject Interests;
(l) other Encumbrances that affect any Subject Interests that do not,
alone or in the aggregate, materially and adversely affect the operation,
value or use of the Subject Interests; and
(m) mortgages, deeds of trust or other security interests burdening
Seller's interest in the Subject Interests or any extensions or renewals
thereof and Subject Lands, including without limitation the Deed of Trust;
provided however that any such mortgage, deed of trust or security interest
shall not affect and shall be made expressly subject to the Term Royalty
Conveyance;
all to the extent, and for so long as, such Permitted Encumbrances are (i)
otherwise valid and enforceable against the Subject Interests, without
recognizing, expressly or by implication, any rights or interests in any
Third Person or Governmental Authority that such Third Person or
Governmental Authority does not otherwise lawfully possess, or (ii) they do
not cause Seller's Net Revenue Interests in any Producing Well to be less
than the Net Revenue Interest for that Producing Well as stated in Exhibit
"A-1".
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"Permitted Production Burdens" means (a) all Production Burdens that
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affected the Subject Interests when they were acquired by Seller and (b) all
Production Burdens that were created by Seller, to the extent they do not cause
Seller's Net Revenue Interest in any (i) Producing Well to be less than the Net
Revenue Interest for that Producing Well reflected in Exhibit "A-1", or (ii)
Completed Development Well to be less than 87.5% (proportionately reduced to
Seller's Working Interest in such Completed Development Well). It is understood
and agreed that with respect to Completed Development ▇▇▇▇▇, the Term Royalty
Interest will be calculated on the basis that Seller's Working Interest in the
Subject Development Lands is not burdened by Production Burdens that exceed
12.5%. In the event that Seller's Working Interest in any of the Completed
Development ▇▇▇▇▇ is subject to Production Burdens in excess of 12.5%, such
excess burdens will be the sole responsibility of Seller and paid out of
Seller's fifty percent (50%) interest in the Subject Development Lands retained
by Seller hereunder.
"Person" means any natural person, corporation, partnership, trust, estate,
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or other entity, organization, or association.
"Prior Reversionary Interest" means any contract, agreement, Farmout
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Agreement, lease, deed, conveyance or operating agreement disclosed in writing
to Buyer prior to the execution of this Agreement that exists as of the
Effective Time or that burdens the Subject Interests at the time such Subject
Interests are acquired, that by the terms thereof requires a Person to convey a
part of the Subject Interest to another Person, including any operating
agreements, oil and gas leases, coal leases, and other similar agreements or
instruments affecting the Subject Interests.
"Producing Well" means the Wellbore of each Gas well more particularly
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described in Exhibit "A-1", subject to the exceptions, exclusions and
reservations set forth on such Exhibit "A-1".
"Production Burdens" means, with respect to any Subject Lands, Subject
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Interests, or Subject Gas, all royalty interests, overriding royalty interests,
production payments, net profits interests, Prior Reversionary Interests and
other similar interests that constitute a burden on, are measured by, or are
payable out of the production of Gas or the proceeds realized from the sale or
other disposition thereof.
"Reasonably Prudent Operator Standard" means the standard of conduct of a
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reasonably prudent oil and gas operator in the Appalachian Basin under the same
or similar circumstances, acting with respect to its own property and
disregarding the existence of the Term Royalty Interest as a burden on such
property.
"Seller" is defined in the Introduction to this Agreement and also includes
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all permitted successors and assigns of Seller.
"Seller's Net Share of Gas" means the share of Subject Gas from each Well
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that is attributable to Seller's Net Revenue Interest in that Well.
"Side Letter" means the side letter between ECA and Buyer regarding Prior
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Reversionary Interests substantially in the form attached hereto as Exhibit "E".
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"Subject Development Lands" means the lands subject to or covered by the
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oil and gas leases described in Exhibit "A-2", subject to the exceptions,
exclusions and reservations set forth on such Exhibit "A-2", as such Exhibit may
be modified pursuant to the Term Royalty Conveyance.
"Subject Gas" means with respect to each Well, Gas in and under, and that
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may be produced, saved, and sold from all producing horizons from the Wellbore
of such Well, subject to the following:
(a) "Subject Gas" excludes Gas that is:
(i) lost in accordance with the Reasonably Prudent Operator
Standard in the production, gathering, or marketing of Gas, or that is
liquefied and removed from the gas stream in the normal course of
Seller's operation, consistent with prior practice, via any method
other than processing as contemplated in Section 4.04 of the Term
Royalty Conveyance;
(ii) subject to the Reasonably Prudent Operator Standard, used in
operations on the Subject Lands, including drilling and production
operations on the Subject Development Lands;
(iii) retained by a Third Person, or Seller (pursuant to Section
3.02(c) of the Term Royalty Conveyance), for gathering,
transportation, processing, or marketing services related to the
Subject Gas in lieu of or in addition to cash payment for such
services; or
(iv) in excess of the percentage attributable to Seller's Net
Share of Gas taken by Seller to recover costs, or some multiple of
costs, paid or incurred by Seller under any operating agreement, unit
agreement, or other agreement in connection with nonconsent operations
conducted (or participated in) by Seller.
(b) "Subject Gas" includes Gas, not otherwise excluded above, that
is sold or otherwise disposed of for valuable consideration.
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"Subject Interests" means Seller's undivided interests in the Subject Lands
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as lessee under Gas leases covering and affecting the Subject Lands, as an owner
of the Subject Gas (or the right to extract such Gas), or otherwise, by virtue
of which undivided interests Seller has the right to conduct exploration,
drilling, development, and Gas production operations on the Subject Lands, or to
cause such operations to be conducted, or to participate in such operations by
paying and bearing all or any part of the costs, risks, and liabilities of such
operations, to drill, test, complete, equip, operate, and produce ▇▇▇▇▇ to
exploit the Gas. Any oil and gas lease or other similar instrument that covers
Gas produced from the Subject Lands shall be considered a "Gas lease" hereunder,
even if it also covers other substances. "Subject Interests" includes all
extensions and renewals of Gas leases covering and affecting the Subject Lands
acquired within six (6) months after the expiration or termination of any such
lease, and all new Gas leases covering the Subject Lands (or any portion
thereof) obtained by Seller, or any Affiliate thereof until the termination date
of the Development Agreement. "Subject Interests" do not include (a) Seller's
rights to substances other than Gas; (b) Seller's rights under contracts for the
purchase, sale, transportation, storage, processing, or other handling or
disposition of Gas; (c) Seller's interests in, or rights with respect to,
pipelines, gathering systems, storage facilities, processing facilities, or
other equipment or facilities, other than the ▇▇▇▇▇; or (d) subject to Section
1.04(c) of the Term Royalty Conveyance, any after-acquired, additional, or
enlarged interests in the ▇▇▇▇▇, Subject Lands or Subject Gas, except those
reflected in Exhibit "A-1" or Exhibit "A-2" or any Additional Lease as provided
for in the Term Royalty Conveyance, or extensions and renewals covered by the
preceding sentence. "Subject Interests" may be owned by Seller by virtue of
grants or reservations in deeds, Gas leases, or other instruments, or by virtue
of operating agreements, pooling or unitization agreements or orders, or other
kinds of instruments, agreements, or documents, legal or equitable, recorded or
unrecorded. The Subject Interests are subject to the Permitted Encumbrances.
"Subject Lands" means collectively, the Subject Producing Lands and the
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Subject Development Lands.
"Subject Producing Lands" means the lands subject to or covered by the oil
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and gas leases described in Exhibit "A-1" for lands related to the Producing
▇▇▇▇▇, subject to the exceptions, exclusions and reservations set forth on such
Exhibit "A-1".
"Taxes" is defined in Section 3.02(b). of the Term Royalty Conveyance.
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"Term" is defined in Section 2(b).
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"Term Royalty Conveyance" means collectively, the Kentucky Conveyance, the
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Pennsylvania Conveyance and the West Virginia Conveyance, each substantially in
the form attached as Exhibit "F".
"Term Royalty Gas" means, for any month, that percentage of Gas to which
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the Buyer is entitled, calculated in accordance with Section 3.01 of the Term
Royalty Conveyance.
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"Term Royalty Interest" means the variable undivided interest in and to the
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Subject Interests, to the extent that the Subject Interests pertain to Gas in,
under and that may be produced from the Wellbores of the ▇▇▇▇▇, sufficient to
cause Buyer to receive a volume of Term Royalty Gas and the revenues
attributable thereto calculated and paid in money in accordance with Section
3.01 of the Term Royalty Conveyance.
"Term Royalty Proceeds" means for any month, proceeds received by Seller
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for the account of Buyer, as the Buyer's marketing and payment agent and
representative, from the sale of Term Royalty Gas under the Term Royalty
Conveyance less Chargeable Costs calculated in accordance with Section 3.03 of
the Term Royalty Conveyance.
"Termination Date" is defined in Section 2(b).
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"Third Person" means a Person other than ECA, Seller or Buyer, or their
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respective Affiliates.
"Total Drilling Commitment" means that number of Completed Development
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▇▇▇▇▇ where the cumulative total of all such Adjusted Completed Development Well
Values for all Completed Development ▇▇▇▇▇ drilled by or caused to be drilled by
Seller equals 180.
"Total Subject Gas" means the total of all Subject Gas from each of the
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applicable Term Royalty Conveyance.
"Transfer" including its syntactical variants, means any assignment, sale,
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transfer, conveyance, or disposition of any property; provided, Transfer as used
herein does not include the granting of a security interest in Seller's interest
in any property including the Subject Interests or Subject Lands so long as any
such security interest shall not affect and is expressly subject to the Term
Royalty Interest.
"Wellbore" means the wellbore of any Well from the surface of the ground to
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the total depth drilled of such Well.
"▇▇▇▇▇" means, collectively, the Wellbores of the Producing ▇▇▇▇▇ and the
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Completed Development ▇▇▇▇▇.
"West Virginia Conveyance" means the Term Royalty Conveyance (West
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Virginia) by and between Seller and Buyer contemplated by Section 2 herein, in
substantially similar form as the Term Royalty Conveyance.
"Working Interest" means with respect to any Well, the interest in and to
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such Well that is burdened with the obligation to bear and pay costs and
expenses of maintenance, development and operations on or in connection with
such Well.
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ARTICLE II. TERM ROYALTY CONVEYANCE.
2. a. CONVEYANCE. On the Closing Date (as defined in Section 10(a)
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hereof), but effective as of 7:00 a.m. Eastern Daylight Time, January 1, 2005
(the "Effective Time"), Seller shall sell, assign, convey and deliver to Buyer
for the Term, and Buyer shall purchase and acquire from Seller the Term Royalty
Interest, pursuant to the Term Royalty Conveyance among ECA, Seller and Buyer
substantially in the form attached hereto as Exhibit "F".
b. TERM. The Term of the Term Royalty Interest shall begin as of
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the Effective Time and end at January 1, 2025 (the "Termination Date"). At the
end of the Term all of Buyer's interest in and to the Term Royalty Interest
shall automatically terminate and revert to Seller.
ARTICLE III. CONSIDERATION
3. The total consideration for Seller's conveyance of the Term Royalty
Interest to Buyer shall be One Hundred Fifty-five Million Dollars
($155,000,000.00) payable in cash (the "Consideration"), subject to any
applicable adjustments as hereinafter provided.
a. ADJUSTMENTS TO CONSIDERATION. The Consideration shall be
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adjusted downward:
i. so that Buyer will receive a credit for all Term Royalty Proceeds
received by Seller in respect of the Term Royalty Interest
attributable to the period after the Effective Time. For accounting
purposes, the Effective Time for each Producing Well will be the chart
change date closest to January 1, 2005 (either before or after).
Seller shall be entitled to Term Royalty Proceeds with respect to the
Term Royalty Interest attributable to the period prior to the
Effective Time (regardless of whether such proceeds are received prior
to or after the Effective Time).
ii. by an amount equal to the reduction in the Net Revenue Interest
for Seller in each of the Producing ▇▇▇▇▇ from the Net Revenue
Interest therein shown for Seller in Exhibit "A-1". The amount of
decrease due shall be determined by multiplying the allocated value
for Seller's Net Revenue Interest in the Producing Well in question,
as reflected in Schedule 3(a)(ii) hereto, by a fraction, the numerator
of which shall be the decimal decrease in such interest and the
denominator of which shall be the Net Revenue Interest shown for
Seller in such Producing Well on Exhibit "A-1".
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER.
4. Seller represents and warrants to Buyer as follows:
a. ORGANIZATION. Each of ECA and Seller is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
West Virginia and is qualified or registered as a foreign entity in each
jurisdiction where it is required to be so qualified and registered except where
the failure to so qualify would not have a material adverse effect on such
entity's ownership, operation or value of the Producing ▇▇▇▇▇, the Subject Lands
and/or the Subject Interests.
b. AUTHORITY. Each of ECA and Seller has full power and authority
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and has taken all requisite action, corporate or otherwise, to authorize each
such entity to carry on its business as presently conducted, to own the
Producing ▇▇▇▇▇, the Subject Lands and/or the Subject Interests, to enter into
this Agreement and to perform its obligations under this Agreement. Neither the
execution and delivery of this Agreement nor the performance by each of ECA and
Seller of its respective obligations hereunder will (i) violate such entity's
Articles of Incorporation or Bylaws or, (ii) violate or constitute a default
under any law, regulation, contract, agreement, consent, decree or judicial
order by which Seller or any of its officers, directors or shareholders are
bound.
c. ENFORCEABILITY. This Agreement has been duly executed and
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delivered on behalf of each of ECA and Seller and constitutes the legal, valid
and binding obligation of such entity enforceable in accordance with its terms,
except as limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles. At the Closing, all
documents required hereunder to be executed and delivered by each of ECA and
Seller shall be duly authorized, executed and delivered and shall constitute
legal, valid and binding obligations of Seller enforceable in accordance with
their respective terms, except as limited by bankruptcy or other laws applicable
generally to creditors' rights and as limited by general equitable principles.
d. PREFERENTIAL PURCHASE RIGHTS/CONSENTS. Exhibit "G" sets forth
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all consents, approvals, waivers and authorizations (collectively, "Consents"),
and all preferential purchase rights required to be obtained in connection with
the sale of the Term Royalty Interest to Buyer.
e. LITIGATION AND CLAIMS. No claim, demand, filing, cause of
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action, administrative proceeding, lawsuit or other litigation is pending or, to
the knowledge of Seller, threatened with respect to Seller or the Producing
▇▇▇▇▇, the Subject Lands and/or the Subject Interests that could now or
hereafter materially adversely affect the ownership, operation or value of the
Term Royalty Interest.
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f. COMPLIANCE WITH LAWS. Neither ECA nor Seller has actual
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knowledge, nor has received any notice from any federal, state or municipal
authority that the Producing ▇▇▇▇▇, the Subject Lands and/or the Subject
Interests or Seller's use thereof in its business, are not in material
compliance with all laws, rules, regulations and permits relating thereto except
for such non-compliance and violations which, individually or in the aggregate,
would not have a material adverse effect on the ownership, operation or value of
the Term Royalty Interest. Seller will promptly notify Buyer upon receipt of
any such notice.
g. TITLE. Except for the various liens of record in favor of
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▇▇▇▇▇ Fargo Foothill, Inc., Seller owns the Producing ▇▇▇▇▇, the Subject Lands
and/or the Subject Interests free and clear of all free of all Encumbrances
created by, through, or under Seller, but not otherwise, except for the
Permitted Encumbrances, and that Seller's title to the (i) Producing ▇▇▇▇▇
entitles Seller to a Net Revenue Interest in each such Producing Well no less
than the Net Revenue Interest for that Producing Well as set forth in Exhibit
"A-1", and (ii) as to the Subject Development Lands is sufficient to allow it to
satisfy the Total Drilling Commitment by the Drilling Obligation Completion Date
in accordance with the Development Agreement. Upon execution and delivery of
the Term Royalty Conveyance, there shall be no unreleased deed of trust,
mortgage or security interest burdening the Term Royalty Interest.
h. CONTRACTS. To the best of Seller's knowledge, the material
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terms of all leases, operating agreements, production sales contracts, farmout
agreements and other contracts or agreements respecting the Producing ▇▇▇▇▇, the
Subject Lands and/or the Subject Interests (the "Contracts") can be found either
of record in the county in which same are located or are reflected or referenced
in Seller's files.
i. CONTRACTS AUTHORIZED. With respect to all material Contracts
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that will survive Closing, (i) each has been duly authorized, executed and
delivered by Seller, (ii) each is in full force and effect, (iii) neither Seller
nor, to the knowledge of Seller, any other party to such contracts (aa) is, or
as a result of the transaction contemplated herein will be, in breach of or
default, or with the lapse of time or the giving of notice, or both, would be in
breach or default, with respect to any of its obligations thereunder or (bb) has
given or threatened to give notice of any default under or inquiry into any
possible default under, or action to alter, terminate, rescind or procure a
judicial reformation of any such contract, and (iv) Seller does not anticipate
that any other party to any such contract will be in breach of or default under
or repudiate any of its obligations thereunder.
j. COMPLIANCE. The Producing ▇▇▇▇▇, the Subject Lands and/or the
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Subject Interests have been operated in material compliance with all laws,
orders, regulations, rules and ordinances issued or promulgated by all
governmental authorities having jurisdiction with respect thereto, including,
but not limited to, the Natural Gas Act of 1938, as amended, if applicable, the
Natural Gas Policy Act of 1978, if applicable, and laws, regulations and
ordinances relating to environmental protection, health and safety; and all
necessary governmental certificates, consents, permits, licenses or other
authorizations with regard to the ownership or operation of the Producing ▇▇▇▇▇,
the Subject Lands and/or the Subject Interests have been obtained and Seller has
received no notices of violations in respect of such licenses, permits or
authorizations.
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k. RENTALS AND ROYALTIES PAID. All rentals, royalties, overriding
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royalty interests, taxes, expenses and other payments due under or with respect
to production from the Producing ▇▇▇▇▇, the Subject Lands and/or the Subject
Interests have been properly and timely paid, or accepted, or suspended, and all
leases are in full force and effect. All of the proceeds from the sale of
production are being properly and timely paid to Seller by the purchasers of
production without suspense.
l. IMBALANCES. None of the purchasers under any production sales
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contract or transporters are entitled to "make-up" or otherwise receive
deliveries of production attributable to Seller's interest in the Producing
▇▇▇▇▇, the Subject Lands and/or the Subject Interests at any time after the
Effective Time without paying at such time the full contract price therefore and
there are no Imbalances which allow any other party to "make-up" production at
any time after the Effective Time under any operating agreement, gas balancing
and storage agreement, gas transportation or exchange agreement, gas processing
or dehydration agreement, or other similar agreements relating to the Producing
▇▇▇▇▇, the Subject Lands and/or the Subject Interests.
m. TAX PARTNERSHIPS. Seller's interest in and to the Producing
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▇▇▇▇▇, the Subject Lands and/or the Subject Interests is not subject to any tax
partnership or to any obligation requiring a partnership income tax return to be
filed under the Internal Revenue Code of 1986, as amended, or any similar state
statute.
n. DISCLAIMER. EXCEPT FOR THE (i) WARRANTY OF TITLE GIVEN IN
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SECTION 4(g) ABOVE, AND (ii) THE REPRESENTATIONS MADE IN THIS SECTION, SELLER
SHALL CONVEY THE TERM ROYALTY INTEREST WITHOUT RECOURSE, COVENANT OR WARRANTY OF
TITLE OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. EXCEPT FOR SUCH WARRANTY OF
TITLE AND REPRESENTATIONS, ANY OTHER COVENANTS OR WARRANTIES IMPLIED BY STATUTE
OR LAW BY THE USE OF THE WORDS "GRANT", "CONVEY" OR OTHER SIMILAR WORDS ARE
HEREBY EXPRESSLY DISCLAIMED, WAIVED AND NEGATED. WITHOUT LIMITING THE GENERALITY
OF THE TWO PRECEDING SENTENCES, BUYER ACKNOWLEDGES THAT SELLER HAS NOT MADE, AND
SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND THE BUYER HEREBY EXPRESSLY
WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY
STATUTE OR OTHERWISE RELATING TO (A) PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES
OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE TERM ROYALTY INTEREST, (B) ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (C) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (D) ANY IMPLIED OR EXPRESS
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER ANY APPLICABLE LEGAL REQUIREMENT; IT BEING THE
EXPRESS INTENTION OF BOTH THE BUYER AND SELLER THAT, SUBJECT TO THE WARRANTY OF
TITLE AND REPRESENTATIONS SET FORTH IN THIS SECTION 4, THE TERM ROYALTY INTEREST
WILL BE CONVEYED ON AN "AS IS" AND "WHERE IS" BASIS WITH ALL FAULTS, AND THAT
THE BUYER HAS MADE OR CAUSED TO BE MADE SUCH
12
INSPECTIONS AS THE BUYER DEEMS APPROPRIATE. SELLER AND THE BUYER AGREE THAT, TO
THE EXTENT REQUIRED BY APPLICABLE LEGAL REQUIREMENTS TO BE EFFECTIVE, THE
DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS"
DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LEGAL REQUIREMENT.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER.
5. Buyer represents and warrants to Seller as follows:
a. ORGANIZATION. Buyer is a Delaware limited partnership duly
------------
organized, validly existing and in good standing under the laws of the state of
its organization and is qualified or registered as a foreign entity in each
jurisdiction where it is required to be so qualified and registered except where
the failure to so qualify would not have a material adverse effect on Buyer's
business.
b. AUTHORITY. Buyer has full power and authority and has taken
---------
all requisite action, corporate or otherwise, to authorize Buyer to carry on
Buyer's business as presently conducted, to enter into this Agreement, to
purchase the Term Royalty Interest on the terms described in this Agreement and
to perform its obligations under this Agreement. Neither the execution and
delivery of this Agreement nor the performance by Buyer of its obligations
hereunder will (i) violate Buyer's Articles of Limited Partnership, (ii) violate
Buyer's Agreement of Limited Partnership, or (iii) violate or constitute a
default under any law, regulation, contract, agreement, consent, decree or
judicial order by which Buyer or any of its partners or officers are bound.
c. ENFORCEABILITY. This Agreement has been duly executed and
--------------
delivered on behalf of Buyer and constitutes the legal, valid and binding
obligation of Buyer enforceable in accordance with its terms except as limited
by bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles. At the Closing, all documents required
hereunder to be executed and delivered by Buyer shall be duly authorized,
executed and delivered and shall constitute legal, valid and binding obligations
of Buyer enforceable in accordance with their respective terms, except as
limited by bankruptcy or other laws applicable generally to creditor's rights
and as limited by general equitable principles.
13
d. STATUS OF BUYER. Buyer represents that by reason of its
-----------------
knowledge and experience in the evaluation, acquisition, and operation of oil
and gas properties, Buyer has performed, or will perform before Closing, a due
diligence review of the Producing ▇▇▇▇▇, the Subject Lands and/or the Subject
Interests and will have evaluated the merits and risks of purchasing the Term
Royalty Interest from Seller and formed an opinion as to the value and purchase
of the Term Royalty Interest based on Buyer's knowledge and experience and the
representations or warranty of title by Seller in Section 4(g) above, but not
otherwise. Buyer certifies and represents that it is an "accredited investor"
as defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and was not organized for the purpose
of acquiring the Term Royalty Interest. Buyer's financial condition is such
that it is able to bear the risk of holding the Term Royalty Interest until the
Termination Date and the risk of loss of its entire investment.
e. DISCLOSURE OF INFORMATION. Buyer acknowledges it has, or will
--------------------------
before Closing have, (i) received all the information it considers necessary or
appropriate for deciding whether to purchase the Term Royalty Interest, and (ii)
had an opportunity to ask questions and receive answers from Seller regarding
the terms and conditions of the Term Royalty Interest and the Producing ▇▇▇▇▇,
the Subject Lands and/or the Subject Interests. Buyer acknowledges that it is
aware of Form S-1 (Registration No. 333 123834) filed with the U. S. Securities
and Exchange Commission on April 4, 2005 by ECA and Appalachian Gas Royalty
Trust, as Co-Registrants ("Form S-1"), but no term or provision thereof shall be
binding upon Buyer nor have any effect whatsoever on the terms and conditions of
this Agreement.
f. SECURITIES NOT REGISTERED. Buyer understands that the Term
---------------------------
Royalty Interest has not been registered under the Securities Act and that the
Term Royalty Interest must continue to be held by Buyer unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration. Buyer represents and warrants that the Term Royalty Interest
will be acquired solely for the account of Buyer, for investment purposes only
and not with a view to the resale or distribution thereof, provided, however,
that the foregoing shall not prevent Buyer from transferring all or a portion of
the Term Royalty Interest in a transaction registered under the Securities Act
or exempt from registration thereunder, subject to the provisions of Section
13(f) hereof. Buyer understands that no federal or state agency has passed upon
or made any recommendation or endorsement of an investment in the Term Royalty
Interest.
14
ARTICLE VI. COVENANTS OF SELLER
6. CONDUCT OF BUSINESS. Seller covenants that, prior to the Closing
---------------------
Date, except as provided herein, or as required by any obligation, agreement,
lease, contract, or instrument referred to on any Exhibit hereof:
a. Seller will:
(i) Not (aa) act in any manner with respect to the Producing
▇▇▇▇▇, the Subject Lands and/or the Subject Interests other than
in accordance with the Reasonably Prudent Operator Standard and
in the normal, usual and customary manner, consistent with prior
practice; or (bb) waive, compromise or settle any material right
or claim with respect to any of the Producing ▇▇▇▇▇, the Subject
Lands and/or the Subject Interests except such rights or claims
as would not adversely affect, in any material respect, the Term
Royalty Interest; and
(ii) Notify Buyer of the discovery by Seller that any
material representation or warranty of Seller contained in this
Agreement is or becomes untrue or will be untrue on the Closing
Date.
b. ACCESS. Seller shall afford to Buyer, and/or its designated
------
representatives, reasonable access, during normal business hours from the date
hereof until the Closing Date, to Seller's financial, accounting, tax, title,
contract, corporate and legal materials and information relating to the
Producing ▇▇▇▇▇, the Subject Lands and/or the Subject Interests.
c. NO NEGOTIATIONS. During the period beginning on the date
----------------
hereof and ending on the earlier of Closing or the termination of this
Agreement, Seller will not sell, transfer or otherwise dispose of or offer to
sell or subject to any mortgage, lien or security interest any of the Producing
▇▇▇▇▇, the Subject Lands and/or the Subject Interests, except that the existing
mortgages, deeds of trust and security interests may remain in full force and
effect solely with regard to Seller's retained interests in the Producing ▇▇▇▇▇.
d. CLOSING CONDITIONS. Seller shall cause all the
-------------------
representations and warranties of Seller contained in this Agreement to be true
and correct in all material respects on and as of the Closing Date. To the
extent the conditions precedent to the obligations of Buyer are within the
control of Seller, Seller shall cause such conditions to be satisfied on or
prior to the Closing Date and, to the extent the conditions precedent to the
obligations of Buyer are not within the control of Seller, Seller shall use its
best efforts to cause such conditions to be satisfied on or prior to the Closing
Date.
e. FORM S-1 WITHDRAWAL. On or before the Closing Date, Seller
---------------------
shall withdraw or cause to be withdrawn Form S-1.
15
ARTICLE VII. COVENANTS OF BUYER.
7. CLOSING CONDITIONS. Buyer shall cause all the representations and
-------------------
warranties of Buyer contained in this Agreement to be true and correct on and as
of the Closing Date. To the extent the conditions precedent to the obligations
of Seller are within the control of Buyer, Buyer shall cause such conditions to
be satisfied on or prior to the Closing Date and, to the extent the conditions
precedent to the obligations of Seller are not within the control of Buyer,
Buyer shall use its best efforts to cause such conditions to be satisfied on or
prior to the Closing Date.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER.
8. The obligations of Seller to be performed at the Closing are subject
to the fulfillment (or waiver by Seller in its sole discretion), before or at
the Closing, of each of the following conditions:
a. REPRESENTATIONS AND WARRANTIES. The representations and
--------------------------------
warranties by Buyer set forth in this Agreement shall be true and correct in all
material respects at and as of the Closing as though made at and as of the
Closing and Buyer shall have delivered a certificate to such effect to Seller;
and Buyer shall have performed and complied with in all material respects all
covenants and agreements required to be performed and satisfied by it at or
prior to Closing.
b. NO LITIGATION. There shall be no suits, actions or other
--------------
proceedings pending or threatened to enjoin the consummation of the transactions
contemplated by this Agreement or seeking substantial damages against Seller or
Buyer in connection therewith.
c. CONSIDERATION. Buyer shall have delivered the Consideration to
-------------
Seller in immediately available funds by wire transfer, pursuant to the
following instructions:
Account Name: Energy Corporation of America
Account Number: 4121083588
Bank Name: ▇▇▇▇▇ Fargo, San Francisco, CA
ABA Number: ▇▇▇-▇▇▇-▇▇▇
16
ARTICLE IX. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER.
--------------------------------------------------------------
9. The obligations of Buyer to be performed at the Closing are subject
to the fulfillment (or waiver by Buyer in its sole discretion), before or at the
Closing, of each of the following conditions:
a. REPRESENTATIONS AND WARRANTIES. The representations and
--------------------------------
warranties by Seller set forth in this Agreement shall be true and correct in
all material respects at and as of the Closing as though made at and as of the
Closing and Seller shall have delivered a certificate to such effect to Buyer;
and Seller shall have performed and complied with in all material respects all
covenants and agreements required to be performed and satisfied by it at or
prior to Closing.
b. NO MATERIAL ADVERSE CHANGES. Since the date of this Agreement,
----------------------------
there shall have been no material adverse changes in the condition of any of the
Producing ▇▇▇▇▇, the Subject Lands and/or the Subject Interests, except normal
production, depreciation of equipment through ordinary wear and tear and other
transactions approved in writing by Buyer on the Closing Date.
c. CONSENTS AND APPROVALS. All material consents and approvals
------------------------
required to be obtained for the conveyance of the Term Royalty Interest to Buyer
shall have been obtained, and all material preferential purchase rights arising
in connection with such conveyance shall have been waived or shall have expired.
d. DEFENSIBLE TITLE. Seller shall convey to Buyer at the Closing
-----------------
Defensible Title to the Term Royalty Interest. As used herein, the term
"Defensible Title" shall mean such title to the Term Royalty Interest, and the
Producing ▇▇▇▇▇, the Subject Lands and/or the Subject Interests which is free
and clear of all Encumbrances created by, through, or under Seller, but not
otherwise, except for the Permitted Encumbrances, and that Seller (i) is
entitled to a Net Revenue Interest in each Producing Well no less than the Net
Revenue Interest for that Producing Well as set forth in Exhibit "A-1", and (ii)
presently owns undeveloped Subject Development Lands sufficient to allow it to
satisfy the Total Drilling Commitment by the Drilling Obligation Completion Date
in accordance with the Development Agreement.
e. NO LITIGATION. There shall be no suits, actions or other
--------------
proceedings pending or threatened to enjoin the consummation of the transactions
contemplated by this Agreement or seeking substantial damages against Seller or
Buyer in connection therewith.
17
f. TITLE ADJUSTMENT. There shall not exist at the Closing any
-----------------
uncured Title Defects with respect to the Producing ▇▇▇▇▇, unless adjustments
therefore have been made pursuant to the further terms hereof. Buyer shall
notify Seller in writing of any Title Defects not less than ten (10) days prior
to Closing. Seller may elect to cure or remove any Title Defect(s) at Seller's
expense. In the event Seller elects to cure or remove one or more Title
Defects, Seller shall have until Closing within which to cure or remove such
Title Defect. In the event Seller is unable to cure or remove one or more such
Title Defects, Buyer shall have the option with respect to each such Title
Defect to (i) require that the Consideration be adjusted by reason of such
defect in the manner provided for in Section 3(a) above, or (ii) to remove the
Producing Well affected by the Title Defect from the effects of this Agreement
and to require the allocated value for such Producing Well to be subtracted from
the Consideration. If Buyer elects to remove affected Producing ▇▇▇▇▇ with
allocated values aggregating more than Fifteen Million Dollars ($15,000,000),
then either Buyer or Seller shall have the option to terminate this Agreement.
The term "Title Defect", as used herein, shall mean any encumbrance, lien,
mortgage, production payment, pledge, claim, charge, call on production, defect,
error, omission, unleased mineral interest, preferential purchase right or
requirement for consent to assignment that results in Seller not having
defensible title to any of the Producing ▇▇▇▇▇.
g. PREFERENTIAL PURCHASE RIGHTSAND CONSENTS TO ASSIGN. Seller
------------------------------------------------------
shall make a good faith effort to insure that all preferential purchase rights
and consents to assign arising in connection with the conveyance of the Term
Royalty Interest to Buyer shall have been waived or shall have expired before or
by the time of Closing; provided, however, that if notice of the transaction
contemplated herein has been given to a party or parties entitled to a
preferential purchase right with respect thereto, but the time during which any
such party or parties has to exercise such right has not expired, such shall be
considered as a Title Defect and subject to the remedies provided for in Section
9(f) above.
h. RELEASE. Seller shall have secured the release by ▇▇▇▇▇ Fargo
-------
Foothill Inc. of the liens relating to the Term Royalty Interest with respect to
the Producing ▇▇▇▇▇ and the restrictive covenants affecting the Subject
Development Lands, in form reasonably satisfactory to Buyer ("Releases").
i. OPINION OF SELLER'S COUNSEL. Seller shall have delivered to
------------------------------
Buyer an Opinion of Seller's Counsel substantially in the form of Exhibit "H"
attached hereto and made a part hereof ("Opinion").
j. DEED OF TRUST. Seller shall have delivered to Buyer the Deed
---------------
of Trust.
k. DUE DILIGENCE. Buyer shall have been given until the deadline
---------------
for submitting its Title Defects notice pursuant to Section 9(f) above to
complete its due diligence review of the Producing ▇▇▇▇▇ and the Subject Lands.
18
l. AFFILIATE ASSIGNMENTS. Prior to or at Closing, Seller shall
----------------------
have caused to be executed and delivered to Seller assignments, in recordable
form reasonably acceptable to Buyer, as follows:
i. from Allegheny & Western Energy Corporation to Seller
with respect to all interests in the Producing ▇▇▇▇▇ currently
held by Allegheny & Western Energy Corporation; and
ii. from employees, members of the board of directors and
other individuals participating in Seller's annual drilling
programs, with respect to all interests in the Producing ▇▇▇▇▇
currently held by such persons.
Seller shall record the Affiliate Assignments prior to recording the Term
Royalty Conveyance.
m. ASSIGNMENT OF PK-299 WELL. Seller shall have executed and
----------------------------
delivered to Buyer an assignment, in form reasonably satisfactory to Buyer, of a
term royalty interest, for a period of twenty (20) years, consistent with the
terms and conditions of the Term Royalty Conveyance applicable to the Completed
Development ▇▇▇▇▇ with respect to the PK-299 well, API No. ▇▇-▇▇▇-▇▇▇▇▇, located
in ▇▇▇▇▇▇ County, Kentucky.
n. ASSIGNMENT OF INTEREST IN FLOOR CONTRACTS. Seller shall have
-------------------------------------------
executed and delivered to Buyer an assignment of that portion of the natural gas
floor contracts listed on Exhibit "I" attached hereto sufficient to cause Buyer
to be entitled to receive the price and the volumes set forth on Exhibit "I".
o. ASSIGNMENT OF INTEREST IN SWAP CONTRACTS. Seller has
---------------------------------------------
heretofore entered into the swap contract(s) listed on Exhibit "J" attached
hereto. At Closing, Seller shall attempt to cause to be assigned to Buyer that
portion of such swap contract(s) sufficient to cause Buyer to be entitled to
receive the price for the volumes set forth on such Exhibit "J"; provided
however, in the event that any counterparty in any of such swap contracts will
not consent as required to such assignment, then the Parties shall account for
the economic effect attributable to Buyer as an adjustment to the Monthly
Distribution Amount to be paid to Buyer in accordance with the Term Royalty
Conveyance.
ARTICLE X - CLOSING.
10. a. CLOSING DATE. The conveyance of the Term Royalty Interest
-------------
and the delivery of the Closing Documents pursuant to this Agreement shall be
consummated ("Closing") at the Charleston office of Seller on or before June 10,
2005 (the "Closing Date"), but effective as of the Effective Time.
19
b. CLOSING STATEMENT. Seller shall deliver to Buyer, no later
------------------
than five (5) days prior to the Closing Date, a statement (the "Statement")
which Seller has prepared in accordance with this Agreement setting forth each
adjustment to the Consideration necessary in accordance herewith and showing the
calculation of such adjustments in accordance with Section 3(a) hereof. By one
day prior to the Closing Date, Buyer shall provide written notice to Seller of
any objections of Buyer to any item on the Statement showing the calculations
resulting in such objections. Buyer and Seller shall attempt in good faith to
resolve their differences. If they are unable to do so, Closing will be based
on the Statement and any disagreements registered by Buyer will be reserved for
the Final Settlement Statement.
c. CLOSING DOCUMENTS. Seller shall deliver to Buyer at Closing
------------------
fully executed originals of:
(i) the Term Royalty Conveyance;
(ii) the Development Agreement;
(iii) the Deed of Trust;
(iv) the Opinion;
(v) the Side Letter;
(vi) the Releases;
(vii) evidence that the Affiliate Assignments have been
executed and delivered to Seller;
(viii) the PK-299 Well Assignment;
(ix) the Floor Contracts Assignment; and
(x) the Swap Contracts Assignment, if applicable
20
d. FINAL SETTLEMENT STATEMENT. After the Closing Date, Seller
----------------------------
shall prepare, in accordance with this Agreement, a statement (the "Final
Settlement Statement"), a copy of which shall be delivered by Seller to Buyer no
later than one hundred twenty (120) days after the Closing Date, setting forth
each adjustment to the Consideration necessary in accordance herewith and
showing the calculation of such adjustments in accordance with Section 3.a.
hereof. Buyer shall have forty-five (45) days after receipt of the Final
Settlement Statement to review such statement and to provide written notice to
Seller of Buyer's objection to any item on the statement. Buyer's notice shall
clearly identify the item(s) objected to and the reasons and support for the
objection(s). If Buyer does not provide written objection(s) within the 45-day
period, the Final Settlement Statement shall be deemed correct and shall not be
subject to further adjustment. If Buyer provides written objection(s) within
the 45-day period, the Final Settlement Statement shall be deemed correct as to
the items with respect to which no objections were made. Buyer and Seller shall
meet to negotiate and resolve the objections within fifteen (15) days of Buyer's
receipt of Seller's objections. Any items not agreed to at the end of the 15-day
period may, at either party's request, be resolved by arbitration.
If Seller and Buyer cannot agree upon the Final Settlement Statement,
a nationally recognized accounting firm which does not perform work for either
Seller or Buyer shall act as an arbitrator and decide all points of disagreement
with respect to the Final Settlement Statement. The decision of such firm on
all such points shall be binding upon the parties. The costs and expenses of
such firm shall be borne by the Party against whom the decision is rendered, or
in the event the decision is rendered favorably in part to each Party, on a
proportional basis.
e. PAYMENT OF FINAL CONSIDERATION. Any amounts owing from Seller
-------------------------------
to Buyer or Buyer to Seller as determined by the Final Settlement Statement
shall be paid in immediately available funds within five (5) days of the date
the Final Settlement Statement is agreed upon.
f. SURVIVAL. All representations, warranties, covenants and
--------
agreements of or by the Parties under this Agreement shall survive the Closing.
ARTICLE XI. TERMINATION AND REMEDIES.
11. TERMINATION. If the Closing has not occurred on or prior to June
-----------
10, 2005 on account of any failure of Buyer to perform its obligations hereunder
and Seller has fully complied and performed pursuant to the provisions of this
Agreement, Seller may terminate this Agreement and pursue all other legal
remedies. If the Closing has not occurred on or prior to June 10, 2005 on
account of any failure of Seller to perform its obligations hereunder and Buyer
has fully complied and performed pursuant to the provisions of this Agreement,
Buyer may terminate this Agreement and pursue all other legal remedies.
21
ARTICLE XII. DRILLING PROGRAM.
12. a. DRILLING OBLIGATION. ECA and Seller shall execute and
--------------------
deliver to Buyer at Closing the Development Agreement. The Development
Agreement will require that Seller drill Completed Development ▇▇▇▇▇ sufficient
to achieve the Total Drilling Commitment on or before the Drilling Obligation
Completion Date, in accordance with the terms and conditions set forth in the
Development Agreement.
b. DEED OF TRUST. Seller also shall grant to Buyer the Deed of
---------------
Trust to secure Seller's obligation to satisfy the Total Drilling Commitment by
the Drilling Obligation Completion Date (plus the 90 day grace period) as
provided in the Development Agreement. The Deed of Trust shall secure Seller's
interest in that portion of the AMI Areas depicted on Exhibit "B" attached
hereto as the Yawkey ▇▇▇▇▇▇▇ ▇▇▇, subject to exceptions and reservations set
forth therein.
ARTICLE XIII. OTHER.
13. a. FURTHER ASSURANCES. After the Closing, Seller and Buyer
-------------------
shall execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
b. NOTICES. All notices required or permitted under this
-------
Agreement shall be in writing and shall be delivered personally or by certified
mail, postage prepaid and return receipt requested or by telecopier as follows:
ECA: ▇▇▇▇ ▇▇▇▇, President and CEO
Energy Corporation of America
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇ ▇. ▇▇▇▇, Esquire
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
22
Buyer: Black Stone Minerals Company, L.P.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
▇▇▇▇▇ Liddell & ▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇-▇▇▇▇
or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notices given by telecopier shall be effective upon
actual receipt if received during recipient's normal business hours or at the
beginning of the next business day after receipt if received after the
recipient's normal business hours. All notices by telecopier shall be confirmed
in writing on the day of transmission by either mailing by postage prepaid
certified mail with return receipt requested, or by personal delivery.
c. SUBSTITUTION OF WARRANTY. The Term Royalty Conveyance shall be
------------------------
made with full substitution and subrogation of the Buyer in and to all covenants
of warranty by Third Persons (other than Affiliates of Seller) heretofore given
or made with respect to the ▇▇▇▇▇ and the Subject Interests or any part thereof
or interest therein.
d. SPECIAL TAX PROVISIONS. The Parties intend that the
------------------------
transaction contemplated hereby shall qualify as a carved-out production payment
under Section 636 of the Internal Revenue Code of 1986, as amended and the
regulations thereunder, and shall be treated as a debt instrument for federal
income tax purposes. Proceeds payable to the Buyer from the sale of the
production from the Term Royalty Interest will be treated as payments of
principal and interest on the debt instrument issued by the Seller. The amount
of principal and interest of each payment will be determined based upon an
amortization schedule established by the Seller as of the Effective Time. This
amortization schedule will be made available to the Buyer no later than one
hundred twenty (120) days after the Closing Date.
23
The amortization schedule will be determined using the "noncontingent
bond method" under the original issue discount rules, which require the Seller
to construct the amortization schedule after taking into account a comparable
yield for which the Seller could offer a fixed-rate debt instrument with terms
similar to the Term Royalty Interest. Any difference between the amounts that
are received by the Buyer and the amounts that were estimated when the
amortization schedule was prepared will result in adjustments to the amount of
interest initially estimated.
e. GOVERNING LAW. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of West Virginia.
f. ASSIGNMENT. This Agreement shall be binding upon and shall
----------
inure to the benefit of the Parties hereto and their respective permitted
successors and assigns. The Parties shall not assign or transfer their
respective rights under this Agreement without the prior written consent of the
other Party, provided, however, that (i) Buyer may assign or transfer all or a
portion of its rights under this Agreement prior to Closing to not more than
three (3) "accredited investors" as defined in the Securities Act without the
prior written consent of Seller and, Buyer may not transfer all or any portion
of the Term Royalty Interest except in a transaction registered under the
Securities Act or exempt from registration thereunder, as evidenced by an
opinion of counsel from a nationally recognized law firm, in form and substance
reasonably satisfactory to Seller, to the effect that such transaction is so
exempt, and such accredited investors shall have made the representations to
Seller in substantially the form of Sections 5(d), 5(e) and 5(f) above, and (ii)
notwithstanding the foregoing, for a period of two (2) years after the Closing
Date, Buyer may not transfer all or any portion of the Term Royalty Interest
except in a transaction registered under the Securities Act or exempt from
registration thereunder, as evidenced by an opinion of counsel from a nationally
recognized law firm, in form and substance reasonably satisfactory to Seller, to
the effect that such transaction is so exempt, and the transferee shall have
made the representations to Seller in substantially the form of Sections 5(d)
and 5(f) above. Notwithstanding the foregoing, if Buyer assigns any interest in
this Agreement, Buyer shall continue to be primarily obligated for the
performance of any representations, warranties, covenants and agreements
hereunder that survive the Closing.
g. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. Except as provided in
---------------------------------------
Section 13(q) below, this Agreement, together with the exhibits hereto,
constitutes the entire Agreement between the Parties with respect to the subject
matter hereof, superseding all prior negotiations, discussions, agreements and
understandings, whether oral or written, relating to such subject matter. This
Agreement may not be amended and no rights hereunder may be waived except by a
written document signed by the Party to be charged with such amendment or
waiver. No waiver of any of the provisions of the Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
h. SEVERABILITY. If a court of competent jurisdiction determines
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that any clause or provision of this Agreement is void, illegal, or
unenforceable, the other clauses and provisions of the Agreement shall remain in
full force and effect and the clauses and provisions which are determined to be
void, illegal, or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
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i. PRESS RELEASES. Seller and Buyer shall consult with each other
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prior to the issuance of any press releases or other public announcements
concerning this transaction, except as may be required in order to comply with
any securities laws or requirements.
j. HEADINGS. The headings of the Sections of this Agreement are
--------
for guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
k. COUNTERPARTS. This Agreement may be executed by Buyer and
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Seller in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument. This Agreement will be binding upon the Parties who do sign whether
or not all Parties sign the Agreement.
l. EXPENSES, FEES AND TAXES. Each of the Parties hereto shall pay
------------------------
its own fees and expenses incident to the negotiation and preparation of this
Agreement and consummation of the transactions contemplated hereby, including
broker fees. Buyer shall be responsible for the cost of all fees for the
recording of transfer documents. All other costs shall be borne by the Party
incurring them. Notwithstanding anything to the contrary herein, it is
acknowledged and agreed by and between Seller and Buyer that the Consideration
excludes any sales taxes or other taxes in connection with the sale of property
pursuant to this Agreement. If a determination is ever made that a sales tax or
other transfer tax applies, Buyer shall be liable for such tax as well as any
applicable conveyance, transfer and recording fees, and real estate transfer
stamps or taxes imposed on any transfer of property pursuant to this Agreement.
Buyer shall indemnify and hold Seller harmless with respect to the payment of
any of such taxes, including any interest or penalties assessed thereon. The
indemnity and hold harmless obligation contained in the preceding sentence shall
survive the Closing.
m. CONSTRUCTION OF AGREEMENT. In construing this Agreement, the
---------------------------
following principles shall be followed:
i. no consideration shall be given to the captions of the
articles, sections, subsections, or clauses, which are inserted for
convenience in locating the provisions of this Agreement and not as an
aid in its construction;
ii. no consideration shall be given to the fact or presumption
that one Party had a greater or lesser hand in drafting this
Agreement;
iii. the word "includes" and its syntactical variants mean
"includes, but is not limited to" and corresponding syntactical
variant expressions;
iv. a defined term has its defined meaning throughout this
Agreement, regardless of whether it appears before or after the place
in this Agreement where it is defined; and
v. the plural shall be deemed to include the singular, and vice
versa.
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n. RELATIONSHIP OF PARTIES. This Agreement does not create a
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partnership, mining partnership, joint venture, or relationship of trust or
agency, except with respect to Seller's agency relationship with respect to
those matters set forth herein and in the Term Royalty Conveyance and the
Development Agreement.
o. THE 7:00 A.M. CONVENTION. Except as otherwise provided in this
------------------------
Agreement, each calendar day, month, quarter, and year shall be deemed to begin
at 7:00 a.m. Eastern Time on the stated day or on the first day of the stated
month, quarter, or year, and to end at 7:00 a.m. Eastern Time on the next day or
on first day of the next month, quarter, or year, respectively.
p. PRESENT AND ABSOLUTE CONVEYANCE. It is the express intention
---------------------------------
of Seller and Buyer that the conveyance of the Term Royalty Interest shall be
construed for all purposes as a present, fully-vested and absolute conveyance.
q. OTHER AGREEMENTS. This Agreement is subject to the terms and
-----------------
conditions of the Term Royalty Conveyance and the Development Agreement, and in
the event of a conflict in the terms and conditions of this Agreement and the
terms and conditions of the Term Royalty Conveyance or the Development
Agreement, the terms and conditions of the Term Royalty Conveyance and the
Development Agreement, as applicable, shall control.
r. EXECUTION BY ECA. ECA joins in the execution of this Agreement
----------------
for the sole and limited purpose of joining in the warranty set forth in Section
4(g) and of committing to the drilling obligations set forth in Section 12(a),
but for no other purpose.
s. INCENTIVE PAYMENTS. As provided in Section 5.05 of the Term
-------------------
Royalty Conveyance, Seller is entitled to receive a quarterly incentive
distribution equal to the amount, if any, by which the quarterly aggregate of
the Monthly Distribution Amount (as defined in Section 5.01(a) of the Term
Royalty Conveyance), exceeds the Distribution Targets as defined in the Term
Royalty Conveyance specified for each quarter on the schedule attached hereto as
Exhibit "K" for such quarter, as further provided in the Term Royalty
Conveyance.
IN WITNESS WHEREOF, the parties hereto have caused their duly elected
officers to execute this Agreement on the date first above written.
ENERGY CORPORATION OF AMERICA
By: /S/ ▇▇▇▇ ▇▇▇▇
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▇▇▇▇ ▇▇▇▇
CEO - President
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EASTERN AMERICAN ENERGY
CORPORATION
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
BLACK STONE MINERALS COMPANY, L.P.
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
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