Grantor has good right and authority to sell and convey the Overriding Royalty, and (iii) that this Conveyance of Overriding Royalty Interest (“this Conveyance”) vests in Grantee good and marketable title to the Overriding Royalty free of liens and encumbrances. Grantor hereby binds itself to warrant and forever defend, all and singular, title to the Overriding Royalty unto Grantee, its successors and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof. This Conveyance is made with full substitution and subrogation of Grantee in and to all covenants and warranties by others heretofore given or made.
Lands or reserves that has not been publicly disclosed (or any other material nonpublic information ), Grantee shall have the right to make public disclosure of such information as provided in Section 4(k) of the Securities Purchase Agreement, dated as of May 31st, 2005, among Grantor, Grantee and the other parties named therein. Grantor shall not publicly disclose its results of operations for any fiscal quarter or fiscal year unless it contemporaneously publicly discloses, or prior thereto has publicly disclosed, the production from the Subject Lands for the most recently completed fiscal quarter.
5. The Overriding Royalty shall be free of all costs, expenses, and liabilities, of whatever kind or character, except the Overriding Royalty shall bear its proportionate share of the costs charged Grantor by a third party (not an Affiliate of Grantor) for compression, dehydration and transportation that are incurred between the first point of receipt of production by such third party and the redelivery of such compressed and dehydrated production to Grantor. Specifically, but not by way of limitation, the Overriding Royalty shall never bear, either directly or indirectly, any costs, expenses or liabilities for building, constructing, acquiring, drilling, developing, producing, operating, gathering, separating, trucking, or transporting (except as set forth in the first sentence of this Section 5) or any post production expenses, related or pertaining to the Subject Lands, Subject Leases, or wells, pipelines, or other facilities or improvements situated on the Subject Lands or lands pooled therewith, or production of oil and/or gas from the Subject Lands or lands pooled therewith; provided, however, the Overriding Royalty shall bear its proportionate share of (i) the third party costs identified in the first sentence of this Section 5 and (ii) production, severance and similar taxes.
6. Grantor agrees to execute and deliver, and, to the extent it is within Grantor's power to do so, to cause any third parties to execute and deliver, to Grantee all such other and additional instruments and to do all such further acts and things as may be necessary more fully to vest in and assure to Grantee all of the rights, titles, interests, remedies, powers and privileges herein granted or intended so to be.
7. Exhibit “B” sets forth those certain portions of the Subject Lands that have been pooled or unitized for the production of oil, gas and/or minerals prior to the date hereof. With respect to each such existing pool or unit set forth on such Exhibit “B”, and with respect to each pool or unit in which the Overriding Royalty is included, as below provided, after the date hereof, the Overriding Royalty in each portion of Subject Lands included in such pool or unit shall apply to the portion of production from such pool or unit which is attributable to such portion of Subject Lands under and by virtue of the applicable pooling and unitization agreements, designations and/or orders. From and after the date hereof, Grantor shall have the right and power to unitize or pool in good faith on customary terms any portion or portions of the Overriding Royalty with other lands in which the mineral interest thereof is owned by a person or entity other than Grantor or an Affiliate of Grantor and on which is located, or will be located, a well producing, or capable of producing, oil and/or gas in commercially paying quantities (collectively “Third Party Lands”); provided, however, Grantor shall not have the right and power to unitize or pool any portion or portions of the Overriding Royalty with any non Third Party Lands without first obtaining the prior written consent of Grantee. If pursuant to any law, rule, regulation or order of any governmental body or official, any portion of the Subject Lands is pooled or unitized in any manner, or if Grantee has joined in or agreed to any pooling or
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unitization, the Overriding Royalty insofar as it affects such portion of Subject Lands shall also be pooled and unitized and, in each event, the Overriding Royalty shall apply to the production which is attributable to such portion of Subject Lands under and by virtue of such pooling and unitization arrangements.
8. Nothing herein contained shall in any way limit or restrict the right of Grantee to sell, convey, assign or mortgage (or grant a deed of trust on) the Overriding Royalty (including its rights, titles, interests, estates, remedies, powers and privileges appurtenant or incident to the Overriding Royalty under this Conveyance) in whole or in part. No change of ownership of the Overriding Royalty shall be binding upon Grantor until Grantor is furnished with copies of the original documents evidencing such change. Upon receipt by Grantor of copies of the original documents evidencing a sale, conveyance, assignment or mortgage (or grant of a deed of trust on) the Overriding Royalty, Grantor shall deal with the purchaser or assignee in place of Grantee and shall deal with the mortgagee (or the beneficiary of the deed of trust) in addition to the Grantee, and references herein to the Grantee shall thereafter also be deemed to be references to such purchaser, assignee or mortgagee (or the beneficiary of the deed of trust).
9. If the Grantor proposes or intends to make any sale, transfer or other disposition of all or any portion of its Burdened Interest, including without limitation a proposed or intended sale, transfer or disposition of its Burdened Interest by merger, reorganization, consolidation, or by sale of all or substantially all of its assets (other than a sale, transfer or other disposition to Galaxy Energy Corporation or a directly or indirectly, wholly owned subsidiary of Galaxy Energy Corporation, or pursuant to Section 13 below), and such sale, transfer or other disposition will result in Grantor owning less than a 50% Working Interest in such Burdened Interest and/or resigning as operator of such Burdened Interest, Grantor shall so inform Grantee by notice in writing (the "Transfer Notice") describing the interest (or portion thereof) that is the subject of such proposed or intended sale, transfer or disposition (the "Offered Interest"), and the other pertinent and reasonable details of such proposed or intended sale, transfer or disposition. Grantee shall thereupon have 30 days after receipt of the Transfer Notice to notify Grantor in writing that Grantee desires to participate in such sale, transfer or disposition and contribute the Overriding Royalty, or some portion thereof, as a part of the properties to be covered by such sale, transfer or disposition. Failure of Grantee to notify Grantor in writing that Grantee desires to participate in such sale, transfer or disposition within such 30 day period shall be deemed an election by Grantee not to participate. If Grantee does timely submit its notice to Grantor (i) the Burdened Interest, or portion thereof that is to be covered by such sale, transfer or disposition, shall not be sold or disposed of separate and apart of the Overriding Royalty (or portion thereof as designated by Grantee in its notice) and (ii) Grantor and Grantee shall mutually agree upon the price or value that Grantee shall receive upon conclusion of such sale, transfer or disposition for the Overriding Royalty (or portion thereof) that is to be a part of the properties covered by such sale, transfer or disposition. In the event Grantor and Grantee cannot so mutually agree, Grantor and Grantee shall retain the services of a petroleum reservoir engineer experienced in the valuation of oil and gas properties employed by Halliburton Energy Services of Houston, Texas (or its successors in interest) to serve as the sole arbiter of such disagreement (the "Arbiter"). In the event Halliburton Energy Services (or its successor in interest) is unwilling or incapable of having one of its petroleum reservoir engineers serve as Arbiter, then Grantor and Grantee shall mutually agree on the person to serve as Arbiter, and in the event Grantor and Grantee cannot so
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mutually agree, the selection of the Arbiter shall be made by a federal judge sitting in the Southern District of New York in the borough of Manhattan, New York, New York, upon petition filed by either Grantor or Grantee requesting that such selection be made. The decision of the Arbiter as to such price or value Grantee shall receive shall be delivered by the Arbiter within ten (10) days of his retention, and shall be final as to Grantor and Grantee for all purposes. The costs of such Arbiter shall be borne equally by Grantor and Grantee.
10. Grantor shall have the right without the joinder of Grantee to release, surrender and/or abandon its Burdened Interest, or any part thereof, or interest therein even though the effect of such release, surrender or abandonment will be to release, surrender or abandon the Overriding Royalty; provided, however, that Grantor shall not release, surrender or abandon any Burdened Interest unless and until Grantor has determined in good faith that such Burdened Interest will no longer produce in paying quantities, and provided further that, Grantor will, at least thirty (30) days prior to the release, surrender or abandonment (unless a lesser period of time governing such release, surrender or abandonment is provided for in an applicable operating agreement entered into by and between Grantor and a person or entity that is not an Affiliate of Grantor, in which case at least the number of days provided for in such lesser time period) of any Burdened Interest, or any part thereof or interest therein, notify Grantee (in writing, giving a description of each Burdened Interest, or part thereof or interest therein, proposed to be released, surrendered or abandoned, and the date upon which such release, surrender or abandonment is projected to occur) and, if Grantee shall so request, Grantor shall assign to Grantee the interests proposed to be released, surrendered or abandoned, together with the interest attributable to the Burdened Interests in all equipment located thereon or used in connection therewith; provided further that, in the event of such an assignment from Grantor to Grantee, Grantee shall pay to Grantor the salvage value of any equipment so conveyed by Grantor to Grantee.
11. Without prior written notice to Grantee providing Grantee with the opportunity to acquire the affected interest of Grantor at no additional cost to Grantee other than assumption by Grantee of the obligations of Grantor pertaining to the affected interest, Grantor shall not elect to be a non-participating party (whether pursuant to an operating agreement or other agreement or arrangement, including without limitation, non-consent rights and obligations imposed by statute and/or regulatory agency) with respect to any drilling, deepening, plugging back, reworking, sidetracking or completion (or other) operation on any Burdened Interest or elect to be an abandoning party with respect to a well located on any Burdened Interest; provided, however, if such direct acquisition by Grantee would be prohibited by the applicable operating agreement or other agreement or arrangement and Grantee has timely notified Grantor that Grantee elects to acquire such affected interest, Grantor agrees to use its best efforts as are reasonable under the circumstances to enter into a mutually satisfactorily contractual arrangement with Grantee that would allow Grantee to indirectly acquire such affected interest, or have the same economic consequences of ownership of such affected interest, and not be in violation or breach of such applicable operating agreement or other agreement or arrangement. Grantor agrees to provide such prior written notice to Grantee as soon as is reasonably possible in order to afford Grantee as much time as reasonably possible to respond. Such prior written notice shall include information advising Grantee of the time period required by the applicable operating agreement, other agreement or arrangement for response on this matter, and failure on the part of Grantee to notify Grantor of its election to acquire such affected interest within such time period shall be
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deemed an election by Grantee to not acquire such affected interest. Notwithstanding anything to the contrary contained herein, Grantor shall not elect, as to any Burdened Interest, to be a non-participating party with respect to any operation contemplated in this Section 11, in the event Grantor or any Affiliate of Grantor will also be a participating party in such operation.
12. The Overriding Royalty shall apply to all renewals, extensions and other similar arrangements (and/or interests therein) of the Subject Leases insofar as they cover Subject Lands. A new lease taken before the expiration of the existing Subject Lease which it replaced or within one (1) year after expiration of such Subject Lease, and covering the same interest (or any part thereof) which was covered by the Subject Lease, shall be considered a renewal or extension for the purposes hereof. Additionally, the Overriding Royalty shall continue in force and effect and not be extinguished in the event Grantor acquires the mineral estate covered by a Subject Lease and thereafter releases such Subject Lease.
13. Grantee acknowledges that Grantor has been negotiating with Pennaco Energy Inc., a wholly-owned subsidiary of Marathon Oil Company, and Windsor Energy Group LLC for the exchange of certain of the Subject Lands (collectively, the “Exchanged Lands”) for lands owned by such companies that are of comparable (i) reservoir value, (ii) acreage size and (iii) current levels of production, to that of the Exchanged Lands. Assuming compliance with the foregoing sentence, Grantee agrees that upon Grantor’s written request, it will execute appropriate recordable instruments releasing the Overriding Royalty with respect to the Exchanged Lands in consideration for Grantor conveying to Grantee the Overriding Royalty as to the lands received in exchange therefore; provided, however, the agreement of Grantee contained in this Section 13 shall be in force and effect for only one hundred eighty (180) days subsequent to the execution date of this Conveyance, and that at the expiration of such one hundred eighty (180) day period, the covenant of Grantee contained in this Section 13 shall cease to exist and no longer be in force and effect.
14. Except for a transfer pursuant to Section 13 above, the agreements and obligations of Grantor in paragraphs 7, 9, and 11 above shall not be covenants running with the land and shall be personal agreements and obligations of Grantor and any Affiliate of Grantor that shall, terminate upon a sale, transfer or disposition of Grantor’s Burdened Interest to a third party that is not an Affiliate of Grantor. All other covenants and agreements of Grantor herein contained shall be deemed to be covenants running with the Burdened Interest. All of the provisions hereof shall inure to the benefit of Grantee and its successors and assigns.
15. All communications required or permitted to be given under this Conveyance shall be in writing and shall be given by registered or certified mail, postage prepaid, telecopy or telex, or by personal service (including express or courier service), and addressed to the addresses specified at the beginning of this Conveyance (or to such other address, telecopy or telex number as may be designated in writing in accordance herewith). Notices shall be deemed given upon receipt.
16. This Conveyance is being executed in several counterparts, all of which are identical, except that, to facilitate recordation, in certain counterparts hereof only that portion of Exhibit "A" which contains specific descriptions of the Subject Lands located in the recording
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jurisdiction in which the counterpart is to be recorded shall be included, and all other portions of Exhibit A shall be included by reference only. Complete copies of this Conveyance containing the entire Exhibit "A" have been retained by Grantor and Grantee. All of such counterparts together shall constitute but one and the same instrument.
17. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THIS CONVEYANCE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF THE OVERRIDING ROYALTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE OVERRIDING ROYALTY) NECESSARILY OR, IN THE SOLE DISCRETION OF GRANTEE, APPROPRIATELY GOVERNS, WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND VESTING OF THE OVERRIDING ROYALTY, AND OTHER RIGHTS AND REMEDIES OF THE GRANTEE GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE OVERRIDING ROYALTY LOCATED IN (OR WHICH IS OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE. GRANTOR AND GRANTEE HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. GRANTOR AND GRANTEE HEREBY IRREVOCABLY WAIVE PERSONAL SERVICE OF PROCESS AND CONSENT TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS SHOWN ABOVE FOR SUCH PARTY, AND AGREE THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. GRANTOR AND GRANTEE ACKNOWLEDGE THAT EACH HAS EXECUTED THIS CONVEYANCE IN THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS CONVEYANCE OR ANY TRANSACTION CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, this Conveyance is executed this 31st day of May, 2005, effective as of 7 o'clock a.m. local time at the locations of the Subject Lands, respectively on May 31st, 2005 (the “Effective Time”).
[signatures and acknowledgement pages to follow]
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"GRANTOR"
___________________________________
Name:
Title:
"GRANTEE"
___________________________________
Name:
Title:
STATE OF COLORADO | ) | |
| ) | ss: |
CITY AND COUNTY OF | DENVER | ) | |
| | | | |
The foregoing instrument was acknowledged before me on this 31st day of May, 2005, by _____________, ____________________ of _______________________, a ___________ corporation, as the act and deed and on behalf of said corporation.
Notary Public, State and County of
My commission expires:
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STATE OF _______________ | ) |
) ss:
The foregoing instrument was acknowledged before me on this 31st day of May, 2005, by ___________________________ as ________________________ of ____________________, a _____________, as the act and deed and on behalf of said _____________________.
Notary Public, State and County of
My commission expires:
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EXHIBIT "A"
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EXHIBIT “B”
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