PURCHASE AND SALE AGREEMENT
BETWEEN
SMITH PRODUCTION INC.
AS SELLER
AND
FIDELITY EXPLORATION & PRODUCTION COMPANY
AS PURCHASER
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Table of Contents
Exhibits
Definitions
Article 1 Purchase and Sale
Section 1.1 Purchase and Sale
Section 1.2 Assets
Section 1.3 Excluded Assets
Section 1.4 Effective Time
Section 1.5 Delivery and Maintenance of Records
Section 1.6 Proration of Costs and Revenues
Article 2 Purchase Price
Section 2.1 Purchase Price
Section 2.2 Adjustments to Purchase Price
Section 2.3 Allocation of Purchase Price
Section 2.4 Deposit
Article 3 Title Matters
Section 3.1 Seller's Title
Section 3.2 Defensible Title
Section 3.3 Permitted Encumbrances
Section 3.4 Notice of Title Defects
Section 3.5 Consents to Assignment and Preferential Rights to Purchase
Section 3.6 Casualty Loss
Section 3.7 Condemnation Loss
Section 3.8 Limitations on Applicability
Article 4 Environmental Matters
Section 4.1 Environmental Assessment
Section 4.2 Notice of Material Adverse Environmental Condition
Section 4.3 Environmental Remedies
Section 4.4 Limitations
Article 5 Representations and Warranties of Seller
Section 5.1 Disclaimers
Section 5.2 Existence and Qualification
Section 5.3 Power
Section 5.4 Authorization and Enforceability
Section 5.5 No Conflicts
Section 5.6 Purchaser's Liability for Brokers' Fees
Section 5.7 Litigation
Section 5.8 Taxes and Assessments
Section 5.9 Outstanding Capital Commitments
Section 5.10 Compliance with Laws
Section 5.11 Contracts
Section 5.12 Payments
Section 5.13 Gas Imbalances
Section 5.14 Governmental Authorizations
Section 5.15 Consents to Assignments and Preferential Purchase Rights
Section 5.16 Non-foreign Person
Section 5.17 Payout Balances
Section 5.18 Condemnation
Section 5.19 Bankruptcy
Section 5.20 PUHCA/NGA
Section 5.21 Investment Company
Section 5.22 Suspense Accounts
Article 6 Representations and Warranties of Purchaser
Section 6.1 Existence and Qualification
Section 6.2 Power
Section 6.3 Authorization and Enforceability
Section 6.4 No Conflicts
Section 6.5 Seller's Liability for Brokers' Fees
Section 6.6 Litigation
Section 6.7 Financing
Section 6.8 Texas Deceptive Trade Practices Consumer Protection Act
Section 6.9 No Reliance
Article 7 Covenants of the Parties
Section 7.1 Access
Section 7.2 Government Reviews
Section 7.3 Notification of Breaches
Section 7.4 Letters-in-Lieu; Assignments and Bills of Sale; Operator
Section 7.5 Public Announcements
Section 7.6 Operation of Business
Section 7.7 Indemnity Regarding Access
Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations
Section 7.9 Consents and Preferential Rights
Section 7.10 Tax Matters
Section 7.11 Further Assurances
Section 7.12 Transition Services
Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees
Section 7.14 Like-Kind Exchange
Section 7.15 Arbitration
Article 8 Conditions to Closing
Section 8.1 Conditions of Seller to Closing
Section 8.2 Conditions of Purchaser to Closing
Article 9 Closing
Section 9.1 Time and Place of Closing
Section 9.2 Obligations of Seller at Closing
Section 9.3 Obligations of Purchaser at Closing
Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments
Article 10 Termination
Section 10.1 Termination
Section 10.2 Effect of Termination
Section 10.3 Distribution of Deposit Upon Termination
Article 11 Post-Closing Obligations; Indemnification; Limitations;
Disclaimers and Waivers
Section 11.1 Receipts
Section 11.2 Expenses
Section 11.3 Assumption and Indemnification
Section 11.4 Indemnification Actions
Section 11.5 Survival
Section 11.6 Recording
Section 11.7 Independent Investigation
Section 11.8 Disclaimer Regarding Information
Section 11.9 Waiver of Trade Practices Acts
Section 11.10 Post-Closing Audit Rights
Article 12 Miscellaneous
Section 12.1 Counterparts
Section 12.2 Notice
Section 12.3 Binding Agreement
Section 12.4 Expenses
Section 12.5 Change of Name
Section 12.6 Construction
Section 12.7 Governing Law
Section 12.8 Captions
Section 12.9 Waivers
Section 12.10 Assignment
Section 12.11 Entire Agreement
Section 12.12 Amendment
Section 12.13 No Third-Party Beneficiaries
Section 12.14 References
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is by and between
Smith Production Inc., a Texas corporation, and Fidelity
Exploration & Production Company, a Delaware corporation.
In consideration of the mutual promises and other
valuable consideration recited herein, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
DEFINITIONS
"AFE" shall mean authority for expenditure as used in
Section 5.9.
"Adjustment Period" shall mean the period of time commencing
at the Effective Time and ending on the Closing Date as
discussed in Section 2.2.
"Adjusted Purchase Price" shall mean the Purchase Price
after calculating and applying
the adjustments set forth in Section 2.2.
"Affiliates" with respect to any Person, means any person
that directly or indirectly controls, is controlled by or is
under common control with such Person.
"Agreement" shall mean this Purchase and Sale Agreement.
"Allocated Value" shall mean the allocation of the
unadjusted Purchase Price among each of the Assets as
described in Section 2.3.
"Assets" shall mean the property and property rights set
forth in Section 1.2.
"Assignment and Bill of Sale" shall mean the conveyance
document by which Seller conveys the Assets to Purchaser as
described in Section 3.1(b).
"Assumed Obligations" has the meaning set forth in Section
11.3(a).
"Business Day" means each calendar day except Saturdays,
Sundays, and Federal holidays.
"Closing" has the meaning set forth in Section 9.1(a).
"Closing Date" has the meaning set forth in Section 9.1(b).
"Closing Payment" has the meaning set forth in Section 9.4(a).
"Code" has the meaning set forth in Section 2.3(a).
"Confidentiality Agreement" has the meaning set forth in Section 7.1(a).
"Contracts" has the meaning set forth in Section 1.2(d).
"Damages" has the meaning set forth in Section 11.3(e).
"Defensible Title" has the meaning set forth in Section 3.2.
"Deposit" has the meaning set forth in Section 2.4.
"DTPA" has the meaning set forth in Section 6.8.
"Effective Time" has the meaning set forth in Section 1.4.
"Environmental Assessment" has the meaning set forth in Section 4.1.
"Environmental Laws" means, as the same have been amended as
of the Effective Time, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.;
the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C.
Section 7401 et seq. the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1471 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section Section 2601 through 2629;
the Oil Pollution Act, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; and the Safe Drinking Water
Act, 42 U.S.G. Section Section 300f through 300j; and all
similar Laws as of the Effective Time of any Governmental
Body having jurisdiction over the Properties addressing
pollution or protection of the environment and all
regulations implementing the foregoing.
"Environmental Liabilities" shall mean, with respect to the
Properties, any and all environmental response costs, costs
to cure, restoration costs, costs of remediation,
settlements, penalties, fines, attorney fees, and Damages
(i) related to a Material Adverse Environmental Condition
regardless of whether same occurred PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME and/or (ii) incurred or imposed pursuant
to any claim or cause of action by a Governmental Body or
other Person for remediation or response costs or any
remediation obligation or Damages arising out of any
violation of any Environmental Law which is attributable to
the ownership or operation of the Properties PRIOR TO, AT OR
AFTER THE EFFECTIVE TIME.
"Equipment" has the meaning set forth in Section 1.2(f).
"Excluded Assets" has the meaning set forth in Section 1.3.
"Flores Field Agreement" shall mean that certain second
Purchase and Sale Agreement between Seller and Purchaser
covering an undivided fifty percent (50%) of Seller's
interest in the Flores Field, located in Hidalgo County,
Texas and Starr County, Texas, prepared contemporaneously
with the preparation and execution of this Agreement.
"Governmental Authorization" has the meaning set forth in
Section 5.14.
"Governmental Body" means any federal, state, local,
municipal or other governmental regulatory agency,
administrative agency, commission, court, tribunal, body or
other authority exercising or entitled to exercise any
administrative, executive, judicial, legislative, police,
regulatory or taxing powers.
"HSR Act" means the Hart-Scott Rodino Antitrust Improvements
Act of 1976 as discussed in Section 7.2.
"Hydrocarbons" shall mean oil, gas, condensate, other
gaseous and liquids products and all products attributable
thereto, produced from or attributable to the Properties.
"Indemnification Notice" has the meaning set forth in
Section 11.4(b).
"Indemnify" has the meaning set forth in Section 11.3(b).
"Indemnified Party" has the meaning set forth in Section 11.4(a).
"Indemnifying Party" has the meaning set forth in Section 11.4(a).
"Lands" has the meaning set forth in Section 1.2(a).
"Laws" means all statutes, rules, regulations, ordinances,
orders, and codes of Governmental Bodies.
"Leases" has the meaning set forth in Section 1.2(a).
"Litigation Expenses" has the meaning set forth in Section 11.3(b)(ix).
"Material Adverse Environmental Condition" shall mean, with
respect to the Properties, any violations of Environmental
Laws; any condition that is required to be remediated or
cured under applicable Environmental Laws in effect at the
time of the Environmental Assessment; the failure to
remediate or cure any condition that is required to be
remediated or cured under applicable Environmental Laws in
effect at the time of the Environmental Assessment; any
action or proceeding before any Governmental Body alleging
potential liability arising out of or resulting from any
actual or alleged violation of, or any remedial obligation
under, any Environmental Law with respect to the Properties
or notice of same to Seller by any Person.
"Net Revenue Interest" shall mean an ownership interest,
expressed either as a decimal or percentage, in the stream
of revenues attributable to the Assets, net of all burdens,
as discussed in Section 3.2(a).
"Permitted Encumbrances" has the meaning set forth in
Section 3.3.
"Person" means any individual, firm, corporation, partnership,
limited liability company, joint venture, association, trust,
unincorporated organization, government or agency or
subdivision thereof or any other entity.
"Properties" shall mean the Units, Leases, Lands and Wells.
"Property Costs" shall mean all operating expenses and
capital expenditures incurred in the ownership and operation
of the Assets and, where applicable, in accordance with the
relevant operating or unit agreement, and overhead costs
charged to the Assets under the relevant operating agreement
or unit agreement, if any. Property Costs shall include
costs of insurance and ad valorem, property, severance,
production and similar Taxes based upon or measured by the
ownership or operation of the Assets or the production of
Hydrocarbons therefrom, but excluding any other Taxes.
Property Costs shall not include liabilities and expenses
attributable to (i) claims, investigations, administrative
proceedings or litigation directly or indirectly arising out
of or resulting from actual or claimed personal injury or
death, property damage or violation of any Law, (ii)
obligations to plug wells, dismantle facilities, close pits
and restore the surface around such wells, facilities and
pits, (iii) obligations to remediate or cure any
contamination of groundwater, surface water, soil or
Equipment under applicable Environmental Laws, (iv)
obligations to furnish make-up gas according to the terms of
applicable gas sales, gathering or transportation contracts,
(v) gas balancing obligations, (vi) obligations related to
the Excluded Assets and (vii) obligations to pay Working
Interests, royalties, overriding royalties or other
interests held in suspense.
"Purchase Price" has the meaning set forth in Section 2.1.
"Purchaser" shall mean Fidelity Exploration & Production Company.
"Purchaser Indemnitees" shall mean Purchaser, its officers,
directors, shareholders, members, employees, agents,
representatives, Affiliates and subsidiaries.
"Purchaser's Indemnification Obligations" shall mean those
obligations described in Section 11.3(b).
"Records" has the meaning set forth in Section 1.2(h).
"Seller" shall mean Smith Production Inc.
"Seller Operated Assets" shall mean Assets operated by Seller.
"Seller Indemnitees" shall mean Seller, its officers,
directors, shareholders, members, employees, agents,
representatives, Affiliates and subsidiaries.
"Seller's Indemnification Obligations" shall mean those
obligations described in Section 11.3(c).
"Surface Contracts" has the meaning set forth in Section 1.2(e).
"Tax(es)" means all federal, state, local and foreign
income, profits, franchise, sales, use,
ad valorem, property, severance, production, excise, stamp,
documentary, real property transfer or gain, gross receipts,
goods and services, registration, capital, transfer, or
withholding Taxes or other governmental fees or charges
imposed by any taxing authority, including any interest,
penalties or additional amounts which may be imposed with
respect thereto.
"Tax Returns" has the meaning set forth in Section 5.8.
"Third Party Claim" has the meaning set forth in Section 11.4(b).
"Title Benefit" shall mean any right or condition that
operates to increase the Net Revenue Interest of Seller in
any Property above the Net Revenue Interest shown on Exhibit
1.2(b), without causing a proportionate increase in Seller's
Working Interest as shown in Exhibit 1.2(b) as discussed in
Section 3.2.
"Title Benefit Amount" has the meaning set forth in Section 3.4(e).
"Title Benefit Notice" has the meaning set forth in Section 3.4(b).
"Title Claim Date" has the meaning set forth in Section 3.4(a).
"Title Defect" has the meaning set forth in Section 3.2.
"Title Defect Amount" has the meaning set forth in Section 3.4(d)(i).
"Title Defect Notice" has the meaning set forth in Section 3.4(a).
"Title Defect Property" has the meaning set forth in Section 3.4(a).
"Units" has the meaning set forth in Section 1.2(c).
"Wells" has the meaning set forth in Section 1.2(b).
"Working Interest" shall mean the gross leasehold ownership
interest in the Leases, or, as the case may be, the gross
ownership interest in fee minerals or other types of
interests which are included within the Assets, as discussed
in Section 3.2(b).
ARTICLE 1
PURCHASE AND SALE
Section 1.1 Purchase and Sale.
At the Closing, and upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell and
convey the Assets to Purchaser and Purchaser agrees to
purchase, accept and pay for the Assets.
Section 1.2 Assets.
As used herein, "Assets" means all of Seller's right, title
and interest in the following property rights described in
1.2(a) through 1.2(h), inclusive, as follows:
(a) Oil, gas and mineral leases; subleases and other
leaseholds; carried interests; farmout rights; options;
and other properties and interests as described on
Exhibit 1.2(a) attached hereto, subject to such depth
limitations, exclusions and other restrictions as
described on Exhibit 1.2 (a) (collectively, the
"Leases") and all tenements, hereditaments and
appurtenances belonging to the Leases, together with
each and every kind and character of right, title,
claim, and interest that Seller has in and to the
Leases and the lands covered thereby, pooled, unitized
or communitized therewith (the "Lands");
(b) Oil, gas, water, disposal or injection wells
located on the Lands, whether producing, not producing,
shut-in, temporarily abandoned or permanently
abandoned, including the interests in the wells as
described on Exhibit 1.2(b) attached hereto (the
"Wells");
(c) Units which include all or portions of the Leases,
Lands or Wells as described on Exhibit 1.2(c) attached
hereto (the "Units") including production from any such
Unit, whether such Unit production comes from Wells
located on or off of a Lease, and all tenements,
hereditaments and appurtenances belonging to the Units;
(d) Contracts, agreements, orders and instruments by
which the Assets are bound or to which the Assets are
subject, or that relate to or are otherwise applicable
to the Assets, to the extent applicable to the Assets
rather than Seller's other properties, including,
without limitation, operating agreements, unitization,
pooling and communitization agreements, declarations
and orders, joint venture agreements, farmin and
farmout agreements, water rights agreements,
exploration agreements, participation agreements,
exchange agreements, transportation or gathering
agreements, agreements for the sale and purchase of
oil, gas, casinghead gas or processing agreements to
the extent applicable to the Assets or the production
of oil and gas and other minerals and products produced
in association therewith from the Assets (all of which
are hereinafter collectively referred to as
"Contracts") but excluding any Contracts to the extent
transfer is restricted by third-party agreement or
applicable law and the necessary consents to transfer
are not obtained pursuant to Section 7.9; provided that
"Contracts" shall not include the Leases;
(e) Easements, permits, licenses, servitudes, rights-of-
way, surface leases and other surface rights ("Surface
Contracts") appurtenant to, and used or held for use
primarily in connection with the Properties, excluding
any Surface Contracts to the extent transfer is
restricted by third-party agreement or applicable law
and the necessary consents to transfer are not obtained
pursuant to Section 7.9;
(f) Equipment, machinery, fixtures, facilities and
improvements located on the Properties including,
without limitation, all tanks, boilers, injection
facilities, saltwater disposal facilities, compression
facilities, pumping units and engines, flow lines,
pipelines, gathering systems, gas and oil treating
facilities, machinery, power lines, telephone and
telegraph lines, roads, and other appurtenances, but
excluding (i) vehicles, (ii) computers and related
peripheral equipment, (iii) communications equipment
and (iv) communications licenses granted by the Federal
Communications Commission or other governmental agency
(subject to such exclusions, the "Equipment");
(g) Hydrocarbons produced from or attributable to the
Properties from and after the Effective Time and all
oil, gas, condensate and imbalances with co-owners and
with pipelines and all make-up rights with respect to
take-or-pay payments; and
(h) To the extent transferable, all non-proprietary and
non-confidential lease files; land files; well files;
gas and oil sales contract files; gas processing files;
division order files; abstracts; title opinions; land
surveys; geologic data; that certain 3-D seismic data
and geophysical data that was conveyed by Vastar
Resources, Inc. to Seller pursuant to that certain
Purchase and Sale Agreement between Vastar Resources,
Inc., as Seller, and Smith Production Inc., as
Purchaser, dated January 21, 1999 covering Tabasco
Field and Texan Gardens Field and that certain letter
agreement dated April 20, 1999 between Vastar
Resources, Inc. and Smith Production Inc.; and non-
confidential logs related to the Assets listed above in
subsections (a)-(g), inclusive, but excluding (i) any
books, records, data, files, maps and accounting
records to the extent disclosure or transfer is
restricted by third-party agreement or applicable law
and the necessary consents to transfer are not obtained
pursuant to Section 7.9, (ii) proprietary engineering
data, maps and reserve studies, (iii) computer
software, (iv) work product of Seller's legal counsel
(other than title opinions), (v) records and documents
relating to the negotiation and consummation of the
sale of the Assets and (vi) corporate, financial,
income and franchise tax and legal records of Seller
that relate to Seller's business generally (whether or
not relating to the Assets) (subject to such
exclusions, the "Records"); provided, however, that
Seller may retain the originals of such files and other
records as Seller has determined may be required for
litigation, Tax, accounting, and auditing purposes and
provide Purchaser with copies thereof, excluding,
however, the Excluded Assets (as defined in Section 1.3).
Section 1.3 Excluded Assets.
Notwithstanding the foregoing, the Assets shall not include
the following listed items which are excepted and reserved
to Seller and excluded from this Agreement (collectively,
the "Excluded Assets"):
(a) The documents, files, records and information excluded
in 1.2(h) above;
(b) The equipment, machinery, licenses, fixtures and
other tangible personal property excluded in 1.2(f)
above;
(c) All rights to any refund of Taxes or other costs or
expenses borne by Seller or Seller's predecessors in interest
and title attributable to periods prior to the Effective Time;
(d) All rights relating to the existing claims and
causes of action described in Exhibit 5.7 hereto;
(e) Seller's bonds, letters of credit, guarantees,
permits and licenses;
(f) All trade credits, account receivables, note
receivables, take-or-pay amounts receivable, and other
receivables attributable to the Assets with respect to any
period of time prior to the Effective Time;
(g) All surface estate fee located on the Properties,
including, without limitation, all buildings,
structures and improvements located on said surface fee
estate as more particularly described in Exhibit 1.3;
(h) That certain 3-D seismic data and geophysical data
covering approximately 57 square miles of land that was
shot, acquired and processed by Synergy Exploration
L.L.C. on behalf of Seller which covers the Properties
and other land not covered by this Agreement; and
(i) All other items listed in Exhibit 1.3.
Section 1.4 Effective Time.
Seller shall transfer possession of the Assets to Purchaser
at the Closing, but the effective time of the transfer of
the Assets shall be May 1, 2005 at 7:00 a.m., local time at
the location of the Properties (the "Effective Time").
Section 1.5 Delivery and Maintenance of Records.
(a) Seller shall deliver the Records to Purchaser
within ten (10) days following Closing. Seller may
retain original Records as set forth in Section 1.2(h)
and copies of any Records.
(b) For seven (7) years following Closing, Purchaser
shall (i) retain the Records, (ii) provide Seller, its officers,
employees and representatives with access to the Records during
normal business hours for review and copying at
Seller's expense and (iii) provide Seller, its
officers, employees and representatives with access to
materials received or produced after Closing related to
any claim for indemnification made under Section 11.3
of this Agreement (excluding, however, attorney work
product and attorney-client communications with respect
to any such claim being brought by Purchaser and
information subject to an applicable confidentiality
restriction in favor of third parties) for review and
copying at Seller's expense.
Section 1.6 Proration of Costs and Revenues.
(a) Purchaser shall be entitled to all (i) Hydrocarbons
produced from or attributable to the Properties at and
after the Effective Time, (ii) proceeds from the sale
of Hydrocarbons at and after the Effective Time and
(iii) other income, proceeds, receipts and credits
earned with respect to the Assets at or after the
Effective Time. Purchaser shall be liable and
responsible for (and entitled to any refunds with
respect to) all Property Costs incurred at and after
the Effective Time.
(b) Seller shall be entitled to all (i) Hydrocarbons
produced from or attributable to the Properties prior
to the Effective Time, (ii) proceeds from the sale of
Hydrocarbons prior to the Effective Time and (iii)
other income, proceeds, receipts and credits earned
with respect to the Assets prior to the Effective Time.
Seller shall be liable and responsible for (and
entitled to any refunds with respect to) all Property
Costs incurred prior to the Effective Time.
(c) Right-of-way fees, insurance premiums and other
Property Costs that are paid periodically and cannot be
accurately identified as being incurred when paid shall
be prorated based on the number of days in the
applicable period falling before and the number of days
in the applicable period falling at or after the
Effective Time.
(d) Ad valorem, production, severance and similar Taxes
shall be prorated based on the number of units actually
produced, purchased or sold or proceeds of sale, as
applicable, before, and at or after, the Effective
Time. In each case, Purchaser shall be responsible for
the portion allocated to the period at and after the
Effective Time, and Seller shall be responsible for the
portion allocated to the period before the Effective
Time.
(e) For purposes of allocating production (and accounts
receivable with respect thereto), under this Section
1.6, (i) liquid Hydrocarbons shall be deemed to be
"from or attributable to" the Properties when they pass
through the pipeline connecting into the storage
facilities into which they are run and (ii) gaseous
Hydrocarbons shall be deemed to be "from or
attributable to" the Properties when they pass through
the delivery point sales meters on the pipelines
through which they are transported. Seller shall
utilize reasonable interpolative procedures to arrive
at an allocation of production when exact meter
readings or gauging and strapping data is not
available. Seller shall provide to Purchaser, no later
than four (4) Business Days prior to Closing, all data
necessary to support any estimated allocation, for
purposes of establishing the adjustment to the Purchase
Price pursuant to Section 2.2 hereof that will be used
to determine the Closing Payment.
ARTICLE 2
PURCHASE PRICE
Section 2.1 Purchase Price.
The purchase price for the Assets (the "Purchase Price")
shall be Seventy Four Million Nine Hundred Twenty Eight
Thousand Two Hundred Thirty Six Dollars (U.S. $74,928,236.00)
adjusted as provided in Section 2.2.
Section 2.2 Adjustments to Purchase Price.
The Purchase Price for the Assets shall be adjusted as
follows:
(a) Reduced by the aggregate amount of the proceeds
received by Seller from the sale of Hydrocarbons and
other proceeds earned and attributable to the Assets
during the Adjustment Period;
(b) Reduced in accordance with Section 3.5, by an amount equal
to the Allocated Value of those Properties (i) with respect to
which preferential purchase rights have been exercised prior
to Closing or (ii) that cannot be transferred at
Closing because consents to the assignments of those
Properties have not been obtained;
(c) Reduced by the aggregate amounts payable to owners
of working interests, royalties and overriding
royalties and other interests in the Properties held in
suspense by Seller as of the Closing Date unless the
suspended funds are transferred by Seller to Purchaser
on the Closing Date;
(d) Reduced by Seller's pro-rata share of ad valorem
taxes;
(e) Reduced in accordance with Article 3 by amounts as
remedies for Title Defects;
(f) Reduced in accordance with Article 4 pursuant to
Section 4.3 regarding environmental matters;
(g) Increased by the amount of all Property Costs which
have been paid by Seller and incurred during the
Adjustment Period, except for any Property Costs and
other such costs already deducted in the determination
of proceeds in Section 2.2(a);
(h) Increased or decreased, as appropriate, pursuant to
the provisions of Section 7.8 dealing with gas
imbalances and/or take-or-pay make-up obligations; and
(i) Increased by the amount of any Title Benefit
pursuant to Section 3.4(e).
(j) Increased or decreased by other amounts mutually
agreed to by Seller and Purchaser.
All such adjustments shall be determined in accordance with
generally accepted accounting principles and Council of
Petroleum Accountants Society (COPAS) standards.
The adjustment described in Section 2.2(a) shall serve to
satisfy, up to the amount of the adjustment, Purchaser's
entitlement under Section 1.6 to Hydrocarbon production from or
attributable to the Properties during the Adjustment Period,
and to the other income, proceeds, receipts and credits
earned with respect to the Assets during the Adjustment
Period. Purchaser shall not have any separate rights to
receive any production or income, proceeds, receipts and
credits with respect to which an adjustment has been made.
Similarly, the adjustment described in Section 2.2(g) shall
serve to satisfy, up to the amount of the adjustment,
Purchaser's obligation under Section 1.6 to pay Property
Costs and other costs attributable to the ownership and
operation of the Assets which are incurred during the
Adjustment Period. Purchaser shall not be separately
obligated to pay for any Property Costs or other such costs
with respect to which an adjustment has been made.
Section 2.3 Allocation of Purchase Price.
(a) Simultaneous with the execution of this Agreement,
Purchaser will deliver to Seller a draft allocation of the
unadjusted Purchase Price among each of the Assets, which has been
made in compliance with the principles of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"),
and the Treasury regulations thereunder. Within two (2)
Business Days after Seller has received Purchaser's
draft allocation, Seller and Purchaser will attempt to
agree on the final allocation of the unadjusted
Purchase Price among each of the Assets; provided,
however, that in no event shall any such allocation of
value be deemed final until Seller and Purchaser have
approved the same in writing. Once approved by all
parties, such allocation of value shall be attached to
this Agreement as Exhibit 2.3. The "Allocated Value"
for any Asset shall equal the portion of the unadjusted
Purchase Price allocated to such Asset on Exhibit 2.3,
increased or decreased by its respective proportionate
share of the price adjustments described in Section
2.2. After Seller and Purchaser have agreed on the
Allocated Values for the Assets, Seller and Purchaser
will be deemed to have accepted such Allocated Values
for purposes of this Agreement and the transactions
contemplated hereby. Seller, however, makes no
representation or warranty to Purchaser as to the
accuracy of such values. Seller and Purchaser agree (i)
that the Allocated Values shall be used by Seller and
Purchaser as the basis for notices to holders of
preferential rights to purchase and (ii) that neither
Seller nor Purchaser will take positions inconsistent
with the Allocated Values in notices to government
authorities, in audit or other proceedings with respect
to Taxes, in notices to holders of preferential rights
to purchase. Purchaser and Seller further agree that,
on or before the Closing Date, they will mutually agree
as to the further allocation of the Allocated Values
included in Exhibit 2.3 as to the relative portion of
those values attributable to leasehold costs and
depreciable Equipment.
(b) In the event that Seller and Purchaser are unable
to agree as to the Allocated Values, at the sole
election of Seller, (i) this Agreement may be
terminated unilaterally by Seller, in which case
Purchaser shall be entitled to an immediate refund of
the Deposit from Seller, or (ii) the dispute may be
submitted to arbitration as provided in Section 7.15
below.
Section 2.4 Deposit.
Concurrently with the execution of this Agreement, Purchaser
shall wire transfer to Seller an earnest money deposit in an
amount equal to five percent (5 %) of the Purchase Price
(the "Deposit"). The Deposit shall be applied against the
Purchase Price if the Closing occurs or shall be otherwise
distributed in accordance with the terms of this Agreement.
ARTICLE 3
TITLE MATTERS
Section 3.1 Seller's Title.
(a) Seller represents and warrants to Purchaser that
Seller's title to the Wells shown on Exhibit 1.2(b) and
the Units shown on Exhibit 1.2(c) as of the Effective
Time is (and as of the Closing Date shall be)
Defensible Title.
(b) The Assignment and Bill of Sale to be delivered by
Seller to Purchaser shall be in form identical to the
assignment shown on Exhibit 3.1(b) attached hereto and
shall contain a special warranty of title by, through
and under Seller, but not otherwise, to the Leases
shown on Exhibit 1.2(a), subject to the Permitted
Encumbrances. Otherwise, the Assignment and Bill of
Sale shall be without warranty of title, express,
implied, statutory or otherwise. The Assignment and
Bill of Sale shall transfer to Purchaser all rights or
actions on title warranties given or made by Seller's
predecessors (other than Affiliates of Seller), to the
extent Seller may legally transfer such rights.
(c) Purchaser shall not be entitled to protection
under Seller's special warranty of title in the
Assignment and Bill of Sale against any Title Defect
reported by Purchaser to Seller under this Article 3.
All reported Title Defects shall be covered by the
provisions of Article 3 and are expressly excluded from
protection under Seller's special warranty of title in
the Assignment and Bill of Sale.
Section 3.2 Defensible Title.
As used in this Agreement, the term "Defensible Title" means
that title of Seller which, subject to Permitted Encumbrances:
(a) Entitles Seller to receive a share of the
Hydrocarbons produced, saved and marketed from any Unit
or Well throughout the duration of the productive life
of such Unit or Well after satisfaction of all
royalties, overriding royalties, nonparticipating
royalties, net profits interests or other similar
burdens on or measured by production of Hydrocarbons (a
"Net Revenue Interest") of not less than the Net
Revenue Interest share shown in Exhibit 1.2(b) for the
Wells and Exhibit 1.2(c) for the Units, except
decreases in connection with those operations in which
Seller may after the Effective Time be a non-consenting
co-owner, decreases resulting from the establishment or
amendment after the Effective Time of units, and
decreases required to allow other working interest
owners to make up past underproduction or pipelines to
make up past under deliveries;
(b) Obligates Seller to bear a percentage of the
Property Costs relating to any Unit or Well not greater
than the "Working Interest" shown in Exhibit 1.2(b) for
Wells and Exhibit 1.2(c) for Units without increase
throughout the productive life of such Wells or Units
except increases resulting from contribution
requirements with respect to defaulting co-owners under
applicable operating agreements and increases that are
accompanied by at least a proportionate increase in
Seller's Net Revenue Interest; and
(c) Is free and clear of liens, encumbrances,
obligations, security interests, pledges or other
defects.
The term "Title Defect" shall mean any liens, encumbrances,
obligations, security interests, pledges or other defects,
including, without limitation, discrepancies in Net Revenue
Interest or Working Interest, that cause a breach of
Seller's representation and warranty of Defensible Title in
Section 3.1(a).
The term "Title Benefit" shall mean any right, circumstance
or condition that operates to increase the Net Revenue
Interest of Seller in any Property above that shown on
Exhibit 1.2(b) and Exhibit 1.2(c), without causing a
greater than proportionate increase in Seller's Working
Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c).
Section 3.3 Permitted Encumbrances.
As used herein, the term "Permitted Encumbrances" shall mean
any or all of the following:
(a) Royalties and any overriding royalties,
reversionary interests and other burdens to the extent
that they do not, individually or in the aggregate,
reduce Seller's Net Revenue Interest below that shown
in Exhibit 1.2(b) and Exhibit 1.2(c) or increase
Seller's Working Interest above that shown in Exhibit
1.2(b) and Exhibit 1.2(c) without a corresponding
increase in the Net Revenue Interest;
(b) All Leases, unit agreements, pooling agreements,
operating agreements, production sales contracts,
division orders and other Contracts applicable to the
Assets, to the extent that they do not, individually or
in the aggregate, reduce Seller's Net Revenue Interest
below that shown in Exhibit 1.2(b) and Exhibit 1.2(c)
or increase Seller's Working Interest above that shown
in Exhibit 1.2(b) and Exhibit 1.2(c) without a
corresponding increase in the Net Revenue Interest;
(c) Preferential rights to purchase the Assets with respect
to which, prior to Closing, (i) waivers are obtained from the
holders of such preferential rights to purchase and/or (ii) the
appropriate time period for asserting such rights has
expired without an exercise of such rights;
(d) Third-party consent to assignment requirements and
similar restrictions with respect to which waivers or
consents are obtained by Seller from the appropriate
parties prior to the Closing Date or the appropriate
time period for asserting the right has expired or
which need not be satisfied prior to a transfer;
(e) Liens for current Taxes or assessments not yet
delinquent or, if delinquent, being contested in good
faith by appropriate actions;
(f) Liens or charges arising in the ordinary course of
business for amounts not yet delinquent (including any
amounts being withheld as provided by law), or if
delinquent, being contested in good faith by
appropriate actions;
(g) All rights to consent, by required notices to,
filings with, or other actions by Governmental Bodies in connection
with the sale or conveyance of oil and gas leases or interests
therein if they are not required prior to the sale or
conveyance;
(h) Rights of reassignment arising upon final intention
to abandon or release the Assets, or any of them;
(i) Easements, rights-of-way, servitudes, permits,
surface leases and other rights in respect of surface
operations to the extent that they do not, individually
or in the aggregate, reduce Seller's Net Revenue
Interest below that shown in Exhibits 1.2(b) and
Exhibit 1.2(c) or increase Seller's Working Interest
above that shown in Exhibits 1.2(b) and Exhibit 1.2(c)
without a corresponding increase in Net Revenue
Interest;
(j) Calls on production under existing Contracts;
(k) All rights reserved to or vested in any
Governmental Body to control or regulate any of the
Assets in any manner and all obligations and duties
under all applicable laws, rules and orders of any such
Governmental Body or under any franchise, grant,
license or permit issued by any such Governmental Body;
(l) Any encumbrance affecting the Assets which is
discharged by Seller prior to or at Closing or which is
expressly assumed, bonded or paid by Purchaser prior to
or at Closing;
(m) Any matters shown on Exhibit 1.2(a), Exhibit 1.2(b)
and Exhibit 1.2(c); and
(n) Any other liens, charges, encumbrances, defects or
irregularities which do not, individually or in the
aggregate, materially detract from the value of or
materially interfere with the use or ownership of the
Assets subject thereto or affected thereby (as
currently used or owned), which would be accepted by a
reasonably prudent Purchaser engaged in the business of
owning and operating oil and gas Assets, and which do
not reduce Seller's Net Revenue Interest below that
shown in Exhibit 1.2(b) and Exhibit 1.2(c), or
increase Seller's Working Interest above that shown in
Exhibit 1.2(b) and Exhibit 1.2(c) without a
corresponding increase in Net Revenue Interest.
Section 3.4 Notice of Title Defects.
(a) To assert a claim arising out of a breach of
Seller's representation and warranty of Defensible
Title in Section 3.1(a), Purchaser must deliver claim
notices to Seller (each a "Title Defect Notice") on or
before ten (10) Business Days prior to the Closing Date
(the "Title Claim Date"), except as otherwise provided
in Sections 3.5, 3.6 or 3.7. Each Title Defect Notice
shall be in writing and shall include (i) a description
of the alleged Title Defect(s), (ii) the Leases, Units
or Wells affected by the Title Defect (each a "Title
Defect Property"), (iii) the Allocated Values of each
Title Defect Property, (iv) supporting documents
reasonably necessary for Seller (as well as any title
attorney or examiner hired by Seller) to verify the
existence of the alleged Title Defect(s) and (v) the
amount by which Purchaser reasonably believes the
Allocated Values of each Title Defect Property are
reduced by the alleged Title Defect(s) and the
computations and information upon which Purchaser's
belief is based. Purchaser shall be deemed to have
waived all breaches of Seller's representation and
warranty of Defensible Title in Section 3.1(a) of which
Seller has not been given notice on or before the Title
Claim Date.
(b) Seller shall have the right, but not the
obligation, to deliver to Purchaser on or before the
Title Claim Date with respect to each Title Benefit a
notice (a "Title Benefit Notice") including (i) a
description of the Title Benefit, (ii) the Leases,
Units or Wells affected, (iii) the Allocated Values of
the Units or Wells subject to such Title Benefit and
(iv) the amount by which the Seller reasonably believes
the Allocated Value of those Units or Wells is
increased by the Title Benefit, and the computations
and information upon which Seller's belief is based.
Seller shall be deemed to have waived all Title
Benefits of which it has not given notice on or before
the Title Claim Date.
(c) In the event that Seller receives a Title Defect
Notice, Seller shall have the right, but not the
obligation, to attempt, at its sole cost, to cure or
remove any Title Defects of which it has been advised
by Purchaser in the Title Defect Notice prior to
Closing.
(d) Remedies for Title Defects.
In the event that any Title Defect is not waived by
Purchaser or cured on or before Closing, Seller shall,
at its sole election, select one of the following
options which shall apply regarding uncured Title
Defects:
(i) The Purchase Price shall be reduced by an amount
agreed upon ("Title Defect Amount") pursuant to Section 3.4(g)
or 3.4(i) by Purchaser and Seller as being the value
of such Title Defect, taking into consideration
the Allocated Value of the Property subject to
such Title Defect, the portion of the Property
subject to such Title Defect and the legal effect
of such Title Defect on the Property affected
thereby;
(ii) Purchaser and Seller shall enter into a
separate written agreement whereby Seller will as
soon as reasonably practicable after Closing, at
the sole cost and expense of Seller, cure or
remove such Title Defects to Purchaser's
reasonable satisfaction; or
(iii) Seller shall retain the affected Property,
in which event the affected Property shall be
deleted from this Agreement and the Purchase Price
shall be reduced by an amount equal to the
Allocated Value of such affected Property.
In the event that Seller elects to proceed under
Section 3.4(d)(i) and, after a reasonable time for good
faith negotiation, Purchaser and Seller have failed to
agree on the amount by which the Purchase Price should
be reduced by Closing, then in such event, Seller, at
Seller's sole election, may select one of the other
options in 3.4(d), unilaterally terminate this
Agreement, in which case Purchaser shall be entitled to
an immediate refund of the Deposit from Seller, or the
dispute may be submitted to arbitration as provided in
Section 7.15.
(e) With respect to each Unit or Well affected by Title
Benefits reported under Section 3.4(b), the Purchase
Price shall be increased by an amount (the "Title
Benefit Amount") equal to the increase in the Allocated
Value for such Unit or Well caused by such Title
Benefits, as determined pursuant to Section 3.4(h). The
Closing Payment shall be increased by such Title
Benefit Amount.
(f) Section 3.4(d) shall be the exclusive right and
remedy of Purchaser with respect to Seller's breach of
its warranty and representation of Defensible Title in
Section 3.1(a).
(g) The Title Defect Amount resulting from a Title
Defect shall be determined as follows:
(i) if Purchaser and Seller mutually agree upon
the Title Defect Amount, that amount shall be the
Title Defect Amount;
(ii) if the Title Defect is a lien, encumbrance or
other charge which is undisputed and the amount of
same can be exactly determined and agreed upon by
Purchaser and Seller, then the Title Defect Amount
shall be the amount necessary to be paid to remove
the Title Defect from the Title Defect Property;
(iii) if the Title Defect represents a discrepancy
between (A) the Net Revenue Interest for any Title
Defect Property (which has been agreed to by
Seller and Purchaser) and (B) the Net Revenue
Interest or percentage stated on Exhibit 1.2(b)
and Exhibit 1.2(c), then the Title Defect Amount
shall be the product of the Allocated Value of
such Title Defect Property multiplied by a
fraction, the numerator of which is the Net
Revenue Interest for the Title Defect Property and
the denominator of which is the Net Revenue
Interest or percentage ownership stated on Exhibit
1.2(b) and Exhibit 1.2(c); and
(iv) if the Title Defect represents an obligation,
encumbrance, burden or charge upon or other defect
in title to the Title Defect Property of a type
not described in subsections (i), (ii) or (iii)
above, the Title Defect Amount shall be determined
by taking into account the Allocated Value of the
Title Defect Property, the portion of the Title
Defect Property affected by the Title Defect, the
legal effect of the Title Defect, the potential
economic effect of the Title Defect over the life
of the Title Defect Property, the values placed
upon the Title Defect by Purchaser and Seller and
such other factors as are necessary to make a
proper evaluation.
(h) The Title Benefit Amount for any Title Benefit
shall be the product of the Allocated Value of the
affected Unit or Well multiplied by a fraction, the
numerator of which is the upwardly revised Net Revenue
Interest and the denominator of which is the Net
Revenue Interest stated on Exhibit 1.2(b) and Exhibit
1.2(c).
(i) Seller and Purchaser shall attempt to agree on all
Title Defect Amounts and Title Benefit Amounts prior to
Closing. If Seller and Purchaser are unable to agree by
no later than two (2) Business Days prior to Closing,
Seller, at Seller's sole election, may unilaterally
terminate this Agreement, in which case Purchaser shall
be entitled to an immediate refund of the Deposit from
Seller, or the dispute may be submitted to arbitration
as provided in Section 7.15.
(j) Notwithstanding anything to the contrary, there
shall be no adjustments to the Purchase Price or other
remedies provided by Seller for Title Defects unless
(i) each individual Title Defect exceeds $25,000.00 and
(ii) the aggregate amount of all uncured Title Defects
exceeds a deductible in an amount equal to two percent
(2%) of the Purchase Price, after which point Purchaser
shall be entitled to adjustments to the Purchase Price
or other remedies only with respect to Title Defects in
excess of such deductible. Notwithstanding anything to
the contrary, the aggregate Title Defect Amounts
attributable to the effects of all Title Defects upon
any Title Defect Property shall not exceed the
Allocated Value of the Title Defect Property.
Section 3.5 Consents to Assignment and Preferential
Rights to Purchase.
(a) Seller shall exercise reasonable efforts to obtain
all such permissions, approvals and consents by
governmental authorities and others which are
reasonably obtainable by Closing and are required to
vest Defensible Title to the Assets in Purchaser.
Seller shall notify Purchaser at least five (5)
Business Days prior to Closing of all required third-
party consents to the assignment of the Assets to
Purchaser which have not been obtained and the Assets
to which they pertain. In no event shall there be
included in the Assignment and Bill of Sale at Closing
any Asset subject to a consent requirement that
provides that transfer of the Asset without consent
will result in a termination or other material
impairment of any rights in relation to such Asset. In
cases where the Asset subject to such a requirement is
a Contract and Purchaser is assigned the Assets to
which the Contract relates, but the Contract is not
transferred to Purchaser due to the unwaived consent
requirement, Seller shall continue after Closing to use
reasonable efforts to obtain such consent so that such
Contract can be transferred to Purchaser upon receipt
of such consent. In cases where the Asset subject to
such a requirement is a Property and the third-party
consent to the sale and transfer of the Property is not
obtained prior to the Closing Date, Purchaser may elect
to treat the unsatisfied consent requirement as a Title
Defect by giving Seller notice thereof in accordance
with Section 3.4(a), except that such notice must be
given at least two (2) Business Days prior to the
Closing Date. In such event, the failure to obtain such
consent to assignment shall be treated as if the
affected Assets were subject to a Title Defect that
resulted in the complete loss of title to such Assets,
the affected Assets shall be excluded from the
Assignment and Bill of Sale and the Purchase Price
shall be reduced under Section 2.2(b) by the Allocated
Value for such Assets. If a consent requirement with
respect to which a Purchase Price adjustment is made
under Section 3.4 is subsequently satisfied prior to
the date of the final adjustment to the Purchase Price
under Section 9.4(b), Purchaser shall pay to Seller the
amount of the previous reduction in the Purchase Price
and the affected Assets shall be assigned to Purchaser.
(b) If any preferential rights to purchase any Assets
are exercised prior to Closing, those Assets transferred to a
holder of preferential right to purchase as a result of the exercise
of such preferential rights shall be treated as if those Assets
were subject to a Title Defect that resulted in the
complete loss of title to such Assets, and the Purchase
Price shall be reduced under Section 2.2(b) by the
Allocated Value for such Assets. Seller shall convey
such Assets to the holder of preferential right to
purchase exercising the preferential right to purchase,
and Seller shall retain the consideration paid by the
holder of preferential right to purchase for such
Assets.
Section 3.6 Casualty Loss.
After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is destroyed by
fire or other casualty, this transaction shall nevertheless
close. In the event that the loss resulting from the
casualty is an amount less than five percent (5%) of the
unadjusted Purchase Price, this transaction shall
nevertheless close and Seller shall have no obligation
regarding the casualty. In the event that the resulting loss
is an amount equal to or greater than five percent (5%)of
the unadjusted Purchase Price, Seller, at Seller's sole
election, shall select one of the following options which
shall apply to the casualty: (i) Seller shall cause the
Assets affected by such casualty to be repaired or restored
to at least its condition prior to such casualty, at
Seller's sole cost, as promptly as reasonably practicable
(which work may extend after the Closing Date); or (ii)
Seller shall, at Closing, pay to Purchaser all sums paid to
Seller by third parties by reason of such casualty and shall
assign to Purchaser all of Seller's right, title and
interest (if any) in insurance claims, unpaid awards, and
other rights against third parties other than Seller
Indemnitees arising out of the casualty; or (iii) Seller may
treat such casualty as a Title Defect with respect to the
affected Assets. In the event that Seller elects (i) or
(iii) above, Seller shall retain all rights to insurance and
other claims against third parties with respect to the
casualty.
Section 3.7 Condemnation Loss.
After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is taken in
condemnation or under right of eminent domain, this
transaction shall nevertheless close. In such event, Seller,
at Seller's sole election, shall select one of the following
options which shall apply to the taking: (i) Seller shall,
at Closing, pay to Purchaser all sums paid to Seller by
third parties by reason of such taking and shall assign,
transfer and set over to Purchaser all of Seller's right,
title and interest (if any) in insurance claims, unpaid
awards, and other rights against third parties other than
Seller Indemnitees arising out of the taking; or (ii) Seller
shall treat the taking as if the affected Assets were
subject to a Title Defect that resulted in the complete loss
of title to such Assets, and the Purchase Price shall be
reduced under Section 2.2 by the Allocated Value for such
Assets. In the case of (ii) above, Seller shall retain all
rights to insurance and other claims against third parties
with respect to the taking.
Section 3.8 Limitations on Applicability.
The Seller's representation and warranty of Defensible Title
in Section 3.1(a) shall terminate as of the Title Claim Date
and shall have no further force and effect thereafter.
Thereafter, Purchaser's sole and exclusive remedies with
regard to title to the Assets shall be the special warranty
of title to the Leases contained in the Assignment and Bill
of Sale.
ARTICLE 4
ENVIRONMENTAL MATTERS
Section 4.1 Environmental Assessment.
Purchaser may, at its option, inspect the Properties and
cause an environmental assessment (the "Environmental
Assessment") of all or any portion of the Properties to be
conducted by a reputable environmental consulting or
engineering firm approved in advance in writing by Seller.
An Environmental Assessment shall be conducted at a time
agreed to by Seller with a representative of Seller present.
Purchaser shall provide Seller with a correct copy of any
Environmental Assessment and all findings made in connection
therewith. Except for such disclosure to Seller, Purchaser
shall maintain the results of any Environmental Assessment
and all findings made in connection therewith as strictly
confidential. All information related an environmental
assessment and all findings made in connection therewith
shall be subject to the terms of the Confidentiality
Agreement. Without the prior written consent of Seller,
Purchaser shall not disclose the results of any
Environmental Assessment and all findings made in connection
therewith to any Person other than (i) the consultant that
conducts the Environmental Assessment, (ii) Purchaser's
lender (only in the events that (a) Purchaser's lender is
lending money to Purchaser in connection with this Agreement
and (b) provided Purchaser's lender first agrees in writing
to keep such information confidential) and (iii) Seller. Any
Environmental Assessment shall be conducted at the sole
risk, cost and expense of Purchaser, and Purchaser shall
Indemnify Seller from and against any and all losses arising
from the Environmental Assessment as provided in Section 7.7
and Section 11.3(b).
Section 4.2 Notice of Material Adverse Environmental Condition.
Purchaser may notify Seller in writing on or before five (5)
Business Days prior to Closing of any environmental matters
disclosed by the Environmental Assessment that Purchaser
reasonably believes in good faith may constitute a Material
Adverse Environmental Condition. Such notice shall include a
reasonably detailed description of all matters disclosed by
the Environmental Assessment.
Section 4.3 Environmental Remedies.
If Purchaser delivers to Seller a notice pursuant to Section
4.2 that describes a Material Adverse Environmental
Condition, then Seller shall, at its sole election, select
one of the following options which shall apply to all
Material Adverse Environmental Conditions:
(a) Seller shall reduce the Purchase Price by an amount
agreed upon in writing by Purchaser and Seller as being
a reasonable estimate of the cost of remediating or
curing such Material Adverse Environmental Condition;
(b) Seller shall retain the Property that is subject to
such Material Adverse Environmental Condition, in which
event the affected Property shall be deleted from this
Agreement and the Purchase Price shall be reduced by an
amount equal to the Allocated Value of such affected
Property;
(c) Seller shall perform or cause to be performed prior
to Closing, at the sole expense of Seller, such
operations as may be necessary to remediate or cure
such Material Adverse Environmental Condition; or
(d) Seller shall enter into an agreement with Purchaser
whereby Seller will as soon as reasonably practicable
after Closing, at the sole cost and expense of Seller,
perform or cause to be performed such operations as may
be necessary to remediate or cure such Material Adverse
Environmental Condition.
In the event that Seller elects to proceed under Section
4.3(a) and Purchaser and Seller have failed to agree on the
amount by which the Purchase Price shall be reduced (which
agreement Seller and Purchaser shall use good faith efforts
to reach) by Closing, then, in such event, the dispute shall
be submitted to arbitration as provided in Section 7.15.
Notwithstanding the foregoing, in the events that (i)
Purchaser conducts an Environmental Assessment on the
Properties which discloses environmental matters that
Purchaser reasonably believes in good faith may constitute a
Material Adverse Environmental Condition; (ii) Purchaser
delivers a notice to Seller as required in Section 4.2;
(iii) the cost of remediating the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 and/or the Environmental
Liabilities attributable to the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 exceed three percent (3%) of
the unadjusted Purchase Price; and (iv) Purchaser delivers
to Seller written notice of termination of this Agreement at
least five (5) Business Days prior to Closing Date, then, in
the event of the completion and satisfaction of each of the
four conditions listed above, Purchaser, at Purchaser's sole
election, may unilaterally terminate this Agreement without
liability to Seller. If Purchaser terminates this Agreement
pursuant to this section, Purchaser shall be entitled to a
prompt refund of the full amount of the Deposit from Seller.
Section 4.4 Limitations.
(a) This Article 4 is intended to be the sole and
exclusive remedy that Purchaser Indemnitees shall have
against Seller Indemnitees with respect to any matter
or circumstance relating to Material Adverse
Environmental Conditions, Environmental Liabilities,
Environmental Laws, the release of materials into the
environment, the protection of the environment or
health or any matters that Purchaser could have
included in a notice delivered pursuant to Section 4.2.
(b) Purchaser, on behalf of itself and each of the
other Purchaser Indemnitees, hereby fully releases and
discharges the Seller Indemnitees from any and all
claims at Law or in equity, known or unknown, whether
occurring before the Effective Time, existing at the
Effective Time or arising after the Effective Time,
contingent or otherwise, with respect to all matters
relating to Material Adverse Environmental Conditions,
Environmental Liabilities, Environmental Laws, the
release of materials into the environment, the
protection of the environment or health or any matters
that Purchaser could have included in a notice
delivered pursuant to Section 4.2 EVEN IF SUCH DAMAGES
OR CLAIMS ARE CAUSED IN WHOLE OR IN PART BY THE
NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT) OF
SELLER INDEMNITEES OR THE STRICT LIABILITY OF SELLER
INDEMNITEES.
(c) Purchaser acknowledges that Seller has not made and
will not make any representation or warranty regarding
any matter or circumstance relating to Material Adverse
Environmental Conditions, Environmental Laws, the
release of materials into the environment or protection
of the environment or health, and that nothing in
Article 5 or otherwise shall be construed as such a
representation or warranty.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 5.1 Disclaimers.
(a) Except as set forth in Articles 3 and 5 of this
Agreement, the certificate of Seller to be delivered
pursuant to Section 9.2(d) or in the Assignment and
Bill of Sale to be delivered by Seller to Purchaser
hereunder, (i) SELLER MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE
AND (ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND
RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY,
STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY
OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES,
EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES
(INCLUDING, WITHOUT LIMITATION, ANY OPINION,
INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN
PROVIDED TO PURCHASER BY ANY OFFICER, DIRECTOR,
EMPLOYEE, AGENT, ATTORNEY, CONSULTANT, REPRESENTATIVE
OR ADVISOR OF SELLER OR ANY OF SELLER'S AFFILIATES).
(b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
ARTICLE 3 OR THIS ARTICLE 5, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE AS TO (i) TITLE TO ANY OF THE
ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY
DESCRIPTIVE MEMORANDUM, DOCUMENTS, REPORTS OF ANY
PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL,
GEOPHYSICAL OR SEISMIC DATA OR INTERPRETATION RELATING
TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR
RECOVERABILITY OF HYDROCARBONS OR PETROLEUM SUBSTANCES
IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE
OF THE ASSETS OR FUTURE REVENUES THAT MAY BE
ATTRIBUTABLE TO THE ASSETS, (v) THE PRODUCTION OF
HYDROCARBONS OR PETROLEUM SUBSTANCES FROM THE ASSETS,
(vi) THE MAINTENANCE, STATE OR REPAIR OR LACK THEREOF,
PHYSICAL CONDITION, QUALITY, SUITABILITY FOR ANY
PURPOSE, DESIGN OR MARKETABILITY OF THE ASSETS, (vii)
THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE
MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS
PREPARED BY THIRD PARTIES, (viii) THE ACCURACY AND/OR
THE COMPLETENESS OF ANY OTHER MATERIALS OR INFORMATION
THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
PURCHASER, ITS AFFILIATES OR ITS EMPLOYEES, AGENTS,
CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION
WITH THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION
RELATING THERETO, (ix) ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY
EQUIPMENT OR (x) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES
HERETO THAT PURCHASER SHALL BE DEEMED TO BE PURCHASING
THE EQUIPMENT AND PERSONAL PROPERTY IN ITS PRESENT
STATUS, CONDITION AND STATE OF REPAIR, "AS IS" AND
"WHERE IS," WITH ALL FAULTS. PURCHASER HAS MADE OR
CAUSED TO BE MADE SUCH INSPECTIONS OF THE ASSETS AS
PURCHASER DEEMS APPROPRIATE.
(c) Any representation "to the knowledge of Seller" or
"to Seller's knowledge" is limited to matters within
the actual knowledge of the officers or management
employees, including those with titles of "Manager",
"Vice President" and "President," of Seller. Actual
knowledge includes information actually personally
known or information which should have been ascertained
had a reasonable inquiry or investigation been
undertaken. The standard of reasonableness is that
which would be exercised by a reasonably prudent person
who has been advised that the person is expected to
make representations and warranties with respect to
conditions and information relating to the Assets which
are to be conveyed.
(d) Subject to the foregoing provisions of this Section
5.1, Seller represents and warrants to Purchaser the
matters set out in this Article 5.
Section 5.2 Existence and Qualification.
Seller is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Texas.
Seller is duly qualified to do business as a corporation in
the respective jurisdictions where the Assets are located.
Section 5.3 Power.
Seller has the corporate power to enter into this Agreement,
perform the terms of this Agreement and consummate the
transactions contemplated by this Agreement.
Section 5.4 Authorization and Enforceability.
The execution, delivery and performance of this Agreement
have been or by Closing will have been duly authorized by
all necessary corporate action on the part of Seller. This
Agreement has been duly executed and delivered by Seller
(and all documents required hereunder to be executed and
delivered by Seller at Closing will be duly executed and
delivered by Seller) and this Agreement constitutes the
valid and binding obligation of Seller, enforceable in
accordance with its terms except as such enforceability may
be limited by applicable bankruptcy or other similar laws
affecting the rights and remedies of creditors generally as
well as to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law). As evidence of the foregoing, Seller has
delivered to Purchaser simultaneous with the execution of
this Agreement a unanimous consent executed, adopted and
approved by the board of directors of Seller which
specifically approves the terms of this Agreement, the
execution of this Agreement by Seller and the completion of
the transaction contemplated by this Agreement.
Section 5.5 No Conflicts.
The execution, delivery and performance of this Agreement by
Seller will not (i) violate any provision of the certificate
of incorporation or bylaws of Seller, (ii) result in default
(with due notice or lapse of time or both) or the creation
of any lien or encumbrance or give rise to any right of
termination, cancellation or acceleration under any of the
terms, conditions or provisions of any note, bond, mortgage
or indenture to which Seller is a party or which affect the
Assets, (iii) violate any judgment, order, ruling, or decree
applicable to Seller as a party in interest or (iv) violate
any Laws, rule or decree applicable to Seller or any of the
Assets, except for rights to consent by, required notices
to, and filings with or other actions by Governmental Bodies
where the same are not required prior to the assignment of
oil and gas interests.
Section 5.6 Purchaser's Liability for Brokers' Fees.
Purchaser shall not have any responsibility, liability or
expense, as a result of undertakings or agreements of
Seller, for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in
connection with this Agreement or any agreement or
transaction contemplated hereby.
Section 5.7 Litigation.
Except as set forth in Exhibit 5.7, (a) no investigation,
proceeding, action, suit, or other legal proceeding of any
kind or nature before any Governmental Body or arbitrator
(including any take-or-pay claims) is pending and (b) no
written notice from any Governmental Body or any other
Person has been received by Seller claiming any violation of
or noncompliance with any Laws with respect to the Assets.
Section 5.8 Taxes and Assessments.
With respect to all Taxes related to the Assets, Seller
warrants and represents that (a) all reports, returns,
statements (including estimated reports, returns or
statements), and other similar filings (the "Tax Returns")
relating to the Assets required to be filed on or before the
Closing Date by Seller with respect to any Taxes have been
or will be timely filed with the appropriate Governmental
Body in all jurisdictions in which such Tax Returns are
required to be filed; (b) such Tax Returns are true and
correct in all material respects, and all Taxes reported on
such Tax Returns have been paid; (c) there are not currently
in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or
collection of any Tax; (d) there are no administrative
proceedings or lawsuits pending against the Assets or Seller
by any taxing authority; and (e) there are no liens on any
of the Assets except for liens for Taxes not yet due.
Section 5.9 Outstanding Capital Commitments.
As of the Effective Time, there were no outstanding AFEs or
other commitments, either singly or in the aggregate, to
make capital expenditures in excess of $500,000.00 which are
binding on the Assets.
Section 5.10 Compliance with Laws.
To the knowledge of Seller, the Assets operated by Seller
have been and are currently in substantial compliance with
the provisions and requirements of all Laws of all
Governmental Bodies having jurisdiction with respect to the
Assets.
Section 5. 11 Contracts.
Seller has paid its share of all costs including without
limitation, Property Costs, payable by Seller and is not in
default under any Leases and Contracts, except those being
contested in good faith.
Section 5.12 Payments.
With respect to all Seller Operated Assets, all rentals,
royalties, overriding royalty interests, production
payments, and other payments due and/or payable by Seller to
mineral, royalty and other interest owners prior to the
Effective Time with respect to the Assets and the
Hydrocarbons produced therefrom or attributable thereto have
been properly and timely paid. Seller is not obligated under
any contract or agreement for the sale of gas from the
Assets containing a take-or-pay, advance payment,
prepayment, or similar provision, or under any gathering,
transmission, or any other contract or agreement with
respect to any of the Assets to gather, deliver, process, or
transport any gas without then or thereafter receiving full
payment therefor.
Section 5.13 Gas Imbalances.
Exhibit 5.13 sets forth all of Seller's pipeline and
production imbalances and penalties as of the Effective Time
arising with respect to the Assets. Except as disclosed in
Exhibit 5.13, as of the Effective Time, (i) no Person is
entitled to receive any portion of the Seller's Hydrocarbons
produced from the Assets or to receive cash or other
payments to "balance" any disproportionate allocation of
Hydrocarbons produced from the Assets under any operating
agreement, gas balancing or storage agreement, gas
processing or dehydration agreement, gas transportation
agreement, gas purchase agreement, or other agreements,
whether similar or dissimilar, (ii) Seller is not obligated
to deliver any quantities of gas or to pay any penalties or
other amounts, in connection with the violation of any of
the terms of any gas contract or other agreement with
shippers with respect to the Assets, and (iii) Seller is not
obligated to pay any penalties or other payments under any
gas transportation or other agreement as a result of the
delivery of quantities of gas from the Wells in excess of
the contract requirements.
Section 5.14 Governmental Authorizations.
Seller has obtained and is maintaining all federal, state
and local governmental licenses, permits, franchises,
orders, exemptions, variances, waivers, authorizations,
certificates, consents, rights, privileges and applications
therefor (the "Governmental Authorizations") that are
presently necessary or required for the ownership and
operation of the Seller Operated Assets. Seller has operated
the Seller Operated Assets in accordance with the conditions
and provisions of such Governmental Authorizations, and
Seller has not received any notices of violations. No
proceedings are pending or, to Seller's knowledge,
threatened, that might result in any modification,
revocation, termination or suspension of any such
Governmental Authorizations or which would require any
corrective or remediation action by Seller.
Section 5.15 Consents to Assignments and Preferential
Purchase Rights.
Except as set forth on Exhibit 5.15, none of the Assets are
subject to any preferential rights to purchase, restrictions
on assignment or required third-party consents to
assignment, which may be applicable to the transactions
contemplated by this Agreement, except for governmental
consents and approvals of assignments that are customarily
obtained after Closing.
Section 5.16 Non-foreign Person.
Seller is not a "foreign Person" within the meaning of
Sections 1445 and 7701of the Code.
Section 5.17 Payout Balances.
Exhibit 5.17 contains a complete and accurate list of the
status of any "payout" balances, as of the Effective Time,
for the Wells and Units subject to any reversion, adjustment
at some level of cost recovery, payout or other event other
than termination of a Lease by its terms.
Section 5.18 Condemnation.
To Seller's knowledge, there is no actual or threatened
taking of any part of the Assets by reason of condemnation
or eminent domain proceeding.
Section 5.19 Bankruptcy.
There are no bankruptcy, reorganization, or similar
arrangement proceedings pending, being contemplated by or,
to Seller's knowledge, threatened against Seller or any
Affiliate of Seller.
Section 5.20 PUHCA/NGA.
Seller is not (a) a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a
"holding company," or an "affiliate" of a "subsidiary" of a
"holding company," or a "public-utility company" within the
meaning of the Public Utility Holding Company Act of 1935,
as amended, or (b) subject in any respect to the provisions
of said act. No consent is required in connection with the
transaction contemplated hereby under the Natural Gas Policy
Act of 1978, as amended. Seller is not an interstate
pipeline company within the meaning of the Natural Gas Act
of 1938.
Section 5.21 Investment Company.
Seller is not (a) an investment company or a company
controlled by an investment company within the meaning of
the Investment Company Act of 1940, as amended, or (b)
subject in any respect to the provisions of said act.
Section 5.22 Suspense Accounts.
Except as described on Exhibit 5.22 attached hereto, there
are no obligations to pay any interests of any kind held by
Seller in suspense.
Section 5.23 Material Changes.
Except as provided for or disclosed in Exhibit 5.23 attached
hereto and made a part hereof, between the date of execution
of this Agreement and the Closing Date, there has not been
and will not be any material adverse changes in the
operations of the Properties by Seller, which change was not
the result of an industry-wide development affecting other
companies in the oil or gas industries.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller the following:
Section 6.1 Existence and Qualification.
Purchaser is a corporation organized, validly existing and
in good standing under the laws of the state of its
incorporation. Purchaser is duly qualified to do business as
a corporation in the respective jurisdictions where the
Assets are located.
Section 6.2 Power.
Purchaser has the corporate power to enter into this
Agreement, perform the terms of this Agreement and
consummate the transactions contemplated by this Agreement.
Section 6.3 Authorization and Enforceability.
The execution, delivery and performance of this Agreement
have been or by Closing will have been duly authorized by
all necessary corporate action on the part of Purchaser.
This Agreement has been duly executed and delivered by
Purchaser (and all documents required hereunder to be
executed and delivered by Purchaser at Closing will be duly
executed and delivered by Purchaser) and this Agreement
constitutes the valid and binding obligations of Purchaser,
enforceable in accordance with their terms except as such
enforceability may be limited by applicable bankruptcy or
other similar laws affecting the rights and remedies of
creditors generally as well as to general principles of
equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). As evidence
of the foregoing, Purchaser has delivered to Seller
simultaneous with the execution of this Agreement either a
resolution or a unanimous consent executed, adopted and
approved by the board of directors of Purchaser which
specifically approves the terms of this Agreement, the
execution of this Agreement by Purchaser and the completion
of the transaction contemplated by this Agreement.
Section 6.4 No Conflicts.
The execution, delivery and performance of this Agreement by
Purchaser, and the transactions contemplated by this
Agreement will not (i) violate any provision of the
certificate of incorporation or bylaws of Purchaser, (ii)
result in a material default (with due notice or lapse of
time or both) or the creation of any lien or encumbrance or
give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license
or agreement to which Purchaser is a party, (iii) violate
any judgment, order, ruling, or regulation applicable to
Purchaser as a party in interest, or (iv) violate any Law,
rule or decree applicable to Purchaser or any of the Assets,
except for rights to consent by, required notices to, and
filings with or other actions by Governmental Bodies where
the same are not required prior to the assignment of oil and
gas interests.
Section 6.5 Seller's Liability for Brokers' Fees.
Seller shall not have any responsibility, liability or
expense, as a result of undertakings or agreements of
Purchaser, for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in
connection with this Agreement or any agreement or
transaction contemplated hereby.
Section 6.6 Litigation.
As of the date of the execution of this Agreement there are
(and as of the Closing Date there will be) no actions, suits
or proceedings pending, or to Purchaser's knowledge,
threatened in writing, before any Governmental Body or
brought by any Person against Purchaser or any Affiliate of
Purchaser with respect to this Agreement, the transaction
contemplated by this Agreement or the Assets.
Section 6.7 Financing.
Purchaser has sufficient cash, available lines of credit or
other sources of immediately available funds in United
States dollars to enable it to pay the Closing Payment to
Seller at the Closing.
Section 6.8 Texas Deceptive Trade Practices-Consumer
Protection Act.
With respect to the Texas Deceptive Trade Practices-Consumer
Protection Act, Tex. Bus. & Com. Code Ann. Section 17.41 et
seq. (the "DTPA"), Purchaser acknowledges, represents and
warrants that Purchaser is purchasing the goods and/or
services covered by this Agreement for commercial or
business use; that Purchaser has assets of $5 million or
more according to its most recent financial statement
prepared in accordance with generally accepted accounting
principles; that Purchaser has knowledge and experience in
financial and business matters that enable Purchaser to
evaluate the merits and risks of a transaction such as this;
and that Purchaser is not in a significantly disparate
bargaining position with Seller.
Section 6.9 No Reliance.
Purchaser represents and warrants that Purchaser is
knowledgeable of the oil and gas business and of the usual and
customary practices of producers such as Seller. Purchaser has been
granted access to the Assets and the Records of Seller relating to
the Assets. In making the decision to enter into this Agreement
and consummate the transactions contemplated hereby,
Purchaser has relied exclusively on Purchaser's own
investigation and analysis of the condition, value,
characteristics and qualities of the Assets. Accordingly,
Purchaser acknowledges that Seller has not made and
Purchaser shall not rely upon any representation or
warranty, express, implied, at common law, by statute or
otherwise, other than the warranty made in Section 3.1, the
express representations and warranties made in Article 5,
the certificate of Seller to be delivered pursuant to
Section 9.2(d) and the special warranty of title in the
Assignment and Bill of Sale relating to the Assets.
ARTICLE 7
COVENANTS OF THE PARTIES
Section 7.1 Access.
(a) Between the date of execution of this Agreement and
the Closing Date, Seller will give Purchaser and its
representatives access to the Assets and the right to
copy, at Purchaser's expense, the Records in Seller's
possession, for the purpose of conducting an
investigation of the Assets, but only to the extent
that Seller may do so without violating any obligations
to any third party and to the extent that Seller has
authority to grant such access without breaching any
restriction binding on Seller. Such access by Purchaser
shall be limited to Seller's normal business hours, and
any weekends and after hours requested by Purchaser
that can be reasonably accommodated by Seller, and
Purchaser's investigation shall be conducted in a
manner that minimizes interference with the operation
of the Assets. All information obtained by Purchaser
and its representatives under this Section 7.1 shall be
subject to the terms of Section 7.7 and the terms of
that certain confidentiality agreement between Seller
and Purchaser dated February 2, 2005 (the
"Confidentiality Agreement").
(b) PURCHASER ACKNOWLEDGES THAT EXCEPT TO THE EXTENT
CONTAINED IN AN EXPRESS REPRESENTATION IN ARTICLES 3
AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO
BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE
ASSIGNMENT AND BILL OF SALE, SELLER HAS MADE NO
REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN.
SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE AS TO THE ACCURACY OR
COMPLETENESS OF INFORMATION OBTAINED BY PURCHASER FROM
SELLER OR AS TO SELLER'S TITLE TO THE ASSETS. IN
ENTERING INTO AND PERFORMING THIS AGREEMENT, PURCHASER
HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT
INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE
ASSETS, THE VALUE OF THE ASSETS, AND SELLER'S TITLE
THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN ARTICLES 3 AND 5 OF THIS
AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED
PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL
OF SALE.
Section 7.2 Government Reviews.
If applicable, this Agreement is subject to and conditioned
upon compliance by Seller and Purchaser with the HSR Act. If
required, Seller and Purchaser shall in a timely manner (a)
make all required filings, if any, with and prepare
applications to and conduct negotiations with, each
governmental agency as to which such filings, applications
or negotiations are necessary or appropriate in the
consummation of the transactions contemplated hereby
specifically including but not limited to the HSR Act, (b)
provide such information as each may reasonably request to
make such filings, prepare such applications and conduct
such negotiations and (c) request early termination or
waiver of any applicable waiting period under the HSR Act.
Purchaser shall bear the cost of the HSR Act filing fee made
in connection with this Agreement. Each party shall
cooperate with and use all reasonable efforts to assist the
other with respect to such filings, applications and
negotiations.
Section 7.3 Notification of Breaches.
Until the Closing,
(a) Purchaser shall notify Seller promptly after
Purchaser obtains actual knowledge that any
representation or warranty of Seller contained in this
Agreement is untrue in any material respect or will be
untrue in any material respect as of the Closing Date
or that any covenant or agreement to be performed or
observed by Seller prior to or on the Closing Date has
not been so performed or observed in any material
respect.
(b) Seller shall notify Purchaser promptly after Seller
obtains actual knowledge that any representation or
warranty of Purchaser contained in this Agreement is
untrue in any material respect or will be untrue in any
material respect as of the Closing Date or that any
covenant or agreement to be performed or observed by
Purchaser prior to or on the Closing Date has not been
so performed or observed in a material respect.
If any of Purchaser's or Seller's representations or
warranties is untrue or shall become untrue in any material
respect between the date of execution of this Agreement and
the Closing Date, or if any of Purchaser's or Seller's
covenants or agreements to be performed or observed prior to
or on the Closing Date shall not have been so performed or
observed in any material respect, but if such breach of
representation, warranty, covenant or agreement shall (if
curable) be cured by the Closing (or, if the Closing does
not occur, by the date set forth in Section 9.1), then such
breach shall be considered not to have occurred for all
purposes of this Agreement.
Section 7.4 Letters-in-Lieu; Assignments and Bills of Sale;
Operator.
On the Closing Date, Seller shall execute and deliver to
Purchaser:
(a) letters in lieu of division and transfer orders
relating to the Assets on forms prepared by Seller and
reasonably satisfactory to Purchaser to reflect the
conveyance of the Assets contemplated hereby;
(b) Assignments and Bills of Sale in sufficient number
of originals to facilitate recording in each county in
which the Properties are located and Assignments and
Bills of Sale necessary to convey to Purchaser all
federal or state leases, if any, in the form as
prescribed by the applicable Governmental Body and
otherwise acceptable to Purchaser and Seller; and
(c) forms prescribed by the applicable Governmental
Body to transfer status of operator from Seller to
Purchaser with respect to Seller Operated Assets,
including, without limitation, Form P-4 for the
Railroad Commission of Texas, in the event such
transfer is appropriate.
Section 7.5 Public Announcements.
Neither party shall make any press release, public
announcement or public disclosure regarding the existence of
this Agreement, the contents hereof or the transaction
contemplated hereby until the transaction contemplated by
this Agreement has closed (i.e., the occurrence of Closing).
In the event that the transaction contemplated by this
Agreement closes, either party may make a press release,
public announcement or public disclosure regarding this
Agreement after the form and contents of the press release,
public announcement or public disclosure have been approved
in writing by the other party. In the event that the
transaction contemplated by this Agreement fails to close,
neither party shall make any press release, public
announcement or public disclosure regarding the existence of
this Agreement, the contents hereof or the transaction
contemplated hereby. The foregoing provision shall not
restrict disclosures by Purchaser or Seller which are required
by applicable securities or other Laws or regulations of the
applicable rules of any stock exchange having jurisdiction
over the disclosing party or its Affiliates.
Section 7.6 Operation of Business.
Until the Closing, Seller (i) will operate its business in
the ordinary course, (ii) will not, without the prior
written consent of Purchaser, which consent shall not be
unreasonably withheld, commit to any operation, or series of
related operations, which, either singly or in the
aggregate, are reasonably anticipated by Seller to require
future capital expenditures by the owner of the Assets in
excess of $500,000.00, or make any capital expenditures in
excess of $500,000.00 or terminate, materially amend,
execute or extend any material agreements affecting the
Assets, (iii) will maintain insurance coverage on the Assets
presently furnished by nonaffiliated third parties in the
amounts and of the types presently in force, (iv) will use
reasonable efforts to maintain all Leases in full force and
effect, (v) will maintain all material governmental permits
and approvals affecting the Assets, (vi) will not transfer,
farmout, sell, hypothecate, encumber or otherwise dispose of
any material Assets except for sales and dispositions of the
production of Hydrocarbons and Equipment made in the
ordinary course of business consistent with past practices
and (vii) will not commit to do any of the foregoing.
Purchaser's approval of any action restricted by this
Section 7.6 shall be considered granted within 10 days (unless a
shorter time is reasonably required by the circumstances and such
shorter time is specified in Seller's written notice) of Seller's
notice to Purchaser requesting such consent unless Purchaser notifies
Seller to the contrary during that period. In the event of an
emergency, Seller may take such action as a prudent operator would take
and shall notify Purchaser of such action promptly
thereafter.
Section 7.7 Indemnity Regarding Access.
PURCHASER, ON BEHALF OF ITSELF AND THE PURCHASER
INDEMNITEES, SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, SAVE,
RELEASE AND COVENANTS NOT TO SUE SELLER INDEMNITEES, THE
OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH
PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES, FROM AND AGAINST ANY AND ALL DAMAGES
ARISING FROM OR RELATED TO ACCESS TO THE ASSETS BY THE
PURCHASER INDEMNITEES PURSUANT TO SECTION 7.1.
WITHOUT LIMITING THE FOREGOING, PURCHASER'S INDEMNIFICATION
OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE
ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL INCLUDE
INDEMNIFICATION AGAINST DAMAGES ARISING FROM OR RELATED TO
PERSONAL INJURIES, DEATH, PROPERTY DAMAGE AND CLAIMS MADE BY
LANDOWNERS WHO OWN LAND ADJACENT TO THE PROPERTIES ARISING
FROM OR IN CONNECTION WITH ACTIVITIES, TESTS, ENVIRONMENTAL
ASSESSMENTS OR OTHER OPERATIONS CONDUCTED BY PURCHASER OR
PURCHASER'S REPRESENTATIVES RELATED TO THIS AGREEMENT.
PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER
OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS'
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES,
SHALL BE PURSUANT TO AND IN ACCORDANCE WITH ALL OF THE
INDEMNIFICATION PROVISIONS SET OUT IN SECTION 11.3(b) AND
SHALL INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
DAMAGES AND LITIGATION EXPENSES.
Section 7.8 Gas Imbalances and Take-or-Pay Make-up
Obligations.
Subject to the adjustment to the Purchase Price as provided
in this Section 7.8, Purchaser expressly assumes any and all
obligations attributable to gas production imbalances with
co-owners of the Properties and gas take-or-pay make-up
obligations with purchasers or sellers of natural gas from
the Properties. Should Purchaser (i) determine that the gas
imbalance information set out on Exhibit 5.13 is inaccurate
and (ii) deliver a written notice regarding the gas
imbalance to Seller at least five (5) Business Days prior to
Closing, Seller shall review Purchaser's information
regarding the alleged gas imbalance. If it is determined
that there is an inaccuracy as of the Effective Time in the
gas imbalance set forth on Exhibit 5.13, then the Purchase
Price shall be either increased (if there is aggregate
underproduction) or decreased (if there is aggregate
overproduction) on the basis of $4.00 per MMBtu. This
adjustment to the Purchase Price shall be in full settlement
of all production imbalances on the Assets. Notwithstanding
anything to the contrary contained in this Section 7.8,
there shall be no adjustment to the Purchase Price if it is
determined that actual imbalance volumes are within 15%
above or below those shown on Exhibit 5.13.
The adjustment to the Purchase Price as set forth in this
Section 7.8 is Purchaser's exclusive remedy for (i) any gas
imbalance, (ii) any breach of Seller's representation in
Section 5.13 and (iii) any affirmation of such
representations in the certificate of Seller to be delivered
pursuant to Section 9.2(d), and, at Closing, Purchaser shall
assume Seller's overproduced or underproduced position in
the Wells as of the Effective Date, including the
responsibility for the payment of royalties with respect to
any imbalance and any obligation to balance, whether in cash
or in kind. Purchaser shall be deemed to have waived any
breaches of Section 5.13 if Purchaser fails to give timely
written notice to Seller as provided above.
Section 7.9 Consents and Preferential Rights.
(a) Seller shall promptly prepare and send notices to
the holders of any required consents to assignment of any Assets
requesting such consents. Seller shall use reasonable efforts to
obtain all such consents which are reasonably obtainable by
Closing and are required to vest Defensible Title to
the Assets in Purchaser. Purchaser shall cooperate with
Seller in seeking to obtain such consents. In the event
that Seller is unable to obtain such consents that are
required to vest Defensible Title to the Assets,
Purchaser may elect to treat the unsatisfied consent
requirement as a Title Defect and the procedures set
forth in Section 3.5(a) shall apply.
(b) Seller shall promptly prepare and send notices to
the holders of any applicable preferential rights to
purchase any Asset requesting waivers of such
preferential rights to purchase. The consideration
payable under this Agreement for any particular Assets
for purposes of preferential purchase right notices
shall be the Allocated Value for such Assets. Seller
shall use reasonable efforts to cause such waivers of
preferential rights to purchase (or the exercise
thereof) to be obtained and delivered prior to Closing.
Purchaser shall cooperate with Seller in seeking to
obtain such waivers of preferential rights.
If the holder of a preferential right to purchase
exercises such right, Seller shall tender to such third
party the required interest in the affected Asset at a
price equal to the Allocated Value (reduced
appropriately, as determined by mutual agreement of
Purchaser and Seller, if less than the entire Asset
must be tendered), and to the extent that such
preferential right to purchase is exercised and such
interest in such Asset is actually sold to the third
party so exercising such right, the Assets transferred
will be treated as if subject to a Title Defect and the
procedures set forth in Section 3.5(b) shall apply.
Should a holder of a preferential right to purchase
fail to exercise its preferential right to purchase as
to any portion of the Assets prior to Closing and the
time for exercise or waiver has not yet expired prior
to Closing, subject to the remaining provisions of this
Section 7.9, such Assets shall be included in the
transaction contemplated by this Agreement at Closing
and the following procedures shall be applicable:
(i) An Assignment and Bill of Sale from Seller to
Purchaser of the Assets affected by such preferential
right to purchase shall be delivered into an escrow
account, Purchaser shall take beneficial possession of
the affected Assets and Purchaser shall be entitled to
all production, income, proceeds, receipts and credits
to which Purchaser would be entitled under Section
11.1. Purchaser shall Indemnify Seller Indemnitees
against Damages for which Purchaser would be liable
under the terms of Sections 11.2 and 11.3 with respect
to the affected Assets. Record title to the affected
Assets shall not be transferred and the Assignment and
Bill of Sale shall not be released to Purchaser from
the escrow account until such preferential right to
purchase has been waived or has expired. PURCHASER'S
INDEMNIFICATION OF SELLER INDEMNITEES SHALL BE PURSUANT
TO AND IN ACCORDANCE WITH THE INDEMNIFICATION
PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL
INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
DAMAGES AND LITIGATION EXPENSES.
(ii) Seller shall continue to use reasonable efforts to
obtain the waiver of the preferential right to purchase
and shall continue to be responsible for the compliance
with the preferential right to purchase.
(iii) Should the holder of the preferential right to
purchase exercise same, Purchaser and Seller agree to
cause the affected Assets to be transferred to such
holder on the terms and provisions set out herein and
in the applicable preferential right to purchase
provision. In such event, Seller shall pay the
Allocated Value, subject to applicable adjustments, for
such Asset to Purchaser, and Seller shall be entitled
to retain the consideration paid for the affected Asset
by the holder of the preferential right to purchase.
(iv) If the preferential right to purchase is waived
after the Closing Date or if the time limit for the
exercise of the preferential right to purchase expires
without being exercised, Seller and Purchaser shall
take all reasonable actions necessary to ensure that
the affected Assets are promptly conveyed out of escrow
to Purchaser.
(v) Once the provisions of subparagraph (iv) have been
satisfied and all obligations in connection therewith
have been fulfilled, the Closing shall be deemed to
have occurred for all purposes hereunder with respect
to the affected Assets.
Should any third party bring any suit, action or other
proceeding seeking to restrain, enjoin or otherwise
prohibit the consummation of the transactions
contemplated hereby in connection with a claim to
enforce preferential rights, the Assets affected by
such suit, action or other proceeding shall be excluded
from the Assets transferred at Closing and the Purchase
Price shall be reduced by the Allocated Value of such
excluded Assets. Promptly after the suit, action or
other proceeding is dismissed or settled or a judgment
is rendered, Seller shall sell to Purchaser and
Purchaser shall purchase from Seller all such Assets
not being sold to the third party for a purchase price
equal to the Allocated Value of such Assets, adjusted
as provided in Section 2.2.
Section 7.10 Tax Matters.
(a) Subject to the provisions below, Seller shall be
responsible for all Taxes attributable to all times
prior to Effective Time, including without limitation,
income Taxes arising as a result of the gain recognized
on the transfer of the Assets. Purchaser shall be
responsible for all such Taxes attributable to all
periods of time at and after the Effective Time.
(b) Seller shall pay to the appropriate Governmental
Body all Taxes with respect to the Assets which are
required to be paid prior to Closing and shall file all
Tax Returns with respect to such Taxes. Seller shall
deliver to Purchaser within thirty (30) days of filing
copies of all Tax Returns filed by Seller after the
Closing Date relating to the Assets and any supporting
documentation provided by Seller to any taxing
authorities.
(c) Ad valorem, property, severance, production and
similar Taxes based upon or measured by the ownership
or operation of the Assets or the production of
Hydrocarbons therefrom shall be prorated between
Purchaser and Seller as provided in Section 1.6.
Purchaser shall pay all ad valorem taxes, and within
thirty (30) days of paying, Purchaser shall deliver to
Seller copies of receipts for payment of ad valorem
taxes and any supporting documentation.
(d) Purchaser shall pay any sales, use, excise,
registration, documentary, stamp or transfer Taxes,
recording fees incurred and imposed with respect to the
conveyance of the Properties contemplated hereby.
Section 7.11 Further Assurances.
After Closing, Seller and Purchaser shall take such further
actions and execute, acknowledge and deliver all such
further documents as are reasonably requested by the other
party for carrying out the purposes of this Agreement or of
any document delivered pursuant to this Agreement.
Section 7.12 Transition Services.
Before Closing, the parties shall negotiate a separate
transition agreement containing mutually agreeable terms
pursuant to which Seller shall continue to provide royalty
accounting, accounts receivable and accounts payable
services with respect to the Assets for a period not to
exceed sixty (60) days following Closing in consideration
for the charges stated in such transition agreement and the
reimbursement of Seller's costs of providing such services.
Section 7.13 Replacement of Bonds, Letters of Credit and
Guarantees.
None of the bonds, letters of credit and guarantees, if any,
posted by Seller with Governmental Bodies and relating to
the Assets shall be transferred to Purchaser. Purchaser
shall obtain, or cause to be obtained in the name of
Purchaser, replacements for such bonds, letters of credit
and guarantees to permit the cancellation of the bonds,
letters of credit and guarantees posted by Seller and to
consummate the transactions contemplated by this Agreement.
Section 7.14 Like-Kind Exchange
Purchaser and Seller agree to use reasonable cooperation so
that the transfer of the Properties shall, at either party's
election, be accomplished in a manner enabling the transfer
of the Properties to qualify as a like-kind exchange of
property within the meaning of Section 1031 of the Code. If
such an election is made, the parties shall reasonably
cooperate to effect such like-kind exchange, which
cooperation shall include (i) having any cash payment be
paid directly from a 1031 account which has been established
with a qualified intermediary, as that term is defined in
Section 1031 of the Code, in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code and (ii) assigning rights to the Properties to a
qualified intermediary or an escrow agent acting as a
qualified intermediary for the purpose of receiving an
assignment of the Properties in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code. In such events, the parties shall cooperate in the
negotiation and execution of such additional documents.
Section 7.15 Arbitration.
Disputed matters related to Allocated Values in Section
2.3(b), remedies for Title Defect Amounts in Section 3.4(d),
Title Benefits Amounts in Section 3.4(i), downward
adjustment to the Purchase Price to reflect the costs of
remediation in Section 4.3 and the final settlement
statement in Section 9.4(b) may be submitted, as provided in
the respective Sections listed above, to arbitration
pursuant to the following provisions:
(a) The parties shall jointly select a mutually acceptable
person as the sole arbitrator under this Agreement. If the
parties are unable to agree upon the designation of one person as
arbitrator, then each party shall appoint one arbitrator and
the two arbitrators so chosen shall appoint a third arbitrator and
the three arbitrators shall arbitrate any dispute.
(b) Any arbitration hearing shall be held in Houston, Texas
at a location acceptable to the arbitrator.
(c) The arbitrator shall settle disputes in accordance with
the Texas General Arbitration Act and the Rules of the American
Arbitration Association. The decision of the arbitrator shall be binding
upon the parties and may be enforced in any court of competent
jurisdiction. Seller and Purchaser, respectively, shall bear their
own legal fees and other costs incurred in presenting their
respective cases. The charges and expenses of the arbitrator
shall be shared equally by Seller and Purchaser.
(d) In fulfilling his duties hereunder, the arbitrator shall
be bound by the terms of this Agreement. In fulfilling any
of his arbitration duties, the arbitrator may consider such
other matters as in the opinion of the arbitrator are
necessary or helpful to make a proper evaluation.
Additionally, the arbitrator may consult with and engage
disinterested third parties, including, without limitation,
petroleum engineers, attorneys and consultants, to advise
the arbitrator.
(e) If any arbitrator selected hereunder should die, resign
or be unable to perform his duties hereunder, the parties
selecting such arbitrator shall select a replacement
arbitrator. The aforesaid procedure shall be followed from
time to time as necessary.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.1 Conditions of Seller to Closing.
The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject, at the option of Seller,
to the satisfaction on or prior to Closing of each of the following
conditions:
(a) Representations. The representations and warranties
of Purchaser set forth in Article 6 shall be true and correct in
all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing
Date;
(b) Performance. Purchaser shall have performed and
observed, in all material respects, all covenants and agreements to
be performed or observed by it under this Agreement prior to or on
the Closing Date;
(c) Pending Litigation. No suit, action or other
proceeding by a third party, including any Governmental
Body, seeking to restrain, enjoin or otherwise prohibit
the conveyance of the Assets or the consummation of the
transactions contemplated by this Agreement shall be
pending;
(d) Deliveries. Purchaser shall have delivered to
Seller duly executed counterparts of the Assignment and
Bill of Sale and the other documents and certificates
to be delivered by Purchaser under Section 9.3;
(e) Payment. Purchaser shall have paid the Closing Payment;
(f) HSR Act. Only if applicable, any waiting period
applicable to the consummation of the transaction
contemplated by this Agreement under the HSR Act shall
have lapsed or terminated (by early termination or
otherwise);
(g) Approval by Board of Directors. Purchaser shall
have delivered to Seller either (i) a resolution
executed by the board of directors of Purchaser which
specifically approves the terms of this Agreement, the
execution of this Agreement by Purchaser and the
completion of the transaction contemplated by this
Agreement or (ii) a unanimous consent of the board of
directors of Purchaser which specifically approves the
terms of this Agreement, the execution of this
Agreement by Purchaser and the completion of the
transaction contemplated by this Agreement; and
(h) Flores Field Agreement. Contemporaneously with the
preparation and execution of this Agreement, Purchaser
and Seller have prepared a second Purchase and Sale
Agreement covering an undivided fifty percent (50%) of
Seller's interests in the Flores Field, Hidalgo County,
Texas and Starr County, Texas. Closing of the
transaction contemplated by the Flores Field Agreement
shall occur simultaneously with the Closing of the
transaction contemplated by this Agreement.
Section 8.2 Conditions of Purchaser to Closing.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject, at the option of Purchaser,
to the satisfaction on or prior to Closing of each of the following
conditions:
(a) Representations. The representations and warranties
of Seller set forth in Article 5 shall be true and
correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing
Date (other than any representations and warranties
that refer to a specified date which need only be true
and correct on and as of such specified date);
(b) Performance. Seller shall have performed and
observed, in all material respects, all covenants and
agreements to be performed or observed by it under this
Agreement prior to or on the Closing Date;
(c) Pending Litigation. No suit, action or other
proceeding by a third party (including any Governmental
Body) seeking to restrain, enjoin or otherwise prohibit
the conveyance of the Assets or the consummation of the
transactions contemplated by this Agreement shall be
pending;
(d) Deliveries. Seller shall have delivered to
Purchaser duly executed counterparts of the Assignment
and Bill of Sale and the other documents and
certificates to be delivered by Seller under Section 9.2;
(e) HSR Act. Only if applicable, any waiting period
applicable to the consummation of the transaction
contemplated by this Agreement under the HSR Act shall
have lapsed or terminated (by early termination or
otherwise);
(f) Approval by Board of Directors. Seller shall have
delivered to Purchaser a unanimous consent of the board
of directors of Seller which specifically approves the
terms of this Agreement, the execution of this
Agreement by Seller and the completion of the
transaction contemplated by this Agreement; and
(g) Flores Field Agreement. Contemporaneously with the
preparation and execution of this Agreement, Purchaser
and Seller have prepared a second Purchase and Sale
Agreement covering an undivided fifty percent (50%) of
Seller's interests in the Flores Field, Hidalgo County,
Texas and Starr County, Texas. Closing of the
transaction contemplated by the Flores Field Agreement
shall occur simultaneously with the Closing of the
transaction contemplated by this Agreement.
ARTICLE 9
CLOSING
Section 9.1 Time and Place of Closing.
(a) Consummation of the purchase and sale transaction
as contemplated by this Agreement (the "Closing"), shall take
place at the offices of Seller located at 14425 Torrey Chase,
Suite 190 Houston, Texas 77014, at 10:00 a.m., local time, on
or before May 5, 2005 unless otherwise agreed to in
writing by Purchaser and Seller.
(b) The date on which the Closing occurs is herein
referred to as the "Closing Date."
Section 9.2 Obligations of Seller at Closing.
At the Closing, Seller shall deliver or cause to be
delivered to Purchaser, among other things, the following:
(a) Assignment and Bill of Sale of the Assets, in
sufficient number of originals to allow recording in
all counties in which the Properties are located and
other appropriate jurisdictions and offices, as
applicable, duly executed by Seller;
(b) assignments, on appropriate forms, of state and of
federal leases, if any, comprising portions of the
Assets, duly executed by Seller;
(c) letters-in-lieu of transfer orders covering the
Assets, duly executed by Seller;
(d) a certificate duly executed by an authorized
corporate officer of Seller, dated as of Closing,
certifying on behalf of Seller that the conditions set
forth in Sections 8.2(a) and 8.2(b) have been
fulfilled; and
(e) forms prescribed by the applicable Governmental
Body to transfer status of operator from Seller to
Purchaser with respect to Seller Operated Assets,
including, without limitation, Form P-4 for the
Railroad Commission of Texas, in the event such
transfer is appropriate.
Section 9.3 Obligations of Purchaser at Closing.
At the Closing, Purchaser shall deliver or cause to be
delivered to Seller, among other things, the following:
(a) a wire transfer of the Closing Payment in
immediately available U.S. dollars;
(b) copies of the Assignment and Bill of Sale of the
Assets, duly executed by Purchaser,
(c) copies of the letters-in-lieu of transfer orders
covering the Assets, duly executed by Purchaser; and
(d) a certificate duly executed by an authorized
corporate officer of Purchaser dated as of Closing,
certifying on behalf of Purchaser that the conditions
set forth in Sections 8.1(a) and 8.1(b) have been
fulfilled.
Section 9.4 Closing Payment and Post-Closing Purchase Price
Adjustments.
(a) Not later than two (2) Business Days prior to the
Closing Date, Seller shall prepare and deliver to
Purchaser, based upon the best information available to
Seller, a preliminary settlement statement estimating
the Adjusted Purchase Price after giving effect to all
Purchase Price adjustments set forth in Section 2.2 and
the Deposit. The preliminary settlement statement
delivered in accordance with this Section 9.4(a) shall
constitute the dollar amount to be paid by Purchaser to
Seller at the Closing (the "Closing Payment").
(b) As soon as reasonably practicable after the Closing
but not later than one hundred twenty (120) days
following the Closing Date, Seller shall prepare and
deliver to Purchaser a final settlement statement
setting forth the final calculation of the Adjusted
Purchase Price and showing the calculation of each
adjustment, based, to the extent possible on actual
credits, charges, receipts and other items before and
after the Effective Time and taking into account all
Title Defect and Title Benefit adjustments under
Section 3.4. Seller shall, at Purchaser's request,
supply reasonable documentation available to support
any credit, charge, receipt or other item. Not later
than the thirty (30) days following receipt of the
final settlement statement, Purchaser shall deliver to
Seller a written report containing any changes that
Purchaser proposes be made to the final settlement
statement. The parties shall undertake to agree on the
final statement of the Adjusted Purchase Price no later
than one hundred eighty (180) days after the Closing
Date. In the event that the parties cannot reach
agreement within such period of time, either party may
refer the remaining matters in dispute to arbitration
as provided in Section 7.15.
(c) All payments made or to be made hereunder to Seller
shall be by electronic transfer of immediately
available funds in U.S. dollars to:
JPMorgan Chase Bank
For account of Smith Production Inc.
Account No. 034 000 25957
ABA No. 113 0006 09
All payments made or to be made hereunder to Purchaser shall
be by electronic transfer of immediately available funds to
a bank and account specified by Purchaser in writing to
Seller.
ARTICLE 10
TERMINATION
Section 10.1 Termination.
This Agreement may be terminated as follows:
(a) by the mutual prior written consent of Seller and
Purchaser prior to Closing;
(b) by Seller in the events that (i) Closing has not
occurred on the Closing Date; (ii) Seller is not
otherwise in default under the provisions of this
Agreement; and (iii) the Conditions of Seller to
Closing in Section 8.1 have not been satisfied;
(c) by Purchaser in the events that (i) Closing has not
occurred on the Closing Date; (ii) Purchaser is not
otherwise in default under the provisions of this
Agreement; and (iii) the Conditions of Purchaser to
Closing in Section 8.2 have not been satisfied;
(d) by Seller pursuant to 2.3(b), 3.4(d) and 3.4(i); and
(e) by Purchaser pursuant to 4.3.
Section 10.2 Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1,
this Agreement shall become void and of no further force or
effect except for the provisions of Section 5.6 (Purchaser's
Liability for Brokers' Fees), Section 6.5 (Seller's
Liability for Brokers' Fees), Section 7.7 (Indemnity
Regarding Access) and Section 12.4 (Expenses) and the
Confidentiality Agreement. The provisions and agreements
listed in the preceding sentence shall survive the
termination of this Agreement and shall continue in full
force and effect. Seller shall be free immediately to enjoy
all rights of ownership of the Assets and to sell, transfer,
encumber or otherwise dispose of the Assets to any party
without any restriction under this Agreement.
Section 10.3 Distribution of Deposit Upon Termination
(a) If Seller terminates this Agreement pursuant to Section
10.1(b), then Seller may retain the Deposit as liquidated
damages free of any claims by Purchaser. Purchaser and
Seller agree that the actual amount of damages resulting
from such a termination would be difficult if not impossible
to determine accurately because of the unique nature of this
Agreement, the unique nature of the Assets, the
uncertainties of applicable commodity markets and
differences of opinion with respect to such matters, and the
liquidated damages provided for herein are a reasonable
estimate by the parties of such damages.
(b) If this Agreement is terminated for any reason other
than the reasons set forth in Section 10.1(b), then Seller
shall deliver the Deposit to Purchaser immediately free of
any claims by Seller.
(c) Notwithstanding anything to the contrary in this
Agreement, Purchaser shall not be entitled to receive
interest on the Deposit, whether the Deposit is applied
against the Purchase Price or returned to Purchaser pursuant
to this Section 10.3.
(d) The retention of the Deposit by Seller or the return of
the Deposit to Purchaser as described above shall constitute
the only remedies of Purchaser and Seller, respectively, in
the event of termination or breach of this Agreement.
Purchaser and Seller hereby waive all other remedies that
might be available to either party including, without
limitation, remedies available in equity, at common law and
by statute including litigation and specific performance.
ARTICLE 11
POST -CLOSING OBLIGATIONS; INDEMNIFICATION;
LIMITATIONS; DISCLAIMERS AND WAIVERS
Section 11.1 Receipts.
(a) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Purchaser is entitled under
Section 1.6 shall be the sole property and entitlement of
Purchaser, and, to the extent received by Seller, Seller
shall fully disclose, account for and remit the same
promptly to Purchaser.
(b) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Seller is entitled under
Section 1.6 shall be the sole property and entitlement of
Seller and, to the extent received by Purchaser, Purchaser
shall fully disclose, account for and remit the same
promptly to Seller.
Section 11.2 Expenses.
(a) All Property Costs which are not reflected in the final
settlement statement for which Seller is responsible under
Section 1.6 shall be the sole obligation of Seller, and
Seller shall promptly pay same, or if same have been paid by
Purchaser, Seller shall promptly reimburse Purchaser for and
hold Purchaser harmless from and against same.
(b) All Property Costs which are not reflected in the final
settlement statement for which Purchaser is responsible
under Section 1.6 shall be the sole obligation of Purchaser,
and Purchaser shall promptly pay same, or if same have been
paid by Seller, Purchaser shall promptly reimburse Seller
for and hold Seller harmless from and against same.
(c) Seller is entitled to resolve all joint interest audits
and other audits of Property Costs covering periods prior to
the Effective Time.
Section 11.3 Assumption and Indemnification.
(a) In the event of Closing, as of the Effective Time,
Purchaser shall become liable for, assume, perform and
discharge all of the obligations and liabilities of Seller,
known or unknown, with respect to the Assets, regardless of
whether such obligations or liabilities arose prior to the
Effective Time, at the Effective Time or after the Effective
Time. Said obligations and liabilities are referred to as
the "Assumed Obligations." Purchaser, however, does not
assume any obligations or liabilities of Seller to the
extent that they are attributable to or arise out of the:
(i) Excluded Assets; or
(ii) actions, suits or proceedings, if any, set
forth on Exhibit 5.7, or
(iii) claims for wrongful death and/or personal
injury related to the Properties which claims
arose before the Effective Time; or
(iv) continuing responsibility of the Seller under
Section 11.2 or matters for which Seller is
required to Indemnify Purchaser under this Article 11.
(b) PURCHASER SHALL INDEMNIFY, COVENANT NOT TO SUE, SAVE,
RELEASE, DEFEND, DISCHARGE AND HOLD SELLER INDEMNITEES
HARMLESS (COLLECTIVELY, "INDEMNIFY") FROM AND AGAINST
DAMAGES, INCURRED OR SUFFERED BY SELLER INDEMNITEES THAT ARE
CAUSED BY, OR ARISE OUT OF OR RESULT FROM:
(i) THE ASSUMED OBLIGATIONS; OR
(ii) THE OWNERSHIP, USE OR OPERATION OF THE ASSETS
AT AND AFTER THE EFFECTIVE TIME; OR
(iii) ENVIRONMENTAL LIABILITIES; OR
(iv) ACCESS TO THE ASSETS IN SECTION 7.7; OR
(v) PREFERENTIAL RIGHTS TO PURCHASE IN SECTION 7.9(b)(i); OR
(vi) PURCHASER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(vii) THE BREACH OF ANY OF PURCHASER'S COVENANTS OR
AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS
AGREEMENT, SAVE AND EXCEPT FOR COVENANTS OR
AGREEMENTS CONTAINED IN SECTION 7.7 (ACCESS TO THE
ASSETS) AND SECTION 7.9(b)(i)(RELATED TO
PREFERENTIAL RIGHTS TO PURCHASE) WHICH ARE COVERED
ABOVE; OR
(viii) THE BREACH OF ANY REPRESENTATION OR
WARRANTY MADE BY PURCHASER IN ARTICLE 6 OF THIS
AGREEMENT OR IN THE CERTIFICATE DELIVERED BY
PURCHASER AT CLOSING PURSUANT TO SECTION
9.3(d)(CERTIFICATE OF CORPORATE OFFICER OF
PURCHASER); OR
(ix) THE LITIGATION EXPENSES (DEFINED BELOW).
THE INDEMNIFICATION OBLIGATIONS OF PURCHASER IN
THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS
"PURCHASER'S INDEMNIFICATION OBLIGATIONS."
PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES AGAINST DAMAGES
FOR MATTERS COVERED BY PURCHASER'S INDEMNIFICATION
OBLIGATIONS ARISING OUT AND RESULTING FROM:
1. THE NEGLIGENCE OF SELLER, WHETHER THE
NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF SELLER, BUT EXCLUDING CLAIMS
BASED ON THE WILLFUL MISCONDUCT OF SELLER.
COSTS OF ATTORNEY FEES, COSTS OF COURT, EXPENSES FOR HIRING
INVESTIGATORS AND INVESTIGATING, DEFENDING LITIGATION,
PROSECUTING LITIGATION, HIRING EXPERT WITNESSES, COSTS OF
SETTLEMENT AND ANY AND ALL COSTS AND EXPENSES PERTAINING TO
ANY LITIGATION SHALL COLLECTIVELY BE REFERRED TO AS THE
"LITIGATION EXPENSES." PURCHASER SHALL INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST ALL LITIGATION EXPENSES ARISING
FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH
PURCHASER'S INDEMNIFICATION OBLIGATIONS
IT IS UNDERSTOOD AND AGREED THAT PURCHASER'S OBLIGATION TO
INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST THE LITIGATION
EXPENSES IS (I) SEPARATE AND APART FROM PURCHASER'S
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM DAMAGES AND
(II) IS NOT DEPENDENT UPON PURCHASER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST
DAMAGES. PURCHASER'S OBLIGATION TO INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.
PURCHASER 'S INDEMNITY OBLIGATIONS TO SELLER INDEMNITEES
HEREUNDER SHALL BE LIMITED TO THE EXTENT OF PURCHASER'S
PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS
INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE TEST, AND THAT THE PARTIES CLEARLY INTEND TO
TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THESE
INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(c) SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST AND
FROM ALL DAMAGES INCURRED OR SUFFERED BY PURCHASER
INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT
FROM:
(i) THE OBLIGATIONS AND LIABILITIES DESCRIBED IN
SECTION 11.3(a)(i), 11.3(a)(ii) AND 11.3(a)(iii);
OR
(ii) SELLER'S BREACH OF ANY OF SELLER'S COVENANTS
OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS
AGREEMENT; OR
(iii) THE BREACH OF ANY REPRESENTATION OR WARRANTY
MADE BY SELLER IN ARTICLE 5 OF THIS AGREEMENT OR
IN THE CERTIFICATE DELIVERED BY SELLER AT CLOSING
PURSUANT TO SECTION 9.2(d)(CERTIFICATE OF
CORPORATE OFFICER OF SELLER); OR
(iv) SELLER'S OBLIGATIONS UNDER THIS AGREEMENT; OR
(v) LITIGATION EXPENSES.
THE INDENMIFICATION OBLIGATIONS OF SELLER IN THIS
PARAGRAPH SHALL BE REFERRED TO HEREIN AS "SELLER'S
INDEMNIFICATION OBLIGATIONS."
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST DAMAGES
FOR MATTERS COVERED BY SELLER'S INDEMNIFICATION OBLIGATIONS
ARISING OUT OF AND RESULTING FROM:
1. THE NEGLIGENCE OF PURCHASER, WHETHER THE
NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
GROSS NEGLIGENCE; AND
2. THE STRICT LIABILITY OF PURCHASER, BUT EXCLUDING
CLAIMS BASED ON THE WILLFUL MISCONDUCT OF
PURCHASER.
SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES FROM AND
AGAINST THE LITIGATION EXPENSES ARISING FROM, BASED UPON,
RELATED TO OR IN ANY WAY CONNECTED WITH SELLER'S
INDEMNIFICATION OBLIGATIONS.
IT IS UNDERSTOOD AND AGREED THAT SELLER'S OBLIGATION TO
INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE
LITIGATION EXPENSES IS (I) SEPARATE AND APART FROM SELLER'S
OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM DAMAGES
AND (II) IS NOT DEPENDENT UPON SELLER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND
AGAINST DAMAGES. SELLER'S OBLIGATION TO INDEMNIFY PURCHASER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.
SELLER'S INDEMNITY OBLIGATIONS TO PURCHASER INDEMNITEES
HEREUNDER SHALL BE LIMITED TO THE EXTENT OF SELLER'S
PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THIS
INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE TEST AND THAT THE PARTIES CLEARLY INTEND TO
TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.
SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THESE
INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.
(d) Notwithstanding anything to the contrary contained in
this Agreement, in the event that Closing occurs,
thereafter, this Section 11.3 shall be deemed to contain the
parties' exclusive remedies against each other with respect
to breaches of the representations, warranties, covenants
and agreements of the parties contained in Articles 5, 6 and
7 and the affirmations of such representations, warranties,
covenants and agreements contained in the certificate
delivered by each party at Closing pursuant to Sections
9.2(d) or 9.3(d), as applicable.
The parties shall have all other remedies at law or in
equity for breaches of all provisions of this Agreement
other than Articles 5, 6 and 7. Notwithstanding anything to
the contrary contained herein, none of Purchaser, Seller or
any of their respective Affiliates shall be entitled to
either punitive or consequential damages as a remedy in
connection with a breach of any provision of this Agreement
and/or the transactions contemplated hereby, and each of
Purchaser and Seller, for itself and on behalf of its
Affiliates, hereby expressly waives any right to punitive or
consequential damages in connection with a breach of any
provision of this Agreement and/or the transactions
contemplated hereby.
(e) "Damages" shall mean the amount of any and all
liability, loss, cost, diminution in value, expense, claim,
demand, notice of violation, investigation by any
Governmental Body, cause of action, administrative
proceeding, payment, charge, obligation, fine, penalty,
deficiency, award or judgment incurred or suffered by any
Indemnified Party arising out of or resulting from the
indemnified matter, including reasonable fees and expenses
of attorneys, consultants, accountants or other agents and
experts reasonably incident to matters indemnified against,
and the costs of investigation and/or monitoring of such
matters, and the costs of enforcement of the indemnity.
Section 11.4 Indemnification Actions.
All claims for indemnification under Section 11.3 shall be
asserted and resolved as follows:
(a) For purposes of this Article 11, the term
"Indemnifying Party" shall mean the party having an
obligation to indemnify the other party pursuant to
this Article 11, and the term "Indemnified Party" shall
mean the party having the right to be indemnified by
the other party pursuant to this Article 11.
(b) To make a claim for indemnification under Section
11.3, an Indemnified Party shall provide to the
Indemnifying Party a written notice (the
"Indemnification Notice") which specifies the basis of
the Indemnified Party's entitlement to indemnification
under this Agreement. In the event that the
Indemnification Notice is based upon a claim by a third
party against the Indemnified Party (a "Third Party
Claim"), the Indemnified Party shall provide its
Indemnification Notice promptly after the Indemnified
Party has actual knowledge of the Third Party Claim and
shall enclose a copy of all papers (if any) served with
respect to the Third Party Claim; provided that the
failure of any Indemnified Party to give notice of a
Third Party Claim as provided in this Section 11.4
shall not relieve the Indemnifying Party of its
obligations under Section 11.3 except to the extent
such failure results in insufficient time being
available to permit the Indemnifying Party to
effectively defend against the Third Party Claim or
otherwise prejudices the Indemnifying Party's ability
to defend against the Third Party Claim.
(c) The Indemnifying Party shall have thirty (30) days
from its receipt of an Indemnification Notice to notify
the Indemnified Party whether it will assume the
defense of the Indemnified Party against such Third
Party Claim at the sole cost and expense of the
Indemnifying Party. The Indemnified Party is
authorized, prior to and during such thirty (30) day
period, to file any motion, answer or other pleading
that it shall deem necessary or appropriate to protect
its interests or those of the Indemnifying Party and
that is not prejudicial to the Indemnifying Party.
(d) If the Indemnifying Party assumes the defense of a
Third Party Claim pursuant to an Indemnification
Notice, the Indemnifying Party shall diligently defend,
at its sole cost and expense, the Indemnified Party
against the Third Party Claim. The Indemnifying Party
shall have full control of such defense and
proceedings, including any compromise or settlement
thereof. If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate in contesting any
Third Party Claim which the Indemnifying Party elects
to contest. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party
pursuant to this Section 11.4(d). An Indemnifying Party
shall not, without the written consent of the
Indemnified Party, (i) settle any Third Party Claim or
consent to the entry of any judgment with respect
thereto which does not include an unconditional written
release of the Indemnified Party from all liability in
respect of such Third Party Claim or (ii) settle any
Third Party Claim or consent to the entry of any
judgment with respect thereto in any manner that may
materially and adversely affect the Indemnified Party
(other than as a result of money damages covered by the
indemnity).
(e) If the Indemnifying Party does not assume the
defense of the Indemnified Party against a Third Party
Claim or assumes the defense, but fails to diligently
prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend
against the Third Party Claim at the sole cost and
expense of the Indemnifying Party, with counsel of the
Indemnified Party's choice, subject to the right of the
Indemnifying Party to assume the defense of the Third
Party Claim at any time prior to settlement or final
determination thereof. If the Indemnifying Party has
not yet assumed the defense of the Indemnified Party,
the Indemnified Party shall send written notice to the
Indemnifying Party of any proposed settlement or final
determination of the Third Party Claim and the
Indemnifying Party shall have the option for ten (10)
days following receipt of such notice to (i) assume
defense against the Third Party Claim in writing and
(ii) if so assumed, reject, in its reasonable judgment,
the proposed settlement or final determination of the
Third Party Claim.
(f) In the event that the Indemnification Notice sets
forth a claim for Damages based upon an inaccuracy or
breach of a representation, warranty or covenant or
obligation in this Agreement, the Indemnification
Notice shall specify the representation, warranty,
covenant or obligation which was inaccurate or
breached. In such case, the Indemnifying Party shall
have thirty (30) days from its receipt of the
Indemnification Notice to (i) cure the Damages
complained of, (ii) accept the claim for such Damages
or (iii) dispute the claim for such Damages. If the
Indemnifying Party does not notify the Indemnified
Party within such thirty (30) day period that it has
cured the Damages or that it disputes the claim for
such Damages, the amount of such Damages shall
conclusively be deemed a liability of the Indemnifying
Party hereunder.
Section 11.5 Survival.
In the event of Closing:
(a) The representation and warranty of Seller in
Section 3.1(a)(Defensible Title) shall terminate on the
Title Claim Date (3.4(a)). The remainder of the
representations, warranties, covenants and agreements
provided for in this Agreement shall terminate upon
Closing except as may otherwise be expressly provided
herein.
(b) Purchaser's Indemnification Obligations in Section
11.3(b) shall terminate as of the times set out below
except in each case as to matters for which a specific
written claim for indemnity has been delivered to the
Indemnifying Party on or before such termination date:
11.3(b)(i), 11.3(b)(ii), 11.3(b)(iii) and 11.3(b)(iv)
shall not terminate and shall continue without time
limit; 11.3(b)(v) shall terminate six months after the
end of the term of the escrow described in 7.9(b)(i);
11.3(b)(vi), 11.3(b)(vii) and 11.3(b)(viii) shall
terminate six months after Closing; and 11.3(b)(ix)
shall continue in force and effect until the
termination of the survival period of each of the other
Purchaser's Indemnification Obligations in 11.3(b)(i)-
11.3(b)(viii), inclusive.
(c) Seller's Indemnification Obligations in Section
11.3(c) shall terminate as of the times set out below
except as to matters for which a specific written claim
for indemnity has been delivered to the Indemnifying
Party on or before such termination date: 11.3(c)(i)
shall not terminate and shall continue without time
limit; 11.3(c)(ii), 11.3(c)(iii) and 11.3(c)(iv) shall
terminate six months after Closing; and 11.3(c)(v)
shall continue in force and effect until the
termination of the survival period of each of the other
Seller's Indemnification Obligations in 11.3(c)(i)-
11.3(c)(iv), inclusive.
(d) The Confidentiality Agreement shall survive Closing.
(e) Except as provided above, all other provisions in
this Agreement shall terminate at Closing except for
the following provisions which shall survive Closing:
(i) Section 7.5 - Prohibition against Public Announcements
(ii) Section 7.11 - Further Assurances
(iii) Section 11.1 - Receipts
(iv) Section 11.2 - Expenses
(v) Section 11.4 - Indemnification Actions
(vi) Section 11.7 - Independent Investigation
(vii) Section 11.8 - Disclaimer Regarding Information
(viii) Section 11.9 - Waiver of Trade Practices Acts
(ix) Section 11.10 - Post-Closing Audit Rights
(x) Section 12.5 - Change of Name
(xi) Section 12.7 - Governing Law
Section 11.6 Recording.
As soon as practicable after Closing, Purchaser shall record
the (i) Assignment and Bill of Sale in the appropriate
counties as well as with all appropriate governmental
agencies, (ii) forms prescribed by the applicable
Governmental Body to transfer status of operator from Seller
to Purchaser with respect to Seller Operated Assets that are
wholly owned by Seller, and (iii) assignments necessary to
convey to Purchaser all federal or state leases, if any, in
the form as prescribed by the applicable Governmental Body
and provide Seller with copies of all recorded or approved
instruments.
Section 11.7 Independent Investigation.
In making the decision to enter into this Agreement and
consummate the transactions contemplated hereby, Purchaser
has relied exclusively on Purchaser's own investigation and
analysis of the condition, value, characteristics and
qualities of the Assets. Seller hereby expressly disclaims
and negates any representation or warranty, express,
implied, at common law, by statute or otherwise, other than
the warranty made in Section 3.1, the express
representations and warranties made in Article 5, the
certificate of Seller to be delivered pursuant to Section
9.2(d) and the special warranty of title in the Assignment
and Bill of Sale relating to the Assets.
Section 11.8 Disclaimer Regarding Information.
Seller hereby expressly negates and disclaims, and Purchaser
hereby waives and acknowledges that Seller has not made, any
representation or warranty, express or implied, relating to (a) the
accuracy, completeness or materiality of any information, Records,
data or other materials (written or oral) now, heretofore,
or hereafter furnished to Purchaser by or on behalf of
Seller or (b) production rates, recompletion or rework
opportunities, decline rates, geological or geophysical data
or interpretations, the quality, quantity, recoverability or
cost of recovery of any Hydrocarbon reserves, any product
pricing assumptions, or the ability to sell or market any
Hydrocarbons after Closing.
Section 11.9 Waiver of Trade Practices Acts.
(a) The Purchaser's rights and remedies with respect to
this Agreement and with respect to all acts or
practices of Seller, past, present or future, in
connection with this Agreement shall be governed by
legal principles other than the DTPA. Purchaser hereby
waives the applicability of the DTPA to this Agreement
and any and all duties, rights or remedies that might
be imposed by the DTPA, whether such duties, rights and
remedies are applied directly by the DTPA itself or
indirectly in connection with other statutes; provided,
however, Purchaser does not waive Section 17.555 of
the DTPA.
(b) Purchaser expressly recognizes that the price for
which Seller has agreed to perform Seller's obligations under
this Agreement has been predicated upon the inapplicability of
the DTPA and Purchaser's agreement to waive the applicability of
the DTPA. Purchaser further recognizes that Seller, in
determining to proceed with the entering into of this
Agreement, has expressly relied on such waiver by
Purchaser and the inapplicability of the DTPA.
Section 11.10 Post-Closing Audit Rights.
Following Closing, Seller shall have the same rights of a
non-operator as Purchaser has under joint operating
agreements covering the Assets to audit the books and
records of the operators of any of the Assets. Seller shall
be entitled to collect from operators all amounts claimed
due for any period of time prior to the Effective Time as a
result of audits.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Counterparts.
This Agreement may be executed in counterparts, each of
which shall be deemed an original instrument, but all such counterparts
together shall constitute but one agreement.
Section 12.2 Notice.
All notices which are required or may be given pursuant to
this Agreement shall be sufficient in all respects if given in writing
and delivered personally, by facsimile or by registered or certified mail,
postage prepaid, as follows:
If to Seller:
Smith Production Inc.
14425 Torrey Chase, Suite 190
Houston, Texas 77014
Attention: Glenn R. Smith
Telephone: 281.583.0196
Facsimile: 281.893.6396
If to Purchaser:
Fidelity Exploration & Production Company
Attention: Darwin L. Subart
1700 Lincoln, Suite 4600
Denver CO 80203
Telephone: (303) 893-3313
Telecopy: (720)931-9646
Either Party may change its address by notice to the other
in the manner set forth above. All notices shall be deemed
to have been duly given at the time of receipt by the party
to which such notice is addressed.
Section 12.3 Binding Agreement
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and assigns.
Section 12.4 Expenses.
All expenses incurred by Seller in connection with or
related to the authorization, preparation or execution of
this Agreement, the Assignment and Bill of Sale delivered
hereunder and the Exhibits hereto, and all other matters
related to the Closing, including without limitation, all
fees and expenses of counsel, accountants and financial
advisers, shall be borne solely and entirely by the party
incurring same.
Section 12.5 Change of Name.
As promptly as practicable, but in any case within thirty
(30) days after the Closing Date, Purchaser shall eliminate Seller's
name and any variants thereof from the Assets acquired pursuant to
this Agreement and, except with respect to such grace period for
eliminating existing usage, Purchaser shall have no right to
use any logos, trademarks or trade names belonging to Seller
or any of its Affiliates.
Section 12.6 Construction.
Both Seller and Purchaser have had (i) substantial input
into the drafting and preparation of this Agreement and (ii)
the opportunity to exercise business discretion in relation
to the negotiation of the details of the transaction
contemplated hereby. This Agreement is the result of arm's-
length negotiations from equal bargaining positions and
shall not be construed against either party.
Section 12.7 Governing Law.
This Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the laws of the
State of Texas without regard to principles of conflicts of laws
otherwise applicable to such determinations.
Section 12.8 Captions.
The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
Section 12.9 Waivers.
Any failure by any party or parties to comply with any of
its or their obligations, agreements or conditions herein contained
may be waived in writing, but not in any other manner, by the party
or parties to whom such compliance is owed. No waiver of, or consent
to a change in, any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of, or consent to a change in, other
provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise
expressly provided.
Section 12.10 Assignment.
No party shall assign all or any part of this Agreement, nor
shall any party assign or delegate any of its rights or duties hereunder,
without the prior written consent of the other party and any assignment
or delegation made without such consent shall be void.
Section 12.11 Entire Agreement.
The Confidentiality Agreement, this Agreement and the
documents to be executed hereunder and the Exhibits attached hereto
constitute the entire agreement between the parties pertaining to the
subject matter hereof, and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of
the parties pertaining to the subject matter hereof.
Section 12.12 Amendment.
(a) This Agreement may be amended or modified only by
an agreement in writing executed by both parties.
(b) No waiver of any right under this Agreement shall
be binding unless executed in writing by the party to
be bound thereby.
Section 12.13 No Third-Party Beneficiaries.
Nothing in this Agreement shall entitle any Person other
than Purchaser and Seller to
any claims, cause of action, remedy or right of any kind.
Section 12.14 References.
In this Agreement:
(a) References to any gender include a reference to all
other genders;
(b) References to the singular include the plural, and
vice versa;
(c) Reference to any Article or Section means an
Article or Section of this
Agreement;
(d) Reference to any Exhibit means an Exhibit that is
incorporated into and made a part of this Agreement;
(e) Unless expressly provided to the contrary,
"hereunder", "hereof", "herein" and words of similar
import are references to this Agreement as a whole and
not any particular Section or other provision of this
Agreement; and
(f) "Include" and "including" shall mean include or
including without limiting the generality of the
description preceding such term.
IN WITNESS WHEREOF, this Agreement has been signed by each
of the parties hereto on the dates shown below to be effective as
of the Effective Time.
SELLER: PURCHASER:
Smith Production Inc. Fidelity Exploration & Production
Company
By: /s/ GLENN R. SMITH By: /s/ DARWIN L. SUBART
Printed Name: Glenn R. Smith Printed Name: Darwin L. Subart
Title: President Title: President
Date: April 19, 2005 Date: April 19, 2005