PURCHASE AND SALE AGREEMENT
AMONG
HALLADOR PETROLEUM COMPANY
HALLADOR PRODUCTION COMPANY
HALLADOR PETROLEUM, LLP
SANTA BARBARA PARTNERS
TRIO PETROLEUM INC.
CUYAMA DRILLING AND PRODUCTION COMPANY
AND
SOUTH CUYAMA LIMITED PARTNERSHIP
("SELLERS")
AND
E&B NATURAL RESOURCES MANAGEMENT CORPORATION
AND
WRBD II, LP
("BUYERS")
SECTION 1 DEFINITIONS 2
SECTION 2 PURCHASE AND SALE 7
2.1 Assets 7
2.2 Stock 9
2.3 Trio Partnership Interests 9
2.4 Excluded Assets 9
SECTION 3 PURCHASE PRICE AND PAYMENTS 9
3.1 Purchase Price 9
3.2 Timing of Payments 9
3.3 Adjusted Purchase Price 10
3.4 Payment at Closing 10
3.5 Exclusivity 11
3.6 Waiver and Indemnity With Regard to Distribution and
Allocation of Consideration Among Sellers 11
SECTION 4 TITLE EXAMINATION 12
4.1 Access to Title Information 12
4.2 Title Defects 12
4.3 Identifying and Curing Title Defects 12
4.4 Preferential Purchase Rights 13
SECTION 5 ENVIRONMENTAL MATTERS 13
5.1 No Admission Against Interest 13
5.2 Environmental Due Diligence 13
5.3 Allocation of Environmental Liabilities 14
SECTION 6 OPERATIONS AND CASUALTY LOSS 16
6.1 Operations 16
6.2 Casualty Loss 16
6.3 Successor Operator 16
6.4 Hallador LLP Employees 17
SECTION 7 SELLERS' REPRESENTATIONS AND WARRANTIES 18
7.1 Representations and Warranties of Hallador Sellers 18
7.2 Representations and Warranties of Trio Sellers 27
7.3 Several Representations and Warranties and
Related Obligations 31
SECTION 8 REPRESENTATIONS AND WARRANTIES OF BUYERS 31
8.1 Organization 31
8.2 Authority; Enforceability 32
8.3 Consents 32
8.4 Litigation, Suits or Claims 33
8.5 No Breach 33
8.6 Investment Intent; Blue Sky 33
8.7 Rule 144 33
8.8 No Public Market 33
8.9 Restrictions on Transfer, Restrictive Legends 33
8.10 Access to Information 33
8.11 Investment Experience 34
8.12 Accredited Investor 34
8.13 Further Representations by Foreign Investors 34
8.14 Federal Leases 34
8.15 Brokers 34
SECTION 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SELLER 34
9.1 Purchase Price 35
9.2 Buyers' Representations and Warranties True 35
9.3 Officer's Certificate 35
9.4 Pre-Closing Performance 35
9.5 Authorization 35
9.6 Absence of Litigation 35
9.7 Bonds, Letters of Credit or Other Assurances 35
9.8 Preferential Purchase Rights 36
9.9 Transition Services Agreement 36
9.10 Receipt 36
SECTION 10 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BUYER 36
10.1 Delivery of Instruments of Transfer 36
10.2 Representations and Warranties 36
10.3 Authorization 37
10.4 Absence of Litigation 37
10.5 Officer's Certificate 37
10.6 Transition Services Agreement 37
10.7 Receipt 37
10.8 Liens 37
SECTION 11 COVENANTS 37
11.1 Investigation and Decision 37
11.2 Access to Information 38
11.3 General Liabilities 38
11.4 Gas Imbalance 39
11.5 Third-Party Consents 39
11.6 Additional Agreements 40
11.7 Payment of Certain Expenses Due and Payable After the
Effective Date 40
11.8 Notification of Certain Matters 40
11.9 Financial Statements 40
11.10 Announcements 41
11.11 Termination of Guarantees and Other Commitments 41
11.12 Like Kind Exchange 42
11.13 Access to Geologic and Geophysical Information 42
11.14 Restrictions on Operations 42
11.15 Exhibits and Schedules 43
SECTION 12 TAXES 43
12.1 Apportionment of Taxes 43
12.2 Sales Taxes, Filing Fees, Etc 43
12.3 Other Taxes 43
12.4 Cooperation on Tax Matters 43
12.5 Confidentiality 44
12.6 Audits 44
12.7 Control of Proceedings 45
12.8 Closing Tax Certificate 45
SECTION 13 TERMINATION 45
13.1 Termination 45
13.2 Effect of Termination 46
13.3 Sole Remedy 46
SECTION 14 MISCELLANEOUS 47
14.1 Governing Law 47
14.2 Assignment 47
14.3 Written Notices 47
14.4 Expenses 48
14.5 Limitation of Liability 48
14.6 Attorneys' Fees 48
14.7 No Admissions 48
14.8 Exhibits Incorporated 49
14.9 Entire Agreement, Etc 49
14.10 Parties in Interest 49
14.11 Severability 49
14.12 Consents 49
SECTION 15 SURVIVAL AND INDEMNIFICATION 49
15.1 Survival 49
15.2 Indemnification 49
15.3 Third Party Claims 50
15.4 Method of Asserting Claims 51
15.5 Right to Cure 54
SECTION 16 CLOSING 54
16.1 Time of Essence 54
16.2 Place and Date 54
16.3 Sellers' Actions at Closing 54
16.4 Buyers' Actions at Closing 55
16.5 Notices 56
SECTION 17 ACTIONS AFTER CLOSING 56
17.1 Final Accounting 56
17.2 Receipts and Credits 56
17.3 Further Assurances 57
17.4 Recording 57
17.5 Books and Records 57
17.6 Access to Employees and Books and Records Post-Closing 57
17.7 No Right to Offset 58
17.8 Confidentiality 58
17.9 Facsimile Signatures and Counterparts 58
LIST OF EXHIBITS AND SCHEDULES
Exhibit "A" Oil and Gas Properties
Exhibit "B" Excluded Assets
Exhibit "C" Allocation of Purchase Price
Exhibit "D" Promissory Notes
Exhibit "E" Accounts Receivable
Exhibit "F" Insurance
Exhibit "G" Transition Services Agreement
Exhibit "H" Contractual Rights and Other Intangible Property
Exhibit "I" Gas Imbalance
Exhibit "J" Assignment of Leases, Bill of Sale and Assignment of
Certain Intangible Contractual Rights and Other
Intangible Property
Exhibit "K" Deed
Exhibit "L" Title Defects
Exhibit "M" Financial Statements
Exhibit "N" Emission Credits and Security Deposits
Exhibit "O" Hallador LLP Cuyuma Valley Employees
Exhibit "P" Receipt
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("AGREEMENT") is entered into this
10th day of August, 2004 (the "Execution Date"), by and between Hallador
Petroleum Company, a Colorado corporation, with an office at 1660 Lincoln
Street, Suite 2700, Denver, Colorado 80264 (hereinafter sometimes referred
to as "Hallador Petroleum"), Hallador Production Company, a Colorado
corporation and wholly owned subsidiary of Hallador Petroleum, with an
office at 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264
(hereinafter sometimes referred to as "Hallador Production"), Hallador
Petroleum, LLP, a Colorado limited liability limited partnership whose
General Partner is Hallador Petroleum, with an office at 1660 Lincoln
Street, Suite 2700, Denver, Colorado 80264 (hereinafter sometimes referred
to as "Hallador LLP"), Trio Petroleum Inc., a California corporation, with
an office at 5401 Business Park South, Suite 115, Bakersfield, California
93309 (hereinafter sometimes referred to as "Trio Petroleum"), Cuyama
Drilling and Production Company, a California corporation, with an office
at 5401 Business Park South, Suite 115, Bakersfield, California 93309
(hereinafter sometimes referred to as "Cuyama Drilling"), South Cuyama
Limited Partnership, a California limited partnership whose General Partner
is Cuyama Drilling, with an office at 5401 Business Park South, Suite 115,
Bakersfield, California 93309 (hereinafter sometimes referred to as "South
Cuyama Limited"), and Santa Barbara Partners, an Oklahoma general
partnership whose General Partners are Hallador Production and Trio
Petroleum, with an office at 1660 Lincoln Street, Suite 2700, Denver,
Colorado 80264 (hereinafter sometimes referred to as "Santa Barbara
Partners"), Hallador Petroleum, Hallador Production, Hallador LLP, Trio
Petroleum, Cuyama Drilling, South Cuyama Limited and Santa Barbara Partners
each individually as a "Seller" and collectively the "Sellers"; and E&B Natural
Resources Management Corporation, a California corporation, with an office
at 34740 Merced Avenue, Bakersfield, California 93308 (hereinafter referred to
as "E&B") and WRBD II, L.P., a Delaware limited partnership, with an office at
695 Rotterdam Industrial Park, Schenectady, New York 12306 (hereinafter
referred to as "WRBD II") (E&B and WRBD II hereinafter referred to as each
individually as "Buyer" and collectively as "Buyers"). Certain capitalized
terms used herein are defined in Section 1.
RECITALS
WHEREAS, each of the Sellers is, directly and indirectly, the holder of
certain oil and gas interests and related assets and properties located in
the South Cuyama Field and elsewhere in the Cuyama Valley, Santa Barbara
County, California (such geographic area hereinafter collectively referred to
as the "Cuyama Valley");
WHEREAS, Hallador Petroleum owns all of the issued and outstanding
shares of the capital stock of Hallador Production (the "Stock"), and
Hallador Production is engaged in the business of owning and operating
certain oil and gas properties located in the Cuyama Valley;
WHEREAS, Trio Petroleum owns an approximate seven point six nine two
percent (7.692%) partnership interest in Santa Barbara Partners (the "Trio
Partnership Interests"), which together with Hallador Production's
approximate ninety two point three zero eight percent (92.308%) partnership
interest in Santa Barbara Partners, comprises all of the existing partnership
interests in Santa Barbara Partners, and Santa Barbara Partners is engaged in
the business of owning and operating oil and gas properties located in the
Cuyama Valley;
WHEREAS, E&B, or its designee, wishes to acquire all of the Stock from
Hallador Petroleum, and all of the Trio Partnership Interests from Trio
Petroleum, and Hallador Petroleum and Trio Petroleum, respectively, wish to
sell such interests to E&B, all on the terms and conditions hereof;
WHEREAS, each of the Sellers owns certain oil and gas interests and
properties in Cuyama Valley directly (in the case of Hallador Production and
Trio Petroleum such being owned outside of their ownership interests in Santa
Barbara Partners), which they will transfer to the Buyers at the Closing, all
on the terms and conditions hereof; and
WHEREAS, pursuant to the foregoing and the terms and conditions of this
Agreement, the Sellers will sell and transfer to Buyers, and the Buyers will
purchase and own upon the Closing (directly and indirectly through their
acquisition of the Stock and the Trio Partnership Interests), all of the oil
and gas assets and properties owned by any and all of the Sellers in the
Cuyama Valley, and in consideration therefore, the Sellers will have received
the consideration payable hereunder.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sellers and Buyers agree as
follows:
SECTION 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings
defined either in this Section 1 or elsewhere in this Agreement.
"Adjusted Purchase Price" shall have the meaning specified in
Section 3.3.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, such Person; for purposes of this definition, "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity, whether through the
ownership of voting securities or otherwise.
"Acquired Assets" shall have the meaning specified in Section 7.1.4
"Act" shall have the meaning specified in Section 8.6
"Assets" shall have the meaning specified in Section 2.1
"Base Pay" shall have the meaning specified in Section 6.4
"Cash Settlement" shall have the meaning specified in Section 3.4.2.
"Casualty Loss" means a loss of personalty, excluding oil, gas and other
minerals in place or that have not been reduced to possession, that is caused
by a sudden, unexpected or unusual event.
"Claim Notice" shall have the meaning specified in Section 15.4.1.
"Closing" means the consummation of the transactions contemplated in
Sections 16.3 and 16.4.
"Closing Date" shall have the meaning specified in Section 16.2.
"Closing Date Severance Obligation Adjustment" shall have the meaning
specified in Section 6.4.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Cuyama Valley Hallador LLP Employees" shall have the meaning specified
in Section 6.4.
"Down Payment" shall mean each of the payments made pursuant to
Sections 3.2.1 and 3.2.2.
"Due Diligence Period" shall have the meaning specified in Section 11.2.
"Effective Date" shall mean June 1, 2004.
"Employment Offer" shall have the meaning specified in Section 6.4.
"ENVIRONMENTAL LAW" INCLUDES ANY LEGAL REQUIREMENTS APPLICABLE TO THE
ASSETS, OR SANTA BARBARA PARTNERS OR HALLADOR PRODUCTION OR THEIR RESPECTIVE
PROPERTIES (OR OPERATIONS THEREON OR RELATED TO SUCH ASSETS OR PROPERTY) THAT
RELATE TO POLLUTION OR PROTECTION OR CLEANUP OF THE ENVIRONMENT (INCLUDING,
BUT NOT LIMITED TO AMBIENT AIR, SURFACE WATER, GROUNDWATER, LAND SURFACE OR
SUBSURFACE STRATA), AND ANY LEGAL REQUIREMENTS RELATING TO:
(i) release, emission, discharge, spill, escape, containment, control,
removal, remediation, response, cleanup or abatement of any sort
of Hazardous Substance;
(ii) the production, extraction, manufacture, generation, formulation,
processing, labeling, distribution, use, permitting, treatment,
handling, storage, disposal or transportation of any Hazardous
Substance;
(iii) the physical structure or condition of a building, facility, fixture
or other structure which involves the management, use, storage,
release, disposal, cleanup, removal or control of asbestos,
polychlorinated biphenyls or any other Hazardous Substance;
(iv) restoration or reimbursement of costs to restore natural resources,
or any natural resource damage assessment; and
(v) federal and state occupational safety and health laws;
provided, however, notwithstanding anything to the contrary in the definition
of "Legal Requirements", as used in the definition of Environmental Laws for
purposes of this Agreement, "Legal Requirements" shall mean Legal
Requirements in effect as of the date of the occurrence in question.
"Environmental Liabilities" means any and all losses, liabilities, claims,
fines, penalties, expenses, damages, costs (including reasonable and documented
attorney's fees and expenses) and causes of action created by, related to, or
arising out of any violation of any Environmental Law. Excluded from the
definition of Environmental Liabilities shall be all usual and normal prudent
operations for the plugging, abandonment and surface restoration of oil, gas,
injection, water or other wells, sumps, pits, ponds, tanks, impoundments,
foundations, pipelines, structures and equipment of any kind or description.
"Excluded Assets" shall have the meaning specified in Section 2.4.
"Final Accounting" shall have the meaning specified in Section 17.1.
"Financial Statements" as used herein shall mean the financial statements
as of December 31, 2003 and June 30, 2004 of each of Hallador Petroleum and
Santa Barbara Partners, inclusive of balance sheets as of each respective
fiscal year and statements of operations, stockholders' equity and cash flow
for each respective fiscal year.
"for cause" shall have the meaning specified in Section 6.4.3.
"GAAP" means generally accepted accounting principles as published and
practiced in the United States as of the date of the relevant Financial
Statements.
"Gas Imbalance" means the difference between the volume of produced gas
that Sellers took from an Asset and the volume of Sellers' gas entitlement
under the applicable agreement or arrangement relating to such Asset.
"Governmental Body" shall mean any: nation, state, county, city, town,
village, district or other jurisdiction of any nature; federal, state, local,
municipal or other government; governmental or quasi-governmental authority of
any nature (including any governmental agency, branch, department, official or
entity and any court or other tribunal); or body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Hallador Petroleum Tax Returns" shall have the meaning specified in
Section 7.1.20.
"Hallador Sellers" shall have the meaning specified in Section 7.1.
"Hazardous Substance" means (i) any substance, product, waste or other
material of any nature whatsoever which is listed as a hazardous substance,
hazardous waste, hazardous material or pollutant, or is regulated or addressed
with respect to health, safety or environmental matters pursuant to any Legal
Requirements, (ii) any substance, product, waste or other material of any
nature whatsoever which may give rise to liability under any Legal
Requirements, (iii) petroleum and its fractions, crude oil and other
petroleum products, and (iv) radioactive materials including but not limited
to naturally occurring radioactive materials.
"Indemnified Party" or "Indemnifying Party" shall have the meaning
specified in Section 15.4.
"Interest Rate" means the prime rate offered by Citibank, N.A., New York,
New York.
"IRS" shall have the meaning specified in Section 7.1.20.
"Key Cuyama Valley Hallador LLP Employees" shall have the meaning
specified in Section 6.4.
"Kirschenmann" shall have the meaning specified in Section 6.4.
"Kirschenmann Adjustment" shall have the meaning specified in
Section 6.4.4.
"Legal Requirements" mean any and all applicable:
(i) federal, state and local laws (statutory, judicial or otherwise),
rules, ordinances, regulations and permits;
(ii) judgments, orders, decrees, decisions of and agreements with
federal, state or local courts, or any governmental authority,
bureau or agency, including any such action applying or interpreting
any other Legal Requirements, authorities or the common law;
as in effect as of the Effective Date.
"Liens" means any and all liens, mortgages, charges, pledges, security
interests, burdens or other encumbrances of any nature whatsoever, including,
but not limited to, such as may arise under any contracts or judgments.
"Material Adverse Effect" shall mean an effect, taking into account all
facts and circumstances, on the business, properties, condition (financial or
otherwise) or operations of a Party, which has had or could reasonably be
expected to have a material adverse effect on the ability of such Party to
perform its obligations under this Agreement, or on the value of the Assets,
the Stock and/or the Trio Partnership Interests, which when taken in the
aggregate with all other such like matters, would, in the reasonable
determination of Buyers, be in excess of, or is likely to be in excess of,
$150,000.00 dollars, specifically excluding, however, natural oil and gas
production declines related to the Assets which are beyond the control of
Sellers and which Sellers, with the action of a reasonably prudent operator,
could not immediately (or in a reasonable period of time) completely or
partially restore.
"Material Deficiency" means a deficiency(ies) in or reduction in the
value of the Assets, the Trio Partnership Interests and the Stock which
singularly or in the aggregate would, in the reasonable determination of
Buyers, be in excess of, or is likely to be in excess of, ten percent (10%)
of the Purchase Price.
"Non-Refundable Portion of the Down Payment" shall have the meaning
specified in Section 3.2.1.
"Notes" shall have the meaning specified in Section 3.2.3.
"Oil and Gas Properties" means the property as described on Exhibit "A"
hereto, together with all rights and assets as generally described in
Sections 2.1.2 and 2.1.3 related to such property.
"Party" or "Parties" means each of the Persons party to this Agreement.
"Permits" means any and all permits, including temporary permits to
construct or operate, authorizations, approvals, registrations, rights-of-
way, orders, waivers, variances or other licenses issued or granted by any
federal, state or local administrative or governmental authority, bureau or
agency.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other entity or
any government or political subdivision or any agency, department or
instrumentality thereof.
"Post Closing Date Severance Obligation" shall have the meaning
specified in Section 6.4.2.
"Property" shall have the meaning specified in Section 2.1.
"Purchase Price" shall have the meaning specified in Section 3.1.
"Receipt" shall have the meaning specified in Section 9.10.
"Santa Barbara Partnership Agreement" shall have the meaning specified
in Section 7.1.4.
"Santa Barbara Tax Returns" shall have the meaning specified in
Section 7.1.20.
"Sellers' Retained Environmental Liabilities" shall have the meaning
specified in Section 5.3.1.
"Stock" shall have the meaning specified in the recitals to this
Agreement.
"Tax" or "Taxes" means any federal, state, local, Native American or
foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Sec. 59A of the Internal Revenue Code), custom duties,
capital stock, franchise, profits, withholding, social security (or similar
excises), unemployment, disability, ad valorem, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
"Tax Deferred Exchange Election" shall have the meaning specified in
Section 11.12.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Title Defect" shall have the meaning specified in Section 4.2.
"Transition Services Agreement" shall have the meaning specified in
Section 9.9.
"Trio Assets" shall have the meaning specified in Section 7.2.3.
"Trio Partnership Interests" shall have the meaning specified in the
recitals to this Agreement.
"Trio Sellers" shall have the meaning specified in Section 7.2.
SECTION 2
PURCHASE AND SALE
2.1 Assets. Subject to the terms and conditions of this
Agreement, each of the Sellers shall sell, and the Buyers shall acquire on
the Closing Date, all of Sellers' right, title and interest in the following
described assets in any manner associated with or related to Sellers' Oil
and Gas Properties in the Cuyama Valley, with (i) WRBD II acquiring all Oil
and Gas Properties (including any and all Oil and Gas Properties owned by
Hallador Production and Santa Barbara Partners, with those entities
transferring such Oil and Gas Properties to WRBD II at and subject to the
Closing, prior to the transfer of the Stock and Trio Partnership Interests
being acquired by E&B as provided in Sections 2.2 and 2.3 hereof), and
(ii) E&B acquiring from each of Sellers other than Hallador Production and
Santa Barbara Partners (such assets being acquired indirectly through the
acquisition of the Stock and Trio Partnership Interests by E&B as provided
pursuant to Sections 2.2 and 2.3 below), all other of the properties,
interests and assets as are described as follows (such being collectively
the "Assets" or "Property"):
2.1.1 The mineral fee, surface fee, oil and gas leasehold,
working interests and royalty interests in or related to the land described
in Exhibit "A," subject to any covenants, conditions, restrictions,
reservations, and easements;
2.1.2 Subject to the consents of any third party to be obtained
pursuant to Section 11.5, contracts and contractual rights and interests to
the extent that they are related to the ownership, operation, use or
maintenance of the land and property interests described in this Section
2.1, including but not limited to rights in or derived from farm-in or farm-out
agreements, seismic permits or similar agreements including rights therein to
certain seismic information related to the Property, communication agreements,
unit agreements, orders and decisions of regulatory agencies establishing or
related to units, unit operating agreements, joint operating agreements,
enhanced recovery and injection agreements, pooling agreements, gas
balancing agreements, sales and processing agreements, boundary and line well
agreements, salt water disposal agreements, compression agreements, processing
agreements, treating agreements, surface and sub-surface use agreements, water
supply contracts, rights-of-way; easements and servitudes;
2.1.3 All oil, gas, casing head gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all other products refined or extracted
therefrom, together with all minerals produced in association with these
substances, in and under and which may be produced and saved from or
attributable to the of the land and property interests described in this
Section 2.1, from and after the Effective Date and all rents, issues,
profits, proceeds, products, revenues and other income from or attributable
thereto;
2.1.4 To the extent not owned by or issued in the name of Santa
Barbara Partners or Hallador Production, Permits, licenses, approvals,
emissions credits (such emissions credits detailed on Exhibit "N" hereof),
authorizations and applications issued by or filed with federal, state or
local governments and agencies; authorities to construct and permits to
operate; underground injection rights; riparian, appropriated and other water
rights; and all other similar rights and interests, including all security
deposits or cash deposited with any Governmental Body (such security deposits
detailed on Exhibit "N" hereof) to the extent they apply to or are used in
connection with the ownership, operation, use or maintenance of the land
and property interests described in this Section 2.1 to the extent they are
assignable and subject to the consents of third parties to be obtained
pursuant to Section 11.5 hereof;
2.1.5 To the extent not owned by Santa Barbara Partners or Hallador
Production, all facilities and equipment located on, in or under the land
described in Exhibit "A," or in any manner used for or in connection with
producing,processing, separating, treating, compressing, dehydrating and
transporting oil, gas or other minerals produced therefrom, such as wells,
pumps, casing, tubing, tanks, surface and downhole equipment, inventory,
idle equipment, pipelines, gathering systems, injection systems, steam
generators, vehicles, rolling stock and other similar property;
2.1.6 All original files and all data, including, but not limited to,
lease, title information and records, land records, contract files, well logs,
workover and drilling history, geologic and geophysical data, product sales
records, royalty and working interest payment records, division order records,
accounting and financial records, and maps and plats relating to the land and
property interests described in this Section 2.1;
2.1.7 All rights of reimbursement, contribution and indemnity from all
third parties relating to environmental compliance, hazardous waste, waste
clean-up or other claims associated with the Property, subject to the Parties
obtaining any required consents from any third party, and only to the extent
such rights are not rights of Santa Barbara Partners or Hallador Production or
rights to which Santa Barbara Partners or Hallador Productions are entitled; and
2.1.8 All other rights, titles and interests in, to or under or
derived from the Property, even though the same may be improperly described
in or omitted from the foregoing list or the Exhibits. It is the express
intent of the Parties that all of Sellers' right, title and interest in any
and all oil and gas properties located in the South Cuyama Field and in the
Cuyama Valley located in Cuyama Valley, Santa Barbara County, California,
whether improperly described in, or omitted from, the foregoing list or the
Exhibits, be assigned to Buyers hereunder if not indirectly as a result of
the acquisition of the Stock and Trio Partnership Interests, then by grant
pursuant to this Section 2.1.
2.2 Stock. Subject to the terms and conditions of this Agreement and in
consideration of the obligations of the Buyers as provided herein, at the
Closing, Hallador Petroleum shall sell, assign, transfer, and deliver to E&B,
or a designee of E&B that is an Affiliate of E&B, free and clear of all Liens,
the Stock, and E&B hereby agrees to purchase, acquire and accept, or to cause
its designee that is an Affiliate of E&B to purchase, acquire and accept, the
Stock from Hallador Petroleum. Hallador Petroleum shall deliver to E&B, or its
designee, as directed by E&B, the certificate representing the Stock, duly
endorsed for transfer at the Closing.
2.3 Trio Partnership Interests. Subject to the terms and conditions of
this Agreement, and in consideration of the obligations of the Buyers as
provided herein, at the Closing, Trio Petroleum shall sell, assign, transfer,
and deliver to E&B, or a designee of E&B that is an Affiliate of E&B, free and
clear of all Liens, the Trio Partnership Interests, and E&B hereby agrees to
purchase, acquire and accept, or to cause its designee that is an Affiliate of
E&B to purchase, acquire and accept, the Trio Partnership Interests from Trio
Petroleum. Trio Petroleum shall deliver to E&B, or its designee as directed
by E&B, an assignment of the Trio Partnership Interests in a form reasonably
acceptable to E&B for transfer at the Closing.
2.4 Excluded Assets. Notwithstanding the foregoing, prior to the Closing
Santa Barbara Partners will transfer those assets, properties and records as
listed on Exhibit "B" hereto (the "Excluded Assets") to Hallador Petroleum or
its designee, and the Buyers shall have no right, title or interest in or to
such assets, properties and records.
Section 3
PURCHASE PRICE AND PAYMENTS
3.1 Purchase Price. The Purchase Price for the Assets and the Partnership
Interests shall be an aggregate of Twenty Six Million Dollars ($26,000,000.00)
("Purchase Price"), subject to adjustment as provided in Section 3.3, in United
States currency, such Purchase Price being allocated as provided on Exhibit "C"
hereto.
3.2 Timing of Payments.
3.2.1 Contemporaneously with the execution of this Agreement, on the
Execution Date, in further consideration of the obligations provided for
pursuant to this Agreement, the Buyers shall pay as an advance on the Purchase
Price to Hallador LLP, by wire transfer of immediately available funds, to an
account or accounts as specified in writing by Hallador LLP, One Hundred Fifty
Thousand Dollars ($150,000.00) (the "Non-Refundable Portion of the Down
Payment"), such amount to be held on behalf of the Sellers by Hallador LLP,
and allocated and paid at Closing or upon termination of this Agreement as
provided in this Agreement;
3.2.2 On or before September 10, 2004, in further consideration of
the obligations provided for pursuant to this Agreement, the Buyers shall pay
as an advance on the Purchase Price to Hallador LLP by wire transfer of
immediately available funds, to an account or accounts as specified in writing
by Hallador LLP, One Million Two Hundred Thousand Dollars ($1,200,000.00), such
amount to be held on behalf of the Sellers by Hallador LLP, and allocated and
paid at Closing or upon termination of this Agreement as provided in this
Agreement; and
3.2.3 At and subject to Closing, the Buyers shall pay to the Sellers,
by wire transfer of immediately available funds, to the account or accounts of
such Sellers (using wire transfer information to be provided in writing by such
Sellers at least three (3) business days before the Closing) and in such amounts
as provided in Exhibit "C", as updated at lease three (3) business days before
the Closing as provided in Section 16.3.1: (i) the Adjusted Purchase Price,
(ii) plus or minus any Cash Settlement, (iii) less Four Million Dollars
($4,000,000.00) paid in the form of promissory notes as provided in Sections
3.2.3(b) and 3.2.3(c) below, and less (iv) the aggregate amount of the Down
Payment paid by Buyers pursuant to Sections 3.2.1 and 3.2.2, and deliver to
Hallador LLP, a promissory note maturing one year after the Closing Date,
in the original principal amount of Three Million Five Hundred Thirty Eight
Thousand Four Hundred Sixty Two Dollars ($3,538,462.00); and deliver to
Trio Petroleum, a promissory note maturing one year after the Closing Date,
in the original principal amount of Four Hundred Sixty One Thousand Five
Hundred Thirty Eight Dollars ($461,538.00), with each note in substantially
the form attached hereto as Exhibit "D" (the "Notes").
3.3 Adjusted Purchase Price. The net price that Buyers shall pay to
Sellers ("Adjusted Purchase Price"), shall be calculated as follows:
3.3.1 The Purchase Price as set forth in Section 3.1 above;
3.3.2 Plus the amount of the Closing Date Severance Obligation
Adjustment as provided in Section 6.4.1;
3.3.3 Plus the amount of the Kirschenmann Adjustment as provided
in Section 6.4.4.
3.4 Payment at Closing. At least five (5) days before Closing, Sellers
shall furnish Buyers with an estimated Closing statement that will include
the following:
3.4.1 The Adjusted Purchase Price calculated in accordance with
Section 3.3; and
3.4.2 The cash settlement ("Cash Settlement") determined as follows:
(i) add $86,496.68 for the approximately ten thousand (10,000) feet of
5 1/2 inch casing currently being held in inventory by Santa
Barbara Partners;
(ii) add the amount of estimated expenditures made by Sellers that are
attributable to the Assets, Santa Barbara Partners and Hallador
Production for the period between the Effective Date and Closing
Date including, without limitation, capital expenditures,
royalties actually paid, production and similar taxes, rentals
and similar charges and expenses, direct operating expenses,
and all disclosed or normal course of business prepaid expenses;
(iii) add the value of all liquid hydrocarbons, as described in the
disclosed gauge report, in Sellers' storage tanks above the
pipeline connection at approximately 7:00 a.m. (local time) on
the Effective Date valued at the contract price in effect as of
the Effective Date;
(iv) add, for the period from the Effective Date until the Closing
Date, an operating fee in an amount of three hundred dollars
($300.00) per month (prorated for any partial period) per
active well, which amount shall be paid to Hallador Petroleum
pursuant to Exhibit "C"; and
(v) subtract the amount of estimated revenues received by Sellers
attributable to the Assets, Santa Barbara Partners and Hallador
Production accruing from the Effective Date until the Closing Date.
3.5 Exclusivity. In exchange for delivery of the Down Payment by
Buyers when and as provided pursuant to Sections 3.2.1 and 3.2.2, the
sufficiency of such consideration to support this Section 3.5 being
acknowledged by the Parties hereto, Sellers shall grant the Buyers the
continuing exclusive right to purchase the Assets, the Trio Partnership
Interests, and the Stock for so long as Buyers continue to make such payments
as scheduled, provided however, such exclusive right shall terminate
immediately upon the termination of this Agreement for any reason.
3.6 Waiver and Indemnity With Regard to Distribution and Allocation of
Consideration Among Sellers. It is understood as to the Parties hereto, that
Sellers have provided pursuant to this Agreement (in Exhibit "C" and
elsewhere), certain distributions and allocations of consideration due
Sellers as provided in this Agreement (both in the event of the Closing as
well as with regard to the Down Payment in the event of termination of
this Agreement). Each of the Sellers do hereby acknowledge their agreement
to the allocations and distributions contained herein, do hereby waive any
and all claims against any of the Buyers in any manner related to such
distributions and allocations, and do hereby agree to indemnify, defend and
hold harmless each of the Buyers against any claim from any of the Sellers
with regard to the allocation and/or distribution among the Sellers of
consideration delivered pursuant to this Agreement.
Section 4
TITLE EXAMINATION
4.1 Access to Title Information. During the Due Diligence Period, Sellers
shall make the records described in Section 11.2 available to Buyers at Hallador
Petroleum's offices located at 1660 Lincoln Street, Suite 2700, Denver, Colorado
80264, for examination by Buyers. Sellers shall not be obligated to perform any
title work other than that which is contained in their files as of the Execution
Date.
4.2 Title Defects. In this Agreement, a "Title Defect" shall mean a defect
in one or more of the following respects only:
4.2.1 A Seller owns more or less than the interest shown as owned by
such Seller in Exhibit "A" in one or more of its Oil and Gas Properties;
4.2.2 A Seller's rights and interests in one or more of its Oil and
Gas Properties are subject to being reduced by virtue of the exercise by a
third party of a reversionary, back-in or similar right not reflected in
Exhibit "A" or Exhibit "H";
4.2.3 A Seller's title at the Closing Date, as to one or more of
the Oil and Gas Properties owned by such Seller, is subject to any lien,
claim, defect, encumbrance or deficiency, other than Sections 4.2.1 or
4.2.2 Title Defects, such that such Seller does not have good and
marketable title to any part of such Oil and Gas Properties; provided,
no permitted encumbrance shall constitute a Title Defect.
4.2.4 The following shall be permitted encumbrances:
(i) Materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, tax and other similar liens or charges arising in the
ordinary course of business (i) if they have not been filed
pursuant to law, (ii) if filed, and if disclosed to Buyers, that
have not yet become due and payable or payment is being withheld
as provided by
law, or (iii) as to those disclosed to Buyers, if their validity is
being contested in good faith by appropriate action;
(ii) Easements, rights-of-way, servitudes, permits, surface leases and
other rights and respective surface operations;
(iii) All rights reserved to or vested in any governmental, statutory
or public authority to control or regulate any of the Oil and Gas
Properties in any manner, and all applicable laws, rules and
Orders of governmental authorities.
4.3 Identifying and Curing Title Defects. Buyers shall have the period
from the Execution Date until September 10, 2004, during which to notify
Sellers in writing of the nature of any Title Defect found in Buyers' due
diligence and in such notification Buyers shall provide a value associated
with the Oil and Gas Properties effected by such Title Defect as reasonably
determined by Buyers. Notwithstanding anything to the contrary in the
foregoing, attached hereto as Exhibit "L" is a list of Title Defects known
to Buyer as of the Execution Date. Any other Title Defect which is not
brought to Sellers' attention prior to September 10, 2004, shall conclusively
be deemed waived by Buyers for all purposes absent Sellers' written agreement
to he contrary prior to Closing. Sellers shall have the right, but not the
obligation, to attempt to cure any Title Defect(s) identified pursuant to
this Section 4.3 until September 10, 2004, or until September 20, 2004 if
Sellers received notice of such Title Defects on or after September 1, 2004,
and Buyer's termination rights pursuant to Section 13.1.4 shall extend until
September 20, 2004, if any such Title Defect(s) that in the aggregate are
valued in excess of $200,000.00 remain uncured by Seller as of September 20,
2004. If Sellers elect to attempt to cure any Title Defect(s), Sellers shall
act in good faith in attempting any such cures.
4.4 Preferential Purchase Rights. Each of the Sellers hereby represent
and warrant to Buyer that, other than the preferential purchase rights of
Trio Petroleum, no other Person or third party holds preferential purchase
rights in or to any of the Assets, Santa Barbara Partners, or Hallador
Production. By its execution of this Agreement, Trio Petroleum hereby waives
any and all such preferential purchase rights.
Section 5
ENVIRONMENTAL MATTERS
5.1 No Admission Against Interest. Nothing contained in this Section 5,
or elsewhere in this Agreement, shall be construed to be an admission against
interest as to Sellers or Buyers. Sellers and Buyers specifically disclaim
the existence of any Environmental Liability to third parties (including
governmental entities) based on contracts or otherwise.
5.2 Environmental Due Diligence.
5.2.1 From and after the Execution Date and until the Closing Date,
the Hallador Sellers shall provide Buyers access to, and as requested deliver
to Buyers, true, complete and correct copies and results of any letters,
requests, information, reports, inquiries, correspondence, studies, analyses,
tests or monitoring received, possessed or initiated by the Hallador Sellers
pertaining to compliance with Environmental Laws with respect to the Acquired
Assets, or the existence of or damages resulting from Hazardous Materials or
Hazardous Activities in, on or under the Acquired Assets or concerning
compliance by Hallador Production or Santa Barbara Partners with Environmental
Laws. From and after the Execution Date and until the Closing Date, the Trio
Sellers shall provide Buyers access to, and as requested deliver to Buyers,
true, complete and correct copies and results of any letters, requests,
information, reports, inquiries, correspondence, studies, analyses, tests
or monitoring received, possessed or initiated by the Trio Sellers pertaining
to compliance with Environmental Laws with respect to the Trio Assets, or the
existence of or damages resulting from Hazardous Materials or Hazardous
Activities in, on or under the Trio Assets.
5.2.2 Environmental Assessment. From and after the Execution Date
and until the Closing Date, Sellers will provide Buyers (or their contractor)
with reasonable access to the Property for the entire Due Diligence Period,
during which Buyers will, as part of Buyers' due diligence, conduct, at their
sole risk and expense, such environmental site assessment as Buyers determines
is appropriate. Buyers shall keep any data or information acquired by all such
examinations and the results of all analyses of such data and information
strictly confidential and, unless required by law, will not disclose same to
any Person without the prior written approval of Sellers except to the extent
such disclosure is to financial institutions, environmental consultants, legal
counsel or other parties to whom disclosure is appropriate and desirable to
consummate this transaction, but subject to the prior agreement of any such
party to maintain the confidentiality of the information.
5.2.3 Buyers' Access to Assets; Indemnification.
5.2.3.1 From and after the Execution Date and until the Closing
Date, Sellers shall grant Buyers access to the Property during normal business
hours to conduct their due diligence. Buyers shall not perform any act or
permit the performance of any act that would injure any of the Assets or
disrupt Sellers' activities thereon.
5.2.3.2 Buyers release and will hold harmless Sellers, their
directors, officers, employees, agents and Affiliates against all claims for
injury to, or death of, Persons or damage to property arising in any way from
the exercise of access rights granted to Buyers for due diligence purposes or
the activities of Buyers or their employees, agents or contractors on the
Assets. Buyers shall indemnify Sellers, their directors, officers, employees,
agents, contractors and Affiliates against and hold each and all of said
indemnitees harmless from any and all loss, cost, damage, expense or liability,
including attorney's fees, arising out of (i) any and all third party statutory
or common-law Liens or other encumbrances for labor or materials furnished in
connection with such tests, samplings, studies or surveys as Buyers may conduct
with respect to the Assets; and (ii) any injury to or death of Persons or damage
to property occurring in, on or about the Assets as the sole result of Buyers'
due diligence activities (except for any such injuries or damages caused
solelyby the active negligence or willful misconduct of any said
indemnitees). The foregoing obligation of indemnity shall survive Closing
or termination of this Agreement without Closing.
5.3 Allocation of Environmental Liabilities.
5.3.1 Sellers. Notwithstanding any other provision of this Agreement,
including, without limitation, Sections 15.2 and 15.3, each of the Sellers shall
retain only those Environmental Liabilities of (i) (A) Santa Barbara Partners
or Hallador Production existing prior to the Closing, or (B) related to
operations on, or conditions on, relating to or arising from operations during
the period of each respective Seller's ownership or operation of the Assets,
but in the case of either (i) (A) or (B) only to the extent such Environmental
Liabilities are the result of such Seller's intentional, knowing and willful
failure to comply with any Environmental Law; and (ii) any Environmental
Liabilities of Santa Barbara Partners or Hallador Production existing prior
to the Closing, or related to operations on, or conditions on, relating to
or arising from operations during the period of each respective Seller's
ownership or operation of the Assets that Sellers had actual knowledge of
and which Sellers intentionally, knowingly and willfully failed to disclose
to Buyers prior to the Closing ((i) and (ii) collectively, "Sellers' Retained
Environmental Liabilities").
5.3.2 Buyers. Notwithstanding any other provision of this Agreement,
including, without limitation, Sections 15.2 and 15.3 at and subject to the
Closing and except for Sellers' Retained Environmental Liabilities, Buyers
shall assume any and all Environmental Liabilities related in any manner to
the Assets, whether resulting from or related to the actions or omissions of
any of the Sellers or any facts or circumstances occurring or arising prior
to Closing, or the actions or omissions of Buyers, Santa Barbara Partners or
Hallador Production or any facts or circumstances occurring or arising after\
the Closing.
5.3.3 Indemnification.
5.3.3.1 Each of the Hallador Sellers, except for Santa Barbara
Partners and Hallador Production, shall, jointly and severally, indemnify and
hold harmless each of Buyers, and their respective successors and assigns
(including after the Closing, Santa Barbara Partners and Hallador Production
as Affiliates of E&B ), directors, officers, employees and agents, against,
and in respect of, any and all damages, claims, losses, liabilities and
expenses, including, without limitation, reasonable and documented legal,
accounting and other expenses, which arise out of such Hallador Sellers'
Sellers' Retained Environmental Liabilities.
5.3.3.2 Each of the Trio Sellers shall, jointly and severally,
indemnify and hold harmless each of Buyers, and their respective successors and
assigns (including after the Closing, Santa Barbara Partners as an Affiliate of
E&B ), directors, officers, employees and agents, against, and in respect of,
any and all damages, claims, losses, liabilities and expenses, including,
without limitation, reasonable and documented legal, accounting and other
expenses, which arise out of such Trio Sellers' Sellers' Retained Environmental
Liabilities.
5.3.3.3 Each of the Buyers shall, jointly and severally, indemnify
and hold harmless each of the Sellers and their respective successors and
assigns, directors, officers, employees and agents, against, and in respect of,
any and all damages, claims, losses, liabilities and expenses, including,
without limitation, reasonable legal, accounting and other expenses, which
arise out of any Environmental Liabilities, other than Sellers' Retained
Environmental Liabilities, in any manner related to the Assets, Santa
Barbara Partners or Hallador Production, whether resulting from or related
to actions, facts or circumstances occurring or arising prior to or after
Closing.
5.3.3.4 Any claim for indemnification pursuant to this
Section 5.3.3 shall be made in accordance with the procedures as set forth in
Section 15.4.
5.3.4 Limitation. No obligations allocated to or assumed by Sellers
or Buyers under this Agreement shall include any obligation to remediate
Hazardous Substances in or upon land or any water course or body of water
including ground water beyond the lawful requirements of the government agency
or agencies with jurisdiction over the Assets, or, if greater, under common law
requirements, nor shall such obligations include any action, cost or expense
other than actions, costs, or expenses required by law.
Section 6
OPERATIONS AND CASUALTY LOSS
6.1 Operations. Between the Effective Date and Closing, as to the portion
of the Assets to be conveyed which each of the respective Sellers now operates,
they shall operate the same in a good and workmanlike manner and as would be
operated by a reasonably prudent operator and in accordance with recent past
practices. As of the Closing Date, such operations shall be turned over to
and become the responsibility of Buyers, unless an applicable unit, pooling,
communitization or operating agreement requires that any Seller, other than
Santa Barbara Partners or Hallador Production, continue to operate such
Assets, in which case (unless Buyers and Sellers otherwise agree) such
Seller shall continue to be obligated to operate such portion of the
Assets, pursuant to and under the terms of such applicable agreement, until
such time after Closing as such applicable agreement is assigned or any
necessary consents to Buyers physically operating the Assets
are obtained, or such agreement otherwise requires. As of and after the
Closing, Buyers, including after Closing Santa Barbara Partners and Hallador
Production, shall physically operate any such Assets which any such Seller
continues to be obligated to operate on behalf of such Seller, and shall
indemnify and hold such Seller harmless from any damages or losses incurred
by such Seller resulting from Buyers', Santa Barbara Partners' or Hallador
Production's operations of such Assets. Notwithstanding anything to the
contrary in the foregoing, for periods after the Effective Date, Sellers
shall have no liability as operator to Buyers, for any operations by Sellers
under this Section 6.1, for loss or damages sustained, or liabilities
incurred, except as may result solely or directly from, and in no event shall
Buyers have any liability to Sellers resulting from, Sellers' gross
negligence or willful misconduct.
6.2 Casualty Loss. The risk of Casualty Loss relating to the Assets,
and the property of Santa Barbara Partners and Hallador Production shall be
borne by Sellers until the Closing Date, and Sellers shall retain all risk of
any change in the condition of the Assets, or the property of Santa Barbara
Partners and Hallador Production caused by a Casualty Loss from the Execution
Date until the Closing Date. In the event of any such change in condition of
the Assets, or the property of Santa Barbara Partners and Hallador Production
caused prior to the execution of this Agreement by a Casualty Loss, if Sellers
elect not to restore the changed Assets or property, such Assets or property
either, as is determined in the sole discretion of the Buyers: (i) shall be
deleted from this Agreement and the Purchase Price shall be adjusted in an
amount as is reasonably determined by Buyer to be the value of the changed
Assets or property; or (ii) shall continue to be included in this Agreement
and the insurance proceeds related to such Casualty Loss delivered to Buyers.
6.3 Successor Operator. Except to the extent that Hallador Production or
Santa Barbara Partners are the current operator of the Assets and remain
operator despite Buyers' acquisition of the Stock and the Trio Partnership
Interests, Buyers acknowledge and agree that Sellers cannot and do not
covenant or warrant that Buyers shall become successor operator of all or
any portion of the Assets, since the Assets or portions thereof may be
subject to unit, pooling, communitization, operating or other agreements
which control the appointment of a successor operator.
6.4 Hallador LLP Employees. Hallador LLP intends to terminate the
employment, as of the Closing Date, of each of the Hallador LLP employees
associated with the Sellers' operations in the Cuyama Valley, each of such
employees and their current hourly or annual salary (the "Base Pay") being
listed on Exhibit "O" hereto (each of such individuals listed on Exhibit
"O" being the "Cuyama Valley Hallador LLP Employees", except for David Dueck
or John Wilke each of whom shall be referred to as "Key Cuyama Valley
Hallador LLP Employees" and Melvin Kirschenmann, whom shall be referred to
as "Kirschenmann"). Sellers hereby grant the right, as determined in the
sole discretion of E&B, or any of its Affiliate of E&B, on or before the
Closing Date, for E&B, or an Affiliate of E&B, to make employment offers
to any of the Cuyama Valley Hallador LLP Employees or the Key Cuyama
Valley Hallador LLP Employees for employment by E&B, or an Affiliate of
E&B, on an "at will" basis, with no term or contract, as of the Closing
Date (an "Employment Offer"). Each of the Sellers agree, during the
period from the Execution Date until seven (7) days prior to the Closing
Date, to make each of the Cuyama Valley Hallador LLP Employees and the
Key Cuyama Valley Hallador LLP Employees available at the request of E&B
at Sellers' Cuyama Valley production offices for interviewing by E&B
and/or an Affiliate of E&B. No less than seven (7) days prior to the
Closing Date, E&B shall provide Hallador LLP with a list of employees
from Exhibit "O" to which E&B or an Affiliate of E&B intend to make
Employment Offers on the Closing Date. In the event that any of the
Employees listed on Exhibit "O" receive an Employment Offer and accept
such Employment Offer, then Hallador LLP agrees to terminate such
employee effective on the Closing Date.
6.4.1 The Closing Date Severance Obligation Adjustment. In the event
that E&B, or an Affiliate of E&B, fails to make an Employment Offer at the same
or higher Base Pay to any of the employees listed on Exhibit "O", E&B agrees
to increase the Purchase Price in the amount equal to: (i) two (2) months Base
Pay for each of the Cuyama Valley Hallador LLP Employees terminated by Hallador
LLP that was not made an Employment Offer, or that fails to accept an Employment
Offer that included base pay less than the Base Pay of such employee; and (ii)
twelve (12) months Base Pay for each of the Key Cuyama Valley Hallador LLP
Employees terminated by Hallador LLP that was not made an Employment Offer,
or that fails to accept an Employment Offer that included base pay less than
the Base Pay of such employee (the "Closing Date Severance Obligation
Adjustment").
6.4.2 The Post Closing Date Severance Obligation. Additionally, in
the event of an Employment Offer being made to, and acceptance of such offer by
an employee listed on Exhibit "O", and in the event of the termination for
any reason other than "for cause" or voluntary termination of the employment
relationship following employment pursuant to such offer by E&B, or an Affiliate
of E&B: (i) with regard to a Cuyama Valley Hallador LLP Employee, if so
terminated prior to November 30, 2004, E&B or an Affiliate of E&B, agrees to pay
such Cuyama Valley Hallador LLP Employee, two (2) months Base Pay less the
amount of salary paid to such Cuyama Valley Hallador LLP Employee as of the date
of such termination; or (ii) with regard to a Key Cuyama Valley Hallador LLP
Employee, if so terminated prior to September 30, 2005, E&B or an Affiliate of
E&B, agrees to pay such Key Cuyama Valley Hallador LLP Employee, twelve (12)
months Base Pay less the amount paid to such Key Cuyama Valley Hallador LLP
Employee as of the date of such termination (collectively any such amount due
being the "Post Closing Date Severance Obligation").
6.4.3 "For Cause". The term "for cause" as used in this Section 6.4
shall mean with regard to such employee: (i) fraud, embezzlement or
misappropriation of property of E&B or any Affiliate of E&B, (ii) failure to
follow any specific reasonable, lawful instructions of any officer of E&B,
(iii) conviction or plea of nolo contendere in respect of a felony or of a
misdemeanor involving moral turpitude, (iv) alcohol or substance abuse, or
(v) intentional, grossly negligent or willful misconduct that has a material
adverse effect on the property or business of E&B or an Affiliate of E&B.
6.4.4 Kirschenmann. With regard to Hallador LLP employee
Kirschenmann, it is understood by Buyers and Sellers that Kirschenmann will
not be offered employment with E&B, or an Affiliate of E&B, and the Buyers and
Sellers have agreed upon a payment to Sellers in the amount equal to six (6)
months of Kirschenmann's Base Pay as an increase in Purchase Price payable at
Closing pursuant to Section 3.2.2, in order to partially offset certain costs of
Sellers associated with the termination of such employee (the "Kirschenmann
Adjustment"). E&B, or an Affiliate of E&B, shall deliver the Kirschenmann
Adjustment, in exchange for delivery by Hallador LLP to E&B of a written
agreement in a form reasonably acceptable to E&B providing for the agreement
by Kirschenmann to (i) confidentiality with regard to all non-public and trade
secret information contained in or with regard to the Assets, Santa Barbara
Partners or Hallador Production for a period of no less than five (5) years;
and (ii) be reasonably available to E&B through Hallador LLP for a limited
amount of time during the ninety (90) day period after the Closing on an "as-
needed" basis and by telephone only in order to provide assistance post
Closing to E&B in transitioning the operation of the Assets, Santa Barbara
Partners and Hallador Production.
6.4.5 No Liability. Notwithstanding anything to the contrary which
may be contained in or to be interpreted from this Section 6.4, none of the
Buyers, nor any Affiliate of any of the Buyers shall in any manner have
assumed, or deemed to have assumed, any liability or obligation in any manner
associated with any of the employees listed on Exhibit "O" prior
relationship with any of the Sellers, or severance of their employment
therefrom, nor shall there be assumed or deemed assumption by Buyers or any
Affiliate of the Buyers in this Section 6.4 of any obligation to, or any
third party beneficiary rights with regard to, the employee listed on Exhibit
"O", this Section providing only for related obligations between Buyer and
Seller with regard to such issues and the orderly coordination of such
issues. Buyer shall have no obligation to employ, or obligation to enter
into any contract with any of the Cuyama Valley Hallador LLP Employees.
Section 7
SELLERS' REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of Hallador Sellers. Each of Hallador
Production, Hallador Petroleum, Hallador LLP and Santa Barbara Partners
(collectively the "Hallador Sellers"), jointly and severally, represents and
warrants to each of the Buyers as follows:
7.1.1 Ownership of Stock and Interests in Santa Barbara Partners.
7.1.1.1 The authorized capital stock of Hallador Production
consists of 200,000 shares of common stock, having a par value of $0.10 each,
of which 100,000 shares of common stock are issued and outstanding. All of
such issued and outstanding shares are validly issued, fully paid and
nonassessable. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments with
respect to the capital stock of any class of Hallador Production. All shares
of authorized capital stock of Hallador Production issued and outstanding
are held of record by Hallador Petroleum, free and clear of all Liens, and
constitute all of the Stock. The Stock will be transferred to Buyers free
and clear of all Liens. No shares of the Stock are subject to any
restriction with respect to their transferability (other than restrictions
on transfer under applicable Federal and state securities laws). There are
no outstanding or authorized options, warrants, subscriptions, calls, puts,
conversion rights, contracts, agreements, commitments or understandings of
any kind obligating any Hallador Seller to issue, sell, purchase, return,
redeem or pay any distribution or dividend with respect to the Stock.
7.1.1.2 The partnership interests in Santa Barbara Partners
consist of the Trio Partnership Interests and the partnership interests owned
by Hallador Production, making up in total 100% of the ownership interests of
Santa Barbara Partners. There are no outstanding subscriptions, options,
rights, warrants, convertible securities, or other agreements or commitments
with respect to the partnership interests of Santa Barbara Partners, except
for the preferential purchase rights of Trio Petroleum. Hallador
Production's partnership interests in Santa Barbara Partners are not subject
to any restriction with respect to their transferability (other than
restrictions on transfer under applicable Federal and state securities laws).
There are no outstanding or authorized options, warrants, subscriptions, calls,
puts, conversion rights, contracts, agreements, commitments or understandings
of any kind obligating Santa Barbara Partners to issue, sell, purchase, return,
redeem or pay any distribution with respect to any of the Santa Barbara
Partners partnership interests.
7.1.2 Organization. Each of the Hallador Sellers' entities is duly
organized, validly existing and in good standing under the laws of their state
of organization. Hallador Production is qualified to do business and is in good
standing in the State of California. Each of the Hallador Sellers' entities is
duly qualified as a foreign corporation, limited liability partnership or
partnership, as applicable, and is in good standing in all jurisdictions in
which the character of the properties and assets now owned or leased by it or
the nature of the business now conducted by it requires it to be so qualified.
Santa Barbara Partners and Hallador Production will deliver prior to Closing
to the Buyers true, complete and correct copies of their respective
organizational documents, minutes and resolutions.
7.1.3 No Subsidiaries or Other Ownership Interests. Hallador
Production does not own or control, directly or indirectly, shares of capital
stock, debt instruments or other securities of any corporation nor does Hallador
Production hold, directly or indirectly, any interest in any trust, partnership,
limited partnership, joint venture, business association, limited liability
company, unincorporated business, proprietorship, business enterprise or other
business entity whatsoever related to the State of California, other than Santa
Barbara Partners.
7.1.4 Authority. Each of the Hallador Sellers has the full corporate
and/or partnership power and authority to enter into, execute and deliver this
Agreement and the documents contemplated hereby to be executed by such Seller
and to perform the obligations to be performed by such Seller hereunder and
thereunder. The execution by the Hallador Sellers and the performance of their
obligations hereunder is not in violation of and has been approved in
accordance with the partnership agreement of Santa Barbara Partners (the
"Santa Barbara Partnership Agreement"). This Agreement and all documents
contemplated hereby to be executed by any of the Hallador Sellers have been
duly authorized by all necessary corporate and partnership action and duly
executed and delivered by such Seller and constitute the legal, valid and
binding obligations of such Seller, enforceable against it in accordance with
their respective terms. Each of the Hallador Sellers has all requisite power
and authority to own or lease and operate the Assets owned or leased or
operated by it (all of such assets being collectively the "Acquired Assets")
and to carry on its business as now conducted.
7.1.5 No Conflicts. The execution and delivery of this Agreement and
the documents contemplated hereby to be executed by each of the Hallador Sellers
do not, and compliance by such Seller with the terms hereof and thereof and
consummation by such Seller of the transactions contemplated hereby and thereby
will not, (a) materially violate or conflict with any existing material term or
provision of any law, statute, ordinance, rule, regulation, order, writ,
judgment, injunction or decree applicable to such Seller; (b) conflict with or
result in a breach of or default under any of the terms, conditions or
provisions of the articles or certificate of incorporation or partnership,
or bylaws or partnership agreement (or like governing document) of such Seller
or any agreement or instrument to which such Seller is a party or otherwise
subject, or by which such Seller may be bound, including, but not limited to,
the Santa Barbara Partnership Agreement; or (c) result in the creation or
imposition of any Lien upon the business or any of the Acquired Assets
or the Stock.
7.1.6 Litigation, Suits or Claims. There are no material actions,
claims, suits, investigations, inquiries or proceedings pending against any of
the Hallador Sellers or in rem against any of the Acquired Assets, or to the
knowledge of any of the Hallador Sellers threatened against any of the Hallador
Sellers, or in rem against any of the Acquired Assets, at law or in equity, in
any court, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or other instrumentality which
violation individually, or violations in the aggregate, has had or could have
could have a Material Adverse Effect: (i) on the validity or enforceability
of this Agreement or the documents contemplated hereby to be executed by each
of the Hallador Sellers, (ii) on the the Acquired Assets and the business of
Santa Barbara Partners and Hallador Production; (iii) by restricting the
continuing transaction of business with the customers of each of the Hallador
Sellers; (iv) by materially delaying consummation of the transactions
contemplated hereby or (v) by establishing a Lien against any of the
Acquired Assets in violation of any order, decree, judgment, award,
determination, ruling or regulation of any court, governmental department,
commission, board, bureau, agency or other instrumentality.
7.1.7 Financial Statements. Attached hereto as Exhibit "M" are
the Financial Statements. The Financial Statements include all matters with
respect to the ownership interest of Hallador Petroleum in Hallador
Production and Santa Barbara Partners, and include no change in the application
of accounting principles as such is fully certified in the Officer's
Certificates as provided for in Section 10.5. The Financial Statements and all
detailed schedules provided with respect thereto, including without limitation
schedules with respect to accounts payable, accounts receivable, accrued
liabilities, inventory, fixed assets, prepaid expenses and other assets
and liabilities, are true and correct in all material respects and, taken
as a whole, fairly present, as consolidated in the Financial Statements of
Hallador Petroleum in accordance with GAAP, consistently applied, the
financial position as of the dates indicated and the results of operations
for the periods then ended.
7.1.8 Absence of Certain Changes or Events. Since the Effective
Date, none of the following has occurred or arisen, as they relate to the
Hallador Sellers, that would create a Material Adverse Effect:
7.1.8.1 any change in, or any event, condition or state of
facts of any character peculiar to the Acquired Assets or the operation
of the business of the Santa Barbara Partners, that affect Santa Barbara
Partners or the Acquired Assets, or that impacts the validity or
enforceability of this Agreement;
7.1.8.2 any destruction, damage, or loss suffered by or with
respect to any of the Acquired Assets (whether or not covered by insurance);
7.1.8.3 any declaration, setting aside, or payment of a dividend
or other distribution or commitment, obligation or other agreement made with
any party with respect to the payment of any dividend or the making of any
distribution in respect of or any direct or indirect redemption, purchase,
or other acquisition of any of the Santa Barbara Partners partnership
interests owned of record by Hallador Production (except as may be
required to distribute proceeds received pursuant to this Agreement);
7.1.8.4 any sale, lease or other disposition of any Acquired
Asset;
7.1.8.5 any capital expenditure or series of capital
expenditures by Hallador Production or Santa Barbara Partners;
7.1.8.6 any mortgage, pledge, or other encumbrance of any
Acquired Asset;
7.1.8.7 any forgiveness of any debt by Hallador Production or
Santa Barbara Partners;
7.1.8.8 any amendment or termination of any contract, agreement,
or license that relates to any of the Assets to which any of the Hallador
Sellers is a party or to which any of the Acquired Assets are subject, except
in the ordinary course of business;
7.1.8.9 any breach of the terms of any contract or agreement by
any of the Hallador Sellers that is connected with the business of Santa Barbara
Partners;
7.1.8.10 any commencement, notice of commencement or threat of
commencement of any litigation or any governmental proceeding against or
investigation of any of the Hallador Sellers or the affairs of any of the
Hallador Sellers;
7.1.8.11 any sale by any of the Hallador Sellers of its
respective Santa Barbara Partners' partnership interest, or of the Stock, or
the issuance of any additional shares of capital stock of Hallador Production
or partnership interests in Santa Barbara Partners;
7.1.8.12 any waiver or release of any right or claim of Hallador
Production or Santa Barbara Partners;
7.1.8.13 any amendment to any national, federal, state,
municipal, local, foreign or other tax returns or reports that have been filed
by Santa Barbara Partners in any jurisdiction or by Hallador Petroleum with
regard to its ownership of Hallador Production;
7.1.8.14 any material transactions by Hallador Production or
Santa Barbara Partners with an affiliate or related party of Santa Barbara
Partners;
7.1.8.15 any material change in accounting methods or principles
applicable to the business of Santa Barbara Partners, Hallador Production or
affecting the Acquired Assets that would be required to be disclosed under GAAP;
7.1.8.16 any borrowing of funds, agreement to borrow funds or
guaranty affecting or relating to the Acquired Assets, or any termination or
amendment of any evidence of indebtedness, contract, agreement, deed,
mortgage,lease, license or other instrument to which Santa Barbara Partners
or Hallador Production (or any other Hallador Seller acting on behalf of
Santa Barbara Partners or Hallador Production) is bound or by which any of
the Acquired Assets is bound or to which any of the Acquired Assets is
subject other than in the ordinary course of business consistent with past
practices;
7.1.8.17 any entry into any commitment of any kind, or the
occurrence of any event giving rise to any contingent liability not covered
by the foregoing that would have a Material Adverse Effect on Santa Barbara
Partners or its business; or
7.1.8.18 any contract, commitment or agreement to do any of
the foregoing.
7.1.9 Accounts Receivable. Exhibit "E" sets forth an accurate list
of the accounts and notes receivable of Hallador LLP as related to each of
Santa Barbara Partners and Hallador Production outstanding as of the Execution
Date adjusted for timing differences, collections, etc., including an accurate
aging of all such accounts and notes receivable due in 30-day aging categories
from and advances to Santa Barbara Partners and Hallador Production. The
accounts and notes receivable of each of the Santa Barbara Partners and
Hallador Production reflected in the Financial Statements, in Exhibit "E",
and all accounts and notes receivable arising thereafter and on or before
the Closing Date arose from bona fide transactions in the ordinary course
of Business. The trade and other accounts and notes receivable of each of
Santa Barbara Partners and Hallador Production constituting current assets
and reflected in the Financial Statements and/or set forth in Exhibit "E"
are bona fide receivables and are stated in accordance with GAAP. To the
knowledge of the Hallador Sellers, no counterclaims or offsetting claims
with respect to such accounts receivable are pending or threatened. All
accounts receivable due from or associated with any of the Sellers or any
Affiliate of any of the Sellers are identified on Exhibit "E" and shall be
paid, forgiven or otherwise cleared by Sellers prior to the Closing.
7.1.10 Accounts Payable. Prior to the Closing, the Hallador
Sellers shall provide Buyers with an accurate list of all accounts payable
of each of Santa Barbara Partners and Hallador Production outstanding as of
the Execution Date. All of the accounts payable of each of Santa Barbara
Partners and Hallador Production arose from bona fide transactions in the
ordinary course of business and will be stated in accordance with GAAP.
Such accounts payable (i) have either been paid, (ii) are not yet due and
payable under the standard procedures for payment of accounts payable, or
(iii) are being contested by Santa Barbara Partners or Hallador Production
in good faith, details of which have been provided to the Buyers. All
accounts payable due to or associated with any of the Sellers or any
Affiliate of any of the Sellers are identified on Exhibit "E" and shall
be paid, forgiven or otherwise cleared by Sellers prior to the Closing.
7.1.11 Inventories. As of the Closing Date, the inventory of
each of Santa Barbara Partners and Hallador Production consist of oil and
gas product saleable in the ordinary course of business of Santa Barbara
Partners or Hallador Production, as applicable, and spare part inventory in
support of oil and gas operations, and the inventories are not excessive in
kind or amount in light of such business. All inventories are carried on
the books of Santa Barbara Partners or Hallador Production, as applicable,
at the lower of cost or fair market value pursuant to the normal inventory
valuation policy of Santa Barbara Partners or Hallador Production, as
applicable. No items included in the inventories of Santa Barbara Partners
or Hallador Production are or will be pledged as collateral or are held by
Santa Barbara Partners or Hallador Production on consignment from others.
Neither Hallador Production nor Santa Barbara Partners is committed as of
the date hereof, and will not be committed as of the Closing Date, to purchase
inventories in amounts greater than are required in the ordinary course of its
business.
7.1.12 Employees. Exhibit "O" lists all of the Cuyama Field
Hallador LLP Employees, all of which are employed by Hallador LLP, each
of their dates of hire and their rates of Base Pay as they exist on the
Execution Date and shall exist on the Closing Date, except for such employees
that have resigned or otherwise terminated their employment with Hallador LLP
prior to the Closing Date. Except as set forth on such Exhibit "O", there are
no Persons employed by any of the Hallador Sellers to operate or maintain the
Acquired Assets. None of the Hallador Sellers has made, or will through the
Closing Date make, any statement or communication of any kind regarding
whether, or the terms and conditions upon which, any employee may be employed
by Buyers, except as approved by Buyers. Neither Hallador Production nor
Santa Barbara Partners presently has, nor ever had, full-time or part-time
employees.
7.1.13 Customary Business Practice. Neither Santa Barbara Partners
nor Hallador Production has conducted or maintained any business practices or
relationships in any manner other than is customary or standard in the industry,
and there are no special relationships with any suppliers or customers that are
inconsistent with customary and standard practice in the industry.
7.1.14 Prepayments. Neither Hallador Production nor Santa Barbara
Partners is obligated by virtue of any prepayment made under any production
sales contract or any other contract containing a take-or-pay clause, or under
any similar arrangement, to deliver oil, gas or other minerals produced from
or allocated to any of the Acquired Assets at any time after the Effective Date
without receiving full payment therefor in the ordinary course of business.
7.1.15 No Breach. Hallador Sellers are not party to, or subject to,
or bound by any provision of any judgment, order, writ, injunction or decree of
any court, or governmental body, or any statute, rule or regulation applicable
to Hallador Sellers which prohibits or would be violated by, or which allows
for the termination or modification of this Agreement due to Hallador Sellers
entering into, executing, delivering or consummating same.
7.1.16 Regulatory Filings. Each of the Hallador Sellers has
filed all material reports, statements, documents, registrations, filings
or submissions required, in connection with the operation of its business as
it relates to Hallador Production, Santa Barbara Partners or the Acquired
Assets. No material deficiencies have been asserted in writing by any
Governmental Body with respect to such filings or submissions.
7.1.17 Compliance with Laws and Agreements. Excluding Environmental
Laws, which are covered by Section 5 above, to the knowledge of each of the
Hallador Sellers, both Santa Barbara Partners and Hallador Production are in
Material compliance with all material permits, contracts and agreements
relating to the Acquired Assets, and in material compliance with all laws,
rules and regulations of federal, state or local entities which have
jurisdiction over Santa Barbara Partners, Hallador Production or the Acquired
Assets.
7.1.18 Patents, Trademarks and Copyrights. Neither Santa Barbara
Partners nor Hallador Production owns, nor has issued a license or sublicense
of, any patents, trademarks, copyrights or other intellectual property rights
except for (i) the corporate and partnership names of such Seller; (ii) those
rights that are incorporated by the manufacturers into the Acquired Assets,
without granting Santa Barbara Partners or Hallador Production any specified
rights therein; and (iii) software license agreements and related contracts,
pursuant to which the payment of all costs, fees and royalties have been duly
and timely paid by Santa Barbara Partners or Hallador Production, as applicable,
and neither Santa Barbara Partners nor Hallador Production, as applicable, is
in breach thereof, or has defaulted thereunder. None of the Hallador Sellers
has received any written notice that the operation of Santa Barbara Partners,
Hallador Production or any of the Acquired Assets is in conflict with the rights
of others.
7.1.19 Insurance. Exhibit "F" sets forth a true, complete and
correct list of all insurance policies of any kind or nature covering Santa
Barbara Partners and Hallador Production with respect to their respective
businesses and the Acquired Assets, including, without limitation, policies
of life, fire, theft, property and other casualty and liability insurance,
and indicates the type of coverage. Exhibit "F" also sets forth a list of
any currently pending claims and any claims asserted under such policies or
similar policies within the last three (3) years. The premiums for the
insurance policies listed in Exhibit "F" have been fully paid as they become
due. The insurance afforded under such policies or certificates is in full
force and effect and will continue to cover Santa Barbara Partners and
Hallador Production with respect to their respective businesses, and the
Acquired Assets through the Closing. True, complete and correct copies of
each such policy have been made available to Buyers to the extent in the
possession of Hallador Sellers (and to the extent not in Hallador Sellers'
possession and requested by Buyers, Hallador Sellers shall make good faith
efforts to obtain such a copy as soon as possible). To the knowledge of the
Hallador Sellers, none of such insurance policies is subject to retroactive
premium adjustment in respect of prior periods.
7.1.20 Tax Returns and Reports. All Tax Returns of Santa
Barbara Partners (the "Santa Barbara Tax Returns") and the Tax Returns
of Hallador Production as included in the Tax Returns of Hallador
Petroleum (the "Hallador Petroleum Tax Returns") have been timely filed
(including pursuant to extensions) with the appropriate Governmental
Body in all jurisdictions in which such returns and reports are required
to be filed, and all such returns and reports properly reflect the Taxes
of Santa Barbara Partners for the periods covered thereby. All Taxes as
due by the Santa Barbara Partner's Tax Returns, or which are due or are
claimed to be due with respect to the periods covered thereby, from each
of the Hallador Sellers, have been properly accrued or paid. None of
the Hallador Sellers has received any notice of assessment or proposed
assessment by the Internal Revenue Service ("IRS") or any other taxing
authority in connection with any Santa Barbara Tax Returns or Hallador
Petroleum Tax Returns and, to the knowledge of the Hallador Sellers,
there are no pending tax examinations of any Santa Barbara Tax Returns
or Hallador Petroleum Tax Returns, or tax claims in respect of the
Santa Barbara Tax Returns or Hallador Petroleum Tax Returns asserted
against any of the Hallador Sellers or their respective properties.
There are no tax liens on any of the Acquired Assets except for Liens
for current taxes not yet due and payable. To the knowledge of the
Hallador Sellers, there is no basis for any additional assessment of
any Taxes, penalties or interest with respect to any of the Hallador
Sellers which would impact the Acquired Assets. Santa Barbara
Partners has not waived any law or regulation fixing, or consented to
the extension of, any period of time for assessment of any Taxes
which waiver or consent is currently in effect. All Taxes required
to be paid by any of the Hallador Sellers with respect to or related
to Santa Barbara Partners, Hallador Production or the Acquired
Assets (whether or not shown on the Santa Barbara Tax Returns or
Hallador Petroleum Tax Returns) or for which Santa Barbara Partners
or Hallador Production is liable, whether to taxing authorities or
to other Persons under tax allocation agreements, are reflected on
the books of the Hallador Sellers, as applicable (including without
limitation the Financial Statements) and reserves for such Taxes
are adequate in the aggregate to cover such Taxes to the extent
such could impact the Acquired Assets. All ad valorem, property,
production, severance and similar taxes and assessments based on or
measured by the ownership of property or the production or removal
of hydrocarbons or the receipt of proceeds therefrom and relating
to the Acquired Assets, to the extent such taxes and assessments
have become due and payable, as well as all permit fees and other
annual assessments of any Government Authority have been timely
paid.
7.1.21 Brokers. None of the Hallador Sellers has incurred any
obligations or liability, contingent or otherwise, for any fee payable to a
broker or finder with respect to the matters provided for in this Agreement
which could be attributable to Buyers.
7.1.22 Assignment Prior to Closing. None of the Hallador Sellers
has since the Effective Date made any assignment or conveyance, or otherwise
encumbered the Acquired Assets, Hallador Production's partnership interest in
Santa Barbara Partners or the Stock, other than to the extent otherwise
provided for pursuant to this Agreement.
7.1.23 Ownership, Title and Condition of Equipment. The personal
property which is included in the Acquired Assets is suitable for the
purposes for which it has been and is being employed in the operation of the
business of each of the Hallador Sellers and is in good operating condition
and repair, normal wear and tear excepted. Exhibit "H" lists all material
leases, operating agreements, maintenance agreements, management agreements,
mortgages and other documents or agreements applicable to the Acquired
Assets, or binding on Santa Barbara Partners or Hallador Production, and
copies of each such document have been made available to Buyers. Each such
contract is in full force and effect, and no written notice of cancellation
or termination or default has been received by any of the Hallador Sellers.
Except as otherwise set forth in writing to Buyers or otherwise provided
pursuant to this Agreement, the transfer contemplated hereby will not affect
the validity or enforceability of such contracts. As to each lease or
license included in such contracts, such lease or license is in full force
and effect, no notice of cancellation or termination under any option or
right reserved to the lessor or licensor under such lease or license or
notice of default has been received by any of the Hallador Sellers. None of
the Hallador Sellers has assigned its interest under any such lease or
license or subleased the premises demised thereby or sublicensed the right or
license granted thereby. Except as set forth in Exhibit "H," each of the
Hallador Sellers has the right to transfer all of its right, title and
interest in the leases and licenses included in the Acquired Assets, without
any consent, and the transfer contemplated hereby will not affect their
validity or enforceability. There are no actual, pending or, to Seller's
knowledge, threatened claims against the any of the Hallador Sellers or the
Acquired Assets that could give rise to a Lien (other than Liens that would
be covered by valid and collectible insurance, including applicable
deductibles), or acts or incidents which could give rise to any such claims,
relating to or arising out of the Acquired Assets. All of the Acquired
Assets are owned or leased by the Hallador Sellers and not by any affiliate
of the Hallador Sellers or by any other party, or the Hallador Sellers
otherwise have the full right to use such Acquired Assets as they are
presently being used. None of the Hallador Sellers knows of any claim
related to their respective Oil and Gas Properties which would limit free and
uninterrupted access to and from a dedicated public right-of-way by reason of
the fact that such parcel either fails to adjoins dedicated public right-of-
way or connects to such right-of-way through a valid and subsisting easement.
5.1.22 Other Property. None of the Hallador Sellers, nor any
Affiliate of Hallador Sellers, operates or has any ownership interest in any
gathering system, compression facilities or salt water disposal facilities
that are presently being used or employed in connection with the Acquired
Assets and are being billed as a direct charge which is not included in the
Acquired Assets.
7.1.25 Tanks Gauged. The product storage tanks for the Acquired
Assets were gauged at approximately 12:01 a.m. (local time) on the Effective
Date, and the gauge reports are available to Buyers.
7.1.26 Securities Laws. Each of the Hallador Sellers has complied
with all applicable federal and state laws with regard to the offer and sale
of Hallador Production's partnership interest in Santa Barbara Partners, the
Stock and the Acquired Assets and notice to shareholders as required thereby,
including but not limited to all notice and approval requirements applicable
to Hallador Petroleum as a publicly traded entity, to the extent required to
consummate the transaction contemplated by this Agreement.
7.1.27 Disclaimer of Warranties. EXCEPT AS SPECIFICALLY WARRANTED
HEREIN, THE ASSETS ARE SOLD "AS IS," "WHERE IS" AND "WITH ALL FAULTS AS TO
ALL MATTERS," AND EACH OF THE HALLADOR SELLERS EXPRESSLY DISCLAIMS AND
NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY
STATUTE, OR OTHERWISE RELATING TO (a) THE CONDITIONS OF THE ASSETS
(INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS), (b) ANY INFRINGEMENT BY ANY OF THE HALLADOR
SELLERS OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, (c) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYERS BY
OR ON BEHALF OF ANY OF THE HALLADOR SELLERS (INCLUDING WITHOUT LIMITATION, IN
RESPECT OF GEOLOGICAL AND ENGINEERING DATA, THE EXISTENCE OR EXTENT OF OIL,
GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF
RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING
ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION AFTER CLOSING),
AND (d) THE ENVIRONMENTAL CONDITION AND OTHER CONDITION OF THE ASSETS AND ANY
POTENTIAL LIABILITY ARISING FROM OR RELATED TO THE ASSETS.
7.2 Representations and Warranties of Trio Sellers. Each of
Trio Petroleum, Cuyama Drilling and South Cuyama Limited (collectively the
"Trio Sellers"), jointly and severally, represents and warrants to each of
the Buyers as follows:
7.2.1 Ownership of Trio Partnership Interests. The
partnership interests in Santa Barbara Partners consist of the Trio
Partnership Interests and the partnership interests owned by Hallador
Production, making up in total 100% of the ownership interests of Santa
Barbara Partners. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments with
respect to the partnership interests of Santa Barbara Partners, except for
the preferential purchase rights held by Trio Petroleum which have been
waived by Trio Petroleum pursuant to Section 4.4. The Trio Partnership
Interests are owned of record by Trio Petroleum, and will be transferred to
E&B free and clear of all Liens. The Trio Partnership Interests are not
subject to any restriction with respect to their transferability (other than
restrictions on transfer under applicable Federal and state securities laws).
There are no outstanding or authorized options, warrants, subscriptions,
calls, puts, conversion rights, contracts, agreements, commitments or
understandings of any kind obligating Santa Barbara Partners to issue, sell,
purchase, return, redeem or pay any distribution with respect to any of the
Santa Barbara Partners partnership interests, except for the preferential
purchase rights held by Trio Petroleum.
7.2.2 Organization. Each of the Trio Sellers' entities is duly
organized, validly existing and in good standing under the laws of their
state of organization and is qualified to do business and is in good standing
in the State of California. Each of the Trio Sellers' entities is duly
qualified as a foreign corporation or limited partnership and is in good
standing in all jurisdictions in which the character of the properties and
assets now owned or leased by it or the nature of the business now conducted
by it requires it to be so qualified.
7.2.3 Authority. Each of the Trio Sellers has the full
corporate and/or partnership power and authority to enter into, execute and
deliver this Agreement and the documents contemplated hereby to be executed
by such Seller and to perform the obligations to be performed by such Seller
hereunder and thereunder. The execution by the Trio Sellers and the
performance of their obligations hereunder is not in violation of and has
been approved in accordance with the Santa Barbara Partners Agreement. This
Agreement and all of the documents contemplated hereby to be executed by any
of the Trio Sellers have been duly authorized by all necessary corporate and
partnership action and duly executed and delivered by such Seller and
constitute the legal, valid and binding obligations of such Seller,
enforceable against each such Seller in accordance with its terms. Each of
the Trio Sellers has all requisite power and authority to own or lease and
operate those Assets that are owned, leased or operated by such Seller
(collectively, the "Trio Assets").
7.2.4 No Conflicts. The execution and delivery of this
Agreement and the documents contemplated hereby to be executed by each of the
Trio Sellers do not, and compliance such Trio Sellers with the terms hereof
and thereof and consummation by each of the Trio Sellers of the transactions
contemplated hereby and thereby will not, (a) materially violate or conflict
with any existing material term or provision of any law, statute, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to
each of the Trio Sellers; (b) conflict with or result in a breach of or
default under any of the terms, conditions or provisions of the articles or
certificate of incorporation or partnership, or bylaws or partnership
agreement (or like governing document) of each of the Trio Sellers or any
agreement or instrument to which each of the Trio Sellers is a party or
otherwise subject, or by which each of the Trio Sellers may be bound,
including, but not limited to, the Santa Barbara Partnership Agreement; or
(c) result in the creation or imposition of any Lien upon the Trio
Partnership Interests or the Trio Assets.
7.2.5 Litigation, Suits or Claims. There are no material
actions, claims, suits, investigations, inquiries or proceedings pending
against any of the Trio Sellers or in rem against any of the Trio Assets, or
to the knowledge of the Trio Sellers, threatened against any of the Trio
Sellers, or in rem against any of the Trio Assets, at law or in equity, in
any court, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality which has had or could have could have a Material Adverse
Effect: (i) on the validity or enforceability of this Agreement or the
documents contemplated hereby to be executed by each of the Trio Sellers,
(ii) on the Trio Assets; (iii) by materially delaying consummation of the
transactions contemplated hereby, or (iv) by establishing a Lien against the
Trio Partnership Interest or any of the Trio Assets in violation of any
order, decree, judgment, award, determination, ruling or regulation of any
court, governmental department, commission, board, bureau, agency or other
instrumentality.
7.2.6 Absence of Certain Changes or Events. Since the
Effective Date, none of the following has occurred or arisen, as they relate
to the Trio Sellers, that would create a Material Adverse Effect:
7.2.6.1 any change in, or any event, condition or state
of facts of any character peculiar to the Trio Assets or the operation of the
business of the Santa Barbara Partners, that affect Santa Barbara Partners
or the Trio Assets, or that impacts the validity or enforceability of this
Agreement;
7.2.6.2 any destruction, damage, or loss suffered by or
with respect to any of the Trio Assets (whether or not covered by insurance);
7.2.6.3 any declaration, setting aside, or payment of a
dividend or other distribution or commitment, obligation or other agreement
made with any party with respect to the payment of any dividend or the making
of any distribution in respect of or any direct or indirect redemption,
purchase, or other acquisition of the Trio Partnership Interests (except as
may be required to distribute proceeds received pursuant to this Agreement);
7.2.6.4 any sale, lease or other disposition of any
Trio Asset;
7.2.6.5 any mortgage, pledge, or other encumbrance of
any Trio Asset;
7.2.6.6 any amendment or termination of any contract,
agreement, or license that relates to any of the Assets to which any of the
Trio Sellers is a party or to which any of the Trio Assets are subject,
except in the ordinary course of business;
7.2.6.7 any breach of the terms of any contract or
agreement by any of the Trio Sellers that is connected with the business of
Santa Barbara Partners;
7.2.6.8 any commencement, notice of commencement or
threat of commencement of any litigation or any governmental proceeding
against or investigation of any of the Trio Sellers or the affairs of any of
the Trio Sellers;
7.2.6.9 any sale by any of the Trio Sellers of the
Trio Partnership Interests, or any commitment, obligation or agreement to do
so;
7.2.6.10 any waiver or release of any right or claim
of any of the Trio Sellers with respect to the Trio Assets or the Trio
Partnership Interests;
7.2.6.11 any material transactions by any of the Trio
Sellers with an affiliate or related party of Santa Barbara Partners;
7.2.6.12 any borrowing of funds, agreement to borrow funds
or guaranty affecting or relating to the Trio Assets, or any termination or
amendment of any evidence of indebtedness, contract, agreement, deed,
mortgage, lease, license or other instrument by which any of the Trio Assets
is bound or to which any of the Trio Assets is subject other than in the
ordinary course of business consistent with past practices; or
7.2.6.13 any contract, commitment or agreement to do
any of the foregoing.
7.2.7 No Breach. Trio Sellers are not party to, or subject to,
or bound by any provision of any judgment, order, writ, injunction or decree
of any court, or governmental body, or any statute, rule or regulation
applicable to Trio Sellers which prohibits or would be violated by, or which
allows for the termination or modification of this Agreement due to Trio
Sellers entering into, executing, delivering or consummating same.
7.2.8 Regulatory Filings. Each of the Trio Sellers has filed all
material reports, statements, documents, registrations, filings or
submissions required, in connection with the operation of its business as it
relates to Santa Barbara Partners or the Trio Assets. No material
deficiencies have been asserted in writing by any Governmental Body with
respect to such filings or submissions.
7.2.9 Compliance with Laws and Agreements. Excluding
Environmental Laws, which are covered by Section 5 above, to the knowledge of
each of the Trio Sellers, Santa Barbara Partners is in material compliance
with all material permits, contracts and agreements relating to its assets,
and in material compliance with all laws, rules and regulations of federal,
state or local entities which have jurisdiction over Santa Barbara Partners.
7.2.10 Brokers. None of the Trio Sellers has incurred any
obligations or liability, contingent or otherwise, for any fee payable to a
broker or finder with respect to the matters provided for in this Agreement
which could be attributable to Buyers.
7.2.11 Assignment Prior to Closing. None of the Trio Sellers has
since the Effective Date made any assignment or conveyance, or otherwise
encumbered the Trio Assets or the Trio Partnership Interests, other than to
the extent otherwise provided for pursuant to this Agreement.
7.2.12 Ownership, Title and Condition of Equipment. The personal
property which is included in the Trio Assets is suitable for the purposes
for which it has been and is being employed and is in good operating
condition and repair, normal wear and tear excepted. Exhibit "H" lists all
material leases, operating agreements, maintenance agreements, management
agreements, mortgages and other documents or agreements applicable to the
Trio Assets, and copies of each such document have been made available to
Buyers. Each such contract is in full force and effect, and no written
notice of cancellation or termination or default has been received by any of
the Trio Sellers. Except as otherwise set forth in writing to Buyers or
otherwise provided pursuant to this Agreement, the transfer contemplated
hereby will not affect the validity or enforceability of such contracts. As
to each lease or license included in such contracts, such lease or license is
in full force and effect, no notice of cancellation or termination under any
option or right reserved to the lessor or licensor under such lease or
license or notice of default has been received by any of the Trio Sellers.
None of the Trio Sellers has assigned its interest under any such lease or
license or subleased the premises demised thereby or sublicensed the right or
license granted thereby. Except as set forth in Exhibit "H," each of the
Trio Sellers has the right to transfer all of its right, title and interest
in the leases and licenses included in the Trio Assets, without any consent,
and the transfer contemplated hereby will not affect their validity or
enforceability. There are no actual, pending or, to Seller's knowledge,
threatened claims against the any of the Trio Sellers or the Trio Assets that
could give rise to a Lien (other than Liens that would be covered by valid
and collectible insurance, including applicable deductibles), or acts or
incidents which could give rise to any such claims, relating to or arising
out of the Trio Assets. None of the Trio Sellers knows of any claim related
to their respective Oil and Gas Properties which would limit free and
uninterrupted access to and from a dedicated public right-of-way by reason of
the fact that such parcel either fails to adjoins dedicated public right-of-
way or connects to such right-of-way through a valid and subsisting easement.
7.2.13 Other Property. None of the Trio Sellers, nor any
Affiliate of Trio Sellers, operates or has any ownership interest in any
gathering system, compression facilities or salt water disposal facilities
presently being used or employed in connection with the Trio Assets and being
billed as a direct charge which is not included in the Trio Assets.
7.2.14 Securities Laws. Each of the Trio Sellers has complied
with all applicable federal and state laws with regard to offer and sale of
securities and notice to shareholders as required thereby to the extent
required to consummate the sale of the Trio Partnership Interests as
contemplated by this Agreement.
7.2.15 Disclaimer of Warranties. EXCEPT AS SPECIFICALLY WARRANTED
HEREIN, THE ASSETS ARE SOLD "AS IS," "WHERE IS" AND "WITH ALL FAULTS AS TO
ALL MATTERS," AND EACH OF THE TRIO SELLERS EXPRESSLY DISCLAIMS AND NEGATES
ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE,
OR OTHERWISE RELATING TO (a) THE CONDITIONS OF THE ASSETS (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF FITNESS
FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS), (b) ANY INFRINGEMENT BY ANY OF THE TRIO SELLERS OF ANY PATENT OR
PROPRIETARY RIGHT OF ANY THIRD PARTY, (c) ANY INFORMATION, DATA OR OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYERS BY OR ON BEHALF OF ANY OF THE
TRIO SELLERS (INCLUDING WITHOUT LIMITATION, IN RESPECT OF GEOLOGICAL AND
ENGINEERING DATA, THE EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL
RESERVES, THE RECOVERABILITY OF OR THE COST OF RECOVERING ANY SUCH RESERVES,
THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, AND THE ABILITY
TO SELL OIL OR GAS PRODUCTION AFTER CLOSING), AND (d) THE ENVIRONMENTAL
CONDITION AND OTHER CONDITION OF THE ASSETS AND ANY POTENTIAL LIABILITY
ARISING FROM OR RELATED TO THE ASSETS.
7.3 Several Representations and Warranties and Related Obligations. It
is expressly understood that the representations and warranties provided in
Section 7.1 by the Hallador Sellers, and in Section 7.2 by the Trio Sellers,
are several in nature, given separately by each of the respective groups and
in no manner shall breach of such representations and warranties by one group
cause liability to the other group.
SECTION 8
REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers hereby represent and warrant to Sellers as follows:
8.1 Organization.
8.1.1 Each of the Buyers are entities duly organized, validly
existing and in good standing under the laws of the state wherein it was
incorporated or organized, and is qualified to do business and is in good
standing in every other jurisdiction where the failure to so qualify would
have a Material Adverse Effect on Buyers or otherwise interfere with or delay
completion of the transactions contemplated by this Agreement.
8.1.2 Buyers are authorized to do business in the State of
California and are in good standing with the State of California.
8.1.3 Prior to the date of this Agreement, Buyers will have
delivered prior to Closing, to Sellers, true, correct and complete copies of
Buyers' Certificates or Articles of Incorporation and Bylaws and Certificates
of Good-Standing, and Certificate of Limited Partnership and Limited
Partnership Agreement, as currently in effect.
8.1.4 Each of the Buyers' headquarters and principal offices is
located either in the State of California or the State of New York.
8.2 Authority; Enforceability.
8.2.1 Buyers have all requisite corporate and partnership power
and authority to enter into and perform its obligations under this Agreement
and to carry out the transactions contemplated hereby.
8.2.2 All corporate and partnership acts and other proceedings
required to be taken by Buyers to authorize the execution, delivery and
performance by Buyers of this Agreement, have been duly and properly taken.
8.2.3 This Agreement and any other agreements, documents,
certificates or other deliverables have been duly executed and delivered by
Buyers and each such item constitutes the legal, valid and binding obligation
of Buyers, enforceable against Buyers in accordance with its terms.
8.2.4 The execution, delivery and performance of this Agreement by
Buyers and any other agreements, documents, certificates or other
deliverables executed in connection with this Agreement by Buyers and the
consummation by Buyers of the transactions contemplated by this Agreement and
each such item does not and will not conflict with, or result in any material
violation of or default under any provision of the Certificates or Articles
of Incorporation, Bylaws, Certificate of Limited Partnership and Limited
Partnership Agreement or any other governing or organizational documents of
Buyers, or any law, ordinance, rule, regulation, judgment, order, decree,
agreement, instrument or license applicable to Buyers or to its properties or
assets.
8.3 Consents. Except for the consents of any Governmental Body
regarding the transfer of leases, licenses and Permits which apply to the
Assets, no consent, approval, authorization, notice, filing, registration or
qualification is required to be obtained or effected by Buyers for the
execution, delivery or performance by Buyers of this Agreement or completion
by Buyers of the transactions contemplated herein or in any other agreement,
document, Certificate or other deliverable contemplated hereby.
8.4 Litigation, Suits or Claims. There are no actions, suits or
proceedings pending or threatened in writing against Buyers which if decided
unfavorably to Buyers could have a Material Adverse Effect on the Buyers'
ability to consummate the transactions as contemplated herein.
8.5 No Breach. Buyers are not party to, or subject to, or bound by
any provision of any judgment, order, writ, injunction or decree of any
court, or governmental body, or any statute, rule or regulation applicable to
Buyers which prohibits or would be violated by, or which allows for the
termination or modification of this Agreement due to Buyers entering into,
executing, delivering or consummating same.
8.6 Investment Intent; Blue Sky. E&B is acquiring the Stock and the
Trio Partnership Interests for investment for their own account, not as a
nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof. Each of the Buyers understand that the Stock and
the Trio Partnership Interests have not been, and will not be, registered
under the Securities Act of 1933, as amended (the "Act") by reason of a
specific exemption from the registration provisions of the Act, the
availability of which depends upon, among other things, the bona fide nature
of E&B's investment intent and the accuracy of the Buyers' representations as
expressed herein. E&B's address set forth herein represents the Buyers' true
and correct state of domicile, upon which the Sellers may rely for the
purpose of complying with applicable "blue sky" laws.
8.7 Rule 144. The Buyers acknowledge that the Stock and the Trio
Partnership Interests must be held indefinitely unless subsequently
registered under the Act or unless an exemption from such registration is
available. The Buyers are aware of the provisions of Rule 144 promulgated
under the Act which permit the limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions,
including, among other things, the existence of a public market for such
securities, the availability of certain current public information about the
issuers of such securities, the resale occurring not less than 1 year after a
party has purchased and paid for the securities sold, the sale being effected
through a "brokers transaction" or in a transaction directly with a "market
maker," and the number of shares being sold during any 3 month period not
exceeding limitations specified in Rule 144.
8.8 No Public Market. The Buyers understand that no public market
now exists for any of the securities of the issuers and that the issuers have
made no assurances that a public market will ever exist for the issuers'
securities.
8.9 Restrictions on Transfer, Restrictive Legends. The Buyers
understand that the transfer of the Stock and the Trio Partnership Interests
is restricted by applicable state and federal securities laws.
8.10 Access to Information. The Buyers and their legal and accounting
representatives will during Due Diligence conduct extensive due diligence
with respect to the Stock and the Trio Partnership Interests, and will have
an opportunity to discuss the issuers' business, management and financial
affairs with management and have had the opportunity to review the Financial
Statements, will be provided access to all other information about the
issuers they deemed necessary in connection with the purchase of the Stock
and the Trio Partnership Interests and an opportunity to obtain any
additional information they deem necessary to verify the accuracy of such
information furnished to them or to which they had access. The Buyers will
be provided an opportunity to ask questions of officers of the issuers, which
questions, if asked, will be answered to the Buyers' satisfaction. The
Buyers understand that such discussions, as well as any written information
issued by the issuers, are intended to describe certain aspects of the
issuers' business and prospects and are not a thorough or exhaustive
description of the issuers.
8.11 Investment Experience. The Buyers understand that the purchase of
the Stock and the Trio Partnership Interests involves substantial risk. The
Buyers (a) have experience as investors in securities of companies in the oil
and gas industry and acknowledge that the Buyers are able to fend for
themselves, can bear the economic risk of the Buyers' investment in the Stock
and the Trio Partnership Interests and have such knowledge and experience in
financial or business matters that the Buyers are capable of evaluating the
merits and risks of this investment in the Stock and the Trio Partnership
Interests and protecting their own interests in connection with this
investment, and/or (b) has a pre-existing personal or business relationship
with the issuers and certain of their officers, directors or controlling
persons of a nature and duration that enables the Buyers to be aware of the
character, business acumen and financial circumstances of such Persons.
8.12 Accredited Investor. Each of the Buyers is an "accredited
investor" as defined by Rule 501(a) of Regulation D under the Act.
8.13 Further Representations by Foreign Investors. If a Buyer is not a
United States Person, such Buyer represents that it has satisfied itself as
to the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock and the Trio Partnership Interests or
any use of this Agreement, including (i) the legal requirements within his
jurisdiction for the purchase of the Stock and the Trio Partnership
Interests, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if any, that
may be relevant to the purchase, holding, redemption, sale, or transfer of a
Buyer. Such Buyer's subscription and payment for, and his or her continued
beneficial ownership of the Stock and the Trio Partnership Interests, will
not violate any applicable securities or other laws.
8.14 Federal Leases. Buyers are qualified to hold federal leases and
will be so qualified at Closing.
8.15 Brokers. Buyers have not incurred any obligations or liability,
contingent or otherwise, for any fee payable to a broker or finder with
respect to the matters provided for in this Agreement which could be
attributable to Sellers.
SECTION 9
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
The obligation of Sellers to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment at Closing of each of the
following conditions, each of which may be waived by Sellers except as
otherwise required by law:
9.1 Purchase Price. At Closing, Buyers shall deliver the Adjusted
Purchase Price to Sellers in accordance with Section 3 hereof.
9.2 Buyers' Representations and Warranties True. The representations
and warranties of Buyers contained herein on the date hereof shall have been
correct in all material respects when made, and shall be correct in all
material respects on and as of the Closing with the same force and effect as
though made at and as of such time, except for the representations and
warranties specifically relating to a time or times other than the Closing,
or as may be affected by transactions contemplated hereby.
9.3 Officer's Certificate. Buyers shall deliver to Sellers the
following:
9.3.1 A certificate of an officer of Buyers or managing partner of
Buyers certifying that:
(i) the representations and warranties of
Buyers contained in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same force and effect as
though made at and as of such time, except for representations and warranties
specifically relating to a time or times other than the Closing Date, or
except as may be affected by the transactions contemplated hereby;
(ii) acknowledging that Buyers have had
an opportunity to and have conducted their due diligence investigation of the
Assets, Santa Barbara Partners and Hallador Production to their satisfaction,
and are not aware of any misrepresentation, omission or misstatement by any
of the Sellers in this Agreement or the Exhibits or Schedules hereto; and
(iii) Buyers have performed all of their
obligations contained in this Agreement required to be performed by them
prior to Closing.
9.4 Pre-Closing Performance. Buyers shall have performed, observed or
complied in all material respects with all its obligations and conditions
required by this Agreement to be performed, observed or complied with by it
at or prior to Closing.
9.5 Authorization. All corporate and partnership actions necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by Buyers.
9.6 Absence of Litigation. No litigation or administrative proceeding
shall be pending (or threatened), and no investigation shall have been
commenced (and be pending), by Buyers or any third party seeking to restrain
or prohibit (or questioning the validity or legality of) the consummation of
the transactions contemplated by this Agreement or seeking damages in
connection therewith which makes it unreasonable to proceed with the
consummation of the transactions contemplated hereby.
9.7 Bonds, Letters of Credit or Other Assurances. Buyers shall have
delivered to Sellers either copies of bonds, letters of credit or other
financial assurances, in form and substance and reasonably satisfactory to
Sellers, covering the Assets, and Santa Barbara Partners and Hallador
Production (and all of their assets and operations), as may be required under
any laws, rules or regulations of any federal, Indian tribe, state or local
government agencies having jurisdiction over the Assets, Santa Barbara
Partners or Hallador Productions, or a commitment, satisfactory to Sellers,
to issue such upon Closing. Buyers shall cooperate with the Sellers before
and after Closing, as reasonably requested by Sellers, in obtaining the
release of any bonds, letters of credit or other financial assurance any of
the Sellers, including, without limitation, Santa Barbara Partners and
Hallador Production, have posted with any such governmental agencies with
respect to the Assets, Santa Barbara Partners or Hallador Productions;
provided, however, that notwithstanding anything to the contrary in the
foregoing, the emissions credits, security deposits and any other interests
as set forth on Exhibit "N" attached hereto shall not be subject to the
provisions of this second sentence of this Section 9.7.
9.8 Preferential Purchase Rights. All preferential purchase right
obligations attributable to the Santa Barbara Partners partnership interests
shall have been satisfied, assumed or waived.
9.9 Transition Services Agreement. Buyers shall have executed and
delivered to Sellers the Transition Services Agreement substantially in the
form attached hereto as Exhibit "G" (the "Transition Services Agreement").
9.10 Receipt. Buyers shall have executed and delivered to Sellers a
closing statement substantially in the form attached hereto as Exhibit "P"
(the "Receipt") acknowledging payment of the Adjusted Purchase Price,
transfer of the Assets, the Stock and the Trio Partnership Interests and the
assumption of liabilities as set forth in Section 5.3.1.
SECTION 10
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYERS
The obligations of Buyers to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to Closing,
of each of the following conditions, each of which may be waived by Buyers
except as otherwise required by law:
10.1 Delivery of Instruments of Transfer. At Closing, Sellers shall
deliver to Buyers executed, and where appropriate recordable, bill of sale,
lease assignments, and other instruments of conveyance required in order to
effectively transfer title to the Assets.
10.2 Representations and Warranties. The representations and warranties
of Sellers contained in this Agreement shall be true and correct in all
respects as of the date hereof and as of the Closing Date, as though made on
and as of each such time, except for changes permitted or contemplated by
this Agreement or otherwise specifically consented to by Buyers in writing,
and except for representations and warranties relative to a specific time or
times, and each of the obligations of Sellers required by this Agreement to
be performed and complied with prior to or at the Closing shall have been
duly performed and complied with prior to or at the Closing.
10.3 Authorization. All corporate and partnership actions necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by Sellers.
10.4 Absence of Litigation. No litigation or administrative proceeding
shall be pending (or threatened), and no investigation shall have been
commenced (and be pending), by Sellers or any third party seeking to restrain
or prohibit (or questioning the validity or legality of) the consummation of
the transactions contemplated by this Agreement, seeking damages in
connection therewith which makes it unreasonable to proceed with the
consummation of the transactions contemplated hereby.
10.5 Officer's Certificate. Sellers shall have furnished Buyers a
certificate of an officer of Sellers certifying that:
10.5.1 the representations and warranties of Sellers contained in
this Agreement are true and correct in all material respects on and as of the
Closing Date with the same force and effect as though made at and as of such
time, except for representations and warranties specifically relating to a
time or times other than the Closing Date, or except as may be affected by
the transactions contemplated hereby;
10.5.2 Sellers are not aware of any misrepresentation, omission or
misstatement by any of the Buyers in this Agreement or the Exhibits or
Schedules hereto; and
10.5.3 Sellers have performed all of their obligations contained in
this Agreement required to be performed by them prior to Closing.
10.6 Transition Services Agreement. Seller shall have caused the
Transition Services Agreement to be executed and delivered to Buyer.
10.7 Receipt. Sellers shall have executed and delivered to Buyers a
closing statement acknowledging payment of the Adjusted Purchase Price,
transfer of the Assets, the Stock and the Trio Partnership Interests and the
assumption of liabilities as set forth in Section 5.3.1.
10.8 Liens. Sellers shall have delivered reasonably satisfactory
evidence to Buyers that all of the Liens identified on Exhibit "L" have been
released or otherwise satisfied.
SECTION 11
COVENANTS
11.1 Investigation and Decision. The Parties further covenant as
follows:
11.1.1 Due Diligence; Investigation. During the Due Diligence
Period, Buyers shall (i) make, or arrange for others to make, such inspection
and investigation of the Assets, Santa Barbara Partners and Hallador
Production as they deem appropriate; (ii) investigate and have knowledge of
operative or proposed laws and Legal Requirements to which the Assets, Santa
Barbara Partners and Hallador Production are or may be subject; (iii) accept
the Assets, Santa Barbara Partners and Hallador Production upon the basis of
its review and determination of the applicability and effect of such laws and
Legal Requirements; (iv) have reviewed and evaluated any data room materials
or other materials to which access has been provided to Buyers by Sellers
under this Agreement; and (v) have made such investigations of the title,
condition, status under Environmental Laws, oil and gas laws and any other
aspects of the Assets, Santa Barbara Partners and Hallador Production as may
be necessary or appropriate. Buyers agree that such inspections shall not
unreasonably interfere with the business and operations of Sellers.
11.1.2 Independent Decision. Buyers have made their own
independent judgment of the commercial potential, condition and usefulness of
the Assets, Santa Barbara Partners and Hallador Production, taking into
consideration all current Environmental Laws and Legal Requirements and the
likelihood that such Environmental Laws and Legal Requirements will change in
the future. Buyers have such knowledge and experience in business and
financial affairs in general, securities and investments, and of the oil and
gas business as conducted and regulated in the State of California in
particular, as to be capable of evaluating the merits and risks of purchasing
the Assets. Santa Barbara Partners and Hallador Production.
11.2 Access to Information. Sellers have afforded to Buyers and to
Buyers' accountants, counsel, landmen, technical staff, environmental
consultants and other representatives, reasonable access during the period
prior to the execution of this Agreement and will continue to afford to
Buyers reasonable access until Closing to all of Sellers' properties, books,
tax records and returns, contracts, documents and records, including all well
files and technical and operations information, relating to the Assets, Santa
Barbara Partners and Hallador Production, and, during such period, Sellers
have used and will continue to use reasonable efforts to furnish promptly to
Buyers all material information concerning the business and properties
relating to the ownership and operations of the Assets, Santa Barbara
Partners and Hallador Production (subject to existing confidentiality
agreements with third parties and subject also to the attorney-client
privilege), including, to the extent prepared in the ordinary course of
business, such data and operating reports as may reasonably be necessary or
appropriate for any relevant purposes of investigation and analysis related
to this Agreement. Upon Buyers reasonable request, Sellers shall attempt to
secure waiver of any such confidentiality agreements. Sellers shall, to the
best of its ability, arrange for Buyers and their representatives to discuss
with appropriate officers, employees, consultants, contractors and
representatives of Sellers such matters related to the transactions provided
for herein as Buyers may reasonably request. The period of time from the
execution date of this Agreement and continuing for a period up to the
Closing Date shall be referred to herein as the "Due Diligence Period".
11.3 General Liabilities. Subject to Section 6.1, Buyers shall assume
and Sellers shall retain the general liabilities related to the Assets as
follows:
11.3.1 General Liabilities Assumed. Except for Environmental
Liabilities, which shall be governed by the provisions of Section 5, Buyers
shall assume and discharge all duties, liabilities and obligations arising
from ownership or operation of the Assets on and after the Effective Date;
including, but not limited to, all applicable valid recorded agreements;
unrecorded agreements; gas balancing agreements or arrangements; contracts
and instruments; duties imposed by Governmental Bodies; all usual and normal
prudent operations regarding the duty to plug, re-plug, abandon, remove or
cleanup oil, gas, injection, water or other wells, sumps, pits, ponds, tanks,
impoundments, foundations, pipelines, and structures and equipment of any
kind or description, and the restoration of the Assets and surface of the
land as may be required under applicable Legal Requirements; and, all duties,
liabilities and obligations arising from the ownership or operation of the
Assets prior to the Effective Date except as retained by Sellers in
Section 11.3.2.
11.3.2 General Liabilities Retained. Except for Environmental
Liabilities, which shall be governed by the provisions of Section 5, Sellers
shall retain and discharge the following liabilities and obligations arising
from ownership or operation of the Assets prior to the Effective Date:
(i) All liability for defense of
litigation or governmental actions filed or commenced regarding the Assets,
including all liability for satisfaction of any judgment or fine if filed on
or prior to the Effective Date; and
(ii) Subject to Section 11.4.2, all
obligations related to the Assets to pay royalties or taxes, permit fees and
any and all assessments and fees accrued before the Effective Date; provided,
however, liability for royalties and taxes shall be determined as of the
Effective Date.
11.4 Gas Imbalance. In the event it is determined Gas Imbalances exist,
the Parties agree that:
11.4.1 Sellers will furnish Buyers with a statement, in the form of
Exhibit "I," showing the most current estimate of the over or under
production as among the Sellers as of the Effective Date.
11.4.2 From and after the Effective Date, any and all benefits,
obligations and liabilities associated with such Gas Imbalances shall accrue
to and be the responsibility of Buyers. Buyers shall assume Sellers'
overproduced or underproduced position in the wells located on the Oil and
Gas Properties as of the Effective Date, including but not limited to the
responsibility for the payment of royalties on the volume of such gas which
Sellers took in excess of its entitlement and any obligation to balance
whether in cash or in kind. The Final Accounting shall include an adjustment
for any Gas Imbalance differences between the volume shown on Exhibit "I" and
the Gas Imbalances at the Effective Date. Adjustments will be on an
individual property basis in accordance with the actual average price paid
during May 2004.
11.5 Third-Party Consents. Certain of the transfers contemplated by
this Agreement are subject to various forms of third-party consents. Sellers
and Buyers shall cooperate and shall promptly take such action as may be
required to obtain all necessary consents prior to Closing. Sellers and
Buyers agree that to the extent any contract or Permit that would otherwise
be assigned under this Agreement as contemplated by Section 16.3.8 is not
capable of being assigned, transferred, subleased or sublicensed without the
consent of, or waiver by any other party thereto, or any other Person, or if
such assignment, transfer, sublease or sublicense or attempted assignment,
transfer, sublease or sublicense would constitute a breach thereof, or
violation of any law, this Agreement shall not constitute an assignment,
transfer, sublease or sublicense, or an attempted assignment, transfer,
sublease or sublicense of any such contract or Permit. With respect to each
contract that, but for the reasons set forth in the first sentence of this
Section 11.5, would be assigned, Sellers agree to provide Buyers with the
benefits (including the right to terminate any such contract in accordance
with the terms thereof) of such contracts to the extent related to
transactions or periods that occur at or after Closing, and to the extent it
is possible to do so; and, if and to the extent such benefits are provided to
Buyers, Buyers agree to observe and perform such contract; provided, however,
that in no event shall Sellers be required to provide Buyers with the
benefits of any contracts or any provisions of any contracts related to
environmental matters or Environmental Liabilities, which shall be governed
by the provisions of Section 5. Sellers shall continue to use their
reasonable efforts to obtain an assignment to Buyers of each contract or
Permit that, but for the reasons set forth in the first sentence of this
Section 11.5, would be assigned; provided, however, that Sellers shall not be
required to pay any consideration or suffer any financial disadvantage to
obtain such assignment.
11.6 Additional Agreements. Sellers and Buyers shall execute such
further documents and instruments, requested by either Party, as may be
necessary or reasonably desirable to consummate the transactions contemplated
by this Agreement or any part thereof. Subject to the other terms and
conditions of this Agreement, each of the Parties, hereto agrees to use its
reasonable commercial efforts at its own expense to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws to consummate and make effective
the transactions contemplated by this Agreement.
11.7 Payment of Certain Expenses Due and Payable After the Effective
Date. Buyers shall pay, as and when due, all fees and bills due and payable
by Santa Barbara Partners or Hallador Production after the Closing Date, and
Sellers shall reimburse Buyers within thirty (30) days after invoice for any
amounts under such bills attributable to any period prior to the Effective
Date; provided, however that if after Closing Sellers are obligated to
continue as operator under an existing agreement pursuant to Section 6.1,
Sellers shall make payments for Buyers' account and at Buyers' expense with
respect to such agreements and Buyers shall reimburse Sellers for all such
payments within ten (10) days after invoice.
11.8 Notification of Certain Matters. Between the Effective Date and
Closing Date, Sellers and Buyers will each give prompt notice to the other of
(i) any information that indicates that any representation or warranty
contained herein was not true and correct as of the date hereof or will not
be true and correct as of the Closing Date; (ii) the occurrence of any event
which will result, or has a reasonable prospect of resulting, in the failure
to consummate the transactions contemplated hereunder on or before the
Closing Date or to satisfy a condition specified in Section 9 or Section 10,
as the case may be; (iii) any notice or other communication from any third
party alleging that the consent or waiver of such third party is required in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement; and (iv) any
notice of, or other communication relating to any default or event which,
with notice or lapse of time or both, would become a default under any
contract to be assigned at Closing.
11.9 Financial Statements. Upon request, during the period from the
Execution Date until the Closing Date, Buyers shall provide Sellers with
reasonably detailed financial information regarding the financial condition
of the Buyers, including a reasonably detailed description of the amount of
debt and equity being used by the Buyers to finance the transactions
contemplated by this Agreement. Any such financial information provided by
Buyers shall be true and correct in all material respects and, taken as a
whole, shall fairly present the financial position the results of operations
of the Buyers for the periods as indicated.
11.10 Announcements. At all times prior to Closing, Sellers and Buyers,
including their respective Affiliates, shall use their respective
commercially reasonable efforts to cooperate in the development and
distribution of all news releases and other public disclosures relating to
the proposed transactions described in this Agreement, and ensure that no
such releases or disclosures are made without prior notice to and written
consent of the other Party; provided, however, that from the date of this
Agreement and continuing for twelve (12) months after the Closing if reserve
volumes are estimated in a news release in conjunction with a Purchase Price
disclosure, the release must state that the reserve estimates are the
disclosing Party's reserve estimates, and no news release or media disclosure
whatsoever by Buyers may disclose the identity of Sellers or a specific
description of the Assets unless both Parties agree to the form and content
of such disclosure, each being under no obligation to agree and having the
right to withhold agreement for any reason; provided, also that either Party
may make all disclosures which are required or prudent under applicable laws
or Legal Requirements, including, but not limited to, rules, regulations and
guidelines of the Securities and Exchange Commission and applicable stock
exchanges.
11.11 Termination of Guarantees and Other Commitments.
11.11.1 Subject to applicable laws, as of the Closing Date, all of
the following shall be canceled or terminated: (i) undertakings, comfort
letters or guarantees by Sellers or any of its Affiliates to third parties in
connection with the Assets, Santa Barbara Partners or Hallador Production;
and (ii) letters of credit, surety bonds, and related indemnity agreements
arranged and maintained by Sellers or any of its Affiliates with respect to
the Assets, Santa Barbara Partners or Hallador Production.
11.11.2 Buyers understand and agree that all insurance policies,
provided to or for the Assets, Santa Barbara Partners and Hallador Production
through Sellers, any Affiliate of Sellers, or a self-insurance program of
Sellers will be terminated with regard to the Assets, Santa Barbara Partners
and Hallador Production as of the Closing.
11.11.3 Sellers and Sellers' Affiliates shall have no
responsibility or liability under this Agreement to provide for insurance
coverage or any such security for the Assets, Santa Barbara Partners or
Hallador Production in any manner whatsoever after the date this Agreement is
executed by Buyers and Sellers, except to the extent that such insurance is
provided on a "claims made" policy, in which case, the Sellers and/or
Sellers' Affiliates shall, if necessary to continue the availability of such
coverage for occurrences prior to the Effective Date, procure a tail policy
in order to effectuate an "occurrence" policy related to any insurable claims
for the period of ownership of the Assets.
11.11.4 E&B agrees that for the period of time from the Closing
Date until the payment of all amounts due under the Notes, that E&B will
purchase and maintain on the Assets, Santa Barbara Partners, Hallador
Production and the operations of E&B, Commercial General Liability Insurance
with a Six Million Dollar ($6,000,000.00) combined single limit, including
Sudden and Accidental Pollution coverage with a Five Million Dollar
($5,000,000.00) combined single limit, with a deductible no greater than One
Hundred Thousand Dollars ($100,000.00). Any combination of primary and excess
insurance is allowed as long as the total limit requirement is satisfied.
11.12 Like Kind Exchange. Sellers agree to cooperate with Buyers for
Buyers to try to effect a tax deferred exchange under Internal Revenue Code
Section 1031, including, but not limited to, the introduction into the
transaction contemplated hereby of a third party intermediary to accomplish
such result (a "Tax Deferred Exchange Election"), provided, however, that
(a) Sellers shall not incur any additional liability or financial obligations
as a consequence of such exchange, (b) such exchange shall not delay the date
of Closing, and (c) no Party shall be required to take title to any property
as part of an exchange other than Buyers receiving title to the subject
property herein. This Agreement is not subject to or contingent upon any
Party's ability to effectuate a tax deferred exchange. In the event any
exchange contemplated by a Party should fail to occur, for whatever reason,
the sale of the Assets, the Stock and the Trio Partnership Interest shall
nonetheless be consummated as provided herein.
11.13 Access to Geologic and Geophysical Information. As long as the
same remains in Buyers' possession or control, Sellers retain the right to
copy any and all geologic and geophysical information transferred to Buyers
hereunder, and Buyers shall grant Sellers access to all such information and
agree to co-operate with Sellers in obtaining access to such information no
longer in Buyers' possession or control.
11.14 Restrictions on Operations. Except as otherwise contemplated in
this Agreement or in the event of an emergency, in which case Sellers shall
immediately notify Buyers of the action required to be taken as a result of
such emergency and involve Buyers in such decision making as soon as
practical, Sellers shall, without the express written consent of Buyers,
(i) between the Execution Date and the Closing Date incur no liability or
enter into any commitments exceeding $50,000 with respect to the Assets,
Santa Barbara Partners or Hallador Production, except in the ordinary course
of business consistent with past practice and in compliance with the
operating requirements of Section 6.1, (ii) between the Effective Date and
the Closing Date not release, sell, transfer, make any disposition of,
abandon or relinquish any right, title or interest in the Assets, Santa
Barbara Partners or Hallador Production, or in personal property related to
the Assets, Santa Barbara Partners or Hallador Production, except in the
ordinary course of business consistent with past practice, (iii) between the
Execution Date and the Closing Date not cancel any contract associated with
the Assets, Santa Barbara Partners or Hallador Production except in the
ordinary course of business consistent with past practice, and (iv) between
the Effective Date and the Closing Date not enter into any hedging, forward
sales or similar agreements with respect to production from the Assets, Santa
Barbara Partners or Hallador Production. No later than ten (10) days after
the Execution Date, Sellers shall disclose in writing to Buyers all contracts
entered into, liabilities incurred and commitments made with a value in
excess of Fifty Thousand Dollars ($50,000) by Santa Barbara Partners,
Hallador Production or associated with the Assets, other than contracts,
liabilities and commitments for customary oil and gas field operations and
maintenance, between the Effective Date and the Execution Date.
11.15 Exhibits and Schedules. Sellers will, from time to time prior to
September 10, 2004, promptly supplement or amend the Exhibits or Schedules to
this Agreement with respect to any matter arising or determined after the
date of this Agreement, which, if existing or known as of the Execution Date,
would have been required to be set forth or described in such Exhibits or
Schedules in order to make any representation or warranty set forth in this
Agreement true and correct as of such date, subject to Buyers' approval, such
approval not to be unreasonably withheld or delayed. Any such amended or
supplemented Schedules or Exhibits shall qualify the representations and
warranties contained in this Agreement as though provided at the Execution
Date.
SECTION 12
TAXES
12.1 Apportionment of Taxes. All ad valorem taxes, real property
taxes, personal property taxes and similar obligations shall be apportioned
as of the Effective Date between Buyers and Sellers. All such taxes
allocable to the periods before the Effective Date shall be paid by Sellers,
and all such taxes allocable to the Effective Date and after shall be paid by
Buyers. Any refunds of taxes allocable to periods prior to the Effective
Date shall be the property of Sellers and shall be promptly paid to it.
Buyers shall file or cause to be filed all required reports and returns
incident to such taxes which are due on or after the Closing Date, and shall
pay or cause to be paid to the taxing authorities all such taxes reflected on
such reports and returns.
12.2 Sales Taxes, Filing Fees, Etc. The Purchase Price provided for
hereunder is net of any sales taxes or other transfer taxes. Buyers shall be
liable for any sales tax or other transfer tax as well as any applicable
conveyance, transfer and recording fees, and real estate transfer stamp or
taxes imposed upon the sale pursuant to this Agreement, and Buyers shall
defend any action by a governmental agency to collect such taxes or fees, and
will hold Sellers harmless from any cost or liability for taxes, fees,
penalty, interest or costs, including reasonable attorney's fees, assessed as
a result of this transaction.
12.3 Other Taxes. All production, severance or excise taxes,
conservation fees, permit fees, assessments and other similar such taxes or
fees (other than income taxes) relating to the Assets and/or oil and gas
produced and sold from the Assets prior to the Effective Date shall be paid
by Sellers, and all such taxes and fees relating to such oil and gas produced
and sold on the Effective Date and after shall be paid or reimbursed by
Buyers. In the event such taxes attributable to the Assets are not assessed
on a current year basis, it is agreed that when such taxes are assessed,
insofar as they accrued to the Assets on or before the Effective Date, they
shall be paid by Sellers upon receipt of a statement and supporting
documentation.
12.4 Cooperation on Tax Matters.
Buyers shall be responsible for filing of federal and state income Tax
Returns for Hallador Production and Santa Barbara Partners for the period
from the Closing Date until the end of the tax year 2004, and Sellers shall
be responsible for filing the federal and state income Tax Returns for
Hallador Production (individually or on a consolidated basis with Affiliates)
and Santa Barbara Partners for the period from January 1, 2004 until the
Closing Date. In the event Sellers and Buyers determine that Santa Barbara
Partners should file federal and state income Tax Returns only for the year
ended December 31, 2004, Sellers and Buyers shall cooperate to prepare and
file such returns, with Sellers responsible for payment of federal and state
income taxes attributable to the period ending on the Closing Date, and
Buyers responsible for payment of all such taxes attributable to the period
beginning on the day after the Closing Date. Sellers shall provide to Buyers
executed and filed copies of the Hallador Production Tax Returns (as is
returns) and Santa Barbara Tax Returns for the past seven (7) years within
fifteen (15) days of the Execution Date, as well as a detail of all payments
made prior to such date with regard to 2004 federal and state income Taxes.
The Buyers and the Sellers shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing of Tax
Returns related to Hallador Production and Santa Barbara Partners and any
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Buyers and the Sellers shall
(i) retain all books and records with respect to Tax matters pertinent to
Hallador Production and Santa Barbara Partners relating to any whole or
partial Taxable period beginning before the Closing Date until the expiration
of the statute of limitations (and, to the extent notified by the Buyers or
any Sellers, any extensions thereof) of the respective Taxable periods, and
to abide by all record retention agreements entered into with any Taxing
authority, and (ii) give the other Party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other Party so requests, the Buyers or Sellers, as the case may be, shall
allow the other Party to take possession of such books and records.
The Buyers and the Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
12.5 Confidentiality. Any information shared in connection with Taxes
shall be kept confidential, except as may otherwise be necessary in
connection with the filing of Tax Returns or reports, refund claims, Tax
audits, Tax claims and Tax litigation, or as required by Law.
12.6 Audits. The Sellers and the Buyers shall provide prompt written
notice to the other of any pending or threatened Tax audit, assessment or
proceeding that it becomes aware of related to Hallador Production or Santa
Barbara Partners for whole or partial periods for which it may be indemnified
by the other Party hereunder. Such notice shall contain factual information
(to the extent known) describing the asserted Tax liability in reasonable
detail and shall be accompanied by copies of any notice or other document
received from or with any Tax authority in respect of any such matters. If
an Indemnified Party has knowledge of an asserted Tax liability with respect
to a matter for which it may be indemnified hereunder and such party fails to
give the Indemnifying Party prompt notice of such asserted Tax liability,
then (a) if the Indemnifying Party is precluded by the failure to give prompt
notice from contesting the asserted Tax liability in any forum, the
Indemnifying Party shall have no obligation to indemnify the Indemnified
Party for any Taxes arising out of such asserted Tax liability, and (b) if
the Indemnifying Party is not so precluded from contesting, but such failure
to give prompt notice results in a detriment to the Indemnifying Party, then
any amount which the Indemnifying Party is otherwise required to pay the
Indemnified Party pursuant to Section 16 shall be reduced by the amount of
such detriment, provided, the Indemnified Party shall nevertheless be
entitled to full indemnification hereunder to the extent, and only to the
extent, that such party can establish that the Indemnifying Party was not
prejudiced by such failure.
12.7 Control of Proceedings. The Party responsible for the Tax under
this Agreement shall control audits and disputes related to such Taxes
(including action taken to pay, compromise or settle such Taxes). Reasonable
out of pocket expenses with respect to such contests shall be borne by the
Sellers and the Buyers in proportion to their responsibility for such Taxes
as set forth in this Agreement. Except as otherwise provided by this
Agreement, the non-controlling party shall be afforded a reasonable
opportunity to participate in such proceedings at its own expense.
12.8 Closing Tax Certificate. At the Closing, each of the Sellers
shall deliver to the Buyers a certificate signed under penalties of perjury
(i) stating that it is not a foreign corporation, foreign partnership,
foreign trust or foreign estate, (ii) providing its U.S. Employer
Identification Number and (iii) providing its address, all pursuant to
Section 1445 of the Internal Revenue Code. At the Closing, the Buyers shall
deliver to the Sellers a statement providing its U.S. Employer Identification
Number and its address.
SECTION 13
TERMINATION
13.1 Termination. This Agreement and the transaction contemplated
herein may be terminated at any time prior to Closing:
13.1.1 by mutual consent of the Parties;
13.1.2 by any of the Sellers, without impairing any other rights
hereunder, if there has been a material breach of covenant or agreement
contained in this Agreement on the part of any of the Buyers (including,
without limitation, Buyers' failure to make the payment specified in either
Section 3.2.1 and 3.2.2), or a failure of a condition and such breach of a
covenant or agreement or failure of a condition has not been cured within 10
business days of receipt of notice of same, unless such breach or failure is
not, by its nature, curable within such period and then and in that event
such breach or failure has not been cured within a reasonable time following
receipt of notice of same;
13.1.3 by any of the Buyers, without impairing any other rights
hereunder, if there has been a material breach of covenant or agreement
contained in this Agreement on the part of any of the Sellers, or a failure
of a condition and such breach of a covenant or agreement or failure of a
condition has not been cured within 10 business days of receipt of notice of
same, unless such breach or failure is not, by its nature, curable within
such period and then and in that event such breach or failure has not been
cured within a reasonable time following receipt of notice of same;
13.1.4 by any of the Buyers or Sellers, upon written notice to the
other Parties on or prior to September 10, 2004, that one of the following
has occurred: (a) a Material Deficiency; and/or (b) Title Defect(s) in the
aggregate in excess of $200,000.00;
13.1.5 by any of the Buyers or Sellers upon litigation or
administrative proceeding pending (or threatened), or an investigation
commenced (and pending), by any third party seeking to restrain or prohibit
(or questioning the validity or legality of) the consummation of the
transactions contemplated by this Agreement or seeking damages in connection
therewith which makes it unreasonable to proceed with the consummation of the
transactions contemplated hereby;
13.1.6 by any of the Buyers upon written notice to the other
Parties that any event that is under Sellers' control, excluding fluctuations
in natural oil and gas production and prices, has occurred after September
10, 2004 that affects Santa Barbara Partners, Hallador Production or the
Assets and that would significantly impair Buyers' ability to obtain
financing, and that Sellers fail to cure within 30 days of receipt of notice
of same, unless such breach or failure is not, by its nature, curable within
such period and then and in that event such breach or failure has not been
cured within a reasonable time following receipt of notice of same; or
13.1.7 by any of the Buyers upon written notice to the other
Parties after September 10, 2004, that a Material Deficiency has occurred.
13.2 Effect of Termination.
13.2.1 In the event of termination of this Agreement by either
Party as provided in Section 13.1.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any Party
or their respective affiliates, officers or directors or partners or
shareholders except as otherwise set forth herein. Sellers shall in such
event return any part of the Down Payment paid as of such date within fifteen
(15) business days of such termination.
13.2.2 In the event of termination of this Agreement by Buyers
pursuant to Sections 13.1.4. 13.1.5 or 13.1.6, Sellers shall return, within
fifteen (15) business days of such termination, the Down Payment less the
Non-Refundable Portion of the Down Payment.
13.2.3 In the event this Agreement is terminated for any reason
other than as provided in Sections 13.2.1 or 13.2.2, Sellers shall retain all
of the Down Payment.
13.3 Sole Remedy. If the Agreement is terminated and all or any
portion of the Down Payment is retained, then Sellers agree that their sole
remedy, in consideration of holding the Assets, Santa Barbara Partners and
Hallador Production off the market and refraining from dealing with others
concerning the Assets, Santa Barbara Partners and Hallador Production and as
liquidated damages in lieu of all other damages, shall be their retention of
the Down Payment made by Buyers. The Parties hereby acknowledge that the
extent of damages to Sellers occasioned by such breach or default or failure
to proceed by Buyers would be impossible or extremely impractical to
ascertain and that the Down Payment is a fair and reasonable estimate of such
damages under the circumstances.
SECTION 14
MISCELLANEOUS
14.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
NOTWITHSTANDING ANY CHOICE OF LAW PROVISIONS OF SUCH STATE.
14.2 Assignment.
14.2.1 This Agreement and the rights and obligations hereunder
shall not be assignable by either Party hereto without the prior written
consent of the other; provided, however, that Sellers and Buyers shall have
the right without the other Party's consent, to assign this Agreement, but
not the right to assign any duties or obligations hereunder, to an
Affiliate(s) or a subsidiary company, or to a third party intermediary in
order to accomplish a tax deferred exchange pursuant to a Tax Deferred
Exchange Election.
14.2.2 Any Party hereto may assign or delegate any of its rights,
benefits, duties or obligations hereunder (i) to any Person, if it has
received the prior written consent provided for in Section 14.2.1, (ii) to
its legal successor, if it merges (whether or not it is the surviving
corporation), or (iii) to any Person to whom it has made any sale, lease,
transfer or other disposition of all or substantially all of its assets;
provided, however, that no Party may make an assignment or delegation
described in clauses (ii) and (iii), above, unless such Party delivers to the
other Party hereto such written assumptions, affirmations and/or legal
opinions as such other Party may reasonably request to preserve their rights
and remedies hereunder.
14.2.3 Subject to Section 14.2.1 the rights, benefits, duties and
obligations of each Party hereto shall inure to the benefit of, and be
binding upon, each Party's successors or assigns.
14.3 Written Notices. Any notices required to be given hereunder shall
be in writing and transmitted by facsimile with confirmation of receipt or
delivered by nationally recognized expedited delivery service with tracking
capabilities (e.g., Federal Express), and addressed as follows or as
otherwise specified by Seller and Buyer by notice hereunder:
To Hallador Sellers: Santa Barbara Partners
c/o Hallador Petroleum Company
1660 Lincoln Street, Suite 2700
Denver, Colorado 80264
Attention: Victor P. Stabio, President
To Trio Sellers: Each of the Trio Sellers, Inc.
5401 Business Park South, Suite 115
Bakersfield, California 93309
Attention: Charles C. Horace
To E&B: E&B Natural Resources Management
Corporation
34740 Merced Avenue
Bakersfield, CA 93308
Attention: Steve Layton
with required copies to:Rotterdam Ventures, Inc.
695 Rotterdam Industrial Park
Schenectady, NY 12306
Attention: Steven K. Porter
And Winstead
1450 Lake Robbins Drive - Suite 600
The Woodlands, TX 77380
Attention: Bret L. Strong
To WRBD II: WRBD II, LP
695 Rotterdam Industrial Park
Schenectady, New York 12306
Attention: Steven K. Porter
Notices shall be effective upon receipt.
14.4 Expenses. Except as otherwise provided herein, each Party shall
be solely responsible for all expenses incurred by it in connection with this
transaction (including without limitation, fees and expenses of its own
counsel and accountants).
14.5 Limitation of Liability. Notwithstanding anything herein provided
to the contrary, Sellers and Buyers do hereby covenant and agree that, after
Closing, the recovery by either Party hereto of any damages suffered or
incurred by it as a result of any breach by the other Party of any of its
covenants, agreements, representations, guaranties, warranties, disclaimers,
waivers or continuing obligations under this Agreement shall be limited to
the actual damages suffered or incurred by the non-breaching Party as a
result of the breach by the breaching Party of its covenants, agreements,
representations, guaranties, warranties, disclaimers, waivers, or continuing
obligations hereunder plus costs and reasonable and documented attorneys'
fees and expenses and in no event shall the breaching Party be liable to the
non-breaching Party for consequential damages as a result of the breach by
the breaching Party of any of its covenants, agreements, representations,
guaranties, warranties, disclaimers, waivers or continuing obligations
hereunder; provided, however that nothing herein contained shall be deemed a
limitation on either Party's indemnity obligations contained in this
Agreement.
14.6 Attorneys' Fees. The prevailing party in any dispute related to
this Agreement shall be entitled to recover all of its reasonable costs and
expenses thereto, including, without limitation, reasonable attorneys' fees
and costs.
12.7 No Admissions. Buyers and Sellers agree that neither this
Agreement, nor any part hereof, nor any performance under this Agreement, nor
any payment of any amount pursuant to any provision of this Agreement shall
constitute or be construed as a finding, evidence of, or an admission or
acknowledgment of any liability, fault, or past or present wrongdoing, or
violation of any law, rule, regulation, or policy, by either Sellers or
Buyers or by their respective officers, directors, employees, or agents.
14.8 Exhibits Incorporated. All Exhibits and Schedules hereto are
deemed a part of this Agreement and are incorporated hereby as though fully
set forth herein.
14.9 Entire Agreement, Etc. This Agreement constitutes the entire
agreement between Sellers and Buyers with respect to the subject matter
hereof, and supersedes all prior oral or written agreements, commitments or
understandings with respect thereto. No amendment of this Agreement shall be
binding on the Parties unless in writing and signed by the authorized
representatives of both Parties hereto. Any waiver of any breach of any term
or condition of this Agreement shall not operate as waiver of any other
breach of such term or condition or of any other term or condition of this
Agreement. The headings used in this Agreement are for convenience of
reference only and shall not be used to define the meaning of any provision.
14.10 Parties in Interest. Nothing in this Agreement, except as
otherwise noted on behalf of Sellers and their Affiliates, is intended to
confer any rights or remedies under or by reason of this Agreement on any
Persons other than the Parties to it and their permitted respective
successors and assigns, nor is anything in this Agreement intended to relieve
or discharge the obligation or liability of any third Persons to any Party to
this Agreement, nor shall any provision give any third Persons any right of
subrogation or action over and against any Party to this Agreement.
14.11 Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable under present or future law in whole or
in part by any court of any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
14.12 Consents. When a consent is required of either Party
hereto, such consent shall not be unreasonably withheld.
Section 15
SURVIVAL AND INDEMNIFICATION
15.1 Survival. Notwithstanding any investigation conducted by any
Party hereto and any information which any Party may receive, any claim for
indemnification under this Agreement, whether related to a breach of any of
the representations, warranties or covenants contained in this Agreement, or
in any Exhibit, Schedule, certificate, or other agreement delivered pursuant
hereto, or related to any third party claims, must be made within fifteen
(15) months following Closing
15.2 Indemnification.
15.2.1 Each of the Hallador Sellers shall, jointly and
severally, indemnify and hold harmless each of Buyers, and their respective
successors and assigns (including after the Closing, Santa Barbara Partners
and Hallador Production as Affiliates of E&B ), directors, officers,
employees and agents, against, and in respect of, any and all damages,
claims, losses, liabilities and expenses, including, without limitation,
reasonable and documented legal, accounting and other expenses, which may
arise out of: (i) any breach or violation of this Agreement by any of the
Hallador Sellers; (ii) any breach of any of the representations, warranties
or covenants made in this Agreement by any of the Hallador Sellers; or
(iii) liabilities expressly retained by any of the Hallador Sellers in this
Agreement (including but not limited to any claims related to Taxes and any
penalties, interest or audit costs related thereto due and attributable to
the period of time prior to the Effective Date, as well as all obligations in
any manner associated with the employment by Hallador LLP of the Hallador LLP
Cuyama Valley Employees not hired by E&B or its designee).
15.2.1 Each of the Trio Sellers shall, jointly and severally,
indemnify and hold harmless each of Buyers, and their respective successors
and assigns (including after the Closing, Santa Barbara Partners as an
Affiliate of E&B), directors, officers, employees and agents, against, and
in respect of, any and all damages, claims, losses, liabilities and expenses,
including, without limitation, reasonable and documented legal, accounting
and other expenses, which may arise out of: (i) any breach or violation of
this Agreement by any of the Trio Sellers; (ii) any breach of any of the
representations, warranties or covenants made in this Agreement by any of the
Trio Sellers; or (iii) liabilities expressly retained by any of the Trio
Sellers in this Agreement (including but not limited to any claims related to
Taxes and any penalties, interest or audit costs due and attributable to the
period of time prior to the Effective Date).
15.2.3 Each of the Buyers shall, jointly and severally, indemnify
and hold harmless each of the Sellers and their respective successors and
assigns, directors, officers, employees and agents, against, and in respect
of, any and all damages, claims, losses, liabilities and expenses, including,
without limitation, reasonable legal, accounting and other expenses, which
may arise out of: (i) any breach or violation of this Agreement by either of
the Buyers; (ii) any breach of any of the representations, warranties or
covenants made in this Agreement by either of the Buyers; or
(iii) liabilities expressly assumed by either of the Buyers in this
Agreement.
15.2.4 Notwithstanding anything to the contrary herein, any
indemnification obligations of the Parties and all claims for indemnification
arising from, regarding or related to Environmental Liabilities shall be
governed by the provisions of Section 5 and no Party shall be entitled to
indemnification or shall make any claim for indemnification arising from,
regarding or related to Environmental Liabilities under this Section 15.2.
15.3 Third Party Claims.
15.3.1 Each of the Hallador Sellers shall, jointly and severally,
indemnify and hold harmless each of Buyers, and their respective successors
and assigns (including after the Closing, Santa Barbara Partners and Hallador
Production as Affiliates of E&B), harmless against any and all damages,
claims, losses, liabilities and expenses, including, without limitation,
reasonable and documented legal, accounting and other expenses, arising out
of any third party claim, legal suit or proceeding against Buyers, (including
but not limited to any claims from current or former employees or contractors
of Sellers) which claim, legal suit or proceeding arises from the conduct of
the business of Santa Barbara Partners, Hallador Production or the ownership
of the Acquired Assets prior to the Effective Date.
15.3.2 Each of the Trio Sellers shall, jointly and severally,
indemnify and hold harmless each of Buyers (including after the Closing,
Santa Barbara Partners and Hallador Production as Affiliates of E&B), and
their respective successors and assigns, harmless against any and all
damages, claims, losses, liabilities and expenses, including, without
limitation, reasonable and documented legal, accounting and other expenses,
arising out of any third party claim, legal suit or proceeding against
Buyers, (including but not limited to any claims from current or former
employees or contractors of Sellers) which claim, legal suit or proceeding
arises from ownership of the Trio Partnership Interests or the ownership of
the Trio Assets prior to the Effective Date.
15.3.3 Each of the Buyers shall, jointly and severally,
indemnify and hold harmless each of the Sellers and their respective
successors and assigns, harmless against any and all damages, claims, losses,
liabilities and expenses, including, without limitation, reasonable legal,
accounting and other expenses, arising out of any third party legal suit or
proceeding against Sellers, including, without limitation, Santa Barbara
Partners and Hallador Production, which legal suit or proceeding arises from
the conduct of the business of Buyers or their respective subsidiaries or the
ownership of the properties owned or leased by Buyers or their respective
subsidiaries on or after the Effective Date.
15.3.4 Notwithstanding anything to the contrary herein, any
indemnification obligations of the Parties and all claims for indemnification
arising from, regarding or related to Environmental Liabilities shall be
governed by the provisions of Section 5 and no Party shall be entitled to
indemnification or shall make any claim for indemnification arising from,
regarding or related to Environmental Liabilities under this Section 15.3.
15.3.5 There are no third party beneficiaries to this Agreement.
Nothing in this Agreement, express or implied, is intended to confer upon any
Person, other than the Parties hereto and their respective successors, and
assigns, any benefit, right, remedy or obligation.
15.4 Method of Asserting Claims. The Party making a claim under
Section 5.3.3 or this Section 15 is hereinafter referred to as the
"Indemnified Party" and the Party against whom such claims are asserted is
hereinafter referred to as the "Indemnifying Party." All claims by an
Indemnified Party under Section 5.3.3 or this Section 15 shall be asserted
and resolved as follows:
15.4.1 If any claim or demand for which an Indemnifying Party
might be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, such
Indemnified Party shall as promptly as is practicable after its receipt of
such claim or demand notify in writing the Indemnifying Party of such claim
or demand, specifying the nature of and specific basis for such claim or
demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim and demand) (a "Claim Notice").
The Indemnifying Party may, and upon request of the Indemnified Party
shall, retain counsel, experts and other providers of its choice to represent
the Indemnifying Party in connection with and to defend the Indemnified Party
against such claim or demand and shall pay the reasonable and documented fees
and reimburse the reasonable and documented disbursements of the Indemnified
Party as well as those of its own, including its counsel, experts and
representatives with regard thereto; provided, however, that any Indemnified
Party is hereby authorized prior to the date on which it receives written
notice from the Indemnifying Party of its assumption of the defense of any
such claim, to retain counsel whose reasonable fees and expenses shall be at
the expense of the Indemnifying Party to file any action, answer or other
pleading and take such other action which it shall reasonably deem necessary
to protect its interests or those of the Indemnifying Party until the date on
which the Indemnified Party receives such notice from the Indemnifying Party.
In the event that the Indemnifying Party shall retain counsel, the
Indemnified Party shall have the right to retain its own counsel but the fees
and expenses of such counsel shall be at the expense of the Indemnified Party
unless:
(i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such
counsel; or
(ii) the named parties to any such
proceeding (including, but not limited to, any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of
both Parties by the same counsel would involve such counsel in an actual or
potential conflict of interest in violation of applicable principles of
professional ethics.
15.4.2 If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any claim or demand that the Indemnifying Party defends, or, if
appropriate and related to the claim in question, in making any counterclaim
against the Person asserting the third party claim or demand, or any cross-
complaint against any Person. If the Indemnifying Party has indicated in
writing that it will indemnify the Indemnified Party, no claim or demand that
would result in an Indemnifying Party being liable hereunder may be settled
without the consent of the Indemnifying Party which consent shall not be
unreasonably withheld. Unless the Indemnifying Party shall have agreed in
writing that any and all damages to the Indemnified Party related to a claim
or demand are fully covered by the indemnities provided herein, no such claim
or demand may be settled without the consent of the Indemnified Party, which
consent will not be unreasonably withheld. Except with respect to
settlements entered into without the Indemnified Party's consent pursuant to
the immediately preceding sentence, to the extent it shall be determined that
the Indemnified Party shall have no right to be indemnified by the
Indemnifying Party, the Indemnified Party shall promptly pay to the
Indemnifying Party:
(i) any amounts previously paid or
advanced by the Indemnifying Party to the Indemnified Party or third parties,
with respect to or in connection with such matters; plus
(ii) interest thereon until paid by the
Indemnified Party at the Interest Rate for the period commencing on the date
on which such amount was paid or advanced and ending sixty (60) days after
the date on which it was finally determined that the Indemnified Party had no
such right to be indemnified.
15.4.3 In the event the Indemnified Party should have a
claim against the Indemnifying Party hereunder which does not involve a claim
or demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall as promptly as is practical send a Claim
Notice with respect to such claim to the Indemnifying Party; provided,
however, that any failure to give such notice will not waive any rights of
the Indemnified Party except to the extent that either the rights of the
Indemnifying Party are actually prejudiced or such notice is not given within
the applicable time periods set forth in this Agreement. If the Indemnifying
Party notifies in writing the Indemnified Party that it does not dispute such
claim, the amount of such claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder and shall be paid to the Indemnified Party
immediately. If the Indemnifying Party disputes such claim, such dispute
shall be resolved by good faith negotiations between the Parties.
15.4.4 From and after the delivery of a Claim Notice hereunder, at
the reasonable request of the Indemnifying Party, the Indemnified Party shall
grant the Indemnifying Party and its representatives full and complete access
to the books, records and properties of the Indemnified Party to the extent
reasonably related to the matters with which the Claim Notice is concerned.
The Indemnifying Party will not, and shall require that its representatives
do not, use (except in connection with such Claim Notice) or disclose to any
third Person other than the Indemnifying Party's representatives (except as
may be required by applicable Legal Requirements) any information obtained
pursuant to this Section 15.4.4 that is designated as confidential by the
Indemnified Party, unless such information is:
(i) generally available to the public
other than as the result of a wrongful act or omission by the Indemnifying
Party;
(ii) already within the knowledge of the
Indemnifying Party;
(iii) available to the Indemnifying Party
through rights other than as provided in this Section 15.4.4, or
(iv) provided to the Indemnifying Party
in writing by a third party who is under no obligation to the Indemnified
Party to protect the confidentiality thereof.
All such access shall be granted during normal business hours, shall be
subject to the normal safety regulations of the Indemnified Party, and shall
be granted under conditions that will not interfere with the business and
operations of the Indemnified Party. Nothing contained in this
Section 15.4.4 shall be construed to expand or contract the rights or
obligations of the Indemnifying Party with respect to any information
previously provided to the Indemnifying Party pursuant to any other
confidentiality agreement.
15.5 Right to Cure. Any Party that is obligated to indemnify, defend
and/or hold harmless any other Party pursuant to any provision of this
Section 15 shall have the right to cure, within a reasonable time and in a
manner reasonably satisfactory to such Indemnified Party, any matter giving
rise to such obligation; provided, however, that any such cure shall not
relieve or reduce any such obligation to the extent that such cure is
inadequate.
Section 16
CLOSING
16.1 Time of Essence. Time is expressly declared to be of the essence
under this Agreement.
16.2 Place and Date. Closing shall occur at Sellers' offices at 1660
Lincoln Street, Suite 2700, Denver, Colorado 80264 on or before September 30,
2004, unless extended by written agreement of the Parties.
14.6 Sellers' Actions at Closing. At Closing, Sellers shall perform
the following actions:
16.3.1 At least three (3) business days prior to Closing, Sellers
shall have delivered to Buyers a revised Exhibit "C" allocating the payment
to be made at Closing among the Sellers.
16.3.2 Each of the Sellers shall deliver to Buyers the executed
certificate contemplated by Section 10.5;
16.3.3 Each of the Sellers shall cause Hallador Petroleum to
deliver to E&B, or a designee of E&B that is an Affiliate of E&B, the Stock
certificate(s) representing the Stock duly endorsed for transfer;
16.3.4 Each of the Sellers shall cause Trio Petroleum to deliver
to E&B, or a or a designee of E&B that is an Affiliate of E&B, an assignment
of the Trio Partnership Interests;
16.3.5 Each of the Sellers (other than Hallador Production and
Santa Barbara Partners) shall execute and deliver to E&B, a Bill of Sale with
regard to all of the Assets other than Oil and Gas Interests, in the form
attached hereto as Exhibit "J";
16.3.6 Each of the Sellers shall cause Hallador LLP to deliver the
Transition Services Agreement in the form attached hereto as Exhibit "G" to
be executed and delivered to Buyer;
16.3.7 Each of the Sellers shall execute and deliver to WRBD II, a
Deed in the form attached hereto as Exhibit "K" for all of the Oil and Gas
Properties which are mineral or fee interests;
16.3.8 Each of the Sellers shall execute and deliver to E&B, an
Assignment of Certain Intangible Contractual Rights and Other Intangible
Property, listed on Exhibit "C," in the form attached hereto as Exhibit "J";
16.3.9 Each of the Sellers shall execute, acknowledge and deliver
to WRBD II, an Assignment of Leases in the form attached hereto as
Exhibit "J," and each of the Sellers shall deliver to WRBD II any required
assignment forms for any state, federal or Indian tribal oil and gas leases;
14.3.10 The Sellers shall provide evidence reasonably satisfactory
to the Buyers of the release of the Liens described in Exhibit "L";
16.3.11 Each of the Sellers shall execute and deliver to Buyers,
the Receipt in the form attached hereto as Exhibit "P";
16.3.12 Each of the Sellers shall, at or as promptly as
reasonably possible after Closing, provide Buyers, subject to the attorney-
client privilege and applicable copyright laws, the following original
records relating to the Assets to the extent they are in Sellers' possession
and are assignable: lease files; unit files; lease contract files; product
marketing files; compression, gathering and processing files; oil and gas
sales contracts; financial records, Tax Returns (for Santa Barbara Partners
and Hallador Production (if any)), third party consents; division of
ownership files, all participating areas and the Assets on diskette and hard
copy, if available; and all well files, but specifically excluding all other
records, including, but not limited to, corporate records, computer programs
and general tax records. Sellers shall also provide copies of all seismic
data covering the Assets at Buyers' cost and expense; and
16.3.13 Each of the Sellers will provide to Buyers a list showing
all proceeds from production attributable to the Oil and Gas Properties which
are currently held in suspense and shall transfer to Buyers all of those
suspended proceeds. Buyers shall be responsible for proper distribution of
all the suspended proceeds, to the extent turned over to it by Sellers, to
the parties lawfully entitled to them, and hereby agrees to indemnify, defend
and hold harmless Sellers from and against any and all claims, liabilities,
losses, costs and expenses, arising out of or relating to those suspended
proceeds.
16.4 Buyers' Actions at Closing. At Closing, Buyers shall perform
the following actions:
16.4.1 E&B shall execute and deliver to Hallador LLP, the
Transition Services Agreement;
16.4.2 Each of the Buyers shall execute and deliver to each of the
Sellers the certificate contemplated by Section 9.3; and
16.4.3 The Buyers shall make the payments and execute and deliver
the Notes as contemplated in Section 3.2.
16.4.4 The Buyers shall execute and deliver an assumption of the
Trio Partnership Interests, the intangible rights, the leases, the Assumption
Agreement and the Receipt to Sellers.
16.5 Notices. Immediately after Closing, Buyers shall notify all
operators, non-operators, oil or gas purchasers, government agencies and
royalty owners that it has purchased the Assets and the Stock and the Trio
Partnership Interests.
Section 17
ACTIONS AFTER CLOSING
17.1 Final Accounting. Within ninety (90) days after Closing, Sellers
shall provide Buyers with a statement of the operations of Santa Barbara
Partners, Hallador Production and the Assets as of the Closing, indicating
any changes from the Closing statement provided pursuant to Section 3.4 at
Closing ("Final Accounting"). Buyers shall have the right to cause its
accountant, in consultation with Sellers' accountant, to review the Final
Accounting within an additional seven (7) days following Sellers' delivery
of such notice. If Buyers' accountant and Sellers' accountant are unable
to agree upon the Final Accounting within an additional fourteen (14)
days following completion of Buyers' review of the Final Accounting
described above, then the two accountants jointly shall select, within
such fourteen (14) day period, an independent certified public accounting
firm which shall determine the final accounting as soon as reasonably
possible but in no event later than 150 days after the Closing Date.
The determination by such independent accounting firm shall be conclusive.
The expense of such independent accounting firm shall be borne one-half
by Sellers and one-half by Buyers.
17.2 Receipts and Credits. All monies, proceeds, receipts, credits and
income attributable to the Assets, Santa Barbara Partners or Hallador
Production for all periods of time on or after the Effective Date shall,
except as otherwise provided herein, be the sole property and entitlement of
Buyers, and to the extent received by Sellers, Sellers shall account for and
reflect the same to Buyers in the Final Accounting after Closing. All
monies, proceeds, receipts and income attributable to the Assets, Santa
Barbara Partners or Hallador Production except as otherwise provided in this
Agreement for all periods of time prior to the Effective Date shall be the
sole property and entitlement of Sellers and, to the extent received by
Buyers, Buyers shall fully disclose, account for and transmit same to Sellers
promptly. All costs, expenses and disbursements attributable to the Assets,
Santa Barbara Partners or Hallador Production for periods of time prior to
the Effective Date except as otherwise provided herein, regardless of when
due or payable, shall be the sole obligation of Sellers and Sellers shall
promptly pay, or if paid by Buyers, promptly reimburse Buyers for and hold
Buyers harmless from and against same. All costs, expenses and disbursements
attributable to the Assets, Santa Barbara Partners or Hallador Production for
periods of time subsequent to the Effective Date regardless of when due or
payable, shall be the sole obligation of Buyers and Buyers shall promptly
pay, or if paid by Sellers, promptly reimburse Sellers for and hold Sellers
harmless from and against same. Sellers shall be entitled to a credit for
and reimbursement in an amount equal to any amount received by Buyers after
Closing for any delivery or performance by Sellers prior to the Effective
Date, and Buyers shall be entitled to a credit for and reimbursement in an
amount equal to any amount received by Sellers after Closing for any delivery
or performance by Buyers after the Effective Date.
17.3 Further Assurances. After Closing, Sellers and Buyers agree to
take such further actions and to execute, acknowledge and deliver all such
further documents that are reasonably necessary or useful to carry out the
purposes of this Agreement or of any document delivered pursuant hereto.
17.4 Recording. Buyers shall, at their own cost and as soon as
practicable, record the Deed(s) and Assignment(s) and Bill(s) of Sale in the
appropriate office of the state and county in which the lands covered by the
such documents are located. Buyers shall as soon as practical file for and
obtain the necessary approval of all federal, Indian tribal or state
government agencies to the assignment of the Assets. The assignment of any
state, federal or Indian tribal oil and gas leases shall be filed in the
appropriate governmental offices on a form required and in compliance with
the applicable rules of the applicable government agencies. Buyers shall as
soon as received, but in no case later than thirty (30) days following the
receipt of such documents from the recording agency, supply Sellers with a
true and accurate photocopy of all the executed, as well as all recorded and
filed assignments within a reasonable period of time after their recording
and filing.
17.5 Books and Records. Notwithstanding any other provision herein
contained, Buyers shall retain all original documents delivered to Buyers
pursuant to Section 16.3.8 pertaining to the Assets, the Trio Partnership
Interests, its Stock, Santa Barbara Partners or Hallador Production for as
long as it so desires and make the same available after the Closing for
inspection and copying by Sellers at Buyers' expense during normal business
hours, upon reasonable request and upon reasonable notice; provided, however,
that during the first ten (10) years after Closing, such books, records or
documents shall not be disposed of or destroyed by Buyers without first
advising Sellers in writing and giving Sellers reasonable opportunity to
obtain possession thereof.
17.6 Access to Employees and Books and Records Post-Closing.
17.6.1 From and after the Closing Date, Sellers will afford to
Buyers and their authorized representatives reasonable access during normal
business hours to the then current officers and employees of Sellers retained
by Sellers who were employed in connection with the Assets, Santa Barbara
Partners or Hallador Production and will cooperate with Buyers in making
available to Buyers at Buyers' expense, unless the action is an action by
Buyers against Sellers, as a witness or deponent such employees of such
Sellers in each case only so long as such persons are then employees of such
Sellers or an Affiliate of such Sellers, as Buyers may request for (a)
financial reporting, (b) tax or similar purposes or (c) purposes of
investigating claims, or conducting litigation or administrative proceedings
with third parties or government agencies. Sellers will also afford to
Buyers and their authorized representatives, for appropriate purposes, such
reasonable access during normal business hours to the properties and relevant
books and records of Sellers associated with the Assets prior to the Closing
Date but not transferred to Buyers.
17.6.2 From and after the Closing Date, Buyers will afford to
Sellers and their authorized representatives reasonable access, during normal
business hours, to the transferred employees, as shall at such time be
employees of Buyers and who were prior to the Closing Date associated with
the Assets, Santa Barbara Partners or Hallador Production, and to such
properties, books and records relating to the Assets, Santa Barbara Partners
or Hallador Production transferred to Buyers hereunder, without charge, and
will furnish to Sellers such additional information, and will cooperate with
Sellers in such other respects, including the making available to Sellers at
Sellers' expense, unless the action is an action by Sellers against Buyers,
as a witness or deponent such former employees of Sellers as shall be at the
time employees of Buyers, Santa Barbara Partners or Hallador Production as
Sellers may request for (a) financial reporting, (b) tax or similar purposes
or (c) purposes of investigating claims, or conducting litigation or
administrative proceedings with third parties or government agencies. Buyers
will also provide to Sellers' authorized representatives such reasonable
access without charge during normal business hours to the officers,
employees, properties, books and records transferred to Buyers in connection
with this Agreement.
17.7 No Right to Offset. It is expressly understood that the Buyers
shall have no right to offset against payments due to be made pursuant to the
Notes delivered pursuant to Section 3.2.3 of this Agreement for any
obligation claimed due from Sellers, including, without limitation, any
indemnification obligations pursuant to Section 15.
17.8 Confidentiality. With the exception of disclosure that this
transaction occurred, and any disclosures required by law, including, without
limitation, applicable securities laws or regulations, or court order, each
of the Buyers and Sellers agree that the specific terms of this Agreement
shall remain confidential unless a specific written agreement is made between
the Buyers and the Sellers. Furthermore, following and subject to the
Closing, each of the Sellers, on their own behalf and on behalf of their
respective employees, partners, officers, directors, agents, successors and
assigns do hereby agree to keep all non-public information with regard to the
Assets confidential and not to disclose such to any third party without the
prior written consent of each of the Buyers.
17.9 Facsimile Signatures and Counterparts. This Agreement may be
executed and delivered using facsimiled signatures and such facsimiled
signatures shall be legally enforceable against the Party providing same.
This Agreement may be signed in any number of counterparts and each such
counterpart shall be considered an original and an enforceable agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
SANTA BARBARA PARTNERS
By: Hallador Production Company,
its General Partner
By:/s/ Victor P. Stabio
Title: President
HALLADOR PRODUCTION COMPANY
By: /s/Victor P. Stabio
Title: President
HALLADOR PETROLEUM MPANY
By: /s/Victor P. Stabio
Title: President
HALLADOR PETROLEUM, LLP
By: Hallador Petroleum Company,
its General Partner
By:/s/ Victor P. Stabio
Title: President
TRIO PETROLEUM INC.
By: /S/CHARLES HORACE
Title: PRESIDENT
[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]
CUYAMA DRILLING AND PRODUCTION COMPANY
By:/S/CHARLES HORACE
Title: PRESIDENT
SOUTH CUYAMA LIMITED PARTNERSHIP,
By: Cuyama Drilling And Production
Company,
its General Partner
By: /S/CHARLES HORACE
Title: PRESIDENT
E&B NATURAL RESOURCES MANAGEMENT
CORPORATION
By: /s/Steven D. Layton
Title: President
WRBD II, LP
By: Remington At Pointe Vedra Lakes, LLC,
its General Partner
By: Rotterdam Ventures, Inc.,
its Managing Member
By: /S/Frank J. Ronkese
Title: Vice President
EXHIBIT C
Allocation of Purchase Price
Sellers have agreed to allocate the purchase price as follows:
$ 3,000,000 Trio Sellers 11.53846%
$23,000,000 Hallador Petroleum, LLP 88.46153%
-----------
$26,000,000
==========
The following payments will be allocated as follows:
$150,000 Trio Sellers $ 17,308
Hallador Petroleum, LLP 132,692
$1,200,000 Trio Sellers 138,462
Hallador Petroleum, LLP 1,061,538
$20,650,000 Trio Sellers 2,382,692
Hallador Petroleum, LLP 18,267,308
$4,000,000 Notes Trio Sellers 461,538
- --------------- Hallador Petroleum, LLP 3,538,462
-----------
$26,000,000 $26,000,000
=========== ==========
Allocation among Trio Sellers
Trio Petroleum's interest
in Santa Barbara Partners $10,401 $83,210 $1,431,893 $277,364
Trio Petroleum, Inc.
$1,084 $8,668 $149,168 $28,895
Cuyama Drilling and
Production Company $3,244 $25,954 $446,631 $86,514
South Cuyama Limited
Partnership $2,579 $20,630 $355,000 $68,765
------ ------- --------- -------
$17,308 $138,462 $2,382,692 $461,538
======= ======= ========= =======
The above will be adjusted for closing, and post closing adjustments
as agreed upon between Hallador Sellers and Trio Sellers.