Exhibit 10.1
TABLE OF CONTENTS
Page
ARTICLE 1
INTERPRETATION................................................2
1.1 Definitions..........................................2
1.2 Headings, meaning of "hereof", and Article
and Schedule References............................13
1.3 Single and Plural and Gender........................13
1.4 Currency............................................13
1.5 "Including".........................................13
1.6 Knowledge...........................................13
1.7 Schedules...........................................14
1.8 Conflicts...........................................14
1.9 Statute References..................................15
ARTICLE 2
PURCHASE AND SALE............................................15
2.1 Purchase and Sale...................................15
2.2 Purchase Price......................................15
2.3 Deposit.............................................15
2.4 Payment.............................................16
2.5 Purchase Price Adjustment and Post
Closing Adjustments................................17
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS....................17
3.1 Regarding the Seller and the Shares:................17
3.2 Regarding Grey Wolf.................................19
3.3 Regarding Canadian Abraxas..........................24
3.4 Regarding the Assets................................29
3.5 Negation............................................32
3.6 Purchaser's Representations and Warranties..........33
3.7 Right to Purchase Mirant GORR.......................33
ARTICLE 4
TAX MATTERS..................................................34
4.1 Withholding Requirement.............................34
4.2 Tax Returns.........................................36
4.3 Tax Indemnity.......................................37
ARTICLE 5
CLOSING PERIOD...............................................39
5.1 Pre-Closing Activities..............................39
5.2 Insurance...........................................41
5.3 Due Diligence.......................................41
5.4 Required Approvals..................................41
5.5 Tax Elections.......................................41
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 6
CONDITIONS...................................................42
6.1 Conditions for the Benefit of the Purchaser.........42
6.2 Conditions for the Benefit of the Seller............43
6.3 Efforts to Satisfy Conditions.......................45
6.4 Asset Sale Alternative..............................45
6.5 Closing Extension...................................45
ARTICLE 7
CLOSING......................................................45
7.1 Closing.............................................45
7.2 Deliveries by the Seller at Closing.................45
7.3 Deliveries by the Purchaser at Closing..............46
7.4 Closing Escrow......................................46
ARTICLE 8
ENVIRONMENTAL INDEMNITY......................................47
8.1 Indemnity...........................................47
ARTICLE 9
GENERAL INDEMNITIES..........................................47
9.1 Seller's Indemnity..................................47
9.2 Purchaser's Indemnity...............................47
9.3 Limitations on Seller's Indemnity...................48
9.4 Indemnification Procedure...........................49
9.5 Specific Claim Indemnity............................50
ARTICLE 10
EMPLOYEES....................................................50
10.1 Choosing Employees..................................50
10.2 Recognition of Service..............................51
10.3 Retained Employees..................................51
10.4 Transfer Employees..................................51
10.5 Asset Transaction...................................52
10.6 Transitional Assistance.............................52
ARTICLE 11
DUE DILIGENCE................................................52
11.1 Title Opinions......................................52
11.2 Pre-Closing Title Review............................53
11.3 Termination Right...................................53
11.4 Arbitration.........................................53
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 12
SURVIVAL.....................................................54
12.1 Survival............................................54
ARTICLE 13
TERMINATION..................................................54
13.1 Termination.........................................54
ARTICLE 14
ARBITRATION..................................................55
14.1 Procedure...........................................55
ARTICLE 15
GENERAL......................................................56
15.1 Further Assurances..................................56
15.2 Time of the Essence.................................56
15.3 Cooperation.........................................56
15.4 Expenses............................................56
15.5 Public Announcements................................56
15.6 Benefit of the Agreement............................56
15.7 Entire Agreement....................................57
15.8 Amendments and Waiver...............................57
15.9 Assignment..........................................57
15.10 Notices.............................................57
15.11 Change of Companies' Names..........................58
15.12 Governing Law.......................................58
15.13 No Duplication of Adjustments.......................59
15.14 Interest............................................59
15.15 PrimeWest Energy Inc. Guarantee.....................59
15.16 Counterpart Execution................................1
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PURCHASE AND SALE AGREEMENT
among
ABRAXAS PETROLEUM CORPORATION
as Seller
and
PRIMEWEST GAS INC.
as Purchaser
and
PRIMEWEST ENERGY INC.
as Guarantor
and
CANADIAN ABRAXAS PETROLEUM LTD.
and
GREY WOLF EXPLORATION INC.
as the Companies
November 21, 2002
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT made this 21st day of November, 2002;
AMONG:
ABRAXAS PETROLEUM CORPORATION, a body corporate incorporated under
the laws of Nevada (hereinafter referred to as "Abraxas")
- and -
CANADIAN ABRAXAS PETROLEUM LIMITED, a body corporate incorporated
under the laws of Alberta (hereinafter referred to as "Canadian
Abraxas")
- and -
GREY WOLF EXPLORATION INC., a body corporate incorporated under
the laws of Alberta (hereinafter referred to as "Grey Wolf")
- and -
PRIMEWEST ENERGY INC., a body corporate incorporated under the
laws of Alberta (hereinafter referred to as "PEI")
PRIMEWEST GAS INC., a body corporate incorporated under the laws
of Alberta (hereinafter referred to as the "Purchaser")
WHEREAS Abraxas is the registered and beneficial owner of the Canadian
Abraxas Shares;
AND WHEREAS Abraxas and Canadian Abraxas are the registered and
beneficial owners of the Grey Wolf Shares;
AND WHEREAS the Seller desires to sell the Canadian Abraxas Shares and
the Grey Wolf Shares owned by it to the Purchaser upon and subject to the terms
and conditions hereinafter set forth;
AND WHEREAS the Purchaser desires to purchase the Canadian Abraxas
Shares and the Grey Wolf Shares owned by Abraxas from the Seller upon and
subject to the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and the covenants and agreements herein contained the parties hereto
agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Agreement, unless otherwise stated or the context otherwise
requires:
(1)"Abandonment and Reclamation Liabilities" means all obligations to
abandon the Wells and restore and reclaim the surface sites thereof,
to decommission and remove the Facilities and equipment comprised in
the Tangibles and restore and reclaim the surface sites thereof and
to reclaim and restore the lands to which the Surface Rights relate,
including such obligations relating to Wells which were abandoned
prior to the Adjustment Date;
(2)"Accepted Environmental and Reclamation Liabilities" means:
(i) Abandonment and Reclamation Liabilities in respect of Wells,
whether producing or not, including those which were in the
course of actively being abandoned on the Adjustment Date, or
are drilled after the Adjustment Date, and which would be
expected if the Wells were drilled and operated in accordance
with accepted Canadian oil and gas practices;
(ii) Abandonment and Reclamation Liabilities in respect of
Facilities which were in use on the Adjustment Date or
constructed after the Adjustment Date and which would be
expected if the Facilities were constructed and operated in
accordance with accepted Canadian oilfield practices;
(iii) Environmental and Reclamation Liabilities arising after the
Adjustment Date as a result of activities conducted in
accordance with accepted Canadian oilfield practices; and
(iv) all Environmental and Reclamation Liabilities disclosed in the
Environmental Report;
(3)"Adjusted Purchase Price" has the meaning specified in Section 2.2;
(4)"Adjustment Date" means October 1, 2002;
(5)"Affiliate" of an entity means a person or entity that controls, is
controlled by or is under common control with the subject entity.
For the purpose of this definition, control means the ability,
directly or indirectly, to direct the voting of more than Fifty
Percent (50%) of the voting interests of an entity;
(6)"Agreement" means this Purchase and Sale Agreement, as amended by
amendments made after the date hereof by written agreement between
the Seller and the Purchaser;
(7)"Applicable Law" means, in relation to any Person, property or
circumstance:
(i) statutes (including regulations enacted thereunder);
2
(ii) judgments and orders of courts of competent jurisdiction;
(iii) regulations and orders issued by governmental agencies and
authorities; and
(iv) the terms and conditions of permits, licenses, authorizations
or approvals issued by governmental agencies or authorities;
which are applicable to such Person, property or circumstance;
(8) "Assets" mean any and all assets, properties and rights
beneficially owned by the Companies, whether vested or
contingent, including the Oil and Gas Assets and Working Capital;
(9) "Auditors" means Deloitte & Touche L.L.P., chartered accountants;
(10) "Base Price" means $217,000,000 representing the total amount to
be paid by the Purchaser for the purchase of the Shares before
any adjustments are applied;
(11) "Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Calgary, Alberta or San Antonio, Texas;
(12) "Canadian Abraxas Shares" means all of the issued and outstanding
shares of Canadian Abraxas;
(13) "Canadian Tax Act" means the Income Tax Act R.S.C. 1985, c. 1
(5th Supplement) as amended and the Income Tax Regulations;
(14) "Claim" means any claim, demand, lawsuit, proceeding, arbitration
or governmental investigation;
(15) "Closing" means the completion of the transactions of purchase
and sale of the Shares by the Seller to the Purchaser pursuant
hereto;
(16) "Closing Date" means December 31, 2002, unless changed to another
date pursuant hereto;
(17) "Companies" means collectively Grey Wolf and Canadian Abraxas and
"Company" means one of them;
(18) "Companies' Debt" means the amount of the indebtedness of the
Companies pursuant to the Mirant Credit Agreement and the
Indentures;
(19) "Confidentiality Agreement" means the Confidentiality Agreement
dated July 19, 2002 between PEI and the Seller;
(20) "Creditors' Rights" has the meaning specified in Section 3.1(2);
(21) "December 21, 1999 Indenture" means that Trust Indenture dated
December 21, 1999 among Abraxas and Canadian Abraxas, as Issuers,
and Firstar Bank, N.A. as Trustee and others as guarantors,
3
relating to the issuance of US $196,800,000 in 11 1/2% Senior
Secured Notes due 2004, Series A;
(22) "Deposit" has the meaning specified in Section 2.3;
(23) "Deposit Interest" has the meaning specified in Section 2.3;
(24) "Dollars" or "$" means dollars of lawful currency of Canada;
(25) "Employees" means Grey Wolf's current employees identified in
Schedule L;
(26) "Employee Plan" means any employee benefit plan, program or
arrangement sponsored, maintained or contributed to by the Seller
or the Companies for the benefit of Grey Wolf's employees,
including, without limitation, bonus; pension; savings; profit
sharing; deferred compensation; supplemental retirement income;
stock option; stock purchase; and hospital, medical, dental,
disability, automobile, life and accident insurance plans;
(27) "Encumbrance" means a Security Interest, an option to purchase, a
farmout agreement under which earning has not occurred, a
royalty, a net profits interest, a carried working interest, a
right to convert a royalty to a working interest on payout of a
well, a penalty or forfeiture arising as a result of
non-participation in a drilling or other operation and any other
encumbrance, whether similar or dissimilar to the foregoing;
(28) "Environment" includes air, soil, ground water, surface water,
aquifers and plant and animal life;
(29) "Environmental Law" means any Applicable Law intended to protect
or preserve the Environment and any Applicable Law relating to
the storage, handling, transportation, use, spill, release or
emission of toxic or hazardous substances;
(30) "Environmental and Reclamation Liabilities" means all of the
Environmental Liabilities and Abandonment and Reclamation
Liabilities relating to the Oil and Gas Assets (whether arising
prior to, on or after the Adjustment Date);
(31) "Environmental Liabilities" means any and all Liabilities in
respect of the Environment, including:
(i) Liabilities in respect of contamination, pollution or other
damage to the Environment;
(ii) Liabilities in respect of damage caused by the presence,
storage, disposal, transportation, release, spill or
emission of any substance (including any form of energy),
including, without limitation, corrosion or deterioration of
structures or other property and death or injury to human
beings, plants or animals;
4
(iii)Liabilities for the remediation, restoration or reclamation
of the Environment (other than the Abandonment and
Reclamation Liabilities); and
(iv) Liabilities under Environmental Laws;
(32) "Escrow Agent" has the meaning specified in Section 2.3;
(33) "Excluded Oil and Gas Assets" means those Oil and Gas Assets and
other assets described in Schedule O, including, without
limitation, the Office Lease;
(34) "Existing Title Defects" means the defects which affect any of
the Oil and Gas Assets and which are disclosed in the Title
Opinions;
(35) "Facilities" means the tangible property, apparatus, plant,
equipment, machinery and facilities described in Schedules E and
N;
(36) "Farmor" means the Affiliate of the Seller identified as the
"Farmor" in each of the Farmout Agreements;
(37) "Farmor Guarantee" means the guarantee in the form attached
hereto as Schedule U;
(38) "Farmout Agreements" means agreements in the forms attached as
Schedule "P";
(39) "Financial Statements" means the audited financial statements of
the Companies for the period ended December 31, 2001 and the
unaudited statements for the period ended September 30, 2002,
which are attached hereto as Schedule A;
(40) "GAAP" means generally accepted accounting principles used in
Canada from time to time;
(41) "Gas and Oil Sales Contracts" means contracts for the sale and
purchase of Petroleum Substances;
(42) "Grey Wolf Shares" means all of the issued and outstanding shares
of Grey Wolf;
(43) "Indentures" means the March 26, 1999 Indenture, the December 21,
1999 Indenture and the January 27, 1998 Indenture;
(44) "Interim Interest" means the amount of simple interest at the
Prime Rate on the Base Price, computed from the Adjustment Date
to December 20, 2002;
(45) "Interim Period Excluded Assets Net Revenues" means the Interim
Period Revenues minus the Interim Period Costs, where:
(i) "Interim Period Revenues" are the revenues and proceeds from
sales or otherwise which accrue to the Companies in respect
5
of the Excluded Assets during the Pre-Closing Period,
determined in accordance with GAAP;
(ii) "Interim Period Costs" are the aggregate of all costs
(including capital costs, operating costs and maintenance
costs) accrued to the Companies in respect only of the Oil
and Gas Assets which are Excluded Assets during the
Pre-Closing Period, determined in accordance with GAAP plus
an amount of $678 per day to account for the portion of
corporate overhead applicable to the Excluded Assets;
(iii)costs and expenses of work done, services provided and
goods supplied shall be deemed to accrue when the work is
done or the goods or services are provided, regardless of
when such costs and expenses become payable;
(iv) revenues from the sale of Petroleum Substances will be
deemed to accrue when such Petroleum Substances are
produced; and
(v) all rentals and similar payments in respect of the Leases or
Surface Rights comprised in the Excluded Assets and all
Taxes (other than goods and services or income taxes) levied
with respect to the Excluded Oil and Gas Assets or
operations in respect thereof shall be apportioned on a per
diem basis as of the Adjustment Date;
(46) "January 27, 1998 Indenture" means that Trust Indenture dated
January 27, 1998 among Abraxas and Canadian Abraxas, as Issuers,
and IBJ Schroder Bank and Trust Company, as Trustee, relating to
the issuance of US $60,000,000 11 1/2% Senior Notes due 2004,
Series C and US $275,000,000 11 1/2 % Senior Notes due 2004,
Series D;
(47) "Land Sales Acquisitions" means the interests in Crown Leases
acquired by the Companies at land sales, if any, conducted by the
Government of the Provinces of Alberta, British Columbia or
Saskatchewan between the Adjustment Date and the Closing Date,
and any other acquisitions of oil and gas lands or interests
(whether by acquisition, leasing, the exercise of rights of first
refusal or otherwise) made by the Companies between the
Adjustment Date and the Closing Date;
(48) "Lands" means the lands or interests therein described in
Schedule E, subject to such limitations as to geological
formations and substances and such Encumbrances as may appear in
Schedule E;
(49) "Leases" means the petroleum and natural gas leases, licenses,
permits and similar instruments listed in Schedule E by virtue of
which the holder thereof is entitled to drill for, produce, save
and market Petroleum Substances from the Lands and includes, if
applicable, all renewals and extensions of such leases, licenses,
permits and instruments and all documents issued in substitution
therefor;
(50) "Liabilities" means all liabilities and obligations, whether
under common law, in equity, under Applicable Law, under contract
6
or otherwise, whether tortious, contractual, statutory or
otherwise, whether absolute or contingent and whether based on
fault, strict liability or otherwise;
(51) "Losses" means, in respect of a Person and in relation to a
matter, all losses, costs and damages (including all penalties
and fines) which such Person suffers, sustains, pays or incurs in
connection with such matter and includes Taxes (other than
refundable Taxes), reasonable costs of legal counsel (on a full
indemnity basis) and other consultants and reasonable costs of
investigating and defending Claims arising from such matter, but
shall not include loss of profits, economic loss or other
consequential damages suffered by such Person;
(52) "March 26, 1999 Indenture" means that Trust Indenture dated March
26, 1999 among Abraxas, as Issuer, Canadian Abraxas as a
Guarantor, and Norwest Bank Minnesota, N.A. as Trustee and others
as further guarantors relating to the issuance of US $63,500,000
in 12 ?% Senior Notes due 2003;
(53) "Material" means that a specified fact, circumstance or event or
combination thereof is reasonably expected to (i) result in
Liabilities or Losses to any of the Companies of more than
$150,000; or (ii) affect (either positively or negatively) the
value of the Oil and Gas Assets by more than $150,000;
(54) "Material Adverse Effect" means in relation to a Party, any
change or effect that is reasonably likely to be materially
adverse to the business, operation, properties, financial
condition, assets or liabilities of the entity in question, taken
as a whole and which is reasonably expected to: (i) if Closing
occurs result in such Party suffering Losses of 10% of the Base
Price or more or (ii) make it illegal or impossible to complete
the transfer of the Shares from the Seller to the Purchaser,
provided that a Material Adverse Effect shall not include an
adverse effect resulting from a change (a) resulting from any
decline in crude oil or natural gas prices on a current or
forward basis; or (b) resulting from general economic, financial,
currency exchange, securities or commodity market conditions in
Canada or elsewhere; or (c) resulting from the drilling,
completion or testing after the date hereof of any Well
establishing that any such Well or prospect is not commercially
viable or is less successful than anticipated by the Purchaser;
or (d) resulting from changes in the oil and gas industry
generally, including, for greater certainty, any adverse
circumstances resulting from the Government of Canada's plan to
ratify or implement the Kyoto Accord;
(55) "Material Contracts" means all contracts and other written
agreements to which the Companies or any of their subsidiaries
are a party, the performance of which will involve consideration
in excess of $150,000 per year or $1,500,000 in the aggregate but
does not include Title and Operating Documents;
(56) "Mirant Credit Agreement" means that Credit Agreement dated
December 20, 2001 between Mirant Canada Energy Capital, Ltd. and
Grey Wolf;
(57) "Miscellaneous Interests" means all of the Companies' right,
title, estate and interest in and to all property, assets and
rights associated with the Petroleum and Natural Gas Rights or
7
the Tangibles (other than the Petroleum and Natural Gas Rights
and the Tangibles themselves) including, but not in limitation of
the generality of the foregoing, the entire interest of the
Companies in:
(i) all contracts and agreements directly related to the
Petroleum and Natural Gas Rights or the Tangibles,
including, without limitation, the Title and Operating
Documents;
(ii) the Surface Rights;
(iii) all Wells; and
(iv) the records, data and information related to the Oil and Gas
Assets, including, without limitation, well files, lease
files, agreement files, Seismic Data, geological,
geophysical, engineering and production records, and all
financial records, statements, documents and information
concerning the Companies and the minute books of the
Companies;
(58) "New Title Defects" has the meaning specified in Section 11.2;
(59) "Office Lease" means Grey Wolf's lease for its Calgary office,
which is described in Schedule G;
(60) "Oil and Gas Assets" means the Petroleum and Natural Gas Rights,
the Companies' interests in the Tangibles and the Miscellaneous
Interests;
(61) "Ordinary Course of Business" means the ordinary course of
business consistent with prior custom and practice or with
industry practice (including with respect to quantity and
frequency);
(62) "Party" means the Seller, Grey Wolf or Canadian Abraxas or the
Purchaser and "Parties" means all of them;
(63) "Permitted Encumbrances" means:
(i) liens for taxes, assessments or governmental charges which
are not due or delinquent or, as set forth in Schedule M
where Material, the validity of which is being diligently
contested in good faith by the Seller, the Companies (or
either of them);
(ii) liens incurred or created in the ordinary course of business
as security in favour of any other Person who is conducting
the development or operation of the property to which such
liens relate for the Companies' share (or either of them) of
the costs and expenses of such development or operation
which are not due or delinquent;
(iii)mechanics', builders' or materialmen's liens in respect of
services rendered or goods supplied for which payment is not
due;
(iv) easements, rights of way, servitudes or other similar rights
in land (including, without limitation, rights of way and
servitudes for railways; sewers; drains; gas and oil
8
pipelines; gas and water mains; and electric light, power,
telephone, telegraph and cable television conduits, poles,
wires and cables);
(v) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, license, franchise, grant or permit or by any
statutory provision, to terminate any such lease, license,
franchise, grant or permit or to require annual or other
periodic payments as a condition of the continuance thereof;
(vi) governmental requirements of general application, including,
without limitation, those respecting production rates or
other operational matters;
(vii) the Encumbrances described in Schedule E;
(viii) the reservations, limitations, provisos and conditions in
any original grants from the Crown of any of the Lands or
interests therein and statutory exceptions to title;
(ix) the terms and conditions of the Title and Operating
Documents; and
(x) the Encumbrances identified in Schedules I or M or in
respect of the Excluded Assets for which discharges,
releases or undertakings are delivered at Closing;
(64) "Permitted Transactions" means those transactions listed in
Schedule I;
(65) "Person" means any individual, body corporate, partnership
(limited or general), trust, trustee, executor or similar
official, governmental agency or authority or other entity;
(66) "Petroleum and Natural Gas Rights" means the entire right, title,
estate and interest of the Companies in:
(i) rights (whether fee simple interests, leasehold interests or
other interests) to drill for and produce, save and market
Petroleum Substances from the Lands;
(ii) royalties, net profits interests and similar interests
entitling the holder thereof to a share of the Petroleum
Substances produced from the Lands or lands pooled or
unitized therewith or to a payment calculated by reference
to the quantity of such production, the proceeds from the
sale thereof or the profits therefrom; and
(iii) rights to acquire the foregoing;
(67) "Petroleum Substances" means petroleum, natural gas and related
hydrocarbons (including crude oil, natural gas liquids, coal-bed
methane, but excluding coal) and all other substances (including
sulphur and sulphur compounds) produced in association therewith;
9
(68) "Place of Closing" means the offices of Osler, Hoskin & Harcourt
LLP located at 1900, 333 - 7th Avenue S.W., Calgary, Alberta, T2P
2Z1;
(69) "Pre-Closing Period" means the period from the Adjustment Date to
the Time of Closing;
(70) "Prime Rate" means the rate of interest, expressed as a rate per
annum, announced from time to time by the Canadian Imperial Bank
of Commerce as its reference rate used for Canadian dollar
commercial loans made in Canada and referred to by it as its
"prime rate";
(71) "Purchased Assets" shall have the meaning specified in Schedule
Q;
(72) "Purchase Price Adjustment Amount" means the amount (which may be
a negative amount) equal to:
(i) the amount of unpaid principal and accrued but unpaid
interest on the Companies' Debt as of the Adjustment Date;
(ii) plus interest paid or accrued (without duplication) on the
Companies' Debt during the Pre-Closing Period;
(iii)plus the amount of the Working Capital deficiency as of the
Adjustment Date, if the Working Capital is a negative
amount, or minus the Working Capital as of the Adjustment
Date, if the Working Capital is a positive amount;
(iv) plus the costs, if any, of termination of all Retained
Employees as contemplated by Section 10.2; and
(v) plus $3,000,000;
(73) "Required Approvals" means all required approvals by third
parties of the transactions contemplated by this Agreement, and
the other approvals and authorizations of the purchase and sale
of the Shares pursuant hereto required to be obtained pursuant to
Applicable Law which, if not obtained, would be Material to the
Seller, the Purchaser, or either of the Companies;
(74) "Representatives" means in relation to a Party, its directors,
officers, servants, agents and employees;
(75) "Retained Employees" shall have the meaning ascribed to such term
in Section 10.1;
(76) "Security Interest" means any pledge, lien, charge, conditional
sale, title retention arrangement, mortgage, assignment by way of
security or other security interest;
(77) "Seismic Data" means seismic data including surveyors' ground
elevation records, shot point maps, drillers' logs, shooters'
10
records, seismograph records, seismograph magnetic tapes, monitor
records, field records and record sections, including maps and
interpretations made therefrom;
(78) "Seller" means Abraxas;
(79) "Shares" means collectively the Canadian Abraxas Shares and the
Grey Wolf Shares owned by Abraxas;
(80) "Surface Rights" means all rights to enter upon, use or occupy
the surface of lands (including, but not limited to, the Lands)
which are used or held for use in connection with the Petroleum
and Natural Gas Rights or the Tangibles, including rights to
enter upon, use and occupy the surface of lands on which the
Tangibles and the Wells are located or any lands with which the
same have been pooled or unitized and rights to use the surface
of lands to gain access thereto;
(81) "Take or Pay Obligations" means obligations of the Companies (or
either of them) under or in respect of a contract for the sale of
production of Petroleum Substances arising as a result of
payments made by or on behalf of the buyer thereunder in advance
of taking delivery of Petroleum Substances pursuant thereto or in
lieu of or as compensation for the buyer not taking deliveries of
Petroleum Substances pursuant thereto;
(82) "Tangibles" means all equipment and facilities used or held for
use in respect of the production, gathering, dehydration,
processing, treatment, measurement, storage, injection or
transportation of Petroleum Substances from the Lands or lands
pooled or unitized therewith, including, without limitation,
wellheads, pumps, pumpjacks, dehydrators, separators, meters,
generators, flowlines, gathering lines, batteries, tanks,
pipelines, compressors, scrubbers, boilers, communications
equipment, pipeline connections, motors and gas processing
plants;
(83) "Tax Records" means all Tax Returns, books and records and
correspondence related to tax matters relevant for the
determination of compliance with tax laws and exposure to tax
liabilities of whatever nature;
(84) "Tax Returns" includes all returns, reports, declarations,
elections, filings, information returns and statements required
to be filed by any Party in respect of Taxes;
(85) "Tax" or "Taxes" means all taxes, duties, fees, premiums,
assessments, levies and other charges of any kind whatsoever
imposed by any taxing or other governmental authority or agency,
together with all interest and penalties in respect thereof,
excluding royalties and similar payments payable pursuant to or
in respect of the Leases;
(86) "Time of Closing" means 10:00 a.m. Calgary time on the Closing
Date;
(87) "Title and Operating Documents" means (i) the Leases (ii) all
agreements relating to the ownership or operation of the Oil and
Gas Assets entered into in the normal course of business,
11
including, without limitation: operating procedures; unit
agreements and unit operating agreements; agreements for the
construction, ownership and operation of gas plants, pipelines,
gas gathering systems and similar facilities; pooling agreements,
royalty agreements, farmin agreements, farmout agreements and
participation agreements; trust agreements; agreements respecting
the gathering, measurement, processing, compression or
transportation of Petroleum Substances; Gas and Oil Sales
Contracts; seismic data licensing agreements; well operating
contracts; and surface leases, pipeline easements, road use
agreements and other contracts granting the right to use the
surface of lands; and (iii) all permits, licenses and approvals
issued or granted by governmental authorities pertaining to the
ownership or operation of the Oil and Gas Assets or the
gathering, processing, treatment, storage, measurement,
transportation or sale of the production of Petroleum Substances
from the Oil and Gas Assets;
(88) "Title Defects" means:
(i) in relation to an Oil and Gas Asset, a defect, imperfection
or deficiency in the title of the Companies on such Oil and
Gas Asset which is such that a reasonable, prudent and
otherwise willing buyer of such Oil and Gas Asset for the
fair market value thereof (computed as if such defect,
imperfection or deficiency did not exist) would refuse to
purchase such Asset or require a reduction in the purchase
price thereof solely because of such defect, imperfection or
deficiency; or
(ii) with respect to an interest attributed to a Company in the
Schedules, such Company's actual interest being less than
that attributed to it in the Schedules;
but does not include the Permitted Encumbrances, title defects,
deficiencies or qualifications disclosed or set forth in the
Title Opinions;
(89) "Title Opinions" means:
(i) Title Opinion of Code Hunter dated July 25, 1991 regarding
the Acquisition of Interest from Novalta Resources Inc. by
CGGS Canadian Gas Gathering Systems Inc.;
(ii) Title Opinion of Code Hunter dated December 16, 1991
regarding Acquisition of Interest from Gulf Canada Resources
Limited by CGGS Canadian Gas Gathering Systems Inc.; and
(iii)Title Opinion of Bennett Jones dated October 29, 1996 in
respect of certain P&NG Rights owned by CGGS Canadian Gas
Gathering Systems Inc.;
(90) "Wells" means all wells (including, without limitation,
producing, shut-in, suspended, capped, abandoned, injection and
disposal wells) located on the Lands or lands pooled or unitized
therewith, and including those wells set out on Schedule "E";
12
(91) "Working Capital" means the following amount (which may be a
negative amount):
(i) the sum of the amount of the Companies' current assets, less
any unamortized costs relating to the Companies' Debt; minus
(ii) the sum of the amount of the Companies' current liabilities
(which current liabilities will not include future site
restoration, the Companies' Debt or any accrued interest
thereon);
determined in accordance with GAAP, applied on a basis
consistent with the Companies' past practices. Receivables
assigned pursuant to Schedule I shall not be included in the
Companies' current assets. Payables assigned pursuant to
Schedule I, if any, shall not be included in the Companies'
current liabilities.
1.2 Headings, meaning of "hereof", and Article and Schedule References
The headings of Articles, Sections, and Subsections in this Agreement
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The terms "this Agreement", "hereof",
"hereunder" and similar expressions refer to this Agreement in its entirety
(including Schedules) and include any agreement supplemental hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles, Sections, Subsections and Paragraphs are to Articles,
Sections, Subsections and Paragraphs of this Agreement and references herein to
Schedules are references to Schedules to this Agreement.
1.3 Single and Plural and Gender
In this Agreement words importing the singular number only shall
include the plural and vice versa and words importing one gender shall include
the other genders.
1.4 Currency
Unless specifically otherwise stated, all references to currency herein
are to lawful money of Canada.
1.5 "Including"
In this Agreement, "including" means "including, without limiting the
generality of the foregoing".
1.6 Knowledge
In this Agreement, unless otherwise indicated, references to the
Seller's knowledge, information, belief or awareness and similar references mean
the actual knowledge of the officers of the Seller and the Companies after a
reasonable inquiry of its current employees whose day to day employment
responsibilities relate to the matter in question, but does not include the
knowledge of any other Person nor constructive or deemed knowledge. Except as
stated above, a Party shall have no obligation to make any inquiry of other
13
Persons or other Persons' files and records or of any public office in
connection with representations which are made herein in respect of its
knowledge, information, belief or awareness.
1.7 Schedules
The following are the Schedules to this Agreement:
Schedule. Title
Schedule A - Financial Statements
a) Grey Wolf
1) Dec 31/01
audited 2) Sept
30/02 unaudited
b) Canadian Abraxas
1) Dec 31/01
audited 2) Sept
30/02 unaudited
Schedule B - Form of Officer's Closing Certificate
Schedule C - Claims
Schedule D - Oil and Gas Sales, and Processing Contracts,
Gas Transportation Contracts and Hedging Contracts
Schedule E - Lands, Wells of the Companies
Schedule F - Employee Plans
Schedule G - Description of the Office Lease
Schedule H - Insurance
Schedule I - Certain Permitted Transactions
Schedule J - Bank Accounts
Schedule K - Production Penalties
Schedule L - List of Employees
Schedule M - Disclosures
Schedule N - Facilities
Schedule O - Excluded Assets
Schedule P - Farmout Agreements (Caroline and Pouce Coupe)
Schedule Q - Asset Sale Provisions
Schedule R - Form of Resignation and Release by Directors and Officers
Schedule S - Authorizations for Expenditure
Schedule T - Special Adjustments
Schedule U - Farmor Guarantee
The Schedules are contained in binders labelled "Schedules to the Purchase and
Sale Agreement dated November 21, 2002 among Abraxas et al and PrimeWest -
Schedules". The label on the Binders have been initialled by the Parties. The
Schedules form part of this Agreement.
1.8 Conflicts
Where any provision of any Schedule to this Agreement conflicts or is
at variance with any provision in the body of this Agreement, the latter shall
prevail.
14
1.9 Statute References
A reference in this Agreement to a statute shall be a reference to the
statute and the regulations made pursuant thereto as amended or superseded, from
time to time, either before or after the date hereof, unless otherwise stated or
the context otherwise requires.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale
The Seller hereby agrees to sell the Shares to the Purchaser in
accordance with and subject to the terms and conditions of this Agreement. The
Purchaser hereby agrees to purchase such Shares from the Seller in accordance
with and subject to the terms and conditions of this Agreement. Ownership of the
Shares will pass to the Purchaser on Closing.
2.2 Purchase Price
As consideration for the sale of the Shares by the Seller pursuant
hereto, at Closing and in immediately available funds, the Purchaser agrees to
pay to the Seller the Base Price plus Interim Interest less the Purchase Price
Adjustment Amount (the "Adjusted Purchase Price"). The Seller shall provide
notice to the Purchaser of its allocation of the Base Purchase Price between the
Shares on or prior to Closing, which, upon the consent of the Purchaser, such
consent not to be unreasonably withheld, shall be the agreed upon allocation.
The Adjusted Purchase Price shall be allocated based on the appropriate
allocation of the Purchase Price Adjustment Amount between the Shares and
applied to the Base Price, as allocated in this Section.
2.3 Deposit
(1) At the time of execution and delivery of this Agreement, the
Purchaser shall pay Ten Million Eight Hundred Fifty Thousand
Dollars ($10,850,000) (herein called the "Deposit") to Osler,
Hoskin & Harcourt LLP, Barristers and Solicitors (the "Escrow
Agent"), to be held by the Escrow Agent in an interest-bearing
solicitor's trust account to be applied in accordance with the
following terms:
(i) if Closing occurs, the Deposit together with the interest
actually earned thereon while held by the Escrow Agent (the
"Deposit Interest") shall be paid by the Escrow Agent to the
Seller at the Time of Closing, in partial satisfaction of
the Purchaser's obligation to pay the Adjusted Purchase
Price;
(ii) if Closing does not occur due to a breach of this Agreement
by the Purchaser, the Seller shall be entitled to the
Deposit and the Deposit Interest which the Escrow Agent
shall pay to the Seller on the scheduled Closing Date. The
Deposit and the Deposit Interest shall thereupon be
forfeited to the Seller on account of the damages suffered
by the Seller as a consequence of such breach or
termination. The Parties agree that such amount constitutes
15
their genuine pre-estimate of the damages which will be
suffered by the Seller by virtue of such breach or
termination; and
(iii)if Closing does not occur for any reason or circumstance
other than that described in Paragraph 2.3(1)(ii), the
Purchaser shall be entitled to the Deposit and Deposit
Interest which the Escrow Agent shall pay to the Purchaser
on the scheduled Closing Date.
The Purchaser acknowledges that Osler, Hoskin & Harcourt LLP acts
as legal counsel to the Seller in connection with this Agreement.
The Purchaser agrees that notwithstanding that Osler, Hoskin &
Harcourt LLP is the Escrow Agent, Osler, Hoskin & Harcourt LLP
shall be entitled to continue to act on behalf of the Seller in
respect of any matter arising in relation to this Agreement,
including any dispute regarding the disposition of the Deposit or
Deposit Interest.
(2) If the Escrow Agent is notified by either Party, or otherwise
becomes aware that there is a dispute between the Parties
regarding entitlement to all or part of the Deposit and Deposit
Interest, the Escrow Agent may, in its sole discretion,
interplead the matter and thereupon pay the Deposit and Deposit
Interest (or that portion thereof as to which there is a dispute
as to entitlement) into the court of law in which the matter has
been interpleaded.
2.4 Payment
(1) At the Closing, subject to Section 4.1, the Deposit and Deposit
Interest shall be paid to the Seller by the Escrow Agent in
accordance with Section 2.3 and the Purchaser shall pay to the
Seller the Adjusted Purchase Price (based on the Seller's good
faith estimate of the Purchase Price Adjustment Amount in
accordance with Section 2.5), less the Deposit and Deposit
Interest, by bank draft or certified cheque. The Companies shall
pay to CIBC World Markets Inc. and to BMO Nesbitt Burns Inc. at
the Closing the amounts referred to in section 3.1(7) hereof, and
the Purchaser will loan to the Companies any amounts necessary to
ensure that the Companies fulfil such obligations. In addition,
the Purchaser shall pay to Newco the sum of $1,200,000 as a
partial payment towards the drilling costs of the Test Well
pursuant to the Farmout Agreement for the Caroline Area.
(2) At the Closing, the Purchaser shall loan to Grey Wolf the
aggregate amount of the unpaid principal and accrued but unpaid
interest in respect of the Companies' Debt as of the Closing Date
that is represented by the Mirant Credit Agreement. Grey Wolf
shall direct the Purchaser to pay the amount of that loan to the
Seller in exchange for documents which release and discharge Grey
Wolf from all of its obligations in respect of the Mirant Credit
Agreement and release all of the assets of Grey Wolf from all of
the Security Interests granted in respect thereof under or
pursuant to the Mirant Credit Agreement (other than the royalties
that were granted in connection with the Mirant Credit
Agreement).
(3) After Closing, the Parties shall pay adjustments in respect of
the Adjusted Purchase Price in accordance with Section 2.5.
16
2.5 Purchase Price Adjustment and Post Closing Adjustments
(1) For the purposes of the Closing, the Purchase Price Adjustment
Amount shall be calculated on the basis of the Seller's good
faith estimate thereof, which shall include the assumption that
the Working Capital is as reflected in the unaudited September
30, 2002 Financial Statements of the Companies prepared by the
Companies, subject to the adjustments specified in Schedule T.
The Seller shall prepare and deliver to the Purchaser a statement
setting forth, in reasonable detail, such calculation of the
Purchase Price Adjustment Amount and any other amount for which
adjustment is provided herein and the total amount payable by the
Purchaser at Closing not later than five (5) Business Days prior
to Closing for the Purchaser's review and shall assist the
Purchaser in verifying the amounts set forth in such statement.
(2) The Purchaser will cause the Auditors to audit the amount of the
Working Capital as at the Adjustment Date and will make a good
faith recalculation of the Purchase Price Adjustment Amount,
subject to the adjustments specified in Schedule I, using the
amount of Working Capital, and any other amounts that affect the
Purchase Price Adjustment Amount established by the Auditors,
within one hundred twenty (120) days following the Closing Date.
Schedule T shall not be considered by the Auditors in the
calculation of the Working Capital. If the Purchase Price
Adjustment Amount as recalculated by the Purchaser is not the
same as the estimate of the Purchase Price Adjustment Amount used
at Closing, and:
(i) is greater than the estimate used at Closing, the Seller
shall pay the overage, together with simple interest thereon
at the Prime Rate from the Adjustment Date until paid, to
the Purchaser within 15 days of receipt of confirmation of
the amount of Working Capital and any other amounts that
affect the Purchase Price Adjustment Amount established by
the Auditors; or
(ii) is less than the estimate used at Closing, the Purchaser
shall pay the shortfall, together with simple interest
thereon at the Prime Rate from the Adjustment Date until
paid, to the Seller within 15 days of receipt of
confirmation of the amount of Working Capital and any other
amounts that affect the Purchase Price Adjustment Amount
established by the Auditors.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Regarding the Seller and the Shares:
The Seller represents and warrants to Purchaser that except as
disclosed on Schedules I or M:
(1) Incorporation: The Seller is duly incorporated, validly existing
and in good standing under the laws of the State of Nevada. It is
duly authorized to conduct business and is in good standing under
17
the laws of each jurisdiction where such qualification is
required. It has all requisite corporate power and authority to
own, operate and lease its properties and to carry on its
business as presently conducted. Neither Grey Wolf nor Canadian
Abraxas is subject to, or affected by, any unanimous
shareholders' agreement;
(2) Authority, Approval and Enforceability: The Seller has all
requisite power and corporate authority to execute and deliver
this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by it have
been approved by all necessary action. This Agreement has been
duly executed and delivered on behalf of the Seller and
constitutes the legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency or other
similar laws relating to or affecting the enforcement of
creditor's rights generally and to general principles of equity
("Creditors' Rights"). At the Closing all documents required
hereunder to be executed and delivered by the Seller will have
been duly authorized, executed and delivered by the Seller and
will constitute legal, valid and binding obligations of the
Seller, enforceable in accordance with their terms, subject to
Creditors' Rights. Neither the Seller nor the Companies are
required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement, except for the filings required
in the Competition Act and except for notices, filings,
authorizations, consents or approvals which (i) if not made or
obtained, would not adversely affect the Seller's ability to
consummate the transactions contemplated by this Agreement on the
terms set forth herein, or (ii) which have been previously
obtained and are currently in force. The Seller is not party to
any voting trust, proxy or other agreement or understanding with
respect to the voting of the Shares;
(3) Title to the Grey Wolf Shares: Each party listed below is the
registered and beneficial owner of the number of Grey Wolf Shares
listed opposite its name below and now has, and at the Time of
Closing will have, good and marketable title to such Grey Wolf
Shares, free and clear of all Encumbrances and there is no
contract, option or any other right binding upon such Person or
which at any time in the future may become binding upon such
Person to sell, transfer, assign, pledge, charge, mortgage or in
any other way dispose of or encumber any of the Grey Wolf Shares
owned by it other than pursuant to this Agreement:
Abraxas 12,459,349 Grey Wolf Shares
Canadian Abraxas 345,279 Grey Wolf Shares
(4) Title to the Canadian Abraxas Shares: The Seller is the
registered and beneficial owner of all of the issued and
outstanding Canadian Abraxas Shares and now has, and at the time
of Closing will have, good and marketable title to such Canadian
Abraxas Shares, free and clear of all Encumbrances and there is
no contract, option or other right binding upon the Seller or
which at any time in the future may become binding upon the
Seller to sell, transfer, assign, pledge, charge, mortgage or in
18
any other way dispose of or encumber any of the Canadian Abraxas
Shares owned by it other than pursuant to this Agreement;
(5) No Defaults or Consents: Neither the execution and delivery of
this Agreement nor the completion of the transactions
contemplated hereby will:
(i) violate or result in a breach or default of, require any
consent under, be in conflict with, accelerate or permit the
acceleration of the performance of, result in the loss or
termination of or give a third party a right to terminate
any material agreement, license, permit, franchise or other
instrument to which the Seller is a party or by which it is
bound or which relate to any of the Shares;
(ii) violate or conflict with any Applicable Law;
(iii)give rise to any rights of first refusal or other
pre-emptive, preferential or similar rights to purchase any
of the Shares;
(iv) create or allow the creation of an Encumbrance on the
Shares; or
(v) violate or conflict with the Seller's constating documents
or bylaws;
(6) No Claims Affecting the Sale of the Shares: the Seller has not
received notice of any Claim and the Seller is not aware of any
Claim, actual or threatened, which prevents or could reasonably
be expected to prevent the consummation of the transactions
contemplated by this Agreement;
(7) No Finder's Fees: neither the Seller nor the Companies have
incurred any obligation or liability, contingent or otherwise,
for broker's or finder's fees in respect of the transactions
contemplated hereby for which the Purchaser, or the Companies or
any of their respective subsidiaries shall have any obligation or
liability (other than to CIBC World Markets Inc. and BMO Nesbitt
Burns Inc. pursuant to letter agreements dated June 18, 2002, all
of the liabilities under which letter agreements shall be
adjusted by including the aggregate amount of such Liabilities in
Working Capital as a current liability of the Companies as of the
Adjustment Date); and
(8) Residency: The Seller is not a resident of Canada for the purpose
of the Canadian Tax Act.
3.2 Regarding Grey Wolf
The Seller represents and warrants to the Purchaser that except as
disclosed on Schedules I or M and except as it relates to the Excluded Assets:
(1) Incorporation: Grey Wolf is a body corporate organized, duly
formed and subsisting under the laws of the Province of Alberta.
It is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is
required. Grey Wolf has all requisite corporate power and
19
authority to own, operate and lease its properties and to carry
on its business as presently conducted. Grey Wolf is not subject
to, or affected by, any unanimous shareholders' agreement;
(2) Authority, Approval and Enforceability: Grey Wolf has all
requisite power and corporate authority to execute and deliver
this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by it have
been approved by all necessary action. This Agreement has been
duly executed and delivered on behalf of Grey Wolf and
constitutes the legal, valid and binding obligation of Grey Wolf,
enforceable against Grey Wolf in accordance with its terms,
subject to Creditors' Rights. At the Closing all documents
required hereunder to be executed and delivered by Grey Wolf will
have been duly authorized, executed and delivered by Grey Wolf
and will constitute legal, valid and binding obligations of Grey
Wolf, enforceable in accordance with their terms, subject to
Creditors' Rights. Grey Wolf is not required to give any notice
to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement,
except for the filings required in the Competition Act and except
for notices, filings, authorizations, consents or approvals which
(i) if not made or obtained, would not adversely affect Grey
Wolf's ability to consummate the transactions contemplated by
this Agreement on the terms set forth herein, (ii) which have
been previously obtained and are currently in force;
(3) No Defaults or Consents: Neither the execution and delivery of
this Agreement nor the completion of the transactions
contemplated hereby will:
(i) violate or result in a breach or default of, require any
consent under, be in conflict with, accelerate or permit the
acceleration of the performance of, result in the loss or
termination of or give a third party a right to terminate
any material agreement, license, permit, franchise or other
instrument to which Grey Wolf is a party or by which it is
bound or which relate to or bind any of its assets;
(ii) violate or conflict with any Applicable Law;
(iii)create or allow the creation of an Encumbrance on its
assets; or
(iv) violate or conflict with Grey Wolf's constating documents or
bylaws;
(4) Capitalization of Grey Wolf: The authorized capital of Grey Wolf
consists of an unlimited number of common shares without par
value of which 12,804,628 common shares are issued and
outstanding. The Seller is the registered holder of 12,459,349 of
such shares and Canadian Abraxas is the registered holder of
345,279 shares. All of the shares are duly authorized, validly
issued, fully paid and non-assessable. There are no outstanding
subscriptions, options, convertible securities, warrants, calls
or other securities granting rights to purchase or otherwise
acquire any securities of Grey Wolf or any commitments or
agreements of any character obligating Grey Wolf to issue any
such securities. There are no outstanding or authorized stock
20
appreciation, phantom stock, profit participation or similar
rights with respect to Grey Wolf;
(5) Records: Complete and accurate originals or copies of the
certificate of incorporation, bylaws and all minute books,
including all minutes, consents and other records of action taken
by stockholders and directors (including any committees thereof)
of Grey Wolf and stock records of Grey Wolf have been made
available to the Purchaser for its inspection and have been
maintained in accordance with good business practices;
(6) Businesses: The only business that has been or is currently
conducted by Grey Wolf is the upstream oil and gas exploration
and production business in Alberta, Saskatchewan, Manitoba,
British Columbia and Northwest Territories. To the best of the
Seller's knowledge, since the date of the Financial Statements to
the date of this Agreement, there has not been: (i) any Material
change in the financial condition or business of Grey Wolf other
than changes in the Ordinary Course of Business; or (ii) any
damage, destruction or loss, whether or not covered by insurance,
Materially adversely affecting the properties or business of Grey
Wolf;
(7) Conduct of Business: Since the Adjustment Date, the business of
Grey Wolf has been carried on in the Ordinary Course of Business,
except Permitted Transactions and as permitted by Section 5.1
herein;
(8) Financial Statements: The Financial Statements (i) have been
prepared in accordance with GAAP applied on a consistent basis,
and (ii) fairly and accurately disclose in all Material respects
(determined in accordance with GAAP) the financial position of
Grey Wolf at December 31, 2001 and September 30, 2002 and the
results of operations for the period ended on those dates, and
since September 30, 2002, there have been no changes in the
business, assets, operations, working capital, or financial
condition of Grey Wolf, which have been or could reasonably be
expected to be Material, provided that no representation or
warranty is given with respect to changes which are generally
applicable to the oil and gas industry, including, without
limitation, depletion of reserves as a result of production of
Petroleum Substances, the prices payable for Petroleum
Substances, taxation or government regulation. All accounts
receivable reflected in the Financial Statements were and remain,
if still outstanding, bona fide and were collected or are
collectible (subject to provisions therein for doubtful accounts)
by Grey Wolf without setoff or counterclaim;
(9) Debt: As at the date of the Financial Statements, Grey Wolf did
not have any debt or liabilities of any kind whatsoever (whether
accrued, contingent, absolute or otherwise) including, without
limitation, liabilities for Taxes and pursuant to any capital
lease, except the Companies' Debt and any other debt or
liabilities included in current liabilities as set forth in such
Financial Statements;
(10) Dividends: Since September 30, 2002, Grey Wolf has not, directly
or indirectly, declared or paid any dividends, or declared or
made any other distribution of its securities, and has not,
directly or indirectly, redeemed, purchased or otherwise acquired
21
any of its shares, or agreed to do so, or reduced its stated
capital in any manner or purchased, acquired, cancelled or
redeemed, or agreed to purchase, acquire, cancel or redeem, any
outstanding shares;
(11) Subsidiaries: Grey Wolf does not have any subsidiaries;
(12) Investments: Except as disclosed in the Financial Statements,
Grey Wolf is not a party to any agreements of any nature to
acquire any shares of any corporation or to acquire, capitalize
or invest in any business;
(13) Taxes: Grey Wolf has duly and timely (i) filed with the
appropriate governmental authority or agency in the manner
prescribed by Applicable Law all Tax Returns required to be filed
by it and such Tax Returns are true, complete and accurate in all
Material respects; (ii) paid all Taxes (including instalments)
due and payable by it and made adequate provision in the
Financial Statements and accounts of Grey Wolf for all Taxes
payable for the periods reflected therein for which Tax Returns
are not yet required to be filed; (iii) withheld and remitted to
the appropriate governmental authorities all amounts required to
be withheld by it in respect of the Tax liability of any other
Person; and (iv) withheld from any amount paid to or credited by
it to or for the account or benefit of any Person, including any
of its officers and directors and any non-resident Person, the
amount of all Taxes and other deductions required by any
Applicable Law to be withheld from any such amount and has duly
and timely remitted the same to the appropriate taxing or other
governmental authority or agency. Notices of assessment of
Canadian federal and provincial income tax liabilities of Grey
Wolf have been issued for all taxation years ending on or prior
to December 31, 2001, and Grey Wolf is current with respect to
its filing of returns for goods and services taxes payable
pursuant to the Excise Tax Act (Canada). There are no claims,
actions, suits, audits, proceedings, investigations or other
actions pending or, to the knowledge of the Seller, threatened in
respect of Taxes;
(14) Agreements with Tax Authorities: Grey Wolf is not a Party to any
current agreement or other arrangement with any taxation
authority and there are no waivers or objections extending the
statutory period or providing for an extension of time with
respect to the assessment or reassessment or payment of Taxes
payable by Grey Wolf or Tax Returns required to be filed by Grey
Wolf;
(15) Discussions with Tax Authorities: Grey Wolf is not engaged in any
discussions or negotiations with any taxation authorities in
respect of Grey Wolf's Taxes;
(16) Indemnities and Guarantees: Grey Wolf has not guaranteed,
endorsed, assumed or indemnified, contingently or otherwise, the
obligations or indebtedness of any Person outside of the Ordinary
Course of Business;
(17) Litigation: Other than as set forth in Schedule C, (i) there are
no judgments unsatisfied against Grey Wolf or any injunction,
order, decree, ruling or charge to which Grey Wolf is subject,
(ii) there are no Claims in existence to which Grey Wolf is a
party or threatened against Grey Wolf which could reasonably be
expected to be Material in the aggregate and (iii) to the
22
knowledge of the Seller, there is no basis upon which a Material
Claim could reasonably expected to be made against Grey Wolf;
(18) Debt Forgiveness: Since December 31, 2001 Grey Wolf has not
forgiven any debt or otherwise triggered or permitted to be
triggered any of the provisions of the Canadian Tax Act
respecting debt forgiveness including, for greater certainty,
Section 79 or Sections 80 to 80.04 of such Act, and has not
cancelled or released any debts or claims or waived any right of
Material value pertaining to the Assets;
(19) Tax Year: Grey Wolf's taxation year ends on December 31;
(20) Non-arm's Length Obligations: No Affiliate, director, former
director, officer or employee of Grey Wolf or any Person not
dealing at "arm's length" (within the meaning of the Canadian Tax
Act) with any such Person is indebted to Grey Wolf and Grey Wolf
is not indebted to any such Person. No payments or transactions
have been made or authorized since the date of the Financial
Statements, or will be made or authorized between the date hereof
and the Closing Date, by Grey Wolf, to the Seller or to officers
or directors of Grey Wolf or to any Person not dealing at arm's
length, except in the Ordinary Course of Business and at regular
contractual rates;
(21) Bank Accounts: Certain bank accounts maintained by Grey Wolf are
listed in Schedule J;
(22) Material Contracts: The Seller has made available to the
Purchaser a correct and complete copy of each Material Contract
(as amended to date) to which Grey Wolf is a party or by which it
or any of its assets is bound. Grey Wolf is not in breach of any
such Material Contracts in any Material respect;
(23) Transferability of Shares: There are no restrictions in either
the constating documents or the by-laws of Grey Wolf, nor in any
unanimous shareholders' agreement or voting trust agreement or
other similar collateral agreement, which would arise by reason
of the execution of this Agreement or completion of the sale by
the Seller to the Purchaser of the Shares, which would affect the
transferability of its Shares from the Seller to the Purchaser,
other than the consent of the directors of Grey Wolf, and which
will not have been complied with at Closing;
(24) Real Property Leases: Grey Wolf is not a party to or bound by any
real property leases other than the Title and Operating Documents
and leases of field operating offices entered into in the
Ordinary Course of Business;
(25) Legal Compliance: Grey Wolf is in compliance with all Applicable
Law, except where the failure to comply would not be Material.
Grey Wolf has all permits, licenses, certificates of authority,
orders and approvals of, and has made all filings, applications,
and regulations with federal, state, local or foreign government
or regulatory bodies that are currently required in order to
permit it to carry on its business as presently conducted, the
absence of which individually or in the aggregate would
reasonably be expected to be Material;
(26) Insurance: All contracts of insurance maintained by Grey Wolf are
listed in Schedule H and are in full force and effect as of the
Closing Date and all premiums due and owing in connection with
such policies have been paid. To the Seller's knowledge, there
exists no state or event of default under any insurance policy
and there has been no notice or advice of withdrawal of any
policy or any notice of conditions for continuation of any
coverage that has not been complied with. Grey Wolf has given
notice or has otherwise presented every Material claim known to
Grey Wolf and/or the Seller to be covered by insurance under its
insurance policies or contracts in a timely fashion;
(27) No Default Notices: Grey Wolf has not received any notice
alleging its default under any Material Contract, which default
has not been rectified as of the date hereof;
(28) Employees:
(i) except as set forth in Schedule L, Grey Wolf is not a party
to any written employment contracts, consulting agreements,
collective bargaining agreements or employee association
agreements;
(ii) Grey Wolf has not conducted and is not now conducting any
negotiations with any labour unions or employee
associations;
(iii)Grey Wolf has complied with all of its obligations in
respect of employment insurance programs, Canada Pension
Plan payments and Worker's Compensation payments;
(iv) Schedule L hereto names all of the employees of Grey Wolf;
and
(29) Employee Plans: All Employee Plans are listed in Schedule F and:
(i) Grey Wolf has paid or provided for all liabilities for
wages, vacation pay, salaries, bonuses, pensions and all
other amounts payable under the Employee Plans prior to the
date hereof;
(ii) each of the Employee Plans complies with and has been
administered in substantial compliance with the terms
thereof and Applicable Law; and
(iii)have been, or will by Closing be, terminated with no
further Liability to either of the Companies.
3.3 Regarding Canadian Abraxas
The Seller represents and warrants to the Purchaser that, except as
disclosed in Schedule I or M and except as it relates to the Excluded Assets:
(1) Incorporation: Canadian Abraxas is a corporation duly formed and
subsisting under the laws of the Province of Alberta. It is duly
authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required.
Canadian Abraxas has all corporate power and authority to own,
24
operate and lease its properties and to carry on its business as
presently conducted. Canadian Abraxas is not subject to, or
affected by, any unanimous shareholders' agreement;
(2) Authority, Approval and Enforceability: Canadian Abraxas has all
requisite power and corporate authority to execute and deliver
this Agreement and to perform its obligations under this
Agreement. The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by it have
been approved by all necessary action. This Agreement has been
duly executed and delivered on behalf of Canadian Abraxas and
constitutes the legal, valid and binding obligation of Canadian
Abraxas, enforceable against Canadian Abraxas in accordance with
its terms, subject to Creditors' Rights. At the Closing all
documents required hereunder to be executed and delivered by
Canadian Abraxas will have been duly authorized, executed and
delivered by Canadian Abraxas and will constitute legal, valid
and binding obligations of Canadian Abraxas, enforceable in
accordance with their terms, subject to Creditors' Rights.
Canadian Abraxas is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement, except for the
filings required in the Competition Act and except for notices,
filings, authorizations, consents or approvals which (i) if not
made or obtained, would not adversely affect Canadian Abraxas'
ability to consummate the transactions contemplated by this
Agreement on the terms set forth herein, or (ii) which have been
previously obtained and are currently in force;
(3) No Defaults or Consents: Neither the execution and delivery of
this Agreement nor the completion of the transactions
contemplated hereby will:
(i) violate or result in a breach or default of, require any
consent under, be in conflict with, accelerate or permit the
acceleration of the performance of, result in the loss or
termination of or give a third party a right to terminate
any material agreement, license, permit, franchise or other
instrument to which Canadian Abraxas is a party or by which
it is bound or which relate to or bind any of its assets;
(ii) violate or conflict with any Applicable Law;
(iii)create or allow the creation of an Encumbrance on its
assets; or
(iv) violate or conflict with Canadian Abraxas' constating
documents or bylaws;
(4) Share Capital: The authorized capital of Canadian Abraxas
consists of an unlimited number of common shares without par
value of which 5,751 common shares are issued and outstanding,
all of which are registered in the name of the Seller and all of
which are fully paid and non-assessable and an unlimited number
of First Preferred Shares, none of which are outstanding. All of
the shares are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding subscriptions, options,
25
convertible securities, warrants, calls or other securities
granting rights to purchase or otherwise acquire any securities
of Canadian Abraxas or any commitments or agreements of any
character obligating Canadian Abraxas to issue any such
securities. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar
rights with respect to Canadian Abraxas;
(5) Records: Complete and accurate originals or copies of the
certificate of incorporation, bylaws and all minute books,
including all minutes, consents and other records of action taken
by stockholders and directors (including any committees thereof)
of Canadian Abraxas and stock records of Canadian Abraxas have
been made available to the Purchaser for its inspection and have
been maintained in accordance with good business practices;
(6) Businesses: The only business that has been or is currently
conducted by Canadian Abraxas is the upstream oil and gas
exploration and production business in Alberta, Saskatchewan,
Manitoba and British Columbia. To the best of the Seller's
knowledge, after due inquiry, since the date of the Financial
Statements to the date of this Agreement, there has not been: (i)
any Material change in the financial condition or business of
Canadian Abraxas other than changes in the Ordinary Course of
Business; or (ii) any damage, destruction or loss, whether or not
covered by insurance, Materially adversely affecting the
properties or business of Canadian Abraxas;
(7) Conduct of Business: Since the Adjustment Date, the business of
Canadian Abraxas has been carried on in the Ordinary Course of
Business, except Permitted Transactions and as permitted by
Section 5.1 herein;
(8) Financial Statements: The Financial Statements (i) have been
prepared in accordance with GAAP applied on a consistent basis,
and (ii) fairly and accurately disclose in all Material respects
(determined in accordance with GAAP) the financial position of
Canadian Abraxas at December 31, 2001 and September 30, 2002 and
the results of operations for the period ended on those dates,
and since September 30, 2002 there have been no changes in the
business, assets, operations, working capital, or financial
condition of Canadian Abraxas, which have been or could
reasonably be expected to be Material, provided that no
representation or warranty is given with respect to changes which
are generally applicable to the oil and gas industry, including,
without limitation, depletion of reserves, as a result of
production of Petroleum Substances, the prices payable for
Petroleum Substances, taxation or government regulation. All
accounts receivable reflected in the Financial Statements were
and remain, if still outstanding, bona fide and were collected or
are collectible (subject to provision therein for doubtful
accounts) by Canadian Abraxas without setoff or counterclaim);
(9) Debt: As at the date of the Financial Statements, Canadian
Abraxas did not have any debt or liabilities of any kind
whatsoever (whether accrued, contingent, absolute or otherwise)
including, without limitation, liabilities for Taxes and pursuant
to any capital lease, except the Companies' Debt, obligations as
guarantor under the March 26, 1999 Indenture and any other debt
or liabilities included in current liabilities as reflected in
such Financial Statements;
26
(10) Dividends: Since September 30, 2002, Canadian Abraxas has not,
directly or indirectly, declared or paid any dividends, or
declared or made any other distribution of its securities, and
has not, directly or indirectly, redeemed, purchased or otherwise
acquired any of its shares, or agreed to do so, or reduced its
stated capital in any manner or purchased, acquired, cancelled or
redeemed, or agreed to purchase, acquire, cancel or redeem, any
outstanding shares;
(11) Subsidiaries: Canadian Abraxas does not have any subsidiaries
except Grey Wolf;
(12) Investments: Except as disclosed in the Financial Statements,
Canadian Abraxas is not a party to any agreements of any nature
to acquire any shares of any corporation or to acquire,
capitalize or invest in any business;
(13) Taxes: Canadian Abraxas has duly and timely (i) filed with the
appropriate governmental authority or agency in the manner
prescribed by Applicable Law all Tax Returns required to be filed
by it and such Tax Returns are true, complete and accurate in all
Material respects (ii) paid all Taxes (including instalments) due
and payable by it and made adequate provision in the Financial
Statements and accounts of Canadian Abraxas for all Taxes payable
for the periods reflected therein for which Tax Returns are not
yet required to be filed; (iii) withheld and remitted to the
appropriate governmental authorities all amounts required to be
withheld by it in respect of the Tax liability of any other
Person; and (iv) withheld from any amount paid to or credited by
it to or for the account or benefit of any Person, including any
of its officers and directors and any non-resident Person, the
amount of all Taxes and other deductions required by any
Applicable Law to be withheld from any such amount and has duly
and timely remitted the same to the appropriate taxing or other
governmental authority or agency. Notices of assessment for
Canadian federal and provincial income tax liabilities of
Canadian Abraxas have been issued for all taxation years ending
on or prior to December 31, 2001 and (ii) Canadian Abraxas is
current with respect to its filing of returns for goods and
services taxes payable pursuant to the Excise Tax Act (Canada).
There are no claims, actions, suits, audits, proceedings,
investigations or other actions pending or, the knowledge of the
Seller, threatened in respect of Taxes, except as disclosed in
Subsection 3.3(14) and (15) below.
(14) Agreements with Tax Authorities: Canadian Abraxas is not a Party
to any current agreement or other arrangement with any taxation
authority and there are no waivers or objections extending the
statutory period or providing for an extension of time with
respect to the assessment or reassessment or payment of Taxes
payable by Canadian Abraxas or Tax Returns required to be filed
by Canadian Abraxas other than a waiver for a 1997 tax audit
respecting ARTC claimed by Canadian Abraxas;
(15) Discussions with Tax Authorities: Canadian Abraxas is not engaged
in any discussions or negotiations with any taxation authorities
in respect of Canadian Abraxas' Taxes other than a tax appeal
with the CCRA with respect to New Cache Petroleums Ltd. for the
tax years 1996 and 1997;
27
(16) Indemnities and Guarantees: Canadian Abraxas has not guaranteed,
endorsed, assumed or indemnified, contingently or otherwise, the
obligations or indebtedness of any Person other than as described
in the Financial Statements and outside of the Ordinary Course of
Business;
(17) Litigation: Other than as set forth in Schedule C, (i) there are
no judgments unsatisfied against Canadian Abraxas or any
injunction, order, decree, ruling or charge to which Canadian
Abraxas is subject, (ii) there are no Claims in existence to
which Canadian Abraxas is a party or threatened against Canadian
Abraxas which could reasonably be expected to be Material in the
aggregate and (iii) to the knowledge of the Seller, there is no
basis upon which a Material Claim could reasonably expected to be
made against Canadian Abraxas;
(18) Debt Forgiveness: Since December 31, 2001 Canadian Abraxas has
not forgiven any debt or otherwise triggered or permitted to be
triggered any of the provisions of the Canadian Tax Act
respecting debt forgiveness including, for greater certainty,
Section 79 or Sections 80 to 80.04 of such Act, and has not
cancelled or released any debts or claims or waived any right of
Material value pertaining to the Assets;
(19) Tax Year: Canadian Abraxas' taxation year ends on December 31;
(20) Non-arm's Length Obligations: No Affiliate, director, former
director, officer or employee of Canadian Abraxas or any Person
not dealing at "arm's length" (within the meaning of the Canadian
Tax Act) with any such Person is indebted to Canadian Abraxas and
Canadian Abraxas is not indebted to any such Person. No payments
or transactions have been made or authorized since the date of
the Financial Statements, or will be made or authorized between
the date hereof and the Closing Date, by Canadian Abraxas to the
Seller or to officers or directors of Canadian Abraxas or to any
Person or entity not dealing at arm's length, except in the
Ordinary Course of Business and at regular contractual rates;
(21) Bank Accounts: Certain bank accounts maintained by Canadian
Abraxas are listed in Schedule J;
(22) Material Contracts: The Seller has made available to the
Purchaser a correct and complete copy of each Material Contract
(as amended to date) to which Canadian Abraxas is a party or by
which it or any of its assets is bound. Canadian Abraxas is not
in breach of any such Material Contracts in any Material respect;
(23) Transferability of Shares: There are no restrictions in either
the constating documents or the by-laws of Canadian Abraxas, nor
in any unanimous shareholders' agreement or voting trust
agreement or other similar collateral agreement, which would
arise by reason of the execution of this Agreement or completion
of the sale by the Seller to the Purchaser of the Shares, which
would affect the transferability of its Shares from the Seller to
the Purchaser, other than the consent of the directors of
Canadian Abraxas, and which will not have been complied with at
Closing;
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(24) Real Property Leases: Canadian Abraxas is not a party to or bound
by any real property leases other than the Title and Operating
Documents, and leases of field operating offices entered into in
the Ordinary Course of Business;
(25) Legal Compliance: Canadian Abraxas is in compliance with all
Applicable Law, except where the failure to comply would not be
Material. Canadian Abraxas has all permits, licenses,
certificates of authority, orders and approvals of, and has made
all filings, applications, and regulations with federal, state,
local or foreign government or regulatory bodies that are
currently required in order to permit it to carry on its business
as presently conducted, the absence of which individually or in
the aggregate would reasonably be expected to be Material;
(26) Insurance: All contracts of insurance maintained by Canadian
Abraxas are listed in Schedule H and are in full force and effect
as of the Closing Date and all premiums due and owing in
connection with such policies have been paid. To the Seller's
knowledge, there exists no state or event of default under any
insurance policy and there has been no notice or advice of
withdrawal of any policy or any notice of conditions for
continuation of any coverage that has not been complied with.
Canadian Abraxas has given notice or has otherwise presented
every Material claim known to Canadian Abraxas and/or the Seller
to be covered by insurance under its insurance policies or
contracts in a timely fashion;
(27) No Default Notices: Canadian Abraxas has not received any notice
alleging its default under any Material Contract, which default
has not been rectified as of the date hereof;
(28) Employees:
(i) Canadian Abraxas is not a party to any written employment
contracts, consulting agreements, collective bargaining
agreements or employee association agreements;
(ii) Canadian Abraxas has not conducted and is not now conducting
any negotiations with any labour unions or employee
associations;
(iii)Canadian Abraxas has complied with all of its obligations
in respect of employment insurance programs, Canada Pension
Plan payments and Worker's Compensation payments;
(iv) Canadian Abraxas has no employees; and
(v) Canadian Abraxas is not party to or bound by any Employee
Plans.
3.4 Regarding the Assets
The Seller, except as disclosed in Schedule I or M, represents and
warrants to the Purchaser that, except for the Excluded Assets:
(1) Title: The Oil and Gas Assets are free and clear of all
Encumbrances created by, through or under the Companies (or the
Seller), other than Permitted Encumbrances, provided that, except
29
as expressly set forth in this subsection, the Seller does not
make any representation or warranty with respect to the
Companies' title to any of the Assets;
(2) Good Standing Under Agreement: To the Seller's knowledge, neither
of the Companies is in Material breach of any term or provision
of any Title and Operating Document;
(3) Quiet Enjoyment: Subject to the rents, covenants, conditions and
stipulations in the Leases required and on the lessee's or
holder's part thereunder to be paid, performed and observed and
the Permitted Encumbrances, the Companies (or, in the case of a
sale of the Oil and Gas Assets, pursuant to Section 6.4 and
Schedule Q, the Purchaser) will be entitled to enjoy the Oil and
Gas Assets after Closing for the Companies' or the Purchaser's,
as applicable, own use and benefit without interruption of or by
the Seller or any Person whomsoever claiming or to claim the same
or any part thereof or any interest therein by, through or under
the Seller or the Companies for the residue of their respective
terms and all renewals or extensions thereof;
(4) Reduction of Interest: Except as set forth in Schedule E and
except for Permitted Encumbrances, the Oil and Gas Assets are not
subject to reduction or retention by rights of conversion, rights
to purchase, farmin rights (other than between the Companies) or
any other rights held by the Seller or any other Person which
were created by, through or under the Seller or the Companies;
(5) Take or Pay and Gas Balancing: The Companies do not have any Take
or Pay Obligations and are not a party to or bound by any gas
balancing agreements;
(6) Environmental and Reclamation Liabilities: The Seller and the
Companies have given the Purchaser access to all written
information in the possession or control of the Seller or the
Companies relating to Environmental Liabilities and except for
the Accepted Environmental and Reclamation Liabilities:
(i) the Companies have not received notice of any Claim by any
Person of any Environmental and Reclamation Liabilities;
(ii) there are no threatened or pending Claims of Environmental
and Reclamation Liabilities; and
(iii)all known spills or similar incidents pertaining to or
affecting the assets have been reported to the appropriate
governmental entity to the extent required by Environmental
Laws;
which in the aggregate are or could reasonably be expected to
exceed $1,000,000;
(7) Gas and Oil Sales and Processing Contracts: A description of all
contracts which provide for the sale, gathering, compression,
processing, treatment or storage of Petroleum Substances to which
the Companies are parties or by which the Companies are bound,
and which have a term of more than ninety (90) days and which are
30
not terminable without penalty on notice of ninety (90) days or
less is set forth in Schedule D and the Seller is not aware of
any third parties being in breach of such contracts where such
breach would affect the interests of the Companies;
(8) Deliveries of Natural Gas: The Companies have not delivered a
quantity of natural gas pursuant to a gas purchase contract in
excess of the quantity which they were entitled to deliver
pursuant thereto, except to an extent which is not Material;
(9) Royalty Payments: All royalties payable by the Companies in
respect of the production of Petroleum Substances have been fully
paid in a timely manner;
(10) Hedging Contracts: The Companies are not party to, and neither
the Companies nor any of their respective assets are bound by or
subject to, any interest rate swaps, foreign exchange swaps,
commodity price hedging contracts or similar derivative
contracts;
(11) Intellectual Property: The Companies have not interfered with,
infringed upon, misappropriated or otherwise come into conflict
with any patent, copyright, trademark, trade secret or other
intellectual property rights of any Person and have not received
notice of any Claim of any Person that they have done so, other
than any such interference, infringement, misappropriation or
conflict of which the Seller is not aware and which relates to
the operation of a property which is not operated by the
Companies;
(12) AFE's: Schedule S sets forth all outstanding authorizations for
expenditure and other capital calls which have been delivered to
the Companies in respect of the Assets and for which payment has
been or is required to be made at any time on or after the
Adjustment Date;
(13) Gas Transportation Contracts: A description of all contracts
which provide for the transportation of natural gas to which the
Companies are parties or by which the Companies are bound, which
have a term of more than ninety (90) days and which are not
terminable without penalty on notice of ninety (90) days or less
is set forth in Schedule D and the Seller is not aware of any
third parties being in breach of such contracts where such breach
would affect the interests of the Companies;
(14) Leased Tangibles: None of the Tangibles which is operated by the
Companies and which have a value of more than $250,000 is leased
and, to the knowledge of the Seller, none of the other Tangibles
which has a value of more than $250,000 is leased;
(15) Condition of the Tangibles: With respect to properties operated
by the Companies and to the knowledge of the Seller with respect
to properties not operated by the Companies, there is no item of
the Tangibles which, in accordance with good oilfield practices,
should have been replaced or repaired at any time prior to the
Adjustment Date, or since the Adjustment Date at a cost to the
Companies in excess of $100,000 which has not been replaced or
repaired;
31
(16) Good Oilfield Practices: All operations in respect of the Oil and
Gas Assets prior to the date hereof for which the Companies were
the operator were conducted in accordance with good oilfield
practices in all Material respects and, to the knowledge of the
Seller, all other operations in respect of the Oil and Gas Assets
prior to the date hereof were conducted in accordance with good
oilfield practices;
(17) Production in Kind, Production Revenues: The Companies have been
receiving the revenues attributable to their interests in
accordance with the ordinary practice in the oil and gas
industry; where the Companies are taking their production of
Petroleum Substances in kind, such Petroleum Substances are being
delivered to the Companies or for their account in accordance
with the ordinary practice in the oil and gas industry;
(18) Regulatory Production Penalties: Except for production penalties
of general application, none of the wells included in the Oil and
Gas Assets operated by the Companies have been overproduced such
that they are subject to a production penalty which has been
imposed under Applicable Law and to the knowledge of the Seller,
none of the other wells included in the Oil and Gas Assets has
been overproduced such that it is subject to a production penalty
which has been imposed under Applicable Law;
(19) Licenses: Except to the extent which, in any case, is not
Material, (i) all licenses and approvals required under
Applicable Law in respect of the Oil and Gas Assets for which the
Companies are the operator have been issued or obtained and are
in full force and effect and there is no breach or violation
thereof and, (ii) to the knowledge of the Seller, all licenses
and approvals required under Applicable Law in respect of the
other Oil and Gas Assets have been issued or obtained and are in
full force and effect and there is no breach or violation
thereof; and
(20) Not Withheld: The Seller has not knowingly withheld from the
Purchaser any Material information, documents or agreements
relevant to the Assets or the Companies other than as identified
to the Purchaser.
3.5 Negation
The Seller makes no representation or warranty, either expressed or
implied, except as and to the extent set forth in Sections 3.1 through 3.4
inclusive. Except for such representations and warranties, the Seller shall not
be liable (whether in contract, in tort or otherwise) for any representation or
warranty which may have been made in any document or instrument relative hereto,
or otherwise communicated or implied to the Purchaser in any manner including,
without limitation, any information or opinion which may have been provided to
the Purchaser or its employees, agents, legal counsel or other representatives
by the Seller, the Companies or Affiliates of the Seller or their employees,
agents, legal counsel or other representatives or otherwise. Except as set forth
in Sections 3.1 through 3.4 inclusive, the Seller specifically makes no
representation or warranty as to the title to Assets of the Companies, Title
Defects, Environmental and Reclamation Liabilities of the Companies. The
Purchaser confirms that it has only relied on the representations and warranties
contained in Sections 3.1 through 3.4 inclusive and not on any representations
or warranties either outside this Agreement, whether expressed or implied. The
Purchaser acknowledges and confirms that it has performed its own due diligence
32
and, except for reliance on the representations and warranties contained in
Sections 3.1 through 3.4 inclusive, has relied, and will continue to rely, upon
its own engineering and other evaluations and projections as the same relate to
the Companies or the Assets and on its own inspection of all other physical
property and assets which comprise the Assets.
3.6 Purchaser's Representations and Warranties
The Purchaser represents and warrants to the Seller that:
(1) Incorporation: The Purchaser is a body corporate, duly
incorporated, organized and subsisting under the laws of Alberta;
(2) Corporate Authority: The Purchaser has the corporate power and
authority to enter into and deliver this Agreement and to
complete the transactions contemplated hereby;
(3) Financial Capability: The Purchaser has and will at the Time of
Closing have sufficient cash on hand and financial commitments to
complete the purchase of the Shares pursuant hereto;
(4) No Finder's Fees: The Purchaser has not incurred any obligation
or liability, contingent or otherwise, for broker's or finder's
fees in respect of the transactions contemplated hereby for which
either the Seller or any of its Affiliates shall have any
obligation or liability;
(5) Purchaser acting as Principal: The Purchaser is purchasing the
Shares pursuant hereto as principal;
(6) Due Execution and Enforceability: This Agreement has been
executed and delivered by the Purchaser and, if duly executed and
delivered by the Seller, constitutes the Purchaser's valid and
binding obligations enforceable in accordance with its terms,
subject to bankruptcy, insolvency, preference, reorganization,
moratorium and other similar laws affecting creditors' rights
generally and the discretion of courts with respect to equitable
and discretionary remedies and defenses;
(7) Due Authorization and no Violations: The execution and delivery
of this Agreement and the completion of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser and do not and will
not violate or conflict with any Applicable Law or the articles
of incorporation, by-laws or similar constitutional documents of
the Purchaser; and
(8) Investment Canada Act: The Purchaser is not a non-Canadian for
the purposes of the Investment Canada Act.
3.7 Right to Purchase Mirant GORR
The Seller covenants and agrees that if it or any Affiliate purchases
all or any part of the interest (the "Acquired Interest") of the "Royalty Owner"
under the First Overriding Royalty Agreement dated as of December 20, 2001
33
between Grey Wolf and Mirant Canada Energy Capital, Ltd. ("Mirant") or under the
Second Overriding Royalty Agreement dated as of December 20, 2001 between Grey
Wolf and Mirant, then the Purchaser or any Affiliate of the Purchaser shall have
the right to purchase from the Seller or its Affiliate, as applicable, the
Acquired Interest for a purchase price equal to the Purchase Price, as that term
is defined below. The Purchaser or its Affiliate may exercise the foregoing
right by notice (the "Notice") to the Seller at any time within six months of
the Purchaser becoming aware of the fact that the Seller or its Affiliate has
acquired the Acquired Interest. The purchase of the Acquired Interest by the
Purchaser or its Affiliate shall occur at the date and time after the notice
date (but within 30 days of such notice) specified by the Purchaser or its
Affiliate in the Notice (for this Section 3.7, the "Effective Date").
For purposes of this Section 3.7, the "Purchase Price" shall be equal
to the present value of the estimated future net cash flows from the Acquired
Interest, before tax, (as at the Effective Date) from the Proved Reserves and
50% of the Probable Additional Reserves (as those terms are defined in National
Policy 2-B of the Canadian Securities Administrators) associated with the
Royalty Lands (as that term is defined in the First Overriding Royalty Agreement
referred to above), at a discount rate of 10% per annum and employing escalated
prices and costs using the arithmetic average of the then most recent price
forecasts of Gilbert Laustsen Jung Associates Ltd. ("GLJ"), McDaniel &
Associates Consultants Ltd. and Sproule Associates Limited. The Proved Reserves
and the Probable Additional Reserves associated with the Royalty Lands shall be
as assigned by GLJ in a report, to be commissioned and paid for by the
Purchaser, evaluating those reserves and that is to have an effective date which
is the same as the date specified in the Notice.
ARTICLE 4
TAX MATTERS
4.1 Withholding Requirement
(1) If at the time of the Closing, a certificate has not been issued
by the Minister of National Revenue pursuant to section 116 of
the Canadian Tax Act in respect of the disposition by the Seller
of the Shares to the Purchaser, or such certificate has not been
delivered to the Purchaser, the Purchaser shall be entitled to
withhold from the Seller out of the Adjusted Purchase Price that
is otherwise payable to the Seller on Closing hereunder (the
"Seller Purchase Amount"), 25% of the Seller Purchase Amount,
which amount shall be paid by the Purchaser to the Escrow Agent
to be deposited in an interest-bearing trust account.
(2) If at the time of the Closing, a certificate has been issued by
the Minister of National Revenue pursuant to subsection 116(2) of
the Canadian Tax Act in respect of the disposition by the Seller
of the Shares to the Purchaser and such certificate had been
delivered to the Purchaser, the Purchaser shall be entitled to
withhold from the Seller, out of the Seller Purchase Amount, 25%
of the amount, if any, by which the Seller Purchase Amount
exceeds the amount specified in such certificate as the
certificate limit, which amount shall be paid by the Purchaser to
the Escrow Agent to be deposited in an interest-bearing trust
account. (The amount paid to the Escrow Agent pursuant to 4.1(1)
or (2) shall be referred to as the "Withheld Amount").
34
(3) If, prior to the 27th day after the end of the month in which the
Closing Date occurs:
(i) the Seller delivers to the Purchaser and the Escrow Agent a
certificate issued by the Minister of National Revenue under
subsection 116(2) of the Canadian Tax Act in respect of the
disposition of the Shares by the Seller to the Purchaser,
the Escrow Agent shall promptly pay to the Seller the lesser
of
(A) the Withheld Amount and
(B) the Withheld Amount less 25% of the amount, if any, by
which the Seller Purchase Amount exceeds the amount
specified in such certificate as the certificate limit,
together with any interest earned on the Withheld Amount to
the date of such payment (less any applicable withholding
Tax), or
(ii) the Seller delivers to the Purchaser and the Escrow Agent a
certificate issued by the Minister of National Revenue under
subsection 116(4) of the Canadian Tax Act in respect of the
disposition of the Shares by the Seller to the Purchaser,
the Escrow Agent shall promptly pay the Withheld Amount to
the Seller, together with any interest earned thereon (less
any applicable withholding Tax).
(4) If the Purchaser has withheld the Withheld Amount and paid such
amount to the Escrow Agent and the Seller does not deliver to the
Purchaser and the Escrow Agent prior to the 27th day after the
end of the month in which the Closing Date occurs a certificate
issued by the Minister of National Revenue under subsection
116(2) or 116(4) of the Canadian Tax Act in respect of the
disposition of the Shares by the Seller to the Purchaser, the
Escrow Agent shall remit to the Receiver General of Canada, out
of the Withheld Amount, the amount required to be remitted
pursuant to subsection 116(5) of the Canadian Tax Act, and the
amount so remitted shall be credited to the Purchaser as a
payment to the Seller on account of the Seller Purchase Amount,
and the Escrow Agent shall pay to the Seller any remaining
portion of the Withheld Amount, together with interest earned on
the Withheld Amount prior to such remittance (less any applicable
withholding Tax).
(5) With respect to any payment by the Purchaser to be made to the
Seller after the Closing pursuant to Section 2.5(2)(B) hereof
(the "Adjustment Payment"), if at the time of that payment a
certificate has not been issued by the Minister of National
Revenue pursuant to section 116 of the Canadian Tax Act in
respect of the disposition by the Seller of the Shares to the
Purchaser or such certificate has not been delivered to the
Purchaser, the Purchaser shall be entitled to withhold from the
Seller out of the Adjustment Payment 25% of the Adjustment
Payment (the "Additional Withheld Amount"), which amount shall be
paid by the Purchaser to the Escrow Agent to be deposited in an
interest-bearing trust account.
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If at the time of the Adjustment Payment, a certificate has
been issued by the Minister of National Revenue pursuant to
subsection 116(2) or 116(4) of the Canadian Tax Act in respect
of the disposition by the Seller of the Shares to the
Purchaser and such certificate has been delivered to the
Purchaser, the Purchaser shall be entitled to withhold from
the Adjustment Payment any additional amount in respect of the
disposition by the Seller of the Shares to the Purchaser which
the Purchaser may be required to remit to the Receiver General
under subsection 116(5) of the Canadian Tax Act in connection
with such payment (the "Additional Withheld Amount") which
amount shall be paid by the Purchaser to the Escrow Agent to
be deposited in an interest-bearing trust account.
The Escrow Agent shall remit to the Receiver General the
amount required to be remitted pursuant to subsection 116(5)
of the Canadian Tax Act in connection with the Adjustment
Payment, and the amount so remitted shall be credited to the
Purchaser as a payment to the Seller on account of the
Adjustment Payment, on the 27th day after the end of the month
in which the Adjustment Payment is paid, and the Escrow Agent
shall promptly pay to the Seller any portion of the Additional
Withheld Amount which is not required to be remitted pursuant
to subsection 116(5) of the Canadian Tax Act, together with
interest earned on the Additional Withheld Amount (net of any
applicable withholding Tax).
Notwithstanding the foregoing, if, at any time prior to the
27th day after the end of the month in which the Adjustment
Payment is paid, any portion of an Additional Withheld Amount
is not required to be remitted to the Receiver General
pursuant to subsection 116(5) of the Tax Act, the Escrow Agent
shall promptly pay to the Seller at such time the lesser of
(y) the Additional Withheld Amount and (z) the amount by which
the Additional Withheld Amount exceeds the amount that the
Purchaser is required to remit to the Receiver General under
subsection 116(5) in connection with the Adjustment Payment,
together with any interest earned on the Additional Withheld
Amount to the date of such payment (net of any applicable
withholding Tax).
4.2 Tax Returns
(1) The Purchaser shall cause the Companies to prepare and file in a
timely manner (at its cost and in consultation with the Seller)
all Tax Returns required to be filed by the Companies for any
period that ends on or before the Closing Date and for which Tax
Returns have not been filed as of the Closing Date. The Purchaser
shall obtain the consent of Seller to any Tax Returns filed in
respect of any period ending on or prior to the Closing Date,
which consent shall be deemed received unless the Seller advises
otherwise within 10 Business Days following receipt of the return
and request for consent. The Seller and the Purchaser shall
co-operate fully with each other and neither Party will
unreasonably withhold its consent to a request made by the other
Party with respect to such Tax Returns. Such Tax Returns will be
prepared in accordance with reasonable business practices and the
Companies' past practices. The Parties agree that an election
shall be made by each of the Companies in its Tax Return filed
for its taxation year ending immediately before the acquisition
of control by the Purchaser not to have subsection 256(9) of the
36
Canadian Tax Act apply, with the result that the taxation year of
the Companies shall end immediately before the Closing.
(2) Unless Section 6.4 becomes effective, no Tax Returns shall be
filed by the Seller between the Adjustment Date and the Closing
Date except with the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld.
4.3 Tax Indemnity
(1) After Closing the Seller shall be liable to and indemnify:
(i) the Companies (which in this Section 4.3 includes the
Companies' successors and assigns) in respect of all Losses
which the Companies suffer, sustain, pay or incur respecting
the following matters:
(A) ARTC claimed by Canadian Abraxas for 1997, for which a
waiver of the limitation period was provided to Alberta
Tax and Revenue Administration, and for any period
thereafter which ended prior to the Adjustment Date;
(B) the assessment by Canada Customs and Revenue Agency of
taxes of New Cache Petroleums Ltd. for the tax years
1996 and 1997; and
(C) any Claims pursuant to that Tax Indemnity dated January
17, 1997 among Crown Joule Exploration Ltd., New Cache
Petroleums Ltd. and Inter West Energy Corporation;
(ii) the Purchaser in respect of all Losses which the Purchaser
suffers, sustains, pays or incurs in respect of Taxes as a
consequence of any of the representations and warranties in
Subsections 3.2(9) (as it relates to Taxes for the periods
ending on or prior to December 31, 2001), (13), (14), (15)
and (18) and 3.3(9) (as it relates to Taxes for the periods
ending on or prior to December 31, 2001), (13), (14), (15)
and (18) being untrue; and
(iii)the Purchaser and the Companies in respect of all Losses
which the Purchaser or either of the Companies suffers,
sustains, pays or incurs in respect of Taxes as a
consequence of the Permitted Transactions.
The Purchaser shall give prompt written notice to the Seller
whenever it becomes aware that a Claim has been or may be made
for which the Seller may be liable pursuant to this Indemnity
(the "Tax Indemnity"). Unless the Seller notifies the
Purchaser that it elects not to have carriage and control of a
Claim the Seller shall, at its own expense and employing
counsel of its own choice, have full carriage and control of
the contestation of any such Claim, provided that if the Claim
does not relate solely to matters to which the Tax Indemnity
may apply, the Purchaser shall, at its own expense and
employing counsel of its own choice, have full carriage and
control of the contestation of the portion of the Claims
relating to matters to which the Tax Indemnity does not
relate; and further provided that where the Seller has
carriage and control of a Claim neither the Purchaser nor the
Companies will agree to any compromise or settlement of such
37
Claim to which the Tax Indemnity may apply without the consent
of the Seller, which will not be unreasonably withheld.
Notwithstanding the foregoing, the Seller's right to have
carriage and control of the contestation of any such Claim
shall only apply and continue to apply after payment of the
amount of such Claim or the provision of such security as is
necessary to avoid a lien being placed on the property of the
Companies (or the Purchaser) in respect of such Claim. Where
the Seller has carriage and control of a Claim, if the
Purchaser does not consent to a settlement of a Claim to which
the Tax Indemnity may apply following a request from the
Seller to do so, the obligation of the Seller to indemnify the
Purchaser for the Claim shall be limited to the amount that
the Seller would have been required to pay to the Companies
pursuant hereto in respect of the Claim if the settlement had
been accepted and the Seller shall forthwith transfer carriage
of the contestation of the Claim to the Purchaser or its
nominee. The Purchaser, the Companies and the Seller shall
cooperate with each other in any defence of any such Claims
and shall keep each other reasonably informed of the conduct
thereof. If the Seller elects not to have carriage and control
of the contestation of the Claim, the Purchaser and the
Companies shall be under no obligation to contest, settle or
compromise the Claim and such failure to contest, settle or
compromise the Claim shall not prejudice its rights pursuant
to this Indemnity.
(2) The Tax Indemnity shall continue and remain in full force and
effect in respect of all Taxes assessed within the period during
which Taxes may be assessed or reassessed under Applicable Law on
the assumption that no waiver is filed after Closing pursuant to
the Canadian Tax Act or similar provisions of provincial income
tax legislation unless such waiver is filed with the written
consent of the Seller.
(3) Each of the Parties on their own behalf and on behalf of any
successors or assigns covenant that it will not request an audit
by any taxation authority which may result in an assessment to
which the Tax Indemnity may apply.
(4) The Parties undertake to inform each other of any audit inquiries
with respect to issues to which the Tax Indemnity may apply and
to cooperate with each other in making any representations prior
to any assessment to which those indemnities may apply.
(5) The Parties agree that the Tax Indemnity is designed (subject to
the limitations set forth therein) to minimize the cash Taxes
payable by the Companies and, accordingly, Losses shall not
include reductions or revisions to the tax pools of the
Companies. Notwithstanding anything in this Agreement to the
contrary, except for Losses pursuant to 4.3(1)(i)(A) or (C),
Losses, for the purposes of this Section 4.3, shall only include
increases in cash Taxes payable by the Purchaser or the Companies
resulting from a Claim described in this Section assuming the
maximum deductions of tax pools are taken. For greater certainty,
the Companies, the Purchaser or any successor shall make such
supplemental filings, including refiling tax returns for prior
periods in order to minimize the cash Taxes payable attributable
to any Claim described in this Section 4.3. The Seller shall not
be liable under this Section 4.3 for any Claim to the extent
activities, transactions or filings conducted or made by or in
respect of the Companies or its successors after the Closing Date
38
(other than any activities, transactions and filings to which the
Seller has or is deemed to have consented and any Tax Returns
filed to reflect any assessment or reassessment made by any
governmental authority or agency in respect of Taxes for periods
ending on or prior to the Closing Date) increase the cash Taxes
payable, or reduce the tax pools or other deductions otherwise
available to reduce cash Taxes payable, in respect of the Claim.
(6) The amounts payable in respect of the Tax Indemnity shall
constitute and be treated by the Parties as an adjustment to the
Base Price.
ARTICLE 5
CLOSING PERIOD
5.1 Pre-Closing Activities
During the Pre-Closing Period, and except for the Permitted
Transactions, the Seller shall cause the Companies to conduct their business in
substantially the same manner as prior to the Adjustment Date, including without
limitation but except as it relates to the Excluded Assets:
(1) conducting their business in the Ordinary Course of Business;
(2) maintaining the Assets in a proper and prudent manner in
accordance with good oil and gas industry practices, including
maintaining adequate insurance, in material compliance with all
applicable laws, rules, regulations, orders and directors of
governmental and other competent authorities;
(3) paying or causing to be paid all costs and expenses relating to
the Assets which become due during the Pre-Closing Period;
(4) performing and complying with all covenants and conditions
contained in the Title and Operating Documents and any other
agreements and documents to which the Assets are subject; and
(5) forthwith providing to the Purchaser all authorizations for
expenditure, notices, mail ballots, rights of first refusal,
specific information and other documents in respect of the Assets
which it or the Companies receives. Upon receipt and review, the
Purchaser shall provide its election with respect thereto the
Seller and, subject to the Seller's right of refusal as described
below, the Seller shall respond to such authorizations for
expenditure, notices, mail ballots, rights of first refusal,
specific information and other documents in accordance with the
written instructions of the Purchaser, if received on a timely
basis, and the Purchaser shall reimburse the Seller for any
out-of-pocket third party expenses relating to such response
provided that Closing occurs. If the Seller disagrees with the
Purchaser's instructions, the Seller and the Purchaser shall
negotiate a solution in order that the Seller is able to respond
to any such authorization for expenditure, notice, mail ballot,
right of first refusal, specific information or other document.
39
The Seller will not, without the prior written consent of the Purchaser
(which shall not be unreasonably withheld) cause or permit any of the Companies
to engage in any practice or take any action or enter into any transaction
outside the Ordinary Course of Business, except for the Permitted Transactions
and as it relates to the Excluded Assets (for which the Seller assumes full
liability and responsibility). Without limiting the generality of the foregoing,
without the prior written consent of the Purchaser (which shall not unreasonably
be withheld), the Seller will not, except as it relates to the Excluded Assets,
and except for Permitted Transactions, permit the Companies during the
Pre-Closing Period to:
(1) commit to make (a) an acquisition of an interest or interests in
one or more petroleum and natural gas leases or similar
instruments (whether by purchase, farmin or at a Crown sale), or
(b) any capital expenditure with respect to the Assets, or
propose, initiate or authorize any such capital expenditure, if
the Companies reasonably expect that the consideration payable
pursuant to such acquisition or capital expenditure will exceed
$100,000 in any individual case, except where required urgently
for the protection of the Environment, property or Persons
(including the prevention of death or injury), other than Land
Sales Acquisitions. Any acquisitions pursuant to a Land Sales
Acquisition shall be Excluded Assets and the cost thereof
adjusted accordingly. The Purchaser's consent shall be deemed
given to any capital expenditure unless within two (2) Business
Days of request for such consent, the Purchaser notifies the
Seller in writing that it does not consent to such expenditure;
(2) amend or terminate any Material Contracts in any Material
respect;
(3) enter into or amend any new employment contract or employee
benefit program;
(4) sell, transfer or dispose of, grant an Encumbrance on or in
respect of, surrender or abandon the whole or any part of the
Assets, except the creation of Permitted Encumbrances, the sale
of Petroleum Substances produced from the Lands or lands pooled
or unitized therewith in the ordinary course or the surrender of
a Lease in the Ordinary Course of Business;
(5) amend or terminate any Material Title and Operating Documents or
enter into any new Material agreement or commitment relating to
the Assets;
(6) enter into any transaction not in the Ordinary Course of its
Business;
(7) borrow money or incur any indebtedness for borrowed money, except
the Companies' Debt;
(8) increase or decrease the principal of the Companies' Debt except
pursuant to the Mirant Credit Agreement in the Ordinary Course of
its Business;
(9) make loans or advances, excluding loans and advances in
accordance with the terms of operating agreements to which the
Companies are a party or by which either is bound and excluding
routine advances to employees of the Companies for expenses
incurred in the Ordinary Course of Business;
40
(10) issue, sell or agree to issue or sell any shares, rights,
options, warrants or other securities of any of the Companies;
(11) purchase, cancel, retire, redeem or otherwise acquire any of the
Shares;
(12) change, amend or modify the Articles or by-laws or other
constating documents of any of the Companies;
(13) declare, set aside, make or pay any dividend or other
distribution in respect of any securities issued by the
Companies;
(14) alter any of the Employee Plans, except as required by Applicable
Law;
(15) increase the salaries, benefits or other compensation payable to
any of its directors, officers or employees; and
(16) change bookkeeping, record keeping or accounting methods and
procedures.
The Seller shall cause the Permitted Transactions to be effected at or prior to
Closing. The Purchaser acknowledges that the Seller or its Affiliate shall be
entitled to the Interim Period Excluded Assets Net Revenues.
5.2 Insurance
During the Pre-Closing Period, the Seller will cause the Companies to
maintain the insurance specified in Schedule H or substantially similar
insurance. The Seller shall have no obligation to maintain or cause such parties
to maintain any insurance after the Closing Date.
5.3 Due Diligence
The Companies shall permit the Purchaser and its legal counsel and
authorized representatives to have full access to all files, premises,
properties, personnel, books, records (including Tax Records), auditors,
contracts and documents of or pertaining to the Companies and their respective
subsidiaries and affiliates and any predecessor corporations or entities during
the Pre-Closing Period for purposes of performing due diligence with respect to
the Companies and its assets and affairs. The provisions of the Confidentiality
Agreement shall continue to be applicable to any information made available by
such parties pursuant to the provisions of this Agreement.
5.4 Required Approvals
The Parties shall use all reasonable commercial efforts to obtain the
Required Approvals prior to the Time of Closing. Each Party shall provide such
information and cooperation as the other Party may reasonably request in
connection therewith.
5.5 Tax Elections
Other than as expressly provided in this Agreement, no tax elections
have been or will be filed in respect of any of the Companies between the
41
Adjustment Date and the Closing, except with the prior written consent of the
Purchaser, which consent shall not be unreasonably withheld.
ARTICLE 6
CONDITIONS
6.1 Conditions for the Benefit of the Purchaser
(1) The Purchaser's obligation to buy the Shares from the Seller (or
pursuant to Section 6.4 and Schedule Q, purchase the Oil and Gas
Assets) pursuant hereto is subject to the following conditions
(which are for the exclusive benefit of the Purchaser) being
satisfied in all respects at or prior to the Time of Closing,
which conditions shall be deemed satisfied unless they are not
satisfied to the extent one or more failures of such conditions,
either alone or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect on the Purchaser or
the Companies:
(i) the representations and warranties of the Seller set forth
in Sections 3.1 through 3.4 inclusive shall be true and
correct at the Time of Closing with the same force and
effect as if made at and as of such time;
(ii) the Seller and the Companies shall have performed or
complied in all material respects with all covenants in this
Agreement to be performed or complied with by the Seller or
the Companies at or prior to the Time of Closing pursuant
hereto;
(iii)all Required Approvals shall have been obtained on terms
reasonably acceptable to the Purchaser, at or prior to the
Time of Closing;
(iv) at Closing, the Seller shall have delivered all items which
it is required to deliver pursuant to Section 7.2;
(v) the Seller shall have delivered opinions of the Seller's
legal counsel that this Agreement (and agreements to be
executed by the Seller or its Affiliates pursuant hereto)
has been duly authorized, executed and delivered by the
Seller in form and substance reasonably satisfactory to the
Purchaser;
(vi) there shall not be any suit, action or other proceeding that
shall, at Closing, be pending against any of the Parties
before any governmental entity or other agency and no law,
regulation or policy shall have been proposed, enacted or
applied: (i) making illegal or seeking to restrain, prohibit
or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this
Agreement; (ii) prohibiting or materially limiting the
ownership or operation by the Companies of a material
portion of the business or assets thereof or requiring the
Purchaser to dispose of or hold separately any such portion
of any Shares or Assets, as applicable; or (iii) making the
42
consummation of the transactions contemplated by this
Agreement materially more costly to the Purchaser or
materially reducing the value of the Shares;
(vii)the Seller shall have delivered releases or discharges of
the Companies' Debt, and all obligations under the other
Indentures, and of all other obligations that relate to the
Excluded Assets or Encumbrances (other than Permitted
Encumbrances) which are not permitted under this Agreement,
but where Section 6.4 is applicable, only discharges of
security registerable against the Purchased Assets or an
undertaking to discharge in form and content reasonably
satisfactory to the Purchaser will be required, provided
that the failure to provide any such releases, discharges or
undertakings to discharge (to the extent the relevant
obligation is Material) will be deemed to have a Material
Adverse Effect; and
(viii) the Seller shall have, and shall have caused the Companies
to have transferred from the Companies, all Excluded Assets
on the terms and conditions set forth in Schedule I.
(2) If Section 6.1(1) is not satisfied at the Time of Closing or
waived by the Purchaser, the Purchaser may, at or prior to the
Time of Closing, at its sole option:
(i) rescind this Agreement by notice to the Seller, in which
event Section 13.1 will be applicable; or
(ii) waive such condition in whole or in part without prejudice
to any of its rights in the event of non-performance of any
other term, covenant or condition in whole or in part.
6.2 Conditions for the Benefit of the Seller
(1) The Seller's obligation to sell the Shares or, pursuant to
Section 6.4 and Schedule Q, the Companies' obligation to sell the
Oil and Gas Assets (in which case the condition set forth in
Section 6.2(1)(vi) shall not apply) to the Purchaser pursuant
hereto is subject to the following conditions (which are for the
exclusive benefit of the Seller) being satisfied in all respects
at or prior to the Time of Closing, which conditions shall be
deemed satisfied unless they are not satisfied to the extent one
or more failures of such conditions, either alone or in the
aggregate have had, or could reasonably be expected to have, a
Material Adverse Effect on the Seller or the Companies:
(i) the representations and warranties of the Purchaser set
forth in Section 3.6 shall be true and correct at the Time
of Closing with the same force and effect as if made at and
as of such time;
(ii) the Purchaser shall have performed or complied in all
material respects with all of the terms, covenants and
conditions of this Agreement to be performed or complied
with by the Purchaser at or prior to the Time of Closing
pursuant hereto;
43
(iii)at Closing, the Purchaser shall have delivered all items it
is required to deliver pursuant to Section 7.3;
(iv) all Required Approvals shall have been obtained on terms
acceptable to the Seller, acting reasonably, at or prior to
the Time of Closing;
(v) the Purchaser shall have delivered an opinion of the
Purchaser's legal counsel that this Agreement has been duly
authorized, executed and delivered by the Purchaser and PEI
in form and substance satisfactory to the Purchaser;
(vi) the Seller shall have either (i) successfully completed a
tender offer for its 11 1/2% Senior Secured Notes due 2004
(including those 111/2% Senior Notes Series D due 2004 which
were issued under the January 27, 1998 Indenture) (the
"Notes") which shall have resulted in the release of
Canadian Abraxas as an Issuer (as defined in the December
21, 1999 Indenture and January 27, 1998 Indenture governing
the Notes) of the Notes and from any obligations and
liabilities under the Notes, the December 21, 1999
Indenture, the January 27, 1998 Indenture and the Security
Documents (as defined in the December 21, 1999 Indenture) or
(ii) received the consent of a sufficient number of the
holders of the Notes so that Canadian Abraxas shall have
been released as an Issuer of the Notes and from any
obligations and liabilities under the Notes, the December
21, 1999 Indenture, the January 27, 1998 Indenture and the
Security Documents; and
(vii)there shall not be any suit, action or other proceeding
that shall, at Closing, be pending before any governmental
entity or other agency and no law, regulation or policy
shall have been proposed, enacted or applied making illegal
or seeking to restrain, prohibit or obtain damages or other
relief in connection with the consummation of the
transactions contemplated by this Agreement.
(2) Subject to Section 6.4, if Section 6.2(1) is not satisfied, the
Seller may, at or before the Time of Closing but not after that
time, in its sole option:
(i) rescind this Agreement by notice to the Purchaser, in which
event Section 13.1 will be applicable; or
(ii) waive such condition in whole or in part without prejudice
to any of its rights in the event of non-performance of any
other term, covenant or condition in whole or in part.
Notwithstanding the foregoing, the Seller shall not be
entitled to terminate its obligations pursuant to Section 6.4
if the condition set forth in Section 6.2(1)(vi) has not been
satisfied.
44
6.3 Efforts to Satisfy Conditions
Each Party shall use all reasonable commercial efforts and shall
proceed diligently, honestly and in good faith to cause the conditions set forth
in Section 6.1 and 6.2 which are within its reasonable control to be satisfied.
Each Party shall provide such information and cooperation to the other Party as
it may reasonably request in connection with the satisfaction of such
conditions.
6.4 Asset Sale Alternative
In the event the Seller is unable to satisfy the condition set forth in
Section 6.2(1)(vi) on or prior to the Time of Closing (as the Time of Closing
may be extended pursuant to Section 6.5), the Companies shall sell and the
Purchaser shall buy the Oil and Gas Assets other than the Excluded Assets on the
Closing Date and the provisions of this Agreement shall apply to such sale
except as modified below:
(1) On the Seller determining that the condition set forth in Section
6.2(1)(vi) cannot be satisfied prior to Closing, the Seller shall
promptly provide notice to the Purchaser of such determination;
(2) The Base Price shall remain the same; and
(3) The provisions set forth in the attached Schedule Q shall become
effective and replace the provisions of Articles 2, 7, 8, and 9
(except Section 9.3) hereof. Article 4 hereof shall no longer be
applicable.
6.5 Closing Extension
In the event the Seller determines that the condition set forth in
Section 6.2(1)(vi) will not be satisfied by the scheduled Closing Date, the
Seller shall be entitled to extend the Closing Date by up to fifteen (15)
Business Days by notice to the Purchaser.
ARTICLE 7
CLOSING
7.1 Closing
The Closing shall occur at the Place of Closing at the Time of Closing.
7.2 Deliveries by the Seller at Closing
At Closing, the Seller shall deliver to the Purchaser:
(1) the certificates representing the Shares duly endorsed for
transfer by the Seller and new share certificates issued in the
name of the Purchaser in respect of the Shares;
(2) the Farmout Agreements, duly executed by the Farmor;
(3) the Farmor Guarantee duly executed by the Farmor;
45
(4) certified copies of the documents contemplated in Schedule "I";
(5) certificates of the appropriate government officials, dated on or
after the Adjustment Date, evidencing the existence and good
standing of the Seller, the Farmor and the Companies in the
jurisdiction of its organization and each other jurisdiction in
which its good standing is required by the extent of its
business;
(6) the minute books, corporate seals and all corporate records of
the Companies;
(7) a certificate of the Seller in the form of Schedule B;
(8) except as otherwise directed by the Purchaser, resignations and
releases, in the form of Schedule R, of all directors, officers
and Employees of the Companies;
(9) the legal opinion referred to in Paragraph 6.1(1)(v);
(10) certified copies of directors' resolutions of the Companies
confirming approval of the transfer of the Shares to the
Purchaser in accordance with the terms and conditions of this
Agreement;
(11) the certificate defined in Section 4.1(1) hereof;
(12) a receipt for the Adjusted Purchase Price;
(13) evidence reasonably satisfactory to the Purchaser that the
Excluded Assets shall have been conveyed out of the Companies
without recourse to the Companies; and
(14) such other items as may be specifically required hereunder.
7.3 Deliveries by the Purchaser at Closing
At Closing, the Purchaser shall:
(1) pay the Adjusted Purchase Price to the Seller, subject to Section
4.1;
(2) deliver to the Seller the Farmout Agreements, duly executed by
the Purchaser;
(3) deliver a certificate of an officer or director of the Purchaser
in the form of Schedule B; and
(4) deliver the legal opinion referred to in Paragraph 6.2(1)(v).
7.4 Closing Escrow
The items tabled at Closing pursuant to Sections 7.2 and 7.3 shall be
held in escrow until all of such items have been tabled, whereupon such escrow
shall be terminated and the items described in Section 7.2 shall be delivered to
the Purchaser and the items described in Section 7.3 shall be delivered to the
Seller and the Closing shall have occurred. If such escrow is not released on or
before 4:00 p.m. (Calgary Time) on the Closing Date and the Parties do not agree
46
to an extension of the escrow, the Closing shall be deemed not to have occurred
and the documents and certificates tabled by a Party pursuant to this Article 7
shall be returned to that Party.
ARTICLE 8
ENVIRONMENTAL INDEMNITY
8.1 Indemnity
Except insofar as the Seller is indemnifying the Purchaser and others
pursuant to Section 9.1, the Purchaser shall, and shall cause the Companies to,
indemnify and save harmless the Seller and its Affiliates and their
Representatives from and against the Companies' Environmental and Reclamation
Liabilities related to the Oil and Gas Assets and all Losses which they may
suffer, sustain, pay or incur in respect thereof, whether arising or relating to
events occurring on or after the Closing Date, except any such Liabilities or
Losses as may have been caused by the wilful misconduct of any such indemnified
Person.
ARTICLE 9
GENERAL INDEMNITIES
9.1 Seller's Indemnity
Subject to Section 9.3, the Seller shall indemnify and save harmless
the Purchaser and its Affiliates and their Representatives from and against all
Losses and Liabilities which they suffer, sustain, pay or incur as a consequence
of a breach of a representation and warranty made by the Seller in Section 3.1,
3.2, 3.3 or 3.4 or a breach by the Seller of any of the covenants made by it in
this Agreement, except any such Losses as have been caused by or result from the
gross negligence or wilful misconduct of any such indemnified Person.
The Seller shall indemnify and save harmless the Purchaser and its
Affiliates and their Representatives from and against all Losses and Liabilities
which they suffer, sustain, pay or incur relating to the Excluded Assets or the
operation thereof or relating to the Employees which occur before, on or after
the Time of Closing, except any such Losses as have been caused by or result
from the gross negligence or wilful misconduct of any such indemnified Person.
The Parties agree that for the purposes of this Section 9.1, in the
case of any misrepresentation or breach of warranty of the Seller, the measure
of the Purchaser's Losses in respect thereof will be, dollar for dollar, the
difference in what would have been the position (financial and otherwise) of the
Companies had such representation been true or the warranty not breached and the
actual position (financial and otherwise) of the Companies (given such
misrepresentation or breach of warranty).
9.2 Purchaser's Indemnity
The Purchaser shall indemnify and save harmless the Seller and their
Affiliates and their Representatives from and against all Losses which they
suffer, sustain, pay or incur as a consequence of:
(1) a breach of a representation or warranty contained in Section 3.6
or a breach by the Purchaser of a covenant made by it in this
Agreement; or
47
(2) subject to the Seller's obligations in respect of the indemnity
contained in Section 9.1, any matter or circumstance relating to
Oil and Gas Assets or the operation thereof which occurs before,
on or after the Time of Closing or which relates to the Companies
and occurs after the Time of Closing,
except any such Losses as have been caused by or result from the gross
negligence or wilful misconduct of any such indemnified Person.
9.3 Limitations on Seller's Indemnity
(1) No Claim against the Seller for performance of an indemnity or in
respect of a breach of any covenant, representation or warranty
made by that Seller in this Agreement (other than pursuant to
Section 4.3 or 9.5 hereof) shall be made or be enforceable,
whether by legal proceedings or otherwise, unless written notice
of such Claim is given by the Purchaser to that Seller within
nine (9) months from the Closing Date;
(2) The maximum cumulative liability of the Seller in respect of
indemnities and breaches of the representations, warranties and
covenants made by the Seller in this Agreement shall not exceed
the Base Price;
(3) No Claim against the Seller for performance of an indemnity or in
respect of a breach of any covenant, representation, or warranty
made by the Seller arising out of any fact, matter or
circumstance known to the Purchaser at Closing (other than
pursuant to Section 4.3(1)(i) or (iii) or 9.5 hereof);
(4) Except as otherwise set out herein, the Purchaser's sole remedy
for a misrepresentation or breach of a warranty or other
agreement contained in this Agreement is limited to the indemnity
contained in Section 9.1 and is limited by the provisions of this
Section 9.3.
(5) Notwithstanding anything to the contrary set forth in this
Agreement, the Seller shall have no liability to the Purchaser or
obligation to indemnify the Purchaser for any specific matter or
claim for which the Purchaser has received an adjustment to the
Purchase Price to the extent of such adjustment.
(6) The Purchaser shall not be entitled to make a Claim against the
Seller for indemnity pursuant to this Agreement unless and until
the aggregate amount of all Losses with respect to all Claims
asserted by the Purchaser under this Agreement (other than
pursuant to Section 4.3 or 9.5) exceeds $1,500,000. Once such
minimum threshold in Losses has been sustained by the Purchaser,
the entirety of all Losses sustained by the Purchaser shall be
compensable under this Section 9.3, subject to the other
provisions of this Section. Claims pursuant to Section 4.3 or 9.5
shall not be included in claims for the purposes of this Section
9.3(6).
(7) The Purchaser's Losses hereunder shall be deemed reduced by the
amount of any insurance proceeds and any tax benefits received by
the Purchaser with respect to such Losses.
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(8) The Purchaser shall not be entitled to indemnity under both
Section 4.3 and 9.1 for the same Loss.
9.4 Indemnification Procedure
(1) For purposes of this Section 9.4, the term "Indemnifying Party"
when used in connection with a Claim shall mean the Person having
an obligation to indemnify the other Party with respect to such
Claim pursuant to this Agreement (other than under Section 4.3),
and the term "Indemnified Party" when used in connection with a
particular Claim shall mean the Person having the right to be
indemnified with respect to such Claim by the other Party
pursuant to this Agreement (other than under Section 4.3).
(2) To make claim for indemnification, an Indemnified Party shall
notify the Indemnifying Party of its claim under this Section
9.4, including the specific details of and specific basis under
this Agreement for its claim (the "Claim Notice"). In the event
that the claim for indemnification is based upon a claim by a
third party against the Indemnified Party (a "Third Party
Claim"), the Indemnified Party shall provide its Claim Notice
promptly after the Indemnified Party has actual knowledge of the
Third Party Claim and shall enclose a copy of all papers (if any)
served with respect to the Third Party Claim; provided that the
failure of any Indemnified Party to give notice of a Third Party
Claim as provided in this Section 9.4 shall not relieve the
Indemnifying Party of its obligations under this Agreement except
to the extent such failure results in insufficient time being
available to permit the Indemnifying Party to effectively defend
against the Third Party Claim or otherwise materially prejudices
the Indemnifying Party's ability to defend against the Third
Party Claim. In the event that the claim for indemnification is
based upon an inaccuracy or breach of a representation, warranty,
covenant or agreement, the Claim Notice shall specify the
representation, warranty, covenant or agreement which was
inaccurate or breached.
(3) In the case of a claim for indemnification based upon a Third
Party Claim, the Indemnifying Party shall have 30 days from its
receipt of the Claim Notice to notify the Indemnified Party
whether it admits or denies its liability to defend the
Indemnified Party against such Third Party Claim at the sole cost
and expense of the Indemnifying Party. The Indemnified Party is
authorized, prior to and during such 30-day period, to file any
motion, answer or other pleading that it shall deem necessary or
appropriate to protect its interests or those of the Indemnifying
Party and that is not prejudicial to the Indemnifying Party.
(4) If the Indemnifying Party admits its liability, it shall have the
right and obligation to diligently defend, at its sole cost and
expense, the Third Party Claim. The Indemnifying Party shall have
full control of such defense and proceedings, including any
compromise or settlement thereof. If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate, at
the cost and expense of the Indemnifying Party, in contesting any
Third Party Claim which the Indemnifying Party elects to contest.
The Indemnified Party may participate in, but not control, any
defense or settlement of any Third Party Claim controlled by the
49
Indemnifying Party pursuant to this Section 9.4(4). An
Indemnifying Party shall not, without the written consent of the
Indemnified Party, (i) settle any Third Party Claim or consent to
the entry of any judgment with respect thereto which does not
include an unconditional written release of the Indemnified Party
from all liability in respect of such Third Party Claim or (ii)
settle any Third Party Claim or consent to the entry of any
judgment with respect thereto in any manner that may materially
and adversely affect the Indemnified Party (other than as a
result of money damages covered by the indemnity).
(5) If the Indemnifying Party does not admit its liability or admits
its liability but fails to diligently prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the
right to defend against the Third Party Claim at the sole cost
and expense of the Indemnifying Party, with counsel of the
Indemnified Party's choosing, subject to the right of the
Indemnifying Party to admit its liability and assume the defense
of the Third Party Claim at any time prior to settlement or final
determination thereof. If the Indemnifying Party has not yet
admitted its liability for a Third Party Claim, the Indemnified
Party shall send written notice to the Indemnifying Party of any
proposed settlement and the Indemnifying Party shall have the
option for 10 days following receipt of such notice to (i) admit
in writing its liability for the Third Party Claim and (ii) if
liability is so admitted, reject, in its reasonable judgment, the
proposed settlement.
(6) In the case of a claim for indemnification not based upon a Third
Party Claim, the Indemnifying Party shall have 30 days from its
receipt of the Claim Notice to (i) cure the Losses complained of,
(ii) admit its liability for such Losses or (iii) dispute the
claim for such Losses. If the Indemnifying Party does not notify
the Indemnified Party within such 30 day period that it has cured
the Losses or that it disputes the claim for such Losses, the
amount of such Losses shall conclusively be deemed a liability of
the Indemnifying Party hereunder.
9.5 Specific Claim Indemnity
Schedule C identifies two law suits commenced by each of Canadian
Natural Resources Limited and by Husky Oil Operations Ltd. (the "Indemnified
Claims"). As part of the Permitted Transactions, it is intended that an
Affiliate of the Seller shall assume all responsibility for the Indemnified
Claims and shall be entitled to any benefit accruing in respect of such
Indemnified Claims. Accordingly, the Seller shall and shall cause the Affiliate
to indemnify and hold harmless the Companies from and against all Losses arising
pursuant to such Indemnified Claims. The indemnification procedure set forth in
Section 9.4 shall apply to such indemnity and the Seller and its affiliates
shall have the right and obligation to diligently defend the Indemnified Claims
in the manner specified by Section 9.4(4).
ARTICLE 10
EMPLOYEES
10.1 Choosing Employees
The Purchaser shall identify those Employees which the Purchaser has
determined it wishes to retain for its operations and provide notice to the
Seller with the names of such Employees on or prior to December 11, 2002 (such
50
identified employees being referred to as "Transfer Employees"). The Seller and
the Purchaser shall meet to determine whether any Transfer Employee is desired
by both parties and shall attempt to agree on a reasonable division of such
Employees. Subject to any agreement reached on division of such Employees, the
Seller shall offer to employ, hire or retain, as appropriate, all Employees
which are not Transfer Employees (any such remaining employee being referred to
as a "Retained Employee"). The Seller shall also be entitled to offer employment
or otherwise offer to hire or retain any Transfer Employee, provided the Seller
has advised the Purchaser that it intends to do so. Any such Transfer Employee
so employed, hired or retained by the Seller shall be deemed to be a Retained
Employee and not a Transfer Employee.
10.2 Recognition of Service
The Purchaser covenants that the Purchaser and all Affiliates of the
Purchaser will recognize the period of service which an Employee (other than a
Retained Employee) has had with Grey Wolf, Canadian Abraxas and their
predecessors for all purposes of such Employee's employment with the Purchaser
and such Affiliates following Closing.
10.3 Retained Employees
The Seller or its nominee shall offer to employ, hire or retain all
Retained Employees on or prior to Closing. The Seller shall indemnify and hold
harmless the Purchaser from and against all costs in respect of the termination
of employment of all Retained Employees and, in the event Section 6.4 becomes
effective, all Transfer Employees who do not accept an offer of employment with
the Purchaser or any of its Affiliates following Closing (and in such case, such
non-accepting Transfer Employees shall be deemed to be Retained Employees and
cease to be Transfer Employees), including all severance amounts, damages,
benefits and related costs, expenses and other liabilities incurred by the
Companies in connection with the employment or termination of employment of such
Employees and such amounts shall be treated as costs incurred prior to the
Adjustment Date and the Purchase Price Adjustment Amount increased accordingly.
10.4 Transfer Employees
(1) The Purchaser and, if Section 6.4 is not applicable, Grey Wolf,
shall be responsible for all obligations arising in respect of
the termination of the employment of all Transfer Employees.
(2) The Purchaser and, if Section 6.4 is not applicable, Grey Wolf,
shall indemnify and hold harmless the Seller from and against any
and all Losses which may be suffered by the Seller arising out of
any claim by any Transfer Employees who are not, and are not
deemed to be, Retained Employees for any severance amount,
pursuant to any employment or benefit plan, for wrongful
dismissal, for any bonus or other incentive compensation and all
damages, costs, expenses and other liabilities incurred in
respect thereof.
(3) The Purchaser, and if Section 6.4 is not applicable, Grey Wolf,
agree that neither they nor any Affiliate shall, without the
prior written consent of the Seller, hire, retain, employ or
51
otherwise solicit for employment any Retained Employee for a
period of twelve (12) months following Closing.
(4) The Seller agrees that neither it nor any Affiliate shall,
without the prior written consent of the Purchaser, hire, retain,
employ or otherwise solicit for employment after the Time of
Closing any Transfer Employee who continues to be employed by
Grey Wolf or who accepts an offer of employment with the
Purchaser or an Affiliate for a period of twelve (12) months
following Closing.
10.5 Asset Transaction
In the event that Section 6.4 and Schedule Q become applicable:
(1) The Retained Employees shall continue with Grey Wolf and the
Purchaser shall hire, retain, employ or otherwise solicit for
employment all Transfer Employees. Grey Wolf shall not be
responsible for Transfer Employees who accept an offer of
employment with the Purchaser.
(2) The Purchaser shall indemnify and hold harmless Grey Wolf and
Abraxas from any and all Losses which may be suffered by Abraxas
or the Companies arising out of any claim by any Transfer
Employees who accept an offer of employment with the Purchaser
for any severance amount, pursuant to any employment or benefit
plan, for wrongful dismissal, for any bonus or other incentive
compensation and all damages, costs, expenses and other
liabilities incurred in respect thereof.
(3) The Purchaser shall offer to hire, retain or employ all Transfer
Employees on employment terms substantially the same as such
Transfer Employees' current employment terms (including matters
related to compensation, incentives, benefits, title, role and
responsibility).
10.6 Transitional Assistance
Following Closing, the Seller, Purchaser and the Companies shall use
reasonable efforts to provide assistance from time to time to ensure the orderly
transition of the business of Newco (as defined in Schedule I) and the Companies
as contemplated in this Agreement. The Parties acknowledge that, from time to
time, they will require assistance from Employees which have been obtained or
hired by the other and the Parties shall use reasonable efforts to make
available their Employees to assist in such business transition.
ARTICLE 11
DUE DILIGENCE
11.1 Title Opinions
Prior to the date hereof, the Seller has provided to the Purchaser a
copy of the Title Opinions. The Purchaser acknowledges that it has reviewed the
52
Title Opinions.
11.2 Pre-Closing Title Review
Prior to the Closing, the Seller shall cause the Companies to make
available to the Purchaser and its representatives, all Title and Operating
Documents (including contracts, correspondence, files and prior title opinions)
in its possession pertaining to the Oil and Gas Assets for purposes of
permitting the Purchaser to review the Companies' title to the Oil and Gas
Assets. The provisions of the Confidentiality Agreement shall continue to be
applicable to any information made available by the Companies pursuant to this
Agreement. The Purchaser shall conduct its review of the Companies' title to the
Oil and Gas Assets with reasonable diligence. If there are Title Defects which
affect any of the Oil and Gas Assets which are not disclosed in the Title
Opinions ("New Title Defects"), the Purchaser may give notice of such New Title
Defects to the Seller not later than November 21, 2002 and the Seller shall use
reasonable efforts to rectify such defects. Such notice shall specify the New
Title Defects in reasonable detail, the Oil and Gas Assets directly affected
thereby, the Purchaser's reasonable estimate of the decrease in value of the
affected Oil and Gas Assets resulting from the New Title Defects (the "Defect
Value") and the Purchaser's reasonable requirements for rectification or curing
thereof. The Seller shall make reasonable efforts to cure the New Title Defects
prior to the Closing Date. If the aggregate Defect Value of the New Title
Defects exceeds $5,000,000, the Base Price shall be reduced by the excess. The
"Defect Value" of a New Title Defect is the amount by which such New Title
Defect reduces the value of the Oil and Gas Assets affected thereby, determined
based on the values of the individual properties as set forth in Schedule N.
Except for the obligation to reduce the Base Price as provided in this Section
11.2, the Seller shall have no liability for or obligation with respect to
Losses, consequential or indirect losses or losses of profits incurred by the
Purchaser as the result of Title Defects, whether incurred or identified by the
Purchaser or the Companies before or after Closing.
11.3 Termination Right
If the aggregate value of the Title Defects of which the Purchaser
gives notice to the Seller in accordance with and within the time specified in
Section 11.2 which have not been cured to the Purchaser's reasonable
satisfaction at the Seller's cost is greater than twenty five million
($25,000,000) dollars, the Purchaser may terminate this Agreement by giving
written notice to the Seller prior to the Closing Date, but not thereafter.
11.4 Arbitration
If there is a dispute between the Parties with respect to the existence
or value of a Title Defect, the following provisions shall be apply:
(1) the dispute shall be resolved by arbitration before a single
arbitrator, which will be:
(i) in the case of a dispute with respect to the existence a New
Title Defect, a recognized oil and gas lawyer in Calgary,
Alberta other than a member of a firm who has given advice
to a Party in connection herewith; and
(ii) in the case of a dispute with respect to the value of a New
Title Defect, a recognized reservoir engineering consultant
in Calgary, Alberta other than a consultant or employee of a
consulting firm who has given advice to a Party in
53
connection herewith.
(2) each Party shall submit to the arbitrator such Party's proposed
resolution of the dispute and the arbitrator will be required to
select one of such proposals as the resolution of the dispute;
(3) if the dispute is in respect of the amount of an adjustment to
the Base Price pursuant to Section 11.2 and is not resolved by
the Time of Closing, the Closing Date will be delayed until the
second Business Day after the arbitration is completed;
(4) the arbitrator will be instructed to communicate his or her
determination to the Parties within ten (10) days of the referral
of the dispute to the arbitration;
(5) if the arbitration delays the Closing Date beyond the date on
which it would otherwise have occurred:
(i) if the Seller wins the arbitration, Interim Interest shall
be calculated as provided in the definition of Interim
Interest; and
(ii) if the Purchaser wins the arbitration, Interim Interest will
be calculated only to the date which would have been the
Closing Date if the arbitration had not delayed the Closing.
Each Party will act in good faith in respect of such disputes.
ARTICLE 12
SURVIVAL
12.1 Survival
Subject to the limitations and provisions set forth in this Agreement,
notwithstanding the occurrence of Closing and the items delivered at Closing
pursuant hereto, the representations, warranties, covenants and indemnities
contained in this Agreement shall survive the Closing and the delivery of the
items delivered at Closing pursuant hereto for the benefit of the Parties in
accordance with terms hereof. If any document executed at or after Closing,
pursuant hereto is inconsistent with the provisions of this Agreement, the
provisions of this Agreement shall prevail unless the Parties expressly and
explicitly agree to the contrary.
ARTICLE 13
TERMINATION
13.1 Termination
If this Agreement is terminated prior to the Closing occurring pursuant
to Sections 6.1, 6.2, or 11.4, the Parties shall be released from all
obligations under this Agreement except the Confidentiality Agreement shall
remain in full force and effect in accordance with its terms, the provisions of
Section 2.3 (Deposit) shall remain in full force and effect and each Party shall
remain liable for breaches by it of this Agreement occurring prior to such
54
termination. Subject to the foregoing provisions of this Section, following such
termination, each Party shall be responsible for the costs and expenses incurred
by it in connection with this Agreement and the transactions contemplated
hereby.
ARTICLE 14
ARBITRATION
14.1 Procedure
Excluding matters dealt with in Section 11.4, any controversy submitted to
arbitration pursuant to this Agreement shall be subject to the following
principles:
(1) Upon written demand of a Party, representatives of the Parties
shall meet and attempt to appoint a single arbitrator. If such
representatives are unable to agree on a single arbitrator within
five (5) days of such demand, then upon written demand by any
Party, the Companies and the Purchaser shall, within ten (10)
days of such demand, each name an arbitrator and the two
arbitrators so named shall promptly thereafter choose a third. If
a Party shall fail to name an arbitrator within ten (10) days
from such demand, then the arbitrator for that Party shall be
appointed by any Justice of the Court of Queen's Bench of Alberta
upon application by the other Party. If the two arbitrators shall
fail within ten (10) days from their appointment to agree upon
and appoint the third arbitrator, then such third arbitrator
shall be appointed by any Justice of the Court of Queen's Bench
of Alberta upon request of either Party.
(2) The arbitrator or arbitrators selected to act hereunder shall be
qualified by education, experience and training to pass upon the
particular question in dispute.
(3) The arbitrator or arbitrators chosen as aforesaid shall proceed
immediately to hear and determine the question or questions in
dispute. The decision of the single arbitrator shall be made
within forty-five (45) days after his or her appointment, subject
to any reasonable delay due to unforeseen circumstances. Where
there are three arbitrators, the decision of the arbitrators, or
a majority of them, shall be made within forty-five (45) days
after the appointment of the third arbitrator, subject to any
reasonable delay due to unforeseen circumstances. In the event
the single arbitrator or the arbitrators, or a majority of them,
fail to make a decision within the period herein prescribed, then
either Party may elect to have a new single arbitrator or
arbitrators chosen in the manner herein prescribed, as if none
had previously been selected.
(4) The decision of the single arbitrator or the decision of the
arbitrators, or a majority of them, shall be drawn up in writing
and signed by the single arbitrator or by the arbitrators, or a
majority of them, and shall be final and binding upon the parties
hereto.
(5) The liability between the Parties hereto for the payment of the
compensation and expenses of the single arbitrator or the
arbitrators shall be determined by the arbitrator or arbitrators,
as the case may be.
55
(6) Arbitration pursuant hereto shall be governed in all respects not
addressed herein by the provisions of the Arbitration Act
(Alberta) and regulations thereunder.
ARTICLE 15
GENERAL
15.1 Further Assurances
Each Party shall from time to time and without further consideration
execute and deliver all such further documents and instruments and do all acts
and things as the other Party may, either before or after the Closing Date,
reasonably require to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement.
15.2 Time of the Essence
Time shall be of the essence of this Agreement.
15.3 Cooperation
The Seller shall cause the Companies to do all of the things which it
is stated in this Agreement that the Companies shall do at or prior to Closing.
The Purchaser shall cause the Companies to do all things which it is stated in
this Agreement that the Companies shall do following Closing.
15.4 Expenses
Each Party shall pay its costs and expenses incurred in connection with
the preparation, execution and delivery of this Agreement and all documents and
instruments executed pursuant hereto.
15.5 Public Announcements
Until Closing has occurred, no public announcement or press release
concerning the sale and purchase of the Shares shall be made by a Party or its
Affiliates without the prior written consent and joint approval of the other
Party, which consent and approval shall not be unreasonably withheld or delayed;
provided that nothing contained herein shall prevent either Party at any time
furnishing any information to any governmental agency or regulatory authority
(including applicable stock exchanges) or to the public if required by
Applicable Law or the rules of a stock exchange.
15.6 Benefit of the Agreement
This Agreement shall enure to the benefit of and be binding upon the
respective heirs, executors, administrators, successors and permitted assigns of
the Parties. No Person other than the Parties and their successors and permitted
assigns shall be entitled to any rights or benefits hereunder.
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15.7 Entire Agreement
This Agreement and the Confidentiality Agreement constitute the entire
agreement between the Parties with respect to the subject matter hereof and
cancels and supersedes any prior understandings and agreements (other than the
Confidentiality Agreement) between the Parties hereto with respect to the
subject matter hereof, including without limitation, any letter agreements
between the Purchaser, the Seller and/or the Companies. Following Closing, the
Purchaser shall be released from all obligations under the Confidentiality
Agreement, other than obligations in respect of acts or omissions by the
Purchaser and/or its representatives prior to Closing.
15.8 Amendments and Waiver
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by both Parties and no
waiver of any breach of any term or provisions of this Agreement shall be
effective or binding unless made in writing and signed by the Party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived. No failure on the part of any Party in exercising any
right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy in law or
in equity or by statute or otherwise conferred.
15.9 Assignment
This Agreement may not be assigned by a Party without the written
consent of the other Party.
15.10 Notices
Any demand, notice or other communication (collectively, a "notice")
given in connection with this Agreement shall be given in writing and shall be
given by personal delivery, by registered mail or by facsimile addressed to the
recipient as follows:
To the Seller:
Abraxas Petroleum Corporation
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
P.O. Box 701007 San Antonio, Texas 78270-1007
Attention: Robert L.G. Watson, President
Fax: (210) 490-8816
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To the Purchaser:
PrimeWest Gas Inc.
47th Floor, 150 - 6th Avenue S.W.
Calgary, Alberta
T2P 3Y7
Attention: Vice-President, Business Development
Fax: (403) 699-7411
To PEI:
PrimeWest Energy Inc.
47th Floor, 150 - 6th Avenue S.W.
Calgary, Alberta
T2P 3Y7
Attention: Vice-President, Business Development
Fax: (403) 699-7411
or to such other address, individual or facsimile number as may be
designated by notice given by the Seller to the Purchaser or by the Purchaser to
the Seller. A notice given by personal delivery shall be conclusively deemed to
have been given on the day of actual delivery thereof, provided that a notice
will not be given by personal delivery except during normal business hours on a
Business Day. Any notice given by registered mail shall be conclusively deemed
to have been given on the day of actual receipt thereof. Any notice given by
facsimile shall be conclusively deemed to have been given on the day of
transmittal thereof if given during normal business hours on a Business Day and
otherwise on the next Business Day thereafter. If the Party giving any notice
knows or ought reasonably to know of any difficulties with the postal system
which might affect the delivery of mail, any such notice shall not be mailed but
shall be given by personal delivery or by facsimile.
15.11 Change of Companies' Names
It is the intention of the Seller to change the names of the Companies
to a name including their respective Alberta identification numbers. However,
should that not be completed prior to Closing, within thirty (30) days following
Closing, the Purchaser shall change the name of the Companies to eliminate the
words "Grey Wolf" or "Abraxas", and all similar words, initials and symbols
therefrom. Promptly following Closing but in any case not later than ninety (90)
days following Closing, the Purchaser shall change all signs on the Companies'
properties to remove the words "Grey Wolf" or "Abraxas" therefrom and shall not
use and shall not own the Companies' or Abraxas' name, logos, symbols or
initials. Except for the matters referred to in the preceding provisions of this
Section, following the Closing, none of the Companies nor the Purchaser shall
use or have right to use the words "Abraxas" or "Grey Wolf", or similar words,
initials or symbols. Abraxas retains all rights to the names "Abraxas" and "Grey
Wolf" and all variations and derivations thereof.
15.12 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the federal laws of Canada applicable
therein, excluding the conflict of laws rules that might apply the laws of
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another jurisdiction, and the venue for the settlement of all disputes shall be
in Calgary, Alberta.
15.13 No Duplication of Adjustments
The Parties agree that the liability and adjustment provisions herein
shall be interpreted such that there shall be no duplication of payment made by
a Party in respect of any adjustment or liability.
15.14 Interest
An amount payable by a Party after Closing which is not paid within
fifteen (15) days of a written request for payment from the other Party, shall
bear interest at the Prime Rate plus one (1%) percent per annum payable by the
paying Party to the other Party from the end of such fifteen (15) day period
until the amount is paid.
15.15 PrimeWest Energy Inc. Guarantee
PEI hereby unconditionally and irrevocably guarantees the performance
of all covenants and obligations of the Purchaser in this Agreement. PEI waives
diligence, presentment, demand of payment, any right to require to proceeding
first against the Purchaser, protest, notice and all demands whatsoever. PEI
agrees that this guarantee will not be discharged except by complete performance
of the covenants and obligations of the Purchaser under this Agreement. PEI
shall be directly liable as principal obligor and, upon giving notice of breach
or failure to the Purchaser, neither the Seller nor the Companies shall be under
any obligation to first pursue or exhaust any or all of its recourse and
remedies against the Purchaser.
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15.16 Counterpart Execution
Unless otherwise specified herein, this Agreement may be executed in as
many counterparts as are necessary and all executed counterparts together shall
constitute one agreement.
IN WITNESS WHEREOF the Parties have executed this Agreement.
ABRAXAS PETROLEUM CORPORATION GREY WOLF EXPLORATION INC.
By: By:
----------------------------- -------------------------------
Name: Robert L.G. Watson Name: Robert L.G. Watson
Title: President & CEO Title: President & CEO
CANADIAN ABRAXAS PETROLEUM LIMITED PRIMEWEST GAS INC.
By: By:
----------------------------- ------------------------------
Name: Robert L.G. Watson Name: Donald A. Garner
Title: President & CEO Title: President & COO
By:
-------------------------------
Name: Ronald J. Ambrozy
Title: Vice President, Business Dev.
PRIMEWEST ENERGY INC.
By:
------------------------------
Name: Donald A. Garner
Title: President & COO
By:
--------------------------------
Name: Ronald J. Ambrozy
Title:Vice President, Business Dev.