Exhibit 10.1
PURCHASE AND SALE AGREEMENT
BETWEEN
ST. MARY LAND & EXPLORATION COMPANY, ET AL.,
AS SELLER
AND
ABRAXAS OPERATING, LLC
AS BUYER
Dated: December 11, 2007
TABLE OF CONTENTS
Page
ARTICLE 1 ASSETS.......................................................................................1
Section 1.01 Agreement to Sell and Purchase........................................................1
Section 1.02 Assets................................................................................1
Section 1.03 Excluded Assets.......................................................................3
ARTICLE 2 PURCHASE PRICE...............................................................................5
Section 2.01 Purchase Price........................................................................5
Section 2.02 Deposit...............................................................................5
Section 2.03 Allocated Values......................................................................6
Section 2.04 Section 1031 Like-Kind Exchange.......................................................6
ARTICLE 3 EFFECTIVE TIME...............................................................................7
Section 3.01 Ownership of Assets...................................................................7
Section 3.02 Production Imbalances.................................................................7
ARTICLE 4 TITLE AND ENVIRONMENTAL MATTERS..............................................................7
Section 4.01 Examination Period....................................................................7
Section 4.02 Title Defects.........................................................................8
Section 4.03 Notice of Title Defects...............................................................8
Section 4.04 Remedies for Title Defects...........................................................11
Section 4.05 Special Warranty of Title............................................................11
Section 4.06 Preferential Rights to Purchase......................................................14
Section 4.07 Consents to Assignment...............................................................14
Section 4.08 Remedies for Title Benefits..........................................................15
Section 4.09 Environmental Review.................................................................16
Section 4.10 Definitions Used in Article 4 and in this Agreement..................................17
Section 4.11 Notice of Environmental Defects......................................................18
Section 4.12 Remedies for Environmental Defects...................................................19
Section 4.13 Independent Experts..................................................................20
Section 4.14 Limitation of Remedies For Title Benefits, Title Defects and Environmental Defects...21
Section 4.15 DISCLAIMER AND WAIVER................................................................22
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER....................................................22
Section 5.01 Existence............................................................................22
Section 5.02 Legal Power..........................................................................22
Section 5.03 Execution............................................................................23
Section 5.04 Brokers..............................................................................23
Section 5.05 Bankruptcy...........................................................................23
Section 5.06 Suits and Claims.....................................................................23
Section 5.07 Taxes................................................................................23
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Section 5.08 AFEs.................................................................................23
Section 5.09 Compliance with Laws.................................................................23
Section 5.10 Contracts............................................................................23
Section 5.11 Production Imbalances................................................................24
Section 5.12 Royalties; Payments for Production...................................................24
Section 5.13 Insurance............................................................................24
Section 5.14 Plugging Obligations.................................................................24
Section 5.15 Personal Property and Equipment......................................................24
Section 5.16 No Alienation........................................................................24
Section 5.17 Hydrocarbon Sales Contracts..........................................................24
Section 5.18 Area of Mutual Interest and Other Agreements.........................................25
Section 5.19 Leases...............................................................................25
Section 5.20 Property Expenses....................................................................25
Section 5.21 Governmental Permits.................................................................25
Section 5.22 No Adverse Change....................................................................25
Section 5.23 Information..........................................................................25
Section 5.24 Representations and Warranties Exclusive.............................................26
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER.....................................................26
Section 6.01 Existence............................................................................26
Section 6.02 Legal Power..........................................................................26
Section 6.03 Execution............................................................................26
Section 6.04 Brokers..............................................................................26
Section 6.05 Bankruptcy...........................................................................27
Section 6.06 Suits and Claims.....................................................................27
Section 6.07 Independent Evaluation...............................................................27
Section 6.08 Qualification........................................................................27
Section 6.09 Securities Laws......................................................................27
Section 6.10 No Investment Company................................................................27
Section 6.11 Funds................................................................................27
Section 6.12 Notice of Changes....................................................................28
Section 6.13 Representations and Warranties Exclusive.............................................28
ARTICLE 7 OPERATION OF THE ASSETS.....................................................................28
Section 7.01 Operation of the Assets..............................................................28
Section 7.02 Buyer's Qualification................................................................29
Section 7.03 Operation of the Assets after the Closing............................................29
Section 7.04 Post Closing Accounting by Seller....................................................30
Section 7.05 Limitations on Liability of Operator.................................................30
Section 7.06 Public Announcements.................................................................31
Section 7.07 Disclosure Information...............................................................31
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF SELLER.........................................................32
Section 8.01 Representations......................................................................32
Section 8.02 Performance..........................................................................32
Section 8.03 Pending Matters......................................................................32
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ARTICLE 9 CONDITIONS TO OBLIGATIONS OF BUYER..........................................................32
Section 9.01 Representations......................................................................32
Section 9.02 Performance..........................................................................32
Section 9.03 Pending Matters......................................................................32
Section 9.04 Wachovia Liens.......................................................................33
ARTICLE 10 THE CLOSING.................................................................................33
Section 10.01 Time and Place of the Closing........................................................33
Section 10.02 Allocation of Costs and Expenses and Adjustments to Purchase Price at the Closing....33
Section 10.03 Closing Adjustments and Allocations Statement........................................35
Section 10.04 Post-Closing Allocations and Adjustments to Purchase Price...........................35
Section 10.05 Transfer Taxes.......................................................................36
Section 10.06 Ad Valorem and Similar Taxes.........................................................36
Section 10.07 Actions of Seller at the Closing.....................................................37
Section 10.08 Actions of Buyer at the Closing......................................................37
Section 10.09 Recordation; Further Assurances......................................................37
ARTICLE 11 TERMINATION.................................................................................38
Section 11.01 Right of Termination.................................................................38
Section 11.02 Effect of Termination................................................................39
Section 11.03 Attorneys' Fees, Etc.................................................................39
ARTICLE 12 ASSUMPTION AND INDEMNIFICATION..............................................................39
Section 12.01 Buyer's Obligations after Closing....................................................39
Section 12.02 Seller's Obligations after Closing...................................................40
Section 12.03 Plugging and Abandonment Obligations.................................................40
Section 12.04 Environmental Obligations............................................................41
Section 12.05 Definition of Claims.................................................................42
Section 12.06 Application of Indemnities...........................................................43
Section 12.07 Buyer's Indemnity....................................................................44
Section 12.08 Seller's Indemnity...................................................................44
Section 12.09 Notices and Defense of Indemnified Claims............................................44
Section 12.10 Survival.............................................................................44
Section 12.11 Exclusive Remedy.....................................................................44
Section 12.12 Defenses and Counterclaims...........................................................45
Section 12.13 Anti-Indemnity Statute...............................................................45
ARTICLE 13 DISCLAIMERS; CASUALTY LOSS AND CONDEMNATION.................................................45
Section 13.01 Disclaimers of Representations and Warranties........................................45
Section 13.02 NORM.................................................................................46
Section 13.03 Casualty Loss; Condemnation..........................................................47
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ARTICLE 14 MISCELLANEOUS...............................................................................47
Section 14.01 Names................................................................................47
Section 14.02 Expenses.............................................................................47
Section 14.03 Document Retention...................................................................48
Section 14.04 Entire Agreement.....................................................................48
Section 14.05 Waiver...............................................................................48
Section 14.06 Construction.........................................................................48
Section 14.07 No Third Party Beneficiaries.........................................................48
Section 14.08 Assignment...........................................................................48
Section 14.09 Governing Law; Venue.................................................................48
Section 14.10 Notices..............................................................................49
Section 14.11 Severability.........................................................................50
Section 14.12 Interpretation.......................................................................50
Section 14.13 Time of the Essence..................................................................51
Section 14.14 Counterpart Execution................................................................51
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EXHIBITS AND SCHEDULES
Exhibit A Subject Interests and Surface Agreements
Exhibit B Wells
Exhibit C Excluded Assets
Exhibit D Allocated Values
Exhibit E Form of Assignment and Bill of Sale
Exhibit F-1 Buyer Press Release
Exhibit F-2 St. Mary Press Release
Schedule 1.02(g) Production Imbalances
Schedule 1.02(h) Fee Property Description
Schedule 4.06 Rights of Preferential Purchase
Schedule 4.07 Consents to Assignment
Schedule 5.06 Litigation
Schedule 5.08 Authorizations for Expenditures
Schedule 5.13 Insurance
Schedule 5.14 Inactive Wells
Schedule 5.17 Production Sales Agreements
Schedule 5.21 Non-Transferable Permits
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Table of Defined Terms
Agreement...........................................1
Allocated Values....................................6
Assets..............................................1
Assignment.........................................12
Assumed Obligations................................40
Breach.............................................52
Buyer...............................................1
Buyer's Environmental Review.......................16
Casualty...........................................48
Casualty Loss......................................48
CERCLA.............................................18
Claims.............................................43
Closing............................................34
Closing Date.......................................34
Contracts...........................................3
Deposit.............................................5
Disclosure Information.............................32
Documents..........................................49
Effective Time......................................7
Environmental Defect...............................18
Environmental Defect Value.........................19
Environmental Information..........................18
Environmental Laws.................................18
Environmental Obligations..........................42
Equipment...........................................2
Examination Period..................................8
Excluded Assets.....................................3
Expiration Date....................................45
Facilities..........................................2
Final Settlement Date..............................36
Final Settlement Statement.........................36
Governmental Authority.............................18
Harrell.............................................1
Hydrocarbons........................................2
includes and including.............................51
Independent Expert.................................21
Information........................................26
Interim Operating Expenses.........................35
knowledge or knowingly.............................52
Lands...............................................1
Laws...............................................13
Lease and Leases....................................1
Marketable Title....................................8
material...........................................52
Material Adverse Effect............................52
NORM...............................................47
Notice of Disagreement.............................36
OPA................................................19
Overhead Fee.......................................31
Parties.............................................1
Party...............................................1
PDNP................................................6
Permits.............................................2
Permitted Encumbrances.............................12
Plugging and Abandonment Obligations...............42
Post-Closing Production Month......................31
Probable and/or Possible Locations..................6
Production Imbalances...............................7
PUD Locations.......................................6
Purchase Price......................................5
Purchase Price Allocations and Adjustments.........36
RCRA...............................................18
Records.............................................3
Representatives....................................44
Retained Obligations...............................41
Seismic License.....................................3
Seller..............................................1
Smith...............................................1
St. Mary............................................1
Statement..........................................36
Subject Interests...................................2
Surface Agreements..................................2
Tax................................................52
Title Benefit......................................16
Title Benefit Value................................16
Title Claim Date....................................9
Title Defect........................................8
Title Defect Value..................................9
Wachovia Liens.....................................14
Wells...............................................2
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and entered
into this 11TH day of December, 2007, by and between ST. MARY LAND & EXPLORATION
COMPANY, a Delaware corporation ("St. Mary"), Ralph H. Smith Restated Revocable
Trust Dated 8/14/97, Ralph H. Smith Trustee ("Smith"), and Kent J. Harrell,
D/B/A Harrell Energy ("Harrell") (who are collectively referred to herein as
"Seller"), and ABRAXAS OPERATING, LLC, a Texas limited liability company
("Buyer"). Buyer and Seller are collectively referred to herein as the
"Parties", and are sometimes referred to individually as a "Party."
R E C I T A L S:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, the Assets (as defined below), all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand
paid and of the mutual benefits derived and to be derived from this Agreement by
each Party, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as
follows:
ARTICLE 1
ASSETS
Section 1. Agreement to Sell and Purchase. Subject to and in accordance with the
ter ms and conditions of this Agreement, Buyer agrees to purchase the Assets
from Seller, and Seller agrees to sell the Assets to Buyer.
Section 1.02 Assets. Subject to Section 1.03, the term "Assets" shall mean all
of Seller's right, title and interest in and to:
(a) The oil, gas and other mineral leases described on Exhibit A
(collectively, the "Leases" and singularly a "Lease") and any
overriding royalty interests, royalty interests, non-working or carried
interests, mineral fee interests, operating rights and other rights and
interests described in Exhibit A, together with the lands covered
thereby or pooled or unitized therewith (the "Lands"), together with
(i) all right, title and interest of Seller in and to any other mineral
interests of any nature (A) located in, on, or under the Lands, or (B)
which are attributable to the proration unit or designated pooled unit
for any of the Wells (as hereinafter defined), in each case whether or
not described in or omitted from Exhibit A, but the Assets shall,
except as affected by the provisions of Section 1.02(d), not include
any portion of the Leases regarding lands covered by any such Lease
which lands are not specifically described in Exhibit A hereto, it
being understood that in some instances the Leases cover lands which
are not being sold by Seller to Buyer even though other portions of the
Leases are intended to be transferred from Seller to Buyer, (ii) all
rights with respect to any pooled, communitized or unitized interest by
virtue of any Leases and Lands or the interests described in clause (i)
above being a part thereof, and (iii) all production of oil, gas,
associated liquids and other hydrocarbons (collectively "Hydrocarbons")
after the Effective Time from the Leases and the Lands, and from any
such pooled, communitized, or unitized interest and allocated to any
such Leases and Lands or the interests described in clause (i) above
(the Leases, the Lands, and the rights described in clauses (i) and
(ii) above, and the Hydrocarbons described in clause (iii) above, being
collectively referred to as the "Subject Interests" or, singularly, a
"Subject Interest");
(b) all easements, rights-of-way, servitudes, surface leases,
surface use agreements and other rights or agreements related to the
use of the surface and subsurface (the "Surface Agreements"), in each
case to the extent used in connection with the operation of the Subject
Interests, including those recorded Surface Agreements described in
Exhibit A, except, that as to any easement or right-of-way which
affects a Lease that includes both the Lands and lands being retained
by Seller, Seller shall grant a use right only with regard to such
easement or right-of-way, which use rights shall be limited to the
portion of the Lease and the Lands to be transferred to Buyer and any
necessary transit rights to enjoy such use rights;
(c) to the extent assignable or transferable, all permits,
licenses, franchises, consents, approvals and other similar rights and
privileges (the "Permits"), in each case to the extent used in
connection with the operation of the Subject Interests;
(d) all equipment, machinery, fixtures, spare parts, inventory and
other personal property (including Seller's leasehold interests therein
subject to any necessary consents to assignment) used in connection
with the operation of the Subject Interests or in connection with the
production, treatment, compression, gathering, transportation, sale, or
disposal of Hydrocarbons produced from or attributable to the Subject
Interests (collectively, "Equipment"), and any water, byproducts or
waste produced therefrom or therewith or otherwise attributable
thereto, including all wells (whether producing, shut in or abandoned,
and whether for production, produced water injection or disposal, or
otherwise) described in Exhibit B (collectively, the "Wells") together
with all of Seller's interests within the spacing, producing,
proration, federal exploratory, enhanced recovery, or governmentally
prescribed unit attended to the described Wells, wellhead equipment,
pumps, pumping units, flowlines, gathering systems, pipe, tanks,
treatment facilities, injection facilities, disposal facilities,
compression facilities and other materials, supplies, buildings,
trailers and offices used in connection with the Subject Interests and
the other matters described in this definition of Assets (the
"Facilities");
(e) to the extent assignable or transferable, (i) all contracts,
agreements, drilling contracts, equipment leases, production sales and
marketing contracts, farm-out and farm-in agreements, operating
agreements, service agreements, unit agreements, gas gathering and
transportation agreements and other contracts, agreements and
arrangements, relating to the Subject Interests and the other matters
described in this definition of Assets, and subject to, and in
accordance with, any limitations set forth in such agreements, and (ii)
equipment leases and rental contracts, service agreements, supply
agreements and other contracts, agreements and arrangements relating to
the Subject Interests and the other matters described in this
definition of Assets, (the agreements identified in clauses (i) and
(ii) above being, collectively, the "Contracts");
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(f) all files, records and data relating to the items described in
Sections 1.02(a) through (e) maintained by Seller including, without
limitation, the following, if and to the extent that such files exist:
all books, records, reports, manuals, files, title documents, including
correspondence, records of production and maintenance, revenue, sales,
expenses, warranties, lease files, land files, well files, division
order files, abstracts, title opinions, assignments, reports, property
records, contract files, operations files, copies of tax and accounting
records (but excluding Federal and state income tax returns and
records) and files, maps, core data, hydrocarbon analysis, well logs,
mud logs, field studies together with other files, contracts and other
records and data including all geologic and geophysical data and maps,
but excluding from the foregoing those files, records and data subject
to written unaffiliated third party contractual restrictions on
disclosure or transfer (the "Records"). Unless proscribed by the terms
of any existing written unaffiliated third party contract, Seller
shall, to the extent it may do so, grant a perpetual, royalty-free
license to Buyer of Seller's seismic data that covers the Subject
Interests (the "Seismic License"). To the extent that any of the
Records contain interpretations of Seller, Buyer agrees to rely on such
interpretations at its sole risk and without any duty on the part of
Seller regarding such interpretations;
(g) all Production Imbalances, including those set forth on
Schedule 1.02(g) as of the Effective Time; and
(h) all right, title and interest in and to all surface rights and
the plant pertaining to the Buck Peak property located in Moffat
County, Colorado, as well as all of Seller's right, title and interest
in that certain North Dakota fee property both as described on Schedule
1.02(h).
Section 1.03 Excluded Assets. Notwithstanding the foregoing, the Assets shall
not include, and there is excepted, reserved and excluded from the sale,
transfer and assignment contemplated hereby the following excluded properties,
rights and interests (collectively, the "Excluded Assets"):
(a) those assets, interests, rights and properties described in
Exhibit C;
(b) all trade credits and all accounts, instruments and general
intangibles attributable to the Assets with respect to any period of
time prior to the Effective Time;
(c) except for those Claims or rights against a third party for
which Buyer has agreed to indemnify Seller pursuant to the terms of
this Agreement, all Claims of Seller,
(i) arising from acts, omissions or events, or damage to or
destruction of property, occurring prior to the Effective Time,
(ii) arising under or with respect to any of the Contracts that
are attributable to periods of time prior to the Effective Time
(including claims for adjustments or refunds), or
(iii) with respect to any of the other Excluded Assets;
3
(d) all rights and interests of Seller,
(i) under any policy or agreement of insurance or indemnity,
(ii) under any bond, or
(iii) to any insurance or condemnation proceeds or awards
arising in each case from acts, omissions or events, or damage to
or destruction of property, occurring prior to the Effective Time;
(e) all Hydrocarbons produced from or otherwise attributable to the
Subject Interests with respect to all periods prior to the Effective
Time, excluding those Hydrocarbons referenced in Section 1.02(g)
together with all proceeds from the sale of such Hydrocarbons, and all
Tax credits attributable thereto;
(f) all Claims of Seller for refunds of or loss carry forwards with
respect to
(i) ad valorem, severance, production or any other Taxes
attributable to any period prior to the Effective Time,
(ii) income, gross margin or franchise Taxes,
(iii) any Taxes attributable to the other Excluded Assets, and
such other refunds, and rights thereto, for amounts paid in
connection with the Assets and attributable to the period prior to
the Effective Time, including refunds of amounts paid under any gas
gathering or transportation agreement;
(g) all amounts due or payable to Seller as adjustments to
insurance premiums related to the Assets with respect to any period
prior to the Effective Time;
(h) all proceeds, income or revenues (and any security or other
deposits made) attributable to the Assets for any period prior to the
Effective Time, or any other Excluded Assets;
(i) subject to Section 1.02(f), all of Seller's proprietary
technology and improvements, computer software, patents, trade secrets,
copyrights, names, trademarks, logos and other intellectual property;
(j) all documents and instruments of Seller that may be protected
by an attorney-client or other privilege;
(k) data, information and other property, rights or interests that
cannot be disclosed or assigned to Buyer as a result of confidentiality
or similar arrangements;
(l) all audit rights arising under any of the Contracts or
otherwise with respect to any period prior to the Effective Time or to
any of the other Excluded Assets;
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(m) all computers, printers and other electronic equipment located
in any buildings, offices or trailers that may belong to Seller and
that may constitute part of the Assets, including, all software and
electronic data relating in any way to such electronic equipment;
(n) All corporate, income tax and financial records of Seller not
included in the Records; and
(o) all agreements providing for options, swaps, floors, caps,
collars, forward sales or forward purchases involving commodities or
commodity prices, or indexes based on any of the foregoing and all
other similar agreements and arrangements.
ARTICLE 2
PURCHASE PRICE
Section 2.01 Purchase Price. The total consideration for the purchase, sale and
conveyance of the Assets to Buyer and Buyer's assumption of the Assumed
Obligations and all other liabilities provided for in this Agreement, is Buyer's
payment to Seller of the sum of One Hundred and Forty Million Dollars
($140,000,000) (the "Purchase Price"), as adjusted in accordance with the
provisions of this Agreement.
Section 2.02 Deposit.
(a) Concurrently with the execution of this Agreement by Buyer and
Seller, Buyer shall deliver to Seller in immediately available funds a
performance guarantee deposit in an amount equal to Ten Million Dollars
($10,000,000) (the "Deposit") in accordance with wire transfer
instructions provided by Seller to Buyer.
(b) Subject to the proviso set forth in Section 11.01, if this
Agreement is terminated by Seller pursuant to Section 11.01(b) and
Seller does not waive the non-satisfaction of any conditions to Closing
set forth in Article 8, Seller shall retain the Deposit as liquidated
damages, which remedy shall be the sole and exclusive remedy available
to Seller for Buyer's failure to perform its obligations under this
Agreement. Buyer and Seller acknowledge and agree that (i) Seller's
actual damages upon the event of such a termination are difficult to
ascertain with any certainty, (ii) the Deposit is a reasonable estimate
of such actual damages, and (iii) such liquidated damages do not
constitute a penalty.
(c) Subject to the proviso set forth in Section 11.01, if this
Agreement is terminated (i) by Buyer pursuant to Section 11.01(c) and
Buyer does not waive the non-satisfaction of any conditions to Closing
set forth in Article 9 or (ii) by Buyer or Seller pursuant to Section
11.01(a), Section 11.01(d), Section 11.01(e), Section 11.01(f), Section
11.01(g), Section 11.01(h) or Section 13.03(c), then Seller shall
promptly return the Deposit to Buyer in immediately available funds
pursuant to wire transfer instructions to be provided timely by Buyer
to Seller within three (3) business days after the event giving rise to
such return obligation. Buyer and Seller shall thereupon have the
rights and obligations set forth elsewhere herein.
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(d) If all conditions precedent to the obligations of Seller set
forth in Article 8 have been met, then notwithstanding any provision in
this Section 2.02 to the contrary, if Closing does not occur because
Seller wrongfully fails to tender performance at Closing or otherwise
Breaches this Agreement in any respect prior to Closing, and Buyer is
ready and otherwise able to close, at Buyer's sole election, either (i)
Seller shall return the Deposit to Buyer within three (3) business days
after the determination that the Closing will not occur, or (ii) Buyer
shall have the right to pursue specific performance of this Agreement,
provided that Buyer must file an action for specific performance within
21 days of Seller's Breach. If Buyer elects to pursue specific
performance, Buyer must pursue specific performance as its sole and
exclusive remedy in lieu of all other legal and equitable remedies. If
such action for specific performance is not filed within 21 days of
Seller's Breach or if Buyer is unsuccessful for any reason other than a
Breach of this Agreement by Buyer, Buyer shall be deemed to have waived
all legal and equitable remedies and its sole remedy for Seller's
Breach of this Agreement shall be limited to the prompt return of the
Deposit.
Section 2.03 Allocated Values. The Purchase Price is allocated among the Assets
(including the Wells, PUD Locations, PDNP, and Probable and/or Possible
Locations) as set forth in Exhibit D (the "Allocated Values"). In no event shall
the aggregate of the Allocated Values of any Wells, PUD Locations, PDNP, and
Probable and/or Possible Locations exceed the unadjusted Purchase Price. The
term "PUD Locations" means those Proved Undeveloped potential well locations
specifically identified in Exhibit D. The term "PDNP" means Proved Developed Not
Producing intervals as specifically identified on Exhibit D. The term "Probable
and/or Possible Locations" means those locations specifically identified and
designated as such on Exhibit D. Seller and Buyer agree that the Allocated
Values shall be used to compute any adjustments to the Purchase Price pursuant
to the provisions of Article 4. Any adjustment to the Purchase Price hereunder
shall be reflected in the allocation set forth in Exhibit D consistent with
Treasury Regulation Section 1.1060-IT (f). For tax purposes, the Parties agree
to report the transactions contemplated by this Agreement in a manner consistent
with the terms of this Agreement, including the allocations set forth above as
of the Closing Date, and that neither Party will take any position inconsistent
therewith, including in any tax return, in any refund claim, in any litigation
or arbitration or otherwise.
Section 2.04 Section 1031 Like-Kind Exchange. Seller and Buyer hereby agree that
Seller shall have the right at any time prior to completion of all the
transactions that are to occur at Closing to assign all or a portion of its
rights under this Agreement to a Qualified Intermediary (as that term is defined
in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) in order to
accomplish the transaction in a manner that will comply, either in whole or in
part, with the requirements of a like-kind exchange pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended. Likewise, Buyer shall have the
right at any time prior to completion of all the transactions that are to occur
at Closing to assign all or a portion of its rights under this Agreement to a
Qualified Intermediary for the same purpose. If Seller assigns all or any of its
rights under this Agreement for this purpose, Buyer agrees to (a) consent to
Seller's assignment of its rights in this Agreement, which assignment shall be
in a form reasonably acceptable to Buyer, and (b) pay the Purchase Price (or a
designated portion thereof as specified by Seller) into a qualified escrow or
qualified trust account at Closing as directed in writing. If Buyer assigns all
or any of its rights under this Agreement for this purpose, Seller agrees to (i)
consent to Buyer's assignment of its rights in this Agreement, which assignment
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shall be in a form reasonably acceptable to Seller, (ii) accept the Purchase
Price from the qualified escrow or qualified trust account at Closing, and (iii)
at Closing, convey and assign directly to Buyer the Assets (or any portion
thereof) as directed by Buyer. Seller and Buyer acknowledge and agree that any
assignment of this Agreement (or any rights hereunder) to a Qualified
Intermediary shall not release any Party from any of its respective liabilities
and obligations hereunder, and that neither Party represents to the other Party
that any particular tax treatment will be given to any Party as a result
thereof. The Party electing to assign all or any of its rights under this
Agreement pursuant to this Section 2.04 shall defend, indemnify and hold
harmless the other Party and its Affiliates from all Claims relating to such
election.
ARTICLE 3
EFFECTIVE TIME
Section 3.01 Ownership of Assets. If the transactions contemplated hereby are
consummated in accordance with the terms and provisions hereof, the ownership of
the Assets shall be transferred from Seller to Buyer on the Closing Date, but
effective for all purposes as of 7:00 a.m. local time at the location of the
Assets on December 1, 2007 (the "Effective Time").
Section 3.02 Production Imbalances. Upon Closing, Buyer shall assume the
positions of Seller with respect to all gas imbalances and make-up obligations
related to the Assets regardless of whether such imbalances or make-up
obligations arise before or after the Effective Time, at the wellhead, pipeline,
gathering system or other location, and regardless of whether the same arise
under contract or otherwise ("Production Imbalances"). As a result of such
assumption, Buyer shall (a) be entitled to receive any and all benefits which
Seller would have been entitled to receive by virtue of its position, including
rights to produce and receive volumes of production in excess of volumes which
it would otherwise have been entitled to produce and to receive cash gas
balancing by virtue of ownership of the Assets, (b) be obligated to suffer any
detriments or losses which Seller would have been obligated to suffer by virtue
of such position, including the obligation to deliver to others production
volumes which would have otherwise been attributable to its ownership of the
Assets, to deliver production to purchasers thereof without Buyer receiving full
payment therefor, or to make cash balancing payments or to repay any take or pay
payments, and (c) be responsible for any and all royalty obligations and other
burdens with respect to such Production Imbalances; provided however, nothing in
this subsection (c) of Section 3.02 shall relieve Seller from any royalty
obligation affecting production Seller has actually received, or which has been
credited to Seller's interest in the Assets.
ARTICLE 4
TITLE AND ENVIRONMENTAL MATTERS
Section 4.01 Examination Period. Until 5:00 p.m. MST on the date which is seven
(7) days prior to the Closing Date (the "Examination Period"), Seller shall
permit Buyer and/or its representatives to examine during normal business days
and hours at a location designated by Seller, all abstracts of title, title
opinions, title files, ownership maps, lease, Well and division order files,
assignments, operating and accounting records and all Surface Agreements,
7
Permits, Contracts and other agreements, data, analyses and information
pertaining to the Assets insofar as same may now be in existence and in the
possession of Seller, subject to such restrictions upon disclosure as may exist
under confidentiality or other agreements binding upon Seller and relating to
such data.
Section 4.02 Title Defects. The term "Title Defect" means (a) any
encumbrance on, encroachment on, irregularity in, defect in or objection to
Seller's ownership of the Assets (excluding Permitted Encumbrances) that causes
Seller not to have Marketable Title to a Well, a PUD Location, a PDNP or a
Probable and/or Possible Location as described in Exhibit D; or (b) any default
by Seller under a lease, farm-out agreement or other contract or agreement that
would (i) have a material and adverse effect on the operation, value or use of
such Asset, (ii) prevent Seller from receiving the proceeds of production
attributable to Seller's interest therein, or (iii) result in cancellation of
all or a portion of Seller's interest therein. The term "Marketable Title" means
such ownership by Seller in the Assets that, subject to and except for the
Permitted Encumbrances:
(a) entitles Seller to receive not less than the percentage set
forth in Exhibit D as Seller's Net Revenue Interest of all Hydrocarbons
produced, saved and marketed from such Well, PUD Location, PDNP, or
Probable and/or Possible Locations described in such exhibit, all
without reduction, suspension or termination of such interest
throughout the productive life of such Well, except as specifically set
forth in such exhibit;
(b) obligates Seller to bear not greater than the percentage set
forth in Exhibit D as Seller's Working Interest of the costs and
expenses relating to the maintenance, development and operation of such
Well, PUD Location, PDNP, or Probable and/or Possible Locations, all
without increase throughout the productive life of such Well, except as
specifically set forth in either of such exhibit; and
(c) is free and clear of all liens, encumbrances and defects in
title.
Subject to the limitations of Section 4.14, Breaches of Seller's representations
and warranties contained in Section 5.07 through Section 5.24 discovered prior
to the Closing shall be treated as Title Defects for purposes of making
pre-Closing adjustments to the Purchase Price.
Section 4.03 Notice of Title Defects. Buyer shall provide Seller notice of all
Title Defects no later than 5:00 p.m. MST on the date which is seven (7) days
prior to the Closing Date (the "Title Claim Date"). To be effective, such notice
must (a) be in writing, (b) be received by Seller on or prior to the Title Claim
Date, (c) describe the Title Defect in reasonable detail (including any alleged
variance in the Net Revenue Interest or Working Interest), (d) identify the
specific Asset or Assets affected by such Title Defect, (e) include the Title
Defect Value, as reasonably determined by Buyer in good faith, and (f) comply
with the limitations and Title Defect Value qualifications set forth in Section
4.14. Any matters identified by Buyer during the Examination Period that
constitute Title Defects, but of which Seller has not been specifically notified
by Buyer in accordance with the foregoing, shall be deemed to have been waived
by Buyer for all purposes and shall constitute Permitted Encumbrances and
Assumed Obligations hereunder. Upon receipt of notices of Title Defects, the
Parties shall meet and determine upon which of the Title Defects, Title Defect
Values and methods of cure the Parties have reached agreement. Upon the receipt
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of such notice from Buyer, Seller shall have the option, but not the obligation,
for a period ending ninety (90) days after the Closing to cure such defect. If
Seller should not elect to cure a Title Defect, and no aspect of such defect is
reasonably in dispute, the Purchase Price shall be adjusted for such defect by
the amount of the Title Defect Value.
(a) The value attributable to each Title Defect (the "Title Defect
Value") that is asserted by Buyer in the Title Defect notices shall be
determined based upon the criteria set forth below:
(i) If the Title Defect is a lien upon any Asset, the Title
Defect Value is the amount necessary to be paid to remove the lien
from the affected Asset;
(ii) If the Title Defect asserted is that the Net Revenue
Interest attributable to any Well, PUD Location, PDNP, or Probable
and/or Possible Locations is less than that stated in Exhibit D,
then the Title Defect Value shall be the absolute value of the
number determined by the following formula:
Title Defect Value = A x (1-[B/C])
A = Allocated Value for the affected Asset
B = Correct Net Revenue Interest for the affected Asset
C = Net Revenue Interest for the affected
Asset as set forth on Exhibit D.
(iii) If the Title Defect represents an obligation,
encumbrance, burden or charge upon the affected Asset (including
any increase in Working Interest for which there is not a
proportionate increase in Net Revenue Interest) for which the
economic detriment to Buyer is unliquidated, the amount of the
Title Defect Value shall be determined by taking into account the
Allocated Value of the affected Asset, the portion of the Asset
affected by the Title Defect, the legal effect of the Title Defect,
the potential discounted economic effect of the Title Defect over
the life of the affected Asset, and the Title Defect Values placed
upon the Title Defect by Buyer and Seller;
(iv) If a Title Defect is not in effect or does not adversely
affect an Asset throughout the entire post Effective Time
productive life of such Asset, such fact shall be taken into
account in determining the Title Defect Value;
(v) The Title Defect Value of a Title Defect shall be
determined without duplication of any costs or losses included in
another Title Defect Value hereunder;
(vi) Notwithstanding anything herein to the contrary, in no
event shall a Title Defect Value exceed the Allocated Value of the
Wells, PUD Locations, PDNP, Probable and/or Possible Locations, or
other Assets affected thereby;
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(vii) If the Title Defect Value of an Asset is equal to the
Allocated Value of such Asset, the affected Asset shall be excluded
from the purchase and sale contemplated by this Agreement, and the
Purchase Price shall be adjusted accordingly;
(viii) Notwithstanding the provisions of this Section 4.03 to
the contrary, the Title Defect Value of any Title Defect comprising
a required consent not obtained (other than consents customarily
obtained after Closing) shall be determined subject to any
accommodation implemented pursuant to Section 4.07; and
(ix) Such other factors as are reasonably necessary to make a
proper evaluation.
(b) The term Title Defect shall not include:
(i) Defects based solely on an assertion that Seller's files
lack information, provided that any missing material information
can be obtained by the reasonable efforts of Buyer;
(ii) Defects in the early chain of title consisting of the
failure to recite marital status in a document or omissions of
successors of heirship or estate proceedings, unless Buyer provides
a reasonable basis for the assertion that such failure or omission
has resulted in a third party's actual and superior claim of title
to the affected Asset;
(iii) Defects arising out of lack of survey;
(iv) Defects arising out of lack of corporate or other entity
authorization unless Buyer provides a reasonable basis for the
assertion that the action was not authorized and that such lack of
authorization has resulted in a third party's actual and superior
claim of title to the affected Asset;
(v) Defects that are defensible by possession under applicable
statutes of limitations for adverse possession or for prescription;
provided that the mere passage of time in and of itself shall not
establish any presumption of the applicability of the provisions of
this Section 4.03(b)(v);
(vi) Defects asserting a change in an applicable Working
Interest or Net Revenue Interest based on a change in drilling and
spacing units, tract allocation or other changes in pooling or unit
participation occurring after the date of this Agreement; and
(vii) Title requirements customarily considered as advisory or
which can be waived as a matter of prudent business judgment.
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Section 4.04 Remedies for Title Defects.
(a) For any Title Defect noticed pursuant to Section 4.03 that has
not been cured at or prior to Closing, the Purchase Price shall,
subject to the provisions of Section 4.14, be decreased at Closing by
either (i) the amount the Parties acting reasonably and in good faith
agree in lieu of a cure of the asserted Title Defect, or (ii) with
respect to any Title Defect for which the Parties have not yet agreed
as to the validity of the Title Defect, the Title Defect Value, or the
manner of cure, then by the amount of the Title Defect Value asserted
by Buyer for such uncured or unadjusted Title Defect.
(b) Notwithstanding anything to the contrary in this Section 4.04,
if any Title Defect is in the nature of a consent to assignment that is
not obtained or other restriction on assignment, the provisions of
Section 4.07 shall apply.
(c) If at the expiration of thirty (30) days after Closing, the
Parties have not agreed upon the validity of any asserted Title Defect,
the appropriate cure of the same, or the Title Defect Value
attributable thereto, either Party shall have the right to elect to
have any such dispute determined by an Independent Expert pursuant to
Section 4.13.
(d) Once a Title Defect is cured by Seller at its sole cost and
expense to Buyer's reasonable satisfaction, or the existence or value
of the Title Defect is determined with finality either by agreement
between the affected Parties or in accordance with Section 4.13, Buyer
shall promptly pay to Seller (i) in the case of a Title Defect which is
cured, the amount the Purchase Price was decreased at Closing as a
result of this previously uncured Title Defect or (ii) in the case of
an Asset affected by an unresolved Title Defect and for which the
validity of the Title Defect or the Title Defect Value is determined
with finality whether by agreement or in accordance with Section 4.13,
the difference, if any, between the amount the Purchase Price was
decreased at Closing as a consequence of such asserted and unresolved
Title Defect and the amount determined with finality.
Section 4.05 Special Warranty of Title. The documents to be executed and
delivered by Seller to Buyer, transferring title to the Assets as required
hereby, including the Assignment and Bill of Sale the form of which (subject to
modification to meet state recording statute requirements) is attached hereto as
Exhibit E (the "Assignment"), shall provide for a special warranty of title, by,
through and under Seller severally as to their respective interests in and to
the Assets and subject to the Permitted Encumbrances and the terms of this
Agreement. The term "Permitted Encumbrances" shall mean any of the following
matters to the extent the same are valid and subsisting and affect the Assets:
(a) any (i) undetermined or inchoate liens or charges constituting
or securing the payment of expenses that were incurred incidental to
the maintenance, development, production or operation of the Assets or
for the purpose of developing, producing or processing Hydrocarbons
therefrom or therein, and (ii) materialman's, mechanics', repairman's,
employees', contractors', operators' liens or other similar liens or
charges for liquidated amounts arising in the ordinary course of
business (A) that Seller has agreed to retain or pay pursuant to the
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terms hereof, or (B) for which Seller is responsible for paying or
releasing at the Closing;
(b) any liens for Taxes and assessments not yet delinquent or, if
delinquent, that are being contested in good faith in the ordinary
course of business and for which Seller has agreed to pay pursuant to
the terms hereof or which have been prorated pursuant to the terms
hereof;
(c) the terms, conditions, restrictions, exceptions, reservations,
limitations and other matters contained in (including any liens or
security interests created by law or reserved in oil and gas leases for
royalty, bonus or rental, or created to secure compliance with the
terms of) the Contracts, Surface Agreements, the Leases and any other
agreements, instruments, documents and other matters described or
referred to in any Exhibit or Schedule hereto, or other terms in such
instruments that create or reserve to Seller its interest in the
Assets; provided, that, such matters do not operate to (i) reduce the
Net Revenue Interest of Seller in any Well, PUD Location, PDNP, or
Probable and/or Possible Locations as reflected in Exhibit D, or (ii)
increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the Working Interest of
Seller with respect to any Well, PUD Location, PDNP, or Probable and/or
Possible Locations as reflected in Exhibit D, unless there is a
proportionate increase in Seller's applicable Net Revenue Interest;
(d) any obligations or duties affecting the Assets to any
Governmental Authority with respect to any franchise, grant, license or
permit, and all applicable federal, state and local laws, rules,
regulations, guidances, ordinances, decrees ("Laws") and orders of any
Governmental Authority;
(e) any (i) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations, pipelines,
grazing, hunting, lodging, canals, ditches, reservoirs or the like, and
(ii) easements for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other similar rights-of-way on, over
or in respect of property owned or leased by Seller or over which
Seller owns rights-of-way, easements, permits or licenses;
(f) all royalties, overriding royalties, net profits interests,
carried interests, production payments, reversionary interests and
other burdens on or deductions from the proceeds of production created
or in existence as of the Effective Time, whether recorded or
unrecorded, that do not (i) reduce the Net Revenue Interest of Seller
in any Well, PUD Location, PDNP, or Probable and/or Possible Locations
and as reflected in Exhibit D, or (ii) increase the proportionate share
of costs and expenses of leasehold operations attributable to or to be
borne by the Working Interest of Seller with respect to any Well, PUD
Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D, unless there is a proportionate increase in Seller's
applicable Net Revenue Interest;
(g) preferential rights to purchase or similar agreements (i) with
respect to which (A) waivers or consents are obtained from the
appropriate parties for the transaction contemplated hereby, or (B)
required notices have been given for the transaction contemplated
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hereby to the holders of such rights and the appropriate period for
asserting such rights has expired without an exercise of such rights,
or (ii) not exercised prior to Closing, subject to Section 4.06;
(h) required third party consents to assignments or similar
agreements with respect to which (i) waivers or consents have been
obtained from the appropriate parties for the transaction contemplated
hereby, or (ii) required notices have been given for the transaction
contemplated hereby to the holders of such rights and the appropriate
period for asserting such rights has expired without an exercise of
such rights;
(i) all rights to consent by, required notices to, filings with, or
other actions by, Governmental Authorities in connection with the sale,
transfer or conveyance of the Assets that are customarily obtained
subsequent to such sale or conveyance;
(j) production sales contracts; division orders; contracts for
sale, purchase, exchange, refining or processing of hydrocarbons;
unitization and pooling designations, declarations, orders and
agreements; operating agreements; agreements of development; area of
mutual interest agreements; gas balancing or deferred production
agreements; processing agreements; plant agreements; pipeline,
gathering and transportation agreements; injection, repressuring and
recycling agreements; water or other disposal agreements; seismic or
geophysical permits or agreements; and any and all other agreements
that are ordinary and customary to the oil, gas and other mineral
exploration, development, processing or extraction business or in the
business of processing of gas and gas condensate production for the
extraction of products therefrom; provided, that, such matters do not
(i) reduce the Net Revenue Interest of Seller in any Well, PUD
Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D or (ii) increase the proportionate share of costs and
expenses of leasehold operations attributable to or to be borne by the
Working Interest of Seller with respect to any Well, PUD Location,
PDNP, or Probable and/or Possible Locations as reflected in Exhibit D,
unless there is a proportionate increase in Seller's applicable Net
Revenue Interest;
(k) rights reserved to or vested in any Governmental Authority to
control or regulate any of the Wells or units included in the Assets
and the applicable laws, rules, and regulations of such Governmental
Authorities;
(l) all defects and irregularities affecting the Assets which
individually or in the aggregate do not (i) reduce the Net Revenue
Interest of Seller in any Well, PUD Location, PDNP, or Probable and/or
Possible Locations as reflected in Exhibit D, (ii) increase the
proportionate share of costs and expenses of leasehold operations
attributable to or to be borne by the Working Interests of Seller with
respect to any Well, PUD Location, PDNP, or Probable and/or Possible
Locations as reflected on Exhibit D unless there is a proportionate
increase in Seller's applicable Net Revenue Interest, or (iii)
otherwise result in a material and adverse interference with the
operation, value or use of the Assets;
(m) conventional rights of reassignment arising upon decision to
surrender or abandon an interest; and
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(n) all deeds of trust and other security interests burdening the
Assets granted by Seller in connection with its credit facilities under
which Wachovia Bank serves as administrative agent (the "Wachovia
Liens"), it being understood that the release of the Wachovia Liens is
a condition to the Closing as provided in Section 9.04.
Section 4.06 Preferential Rights to Purchase.
(a) After consultation with Buyer, Seller shall use its reasonable
efforts, but without any obligation to incur anything but reasonable
costs and expenses in connection therewith, to comply with all
preferential right to purchase provisions relative to any Asset prior
to the Closing, including those rights of preferential purchase
identified on Schedule 4.06.
(b) Prior to the Closing, Seller shall promptly notify Buyer if any
of such preferential purchase rights are exercised or if the requisite
period has elapsed without such rights having been exercised.
(c) If a third party who has been offered an interest in any Asset
pursuant to a preferential right to purchase elects prior to the
Closing to purchase all or part of such Assets, and the closing of such
transaction does occur on or before the Closing Date, then the interest
or part thereof so affected will be eliminated from the Assets and the
Purchase Price shall be reduced by the Allocated Value of such Assets.
If any such third party has elected to purchase all or a part of an
interest in any Asset subject to a preferential right to purchase, but
has failed to close the transaction by the Closing Date, then all of
the Assets will be conveyed to Buyer at Closing, without adjustment to
the Purchase Price, and on the Closing Date Buyer shall, as an Assumed
Obligation, assume all duties, obligations and liabilities, of any kind
or nature, arising from, out of, or in connection with, any enforceable
preferential right to purchase that is outstanding, and, if exercised,
Buyer shall receive the payment therefor and shall assign the affected
portion of the Assets to the holder of such exercised preferential
right to purchase. In addition, in the event an interest is offered by
Seller pursuant to a preferential right to purchase for which notice
has been given but the time period for response by the holder of such
right extends beyond Closing, such interest shall be conveyed to Buyer
at the Closing, without reduction to the Purchase Price, and shall be
subject to such preferential right of purchase.
Section 4.07 Consents to Assignment. If any Asset is subject to a Title Defect
as a result of a consent to assignment not having been obtained, including those
consents to assignment set forth on Schedule 4.07, or, of the existence of other
restrictions on assignment or conveyance, the following provisions shall apply:
(a) Buyer and Seller shall cooperate in any reasonable and lawful
arrangement proposed to provide Buyer with the benefits of ownership of
the affected Asset without breaching the consent requirement or
restriction comprising such Title Defect; and
(b) If such arrangement involves Seller retaining actual title with
beneficial title being assigned to Buyer at the Closing, then:
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(i) only such beneficial title shall be assigned to Buyer at the
Closing, without any adjustment to the Purchase Price for such Title
Defect; and
(ii) if such consent is obtained or such restriction eliminated
following the Closing, then Seller shall execute and deliver to Buyer
an assignment of Seller's retained title and any related obligations
consistent with the terms of this Agreement.
Section 4.08 Remedies for Title Benefits.
(a) If Buyer discovers any Title Benefit affecting the Assets, it
shall promptly notify Seller in writing thereof. Subject to Section
4.14, Seller shall be entitled to an upward adjustment to the Purchase
Price with respect to all Title Benefits in an amount (the "Title
Benefit Value") determined in accordance with the formula provided for
in this Section 4.08(a). The term "Title Benefit" shall mean Seller's
Net Revenue Interest in any Well, PUD Location, PDNP, or Probable
and/or Possible Locations that is greater than or in addition to the
Net Revenue Interest set forth in Exhibit D, or Seller's Working
Interest in any Well, PUD Location, PDNP, or Probable and/or Possible
Locations that is less than the Working Interest set forth in Exhibit D
(without a proportionate decrease in the Net Revenue Interest). The
Title Benefit Value shall be the absolute value of the number
determined by the following formula:
Title Benefit Value = [A x (B/C)] - A
A = Allocated Value for the affected Asset
B = Correct Net Revenue Interest for the affected Asset
C = Net Revenue Interest for the affected
Asset as set forth on Exhibit D.
(b) If the Title Benefit represents a decrease in Working Interest
for which there is not a proportionate decrease in Net Revenue
Interest, the amount of the Title Benefit Value shall be determined by
taking into account the Allocated Value of the affected Asset, the
portion of the Asset affected by the Title Benefit, the legal effect of
the Title Benefit, the potential discounted economic effect of the
Title Benefit over the life of the affected Asset, and the Title
Benefit Values placed upon the Title Benefit by Buyer and Seller.
(c) If the Parties have not agreed on the amount of the Title
Benefit Value of a Title Benefit by the expiration of thirty (30) days
after Closing, Seller or Buyer shall have the right to elect to have
such Title Benefit Value determined by an Independent Expert pursuant
to Section 4.13. If the Title Benefit Value is not determined pursuant
to this Agreement by the Closing, the Purchase Price paid at Closing
shall be increased, subject to Section 4.14, by the Title Benefit Value
determined by Buyer, acting reasonably and in good faith, and, subject
to Section 4.14. Upon the final determination of Title Benefit Value
either by mutual agreement of the Parties or by the Independent Expert,
(i) Seller shall refund to Buyer the amount, if any, by which the
15
amount so paid by Buyer at Closing exceeds such Title Benefit Value, or
(ii) Buyer shall pay to Seller the amount, if any, by which such Title
Benefit Value exceeds the amount so paid by Buyer at Closing.
Section 4.09 Environmental Review. Buyer may conduct an environmental assessment
of the Assets prior to the expiration of the Title Claim Date, subject to the
following:
(a) Buyer shall have the right to conduct a Phase I (as that term
is defined by the American Society for Testing and Materials)
environmental review of the Assets prior to the expiration of the
Examination Period ("Buyer's Environmental Review") and Seller shall
provide to Buyer a copy of any environmental review Seller has in its
possession subject to the same terms of confidentiality subsequently
set forth herein;
(i) The cost and expense of Buyer's Environmental Review shall
be borne solely by Buyer;
(ii) All inspections must be coordinated through a designated
representative of Seller who may accompany Buyer during the course
of Buyer's inspection of the Assets;
(iii) All environmental assessments shall be conducted by an
independent environmental consultant engaged by Buyer at Buyer's
expense;
(iv) Buyer shall give Seller notice not more than seven (7)
days and not less than forty eight (48) hours before any visits by
Buyer and/or its consultant to the Assets, and Buyer shall seek and
obtain Seller's prior consent (which shall not be unreasonably
withheld) before either it or its consultant enters the Assets;
(v) Buyer shall provide Seller a copy of the Phase I report
affecting the Assets promptly after Buyer's receipt of the same;
(vi) Buyer shall give Seller prompt written notice and obtain
Seller's prior written consent (not to be unreasonably withheld) if
Buyer desires to conduct a Phase II (as that term is defined by the
American Society for Testing and Materials) study based on the
recommendations of Buyer's independent environmental consultant
(acting reasonably) with respect to the Assets. With respect to any
samples taken in connection with Buyer's Environmental Review,
Buyer shall take split samples, providing one of each such sample,
properly labeled and identified, to Seller;
(vii) Buyer and/or its consultant shall perform all such work
in a safe and workmanlike manner, shall not unreasonably interfere
with Seller's operations, and shall comply with all Laws of
applicable Governmental Authorities;
(viii) Buyer shall be solely responsible for obtaining any
third party consents that are required in order to perform any work
comprising Buyer's Environmental Review, and Buyer shall consult
with Seller prior to requesting each such third party consent; and
16
(ix) Buyer hereby agrees to release and defend, indemnify and
hold harmless Seller and Seller's Representatives from and against
all Claims made by (or attributable to the acts or omissions of)
Buyer or Buyer's Representatives (INCLUDING THOSE RESULTING FROM
THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF
SELLER OR ANY OF SELLER'S REPRESENTATIVES) arising out of or
relating to Buyer's Environmental Review. The release and indemnity
provisions of this Section 4.09 shall survive termination or
Closing of this Agreement notwithstanding anything to the contrary
provided for in this Agreement.
(b) Unless otherwise required by applicable Laws, Buyer shall treat
any matters revealed by Buyer's Environmental Review and any
environmental review provided by Seller to Buyer, including any
analyses, compilations, studies, documents, reports or data prepared or
generated from such review (the "Environmental Information"), as
confidential, and, except as provided below, Buyer shall not disclose
any Environmental Information to any Governmental Authority or other
third party without the prior written consent of Seller. Buyer may use
the Environmental Information only in connection with the transactions
contemplated by this Agreement. The Environmental Information shall be
disclosed by Buyer to only those persons who need to know the
Environmental Information for purposes of evaluating the transaction
contemplated by this Agreement, and who agree to be bound by the terms
of this Section 4.09. If Buyer or any third party to whom Buyer has
provided any Environmental Information is requested, compelled or
required to disclose any of the Environmental Information, Buyer shall
provide Seller with prompt notice sufficiently prior to any such
disclosure so as to allow Seller to file for any protective order, or
seek any other remedy, as it deems appropriate under the circumstances.
If this Agreement is terminated prior to the Closing, upon Seller's
request Buyer shall deliver the Environmental Information, and all
copies thereof and works based thereon, to Seller, which Environmental
Information shall become the sole property of Seller. Upon request
Buyer shall provide copies of the Environmental Information to Seller
without charge. The terms and provisions of this Section 4.09(b) shall
survive any such termination of this Agreement,
notwithstanding anything to the contrary.
Section 4.10 Definitions Used in Article 4 and in this Agreement.
---------------------------------------------------
(a) Environmental Defects. The term "Environmental Defect" shall
mean, with respect to any given Asset, a violation of Environmental
Laws in effect as of the Effective Time in the jurisdiction in which
such Asset is located.
(b) Governmental Authority. The term "Governmental Authority" shall
mean the United States and any state, county, city and political
subdivisions that exercises jurisdiction, and any agency, department,
board, commission or other instrumentality thereof.
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(c) Environmental Laws. The term "Environmental Laws" shall mean
any and all laws, statutes, ordinances, rules, regulations or orders of
any Governmental Authority pertaining to health and natural resources
(but excluding laws, orders, rules, and regulations that pertain to the
prevention of waste or the protection of correlative rights) and the
protection of wildlife or the environment including, without
limitation, the Clean Air Act, as amended, the Clean Water Act, as
amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking Water Act,
as amended, the Toxic Substances Control Act, as amended, the Hazardous
& Solid Waste Amendments Act of 1984, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Oil Pollution Act of 1990
("OPA"), any state laws implementing the foregoing federal --- laws,
and any state laws pertaining to the handling of oil and gas
exploration and production wastes or the use, maintenance and closure
of pits and impoundments, and all other environmental conservation or
protection laws in effect as of the date hereof which are applicable to
the Assets. For purposes of this Agreement, the terms "hazardous
substance," "release," and "disposal" have the meanings specified in
the applicable Environmental Laws as in effect as of the date hereof.
(d) Environmental Defect Value. For purposes of this Agreement, the
term "Environmental Defect Value" shall mean, with respect to any
Environmental Defect, the estimated costs and expenses net to Seller's
interest in the affected portion of the Assets to correct and/or
remediate such Environmental Defect in the most cost effective manner
reasonably available, consistent with Environmental Laws, taking into
account that non-permanent remedies (such as, by way of example but not
by limitation or similarity, mechanisms to contain or stabilize
hazardous materials, including monitoring site conditions, natural
attenuation, risk-based corrective action, institutional controls or
other appropriate restrictions on the use of property, caps, dikes,
encapsulation, leachate collection systems, etc.) may be the most cost
effective manner reasonably available.
Section 4.11 Notice of Environmental Defects. Buyer shall provide Seller notice
of all Environmental Defects no later than 5:00 p.m. MST on the date which is
seven (7) days prior to the Closing Date. To be effective, such notice must (a)
be in writing, (b) be received by Seller prior to the expiration of the
Examination Period, (c) describe the Environmental Defect in reasonable detail,
including the written conclusion of Buyer that an Environmental Defect exists,
which conclusion shall be reasonably substantiated by the factual data gathered
in Buyer's Environmental Review, (d) identify the specific Assets affected by
such Environmental Defect, (e) set forth the procedures recommended to correct
the Environmental Defect, (f) set forth Buyer's reasonable good faith estimate
of the Environmental Defect Value, including the basis for such estimate, and
(g) comply with the Environmental Defect Value provisions of Section 4.14. Any
matters that may otherwise constitute Environmental Defects, but of which Seller
has not been specifically notified by Buyer in accordance with the foregoing,
together with any environmental matter that does not constitute an Environmental
Defect, shall be deemed to have been waived by Buyer for all purposes and
constitute an Assumed Obligation. Upon receipt of notices of Environmental
Defects, the Parties shall meet and determine upon which of the Environmental
Defects, Environmental Defect Values and methods of correction the Parties have
18
reached agreement. Upon the receipt of such effective notice from Buyer, Seller
shall have the option, but not the obligation, to attempt to correct such
Environmental Defect during a period expiring ninety (90) days after Closing. If
Seller should not elect to correct an Environmental Defect, and no aspect of
such defect is in dispute, the Purchase Price shall be adjusted for such defect
by the amount of the Environmental Defect Value.
Section 4.12 Remedies for Environmental Defects.
(a) If, as of the Closing Date, the Assets are affected by an
uncured or otherwise unresolved Environmental Defect noticed pursuant
to the provisions of Section 4.11, the affected portion of the Assets
shall not be sold, transferred or conveyed to Buyer at Closing, and the
Purchase Price shall, subject to the terms of Section 4.14, be
decreased by the Allocated Value of the portion of the Assets so
affected. Thereafter, Buyer and St. Mary shall act reasonably and in
good faith either (i) to agree (y) as to the manner of cure for such
Environmental Defect or (z) the value of such Environmental Defect and
adjust the Final Settlement Statement in the amount thereof net of any
Purchase Price adjustment made at Closing, in which event the affected
portion of the Assets shall be conveyed to Buyer; provided that if
option (y) is agreed to, no assignment of the affected portion of the
Assets shall be made as between Seller and Buyer until such agreed cure
is accomplished to Buyer's reasonable satisfaction whereupon the
Allocated Value previously deducted from the Purchase Price shall be
paid to Seller, or (ii) with respect to any Environmental Defect as to
which the Parties are unable to agree within 30 days of Closing as to
the validity of the Environmental Defect, the Environmental Defect
Value, or the manner of correction, submit such matter to be determined
by an Independent Expert pursuant to Section 4.13.
(b) With respect to any Asset which is not sold, transferred or
conveyed to Buyer at the Closing pursuant to the terms of Section
4.12(a), after the Closing and at such time as any Environmental Defect
Value or the manner of correction for an Environmental Defect is
determined and, in either event, the amount thereof is determined to be
less than the Allocated Value for the affected portion of the Assets,
Seller shall have the right (i) in the case of an Environmental Defect
Value determination, to have the Purchase Price reduced by only the
Environmental Defect Value as so determined or (ii) in the case of the
cure determination, to elect to cure the Environmental Defect to
Buyer's reasonable satisfaction. The consequence of (i) shall be that
Buyer will pay to Seller an amount equal to the Allocated Value for the
affected Assets minus the Environmental Defect Value and the affected
portion of the Assets previously retained by Seller shall be conveyed
to Buyer. The consequence of (ii) shall be that upon achieving Buyer's
written acknowledgement that the Environmental Defect has been cured to
its reasonable satisfaction, the Allocated Value for such previously
retained Asset shall be paid to Seller and the affected portion of the
Assets shall be conveyed to Buyer. If no Environmental Defect is
determined to exist, Buyer shall pay the Allocated Value attributable
to the affected portion of the Assets to Seller, and Seller shall
convey the previously retained portion of the Assets to Buyer. If the
Environmental Defect Value or the cost to cure an Environmental Defect
is determined to be greater than the Allocated Value of the affected
portion of the Assets, Seller shall retain the affected portion of the
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Assets, and the Purchase Price shall be reduced by the Allocated Value
attributable to such portion of the Assets.
Section 4.13 Independent Experts.
(a) Any disputes regarding Title Defects, Title Benefits,
Environmental Defects, Title Defect Value, Title Benefit Value,
Environmental Defect Value, appropriate cure of any Title Defects or
correction of any Environmental Defects, and the calculation of the
Statement or the Final Settlement Statement, or revisions thereto, may,
subject to the provisions of Section 4.04, Section 4.12 and Section
4.14, be submitted by a Party, with written notice to the other Party,
to an independent expert (the "Independent Expert"), who shall serve as
the sole and exclusive arbitrator of any such dispute. The Independent
Expert shall be selected by the Parties (acting reasonably and in good
faith) within fifteen (15) days following the effective date of said
notice. The Independent Expert shall be a person who is independent,
impartial, and knowledgeable in the subject matter and substantive laws
involved. For example, but not by way of limitation, in the case of a
dispute concerning an alleged Environmental Defect, Environmental
Defect Value or cure of the same, the Independent Expert shall have
expertise in both the applicable Environmental Laws and environmental
science relating to the oil and gas industry.
(b) The Parties shall determine, acting in good faith, the
procedures to be followed to facilitate the decision of the Independent
Expert. Such procedures shall include the following scenario:
(i) If the dispute involves the method or adequacy of cure or
correction of a Title Defect or Environmental Defect, the
Independent Expert shall provide in writing the particulars
necessary to cure or correct or to remedy any deficient cure or
correction, and shall provide Seller sixty (60) days (or such
additional time as reasonable and necessary under the
circumstances, but not to exceed 90 days unless specifically agreed
to in writing by Seller and Buyer) to effect such cure or
correction; and
(ii) In the event of circumstances described in clause (i)
above, Seller at its option may at any time during the sixty (60)
day cure period pursuant to clause (i) (as such period may be
extended pursuant to such clause) decline to cure or correct the
applicable defect.
(c) If the Parties fail to select an Independent Expert within the
15-day period referred to in Section 4.13(a) above, within three (3)
days thereafter, each of Buyer and Seller shall choose an Independent
Expert meeting the qualifications set forth above, and such experts
shall promptly choose a third Independent Expert (meeting the
qualifications provided for herein) who alone shall resolve the
disputes between the Parties. Each Party shall bear its own costs and
expenses incurred in connection with any such proceeding, and one-half
(1/2) of the costs and expenses of the Independent Expert.
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(d) Disputes to be resolved by an Independent Expert shall be
resolved in accordance with mutually agreed procedures and rules and
failing such agreement, in accordance with the rules and procedures for
non-administered arbitration set forth in the commercial arbitration
rules of the American Arbitration Association. The Independent Expert
shall be instructed by the Parties to resolve such dispute as soon as
reasonably practicable in light of the circumstances using the terms
and provisions of this Agreement with respect to title and
environmental matters. The decision and award of the Independent Expert
shall be binding upon the Parties and final and nonappealable to the
maximum extent permitted by Laws or Environmental Laws, as applicable,
and judgment thereon may be entered in a court of competent
jurisdiction and enforced by any Party as a final judgment of such
court.
(e) All proceedings under this Section 4.13 shall be conducted at a
mutually agreed location, or if Buyer and Seller acting reasonably do
not mutually agree upon a location for such proceeding, the proceeding
shall be conducted in Denver, Colorado.
Section 4.14 Limitation of Remedies For Title Benefits, Title Defects and
Environmental Defects. Notwithstanding anything to the contrary contained in
this Agreement,
(a) if the Title Defect Value for a given Title Defect, or the
Title Benefit Value of a given Title Benefit, in each case as
determined pursuant to this Article 4 does not exceed Twenty Thousand
Dollars ($20,000), or if the Environmental Defect Value for a given
Environmental Defect, as determined pursuant to this Article 4 does not
exceed Twenty Thousand Dollars ($20,000), such Title Defect, Title
Benefit, or Environmental Defect shall not qualify for either a
Purchase Price adjustment, cure, or correction of such defect;
(b) if the aggregate net value of all Title Defects and Title
Benefits does not exceed Five Hundred Thousand Dollars ($500,000)
(prior to any adjustments thereto), then no adjustment of the Purchase
Price shall be made therefor;
(c) if the aggregate net value of all Title Defects and Title
Benefits exceeds Five Hundred Thousand Dollars ($500,000) (prior to any
adjustments thereto), then the Purchase Price shall be adjusted by the
entire amount of such aggregate net value, it being understood that
this amount is a threshold and not a deductible;
(d) if the aggregate value of all Environmental Defects does not
exceed Five Hundred Thousand Dollars ($500,000) (prior to any
adjustments thereto), then no adjustment of the Purchase Price shall be
made therefor; and
(e) if the aggregate value of all Environmental Defects exceeds
Five Hundred Thousand Dollars ($500,000) (prior to any adjustments
thereto), then the Purchase Price shall be adjusted by the entire
amount of such aggregate value, it being understood that this amount is
a threshold and not a deductible.
All Title Defects and Environmental Defects asserted by Buyer pursuant to this
Article 4 after being resolved in accordance with this Article 4 shall
thereafter constitute Permitted Encumbrances and Assumed Obligations, whether or
21
not an adjustment to the Purchase Price is made with respect thereto in
accordance with this Article 4.
Section 4.15 DISCLAIMER AND WAIVER. EXCEPT AS SET FORTH IN THIS AGREEMENT,
SELLER DOES NOT MAKE ANY, AND EXPRESSLY DISCLAIMS ALL REPRESENTATIONS OR
WARRANTIES, AND BUYER EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTIES,
AS TO THE ACCURACY OR COMPLETENESS OF ANY FILE AND/OR OTHER INFORMATION,
INCLUDING, PRINTOUTS, EXTRAPOLATIONS, PROJECTIONS, DOCUMENTATION, MAPS, GRAPHS,
CHARTS OR TABLES WHICH REFLECT, DEPICT, PRESENT, PORTRAY OR WHICH ARE BASED UPON
OR DERIVED FROM ANY SUCH INFORMATION AND/OR FILES, INCLUDING MATTERS OF
GEOLOGICAL, GEOPHYSICAL, ENGINEERING OR OTHER SCIENTIFIC INFORMATION THAT MAY BE
PROVIDED TO BUYER BY SELLER OR BY OTHERS ON BEHALF OF SELLER. BUYER EXPRESSLY
AGREES THAT ANY CONCLUSIONS DRAWN FROM REVIEW OF SUCH INFORMATION AND/OR FILES
SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Each Party comprising Seller severally as to its or his respective
ownership interest in the Assets represents and warrants to Buyer that:
Section 5.01 Existence. St. Mary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Smith is
a trust organized, validly existing, and in good standing under the laws of the
State of Oklahoma. Harrell is an individual. Each Party comprising Seller has
full legal power, right and authority to carry on its business as such is now
being conducted and as contemplated to be conducted hereby. Each Party
comprising Seller is authorized to do business, and in good standing, in the
State or States in which the Assets are located with regard to the Assets in
which any of the Parties comprising Seller has an interest.
Section 5.02 Legal Power. Seller has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with:
(a) any provision of Seller's articles of incorporation, bylaws,
and other governing documents;
(b) except for provisions customarily contained in oil and gas
agreements relating to maintenance of uniform interest, preferential
purchase rights and consents to assignment, any material agreement or
instrument to which Seller is a party or by which Seller or the Assets
are bound; or
(c) any judgment, order, ruling or decree applicable to Seller as a
party in interest or any law, rule or regulation applicable to Seller.
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Section 5.03 Execution. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby are duly and validly
authorized by all requisite corporate action on the part of Seller as required
under its formation documents. This Agreement constitutes the legal, valid and
binding obligation of Seller enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency or other laws relating to or
affecting the rights of creditors generally, and by general equitable
principles.
Section 5.04 Brokers. No broker or finder is entitled to any brokerage or
finder's fee, or to any commission, based in any way on agreements, arrangements
or understandings made by or on behalf of Seller or any affiliate of Seller for
which Buyer has or will have any liabilities or obligations (contingent or
otherwise).
Section 5.05 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or to the knowledge of Seller
threatened against Seller. Seller is not "insolvent" as such term is defined
under the Federal Bankruptcy Code or any fraudulent transfer or fraudulent
conveyance statute applicable to the transactions contemplated by this
Agreement.
Section 5.06 Suits and Claims. Except as set forth in Schedule 5.06, there is no
litigation or Claims that have been filed by any person or entity or by any
administrative agency or Governmental Authority in any legal, administrative or
arbitration proceeding or, to Seller's knowledge, threatened against Seller or
the Assets that would impede Seller's ability to consummate the transactions
contemplated herein or would have a material and adverse effect on the Assets.
Section 5.07 Taxes. During the period of Seller's ownership of the Assets up to
and including the Effective Time, Seller has caused to be timely filed all
material Tax returns relating to the Assets. Seller has paid or caused to be
paid all ad valorem, property, production, severance, mineral documentary and
similar Taxes based upon or measured by its ownership of or the production of
Hydrocarbons from the Assets. Seller has not received written notice of any
pending Claim against Seller from any applicable taxing authority for assessment
of Taxes with respect to the Assets. There are no audits of Seller by any
applicable taxing authority with respect to Taxes attributable to the Assets.
Except for statutory liens for property Taxes and ad valorem Taxes, there are no
tax liens on or with respect to the Assets.
Section 5.08 AFEs. Except as set forth on Schedule 5.08, there are no
outstanding authorizations for expenditures or other capital commitments which
are binding on the Assets and which individually would require the owner of the
Assets after the Effective Time to expend monies in excess of Fifty Thousand
Dollars ($50,000).
Section 5.09 Compliance with Laws. Seller's operation (i.e., where Seller is
operator of record) of the Assets has been in compliance with Laws where
noncompliance with such Laws would have a Material Adverse Effect on the Assets.
Section 5.10 Contracts. Seller is not in Breach of any of the Contracts and to
Seller's knowledge, the Contracts are in full force and effect in accordance
with their terms, and, to the knowledge of Seller, no other party to any of the
Contracts is in Breach thereof.
23
Section 5.11 Production Imbalances. Except as set forth in Schedule 1.02(g), to
Seller's knowledge, there are no material Production Imbalances as of the
Effective Time as to any of the Subject Interests.
Section 5.12 Royalties; Payments for Production. Seller has not been and is not
in Breach of any payment obligations under any of the Leases. Seller is not
obligated by virtue of a take or pay payment, call, advance payment, production
payment or other similar payment or obligation (other than royalties, overriding
royalties and similar arrangements that do not cause Seller's NRI to be less
than that set forth on Exhibit D), to deliver Hydrocarbons, or proceeds from the
sale thereof, attributable to the Leases at some future time without receiving
payment therefor at or after the time of delivery at the then market price, and
no take or pay credits must be provided before natural gas can be transported
through any interstate carrier under FERC Order 500, et al, and there are no
obligations on the Assets under FERC Order 451.
Section 5.13 Insurance. Seller maintains, and through the Closing will maintain,
with respect to the Assets, the insurance coverage described on Schedule 5.13.
Section 5.14 Plugging Obligations. Except for wells listed in Schedule 5.14,
there are no dry holes, or shut in or otherwise inactive wells, located on the
Assets or lands pooled or unitized therewith that Seller has either the
obligation to plug and abandon in accordance with an applicable operating
agreement or Law or as to Wells for which Seller is not the operator, received a
written proposal to plug and abandon.
Section 5.15 Personal Property and Equipment. Seller is the owner of the
Equipment free and clear of all liens and encumbrances other than those to be
released at Closing. Other than in connection with normal and customary prudent
operations, Seller has not removed any personal property, equipment or fixtures
from the Wells, unless it has been replaced with personal property, equipment or
fixtures of similar grade and utility. Unless removed, repaired or replaced (a)
with personal property, equipment and fixtures of similar grade and utility or
(b) in connection with normal and customary prudent operations, the personal
property, equipment and fixtures currently attendant to the Wells was the
equipment historically used by Seller on the Wells to produce the Hydrocarbons
prior to the execution of this Agreement.
Section 5.16 No Alienation. Within 120 days of the date hereof, Seller has not
voluntarily or involuntarily sold, assigned, conveyed, or transferred or
contracted to sell, assign, convey or transfer any right or title to, or
interest in, the Assets other than (i) production sold in the ordinary course of
Seller's business and (ii) equipment which was worthless, obsolete or replaced
by equipment of equal suitability and value.
Section 5.17 Hydrocarbon Sales Contracts. Except for the Hydrocarbon Sales
Contracts listed in Schedule 5.17, no Hydrocarbons are subject to a sales
contract (other than division orders or spot sales agreements terminable on no
more than 30 days notice) and no person has any call upon, option to purchase or
similar rights with respect to the production from the Assets. Proceeds from the
sale of oil, condensate, and gas from the Assets are being received in all
respects by Seller in a timely manner and are not being held in suspense for any
reason.
24
Section 5.18 Area of Mutual Interest and Other Agreements. To Seller's
knowledge, no Asset is subject to (or has related to it) any area of mutual
interest agreements not disclosed in the Contracts or any farm-out or farm-in
agreement under which any party thereto is entitled to receive assignments not
yet made, or could earn additional assignments after the Effective Time other
than the Wells listed on Exhibit B as having an after payout NRI.
Section 5.19 Leases. Seller has not received a written notice of termination of
any of the Leases and Seller is not in Breach or violation of any of the Leases;
provided, however, that Buyer's remedy for Seller's Breach of this
representation and warranty shall be the Title Defect mechanism set forth in
Article 4.
Section 5.20 Property Expenses. In the ordinary course of business, Seller has
paid all property expenses attributable to the period of time prior to the
Effective Time as such property expenses become due, and such property expenses
are being paid in a timely manner before the same become delinquent, except such
property expenses as are disputed in good faith by Seller in a timely manner and
for which Seller shall retain responsibility.
Section 5.21 Governmental Permits. Except as set forth on Schedule 5.21, Seller
has all Permits (including, without limitation, permits, licenses, approval
registrations, notifications, exemptions and any other authorizations pursuant
to Law) necessary or appropriate to own and operate the Assets as presently
being owned and operated. The Permits are in full force and effect and the
Assets have been operated in accordance with the terms thereof in all material
respects. Seller has not received written notice of any violations in respect of
any of the Permits that remain uncured.
Section 5.22 No Adverse Change. With respect to the Assets for which Seller is
the operator and, to Seller's knowledge with respect to the Assets for which
Seller is not the operator, since September 1, 2007, the Assets have been
operated in the ordinary course of business consistent with past practices and
there has been no event or series of events that have either individually or in
combination had a Material Adverse Effect on the Assets.
Section 5.23 Information. The information pertaining to revenue and expenses
attributable to the Assets that Seller has furnished to Buyer (the
"Information") is (a) accurate in all material respects to the extent relating
to the period of Seller's ownership of the Assets and (b) to the knowledge of
Seller, accurate in all material respects to the extent relating to any period
of ownership of the Assets prior to the time owned by Seller reflected in the
Information. Seller has no data in its possession that it has failed to furnish
that would cause the Information to be materially inaccurate. Except as
specifically set forth in this Section 5.23, Seller makes no representations
regarding the accuracy of any of the Records; provided, however, Seller does
represent that (i) all of the Records are files, or copies thereof, that Seller
has used in the ordinary course of operating and owning the Assets, (ii) Seller
has not intentionally withheld any material information from the Records, and
(iii) Seller has not knowingly misrepresented any material information in the
Records. Except as set froth in this Section 5.23, no representation or warranty
of any kind is made by Seller as to the Information or with respect to the
Assets to which the Information relates and Buyer expressly agrees that any
conclusions drawn therefrom shall be the result of its own independent review
and judgment. The representations and warranties contained in this paragraph
shall apply only to matters of fact, and shall not apply to any information,
25
data, printouts, extrapolations, projections, documentation, maps, graphs,
charts, or tables which reflect, depict, present, portray, or represent, or
which are based upon or derived from, in whole or in part, interpretation of the
Information including, but not limited to, matters of geological, geophysical,
engineering, or scientific interpretation.
Section 5.24 Representations and Warranties Exclusive. All representations and
warranties contained in this Article 5 are exclusive, and are given in lieu of
all other representations and warranties, express, implied or statutory.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
Section 6.01 Existence. Buyer is a limited liability company duly formed,
organized, validly existing and in good standing under the laws of the state of
its formation. Buyer has full legal power, right and authority to carry on its
business as such is now being conducted. As of the Closing Date, Buyer will be
authorized to do business as a foreign limited liability company and in good
standing in the State or States in which the Assets are located.
Section 6.02 Legal Power. Buyer has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement does not and
will not violate, or be in conflict with:
(a) any provision of Buyer's formation documents or other governing
documents;
(b) any material agreement or instrument to which Buyer is a party
or by which Buyer or its assets are bound; or
(c) any judgment, order, ruling or decree applicable to Buyer as a
party in interest or any law, rule or regulation applicable to Buyer.
Section 6.03 Execution. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby are duly and validly
authorized by all requisite organizational action on the part of Buyer. This
Agreement constitutes the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency or other laws relating to or affecting the rights of
creditors generally, and by general equitable principles.
Section 6.04 Brokers. No broker or finder is entitled to any brokerage or
finder's fee, or to any commission, based in any way on agreements, arrangements
or understandings made by or on behalf of Buyer or any affiliate of Buyer for
which Seller has or will have any liabilities or obligations (contingent or
otherwise).
26
Section 6.05 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or to the knowledge of Buyer
threatened against Buyer or any affiliate of Buyer.
Section 6.06 Suits and Claims. There is no Claim by any person or entity or by
any administrative agency or Governmental Authority and no legal, administrative
or arbitration proceeding pending or, to Buyer's knowledge, threatened against
Buyer or any affiliate of Buyer that is reasonably likely to have a material
effect on Buyer's ability to consummate the transactions contemplated herein.
Section 6.07 Independent Evaluation. Buyer acknowledges that it is an
experienced and knowledgeable investor in the oil and gas business, and the
business of purchasing, owning, developing and operating oil and gas properties
such as the Assets. If Closing occurs, Buyer represents, warrants and
acknowledges to Seller that it has had full access to the Assets, the officers,
and employees of Seller, and to the books, records and files of Seller relating
to the Assets. In making the decision to enter into this Agreement and to
consummate the transactions contemplated hereby, Buyer has relied solely upon
the representations, warranties, covenants and agreements of Buyer and Seller
set forth in this Agreement and Buyer's own independent due diligence and
investigation of the Assets, and has been advised by and has relied solely on
its own expertise and its own legal, tax, operations, environmental, reservoir
engineering and other professional counsel and advisors concerning this
transaction, the Assets and the value thereof. In addition, Buyer acknowledges
and agrees that Buyer will be or has been advised by and relies solely on its
own expertise, and its legal counsel and any advisors or experts concerning
matters relating to Title Defects, Title Benefits and Environmental Defects.
Section 6.08 Qualification. As of the Closing, the Buyer shall be, and
thereafter shall continue to be, qualified with all applicable Governmental
Authorities to own and operate the Assets, including meeting all bonding
requirements.
Section 6.09 Securities Laws. Buyer is acquiring the Assets for its own account
or that of its affiliates and not with a view to, or for offer of resale in
connection with, a distribution thereof, within the meaning of the Securities
Act of 1933, 15 U.S.C. ss. 77a et seq., and any other rules, regulations, and
laws pertaining to the distribution of securities. Buyer has not sought or
solicited, nor is Buyer participating with, investors, partners or other third
parties other than its lenders in order to fund the Purchase Price and to close
this transaction, and all funds to be used by Buyer in connection with this
transaction are Buyer's own funds or those borrowed from its lenders.
Section 6.10 No Investment Company. Buyer is not (a) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, or (b) subject in any respect to the provisions
of that Act.
Section 6.11 Funds. Buyer has arranged to have available by the Closing Date
immediately available funds to enable Buyer to pay in full the Purchase Price as
herein provided and otherwise to perform its obligations under this Agreement.
27
Section 6.12 Notice of Changes. Promptly upon its discovery or identification of
same, but in any event prior to Closing, Buyer shall provide to Seller written
notice of any matter it so identifies that has a material effect on any of
Seller's representations or warranties under this Agreement, or rendering any
such warranty or representation untrue or inaccurate.
Section 6.13 Representations and Warranties Exclusive. All representations and
warranties contained in this Agreement and the documents delivered in connection
herewith, are exclusive, and are given in lieu of all other representations and
warranties, express, implied or statutory.
ARTICLE 7
OPERATION OF THE ASSETS
Section 7.01 Operation of the Assets.
(a) From and after the date of execution of this Agreement, and
subject to the provisions of applicable operating and other agreements,
Seller shall (i) use its reasonable efforts during the period prior to
the Closing, to operate and administer the Assets in a manner
consistent with its past practices, (ii) make payment of all costs and
expenses attributable to the ownership or operation of the Assets and
relating to the period prior to the transfer of operations to Buyer,
and shall carry on its business with respect to the Assets in
substantially the same manner as before execution of this Agreement,
(iii) not, without Buyer's express written consent, commit to
participate in the drilling of any well, or make or enter into any
other commitments reasonably anticipated to require future capital
expenditures by Buyer in excess of $50,000 net to Seller's interest for
each proposed operation, or terminate, materially amend, or extend any
Contracts affecting the Assets, or enter into or commit to enter into
any new material contract or agreement relating to the Assets, or
settle, compromise or waive any material right relating to the Assets,
(iv) maintain insurance coverage on the Assets in the amounts and of
the types presently in force, (v) maintain in full force and effect the
Leases, the Surface Agreements and other Assets, and pay all costs and
expenses and perform all material obligations of the owner of the
Assets promptly when due, (vi) maintain all Permits, (vii) not
transfer, sell, hypothecate, encumber, or otherwise dispose of any
Assets except for sales and dispositions of Hydrocarbons made in the
ordinary course of business consistent with Seller's past practices,
(viii) not grant or create any preferential right to purchase, right of
first opportunity or other transfer restriction or requirement with
respect to the Assets except in connection with the renewal or
extension of Assets after the Effective Time if granting or creating
such right or requirement is a condition of such renewal or extension
and then with prompt written notice of such action to Buyer, (ix) not
elect to become a nonconsenting party in any operation proposed by any
other Person with respect to the Assets unless requested to do so in
writing by Buyer, (x) maintain the Equipment in at least as good a
condition as it is on the date hereof, ordinary wear and tear excepted,
(xi) not make any change in any method of accounting or accounting
practice or policy with respect to the Assets, and (xii) not agree to
extend any statute of limitations with respect to Taxes or any
extension of time with respect to a Tax assessment or deficiency for
any Taxes, or make any change in any Tax elections with respect to the
Assets.
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(b) Buyer acknowledges that Seller owns undivided interests in some
or all of the Assets, and Buyer agrees that the acts or omissions of
the other working interests owners shall not constitute a violation of
the provisions of this Article 7, nor shall any action required by a
vote of working interest owners constitute such a violation so long as
Seller has voted its interests in a manner that complies with the
provisions of this Article 7. Seller will, without penalty for the
failure to do so except to the extent that the failure to give Buyer
such notice has a Material Adverse Effect, notify Buyer of the
occurrence of such event to the extent of Seller's knowledge.
(c) Promptly upon its discovery or identification of same, but in
any event prior to Closing, Seller shall provide Buyer written notice
of any matter Seller identifies that has a material adverse effect on
or that constitutes a Breach of Seller's representations or warranties
under this Agreement.
Section 7.02 Buyer's Qualification. At Closing, Buyer shall be qualified and
shall meet all requirements, including bonding requirements, to be designated
operator of that portion of the Assets for which Seller serves as operator.
Section 7.03 Operation of the Assets after the Closing.
-----------------------------------------
(a) Seller shall not be obligated to continue operating any of the
Assets following the Closing, and, subject to Seller's retention of the
Retained Liabilities, Buyer hereby assumes full responsibility for
operating (or causing the operation of) all Assets following the
Closing for which Seller is the operator prior to the Closing Date.
Seller shall make its employees and contractors available to Buyer
prior to the Closing as may be reasonably necessary to assist in the
transition if Buyer becomes the operator. Seller does not warrant or
guarantee that Buyer will become the operator of the Assets or any
portion thereof, as such matter will be controlled by the applicable
joint operating agreement(s) and other applicable agreement(s). Without
implying any obligation on Seller's part to continue operating any
Assets after the Closing, if Seller elects, at its sole option, to
continue to operate any Assets following the Closing at the request of
Buyer, or by any third party working interest owner due to constraints
of applicable joint operating agreement(s) and other applicable
agreement(s), failure of a successor operator to take over operations,
or for other reasonable cause, such continued operation by Seller shall
be for the account of Buyer, and at the sole risk, cost and expense of
Buyer. Buyer agrees to release and defend, indemnify and hold Seller
and its Representatives harmless from Claims, including any Claims of
Buyer or its affiliates or successors and assigns relating in any
manner directly or indirectly to the operation of the Assets after
Closing (INCLUDING THOSE CLAIMS RESULTING FROM THE SOLE, JOINT OR
CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT),
STRICT LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER'S
REPRESENTATIVES).
(b) In consideration of any conduct of operations of the Assets by
Seller on behalf of Buyer after Closing, Buyer shall pay Seller a fee
equal to Two Hundred Dollars ($200.00) per month per Well, including
all other wells, such as, by way of example and not limitation, salt
water disposal wells, wells that are temporarily abandoned and wells
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that are otherwise inactive, as reimbursement for all general and
administrative overhead ("Overhead Fee") incurred by Seller in
connection with the conduct of operations of the Assets. In the event
Seller transfers operations to Buyer or its designee between the first
and last day of a calendar month, Seller shall be paid such amount of
the Overhead Fee prorated over the number of days in which Seller
conducted operations for such month. The amount of the Overhead Fee
owing to Seller by Buyer shall be paid upon the Final Settlement Date.
Section 7.04 Post Closing Accounting by Seller. In the event Seller agrees to
operate the Assets after Closing, Seller shall perform the following accounting
tasks subject to the limitations provide for herein:
(a) Seller will continue to pay royalties and severance, production
and similar Taxes for sales through the production month following the
month in which Closing occurs ("Post-Closing Production Month"). If any
revenue is received by Seller for later months, it will be credited to
Buyer in the Final Settlement Statement; provided however, Seller shall
not be obligated to and will not pay any royalties and severance,
production and similar Taxes, if applicable, with respect to
Hydrocarbons produced after the Post-Closing Production Month.
(b) Seller will continue to pay or bill joint interest owners for
expenses through the Post-Closing Production Month. All later expenses
will be either accumulated or charged to Buyer in the Final Settlement
Statement, or the invoices will be returned to the vendor for rebilling
to Buyer. Seller will continue to pay to the operator of any Assets not
operated by Seller for joint billings for the billing month after the
month in which Closing occurs. All subsequent bills will either be
returned to the applicable operator for rebilling to Buyer or forwarded
to Buyer for payment, or if already paid by Seller, will be charged
against Buyer in the Final Settlement Statement. Seller will continue
to prepare all regulatory and other monthly production reports through
the Post-Closing Production Month. Copies of such reports attributable
to the period after the Effective Time will be provided to Buyer, along
with the final ending inventory balance.
(c) Seller will continue to pay all shut-in royalties, minimum
royalties, delay rentals and other lease payment obligations through
the Post-Closing Production Month.
(d) Seller shall market and nominate all Hydrocarbons in the same
manner as Seller has been marketing and nominating Hydrocarbons.
Section 7.05 Limitations on Liability of Operator. Notwithstanding anything
herein to the contrary, in the event Seller or an affiliate of Seller should
assume any accounting functions on behalf of Buyer from and after Closing,
notwithstanding anything to the contrary provided herein, Seller shall have no
liability to Buyer for, and Buyer hereby agrees to release and defend, indemnify
and hold harmless Seller and Seller's Representatives harmless from, the
incorrect payment of expenses, Taxes, billings, delay rentals, royalties,
minimum royalties, payments required by any of the Leases, shut-in royalties or
similar payments, or for any failure to pay any such payments through mistake or
oversight (INCLUDING THOSE RESULTING FROM THE SOLE, JOINT OR CONCURRENT
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NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR
OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER'S REPRESENTATIVES) from and after
the Effective Time, except to the extent of any amounts included in the upward
Purchase Price Allocations and Adjustment made pursuant to Section 10.02. In no
event shall Buyer's remedy for Breach of obligations by Seller (or any of its
Representatives) under this Article 7 exceed the Allocated Value of the Subject
Interest affected by such Breach.
Section 7.06 Public Announcements. Prior to the Closing, neither Party shall
make any press release or other public announcement regarding the existence of
this Agreement, the contents hereof or the transactions contemplated hereby
other than the Press Releases set forth on Exhibit F-1 and F-2; provided,
however, the foregoing shall not restrict disclosures by Buyer or Seller which
are required by applicable securities or other Laws or the applicable rules of
any stock exchange having jurisdiction over the disclosing party or its
Affiliates. Following Closing, the Parties shall issue a Press Release in form
and substance to be agreed upon by the Parties prior to the Closing.
Section 7.07 Disclosure Information. Seller agrees (i) to provide Buyer with
Disclosure Information (as defined below) necessary for Buyer to comply with the
disclosure requirements of the Securities Exchange Act of 1934, as amended, and
Regulation S-X under the Securities Act of 1933, as amended, no later than
thirty (30) days following the Closing Date and (ii) reasonably to cooperate
with and assist Buyer in an audit of the Assets. As used herein, "Disclosure
Information" means, as to the Assets, the net revenues, direct operating
expenses (including production, property and similar Taxes), exploratory and
development costs, production volumes, information necessary for the preparation
of the disclosures required under Statement of Financial Accounting Standards
No. 69, and balance sheet and other income statement data associated directly
with the Assets that Buyer reasonably believes are required to be included in
any report filed by Buyer or any of its Affiliates with the Securities and
Exchange Commission ("SEC"). If Seller shall fail to furnish Buyer with a set of
the Disclosure Information within the 30 day period set forth in this Section
7.07 which Seller reasonably believes in its good faith judgment allows Buyer to
substantially comply with the rules and regulations of the SEC and such
compliance reasonably requires Buyer's reliance on the Disclosure Information,
Seller shall pay to Buyer the sum of One Hundred Thousand Dollars ($100,000) as
liquidated damages for this failure to provide the Disclosure Information to
Buyer as required by this Section 7.07. If Seller shall fail to furnish Buyer
with a set of the Disclosure Information which Seller reasonably believes in its
good faith judgment allows Buyer to substantially comply with the rules and
regulations of the SEC and such compliance reasonably requires Buyer's reliance
on the Disclosure Information, for an additional period of 30 days beyond the
previously stated 30-day period, Seller shall pay to Buyer the additional sum of
Five Hundred Thousand Dollars ($500,000) as liquidated damages for such Breach.
The Parties agree that the damages attributable to any Breach as described in
this Section 7.07 would be difficult, if not impossible to ascertain, and that
the amounts set forth herein are reasonable under the circumstances and do not
constitute a penalty.
The fact that the SEC subjects any filing by Buyer to review or supplementation
shall not create any presumption of a Breach by Seller of its obligations as
contained in this Section 7.07. Seller shall have no liability to Buyer
whatsoever with regard to either (i) any registration rights agreement or
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obligation involving Buyer, or (ii) the pricing, salability, market response, or
any other matter relating to the issuance or sale of any security by or on
behalf of Buyer.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions provided for
herein are subject, at the option of Seller, to the fulfillment on or prior to
the Closing Date of each of the following conditions:
Section 8.01 Representations. The representations and warranties of Buyer herein
contained shall be true and correct in all material respects on the Closing Date
as though made on and as of such date;
Section 8.02 Performance. Buyer shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or complied
with by it at or prior to the Closing and shall have taken the actions set forth
in Section 10.08; and
Section 8.03 Pending Matters. No suit, action or other proceeding shall be
pending or threatened that seeks to, or could reasonably result in a judicial
order, judgment or decree that would, restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transaction provided for
herein are subject, at the option of Buyer, to the fulfillment on or prior to
the Closing Date of each of the following conditions:
Section 9.01 Representations. (a) The representations and warranties of Seller
contained in Section 5.02 through Section 5.06, inclusive, shall be true and
correct in all material respects on the Closing Date as though made on and as of
such date, and (b) no action or omission of Seller or event shall have occurred
during the period of time commencing upon the expiration of the Title Claim Date
and ending on the Closing Date which shall have caused any of the
representations and warranties of Seller contained in Section 5.07 through
Section 5.23, inclusive, not to be true and correct in all material respects on
the Closing Date as though made on and as of such date;
Section 9.02 Performance. Seller shall have performed all material obligations,
covenants and agreements contained in this Agreement to be performed or complied
with by it at or prior to the Closing and shall have taken the actions set forth
in Section 10.07;
Section 9.03 Pending Matters. No suit, action or other proceeding shall be
pending or threatened that seeks to, or could reasonably result in a judicial
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order, judgment or decree that would, restrain, enjoin, or otherwise prohibit
the consummation of the transactions contemplated by this Agreement; and
Section 9.04 Wachovia Liens. Seller shall have delivered to Buyer releases of
all Wachovia Liens and any other liens, charges or encumbrances on the Assets
other than Permitted Encumbrances in form suitable for recording or filing (as
applicable) and such releases shall be reasonably satisfactory to Buyer.
ARTICLE 10
THE CLOSING
Section 10.01 Time and Place of the Closing. If the conditions referred to in
Article 8 and Article 9 have been satisfied or waived in writing, the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Seller at 9:00 a.m. MST on January 31, 2008 (the "Closing Date").
Section 10.02 Allocation of Costs and Expenses and Adjustments to Purchase Price
at the Closing.
(a) At the Closing, the Purchase Price shall be increased by the
following amounts:
(i) the amount of all (A) paid ad valorem, property or similar
Taxes and assessments based upon or measured by the ownership of
the Assets, insofar as such Taxes relate to periods of time from
and after the Effective Time, and (B) paid charges, and costs and
expenses of any kind or nature that are attributable to the Assets
and the period from and after Effective Time;
(ii) all expenses, including operating and capital
expenditures, incurred and paid by or on behalf of Seller in
connection with ownership, operation and use of the Assets
attributable to the period from and after the Effective Time, and
including the costs incurred in connection with the AFEs described
on Schedule 5.08 which costs shall be the responsibility of Buyer
notwithstanding that they may have accrued prior to the Effective
Time;
(iii) all royalties, rentals, insurance premiums (including
property and business interruption coverage) and other charges
attributable to the Assets for the period of, from and after the
Effective Time to the extent paid by or on behalf of Seller;
(iv) expenses incurred under applicable operating agreements
including any overhead charges allowable under the applicable
operating procedure (COPAS) where Seller is non-operator
attributable to the Assets for the period of from and after the
Effective Time to the extent paid by or on behalf of Seller (the
costs and expenses for which Seller shall receive an upward
adjustment to the Purchase Price pursuant to clauses (i) through
(iv) inclusive, shall be referred to as the "Interim Operating
Expenses");
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(v) all upward Purchase Price adjustments for Title Benefits
determined in accordance with Article 4;
(vi) the value of all oil, gas and natural gas liquids in
storage or in the pipelines as of the Effective Time that is
credited to the Assets, such value (A) for purposes of the
Statement, to be the actual price received for such oil, gas or
natural gas liquids upon the first unaffiliated third party sale
thereof, if available, and upon such estimates as are reasonably
agreed upon by the Parties, to the extent actual amounts are not
known at Closing, and (B) for purposes of the Final Settlement
Statement, to be based upon actual amounts; and
(vii) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Seller.
(b) At the Closing, the Purchase Price shall be decreased by the
following amounts:
(i) the Deposit;
(ii) an amount equal to the sales price paid to Seller by the
first purchaser of the Hydrocarbons produced, saved and sold from
the Subject Interests from the Effective Time to the Closing Date
(without deductions of any kind or nature, including, but not
limited to, royalties and any Taxes based on production), which
shall (A) for purposes of the Statement, be based upon actual
amounts, if available, and upon such estimates as are reasonably
agreed upon by the Parties, to the extent actual amounts are not
known at Closing, and (B) for purposes of the Final Settlement
Statement, be based upon actual amounts;
(iii) an amount equal to all cash in, or attributable to,
suspense accounts held by Seller relating to the Assets for which
Buyer has assumed responsibility under Section 12.01;
(iv) the Allocated Value of any Asset sold prior to the Closing
to the holder of a preferential right pursuant to Section 4.06;
(v) the Allocated Value of any Asset excluded from the purchase
and sale contemplated herein pursuant to the provisions of Article
4;
(vi) all downward Purchase Price Adjustments for Title Defects
and Environmental Defects determined in accordance with Article 4;
and
(vii) any other amount provided for in this Agreement or agreed
upon in writing by Buyer and Seller.
(c) The allocations of costs and expenses and/or adjustments
described in Section 10.02(a) and Section 10.02(b) are referred to
herein as the "Purchase Price Allocations and Adjustments."
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Section 10.03 Closing Adjustments and Allocations Statement. Not later than
three (3) business days prior to the Closing Date, Seller shall prepare and
deliver to Buyer a statement of the estimated Purchase Price Allocations and
Adjustments with appropriate support (the "Statement"), which Statement shall be
based upon the then most currently available data and information in order to
make the adjustments as provided in Section 10.02.
Section 10.04 Post-Closing Allocations and Adjustments to Purchase Price.
(a) On or before 120 days after the Closing Date, Seller shall
prepare and deliver to Buyer a revised Statement ("Final ------
Settlement Statement") setting forth the actual Purchase Price
Allocations and Adjustments. Each Party shall provide the other such
data and information as may be reasonably requested to permit Seller to
prepare the Final Settlement Statement or to permit Buyer to perform or
cause to be performed an audit of the Final Settlement Statement. The
Final Settlement Statement shall become final and binding upon the
parties on the thirtieth (30th) day following receipt thereof by Buyer
(the "Final Settlement Date") unless Buyer gives written notice of its
disagreement (a "Notice of Disagreement") to Seller prior to such date.
Any Notice of Disagreement shall specify in reasonable detail the
dollar amount and the nature and basis of any disagreement so asserted.
If a Notice of Disagreement is received by Seller in a timely manner,
then the Parties shall resolve the dispute evidenced by the Notice of
Disagreement by mutual agreement, or otherwise in accordance with
Section 4.13.
(b) If the amount of the adjusted Purchase Price as set forth on
the Final Settlement Statement exceeds the amount of the estimated
Purchase Price paid at the Closing, then Buyer shall pay in immediately
available funds to Seller the amount by which the Purchase Price as set
forth on the Final Settlement Statement exceeds the amount of the
estimated Purchase Price paid at the Closing within five (5) business
days after the Final Settlement Date. If the amount of the adjusted
Purchase Price as set forth on the Final Settlement Statement is less
than the amount of the estimated Purchase Price paid at the Closing,
then Seller shall pay in immediately available funds to Buyer the
amount by which the Purchase Price as set forth on the Final Settlement
Statement is less than the amount of the estimated Purchase Price paid
at the Closing within five (5) business days after the Final Settlement
Date.
(c) Pursuant to Section 10.02(b), the Purchase Price is to be
reduced by the value of Hydrocarbons produced during the period from
the Effective Time to the Closing Date. If Buyer shall receive any
revenues attributable to such Hydrocarbons for any reason for which
Buyer has received a reduction in the Purchase Price pursuant to this
Section 10.04(c), Buyer shall promptly remit same in immediately
available funds to Seller. Likewise, if Seller shall for any reason
receive any of the proceeds of sale of Hydrocarbons produced and saved
from the Subject Interests and attributable to the period from and
after the Closing Date or any other revenues attributable to the
ownership or operation of the Assets from and after the Effective Time,
Seller shall promptly remit same in immediately available funds to
Buyer.
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(d) Except as otherwise provided in this Agreement, any costs and
expenses, including Taxes (other than income taxes) relating to the
Assets which are not reflected in the Final Settlement Statement shall
be treated as follows:
(i) All costs and expenses relating to the Assets for the
period of time prior to the Effective Time shall be the sole
obligation of Seller and Seller shall promptly pay, or if paid by
Buyer, promptly reimburse Buyer in immediately available funds for
and indemnify, defend, and hold Buyer harmless from and against the
same; and
(ii) All costs and expenses relating to the Assets for which
Buyer is responsible (being those incurred on or after the
Effective Time) shall be the sole obligation of Buyer and Buyer
shall promptly pay, or if paid by Seller, promptly reimburse Seller
in immediately available funds for and indemnify, defend and hold
Seller harmless from and against the same.
(e) Purchase Price adjustments, if any, with respect to Title
Defects or Environmental Defects the cure or correction of which or a
dispute with respect to the same remains pending on the Final
Settlement Date shall be made on a date mutually agreed by the Parties,
both acting reasonably.
Section 10.05 Transfer Taxes. All sales, use, documentary, recording, stamp,
transfer and other taxes (other than taxes on gross income, net income or gross
receipts) and duties, levies, assessments, fees or other governmental charges
incurred by or imposed with respect to the property transfers undertaken
pursuant to this Agreement shall be the responsibility of, and shall be paid by,
Buyer. The Parties will reasonably cooperate to eliminate or reduce the
assessment of sales or use taxes to the extent permitted by applicable Law. If
Seller (not Buyer) is required by applicable Law to appeal or protest the
assessment of sales or use taxes, Seller shall protest the assessment of those
taxes if Buyer requests Seller in writing to make such appeal or protest, and,
in such event, Buyer will reimburse Seller all out-of-pocket expenses authorized
by Buyer and incurred by Seller in connection with such appeal or protest.
Section 10.06 Ad Valorem and Similar Taxes. All ad valorem, property,
production, severance and similar Taxes attributable to any period prior to the
Effective Time will be paid by the Seller. All ad valorem, property, production,
severance and similar Taxes attributable to any period on or after the Effective
Time shall be paid by Buyer. Notwithstanding anything to the contrary set forth
in this Agreement, for all purposes of this Agreement, Taxes based on or
measured by production of Hydrocarbons or the value thereof shall be deemed
attributable to the period during which such production occurred regardless of
the year when such Taxes are assessed. Seller shall provide written evidence to
Buyer that it has paid all Taxes for periods prior to the Effective Time that
are payable after the Effective Time including ad valorem Taxes in the state of
Colorado and production Taxes in the state of Wyoming payable in 2009 provided
such Taxes are based on production occurring prior to the Effective Time.
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Section 10.07 Actions of Seller at the Closing. At the Closing, Seller shall:
(a) execute, acknowledge and deliver to Buyer the Assignment in the
form of Exhibit E, effective as of the Effective Time, and such other
conveyances, assignments, transfers, bills of sale and other
instruments (in form and substance mutually agreed upon by Buyer and
Seller) as may be necessary or desirable to convey the Assets to Buyer;
(b) execute, acknowledge and deliver to Buyer such letters in lieu
of transfer or division orders as may be reasonably requested by Buyer
no less than five (5) business days prior to the Closing Date directing
all purchasers of production from the Subject Interests to make payment
of proceeds attributable to such production to Buyer from and after the
later of the Closing Date or the date operations and accounting
functions are transferred to Buyer;
(c) deliver to Buyer possession of the Assets (excluding the
Records);
(d) execute and deliver to Buyer an affidavit attesting to its
non-foreign status;
(e) execute and deliver the Seismic License in form and substance
reasonably satisfactory to Buyer;
(f) execute, acknowledge and deliver any other agreements provided
for herein or necessary or desirable to effectuate the transactions
contemplated hereby; and
(g) execute and deliver any documents or instruments required by
any Governmental Authority in order to transfer the operatorship of the
Assets being operated by Seller to Buyer.
Section 10.08 Actions of Buyer at the Closing. At the Closing, Buyer shall:
(a) pay the Purchase Price (as adjusted pursuant to the provisions
hereof) in immediately available funds pursuant to wire transfer
instructions to be provided by Seller to Buyer;
(b) take possession of the Assets; and
(c) execute, acknowledge and deliver the Assignment and any other
agreements provided for herein or necessary or desirable to effectuate
the transactions contemplated hereby.
Section 10.09 Recordation; Further Assurances.
(a) Promptly following the Closing, Buyer shall cause the documents
identified in Section 9.04 and Section 10.07(a) to be recorded or filed
in the appropriate real property and other applicable records, in the
order reasonably agreed upon by the Parties, and Buyer shall promptly
provide Seller copies of all such recorded or filed instruments.
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(b) Subject to such additional period of time that Seller
reasonably requires to use the Records in the conduct of operations
after Closing, Seller shall make the Records available to be picked up
by Buyer at the offices of Seller during normal business hours within
thirty (30) days after the Closing, to the extent the Records are in
the possession of Seller and are not subject to contractual
restrictions on transferability. Seller shall have the right at its
sole expense to make and retain copies of any of the Records.
(c) After the Closing Date, each Party, at the request of the other
Party and without additional consideration, shall execute and deliver,
or shall cause to be executed and delivered, from time to time such
further instruments of conveyance and transfer and shall take such
other action as the other Party may reasonably request to convey and
deliver the Assets to Buyer and to accomplish the orderly transfer of
the Assets to Buyer in the manner contemplated by this Agreement. After
the Closing, the Parties will cooperate to have all proceeds received
attributable to the Assets to be paid to the proper Party hereunder and
to have all expenditures to be made with respect to the Assets be made
by the proper Party hereunder.
ARTICLE 11
TERMINATION
Section 11.01 Right of Termination. This Agreement may be terminated at any time
at or prior to the Closing:
(a) by mutual written consent of the Parties;
(b) by Seller on the Closing Date if the conditions set forth in
Article 8 have not been satisfied in all material respects by Buyer or
waived by Seller in writing by the Closing Date;
(c) by Buyer on the Closing Date if the conditions set forth in
Article 9 have not been satisfied in all material respects by ---------
Seller or waived by Buyer in writing by the Closing Date;
(d) by either Buyer or St. Mary if the Closing shall not have
occurred by February 15, 2008;
(e) by either Buyer or St. Mary if any Governmental Authority shall
have issued a final and non-appealable order, judgment or decree or
taken any other final and non-appealable action challenging,
restraining, enjoining, prohibiting or invalidating the consummation of
any of the transactions contemplated herein;
(f) by either Buyer or St. Mary if (i) the aggregate amount of the
Title Defect Values with respect to all Title Defects asserted by Buyer
reasonably and in good faith (net of the aggregate amount of the
Purchase Price Adjustments for all Title Benefits) plus (ii) the
aggregate amount of the Environmental Defect Values with respect to all
Environmental Defects asserted by Buyer reasonably and in good faith
38
plus (iii) the aggregate amount of all Casualty Losses exceeds twenty
percent (20%) of the unadjusted Purchase Price;
(g) by either Buyer or St. Mary if between execution of this
Agreement and Closing, an event should occur having a Material Adverse
Effect on the ownership, operation or value of the Assets; or
(h) as otherwise provided herein.
provided, however, that no Party shall have the right to terminate this
Agreement pursuant to clause (b), (c), or (d) above if such Party is at such
time in Breach of any provision of this Agreement, or such Party instigates a
proceeding of the nature described in Section 8.03 or Section 9.03.
Section 11.02 Effect of Termination. In the event that the Closing does not
occur as a result of any Party exercising its right to terminate pursuant to
Section 11.01, then except as set forth in Section 2.02, this Agreement shall be
null and void and no Party shall have any further rights or obligations under
this Agreement; provided, that, nothing herein shall relieve any Party from any
liability for any Breach hereof or any liability that has accrued prior to the
date of such termination, which liability, and the applicable terms and
provisions of this Agreement, shall survive such termination.
Section 11.03 Attorneys' Fees, Etc. If either Party to this Agreement resorts to
legal proceedings to enforce this Agreement, the prevailing Party in such
proceedings shall be entitled to recover all costs incurred by such Party,
including reasonable attorneys' fees, in addition to any other relief to which
such Party may be entitled.
ARTICLE 12
ASSUMPTION AND INDEMNIFICATION
Section 12.01 Buyer's Obligations after Closing. Upon and after Closing, except
to the extent reflected in an upward Purchase Price Allocations and Adjustments,
Buyer will assume and perform all the obligations, liabilities and duties
relating or with respect to the ownership and/or operation of the Assets that
are attributable to periods on or after the Effective Time, together with the
Plugging and Abandonment Obligations, the Environmental Obligations, and all
other obligations assumed by Buyer under this Agreement (collectively, the
"Assumed Obligations"). Without limiting the generality of the foregoing, the
Assumed Obligations shall also specifically include:
(a) Responsibility for the performance of all express and implied
obligations under the instruments described in Exhibit A, together with
all other instruments in the chain of title to such Assets, the Leases,
the Contracts, the Surface Agreements, the Permits and all other
orders, contracts and agreements to which the Assets are subject,
including the payment of royalties and overriding royalties, in each
case to the extent attributable to the periods on or after the
Effective Time;
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(b) Responsibility for payment of all amounts held in suspense
accounts by Seller as of the Closing Date, and for which the Purchase
Price is adjusted pursuant to Section 10.02(b), without regard to
whether such suspense amounts relate to periods before or after the
Effective Time. Seller covenants and agrees to provide to Buyer with
the Records, the owner name, number and tax identification number (if
known by Seller), the reason such amounts are in suspense, the amount
of suspense funds for each such owner making up the total of such
funds, and all other information with respect thereto required to be
provided to the owner or to the state under the laws, rules and
regulations of the affected jurisdiction. To the extent practicable,
Seller shall provide such information in the electronic or computer
sensible form maintained by Seller. Seller shall remain responsible for
the payment of any statutory interest and penalties which may have
accrued prior to the Effective Time with respect to such suspense
amounts, whether payable to the interest owner or to any state agency
in connection with unclaimed property laws, to the extent such interest
and penalties are not included in the amount deducted from the Purchase
Price pursuant to Section 10.02(b);
(c) Responsibility for compliance with all Laws now or hereafter in
effect pertaining to the Assets, and the procurement and maintenance of
all permits, consents and authorizations of or required by Governmental
Authorities in connection with the Assets, attributable to periods on
or after the Effective Time; and
(d) Responsibility for all obligations with respect to Production
Imbalances attributable to the Assets, whether attributable to periods
before or after the Effective Time.
Section 12.02 Seller's Obligations after Closing. After Closing, each Party
comprising Seller will severally, and not jointly, retain responsibility for (a)
the payment of all operating expenses and capital expenditures related to the
Assets and attributable to Seller's ownership and/or operation of the Assets
prior to the Effective Time, but not including the AFEs set forth in Schedule
5.08, (b) severance, ad valorem, production, property, personal property and
similar Taxes measured by the value of the Assets or measured by the production
of Hydrocarbons attributable to all periods from and after the effective date of
Seller's ownership of the Assets and prior to the Effective Time, (c) the
payment of all broker's and finder's fees in connection with the transactions
contemplated by this Agreement, (d) the obligations, liabilities and duties of
Seller relating or with respect to the ownership and/or operation of the Assets
that are attributable to periods prior to the Effective Time other than the
Plugging and Abandonment Obligations and the Environmental Obligations, and (e)
Seller's proportionate share of any third party Claims with respect to payments
of lease royalties in respect of the Leases during Seller's period of ownership
of such Leases (collectively the "Retained Obligations").
Section 12.03 Plugging and Abandonment Obligations.
(a) Buyer's Obligations. Provided Closing occurs and to the extent
not otherwise addressed by the express provisions of this Agreement,
Buyer assumes full responsibility and liability for the following
plugging and abandonment obligations related to the Assets (the
"Plugging and Abandonment Obligations"), regardless of whether they are
40
attributable to the ownership or operation of the Assets before or
after the Effective Time:
(i) The necessary and proper plugging, replugging and
abandonment of all wells on the Assets, whether plugged and
abandoned before or after the Effective Time in compliance with
applicable Laws and the terms of the Leases;
(ii) The necessary and proper decommissioning, removal,
abandonment, and disposal of all structures, pipelines, facilities,
equipment, abandoned Assets, junk and other personal property
located on or comprising any part of the Assets in compliance with
applicable Laws and the terms of the Leases;
(iii) The necessary and proper capping and burying of all
associated flow lines located on or comprising any part of the
Assets, to the extent required by applicable Laws, the Leases, the
Contracts, or other agreements;
(iv) The necessary and proper restoration of the Assets, both
surface and subsurface, in compliance with any applicable Laws, the
Leases, the Surface Agreements, the Contracts, or any other
applicable agreements;
(v) To the extent not addressed by operation of Article 4, any
necessary clean-up or disposal of any part of the Assets
contaminated by NORM, asbestos containing materials, lead based
paint or any other substances or materials considered to be
hazardous under Laws, including Environmental Laws, and Laws
relating to the protection of natural resources;
(vi) All obligations arising from contractual requirements and
demands made by Governmental Authorities or parties claiming a
vested interest in any part of the Assets; and
(vii) Obtaining and maintaining all bonds and securities,
including supplemental or additional bonds or other securities,
that may be required by contract or by Governmental Authorities.
(b) Standard of Operations. Buyer shall conduct all Plugging and
Abandonment Obligations and all other operations with respect to the
Assets in a good and workmanlike manner and in compliance with all
Laws, including Environmental Laws and Laws (now or hereafter in
effect) relating to the protection of natural resources.
Section 12.04 Environmental Obligations. Provided Closing occurs and to the
extent not otherwise addressed by the express provisions of this Agreement,
Buyer assumes full responsibility and liability for the following occurrences,
events, conditions and activities on, or related to, or attributable to Seller's
ownership or operation of the Assets (the "Environmental Obligations")
regardless of whether arising from Seller's ownership or operation of, or
relating to, the Assets before or after the Effective Time, and regardless of
whether resulting from any acts or omissions of Seller or its Representatives
(INCLUDING THOSE ARISING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT
41
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT
OF SELLER OR ANY OF SELLER'S REPRESENTATIVES) or the condition, including the
environmental condition of the Assets when acquired:
(a) Environmental pollution or contamination, including pollution
or contamination of the soil, groundwater or air by Hydrocarbons,
drilling fluid and other chemicals, brine, produced water, NORM,
asbestos containing materials, lead based paint, mercury or any other
substance, and any other violation of Environmental Laws or Laws now or
hereafter in effect relating to the protection of natural resources;
(b) Underground injection activities and waste disposal;
(c) Clean-up responses, and the cost of remediation, control,
assessment or compliance with respect to surface and subsurface
pollution caused by spills, pits, ponds, lagoons or storage tanks;
(d) Failure to comply with applicable land use, surface
disturbance, licensing or notification requirements;
(e) Disposal on the Assets of any hazardous substances, wastes,
materials and products generated by or used in connection with the
ownership, development, operation or abandonment of any part of the
Assets; and
(f) Non-compliance with Environmental Laws (now or hereafter in
effect).
Section 12.05 Definition of Claims. Except as expressly provided in Section
4.09(a)(ix) and Section 7.03(a) that specifically operate to include Buyer, the
term "Claims" means any and all direct or indirect, demands, claims, notices of
violation, notices of probable violation, filings, investigations,
administrative proceedings, actions, causes of action, suits, other legal
proceedings, judgments, assessments, damages, deficiencies, Taxes, penalties,
fines, obligations, responsibilities, liabilities, payments, charges, losses,
costs, and expenses (including costs and expenses of operating the Assets) of
any kind or character asserted by a third party (whether or not asserted prior
to Closing, and whether known or unknown, fixed or unfixed, conditional or
unconditional, based on negligence, strict liability or otherwise, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent, or other legal theory), including penalties and interest on any
amount payable as a result of any of the foregoing, any legal or other costs and
expenses incurred in connection with investigating or defending any Claim, and
all amounts paid in settlement of Claims. Without limiting the generality of the
foregoing, the term "Claims" specifically includes any and all Claims arising
from, attributable to or incurred in connection with any (a) breach of contract,
(b) loss or damage to property, injury to or death of persons, and other
tortuous injury and (c) violations of applicable Laws, including Laws relating
to the protection of natural resources, Environmental Laws (each as now or
hereafter in effect) and any other legal right or duty actionable at law or
equity.
42
Section 12.06 Application of Indemnities.
(a) All indemnities set forth in this Agreement extend to the
officers, directors, partners, managers, members, shareholders, agents,
contractors, employees and affiliates of the indemnified party
("Representatives").
(b) UNLESS THIS AGREEMENT EXPRESSLY PROVIDES TO THE CONTRARY, THE
INDEMNITY AND RELEASE, AND WAIVER AND ASSUMPTION PROVISIONS SET FORTH
IN THIS AGREEMENT APPLY, REGARDLESS OF WHETHER THE INDEMNIFIED PARTY
(OR ITS REPRESENTATIVES) CAUSES, IN WHOLE OR PART, AN INDEMNIFIED
CLAIM, INCLUDING INDEMNIFIED CLAIMS ARISING OUT OF OR RESULTING, IN
WHOLE OR IN PART, FROM, OUT OF OR IN CONNECTION WITH THE CONDITION OF
THE ASSETS OR THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT
SECURITIES FRAUD CLAIMS THAT REQUIRE SCIENTER OR KNOWLEDGE AS ONE
ELEMENT OF THE CAUSE OF ACTION, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR
FRAUD BY THE INDEMNIFIED PARTY), STRICT LIABILITY OR OTHER LEGAL FAULT
OF THE INDEMNIFIED PARTY OR ANY OF ITS REPRESENTATIVES.
(c) NEITHER BUYER NOR SELLER SHALL BE ENTITLED TO RECOVER FROM THE
OTHER PARTY, RESPECTIVELY, AND EACH PARTY RELEASES THE OTHER PARTY FROM
AND WAIVES, ANY LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS
AGREEMENT OR IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL
COMPENSATORY DAMAGES SUFFERED BY SUCH PARTY EXCEPT THAT IF THE DISPUTE
BETWEEN SELLER AND BUYER IS BASED ON A FAILURE OF THE TRANSACTION
CONTEMPLATED HEREBY TO CLOSE, THE SOLE AND EXCLUSIVE REMEDIES SHALL BE
THOSE PROVIDED FOR IN SECTION 2.02. BUYER AND SELLER WAIVE, AND RELEASE
EACH OTHER FROM ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY AND
CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT; PROVIDED, HOWEVER, ANY
SUCH DAMAGES RECOVERED BY A THIRD PARTY (OTHER THAN SUBSIDIARIES,
AFFILIATES OR PARENTS OF A PARTY) FOR WHICH A PARTY OWES THE OTHER
PARTY AN INDEMNITY UNDER THIS AGREEMENT SHALL NOT BE WAIVED. BUYER AND
SELLER ACKNOWLEDGE THAT THIS STATEMENT IS CONSPICUOUS.
(d) The indemnities of the indemnifying Party in this Agreement do
not cover or include any amounts that the indemnified party may legally
recoup from other third party owners under applicable joint operating
agreements or other agreements, and for which the indemnified party is
reimbursed by any third party. The indemnifying Party will pay all
costs incurred by the indemnified party in obtaining reimbursement from
43
third parties. There will be no upward or downward adjustment in the
Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.
Section 12.07 Buyer's Indemnity. Buyer shall release and indemnify, defend and
hold Seller and its Representatives harmless from and against any and all Claims
caused by, resulting from or incidental to the Assumed Obligations, and any
Claims caused by, resulting from or attributable to (a) any inaccuracy of any
representation or warranty of Buyer set forth in this Agreement, or (b) any
Breach of, or failure to perform or satisfy any of the covenants and obligations
of Buyer hereunder.
Section 12.08 Seller's Indemnity. Subject to Section 12.10, Seller shall release
and indemnify, defend and hold Buyer and its Representatives harmless from and
against any and all Claims caused by, resulting from or incidental to the
Retained Obligations, and any Claims caused by or resulting from or attributable
to (a) the Breach of any representation or warranty of Seller set forth in
Section 5.04 of this Agreement, and (b) any Breach of, or failure to perform or
satisfy, any of the covenants and obligations of Seller hereunder.
Section 12.09 Notices and Defense of Indemnified Claims. Each Party shall
immediately notify the other Party of any Claim of which it becomes aware and
for which it is entitled to indemnification from the other Party under this
Agreement. The indemnifying Party shall be obligated to defend, at the
indemnifying Party's sole expense, any litigation or other administrative or
adversarial proceeding against the indemnified Party relating to any Claim for
which the indemnifying Party has agreed to release and indemnify and hold the
indemnified Party harmless under this Agreement; provided, however, that the
failure to give such notice shall not relieve the indemnifying Party from its
obligations unless such failure to give notice actually prejudices the
indemnifying Party and so long as the notice is given within the period set
forth in Section 12.10. The indemnified Party shall have the right to
participate with the indemnifying Party in the defense of any such Claim at its
own expense.
Section 12.10 Survival. Except as specifically provided in Section 12.07 and
Section 12.08, the representations, warranties, covenants and agreements of the
Parties set forth herein shall not survive the Closing, and the consummation of
the transactions contemplated hereby, and Buyer and Seller each covenant not to
sue the other based upon any alleged Breach of any such representations or
warranties that do not survive the Closing. The indemnity of Seller as provided
in Section 12.08 shall survive only for a period of twenty-four (24) months
after the Closing. Notwithstanding anything to the contrary, Buyer shall not be
entitled to make, and hereby waives the right to assert, any claim for indemnity
pursuant to the provisions of this Article 12 against Seller unless Buyer seeks
indemnification for such claim by a written notice received by Seller on or
before the date that is twenty-four (24) months after the Closing Date (the
"Expiration Date"). Anything in this Agreement to the contrary notwithstanding,
after the Expiration Date, all of the Retained Liabilities and all of Seller's
other liabilities and obligations with respect to the Assets (and all Claims
with respect thereto) shall be deemed and constitute Assumed Obligations except
to the extent of any Claims of which Buyer notifies Seller on or before the
Expiration Date in accordance with this Agreement.
Section 12.11 Exclusive Remedy. The terms and provisions of this Article 12 and
those provided in Article 2, Article 4, Article 7, Article 8, Article 9, Article
10, and Article 11 shall be the sole and exclusive remedy of each of the Parties
44
indemnified hereunder with respect to the representations, warranties, covenants
and agreements of the Parties set forth in this Agreement and the other
documents executed and delivered hereunder; provided, however, that the terms of
this Section 12.11 shall not be applicable to the extent that a Party has
committed fraud, securities fraud (where one of the elements of the cause of
action is scienter or knowledge), willful misconduct, or gross negligence.
Section 12.12 Defenses and Counterclaims. Each Party that is required to assume
any obligation or liability of the other Party pursuant to this Agreement or
that is required to release and defend, indemnify or hold the other Party
harmless hereunder shall, notwithstanding any other provision hereof to the
contrary, be entitled to the use and benefit of all defenses (legal and
equitable) and counterclaims of such other Party in defense of third party
Claims arising out of any such assumption or indemnification.
Section 12.13 Anti-Indemnity Statute. Buyer and Seller agree that with respect
to any statutory limitations now or hereafter in effect affecting the validity
or enforceability of the indemnities provided for in this Agreement, such
indemnities shall be deemed amended in order to comply with such limitations.
This provision concerning statutory limitations shall not apply to indemnities
for all liabilities of the indemnifying Party which are covered by such Party's
insurance.
ARTICLE 13
DISCLAIMERS; CASUALTY LOSS AND CONDEMNATION
Section 13.01 Disclaimers of Representations and Warranties. The express
representations and warranties of Seller contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied, at common law or statutory. BUYER ACKNOWLEDGES THAT SELLER HAS NOT
MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON
LAW, BY STATUTE OR OTHERWISE, RELATING TO (a) PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES, INFORMATION IN RESPECT OF PRODUCTION IMBALANCES OR
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY,
ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OR
SIGNIFICANCE OF ANY INFORMATION, DATA, GEOLOGICAL AND GEOPHYSICAL DATA
(INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED THEREON) OR OTHER MATERIALS
(WRITTEN OR ORAL) CONSTITUTING PART OF THE ASSETS, NOW, HERETOFORE OR HEREAFTER
FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, (c) THE CONDITION, INCLUDING, THE
ENVIRONMENTAL CONDITION OF THE ASSETS AND (d) THE COMPLIANCE OF SELLER'S PAST
PRACTICES WITH THE TERMS AND PROVISIONS OF ANY AGREEMENT IDENTIFIED IN EXHIBIT
A, OR ANY SURFACE AGREEMENT, PERMIT OR CONTRACT OR APPLICABLE LAWS, INCLUDING
ENVIRONMENTAL LAWS AND LAWS RELATING TO THE PROTECTION OF NATURAL RESOURCES,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE 5. NOTWITHSTANDING ANYTHING TO
45
THE CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY DISCLAIMS AND NEGATES, AND
BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY,
FIXTURES, BUILDINGS, OFFICES, TRAILERS, ROLLING STOCK, VEHICLES, AND GEOLOGICAL
AND GEOPHYSICAL DATA (INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED
THEREON) CONSTITUTING A PART OF THE ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY
OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY IMPLIED OR EXPRESS WARRANTY THAT ANY
DATA TRANSFERRED PURSUANT HERETO IS NONINFRINGING, (v) ANY RIGHTS OF PURCHASERS
UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (vi) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS,
WHETHER KNOWN OR UNKNOWN, (vii) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER
APPLICABLE LAWS, AND (viii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING
ENVIRONMENTAL LAWS, OR LAWS RELATING TO THE PROTECTION OF THE ENVIRONMENT,
HEALTH, SAFETY OR NATURAL RESOURCES OR RELATING TO THE RELEASE OF MATERIALS INTO
THE ENVIRONMENT, INCLUDING ASBESTOS CONTAINING MATERIAL, LEAD BASED PAINT OR
MERCURY AND ANY OTHER HAZARDOUS SUBSTANCES OR WASTES, IT BEING THE EXPRESS
INTENTION OF BUYER AND SELLER THAT THE ASSETS, INCLUDING ALL PERSONAL PROPERTY,
EQUIPMENT, FACILITIES, INVENTORY, MACHINERY, FIXTURES, BUILDINGS, OFFICES,
TRAILERS, VEHICLES AND ROLLING STOCK INCLUDED IN THE ASSETS, SHALL BE CONVEYED
TO BUYER, AND BUYER SHALL ACCEPT THE SAME, AS IS, WHERE IS, WITH ALL FAULTS AND
IN THEIR PRESENT CONDITION AND STATE OF REPAIR. BUYER REPRESENTS AND WARRANTS TO
SELLER THAT BUYER WILL MAKE, OR CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT
TO SUCH ASSETS AS BUYER DEEMS APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE
EXTENT REQUIRED BY APPLICABLE LAWS (INCLUDING ENVIRONMENTAL LAWS AND LAWS
RELATING TO THE PROTECTION OF NATURAL RESOURCES, HEALTH, SAFETY OR THE
ENVIRONMENT) TO BE EFFECTIVE, THE DISCLAIMERS OF THE WARRANTIES CONTAINED IN
THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR ALL PURPOSES.
Section 13.02 NORM. BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND
GAS PRODUCING FORMATIONS CAN CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL
("NORM"). SCALE FORMATION OR SLUDGE DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM
ON EQUIPMENT AND OTHER ASSETS. THE ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE
LEVELS OF NORM ABOVE BACKGROUND LEVELS, AND A HEALTH HAZARD MAY EXIST IN
CONNECTION WITH THE ASSETS BY REASON THEREOF. THEREFORE, BUYER MAY NEED TO AND
SHALL FOLLOW SAFETY PROCEDURES WHEN HANDLING THE EQUIPMENT AND OTHER ASSETS.
46
Section 13.03 Casualty Loss; Condemnation.
(a) Except as otherwise provided in this Agreement, Buyer shall
assume all risk of loss with respect to, and any change in the
condition of, the Assets from and after the Effective Time, including
with respect to the depletion of Hydrocarbons, the watering-out of any
well, the collapse of casing, sand infiltration of wells, and the
depreciation of personal property.
(b) Prior to the Closing, there shall not have been a material
adverse change in the Assets taken as a whole caused by an event of
casualty (a "Casualty"), including but not limited to, volcanic
eruptions, acts of God, fire, explosion, earthquake, wind storm, flood,
drought, condemnation, the exercise of any right of eminent domain,
confiscation, seizure, but excepting depletion due to normal production
and depreciation or failure of equipment or casing.
(c) If, prior to the Closing, a Casualty occurs (or Casualties
occur) which results in a reduction in the value of the Assets in
excess of fifteen percent (15%) of the Purchase Price ("Casualty
Loss"), Buyer or Seller may elect to terminate this Agreement. If this
Agreement is not so terminated, then this Agreement shall remain in
full force and effect notwithstanding any such Casualty Loss, and, at
Buyer's sole option, (i) Seller shall retain such Asset subject to such
Casualty and such Asset shall be the subject of an adjustment to the
Purchase Price in the same manner set forth in Section 4.03 hereof, or
(ii) at the Closing, Seller shall pay to Buyer all sums paid to Seller
by reason of such Casualty Loss, provided, however, that the Purchase
Price shall not be adjusted by reason of such payment, and Seller shall
assign, transfer and set over unto Buyer all of the right, title and
interest of Seller in and to such Asset and any unpaid awards or other
payments arising out of such Casualty Loss.
(d) For purpose of determining the value of a Casualty Loss, the
Parties shall use the same methodology as applied in determining the
value of a Title Defect as set forth in Section 4.03(a).
ARTICLE 14
MISCELLANEOUS
Section 14.01 Names. As soon as reasonably possible after the Closing, but in no
event later than 45 days after the Closing, Buyer shall remove the names of
Seller and its affiliates, and all variations thereof, from all of the Assets
and make the requisite filings with, and provide the requisite notices to, the
appropriate Governmental Authorities to place the title or other indicia or
responsibility of ownership, including operation of the Assets, in a name other
than the name of the Seller or any of its affiliates, or any variations thereof.
Section 14.02 Expenses. Each Party shall be solely responsible for all expenses,
including due diligence expenses, incurred by it in connection with this
transaction, and neither Party shall be entitled to any reimbursement for any
such expenses from the other Party.
47
Section 14.03 Document Retention. As used in this Section 14.03, the term
"Documents" shall mean all files, documents, books, records and other data
delivered to Buyer by Seller pursuant to the provisions of this Agreement (other
than those that Seller has retained either the original or a copy of), including
financial and tax accounting records; land, title and division order files;
contracts; engineering and well files; and books and records related to the
operation of the Assets prior to the Closing Date. Buyer shall retain and
preserve the Documents for a period of no less than seven (7) years following
the Closing Date (or for such longer period as may be required by Laws of any
Governmental Authority), and shall allow Seller or its representatives to
inspect the Documents at reasonable times and upon reasonable notice during
regular business hours during such time period. Seller shall have the right
during such period to make copies of any of the Documents at its expense.
Section 14.04 Entire Agreement. This Agreement, the documents to be executed and
delivered hereunder, and the Exhibits, Schedules and Appendices attached hereto
constitute the entire agreement between the Parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties pertaining to the
subject matter hereof; provided, however, that this Agreement does not supersede
that certain Confidentiality Agreement dated October 15, 2007, by and between
the St. Mary and Buyer, which agreement shall not survive the Closing. No
supplement, amendment, alteration, modification or waiver of this Agreement
shall be binding unless executed in writing by each of the Parties and
specifically referencing this Agreement.
Section 14.05 Waiver. No waiver of any provision of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
Section 14.06 Construction. The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
Section 14.07 No Third Party Beneficiaries. Except as provided in Section
12.06(a), nothing in this Agreement shall provide any benefit to any third party
or entitle any third party to any claim, cause of action, remedy or right of any
kind, it being the intent of the Parties that this Agreement shall otherwise not
be construed as a third party beneficiary contract.
Section 14.08 Assignment. Except as provided in Section 2.04, neither Party may
assign or delegate any of its rights or duties hereunder to any individual or
entity other than an affiliate of such Party without the prior written consent
of the other Party and any assignment made without such consent shall be void.
Except as otherwise provided herein, this Agreement shall be binding upon and
inure to the benefit of the Parties and their respective permitted successors,
assigns and legal representatives. Notwithstanding any assignment to an
affiliate, Buyer shall nevertheless remain liable to Seller in accordance with
the terms of this Agreement.
Section 14.09 Governing Law; Venue. This Agreement, the other documents
delivered pursuant hereto, and the legal relations between the Parties shall be
governed and construed in accordance with the laws of the State of Colorado. Any
litigation arising out of this Agreement shall be brought before the Federal
courts sitting in the City and County of Denver, Colorado, and the Parties
48
irrevocably waive any right to choose or request any other venue.
Section 14.10 Notices. Any notice, communication, request, instruction or other
document required or permitted hereunder (including notices of Title Defects and
Environmental Defects) shall be given in writing and delivered in person or sent
by U.S. Mail postage prepaid, return receipt requested, overnight delivery
service, electronically, or facsimile to the addresses of Seller and Buyer set
forth below. Any such notice shall be effective and deemed given only upon
receipt.
Seller: ST. MARY LAND & EXPLORATION COMPANY
1776 Lincoln Street, Suite 770
Denver, CO 80203
Attention: Jerry Hertzler
Fax No.: 303-861-0934
Tel. No.: 303-863-4348
Email: jhertzler@stmaryland.com
------------------------
With copy to: ST. MARY LAND & EXPLORATION COMPANY
1776 Lincoln Street, Suite 770
Denver, CO 80203
Attention: Milam Randolph Pharo
Fax No.: 303-861-0934
Tel. No.: 303-863-4313
Email: rpharo@stmaryland.com
---------------------
Buyer: ABRAXAS OPERATING, LLC
500 North Loop 1604 East
Suite 100
San Antonio, TX 78232
Attention: Barbara M. Stuckey
Fax No.: 210-490-8816
Tel. No.: 210-490-4788
Email: bstuckey@abraxaspetroleum.com
-----------------------------
With copy to: JACKSON WALKER L.L.P.
112 East Pecan Street
Suite 2400
San Antonio, TX 78205
Attention: Steven R. Jacobs
Fax No.: 210-978-7790
Tel. No.: 210-978-7727
Email: sjacobs@jw.com
--------------
49
Either Party may, by written notice so delivered to the other Party, change its
address for notice purposes hereunder.
Section 14.11 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect and the Parties shall negotiate in good faith to
modify this Agreement so as to effect their original intent as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
Section 14.12 Interpretation. This Agreement shall be deemed and considered for
all purposes to have been jointly prepared by the Parties, and shall not be
construed against any one Party (nor shall any inference or presumption be made)
on the basis of who drafted this Agreement or any particular provision hereof,
who supplied the form of Agreement, or any other event of the negotiation,
drafting or execution of this Agreement. Each Party agrees that this Agreement
has been purposefully drawn and correctly reflects its understanding of the
transaction that it contemplates. In construing this Agreement, the following
principles will apply:
(a) A defined term has its defined meaning throughout this
Agreement and each Exhibit and Schedule to this Agreement, regardless
of whether it appears before or after the place where it is defined.
(b) If there is any conflict or inconsistency between the
provisions of the main body of this Agreement and the provisions of any
Exhibit or Schedule hereto, the provisions of this Agreement shall take
precedence. If there is any conflict between the provisions of any
Assignment or other transaction documents attached to this Agreement as
an Exhibit and the provisions of any Assignment and other transaction
documents actually executed by the parties, the provisions of the
executed Assignment and other executed transaction documents shall take
precedence.
(c) Schedules and Exhibits referred to herein are hereby
incorporated and made a part of this Agreement for all purposes by such
reference.
(d) The omission of certain provisions of this Agreement from the
Assignment does not constitute a conflict or inconsistency between this
Agreement and the Assignment, and will not effect a merger of the
omitted provisions. To the fullest extent permitted by Laws, all
provisions of this Agreement are hereby deemed incorporated into the
Assignment by reference.
(e) The words "includes" and "including" and their derivatives
means "includes, but not limited to" or "including, but not limited
to," and corresponding derivative meanings.
(f) The Article, Section, Exhibit and Schedules references in this
Agreement refer to the Articles, Sections, Exhibits and Schedules of
this Agreement. The headings and titles in this Agreement are for
convenience only and shall have no significance in interpreting or
otherwise affect the meaning of this Agreement.
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(g) The terms "knowledge" or "knowingly," whether or not
capitalized, shall mean the actual knowledge of a Party's employees
who, as of Closing are in a supervisory capacity responsible for the
ownership and operation of the Assets and any material facts relating
thereto, after a due and diligent inquiry.
(h) The adjective, "material", whether or not capitalized, shall
mean a situation, circumstance, consequence or concept whose relevance
to the transactions contemplated by this Agreement as a whole is of
significance, and would not be considered a small or insignificant
deviation from the terms of this Agreement.
(i) The term "Material Adverse Effect" shall mean any defect,
condition, change or effect (other than with respect to which an
adjustment to the Purchase Price has been made) that when taken
together with all other such defects, conditions, changes and effects
significantly diminishes the value, use, operations or development of
the Assets, taken as a whole. Notwithstanding the foregoing, the
following shall not be considered in determining whether a Material
Adverse Effect has occurred:
(i) Fluctuations in commodity prices;
(ii) Changes in Laws or Environmental Laws; or
(iii) Changes in the oil and gas industry that do not have a
disproportionate impact on the ownership and operation of the
Assets.
(j) "Breach" shall mean any breach of, or any falsity or inaccuracy
in, any representation or warranty or any breach of, or failure to
perform or comply with, any covenant or obligation, in or of this
Agreement or any other contract, agreement or instrument contemplated
by this Agreement or any event which with the passing of time or the
giving or notice, of both, would constitute such a breach, inaccuracy,
or failure; provided that to constitute a Breach, such breach,
inaccuracy, or failure must be material to the subject matter regarding
which the Breach is asserted.
(k) "Tax" means all taxes and any other assessments, duties, fees,
levies or other charges imposed by a Governmental Authority based on or
measured by the value of the Assets ,the production of Hydrocarbons
,the receipt of proceeds with respect to such Assets or Hydrocarbons or
otherwise related in any manner or attributable to the Assets or the
production of Hydrocarbons including any production tax, windfall
profits tax, severance tax, personal property tax, real property tax or
ad valorem tax, together with any interest, fine or penalty thereon, or
addition thereto.
(l) The plural shall be deemed to include the singular, and vice
versa.
Section 14.13 Time of the Essence. Time shall be of the essence with respect to
all time periods and notice periods set forth in this Agreement.
Section 14.14 Counterpart Execution. This Agreement may be executed in any
number of counterparts, and each counterpart hereof shall be effective as to
each Party that executes the same whether or not all of such parties execute the
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same counterpart. If counterparts of this Agreement are executed, the signature
pages from various counterparts may be combined into one composite instrument
for all purposes. All counterparts together shall constitute only one Agreement,
but each counterpart shall be considered an original. In the event that this
Agreement is delivered by facsimile transmission or by e-mail delivery of a
".pdf" format date file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or ".pdf"
signature page were an original thereof.
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