Exhibit 2.1
================================================================================
Stock Purchase Agreement
Made as of July 19, 2004
Between
Denbury Resources Inc.
and
Newfield Exploration Company
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Table of Contents
ARTICLE 1 DEFINITIONS.............................................................................................1
1.1 DEFINITIONS.....................................................................................1
1.2 RULES OF CONSTRUCTION..........................................................................13
ARTICLE 2 SALE AND TRANSFER OF SHARES; CLOSING...................................................................13
2.1 SHARES.........................................................................................13
2.2 PURCHASE PRICE.................................................................................13
2.3 CLOSING........................................................................................13
2.4 CLOSING OBLIGATIONS............................................................................14
2.5 PURCHASE PRICE ADJUSTMENT......................................................................14
2.6 ADJUSTMENT PROCEDURE...........................................................................15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...............................................................16
3.1 ORGANIZATION AND GOOD STANDING.................................................................16
3.2 AUTHORITY; NO CONFLICT.........................................................................16
3.3 CAPITALIZATION.................................................................................17
3.4 FINANCIAL STATEMENTS...........................................................................18
3.5 BOOKS AND RECORDS..............................................................................18
3.6 NON-OIL AND GAS REAL PROPERTY..................................................................19
3.7 NON-OIL AND GAS FIXTURES AND EQUIPMENT.........................................................19
3.8 HSR ACT........................................................................................19
3.9 OIL AND GAS INTERESTS..........................................................................20
3.10 NO UNDISCLOSED LIABILITIES.....................................................................24
3.11 TAXES..........................................................................................24
3.12 CERTAIN PAYMENTS...............................................................................25
3.13 EMPLOYEE BENEFITS..............................................................................26
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS................................26
3.15 LEGAL PROCEEDINGS; ORDERS......................................................................27
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS..........................................................28
3.17 APPLICABLE CONTRACTS...........................................................................29
3.18 INSURANCE......................................................................................29
3.19 ENVIRONMENTAL LAWS.............................................................................30
3.20 EMPLOYEES......................................................................................32
3.21 LABOR RELATIONS; COMPLIANCE....................................................................32
3.22 DISCLOSURE.....................................................................................33
3.23 RELATIONSHIPS WITH RELATED PERSONS.............................................................33
3.24 BROKERS OR FINDERS.............................................................................33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER................................................................33
4.1 ORGANIZATION AND GOOD STANDING.................................................................34
4.2 AUTHORITY; NO CONFLICT.........................................................................34
4.3 INVESTMENT REPS................................................................................35
4.4 FEDERAL AND STATE LEASES.......................................................................35
4.5 CERTAIN PROCEEDINGS............................................................................36
4.6 BROKERS OR FINDERS.............................................................................36
ARTICLE 5 COVENANTS OF SELLER PRIOR TO CLOSING DATE..............................................................36
5.1 ACCESS AND INVESTIGATION.......................................................................36
5.2 OPERATION OF THE BUSINESS OF THE COMPANY.......................................................36
5.3 NEGATIVE COVENANTS.............................................................................37
5.4 REQUIRED APPROVALS.............................................................................37
5.5 NOTIFICATION OF BUYER..........................................................................37
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS.....................................................38
5.7 RELEASE OF THE COMPANY.........................................................................38
5.8 BEST EFFORTS...................................................................................38
ARTICLE 6 COVENANTS OF BUYER PRIOR TO CLOSING DATE...............................................................38
6.1 APPROVALS OF GOVERNMENTAL BODIES...............................................................38
6.2 INTENTIONALLY DELETED..........................................................................39
6.3 NOTIFICATION OF SELLER.........................................................................39
6.4 BEST EFFORTS...................................................................................39
ARTICLE 7 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE....................................................39
7.1 MATERIAL ADVERSE EFFECT ON THE COMPANY.........................................................39
7.2 SELLER'S PERFORMANCE...........................................................................39
7.3 CONSENTS.......................................................................................40
7.4 ADDITIONAL DOCUMENTS...........................................................................40
7.5 NO PROCEEDINGS.................................................................................41
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS............................................42
ARTICLE 8 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE..................................................42
8.1 MATERIAL ADVERSE EFFECT ON BENEFITS OF TRANSACTION.............................................42
8.2 BUYER'S PERFORMANCE............................................................................42
8.3 CONSENTS.......................................................................................42
8.4 ADDITIONAL DOCUMENTS...........................................................................42
8.5 NO PROCEEDINGS.................................................................................43
ARTICLE 9 TERMINATION............................................................................................44
9.1 TERMINATION EVENTS.............................................................................44
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9.2 EFFECT OF TERMINATION..........................................................................44
ARTICLE 10 ADDITIONAL AGREEMENTS.................................................................................44
10.1 TAX MATTERS....................................................................................44
10.2 INSURANCE......................................................................................48
10.3 PRE-CLOSING DATE CLAIMS........................................................................48
10.4 EMPLOYEES......................................................................................50
10.5 COMPANY FILES..................................................................................50
10.6 DISPUTE RESOLUTION.............................................................................50
10.7 SEISMIC DATA...................................................................................52
10.8 BUYER'S MMS AND STATE REGULATORY OBLIGATIONS...................................................52
10.9 CHANGE OF THE COMPANY'S NAME; USE OF SELLER'S NAME.............................................53
10.10 SUSPENSE ACCOUNT...............................................................................53
10.11 FINANCIAL STATEMENTS...........................................................................54
10.12 PRIVATE BONDS..................................................................................54
10.13 RETAINED CLAIMS................................................................................54
10.14 WAIVER OF DAMAGES..............................................................................55
10.15 CERTAIN POST-CLOSING PAYMENTS..................................................................56
10.16 NATURAL GAS SWAPS..............................................................................56
10.17 MULTIPLE PARTY MSAs............................................................................57
10.18 ASSUMPTION OF SHELL OIL GUARANTEE..............................................................57
ARTICLE 11 INDEMNIFICATION; REMEDIES.............................................................................57
11.1 SURVIVAL AND KNOWLEDGE; DISCLAIMERS AND WAIVERS................................................57
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER...............................................60
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER................................................60
11.4 TIME LIMITATIONS...............................................................................61
11.5 LIMITATIONS ON AMOUNT--SELLER..................................................................61
11.6 LIMITATIONS ON AMOUNT--BUYER...................................................................62
11.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS..............................................62
11.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS....................................................63
11.9 EXPRESS NEGLIGENCE RULE........................................................................64
ARTICLE 12 GENERAL PROVISIONS....................................................................................64
12.1 EXPENSES.......................................................................................64
12.2 PUBLIC ANNOUNCEMENTS...........................................................................64
12.3 CONFIDENTIALITY, NO SOLICITATION, NO TRADE.....................................................65
12.4 NOTICES........................................................................................67
12.5 JURISDICTION; SERVICE OF PROCESS...............................................................68
12.6 FURTHER ASSURANCES.............................................................................68
12.7 WAIVER.........................................................................................68
12.8 ENTIRE AGREEMENT AND MODIFICATION..............................................................69
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.............................................69
12.10 SEVERABILITY...................................................................................69
12.11 TIME OF ESSENCE................................................................................69
12.12 GOVERNING LAW..................................................................................69
12.13 COUNTERPARTS...................................................................................70
iii
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of July 19,
2004, by and between Newfield Exploration Company, a Delaware corporation
("Buyer"), and Denbury Resources Inc., a Delaware corporation ("Seller").
WHEREAS, Seller is the record and beneficial owner of all of the issued and
outstanding common stock, par value $0.001 per share (the "Shares"), of Denbury
Offshore, Inc., a Delaware corporation (the "Company");
WHEREAS, the Shares represent all of the issued and outstanding capital
stock of the Company; and
WHEREAS, pursuant to the terms and subject to the conditions set forth in
this Agreement, Seller desires to sell, and Buyer desires to purchase, the
Shares;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 1:
"AAA"--the American Arbitration Association, or its successor.
"ADSP"--as defined in Section 10.1(e).
"Additional Conference"--as defined in Section 10.6(j).
"Adjusted Current Assets"--accrued production receivable of the Company
outstanding for no more than 90 days as of the Closing Date, after adjustment to
eliminate intercompany accounts.
"Adjusted Current Liabilities"--the sum of accrued drilling costs plus accrued
lease operating expenses plus accrued workover costs of the Company as of the
Closing Date, after adjustment to eliminate intercompany accounts.
"Adjusted Purchase Price"--as defined in Section 2.5.
"Adjustment Period"--the period from and including April 1, 2004 up to but not
including the Closing Date.
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"Affiliate"--with respect to any Person, any other Person directly or indirectly
Controlling, Controlled by or under common Control with such Person. For
purposes of this Agreement, the term "Control" (including, with correlative
meanings, the terms "Controlling," "Controlled by" and "under common Control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through ownership of voting securities or other
equity interests, by contract or otherwise.
"Affiliated Group"--the affiliated group of corporations within the meaning of
Section 1504 of the IRC that includes Seller, the Company and includable
Subsidiaries or any similar group defined under a similar provision of state,
local, or foreign tax law.
"Agreement"--as defined in the first paragraph of this Agreement.
"Appurtenant Rights"--with respect to the Company Properties, in each case,
insofar as they may relate to the Company Properties, the Company's interest in
(a) all presently existing and valid unitization and pooling declarations,
agreements or orders relating to or affecting the Company Properties and all
rights in the properties covered by the Units created thereby; (b) all wells,
well and leasehold equipment, pipelines, platforms, facilities, improvements,
goods and other personal property located on or used in connection with the
Company Properties, including such properties identified in Schedule 3.9(b)
(except for items included in the Retained Assets); (c) all presently existing
production sales contracts, operating, pooling, unitization and other contracts
or agreements which relate to the Company Properties; (d) all permits, licenses,
easements, rights-of-way, rights of use, and similar agreements pertaining to
the Company Properties.
"Arbitration Award"--as defined in Section 10.6(i).
"Arbitrator"--as defined in Section 10.6(e).
"Balance Sheet"--as defined in Section 3.4(a).
"Best Efforts"--the efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits of this Agreement and the Contemplated Transactions to such Person.
"Breach"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Brokers' Fees"--as defined in Section 3.24.
2
"Buyer"--as defined in the first paragraph of this Agreement.
"Buyer Indemnified Persons"--as defined in Section 11.2.
"Buyer's Advisors"--as defined in Section 5.1.
"Buyer's Closing Documents"--as defined in Section 4.2 (a).
"CERCLA"--as defined in Section 3.19(c)
"CSFB"--as defined in Section 3.24.
"Closing"--as defined in Section 2.3.
"Closing Date"--the calendar day during which the Closing actually takes place.
"Closing Date Adjusted Net Working Capital"--Adjusted Current Assets minus
Adjusted Current Liabilities.
"Closing Date Balance Sheet" --as defined in Section 2.6(a).
"Closing Purchase Price Payment"--as defined in Section 2.4(b)(i).
"Combined Returns"--any Tax Return of Seller for any Taxes imposed by a state,
local or foreign Tax authority for which Seller or any Affiliate of Seller other
than the Company files with the Company on a consolidated, combined or unitary
basis.
"Company"--Denbury Offshore, Inc., a Delaware corporation.
"Company Basic Documents"--all of the following documents and instruments,
including those that are recorded and unrecorded, and including those identified
on Schedule 3.9(d) or any other part of Schedule 3.9:
(a) contracts and agreements comprising any part of, or relating or
pertaining to, the Interests, including farm-in agreements, farm-out agreements,
joint operating agreements, Unit agreements and contracts by which the Interests
were acquired;
(b) agreements or arrangements for the sale, gathering, transportation,
compression, treating, processing or other marketing of production from the
Interests (including calls on, or other rights to purchase, production, whether
or not the same are currently being exercised), comprising any part of or
otherwise relating or pertaining to the Interests; and
(c) documents and instruments creating or evidencing the Interests.
"Company Claim"--as defined in Section 10.3(d).
3
"Company Properties"--all of the Company's rights, titles and interests in and
to oil and gas or mineral properties, but excluding those properties included in
the Retained Assets, including the following:
(a) all of the oil and gas or mineral leases and other mineral interests
set forth on Schedule 3.9(a)(i), including all of the Company's operating
rights, record title interests, working interests, and overriding royalty
interests, without depth or other restrictions or exclusions (other than
exclusions set forth in Schedule 3.9(a)(i)); and
(b) all of the Company's surface leases, rights-of-way, easements,
licenses, permits, servitudes and other rights-of-use (whether surface,
subsurface or subsea), including those with respect to the oil and gas or
mineral leases set forth in Schedule 3.9(a)(i).
"Competing Business"--as defined in Section 3.23.
"Confidential Information"--as defined in Sections 12.3(b) and 12.3(c).
"Confidentiality Letter Agreement"--as defined in Section 12.3(b).
"Consent"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization) and, the consents to assignment or
transfer of the Interests deemed to occur as a result of the purchase of the
Shares, or any other restriction or limitation on transferability, which arise
or are required as a result of the Contemplated Transactions.
"Contemplated Transactions"--all of the transactions contemplated by this
Agreement, including the sale of the Shares by Seller to Buyer and the
performance by Buyer and Seller of their respective covenants and obligations
under this Agreement.
"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally binding
or purports to be legally binding.
"COPAS" --Counsel of Petroleum Accountants Societies.
"Court Rules"--as defined in Section 10.6(h).
"Damages"--as defined in Section 11.2.
"Disclosing Party"--as defined in Section 12.3(a).
"Effective Date"--7:00 a.m. CST on April 1, 2004.
"Employee Benefit Plan" --as defined in Section 3.13.
"Encumbrance"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
4
"Environmental Laws"--as defined in Section 3.19(c).
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"Evaluation Material"--as defined in Section 12.3(b).
"Exchange Act"--the Securities Exchange Act of 1934, as amended, and regulations
and rules issued pursuant to that Act.
"FAS"--as defined in Section 2.6(a).
"Final Settlement Statement"--as defined in Section 2.6(a).
"Fixtures and Equipment"--as defined in Section 3.7.
"Forms 8023"--as defined in Section 10.1(e).
"Forms 8883"--as defined in Section 10.1(e).
"GAAP"--United States generally accepted accounting principles and practices as
in effect at the time of the period involved and applied consistently throughout
the periods involved.
"Good and Defensible Title"--as to the Interest in question, (a) title to such
Interest by virtue of which the Company can successfully defend against a claim
to the contrary made by a third party, based upon industry standards in the
acquisition of oil and gas properties, and in the exercise of reasonable
judgment and in good faith; and, (b) in the case of the Wells and Leases, title
that entitles the Company to receive not less than the Net Revenue Interest for
each of the Wells and Leases before and after payout, as set forth respectively
in Schedule 3.9(c) and those pages of Schedule 3.9(a)(i), under the heading
"Leases with WI and NRI", and obligates the Company to bear not more than the
Working Interest for each of the Wells and Leases before and after payout, as
set forth respectively in Schedule 3.9(c) and those pages of Schedule 3.9(a)(i)
under the heading "Leases with WI and NRI", (unless there is a corresponding
increase in the Net Revenue Interest for a respective Well or Lease); and (c)
such Interest is subject to no liens, encumbrances, obligations or defects
except those which are Permitted Encumbrances.
"Governmental Authorizations"--any approval, consent, license, permit, waiver,
or other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental Body"--any:
5
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Substances"--as defined in Section 3.19(c).
"HSR Act"--as defined in Section 3.8.
"INCs" and "INC Notice"--as defined in Section 3.9(k).
"Indemnified Party"--as defined in Section 11.7(a).
"Indemnifying Party"--as defined in Section 11.7(a).
"Initial Franchise Tax Return"--as defined in Section 10.1(d).
"Interests"--the Company Properties and the Appurtenant Rights. The Retained
Assets are not included in the Interests.
"Interim Balance Sheet"--as defined in Section 3.4(a).
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is currently aware of such fact or other matter; or
(b) a prudent individual serving in the same capacity could be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonable investigation concerning the existence of such fact or
other matter.
6
Seller or Buyer will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who, with respect to Seller, is listed as a Seller
Knowledge Person on Schedule 1.1, and with respect to Buyer, is listed as a
Buyer Knowledge Person on Schedule 1.1, has Knowledge of such fact or other
matter.
"Lease"--each of the oil and gas or mineral leases set forth on Schedule
3.9(a)(i).
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Liabilities"--any and all debts, liabilities and obligations, whether accrued
or fixed, absolute or contingent, matured or unmatured, or determined or
indeterminable, including those arising under any Legal Requirement or Order,
and those arising under any contract or agreement.
"Loss" or "Losses"-- any and all losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including costs of investigation and
defense and reasonable attorneys' fees and expenses) actually suffered or
incurred by a Person.
"Material Adverse Effect"-- any change in or effect on the Company that,
individually or in the aggregate with any other changes in or effects on the
Company, is materially adverse to the financial condition, business or results
of operations of the Company, taken as a whole; provided, however, that
"Material Adverse Effect" shall not be deemed to include any changes or effects
arising out of events or conditions generally affecting independent oil and gas
exploration and production companies (including changes in the market price of
hydrocarbons).
"MMS"--the Minerals Management Service of the U.S. Department of the Interior.
"MMS and State Consents"--as defined in Section 3.9(l).
"MMS Cancellation"--as defined in Section 10.8(b).
"MMS Obligations"--as defined in Section 10.8(b)
"MSAs"--as defined in Section 3.17(b).
"Multiple Party MSA"--as defined in Section 3.17(b).
"Net Revenue Interest"--a share, expressed as a decimal, of the oil, gas and
other minerals (or the proceeds of sale thereof) produced and saved from or
otherwise attributable to an Interest and the zones, horizons and reservoirs
produced therefrom, after the deduction of all royalties, overriding royalties
and other burdens on production.
"NORM"--as defined in Section 3.19(d).
"Notice to Arbitrate"--as defined in Section 10.6(d).
7
"OCS"--as defined in Section 4.4(a).
"OPA"--as defined in Section 10.8(a).
"Open Matter Notice"--as defined in Section 2.6(a).
"Order"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"Ordinary and Capital Expenses"--(a) expenditures incurred with respect to the
Interests, which in the aggregate for a particular project is not greater than
$250,000, (b) expenses incurred either in the normal operation of existing Wells
on the Interests or to continue operations for the drilling, completion or
plugging of any Well, or any operation for which Company has consented to
participate and is required to continue to participate pursuant to applicable
agreements with respect to any Well located on the Interests or any related
production facilities, (c) expenses to conduct emergency operations on any Well,
platform, pipeline or other production facility related to the Interests, (d)
expenses incurred to correct INCs relating to the Interests, regardless of the
amount, and regardless of when the INCs arose or the INC Notice was received,
(e) the cost of repairs or capital improvements to correct conditions identified
as a result of level 1, 2 or 3 platform inspections required by the MMS related
to the Interests, and (f) severance and production taxes related to the
Interests, and (g) the budgeted capital expenditures set forth in Schedule
3.9(e)(ii), and with respect to items set forth in (a) through (g) above, all in
accord with customary industry practice and the Company's past practices using
COPAS guidelines.
"Ordinary Course of Business"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be specifically authorized by the parent
company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"Organizational Documents"--(a) the articles or certificate of incorporation and
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
8
"Over-produced"--as defined in Section 3.9(g).
"Party"--Buyer or Seller.
"Permitted Encumbrances"--(a) lessor's royalties, overriding royalties,
production payments, division orders and sales contracts covering oil or gas,
reversionary interests and similar burdens, forced pooling orders (if any), and
all existing operating agreements and unit agreements, if the net cumulative
effect of such burdens does not operate to reduce Company's Net Revenue
Interests to less than the Net Revenue Interests set forth in Schedule 3.9(c),
or increase Company's Working Interests to more than the Working Interests set
forth in Schedule 3.9(c) (unless there is a corresponding increase in the Net
Revenue Interests); (b) Encumbrances arising under and identifiable by a review
of the Company Basic Documents identified on Schedule 3.9(d) or any other part
of Schedule 3.9; (c) any and all federal and state regulatory orders and rules
to which the Interests are presently subject; (d) Preferential Rights to
purchase and required Consents to assignments and similar agreements with
respect to which (i) waivers or consents have been obtained prior to the Closing
Date from the appropriate parties, or (ii) required notice has been given to the
holders of such rights and the appropriate time period for asserting such rights
has expired prior to the Closing Date without an exercise of such rights; (e)
liens for taxes or assessments not due as of the Closing Date; (f) all Routine
Governmental Approvals; (g) easements, rights-of-way, rights of use, servitudes,
permits, surface leases and other rights in respect of surface operations,
pipelines or the like; and easements for streets, alleys, highways, pipelines,
communication lines and equipment, power lines, railways and other easements and
rights-of-way, on, over or in respect of any of the Interests to the extent that
the same do not materially interfere with the value, use or operation of the
Interests; (h) statutory and conventional liens securing payments to operators,
mechanics and materialmen or others, payments of taxes or other claims or
payment obligations that are, in each case, not yet delinquent or, if
delinquent, are being contested in good faith in the Ordinary Course of Business
and which, if contested, are disclosed in Schedule 3.9(h) or Schedule 3.11(b);
(i) any non-delinquent obligations or duties to any municipality or public
authority with respect to any franchise, grant, certificate, license or permit,
and all applicable law; (j) conventional rights of assignment prior to
abandonment; and (k) liens that will be released simultaneously with Closing
that are listed in Schedule 3.9(a)(ii).
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Pre-Closing Ad Valorem Tax"--as defined in Section 10.1(d).
"Pre-Closing Date Claims"--as defined in Section 10.3(c).
"Pre-Closing Date Liability Claim"--as defined in Section 10.3(a).
"Pre-Closing Date Litigation Claim"--as defined in Section 10.3(b).
9
"Pre-Closing Period"--any Tax period or portion thereof beginning before and
ending on or before the Closing Date.
"Pre-Closing Tax"--as defined in Section 10.1(d).
"Preferential Right"--any preferential right or option to purchase or otherwise
to acquire an Interest or any interest therein, held by another party to any of
the Company Basic Documents, which arises as a result of the transactions
contemplated by this Agreement.
"Preliminary Settlement Statement"--as defined in Section 2.6(a).
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Proposed Closing Date"--as defined in Section 2.3.
"Purchase Price"--as defined in Section 2.2.
"Receiving Party"--as defined in Section 12.3(a).
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly Controlled by such individual
or one or more members of such individual's Family (individually or in the
aggregate); and
(c) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Affiliate of such Person;
(b) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity); and
(c) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity).
For purposes of this definition, the "Family" of an individual includes (i) the
individual, (ii) the individual's spouse, (iii) any other natural person who is
related to the individual or the individual's spouse within the second degree,
and (iv) any other natural person who resides with such individual.
10
"Release"--as defined in Section 3.19(c).
"Representative"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other authorized representative of such
Person, including legal counsel, consultants, accountants, and financial
advisors.
"Retained Assets"--(a) the properties, together with related Contracts to the
extent related to such properties, set forth on Schedule 3.7 under the heading
"Retained Assets," or on Schedule 3.9(a)(iii), (b) all of the Company's accounts
receivable, other than receivables relating to the sale of production from the
Interests during the Adjustment Period, (c) all of the Company's accounts
receivable that have been outstanding as of the Closing Date for more than 90
days, (d) the retained claims set forth in Schedule 10.13 and (e) all other
current assets of the Company other than those assets included in the
calculation of Closing Date Adjusted Net Working Capital.
"Retained Liabilities"--all liabilities of the Company set forth on the Closing
Date Balance Sheet that are not included in the calculation of Closing Date
Adjusted Net Working Capital, all liabilities and obligations related to the
Retained Assets, the liabilities related to the gas imbalances identified in
Schedule 3.9(g)(ii), all Pre-Closing Date Claims and all claims set forth in
Schedule 3.15(a).
"Routine Governmental Approvals"--Governmental Authorizations required to be
obtained from any Governmental Body that are customarily obtained and are
permitted to be obtained after consummation of a transaction.
"Rules"--as defined in Section 10.6(c).
"Schedule"--a Schedule to this Agreement and the documents attached thereto.
"Schedule 3.6 Property"--as defined in Section 3.6.
"Schedule 3.20 Employees"--as defined in Section 10.4.
"SEC"--the United States Securities and Exchange Commission.
"Section 338(h)(10) Elections"--as defined in Section 10.1(e).
"Securities Act"--the Securities Act of 1933, as amended, and regulations and
rules issued pursuant to that Act.
"Seller"--as defined in the first paragraph of this Agreement.
"Seller Indemnified Persons"--as defined in Section 11.3.
"Seller Provided Insurance and Bonds"--as defined in Section 10.2.
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"Seller's Bonds and Liability Agreements"--as defined in Section 4.4(b).
"Seller's Closing Documents"--as defined in Section 3.2(a).
"Settlement Adjustment"--as defined in Section 2.5.
"Shares"--as defined in the Recitals of this Agreement.
"Straddle Period"--any Tax period beginning before and ending after the Closing
Date.
"Subsidiary"--with respect to any Person (the "Owner"), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax"--any tax (including any income tax, capital gains tax, value-added tax,
sales tax or property tax, but excluding any severance or production tax), levy,
assessment, tariff, duty (including any customs duty), deficiency, or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee.
"Tax Return"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"Third Party Claim"--as defined in Section 11.7(a).
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Under-produced"--as defined in Section 3.9(g).
"Units"--means oil, gas and other mineral production, proration, or other types
of units, and any ownership interests therein.
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"Well" or "Wells"--means all of the oil, gas and condensate wells, (whether
producing, not producing or abandoned or temporarily abandoned) in which the
Company holds an interest, including the wells described in Schedule 3.9(c).
"Working Capital Certificate" --as defined in Section 2.6(a).
"Working Interest"--means a share, expressed as a decimal, of the costs of
exploring, drilling, developing and operating an Interest and producing oil, gas
and other minerals from the zones, horizons and reservoirs therein and
thereunder.
1.2 RULES OF CONSTRUCTION
Unless the context otherwise requires, as used in this Agreement (i) a term
has the meaning ascribed to it; (ii) an accounting term not otherwise defined
has the meaning ascribed to it in accordance with GAAP; (iii) "or" is not
exclusive; (iv) "including" means "including, without limitation;" (v) words in
the singular include the plural; (vi) words in the plural include the singular;
(vii) words applicable to one gender shall be construed to apply to each gender;
(viii) the terms "hereof," "herein," "hereby," "hereto," and derivative or
similar words refer to this Agreement as a whole; (ix) the terms "Article" or
"Section" shall refer to the specified Article or Section of this Agreement; and
(x) the descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
ARTICLE 2
SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Seller for the Purchase Price.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be an
aggregate cash payment of $200,000,000, subject to adjustment as provided in
Section 2.5.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will
take place at the offices of Jenkens & Gilchrist in Houston, Texas, or such
other place as agreed by Seller and Buyer, (a) at 10:00 a.m. (local time) on
July 20, 2004 (the "Proposed Closing Date"), or (b) if the conditions precedent
set forth in Article 7 and Article 8 have not then been satisfied or, if
permissible waived, by the Proposed Closing Date, then as promptly as
practicable after the Proposed Closing Date, but in no event later than the
third business day following the satisfaction or, if permissible waiver, of each
of the conditions set forth in Article 7 and Article 8, or (c) at such other
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time and place as the Parties may agree. Subject to the right of Buyer or Seller
to terminate this Agreement pursuant to Article 9, failure to consummate the
purchase and sale provided for in this Agreement on the date and time and at the
place determined pursuant to this Section 2.3 will not result in the termination
of this Agreement and will not relieve any Party of any obligation under this
Agreement.
2.4 CLOSING OBLIGATIONS
Subject to the satisfaction or, if permissible waiver, of each of the
conditions precedent set forth in Article 7 and Article 8, at the Closing:
(a) Seller will deliver to Buyer certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers), for transfer to Buyer.
(b) Buyer will deliver to Seller cash in the amount of $187,000,000 (the
"Closing Purchase Price Payment") by wire transfer to the accounts specified by
Seller not less than 24 hours prior to the Closing.
2.5 PURCHASE PRICE ADJUSTMENT
The Purchase Price shall be adjusted as follows, such adjusted amount to be
referred to herein as (the "Adjusted Purchase Price"):
(a) The Purchase Price shall be increased (or decreased, if such amount is
a deficit) by an amount equal to Closing Date Adjusted Net Working Capital.
(b) The Purchase Price shall be decreased, or increased if a negative
number, by an amount equal to the Settlement Adjustment. The "Settlement
Adjustment" shall be equal to:
(i) total revenues accrued during and attributable to the Adjustment
Period relating to the sale of production from the Interests during the
Adjustment Period plus amounts received by Seller or Seller's Affiliates
prior to the Closing pursuant to the natural gas swap contracts listed in
Schedule 10.16; plus
(ii) $6,000,000 as an adjustment for matters arising from Buyer's due
diligence examination of the Company; plus
(iii) $100,000 as a settlement of joint venture audit claims under
Section 10.13; minus
(iv) the sum of:
(A) Ordinary and Capital Expenses incurred during the Adjustment
Period in compliance with this Agreement; plus
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(B) $2,000 per day for each day during the Adjustment Period for
general and administrative and other overhead costs; plus
(C) any amount paid by Seller or Seller's Affiliates prior to the
Closing Date pursuant to the natural gas swap contracts listed in
Schedule 10.16.
2.6 ADJUSTMENT PROCEDURE
(a) As soon as practicable, and in any event not later than 90 days after
the Closing Date, Seller will prepare and deliver to Buyer a preliminary
settlement statement (the "Preliminary Settlement Statement"), identifying all
components and amounts of the Adjusted Purchase Price including (i) an unaudited
balance sheet of the Company as of the date immediately preceding the Closing
Date (the "Closing Date Balance Sheet") together with Seller's calculation,
based on such Closing Date Balance Sheet, of Closing Date Adjusted Net Working
Capital (the "Working Capital Certificate"), and (ii) a calculation of the
Settlement Adjustment, setting forth each element and amount of the Settlement
Adjustment in reasonable detail. All items shown in the Preliminary Settlement
Statement will be supported by reasonably detailed documentation. The Closing
Date Balance Sheet shall record all liabilities of the Company in accordance
with GAAP as at the close of business on the date immediately preceding the
Closing Date, except that the Closing Date Balance Sheet shall not include: (i)
GAAP-required footnote disclosures, (ii) liabilities that would be recorded
under Financial Accounting Standard ("FAS") No. 133 or under FAS No. 143 as at
the close of business on the date immediately preceding the Closing Date, and
(iii) any liability for deferred taxes. The Closing Date Balance Sheet shall
include line items of assets and stockholders equity substantially consistent
with those in the Interim Balance Sheet. Buyer will have the right for sixty
days after receipt of the Preliminary Settlement Statement to audit and take
exception to all components of the Settlement Adjustment. The Preliminary
Settlement Statement will become final and binding on both Parties on the
sixtieth day following Buyer's receipt thereof, except as to matters on the
Preliminary Settlement Statement to which Buyer objects, as set forth in a
written notice sent to Seller (an "Open Matter Notice") prior to the sixtieth
day. During a thirty day period following delivery of an Open Matter Notice, the
parties will seek in good faith to resolve any disputes they have with respect
to such Open Matter Notice. At the end of the thirty day period, any matters
that remain in dispute will be submitted to dispute resolution in the manner set
forth in Section 10.6 of this Agreement. Following final resolution of all Open
Matter Notices, if any, in accordance with this Section 2.6(a), the Preliminary
Settlement Statement shall be amended to adjust for such resolved matters, at
which point the Preliminary Settlement Statement shall, in its entirety, become
final and binding on both Parties (the "Final Settlement Statement").
(b) Within five business days of the earlier of (i) the expiration of
Buyer's sixty day review and audit period without delivery of an Open Matter
Notice, or (ii) the date on which the parties or the arbitrator, as applicable,
finally resolve any and all disputes with respect to matters set forth on any
Open Matter Notices, either (A) Buyer will pay to Seller, if such amount is a
positive number, an amount equal to the Adjusted Purchase Price set forth on the
Final Settlement Statement, as amended or adjusted in accordance with Section
2.6(a), minus the Closing Purchase Price Payment, or (B) Seller will pay to
15
Buyer an amount equal to the Closing Purchase Price Payment minus the Adjusted
Purchase Price set forth on the Final Settlement Statement, as amended or
adjusted in accordance with Section 2.6(a). All payments will be made in
immediately available funds by wire transfer to the bank account specified by
the recipient.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Schedule 3.1 contains a complete and accurate list of the Company's
jurisdiction of incorporation, other jurisdictions in which it is authorized to
do business, and its capitalization (including the identity of each stockholder
and the number of shares held by each). The Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under its Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification.
(b) Seller has delivered or made available to Buyer copies of the
Organizational Documents of the Company, as currently in effect. The
Organizational Documents of the Company are in full force and effect and the
Company is not in violation of its Organizational Documents.
3.2 AUTHORITY; NO CONFLICT
(a) Assuming the execution and delivery by Buyer of this Agreement, this
Agreement constitutes the legal, valid, and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws effecting creditors' rights and
remedies generally, and upon the execution and delivery by Seller of the other
documents to be executed and delivered by Seller pursuant to this Agreement
(collectively, "Seller's Closing Documents"), Seller's Closing Documents will
constitute the legal, valid, and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws effecting creditors' rights and
remedies generally. Seller has the legal right, power, and authority to execute
and deliver this Agreement and Seller's Closing Documents and to perform its
obligations under this Agreement and Seller's Closing Documents. Seller has all
necessary corporate power and authority to enter into this Agreement, to carry
out its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery by Seller of, and the performance by Seller
of its obligations under, this Agreement and Seller's Closing Documents have
16
been duly authorized by all requisite corporate action on the part of Seller and
no other corporate proceedings on the part of Seller are necessary to authorize
this Agreement, Seller's Closing Documents or the consummation of the
Contemplated Transactions.
(b) Except as set forth in Schedule 3.2(b) or Schedule 3.9(l), neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company or Seller, or (B)
any resolution adopted by the board of directors or the stockholders of the
Company or Seller;
(ii) except for matters subject to a Routine Governmental Approval and
MMS and State Consents, contravene, conflict with, or result in a violation
of, or give any Governmental Body or other Person the right to challenge
any of the Contemplated Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which the Company
or Seller, or any of the assets owned or used by the Company, may be
subject;
(iii) except for matters subject to a Routine Governmental Approval
and MMS and State Consents, contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by the Company;
(iv) except for matters subject to MMS and State Consents, contravene,
conflict with, or result in a violation or breach of any provision of, or
result in an event of default or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material Contract
of the Company or Seller; or
(v) except for matters subject to MMS and State Consents, result in
the imposition or creation of any Encumbrance upon or with respect to any
of the Shares or the assets owned or used by the Company.
(c) Except for matters subject to a Routine Governmental Approval or as set
forth in Schedule 3.2(c) or Schedule 3.9(l), and subject to obtaining all MMS
and State Consents, neither Seller nor the Company is or will be required to
give any notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 1,000 shares of
common stock, par value $.001 per share, of which 1,000 shares are issued and
outstanding and constitute the Shares. Seller is the record and beneficial owner
and holder of the Shares, free and clear of all Encumbrances, except for
17
Encumbrances set forth on Schedule 3.3, which are to be released simultaneously
with the Closing. The Shares have been duly authorized and validly issued and
are fully paid and nonassessable. There are no Contracts relating to the
issuance, sale, transfer or voting of any equity securities or other equity
interests or securities of the Company. None of the Shares were issued in
violation of the Securities Act or any other Legal Requirement. None of the
Shares were issued in violation of, and none of the Shares are subject to, any
preemptive rights, rights of first refusal or other similar rights. The Company
neither owns nor has any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business. There are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of, or any other equity interest in, the Company.
3.4 FINANCIAL STATEMENTS
(a) Seller has delivered to Buyer: (a) condensed unaudited balance sheets
of the Company at December 31, 2003 (the "Balance Sheet"), and at March 31, 2004
(the "Interim Balance Sheet"), and (b) the unaudited statements of revenues and
direct operating expenses for the Company for the year ended December 31, 2003
and the three months ended March 31, 2004, respectively. Such financial
information was prepared in accordance with the books of account and other
financial records of the Company and fairly presents the balances, revenues and
direct operating expenses of the Company at the respective dates of and for the
periods referred to in such balance sheets and statements except for a prior
period adjustment relating to West Cameron Block 427 and overriding royalty
payments recorded during the first quarter of 2004. The selected financial
information of the Company at December 31, 2003 and for the year then ended are
derived solely from Seller's audited financial statements.
(b) The accounts receivable of the Company outstanding as of the date
hereof (i) have arisen in the Ordinary Course of Business for goods delivered or
services rendered and (ii) are good and collectible (or have been collected),
subject to the reserves therefore established by the Company and set forth in
the Interim Balance Sheet.
3.5 BOOKS AND RECORDS
The books of account which record the balances of the Company and the
transactions reflecting the operation and ownership of the Interests, together
with the minute books and stock record books of the Company, all of which have
been made available to Buyer, are complete and correct in all material respects
and have been maintained in accordance with sound business and accounting
practices. The minute books of the Company contain accurate and complete records
of all material meetings and corporate actions of the stockholders and the Board
of Directors of the Company since July 10, 2001, or to Seller's Knowledge on or
prior to July 10, 2001. All of those books and records either will be in the
possession of the Company at the Closing or will be delivered to the Company
promptly after Closing.
18
3.6 NON-OIL AND GAS REAL PROPERTY
Schedule 3.6 contains a complete and accurate list of all real property,
leases in real property, or other interests in real property owned or held by
the Company (the "Schedule 3.6 Property"), except that the Schedule 3.6 Property
does not include any property included in the Interests. Seller has delivered or
made available to Buyer copies of the deeds and other instruments (as recorded)
by which the Company acquired the Schedule 3.6 Property which it purports to
own, and copies of all title insurance policies, opinions, abstracts, and
surveys in the possession of Seller or the Company and relating to the Schedule
3.6 Property which it purports to own. The Company holds good and marketable
title to all Schedule 3.6 Property which it purports to own. The Schedule 3.6
Property is, or effective simultaneously with the Closing will be, free and
clear of all Encumbrances and is not subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except for (a) matters disclosed in Schedule 3.6, (b) liens for current taxes
not yet due, (c) minor imperfections of title, if any, none of which is
substantial in amount, detracts from the value or impairs the use of the
property subject thereto, or impairs the operations of the Company, and (d)
zoning laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto.
3.7 NON-OIL AND GAS FIXTURES AND EQUIPMENT
Except as set forth on Schedule 3.7, the Company has good title to, or a
valid leasehold interest in, the tangible personal property, equipment,
improvements, fixtures, and other personal property and appurtenances that are
used by the Company in connection with the conduct of its business (the
"Fixtures and Equipment"), except that the Fixtures and Equipment do not include
either (a) any property included in the Interests or (b) the items of property
included in the Retained Assets, which property included in the Retained Assets
is listed on Schedule 3.7 and will be transferred by the Company to Seller,
another of Seller's Affiliates, or a third party at or prior to Closing. The
Fixtures and Equipment are structurally sound, are in good operating condition
and repair, are adequate for the uses to which they are being put, are not in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs and are sufficient for the conduct of the Company's businesses in the
manner as conducted prior to the Closing. The Company owns, or effective
simultaneously with the Closing will own, all of the Fixtures and Equipment free
and clear of all Encumbrances except for (a) matters disclosed in Schedule 3.7,
(b) liens for current taxes not yet due, (c) minor imperfections of title, if
any, none of which, individually or in the aggregate, is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of the Company, and (d) zoning laws and other
land use restrictions that do not impair the present or anticipated use of the
property subject thereto.
3.8 HSR ACT
The aggregate fair market value of the assets of the Company, its
Subsidiaries and each other Person that the Company controls, as defined in the
regulations under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
19
"HSR Act"), that are not exempt under Section 7A(c)(12) of the HSR Act or 16
C.F.R. Sections 802.3 and 802.4, is not in excess of $50,000,000.
3.9 OIL AND GAS INTERESTS
(a) Schedule 3.9(a)(i) identifies certain rights, titles and interests and
rights-of-way and rights of use and easements included in the Company
Properties. Except as set forth in Schedule 3.9(a)(ii), the Company holds Good
and Defensible Title to the Interests. Schedule 3.9(a)(iii) lists the Interests
included in the Retained Assets, which will be transferred by the Company to
Seller prior to the Closing Date pursuant to Section 5.2(c) below.
(b) Schedule 3.9(b) sets forth all platforms and pipelines, and the
equipment, facilities and personal property related to such platforms and
pipelines, comprising part of the Appurtenant Rights. Except as set forth in
Schedule 3.9(b), the foregoing property is adequate for the uses to which it is
being put, is not in need of significant maintenance or repairs, except for
ordinary, routine maintenance and repairs, and is sufficient for the conduct of
the Company's businesses in the manner as conducted prior to the Closing. The
Company owns all of the foregoing property free and clear of all Encumbrances
except the Permitted Encumbrances.
(c) Schedule 3.9(c) sets forth the Company's Working Interest and Net
Revenue Interest in each Well of the Company, and as applicable, approximate
payout balances for Wells as of April 30, 2004. Subject only to the
corresponding instruments set forth under the heading "Contracts and Agreements"
on Schedule 3.9(d), that portion of Schedule 3.9(a)(i) under the heading "Leases
with WI and NRI" sets forth the Company's Working Interest and Net Revenue
Interest in each Lease of the Company. To Seller's Knowledge, all Company oil,
gas and condensate wells (whether producing, not producing or abandoned or
temporarily abandoned) are described in Schedule 3.9(c).
(d) The Company Basic Documents are in full force and effect and constitute
valid and binding obligations of the parties thereto and:
(i) the Company is not in material breach or default (and no situation
exists which with the passing of time or giving of notice would give rise
to such a breach or default) of its obligations under any of the Company
Basic Documents, and to Seller's Knowledge, no breach or default by any
other party to any of the Company Basic Documents (or situation which with
the passage of time or giving of notice would give rise to such a breach or
default) exists, to the extent such breach or default (whether by the
Company or another party to any of the Company Basic Document) could
adversely affect any of the Interests or the Company;
(ii) except as set forth in Schedule 3.9(d)(ii), all payments
(including all delay rentals, royalties, excess royalties, minimum
royalties, overriding royalty interests, shut-in royalties and valid calls
for payment or prepayment under operating agreements) owing under any of
the Company Basic Documents have been and are being made timely and
properly, and before the same became delinquent, by the Company and, to
Seller's Knowledge, where the non-payment of same by another party to any
of the Company Basic Documents could adversely affect any of the Interests
or the Company, have been and are being made by such other party;
20
(iii) all conditions necessary to maintain the Company Basic Documents
in force have been duly performed; and
(iv) except as set forth in Schedule 3.9(c) or Schedule 3.9(d)(iv), no
non-consent operations exist with respect to any of the Interests that have
resulted or will result in a temporary or permanent increase or decrease in
either the Company's Net Revenue Interest or Working Interest in such
Interest.
(e) The Company is not obligated to incur any expenses, and has not made
commitments to make expenditures (capital or otherwise), or to apply revenues
from a Well's production or a Lease in connection with any Interests (and no
other similar obligations or liabilities have been incurred) with respect to the
ownership or operation of Interests attributable to the time period on or after
the Effective Date, other than Ordinary and Capital Expenses. Subject to the
comments set forth in Schedule 3.9(e)(i), all expenses payable under the terms
of the Company Basic Documents have been properly and timely paid except for
such expenses as are being currently paid or will be paid prior to delinquency.
Except for budgeted capital expenditures as set forth in Schedule 3.9(e)(ii), no
proposals calling for expenditures in excess of $250,000 for any one project are
currently outstanding (whether made by the Company, or by any other party) to
drill additional wells, or to deepen, plug back, sidetrack, abandon, or rework
existing Wells, or to conduct other operations for which consent is required
under the applicable operating agreement, or to conduct any other operations,
other than normal operation of the Interests.
(f) No agreements or arrangements exist for the sale, gathering,
transportation, compression, refining, treating, processing or other marketing
of production from the Interests (including calls on, or other rights to
purchase, production, whether or not the same are currently being exercised)
other than (i) agreements set forth in Schedule 3.9(d), and (ii) agreements or
arrangements that are cancelable on 30 days notice or less without penalty or
detriment to the Company.
(g) Except as set forth in Schedule 3.9(g)(i), the Company has not received
prepayments (including payments for oil and gas not taken pursuant to
"take-or-pay" arrangements) for any oil or gas produced from the Interests as a
result of which the obligation does (or may) exist (i) to deliver oil or gas
produced from the Interests from or after the Effective Date without then
receiving payment therefor, or (ii) to make repayments in cash. For each
Interest listed in Schedule 3.9(g)(i), such Schedule also sets forth as to each
such Interest (i) the total amount of prepayment received prior to the Effective
Date, and (ii) whether or not a cash payment can be required in the event
recoupment out of production proves to be inadequate. Except as set forth in
Schedule 3.9(g)(ii), there is no Interest with respect to which the Company has
taken more (referred to herein as "Over-produced") or less (referred to herein
as "Under-produced") production from such Interest (or on the Units in which
such Interest participates), or any product thereof, than the ownership of the
Company and such predecessors in such Interest would entitle the Company or any
such predecessors (absent any balancing agreement or arrangement) to receive, to
21
the extent such Over-produced or Under-produced position has not, as of the day
immediately preceding the Effective Date been fully made up or otherwise
extinguished. For each Interest listed in Schedule 3.9(g)(ii), such Schedule
also sets forth, on a Well-by-Well or any other basis as may be dictated by any
applicable balancing agreement, (i) whether the Company is in an Over-produced
or Under-produced position, (ii) the amount of such Over-production or
Under-production, (iii) a description of the written balancing agreement (if
any) pertaining to such Interest (or a statement that no such agreement exists)
and (iv) a statement as to whether royalties, overriding royalties or other
burdens against the Company's Net Revenue Interest in the affected Interests
were, during the period the subject imbalance accrued, paid based upon receipts
or entitlements. Except as set forth in Schedule 3.9(g)(iii), no pipeline
imbalances have arisen and remain outstanding due to the failure of nominations
made by the Company to match actual deliveries of production from any one or
more Interests. Except as set forth in Schedule 3.9(g)(iv), none of the
purchasers under any production sales contracts has (i) exercised any economic
out provision; (ii) curtailed its takes of natural gas in violation of such
contracts; or (iii) given notice that it desires to amend the production sales
contracts with respect to price or quantity of deliveries under take-or-pay
provisions or otherwise.
(h) Except as set forth in Schedule 3.9(h), no delinquent unpaid bills or
past due charges exist for any labor and materials incurred by or on behalf of
the Company related to the exploration, development or operation of the
Interests; provided that the foregoing is qualified by Seller's Knowledge with
respect to Interests not operated by the Company or its Affiliates.
(i) Except with respect to Retained Assets, as set forth in Schedule 3.9(i)
or, as may be provided for by a Company Basic Document identified on Schedule
3.9(d) or any other part of Schedule 3.9, neither the Company nor any Interest
is subject to (i) any area of mutual interest agreements, (ii) any farm-out or
farm-in agreement under which any party thereto is entitled to receive
assignments of any Interest or any interest therein not yet made, or could earn
additional assignments of any Interest or any interest therein after the date
hereof, (iii) any tax partnership, (iv) any Contract relating to the pending
disposition or acquisition of the assets of, or any interest in, any other
entity, (v) any Contract relating to the purchase or sale of assets or
properties pursuant to which the Company paid or received total consideration in
excess of $250,000, that was or will be consummated after July 10, 2001, or to
Seller's Knowledge that was consummated on or before July 10, 2001; (vi)
options, swaps, futures, caps, hedges or other derivative contracts that will be
binding on any of the Company's properties or assets after Closing; (vii)
sale-leaseback and similar Contracts; (viii) Contracts that constitute a lease
(other than an oil and gas or similar lease) which lease involves an annual base
rental of more than $250,000; (ix) Contracts containing covenants limiting the
freedom of the Company to engage in any line of business or compete with any
person or entity or operate at any location; (x) participation agreements,
development agreements, plant agreements, production handling agreements,
injection agreements, repressuring and recycling agreements and gas balancing
and deferred production agreements; (xi) Contracts, the default or termination
of which could have a Material Adverse Effect on the Company or the Company's
ownership or operation of the Interests, (xii) Contracts between the Company and
Seller or any Affiliate of Seller that will survive the Closing; or, (xiii)
other Contracts that could be reasonably expected to result in aggregate
payments by Buyer or the Company of more than $250,000 during the current or any
22
subsequent year. True and complete copies of all Contracts listed in Schedule
3.9(i) have been provided to Buyer and there are no amendments to such Contracts
except as set forth on such schedule.
(j) All severance, production, ad valorem and other similar taxes based on
or measured by ownership or operation of, or production from, the Interests have
been, and are being, paid (properly and timely, and before the same become
delinquent) by the Company in all respects.
(k) Except as set forth in Schedule 3.9(k), the (i) ownership and operation
of the Interests has, to the extent that non-conformance could adversely affect
the Interests or the Company, been conducted in conformity in all material
respects with Legal Requirements of all Governmental Bodies having jurisdiction
over the Interests or the Company, (ii) the Company has corrected all Incidents
of Non-Compliance ("INCs") with respect to the Interests regarding which the
Company has received a Notification ("INC Notice") from the MMS, and (iii) the
Company has not received any written notice of noncompliance with regard to any
other Legal Requirement of any Governmental Body having jurisdiction over the
Interests or the Company to the extent that any such noncompliance has not been
remedied and would have an adverse effect upon the Interests.
(l) Except as set forth in Schedule 3.9(l), there are no Preferential
Rights or Consents, other than Routine Governmental Approvals and any Consents
that may be required by the MMS or the states of Texas or Louisiana ("MMS and
State Consents"), that affect any Interests and that will be triggered by the
Contemplated Transactions.
(m) Except as set forth in Schedule 3.9(m), there exist no agreements or
other arrangements under which the Company undertakes to perform gathering,
transportation, processing or other marketing services for any other party for a
fee or other consideration that is now, or may hereafter be, unrepresentative of
commercial rates being received by other parties in comparable, arm's length
transactions.
(n) Except as disclosed in Schedule 3.9(n), there are no Wells located on
the Interests that (i) the Company is currently obligated by law or Contract to
plug and abandon and with respect to which the plugging and abandonment must be
completed prior to the Closing Date, (ii) the Company will be obligated by law
or Contract to plug and abandon with the lapse of time or notice or both because
the Well is not currently capable of producing crude oil, natural gas,
casinghead gas, drip gasoline, natural gasoline, petroleum, natural gas liquids,
condensate, products, liquids, other hydrocarbons or other minerals in paying
quantities and with respect to which the plugging and abandonment must be
completed prior to the Closing Date, (iii) are subject to exceptions to a
requirement to plug and abandon issued by a Governmental Body and with respect
to which the plugging and abandonment must be completed prior to the Closing
Date, or (iv) have been plugged and abandoned, but have not been plugged in
accordance in all material respects with all applicable requirements of any
Governmental Body.
(o) Except as disclosed in Schedule 3.9(o), no suit, action or proceeding
(including tax or environmental demands proceedings) is pending, or to Seller's
23
Knowledge threatened, which might result in impairment or loss of title to any
of the Interests or to the value of any Interests.
(p) Except as set forth in Schedule 3.9(p), all proceeds from the sale of
hydrocarbons produced from the Interests are currently being paid to the
Company, and no portion of such proceeds is currently being held in suspense by
any purchaser thereof or any other party by whom proceeds are paid.
(q) To the Knowledge of Seller (i) all of the Wells of the Company have
been drilled and completed within the boundaries of such Interests or within the
limits otherwise permitted by Contract, and by applicable Legal Requirements;
and (ii) all drilling and completion of such Wells and all operations with
respect thereto have been conducted in compliance with all applicable Legal
Requirements, except such violations that would not or could not reasonably be
expected to have a material adverse effect on the Interests or the Company.
(r) The Company owns no seismic data. With respect to any seismic data
shared by Seller or its Affiliates with the Company, the manner in which such
data was so shared did not breach any Contract relating thereto.
3.10 NO UNDISCLOSED LIABILITIES
Except as disclosed in the Schedules to this Agreement or arising under the
documents listed thereon, the Company has no liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
3.11 TAXES
(a) The Affiliated Group has filed all income Tax Returns (including any
Combined Returns) that are or were required to be filed by the Affiliated Group
for each taxable period during which the Company was a member of the Affiliated
Group. All such Tax Returns were correct and complete (i) in all respects in so
far as they relate to the Company, and (ii) in all material respects in so far
as they do not relate to the Company. All material income Taxes owed by the
Affiliated Group (whether or not shown on any Tax Return) have been paid or
provision for the payment thereof has been made, for each taxable period during
which the Company was a member of the Affiliated Group.
(b) The Company has filed or caused to be filed all Tax Returns (other than
income Tax Returns described in Section 3.11(a) above) that the Company was
required to file for all Tax periods since July 10, 2001, and to Seller's
Knowledge, on or before July 10, 2001. All such Tax Returns were correct and
complete in all material respects. Seller has made available to Buyer copies of
all such Tax Returns filed since July 10, 2001, or to Seller's Knowledge on or
before July 10, 2001. The Company has paid, or on the Interim Balance Sheet made
provision for the payment of, all Taxes that have or may have become due
pursuant to such Tax Returns, or otherwise, except such Taxes, if any, as are
24
listed in Schedule 3.11(b) and are being contested in good faith and as to which
adequate reserves have been provided in the Interim Balance Sheet.
(c) Seller has made available to Buyer copies of all federal, state and
local Tax Returns (other than income Tax Returns filed by the Affiliated Group)
filed by or with respect to the Company for taxable periods ended on or after
December 31, 2000, and indicated which of those Tax Returns have been audited,
and which of those Tax Returns are currently the subject of audit. All
deficiencies proposed as a result of such audits, if any, have been paid,
reserved against, settled, or, as indicated by Seller, are being contested in
good faith by appropriate proceedings. Except as described in Schedule 3.11(c),
neither Seller nor the Company has given or been requested to give waivers or
extensions (or is or would be subject to a waiver or extension given by any
other Person) of any statute of limitations relating to the payment of Taxes of
the Company or for which the Company may be liable.
(d) There exists no proposed tax assessment against the Company except as
disclosed in the Interim Balance Sheet or on Schedule 3.11(d). Except as
described in Schedule 3.11(d), there is not in force any extension of time with
respect to the due date for the filing of any Tax Return of or with respect to
the Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company. No claim has
been made since July 10, 2001, or to Seller's Knowledge on or before July 10,
2001, by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation in that jurisdiction. Seller is
not a "foreign person" for purposes of Section 1445 of the IRC. All Taxes that
the Company is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(e) The Company has no liability for the Taxes of any Person other than the
Company under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local,
or foreign law) or pursuant to any tax indemnification agreement.
(f) The Company has not distributed stock of another Person or had its
stock distributed by another Person, in a transaction that was purported or
intended to be governed in whole or in part by Section 355 or Section 361 of the
IRC since July 10, 2001, or to Seller's Knowledge on or before July 10, 2001.
3.12 CERTAIN PAYMENTS
Since July 10, 2001, and to Seller's Knowledge on or before July 10, 2001,
neither the Company or any director or officer of the Company, nor to Seller's
Knowledge any agent or employee of the Company or any other Person associated
with the Company, acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company, or (iv) in violation of any Legal
25
Requirement, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of the Company.
3.13 EMPLOYEE BENEFITS
(a) As used in this Section 3.13, the term "Employee Benefit Plan" shall
mean (i) each "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), (ii) each "employee pension benefit plan" (as defined in Section 3(2) of
ERISA), and (iii) each deferred compensation plan, bonus plan, stock option
plan, employee stock purchase plan, employment contract, change in control
agreement, severance arrangement and any other benefit or compensation plan,
agreement, arrangement or commitment not described in (i) or (ii) above, that,
in each case, either is maintained by the Company, or to which the Company
contributes or under which on the Closing Date either the Company has any
liability (including any secondary liability under Section 4204 of ERISA), or
any employee or former employee of the Company, or any employee or former
employee of Seller or any other Affiliate of Seller who provided services for
the Company, has any present or future right to benefits based on service to the
Company. The Company has not adopted any Employee Benefit Plans.
(b) On the Closing Date, the Company will have no liability, "controlled
group liability" (i.e., liability under (i) Title IV of ERISA including
secondary liability under Section 4204 of ERISA, (ii) Sections 302, 601 et seq.
or 701 et seq. of ERISA, or (iii) Sections 412, 4971, 4980B or 9801 et seq. of
the IRC), obligation, fine, penalty or Tax of any kind with respect to any
Employee Benefit Plan or any other benefit or compensation plan, agreement,
arrangement or commitment of the Company's ERISA Affiliates (i.e., any member of
a group of entities defined in Sections 414(b), (c), (m) or (o) of the IRC that
includes the Company) and without limitation, the Company has never (i)
participated in a "multiemployer plan," (as defined in Section 3(37) of ERISA),
or (ii) incurred any "withdrawal liability" calculated under Section 4211 of
ERISA. Further, on the Closing Date any withdrawal liability (as defined in
Section 4201 of ERISA) of the Company and the Company's ERISA Affiliates and any
liability arising under Title IV of ERISA with respect to the termination of any
Employee Benefit Plan or benefit plan of the Company's ERISA Affiliates will
have been fully satisfied. As of the Closing Date, the Company will be in
compliance with all requirements prescribed by all statutes, regulations,
orders, or rules in effect, and in all respects performed all obligations
required to be performed by it, in each case with respect to all Employee
Benefit Plans.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Schedule 3.9(k), Schedule 3.14(a), or Schedule
3.15(a), (b) or (c), except with respect to matters related to Environmental
Laws and except with respect to matters subject to a Routine Governmental
Approval and other matters that would not have an adverse effect on the Company:
(i) the Company is in compliance in all material respects with Legal
Requirements that are applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
26
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to
comply in all material respects with Legal Requirements, or (B) may give
rise to any material obligation on the part of the Company to undertake, or
to bear all or any portion of the cost of, any remedial action; and
(iii) the Company has not received any notice from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply in all material respects with
Legal Requirements, or (B) any actual, alleged, possible, or potential
material obligation on the part of the Company to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
(b) The Company possesses all Governmental Authorization necessary for the
conduct of the Company's business or the ownership and operation of the
Interests, and each such Governmental Authorization is valid and in full force
and effect. Except as set forth in Schedule 3.9(k), Schedule 3.14(b), or
Schedule 3.15(a), (b) or (c), except with respect to matters related to
Environmental Laws and except with respect to matters subject to a Routine
Governmental Approval and other matters that would not have an adverse effect on
the Company, the Company is in compliance with all of the terms and requirements
of each such Governmental Authorization.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Schedule 3.9(k) or (o), Schedule 3.14(a) or (b),
Schedule 3.15(a) or Schedule 3.19(a) or (b), there is no pending Proceeding:
(i) that has been commenced by or against the Company or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, the Company; or
(ii) that has been commenced by or against the Company that
challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To Seller's Knowledge, (1) no such Proceeding has been Threatened, and (2) no
event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding. Seller has made available to
Buyer copies of all pleadings, correspondence, and other documents relating to
each Proceeding listed in Schedule 3.9(a), Schedule 3.14(a) or (b), Schedule
3.15(a) or Schedule 3.19(a) or (b).
(b) Except as set forth in Schedule 3.9(k) or (o), Schedule 3.14(a) or (b),
Schedule 3.15(b) or Schedule 3.19(a) or (b):
(i) there is no Order to which the Company, or any of the assets owned
or used by the Company, is subject;
27
(ii) Seller is not subject to any Order that relates to the business
of, or any of the assets owned or used by, the Company; and
(iii) to the Knowledge of Seller, no officer, director, agent, or
employee of the Company, Seller or any Affiliate of Seller who provides
services to the Company is subject to any Order that prohibits such
individual from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
(c) Except as set forth in Schedule 3.9(k) or (o), Schedule 3.14(a) or (b),
Schedule 3.15(c) or Schedule 3.19(a) or (b), the Company is in full compliance
with all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Schedule 3.16, since the date of the Interim Balance
Sheet, the Company has conducted its businesses only in the Ordinary Course of
Business and there has not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or, subject to and
excluding the effects of Seller's normal cash management procedures regarding
its Subsidiaries, declaration or payment of any dividend or other distribution
or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, agent, or (except in the
Ordinary Course of Business) employee of the Company, Seller or any Affiliate of
Seller, or entry by the Company into any employment, severance, or similar
Contract with any such individual;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employee of the
Company, Seller or any Affiliate of Seller who provides services to the Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, adversely affecting the Company;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
28
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to the Company of at least $250,000;
(g) sale (other than sales of production in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any Encumbrance on any material asset or
property of the Company, other than the Retained Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $250,000;
(i) any event or change that has had a Material Adverse Effect; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 APPLICABLE CONTRACTS
(a) There are no written and oral contracts, commitments, leases, bonds and
other agreements (including promissory notes, guarantees, sureties, loan
agreements, mortgages, deeds of trust, financing statements, and other evidences
of indebtedness), other than the Company Basic Documents listed in Schedule
3.9(d) or in any other part of Schedule 3.9 and MSAs to which the Company is a
party or by which any of its properties are bound, and with respect to which for
each such contract the obligations of, or the benefits to be received by, the
Company could reasonably be expected to have a value in excess of $250,000.
(b) The Company is a party to certain Master Service Agreements ("MSAs")
set forth on Schedule 3.17(b). Seller or other Affiliates of Seller are also
parties to some or all of the MSAs ("Multiple Party MSA"), which are identified
on Schedule 3.17(b) separately from the MSAs to which only the Company is a
party. Seller has made available to Buyer copies of all MSAs.
3.18 INSURANCE
(a) Schedule 3.18(a) lists, and Seller has made available to Buyer copies
of:
(i) all policies of insurance to which the Company is a party or under
which the Company is or has been covered at any time since April 1, 2003
(or, with respect to the period commencing on April 1, 2004, binders or
summaries of such policies to the extent the policies have not been
received by Seller or the Company); and
(ii) all pending applications for policies of insurance.
(b) Schedule 3.18(b) describes any written self-insurance arrangement by or
affecting the Company, including any reserves established thereunder.
29
(c) Except with respect to agreements listed in Schedule 3.18(c), and as
required under various of the MSAs, the Company does not have any obligations to
third parties with respect to insurance.
(d) Except as set forth in Schedule 3.18(d):
(i) All policies to which the Company is a party or that provide
coverage to the Company:
(A) are valid, outstanding, and enforceable;
(B) taken together, provide adequate insurance coverage for the
assets and the operations of the Company for all risks normally
insured against by a Person carrying on the same business or
businesses as the Company;
(C) are sufficient for compliance with all Legal Requirements and
Contracts to which the Company is a party or by which it is bound; and
(D) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
(ii) Neither Seller nor the Company has received (A) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform
its obligations thereunder.
(iii) Seller or the Company has paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy
to which the Company is a party or that provides coverage to the Company or
officers or directors thereof.
(iv) To Seller's Knowledge, the Company has given notice to the insurer of
all claims that may be insured thereby.
3.19 ENVIRONMENTAL LAWS
(a) To the Seller's Knowledge, except as set forth in Schedules 3.9(k) or
(o) or Schedule 3.19(a), and except with respect to any other matters that,
individually or in the aggregate, would not reasonably be expected to pose or
otherwise represent a liability in excess of $100,000: (i) in connection with
the operation of its business, the Interests, or otherwise, the Company has not
caused or allowed, or contracted with any party for, the generation, use,
transportation, treatment, storage or disposal of any Hazardous Substances (as
defined below) at any real property location offsite of the Company Properties
in violation of Environmental Laws or in a manner that reasonably would give
rise to remedial obligations under Environmental Laws; (ii) the Company, the
operation of its business, and the Interests are in compliance with all
applicable Environmental Laws (as defined below), including any Environmental
Laws with respect to any investigation, cleanup or remediation of any Release
(as defined below) or threat of Release of Hazardous Substances, and no actions
30
are presently required to comply with any such applicable Environmental Laws;
(iii) the Company has not received any oral information request, or other oral
communication, or any oral notice of any proceeding, claim or lawsuit arising
out of or relating to any Environmental Laws, from any Person arising out of the
ownership of the Interests or the conduct of its operations, and the Company is
not aware of any basis therefor; (iv) the Company has not caused or allowed a
Release, or a threat of Release, of any Hazardous Substance onto, at or near or
from the Interests in violation of Environmental Laws or in a manner that
reasonably would give rise to remedial obligations under Environmental Laws; and
(v) there has not been exposure of persons to a Release or a threat of Release
of Hazardous Substances in connection with the ownership or operation of its
business or the Interests that would reasonably be expected to result in Losses.
(b) Except as set forth in Schedules 3.9(k) or (o) or Schedule 3.19(b), and
except with respect to any other matters that, individually or in the aggregate,
would not reasonably be expected to pose or otherwise represent a liability in
excess of $100,000: (i) the Company has not received in writing any citation,
directive, letter, governmental information request, or other written
communication, or any written notice of any proceeding, claim or lawsuit arising
out of or relating to any Environmental Laws, from any Person arising out of the
ownership of the Interests or the conduct of its operations, and to Seller's
Knowledge, there is no basis therefor; (ii) the Company has obtained and is
maintaining in full force and effect all permits, licenses, consents,
exemptions, waivers, authorizations and approvals required by all Environmental
Laws applicable to the Interests and the business operations conducted thereon
and the Company is in compliance with all such permits, licenses, consents,
exemptions, waivers, authorizations and approvals; and (iii) Seller has made
available to Buyer all internal and external environmental audits and reports,
and all correspondence, studies, documents, and correspondence on environmental
matters and compliance with Environmental Laws relating to Seller's business and
its Interests that are in the possession or control of Seller.
(c) For the purposes of this Agreement, the term "Environmental Laws" shall
mean any applicable federal, state, or local statutes, laws, rules, regulations,
orders, ordinances, treaties, directives or other legally enforceable
requirements of the United States or any state therein, and rules of common law
of any Governmental Body pertaining to the protection of human health or the
environment, including the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Sections 9601 et seq. ("CERCLA"), the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., OPA and
the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et seq., as
each has been amended from time to time, and all other environmental
conservation and protection laws. For purposes of this Agreement, the term
"Hazardous Substances" shall have the meaning given such term by CERCLA, but
shall also include pollutants, contaminants, natural gas, condensate, crude oil
and derivatives thereof. For the purposes of this Agreement, the term "Release"
shall have the meaning given such term by CERCLA.
(d) Buyer acknowledges that the Interests have been utilized by the Company
for the purpose of exploration, development, processing, temporary storage and
transportation of oil, gas and condensate, and that some of the oil and gas fuel
31
production equipment, wells, structures, platforms, facilities or flowlines
included in the Interests may contain asbestos or Naturally Occurring
Radioactive Material ("NORM"). Buyer understands that NORM may affix or attach
itself to the inside of wells, materials, and equipment as scale, or in other
forms, and that wells, material and equipment included in the Interests may
contain NORM. Buyer also understands that special procedures may be required for
the removal and disposal of asbestos and NORM from the Interests, and that a
health hazard may exist in connection with the presence of asbestos and NORM.
Notwithstanding anything in Section 3.19 to the contrary, Seller makes no
representation or warranty whatsoever with respect to the presence or not of
asbestos and NORM in, on or about the Interests and Buyer assumes all liability
and risk related to such asbestos and NORM and for use of appropriate procedures
and activities required to handle and dispose of same.
3.20 EMPLOYEES
The Company has no employees and has not had any employees since July 10,
2001 and, on the Closing Date, the Company will have no liability or obligations
to any current or former employee of the Company, Seller or any Affiliate of
Seller who has provided services to the Company, except for any liability or
obligation arising under the Pre-Closing Date Claims, which the Seller is
assuming. The employees who provide services for the Company are made available
to the Company by another Affiliate of Seller. Schedule 3.20 contains a list of
the following information for each employee of any other Affiliate of Seller who
on the date of this Agreement is providing services for the Company on a
full-time basis: employer; name and job title. Seller has provided Buyer with a
list of current compensation paid or payable for each such employee.
3.21 LABOR RELATIONS; COMPLIANCE
Since July 10, 2001, and to Seller's Knowledge on or before July 10, 2001,
the Company has not been a party to any collective bargaining or other labor
Contract except for matters listed in Schedule 3.21. Since July 10, 2001, and to
Seller's Knowledge on or before July 10, 2001, there has not been, there is not
presently pending or existing, and to Seller's Knowledge there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting Company relating to
the alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting the Company or its
premises, or (c) any application for certification of a collective bargaining
agreement. To Seller's Knowledge no event has occurred or circumstance exists
that could provide the basis for any work stoppage or other labor dispute. There
is no lockout of any employees by the Company, and no such action is
contemplated by the Company. The Company has complied in all respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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3.22 DISCLOSURE
No representation or warranty of Seller in this Agreement and no statement
in the Schedules omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
3.23 RELATIONSHIPS WITH RELATED PERSONS
Except with respect to Multiple Party MSAs, and with respect to
administrative services and other services and benefits provided by Seller and
its other Affiliates to the Company, and except as set forth in Schedule 3.23,
neither Seller nor any Related Person of Seller or the Company has, or since
July 10, 2001, and to Seller's Knowledge on or before July 10, 2001, has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible), used in or pertaining to the Company's businesses.
Neither Seller nor any Related Person of Seller or of the Company owns, or since
July 10, 2001, and to Seller's Knowledge on or before July 10, 2001, has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company, except for ownership
of less than one percent of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Schedule 3.23, neither Seller
nor any Related Person of Seller or the Company is a party to any Contract with,
or has any claim or right against, the Company.
3.24 BROKERS OR FINDERS
Other than the engagement of Credit Suisse First Boston LLC ("CSFB") as
Seller's financial advisor, neither Seller nor the Company nor any Person acting
on their behalf, has incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement (collectively "Brokers'
Fees").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
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4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT
(a) Assuming the execution and delivery by Seller of this Agreement, this
Agreement constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws effecting creditors' rights and
remedies generally, and upon the execution and delivery by Buyer of the other
documents to be executed and delivered by Buyer pursuant to this Agreement
(collectively, "Buyer's Closing Documents"), Buyer's Closing Documents will
constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws effecting creditors' rights and
remedies generally. Buyer has the legal right, power, and authority to execute
and deliver this Agreement and Buyer's Closing Documents and to perform its
obligations under this Agreement and Buyer's Closing Documents. The execution
and delivery by Buyer of, and the performance by Buyer of its obligations under,
this Agreement and Buyer's Closing Documents, have been duly authorized by all
requisite corporate action on the part of Buyer and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement,
Buyer's Closing Documents or the consummation of the Contemplated Transactions.
(b) Except for MMS and State Consents, and except with respect to matters
subject to a Routine Governmental Approval, neither the execution and delivery
of this Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer is subject; or
(iv) any Contract to which Buyer is a party or by which Buyer is
bound.
Except for MMS and State Consents, and except with respect to matters subject to
a Routine Governmental Approval, Buyer is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.
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4.3 INVESTMENT REPS
(a) Buyer is financially able to bear the economic risks of acquiring the
Shares.
(b) Buyer has such knowledge and experience in financial, business and
operational matters in general and with respect to businesses of a nature
similar to the Company so as to be capable of evaluating the merits and risks
of, and making an informed business decision with respect to, the acquisition of
the Shares.
(c) Buyer is acquiring the Shares solely for its own account and not with a
view to or for resale in connection with any distribution or public offering
thereof, within the meaning of any applicable securities laws and regulations,
unless such distribution or offering is registered under the Securities Act, or
an exemption from such registration is available.
(d) Buyer (i) has received all the information it has deemed necessary to
make an informed investment decision with respect to an acquisition of the
Shares; (ii) understands that the Company is not subject to the reporting
requirements of the Exchange Act, (iii) has had the unrestricted opportunity to
make such investigation as it has desired pertaining to the Company and the
acquisition of the Shares and to verify the information that is, and has been,
available to Buyer; and (iv) has had the opportunity to ask questions of Seller,
and representatives of the Company concerning the Company.
(e) Buyer understands that the Shares are being transferred to it pursuant
to an exemption from registration under the Securities Act and that Seller is
relying upon the investment and other representations made herein as the basis
for Seller claiming such exemption.
4.4 FEDERAL AND STATE LEASES
(a) Buyer (i) is qualified with the MMS to hold title to, own and operate
oil and gas leases and to operate platforms, wells, pipelines and facilities on
the U.S. Outer Continental Shelf ("OCS"), and such qualification satisfies all
MMS qualification requirements which Buyer must meet by virtue of the
Contemplated Transactions, (ii) is qualified to hold title to the Interests in
the state waters of Louisiana and Texas, and such qualification satisfies all
state qualification requirements which Buyer must meet by virtue of the
Contemplated Transactions, and (iii) is in good standing with, authorized by and
qualified with all Governmental Bodies with jurisdiction over operations of the
Company, to the extent Buyer is, or by virtue of the Contemplated Transactions
will be, required to so qualify and maintain good standing.
(b) Buyer is unaware of any fact or circumstance which would preclude the
unconditional approval by the MMS, any state agency, or any other Governmental
Body with applicable jurisdiction, including any fact or circumstance either in
existence, or that will arise with the passage of time, which would preclude the
unconditional approval: (i) of Buyer's bonds, insurance coverage, evidence of
financial responsibility, guarantees and indemnity agreements to secure the
Company's ownership and operation of the Interests or Buyer's ownership of the
Company, or (ii) of the termination and cancellation of all of Seller's bonds
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(other than the $3,000,000 areawide bond of Seller which will remain in place
with the MMS after Closing), insurance coverage, evidence of financial
responsibility, guarantees and indemnity agreements provided to the MMS or other
Governmental Bodies related to the Company's ownership and operation of the
Interests ("Seller's Bonds and Liability Agreements").
4.5 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
4.6 BROKERS OR FINDERS
Neither Buyer nor any Person acting on its behalf has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
ARTICLE 5
COVENANTS OF SELLER PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
From and including the date of this Agreement until the Closing, Seller
will, and will cause the Company and its Representatives to, (a) afford Buyer
and its Representatives and prospective lenders and their Representatives
(collectively, "Buyer's Advisors") at such times and on such terms as Seller may
approve, access to the Company's personnel, properties, contracts, books and
records, and other existing documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
From and including the date of this Agreement until the Closing, Seller
will, and will cause the Company to:
(a) conduct the business of the Company only in the Ordinary Course of
Business;
(b) use Best Efforts to preserve intact the current business organization
of the Company, keep available the services of any individuals employed by
Seller or its Affiliates who currently provide services to the Company (subject
to Section 10.4), and maintain the relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others having business
relationships with the Company; and
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(c) cause the Retained Assets and Retained Liabilities to be transferred
from the Company to Seller or another of its Affiliates, and for Seller or such
other Affiliate to assume all of the Company's liabilities and obligations under
or with respect to the Retained Liabilities without any warranty whatsoever,
express or implied.
5.3 NEGATIVE COVENANTS
(a) Except as otherwise permitted or contemplated by this Agreement, from
and including the date of this Agreement until the Closing, Seller will not, and
will cause the Company not to, without the prior written consent of Buyer, take
any affirmative action, or fail to take any reasonable action within either of
their control, as a result of which any of the changes or events listed in
Section 3.16 is likely to occur.
(b) The Company will not incur or commit to incur any expenses with respect
to any Interests, or to apply revenues from a Well's production or a Lease in
connection with any Interests, except for Ordinary and Capital Expenses or
except to the extent Buyer has been given seven days prior written notice and
has consented thereto in writing.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller will,
and will cause the Company to, make all filings required by Legal Requirements
to be made by them in order to consummate the Contemplated Transactions. From
and including the date of this Agreement until the Closing (or with respect to
Routine Governmental Approvals after Closing), Seller will, and will cause the
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining the MMS
and State Consents.
5.5 NOTIFICATION OF BUYER
From and including the date of this Agreement until the Closing, Seller
will promptly notify Buyer in writing if Seller or the Company becomes aware of
any fact, circumstance or condition that causes or constitutes a Breach of any
of Seller's representations and warranties as of the date of this Agreement, or
if Seller or the Company becomes aware of the existence or occurrence after the
date of this Agreement of any fact, circumstance or condition that would cause
or constitute a Breach of any such representation and warranty had such
representation and warranty been made at or after the time of occurrence or
discovery of such fact, circumstance or condition. During the same period,
Seller will promptly notify Buyer of the occurrence of any Breach of any
covenant of Seller in this Article 5 or of the occurrence of any event that may
make the satisfaction of any of the conditions in Article 7 impossible or
unlikely. No notice given pursuant this Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances under which they
were made, not misleading.
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5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Seller will cause all indebtedness and intercompany payables (i) owed to
the Company by Seller or any Related Person of the Seller, or (ii) owed by the
Company to the Seller or any Related Person of the Seller, to be paid in full
prior to the Closing.
5.7 RELEASE OF THE COMPANY
(a) Prior to or simultaneously with the Closing, Seller will cause the
Company to be released from all guaranties of indebtedness of Seller or its
Affiliates, listed on Schedule 5.7(a), and Seller will cause the Interests and
the Shares to be released from any security interests, liens, and pledges
related to such indebtedness, including those mortgages and liens listed on
Schedule 3.9(a)(ii) and that pledge of the Shares set forth on Schedule 3.3, all
for the benefit of Bank One, N.A., as administrative agent for those banks
participating in the Seller's credit facility
(b) Seller hereby agrees to forever waive, release and discharge and to not
assert, any and all rights Seller or its Affiliates may have pursuant to
applicable law or otherwise to make a claim against or otherwise demand or
receive payment from the Company or any officer, director, employee or agent of
the Company, arising out of or with respect to, any act or omission of the
Company, or any such individual in such individual's role as an officer,
director, employee or agent of the Company, prior to the Closing Date.
Seller understands and agrees that pursuant to this Section 5.7, Seller is
expressly waiving certain claims (other than those expressly reserved as set
forth in this Section 5.7), even those Seller may not know or suspect to exist,
which if known may have materially affected the decision to provide this
release, and Seller waives any rights under applicable Legal Requirements that
provide to the contrary.
5.8 BEST EFFORTS
From and including the date of this Agreement until the Closing, Seller
will use its Best Efforts to cause the conditions in Article 7 to be satisfied.
ARTICLE 6
COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
Subject to Section 10.8, as promptly as practicable after the date of this
Agreement, Buyer will, and will cause each of its Related Persons to, make all
filings required by Legal Requirements to be made by them to consummate the
Contemplated Transactions. From and including the date of this Agreement until
the Closing (or with respect to Routine Governmental Approvals after Closing),
Buyer will, and will cause each of its Related Persons to, (a) cooperate with
Seller with respect to all filings that Seller elects to make or is required by
Legal Requirements to make in connection with the Contemplated Transactions, and
(b) cooperate with Seller in obtaining all consents identified in Schedule
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3.2(c) or Schedule 3.9(l); provided that this Agreement will not require Buyer
to dispose of or make any change in any portion of its business to obtain a
Governmental Authorization.
6.2 INTENTIONALLY DELETED
6.3 NOTIFICATION OF SELLER
From and including the date of this Agreement until the Closing, Buyer will
promptly notify Seller in writing if Buyer becomes aware of any fact,
circumstance or condition that causes or constitutes a Breach of any of Buyer's
representations and warranties as of the date of this Agreement, or if Buyer
becomes aware of the existence or occurrence after the date of this Agreement of
any fact, circumstance or condition that would cause or constitute a Breach of
any such representation and warranty had such representation and warranty been
made at or after the time of occurrence or discovery of such fact, circumstance
or condition. During the same period, Buyer will promptly notify Seller of the
occurrence of any Breach of any covenant of Buyer in this Article 6 or of the
occurrence of any event that may make the satisfaction of any of the conditions
in Article 8 impossible or unlikely.
6.4 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, from and including the
date of this Agreement until the Closing, Buyer will use its Best Efforts to
cause the conditions in Article 8 to be satisfied.
ARTICLE 7
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 MATERIAL ADVERSE EFFECT ON THE COMPANY
The representations and warranties of Seller contained in this Agreement
shall be true and correct as of the Closing Date, with the same force and effect
as if made on the Closing Date (without giving effect to any qualification as to
materiality), other than such representations and warranties as are made as of
another date, which shall be true and correct as of such date, except to the
extent that the failures to be so true and correct would not, individually or in
the aggregate with all other such failures, have a Material Adverse Effect.
7.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of those covenants and obligations
(considered individually), must have been duly performed and complied with in
39
all material respects and Buyer shall have received a certificate from Seller to
such effect signed by a duly authorized officer thereof.
(b) Each document or other item required to be delivered by Seller pursuant
to Section 2.4(a) must have been delivered.
7.3 CONSENTS
Each of the Consents identified in Schedule 3.2(c) or Schedule 3.9(l)
must have been obtained and must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Jenkens & Gilchrist, a Professional Corporation, dated
the Closing Date, in form and substance reasonably satisfactory to Buyer and
with respect to (i) the legal matters addressed in Sections 3.1, 3.2(a),
3.2(b)(i) and (v) and 3.3, and (ii) the legal matters as to Seller addressed in
Sections 3.2(b)(ii) and (iv) and 3.2(c);
(b) a certificate executed by Seller to the effect that each of Seller's
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date, provided that,
for the purpose of such certificate, no representation and warranty will be
deemed inaccurate due to any fact, circumstance or condition of which Seller has
given Buyer notice in writing on or before the Closing Date;
(c) a release, effective as of the Closing Date, executed by the Company,
Seller and JPMorgan Chase Bank pursuant to the Indenture dated as of March 25,
2003, between Seller and JPMorgan Chase Bank, as Trustee, as supplemented by
that First Supplemental Indenture dated as of December 29, 2003, releasing the
Company as a subsidiary guarantor under Seller's 7 1/2% Senior Subordinated
Notes Due 2013;
(d) a letter dated July 8, 2004, executed by Bank One, NA, as
Administrative Agent, on behalf of the Banks, evidencing their consent to the
sale of the Company under the Fourth Amended and Restated Credit Agreement,
dated as of December 30, 2003, among Denbury Onshore, LLC, Seller, Bank One, NA
and the Banks from time to time party thereto;
(e) a partial release of mortgage liens on the Interests in Texas, dated
the Closing Date and executed by Bank One, NA, as Administrative Agent, on
behalf of the Banks;
(f) an affidavit, executed by Bank One, NA, as Administrative Agent, on
behalf of the Banks, to partially cancel multiple indebtedness mortgages in
Louisiana, dated the Closing Date;
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(g) UCC-3 termination statements evidencing the termination of the applicable
liens in Texas and Louisiana created under the Fourth Amended and Restated
Credit Agreement dated as of December 30, 2003, among Denbury Onshore, LLC,
Seller, Bank One, NA and the Banks from time to time party thereto;
(h) an executed counterpart of the Reporting and Accounting Agreement,
dated the Closing Date and executed by Denbury Onshore, LLC and Buyer, in the
form attached hereto as Exhibit A;
(i) a resignation letter, effective as of the business day following the
Closing Date, from Phil Rykhoek and resignation letters, effective as of the
Closing Date, from each other officer and director of the Company;
(j) Interim Balance Sheet;
(k) IRS Section 338 (h)(10) election Form 8023;
(l) a Certificate of Corporate Secretary and Power of Attorney addressing
MMS matters, executed by Phil Rykhoek, in the form attached hereto as Exhibit B;
(m) an executed Assignment of Oil and Gas Properties and Contracts and Bill
of Sale, in the form attached hereto as Exhibit C; and
(n) such other documents as Buyer may reasonably request for the purpose of
(i) enabling its counsel to provide the opinion referred to in Section 8.4(a),
(ii) evidencing the accuracy of any of Seller's representations and warranties,
(iii) evidencing the performance by Seller of, or the compliance by Seller with,
any covenant or obligation required to be performed or complied with by Seller,
(iv) evidencing the satisfaction of any condition referred to in this Article 7,
or (v) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
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7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, the Company, or (b) is entitled
to all or any portion of the Purchase Price payable for the Shares.
ARTICLE 8
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
8.1 MATERIAL ADVERSE EFFECT ON BENEFITS OF TRANSACTION
The representations and warranties of Buyer contained in this Agreement
shall be true and correct as of the Closing Date (without giving effect to any
qualification as to materiality), with the same force and effect as if made on
the Closing Date, other than such representations and warranties as are made as
of another date, which shall be true and correct as of such date, except to the
extent that the failures to be so true and correct would not, individually or in
the aggregate with other such failures, have a material adverse effect on the
benefits to be received by Seller in connection with this Agreement and the
Contemplated Transactions taken as a whole.
8.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have made the cash payments required to be made by Buyer pursuant
to Section 2.4(b), and the agreements contained in Section 10.8(a) to be
performed prior to Closing must have been performed and complied with in all
respects at or prior to Closing.
8.3 CONSENTS
Each of the Consents identified in Schedule 3.2(c) or Schedule 3.9(l) must have
been obtained and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Seller:
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(a) an opinion of Vinson & Elkins, L.L.P., dated the Closing Date, in form
and substance reasonably satisfactory to Seller and with respect to the matters
addressed in Sections 4.1 and 4.2;
(b) a certificate executed by Buyer to the effect that each of Buyer's
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date, provided that,
for the purpose of such certificate, no representation and warranty will be
deemed inaccurate due to any fact, circumstance or condition of which Buyer has
given Seller notice on or before the Closing Date in accordance with Section
6.3.
(c) evidence of compliance with MMS-related covenants in Section 10.8(a),
in form and substance reasonably satisfactory to Seller;
(d) receipt of Interim Balance Sheet;
(e) IRS Section 338 (h)(10) election Form 8023;
(f) an executed counterpart of the Reporting and Accounting Agreement,
dated the Closing Date and executed by Denbury Onshore, LLC and Buyer, in the
form attached hereto as Exhibit A;
(g) such other documents as Seller may reasonably request for the purpose
of (i) enabling its counsel to provide the opinion referred to in Section
7.4(a), (ii) evidencing the accuracy of any representation or warranty of Buyer,
(iii) evidencing the performance by Buyer of, or the compliance by Buyer with,
any covenant or obligation required to be performed or complied with by Buyer,
(iv) evidencing the satisfaction of any condition referred to in this Article 8,
or (v) otherwise facilitating the consummation of any of the Contemplated
Transactions; and
(h) evidence reasonably acceptable to Seller of the accuracy of Buyer's
representations and warranties in Section 4.4(a) as of the Closing Date,
including evidence that Buyer is qualified with MMS to hold title to leases on
the OCS.
8.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Seller, or against any Person affiliated with Seller, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
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ARTICLE 9
TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given at or prior to the Closing, be
terminated:
(a) by either Buyer or Seller if a material Breach of any provision of this
Agreement (other than a Breach of a representation and warranty that would not
be likely to result in a Material Adverse Effect) has been committed by the
other Party and such Breach has not been waived;
(b) (i) by Buyer if any of the conditions set forth in Article 7 have not
been satisfied as of the Proposed Closing Date or any subsequently agreed upon
Closing Date or if satisfaction of any such conditions is or becomes impossible
(other than through the failure of Buyer to comply with its obligations under
this Agreement) and Buyer has not waived any such condition on or before the
Proposed Closing Date or any subsequently agreed upon Closing Date; or (ii) by
Seller, if any of the conditions set forth in Article 8 have not been satisfied
as of the Proposed Closing Date or any subsequently agreed upon Closing Date or
if satisfaction of any such conditions is or becomes impossible (other than
through the failure of Seller to comply with its obligations under this
Agreement) and Seller has not waived any such condition on or before the
Proposed Closing Date or any subsequently agreed upon Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not occurred (other than
through the failure of any Party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) by 30 days after the Proposed
Closing Date.
9.2 EFFECT OF TERMINATION
Each Party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the Parties under
this Agreement will terminate, except that the obligations in Sections 12.1,
12.2 and 12.3 will survive; provided, however, that nothing herein shall relieve
Seller or Buyer from liability for any Breach of this Agreement.
ARTICLE 10
ADDITIONAL AGREEMENTS
10.1 TAX MATTERS
(a) Seller shall and shall cause the Company to terminate any tax sharing
agreement between or among Seller and the Company or any other Affiliates of
Seller as of the Closing Date and any such agreement shall have no further
effect for any taxable year (whether the current year, a future year, or a past
year).
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(b) Seller shall timely file the U.S. federal income Tax Returns of the
Affiliated Group and any Combined Returns (taking into account extensions
thereto) for all periods (including any Pre-Closing Period or Straddle Period)
and will timely pay any Taxes with respect thereto. Seller shall include the
income of the Company (including any deferred items triggered into income by
Treas. Reg. ss.1.1502-13, any excess loss account taken into income under Treas.
Reg. ss.1.1502-19 and all items of income and gain resulting from the Section
338(h)(10) Elections) on Seller's consolidated federal income Tax Returns for
all periods through the end of the Closing Date and pay any federal income Taxes
attributable to such income. The Company shall furnish Tax information to Seller
for inclusion in Seller's federal consolidated income Tax Return for the period
which includes the Closing Date in accordance with the Company's past custom and
practice. For purposes of preparing these Tax Returns and Combined Returns, the
income and expenses of the Company shall be apportioned between the period up to
and including the Closing Date and the period after the Closing Date by closing
the books of the Company as of the end of the Closing Date. Seller shall timely
file such Tax Returns and duly and timely pay all Taxes on such Tax Returns.
(c) Seller shall prepare or shall cause to be prepared all other Tax
Returns of the Company for a Pre-Closing Period that are filed subsequent to the
Closing Date. Seller shall timely file such Tax Returns and duly and timely pay
all Taxes due with respect to the periods covered by such Tax Returns. To the
extent in its or the Company's possession Buyer shall provide timely and
accurate information to Seller for Seller's preparation of such Tax Returns
(d) Buyer shall prepare or shall cause to be prepared all Tax Returns of
the Company for a Straddle Period that are filed subsequent to the Closing Date.
All such Tax Returns with respect to a Straddle Period shall be prepared on a
basis consistent with prior Tax Returns filed with respect to the Company. With
respect to each such Tax Return, Buyer shall determine the Tax attributable to
the portion of the Straddle Period ending on the Closing Date (the "Pre-Closing
Tax") by an interim closing of the books as of the Closing Date, except for ad
valorem Taxes and franchise Taxes. At least twenty (20) days prior to the date
on which such Tax Return is due (including any extensions), Buyer shall deliver
a copy of such Tax Return to Seller together with a statement of the Pre-Closing
Tax. Seller shall be permitted to review and comment on each such Tax Return at
least ten days prior to such due date, and Buyer shall make such changes and
revisions to such Tax Return and the resulting Pre-Closing Tax as are reasonably
requested by Seller and which are consistent with past practices of the Company
and shall notify Seller thereof at least five days prior to such due date that
such changes have been made. Not later than three days prior to such due date,
Seller shall pay to Buyer the amount of Pre-Closing Tax (as so revised), reduced
by the amount of any prepaid tax payments (including tax deposits) made with
respect to such Pre-Closing Tax prior to the Closing. If the amount of any such
prepaid tax payments is in excess of the amount of the Pre-Closing Tax, then
such excess shall be treated as a refund under Section 10.1(f) of this Agreement
and shall be refunded to Seller in accordance with the terms of Section 10.1(f).
Upon receipt of such payment, Buyer shall cause the Company to file such Tax
Return and timely pay the Tax shown due on such Tax Return less prepaid tax
payments (including tax deposits).
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Buyer shall be responsible for preparing and filing the initial franchise
tax return of the Company required to be filed after the Closing Date as a
result of the transfer of the Shares to the Buyer (the "Initial Franchise Tax
Return") and shall be responsible for the payment of any franchise taxes due
with respect to the period covered by the Initial Franchise Tax Return. Seller
shall be responsible for preparing and filing any franchise tax returns of the
Company required to be filed for any periods prior to the period covered by the
Initial Franchise Tax Return and shall be responsible for the payment of any
franchise taxes due with respect to the periods covered by such franchise tax
returns. Any reduction in the amount of franchise taxes for any period for which
Seller is responsible hereunder shall be treated as a refund under Section
10.1(f) and shall be refunded to Seller in accordance with the terms of Section
10.1(f)
Buyer shall be responsible for paying the ad valorem taxes attributable to
the Interests for the calendar year 2004. Buyer shall calculate and determine
the amount of such ad valorem taxes attributable to the periods prior to the
Closing Date by prorating such taxes on a daily basis (the "Pre-Closing Ad
Valorem Tax"). At least twenty (20) days prior to the date that any such ad
valorem tax is due, Buyer shall deliver a copy of the 2004 tax statements along
with Buyer's calculation of the Pre-Closing Ad Valorem Tax to Seller. Seller
shall be permitted to review such documentation until ten days prior to such due
date, and Buyer shall make such changes and revisions to such tax payments and
the resulting Pre-Closing Ad Valorem Tax as are reasonably requested by Seller
and which are consistent with past practices of the Company and shall notify
Seller at least five days prior to such due date that such changes have been
made. Not later than three days prior to such due date, Seller shall pay to
Buyer the final amount of Pre-Closing Ad Valorem Tax. Upon receipt of such
payment, Buyer shall cause the Company to timely pay the 2004 ad valorem taxes
attributable to the Interests.
(e) Seller shall join Buyer in making a timely, irrevocable and effective
election under Section 338(h)(10) of the Code and any similar election under any
applicable state or local income tax law (collectively, the "Section 338(h)(10)
Elections") with respect to Buyer's purchase of the Shares. To facilitate such
election, at the Closing Seller shall deliver to Buyer an IRS Form 8023 and any
similar forms under applicable state or local income tax law ("Forms 8023") with
respect to Buyer's purchase of the Shares, on which Seller shall have completed
Sections B and C thereof and which shall have been duly executed by an
authorized person for Seller. Buyer shall complete Sections A, D and E thereof
and cause the Forms 8023 to be duly executed by an authorized person for Buyer,
shall provide a copy of the completed Forms 8023 to Seller, and shall cause the
Forms 8023 to be duly and timely filed as prescribed by Treas. Reg. ss.
1.338(h)(10)-1 or the corresponding provisions of applicable state or local
income Tax law. Seller and Buyer shall cooperate with each other in allocating
the aggregate deemed sale price ("ADSP") as defined in Treas. Reg. ss. 1.338-4
among the classes of assets of the Company pursuant to Treas. Reg. ss. 1.338-6,
and shall make available to each other such Tax data and other information as
may be reasonably requested by the other party. Within 150 days after the
Closing, Seller and Buyer shall agree on the allocation of such ADSP among the
classes of assets of the Company to be reported on the respective IRS Form 8883
and any similar forms under applicable state or local income tax law ("Forms
8883") to be filed by Seller and Buyer. In the event that Buyer and Seller are
46
unable to agree on the allocation of ADSP to be reported on Forms 8883 within
180 days of the Closing Date, the matter in dispute shall be resolved as soon as
practicable (but in any event within 30 days thereafter) by a "Big Four"
independent accounting firm or, if the disagreement involves valuation, by a
nationally recognized appraisal firm, mutually satisfactory to the parties,
which resolution shall be binding and conclusive upon Seller and Buyer. Buyer
and Seller shall bear equally the fees and expenses of such firm. Buyer and
Seller shall file all Tax Returns in a manner consistent with the allocation of
ADSP reported on Forms 8883.
(f) Any Tax refunds that are received by Buyer or the Company and any
amounts credited against Taxes to which Buyer or the Company become entitled
that relate to Tax periods or portions thereof ending on or before the Closing
Date shall be for the account of Seller, and Buyer shall pay over to Seller any
such refund or the amount of any such credit within 15 days after the receipt or
entitlement thereto, net of any Taxes imposed upon Buyer by reason of the
receipt of such refund or credit.
(g) Buyer shall not file an amended Tax Return or any claim for refund for
any period ending on or prior to the Closing Date without the written consent of
Seller, which consent will not be unreasonably withheld. However, in no case
will Seller's failure to give consent be treated as unreasonably withheld if it
is due to Seller's reasonable belief that filing a claim for refund would have a
detrimental impact (including an increased risk of a tax audit) on Seller or any
Seller's Affiliates (including Seller's Affiliated Group).
(h) Seller shall be solely responsible for the audit of, or any litigation
or other Proceeding with respect to, the consolidated federal income Tax return
of the Affiliated Group and any Combined Returns and Seller shall have the sole
discretion to settle or defend any such audit, litigation or other Proceeding
with respect to a U.S. federal income Tax Return of the Affiliated Group or a
Combined Return. Any such audit, litigation or other Proceeding will not be a
Third Party Claim subject to the provisions of Section 11.7.
(i) Buyer agrees to indemnify Seller for any additional tax owed by Seller
(including tax owed by Seller due to this indemnification payment) resulting
from any transaction engaged in by the Company not in the Ordinary Course of
Business occurring on the Closing Date but after the Closing, other than any Tax
resulting from the Section 338(h)(10) Elections.
(j) Buyer and Seller agree to report all transactions not in the Ordinary
Course of Business occurring after the Closing on the Closing Date on Buyer's
federal income Tax Return (or on the Company's separate federal income Tax
Return) to the extent permitted by Treas. Reg. ss.1.1502-76(b)(1)(ii)(B), other
than any transactions resulting or deemed to result from the Section 338(h)(10)
Elections.
(k) Seller, the Company and Buyer shall preserve all Tax information
related to the Company, and records or other documents related to Taxes with
respect to the Company, until the date that is six months after the expiration
of the statute of limitations applicable to such Tax; and each Party agrees to
give to the other Party a reasonable written notice prior to its transferring,
destroying or discarding any such information, records or documents and, to the
extent the other Party so requests, the notifying Party shall permit the other
Party to take possession of such information, records and documents. Buyer and
47
the Company, on the one hand, and Seller, on the other hand, shall cooperate
fully, as and to the extent reasonably requested by the other, in connection
with the filing of Tax Returns pursuant to this Section 10.1 and any audit,
litigation or other Proceeding with respect to Taxes. In that regard, Seller,
Buyer, and the Company shall, at their own expense, maintain such Tax
information or Tax records relating to the Company as are regularly maintained
by the Company or such Party or as may be required by law (including Tax law) to
be maintained. Such Tax records or Tax information shall be made available upon
written request by Seller or Buyer or the Company, as the case may be, within
five business days of such request. Notwithstanding the foregoing, Seller and
Buyer shall only be obligated to provide that portion of their federal
consolidated Tax Returns or Combined Tax Returns and accompanying Tax records or
Tax information that directly relates to the Company. In any event, the
provisions of access to such Tax records or Tax information shall not
unreasonably interfere with the business operations of the non-requesting Party.
(l) All transfer, documentary, sales, use, stamp, registration and other
similar Taxes and fees (including any penalties and interest) incurred in
connection with the Contemplated Transactions shall be paid by the Party
incurring same.
10.2 INSURANCE
Buyer acknowledges that on the Closing Date, effective as of the Closing,
all insurance coverage and bonds (other than bonds included in Seller's Bonds
and Liability Agreement and bonds covered by the provisions of Section 10.12)
provided by Seller, or any of its Affiliates other than the Company, for the
Company ("Seller Provided Insurance and Bonds"), and all certificates of
insurance evidencing that the Company maintains any required insurance by virtue
of Seller Provided Insurance and Bonds, other than the three bonds identified in
Schedule 10.8(a) under which the Company is indicated as "Principal," will
terminate and Seller will have the right to keep any unearned premiums in
connection with Seller Provided Insurance and Bonds. After Closing, Seller will
cooperate with Buyer and the Company to obtain for the Company the benefits of
Seller Provided Insurance and Bonds with respect to matters arising prior to
Closing that are covered thereby, including, if so covered, claims asserted by a
third party against the Company that would have been Pre-Closing Date Claims if
asserted on or before the first anniversary of the Closing Date.
10.3 PRE-CLOSING DATE CLAIMS
(a) For the purpose of this Agreement, the term "Pre-Closing Date Liability
Claim" means any claim asserted by a third party against the Company for damage
to person or property to the extent it arises out of events occurring prior to
the Closing Date. Pre-Closing Date Liability Claims do not include (i) claims
which arise out of events occurring on or after the Closing Date, even if such
events result from the Company continuing to conduct business in the same manner
as prior to the Closing Date, (ii) claims related to violations of Environmental
Laws or based on release or the threat of release of any Hazardous Substance,
unless the existence of such claim results in a Breach of the representations
and warranties in Section 3.19, or (iii) claims which are asserted against the
Company after the first anniversary of the Closing Date.
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(b) For the purpose of this Agreement, the term "Pre-Closing Date
Litigation Claim" means any claim asserted by a third party against the Company
for damage to person or property, including those set forth on Schedule 3.15(a),
and the threatened litigation described on Schedule 3.15(a) (even though such
threatened litigation does not involve damage to person or property), which
arises out of events occurring prior to the Closing Date and which is asserted
prior to the Closing Date in any litigation commenced against the Company prior
to the Closing Date or, with respect to the threatened litigation described on
Schedule 3.15(a), which is asserted in any litigation commenced against the
Company at any time.
(c) Pre-Closing Date Liability Claims and Pre-Closing Date Litigation
Claims are collectively referred to as "Pre-Closing Date Claims." Damages
resulting from Pre-Closing Date Claims are included in the indemnification
obligations of Seller set forth in Section 11.2 of this Agreement. Pre-Closing
Date Claims will be Third Party Claims subject to the provisions of Section 11.7
of this Agreement, provided, however, that notwithstanding any provision of
Section 11.7 to the contrary, Seller shall have the absolute right to direct the
legal defense of, and to compromise or settle, any such claim seeking only cash
payments and for which Seller provides a full and unconditional release of the
Company, on such terms as Seller deems appropriate, using such counsel as Seller
may choose and no party shall have a right to refuse to execute any document or
to refuse to take any other act necessary or required in connection with the
settlement of a Pre-Closing Date Claim seeking only cash payments and for which
Seller provides a full and unconditional release of the Company, provided
further that Seller shall be responsible for the reasonable expenses, if any, of
executing any document necessary or required in connection with such settlement.
Pre-Closing Date Claims made seeking damages other than cash payments or for
which Seller does not provide a full and unconditional release of the Company,
will be governed by the provisions of Section 11.7 hereof.
(d) If, and to the extent that, the Company has a claim against any third
party which arises out of or which directly relates to events giving rise to a
Pre-Closing Date Claim (in all cases, a "Company Claim"), Buyer shall cause the
Company both to transfer to Seller on a timely basis all rights related to such
Company Claim, other than rights with respect to a Company Claim for amounts due
to the Company with respect to operations during the Adjustment Period, such
that to the extent possible Seller is able to make demand upon the proper
parties based on such claim, and to cooperate with Seller in Seller's efforts to
make recovery on such claim; provided that any costs and expenses, including
attorneys fees and expenses, incurred by the Company in connection herewith
shall be paid by Seller. On request of Seller, Buyer will, and will cause the
Company to, instruct and direct any counsel representing the Company in
connection with any Pre-Closing Date Claim that seeks only cash payments and for
which Seller provides a full and unconditional release of the Company or Company
Claim to comply with Seller's directions regarding the prosecution, legal
defense, compromise or settlement of any such Pre-Closing Date Claim or Company
Claim. Other than rights with respect to a Company Claim for amounts due to the
Company with respect to operations during the Adjustment Period, Seller shall
retain control of all Seller Provided Insurance and Bonds providing coverage
with respect to such Pre-Closing Date Claims and Company Claims, and will be
entitled to receive and retain all amounts paid pursuant to said policies or
bonds with respect to such Pre-Closing Date Claims or Company Claims. Seller
will be entitled to retain all damages recovered in connection with Company
Claims, other than rights with respect to a Company Claim with respect to
amounts due to the Company for operations during the Adjustment Period.
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10.4 EMPLOYEES
Seller will have the right, on or before the Closing Date, to cause the
Affiliate of Seller which employs the individuals named on Schedule 3.20 (the
"Schedule 3.20 Employees") to terminate the employment of some or all of the
Schedule 3.20 Employees. Such termination will not cause the Company to incur
any severance obligations to the Schedule 3.20 Employees. Buyer acknowledges
that if not terminated prior to Closing, all Schedule 3.20 Employees except for
the employees designated "Retained Employees" on Schedule 3.20, if any, will be
terminated as of the Closing Date. Notwithstanding Buyer's agreements set forth
in Section 12.3(g) below, Buyer may solicit any of the Schedule 3.20 Employees
except for the Retained Employees for employment to commence following the
Closing. Any and all obligations or liabilities (including any severance
obligations) arising in connection with the termination of employment of any
Schedule 3.20 Employee by Seller or any Affiliate of Seller shall be borne
solely by Seller or an Affiliate of Seller.
10.5 COMPANY FILES
In addition to the books and records covered by Section 3.5, certain other
files relating to the Interests or the operation of the Company are maintained
by Seller at Seller's place of business. All such files either will be in the
possession of the Company at the Closing or will be delivered to the Company
promptly after the Closing.
10.6 DISPUTE RESOLUTION
(a) The Parties will attempt in good faith to resolve promptly by
negotiation any and all controversies and disputes arising under, out of or
relating to this Agreement or the Contemplated Transactions, other than
controversies or disputes arising out of a Party's fraudulent acts or omissions
or willful misconduct (a "Dispute"). If such negotiation has not resulted in a
resolution of such Dispute within 30 days of the receipt by a Party of a written
notification by the other Party of a Dispute, such Dispute will be settled by
final and binding arbitration in accordance with the procedures and conditions
set forth herein, which may be initiated by either Party following such 30-day
period in accordance with Section 10.6(d).
(b) Except as modified herein, the Federal Arbitration Act, 9
U.S.C.ss.ss.1, et seq., will apply to any arbitration hereunder.
(c) Any arbitration proceedings hereunder will be conducted in Dallas,
Texas. The arbitration will be administered by the AAA, pursuant to the
then-prevailing Commercial Arbitration Rules (the "Rules"), subject to the
limitations and modifications set forth herein.
(d) Notice of a demand for arbitration (a "Notice to Arbitrate") must be
accompanied by a short and plain statement of the Party's claim(s), the grounds
for same and the relief sought and, unless the Parties have already agreed upon
a single Arbitrator to conduct the arbitration, shall appoint one Arbitrator.
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Within 30 days of receipt of a Notice to Arbitrate, the other Party must set
forth in writing and deliver to the Party who gave such Notice to Arbitrate an
answer setting forth its response to the claim for relief, as well as any
affirmative defenses and counterclaims and, unless the Parties have already
agreed upon a single Arbitrator, shall appoint one Arbitrator. If the Parties
agree upon a single Arbitrator, then the date of the other Party's answer will
be the date of the appointment of the Tribunal.
(e) The arbitration will be before a panel (the "Tribunal") of three
neutral arbitrators (each, an "Arbitrator"). If the Parties agree upon a single
Arbitrator to conduct the arbitration, references herein to the Tribunal mean
such single Arbitrator. If the Parties have not agreed upon a single Arbitrator,
each Party shall appoint one Arbitrator as provided in Section 10.6(d). The
third Arbitrator shall be appointed jointly by the first two Arbitrators. If the
Arbitrators appointed by the Parties cannot agree upon a third Arbitrator within
30 business days from their appointment, the third Arbitrator will be selected
by the AAA in accordance with the Rules.
(f) Neither Party will have the right to ex parte contact with the
Tribunal. The Tribunal is only authorized to, and only has the consent of the
Parties to, interpret and apply the terms and conditions of this Agreement in
accordance with the governing law. The Tribunal is not authorized to and shall
not add to, detract from or modify any term or condition of this Agreement, or
deprive either Party of any right or remedy expressly provided hereunder. In the
event that the Arbitrator exceeds his or her authority under this Agreement and
violates its provisions, either Party may petition a court of competent
jurisdiction to vacate the Arbitration Award on the grounds that the Arbitrator
exceeded his or her authority. The court shall make its determination based on
the record from the arbitration, affidavits submitted by the Parties, and
briefing submitted by the Parties. In any event, the Parties expressly waive any
right to a jury trial and stipulate that any designated issues will be decided
by the court without a jury.
(g) It will be the responsibility of each Party to timely comply with the
AAA's requests for payment of the Tribunal's fees. Any Tribunal fees that are
due prior to the issuance of an Arbitration Award shall be evenly divided
between the Parties. Any Party who has not complied with any such request within
30 calendar days thereof will be deemed in default of this Agreement and the
Tribunal may enter a default judgment against such Party on the merits.
(h) The Parties will have the right to conduct and enforce pre-hearing
discovery in accordance with the Federal Rules of Civil Procedure then in effect
for the Northern District of Texas, including any Local Rules (collectively, the
"Court Rules"), subject to the following:
(i) The Parties will make the voluntary disclosures described in the
Court Rules (except those applicable to expert witnesses) within 30 days
after the appointment of the Tribunal. The Tribunal shall establish a
deadline for disclosure of the identity and report of each expert witness,
as well as all other disclosures described in the Court Rules.
(ii) Each Party may serve a request for production of tangible and
documentary evidence. Responses to a request for production will be due 30
days after receipt.
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(iii) Each Party may serve no more than one set of interrogatories
limited to no more than 30 questions, including subparts. Answers to
interrogatories will be due 30 days after receipt.
(iv) Each Party may depose expert and fact witnesses.
(v) The Tribunal will have the right and authority to decide any and
all discovery disputes. The Tribunal will be empowered to issue subpoenas
and any and all process and orders permitted under the Rules to compel
cooperation in the discovery and otherwise enforce the discovery rights and
obligations of the Parties.
(i) The Tribunal will issue and deliver to each Party a written and signed
award (the "Arbitration Award") after the conclusion of the hearing before the
Tribunal provided in this Section 10.6. The Arbitration Award will contain the
factual and legal basis for such award. The Arbitration Award will, in addition
to the relief granted therein, award attorneys' fees and costs to the prevailing
Party as the Arbitrator may determine in light of all of the circumstances. The
term "costs" includes court costs, the fees of the Tribunal, administrative
fees, travel expenses and out-of-pocket expenses such as copying charges,
telephone expenses and witness fees (including expert witness fees), and
reasonable internal costs. The Arbitration Award will be binding upon the
Parties in accordance with its terms provided that the Arbitration Award is
rendered, and the Arbitration proceedings are conducted, in accordance with the
terms and provisions of this Agreement.
(j) The Arbitration Award may be enforced by any court of competent
jurisdiction.
10.7 SEISMIC DATA
The Company does not own or license any seismic data. Another Affiliate of
Seller owns licenses for certain seismic data as set forth on Schedule 10.7,
which is the seismic data that is used by the Company. Effective upon Closing,
the Company will no longer have access to or the right to use such seismic data.
After Closing, Buyer and the Company will be responsible to obtain such seismic
data or licenses as they may choose.
10.8 BUYER'S MMS AND STATE REGULATORY OBLIGATIONS
(a) In addition to its representations and warranties set out in Article 4,
Buyer hereby represents and warrants to Seller that Buyer has posted or
provided, or that Buyer will promptly after the Closing post or provide, all
lease bonds, area-wide bonds, additional bonds and supplemental bonds and all
guaranties, indemnities, insurance coverage and evidence of financial
responsibility required by the MMS and all other applicable Governmental Bodies
related to the Company's ownership or operation of the Interests or Buyer's
ownership of the Company, including those required to secure its
responsibilities under the Oil Pollution Act ("OPA") or any other applicable
law. With respect to its representations and warranties above, at the Closing
Buyer will provide to Seller evidence reasonably satisfactory to Seller of the
accuracy thereof.
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(b) In addition to Buyer's representations, warranties, agreements and
obligations under Section 10.8(a) above, Buyer agrees promptly after the Closing
to post any and all additional bonds, supplemental bonds, or insurance coverage,
execute any and all guarantees and indemnity agreements, provide all evidence of
financial responsibility and make any and all filings, registrations, and
recordings with the MMS, the states of Texas and Louisiana, and all other
Governmental Bodies necessary to permit the termination and cancellation of any
and all liability and obligations of Seller with respect to Seller's Bonds and
Liability Agreements (collectively, "MMS Cancellation"). Buyer shall expressly
agree in all filings with MMS and all other Governmental Bodies, to the extent
such filings permit such an agreement, to assume any and all obligations of
Seller relating to the Interests (collectively, "MMS Obligations"), provided,
however, that Buyer's assumption of the MMS Obligations will not limit any right
Buyer otherwise has to be indemnified by Seller for Claims arising out of the
MMS Obligations prior to the Closing Date or for a Breach of any representation,
warranty or covenant of Seller herein.
(c) Buyer will, and will cause each of its Related Parties to, promptly
after the Closing, take all actions required by the MMS, the states of Louisiana
and Texas, and any other Governmental Bodies to obtain the MMS and State
Consents (as defined in Section 3.9(e)) and all other requisite Governmental
Authorizations and other Consents with respect to the Contemplated Transactions.
(d) Buyer shall promptly after Closing file with the MMS any and all
updates to the Company's MMS qualification file required by MMS regulations due
to the Closing of the Contemplated Transactions.
10.9 CHANGE OF THE COMPANY'S NAME; USE OF SELLER'S NAME
Upon Seller's receipt of MMS' written notice of MMS Cancellation, Buyer
shall promptly cause the Company's name to be changed so that it does not
contain the word "Denbury" or words deceptively similar thereto or derivations
or abbreviations thereof. As soon as practicable after MMS Cancellation but in
any event no later than thirty days after the date of the MMS Cancellation,
Buyer will notify all third parties with whom the Company regularly does
business or with whom the Company has written agreements, including parties to
the Company Basic Documents identified on Schedule 3.9(d) or any other part of
Schedule 3.9, of the change in the name of the Company. Also as soon as
practicable after MMS Cancellation, but in any event no later than ninety days
after the date of the MMS Cancellation, Buyer will remove or cause to be removed
the names and marks used by Seller and all variations and derivatives and logos
relating thereto from the Interests and will not thereafter use Seller's name,
marks or logos for any reason.
10.10 SUSPENSE ACCOUNT
Within 30 days following the Closing Date, Seller will transfer to the
Company or Buyer all records relating to the suspense of proceeds attributable
to production from the Interests and all funds related thereto which are being
held in suspense. Buyer agrees to cause the payment of such suspensed funds to
the appropriate parties in due course.
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10.11 FINANCIAL STATEMENTS
Upon request of Buyer and only to the extent necessary to meet Buyer's
obligations under Section 3-05 of Regulation S-X promulgated by the SEC, Seller
shall use its commercially reasonable efforts to deliver, as promptly as
practicable but in any event no later than 60 days following such request, to
Buyer true and complete copies of a balance sheet of the Company as of December
31, 2003 and the related statements of income, changes in stockholders' equity
and cash flows for the twelve months then ended (including the notes or other
supplementary information thereto), which financial statements shall have been
audited and accompanied by the signed audit report of Seller's independent
public accountants and shall be prepared in accordance with GAAP, consistently
applied and in accordance with the rules and regulations of the SEC, provided
that Buyer shall first request a waiver or similar exception from the SEC of the
financial statement requirements of Section 3-05 of Regulation S-X that would
permit Buyer to provide in its filings with the SEC only an audited balance
sheet of the Company and a statement of revenues and direct operating expenses
of the Interests as of the same date and for the same periods. In connection
therewith, Seller shall use its commercially reasonable efforts to obtain and
deliver to Buyer or Seller's independent public accountants any representation
letters requested by Buyer or Seller's independent public accountants
customarily provided in connection with the audit of financial statements. Buyer
shall pay all fees and expenses relating to the audit required by this Section
10.11. Buyer shall use commercially reasonable efforts to assist Seller and its
independent public accountants in their efforts to prepare the financial
statements required by this Section 10.11.
10.12 PRIVATE BONDS
Buyer agrees that it will purchase and post performance bonds, guarantees,
sureties or plugging bonds in place of those performance bonds, guaranties,
sureties, or plugging bonds which have been tendered by Seller, its Affiliates
or the Company to various third parties to secure performance by Seller, its
Affiliates or the Company under agreements with those third parties, all as
listed on Schedule 10.12. Such substituted bonds and guarantees will be in forms
that are satisfactory to the third parties that are beneficiaries of such bonds
and guarantees, and Buyer will use commercially reasonable efforts to cause
Seller to be released within 90 days after the Closing, or as soon thereafter as
practicable, from all such bonds and guarantees listed on Schedule 10.12. As
soon as such release is obtained, Buyer will provide Seller with evidence,
satisfactory to Seller, of Seller and the Company being released from all such
bonds and guarantees.
10.13 RETAINED CLAIMS
Effective as of immediately prior to the Closing, Seller will assume the
Company's claims and causes of action identified in Schedule 10.13. Prior to
Closing (i) Seller may, and after Closing Buyer will, cause the Company to
execute and deliver to Seller such documents as Seller may reasonably request,
and (ii) Seller will execute and deliver to Buyer such documents as Buyer may
reasonable request, to evidence or effect Seller's assumption of such claims,
provided that no warranty, express or implied shall be given with respect to
such assumption. Seller will have the right to take any and all action necessary
54
to enforce or collect such claims in the name of the Company and to retain all
proceeds of such enforcement or collection. Buyer will cooperate, and will cause
the Company to cooperate, with Seller as reasonably requested by Seller in
enforcing or collecting such claims. Seller will bear all costs related to the
enforcement or collection of such claims.
Seller, on behalf of the Company, has conducted but not completed a joint
venture audit of Buyer's records relating to revenue and expenses attributable
to operations and activities conducted on High Island A-521 and West Cameron
427/426 (the "Audit Properties"). Buyer previously has paid to Seller $500,000
as an advance payment toward any final audit exceptions. As part of the
adjustment of the Purchase Price through the Settlement Adjustment set out in
Section 2.5(b)(iii), the Purchase Price will be reduced by $100,000 as part of
the settlement of the joint venture audit, and otherwise Seller shall retain the
balance of such advance payment as final and complete satisfaction of any audit
exceptions which have or may be found with respect to the Audit Properties, and
Seller hereby releases Buyer and Buyer hereby releases Seller from any further
liabilities with respect to any audit claims or exceptions they have or may have
against each other with respect to such Audit Properties. Seller further hereby
agrees to indemnify Buyer and hold Buyer harmless from and against any joint
venture audit claims by third parties owning an interest in the Audit Properties
covering operations and activities conducted on the Audit Properties prior to
the Closing Date.
10.14 WAIVER OF DAMAGES
The Parties agree that in no event will either Party be entitled, and each
Party waives the right, to recover incidental, special, exemplary, punitive or
consequential damages (other than consequential damages specifically provided
for under the provisions of Article 11) of any nature incurred due to any Breach
of, or otherwise in connection with, this Agreement, whether in connection with
Damages for which a Party is indemnified under the provisions of Article 11, or
otherwise.
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10.15 CERTAIN POST-CLOSING PAYMENTS
(a) Following the Closing, Seller shall pay to Buyer within five business
days of receipt any amounts received by Seller or its Affiliates after the
Closing Date relating to the ownership of the Company, or the ownership,
operation or use of the Interests or other properties of the Company, that are
attributable to any period after Closing, other than amounts relating to
Retained Assets. In connection with Seller's normal cash management procedures,
Seller maintains a lock box for its benefit and, prior to Closing, the Company's
benefit to receive various payments. All amounts that are received at the lock
box after Closing for the account of the Company, other than with respect to
Retained Assets, will be paid by Seller to Buyer within five business days of
receipt thereof by Seller. As promptly as practicable, but not later than five
business days, after the Closing, Seller will provide written notice to any
parties who are making payments to the lock box and who after Closing should be
making such payments to Buyer or to the Company in accordance with instructions
provided by Buyer, directing them to make such payments to Buyer or the Company
after the Closing in accordance with such instructions.
(b) Following the Closing, Buyer shall pay to Seller within five business
days of receipt any amounts received by Buyer or the Company with respect to the
Retained Assets or the ownership of the Company, or the ownership, operation or
use of the Interests or other properties of the Company prior to the Effective
Date, other than to the extent such amounts are for payments included in
Adjusted Current Assets.
10.16 NATURAL GAS SWAPS
(a) Seller represents and warrants that, as of the Closing Date, the
following four natural gas swap contracts (the "Swap Contracts") have been
entered into in connection with this transaction by Seller or Seller's
Affiliates: one between Seller and Bank One, N.A., covering varying monthly
notional quantities (totaling 9,458,000 MMBTU) for each month of calendar 2005;
one between Seller and Wells Fargo Bank, N.A., covering total notional volumes
of 4,222,000 MMBTU of natural gas for the last six months of calendar 2004; and
two natural gas swap contracts between Denbury Onshore, LLC and Bank of America
N.A. covering total notional volumes of 3,900,000 MMBTU of natural gas for the
last six months of calendar 2004 and total notional volumes of 6,000,000 MMBTU
of natural gas for the period from January 1, 2005 through October 31, 2005,
respectively, each as more particularly described on Schedule 10.16.
(b) Following the Closing and upon Buyer's request, Seller will, or will
cause Seller's Affiliate to, assign and transfer zero to four of the Swap
Contracts to Buyer (such assigned and transferred Swap Contracts being the
"Continuing Swap Contracts"). Within two business days following such request,
Seller and Buyer will execute such documents with the counterparties to the
Continuing Swap Contracts, if any, as are necessary to effectuate the transfer
to Buyer and assumption by Buyer of the Continuing Swap Contracts and by virtue
of which Buyer will assume any obligations and be entitled to any benefits under
the Continuing Swap Contracts.
(c) On or after the Closing, and upon Buyer's request, Seller shall cause,
or shall cause Seller's Affiliate to cause, the early termination of any Swap
56
Contract that has not been transferred to Buyer in accordance with the
provisions set forth above. Any such transaction shall be made in accordance
with Buyer's instructions, and at the time specified by Buyer. Buyer shall
provide timely notice to Seller of any such transaction and Buyer shall have the
right to approve each such transaction; provided, that Buyer shall reasonably
accommodate Seller and Seller's counterparties' timing and availability. Seller
agrees to not cause the early termination of any Swap Contract other than in
accordance with the procedures set forth above; provided, that at any time after
the tenth business day following the Closing Date, Seller may cause the early
termination in the open market of any Swap Contract that has not been
transferred to Buyer or retired prior to such date. Within three business days
after the early termination of any Swap Contract by Seller or the settlement of
any Swap Contract pursuant to their terms following Closing but before either
assignment or early termination, Buyer shall pay to Seller an amount equal to
any amounts paid by Seller or Seller's Affiliates to the respective
counterparties relating to the settlement or early termination of such Swap
Contract and Seller shall pay to Buyer an amount equal to any amounts received
by Seller or Seller's Affiliates from the respective counterparties relating to
the settlement or early termination of such Swap Contract.
10.17 MULTIPLE PARTY MSAs
Effective as of the Closing, neither Seller nor any other Affiliate of
Seller will be obligated for services provided to the Company pursuant to any of
the Multiple Party MSAs identified on Schedule 3.17(b). Buyer will indemnify
Seller and hold Seller harmless with respect to any and all obligations of the
Company arising under the Multiple Party MSAs for services provided to the
Company, Buyer or any Affiliates of Buyer on or after the Closing Date. Seller
will indemnify Buyer and the Company and hold Buyer and the Company harmless
with respect to any and all obligations of the Seller or its Affiliates arising
under the Multiple Party MSAs for services provided to the Seller or its
Affiliates on or after the Closing Date. Buyer acknowledges that at any time
prior to or after the Closing, Seller may notify the party providing services to
Seller or other Affiliates of Seller and the Company under each Multiple Party
MSA, that effective as of the Closing, the Company is no longer a party to the
Multiple Party MSAs.
10.18 ASSUMPTION OF SHELL OIL GUARANTEE
With the consent and approval of Shell Offshore, Inc., Buyer will assume,
and within 90 days after Closing will provide to Seller evidence satisfactory to
Seller that it has assumed, all of Seller's obligations under the Performance
Guarantee between Seller and Shell Offshore, Inc., et. al. dated as of June 1,
2004, which guarantees the performance of the Company under the Purchase and
Sale Agreement between the Company and Shell Offshore, Inc. dated as of June 1,
2004.
ARTICLE 11
INDEMNIFICATION; REMEDIES
11.1 SURVIVAL AND KNOWLEDGE; DISCLAIMERS AND WAIVERS
(a) All representations, warranties, covenants, and obligations in this
Agreement, the Schedules, the certificates delivered pursuant to Section 2.4,
and any other certificate or document delivered pursuant to this Agreement, will
57
survive the Closing. The right to indemnification and payment of Damages (as
defined below) based on Breach of any representation, warranty, covenant, or
obligation will not be affected by notice of such Breach given by Seller to
Buyer pursuant to Section 5.5, or given by Buyer to Seller pursuant to Section
6.3, and further will not be affected by any investigation conducted with
respect to, or any knowledge acquired (or capable of being acquired) at any time
prior to Closing (whether before or after the execution and delivery of this
Agreement or the Closing Date), with respect to, the accuracy or inaccuracy of
or noncompliance with any such representation, warranty, covenant, or
obligation. The waiver of any condition to a Party's obligation to consummate
the Contemplated Transactions, which condition is either based on the accuracy
of any representation and warranty, or based on the performance of or compliance
with any covenant or obligation, will not affect the right to indemnification
and payment of Damages, based on such representation, warranty, covenant, or
obligation.
(b) THE REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT ARE IN LIEU OF ANY
OTHER REPRESENTATIONS OR WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, SELLER MAKES NO EXPRESS, STATUTORY, IMPLIED, COMMON LAW OR OTHER
REPRESENTATION OR WARRANTY OF ANY KIND REGARDING, THE INTERESTS, THE COMPANY OR
ITS OTHER PROPERTIES AND ASSETS, OR ITS OPERATIONS, CONDUCT OF BUSINESS OR
PROSPECTS, INCLUDING ANY IMPLIED WARRANTIES RELATING TO (i) THE CONDITION OR
MERCHANTABILITY OF THE INTERESTS OR ANY OF THE COMPANY'S OTHER PROPERTIES OR
ASSETS, OR (ii) THE FITNESS OF THE INTERESTS OR ANY OF THE COMPANY'S OTHER
PROPERTIES OR ASSETS FOR A PARTICULAR PURPOSE. BUYER HAS INSPECTED THE INTERESTS
AND THE COMPANY'S OTHER PROPERTIES AND ASSETS AND IS SATISFIED WITH THE EXPRESS
REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT REGARDING THE INTERESTS, THE
COMPANY OR ITS OTHER PROPERTIES AND ASSETS, OR ITS OPERATIONS, CONDUCT OF
BUSINESS OR PROSPECTS.
(c) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER MAKES NO
REPRESENTATION OR WARRANTY AS TO (i) THE AMOUNT, VALUE, QUALITY, QUANTITY OR
VOLUME OF ANY OIL, GAS OR OTHER MINERALS OR RESERVES (IF ANY) IN, UNDER OR
ATTRIBUTABLE TO THE INTERESTS, (ii) THE ACCURACY OR MERITS OF ANY ENGINEERING
ESTIMATES OR EVALUATIONS AND GEOLOGICAL OR GEOPHYSICAL INTERPRETATIONS
(INCLUDING SEISMIC DATA AND SELLER'S ANALYSIS OR INTERPRETATION THEREOF),
RELATED TO THE INTERESTS, (iii) THE PRESENCE, QUALITY AND QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE INTERESTS OR CONSTITUTING A
PORTION OF THE INTERESTS; (iv) THE ABILITY OF THE INTERESTS TO PRODUCE
HYDROCARBONS, INCLUDING PRESENT OR FUTURE PRODUCTION RATES, DECLINE RATES AND
RECOMPLETION OPPORTUNITIES; (v) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED
INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE INTERESTS, (vi)
ALLOWABLES OR OTHER REGULATORY MATTERS OR (vii) ANY OTHER PROJECTIONS OR
FORECASTS OF A SIMILAR NATURE RELATED TO THE INTERESTS.
58
(d) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLER MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY, IMPLIED, COMMON LAW OR OTHER, AS
TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA, RECORDS,
DOCUMENTS OR OTHER INFORMATION (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR ON
BEHALF OF SELLER, IN CONNECTION WITH THE EVALUATION AND NEGOTIATION OF THE
CONTEMPLATED TRANSACTIONS INCLUDING INFORMATION CONSTITUTING EVALUATION MATERIAL
(AS DEFINED IN THE CONFIDENTIALITY LETTER AGREEMENT), AND ALL OTHER INFORMATION
FURNISHED TO BUYER ELECTRONICALLY, ORALLY, IN WRITING OR IN ANY OTHER MEDIUM.
(e) TO THE EXTENT APPLICABLE, BUYER WAIVES ITS RIGHTS UNDER THE DECEPTIVE
TRADE PRACTICES ACT (SECTION 17.41 ET SEQ. OF THE TEXAS BUSINESS & COMMERCE
CODE), A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS, AND UNDER SIMILAR STATUTES
ADOPTED IN OTHER STATES, TO THE EXTENT THEY HAVE APPLICABILITY TO THE
CONTEMPLATED TRANSACTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF ITS SELECTION,
BUYER CONSENTS TO THIS WAIVER.
(f) BUYER (i) WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA CIVIL
CODE ARTICLES 2520, ET SEQ.; (ii) ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE
CONSIDERED A MATERIAL AND INTEGRAL PART OF THE CONTEMPLATED TRANSACTIONS AND THE
CONSIDERATION THEREOF; AND (iii) ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT
TO THE ATTENTION OF BUYER, HAS BEEN EXPLAINED IN DETAIL AND THAT BUYER HAS
VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER OR WARRANTY OF FITNESS AND
WARRANTY AGAINST REDHIBITORY VICES AND DEFECTS FOR THE INTERESTS.
(g) TO THE EXTENT APPLICABLE, BUYER HEREBY WAIVES THE PROVISIONS OF THE
LOUISIANA UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (LA. R.S. 51:1402,
ET SEQ.). BUYER WARRANTS AND REPRESENTS THAT IT: (i) IS EXPERIENCED AND
KNOWLEDGEABLE WITH RESPECT TO THE OIL AND GAS INDUSTRY GENERALLY AND WITH
TRANSACTIONS OF THIS TYPE SPECIFICALLY; (ii) POSSESSES AMPLE KNOWLEDGE,
EXPERIENCE AND EXPERTISE TO EVALUATE INDEPENDENTLY THE MERITS AND RISKS OF THE
TRANSACTIONS HEREIN CONTEMPLATED; AND (iii) IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION.
(h) THE DISCLAIMERS AND WAIVERS OF REPRESENTATIONS AND WARRANTIES CONTAINED
IN THIS SECTION ARE "CONSPICUOUS" WAIVERS AND DISCLAIMERS FOR THE PURPOSES OF
ANY APPLICABLE LAW, RULE OR ORDER.
59
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller will indemnify and hold harmless Buyer, the Company, and their
respective Representatives and Affiliates (collectively, the "Buyer Indemnified
Persons") for, and will pay to the Buyer Indemnified Persons the amount of, any
Loss or diminution of value, whether or not involving a third-party claim
(collectively, "Damages"), arising, directly or indirectly, from or in
connection with (a) any Breach of any representation and warranty made by Seller
in this Agreement, or any other certificate or document delivered by Seller
pursuant to this Agreement (determined both as of the date of this Agreement and
as of the Closing Date, just as if such representation and warranty were made as
of the Closing Date); (b) any Breach by Seller of any covenant or obligation
(including any indemnification obligation appearing elsewhere in this Agreement)
of Seller in this Agreement; (c) Pre-Closing Date Claims, (d) Damages arising
directly or indirectly from, or in connection with, any of the Retained Assets
or Retained Liabilities; or (e) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller or the
Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions. If Closing occurs, the remedies provided in this
Article 11 will be the exclusive remedies available to the Buyer Indemnified
Persons for Damages incurred in connection with or related to: (i) any Breach of
the representations and warranties in this Agreement, and (ii) any failure by
the Seller to perform and comply with any covenants and obligations that, by
their terms, were to have been performed or complied with prior to or
simultaneously with the Closing, other than with respect to fraud, or with
respect to willful misconduct in performing a pre-closing covenant, for which
all remedies at law or in equity will remain.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller and its Representatives and
Affiliates (collectively, "Seller Indemnified Persons"), and will pay to Seller
Indemnified Persons the amount of any Damages arising, directly or indirectly,
from or in connection with (a) any Breach of any representation and warranty
made by Buyer in this Agreement or in any other certificate or document
delivered by Buyer pursuant to this Agreement (determined both as of the date of
this Agreement and as of the Closing Date, just as if such representation and
warranty were made as of the Closing Date), (b) any Breach by Buyer of any
covenant or obligation (including any indemnification obligation appearing
elsewhere in this Agreement) of Buyer in this Agreement, (c) claims based on
actual or alleged liabilities or obligations of the Company or otherwise related
to the Interests or the Company's conduct of business, which liabilities or
obligations arise out of events occurring after the Closing, including claims
against or arising under Seller's Bonds and Liability Agreements, or any of the
bonds and guarantees listed on Schedule 10.12, or (d) any claim by any Person
for brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Buyer
(or any Person acting on its behalf) in connection with any of the Contemplated
Transactions. If the Closing occurs, the remedies provided in this Article 11
will be the exclusive remedies available to Seller Indemnified Persons for
60
Damages incurred in connection with or related to: (i) any Breach of the
representations and warranties in this Agreement, and (ii) any failure by the
Buyer to perform and comply with any covenants and obligations that, by their
terms, were to have been performed or complied with prior to or simultaneously
with the Closing, other than with respect to fraud, or with respect to willful
misconduct in performing a pre-closing covenant, for which all remedies at law
or in equity shall remain.
11.4 TIME LIMITATIONS
(a) Subject to the following sentence, if the Closing occurs, Seller will
have no liability (for indemnification or otherwise) with respect to: (i) any
Breach of the representations and warranties in this Agreement, and (ii) any
failure by the Seller to perform and comply with any covenants and agreements
that, by their terms, were to have been performed or complied with prior to or
simultaneously with the Closing, unless on or before the first anniversary of
the Closing Date, Buyer gives Seller notice of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Buyer.
Notwithstanding the preceding sentence, a claim may be made by Buyer at any time
for indemnification (i) for Damages subject to indemnification under Sections
11.2(c), 11.2(d) or 11.2(e) or (ii) with respect to the Breach of any of the
representations and warranties contained in Sections 3.2, 3.3, 3.8, 3.9(j),
3.9(k), 3.9(l), 3.9(o), 3.11, 3.13, 3.15(a) (other than the first sentence of
the last paragraph of Section 3.15(a)), or 3.20.
(b) Subject to the following sentence, if the Closing occurs, Buyer will
have no liability (for indemnification or otherwise) with respect to: (i) any
Breach of the representations and warranties in this Agreement and, (ii) for any
failure by the Buyer to perform and comply with any covenants and agreements
that, by their terms, were to have been performed or complied with prior to or
simultaneously with the Closing, unless on or before the first anniversary of
the Closing Date, Seller gives Buyer notice of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Seller.
Notwithstanding the preceding sentence, a claim may be made by Seller at any
time for indemnification (i) for Damages subject to indemnification under
Sections 11.3(c) or 11.3(d) or (ii) with respect to the Breach of any of the
representations and warranties contained in Sections 4.3 or 4.4.
11.5 LIMITATIONS ON AMOUNT--SELLER
Subject to the following two sentences, Seller will have no liability (for
indemnification or otherwise) with respect to (i) any Damages for which Buyer
Indemnified Persons are indemnified under clause (a) of Section 11.2, or (ii)
any Damages with respect to any covenant or obligation to be performed and
complied with by Seller at or prior to the Closing for which Buyer Indemnified
Persons are indemnified under Section 11.2, until the total of all such Damages
exceeds $1,000,000, and then only for the amount by which the total of all such
Damages exceeds such amount. Notwithstanding the preceding sentence and subject
to the following sentence, Seller will have liability to indemnify Buyer for all
Damages with respect to the Breach of any of the representations and warranties
contained in Sections 3.2, 3.3, 3.8, 3.9(j), 3.9(k), 3.9(l), 3.9(o), 3.11, 3.13,
3.15(a) (other than the first sentence of the last paragraph of Section
3.15(a)), or 3.20, and for all Damages subject to indemnification under Sections
61
11.2(b) (other than with respect to a covenant or obligation that, by its terms,
was to have been performed or complied with prior to or simultaneously with the
Closing), 11.2(c), 11.2(d) or 11.2(e). Notwithstanding the preceding two
sentences, Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in Section 11.2 (other than with respect to a
covenant or obligation to be performed and complied with by Seller after the
Closing) to the extent that the total of all Damages with respect to such
matters exceeds $40,000,000.
11.6 LIMITATIONS ON AMOUNT--BUYER
Subject to the following two sentences, Buyer will have no liability (for
indemnification or otherwise) with respect to (i) any Damages for which Seller
Indemnified Persons are indemnified under clause (a) of Section 11.3, or (ii)
any Damages with respect to any covenant or obligation to be performed and
complied with by Buyer at or prior to the Closing for which Seller Indemnified
Persons are indemnified under clause (b) of Section 11.3, until the total of all
such Damages exceeds $1,000,000, and then only for the amount by which the total
of all such Damages exceeds such amount. Notwithstanding the preceding sentence
and subject to the following sentence, Buyer will have liability to indemnify
Seller for all Damages with respect to the Breach of any of the representations
and warranties contained in Sections 4.3 or 4.4, and for all Damages subject to
indemnification under Sections 11.3(b) (other than with respect to a covenant or
obligation that, by its terms, was to have been performed or complied with prior
to or simultaneously with the Closing), 11.3(c) or 11.3(d). Notwithstanding the
preceding two sentences, Buyer will have no liability (for indemnification or
otherwise) with respect to the matters described in Section 11.3 (other than
with respect to a covenant or obligation to be performed and complied with by
Buyer after the Closing) to the extent that the total of all Damages with
respect to such matters exceeds $40,000,000.
11.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by a Person indemnified under Section 11.2 or
11.3 (in either case, an "Indemnified Party") of notice of the commencement of
any Proceeding against it by a third party (a "Third Party Claim"), such
Indemnified Party will, if a claim is to be made against a Person required to
provide indemnification under Section 11.2 or 11.3 (in either case, an
"Indemnifying Party"), give notice to the Indemnifying Party of the commencement
of such Third Party Claim, but the failure to notify the Indemnifying Party will
not relieve the Indemnifying Party of any liability that it may have to any
Indemnified Party, except to the extent that the Indemnifying Party demonstrates
that the defense of such Third Party Claim is prejudiced by the Indemnified
Party's failure to give such notice.
(b) If any Third Party Claim is brought against an Indemnified Party and it
gives notice to the Indemnifying Party of the commencement of such Third Party
Claim, the Indemnifying Party will be entitled to participate in such Third
Party Claim and, to the extent that it wishes (unless (i) the Indemnifying Party
is also a party to such Third Party Claim and the Indemnified Party determines
in good faith that a reasonable likelihood exists of a conflict of interest
between the Indemnifying Party and the Indemnified Party, (ii) the Third Party
Claim seeks an injunction or equitable relief against the Indemnified Party, or
(iii) the Indemnifying Party fails to provide reasonable assurance to the
62
Indemnified Party of its financial capacity to defend such Third Party Claim and
provide indemnification with respect to such Third Party Claim), to assume the
defense of such Third Party Claim with counsel satisfactory to the Indemnified
Party and, after notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such Third Party Claim, the Indemnifying
Party will not, as long as it diligently conducts such defense, be liable to the
Indemnified Party under this Article 11 for any fees of other counsel or any
other expenses with respect to the defense of such Third Party Claim, in each
case subsequently incurred by the Indemnified Party in connection with the
defense of such Third Party Claim, other than reasonable costs of investigation;
provided, that the Indemnifying Party shall be responsible for the fees and
expenses of such separate co-counsel if the Indemnified Party shall determine in
good faith that (i) an actual or potential conflict of interest makes
representation by the same counsel or the counsel selected by the Indemnifying
Party inappropriate, or (ii) there is one or more legal defenses available to it
that are different from or additional to those available to the Indemnifying
Party. If Seller is the Indemnifying Party and it assumes the defense of a Third
Party Claim, Seller will have control of all decisions and actions related to
insurance providing coverage with respect to such Third Party Claim. If the
Indemnifying Party assumes the defense of a Third Party Claim, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Third Party Claim are within the scope of and subject to indemnification;
(ii) no compromise or settlement of such claims may be effected by the
Indemnifying Party without the Indemnified Party's consent unless (A) there is
no finding or admission of any violation of Legal Requirements or any violation
of the rights of any Person and no effect on any other claims that may be made
against the Indemnified Party, and (B) the sole relief provided is monetary
damages that are paid in full by the Indemnifying Party; and (iii) the
Indemnified Party will have no liability with respect to such compromise or
settlement. If notice is given to an Indemnifying Party of the commencement of
any Third Party Claim and the Indemnifying Party does not, within ten days after
the Indemnified Party's notice is given, give notice to the Indemnified Party of
its election to assume the defense of such Third Party Claim, the Indemnifying
Party will be bound by any determination made in such Third Party Claim or any
compromise or settlement effected by the Indemnified Party.
(c) Notwithstanding the foregoing, if an Indemnified Party determines in
good faith that there is a reasonable probability that a Third Party Claim may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive
right to defend, compromise, or settle such Third Party Claim, but the
Indemnifying Party will not be bound by any determination of a Third Party Claim
so defended, or any compromise or settlement effected, without its consent
(which may not be unreasonably withheld).
11.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a Third Party
Claim may be asserted by notice to the Party from whom indemnification is
sought.
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11.9 EXPRESS NEGLIGENCE RULE
THE INDEMNITIES SET FORTH IN THIS ARTICLE 11 SHALL APPLY NOTWITHSTANDING
ANY STATE'S "EXPRESS NEGLIGENCE RULE" OR SIMILAR RULE THAT WOULD DENY COVERAGE
BASED ON AN INDEMNIFIED PERSON'S SOLE OR CONCURRENT, ACTIVE OR PASSIVE
NEGLIGENCE OR GROSS NEGLIGENCE. IT IS THE INTENT OF THE PARTIES THAT, TO THE
EXTENT PROVIDED ABOVE, THE INDEMNITIES SET FOR IN THIS ARTICLE 11 SHALL APPLY TO
AN INDEMNIFIED PERSON'S SOLE OR CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE OR
GROSS NEGLIGENCE, OR STRICT LIABILITY FOR CLAIMS UNDER CERCLA. THE PARTIES AGREE
THAT THIS PROVISION IS "CONSPICUOUS" FOR PURPOSES OF ALL STATE LAWS.
ARTICLE 12
GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each Party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Seller will cause the Company not to incur or be
liable for any out-of-pocket expenses in connection with this Agreement,
including severance and other employee costs. In the event of termination of
this Agreement, the obligation of each Party to pay its own expenses will be
subject to any rights of such Party arising from a Breach of this Agreement by
the other Party.
12.2 PUBLIC ANNOUNCEMENTS
Except as otherwise required by any applicable Legal Requirement, including
the rules of any stock exchange on which either Buyer or Seller is listed,
neither Buyer nor Seller nor any of their respective Related Persons will issue
or cause the publication of any press release or other public announcement
about, or otherwise make any public statement concerning, the Contemplated
Transactions without the consent of the other Party, which consent may not be
unreasonably withheld. Further, prior to any disclosure as required by any
applicable Legal Requirement, including the rules of a stock exchange, such
required Party will provide the other Party a reasonable opportunity to review
and comment on the form of the disclosure and such required Party will
incorporate any reasonably requested changes to such disclosure, if the
requested changes would not (a) cause a violation of any applicable Legal
Requirement, including the rules of a stock exchange, or (b) be inconsistent
with that Party's prior practices on similar disclosures.
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12.3 CONFIDENTIALITY, NO SOLICITATION, NO TRADE
(a) Each Party agrees that all Confidential Information (as defined below)
received by a Party (the "Receiving Party") from the other Party (the
"Disclosing Party", and which term, when Buyer is the Receiving Party, will
include Seller, the Company and Seller's other Affiliates) will be kept
confidential by the Receiving Party, will not be disclosed by the Receiving
Party in any manner whatsoever, and will not be used by the Receiving Party in
any way whatsoever, including in any way that is directly or indirectly in
competition with or detrimental to the Disclosing Party or for any other
purpose, other than in connection with the evaluation or negotiation of the
Contemplated Transactions, except that (i) any of the Confidential Information
may be disclosed to the Receiving Party's Representatives for the purpose of
evaluating the Contemplated Transactions if the Receiving Party's
Representatives are informed by the Receiving Party of the confidential nature
of the information and are required to treat the information confidentially,
(ii) any disclosure of Confidential Information may be made if the Disclosing
Party consents to the disclosure in writing, (iii) Confidential Information may
be disclosed by the Receiving Party or any of the Receiving Party's
Representatives to the extent that, in the opinion of counsel for the Receiving
Party or its Representatives, they are legally compelled to do so, if prior to
making such disclosure, the party being legally compelled to disclose the
information advises and consults with the Disclosing Party regarding the
disclosure and the party being legally compelled to disclose the information
discloses only that portion of the Confidential Information as is legally
required, and (iv) any Confidential Information may be disclosed to any banks or
other financial institutions or other prospective investors that may provide
financing to the Receiving Party if such banks or other financial institutions
or other prospective investors agree to comply with the provisions of this
Section 12.3. Seller agrees that Buyer or the Company shall have the benefit of
and shall be entitled to enforce any confidentiality agreements entered into by
the Seller with respect to information about or related to the Company or the
Interests and Seller will take such action as reasonably requested by Buyer or
the Company to enforce such agreements, at the expense of the Buyer or the
Company.
(b) When Buyer is the Receiving Party, the term "Confidential Information"
means all information disclosed to Buyer by Seller, the Company, or any of
Seller's other Affiliates (irrespective of the form of communication) about or
related to Seller, the Interests or the Company, or any of Seller's other
Affiliates, including all "Evaluation Material" disclosed to Buyer, as such term
is defined in the letter agreement entered into between Buyer and Seller dated
April 8, 2004 (the "Confidentiality Letter Agreement"), other than information
which (i) was or becomes generally available to the public other than as a
result of disclosure by the Receiving Party or any of the Receiving Party's
Representatives, (ii) was or becomes available to the Receiving Party on a
nonconfidential basis prior to disclosure to the Receiving Party or its
Representatives, (iii) was or becomes available to the Receiving Party from a
source other than the Disclosing Party or its Representatives if the source is
not known by the Receiving Party to be prohibited from making such disclosure by
a confidentiality agreement with the Disclosing Party, or (iv) was available to
the Receiving Party under any joint operating agreement or other agreement to
which the Company and the Receiving Party are both parties. After the Closing,
when Buyer is the Receiving Party, the term "Confidential Information" only
means information (irrespective of the form of communication) to the extent it
is about or related to Seller or any of Seller's Affiliates other than the
Company, and will no longer include information about or related to the Company.
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(c) When Seller is the Receiving Party, the term "Confidential Information"
means all information disclosed to Seller by Buyer (irrespective of the form of
communication) about or related to Buyer, other than information which (i) was
or becomes generally available to the public other than as a result of
disclosure by the Receiving Party or any Receiving Party's Representative, (ii)
was or becomes available to the Receiving Party on a nonconfidential basis prior
to disclosure to the Receiving Party or its Representatives, (iii) was or
becomes available to the Receiving Party from a source other than the Disclosing
Party or its Representatives; provided that such source is not known by the
Receiving Party to be bound by a confidentiality agreement with the Disclosing
Party, or (iv) was available to the Receiving Party under any joint operating
agreement or other agreement to which Buyer and the Receiving Party are both
parties. After the Closing, when Seller is the Receiving Party, the term
"Confidential Information" also means all information to the extent that it is
about or relates to the Company or the Interests and that is known to Seller on
the Closing Date, other than information which Seller must use or disclose in
connection with a Tax Return, in order to comply with a Legal Requirement, or
for other legitimate purposes.
(d) If this Agreement is terminated, each Receiving Party will promptly
return, and will use their Best Efforts to cause all of their Representatives to
promptly return, all Confidential Information to the Disclosing Party without
retaining any copies, except that such portion of the Confidential Information
as consists of notes, compilations, analyses, reports, studies, or other
documents prepared by the Receiving Party or the Receiving Party's
Representatives will be destroyed.
(e) Without prejudice to any other rights or remedies available to a Party
under this Agreement, each Party acknowledges and agrees that money damages
would not be an adequate remedy for any Breach of the provisions of this Section
12.3 and that the nonbreaching Party shall also be entitled to the remedies of
injunction, specific performance and other equitable relief for any threatened
or actual Breach of this Section 12.3.
(f) Subject to the following sentence, this Section 12.3 supersedes the
Confidentiality Letter Agreement. The Confidentiality Letter Agreement is hereby
terminated, except that any cause of action for breach of the Confidentiality
Letter Agreement will survive the termination for the period of the applicable
statute of limitations for the cause of action.
(g) Buyer agrees that, except as permitted by Section 10.4, without the
prior consent of Seller, Buyer will not for a period of one year from the date
of this Agreement, directly or indirectly solicit for employment any person to
whom the Buyer was introduced or of whom the Buyer became aware through the
negotiation of this Agreement or consummation of the Contemplated Transactions
and who is now employed by Seller or any of its Subsidiaries or the Company;
provided that soliciting shall not include the solicitation of any such person
by general advertising, such as in a newspaper, periodical, trade journal or by
posting of a position on the internet.
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(h) Buyer agrees that if this Agreement is terminated then until one year
after Buyer complies with the requirements of Section 12.3 (d) above, or if
Closing occurs then until one year after Closing, Buyer will not without the
prior approval of the Board of Directors of Seller (i) acquire or make any
proposal to acquire any securities or property of Seller, (ii) propose to enter
into any merger or business combination involving Seller or purchase a material
portion of the assets of Seller, (iii) make or participate in any solicitation
of proxies to vote, or seek to advise or influence any person with respect to
the voting of any securities of Seller, (iv) form, join or participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any voting securities of Seller, (v) otherwise act or seek to control
or influence the management, Board of Directors or policies of Seller, (vi)
disclose any intention, plan or arrangement inconsistent with the foregoing, or
(vii) take any action which might require Seller to make a public announcement
regarding the possibility of a business combination or merger. Except as
provided above, Buyer also agrees during such period not to request Seller (or
its directors, officers, employees, affiliates or advisors) to amend or waive
any provision of this Section 12.3 (h).
12.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
received if (a) delivered by hand or by facsimile (in either case with written
confirmation of receipt), (b) mailed by certified or registered mail, return
receipt requested, (c) sent by a nationally recognized overnight delivery
service (receipt requested) or (d) in each case to the appropriate address set
forth below (or to such other address or facsimile number as a Party may
designate by notice to the other Party pursuant to this Section 12.4):
if to Seller, to:
Denbury Resources Inc.
5100 Tennyson Parkway
Suite 3000
Plano, Texas 75024
Telephone: (972) 673-2000
Facsimile: (972) 673-2150
Attention: Phil Rykhoek and H. Raymond Dubuisson
with a copy to:
Jenkens & Gilchrist
1401 McKinney, Suite 2600
Houston, Texas 77010
Telephone: (713) 951-3300
Facsimile: (713) 951-3314
Attention: Donald Brodsky and Seth Freedman
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if to Buyer, to:
Newfield Exploration Company
363 N. Sam Houston Parkway E., Suite 2020
Houston, Texas 77060
Telephone: (281) 847-6036
Facsimile: (281) 405-4255
Attention: Terry W. Rathert
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telephone: (713) 758-1074
Facsimile: (713) 615-5926
Attention: James H. Wilson
12.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
Parties in the courts of the State of Texas, County of Collin, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Texas. Each of the Parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein, and each of the
Parties waives the right to a jury trial in any such action or proceeding.
Process in any action or proceeding referred to in this section may be served on
any party anywhere in the world.
12.6 FURTHER ASSURANCES
The Parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other Party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.7 WAIVER
The rights and remedies of the Parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by any Party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
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permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Party; (b) no waiver that may be given by a Party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one Party will be deemed to be a waiver of any
obligation of such Party or of the right of the Party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the other agreements and documents to be entered into or delivered
in connection with this Agreement.
12.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement and the Confidentiality Letter Agreement (to the extent not
terminated) supersede all prior agreements between the Parties with respect to
their subject matter and constitute (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the Parties with respect to their subject matter. This Agreement may not
be amended except by a written agreement executed by the Parties.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither Party may assign any of its rights under this Agreement without the
prior consent of the other Party except that Buyer may assign any of its rights
under this Agreement to any Affiliate of Buyer so long as Buyer remains
obligated on this Agreement. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the Parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the Parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the Parties to this Agreement and their successors and assigns.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.11 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
12.12 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas without
regard to conflicts of laws principles.
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12.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
SIGNATURES APPEAR ON FOLLOWING PAGE(S)
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SIGNATURE PAGE(S) FOR STOCK PURCHASE AGREEMENT MADE AS OF JULY 19, 2004 BETWEEN
DENBURY RESOURCES INC. AND NEWFIELD EXPLORATION COMPANY
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement
as of the date first written above.
Seller:
DENBURY RESOURCES INC.
By: /s/ Phil Rykhoek
------------------------------------
Name: Phil Rykhoek
Title: Senior Vice President and
Chief Financial Officer
Buyer:
NEWFIELD EXPLORATION COMPANY
By: /s/ Terry W. Rathert
------------------------------------
Name: Terry W. Rathert
Title: Vice President and Chief Financial Officer