Exhibit 2.1
REAL ESTATE EXCHANGE AGREEMENT
This Real Estate Exchange Agreement ("Floyd Exchange Agreement" or
"Agreement") is made and entered into as of the 23rd day of November, 1999, by
and between Middle Bay Oil Company, Inc., an Alabama Corporation ("Middle Bay"),
and Floyd Oil Company, a Texas Corporation ("FOC"), (Middle Bay and FOC are
sometimes collectively referred to as "Parties") with respect to the following:
WHEREAS, FOC has been in the business of acquiring oil and gas properties
on its own behalf and on behalf of various investors ("Investors") since 1986
and since that time FOC has formed five real estate acquisition programs and
certain incremental programs which have acquired oil and gas real estate
interests ("Floyd Programs"); and
WHEREAS, the Floyd Programs contain perpetual real estate mineral interests
which are held in a variety of forms including working interests in oil and gas
properties, mineral interests held through partnerships, real estate interests
held through perpetual overriding royalty interests which burden working
interests held by FOC, and royalty and overriding royalty interests; and
WHEREAS, Middle Bay has approached FOC as to the possibility of acquiring
all of the mineral properties managed by FOC under the Floyd Programs and FOC
has provided Middle Bay with the names of the Investors; and
WHEREAS, FOC has advised Middle Bay that the Floyd Programs own interests
in three properties which have been managed by FOC known as the Anadarko
Royalty, the Quinoco Royalty and the Sacatosa Royalty ("Royalty Properties");
and
WHEREAS, FOC has advised Middle Bay that if Middle Bay were able to acquire
all of the beneficial mineral interests owned by the Investors in the Floyd
Programs (other than those mineral interests owned by FOC), FOC would be willing
to exchange the Minerals it owns in the Floyd Programs (but not including the
interest FOC owns in the Royalty Properties) for the interest in the Royalty
Properties acquired by Middle Bay from the Investors so that after the exchange
FOC will own all of the interests in the Royalty Properties; and
WHEREAS, Middle Bay is obtaining commitments to purchase all of the
Minerals and beneficial interests in Minerals held by Investors and is willing
to exchange the interests it acquires in the Royalty Properties and related land
records (herein the interests acquired by Middle Bay in the Royalty Properties
will be sometimes referred to as the "Royalty Interests") with FOC for the
Minerals owned
by FOC in the Floyd Programs (other than the interests owned by FOC in the
Royalty Properties) in transactions qualifying for nonrecognition of gain or
loss under Internal Revenue Code 1986 (as amended "Code") Section 1031 and
the Regulations published thereunder;
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
DEFINITIONS:
"ACQUIRED FLOYD PROGRAM ASSETS" means all right, title, and interest in and
to all of the Minerals (except for the interest owned in the Royalty Properties)
owned by FOC as of the Closing Date, consisting of all of its (a) real property
mineral interests, leaseholds and subleaseholds therein, improvements, fixtures,
and fittings thereon, and easements, rights-of-way, and other appurtenants
thereto, land records and data (except for the land records and other records
pertaining to the Royalty Properties), (b) leases, subleases, and rights
thereunder; and (c) all oil and gas properties and hydrocarbons (except for the
interest in the Royalty Properties) owned by FOC and connected with the Floyd
Programs.
"AFFILIATE" means with respect to FOC, Floyd Operating Company, Floyd
Equity IV Corporation, Floyd IV Corporation and Alexander G. Floyd. With
respect to Middle Bay, Affiliate has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"ASSUMED LIABILITIES" means all Liabilities and obligations of FOC or its
Affiliates connected with or incurred in connection with the Acquired Floyd
Program Assets or Other Assets including obligations incurred under contracts,
leases, licenses, and other arrangements connected with the Acquired Floyd
Program Assets or Other Assets either (i) to furnish goods, services, and other
non-cash benefits to another party either before or after the Closing or (ii) to
pay for goods, services, and other non-cash benefits that another party
furnishes either before or after the Closing.
"CLOSING DATE" has the meaning set forth in Section 2.1 below.
"EFFECTIVE DATE" means January 1, 1999.
"GOOD TITLE" means the title to the property shall be acceptable to a
prudent and careful purchaser of oil and gas properties, giving consideration to
the nature of the properties being purchased in the particular transaction and
the nature of the transaction.
"INTELLECTUAL PROPERTY" means those items related to the Acquired Floyd
Program Assets consisting of: (a) all copyrightable works, all copyrights, and
all applications, registrations, and renewals in connection therewith, (b) all
geophysical data, seismic data, trade secrets and confidential business
information, (c) computer software (including data and related documentation),
(d) copies and tangible embodiments thereof (in whatever form or medium) other
than any Intellectual Property associated with or connected with the name Floyd
Oil Company or Alexander G. Floyd.
"KNOWLEDGE" with respect to any party means actual knowledge of the officer
making such representation which presumes reasonable investigation by such
officer prior to making such representation.
"LIABILITY" means any liability whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due, including
any liability for Taxes.
"MINERALS" means an interest in oil and gas leases, permits, contracts,
licenses, other agreements and interests derived therefrom including without
limitation working, overriding royalty, net profits interests or other interest
or right in and to oil, gas and other minerals including those derived from
pooling or unitization of property, fee minerals, royalty or any other interests
in oil, gas and other minerals whether similar or dissimilar.
"OTHER ASSETS" means those assets owned by FOC (other than the Acquired
Floyd Program Assets and Royalty Properties) including: (a) tangible personal
property and fixtures used or obtained in connection with such assets and
easements and rights of way connected with the production, treatment, sale or
disposal of hydrocarbons or water produced therefrom including but not limited
to wells, tanks, lease equipment, salt water dispersal systems, water flood
facilities, gathering systems, compressor facilities, electric service systems
and other equipment; (b) the rights and obligations existing under the contracts
and agreements that benefit or burden the Acquired Floyd Program Assets
including but not limited to operating agreements, tax partnership agreements,
unitization agreements, pooling agreements, declarations of pooling or
unification, farmout agreements, assignments, gas sale contracts and gas
processing agreements; (c) the oil, gas, casinghead gas, condensate, distillate
and other liquid hydrocarbons produced from the Acquired Floyd Program Assets,
products manufactured and refined therefrom and the accounts and proceeds from
the sale thereof and claims for the payment thereby to the extent accrued after
the Closing; and (d) Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions; (e) agreements,
contracts, office leases in Texas, indentures, mortgages, instruments, Security
Interests, guaranties, other similar arrangements, oil and gas purchase
agreements and rights thereunder, (f) accounts, notes, and other receivables
relating to the Acquired Floyd Program Assets, (g) claims, including claims for
nonpayment of royalties, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment of Taxes),
(h) franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, (i) the stock of Floyd Operating Company (j) limited
partnership interest in Llaves Gavilan, Ltd., and (k) books, records, ledgers,
files, documents, correspondence, lists, plats, architectural plans, drawings,
and specifications, studies, reports, and other printed or written materials;
PROVIDED, HOWEVER, that the Other Assets shall not include (i) the Floyd Oil
Company name, the corporate charter, qualifications to conduct business as a
foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates, and other documents relating to
the organization, maintenance, and existence of FOC as a corporation; (ii) the
assets listed on Exhibit "A" hereto; and (iii) any of the rights of FOC under
this Agreement (or under any side agreement between FOC on the one hand and
Middle Bay on the other hand entered into on or after the date of this
Agreement).
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, OTHER THAN (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the ordinary course of business and
not incurred in connection with the borrowing of money.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
ARTICLE I
EXCHANGE & OTHER CONSIDERATION
1.1 PRELIMINARY TRANSACTIONS. After acquisition of the interests held by
Investors, Middle Bay and FOC agree to liquidate the partnerships shown in
Exhibit "B" so that Middle Bay will obtain title to all of the Royalty Interests
and as of the Closing Date Middle Bay will own the Royalty Interests outright as
real estate Minerals.
1.2 EXCHANGE. At the Closing, FOC will exchange the Minerals it owns in
the Floyd Programs (described in the conveyance attached as Exhibit "C"), and
any other interests it may own in the Floyd Programs (except for its interest in
the Royalty Properties), with Middle Bay in exchange for the Royalty Interests
(described in the conveyance attached as Exhibit "D"). It is the intent of the
Parties hereto that, such exchange will be structured so the exchange of the
Acquired Floyd Program Assets for the Royalty Interests will qualify for
nonrecognition treatment under the provisions of Section 1031 of the Code and
the parties hereto will reasonably cooperate in executing such documents and
consistent with the provisions of this Agreement take such actions as are
necessary or appropriate to qualify such exchange under Section 1031 of the
Code.
1.3 CONSIDERATION FOR OTHER ASSETS AND ADDITIONAL CONSIDERATION.
(a) At the Closing Middle Bay will assume the Assumed Liabilities and pay
FOC $85,000 for the Other Assets. (b) Middle Bay shall also pay, as Additional
Consideration for the Acquired Floyd Program Assets an amount equal to the
income or revenue from the Royalty Properties from the Effective Date through
the Closing, less the amounts previously distributed to FOC from the income or
revenues earned from the interests owned by FOC in the Floyd Programs from the
Effective Date through the Closing less the amount paid for the Other Assets.
Such amount shall be computed and paid as of the Closing Date and adjusted as
provided in Paragraph VI(b). A draft of the Closing Statement which has been
estimated as of the date of this Agreement is attached as Exhibit "E".
(c) Middle Bay will pay FOC $90,000 at Closing to compensate FOC for
expenditures it will incur in connection with the Closing in excess of those
assumed by Middle Bay hereunder.
ARTICLE II
CLOSING
2.1 CLOSING. The Closing of the exchange contemplated herein shall be
held in the offices of the Escrow Agent, Porter & Hedges, L.L.P., 700 Louisiana,
Suite 3500, Houston, Texas 77002-2764 on or before November 30, 1999 ("Closing
Date") or at such other time and at such other location as the parties hereto
shall agree in writing.
2.2 DELIVERIES AT CLOSING. At the Closing, (i) FOC will deliver to Middle
Bay the various certificates, instruments, and documents referred to in
Paragraph VI(a) below; (ii) Middle Bay will deliver to FOC the various
certificates, instruments, and documents referred to in Paragraph VI (b) below;
(iii) Middle Bay and FOC will execute, acknowledge (if appropriate), and deliver
to the other: assignments (including real property and lease transfer
documents, division orders, letters in lieu and any other instruments reasonably
requested by the other).
2.3 DELIVERIES FOLLOWING CLOSING. Middle Bay agrees to promptly remit and
deliver to FOC any payments Middle Bay receives which are derived from the
Royalty Properties whether such payment is derived from production which
occurred before or after the Effective Date. FOC agrees to promptly remit and
deliver to Middle Bay any payments FOC receives which are derived from the
Minerals (other than Royalty Properties) whether such payment is derived from
production which occurred before or after the Effective Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MIDDLE BAY
3.1 REPRESENTATIONS AND WARRANTIES OF MIDDLE BAY. Middle Bay represents
and warrants to FOC that the statements contained in this Article III are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article
III), except as set forth in Middle Bay's disclosure schedule accompanying this
Agreement (which may be amended up to the date of Closing) and initialed by the
Parties.
(a) ORGANIZATION OF MIDDLE BAY. Middle Bay is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do business in each state
where the operation of its business or the ownership of its assets requires such
qualification.
(b) AUTHORIZATION OF TRANSACTION. Middle Bay has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of Middle Bay has duly
authorized the execution, delivery, and performance of this Agreement by Middle
Bay. This Agreement constitutes the valid and legally binding obligation of
Middle Bay, enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Article II above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Middle Bay or any of its Affiliates is
subject or any provision of the charter or bylaws of Middle Bay or its
Affiliates or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Middle Bay or its Affiliates is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any Security Interest
upon any of its assets). Neither Middle Bay nor any of its Affiliates needs to
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Article
II above).
(d) BROKERS' FEES. Middle Bay has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which FOC could become liable or
obligated. Any obligation Middle Bay has to pay any amounts to Premier Capital,
Limited shall be assumed by and paid by Middle Bay.
(e) TITLE TO ASSETS. On the Closing Date Middle Bay will own Good Title to
the Royalty Interests, free and clear of all Security Interests. Middle Bay has
the power to convey Good Title to the Royalty Interests to FOC, free and clear
of any Security Interest, encumbrance or restriction on transfer.
(f) REAL PROPERTY. With respect to the Royalty Interests, to the best
Knowledge of Middle Bay:
(A) Middle Bay has acquired and has Good Title to the Royalty
Interests, free and clear of any Security Interest, easement,
covenant, production sales commitments (other than has been disclosed
to FOC) or other restriction, except for Taxes or charges not yet
delinquent and recorded easements, covenants, and other restrictions
which do not impair the current use of the property;
(B) there are no pending or threatened condemnation proceedings,
lawsuits, or administrative actions relating to the Royalty Interests
or other matters affecting the current use, or value thereof;
(C) the legal description for the Royalty Interests contained in
Exhibit "C" and the deed conveying such Royalty Interests to FOC
describes such parcel fully and adequately; and
(D) all operations on the Royalty Interests have received all
approvals of governmental authorities (including licenses and permits)
required in connection with the ownership or operation thereof and
have been operated and maintained in accordance with applicable laws,
rules, and regulations.
(g) ENVIRONMENT, HEALTH, AND SAFETY. With respect to the Royalty Interests
being conveyed hereunder, to the best Knowledge of Middle Bay, Middle Bay and
its Affiliates have complied with all Environmental, Health, and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FOC
4.1 REPRESENTATIONS AND WARRANTIES OF FOC. FOC represents and warrants to
Middle Bay that the statements contained in this Article IV are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article IV) except as
set forth in FOC's disclosure schedule accompanying this Agreement (which may be
amended up to the date of Closing) and initialed by the Parties.
(a) ORGANIZATION OF FOC. FOC is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas and is
qualified to do business in each state where the operation of its business or
the ownership of its assets requires such qualification.
(b) AUTHORIZATION OF TRANSACTION. FOC has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. The board of directors of
FOC has duly authorized the execution, delivery and performance of this
Agreement by FOC. This Agreement constitutes the valid and legally binding
obligation of FOC, enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Article II above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which FOC is subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
FOC is a party or by which it is bound or to which any of its assets is subject.
FOC does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Article II
above).
(d) BROKERS' FEES. FOC has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Middle Bay could become liable or
obligated.
(e) TITLE TO ASSETS. FOC acquired Good Title to the Minerals being
conveyed to Middle Bay hereunder which are described in Exhibit "C" attached
hereto.
(f) REAL PROPERTY. With respect to such Minerals, to the best Knowledge of
FOC:
(A) On the Closing Date FOC will own Good Title to such Minerals
free and clear of any Security Interest, easement, covenant,
production sales commitment or other restriction, except for Taxes or
charges not yet delinquent and recorded easements, covenants, and
other restrictions which do not impair the current use of the
property;
(B) there are no pending or threatened condemnation proceedings,
lawsuits, or administrative actions relating to such Minerals or other
matters materially affecting the current use, or value thereof;
(C) the legal description for such Minerals contained in Exhibit
"D" and the Conveyance transferring such Minerals to Middle Bay
describes such Minerals fully and adequately; and
(D) all material operations on such Minerals have received all
approvals of governmental authorities (including licenses and permits)
required in connection with the ownership or operation thereof and
have been operated and maintained in accordance with applicable laws,
rules, and regulations.
(g) ENVIRONMENTAL HEALTH AND SAFETY. To the best Knowledge of FOC and its
Affiliates with respect to the Minerals being conveyed by FOC hereunder, FOC and
its Affiliates have complied with all Environmental, Health, and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply. Without limiting the generality of the
preceding sentence, each of FOC and its Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses, and
other authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(h) DISCLAIMER OF IMPLIED WARRANTIES OF FITNESS OF OTHER ASSETS. FOC MAKES
NO WARRANTY AS TO THE FITNESS FOR A PARTICULAR PURPOSE OF ANY OF THE PERSONAL
PROPERTY OR FIXTURES BEING CONVEYED HEREUNDER. SUCH PROPERTY IS BEING CONVEYED
"AS IS" AND "WHERE IS" WITH NO EXPRESS OR IMPLIED WARRANTIES FOR FITNESS OR
MERCHANTABILITY.
(i) DISCLAIMER OF WARRANTIES AS TO RESERVES OR PRODUCTION RATES. FOC makes
no representation or warranty as to the reserves contained in the Floyd Programs
or rates of production from such Acquired Floyd Program Assets.
ARTICLE V
COVENANTS
5.1 PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing and, if
applicable, following Closing:
(a) GENERAL. Each of the Parties will use its best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement including satisfaction, but not
waiver, of the closing conditions set forth in Article VII below.
(b) NOTICES, CONSENTS AND FILINGS. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Paragraph III(c) and
Paragraph IV(c) above. Middle Bay will file any Notification and Report Forms
and related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the Hart-Scott-Rodino Act, will use its reasonable best efforts to obtain
an early termination of any applicable waiting period, and will make any further
filings pursuant thereto and any filings of conveyance documents that may be
necessary in connection therewith. Middle Bay, at its own expense, will record
all conveyancing documents referenced herein and deliver copies of the recorded
conveyancing documents transferring the Royalty Interests.
(c) OPERATION OF BUSINESS. FOC will not (and will not cause or permit any
of its Affiliates to) engage in any practice, take any action, or enter into any
transaction outside the ordinary course of business. FOC will not declare, set
aside or make any distributions to its shareholders of the Acquired Floyd
Program Assets or Other Assets.
(d) PRESERVATION OF BUSINESS. FOC will keep (and will cause each of its
Affiliates to keep) its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
(e) FULL ACCESS. FOC will permit (and will cause each of its Affiliates to
permit) representatives of Middle Bay to have access during normal business
hours, and in a manner so as not to interfere with the normal business
operations of FOC and its Affiliates to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to FOC and its Affiliates.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to
the other Party of any material adverse development causing a breach of any of
its own representations and warranties in Article III and Article IV above.
(g) EXCLUSIVITY. FOC will not (and FOC will not cause or permit any of its
Affiliates to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of the stock of
FOC, the Acquired Floyd Program Assets or the Other Assets (including any
acquisition structured as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. FOC will notify Middle Bay if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
(h) EMPLOYMENT AND SEVERANCE AGREEMENTS. Middle Bay shall have offered
employment in Houston to all current Houston based employees of FOC (other than
Alex Floyd) on terms relating to base salary no less favorable than their
current employment terms. In the event any FOC employee (who has been employed
by FOC for at least five years as of the Closing Date) is terminated by Middle
Bay without cause during the first twelve months of employment by Middle Bay,
such employee shall be paid for the balance of the twelve month period. Any FOC
employee (who had not been employed by FOC for at least five years as of the
Closing Date) who is terminated by Middle Bay without cause during the first six
months shall be paid for the balance of the six month period.
(i) TRANSITION ITEMS. Middle Bay shall provide assistance and employ such
consultants as necessary to assist FOC with filing required tax returns for
1999 (federal and state income and franchise tax returns) for the Floyd
Programs, FOC, Floyd Employees Trust and Alexander G. Floyd and to assist FOC
and its affiliates and Middle Bay in insuring that payments for Minerals
comprising the Acquired Floyd Program Assets and the Royalty Interests are made
to the proper owners following Closing.
ARTICLE VI
CONDITIONS TO CLOSING
(a) CONDITIONS TO OBLIGATION OF MIDDLE BAY. The obligation of Middle Bay
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of FOC set forth in Article IV
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) FOC shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (C) affect adversely the right of Middle Bay to own the
Acquired Floyd Program Assets or Other Assets;
(iv) FOC shall have delivered to Middle Bay a certificate to the
effect that each of the conditions specified above in Paragraph
VI(a)(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods, if any, under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and
FOC and Middle Bay shall have received all other authorizations, consents,
and approvals of governments and governmental agencies referred to in
Articles III and IV;
(vi) Middle Bay shall have received from counsel to FOC, dated as of
the Closing Date, an opinion in form and substance as to the existence and
good standing of FOC and as to the enforceability of this Agreement on FOC;
(vii) all actions to be taken by FOC in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to Middle Bay;
(viii) Middle Bay shall have completed its due diligence, the results
of which will be satisfactory to Middle Bay in its sole discretion; and
(ix) Alex Floyd shall have executed a stock power to Middle Bay
transferring all issued and outstanding shares of Floyd Operating Company
to Middle Bay.
The Buyer may waive any condition specified in this Paragraph VI(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF FOC. The obligation of FOC to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties of Middle Bay set forth in
Article
III above shall be true and correct in all material respects at and
as of the Closing Date;
(ii) Middle Bay shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) Middle Bay shall have acquired 100% of the beneficial interests
in the Floyd Programs from the Investors (other than FOC) and shall have
obtained 100% of the Royalty Interests. Middle Bay shall have completed
the liquidation of any entity holding the Royalty Interests and shall own
Good Title in such Royalty Interest;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation or (C) affect adversely the right of
FOC to own the Royalty Properties;
(v) Middle Bay shall have delivered a release and indemnity agreement,
in form and substance satisfactory to FOC and its counsel, holding FOC, its
officers, directors and shareholders harmless from any liability or cause
of action relating to the Assumed Liabilities or which occurred in
connection with, or because of the ownership of the Acquired Floyd Program
Assets, the Other Assets or the Floyd Programs prior to the Closing
("Released Claims"). The agreement will indemnify the released parties for
any expense, charge or cost incurred by any of them for Released Claims;
(vi) Middle Bay shall have provided FOC with evidence of its
compliance with the provisions of Paragraph V(h);
(vii) Middle Bay and FOC will have approved a method to provide that
the amounts due to Middle Bay from the receipts of production from the
Acquired Floyd Program Assets which have occurred since the September 1999
distribution to the Investors plus any suspended revenues or unexpended
amounts withheld by FOC from the September 1999 distribution, except for
agreed upon amounts for future contingencies, are computed and paid to
Middle Bay at Closing in accordance with the statement prepared as of the
date of Closing attached as Exhibit "E";
(viii) Middle Bay and FOC shall have approved a method to provide that
any adjustments to the amounts due FOC as Additional Consideration are paid
to FOC within sixty (60) days of Closing;
(ix) Middle Bay shall have delivered to FOC a certificate to the
effect that each of the conditions specified above in paragraph
VI(b)(i)-(viii) is satisfied in all respects;
(x) FOC shall have received from counsel to Middle Bay an opinion in
form and substance as to the existence, good standing and enforceability of
this Agreement upon Middle Bay dated as of the Closing Date;
(xi) FOC shall have received from its counsel a tax opinion as to the
applicability of Section 1031 of the Internal Revenue Code to this
transaction in form and substance satisfactory to FOC; and
(xii) all actions to be taken by Middle Bay in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, conveyances, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in
form and substance to FOC.
FOC may waive any condition specified in this Paragraph VI(b) if it executes a
writing so stating at or prior to the Closing.
VII TERMINATION
(a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement as
provided below:
(i) Middle Bay and FOC may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) Middle Bay may terminate this Agreement by giving written notice
to FOC on or before Closing, if Middle Bay is not reasonably satisfied with
the results of its continuing business, legal, and accounting due diligence
regarding FOC, the Floyd Programs or its Affiliates;
(iii) Middle Bay may terminate this Agreement by giving written notice
to FOC at any time prior to the Closing (A) in the event FOC has breached
any material representation, warranty, or covenant contained in this
Agreement in any material respect, Middle Bay has notified FOC of the
breach, and the breach has continued without cure for a period of 15 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before November 30, 1999, by reason of the failure of any condition
precedent under Paragraph VI(a) hereof (unless the failure results
primarily from Middle Bay itself breaching any representation, warranty,
or covenant contained in this Agreement); and
(iv) FOC may terminate this Agreement by giving written notice to
Middle Bay at any time prior to the Closing (A) in the event Middle Bay has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, FOC has notified Middle Bay of the
breach, and the breach has continued without cure for a period of 15 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before November 30, 1999, by reason of the failure of any condition
precedent under Paragraph VI(b) hereof (unless the failure results
primarily from FOC itself breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Paragraph VII(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach) provided, however, upon
termination of this Agreement Middle Bay shall pay the expenses stated in
Paragraph VIII (l).
ARTICLE VIII
MISCELLANEOUS
(a) TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Parties contained in this Agreement shall not survive the
Closing hereunder.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; PROVIDED, HOWEVER, that Middle Bay may (i) assign any or all
of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of
its Affiliates to perform its obligations hereunder (in any or all of which
cases Middle Bay nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
IF TO FOC: COPY TO:
Floyd Oil Company Edward E. Hartline
Attn: Alexander G. Floyd Brown McCarroll & Oaks Hartline
St. Mary's Place 1300 Wortham Tower
879-B Washington Street 2727 Allen Parkway
Raleigh, North Carolina 27605 Houston, Texas 77019-2100
IF TO MIDDLE BAY: COPY TO:
Middle Bay Oil Company, Inc. David S. Elkouri
Attn: Floyd C. Wilson Hinkel Elkouri Law Firm, L.L.C.
5910 North Central Expressway 2000 Epic Center
Suite 1150 301 North Main Street
Dallas, Texas 75206 Wichita, Kansas 67202-4820
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule that would cause the application
of the laws of any jurisdiction other than the State of Texas.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Middle Bay and FOC. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. All of the reasonable expenses of FOC related to this
Agreement and the transactions contemplated hereby will be paid by Middle Bay at
Closing or in the event the Closing does not occur such expenses shall be paid
by December 1, 1999. In addition, if Closing does occur, Middle Bay will assist
FOC in preparing the 1999 tax returns of FOC, Floyd Employees Trust, Floyd IV
Corporation, Floyd Equity IV Corporation, Floyd Canyon, Inc. and Alexander G.
Floyd, the final tax returns for the partnerships in the Floyd Programs and
final reports to the investors in the Floyd Programs and either pay for or
reimburse FOC for the reasonable costs incurred in preparing such tax returns
and reports. Middle Bay shall be responsible for its own costs and expenses.
(m) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Houston, Texas, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
(p) USAGE OF NAME. Middle Bay agrees not to use the names "Floyd Oil
Company" or "Floyd" in its business activities and to expeditiously remove the
names "Floyd Oil Company" or "Floyd" from any Acquired Floyd Program Assets or
Other Assets.
THE BALANCE OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.
EXECUTED EFFECTIVE, the date herein first above written.
Middle Bay Oil Company, Inc.
By /s/ Floyd C. Wilson
Floyd C. Wilson, President
Floyd Oil Company
By /s/ Alexander G. Floyd
Alexander G. Floyd, President
EXHIBIT A
ASSETS RETAINED BY FOC
All real estate owned by FOC in North Carolina.
All personal property located in the FOC office at St. Mary's Place, 879-B
Washington Street, Raleigh, North Carolina.
All land and other records pertaining to the Royalty Properties.*
All financial and income tax records (federal and state) pertaining to
FOC.*
All Interest in Royalty Properties owned by FOC.
All cash on hand of FOC not conveyed in accordance with the terms of this
Agreement.
*Any records which are the property of FOC which remain in Middle Bay offices
following the Closing will be maintained by Middle Bay for four years following
Closing. Prior to destroying any of FOC's records, Middle Bay will give FOC
notice of such intention and at least sixty (60) days to claim such records.
EXHIBIT B
PARTNERSHIPS TO BE LIQUIDATED
Cheyenne Partners, Ltd.
Cheyenne Partners II, Ltd.
Cheyenne Partners III - TNE, Ltd.
Cheyenne Partners III - MM, Ltd.
Cheyenne Partners IV, Ltd.
Cheyenne Partners V, Ltd.
Floyd Equity Partners Program, Ltd.
Floyd Equity Partners Program II, Ltd.
Floyd Equity Partners Program III, Ltd.
Floyd Equity Partners III-TNE, Ltd.
Floyd Equity Partners Program IV, Ltd.
Floyd Equity Partners V, Ltd.
CCHub Partnership, Ltd.
Floyd Canada Ojitos Partners
EXHIBIT C
CONVEYANCE AND DESCRIPTION OF MINERALS OWNED BY FOC BEING CONVEYED TO MIDDLE BAY
EXHIBIT D
CONVEYANCE AND DESCRIPTION OF ROYALTY INTERESTS BEING CONVEYED TO FOC BY
MIDDLE BAY
EXHIBIT "E"
FLOYD OIL COMPANY / MIDDLE BAY OIL COMPANY, INC.
DRAFT OF CLOSING STATEMENT
EFFECTIVE DATE: JANUARY 1, 1999
CLOSING DATE: NOVEMBER 23, 1999
AMOUNTS DUE TO FLOYD OIL COMPANY
Consideration For Other Assets (Paragraph 1.3(a)) $ 85,000
Additional Consideration For Acquired Floyd Program Assets (Paragraph 1.3(b))
1999 Net Operating Income From Royalty Properties Through
August 1999 Cash Receipts 1,179,585
FOC's Share of NOI from Interests Under Cheyenne Programs (424,829)
Net Operating Income Due To Floyd Oil Company 754,756
Development Costs Incurred By FOC Through August 1999 79,664
G & A costs Incurred By FOC Through August 1999 26,020
Less Amount Per Exchange Agreement (85,000)
---------
775,440
Consideration For Expenditures To Be Incurred (Paragraph 1.3(c)) 90,000
-----------
950,440
-----------
AMOUNTS DUE FROM FLOYD OIL COMPANY
Net Cash Flow From Non-Royalty Properties For Sept & Oct 1999
New Operating Income ($2,206,893 and $2,641,288) 4,848,181
Development Costs ($589,878 and $564,647) (1,154,525)
Tax Adjustments (218,126)
---------
3,475,530
G & A Expense Estimates Withheld From Sept 1999 Distribution 555,816
-----------
4,031,346
-----------
NET DUE TO (FROM) FLOYD OIL COMPANY AT CLOSING $(3,080,905)
-----------
-----------
DISCLOSURE SCHEDULE BY MIDDLE BAY
NONE
DISCLOSURE SCHEDULE
FLOYD OIL COMPANY
LITIGATION AND POTENTIAL LEGAL CLAIMS
EAST ROANOKE FIELD, JEFFERSON DAVIS PARISH, LOUISIANA
Floyd Oil Company, et al vs. James M. Wessel, et al, Docket No. C-731-95,
District Court of Jefferson Davis Parish,Louisiana. Floyd, et al is the
Plaintiff in a quiet title action to the drillsite tract for the Brieske #1 well
(HBY RA SUB). We also filed damage claims against Wessel for breach of faith,
tortuous interference and bad faith dealings. We have entered into an agreement
with Wessel to settle this litigation which would result in a $10,000 payment to
him.
RACELAND FIELD, LAFOURCHE PARISH, LOUISIANA
4C's Inc., et al vs. Floyd Oil Company, et al, Docket No. 84623, 17th Judicial
Court, Lafourche Parish, Louisiana. The surface owner has claimed we do not
have ingress and egress to the Sabine #2 & 4 wells and Floyd, as well as the
prior owner Torch, and the pumpers have been trespassing on and damaging the
land.
SLEEPING HOLLOW FIELD, RED WILLOW COUNTY, NEBRASKA
We are seeking the removal of the Operator, Central Operating Inc., of the
Reagan and Lansing Units. We have retained Mr. Brian Tooley of Welborn Sullivan
Meck & Tooley to represent us.
FULLERTON FIELD, ANDREWS COUNTY, TEXAS
Floyd, et al owns 100% working interest in the University 10 & 11 leases in
Sections 10 & 11, Block 13, University Lands Survey, Andrews County, Texas.
These leases are subject to a 10.9375% overriding royalty on "primary
production" which escalates to a 21.875% overriding royalty if "secondary
recovery" operations are initiated. Gulf originally reserved said ORRI which
vested in Chevron and was sold to ICA Energy, Inc., effective June 1, 1999. ICA
has claimed that secondary recovery operations have occurred on the offsetting
Exxon Clearfork Unit which have caused escalation of the ORRI burdening our
lease. We deny this allegation but have been negotiating with ICA for them to
exchange their ORRI for a working interest so we can work towards jointly
developing this property. We have verbally agreed to terms with ICA to settle
the ownership issue and jointly develop the property. However, we have now
received a letter from Chevron also claiming escalation of the ORRI and
requesting an accounting be made of royalty owed Chevron as a result of
secondary operations by Exxon on the adjacent lease. Chevron estimates that it
is owed approximately $284,238.41 plus interest. Our deal with ICA is
contingent on them obtaining a waiver of this issue from Chevron.
The minerals are subject in some cases to rights of first refusal and to a
requirement to give notice of any transfer to a prior owner or lessor.
ENVIRONMENTAL ISSUES
TOBORG FIELD, PECOS COUNTY, TEXAS
The property has significant volumes of oil and saltwater impacted surface soil
located around tank batteries, water injuection pumps, lease roads and flow line
rights-of-way; three unlined "emergency" pits in service on the Toborg, Tippett
"E" and Tippett "C" tank batteries, and many of the injection wells have annulus
open to the atmosphere. This property was sold effective December 1, 1999.
RACELAND FIELD, LAFOURCHE PARISH, LOUISIANA
Reserve pits with elevated levels of barium remain open in the wetlands at the
three well locations. Wells are registered with the state for the elevated
levels of NORM scale they produce.
SOUTHEAST VELMA SIMS / HUMPHREY UNITS, CARTER COUNTY, OKLAHOMA
The Velma Camp Deese Unit injection wells cause casing collapse problems with
the adjacent Southeast Velma Sims and Humphrey's producing wells. The Velma
Camp Deese Unit operated by Phoenix Petro Corp. overlies our Sims and Humphrey
units. This could cause an adverse impact on the ground water resources.
SLEEPY HOLLOW FIELD, RED WILLOW COUNTY, NEBRASKA
The two waterflood units have approximately 100 temporarily abandoned wellbores
which need to be plugged and abandoned. In addition, 60 well sites require some
measure of surface restoration and two large unlined pits registered with the
state remain open for emergency overflows.
STUART CITY FIELD, LASALLE COUNTY, TEXAS
Reportedly, while drilling through the Olmos formation, hydrogen sulfide was
noted. The condition could have occurred from causing leaks in the Edwards
producing wells in the area.
APACHE FEDERAL LEASE, RIO ARRIBA COUNTY, NEW MEXICO
Unlined produced water evaporated / percolation pits located adjacent to the
production units at each well location remain in service and are void of
protective bird netting. Some pits are located within the Expended Vulnerable
Area which the BLM has informed us to close.
Reference is also hereby made to the environmental study by Hinds and Associates
a copy of which is attached hereto.