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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of October 8, 1999,
but effective as of
July 1, 1999
by and between
TESORO PETROLEUM CORPORATION
AND
TESORO GAS RESOURCES COMPANY, INC.
AS "SELLER"
AND
EEX OPERATING LLC
AS "BUYER"
AND
EEX CORPORATION
FOR THE LIMITED PURPOSES SET FORTH HEREIN
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ARTICLE I.
DEFINITIONS 1
ARTICLE II.
PURCHASE AND SALE 11
2.1 SALE OF COMMON STOCK 11
2.2 EFFECT OF SALE 11
2.3 PARTNERSHIP 11
2.4 OPERATING ASSETS 12
2.5 FINANCIAL ASSETS AND LIABILITIES 13
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS 13
2.7 ADJUSTMENT ASSETS AND LIABILITIES 13
2.8 BOLIVIA TRANSACTION 14
2.9 PUT AND CALL OPTIONS 14
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE 14
3.1 PURCHASE PRICE 14
3.2 SETTLEMENT PRICE 14
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES 15
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES 15
4.2 BUYER'S REPRESENTATIONS 27
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION 29
5.1 ACCESS TO INFORMATION 29
5.2 TITLE FILES 29
5.3 LEGAL FILES 30
5.4 FINANCIAL AND ACCOUNTING FILES 30
5.5 WARRANTIES AS TO DOCUMENTS 30
5.6 INSPECTIONS 30
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ARTICLE VI.
TITLE 30
6.1 BUYER'S TITLE REVIEW 30
6.2 TITLE DEFECTS 31
6.3 PROCEDURES TO DETERMINE PROPERTY VALUE ADJUSTMENTS
FOR TITLE DEFECTS 34
6.4 PROPERTY VALUE ADJUSTMENT FOR TITLE DEFECTS 36
6.5 PREFERENTIAL RIGHTS AND CONSENTS TO ASSIGNMENT 37
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ARTICLE VII.
ENVIRONMENTAL 39
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER 39
7.2 NORM 40
7.3 ENVIRONMENTAL CONDITIONS 40
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION 40
7.5 ENVIRONMENTAL ASSESSMENT 41
7.6 ENVIRONMENTAL CONDITION VALUE REDUCTION FOR
ENVIRONMENTAL CONDITIONS 41
7.7 PROCEDURES TO DETERMINE ENVIRONMENTAL PRICE ADJUSTMENT 42
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION 44
8.1 NO TERMINATION 44
8.2 PROCEEDS AND AWARDS 44
8.3 RISKS OF OTHER LOSSES 45
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ARTICLE IX.
COVENANTS 45
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS 45
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING
ASSETS 45
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES 48
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS 48
9.5 NO SOLICITATION OF TRANSACTIONS 49
9.6 EMERGENCIES AND OVERSIGHTS 49
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED
EXISTENCE 49
9.8 BUYER'S COVENANTS REGARDING TRADE NAME 49
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT 50
9.10 AUTHORIZATIONS 51
9.11 SOFTWARE AND COMPUTER PROGRAMS 51
9.12 GENERAL 51
9.13 SUPPLEMENTAL INFORMATION REGARDING REPRESENTATIONS
AND WARRANTIES 52
9.14 CERTAIN PIPELINE ASSETS 54
9.15 GATHERING AGREEMENT EXTENSION 54
ARTICLE X.
PRE-CLOSING PROCEDURES 56
10.1 NOTICE OF SETTLEMENT PRICE ADJUSTMENTS 56
10.2 INITIAL SETTLEMENT STATEMENT 56
10.3 CLOSING DOCUMENTS 56
10.4 ESCROW AGENT 56
10.5 WIRE TRANSFER INSTRUCTIONS 56
ARTICLE XI.
CLOSING CONDITIONS 56
11.1 SELLER'S CLOSING CONDITIONS 56
11.2 BUYER'S CLOSING CONDITIONS 57
ARTICLE XII.
CLOSING 58
12.1 CLOSING 58
12.2 SELLER'S CLOSING OBLIGATIONS 58
12.3 BUYER'S CLOSING OBLIGATIONS 59
12.4 GOVERNMENTAL FILINGS 59
12.5 CLOSING ON PROPERTIES WITH UNCURED TITLE DEFECTS
OR ENVIRONMENTAL CONDITIONS 59
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ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS 60
13.1 LIMITATIONS ON LIABILITY FOR PRICE ADJUSTMENTS 60
13.2 SETTLEMENT STATEMENTS 60
13.3 OPERATING TAXES 61
13.4 SHARED OBLIGATIONS 62
ARTICLE XIV.
POST-CLOSING PROCEDURES 63
14.1 DELIVERY OF FILES 63
14.2 THIRD PARTY DATA 63
14.3 COOPERATION 63
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO
ASSIGNMENT 64
14.5 FILING AND RECORDING OF DOCUMENTS 64
14.6 FURTHER ASSURANCES 64
14.7 INCIDENTAL COSTS 64
ARTICLE XV.
SURVIVAL; INDEMNITIES 64
15.1 SURVIVAL 64
15.2 BUYER'S INDEMNITY 64
15.3 SELLER'S INDEMNITY 65
15.4 PROCEDURE FOR INDEMNIFICATION 65
15.5 EXCLUSIVITY 66
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES 66
ARTICLE XVI.
TAX MATTERS 66
16.1 INDEMNIFICATION FOR TAXES 66
16.2 OTHER TAX MATTERS 68
16.3 EXCLUSIVE REMEDY FOR TAXES 71
ARTICLE XVII.
DEFAULT AND REMEDIES 71
17.1 LIABILITIES UPON TERMINATION 71
17.2 RECOVERY OF COSTS 71
17.3 WAIVER OF EXTRAORDINARY DAMAGES 71
17.4 WAIVER OF JURY TRIAL 71
17.5 INDEPENDENT OBLIGATIONS 71
17.6 CHANGES OF LAW 72
17.7 MERGER 72
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ARTICLE XVIII.
NOTICES 72
18.1 NOTICES 72
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES 73
19.1 NON DISCLOSURE OF DATA 73
19.2 PUBLIC ANNOUNCEMENTS 73
ARTICLE XX.
TERMINATION 73
20.1 TERMINATION 73
ARTICLE XXI.
MISCELLANEOUS 74
21.1 ENTIRE AGREEMENT 74
21.2 NO VERBAL MODIFICATIONS OR WAIVERS 74
21.3 SEVERABILITY 74
21.4 INTERPRETATION 74
21.5 COUNSEL 74
21.6 GOVERNING LAW 74
21.7 CONSENTS 75
21.8 TIME OF ESSENCE 75
21.9 BINDING EFFECT, ASSIGNMENT 75
21.10 NO RELATIONSHIP 75
21.11 NO RECORDATION 75
21.12 EXHIBITS AND SCHEDULES 75
21.13 COUNTERPARTS 75
21.14 NO THIRD PARTY BENEFICIARIES 75
21.15 JOINT AND SEVERAL LIABILITY 76
21.16 DISPUTE RESOLUTION 76
21.17 EEX CORPORATION GUARANTEE 76
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SCHEDULES
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
2.4 EXCEPTIONS TO OPERATING ASSETS
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(f)(iii) TITLE TO ASSETS
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) WELLS
4.1(z) PAYOUT BALANCES
6.2(b) TITLE DEFECTS
6.2(c)(iv) BOB WEST FIELD ROYALTY POOL
7.3(b)(vii) ENVIRONMENTAL EXCLUSIONS
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
9.9(a) RETAINED EMPLOYEES
9.9(c) RETENTION RELATED SALARY INCREASES
EXHIBITS
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is dated October 8, 1999, but effective as of the
Effective Time, between Tesoro Petroleum Corporation, a Delaware corporation,
and Tesoro Gas Resources Company, Inc., a Delaware corporation, collectively as
"Seller", and EEX Operating LLC, a Delaware limited liability company, as
"Buyer", and EEX Corporation, for the limited purposes set forth herein.
WITNESSETH:
WHEREAS, Tesoro Exploration and Production Company, a Delaware
corporation ("Exploration"), has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000 shares are issued and
outstanding, all of which are owned by Tesoro Petroleum Corporation; and
WHEREAS, Tesoro Reserves Company, a Delaware corporation ("Reserves"),
has authorized capital stock consisting of 1,000 shares of $1.00 par value
common stock, of which 1,000 shares are issued and outstanding, all of which are
owned by Tesoro Gas Resources Company, Inc.; and
WHEREAS, Exploration and Reserves are the two partners in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"), in which
Exploration is the general partner owning a 1% interest and Reserves is the
limited partner owning a 99% interest; and
WHEREAS, the Partnership owns certain assets used in the business of
the exploration, production, gathering, transportation and marketing of oil,
natural gas, condensate and associated hydrocarbons; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller all issued and outstanding Common Stock of Exploration and Reserves,
and all Seller's rights and interests in the Partnership, under the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
"AAA" shall have the meaning set forth in Section 21.16.
"ACCEPTING PARTY" shall have the meaning set forth in Section 16.1(e).
"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 13.5.
"ACTION" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"ADJUSTMENT ASSETS AND LIABILITIES" shall mean those certain items set
forth in Section 2.7.
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"AFFILIATE" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"AGREEMENT" shall mean this Stock Purchase Agreement.
"ALLOCATED VALUE" shall mean the monetary value allocated to each
Property or group of Properties and the Hedging Contracts on Exhibit A.
"APO" shall mean "after payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If there are
multiple outstanding payouts affecting any particular well or Property, then the
APO interest shall mean the interests after all applicable payouts have
occurred. If at the Effective Time there are no outstanding payout balances
affecting any particular well or Property, then the listed APO interest in such
well or Property shall reflect the Partnership's WI and NRI at the Effective
Time.
"APPLICABLE ENVIRONMENTAL LAWS" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"APPLICABLE LAW" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"ARBITRATOR" shall have the meaning set forth in Section 21.16.
"BALANCE SHEETS" shall mean the unaudited combined financial balance
sheet of the Subsidiaries and the Partnership as of June 30, 1999, attached
hereto as Exhibit C.
"BOLIVIA TRANSACTION" shall have the meaning set forth in Section 2.8.
"BOOKS AND RECORDS" shall mean all of the following which pertain to
the conduct of the Business: books, records, manuals and other materials,
accounting books and records, continuing property records for property, plant
and equipment, land and lease files, title opinions, suspense records,
production records, any inventories of equipment and property, well files,
engineering files, maps, surveys, electric logs, seismic records, geological and
geophysical files, and all other technical data, division order files, contract
files, other files, computer tapes, disks, other storage media and records,
advertising matter, correspondence, lists of customers and suppliers, maps,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, work and recent salary history for personnel,
credit records, manufacturing and quality control records and procedures, patent
and trademark files and disclosures, litigation files, leases, oil and gas
leases, deeds, easements and other instruments relating to the Business, any
copies of Tax Returns filed by or with respect to the Subsidiaries or the
Partnership, including copies of all work papers and
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calculations relating to the Subsidiaries and the Partnership in support of such
Tax Returns, and any comparable information with respect to predecessors of the
Subsidiaries or the Partnership to the extent available, and copies of any other
applicable accounting and tax records of the Seller and the Partnership
pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established
under the respective farmout agreements, joint operating agreements,
participation interests and similar agreements affecting each Property,
including payouts providing reversionary rights of parties who have elected not
to participate in an operation under a joint operating agreement. If at the
Effective Time there is an outstanding payout balance affecting any particular
well or Property, the listed BPO interest in such well or Property shall reflect
the Partnership's WI and NRI at the Effective Time.
"BUSINESS" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"BUSINESS DAY" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"BUYER GROUP" shall have the meaning set forth in Section 15.3.
"BUYER'S GROUP HEALTH PLANS" shall have the meaning set forth in
Section 9.9(a).
"BUYER'S KNOWLEDGE" shall mean knowledge of Buyer and management
employees of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"BYLAWS" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"CALL OPTION" shall have the meaning set forth in Section 2.9.
"CASUALTY PRICE ADJUSTMENT" shall have the meaning set forth in Section
13.1(c).
"CHARTER" shall mean a company's articles of association, articles of
incorporation, certificate of incorporation or equivalent organizational
documents.
"CLOSING" shall have the meaning set forth in Section 12.1.
"CLOSING DATE" shall have the meaning set forth in Section 12.1.
"CLOSING SETTLEMENT PRICE" shall mean the Settlement Price calculated
in accordance with the best information available to the Seller prior to
Closing, as reflected on the Settlement Statement delivered prior to Closing
pursuant to Article X and Section 13.2(a).
"CODE" shall mean the United States Internal Revenue Code of 1986 and
any successor statute thereto, as amended.
"COMMON STOCK" shall mean all issued and outstanding shares of common
stock of Exploration and Reserves, collectively.
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"CONSENT TO ASSIGNMENT" shall mean an existing contractual or legal
right of any third party to consent to the Partnership's assignment of a
Property to Buyer under such terms as are set forth in this Agreement.
"CONTRACTS" shall mean all of the contracts that govern or relate to
the ownership or operation of the Operating Assets (including without
limitation, the wells, facilities and equipment associated therewith and the
production therefrom, acreage contribution agreements, assignments, bidding
agreements, bottom-hole agreements, contribution agreements, drilling contracts,
dry-hole agreements, exploration agreements, development agreements, farm-in and
farmout agreements, gas balancing agreements, joint venture agreements,
production, sales, marketing and/or brokerage contracts, gas processing
agreements, operating agreements, participation agreements, service contracts,
storage contracts, gathering agreements, transportation agreements, treating
contracts, water rights agreements and the unitization, unit operating,
communitization and pooling declarations, agreements and orders that create or
govern units). To the extent that Seller, the Subsidiaries or the Partnership
have rights of indemnification or warranty rights with respect to any Operating
Asset or any part of an Operating Asset, the same shall be included in the
meaning of "Contracts."
"DAMAGES" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"EFFECTIVE TIME" shall mean July 1, 1999, at 12:00 a.m. local time for
each Operating Asset.
"ENCUMBRANCE" shall mean any interest (including any security
interest), pledge, mortgage, lien, charge, adverse claim or other right of third
Persons.
"ENVIRONMENTAL CONDITION" shall have the meaning set forth in Section
7.3.
"ENVIRONMENTAL CONDITION VALUE REDUCTION" shall mean the reduction in
value of an Operating Asset attributable to an Environmental Condition affecting
that Operating Asset, determined as set forth in Section 7.6.
"ENVIRONMENTAL PRICE ADJUSTMENT" shall have the meaning set forth in
Section 13.1(b).
"EXPLORATION" shall mean Tesoro Exploration and Production Company, a
Delaware corporation.
"FINAL SETTLEMENT PRICE" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"FINAL STATEMENT" shall mean the final accounting statement to be
agreed upon by the Parties no later than one hundred twenty (120) days after
Closing pursuant to Section 13.2(c).
"FINANCIAL ASSETS AND LIABILITIES" shall mean the assets, liabilities
and other financial items on the Balance Sheets, effective as of 11:59 p.m. on
June 30, 1999, (i) as adjusted for revenues, income, expenses and other assets
and liabilities incurred between the Effective Time and the Closing Date and
included within the Adjustment Assets and Liabilities, and (ii) as adjusted for
the Pre-
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Closing Financial Adjustments and (iii) as otherwise adjusted as provided
herein. The term "Financial Assets" shall not include any assets, liabilities or
other financial items included within the Operating Assets.
"FORMS" shall have the meaning set forth in Section 16.2(j).
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"GATHERING" shall mean Tesoro Gathering Company, a Delaware
corporation.
"GOVERNMENTAL AUTHORITY" shall mean any international, national,
Federal, state, municipal or local government, governmental authority,
regulatory or administrative agency, governmental commission, department, board,
bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS SUBSTANCE" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"HEDGING CONTRACTS" shall mean those natural gas derivative pricing
contracts listed on Schedule 1A .
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"INCOME TAXES" shall mean any Taxes, including franchise taxes, which
are based upon or in respect of income.
"INDEMNIFIED PARTY" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"INDEMNIFYING PARTY" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"IRS" shall mean the U.S. Internal Revenue Service.
"LENDER" shall have the meaning set forth in Section 9.12(c).
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"LIABILITIES" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"LICENSE AGREEMENT" shall mean the agreement to be entered into between
the Partnership and Digicomp, Inc., permitting Digicomp, Inc. and its partners
to use certain geological and geophysical data owned by the Partnership in
connection with the development of technology for the compression and
transmission of such data, for demonstration purposes only and not for
distribution to third parties.
"MATERIAL ADVERSE EFFECT" shall mean any event with respect to, change
in, or effect on, the Subsidiaries, the Partnership or the Business which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Business, or the financial results of operations, assets
or properties or financial condition of the Subsidiaries and the Partnership,
taken as a whole, but the term "Material Adverse Effect" shall not include any
change in market conditions or other conditions affecting the oil and gas
exploration and production industry generally.
"NATURAL GAS" shall mean Tesoro Natural Gas Company, a Delaware
corporation.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas
production from a Property.
"OPERATING ASSETS" shall mean all property rights and interests of the
Partnership being sold hereunder, as set forth in Section 2.4.
"OTHER TAXES" shall mean all Taxes other than Income Taxes.
"PARTIES" shall mean Buyer and Seller, collectively.
"PARTNERSHIP" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"PARTY" shall mean either Buyer or Seller.
"PERMITTED ENCUMBRANCES" shall include any Encumbrance which is: (i)
listed on Schedule 1B, for which a duly executed release in recordable form will
be delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
conditions reasonable and customary in the industry (other than a Preferential
Right to Purchase that is exercised prior to Closing or a required Consent to
Assignment, or a reversionary right that is not reflected in the BPO and APO
interests on Exhibit A); (vii) the right of a third party under any equipment
rental
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or lease contract, oilfield service contract, production sales contract or
transportation contract affecting any Property, which either may be terminated
by the parties thereto without penalty or does not extend for a term of more
than sixty days after the Closing Date; (viii) any other easement, operating
right, concurrent use right or similar encumbrance that does not affect the
Partnership's rights to a Property or reduce the production revenues
attributable thereto or increase the costs associated with ownership or
operation of that Property; and (ix) a severance tax, production tax, occupation
tax, ad valorem tax or similar tax of general application.
"PERSON" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"PIPELINE" shall meaning Tesoro Pipeline Company, L.P., a Delaware
limited partnership.
"PIPELINE OPERATOR" shall have the meaning set forth in Section 1.3 of
the Starr-Zapata Transportation Agreement.
"PIPELINE PARTNERS" shall have the meaning set forth in Section 2.10 of
the Starr-Zapata Partnership Agreement or Section 2.12 of the Starr County Joint
Venture Agreement, as applicable.
"POST-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING FINANCIAL ADJUSTMENTS" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"PRE-CLOSING PERIOD" shall have the meaning set forth in Section
16.2(c).
"PRE-CLOSING RETURN" shall have the meaning set forth in Section
16.2(c).
"PREFERENTIAL RIGHT TO PURCHASE" shall mean the right of any third
party under an existing contract or agreement allowing that third party to
purchase the Partnership's interest in a Property whenever Seller proposes to
transfer its interests in the Partnership under terms such as are set forth in
this Agreement.
"PRODUCTION" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"PROPERTIES" shall mean, collectively, (i) all valid and existing oil
and gas leaseholds and mineral fee rights, and all rights and interests
appurtenant thereto, which are owned by the Partnership in the States of Texas,
North Dakota, New Mexico, Oklahoma, Louisiana, Mississippi, Wyoming, West
Virginia, Montana and Alabama and the province of Alberta, Canada, including
without limitation all oil and gas WIs, NRIs, mineral fee interests, oil, gas
and mineral deeds, leases and/or subleases, royalties, overriding royalties,
leasehold interests, mineral servitudes, production payments and net profits
interests, fee mineral interests, surface estates, fee estates, royalty
interests, overriding royalty interests, or other non-working or carried
interests, reversionary rights, farmout and farmin rights, operating rights,
pooled or unitized acreage, and all other rights, privileges and interests in
such oil, gas and other minerals (and the production thereof), and other mineral
rights of every nature now owned by the Partnership, and specifically including
without limitation, all rights, title and interests of the Partnership in the
oil, gas and mineral leases and leasehold estates described in Exhibit
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B; (ii) all of the contractual rights to interests described in (i) above and in
all units in which such interests are pooled, communitized or unitized, and in
any other oil, gas and/or mineral leases or assets arising pursuant to the terms
of the oil and gas leases listed on Exhibit B hereto, and any other rights and
agreements or contracts affecting or relating to interests described in (i)
above, or to Production, whether or not listed on Exhibit B, including any
tenements, appurtenances, surface leases, easements, permits, licenses,
servitudes, franchises or rights of way; and (iii) all rights and interests of
the Partnership in the pipelines set forth on Exhibit B, together with all
easements and contract rights.
"PROPERTY" shall mean any individual one of the Properties.
"PROPERTY TAX PERIOD" shall have the meaning set forth in Section
13.3(a).
"PROPERTY TAXES" shall have the meaning set forth in Section 13.3(a).
"PROPERTY VALUE ADJUSTMENT" shall have the meaning set forth in Section
6.4.
"PROPERTY VALUE INCREASE" shall mean, for any Property in which Seller
owns greater than the interest set forth on Exhibit A, an amount equal to the
difference between the Allocated Value of the Property stated in Exhibit A and
the proportionately increased value of such Property with the correct adjusted
interests, determined as set forth in Section 6.4.
"PROPERTY VALUE REDUCTION" shall mean the reduction in value of a
Property attributable to a Title Defect in that Property, determined as set
forth in Section 6.4.
"PROPOSED SETTLEMENT" shall have the meaning set forth in Section
16.1(e).
"PURCHASE PRICE" shall have the meaning set forth in Section 3.1.
"PUT OPTION" shall have the meaning set forth in Section 2.9.
"RECORD TITLE" means for each lease affecting a Property or Well, as
applicable, such title that is deducible (i) in the case of fee leases, from a
review of the records of the applicable county, (ii) in the case of federal
leases, from a review of records of the applicable office of the Bureau of Land
Management or Minerals Management Service, (iii) in the case of state leases,
from a review of the records of the applicable state land office or the records
of the applicable county, or (iv) in the case of state-mandated pooling orders,
in the office of the applicable Governmental Authority.
"REFUSING PARTY" shall have the meaning set forth in Section 16.1(e).
"RESERVES" shall mean Tesoro Reserves Company, a Delaware corporation.
"RETAINED EMPLOYEES" shall have the meaning set forth in Section
9.9(a).
"SELLER" shall mean, collectively, Tesoro Petroleum Corporation, a
Delaware corporation, and Tesoro Gas Resources Company, Inc., a Delaware
corporation.
"SELLER INITIATED ENVIRONMENTAL DEFECT" shall have the meaning set
forth in Section 9.13.
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"SELLER INITIATED TITLE DEFECT" shall have the meaning set forth in
Section 9.13.
"SELLER'S GROUP HEALTH PLANS" shall have the meaning set forth in
Section 9.9(a).
"SELLER'S KNOWLEDGE" shall mean actual knowledge of any fact,
circumstance or condition by the officers or management employees (including
those with titles of "Manager", "Vice President" and "President" or those in the
internal legal department of Seller, the Subsidiaries and the Partnership who
provide specific advice related to the operations of the Business) of Seller,
the Subsidiaries and the Partnership involved and knowledge of any fact,
circumstance or condition which such officer or management employee would have
been aware of with the exercise of reasonable diligence and inquiry in the
course of his or her duties.
"SETTLEMENT PRICE" shall have the meaning set forth in Section 3.2.
"SETTLEMENT PRICE ADJUSTMENT" shall mean an aggregate reduction in the
Settlement Price for the Operating Assets computed as the sum of (i) Title Price
Adjustments attributable to one or more Title Defects, (ii) Environmental Price
Adjustments attributable to one or more Environmental Conditions and (iii)
Casualty Price Adjustments attributable to one or more casualty losses.
"SETTLEMENT STATEMENT" shall mean the accounting statement calculating
the Settlement Price, to be furnished by Seller to Buyer prior to Closing,
pursuant to Article X and Section 13.2(a).
"STARR COUNTY GATHERING" shall mean the Texas general partnership
created pursuant to and governed by the Starr County Joint Venture Agreement for
the purpose of owning, operating and maintaining the Starr County Gathering
System.
"STARR COUNTY GATHERING AGREEMENT" shall mean the Gas Gathering
Contract dated effective February 1, 1991 by and among Exploration and Coastal
Oil and Gas Corporation, as producers, and Starr County Gathering, as gatherer,
as subsequently amended, supplemented, or otherwise modified to the date hereof
or as consented to by Buyer in accordance with this Agreement.
"STARR COUNTY GATHERING SYSTEM" shall mean the pipeline gathering and
transportation system in the vicinity of the Bob West Field, Starr County,
Texas, which is owned by Starr County Gathering.
"STARR COUNTY JOINT VENTURE AGREEMENT" shall mean that certain Joint
Venture Agreement effective February 1, 1991 by and between Natural Gas and
Coastal States Gas Transmission Company, as subsequently amended, supplemented
or otherwise modified to the date hereof or as consented to by Buyer in
accordance with this Agreement.
"STARR PARTNERSHIPS" shall mean Starr County Gathering and the
Starr-Zapata Partnership, collectively.
"STARR-ZAPATA LINE" shall have the meaning set forth in Section 1.1 of
the Starr-Zapata Transportation Agreement.
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"STARR-ZAPATA PARTNERSHIP" shall mean the Texas general partnership
created pursuant to and governed by the Starr-Zapata Partnership Agreement for
the purpose of owning, maintaining and operating the Starr-Zapata Line.
"STARR-ZAPATA PARTNERSHIP AGREEMENT" shall mean that certain
Partnership Agreement effective May 13, 1994 by and between Natural Gas and
Coastal States Gas Transmission Company, as subsequently amended, supplemented
or otherwise modified to the date hereof or as consented to by Buyer in
accordance with this Agreement.
"STARR-ZAPATA TRANSPORTATION AGREEMENT" shall mean that certain
Transportation Agreement dated February 8, 1994 by and between the Partnership
and Coastal States Gas Transmission Company, as subsequently amended,
supplemented or otherwise modified to the date hereof or as consented to by
Buyer in accordance with this Agreement.
"STRADDLE PERIOD" shall have the meaning set forth in Section 16.1(e).
"STRADDLE RETURN" shall have the meaning set forth in Section 16.2(c).
"SUBSIDIARIES" shall mean Exploration and Reserves, collectively.
"TAX" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" shall have the meaning set forth in Section 16.1(c).
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedules or attachments thereto, and including any amendment thereof.
"TAXING AUTHORITY" shall mean any Governmental Authority responsible
for the imposition or collection of any Tax.
"TESORO GROUP" shall have the meaning set forth in Section 4.1(i).
"TESORO MARK" shall have the meaning set forth in Section 9.8.
"TESORO PARENT" shall have the meaning set forth in Section 4.1(i).
"TITLE DEFECT" shall have the meaning set forth in Section 6.2.
"TITLE PRICE ADJUSTMENT" shall have the meaning set forth in Section
13.1(a).
"TRANSACTION" shall mean the purchase and sale of the Common Stock
pursuant to this Agreement and the related transactions contemplated herein.
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"VAL VERDE PIPELINE" shall have the meaning set forth in Section 9.14.
"WELL" shall have the meaning set forth in Section 6.2(a)(vi).
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"WORKING CAPITAL" shall mean, at any time, the difference between (a)
the sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
the Subsidiaries and the Partnership except as expressly provided herein, and in
a manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"WORKING CAPITAL ACCOUNTS" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for the Subsidiaries and the Partnership, and in a manner
as reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II.
PURCHASE AND SALE
2.1 SALE OF COMMON STOCK. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all the Common Stock.
2.2 EFFECT OF SALE. The sale of the Common Stock at Closing shall
transfer to Buyer all of Seller's rights in the Subsidiaries. On the Closing
Date, the Subsidiaries shall hold certain interests, assets and liabilities, as
set forth in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in the Subsidiaries shall assign to
Buyer all of Seller's beneficial right, title, interest and obligations in and
to such interests, assets and liabilities held by the Subsidiaries.
2.3 PARTNERSHIP. On the Closing Date, Exploration and Reserves shall
own all rights and interests in the Partnership. Exploration shall be the one
percent (1%) general partner, and Reserves shall be the ninety-nine percent
(99%) limited partner in the Partnership. The partnership rights and interests
described in this Section 2.3 shall pass to Buyer as an attribute of the sale of
the Common Stock pursuant to this Agreement.
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2.4 OPERATING ASSETS. On the Closing Date, the Partnership shall own
the Operating Assets, subject to the Permitted Encumbrances, and excluding the
items set forth on Schedule 2.4 and as otherwise limited herein, as follows:
(a) Exploration and Production Assets.
(i) the Properties;
(ii) All the interests in oil and gas wells described on
Exhibit A, together with an interest in the
production, compression, treating, dehydration or
processing facilities and other real or tangible
personal property appurtenances and fixtures, which
are located on the lands covered by or within the
Properties or are being used by the Partnership in
connection with the operations on the Properties or
Production;
(iii) Subject to the license granted under the License
Agreement (with respect to the rights covered
thereby), rights and interests in geological data and
records, seismic data, whether in digital or paper
format, well logs, well files, geological data,
records and maps, land and contract files and
records, accounting files, data and records, computer
hardware and software and other materials (whether
electronically stored or otherwise) used or held for
use by Seller, the Subsidiaries or the Partnership,
or any of their direct or indirect parents,
subsidiaries or other Affiliates, regarding ownership
of the Properties or operations and Production which
relate to the Properties, and other files, documents
and records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to
permits, orders, contracts, abstracts of title,
leases, deeds, unitization agreements, pooling
agreements, operating agreements, farmout agreements,
participation agreements, division of interest
statements, division orders, participation
agreements, and other agreements and instruments
applicable to the Properties;
(v) All the rights, obligations, title and interests of
Seller in and to all easements, rights of way,
certificates, licenses and permits and all other
rights, privileges, benefits and powers conferred
upon the owner and holder of interests in the
Properties, or concerning software used in
conjunction with ownership or operation of the
Properties;
(vi) Rights, title, obligations and interests in or
concerning any gas imbalances affecting the
Properties; and
(vii) All office equipment, computer equipment, light
tables, drafting tables, drafting equipment, office
supplies, facsimile machines, pool cars and any other
equipment or furniture not herein named which is
utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
listed in Section 2.4(a) above are leased and not owned, Seller, the
Subsidiaries and the Partnership shall use their best efforts to cause such
leases to be assigned to Buyer at Closing.
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2.5 FINANCIAL ASSETS AND LIABILITIES. On the Closing Date, the
Partnership shall own the Financial Assets and Liabilities. Each of the
Subsidiaries shall be allocated its respective share of the Partnership's
respective Financial Assets and Liabilities in proportion to its ownership of
the Partnership. The Financial Assets and Liabilities at Closing of the
Partnership and each partner in the Partnership shall be computed by Seller in
accordance with GAAP. The Financial Assets and Liabilities shall be adjusted
from those set forth on the Balance Sheet to reflect certain Pre-Closing
Financial Adjustments and the Adjustment Assets and Liabilities, as set forth in
Sections 2.6 and 2.7.
2.6 PRE-CLOSING FINANCIAL ADJUSTMENTS. Prior to the Closing Date,
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and the Subsidiaries, to the
effect that Sellers shall remove all intercompany accounts involving the
Partnership, the Subsidiaries and their Affiliates, and all intercompany
liabilities shall have been removed. At Closing the only assets and liabilities
of the Partnership and the Subsidiaries shall be the Operating Assets and the
Adjustment Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Tesoro
Petroleum Corporation shall take, and shall cause the Subsidiaries and the
Partnership to take, all necessary action deemed appropriate to adjust the
Balance Sheets to account for those items that are to be retained by Seller, as
set forth in Schedule 2.6(a). In doing so, Tesoro Petroleum Corporation shall
take, and shall cause the Subsidiaries and the Partnership to take, all
necessary actions deemed appropriate so that the Balance Sheets as of the
Closing Date, as adjusted to reflect such actions, will show zero for those line
items listed in Schedule 2.6(a) as financial items that are to be retained by
Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
Tesoro Petroleum Corporation shall cause Exploration to pay it an amount equal
to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Exploration as of the Closing Date. Immediately prior to the Closing, Tesoro
Gas Resources Company, Inc. shall cause Reserves to pay to it an amount equal to
the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Reserves as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
Seller expressly recognize that the assets and liabilities of the Subsidiaries
and the Partnership shall be affected by the effects of ongoing ownership and
operation of the Operating Assets between the Effective Time and the Closing
Date. These changes shall be handled exclusively by adjustments to the
Settlement Price as set forth in Section 3.2 and Article XIII.
2.7 ADJUSTMENT ASSETS AND LIABILITIES. At Closing, the Partnership
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under
any bonds or insurance policies covering the Operating Assets, the Partnership,
the Subsidiaries or the Business
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for policy periods prior to the Closing Date, for losses, claims or occurrences,
as applicable, arising prior to the Closing Date.
2.8 BOLIVIA TRANSACTION. Buyer recognizes that Tesoro Petroleum
Corporation is separately selling exploration and production subsidiaries or
assets in Bolivia (the "Bolivia Transaction") and that some of the personnel and
facilities used in connection with the operation of the Partnership are also
used in connection with the operation of the Bolivia assets. Buyer and Seller
acknowledge and agree that this Agreement shall not restrict or otherwise affect
the Bolivia Transaction or impose any liabilities or responsibilities arising
from or relating to interests or operations of Tesoro Petroleum Corporation or
its Affiliates in Bolivia.
2.9 PUT AND CALL OPTIONS. Seller shall have a put option (the "Put
Option") with respect to Seller's interest in the stock of Natural Gas and
Gathering and Buyer shall have a call option (the "Call Option") with respect to
Seller's interest in the stock of Natural Gas and Gathering, both on mutually
agreeable terms to be negotiated in good faith between Seller and Buyer.
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE
3.1 PURCHASE PRICE. The monetary consideration ("Purchase Price") for
the sale and conveyance of all the Common Stock to Buyer, effective as of the
date of Closing, is Buyer's payment of two hundred sixteen million Dollars
($216,000,000) in cash.
3.2 SETTLEMENT PRICE. Pursuant to the provisions as described below,
the Purchase Price to be paid by Seller will be subject to certain adjustments
made at Closing and within one hundred twenty (120) days thereafter, as set
forth in Article XIII, to determine the Settlement Price amount that will
actually be paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the
following amounts:
(i) An amount equal to the expenses properly accrued in
accordance with GAAP and past practice, and as
provided for in Section 13.3, attributable to the
period from the Effective Time to the end of business
on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation,
depletion and amortization, (2) income and franchise
taxes, (3) one-half of the amount accrued by the
Subsidiaries and the Partnership under incentive
compensation arrangements for the Retained Employees,
as provided in Section 9.9(c), and (4) severance
obligations and other amounts accrued under any
employment retention and management stability
agreements, as provided in Section 9.9(b); provided,
further, however that Seller, the Subsidiaries and
the Partnership shall be permitted to accrue no more
than $40,000 per month from the close of business on
June 30, 1999 to the Closing Date for corporate
general and administrative expenses;
(ii) An amount equal to the capital expenditures relating
to the Business properly accrued in accordance with
GAAP and past practice attributable to the period
from the Effective Time to the end of business on the
Closing Date; and
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(iii) The amount of change in Working Capital between the
Effective Time and the end of business on the Closing
Date, if the amount of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the
following amounts:
(i) An amount equal to the revenues properly accrued in
accordance with GAAP and past practice attributable
to the period from the Effective Time to the end of
business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment,
subject to the application of Section 13.1;
(iii) The amount of the Allocated Value of any Properties
that third parties shall have purchased before the
Closing through the exercise of Preferential Rights
to Purchase or pursuant to any other sale permitted
by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any
change in Working Capital between the Effective Time
and the end of business on the Closing Date, if and
only if, the amount of change is a negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein
called the "Settlement Price".
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants that:
(a) Disclosure. To Seller's Knowledge, the representations and
warranties set forth in this Agreement, the exhibits to this Agreement, and the
information, documents and Balance Sheets provided under the terms of this
Agreement represent full and fair disclosure as of the date of this Agreement
and the Closing Date and do not contain any untrue statement of any material
fact or omit any material fact necessary in order to make the facts stated not
misleading.
(b) Authorization and Enforceability.
(i) This Agreement and the Transaction have been duly
authorized by each Seller.
(ii) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the
transactions contemplated hereby, will violate or
conflict with, or result in the acceleration of
rights, benefits or obligations under, (1) any
provision of any of Seller's, the Subsidiaries' or
the Partnerships' respective Charters or Bylaws or
Partnership Agreements, or (2) any applicable
statute, law, regulation or Governmental Order to
which Seller or the Subsidiaries or the Partnerships
or the assets and properties of such entities,
including without limitation the Operating Assets,
are bound or subject.
(iii) This Agreement has been duly executed and delivered
by each Seller and constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with its terms, except as such
enforceability may be limited
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by bankruptcy, insolvency or other laws relating to
or affecting the enforcement of creditors' rights
generally and general principles of equity
(regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will
not (A) be in violation of any provisions of any
regulation or order that could reasonably be expected
to adversely affect the ownership or operations of
the Operating Asset affected thereby or give rise to
damages, penalties or claims of third parties, or (B)
result in the breach of, or constitute a default
under, any indenture or other material agreement or
instrument to which Seller, the Subsidiaries or the
Partnerships are bound, or (C) cause the recognition
of gain for which the Buyer (or, after the Closing,
the Subsidiaries) will be responsible for the tax
thereon or loss for Tax purposes with respect to any
Subsidiary or subject any Subsidiary or its assets to
any Tax.
(v) Except for any filings required under the HSR Act, as
set forth on Schedule 4.1(b)(v) or as otherwise
specifically provided herein, no consent, waiver,
approval, order or authorization of, notice to, or
registration, declaration, designation, qualification
or filing with, any Governmental Authority or third
Person, domestic or foreign, is or has been or will
be required on the part of Seller in connection with
the execution and delivery of this Agreement or the
consummation by Seller of the transactions
contemplated hereby or thereby, other than (A)
consents and Preferential Rights to Purchase
affecting individual Operating Assets or (B) where
the failure to obtain such consents, waivers,
approvals, orders or authorizations or to make or
effect such registrations, declarations,
designations, qualifications or filings (1) is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement (2) could reasonably be expected to
adversely affect the Business or (3) could give rise
to damages, penalties or claims of third parties.
(c) Organizational Status.
(i) Each Seller: (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business and
execute, deliver and comply with the terms and
provisions of this Agreement and to perform all of
its obligations hereunder. There are no pending or
threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or
rehabilitation of any Seller.
(ii) Exploration (1) is a corporation duly organized,
validly existing and in good standing under the laws
of Delaware, (2) is duly qualified to transact
business in each jurisdiction where the nature and
extent of its business and properties
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require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Exploration.
(iii) Reserves (1) is a corporation duly organized, validly
existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business
in each jurisdiction where the nature and extent of
its business and properties require such
qualification, and (3) possesses all requisite
authority and power to conduct its business. There
are no pending or threatened Actions (or basis
therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of Reserves.
(iv) The Partnership (1) is a limited partnership duly
organized, validly existing and in good standing
under the laws of Delaware, (2) is duly qualified to
transact business in each jurisdiction where the
nature and extent of its business and properties
require such qualification, and (3) possesses all
requisite authority and power to conduct its
business. There are no pending or threatened Actions
(or basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Partnership.
(d) Subsidiary and Other Equity Interests.
(i) Exploration has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(ii) Reserves has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity,
with the exception of the Partnership.
(iii) The Partnership has no subsidiaries and does not own
any stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Common Stock and Partnership Interests. Other than as set
forth in Schedule 1B:
(i) Exploration has authorized capital stock consisting
of 1,000 shares of $1.00 par value common stock, of
which 1,000 shares are issued and outstanding, with
all of such shares owned by Tesoro Petroleum
Corporation. The common stock has been duly
authorized by Exploration, and the shares owned by
Tesoro Petroleum Corporation are validly issued and
outstanding, fully paid and nonassessable. There are
no preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or
rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom
stock, profit participation, or other similar rights,
or other
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agreements or commitments obligating Seller or
Exploration to issue or to transfer (or preventing
the transfer of) any common stock or other equity
interest in Exploration.
(ii) Reserves has authorized capital stock consisting of
1,000 shares of $1.00 par value common stock, of
which 1,000 shares are issued and outstanding, with
all of such shares owned by Tesoro Gas Resources
Company, Inc. The common stock has been duly
authorized by Reserves, and the shares owned by
Tesoro Gas Resources Company, Inc. are validly issued
and outstanding, fully paid and nonassessable. There
are no preemptive rights, subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit
participation, or other similar rights, or other
agreements or commitments obligating Seller or
Reserves to issue or to transfer (or preventing the
transfer of) any common stock or other equity
interest in Reserves.
(iii) In the Partnership, a 99% limited partnership
interest is held by Reserves, and a 1% general
partnership interest is held by Exploration. Such
interests are duly authorized under the agreement
forming the Partnership and are valid. There are no
preemptive rights, or authorized or outstanding
subscriptions, options, consents to assignment or
rights of first refusal, convertible securities,
warrants, calls, appreciation rights, phantom
interests, profit participation, or other similar
rights, or other agreements or commitments obligating
Seller, the Partnership, Reserves or Exploration to
issue or to transfer (or preventing the transfer of)
any equity interest in the Partnership.
(iv) Seller has made available and will deliver to Buyer
prior to Closing correct and complete copies of each
Subsidiary's and the Partnership's respective
Charter, Bylaws or Partnership Agreement, as amended
to date, and the minute books of each Subsidiary and
the Partnership. Neither any Subsidiary nor the
Partnership is in breach of any provision of its
Charter, Bylaws or Partnership Agreement.
(f) Title to Stock, Partnership Interests and Assets.
(i) All of the issued and outstanding shares of capital
stock of Exploration and Reserves, which consist only
of the Common Stock, are owned of record and
beneficially by Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc., respectively,
free and clear of any Encumbrance except, prior to
the Closing only, as set forth on Schedule 1B. Upon
delivery to Buyer of the certificates for the Common
Stock in accordance with this Agreement, assuming
that Buyer pays the consideration contemplated by
this Agreement and has no notice of any adverse
claim, good and valid title to the Common Stock
represented by such certificate will have been
transferred to Buyer, free and clear of any
Encumbrances. Neither Tesoro Petroleum Corporation
nor Tesoro Gas Resources Company, Inc. has received
any notice of any adverse
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claim to their respective title to the Common Stock
except, prior to the Closing only, as set forth on
Schedule 1B.
(ii) All of the issued and outstanding partnership
interests in the Partnership are owned of record and
beneficially with good and valid title by Reserves
and Exploration as described in Section 4.1(e)(iii),
free and clear of any Encumbrance except, prior to
the Closing only, as set forth on Schedule 1B.
Neither Reserves nor Exploration has received any
notice of any adverse claim to their respective
interests in the Partnership except, prior to the
Closing only, as set forth on Schedule 1B.
(iii) Except as set forth in Schedule 4.1(f)(iii), the
Subsidiaries and the Partnership have good title to
all of the assets and properties (except the
Operating Assets) which they own or purport to own,
including the Financial Assets and Liabilities
reflected on the Balance Sheets, except for
properties sold, consumed or otherwise disposed of in
the ordinary course of business since the date of the
Balance Sheets, free and clear of any Encumbrances
other than Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of
Seller, the Subsidiaries or the Partnership have been served with and, to
Seller's Knowledge, there are no pending or threatened Actions before any
Governmental Authority against or affecting Seller, the Subsidiaries, the
Partnership or the Operating Assets, which, if adversely determined, either
would be reasonably expected to expose the Subsidiaries or the Partnership to a
risk of loss of greater than $100,000 after the Effective Time or would
interfere with Seller's ability or right to execute and deliver this Agreement
or consummate the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there
are no contracts, agreements, or other arrangements whereby the Subsidiaries or
the Partnership are obligated to compensate or provide health and welfare
benefit plans or retirement benefits to any employees or other persons, except
for employment agreements that are terminable at will, without breach or
penalty. To Sellers' Knowledge, Seller, the Subsidiaries and the Partnership are
in compliance with all federal, state, and local laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours
and are not engaged in any unfair labor practice with regard to those persons
employed in connection with the Subsidiaries' or the Partnership's operations.
No employee of the Subsidiaries is covered under any collective bargaining
agreement. There is no unfair labor practice complaint against the Subsidiaries
pending or, to Seller's Knowledge, threatened before the National Labor
Relations Board or any comparable state or local Governmental Authority. There
is no labor strike, slowdown or work stoppage pending or, to Seller's Knowledge,
threatened against or directly affecting the Subsidiaries, and no grievance or
any Action arising out of or under collective bargaining agreements is pending
or, to Seller's Knowledge, threatened against the Subsidiaries.
(i) Taxes.
(i) Except as set forth in Schedule 4.1(i), Seller, the
Subsidiaries and the Partnership have timely filed or
caused to be timely filed (or will timely file or
cause to be timely filed) with the appropriate Taxing
Authorities, all Tax
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Returns required to be filed on or prior to the
Closing Date by or with respect to the Subsidiaries
and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided
for (or will timely pay or adequately provide for)
all Taxes shown thereon as owing, except where the
failure to file such Tax Returns or pay any such
Taxes would not, or could not reasonably be expected
to, in the aggregate, result in losses or costs or
expenses to the Subsidiaries and the Partnership in
excess of $100,000 after the Closing Date.
(ii) Sellers and the Subsidiaries are members of an
affiliated group of corporations which file
consolidated federal income tax returns ("Tesoro
Group") with Tesoro Petroleum Corporation as the
common parent ("Tesoro Parent"). The Tesoro Group has
been subject to normal and routine audits,
examinations and adjustments of Taxes from time to
time, but there are no current audits or audits for
which written notification has been received (in
either case, with respect to or which include the
Subsidiaries), other than those set forth in Schedule
4.1(i). There are no written agreements with any
Taxing Authority with respect to or including the
Subsidiaries which will in any way affect the
Subsidiaries' liability for Taxes after the Closing
Date.
(iii) Except as set forth in Schedule 4.1(i), no
assessment, deficiency or adjustment for any Taxes
has been asserted in writing or, to the knowledge of
Sellers, is proposed with respect to any Tax Return
of, or which includes, the Subsidiaries.
(iv) Except as set forth in Schedule 4.1(i), 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 or which includes the Subsidiaries or any
waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect
to or which includes the Subsidiaries.
(v) Except for Taxes due with respect to Tax Returns that
will be paid by Tesoro Parent (and not subject to
reimbursement by the Subsidiaries), the accounting
records of the Subsidiaries will include immediately
prior to the Closing Date adequate provisions for the
payment of all Taxes of the Subsidiaries for all
taxable periods or portions thereof through the
Closing Date.
(vi) All Tax allocation or sharing agreements or
arrangements have been or will be canceled on or
prior to the Closing Date. No payments are or will
become due by the Subsidiaries after the Closing Date
pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the
Sellers or the Subsidiaries will, as a result of the
transactions contemplated by this Agreement, be
obligated to make a payment after the Closing Date to
an individual that would be a "parachute payment" as
defined in Section 280G of the Code without regard to
whether such payment is reasonable compensation for
personal services performed or to be performed in the
future.
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(viii) The Subsidiaries have not participated in or
cooperated with an international boycott within the
meaning of Section 999 of the Code.
(ix) No Subsidiary has filed a consent under Code Section
341(f) concerning collapsible corporations.
(x) Neither the Subsidiaries nor the Partnership has been
a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section
897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller,
the Subsidiaries and the Partnership and paid to
Taxing Authorities for all Taxes have been (i)
collected or withheld and either paid to the
respective Taxing Authorities or set aside in
accounts for such purpose or (ii) properly reflected
in the Balance Sheets.
(j) Balance Sheets.
(i) The Balance Sheets have been prepared in accordance
with GAAP applied on a basis consistent with prior
periods, except as described in the notes thereto,
which will qualify that the Partnership and the
Subsidiaries have been accounted for as part of a
consolidated financial group with their affiliates
and not as completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material
respects, the financial condition of the combined
Partnership and the Subsidiaries as of June 30, 1999.
The books and records of the Subsidiaries and the
Partnership from which the Balance Sheets were
prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Each Subsidiary and Partnership has no Liabilities,
except for Liabilities (1) reflected in the Balance
Sheets, (2) incurred by the Subsidiaries or the
Partnership in the ordinary course of business and
consistent with past practices since the date of the
Balance Sheets, or (3) which are Permitted
Encumbrances, (4) for which the Buyer is being
indemnified hereunder, or (5) which individually
amount to a loss or liability of greater than
$100,000 or in the aggregate amount to a loss or
liability of greater than $250,000. As used in this
subparagraph, the term "Liabilities" excludes any
Liabilities not required to be reflected in the
Balance Sheets under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule
4.1(k), or as otherwise contemplated by this Agreement (including without
limitation Sections 2.5 and 2.6), since the close of business on June 30, 1999:
(i) none of the Subsidiaries nor the Partnership has
sold, leased, transferred, or assigned any assets
other than surplus equipment not necessary for
operations of the Business having a value less than
$25,000 and for a reasonable consideration;
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(ii) the Subsidiaries and Partnership have not incurred,
assumed or become subject to any additional
indebtedness for money borrowed or purchase money
indebtedness, including capitalized leases;
(iii) the Subsidiaries and Partnership have not entered
into any transaction not in the ordinary course of
business, except as contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on
the assets of the Subsidiaries or the Partnership
other than Permitted Encumbrances;
(v) no event has occurred which constitutes a Material
Adverse Effect;
(vi) none of the Subsidiaries nor the Partnership has made
any loan to, or entered into any contract with (other
than severance agreements for which Seller shall
remain responsible), any of its directors or
officers;
(vii) no Subsidiary has issued, sold, or otherwise disposed
of any of its interests in the Partnership;
(viii) there has been no change made or authorized to the
Charter, Bylaws or Partnership Agreement of any
Subsidiary or the Partnership;
(ix) none of the Subsidiaries nor the Partnership has
canceled, compromised, waived, or released any debt
or Action (or series of related debts or Actions)
involving more than fifty thousand dollars ($50,000);
(x) none of the Subsidiaries nor the Partnership has
delayed or postponed the payment of accounts payable
or other Liabilities owed either involving more than
$50,000 (individually or in the aggregate), other
than amounts which Seller reasonably and in good
faith disputes;
(xi) none of the Subsidiaries nor the Partnership has made
any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments,
loans, and acquisitions) involving more than $50,000,
except in connection with operations conducted
pursuant to Section 9.2(f);
(xii) none of the Subsidiaries nor the Partnership has made
any capital expenditure (or series of related capital
expenditures) involving more than $50,000, except in
connection with operations conducted pursuant to
Section 9.2(f);
(xiii) none of the Subsidiaries nor the Partnership has
entered into any Contract (or series of related
Contracts) involving more than $50,000 other than (i)
to effectuate operations set forth on Schedule 9.2(f)
or (ii) constituting joint operating agreements or
oil and gas leases entered into in the ordinary
course of business or (iii) contracts with officers
and directors for which the Seller shall remain
responsible;
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(xiv) to Seller's Knowledge, none of the Subsidiaries nor
the Partnership has materially breached any Contract
by which it is bound or to which any of its assets is
subject; and
(xv) none of the Subsidiaries nor the Partnership has
declared, set aside, or paid any dividend or made any
distribution with respect to its interests in the
Partnership (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its interests
in the Partnership, other than in the ordinary course
of business or as contemplated by this Agreement.
(l) Compliance With Law. Since June 30, 1999, neither the
Subsidiaries nor the Partnership has violated any law, statute or regulation
which have subjected them to fines or penalties (nor to Seller's Knowledge have
any third parties violated any Applicable Law for which the Subsidiaries or the
Partnership may have any responsibility) that individually or in the aggregate
exceed $100,000. As of the date of this Agreement, to Seller's Knowledge, the
Subsidiaries and the Partnership are in compliance in all material respects with
all laws, statutes or regulations applicable to the Subsidiaries and the
Partnership, except where the noncompliance with which would not, in the
aggregate, result in the imposition on the Subsidiaries and the Partnership of
fines or penalties that individually or in the aggregate could reasonably be
expected to exceed $100,000.
(m) Operating Assets.
(i) Seller represents that as of Closing, Seller's and
the Partnership's interests in the Operating Assets
shall be free and clear of any liens other than
Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being
operated in compliance in all material respects with
all applicable federal, state or local laws, and the
rules and regulations of any agency or authority
having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), the
Subsidiaries and the Partnership possess all permits,
licenses, orders, approvals and authorizations
required by any applicable law, statute, regulation
or Governmental Order, or by the property and
contract rights of third Persons, reasonably
necessary to permit the operation of the Business in
the manner currently conducted by the Subsidiaries
and the Partnership, except where the failure to
possess such permit, license, order, approval,
authorization or rights would not result in losses,
costs or expenses to the Subsidiaries, in the
aggregate, in excess of $100,000. Neither the
Subsidiaries nor the Partnership has received written
notice from any Governmental Authority that any such
permit, license, order, approval or authorization has
been, or will be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv),
immediately before the Closing Date, the Subsidiaries
and the Partnership will hold or have the right to
use in the Business all of the assets and properties
(including all licenses and agreements) currently
being used (except those disposed of or expiring in
the ordinary course of business or otherwise as
contemplated or permitted by this Agreement) or which
are reasonably necessary to permit the operation of
the
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Business in the manner currently conducted by the
Subsidiaries and the Partnership. Since June 30,
1999, the Subsidiaries have conducted no business
other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the
fees and expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, the
Subsidiaries or the Partnership relating to the Transaction.
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as
of August 31, 1999 of all amounts held by the Partnership and/or the
Subsidiaries in suspense accounts, or otherwise, related to the Properties for
the benefit or account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, the
Subsidiaries and the Partnership maintain insurance on and bonds with respect to
the Operating Assets, as set forth on Schedule 4.1(p), covering such risks and
with such deductible amounts as are consistent with general oil and gas industry
practice.
(q) Contracts on Production. Except as set forth on Schedule
4.1(q), there are no Contracts involving the purchase, marketing, brokering or
sale of Production that require a dedication of Production for a term in excess
of three (3) months that will not be terminable without penalty or other
liability at the sole discretion of the Subsidiaries or the Partnership upon not
more than one (1) month's notice, except for commitments under operating
agreements.
(r) Equipment. Since June 30, 1999, neither Seller, the
Subsidiaries nor the Partnership, nor to Seller's Knowledge the operator of any
of the Operating Assets, has removed any of the equipment, facilities or other
property from the Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no
Property is subject to, or considered to be held by, any partnership for federal
income tax purposes, other than tax partnerships under joint operating
agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this
Article and elsewhere in this Agreement, Seller and the Affiliates of Seller
expressly disclaim any representations or warranties of any kind or nature,
express or implied, as to the condition, value or quality of the assets or
properties currently or formerly used, operated, owned, leased, controlled,
possessed, occupied or maintained by the Subsidiaries or the Partnership, and
SELLERS AND ALL OTHER TESORO AFFILIATES SPECIFICALLY DISCLAIM ANY REPRESENTATION
OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE WITH RESPECT TO SUCH ASSETS OR PROPERTIES, OR ANY PART THEREOF, OR AS TO
THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT
OR PATENT, IT BEING UNDERSTOOD THAT SUCH ASSETS AND PROPERTIES ARE BEING
ACQUIRED "AS IS, WHERE IS" ON THE CLOSING DATE, AND IN THEIR PRESENT CONDITION,
WITH ALL FAULTS, AND THAT BUYER SHALL RELY ON ITS OWN EXAMINATION AND
INVESTIGATION THEREOF.
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(u) Environmental Matters. Except as set forth on Schedule 4.1(u),
to Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or
any of the Operating Assets which constitute a
violation of Environmental Law.
(ii) The Operating Assets contain no friable asbestos,
mercury or polychlorinated biphenyls above 50 ppm or
other Hazardous Substances which constitute a
violation of Applicable Environmental Law.
(iii) The Operating Assets have been used solely for oil
and gas operations and related operations. Except for
the production, storage and transportation of oil,
gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry
practices, the Properties have not been used to
dispose of Hazardous Substances. No Hazardous
Substances have been disposed of that would cause an
adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any
Hazardous Substance related to the ownership or
operation of the Operating Assets which constitutes a
violation of Applicable Environmental Law, except for
matters that have been addressed and have no
continuing adverse consequence to Seller, the
Subsidiaries, the Partnership or the Operating
Assets.
(v) There are no Actions pending or threatened against
the Partnership, the Subsidiaries, or either Seller
with respect to any of the Operating Assets relating
to the violation of, liability under, or
noncompliance with, any Applicable Environmental Law;
the discharge, disposal or release of a Hazardous
Substance; or the exposure of a Person or property to
a Hazardous Substance. Seller, the Subsidiaries and
the Partnership have no current contingent liability
in connection with the release of Hazardous
Substances.
(vi) The Operating Assets have been, and are operating, in
material compliance under all Applicable
Environmental Laws.
(vii) Seller, the Subsidiaries and the Partnership have
provided (or within five Business Days from the date
hereof will provide) Buyer all environmental audits,
tests, results of investigations and analyses that
have been performed with respect to the Operating
Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) and in the
Contracts described in Schedule 1B or Section 4.1(q) (other than those set forth
in Schedule 4.1(v)) and in joint operating agreements entered into in the normal
course of business, the Operating Assets are not subject to any instrument,
agreement or other Contract evidencing or related to indebtedness for borrowed
money. All of the existing Contracts between any of the Subsidiaries, the
Partnership and/or either Seller and any of their respective Affiliates with
respect to sales, services or support to any of the Operating Assets or
operations on the Operating Assets shall terminate except for such Contracts
otherwise
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indicated on Schedule 4.1(v) to survive Closing. Except as set forth on Schedule
4.1(v) and other than Consents to Assignment or Preferential Rights to Purchase,
to Seller's Knowledge, no Contracts to which Seller, the Subsidiaries or the
Partnership is a party or a successor-in-interest and to which Buyer will be
subject after the Effective Time contain any provision that prevents Buyer from
owning, managing and operating the Operating Assets in accordance with the
Partnership's past practices.
(w) Seismic Information. At Closing, subject to the terms of the
License Agreement, neither Seller nor any affiliate of Seller other than the
Subsidiaries and the Partnership shall have any further right to any of the
seismic data of the Subsidiaries or the Partnership which has been assigned or
leased to the Subsidiaries, the Partnership and/or the Buyer.
(x) Wells. Except to the extent set forth on Schedule 4.1(x), to
Seller's Knowledge, no well included in the Properties is subject to material
penalties on allowables because of any overproduction or any other violation of
Applicable Law. Except for the wells included in the Properties and listed in
Schedule 4.1(x), there are no wells included in the Properties that Seller, the
Subsidiaries or the Partnership, or to Seller's Knowledge the operator of such
wells, are currently obligated by Applicable Law, Applicable Environmental Law
or order of any Governmental Authority to plug and abandon within a time certain
or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule
9.2(f), the Subsidiaries and the Partnership have not executed or are not
otherwise contractually bound by any authority for expenditure with respect to
any of the Operating Assets under any operating agreement, unit operating
agreement, or other similar agreements that will obligate any of the
Subsidiaries, the Partnership or Buyer to pay, after the Effective Time, more
than $50,000 for a single project, operation or expenditure. Except as set forth
on Schedule 9.2(f), with respect to authorizations for expenditure relating to
any of the Operating Assets, which obligate any of the Subsidiaries, the
Partnership or Buyer to pay more than $50,000, (i) there are no outstanding
calls under such authorizations for expenditures for payments which are due or
which the Subsidiaries or the Partnership have committed to make which have not
been made; (ii) there are no material operations with respect to which any of
the Subsidiaries and/or the Partnership has become a non-consenting party where
the effect of such non-consent is not disclosed on Exhibit B, and (iii) there
are no commitments for the expenditures of funds for drilling or other capital
projects other than projects with respect to which the operator is not required
under the applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with
respect to any of the Properties operated by the Partnership that are subject to
future change on account of reversionary interests, non-consent penalties or
similar agreements or arrangements are set forth on Schedule 4.1(z) and are
correct as of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June
30, 1999, except as listed on Schedule 4.1(k), the Subsidiaries and the
Partnership:
(i) have maintained and operated each of the Properties
operated by any of them as a reasonably prudent
operator consistent with prevailing oil and gas
industry practice;
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(ii) have used reasonable efforts consistent with their
past practices to cause each of the Properties not
operated by them to be maintained and operated in a
good and workmanlike manner and in substantially the
same manner as theretofore operated;
(iii) have paid timely their share of all costs and
expenses attributable to the Operating Assets, except
for such costs and expenses that they were contesting
in good faith by appropriate action;
(iv) have performed all accounting, royalty disbursement
and reporting requirements, as applicable, related
thereto for the Production; and
(v) have not agreed, whether in writing or otherwise, to
take any action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages encumbering the
Common Stock or the Operating Assets securing obligations of Seller, the
Subsidiaries or the Partnership (other than those items listed in clause (ii)
through (ix) of the definition of "Permitted Encumbrances").
4.2 BUYER'S REPRESENTATIONS. Buyer represents that:
(a) Disclosure. To Buyer's Knowledge, the representations and
warranties set forth in this Agreement represent full and fair disclosure as of
the date of this Agreement and the date of Closing and do not contain any untrue
statement of any material fact or omit any material fact necessary in order to
make the facts stated not misleading.
(b) Authorization and Enforceability
(i) This Agreement and the Transaction have been duly
authorized by Buyer.
(ii) Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with (1)
any provision of Buyer's Charter or Bylaws, or (2)
any applicable statute, law, regulation or
Governmental Order to which Buyer or the assets or
properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered
by Buyer and constitutes the valid and binding
obligation of Buyer, enforceable against it in
accordance with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and
general principles of equity (regardless of whether
such enforceability is considered in a proceeding in
equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as
otherwise specifically provided herein, the
execution, delivery, and performance of this
Agreement (assuming that all applicable consents are
received) will not (A) be in material violation of
any provisions of any regulation, or order or (B)
result in the breach of, or constitute a default
under, any material indenture or other agreement or
instrument to which Buyer is bound.
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(v) Except as set forth on Schedule 4.2(b)(v) or as
otherwise specifically provided herein, no consent,
waiver, approval, order or authorization of, notice
to, or registration, declaration, designation,
qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or
has been or will be required on the part of Buyer in
connection with the execution and delivery of this
Agreement or the consummation by Buyer of the
transactions contemplated hereby or thereby, other
than where the failure to obtain such consents,
waivers, approvals, orders or authorizations or to
make or effect such registrations, declarations,
designations, qualifications or filings is not
reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this
Agreement or prevent Buyer from performing its
obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability
company duly organized, validly existing and in good standing under the laws of
Delaware, (ii) is duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require the same in order
for it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Common Stock from Sellers and to perform all of its
obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make its payment of the Closing Settlement Price
at the Closing.
(e) Investment Intent. The Common Stock is being purchased for
Buyer's own account and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Common Stock has not been registered under the
Securities Act by reason of their issuance in transactions exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof. Buyer is knowledgeable, competent, and experienced in
the oil and gas industry and has independently evaluated and interpreted the
technical data and other information regarding the Operating Assets prior to
entering into this Agreement, understands and is financially able to bear the
risk associated with ownership of the Subsidiaries and the Partnership, and will
independently conduct all the due diligence investigations and reviews of all
matters concerning the Subsidiaries, the Partnership and the Operating Assets as
it deems necessary prior to Closing. Buyer acknowledges that Buyer is not
relying upon any statement or representations made by Seller concerning the
present or future value of, or anticipated income, costs, or profits, if any, to
be derived from, the Subsidiaries, the Partnership or the Operating Assets, and
Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other information
regarding the Subsidiaries, the Partnership and the Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge,
threatened suits, actions, proceedings, claims, or investigations that would
interfere with Buyer's ability or right to execute and deliver this Agreement or
consummate the transactions contemplated by this Agreement.
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(g) No Brokers' Fees. Buyer has incurred no liability, contingent
or otherwise, for brokers' or finders' fees relating to the Transaction for
which Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof,
Buyer's representations and warranties made in this Section 4.2 are true and
correct in all material respects.
(i) Tax Matters. Buyer is taxable as a corporation for purposes of
Federal income tax and is qualified to make an election under Section 338 of the
Code in connection with the transaction.
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION
5.1 ACCESS TO INFORMATION. Until the Closing Date, upon reasonable
notice, Seller, the Subsidiaries and the Partnership shall (i) afford the
officers, employees and authorized agents and representatives of Buyer
reasonable access during normal business hours to the offices, Operating Assets
and Books and Records and (ii) furnish to the officers, employees and authorized
agents and representatives of Buyer such additional financial and operating data
and other information regarding the assets, Operating Assets and Liabilities of
the Subsidiaries, the Partnership, Pipeline and the Starr Partnerships and the
Business (or legible copies thereof) as Buyer may from time to time reasonably
request, as set forth in this Article V. In addition, Seller shall cause
Pipeline, the Subsidiaries, and the Partnership to each use its reasonable
efforts to obtain for Buyer such access to books and records and other
information regarding the Starr-Zapata Partnership and Starr County Gathering as
Buyer may reasonably request that are not in the possession of the Seller,
Pipeline, the Subsidiaries or the Partnership but in the possession of the third
party partner in the Starr Partnerships.
5.2 TITLE FILES. Promptly after the execution of this Agreement and
until five Business Days prior to the Closing Date, Seller shall permit Buyer
and its representatives at reasonable times during normal business hours to
examine, in Seller's offices, those title and contract files, permit files,
operating and maintenance files, and related documents, records and materials
concerning the Operating Assets and the assets of Pipeline and the Starr
Partnerships that are now in existence and in the possession of Seller, the
Subsidiaries, the Partnership or Pipeline (except to the extent disclosure of
same is prohibited pursuant to agreements with third parties and with respect to
which Seller has been unable to secure consent to disclose despite its
commercially reasonable efforts to do so), including abstracts of title, title
opinions, title files, ownership maps, lease files, contract files, assignments,
division orders, check vouchers, payout statements and agreements pertaining to
the Operating Assets and the assets of Pipeline and the Starr Partnerships.
Seller shall cooperate with Buyer and provide such assistance as is reasonably
necessary to assist Buyer in determining the validity of the Partnership's title
to the Operating Assets and Pipeline's title to its assets and the assets of the
Starr Partnerships from the information contained in Seller's files.
5.3 LEGAL FILES. Until five Business Days prior to the Closing Date,
Seller shall make available to Buyer for inspection by Buyer at reasonable times
during normal business hours at their actual location, all legal, evidentiary,
litigation support, records and data in possession of Seller concerning the
Subsidiaries, the Partnership, Pipeline or the Starr Partnerships, except such
records or data which Seller the Subsidiaries, or the Partnership, Pipeline or
the Starr Partnerships are prevented by contractual obligations with third
parties from disclosing or which might be subject to a claim of legal privilege.
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5.4 FINANCIAL AND ACCOUNTING FILES. Until five Business Days prior to
the Closing Date, Seller shall make available to Buyer for inspection by Buyer
at reasonable times during normal business hours at their actual location, all
financial and accounting records and data in possession of Seller concerning the
Subsidiaries, the Partnership, Pipeline or the Starr Partnerships, except such
records or data which Seller, the Subsidiaries, the Partnership, Pipeline or the
Starr Partnerships are prevented by contractual obligations with third parties
from disclosing or which might be subject to a claim of privilege.
5.5 WARRANTIES AS TO DOCUMENTS. Seller shall advise Buyer of the
nature and existence of any confidential documents that might be withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may be made available for Buyer's review, except that Seller does represent
and warrant that it has not and will not conceal or intentionally or willfully
misrepresent or withhold any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
is disclosed as otherwise provided herein.
5.6 INSPECTIONS. Promptly after the execution of this Agreement,
Seller the Subsidiaries and the Partnership, subject to third party operator
approval, shall permit Buyer and its representatives at reasonable times and at
their sole risk, cost and expense, to conduct reasonable inspections of any or
all of the Operating Assets. BUYER SHALL AND DOES HEREBY INDEMNIFY, RELEASE,
DEFEND AND HOLD HARMLESS SELLER, THE SUBSIDIARIES AND THE PARTNERSHIP FROM AND
AGAINST ANY AND ALL LOSSES, COSTS, DAMAGES, OBLIGATIONS, CLAIMS, LIABILITIES,
EXPENSES OR CAUSES OF ACTION RELATING TO PERSONAL INJURIES, DEATH OR PROPERTY
DAMAGE ARISING FROM BUYER'S INSPECTION OF THE OPERATING ASSETS, INCLUDING CLAIMS
AND LIABILITIES ARISING OUT OF SELLER'S, THE SUBSIDIARIES' OR THE PARTNERSHIP'S
NEGLIGENCE OR STRICT LIABILITY.
ARTICLE VI.
TITLE
6.1 BUYER'S TITLE REVIEW. Immediately upon execution by both parties
hereto of this Agreement, Buyer may, at Buyer's sole cost and expense, pursue
such examination of title to the Operating Assets as Buyer desires. Seller shall
provide reasonable cooperation with Buyer's examination and shall make files
available as provided under Article V. Promptly after completion of Buyer's
title review of any Property, Buyer shall advise Seller of any Title Defects
affecting that Property, to enable Seller to cure any such Title Defects before
Closing, if Seller believes that it is practical to do so. If Seller should cure
any Title Defect during the period of Buyer's review, Seller shall promptly
notify Buyer accordingly and provide Buyer with suitable documentation of such
cure.
6.2 TITLE DEFECTS. For the purpose of this Agreement, a "Title Defect"
shall mean (1) any liens, encumbrances, encroachments, defects in or
irregularities in or objections to the Partnership's title to the Properties:
(A) which result in a breach of any warranty or representation made by Seller,
or (B) would result in Buyer receiving less than the NRI stated in Exhibit A for
any Property; or (C) would require Buyer to share costs and expenses with
respect to the operation of any Property in amounts greater than the WI (without
a corresponding increase in the NRI) set forth in Exhibit A for such Property,
and (2) other burdens in a category specifically listed in Section 6.2(a), but
not (3) those burdens specifically excluded in Section 6.2(b).
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(a) Title Defects shall include the following:
(i) The Partnership's title to any Property, is subject
to an outstanding mortgage, deed of trust, lien or
encumbrance or other adverse claim which is not a
Permitted Encumbrance;
(ii) Any Property (or any of the Subsidiaries or the
Partnership) is affected by any suit, action or other
proceeding before any court or government agency
which is not listed on Schedule 4.1(g);
(iii) Any Property is subject to any take-or-pay contract,
gas balancing agreement, production payment or other
contract or agreement under which payment in full to
the owners of the Property will not be made for any
sales of their NRI share of future oil or gas
production at or about the time such oil or gas is
produced, and which is not listed on Schedule 1B;
(iv) A default of the Partnership or the Subsidiaries
exists under some provision of a lease or other
Contract affecting a Property, which default will not
be cured prior to or at the Closing;
(v) The rights and interests of the Partnership in a
Property are subject to being reduced by virtue of
the exercise by a third party of a reversionary
interest, back-in interest, Preferential Right to
Purchase, Consent to Assignment or similar right or
interest, which is not a Permitted Encumbrance;
(vi) The Partnership's title to any lease affecting a
Property or any well covered by any lease (including
any well within any pooled, unitized or communitized
area, covering or including any lease) (a "Well") is
not Record Title;
(vii) Other than as set forth on Schedule 6.2(b), there are
no obligations to engage in continuous development
operations to maintain in force or to retain all
rights to the lease creating the Partnership's
working interest in a Well listed in Exhibit A;
(viii) Other than as set forth on Schedule 6.2(b), the lease
or other Contract affecting a Property has an
expiration date which occurs less than ninety (90)
days following the Closing Date;
(ix) The Subsidiaries, the Partnership or the Operating
Assets are subject to a contract or agreement (except
contracts containing terms that are customary in the
oil and gas exploration and production industry)
which materially and adversely affects the value of
the interest affected; and
(x) Any matter constituting a Seller Initiated Title
Defect under the provisions of Section 9.13.
(b) For each lease or other similar interest, or other Contract
affecting a Property, a "Title Defect" shall also mean any fact, circumstance,
or occurrence that causes any of the following statements to be untrue in any
material respect:
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(i) the lease or Contract affecting a Property is, and
has been maintained, in force and effect according to
its terms;
(ii) the Partnership have paid or caused to be paid all
royalties, delay rentals, shut-in royalties, minimum
royalties, and other payments due under the lease or
other Contract affecting such Property;
(iii) no party to the lease or other Contract affecting
such Property is in breach or default of its
obligations under the lease or other Contract ;
(iv) no event, fact, or circumstance has occurred that,
with the lapse of time, the giving of notice, or
both, would constitute a breach of the lease or other
Contract affecting such Property;
(v) neither the Partnership nor any other party to the
lease or other Contract affecting a Property has
given or threatened to give notice of a claim or
action to terminate, cancel, rescind or procure a
judicial reformation of the lease or other Contract
affecting such Property or any contract to which the
lease or other Contract affecting such Property is
subject;
(vi) other than as set forth on Schedule 6.2(b), no
provision of the lease or other Contract affecting a
Property or any contract to which the lease or other
Contract affecting such Property is subject will
increase the royalty share of the lessor;
(vii) In addition, if either of the following statements is
untrue with respect to a lease or other Contract
affecting a Property, Buyer may elect to treat as a
Title Defect the fact, circumstance, or occurrence
that causes the statement to be untrue:
(A) Other than as set forth on Schedule 6.2(b), there
has been substantial compliance with the Applicable
Laws of any Governmental Authority having
jurisdiction over the Properties, such that there is
not substantial risk of loss of any lease or other
Contract affecting a Property or the value thereof;
or
(B) Other than as set forth on Schedule 6.2(b) and
Schedule 4.1(g), no Action exists that will or
reasonably may result in loss, diminution, or
impairment of the Partnership's title to any lease or
other Contract affecting a Property or the use,
operation, or value thereof.
(c) Title Defects shall not include the following:
(i) Any Permitted Encumbrances;
(ii) Any prior oil and gas lease in favor of third parties
affecting a Property which was not released of
record, but which the records of the applicable
regulatory agencies reflect did not continually
produce (either directly or on lands with which such
lease has been pooled or unitized) oil and gas in
commercial quantities during any consecutive period
of more than one year after the expiration of its
primary term;
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(iii) Any consents of governmental agencies to the
assignment of Properties or permits or licenses that
are customarily obtained by participants in the oil
and gas industry after an assignment, and it is
reasonable to believe such consent will be obtained
in the ordinary course of business;
(iv) Any rights of third parties to receive overriding
royalty interests through Seller's Bob West Field
royalty pool (described on Schedule 6.2(c)(iv));
(v) Any failure of the Partnership or their predecessors
to obtain affidavits of use and possession,
affidavits or heirship or affidavits of
non-production;
(vi) Any failure to obtain division orders or transfer
orders from any co-owner in a Property;
(vii) Any unsubordinated lien encumbering the interest of a
lessor or other predecessor in the Partnership's
chain of title to a Property, unless the obligation
secured by such lien is in default, or the lien
otherwise creates a substantial risk of a loss of the
Property;
(viii) Any Preferential Right to Purchase a Property;
(ix) Any rights of third parties to be elected as operator
of any Property under the terms of an existing
operating agreement or related agreement; or
(x) Any other minor irregularity for which oil and gas
operators customarily waive requirements in division
order title opinions.
6.3 PROCEDURES TO DETERMINE PROPERTY VALUE ADJUSTMENTS FOR TITLE
DEFECTS.
(a) Notice Of Title Defects. Not later than ten (10) Business Days
prior to the Closing Date, Buyer will conclude Buyer's title review and provide
a notice to Seller describing all asserted Title Defects. To be effective,
Buyer's written notice must describe each Title Defect, including: (i) the
Property affected by such Title Defect; (ii) a description of the matter
constituting the asserted Title Defect; (iii) supporting documents reasonably
necessary for Seller to verify the existence and nature of such asserted Title
Defect; and (iv) the amount of any Property Value Reduction asserted to be
attributable to such Title Defect. Buyer shall also notify Seller, and Seller
shall notify Buyer, of any increases revealed by Buyer's title review in the
Partnership's NRI stated on Exhibit A for any Property, including: (i) the basis
for such increase in ownership interest; (ii) the amount of the increase in the
Partnership's interest; and (iii) the corresponding increase to the Settlement
Price arising by reason of such increased ownership interest, calculated in the
same manner as decreases are calculated under Section 6.4(a). Subject to Section
9.13 below, Buyer and Seller shall not be entitled to any adjustment to the
Settlement Price for any matters not described in a written notice of Title
Defect delivered to the other party at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
Buyer's notice of Title Defects, Seller shall provide Buyer with Seller's
response to such notice and any increases revealed by Seller's title review in
the Partnership's NRI stated on Exhibit A for any property. If Seller disputes
any asserted Title Defect, Seller's response shall state the basis for Seller's
position that such Title Defect should not be asserted. If Seller intends to
cure a Title Defect before Closing,
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Seller's response shall so state and describe the manner by which such Title
Defect shall be cured. If Seller proposes to cure a Title Defect after Closing,
Seller's response shall describe the manner by which such Title Defect shall be
cured. If Seller disputes the amount asserted by Buyer for any Property Value
Reduction under Section 6.4, then Seller's response shall state the basis for
such dispute and the amount that Seller contends should be the correct Property
Value Reduction. Seller's response shall include all supporting information
required to substantiate Seller's positions.
(c) Discussions Between the Parties. The Parties shall negotiate in
good faith to resolve any disputed issues concerning Title Defects or Property
Value Reductions or Property Value Increases between the time Seller delivers
its response and the Closing Date, in order to agree upon the aggregate Title
Price Adjustment for all Title Defects. The Closing Settlement Price shall
reflect the terms so negotiated by the Parties. Without limitation, one or more
of the following procedures may be used with respect to particular outstanding
or disputed Title Defects and corresponding Property Value Reductions or
Property Value Increases:
(i) If any Property is burdened by a Title Defect which
may be cured by Seller after Closing and if there is
a Title Price Adjustment, then Seller may propose to
cure such Title Defect at its own expense after
Closing. If the Property Value Reduction to be paid
by Buyer to Seller for such Title Defect is the
entire Allocated Value of the Property, then the
Property shall be excluded from the Operating Assets
to be owned by the Subsidiaries and the Partnership
at Closing, Buyer may withhold from the Settlement
Price the Allocated Value of the Property and Seller
shall instead, effective as of the day before the
Closing Date, assign that Property to a different
subsidiary of Seller, and (unless and until such
Property is reconveyed to the Partnership pursuant to
other provisions herein) Seller shall indemnify Buyer
against any liabilities, costs and expenses of any
kind relating or arising in any fashion from such
Property. If within an agreed upon period not to
exceed two (2) months, Seller cures the Title Defect
to Buyer's reasonable satisfaction, Buyer shall pay
Seller the amount withheld from the Settlement Price
for such Title Defect, as determined above, and
Seller's subsidiary shall deliver an assignment of
such Property to Buyer. If the Title Defect is not
cured to Buyer's reasonable satisfaction within such
period, the Buyer shall make no further payment for
such Property, and Seller's subsidiary shall not be
required to assign the Property to Buyer. If the
Title Defect is partially cured, then Buyer shall pay
Seller the amount withheld from the Settlement Price,
as determined above, allocable to the cured portion
of the Title Defect, Buyer shall retain the remainder
of such proceeds and Seller's subsidiary shall assign
to Buyer the portion of the Property allocable to the
cured portion of the Title Defect.
(ii) If at Closing, the Parties reasonably disagree upon
the existence or amount of a Property Value Reduction
attributable to a Title Defect asserted by Buyer
which is not a liquidated amount as set forth in
Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then the Parties may nevertheless
mutually elect to proceed to Closing as scheduled and
to resolve the correct amount of such Property Value
Reduction after Closing. In such an instance, Seller
shall deliver to the escrow agent for the escrow
account, instruments executed by
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the Partnership, dated effective as of the day before
the Closing Date, individually assigning to another
subsidiary of Seller each Property subject to the
Title Defects for which the Parties have agreed to
resolve the correct amount of such Property Value
Reduction after Closing, and the applicable Property
Value Reduction used for computing the Closing
Settlement Price shall be the Allocated Value of each
such Property. Such Allocated Value amounts shall
instead be paid into the escrow account. If within an
agreed period (not to exceed sixty (60) days), Seller
and Buyer agree upon the correct amount of a Property
Value Reduction, the escrow agent shall be instructed
to deliver the assignment of such Property to Buyer,
and to pay the Buyer the Property Value Reduction
agreed upon and to pay to Seller the remaining
portion of the Allocated Value for such Property.
Each Party shall also be entitled to receive its
proportionate part of any earned interest allocable
to the amounts paid by the escrow agent, and they
shall bear any escrow fees and expenses equally. If
during such period, the Parties do not agree upon the
correct amount of a Property Value Reduction and
neither Party has requested that such value be
determined by Arbitration under Section 21.16, then
the escrow agent shall deliver to Seller the
assignment for the Property burdened by such uncured
Title Defect, and shall return to Buyer the escrowed
proceeds, including accrued interest, but deducting
any applicable escrow fees. Such Property shall be
excluded from the sale hereunder shall instead be
assigned to Seller's other subsidiary, and Seller
shall indemnify Buyer against any liabilities, costs
and expenses of any kind relating or arising in any
fashion from such Property. If the value has been
submitted to Arbitration under Section 21.16, then
promptly after the Arbitrator's ruling, the Parties
shall deliver instructions directing the escrow agent
to perform in accordance with such ruling.
(iii) If the Parties reasonably and in good faith disagree
upon the amount of a Property Value Reduction
attributable to a Title Defect asserted by Buyer,
which is not a liquidated amount as set forth in
Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then either Party may elect to have the
disagreement resolved by Arbitration in accordance
with Section 21.16.
6.4 PROPERTY VALUE ADJUSTMENT FOR TITLE DEFECTS. The amount of a
Property Value Adjustment for each Title Defect shall be computed as follows:
(a) If the Title Defect consists of the Partnership owning a
lesser NRI than that set forth on Exhibit A (together with a
proportionate reduction in the WI for the Partnership), and if
the Title Defect may be cured by making a correction to the WI
and a proportionate change to the NRI, then the corresponding
Property Value Reduction shall be computed as an amount equal
to the difference between the Allocated Value of the Property
stated in Exhibit A and the proportionately reduced value of
such Property with the correct adjusted interests. Likewise,
if the Parties determine that the Partnership's title to any
Property is greater than that set forth on Exhibit A, a
Property Value Increase shall be computed as an amount equal
to the difference between the Allocated Value of the Property
stated in Exhibit A and the proportionately increased value of
such Property with the correct adjusted interests.
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Such proportionately reduced or increased value shall be
determined by multiplying the Allocated Value of such Property
stated in Exhibit A by a fraction, the numerator of which is
the NRI in such Property actually owned by the Partnership,
and the denominator of which is the NRI in such Property set
forth on Exhibit A. If the Property, or any well included
therein, has different BPO and APO interests in effect on the
Effective Time, and the asserted Title Defect or Property
Value Increase has different effects on the BPO and APO
interests, then the Parties shall in good faith agree upon an
allocation of the proportionately reduced or increased values
between the BPO and APO interests in proportion to the
respective values that should be assigned to the BPO and APO
interests in accordance with recognized reservoir engineering
valuation principles.
(b) If a Title Defect concerns a lien, encumbrance, charge or
other defect which is liquidated in amount, then the
corresponding Property Value Reduction shall be based upon the
monetary amount needed to pay the obligee to remove the Title
Defect from the Property at Closing.
(c) If any Title Defect is asserted as a result of a claim,
demand, encumbrance or other defect reducing the value of a
Property for which the potential economic detriment to the
Partnership is not liquidated, as provided in subparagraphs
(i) or (ii) above, but the appropriate amount may be estimated
with reasonable certainty by the Parties, then the Parties may
mutually agree upon an acceptable amount by which the Title
Defect will reduce the Allocated Value of the interest in the
Property owned by the Partnership, and that agreed upon amount
shall be the Property Value Reduction attributable to such
Title Defect.
(d) If any Title Defect other than one described under
subparagraphs (i), (ii) or (iii) above is asserted affecting a
Property, then that Property shall be excluded from the sale
hereunder, the Partnership shall execute an instrument, dated
effective as of the day before the Closing Date, assigning
that Property to another subsidiary of Seller, the Property
Value Reduction attributable to such Title Defect shall be
equal to the Allocated Value of such Property stated in
Exhibit A, and Seller shall indemnify and hold the
Partnership, the Subsidiaries and the Buyer harmless against
any Damages related to such Property.
(e) The Property Value Reduction with respect to a Title Defect
shall be determined without duplication of any costs or losses
included in another Title Defect hereunder. For example, but
without limitation, if a lien affects more than one Title
Defect or the curative work with respect to one Title Defect
results (or is reasonably expected to result) in the curing of
any other Title Defect affecting the same or another Title
Defect, the amount necessary to discharge such lien or the
cost and expense of such curative work shall only be included
in the Property Value Reduction for one Title Defect and only
once in such Property Value Reduction.
(f) The Property Value Reduction attributable to a Title Defect or
any portion thereof shall not exceed the portion of the
Purchase Price allocated to such Title Defect Property Value
Reduction. For example, but without limitation, if the
Subsidiaries or the Partnership do not own fifty percent (50%)
of the NRI for a Property and such
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unowned fifty percent (50%) interest is also burdened by a
lien, the Property Value Reduction for such Property shall not
exceed the portion of the Purchase Price allocable to such
fifty percent (50%) interest, notwithstanding that it may be
affected by multiple Title Defects.
6.5 PREFERENTIAL RIGHTS AND CONSENTS TO ASSIGNMENT.
(a) Preferential Rights to Purchase. Promptly after execution of this
Agreement, Seller shall cause the Partnership to contact all third Persons who
Seller reasonably believes may hold an enforceable Preferential Right to
Purchase any Property that would be triggered by reason of the Transaction. The
Partnership shall provide such third Persons with the documentation required
under existing agreements and allow them to determine whether or not they should
exercise or waive such Preferential Right to Purchase. Seller shall provide
reasonable advance notice to Buyer of the Properties and interests therein for
which third Persons may be given the opportunity to exercise Preferential Rights
to Purchase, and Seller shall keep Buyer reasonably apprised of the status of
dealings with such third Persons. If Buyer believes that any such third Person
does not hold a valid Preferential Right to Purchase such Property that would be
triggered by the Transaction, Buyer must promptly provide Seller with notice of
Buyer's objection to any proposed exercise of that Preferential Right to
Purchase, and in such case, the Parties shall negotiate in good faith to
determine a mutually acceptable procedure for handling such questioned
Preferential Rights to Purchase. Similarly, without affecting any other right of
Buyer hereunder, if Buyer believes that other valid and enforceable Preferential
Rights to Purchase exist that are not on the notices sent to Buyer by Seller,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Preferential Rights to Purchase. Whenever any third Person elects to
exercise a Preferential Right to Purchase any Property, Seller shall provide
Buyer with prompt notice, listing the interest purchased and the amount received
from such third Person. In such an instance, the interest in any such Property
that is sold to such a third Person before Closing shall be removed from the
Operating Assets, and the Settlement Price shall be reduced by the Allocated
Value attributable to such interest, and in such case Seller shall indemnify the
Partnership, the Subsidiaries and the Buyer against any Liabilities relating to
such Property; if the interest so removed is less than the Partnership's entire
interest in the Property, then the Allocated Value of the Property shall be
proportionately reduced in accordance with the formula set forth in Section
6.4(a). Seller shall use reasonable efforts to cause the Partnership to obtain
the exercise or waiver before Closing of all Preferential Rights to Purchase;
provided however, that if on the Closing Date any valid Preferential Right to
Purchase should exist which shall not have been exercised or waived, and the
time for exercise of which has not yet passed, Buyer shall obtain at Closing
Seller's entire outstanding interest in the Property, subject to such
Preferential Right to Purchase, and Buyer and Seller shall cooperate in good
faith to honor such third Person's rights. In such case, if the holder of such
Preferential Right to Purchase should propose to exercise the same while it
remains valid and enforceable as a result of the Transaction, then Buyer shall
cause the Partnership to assign the affected interest to such third Person and
Buyer, through the Partnerships and the Subsidiaries, shall be entitled to the
proceeds attributable to the sale of such interest to the third Person, and in
such case Seller shall indemnify the Partnership, the Subsidiaries and the Buyer
against any Liabilities relating to such Property, except during the period the
Partnership is owned by Buyer and the Partnership own the Operating Assets.
(b) Consents to Assignment. Promptly after execution of this Agreement,
Seller shall cause the Partnership to contact all third Persons who Seller
reasonably believes may hold an
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enforceable Consent to Assignment affecting a Property, which would be triggered
by reason of the Transaction. Seller shall cause the Partnership to provide such
third Persons with the documentation required under existing agreements and to
use reasonable efforts to persuade them to consent to the assignment to Buyer of
Seller's interest in the Partnership and the Subsidiaries; provided, however,
that Buyer shall not be required to pay any funds, offer any concessions, amend
any existing agreement or resolve any disputed issues as a requisite of
obtaining a consent to any assignment. Seller shall provide reasonable advance
notice to Buyer of the Properties and interests therein for which third Persons
may be requested to consent to the assignment of the Partnership's interest to
Buyer, and Seller shall keep Buyer reasonably apprised of the status of dealings
with such third Persons. If Buyer believes that any such third Person does not
hold a valid and enforceable Consent to Assignment that would be triggered by
the Transaction, Buyer must immediately provide Seller with notice of Buyer's
objection to any proposed request for such third Person's consent to Seller's
assignment to Buyer, and in such case, the Parties shall negotiate in good faith
to determine a mutually acceptable procedure for handling such questioned
Consent to Assignment. Similarly, if Buyer believes that other valid and
enforceable Consents to Assignment exist that are not on the notices sent to
Buyer by Seller, then without limitation of Buyer's other remedies hereunder,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Consents to Assignment. Seller shall use reasonable efforts to obtain
before Closing all required consents to the assignment of its interests in the
Subsidiaries and the Partnership to Buyer hereunder. Seller shall provide Buyer
with prompt notice whenever any third party consents or refuses to consent to
Seller's assignment of its interest in the Subsidiaries or the Partnership. If
ten (10) days before the Closing Date, Seller has not obtained a required
consent to assignment of its interests in the Subsidiaries or the Partnership
that reduces the value of the Subsidiaries' or the Partnership's interests in a
Property, then Buyer may assert that Consent to Assignment as a Title Defect to
the Property so affected. In determining whether a failure to obtain a required
consent to assignment reduces the value of the Subsidiaries' or the
Partnership's interests in a Property, the following standards shall control:
(i) If the terms of the Consent to Assignment expressly
state that any such assignment shall be invalid or
create a reversion to a prior owner if consent is not
obtained, then any failure to obtain such required
consent shall reduce the value of the Subsidiaries'
and the Partnership's interests in the affected
Property, unless such terms also reflect that such
required consent may not be unreasonably withheld or
may be withheld only if Buyer does not meet certain
financial or technical standards; and
(ii) If the terms of the Consent to Assignment do not
expressly state that any failure to obtain the
consent shall cause an assignment to be invalid or
create a reversion to a prior owner, then any failure
to obtain such required consent shall be considered
to reduce the value of the Subsidiaries' or the
Partnership's interests in the affected Property only
if Buyer, the Subsidiaries or the Partnership would
incur a liability due to the Parties' failure to
obtain such required consent prior to Closing.
(c) Governmental Consents. After the execution of this Agreement, and
upon Closing and thereafter, Buyer and Seller shall cooperate to obtain all
routine or standard governmental consents or waivers necessary to transfer
Seller's rights and interests in the Subsidiaries and the Partnership owning the
Operating Assets to Buyer. Without limiting the foregoing, each Party (i) will
file any Notification and Report Forms and related material that such Party may
be required to file
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under the HSR Act, (ii) will use their best efforts to obtain an early
termination of the applicable waiting period, (iii) and will make any further
filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith. Such governmental consents or waivers shall not form the
basis for any Title Defect, unless it is reasonable to believe that consent will
not be obtained in the ordinary course of business.
ARTICLE VII.
ENVIRONMENTAL
7.1 DISCLOSURES AND AVAILABILITY OF DATA TO BUYER. The Operating Assets
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
shall make available to Buyer Seller's historical files regarding the foregoing
operations, to the extent available and to the extent Seller, the Subsidiaries
and the Partnership are authorized to disclose same (excepting documents which
Seller, the Subsidiaries or the Partnership are contractually prohibited from
disclosing or are subject to legal privilege or are in the possession of another
operator, and with respect to which Seller been unable to secure consent to
disclose despite its commercially reasonable efforts to do so).
7.2 NORM. Without affecting Seller's representations and warranties or
the provisions of Section 7.3, Buyer acknowledges that some or all of the
Operating Assets may contain naturally occurring radioactive materials ("NORM"),
and that NORM is an anticipated hazard in oil and gas production operations.
Certain of the Operating Assets, including without limitation, pipe and
equipment may have deposits that contain NORM. Buyer agrees that it shall cause
the Partnership to properly handle and dispose of all materials containing NORM
in a safe manner in accordance with all applicable laws and regulations, at
their sole risk, liability and expense.
7.3 ENVIRONMENTAL CONDITIONS.
(a) Definition. For any Operating Asset, an "Environmental Condition"
shall mean any fact, circumstances or condition present in or with respect to
such Operating Asset as of the Effective Time and the Closing Date (i) that
constitutes a breach of any environmental representation or warranty in Section
4.1(u) of this Agreement or would have been a breach but for being listed on
Schedule 4.1(u) of this Agreement, (ii) that violates any Applicable
Environmental Law, (iii) that results in any liability to any Person, contingent
or otherwise related to pollution or the protection of human health and the
environment under any Applicable Environmental Law or (iv) that results from a
spill or release of any Hazardous Substance, petroleum or brine which spill
constitutes a violation of any Applicable Environmental Law or Contract, as such
Contracts are in effect as of the Closing Date.
(b) Specific Exclusions. Environmental Conditions shall in no event
include any of the following conditions:
(i) Basic Sediment and Water (BSW) and similar materials
contained inside storage tanks and tank bottoms;
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(ii) Produced substances contained within firewalls
surrounding tanks and equipment, provided that such
substances have not contaminated, or do not pose a
potential risk of contamination of the groundwater;
(iii) Materials in or from pits which have been disposed of
and closed in accordance with all laws and
regulations;
(iv) Existing tanks, pits, disposal wells, and materials
contained therein which are in compliance with
regulatory and permit requirements;
(v) Plugging and abandonment requirements for any wells
which are in compliance with regulatory and permit
requirements;
(vi) Conditions arising from or relating to use of the
surface estate for any purpose other than oil and gas
production, gathering, transportation or processing
for which the Subsidiaries and the Partnership could
not have any liability; or
(vii) Any condition listed on Schedule 7.3(b)(vii).
7.4 RESPONSIBILITIES FOR REMEDIATION OF CONTAMINATION. As between the
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
7.5 ENVIRONMENTAL ASSESSMENT. Before Closing, Buyer may perform an
environmental assessment of any of the Operating Assets, at its own risk and
expense. Seller will cooperate with Buyer (and its representatives) to enable
Buyer to gain reasonable access to the Operating Assets to conduct the
environmental assessment; provided that Seller may require Buyer and its
representatives to comply with Seller's, the Subsidiaries, the Partnership
and/or any operator's safety procedures, and may require any inspector to
provide a reasonable access and confidentiality agreement. Buyer shall provide
Seller three (3) days prior notice of a desired date(s) for such assessment, the
proposed locations, and the anticipated scope of any testing or other
activities. Seller shall have the right to be present during any assessment, and
Buyer shall provide Seller with an invoice setting forth the costs incurred in
obtaining such analysis or report. If Seller pays Buyer one-half of such costs,
Buyer shall provide to Seller a copy thereof within three (3) days of Buyer's
receipt of such payment. Seller and Buyer shall treat all information regarding
any Environmental Condition as confidential, whether material or not (unless
such information is disclosed on an anonymous basis), and shall not make any
contact with any Governmental Authority or third party regarding same without
the other Party's written consent, unless required by Applicable Law. Seller
shall have the right to be present during any inspection of the Properties and
shall have the right, at its option and expense, to split samples with Buyer.
7.6 ENVIRONMENTAL CONDITION VALUE REDUCTION FOR ENVIRONMENTAL
CONDITIONS. The amount of an Environmental Condition Value Reduction for each
Environmental Condition, and the aggregate Environmental Price Adjustment for
all Environmental Conditions shall be computed as follows:
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(a) If the Environmental Condition may be cured by obtaining a
required permit, which can be reasonably obtained, then the
Environmental Condition Value Reduction shall be based upon a
reasonable projection of the costs attributable to the
Partnership's interest that will be required to obtain such
permit, including reasonable design and consultants fees for
obtaining the permit, the costs of any modifications to the
Operating Asset (and any diminution in value of the affected
Operating Asset which may result from such modification) that
are anticipated to be required in order to obtain the permit,
and any fines or penalties that are reasonably anticipated to
be owed for delays until 30 days after the Closing Date in
obtaining the permit.
(b) If the Environmental Condition may be cured by an
environmental remediation program, then the Environmental
Condition Value Reduction shall be based upon a reasonable
projection of the costs attributable to the Partnership's
interest that will be required to design, implement and
complete a reasonable environmental remediation program,
together with any fines or penalties that are reasonably
anticipated to be owed for delays until 30 days after the
Closing Date in commencing remediation and any other adverse
effect on the Property affected thereby.
(c) If the Environmental Condition may be cured through
modifications to the Operating Asset, then the Environmental
Condition Value Reduction shall be based upon a reasonable
projection of the costs attributable to the Partnership's
interest that will be required for such modifications to the
Operating Asset and any other adverse effect on the property
affected thereby.
(d) If any Environmental Condition may not be cured in a manner
set forth in subparagraphs (i), (ii) and (iii) above, then the
Environmental Condition Value Reduction shall be an amount
reasonably determined to reflect the reduction in market value
of the Operating Asset by reason of such Environmental
Condition.
7.7 PROCEDURES TO DETERMINE ENVIRONMENTAL PRICE ADJUSTMENT.
(a) Buyer's Notice of Environmental Conditions. Not later than ten (10)
Business Days prior to the Closing Date, Buyer shall provide a notice to Seller
describing all asserted Environmental Conditions which Buyer deems to be
unacceptable and shall provide evidence thereof. To be effective, Buyer's
written notice must describe each asserted Environmental Condition, including
(i) the Property affected by such asserted Environmental Condition; (ii) a
description of the matter constituting the asserted Environmental Condition;
(iii) supporting documents reasonably necessary for Seller (or an environmental
consultant hired by Seller) to verify generally the existence, extent and nature
of such asserted Environmental Condition; (iv) any requirements asserted by
Buyer as being required to cure such Environmental Condition; (v) the amount of
any Environmental Condition Value Reduction asserted to be attributable to such
Environmental Condition; and (vi) the manner by which such Environmental
Condition Value Reduction was determined, together with supporting detail. Buyer
shall not be entitled to any Environmental Price Adjustment to the Settlement
Price for any matters not described in a written notice of Environmental
Conditions delivered to Seller at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
Buyer's notice of Environmental Conditions, Seller shall provide Buyer with
Seller's response to such notice. If Seller
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disputes any asserted Environmental Condition, Seller's response shall state the
basis for Seller's position that no such Environmental Condition should be
asserted. If Seller intends to cure any Environmental Condition before Closing
at its expense, Seller's response shall so state and describe the manner by
which such Environmental Condition shall be cured. If Seller disputes the amount
asserted by Buyer for any Environmental Condition Value Reduction, then Seller's
response shall state the basis for such dispute and the amount that Seller
contends should be the correct Environmental Condition Value Reduction. If
Seller intends to indemnify Buyer against all risks associated with such
Environmental Condition, Seller's notice shall state the same. Seller's response
shall include all supporting information required to substantiate Seller's
positions.
(c) Discussions Between the Parties. The Parties shall negotiate in
good faith to resolve any disputed issues concerning Environmental Conditions or
Environmental Condition Value Reductions between the time Seller delivers its
response and the Closing Date, and to agree upon the aggregate Environmental
Price Adjustment for all Environmental Conditions. The Closing Settlement Price
shall reflect the terms so negotiated by the Parties. Without limitation, the
Parties may agree to one or more of the following procedures with respect to
particular outstanding or disputed Environmental Conditions and corresponding
Environmental Condition Value Reduction:
(i) If any Property is burdened by an Environmental
Condition which may be cured by the Partnership
before Closing, then the parties may mutually agree
to allow the Partnership to cure such Environmental
Condition at Seller's expense before Closing. In such
case, no Environmental Condition Value Reduction
shall be asserted for such Environmental Condition,
but the costs of such cure shall not be deducted in
computing the Settlement Price.
(ii) If Seller and Buyer agree for Buyer to retain the
risks associated with such Environmental Condition,
then Seller and Buyer may negotiate the terms of a
mutually acceptable agreement to be delivered by
Seller to Buyer at Closing, whereby Seller would
indemnify and defend Buyer against any and all risks,
losses, claims and damages that might be incurred by
Buyer, the Subsidiaries or the Partnership as a
result of the Environmental Condition. In such case,
no Environmental Condition Value Reduction shall be
asserted for such Environmental Condition.
(iii) If at Closing, there is an Environmental Price
Adjustment and the Parties disagree upon the amount
of an Environmental Condition Value Reduction
attributable to an Environmental Condition asserted
by Buyer, for which Seller and Buyer do not agree for
Seller to provide an indemnity to Buyer, then the
Parties may nevertheless mutually elect to proceed to
Closing as scheduled and to resolve the correct
amount of such Environmental Condition Value
Reduction after Closing. In such an instance, the
Partnership shall execute an instrument, dated
effective as of the day before the Closing Date,
assigning to another subsidiary of Seller each
Property subject to the Environmental Conditions for
which the Parties have agreed to resolve the correct
amount of such Environmental Condition, and Seller
shall deliver such instrument(s) to the escrow agent
for the escrow account. In such event, Seller shall
indemnify the Partnership, the Subsidiaries and the
Buyer for and against all Liabilities relating to
such Property unless and until such property
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is reconveyed to the Partnership pursuant to further
provisions hereof. Further, the Settlement Price paid
to Seller at Closing shall be reduced by the amount
of the Allocated Value of the Property burdened by
such Environmental Conditions. Such amount of the
Environmental Price Adjustment amount shall instead
be paid into the escrow account. If within an agreed
period (not to exceed sixty (60) days) Seller and
Buyer agree upon the correct amount of a
Environmental Condition Value Reduction, the escrow
agent shall be instructed to deliver the assignment
of such Property to Buyer together with the amount of
the agreed upon Environmental Condition Value
Reduction, and to pay to Seller the remainder of the
Allocated Value for such Property, plus any earned
interest, but less any associated escrow fees and
expenses. If during such period, the Parties do not
agree upon the correct amount of an Environmental
Condition Value Reduction, then the escrow agent (1)
shall, pursuant to Seller's directions, either
deliver the assignment for the Property burdened by
such uncured Environmental Condition to Seller's
subsidiary or destroy such assignment, and (2) shall
return to Buyer the escrowed proceeds, including
accrued interest, but deducting any applicable escrow
fees. If the Seller instructs the escrow agent to
deliver the assignment of the Property to Seller's
subsidiary, such Property shall be excluded from the
sale hereunder; if the Seller instructs the escrow
agent to destroy the assignment of the Property, such
Property shall be included in the Operating Assets of
the Partnership that are within the sale hereunder,
but the Settlement Price shall not reflect any
amounts allocable to such Property.
(iv) If at Closing, there is an Environmental Price
Adjustment and the Parties reasonably disagree upon
the existence or amount of an Environmental Condition
Value Reduction attributable to an Environmental
Condition asserted by Buyer and if the Parties do not
elect to place proceeds in escrow, then the Parties
shall resolve such disagreement in accordance with
Section 21.16.
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION
8.1 NO TERMINATION. Except as specifically provided to the contrary
herein, the Subsidiaries and the Partnership shall retain all risk of loss with
respect to any loss of, reduction in value of or damage to the Operating Assets
from the Effective Time until Closing, and Buyer assumes the risk of loss of
value of the Subsidiaries and the Partnership associated with such matters. If
after the Effective Time and prior to the Closing, any part of the Operating
Assets should be destroyed by fire or other casualty or if any part of the
Operating Assets should be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes should be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof, except as expressly
provided in Article XX.
8.2 PROCEEDS AND AWARDS. In the event of any loss described in Section
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments,
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condemnation awards or other amounts paid or to be paid by reason of such
destruction, less any costs and expenses incurred by Seller in collecting same,
or (b) prior to Closing, use or have the Partnership apply such sums (less any
costs and expenses incurred by Seller in collecting same) to repair, restore or
replace such damaged or taken Operating Assets. In addition, Seller shall at
Closing assign to the Partnership all of the right, title and interest of Seller
in and to any claims for loss of or damages to the Operating Asset, that might
be asserted against third parties with respect to the event or circumstance
causing such loss to and any unpaid insurance proceeds, condemnation awards or
other payments arising out of such destruction or taking, less any costs and
expenses previously incurred by Seller in collecting same. The Settlement Price
shall be reduced by the Casualty Price Adjustment, if any, attributable to
casualty losses that are not fully covered by insurance. Notwithstanding
anything to the contrary in this Section 8.2, neither Seller, the Subsidiaries
nor the Partnership shall be obligated to carry or maintain, nor shall they have
any obligation or liability to Buyer for their failure to carry or maintain any
insurance coverage with respect to any of the Operating Assets, except as
required by Section 9.2.
8.3 RISKS OF OTHER LOSSES. Except as otherwise set forth in this
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall
assume all risk of loss with respect to any loss of value or change in the
condition of the Operating Asset, and all wells thereon, after the Effective
Time, relating to the production of oil, gas or other hydrocarbons, including
without limitation normal depletion, water encroachment, coning, pressure
depletion, formation changes and sand infiltration. The Partnership shall
continue to bear its proportionate share of the risks allocated under applicable
joint operating agreements and assume their proportionate share of the risks
that such operations may be unsuccessful, and Closing shall not be conditioned
upon the success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer
shall assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or production therefrom after the Effective Time,
and this Agreement shall not be terminated or suspended, nor shall Closing be
delayed, due to any such change in market conditions.
ARTICLE IX.
COVENANTS
9.1 PRE-CLOSING COVENANTS OF SELLER REGARDING THE BUSINESS. Sellers
shall cause the Subsidiaries and the Partnership to operate the Business only in
its usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause the
Subsidiaries and the Partnership to use commercially reasonable efforts and as
set forth in Section 9.2, to (i) preserve the Business; (ii) keep available to
Buyer the services of the present officers, employees, agents and independent
contractors of the Subsidiaries; and (iii) maintain the assets of the Business
in their current state of repair, order and condition, usual and ordinary wear
and tear excepted and subject to requirements in the ordinary course of
business.
9.2 PRE-CLOSING COVENANTS OF SELLER REGARDING THE OPERATING ASSETS.
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be
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consented to in writing by Buyer, which consent shall not be unreasonably
withheld, Seller shall manage the Partnership's ownership of the Operating
Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, (ii) which involve total payments in excess of $50,000, or (iii)
which if in existence as of the date hereof would be a material Contract.
(c) Preservation of Operating Assets. The Partnership shall use
reasonable efforts to preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to the Operating Assets and shall perform the
obligations of the Partnership in or under any such agreement relating to such
Operating Assets as a reasonable and prudent operator, provided however, that
the Partnership shall not be required to conduct any drilling, recompletion or
reworking activities to maintain any lease, farmout agreement or other
defeasible interest in force or to settle any adverse claims, demands or
litigation in a manner that Seller deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all
material and equipment within the Operating Assets in accordance with customary
industry operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect
all policies of insurance now maintained by Seller and the Partnership covering
the Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, the Subsidiaries or the Partnership to
obtain, at Buyer's expense, at a reasonable market price an additional reporting
period policy for any of Seller's insurance policies which are on a claims-made
basis.
(f) Operations.
(i) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not propose or conduct for its own
account any operation which might reasonably be
expected to require an expenditure in excess of fifty
thousand dollars ($50,000). The Partnership shall
have the right to conduct, at its sole election and
discretion, any operations that either (1) are
covered by committed expenditures listed on Schedule
9.2(f), (2) are required by law or regulations, (3)
are required under a binding existing agreement with
a third party, or (4) which the Partnership
reasonably expects to require an expenditure of less
than fifty thousand dollars ($50,000).
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(ii) Except for operations covered by committed
expenditures listed on Schedule 9.2(f), the
Partnership shall not agree to participate in any
reworking, deepening, drilling, completion,
recompletion, equipping or other operation that is
proposed by a co-owner in any well or other asset, if
such operation might reasonably be expected to
require an expenditure by the Partnership in excess
of fifty thousand dollars ($50,000), without Seller
having first provided Buyer written or oral notice
thereof as soon as reasonably practicable after the
Partnership receives notice thereof from the
Partnership's co-owner in such Operating Asset. If
Seller provides Buyer with such notice, Buyer and
Seller shall promptly consult about the advisability
of participating in such operations. If Buyer and
Seller cannot agree, the following provisions shall
apply:
(1) If Seller should wish to participate in an
operation proposed by a third party and Buyer should
object to the operation, then the Partnership may
agree to participate, but Buyer may assert a Title
Defect with respect to the Property affected by such
operation, and in such event such Property shall be
excluded from the sale hereunder and instead shall be
assigned to another subsidiary of Seller prior to
Closing and the Purchase Price shall be reduced by
the Allocated Value of the affected Property. In such
event, Seller shall indemnify and defend Buyer
against any and all Damages relating to such
operation and such Property.
(2) If Buyer should wish to participate in such
operation and Seller objects to the operation, the
Partnership shall not be obligated to make any such
payment or to elect to participate in such operation
unless within a reasonable time prior to the date
when such payment or election is required to be made
by the Partnership, the Partnership receives from
Buyer, (A) the written election and agreement of
Buyer to require the Partnership to take such action
and to indemnify Seller therefrom and (B) all funds
necessary for such action.
(3) If (A) Buyer advances any funds pursuant to
subparagraph (2), and (B) the Common Stock is not
assigned to Buyer at Closing, and (C) Seller does not
reimburse Buyer for all advances made by Buyer with
respect to such Operating Assets pursuant to
subparagraph (2) within thirty (30) days after this
Agreement terminates, then Buyer shall own and be
entitled to any right of the Partnership that would
have lapsed but for such payment, and in the case of
operations, Seller shall be entitled to receive the
penalty which the Partnership, as non-consenting
party, would have suffered under the applicable
operating agreement with respect to such operations
as if Buyer were a consenting party thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer;
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provided however, that Seller shall not be required to expend any material funds
or release any rights to allow such release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership
is not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 SELLER'S COVENANTS REGARDING ENCUMBRANCES. Seller covenants that
on or before the Closing Date, Seller shall cause the Encumbrances in Schedule
1B to be released, in a form reasonably acceptable to Buyer.
9.4 COVENANTS REGARDING CORPORATE AND FINANCIAL MATTERS. Through the
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause the Subsidiaries and the
Partnership not to:
(a) Amend the Charter or Bylaws of any the Subsidiaries or amend the
Partnership Agreements of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of the Subsidiaries or any partner of the Partnership;
(d) Redeem or otherwise acquire any shares of capital stock of any of
the Subsidiaries or issue any capital stock of any the Subsidiaries or any
option, warrant or right relating thereto or any securities exchangeable for or
convertible into any such shares;
(e) Permit or allow any of the Subsidiaries' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice
or policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate,
oil or products thereof which is not consistent with past practices;
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(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 NO SOLICITATION OF TRANSACTIONS. Except as otherwise permitted
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Common Stock or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 EMERGENCIES AND OVERSIGHTS. Notwithstanding the other provisions
of this Article IX, (a) Seller, the Subsidiaries and/or the Partnership may take
any action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or reduction of any rights or interests by reason of the nonpayment or
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such payments through mistake or
oversight; provided, however, Buyer shall be permitted to assert the items in
this clause (b) as Title Defects under Article VI.
9.7 BUYER'S COVENANTS REGARDING PERFORMANCE AND CONTINUED EXISTENCE.
Buyer covenants that between the date of this Agreement and the Closing Date:
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company
in good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 BUYER'S COVENANTS REGARDING TRADE NAME. Buyer acknowledges and
agrees with Seller that Seller shall have the absolute and exclusive proprietary
right to all names, marks, trade names, trademarks and corporate symbols and
logos incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of the Subsidiaries and the Partnership, to not include
the name "Tesoro", cease using any Tesoro Mark and shall promptly remove from
all the assets and properties of the Subsidiaries any and all Tesoro Marks, and
change the name on all permits and licenses, to not include the name "Tesoro".
Thereafter, Buyer shall not use any Tesoro
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Mark in connection with the conduct of its business. In the event that Buyer
breaches this Section 9.8, Seller shall be entitled to specific performance of
this Section 9.8 and to injunctive relief against further violations, as well as
any other remedies available at law or in equity.
9.9 BUYER'S COVENANTS REGARDING EMPLOYMENT.
(a) Schedule 9.9(a) sets forth the employees of Seller or its
Affiliates to whom Buyer (or an Affiliate of Buyer) expects to offer employment
after the Closing. Buyer in its sole discretion will determine the capacity in
which the employees listed on Schedule 9.9(a) who accept employment with Buyer
or its Affiliate (the "Retained Employees") will be employed and with which
entity each of the Retained Employees will be employed after the Closing. After
the Closing, Buyer (or its Affiliates which will employ Retained Employees) will
initially provide to the Retained Employees the same base salary or wages (but
not any retention-related salary increases described in Schedule 9.9(c))
provided to such employees prior to the Closing, subject to such changes in base
salary or wages as are consistent with the Buyer's compensation structure. Buyer
will take all actions necessary or appropriate to permit the Retained Employees
to participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the year during which participation in Buyer's Group Health Plan begins, for
any duplicate deductibles and copayments already incurred during such year under
the group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to
maintain such office for so long as prudent business practices justify its
operation.
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(f) Schedules 9.9(a) and 9.9(c) shall be supplemented by Buyer within
twenty-five (25) days following the date of this Agreement. During such
twenty-five day period, none of Seller, the Subsidiaries (on behalf of Seller
and its Affiliates) or the Partnership (on behalf of Seller and its Affiliates)
shall be permitted to solicit any of the employees listed on Schedule 9.9(a) for
employment after the Closing Date. If after the Closing Date, Seller or any of
its Affiliates continues to employ any individual listed on the final Schedule
9.9(a), Seller agrees to cooperate with Buyer to make such individual available
to provide services required by Buyer for up to six months after the Closing
Date for transition purposes, with Buyer reimbursing Seller for the actual cost
of such employee's services (including without limitation, salary and benefits).
9.10 AUTHORIZATIONS.
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Common Stock and the other transactions contemplated hereby in accordance with
the terms of this Agreement; (ii) use commercially reasonable efforts to obtain,
or cause to be obtained, all authorizations, approvals, orders, consents and
waivers from all Persons necessary to consummate the foregoing; and (iii) use
commercially reasonable efforts to take, or cause to be taken, all other actions
necessary, proper or advisable in order for it to fulfill its respective
obligations hereunder and to carry out the intentions of the parties expressed
herein. The preceding sentence notwithstanding, neither party shall have any
obligation to waive any condition herein for its benefit or any performance
hereunder by any other party. Without limiting the foregoing, each Party (i)
will file any Notification and Report Forms and related material that such Party
may be required to file under the HSR Act, (ii) will use their best efforts to
obtain an early termination of the applicable waiting period, (iii) and will
make any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
9.11 SOFTWARE AND COMPUTER PROGRAMS. From the date of this Agreement
through the date which is ninety (90) days after the Closing Date, each Seller,
the Subsidiaries and the Partnership, as applicable, agree to engage in
discussions with the licensors of applicable software and computer programs and
seismic data and processing identified in a written notice provided to Seller by
Buyer on or prior to the Closing Date, the purpose of which discussions shall be
to assist Buyer in its efforts to obtain a license with respect to such software
and/or computer programs and seismic data and processing with terms acceptable
to Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 GENERAL.
(a) Each of the Parties will use their reasonable 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
XI).
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(b) Buyer agrees to cooperate at no cost or liability to Buyer with
Seller so that Seller's transfer of the Operating Assets to Buyer shall, at
Seller's election, be accomplished in a manner enabling the transfer to qualify
as a part of a like-kind exchange of property by Seller within the meaning of
Section 1031 of the Code. If Seller so elects, Buyer shall reasonably cooperate
with Seller to effect such like-kind exchange, which cooperation shall include,
without limitation, taking such actions as Seller reasonably requests in order
to pay the Purchase Price in a manner which enables such transfer to qualify as
part of a like-kind exchange of property within the meaning of Section 1031 of
the Code, and Buyer agrees that Seller may assign its rights (but not its
obligations) under this Agreement to an escrow agent acting as a qualified
intermediary under United States Treasury Regulations, to qualify the transfer
of the Purchase Price as a part of a like-kind exchange of property within the
meaning of Section 1031 of the Code.
(c) If prior to Closing Buyer elects to obtain financing for a portion
of the Purchase Price from a bank or other lender (the "Lender") (whether
through conventional loans or through a production payment or similar
off-balance sheet financing mechanism), Seller shall (and shall cause the
Subsidiaries and the Partnership to) cooperate reasonably with Buyer in Buyer's
negotiation and finalization of any loan or other documents with the Lender,
provided that such cooperation does not result in Seller, the Subsidiaries and
the Partnership incurring material additional expenses. Seller shall (and shall
cause the Subsidiaries and the Partnership to) use its commercially reasonable
efforts to give representatives of the Lender the access to information and
right to inspection provided to Buyer under Article V, subject to the Lender
agreeing to be bound by the terms of the Confidentiality Agreement. This Section
9.12(c) does not change or modify Buyer's obligation to close the Transactions
in accordance with the other provisions of this Agreement.
9.13 SUPPLEMENTAL INFORMATION REGARDING REPRESENTATIONS AND WARRANTIES.
(a) If at any time prior to the Closing there shall arise any
occurrence, or change in circumstances or development causing a breach of any of
the representations and warranties in paragraphs (m)(i), (u), (w), (x), (y),
(z), (aa) or (bb) (to the extent such paragraph (bb) applies to the Operating
Assets and not the Common Stock) of Section 4.1, the Party discovering such
occurrence, change or development shall promptly notify the other Party of the
same. Such notice will be deemed to have qualified the representations and
warranties contained in such paragraphs of Section 4.1 to reflect the
information contained in the notice.
(b) Such notices of changes in the representations and warranties under
paragraphs (m)(i), (w), (x), (y), (z) and (bb) (to the extent such paragraph
(bb) applies to the Operating Assets and not the Common Stock) of Section 4.1
will be deemed to constitute a Title Defect (a "Seller Initiated Title Defect")
timely asserted under Sections 6.2 and 6.3 hereof (regardless of when Seller's
notice shall have been given) without any need for any action by Buyer, unless
such changes are within the exclusions for Title Defects set forth in Section
6.2(c). In such event, subject to the provisions of Articles VI and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect shall
be determined in accordance with the provisions of Sections 6.3 and 6.4;
provided, however, that if the Seller Initiated Title Defect would not have
constituted a Title Defect under the provisions of Section 6.2 (other than
Section 6.2(b)(i)), then the Property Value Reduction shall be the adverse
economic effect upon the Subsidiaries or the Partnership which would reasonably
be expected to result from such Seller Initiated Title Defect.
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(c) Such notices of changes in the representations and warranties
under paragraph (aa) of Section 4.1 will be deemed to constitute a Seller
Initiated Title Defect, unless such change would be considered an "Environmental
Condition" (as that term is defined hereunder), in which case it shall be deemed
to be an Environmental Condition (a "Seller Initiated Environmental Defect"),
timely asserted under Sections 6.2, 6.3 or 7.3 hereof, as applicable (regardless
of when Seller's notice shall have been given), without any need for any action
by Buyer, unless such changes are within the exclusions for Title Defects set
forth in Section 6.2(c) or Environmental Conditions set forth in Section 7.3(c).
In such event, subject to the provisions of Articles VI, VII and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect or
the Environmental Condition Value Reduction resulting from such Environmental
Condition shall be determined in accordance with the provisions of Sections 6.3
and 6.4 or Sections 7.6 and 7.7, as applicable; provided, however, that if the
Seller Initiated Title Defect would have not constituted a Title Defect under
the provisions of Section 6.2 (other than Section 6.2(b)(i)), then the Property
Value Reduction shall be the adverse economic effect upon the Subsidiaries or
the Partnership which would reasonably be expected to result from such Seller
Initiated Title Defect.
(d) Such notices of changes in the representations and warranties under
paragraphs (u) of Section 4.1 will be deemed to constitute a Seller Initiated
Environmental Defect timely asserted under Section 7.3 hereof (regardless of
when Seller's notice shall have been given) without any need for any action by
Buyer, unless such changes are within the exclusions for Environmental
Conditions set forth in Section 7.3(c). In such event, subject to the provisions
of Articles VII and XIII, the Environmental Condition Value Reduction resulting
from such Environmental Condition shall be determined in accordance with the
provisions of Sections 7.6 and 7.7.
(e) Any adjustment to the Purchase Price resulting from any such Seller
Initiated Title Defect or Seller Initiated Environmental Defect shall be
considered for the purposes of Sections 11.2(g), 20.1(b) and (c). The written
notice pursuant to this Section 9.13 and the resulting qualification of the
applicable representation shall otherwise be deemed to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder because of the development, and the certificate to be delivered by
Seller pursuant to Section 11.1(c) may reflect the applicable representation as
so qualified.
(f) If at any time prior to the Closing, there shall arise any
occurrence, or change in circumstances or development causing a breach of any of
the representations and warranties in paragraphs (g), (l), and subparagraphs
(m)(ii), m(iii), m(iv) and (k)(xiv) of Section 4.1, the Party discovering such
occurrence, change or development shall promptly notify the other Party of the
same, and either (i) the Parties shall negotiate in good faith an adjustment to
the Purchase Price to reflect the Damages caused by such breach, or (ii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), then (A) Seller may elect to retain the Liabilities which caused the
representations and warranties to be inaccurate, and Seller shall indemnify,
defend and hold harmless Buyer against such Liabilities, and (B) to the extent
the Parties agree that the Liabilities which caused the representations and
warranties to be inaccurate relate to a Property, then Seller may elect to have
such Property assigned to a different subsidiary of Seller, and the Purchase
Price shall be reduced by the Allocated Value of such Property; or (iii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), and if Seller does not elect to retain the Liabilities which caused the
representations and warranties to be inaccurate and indemnify the Buyer, and if
such
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breach of the representations and warranties causes the representations and
warranties not to be true and correct in all material respects on the Closing
Date as though made on and as of that date, then the Parties agree that the
condition of the Closing set forth in Section 11.2(a) shall not have been
satisfied, and, unless Buyer waives the satisfaction of such condition to the
Closing, Buyer shall not be obligated to consummate the Transaction. If the
Parties resolve the matters contemplated in this Section 9.13(f) through any of
the options described in clause (i) or (ii) above, the notice delivered pursuant
to the first sentence of this Section 9.13(f) will be deemed to have qualified
the representations and warranties contained in the relevant paragraphs of
Section 4.1 to reflect the information contained in the notice.
9.14 CERTAIN PIPELINE ASSETS. Seller agrees that, prior to the
Closing, it shall cause Tesoro Pipeline Company, L.P. to transfer to the
Partnership all pipeline assets described on Exhibit B (the "Val Verde
Pipeline") relating to Production from the Partnership's Vinegarone East
Prospect located in Edwards and Val Verde Counties, Texas. It is hereby
expressly understood, and Seller acknowledges, that all representations,
warranties, covenants and agreements contained herein are made as if the Val
Verde Pipeline were owned by the Partnership as of the date hereof.
9.15 GATHERING AGREEMENT EXTENSION. Seller agrees that, prior to the
Closing, it shall cause Tesoro Pipeline Company, L.P., as majority owner of the
Starr County Gathering System, to amend the existing gathering agreement between
the Partnership and Starr County Gathering System to extend its term to the date
of the last to expire of the leases for the Bob West Royalty Field set forth in
Exhibit B.
9.16. SELLER'S COVENANTS CONCERNING THE STARR-ZAPATA PARTNERSHIP.
Seller shall cause Pipeline and Natural Gas, in their capacity as Pipeline
Partners under the Starr-Zapata Partnership Agreement, to vote to keep the
Starr-Zapata Transportation Agreement in full force and effect from and after
the Closing Date and, in connection therewith, refrain from taking any action
which would hinder, diminish or otherwise impair the rights and benefits of the
Partnership under the Starr-Zapata Transportation Agreement. Without limiting
the generality of the foregoing, but without obligating Seller or the Pipeline
Partners to make any future capital expenditures for expansion, repair or
replacement of any pipeline facilities not funded out of Starr-Zapata
Partnership's cash flow from the Effective Date, Seller shall not permit
Pipeline or Natural Gas to exercise their respective voting rights, powers or
privileges under the Starr-Zapata Partnership Agreement to cause, assist or
permit the Pipeline Operator to (i) reject any volume of gas tendered by the
Partnership in excess of 100 MMcf per day pursuant to Section 2.2(b) of the
Starr-Zapata Transportation Agreement, (ii) cease operation of the Starr-Zapata
Line pursuant to Section 4.2 of the Starr-Zapata Transportation Agreement or
(iii) reject any gas tendered by the Partnership on the basis that such gas does
not meet the quality specifications set forth in Section 5.1 of the Starr-Zapata
Transportation Agreement, if the Pipeline Operator accepted gas tendered by the
Partnership prior to the Closing Date with quality specifications similar to
those of the gas tendered by the Partnership from and after the Closing Date.
During the time that the Put Option and Call Option are outstanding, Seller
shall not allow Pipeline and Natural Gas, in their capacity as Pipeline Partners
under the Starr-Zapata Partnership Agreement, to vote to cause the Starr Zapata
Partnership or Starr-Zapata Line to be operated in a manner not in compliance
with the covenants contained in Section 9.1 (except clause (ii), Section 9.2,
Paragraphs (a), (b)(i), (b)(ii), (b)(iii), (c), (d), (e), (f)(i) and (h)
(provided with respect to subparagraphs (b)(ii), (b)(iii) and (f)(i), Seller
will obtain the consent of Buyer prior to taking such actions, which consent
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shall not be unreasonably withheld), and Sections 9.4 (provided with respect to
Paragraph (e), Seller will obtain the consent of Buyer prior to taking such
actions, which consent shall not be unreasonably withheld), 9.5, 9.6 and 9.10,
as if such covenants applied to the Starr-Zapata Partnership to the same extent
such covenants apply to the Partnership. Seller, the Subsidiaries and the
Partnership agree to provide access, consistent with the type of access provided
in Article V, to books and records concerning the assets of Natural Gas,
Gathering and Pipeline, and to cooperate with Buyer to provide Buyer access, by
appointing Buyer as Seller's agent, to whatever books and records of the
Starr-Zapata Partnership that Pipeline or Natural Gas would have access to under
the Starr-Zapata Partnership Agreement.
9.17. SELLER'S COVENANTS CONCERNING THE STARR COUNTY GATHERING SYSTEM.
Seller shall cause Pipeline and Natural Gas, in their capacity as Partners under
the Starr County Joint Venture Agreement, to vote to keep the Starr County
Gathering Agreement in full force and effect from and after the Closing Date
and, in connection therewith, refrain from taking any action which would hinder,
diminish or otherwise impair the rights and benefits of the Partnership under
the Starr County Gathering Agreement. Without limiting the generality of the
foregoing, but without obligating Seller or the Pipeline Partners to make any
future capital expenditures for expansion, repair or replacement of any pipeline
facilities not funded out of Starr County Gathering's cash flow from the
Effective Date, Sellers shall not permit Pipeline or Natural Gas to exercise
their respective voting rights, powers or privileges under the Starr County
Joint Venture Agreement to cause, assist or permit Starr County Gathering to (i)
terminate the Starr County Gathering Agreement pursuant to Article 6.2 thereof
or (ii) to cause, assist or permit the Pipeline Operators to reject any volume
of gas tendered by the Partnership from and after the Closing Date under the
Starr County Gathering Agreement on the basis that such gas does not meet the
quality specifications set forth in Article 7.2 of the Starr County Gathering
Agreement, if Starr County Gathering accepted gas tendered by the Partnership
prior to the Closing Date with quality specifications similar to those of the
gas tendered by the Partnership from and after the Closing Date. During the time
that the Put Option and Call Option are outstanding, Seller shall not allow
Pipeline and Natural Gas, in their capacity as Pipeline Partners under the Starr
County Joint Venture Agreement, to vote to cause Starr County Gathering and
Starr County Gathering System to be operated in a manner not in compliance with
the covenants contained in Section 9.1 (except clause (ii)), Section 9.2,
Paragraphs (a), (b)(i), (b)(ii), (b)(iii), (c), (d), (e), (f)(i) and (h),
(provided with respect to subparagraphs (b)(ii), (b)(iii) and (f)(i), Seller
will obtain the consent of Buyer prior to taking such actions, which consent
shall not be unreasonably withheld), and Sections 9.4 (provided with respect to
Paragraph (e), Seller will obtain the consent of Buyer prior to taking such
actions, which consent shall not be unreasonably withheld), 9.5, 9.6 and 9.10,
as if such covenants apply to Starr County Gathering to the same extent such
covenants apply to the Partnership. Seller, the Subsidiaries and the Partnership
agree to provide access, consistent with the type of access provided in Article
V, to books and records concerning the assets of Natural Gas, Gathering and
Pipeline, and to cooperate with Buyer to provide Buyer access, by appointing
Buyer as Seller's agent, to whatever books and records of Starr County Gathering
that Pipeline or Natural Gas would have access to under the Starr County Joint
Venture Agreement.
ARTICLE X.
PRE-CLOSING PROCEDURES
10.1 NOTICE OF SETTLEMENT PRICE ADJUSTMENTS. At least ten (10)
Business Days prior to Closing, Buyer shall furnish Seller with notices listing
all Title Defects, Environmental Conditions and
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casualty losses that Buyer asserts as bases for reducing the Settlement Price.
At least five (5) Business Days prior to the Closing Date, Seller shall advise
Buyer whether Seller disputes any such amounts, whether Seller elects to cure
any such amounts, and what other actions Seller believes is appropriate
concerning any such amounts. Buyer and Seller shall then negotiate in good faith
to resolve all disputed issues prior to the Closing Date.
10.2 INITIAL SETTLEMENT STATEMENT. Eight (8) Business Days before the
Closing Date, Seller shall furnish Buyer with a preliminary draft of the
Settlement Statement, in accordance with Section 13.2. Buyer shall have the
right to audit and request appropriate adjustments to the amounts reflected
therein until four (4) Business Days before the Closing Date. At least four (4)
Business Days before the Closing Date, Buyer shall furnish Seller with any
comments, and adjustments or revisions Buyer believes are appropriate to conform
the Settlement Statement to accurately reflect the best information available at
Closing, and the Parties shall endeavor in good faith to reconcile the
accounting issues and to produce as accurate a Settlement Statement as possible
based upon the information available at Closing. At least two (2) Business Days
before the Closing Date, Seller shall furnish Buyer with the Settlement
Statement, including any appropriate updates, adjustments or revisions, showing
the Closing Settlement Price.
10.3 CLOSING DOCUMENTS. At least ten (10) Business Days before the
Closing Date, the Parties shall provide each other with preliminary drafts of
all attorneys opinions, certificates, corporate guarantees, assignments and
other instruments to be delivered at Closing. The Parties shall thereafter
cooperate to make such revisions as are needed to prepare mutually acceptable
forms of all such instruments.
10.4 ESCROW AGENT. If the Parties should agree to place any funds into
an escrow account at Closing, then they shall negotiate in good faith to select
a mutually acceptable escrow agent, who is willing and able to perform such
role. In such an instance, at least five (5) Business Days before the Closing
Date, the Parties shall agree upon an escrow agent, and they shall use their
best efforts to negotiate a mutually acceptable Escrow Agreement before the
Closing Date.
10.5 WIRE TRANSFER INSTRUCTIONS. At least two (2) Business Days prior
to the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be transferred.
ARTICLE XI.
CLOSING CONDITIONS
11.1 SELLER'S CLOSING CONDITIONS. Seller's obligation to consummate
the Transaction is subject to the satisfaction by Buyer or the waiver by Seller,
at or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer
contained in Section 4.2 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
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(c) Corporate Certificates and Opinion. Buyer shall have delivered to
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; (v) certified resolutions of the Board of Directors of EEX Corporation,
authorizing Buyer's parent to perform its obligations under the corporate
guarantee under Section 21.17; and (vi) an opinion of counsel for Buyer,
acceptable to Seller, dated the Closing Date, as to such matters as may
reasonably be requested by Seller and its counsel and are typical for
transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Seller in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(f) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
11.2 BUYER'S CLOSING CONDITIONS. Buyer's obligations to consummate the
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. Except as provided otherwise in Section 9.13, the
representations and warranties of Seller contained in Section 4.1 (other than
with respect to paragraphs (u), (w), (x), (y), (z) and (aa) of Section 4.1)
shall be true and correct in all material respects on the Closing Date as though
made on and as of that date; provided, however, that the accuracy of the
representations and warranties in subparagraphs (k)(i), (ix), (x), (xi), (xii)
and (xiii) of Section 4.1 shall, for purposes of satisfying this condition, not
be affected to the extent of inaccuracies resulting solely from Buyer
unreasonably withholding its prior written consent (after written request by
Seller duly provided to Buyer) to the action taken by (or omission of) Seller,
the Subsidiaries or the Partnership which caused such representations and
warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be
performed, in all material respects the obligations, covenants and agreements
hereunder to be performed by it, the Subsidiaries and the Partnership at or
prior to Closing.
(c) Corporate Certificates and Opinion. Each Seller shall have
delivered to Buyer, and Seller shall cause each Subsidiary and the Partnership
to deliver to Buyer: (i) a certificate of an executive officer, dated the
Closing Date, certifying on behalf of such Seller that the representations made
in Section 4.1, are true and correct as of the Closing Date; (ii) a certificate
of incumbency for each Seller and each of the Subsidiaries, (iii) a certificate
of corporate good standing for the Partnership as a Delaware limited
partnership, and for each Seller and each of the Subsidiaries as Delaware
corporations; (iv) with respect to each Seller only, certified resolutions of
the Boards of Directors of each Seller, authorizing each Seller to enter into
this Agreement and the Transaction and to perform its obligations at Closing;
and (v) an opinion of counsel for the Seller and each of the
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Subsidiaries and the Partnership, acceptable to Buyer, dated the Closing Date,
as to such matters as may reasonably be requested by Buyer and its counsel and
are typical for transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received
the certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a
third party or a governmental authority shall be pending which seeks material
damages from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or
decree of any governmental authority having competent jurisdiction over the
Transaction.
(g) Adjustments. The reduction (if any) to be made at Closing to the
Purchase Price which results from the application of Articles VI, VII, VIII and
XIII does not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
and mortgages listed on Schedule 1B and released all obligations of the
Subsidiaries and the Partnerships under the Seller's credit facility and
provided Buyer evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
expired or been terminated.
ARTICLE XII.
CLOSING
12.1 CLOSING. The closing of the Transaction (the "Closing") shall be
held on November 30, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 1301 McKinney, Suite 5100, Houston, Texas 77010,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to November 30, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver to
Buyer the following:
(a) Stock certificates representing all of the Common Stock for each of
the Subsidiaries, duly endorsed in blank or with separate stock powers duly
endorsed in blank;
(b) The stock books, stock ledgers, minute books, and corporate seal
for each of the Subsidiaries;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of each of the
Subsidiaries;
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(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in the Subsidiaries, the Partnership and the Operating Assets to Buyer in
accordance with the provisions hereof;
(f) The certificates of Seller referred to in Section 11.2(c) hereof;
(g) The opinion of counsel referred to in Section 11.2(c) hereof; and
(h) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver to
Seller the following:
(a) The Closing Settlement Price, paid in immediately available funds,
by wire transfer into the U.S. bank account designated by Seller;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof;
and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 GOVERNMENTAL FILINGS. At Closing, the Parties shall execute such
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
12.5 CLOSING ON PROPERTIES WITH UNCURED TITLE DEFECTS OR ENVIRONMENTAL
CONDITIONS. If the parties should mutually agree to allow an extended cure
period for Title Defects affecting one or more of the Properties, as set forth
in Sections 6.3(c)(i), then at Closing, Buyer and Seller shall execute such
instruments required to effectuate the procedures in such Section. The Parties
shall thereafter perform as set forth in Sections 6.3(c)(i) with respect to the
affected Operating Assets, and the Closing Settlement Price paid at Closing
shall be reduced as set forth in those Sections. For Operating Assets for which
assignments are later delivered, then the effect shall thereafter be the same as
if such Operating Assets were released at Closing. If the parties should
mutually agree to resolve Title Defects or Environmental Conditions using an
escrow agent under Sections 6.3(c)(ii) or 7.7(c), Buyer and Seller shall execute
an escrow agreement together with any other instruments required to effectuate
the procedures in such Section.
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
13.1 LIMITATIONS ON LIABILITY FOR PRICE ADJUSTMENTS .
(a) Title Price Adjustment The aggregate Title Price Adjustment for all
Title Defects shall be computed as the amount by which the aggregate sum of all
Property Value Reductions for all Title Defects less any applicable Property
Value Increases exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if the aggregate sum of all
Property Value Reductions less Property Value Increases for all Title Defects
does not exceed one million dollars ($1,000,000), then the Title Price
Adjustment shall be deemed to be zero ($0), no adjustments
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shall be made to the Settlement Price by reason of any such Property Value
Adjustment, and no amounts shall be deposited into escrow for any Title Defect.
If the aggregate sum of all Property Value Reductions for all Title Defects less
any applicable Property Value Increases does exceed one million dollars
($1,000,000), then the Title Price Adjustment shall be the aggregate amount of
(i) all Property Value Reduction amounts, (ii) less any applicable Property
Value Increases, (iii) less one million dollars ($1,000,000). If the sum of the
Property Value Increases is greater than the sum of the Property Value
Reductions, the Title Price Adjustment shall be deemed to be zero ($0).
(b) Environmental Price Adjustment. The aggregate Environmental Price
Adjustment for all Environmental Conditions shall be computed as the amount by
which the aggregate sum of all Environmental Condition Value Reductions for all
Environmental Conditions exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if the aggregate sum of all
Environmental Condition Value Reductions for all Environmental Conditions does
not exceed one million dollars ($1,000,000), then the Environmental Price
Adjustment shall be deemed to be zero ($0) and no adjustments shall be made to
the Settlement Price by reason of any such Environmental Condition Value
Reductions. If the aggregate sum of all Environmental Condition Value Reductions
for all Environmental Conditions does exceed one million dollars ($1,000,000),
then the Environmental Price Adjustment shall be the full amount of all
Environmental Condition Value Reduction amounts.
(c) Casualty Price Adjustment. The aggregate Casualty Price Adjustment
for all uninsured casualty losses under Article VIII shall be computed as the
amount by which the aggregate sum of all uninsured casualty losses exceeds the
amount of one million dollars ($1,000,000). Notwithstanding anything to the
contrary herein, if the aggregate sum of all uninsured casualty losses does not
exceed one million dollars ($1,000,000), then the Casualty Price Adjustment
shall be deemed to be zero ($0) and no adjustments shall be made to the
Settlement Price by reason of any uninsured casualty losses. If the aggregate
sum of all uninsured casualty losses does exceed one million dollars
($1,000,000), then the Casualty Price Adjustment shall be the full amount of all
uninsured casualty losses.
13.2 SETTLEMENT STATEMENTS.
(a) Pre-Closing. At least eight (8) Business Days prior to the Closing
Date, Seller shall furnish Buyer with a draft Settlement Statement showing the
Settlement Price calculated in reasonable detail with the estimated accounting
adjustments and/or prorations of any amounts described in and subject to
Articles III, VI, VII, VIII and XIII of this Agreement. Buyer shall advise
Seller of any proposed changes or objections to such draft Settlement Statement
no less than four (4) Business Days prior to Closing, and the Parties shall
thereafter diligently attempt to resolve any disputes relating to such estimates
before Closing. The Parties shall then cooperate in good faith to prepare the
Settlement Statement at least two (2) Business Days prior to the Closing Date,
as set forth in Section 10.2.
(b) Settlement Statement Disputes. If matters in the Settlement
Statement cannot be resolved by the Parties using their best reasonable efforts,
any portion of estimates which have not been resolved shall for purposes of
Closing employ an arithmetic mean of Seller's and Buyer's good faith estimates
of such unresolved amounts. The actual amount of such adjustments shall be
computed and shall be included in the calculation of the Final Settlement Price.
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(c) Final Statement. As soon as practicable after the Closing Date, but
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a response,
the Parties shall cooperate in good faith to produce not later than one hundred
eighty (180) days after the Closing Date as accurate a Settlement Statement as
possible based upon the information then available. After agreement upon a Final
Statement setting forth the Final Settlement Price, the difference between such
Final Settlement Price and the Closing Settlement Price paid at Closing shall be
paid within five (5) Business Days thereafter by the Party owing the same.
13.3 OPERATING TAXES.
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem,
real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
the Partnership's ownership and operation of the Operating Assets with respect
to the assessment period ("Property Tax Period") during which the Effective Time
occurs shall be apportioned between Seller and Buyer by multiplying the total
amount of such Property Taxes by a fraction, the numerator of which is the
number of days in the partial period through and including the Effective Time
and the denominator of which is the total number of days in the Property Tax
Period. The Partnership shall file or cause to be filed all required reports and
returns incident to the Property Taxes and shall pay or cause to be paid to the
taxing authorities all Property Taxes relating to the Property Tax Period during
which the Effective Time occurs. If Seller is the owner of the Partnership on
the Property Tax assessment date, then the Settlement Price shall be increased
by the amount of Buyer's portion of Property Taxes owed as set forth above. If
the Property Tax assessment date occurs after Closing, then the Settlement Price
shall be reduced by the estimated amount of Seller's portion of Property Taxes
owed as set forth above. The allocation and payment of ad valorem taxes shall be
handled through adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all
other federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon the Subsidiaries or the Partnership for periods or
portions of periods prior to the Effective Time shall be borne by Seller, and
all such Taxes imposed upon the Partnership for periods or portions of periods
beginning on or after the Effective Time shall be borne by Buyer. Such Taxes
shall be apportioned between Seller and Buyer for the period or portion thereof
up to and including the Effective Time, (i) in the case of a flat minimum dollar
amount of tax, by multiplying the total amount of such Taxes by a fraction, the
numerator of which is the number of days in the partial period through and
including the Effective Time and the denominator of which is the total number of
days in such tax period, and (ii) in the case of all other operating Taxes, on
the basis of actual activities creating such Tax liability of the Subsidiaries
and the Partnership for the partial period through and including the Effective
Time as are determined from their respective Books and Records. To the extent
any such amounts are borne prior to the delivery of the Final Statement by a
Party who is not required to bear them hereunder, they shall be included
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in the adjustments to the Settlement Price. The allocation and payment of these
Taxes shall be handled through adjustments to the Settlement Price.
13.4 SHARED OBLIGATIONS. If an invoice or other evidence of an
obligation is received which under the terms of this Article XIII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly pay such
obligation to the obligee, and Seller shall promptly reimburse Buyer for
Seller's portion so paid.
13.5 UNCOLLECTIBLE ACCOUNTS RECEIVABLE. Buyer (and, prior to the
Closing, Seller) shall cause the Subsidiaries and the Partnership to use
commercially reasonable efforts to collect in full, consistent with the past
practices of the Business, all accounts receivable of the Business (the
"Accounts Receivable"). If the Accounts Receivable outstanding at the Closing
shall not have been fully collected within 120 days following the Closing Date
in an amount equal to the outstanding unpaid amounts thereof at the Closing,
Buyer may require the Seller to purchase any Accounts Receivable that have not
been so fully collected at a purchase price equal to the original outstanding
amount of such Accounts Receivable at the Closing less net collections thereon
from the Closing Date to the repurchase date; provided, however, that the Seller
shall be required to repurchase such unpaid Accounts Receivable only to the
extent that the aggregate amount of such unpaid Accounts Receivable exceeds the
allowance for doubtful accounts deducted from accounts receivable set forth on
the Balance Sheets, and if such an excess exists, the Seller shall only be
required to pay an amount for such unpaid Accounts Receivable equal to such
excess; provided, further, during such 120-day period, that Buyer may not settle
or compromise any Accounts Receivable without the prior written consent of
Seller. As a condition to any such repurchase, Buyer shall reconvey to the
Seller the unpaid Accounts Receivable to be repurchased and shall provide Seller
with sufficient detail regarding such Accounts Receivable. Buyer shall not
transfer or convey such Accounts Receivable to any other Person. Payment for the
repurchase of any Accounts Receivable shall be made within ten (10) days
following the transfer thereof to Seller. Buyer shall provide to the Seller any
documents or information reasonably requested by the Seller in connection with
the Seller's collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.
POST-CLOSING PROCEDURES
14.1 DELIVERY OF FILES. Within ten (10) days after Closing, Buyer
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and the Subsidiaries' original land,
lease, revenue and cost accounting, geologic, geophysical, engineering and well
files, data and materials which relate to the Operating Assets. Applicable legal
and litigation files shall be delivered by Seller to Buyer at Seller's present
office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent
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Buyer from obtaining such data or expose either Party to a claim for material
damages if Buyer were to receive such data or materials. Notwithstanding the
above, Seller shall be permitted to retain original tax and financial accounting
records for the period prior to the Closing, copies of which will be delivered
to Buyer.
14.2 THIRD PARTY DATA. To the extent not obtained or satisfied as of
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and the
Subsidiaries (i) access to files, records and data relating to the Operating
Assets in the possession of third parties; (ii) access to wells constituting a
part of the Operating Assets operated by third parties for purposes of
inspecting same; and (iii) the waiver of confidentiality or other restrictions
on the review by and/or transfer of seismic, geophysical, engineering or other
data pertaining to the Operating Assets that might be triggered by Seller's
assignment to Buyer of the Partnership and the Subsidiaries.
14.3 COOPERATION. After the Closing, each Party shall provide the
other Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, the Subsidiaries or the Operating Assets.
Each Party shall cooperate with all reasonable requests of the other Party made
in connection with contesting the imposition of Taxes. Notwithstanding anything
to the contrary in this Agreement, neither Party shall be required at any time
to disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and the Subsidiaries.
Except where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 PREFERENTIAL RIGHTS TO PURCHASE AND CONSENTS TO ASSIGNMENT.
Before Closing and for up to one year after Closing, the Parties shall continue
to provide reasonable cooperation in obtaining all required Consents to
Assignment and in complying with all enforceable Preferential Rights to Purchase
that remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 FILING AND RECORDING OF DOCUMENTS. Buyer shall promptly file all
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of the Subsidiaries, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 FURTHER ASSURANCES. After Closing, each of the Parties will
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective properties, rights,
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titles, interests, estates, and privileges intended to be assigned, delivered or
to inure to the benefit of such Party in consummation of the Transaction.
14.7 INCIDENTAL COSTS. Each party shall bear its own respective
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.
SURVIVAL; INDEMNITIES
15.1 SURVIVAL. All representations, warranties or covenants made
herein, except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i),
4.1(k), 4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x),
4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only),
4.2(e), 4.2(i), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d),
9.12(b), 9.13, 9.14, 9.15, 9.16 and 9.17, and Articles XV, XVI and XVII, shall
survive for two years from the Closing Date. The covenants made in Section 9.13
shall survive until the Parties reach agreement on the Final Statement pursuant
to Section 13.2(c). The representations and warranties or covenants made in
Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v),
4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating
Assets only) and Section 9.1 shall not survive Closing and shall automatically
expire upon Closing. The representations, releases, covenants, indemnities,
defenses and hold harmless obligations and other obligations referenced in
Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 5.6, 7.1, 7.2, 7.3,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.14, 9.15, 9.16 (including portions of other
covenants set forth in such sections) and 9.17 (including portions of other
covenants set forth in such sections) and this Article XV, and all provisions of
Article XVI and Article XVII, shall each survive Closing, and each shall
continue to remain fully enforceable in accordance with its terms.
15.2 BUYER'S INDEMNITY. EXCEPT AS EXPRESSLY AND SPECIFICALLY INDICATED
OTHERWISE IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION SECTIONS 9.9(d) AND
15.3), AFTER THE CLOSING DATE, BUYER SHALL AND HEREBY DOES RELEASE, DEFEND,
INDEMNIFY, SAVE, AND HOLD HARMLESS SELLER AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS, AGAINST ANY
AND ALL DAMAGES WHICH ARISE OUT OF OR IN CONNECTION WITH THE OWNERSHIP OF,
OPERATION OF, PRODUCTION FROM OR ACCOUNTING BY, INCOME OF OR PAYMENTS BY THE
PARTNERSHIP, THE SUBSIDIARIES OR THE OPERATING ASSETS, AT ANY TIME EITHER BEFORE
OR AFTER THE EFFECTIVE TIME, OR WHICH ARISE OUT OF ANY ENVIRONMENTAL CONDITION
OR OTHER HAZARDOUS CONDITION RELATING TO OR AFFECTING ANY OPERATING ASSET AT ANY
TIME EITHER BEFORE OR AFTER THE EFFECTIVE TIME, INCLUDING WITHOUT LIMITATION,
ALL SUCH COSTS, CLAIMS OR LIABILITIES ARISING OUT OF SELLER'S NEGLIGENCE OR
STRICT LIABILITY.
15.3 SELLER'S INDEMNITY. SUBJECT TO THE TERMS AND CONDITIONS OF THIS
ARTICLE XV, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS
PARENT OR SUBSIDIARY COMPANIES, PARTNERS AND OTHER AFFILIATES (INCLUDING AFTER
CLOSING, THE SUBSIDIARIES AND THE PARTNERSHIP), AND THEIR RESPECTIVE OFFICERS,
DIRECTORS, AFFILIATES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AGENTS (HEREINAFTER
COLLECTIVELY REFERRED TO AS THE "BUYER GROUP"), FROM AND AGAINST ANY AND ALL
DAMAGES ASSERTED AGAINST, RESULTING TO, IMPOSED UPON, OR INCURRED BY THE BUYER
GROUP, DIRECTLY OR INDIRECTLY, BY REASON OF OR RESULTING FROM OR RELATING TO (i)
ANY BREACH BY SELLER (FOR WHICH SELLER SHALL BE RESPONSIBLE) OF ITS SURVIVING
REPRESENTATIONS, WARRANTIES, COVENANTS OR
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AGREEMENTS CONTAINED IN THIS AGREEMENT, (ii) ANY LIABILITIES OF THE SUBSIDIARIES
AND THE PARTNERSHIP WHICH ARE UNRELATED TO THE OPERATING ASSETS, (iii) ANY
LIABILITIES OF THE SUBSIDIARIES AND THE PARTNERSHIP FOR INCOME TAXES PRIOR TO
CLOSING, AND (iv) ANY EXISTING LIABILITIES OF THE SUBSIDIARIES AND THE
PARTNERSHIP OWED UNDER FEDERAL LEASES FOR PRIOR ROYALTIES RELATED TO THE PERIOD
OF TIME PRIOR TO CLOSING.
15.4 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnified party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable
hereunder, promptly after receipt by an Indemnified Party under Sections 15.2 or
15.3 of notice of the commencement of any action, such Indemnified Party shall,
if a claim in respect thereof is to be made against an Indemnifying Party under
such Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume) the
defense of such action, the Indemnified Party shall be entitled to assume the
defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If the
Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 EXCLUSIVITY. The parties hereto agree that, in relation to any
breach, default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
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(a) termination, but only if said termination is expressly permitted
under the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent
jurisdiction in its discretion grants the same.
15.6 ASSIGNMENT OF THIRD PERSON INDEMNITIES. To the extent the same are
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XVI.
TAX MATTERS
16.1 INDEMNIFICATION FOR TAXES.
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on the Subsidiaries and the Partnership, and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys' fees, and expenses arising therefrom, relating to
(A) taxable periods or portions thereof ending on or before the Closing Date,
(B) Income Taxes resulting from the ss.ss. 338(g) and 338(h)(10) elections (or
any comparable elections under foreign, state or local tax law) contemplated by
Section 16.2, (C) Income Taxes resulting from the application of Treas. Reg. ss.
1.1502-6 or any comparable state, local or foreign tax law attributable to
Tesoro Parent, or any corporation or entity which is or has been affiliated with
or been part of a combined, unitary or affiliated group with Tesoro Parent, and
(D) the portion of the Income Taxes for any Straddle Period (as defined in
subsection 16.1(e)) allocable to Sellers with respect to any of the Subsidiaries
or the Partnership under subsection 16.2(f) and (ii) all Other Taxes imposed on
the Subsidiaries and the Partnership relating to the taxable periods or portions
thereof ending on or before the Effective Date (allocated as described in
Section 13.3); provided, Sellers shall not be responsible for, and shall not be
required to indemnify Buyer against, any Taxes to the extent that such Taxes do
not exceed the accrued liability for Taxes on the Balance Sheets which are taken
into account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against
all (i) Income Taxes imposed upon the Subsidiaries and the Partnership and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive, or
other), reasonable attorneys' fees and expenses arising therefrom, relating to
(A) taxable periods beginning after the Closing Date or (B) the portion of the
Income Taxes for any Straddle Period which are allocable to Buyer under
subsection 16.2(f), and (ii) except as provided in Section 13.3 and in this
Article XVI, all Other Taxes imposed upon the Subsidiaries and the Partnership
and all Liabilities, losses, costs, fines, penalties, damages (actual, punitive
or
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other), reasonable attorneys fees and expenses arising therefrom arising in or
relating to taxable periods or portions thereof beginning after the Effective
Date (allocated as described in Section 13.3).
(c) Each Party shall promptly notify the other Party of the
commencement of any demand, claim, audit, examination, Action or other proposed
change or adjustment by any Taxing Authority concerning any Tax which could give
rise to a claim for indemnity pursuant to subsection 16.1(a) or subsection
16.1(b), as the case may be (each a "Tax Claim"). Such notice shall contain
factual information describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
Authority in respect of any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent
the Subsidiaries' and the Partnership's interests in any Tax Claim for Taxes for
which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense, but
in the case of Income Taxes, only in the event that any Tax Claim for Income
Taxes impacts a subsidiary for which no Section 338(h)(10) election was filed.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of the Subsidiaries or the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of the Subsidiaries and the Partnership
and Buyer shall be entitled to defend, compromise or settle such Tax Claims in
its sole discretion without in any way reducing its rights to indemnification
under subsection 16.1(a), unless any such settlement would give rise to a tax
claim against Seller, and in such event such settlement shall be subject to
Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of the Subsidiaries or the
Partnership beginning before and ending after the Closing Date (a "Straddle
Period"), Buyer shall control, and Seller, at its own expense, shall have the
right to participate in, the defense and settlement of any Tax Claim and each
Party shall cooperate with the other Party and there shall be no settlement or
closing or other agreement with respect thereto without the consent of the other
Party, which consent shall not be unreasonably withheld; provided, that if
either Party shall refuse (the "Refusing Party") to consent to any settlement,
closing or other agreement agreed to by the relevant Taxing Authority with
respect to any such Tax Claim that the other party (the "Accepting Party")
proposed to accept (a "Proposed Settlement"), then (i) the Accepting Party's
Liability with respect to the subject matter of the Proposed Settlement shall be
limited to the amount that such Liability would have been if the Proposed
Settlement had been accepted, and (ii) the Refusing Party shall be responsible
for all Liabilities and expenses incurred or imposed thereafter in connection
with the contest of such Tax Claim to the extent that the final settlement is
more than the Proposed Settlement.
16.2 OTHER TAX MATTERS.
(a) All Tax sharing agreements between the Subsidiaries and any other
Person, including without limitation, the Affiliates of Seller, are hereby
terminated as of the Closing Date and all rights and obligations of the
Subsidiaries with respect to Taxes shall be as provided herein.
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(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to the Subsidiaries or the Partnership on a consolidated,
unitary or other combined basis with the Tesoro Group, or the appropriate parent
for a taxable period which ends on or before the Closing Date (a "Pre-Closing
Period") shall be prepared and filed by (or shall be the responsibility of)
Seller, which shall include the preparation and filing of the consolidated
federal and state income Tax Returns of the Tesoro Group which includes the
Subsidiaries and the Partnership for the period up to and including the Closing
Date. In the case of those jurisdictions which require a short-period Tax Return
ending on or before the Closing Date, Seller shall prepare and file all
appropriate returns required to be filed with respect to Income Taxes
attributable to the operations and the Operating Assets for the pre-Closing
periods. All such Pre-Closing Returns shall be filed on a basis consistent with
prior Tax Returns filed with respect to the Subsidiaries and the Partnership.
Seller or the appropriate parent of the Subsidiaries or the Partnership shall
timely pay or cause to be paid all Taxes shown on such Pre-Closing Returns. All
Tax Returns which (i) are required to be filed by the Subsidiaries or the
Partnership on a separate basis (including the preparation of supporting
schedules, Tax Returns and other Tax information with respect to the
Subsidiaries and the Partnership necessary for completion of the Pre-Closing
Returns) after the Closing Date for a Pre-Closing Period (a "Post-Closing
Return"), and (ii) are required to be filed by or with respect to the
Subsidiaries or the Partnership for a taxable period that ends after the Closing
Date, including any Tax Return (a "Straddle Return") for a Straddle Period,
shall be prepared and filed by Buyer; subject to the rights to indemnification
and other rights under 16.1(a) and subsection 16.2(f), Buyer shall timely pay or
cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller
with such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) Seller shall use its reasonable efforts to cause any partnership or
Tax partnership in which the Subsidiaries or the Partnership are a partner to
make an election under Section 754 of the Code to adjust the basis of the assets
of such partnerships. Seller must amend all internal partnership agreements
accordingly prior to the Closing Date.
(f) With respect to any Straddle Period, to the extent permitted by
applicable law, the Subsidiaries shall elect to treat the Closing Date as the
last day of the taxable period. If applicable law, regulation or Governmental
Order will not permit the Closing Date to be the last day of a period, the
Income Tax attributable to the operations of the Subsidiaries and the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a fraction, the numerator of which is the number of
days in the partial period through and including the Effective Time and the
denominator of which is the total number of days in such Straddle Period, and
(ii) in the case of all Income Taxes, the Tax computed on the basis of the
taxable income or loss of the Subsidiaries or the Partnership for the partial
period through and including the Closing Date as determined from their Books and
Records. All Other Taxes arising with or related to a Straddle Period will be
allocated as provided in Section 13.3.
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(g) With respect to any Post-Closing Return or Straddle Return, Buyer
shall deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(f), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of the Subsidiaries on or before the Closing Date.
(h) Seller shall have the right to all refunds of Taxes (including
interest thereon), which relate to Taxes of the Subsidiaries for Pre-Closing
Periods and Straddle Periods, to the extent provided in the following sentences.
Buyer shall pay over to Seller any such refunds within ten (10) days of receipt
thereof, net of any Taxes imposed on Buyer or the Subsidiaries by reason of the
receipt of such refund. To the extent any refund of Taxes is made with respect
to a Pre-Closing Period or a Straddle Period, such refund shall be apportioned
between Buyer and Seller, based on the appropriate allocation method set forth
in Section 16.2(f).
(i) Buyer and Seller agree to consult and resolve in good faith any
issues arising in connection with the preparation or review of any Tax Return or
the calculation of any Tax described in this Section 16.2.
(j) Both Seller and Buyer will join in making a timely and effective
election under Section 338(h)(10) of the Code (and any comparable provision of
foreign, state or local law) with respect to the purchase by Buyer of the stock
of Exploration and Reserves hereunder (collectively, together with the elections
under Section 338(g) of the Code and any comparable provision of foreign, state
or local law, the "Section 338(h)(10) Elections"). At the Closing, Seller and
Buyer shall execute IRS Form 8023, completed to the extent reasonably
practicable for those Subsidiaries. Seller and Buyer agree to take all other
action and file all other necessary reports to elect validly pursuant to Section
338(h)(10) of the Code to treat the Transaction as a sale of assets as opposed
to a sale of the stock of Exploration and Reserves. Within 120 days after the
Closing Date, Buyer shall deliver to Seller any additional information or
required schedules thereto and any similar forms under applicable state or local
law (the "Forms") with respect to Taxes relating to Buyer's purchase of the
stock of
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Exploration and Reserves and their interests in the Partnership. Provided that
the information on such Forms is, in the reasonable determination of Seller,
correct and complete in all material respects, Seller will consent to the filing
of such Forms. Seller and Buyer shall cooperate fully with each other and make
available to each other such Tax data and other information as may be reasonably
required by Seller or Buyer in order to prepare and timely file the Forms and
any other required statements or schedules. With respect to the Sections
338(h)(10) Elections, the Modified Aggregate Deemed Sales Price as defined in
Treas. Reg. Section 1.338(h)(10)-1 shall be allocated among the stock of
Exploration and Reserves pursuant to Treas. Reg. Section 1.338(h)(10)-1. The
Buyer and the Seller shall use their good faith best efforts to agree upon such
allocation. The Seller shall provide to the Buyer a schedule and supporting
material reflecting such allocation for the Buyer's review and consent, which
consent shall not be unreasonably withheld. The parties shall take no action
inconsistent with, or fail to take any action necessary for the validity of, the
Section 338(h)(10) Elections, and shall adopt and utilize the asset values
determined from such allocation for the purpose of all tax returns filed by
them, and shall not voluntarily take any action inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation or
otherwise with respect to such tax returns. In the event that Buyer and Seller
are unable to resolve any disagreements regarding the allocation of the
"modified aggregate deemed sales price" (as defined under applicable Treasury
Regulations) among the assets or other aspects of the Forms, Buyer (i) shall be
entitled to file the Forms, but only if either the information not agreed upon
is deleted or the Forms reflect that the information has not been agreed upon;
or (ii) if acceptable to Buyer and Seller within 30 days after notice of such
disagreement, the matter in dispute shall be resolved as soon as practicable by
a "Big Five" independent accounting firm or, if the disagreement involves
valuation, to a nationally recognized appraisal firm mutually satisfactory to
the parties (but in no event longer than 30 days), which resolution shall be
binding and conclusive upon Buyer and Seller without further appeal therefrom.
Buyer and Seller shall bear equally the fees and expenses of such firm. Buyer
will timely file the Forms, and any required supplements thereto, in the manner
prescribed by Treasury Regulation 1.338(h)(10)-1(d) or the corresponding
provisions of applicable foreign, state or local law, and will provide written
evidence to Seller that it has done so. Buyer and Seller agree that neither of
them will take, or permit any of their Affiliates to take, any action to modify
or revoke the elections contained in or the content of any Forms without the
express written consent of the other.
(k) At the Closing, Seller, the Subsidiaries and the Partnership each
shall deliver to Buyer certificates signed under penalties of perjury (i)
stating that it is not a foreign corporation, foreign partnership, foreign trust
or foreign estate, (ii) providing its U.S. Employer Identification Number and
(iii) providing its address, all pursuant to Section 1445 of the Code.
16.3 EXCLUSIVE REMEDY FOR TAXES. This Article XVI provides the sole
and exclusive remedy for any claim against Seller for indemnification, damages
or breach of any representation or warranty with respect to or relating to
Taxes.
ARTICLE XVII.
DEFAULT AND REMEDIES
17.1 LIABILITIES UPON TERMINATION. If Closing does not occur due to
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
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Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 RECOVERY OF COSTS. The prevailing Party in any litigation or
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 WAIVER OF EXTRAORDINARY DAMAGES. TO THE FULL EXTENT ALLOWED BY
LAW, AND EXCEPT AS MAY BE INCLUDED IN THIRD PARTY DAMAGES SUBJECT TO ANY
INDEMNITY OBLIGATION HEREUNDER, THE PARTIES HEREBY WAIVE AND RELEASE ANY RIGHTS
OR CLAIMS TO PUNITIVE OR EXEMPLARY DAMAGES RESULTING FROM A BREACH OF THIS
AGREEMENT. THE PARTIES HEREBY WAIVE THE APPLICATION OF THE TEXAS DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT TO THE TRANSACTION.
17.4 WAIVER OF JURY TRIAL. SELLER AND BUYER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTION.
17.5 INDEPENDENT OBLIGATIONS. The express release, indemnity, defense
and hold harmless obligations contained herein shall exist separate and
independent from the representations and warranties in this Agreement, and the
limitations of representations and warranties shall not be construed to limit
the scope of the express releases, indemnities, and defense and hold harmless
obligations.
17.6 CHANGES OF LAW. Sellers do not make any representations and
warranties and do not assume any responsibilities or liabilities for any Damages
to Buyer arising out of or related to changes in the law or new interpretations
of existing law that may occur after Closing.
17.7 MERGER. No representations, warranties, indemnities, covenants or
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.
NOTICES
18.1 NOTICES. All notices authorized or required by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, courier service,
telegram, or telephone facsimile, postage or charges prepaid, and addressed to
the Parties at the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
8700 Tesoro Drive
San Antonio, Texas 75217
Attention: James C. Reed, Jr.
Fax Number: (210) 283-2400
Phone Number: (210) 828-8484
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With a copy to: Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Michael W. Conlon
Fax Number: (713) 651-5246
Phone Number: (713) 651-5151
If to Buyer: EEX Operating L.L.C.
2500 City West Boulevard, Suite 1400
Houston, Texas 77042
Attention: Janice K. Hartrick
Fax Number: (713) 243-3359
Phone Number: (713) 243-3371
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place--South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: Robert B. (Skip) Allen
Fax Number: (713) 220-5816
Phone Number: (713) 220-5800
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES
19.1 NON DISCLOSURE OF DATA. To the extent Buyer does not acquire all
of the Common Stock for any reason, Buyer shall not directly or indirectly
disclose or use any materials, data or other information provided by or obtained
from Seller, the Subsidiaries or the Partnership, and Buyer and its
representatives shall continue to be bound by the terms of the existing
Confidentiality Agreement dated June 17, 1999, between the Parties.
19.2 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
making any public announcement or statement with respect to the Transaction, the
Party desiring to make such public announcement or statement shall consult with
the other Party and exercise reasonable efforts to obtain the consent of the
other Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
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ARTICLE XX.
TERMINATION
20.1 TERMINATION. Notwithstanding anything herein to the contrary, this
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen
percent (15%) of the Purchase Price; or by Buyer, if the sum of the Settlement
Price Adjustment and any reductions to the purchase price as a result of the
exercise by third parties of Preferential Rights to Purchase described in
Section 6.5(a) exceeds fifteen percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Environmental Price Adjustment,
Casualty Price Adjustment or Title Price Adjustment individually exceeds ten
percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December
31, 1999 (which date shall be extended until five Business Days after the
resolution of any disputed matters submitted to arbitration under Section 21.16
to the extent still pending on December 31, 1999); provided, however, that the
Party seeking to terminate this Agreement pursuant to Section 20.1(d) shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Transaction prior to December 31, 1999.
ARTICLE XXI.
MISCELLANEOUS
21.1 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the Parties (superseding all prior agreements, negotiations,
representations, discussions, arrangements and understandings related to the
subject matter hereof), and may be supplemented, altered, amended, modified or
revoked only by a written instrument signed by each of the Parties; provided,
however, the Confidentiality Agreement dated June 17, 1999, between the Parties
shall remain effective until Closing. If the sale of the Operating Assets to
Buyer is not consummated, then the Confidentiality Agreement shall remain
effective as stated therein.
21.2 NO VERBAL MODIFICATIONS OR WAIVERS. Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be supplemented,
amended, modified, released or waived only by a written instrument executed by
the Parties. Except as otherwise expressly provided in this Agreement, the
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect such Party's right to enforce the
same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 SEVERABILITY. If any term or provision of this Agreement is held
to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining terms and provisions of this
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Agreement shall not be affected thereby, and in lieu of each such illegal,
invalid or unenforceable term or provision, there shall be added automatically
to this Agreement a legal, valid and enforceable term or provision as similar as
possible to the term or provision declared illegal, invalid or unenforceable.
21.4 INTERPRETATION. Words of any gender used in this Agreement shall
be held and construed to include any other gender, and words in the singular
shall be held to include the plural, unless the context otherwise requires. None
of the terms or conditions of this Agreement, including any Exhibits or
Schedules hereto, shall be construed for or against any Party hereto on the
basis that such Party did or did not author the same. All terms of this
Agreement and the Exhibits shall be harmonized, but in the event of any conflict
between the definition of a term in Article I and a more complete description or
limitation of such term in a subsequent Article, the subsequent Article shall
prevail. The Article and Section headings are for convenience only and shall
have no significance in the interpretation hereof.
21.5 COUNSEL. EACH PARTY EXPRESSLY ACKNOWLEDGES THAT IT WAS REPRESENTED
BY COUNSEL OF ITS OWN SELECTION IN NEGOTIATION AND PREPARATION OF THE TERMS OF
THE AGREEMENT AND THE ATTACHED EXHIBITS AND THAT IT IS SOPHISTICATED AND
EXPERIENCED IN TRANSACTIONS OF THIS TYPE AND IS AWARE OF ALL TERMS AND
CONDITIONS CONTAINED HEREIN. EACH PARTY SHALL BE RESPONSIBLE FOR THE COSTS AND
EXPENSES OF ITS OWN COUNSEL.
21.6 GOVERNING LAW. This Agreement and other documents delivered
pursuant to this Agreement and the legal relations between the Parties shall be
governed and construed and enforced in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of laws.
21.7 CONSENTS. Except as expressly provided otherwise herein, any
consent required of a Party with respect to any matters covered by this
Agreement shall not be unreasonably withheld or action with respect thereto
unduly delayed.
21.8 TIME OF ESSENCE. Time is of the essence in all matters provided
for in this Agreement.
21.9 BINDING EFFECT, ASSIGNMENT. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the Parties and, except
as otherwise prohibited, their respective successors; however, this Agreement
and the rights and obligations hereunder shall not be assignable or delegable by
any Party without the express written consent of the non-assigning or
non-delegating Parties, which consent may be withheld for any or no reason. Any
assignment or delegation without such consent will be void.
21.10 NO RELATIONSHIP. Nothing contained in this Agreement shall be
deemed to create a joint venture, partnership, agency or other fiduciary
relationship between the Parties, nor is this Agreement intended to create, nor
shall it be construed to create, any rights in any third party, to create any
third party beneficiaries or to ratify, adopt or confirm any other lease,
agreement or other instrument, whether or not affecting the Subsidiaries, the
Partnership or the Operating Assets. Notwithstanding the above, the Parties
acknowledge that the Transaction shall be subject to the rights of all third
parties holding Preferential Rights to Purchase and Consents to Assignment
concerning the Operating Assets, to the extent that they are valid, in effect
and enforceable by reason of the Transaction, and that such third party rights
shall be handled as set forth herein.
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21.11 NO RECORDATION. Without limiting any Party's right to file suit
to enforce its rights under this Agreement, Buyer and Seller expressly covenant
and agree not to record or place of record this Agreement or any copy or
memorandum hereof, unless required under the Securities Exchange Act of 1934.
21.12 EXHIBITS AND SCHEDULES. All Exhibits and Schedules which are
referred to herein are hereby made a part hereof and incorporated herein by
reference.
21.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 NO THIRD PARTY BENEFICIARIES. Any agreement contained, expressed
or implied in this Agreement shall be only for the benefit of the Parties hereto
and the Indemnified Parties specified in Article XV and their respective legal
representatives, successors and assigns. Such agreements shall not inure to the
benefit of any employees of the Subsidiaries or the Partnership (except in their
capacity as Indemnified Parties) or the obligees of any indebtedness of any
Party hereto, it being the intention of the Parties hereto that no Person shall
be deemed a third party beneficiary of this Agreement, except to the extent a
third Person is expressly given rights herein.
21.15 JOINT AND SEVERAL LIABILITY. Tesoro Petroleum Corporation and
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
21.16 DISPUTE RESOLUTION. If despite their good faith efforts to do
so, the Parties are unable to reach agreement (or the matter is not otherwise
resolved pursuant to Section 6.3 or 7.7, as applicable) regarding (i) the
existence of a Title Defect or Environmental Condition, (ii) the value of a
Title Defect or Environmental Condition (and the corresponding Property Value
Reduction or Environmental Condition Value Reduction) or the value of a Property
Value Increase, or (iii) the cure, partial cure or failure to cure of a Title
Defect or Environmental Condition, either Party may elect to refer the matter to
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association (the "AAA") (expedited procedures). The AAA shall be
instructed to choose a neutral arbitrator (the "Arbitrator") who shall have a
minimum of 15 years experience in the oil and gas industry, such that he or she
is considered an expert on the oil and gas matters in dispute. Notice of a
Party's election to submit the matter for arbitration shall be given promptly to
the other Party pursuant to Article XVIII. Upon receipt by a Party of notice
that an Arbitrator has been appointed, such Party shall have ten (10) days to
provide the Arbitrator (and the other Party) with a statement of its position
(with supporting documentation) regarding the matter or matters in dispute,
together with its best and final offer for settlement of the dispute. The
failure to provide a statement of position within this period shall constitute a
waiver of a party's right to have such materials considered by the Arbitrator.
The Arbitrator shall consider the statements of position submitted by the
parties and shall, within ten (10) business days after receipt of such
materials, issue his or her decision adopting the best and final statement offer
for settlement of the dispute provided either by Buyer or Seller. All
determinations made by the Arbitrator shall be final, conclusive and binding on
the Parties. Each Party will pay one-half of the fees of the Arbitrator and all
other arbitration fees and expenses and the fees of their respective arbitrators
(if required).
21.17 EEX CORPORATION GUARANTEE. EEX Corporation, Buyer's parent, (a)
agrees to be jointly and severally liable with the Buyer for all of Buyer's
payment obligations under this Agreement
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and (b) irrevocably and unconditionally guarantees the performance by Buyer of
its indemnity obligations under Article XV.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SELLER
TESORO PETROLEUM CORPORATION TESORO GAS RESOURCES COMPANY, INC.
By: /s/ BRUCE A. SMITH By: /s/ JEFFREY B. FABIAN
------------------------------------- -------------------------
Name: Bruce A. Smith Name: Jeffrey B. Fabian
------------------------------------- -------------------------
Title: Chairman of the Board of Directors, Title: President
President and Chief Executive Officer -------------------------
-------------------------------------
BUYER
EEX OPERATING LLC
By: EEX CORPORATION
By: /s/ T. M. HAMILTON
------------------------------------
Name: T. M. Hamilton
------------------------------------
Title: Chairman and President,
Chief Executive Officer
------------------------------------
EEX CORPORATION
FOR PURPOSES OF SECTION 21.17
By: /s/ T. M. HAMILTON
------------------------------------
Name: T. M. Hamilton
------------------------------------
Title: Chairman and President,
Chief Executive Officer
------------------------------------
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The Schedules and Exhibits listed in the Table of Contents to the Stock Purchase
Agreement have been omitted. The Registrant will furnish a copy of any omitted
schedules or exhibits to the Securities and Exchange Commission upon request.