EXHIBIT 10
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and entered
into by and between Sawtooth, Inc., a Texas corporation ("Seller"), and Epic
Exploration & Production, LLC, a Delaware limited liability company ("Buyer").
1. SALE AND PURCHASE OF THE PROPERTIES. Subject to the terms and conditions
herein set forth, Seller agrees to sell, assign, convey and deliver to Buyer and
Buyer agrees to purchase and acquire from Seller at the Closing (defined in
Article 12., below) but effective as of 7:00 a.m., Central Time, on July 1, 2007
(the "Effective Date"), all of Seller's right, title and interest in the oil and
gas lease leases (the "Leases") and wells located thereon (the "Wells") which
are described in Exhibit "A" attached hereto, together with all other interests,
if any, owned by Seller, in, to and under the Leases and Wells, including rights
of way and easements associated with the operation of the Wells, and all
contracts relating thereto; and, also, all of Seller's right, title and interest
in the equipment located on or appurtenant to the Leases and used exclusively in
connection with the operation of a Well (collectively the "Properties"). It is
expressly understood that the Properties shall include all oil and gas leases
affecting lands and minerals owned by Seller in whole or in part related to the
Wells, all producing and non-producing wells located thereon (including all oil
and gas wells and disposal wells) together with all surface and down hole
equipment therein and well files for each of the Wells.
2. PURCHASE PRICE.
2.1 Concurrent with the execution of this Agreement, Buyer shall pay to
Seller the sum of Five Hundred Thousand U.S. Dollars ($500,000.00) as a
nonrefundable deposit (the "Deposit) to be applied to the Workover Operations
and the Purchase Price as set forth in this Agreement. However, notwithstanding
any terms contained in this Agreement to the contrary, if for any reason the
Closing does not occur, Seller shall retain the Deposit, less the costs
associated with the Workover Operations, as liquidated damages and not as a
penalty.
2.2 If production from the Properties equals or exceeds the "Minimum
Production Threshold" as defined in Section 2.4 below, the purchase price for
the Properties shall be One Million, Three Hundred and Fifty Thousand U.S.
Dollars ($1,350,000.00) (the "Purchase Price" if Section 2.2 is applicable),
subject to any applicable adjustments as are hereinafter provided, including the
Kitty Nash Groce lease title issue as provided in Section 10. hereinbelow. If
production from the Properties equals or exceeds the "Minimum Production
Threshold" as defined in Section 2.3 below, at Closing, Buyer shall be credited
with the Deposit less the "AFE Workover Costs", as defined in Section 6.6 below,
and wire transfer into a designated depository of Seller an additional Five
Hundred Thousand U.S. Dollars ($500,000.00) The remaining Purchase Price of
Three Hundred and Fifty Thousand Dollars ($350,000.00) shall be paid to Seller
in the form of a promissory note (the "Note"). Such Note shall be paid to Seller
according to the terms of the Note attached hereto as Exhibit "B" attached
hereto. The Note shall be secured by the Deed of Trust (the "Deed of Trust")
covering the Properties which shall be in substantially the form as attached
hereto as Exhibit "C".
2.3 If production from the Properties is less than the "Minimum Production
Threshold" as defined in Section 2.4 below, Buyer shall select in writing at
least two (2) days prior to the Closing Date which of the Properties it wishes
to purchase based on the "Allocated Value", as defined in Section 2.6 below, for
each of such Properties being purchased, subject to any applicable adjustments
as are hereinafter provided. For example, if the Minimum Production Threshold is
not achieved and Buyer elects to purchase the Gordon Broun, the Bassett Blakely
and the West and Scheneck Properties only, the Purchase Price shall be
$1,050,000.00 and at the Closing Buyer shall be credited with the Deposit less
the AFE Workover Costs, as defined in Section 6.6 below, and wire transfer into
a designated depository of Seller an additional Five Hundred Thousand U.S.
Dollars ($500,000.00) The remaining Purchase Price of Fifty Thousand Dollars
($50,000.00) shall be paid to Seller in the form of the Note secured by the Deed
of Trust. However, if the Purchase Price is equal to or less than $1,000,000,
Buyer shall pay Seller in immediately available funds all of the Purchase Price
at the Closing and no part of the Purchase Price shall be paid by a Note.
Notwithstanding any terms in this Agreement to the contrary, if less than all of
the Properties are purchased by Buyer in accordance with this Agreement, the
term "Properties" shall mean only those Leases, Wells, and appurtenances being
purchased by Buyer
2.4 "Minimum Production Threshold" shall mean an average of 27 barrels of
oil per day (being a 24 hour period commencing at 12:01 a.m.) from all of the
Wells over any three (3) day period within a term of fourteen (14) days
commencing on the date Seller notifies Buyer in writing that all Workover
Operations have been completed and all Wells subject to Workover Operations have
been placed on production and all fluids have been pumped off which shall in no
event shall be longer than three (3) days after the date the last of the
reworked Wells has been placed on production.
2.5 Buyer and Seller mutually agree that for purposes of this Agreement
the allocated values of the Leases and Wells (the "Allocated Values") is as set
forth on Exhibit "E" attached hereto.
3. ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be adjusted as
follows and the resulting amount shall be referred to herein as the "Final
Purchase Price":
3.1 Increases in Purchase Price. The Purchase Price shall be increased by
an amount equal to the sum of the following amounts:
3.1.1 The amount of all prepaid expenses, including, without limitation,
ad valorem, property and similar taxes and assessments based upon or measured by
ownership of the Properties and attributable to periods of time after the
Effective Date.
3.1.2 The amount of the normal and customary lease operating expenses
attributable to the Sellers working interest in the Properties attributable to
periods of time after the Effective Date.
3.1.3 The value of all merchantable, clean oil and other products in tanks
above the pipeline sales connection as measured on the Effective Date that is
credited to the Properties, such value to be the market or, if applicable, the
contract price in effect as of the Effective Date, less any applicable severance
taxes and royalties.
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3.1.4 If applicable, the adjustment between the actual costs to conduct
the Workover Operations and the AFE Workover Costs in accordance with Section
6.6 hereinbelow.
3.1.5 Any other amounts mutually agreed to by Seller and Buyer.
3.2 Decreases in Purchase Price. The Purchase Price shall be decreased by
an amount equal to the sum of the following amounts:
3.2.1 The amount of all proceeds received by Seller, net of all applicable
taxes and royalties attributable to production from the Properties for periods
of time after the Effective Date.
3.2.2 An amount equal to all ad valorem, property, and similar taxes and
assessments based upon or measured by Seller's ownership of the Properties that
are unpaid as of the Closing Date and attributable to periods of time prior to
the Effective Date, which amounts shall be computed based upon such taxes and
assessments for the calendar year 2006; provided that if such taxes or
assessments are assessed on other than a calendar year basis, for the tax
related year last ended.
3.2.3 An amount equal to any lien, mortgage, pledge, claim, judgment or
other charge, which is reduced from the Purchase Price pursuant to Section
10.2.2 hereof.
3.2.4 Any other amounts mutually agreed to by Seller and Buyer.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to
Buyer that:
4.1 Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and is qualified to do
business in and in good standing under the laws of the state where the
Properties are located.
4.2 Authority. Seller has full power and authority and has taken all
requisite action, corporate or otherwise, to authorize it to carry on its
business as currently conducted, to enter into this Agreement and to perform its
obligations under this Agreement.
4.3 Enforceability. This Agreement has been duly executed and delivered on
behalf of Seller and constitutes the legal, valid and binding obligation of
Seller enforceable in accordance with its terms. At the Closing, all documents
required hereunder to be executed and delivered by Seller shall be duly
authorized, executed and delivered and shall constitute legal, valid and binding
obligations of Seller enforceable in accordance with their respective terms.
4.4 Contracts. Seller represents that, to its Knowledge, as defined below,
material terms of all leases, operating agreements, production sales contracts,
farmout agreements and other contracts or agreements respecting the Properties
can be found either of record in Ft. Bend County, and Brazoria County, Texas or,
are reflected or referenced in Seller's files in their office.
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4.5 Preferential Purchase Rights/Consents. Seller represents that to its
Knowledge there are no consents and approvals required to be obtained for (other
than routine consents which are normally obtained after the Closing), and all
preferential purchase rights exercisable in connection with, the assignment of
the Properties to Buyer.
4.6 Litigation and Claims. Seller represents there are no claim, demand,
filing, cause of action, administrative proceeding, lawsuit or other litigation
pending or, to its Knowledge, threatened that could now or hereafter materially
and adversely affect Buyer's ownership, operation or value of any of the
Properties.
4.7 No Additional Fees. Seller has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller that:
5.1 Organization. Buyer is a Delaware limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Colorado and is qualified to do business in and in good standing under the laws
of the state where the Properties are located.
5.2 Authority. Buyer has full power and authority and has taken all
requisite action, corporate or otherwise, to authorize it to carry on its
business as currently conducted, to enter into this Agreement, to purchase the
Properties on the terms described in this Agreement and to perform its other
obligations under this Agreement.
5.3 Enforceability. This Agreement has been duly executed and delivered on
behalf of Buyer, and constitutes the legal, valid and binding obligation of
Buyer enforceable in accordance with its terms. At the Closing, all documents
required hereunder to be executed and delivered by Buyer shall be duly
authorized, executed and delivered and shall constitute legal, valid and binding
obligations of Buyer enforceable in accordance with their respective terms.
5.4 Basis of Buyer's Decision. Prior to executing this Agreement, Buyer
has been afforded an opportunity to (i) examine the Properties and such
materials as it has requested to be provided to it by Seller, (ii) discuss with
representatives of Seller such materials and the nature and operation of the
Properties, and (iii) investigate the condition, including subsurface condition,
of the Lands and Leases and the condition of the equipment in connection with
the Wells. In entering into this Agreement, Buyer has relied solely on the
express representations and covenants of Seller in this Agreement, its
independent investigation of, and judgment with respect to, the Properties and
the advice of its own legal, tax, economic, environmental, engineering,
geological and geophysical advisors and not on any comments or statements of any
representatives of, or consultants or advisors engaged by, Seller or its
representatives.
5.5 Buyer's Regulatory Qualification. Prior to the Closing, Buyer intends
to satisfy all bonding requirements of all state and federal governmental
authorities so that Buyer is qualified to own and operate the Properties. The
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consummation of the transactions contemplated hereby will not cause Buyer to be
disqualified as an owner of state or federal oil, gas and mineral leases, or to
exceed any acreage limitation imposed by any law, statute, rule or regulation.
5.6 Qualified Buyer. Buyer is an experienced and knowledgeable investor
and operator in the oil and gas business. Buyer is acquiring the Properties for
its own account and not with a view to, or for offer of resale in connection
with, a distribution thereof, within the meaning of the Securities Act of 1933,
15 U.S.C. ss.77a et seq., and any other rules, regulations and laws pertaining
to the distribution of securities.
5.7 Available Funds. Buyer has arranged to have available by the Closing
Date sufficient funds to enable the payment to Seller by wire transfer the
Preliminary Amount in accordance with Section 12 hereof and to otherwise perform
Buyer's obligations under this Agreement.
5.8 No Additional Fees. Buyer has incurred no liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Seller shall have any responsibility
whatsoever.
6. COVENANTS OF SELLER.
6.1 Conduct of Business Pending Closing. Seller covenants that from the
date hereof to the Closing Date, except (a) as provided herein, (b) as required
by any obligation, agreement, lease, contract, or instrument referred to in any
exhibit hereto, or (c) as otherwise consented to in writing by Buyer, Seller
will:
6.1.1 Not (a) act in any manner with respect to the Properties other than
in the normal, usual and customary manner, consistent with prior practice; (b)
dispose of, encumber or relinquish any of the Properties (other than
relinquishments resulting from the expiration of leases that Seller has no right
or option to renew); c) waive, compromise or settle any material right or claim
with respect to any of the Properties; or (d) conduct capital or workover
projects with respect to the Seller's net interest in the Properties in excess
of $25,000.00 per month except when required by an emergency when there shall
have been insufficient time to obtain advance consent from Buyer.
6.1.2 Maintain relationships with all third parties having business
dealings with respect to the Properties.
6.1.3 Cooperate with Buyer in the notification of all applicable
governmental regulatory authorities of the transactions contemplated hereby and
cooperate with Buyer in obtaining the issuance by each such authority of such
permits, licenses and authorizations as may be necessary for Buyer to own and
operate the Properties following the consummation of the transactions
contemplated by this Agreement.
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6.1.4 Notify Buyer of the discovery by Seller that any representation or
warranty of Seller contained in this Agreement is or becomes materially untrue
or will be materially untrue on the Closing Date.
6.2 Access. Seller shall afford to Buyer and its authorized
representatives reasonable access, at Buyer's sole risk and expense and during
normal business hours, from the date hereof until the Closing Date, to (a) the
Properties operated by Seller; PROVIDED, HOWEVER, THAT BUYER SHALL RELEASE,
DEFEND, INDEMNIFY AND HOLD HARMLESS SELLER FROM AND AGAINST ANY AND ALL LOSSES,
COSTS, DAMAGES, OBLIGATIONS, CLAIMS, LIABILITIES, EXPENSES AND CAUSES OF ACTION
ARISING FROM BUYER'S INSPECTION OF THE PROPERTIES, INCLUDING, WITHOUT
LIMITATION, CLAIMS FOR PERSONAL INJURIES OR DEATH, PROPERTY DAMAGE, COURT COSTS
AND REASONABLE ATTORNEYS' FEES, and (b) Seller's operating, accounting,
contract, corporate and legal files, records, materials, data and information
regarding the Properties (the "Data"); provided, however, that the Data shall
not include (a) any legal materials the disclosure of which Seller determines
would jeopardize the assertion of a privilege in ongoing or anticipated
litigation with third parties, (b) information not included in Seller's files
specifically identified to the Properties in accordance with Seller's existing
filing and data management system, or c) information, the disclosure of which
would violate any confidentiality agreement to which Seller is bound.
6.3 Release of Geologic and Geophysical Information. Prior to Closing,
Buyer shall be allowed at its own expense to review and copy non-proprietary
geologic and geophysical information, map, and data in Seller's files
attributable to the Properties to the extent Seller may disclose to Buyer such
materials without violating any confidentiality agreements or licenses. Buyer
agrees that it will obtain and use such materials at its own risk and expense,
AND FURTHER, BUYER RELEASES SELLER FROM ANY AND ALL LIABILITY AND AGREES TO
RELEASE, DEFEND, INDEMNIFY AND HOLD HARMLESS SELLER FROM ALL CLAIMS, DEMANDS,
JUDGEMENTS, COSTS AND EXPENSES (INCLUDING COURT COSTS AND REASONABLE ATTORNEY'S
FEES) BROUGHT BY BUYER AND/OR ALL OTHER PARTIES ARISING FROM THE USE, POSSESSION
OR TRANSFER OF SUCH INFORMATION WITHOUT LIMIT AS TO TIME. BUYER AGREES TO RETURN
ALL COPIES AND DATA PROVIDED IF FOR ANY REASON THIS TRANSACTION IS NOT
COMPLETED.
6.4 Closing Conditions. Seller shall cause all the representations and
warranties of Seller contained in this Agreement to be true and correct in all
material respects on and as of the Closing Date. To the extent the conditions
precedent to the obligations of Buyer are within the control of Seller, Seller
shall cause such conditions to be satisfied on or prior to the Closing Date and,
to the extent the conditions precedent to the obligations of Buyer are not
within the control of Seller, Seller shall use commercially reasonable efforts
to cause such conditions to be satisfied on the Closing Date.
6.5 Knowledge. Actual "knowledge" for purposes of this Agreement means
information actually personally known or information which should have been
ascertained had a reasonable inquiry or investigation been undertaken. The
standard of reasonableness is that which would be exercised by a reasonably
prudent person who has been advised that the person is expected to make
representations and warranties with respect to conditions and information
relating to Properties which are to be conveyed.
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6.6 Workover Operations. No later than August 10, 2007, Seller shall
commence workover operations on the first of four (4) Wells in accordance with
the respective Authorities For Expenditure ("AFE" or "AFEs") attached hereto as
Exhibits "F-1 through "F-4" (`Workover Operations"). The sum of the four (4)
AFEs totals $100,000 ("AFE Workover Costs") but the parties recognize and
acknowledge that the AFEs contain estimates only of the actual costs of the
Workover Operations may vary. Seller shall conduct the Workover Operations in
accordance with customary oilfield practices but shall not be liable to Buyer
for any acts or omissions of Seller related to such Workover Operations. Buyer
shall have the opportunity to be present for all Workover Operations and present
to Seller its suggestions and recommendations in connection with the
implementation of the Workover Operations but Seller as operator shall
ultimately control all Workover Operations. If the actual costs to conduct the
Workover Operations exceed the AFE Workover Costs, Buyer shall be liable for
such actual costs in excess of the AFE Workover Costs and an estimate of such
excess costs shall be credited to Seller at the Closing subject to final
adjustment of such excess amount on the Final Settlement Statement based on
actual costs for the Workover Operations. However, if the actual costs to
conduct the Workover Operations is less than the AFE Workover Costs, Seller
shall be credited with such the difference between actual Workover Costs and the
AFE Workover Costs and an estimate of such difference shall be credited to
Seller at the Closing subject to final adjustment of such difference on the
Final Settlement Statement based on actual costs for the Workover Operations.
Seller represents to Buyer that all invoices related to the Workover Operations
shall be paid prior to the Closing out of the Deposit and Seller shall
additionally prior to the Closing secure lien waivers from all vendors
associated with such Workover Operations. If for any reason Seller fails to pay
any vendors associated with the Workover Operations out of the Deposit and the
Closing occurs, Seller shall after the Closing continue to be responsible for
the payment such vendor's invoices out of the Deposit. Also, if either before or
after the Closing liens are filed on any of the Properties by any vendor
associated with the Workover Operations, Seller shall be responsible for the
satisfaction of and release of such liens. Seller does further indemnify, defend
and hold harmless Buyer from all claims, demands and causes of action, including
court costs and attorney's fees, associated with any unpaid invoices, and any
liens related thereto, from any vendors associated with any of the Workover
Operations.
6.7 West Schenk Environmental Cleanup. At Buyer's request Seller has
conducted certain environmental cleanup operations on the West Schenk Lease.
Seller agrees to bear and pay all costs related to such cleanup up to but not to
exceed $2,500. Buyer has inspected such lease after the cleanup and now accepts
the environmental condition of the West Schenk Lease.
7. COVENANTS OF BUYER. Buyer shall cause all the representations and warranties
of Buyer contained in this Agreement to be true and correct on and as of the
Closing Date. To the extent the conditions precedent to the obligations of
Seller are within the control of Buyer, Buyer shall cause such conditions to be
satisfied on or prior to the Closing Date and, to the extent the conditions
precedent to the obligations of Seller are not within the control of Buyer,
Buyer shall use commercially reasonable efforts to cause such conditions to be
satisfied on or prior to the Closing Date. Buyer shall notify Seller of the
discovery by Buyer that any representation or covenant of Buyer contained in
this Agreement is or becomes materially untrue or will be materially untrue on
or before the Closing Date.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of Seller
to be performed at Closing are subject to the fulfillment (or waiver by Seller
in its sole discretion) before or at Closing, of each of the following
conditions:
8.1 Representations and Warranties. The representations and warranties by
Buyer set forth in this Agreement shall be true and correct in all material
respects at and as of the Closing as though made at and as of the Closing; and
Buyer shall have performed and complied with, in all material respects, all
covenants and agreements required to be performed and satisfied by Buyer at or
prior to the Closing. If, at Closing, Seller has knowledge that Buyer is in
breach of any part of this Section 8.1, it shall disclose such to Buyer in order
to afford Buyer an opportunity to correct same by 5 PM on the Closing Date.
8.2 No Litigation. There shall be no suits, actions or other proceedings
pending or threatened in writing to enjoin the consummation of the transactions
contemplated by this Agreement or seeking substantial damages against Seller in
connection therewith.
8.3 Approvals. All known approvals required to be obtained for the
assignment of the Properties to Buyer shall have been obtained or waived or
shall have expired without being exercised, except for those approvals which are
customarily obtained after Closing.
8.4 Closing Obligations. Buyer shall contemporaneously perform its
closing obligations under Section 12.2.
8.5 Antitrust Laws. Seller and Buyer shall have fully complied with Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Act"), and
rules and regulations promulgated pursuant thereto, to the extent that said Act,
rules and regulations are applicable to the transactions contemplated by this
Agreement. Any required approvals or authorizations pursuant to the Act shall
have been received, and any required waiting period shall have expired.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
be performed at Closing are subject to the fulfillment (or waiver by Buyer in
its sole discretion) before or at Closing, of each of the following conditions:
9.1 Representations and Warranties. The representations and warranties by
Seller set forth in this Agreement shall be true and correct in all material
respects at and as of the Closing as though made at and as of the Closing; and
Seller shall have performed and complied with, in all material respects, all
covenants and agreements required to be performed and satisfied by Seller at or
prior to the Closing. If, at Closing, Buyer has knowledge that Seller is in
breach of any part of this Section 9.1, it shall disclose such to Seller in
order to afford Seller an opportunity to correct same by 5 PM on the Closing
Date.
9.2 No Litigation. There shall be no suits, actions or other proceedings
pending or threatened in writing to enjoin the consummation of the transactions
contemplated by this Agreement or seeking substantial damages against Buyer in
connection therewith.
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9.3 Consents. All known approvals required to be obtained for the
assignment of the Properties to Buyer shall have been obtained or waived or
shall have expired without being exercised, except for those approvals which are
customarily obtained after closing.
9.4 Closing Obligations. Seller shall contemporaneously perform its
closing obligations under Section 12.2.
9.5 Antitrust Laws. Seller and Buyer shall have fully complied with the
Act and rules and regulations promulgated pursuant thereto, to the extent that
said Act, rules and regulations are applicable to the transactions contemplated
by this Agreement. Any required approvals or authorizations pursuant to the Act
shall have been received, and any required waiting period shall have expired.
10. TITLE MATTERS. On the Closing Date, no uncured lien, mortgage, pledge,
claim, judgment or other charge shall exist with respect to the Properties.
Buyer has had the opportunity to conduct at its sole risk and expense a title
review and due diligence of Seller's records related to the Properties and finds
the title to the Properties satisfactory except for the Kitty Nash Groce Lease
which Seller is seeking to obtain at its sole cost and expense either a new
lease or a ratification with words of grant from the current mineral owners or
such other mutually acceptable title curative ("KNG Curative"). Notwithstanding
any terms contained in this Agreement to the contrary, if Seller fails to obtain
the KNG Curative by the Closing, the Kitty Nash Groce Lease and Well(s) shall be
excluded from the sale and the Purchase Price shall be reduced by the Allocated
Value of such lease in the amount of $150,000.
11. ARBITRATION. Upon the request of any party hereto, whether made before or
after the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind, now existing or hereafter arising, between any of the
parties hereto in any way arising out of, pertaining to or in connection with
this Agreement (a "Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any party may, by summary proceedings, bring
an action in court to compel arbitration of any Dispute. Any arbitration shall
be administered by the American Arbitration Association (the "AAA") in
accordance with the terms of this section, the Commercial Arbitration Rules of
the AAA and, to the maximum extent applicable, the Federal Arbitration Act.
Judgment on any award rendered by the arbitrators may be entered in any court
having jurisdiction. Any arbitration shall be conducted before three (3) neutral
arbitrators with all three (3) arbitrators being selected by mutual agreement of
the parties . The arbitrators shall be knowledgeable in the subject matter of
the Dispute. If the parties cannot agree on any of the arbitrators within thirty
(30) days after the request for an arbitration, then any party may request the
AAA to select such arbitrator or arbitrators. The arbitrators may engage
engineers, accountants or other consultants that the arbitrators deem necessary
to render a conclusion in the arbitration proceeding. To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within
ninety (90) days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Houston, Texas. The arbitrators shall be
empowered to impose sanctions and to take such other actions as the arbitrators
deem necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. At the conclusion of any arbitration proceeding, the arbitrators shall make
specific written findings of fact and conclusions of law and such results shall
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be final and non-appealable. The arbitrators shall have the power to award
recovery of all costs and fees to the prevailing party. Each party agrees to
keep all Disputes and arbitration proceedings strictly confidential except for
disclosure of information required by applicable law. All fees of the
arbitrators and any engineer, accountant or other consultant engaged by the
arbitrators shall be paid equally by each party to the Dispute unless otherwise
awarded by the arbitrators.
12. CLOSING.
12.1 The Closing. The sale and purchase of the Properties pursuant to this
Agreement shall be consummated (the "Closing") at the offices of Seller on or
before (3) business days after either (i) Seller's notice to Buyer that the
Minimum Production Threshold has been obtained or (ii) the end of the period to
calculate the Minimum Production Threshold if the Minimum Production Threshold
has not been obtained; provided, however, in no event shall the Closing occur
later than ninety (90) days after the date a workover rig initially moves on
location to conduct Workover Operations on the first Well ("Closing Date").
12.2 Closing Obligations. At the Closing, the following events shall
occur, each event under the control of one party hereto being a condition
precedent to the events under the control of the other party, and each event
being deemed to have occurred simultaneously with the other events:
12.2.1 Seller shall execute and deliver to Buyer one or more instruments
of assignment, in substantially the form of the Assignment, Bill of Sale and
Conveyance set forth as Exhibit "D" hereto which shall include a special
warranty of title by, through and under Seller, but not otherwise. Buyer shall
record the Assignment as soon as reasonably practicable after the Closing and
furnish Seller with a recorded copy thereof within thirty (30) days of such
recordation.
12.2.2 Buyer shall deliver to Seller in immediately available funds (wire
transfer), the Preliminary Amount. The "Preliminary Amount" shall be that amount
to be determined by Seller prior to the Closing Date as an estimate of the final
computation of the Final Purchase Price based on information known as of the
Closing Date. Seller shall provide Buyer a closing statement reflecting the
Preliminary Amount at least five business days prior to the Closing.
12.2.3 Seller and Buyer shall execute, acknowledge and deliver division
orders, transfer orders or letters in lieu thereof prepared by Buyer directing
all purchasers of production from the Properties to make payment of proceeds
attributable to such production occurring on or after the Effective Date to
Buyer.
12.2.4 As to those Properties operated by Seller, Seller and Buyer shall
execute all appropriate state or local forms required to be executed to effect
the administrative change of operator of such Properties from Seller to Buyer,
and Seller shall file such forms within five (5) business days after Closing.
Also with respect to any Wells for which Seller is designated as the operator
under the applicable operating or other similar agreement, Seller shall send
letters to all working interest owners advising of Seller's resignation as
operator and recommending Buyer as the successor operator.
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12.2.5 Buyer shall, if applicable, execute and deliver to Seller the Note
and the Deed of Trust.
12.2.6 Seller shall furnish to Buyer lien waivers from all vendors
associated with the Workover Operations reflecting the payment of all invoices.
12.2.7 Seller shall deliver to the Buyer possession of each of the
Properties being purchased at the Closing.
13. POST-CLOSING ADJUSTMENTS.
13.1 Final Settlement Statement. After the Closing Date, Seller shall
prepare, in accordance with this Agreement and with generally accepted
accounting principles consistently applied, a statement (the "Final Settlement
Statement"), a copy of which shall be delivered by Seller to Buyer no later than
sixty (60) days after the Closing Date, setting forth each adjustment to the
Purchase Price necessary to determine the Final Purchase Price and showing the
calculation of such adjustments in accordance with Article 3. Buyer shall have
forty-five (45) days after receipt of the Final Settlement Statement to review
such statement and to provide written notice to Seller of Buyer's objection to
any item on the statement. Buyer's notice shall clearly identify the item(s)
objected to and the reasons and support for the objection(s). If Buyer does not
provide written objection(s) within the 45-day period, the Final Settlement
Statement shall be deemed correct and shall not be subject to further
adjustment. If Buyer provides written objection(s) within the 45-day period, the
Final Settlement Statement shall be deemed correct with respect to the items not
objected to. Buyer and Seller shall meet to negotiate and resolve the objections
within fifteen (15) days of Seller's receipt of Buyer's objections. If Buyer and
Seller agree on all objections, the adjusted Final Settlement Statement shall be
deemed correct and shall not be subject to further adjustment. Any items not
agreed to at the end of the 15-day period may, at either party's request, be
resolved by arbitration if mutually agreed by the parties.
13.2 Payment of Final Purchase Price. If the Final Purchase Price is more
than the Preliminary Amount, Buyer shall pay such difference to Seller in
immediately available funds within five (5) business days after the parties have
agreed upon the Final Settlement Statement. If the Final Purchase Price is less
than the Preliminary Amount, Seller shall pay such difference to Buyer in
immediately available funds within five (5) business days after the parties have
agreed upon the Final Settlement Statement.
14. ASSUMPTION OF CERTAIN OBLIGATIONS. Buyer shall assume all costs and
liabilities and discharge all obligations of Seller (a) under all leases,
operating agreements, production sales contracts, farmout agreements and other
contracts or agreements relating to the Properties or relating to the ownership
or operation of the Properties from and after the Closing Date, and (b) with
respect to all production imbalances associated with the Properties, regardless
of their nature or of the time at which they accrued. Also upon Closing, Buyer
shall assume all of Seller's plugging, replugging, abandonment, removal,
disposal and restoration obligations associated with the Properties acquired
hereunder. Such obligations being assumed shall include, but not be limited to,
all necessary and proper plugging and abandonment and/or removal and disposal of
all of the Wells, whether pre-existing or drilled by Seller, and all structures,
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personal property and equipment located on or associated with the Leases listed
on Exhibit "A", the necessary and proper capping and burying of all associated
flow lines, and any necessary disposal of naturally occurring radioactive
material (NORM) or asbestos. All plugging, replugging, abandonment, removal,
disposal and restoration operations shall be in compliance with applicable laws
and regulations and conducted in a good and workmanlike manner.
15. DISCLAIMER. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED
IN THIS AGREEMENT (OR IN THE ASSIGNMENT TO BE EXECUTED PURSUANT TO THIS
AGREEMENT) ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND SELLER EXPRESSLY
DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES. SUBJECT TO THE
FOREGOING, THE PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY
OR REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS, OR MERCHANTABILITY OF ANY EQUIPMENT OR
ITS FITNESS FOR ANY PURPOSE, AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY,
OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BUYER SHALL, EXCEPT AS PROVIDED
OTHERWISE HEREIN, ACCEPT ALL OF THE SAME "AS IS, WHERE IS." WITHOUT LIMITATION
OF THE FOREGOING, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED,
STATUTORY, OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION, OR MATERIALS NOW HERETOFORE, OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, PRICING ASSUMPTIONS OR QUALITY OR
QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE
ABILITY OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE
ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY OTHER MATERIALS FURNISHED OR
MADE AVAILABLE TO BUYER BY SELLER, OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY
AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION, AND OTHER
MATERIALS (WRITTEN OR ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR
DISCLOSED TO BUYER ARE PROVIDED TO BUYER AS A CONVENIENCE AND SHALL NOT CREATE
OR GIVE RISE TO ANY LIABILITY OF OR AGAINST SELLER, AND ANY RELIANCE ON OR USE
OF THE SAME SHALL BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY
LAW.
16. CROSS-INDEMNIFICATION EXCEPT FOR ENVIRONMENTAL CLAIMS. EXCEPT AS EXPRESSLY
LIMITED ELSEWHERE IN THIS AGREEMENT, AND EXCLUDING ENVIRONMENTAL CLAIMS WHICH
ARE BEING ASSUMED BY BUYER AND FOR WHICH SELLER IS BEING INDEMNIFIED IN
ACORDANCE WITH SECTION 17. BELOW:
16.1 BUYER AGREES TO INDEMNIFY AND HOLD SELLER HARMLESS FROM AND AGAINST
ANY AND ALL LIABILITY, LOSS, COST AND EXPENSE (INCLUDING, WITHOUT LIMITATION,
COURT COSTS AND REASONABLE ATTORNEYS' FEES) THAT ARE ATTRIBUTABLE TO THE
OWNERSHIP OR OPERATION OF THE PROPERTIES CONVEYED TO BUYER AND THAT ARE
ATTRIBUTABLE TO PERIODS OF TIME ON OR AFTER THE EFFECTIVE DATE; AND
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16.2 SELLER AGREES TO INDEMNIFY AND HOLD BUYER HARMLESS FROM AND AGAINST
ANY AND ALL LIABILITY, LOSS, COST AND EXPENSE (INCLUDING, WITHOUT LIMITATION,
COURT COSTS AND REASONABLE ATTORNEYS' FEES) THAT ARE ATTRIBUTABLE TO THE
OWNERSHIP OR OPERATION OF THE PROPERTIES CONVEYED TO BUYER AND THAT ARE
ATTRIBUTABLE TO PERIODS OF TIME BEFORE THE EFFECTIVE DATE.
16.3 NOTWITHSTANDING ANY TERMS CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, IF A THIRD PARTY, BUT NOT BUYER, ASSERTS IN WRITING AN ENVIRONMENTAL
CLAIM WHICH IS RECEIVED BY BUYER DURING THE PERIOD BETWEEN THE CLOSING DATE AND
365 DAYS AFTER THE CLOSING DATE, AND SUCH ENVIRONMENTAL CLAIM RELATES TO PERIODS
OF TIME PRIOR TO THE EFFECTIVE DATE, THEN IN SUCH EVENT SELLER SHALL BE LIABLE
FOR, ASSUME, DEFEND, INDEMNIFY AND HOLD HARMLESS BUYER FROM SUCH ENVIRONMENTAL
CLAIM.
17. CASUALTY LOSS. Prior to Closing, Seller shall promptly notify Buyer of any
Casualty Loss of which Seller becomes aware. "Casualty Loss" shall mean, with
respect to all or any material portion of the Properties, any destruction by
fire, blowout, loss of production from the wells being assigned or other
casualty (above or below the ground) or any taking, or pending or threatened
taking, in condemnation or under the right to eminent domain of any Property or
portion thereof occurring between the time this Agreement is executed and the
Closing Date. If any Casualty Loss occurs, Buyer shall have the right to
terminate this agreement and have no further obligations to close. Seller shall
not voluntarily compromise, settle or adjust any amounts payable by reason of
any Casualty Loss without first obtaining the written consent of Buyer.
18. ENVIRONMENTAL MATTERS. Buyer acknowledges that the Properties have been used
to explore for, develop and produce oil and gas, and that spills of wastes,
crude oil, produced water, hazardous substances, and other materials may have
occurred thereon. Additionally, the Properties, including production equipment,
may contain asbestos, hazardous substances, or Naturally Occurring Radioactive
Material ("NORM"). NORM may affix or attach itself to the inside of wells,
materials, and equipment as scale or in other forms, and NORM-containing
material may have been buried or otherwise disposed of on the Properties.
Special procedures may be required for remediating, removing, transporting, and
disposing of asbestos, NORM, hazardous substances, and other materials from the
Properties, and Buyer assumes all liability for the assessment, remediation,
removal, transportation, and disposal of these materials and associated
activities in accordance with the applicable rules, regulations, and
requirements of governmental agencies from the date of Closing. Buyer has had
the opportunity to conduct at its sole risk and expense an environmental
assessment of the Properties and finds the environmental condition of the
Properties satisfactory.
18.1 ENVIRONMENTAL INDEMNITY. NOTWITHSTANDING ANY TERMS CONTAINED IN
SECTION 16. ABOVE, BUT IN FURTHERANCE OF SAME, BUYER EXPRESSLY AGREES TO FULLY
AND PROMPTLY PAY, PERFORM AND DISCHARGE, DEFEND, INDEMNIFY AND HOLD SELLER
HARMLESS FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, CLAIMS, DEMANDS AND
CAUSES OF ACTION OF WHATSOEVER KIND OR CHARACTER, INCLUDING COURT COSTS AND
ATTORNEYS' FEES, RESULTING FROM ANY "ENVIRONMENTAL CLAIM" AS HEREINAFTER
DEFINED, ARISING OUT OF ANY OPERATIONS CONDUCTED, COMMITMENT MADE OR ANY ACTION
TAKEN OR OMITTED AT ANY TIME, WHETHER ACCRUING OR RELATING TO TIMES PRIOR TO OR
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AFTER THE EFFECTIVE DATE, WITH RESPECT TO THE PROPERTIES. FOR PURPOSES OF THIS
SECTION, "ENVIRONMENTAL CLAIM" SHALL MEAN ANY CLAIM, DEMAND OR CAUSE OF ACTION
ASSERTED BY ANY GOVERNMENTAL AGENCY OR ANY PERSON, CORPORATION OR OTHER ENTITY
FOR PERSONAL INJURY (INCLUDING SICKNESS, DISEASE OR DEATH), PROPERTY DAMAGE OR
DAMAGE TO THE ENVIRONMENT RESULTING FROM THE DISCHARGE OR RELEASE OF ANY
CHEMICAL, MATERIAL OR EMISSION INTO ONE OR MORE OF THE ENVIRONMENTAL MEDIA AT OR
IN THE VICINITY OF THE PROPERTIES OR THE VIOLATION OF ANY ENVIRONMENTAL LAWS,
RULES OR REGULATIONS.
19. TERMINATION AND REMEDIES.
19.1 No Termination. Neither Seller nor Buyer may terminate this
Agreement.
19.2 Remedies of Buyer Prior to Closing.
19.2.1 If Seller intentionally refuses to execute and deliver the
documents referred to in Section 12.2, Buyer may seek specific performance
and/or injunctive relief requiring Seller to execute and deliver such documents
in accordance with the terms of this Agreement.
20. INTERIM TITLE MATTERS. Notwithstanding any terms contained in this Agreement
to the contrary, this Section 20. with respect to Title Defects shall apply only
to those Title Defects which occur during the interim period between when this
Agreement is executed and the Closing Date only and not otherwise.
20.1 Title Adjustment. On the Closing Date, no uncured lien, mortgage,
pledge, claim, judgment or other charge shall exist, unless adjustments have
been made pursuant to Section 20.2 hereof. As to any other Title Defect, as
hereinafter defined, no adjustments to the Purchase Price shall be made and
Buyer's sole remedy shall be as set forth in Section 20.2. Buyer shall notify
Seller in writing of any claimed Title Defect not less than one (1) business day
prior to Closing (the "Title Defect Notice"). The Title Defect Notice shall (a)
set forth in reasonable detail the Well and/or Lease with respect to which a
claimed Title Defect is made, (b) the nature of such claimed Title Defect, and
(c) Buyer's proposed calculation of the Defect Value of each claimed Title
Defect; provided, however, a Title Defect Value for a property shall never
exceed the Allocated Value for a particular Property. Any Title Defect other
than a lien, mortgage, pledge, claim, judgment or other charge, that is not
identified in the Title Defect Notice shall thereafter be deemed a Permitted
Encumbrance and be forever waived and expressly assumed by Buyer. As used in
this Agreement:
20.1.1 The term "Title Defect," as used herein, shall mean, with respect
to Seller's interest in the Properties any lien, mortgage, pledge, claim,
judgment, charge, option, defect, requirement for consent to assignment and
other encumbrance which would apply to the transaction contemplated hereby,
other than Permitted Encumbrances, and entitle the Seller to receive a
percentage of all proceeds of production therefrom less than the Net Revenue
Interest of Seller set forth on Exhibit "A" for such Well.
20.1.2 The term "Net Revenue Interest," as used herein, shall mean
Seller's interest in and to all production of oil, gas and other minerals saved,
produced and sold from any Well set forth on Exhibit "A" after giving effect to
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all valid lessor's royalties, overriding royalties, production payments, carried
interests, liens and other encumbrances or charges against production therefrom.
20.1.3 The term "Working Interest," as used herein, shall mean Seller's
interest set forth on Exhibit "A" for any Well in and to the full and entire
leasehold estate created under and by virtue of the Leases and all rights and
obligations of every kind and character appurtenant thereto or arising
therefrom, without regard to any valid lessor's royalty, overriding royalties,
production payments, carried interests, liens, or other encumbrances or charges
against production therefrom insofar as such interest in said leasehold estate
is burdened with the obligation to bear and pay costs of operations.
20.1.4 The term "Permitted Encumbrance," as used herein, shall mean:
(a) Lessors' royalties, overriding royalties, reversionary interests and
similar burdens if the net cumulative effect of the burdens does not operate to
reduce the interest of Seller with respect to all oil and gas produced from any
Well below the Net Revenue Interest for such Well set forth in Exhibit "A";
(b) Division orders and sales contracts terminable without penalty upon no
more than ninety (90) days notice to the purchaser;
(c) Preferential rights to purchase and required third party consents to
assignment and similar agreements with respect to which waivers or consents are
obtained from the appropriate parties, or the appropriate time period for
asserting any such right has expired without an exercise of the right;
(d) Except for liens related to Workover Operations which are separately
addressed in Section 6.6 hereinabove, materialman's, mechanic's, repairman's,
employee's, contractor's, operator's, tax, and other similar liens or charges
arising in the ordinary course of business for obligations that are not
delinquent or that will be paid and discharged in the ordinary course of
business or if delinquent, that are being contested in good faith by appropriate
action of which Buyer is notified in writing before Closing;
(e) All rights to consent by required notices to, filings with, or other
actions by governmental entities in connection with the sale or conveyance of
oil and gas leases or interests therein if they are routinely obtained
subsequent to the sale or conveyance;
(f) Easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations that do not materially interfere
with the oil and gas operations to be conducted on any Well or Lease;
(g) All operating agreements, unit agreements, unit operating agreements,
pooling agreements and pooling designations affecting the Properties that are
either of record in Seller's chain of title or reflected or referenced in
Seller's files;
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(h) Conventional rights of reassignment prior to release or surrender
requiring notice to the holders of the rights;
(i) All rights reserved to or vested in any governmental, statutory or
public authority to control or regulate any of the Properties in any manner, and
all applicable laws, rules and orders of governmental authority;
(j) The terms and conditions of the Leases, and of all agreements that are
of record in Seller's chain of title or reflected or referenced in Seller's
files; all other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting the Properties
which individually or in the aggregate are not such as to interfere materially
with the operation, value or use of any of the Properties, do not prevent Buyer
from receiving the proceeds of production from any of the Wells, do not reduce
the interest of Seller with respect to all oil and gas produced from any Well
below the Net Revenue Interest set forth in Exhibit "A" for such Well, and/or do
not materially increase the portion of the costs and expenses relating to any
Well that Seller is obligated to pay above the Working Interest set forth in
Exhibit "A" for such Well;
(k) Any Title Defect Buyer may have expressly waived in writing or which
is deemed to have become a Permitted Encumbrance under Section 20.1.
(l) Any Title Defect which occurs prior to the date when this Agreement is
executed.
20.1.5 The term "Title Defect Value," as used herein, shall mean the
amount by which the Final Purchase Price is reduced as a result of each Title
Defect.
20.2 Treatment of Title Defects. Should Buyer assert a Title Defect in the
Title Defect Notice affecting any of Seller's interest in the Properties, Seller
and Buyer shall mutually agree on one of the following options:
20.2.1 Reduce the Purchase Price by the Title Defect Value agreed to by
the parties; or
20.2.2 Either withhold the Property subject to the Title Defect from the
Closing and Seller shall attempt to cure the Title Defect for a period of thirty
(30) days after the Closing Date or such Property shall not be conveyed to Buyer
and the Purchase Price shall be reduced by the mutually agreed value of the
Property subject to the Title Defect.
20.2.3 If Seller and Buyer are not able to agree on the validity, value or
treatment of an adjustment in Section 20.2.2, then, subject to the other terms
of this Agreement, the Closing shall occur with respect to the other Properties
upon which no Title Defect has been asserted and the parties shall arbitrate the
dispute with respect to the treatment of the Title Defect.
21. INTERIM ENVIRONMENTAL DEFECTS. Notwithstanding any terms contained in this
Agreement to the contrary, this Section 21. with respect to Environmental
Defects shall apply only to those Environmental Defects which occur during the
interim period between when this Agreement is executed and the Closing Date only
and not otherwise.
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21.1 Environmental Defect. As used herein, "Environmental Defect" shall
mean any material environmental defect relating to the Properties in the nature
of environmental pollution or contamination, including pollution of the soil,
ground water or the air; underground injection activities and waste disposal on
site or offsite; failure to comply with applicable land use, surface
disturbance, licensing or notification requirements; or violations of
environmental or land use rules, regulations, demands or orders of appropriate
state or federal regulatory agencies and which occurs during the interim period
between when this Agreement is executed and the Closing Date only and not
otherwise.
21.2 Environmental Assessment. After the execution of this Agreement,
Buyer shall have the opportunity to conduct at its sole risk and expense an
environmental assessment of the Properties. Seller will provide reasonable
access for this purpose to Properties operated by Seller; for any of the
Properties not operated by Seller, however, Buyer must contact the operator of
any such non-operated Properties directly. Buyer or any of its representatives
and agents must comply with Seller's environmental and safety rules and policies
while on Seller's Properties. Buyer agrees it will not disclose any information
obtained in its environmental assessment to third parties unless agreed to in
writing by Seller or unless such disclosure is expressly required by applicable
law or regulation or is compelled pursuant to legal process of any court or
governmental authority. Buyer will notify Seller in advance of any such
disclosure and will furnish Seller copies of all materials to be disclosed prior
to any disclosure thereof to third parties. As soon as possible after Buyer's
receipt thereof, Buyer shall forward to Seller copies of all reports, data,
analysis, test results, remediation cost estimates, and recommended remediation
procedures or other information concerning or derived from Buyer's environmental
assessment. Buyer agrees that any information is to be considered private and
confidential.
21.3 Notice of Environmental Defect. Buyer shall notify Seller in writing
of any claimed Environmental Defect not less than one (1) business day prior to
Closing (the "Environmental Defect Notice"). The Environmental Defect Notice
shall (a) set forth in reasonable detail the Well and/or Lease with respect to
which a Environmental Defect is claimed, (b) the nature of such claimed
Environmental Defect, and c) Buyer's proposed calculation of the cost to
remediate each claimed Environmental Defect (the "Remediation Value") provided,
however, an Environmental Defect for a Property shall never exceed the Allocated
Value for such Property. Buyer shall absolutely and forever waive its right to
assert any claim or liability against Seller arising out of or in any way
related to any Environmental Defect not set forth in the Environmental Defect
Notice.
21.4 Determination of Environmental Defects and Remediation Values. After
Seller's receipt of the Environmental Defect Notice but before the Closing,
Seller shall notify Buyer whether Seller agrees with Buyer's claimed
Environmental Defects and/or the Remediation Value ("Seller's Environmental
Response"). If Seller does not agree with any claimed Environmental Defect
and/or the Remediation Value, then the parties shall enter into good faith
negotiations and shall attempt to agree on such matters.
21.5 Treatment of Environmental Defects. Should Buyer assert an
Environmental Defect in the Environmental Defects Notice affecting any of
Seller's interest in the Properties, Seller and Buyer shall mutually agree on
one of the following options:
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21.5.1 Reduce the Purchase Price by the Remediation Value agreed to by
the parties; or
21.5.2 Either withhold the property subject to the Environmental Defect
from the Closing and Seller shall attempt to cure the Environmental Defect for a
period of one hundred eighty (180) days after the Closing Date or such property
shall not be conveyed to Buyer and the Purchase Price shall be reduced by the
mutually agreed value of the property subject to the Environmental Defect.
21.5.3 If Seller and Buyer are not able to agree on the validity, value or
treatment of an adjustment in Section 21.5 then, subject to the other terms of
this Agreement, the Closing shall occur with respect to the other Properties
upon which no Environmental Defect has been asserted and the parties shall
arbitrate the dispute with respect to the treatment of the Environmental Defect.
22. FURTHER ASSURANCES. After the Closing, Seller and Buyer shall execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be reasonably necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
Seller shall use its best efforts to obtain all approvals and consents required
by or necessary for the transactions contemplated by this Agreement that are
customarily obtained after Closing, provided that Seller shall not be required
to expend any funds to obtain such approvals and consents.
23. LIMITATION ON SELLER'S LIABILITY. Notwithstanding any terms contained in
this Agreement to the contrary, after the Closing, any assertion by Buyer that
Seller is liable under this Agreement for the inaccuracy of any representation,
warranty, covenant or indemnity must be made by Buyer in writing and must be
given to Seller on or prior to the last business day preceding the first
anniversary of the Closing Date. The notice shall state the facts known to Buyer
that give rise to such notice in sufficient detail to allow Seller to evaluate
the assertion of Buyer.
24. ACCESS TO RECORDS. As soon as practicable after Closing, Seller shall
deliver to Buyer, at Seller's address, or at such other place as any of same may
be kept, the originals of all the Data, except that Seller may retain:
(a) the originals of all the Data which relate to both the Properties and
to properties other than the Properties being sold herein, in which case Seller
shall deliver duplicate copies of any such retained originals as they relate to
the Properties to Buyer, and
(b) the originals of all the accounting Data, subject to the right of
Buyer to copy selected portions of such accounting Data at Buyer's expense and
with minimal disruption of Seller's ongoing business.
25. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be delivered personally, by certified U.S. Mail, email or by
telecopier as follows:
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Seller: Sawtooth, Inc.
9219 Katy Freeway, Suite 250
Houston, Texas 77024
Telephone: 713-465-4944
Fax: 713-973-8981
Email: Robertchain@earthlink.net
Attention: Mr. Robert Chain
Buyer: Epic Exploration & Production, LLC
10655 Six Pines Drive, Suite 210
The Woodlands, Texas 77380
Telephone: 281-419-3742
Fax: 281-419-1114
Email: dreynolds@1epic.com
Attention: Mr. Dave Reynolds
With a copy to: Lamiaa E. Elfar, Esq.
15 Ramsey Road
Middletown, NJ 07748
Telephone: 732-957-9560
Fax: 866-283-5194
Email: lelfar@prontolex.com
or to such other place within the United States of America as either Seller or
Buyer may designate as to themselves by written notice to the other. All notices
given by personal delivery or mail shall be deemed received upon the date of
actual receipt at the appropriate address. Notice given by fax shall be
effective upon actual receipt if received prior to 5 p.m. during normal business
days or at the beginning of the next business day after receipt if received
after 5 p.m. All notices by fax shall be confirmed promptly after transmission,
by certified mail or personal delivery.
26. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to principles of
conflicts of laws that would direct the application of the laws of another
jurisdiction.
27. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto; it shall not, however, be assignable by Buyer
without Seller's prior written consent.
28. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
superseding all prior negotiations, discussions, agreements and understandings,
whether oral or written, relating to such subject matter. This Agreement may not
be amended and no rights hereunder may be waived except by a written document
signed by the party to be charged with such amendment or waiver. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereto (whether or not similar) nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
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29. HEADINGS. The headings of the articles and sections of this Agreement and
any listing of its contents are for guidance and convenience of reference only
and shall not limit or otherwise affect any of the terms or provisions of this
Agreement. Where the context so admits, words importing the singular number only
shall include the plural, and likewise words importing a gender shall include
any other gender.
30. EXPENSES, FEES AND TAXES. Each of the parties hereto shall pay its own fees
and expenses incident to the negotiation and preparation of this Agreement and
consummation of the transactions contemplated hereby, including broker fees.
Buyer shall be responsible for the cost of all fees for the recording of
transfer documents. All other costs shall be borne by the party incurring them.
Notwithstanding anything to the contrary herein, it is acknowledged and agreed
by and between Seller and Buyer that the Purchase Price excludes any sales taxes
or other taxes in connection with the sale of property pursuant to this
Agreement. If a determination is ever made that a sales tax or other transfer
tax applies, Buyer shall be liable for such tax as well as any applicable
conveyance, transfer and recording fees, and real estate transfer stamps or
taxes imposed on any transfer of property pursuant to this Agreement. Buyer
shall release, defend, indemnify and hold harmless Seller with respect to the
payment of any of such taxes, including any interest or penalties assessed
thereon.
31. LAWS AND REGULATIONS. From and after the Closing:
31.1 Buyer shall comply with all applicable laws, ordinances, rules and
regulations and shall properly obtain and maintain all permits required by
public authorities with regard to the Properties, and shall provide and maintain
with all applicable regulatory agencies all required bonds, and
31.2 Buyer shall assume all of Seller's obligations with regard to
abandonment of all existing unplugged wells, whether producing or non-producing,
and abandonment of the leasehold property including, where applicable, the
plugging of wells and the restoration of the surface as completely as
practicable and/or in compliance with all applicable laws, rules, regulations
and in compliance with all leases and other agreements affecting the Properties,
and shall release, defend, indemnify and hold harmless Seller with respect to
any and all of those obligations.
The obligations set forth herein above shall survive the Closing and Buyer
shall remain liable therefore as regards Seller even if Buyer shall assign, sell
or transfer the Properties to a third party.
32. PUBLIC ANNOUNCEMENTS. Until the Closing, neither party hereto shall make any
press release or other public announcement regarding the existence of this
Agreement, the contents hereof or the transactions contemplated hereby without
the prior written consent of the other party except as required by applicable
law or the applicable rules or regulations of any governmental body or stock
exchange.
33. NOT TO BE CONSTRUED AGAINST DRAFTER. THE PARTIES ACKNOWLEDGE THAT THEY HAVE
HAD AN ADEQUATE OPPORTUNITY TO REVIEW EACH AND EVERY PROVISION CONTAINED IN THIS
AGREEMENT AND TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT. BASED
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ON THIS REVIEW AND CONSULTATION, THE PARTIES AGREE WITH EACH AND EVERY TERM
CONTAINED IN THIS AGREEMENT. BASED ON THE FOREGOING, THE PARTIES AGREE THAT THE
RULE OF CONSTRUCTION THAT A CONTRACT BE CONSTRUED AGAINST THE DRAFTER, IF ANY,
SHALL NOT BE APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT.
34. SURVIVAL. The representations, warranties, covenants, agreements and
indemnities contained in this Agreement shall terminate one (1) year after the
Closing except for the provisions of Section 11, Section 14, Section 15, Section
16, Section 17, and Section 18, and Section 23. which shall survive Closing
without limitation.
35. EXHIBITS. The following Exhibits are incorporated herein and are a part
hereof.
Exhibit "A" - Lease and Well Schedule (including Working Interests and
Net Revenue Interests)
Exhibit "B" - the Note
Exhibit "C" - the Deed of Trust
Exhibit "D" - Form of Assignment Bill of Sale and Conveyance
Exhibit "E" - Allocated Values
Exhibits "F-1" through "F-4"- Authorities For Expenditure
36. COUNTERPARTS. This agreement may be executed in any number of counterparts
which when assembled together shall be one and the same instrument.
Executed this 24th day of July, 2007.
SELLER:
SAWTOOTH, INC.
By: /s/ Robert Chain
-------------------------------
Name: Robert Chain
-------------------------------
Title: Manager-Operations and
Engineering
21
BUYER:
EPIC EXPLORATION & PRODUCTION, LLC
By: /s/ Rex Doyle
-------------------------------
Name: Rex Doyle
-------------------------------
Title: President
22
Exhibit "A"
Attached to Purchase and Sale Agreement
Dated Effective July 1, 2007
by and between Sawtooth, Inc., as Seller
and Epic Exploration & Production, LLC, as Buyer
LEASES AND WELLS
FORT BEND COUNTY, TEXAS
Lessor: Teletower, a partnership
Lessee: Chain Oil & Gas, Inc.
Date: July 12, 2002
Recorded: Film Code No. 2002090053, Official Records of Fort Bend County, Texas
As amended by Amendment dated March 8, 2004, recorded at Film Code No.
2004033648, Official Records of Fort Bend County, Texas and Amendment dated
November 30, 2004, recorded at Film Code No. 2004154612, Official Records of
Fort Bend County, Texas, LIMITED only to all existing wellbores drilled before
August 1, 2003.
Wells:
West Schenk "B" Lease #2 50% WI 40.625% NRI
API # 42157-00459
West Schenk "B" Lease #3 50% WI 40.625% NRI
API # 42157-00460
West Schenk "B" Lease #4 50% WI 40.625% NRI
API # 42157-00461
West Schenk "B" Lease #8 50% WI 40.625% NRI
API # 42157-00469
FORT BEND COUNTY, TEXAS
Lessor: C. L. Gordon Trust
Lessee: Sawtooth, Inc.
Date: October 15, 2001
Recorded: Film Code No. 2001110772, Official Records of Fort Bend County, Texas
Lessor: The Rice 2001 Management Trust
Lessee: Sawtooth, Inc.
Date: October 15, 2001
Recorded: Film Code No. 2001110773, Official Records of Fort Bend County, Texas
Wells:
Bassett Blakely #2 100% WI 75.0% NRI
API # 42157-00335
Bassett Blakely #3 100% WI 75.0% NRI
API # 42157-00226
Bassett Blakely #4 100% WI 75.0% NRI
API # 42157-00227
Gordon Broun #1 100% 75.0% NRI
API # 42157-80755
Gordon Broun #2 100% 75.0% NRI
API # 42157-06144
A-2
FORT BEND COUNTY, TEXAS
Lessor: Kitty Nash Groce
Lessee: A. P King and Fred Heyne
Date: August 20, 1948
Recorded: Volume 261, Page 609, Deed Records of Fort Bend County, Texas
Wells:
Kitty Nash Groce #1 100% WI 75.0% NRI
API # 42157-00335
A-3
BRAZORIA COUNTY, TEXAS
Lessor: Dr. Albert Henry Braden et ux
Lessee: Global Natural Resources Corporation of nevada
Date: August 26, 1996
Recorded: File No. 96-033898, Official Records of Brazoria County, Texas
Lessor: Joseph Charles Braden et ux
Lessee: Global Natural Resources Corporation of Nevada
Date: August 26, 1996
Recorded: File No. 96-033897, Official Records of Brazoria County, Texas
Wells:
Hemus-Braden Oil Unit #1 100% WI 75.0% NRI
API # 42039-31929
Hemus-Braden Oil Unit #2D 100% WI 75.0% NRI
API # 42039-32130
A-4