SECOND PRODUCTION PAYMENT
PURCHASE AND SALE AGREEMENT
THIS SECOND PRODUCTION PAYMENT PURCHASE AND SALE AGREEMENT (this
"Second Agreement"), executed as of this August 26, 2004 and effective as of
July 1, 2004 (the "Effective Date"), is by and between DENBURY ONSHORE, LLC, a
Delaware limited liability company ("Denbury"), whose address is 5100 Tennyson
Parkway, Suite 3000, Plano, Texas 75024, and GENESIS CRUDE OIL, L.P., a Delaware
limited partnership ("Genesis"), whose address is 500 Dallas Street, Suite 2500,
Houston, Texas 77002. In this Second Agreement, Denbury and Genesis are
sometimes referred to individually as a "Party" and collectively as the
"Parties".
FOR AND IN CONSIDERATION of the payments and mutual covenants to be
made in this Second Agreement by the Parties and the benefits derived by the
Parties from this Second Agreement, the Parties agree as follows:
RECITALS
A. Denbury owns certain undivided oil, gas and mineral leasehold,
royalty and mineral interests in and to those lands commonly referred to as the
Goshen Springs field, as more particularly described in Exhibit A attached to
the Second Assignment (as defined below).
B. Denbury is currently engaged in a program with respect to the
Subject Interests (as defined below) on the Subject Lands (as defined below) for
the exploration, development, production and sale of CO2.
C. In connection with that certain Production Payment Purchase and Sale
Agreement executed on November 14, 2003 and effective as of September 1, 2003
between Denbury's predecessor and Genesis (such agreement, as amended,
supplemented, modified or restated from time to time, the "First Purchase and
Sale Agreement"), Denbury's predecessor sold and conveyed and Genesis purchased
and paid for (1) all of such predecessor's rights, title, and interests in and
to certain industrial sale contracts covering the sale of CO2 by such
predecessor to third parties and (2) a volumetric production payment in and to
CO2 produced, saved, and sold from the Subject Interests, upon and subject to
the terms and conditions provided in the First Master Documents.
D. Denbury now desires to sell and convey and Genesis now desires to
purchase and pay for (1) all of Denbury's rights, title, and interests in and to
certain additional industrial sales contracts covering the sale of CO2 by
Denbury to a third party, and (2) an additional volumetric production payment in
and to CO2 produced, saved, and sold from the Subject Interests, upon and
subject to the terms and conditions provided in the Second Master Documents.
ARTICLE I
CERTAIN DEFINITIONS
1.1 For purposes of this Second Agreement, the following capitalized terms shall
have the meanings herein ascribed to them and the capitalized terms defined in
the opening paragraph and subsequent paragraphs by inclusion in quotation marks
and parentheses shall have the meanings ascribed to them:
"Additional Industrial Sale Contracts" means the BOC-Sandhill Contract
and the Magna Carta Contract.
"Additional Volumes" is defined in Section 4.4.
"Airgas Contract" means the Amended and Restated Carbon Dioxide Sale
and Purchase Contract dated effective January 1, 2001, by and between Denbury
Resources Inc., as Seller, and Airgas Carbonic Industries, Inc., as Buyer, as
amended by (a) the Amendment to Amended and Restated Carbon Dioxide Sale and
Purchase Contract dated as of July 1, 2001, between Seller and Buyer and (b) the
Amendment to Amended and Restated Carbon Dioxide Sale and Purchase Contract
dated as of September 19, 2001, between Seller and Buyer.
"Applicable Plant" means each dehydration and/or processing plant owned
by Denbury through which CO2 attributable to that portion of the Subject
Interests that is dedicated to an Additional Industrial Sale Contract is
processed, and "Applicable Plants" means all of such plants.
"Assigned Contract Interests" is defined in Section 4.1.
"Audited Party" is defined in Section 12.3.
"Bank One Liens" means the liens created under or pursuant to that
certain Fourth Amended and Restated Credit Agreement dated as of December 30,
2003 among Denbury, as borrower, the financial institutions listed therein, Bank
One, N.A., as Administrative Agent, Credit Lyonnais New York Branch, and Fortis
Capital Corp., as Syndication Agent, and Union Bank of California, as amended,
supplemented, or modified from time to time.
"BCF" means one billion cubic feet of CO2.
"BOC-Sandhill Contract" means that certain Contract for Sale of Carbon
Dioxide Gas dated November ____, 1995 (presumed to be effective February 1,
1996) by and between Pennzoil Exploration and Production Company ("Pennzoil"),
as Seller, and Pisgah Partners, L.P. ("Pisgah"), as Buyer, as amended by that
certain Amendment to Contract for Sale of Carbon Dioxide Gas effective January
1, 2002 by and between Denbury (as successor in interest to Pennzoil) and The
BOC Group, Inc. (as successor in interest to Pisgah).
"Call Option" is defined in Section 2.4.
"Call Settlement Date" is defined in Section 2.4.
"Claims" is defined in Section 9.1.
"CO2" is defined in the Second Assignment.
"Daily Maximum Quantity" is defined in the Second Assignment.
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"Day" is defined in the Second Assignment.
"Dedicated Contract Quantity" means (a) with respect to the
BOC-Sandhill Contract, the "Dedicated Contract Quantity" as that term is defined
in Section 4.1 of the BOC-Sandhill Contract and (b) with respect to the Magna
Carta Contract, the "Dedicated Contract Quantity" as that term is defined in
Section 4.1 of the Magna Carta Contract.
"Deficiency" is defined in Section 4.4.
"Delivery Points" is defined in the Second T&P Agreement.
"Denbury Indemnified Party" is defined in Section 9.2.
"Denbury Pipeline" shall have the same meaning as "Transporter's
Pipeline" as such term is defined in the Second T&P Agreement.
"Effective Date" is defined in the opening paragraph of this Second
Agreement.
"Environmental Claims" is defined in Section 5.14.
"Environmental Contaminants" is defined in Section 5.14.
"Environmental Laws" means all federal, state and local Governmental
Requirements regulating or otherwise pertaining to the environment, including
without limitation the following as from time to time amended and all others
whether similar or dissimilar and whether now existing or hereafter enacted: the
Oil Pollution Act of 1990, as amended ("OPA"); the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986; the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984; the Hazardous Materials Transportation Act, as amended; the
Toxic Substance Control Act, as amended; the Clean Air Act, as amended; the
Clean Water Act, as amended; and all regulations promulgated pursuant
thereunder.
"Environmental Liabilities" is defined in Section 5.14.
"Environmental Permits" is defined in Section 5.14.
"Excess Volumes" is defined in the Second Assignment.
"First Assignment" means that certain Assignment of Production Payment
by Denbury's predecessor to Genesis, dated November 14, 2003, effective as of
September 1, 2003, and recorded in Volume 1040 at Page 73 of the Official
Records of Rankin County, Mississippi, as the same may be amended, supplemented,
modified or restated from time to time.
"First Contract Assignment" means that certain Assignment of Contracts
and Bill of Sale dated November 14, 2003 and effective as of September 1, 2003
by Denbury's predecessor, as Assignor, to Genesis, as Assignee, as the same may
be amended, supplemented, modified or restated from time to time.
"First Master Documents" means the First Purchase and Sale Agreement
and all agreements executed in connection therewith or pursuant thereto,
including, but not limited to, the First Assignment, the First Contract
Assignment, and the First T&P Agreement, as the same may be amended,
supplemented, modified or restated from time to time.
"First Production Payment" means that certain volumetric production
payment conveyed by Denbury's predecessor to Genesis pursuant to the First
Assignment and in accordance with the terms and conditions of the First Purchase
and Sale Agreement, as the same may be amended, supplemented, modified or
restated from time to time.
"First Purchase and Sale Agreement" is defined in Recital C above.
"First T&P Agreement" means the Carbon Dioxide Transportation Agreement
dated November 14, 2003, effective September 1, 2003, between Denbury's
predecessor, as transporter, and Genesis, as shipper, as amended, supplemented,
modified, or restated from time to time.
"Genesis Indemnified Party" is defined in Section 9.1.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
energy regulations and occupational, safety and health standards or controls, of
any Governmental Authority.
"Leases" means the leases described, referred to or identified in
Exhibit A to the Second Assignment, together with any renewals or extensions of
such leases, and any replacement leases, insofar and only insofar as they cover
the Subject Lands (or a portion thereof).
"Lost Interest" is defined in Section 11.11.
"Magna Carta Contract" means the Contract for Sale of Carbon Dioxide to
Messer-Greishem Industries, Inc. by Magna Carta Group LLC dated December 18,
2000, by and between Denbury's predecessor, as successor in interest to Magna
Carta Group LLC, as Seller, and The BOC Group, Inc., as successor in interest to
Messer-Greishem Industries, Inc., as Buyer, as amended by that certain Amendment
to Contract for Sale of Carbon Dioxide Gas effective January 1, 2004 by and
between Denbury's predecessor and The BOC Group, Inc.
"Material Adverse Effect" means a material adverse effect upon (a) the
validity or enforceability of the Second Master Documents, or (b) the financial
condition of Denbury or Genesis, as applicable, or (c) the ability of Denbury or
Genesis, as applicable, to perform its obligations under the Second Master
Documents.
"MCF" means one thousand cubic feet of CO2.
"Month" means a period beginning on the first Day of a calendar month
and ending at the beginning of the first Day of the next succeeding calendar
month.
"Permitted Liens" means (a) lessor's royalties, overriding royalties,
and division orders covering oil, gas and other hydrocarbons, reversionary
interests and similar burdens existing as of the Effective Date; (b) operating
agreements, unit agreements and similar agreements, and any and all federal and
state regulatory orders and rules (including forced pooling orders) to which the
Subject Interests are subject; (c) liens for Taxes or assessments not due or
pursuant to which Denbury is not delinquent; (d) preferential rights to purchase
and required third-party consents to assignments and similar agreements with
respect to which (1) waivers or consents have been obtained from the appropriate
parties, or (2) required notice has been given to the holders of such rights and
the appropriate time period for asserting such rights has expired without an
exercise of such rights; (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, gas and mineral leases or interests therein if the
same are customarily obtained after such sale or conveyance; (f) easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations, pipelines, grazing, logging, canals, ditches, reservoirs
or the like; and easement for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights-of-way, on, over or
in respect of any of the Subject Interests; (g) liens of operators relating to
obligations not due or pursuant to which Denbury is not delinquent; (h) title
problems commonly encountered in the oil and gas business which would not be
considered material by a reasonable and prudent person engaged in the business
of the ownership, development and operation of oil and gas properties with
knowledge of all the facts and appreciation of their legal significance; (i) the
Bank One Liens; and (j) the First Production Payment.
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, trust, estate, business trust,
association, governmental entity or other entity.
"Personal Property" shall mean improvements, machinery, equipment,
gathering lines, tanks, fixtures and other personal property and equipment of
every kind and nature now or hereafter used or held for use in connection with
the exploration, development or operation of the Subject Interests; provided,
however, that the term "Personal Property" shall not include the Denbury
Pipeline or the Applicable Plants.
"Receipt Point" is defined in the Second T&P Agreement.
"Reserve Report" shall mean "Data on Estimated Proved Carbon Dioxide
Reserves as of December 31, 2003" of the Appraisal Report as of December 31,
2003 on Certain Properties Owned by Denbury, SEC Case, of DeGolyer and
MacNaughton dated February 2, 2004.
"Retained Obligations" is defined in Section 11.12.
"Scheduled Delivery Volumes" is defined in the Second Assignment.
"Second Assignment" means the Second Assignment of Production Payment
to be entered into between Denbury and Genesis in the form attached hereto as
Exhibit A, as the same may be amended, supplemented, modified or restated from
time to time.
"Second Agreement with Lenders" means that certain Second Agreement
with Lenders to be entered into between Bank One, NA, as Administrative Agent
for the Banks under the Credit Agreement (each of such terms as defined in the
Second Agreement with Lenders) and Genesis in the form attached hereto as
Exhibit F.
"Second Closing" is defined in Section 10.1.
"Second Closing Date" is defined in Section 10.1.
"Second Contract Assignment" means the Second Assignment of Contracts
and Bill of Sale to be entered into between Denbury and Genesis in the form
attached hereto as Exhibit C, as the same may be amended, supplemented, modified
or restated from time to time.
"Second Master Documents" means this Second Agreement and all
agreements executed in connection herewith or pursuant hereto, including, but
not limited to the Second Assignment, the Second Contract Assignment, and the
Second T&P Agreement, as the same may be amended, supplemented, modified or
restated from time to time.
"Second Production Payment" means "Production Payment" as defined in
the Second Assignment.
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"Second Production Payment Gas" means "Production Payment Gas" as
defined in the Second Assignment.
"Second T&P Agreement" means the Second Carbon Dioxide Transportation
Agreement to be entered into between Denbury and Genesis in the form attached
hereto as Exhibit D, as the same may be amended, supplemented, modified or
restated from time to time.
"Seller's Reserves" is defined in the Industrial Sale Contract.
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"Subject Interests" is defined in the Second Assignment.
"Subject Lands" is defined in the Second Assignment.
"Taxes" is defined in the Second Assignment.
"Term" means the period beginning on the Effective Date and ending on
the date on which 33.0 BCF of Second Production Payment Gas is delivered
pursuant to the Second Production Payment.
"Transportation Fee" is defined in the Second T&P Agreement.
ARTICLE II
PURCHASE AND SALE OF THE SECOND PRODUCTION PAYMENT
2.1 Upon the terms and subject to the terms of this Second Agreement, Denbury
agrees to sell and convey and Genesis agrees to purchase and pay for the Second
Production Payment.
2.2 The Second Production Payment will be assigned by Denbury to Genesis
pursuant to the Second Assignment.
2.3 Genesis shall look solely to the receipt of Second Production Payment Gas as
provided herein for satisfaction and discharge of the Second Production Payment,
and Genesis shall not have any other recourse against Denbury for the payment
and discharge of the Second Production Payment. However, the foregoing provision
shall not relieve Denbury of any obligation to respond in damages for any breach
of any of the covenants, agreements and obligations of Denbury hereunder or
under any other Second Master Document.
2.4 Genesis hereby grants Denbury the option to repurchase the Second Production
Payment pursuant to the terms of this Section 2.4 (the "Call Option"). If
pursuant to Section 2.8 of the Second T&P Agreement, the Transporter (as defined
in the Second T&P Agreement) elects to exercise its Call Option (or is deemed to
have elected to exercise its Call Option), Denbury shall notify Genesis of the
date on which the repurchase will be consummated (the "Call Settlement Date"),
which date must be a Business Day and must occur no sooner than five Business
Days and no later than 30 days after the date on which Transporter delivered (or
was deemed to have delivered) notice of its intent to exercise the Call Option.
On the Call Settlement Date, Genesis and Denbury shall execute documentation
sufficient to terminate the Second Production Payment and the other Second
Master Documents, cause the reconveyance to and assumption by Denbury of the
Industrial Sale Contract, and contemporaneously therewith, Denbury shall pay to
Genesis in immediately available funds, a purchase price equal to the estimated
cash flow from the remaining volumes obligated to be delivered pursuant to the
Second Production Payment discounted to present net value using a twelve percent
(12%) per annum discount rate. The estimated cash flow from the remaining
volumes obligated to be delivered pursuant to the Second Production Payment
shall be based upon a forecast prepared by Denbury and furnished to Genesis, and
if Genesis objects to such forecast, then such matter may be submitted to and
resolved in accordance with the arbitration provisions contained in Article XIV.
2.5 In the event of any express conflict between the terms and provisions of
this Second Agreement and the terms and provisions of the Second Assignment, the
terms and provisions of the Second Assignment shall control. The inclusion in
this Second Agreement of provisions not addressed in the Second Assignment shall
not be deemed a conflict, and all such additional provisions contained herein
shall be given full force and effect.
ARTICLE III
PROCESSING AND TRANSPORTATION OF
SECOND PRODUCTION PAYMENT GAS
3.1 After the Second Closing, Denbury agrees to transport Second Production
Payment Gas from the Receipt Points, and redeliver Second Production Payment Gas
at the Delivery Points, in accordance with the provisions of the Second T&P
Agreement. All Second Production Payment Gas shall be delivered by Denbury to
the Delivery Points in compliance with the requirements set out in the Second
T&P Agreement with respect to pressure, quantity and quality specifications.
Under the Second T&P Agreement, Genesis will pay Denbury a Transportation Fee
(as adjusted in accordance with the terms of the Second T&P Agreement), which
initially shall be $0.16 per MCF, for transportation of the Second Production
Payment Gas from the Receipt Points, processing of the Second Production Payment
Gas through the Applicable Plants, and redelivery of the Second Production
Payment Gas to or on behalf of Genesis at the Delivery Points.
3.2 The processing and transportation of Second Production Payment Gas by
Denbury as described in this Article shall be subject to the terms and
provisions contained in this Article, as such terms and provisions may be
further described or supplemented by the Second T&P Agreement. In the event of
any conflict between the terms and provisions of this Article and the terms and
provisions of the Second T&P Agreement, the terms and provisions of the Second
T&P Agreement shall control. The inclusion in this Second Agreement of
provisions not addressed in the Second T&P Agreement shall not be deemed a
conflict, and all such additional provisions contained herein shall be given
full force and effect.
ARTICLE IV
ASSIGNMENT OF INDUSTRIAL SALE CONTRACTS
4.1 At the Second Closing, Denbury will assign to Genesis all of its right,
title, and interest in and to the Additional Industrial Sale Contracts (the
"Assigned Contract Interests"), subject to the terms and conditions contained in
the Additional Industrial Sale Contracts. The Assigned Contract Interests will
be assigned by Denbury to Genesis pursuant to the Second Contract Assignment.
Notwithstanding such assignment, Denbury shall be obligated to continue to
comply with the Retained Obligations.
4.2 At the Second Closing, Genesis will assume the cost and responsibilities of
administering the Assigned Contract Interests with respect to rights and
obligations arising after the Effective Date and will report the sales and
values of such sales to Denbury on a Monthly basis on or before the 10th day of
each succeeding Month, in a manner and format agreed upon between the Parties,
in order that Denbury can timely pay royalties attributable to the Second
Production Payment Gas sold pursuant to the Additional Industrial Sale
Contracts. Notwithstanding anything herein to the contrary, without the prior
written consent of Denbury, Genesis shall not amend or otherwise modify any
terms or provisions of the Additional Industrial Sale Contracts if such
amendment or modification of the Industrial Sale Contract shall in any manner
whatsoever, directly or indirectly, modify the Retained Obligations or otherwise
increase any obligations of Denbury under any of the Second Master Documents,
including but not limited to any increase of the sales and delivery requirements
under the Additional Industrial Sale Contracts. If Denbury elects not to consent
to any proposed amendment, Denbury shall provide a written explanation setting
out the reasons for such election.
4.3 In the event of any conflict between the terms and provisions contained in
this Article IV and the terms and provisions of the Second Contract Assignment,
the terms and provisions contained in the Second Contract Assignment shall
control. The inclusion in this Second Agreement of provisions not addressed in
the Second Assignment shall not be deemed a conflict, and all such additional
provisions contained herein shall be given full force and effect.
4.4 If at any time or from time to time during the Term Genesis determines that
33.0 BCF is not sufficient to satisfy the sales and delivery requirements of the
Industrial Sale Contract (a "Deficiency"), Genesis shall promptly furnish
Denbury with written notice of such determination, and such notice shall contain
sufficient detail that is reasonably calculated to enable Denbury to determine
the basis for Genesis' determination of such Deficiency. If, after receipt of
such notice, Denbury agrees with Genesis' assessment of a Deficiency, Denbury
agrees to amend the Second Production Payment to include such additional volumes
of CO2 that are necessary to enable Genesis to satisfy the sales and delivery
requirements of the Additional Industrial Sale Contracts. If Denbury fails to
agree with Genesis' assessment of a Deficiency, then such matter shall be
resolved pursuant to Article XIV. The agreed-upon amount of additional volumes
necessary to enable Genesis to satisfy the sales and delivery requirements of
the Additional Industrial Sale Contracts (the "Additional Volumes") shall be
sold by Denbury to Genesis on the same terms and conditions, mutatis mutandis,
as applicable to the Second Production Payment by virtue of this Second
Agreement, and the value of, and consequently the consideration to be paid by
Genesis to Denbury for, the Additional Volumes shall be calculated based on
estimated cash flow from the Additional Volumes discounted to present net value
using a twelve percent (12%) per annum discount rate. Notwithstanding the
foregoing, if it is determined that the Deficiency has occurred, in whole or in
part, as a result of the sale by Genesis of Excess Volumes, Denbury shall not be
obligated to deliver those Additional Volumes which are attributable to the sale
of Excess Volumes by Genesis.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF DENBURY
Denbury hereby represents and warrants to Genesis as follows:
5.1 Denbury is a limited liability company duly formed, validly existing and in
good standing under the laws of the State of Delaware. Denbury possesses the
legal right, power and authority, and qualifications to conduct its business and
own its properties (including the Subject Interests), except where the failure
to so possess would not, individually or collectively, have a Material Adverse
Effect. Denbury has the legal right, power and authority (i) to execute and
deliver the Second Assignment and to convey to Genesis the Second Production
Payment and all of the rights and privileges appurtenant thereto and (ii) to
execute and deliver this Second Agreement and the other Second Master Documents
and to perform all of its obligations hereunder and thereunder.
5.2 The execution, delivery and performance by Denbury of this Second Agreement
and the other Second Master Documents are within its powers and authority, have
been duly authorized by all necessary board of director action on the part of
Denbury and do not and will not (i) violate any Governmental Requirement
currently in effect having applicability to Denbury, other than violations which
would not, individually or collectively, cause a Material Adverse Effect, or
(ii) violate any provision of Denbury's governing and organizational documents,
or (iii) result in a breach of or constitute a default (excluding breaches or
defaults which, individually or collectively, would not have a Material Adverse
Effect) under any indenture, bank loan, or credit agreement or farm-out
agreement, program agreement or operating agreement, or any other agreement or
instrument to which Denbury is a party or by which Denbury or its properties may
be currently bound or affected, or (iv) other than the Second Master Documents
and/or other than matters which would not individually or collectively cause a
Material Adverse Effect, result in or require the creation or imposition of any
mortgage, lien, pledge, security interest, charge, or other encumbrance upon or
of any of the properties or assets of Denbury (including the Subject Interests).
5.3 This Second Agreement and the other Second Master Documents have been duly
executed and delivered by Denbury, and this Second Agreement and the Second
Master Documents constitute the legal, valid, and binding acts and obligations
of Denbury enforceable against Denbury in accordance with their terms, subject,
however, to bankruptcy, insolvency, reorganization, and other laws affecting
creditors' rights generally and general principles of equity. There are no
bankruptcy, insolvency, reorganization, receivership or arrangement proceedings
pending, being contemplated by or, to Denbury's knowledge, threatened against
Denbury.
5.4 Denbury is not in default under any Governmental Requirement, indenture,
agreement, or instrument which would reasonably be expected to cause a Material
Adverse Effect nor does any fact or condition exist at this time that would
reasonably be expected to cause a Material Adverse Effect in the future under
any Governmental Requirement, indenture, agreement or instrument; and all
consents and waivers of preferential purchase or other rights required in
connection with the valid conveyance to Genesis of the Second Production Payment
or the execution and delivery of this Second Agreement and the other Second
Master Documents have been obtained or the time for giving such consents or
waivers has expired following a written request therefor, other than those
consents and waivers which if not obtained, would not individually or
collectively have a Material Adverse Effect.
5.5 All advance notifications to third parties of the transactions contemplated
herein and in the other Second Master Documents required in connection with the
valid conveyance to Genesis of the Second Production Payment or execution and
delivery of this Second Agreement and the other Second Master Documents have
been timely and properly given, other than those notifications which, if not
obtained, would not individually or collectively have a Material Adverse Effect.
5.6 All authorizations, consents, approvals, licenses, and exemptions of, and
filings or registrations with, any Governmental Authority, that are required for
the valid execution and delivery by Denbury of, or the performance by Denbury of
its obligations under, this Second Agreement or the other Second Master
Documents have been obtained or performed or the period for objection thereto
expired, other than those which, if not obtained or performed, would not
individually or collectively have a Material Adverse Effect.
5.7 To Denbury's knowledge, the Reserve Report (i) was prepared in accordance
with customary engineering practices, and (ii) is based on historical
information that is accurate and complete in all material respects. The Subject
Interests constitute all of the properties and interests reflected in the
Reserve Report that relate to the production of CO2. Set forth on Exhibit B
attached to this Second Agreement is a true and correct statement of Denbury's
working interest and net revenue interest in and to each well noted on such
Exhibit B except to the extent that such interest is incorrect as the result of
an act or omission that does not arise by, through or under Denbury and except
for discrepancies which would not be considered material by a reasonable and
prudent person engaged in the business of the ownership, development and
operation of oil and gas properties with knowledge of all the facts and
appreciation of their legal significance. The interests reflected on such
Exhibit B are owned by Denbury free and clear of any lien or encumbrance arising
by, through or under Denbury, other than Permitted Liens.
5.8 All Taxes imposed or assessed with respect to or measured by or charged
against or attributable to the Subject Interests, the Personal Property, the
Denbury Pipeline and the Applicable Plants have been duly paid, except for Taxes
not yet due and payable or pursuant to which Denbury is not delinquent.
5.9 There are no suits or proceedings pending or, to Denbury's knowledge,
threatened against Denbury, the Subject Interests, the Denbury Pipeline, the
Applicable Plants or any of the Personal Property before any Governmental
Authority, that, if decided adversely to the interest of Denbury, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that notwithstanding the foregoing, Schedule 5.9 includes a list of current
litigation affecting any of the Subject Interests, the Denbury Pipeline, the
Applicable Plants, and the Personal Property.
5.10 Except with respect to those matters which would not individually or
collectively have a Material Adverse Effect, (i) the Leases are in full force
and effect, and (ii) Denbury has complied with the terms of all Governmental
Requirements applicable to Denbury or applicable directly to the Subject
Interests.
5.11 All rents and royalties with respect to the Leases have been paid in a
timely manner (excluding any failures to pay which would not individually or
collectively have a Material Adverse Effect), and all liabilities of any kind or
nature incurred with respect to the Leases have been paid before delinquent
(excluding any liabilities or failures to pay which would not individually or
collectively have a Material Adverse Effect); Denbury has not received any
notice of default or claimed default with respect to the Subject Interests or
any part thereof that would reasonably be expected to result in a Material
Adverse Effect; and except for matters which would not individually or
collectively have a Material Adverse Effect, all wells, facilities and equipment
which constitute part of the Personal Property and the Denbury Pipeline and the
Applicable Plants are in good repair and working condition and have been
designed, installed and maintained in accordance with generally accepted
industry standards and all applicable Governmental Requirements.
5.12 Denbury has not violated any Governmental Requirement or failed to obtain
any license, permit, franchise or other governmental authorization required for
the ownership or operation of any of the Personal Property or the Denbury
Pipeline or any of the Applicable Plants, except for violations which would not
individually or collectively have a Material Adverse Effect. Except for matters
which would not individually or collectively have a Material Adverse Effect, the
Personal Property, the Denbury Pipeline and the Applicable Plants have each been
maintained, operated and developed in conformity with all applicable
Governmental Requirements of all Governmental Authorities having jurisdiction
and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Subject Interests.
5.13 Since the date of the Reserve Report, there has not been any reduction in
the rate of production of CO2 from any of the Subject Interests that would
reasonably be expected to have a Material Adverse Effect.
5.14 Except as set forth on Schedule 5.14 and except with respect to those
matters which would not individually or collectively reasonably be expected to
result in a Material Adverse Effect, to Denbury's knowledge: (i) Denbury has
obtained and maintained in effect all environmental and health and safety
permits, licenses, approvals, consents, certificates and other authorizations
required in connection with Denbury's ownership or operation of the Subject
Lands ("Environmental Permits"); (ii) Denbury's operations on the Subject Lands
are in compliance in all material respects with all applicable Environmental
Laws and with all terms and conditions of all applicable Environmental Permits,
and all prior instances of material non-compliance have been fully and finally
resolved to the satisfaction of all Governmental Authorities with jurisdiction
over such matters; (iii) Denbury's operations on the Subject Lands are not
subject to any third party environmental or health and safety claim, demand,
filing, investigation, administrative proceeding, action, suit or other legal
proceeding, whether direct, indirect, contingent, pending, threatened or
otherwise ("Environmental Claim"), or Environmental Liabilities (as defined
herein), arising from, based upon, associated with or related to Denbury's
operations on the Subject Lands; (iv) Denbury has not received any notice of any
Environmental Claim, Environmental Liabilities or any violation or
non-compliance with any Environmental Law or the terms or conditions of any
Environmental Permit, arising from, based upon, associated with or related to
Denbury's operations on the Subject Lands; (v) no pollutant, waste, contaminant,
or hazardous, extremely hazardous, or toxic material, substance, chemical or
waste identified, defined or regulated as such under any Environmental Law
("Environmental Contaminants") is present on, or has been handled, managed,
stored, transported, processed, treated, disposed of, released, migrated or has
escaped on, in, from, or under the Subject Lands as a result of Denbury's
operations on the Subject Lands in a manner that has caused an Environmental
Claim, Environmental Liabilities or a violation of any applicable Environmental
Law; and (iv) the executive management of Denbury is not aware of any facts,
conditions or circumstances in connection with, related to or associated with
any of the Properties or the ownership or operation, that as of the date of this
Second Agreement could reasonably be expected to give rise to any material
Environmental Claim or Environmental Liabilities. As used in this Second
Agreement, the term "Environmental Liabilities" shall mean any and all
liabilities arising from, based upon, associated with or related to (i) any
Environmental Claim, (ii) any applicable Environmental Permit, (iii) any
applicable Environmental Law or (iv) the presence, handling, management,
storage, transportation, processing, treatment, disposal, release, threatened
release, migration or escape of Environmental Contaminants (including, without
limitation, all costs arising under any theory of recovery, in law or at
equity), whether based on negligence, strict liability, or otherwise, including,
without limitation, remediation, removal, response, restoration, abatement,
investigative, monitoring, personal injury, and property damage costs and all
other related costs, expenses, losses, damages, penalties, fines, liabilities
and obligations (including interest paid or accrued, attorneys' fees, and court
costs).
5.15 Denbury has good title to the Additional Industrial Sale Contracts, free
and clear of all liens, encumbrances or claims (other than Permitted Liens), and
each Additional Industrial Sale Contract is in full force and effect and
enforceable against Denbury, and, to Denbury's knowledge, the counterparty
thereto. The Additional Industrial Sale Contracts have been conveyed to Genesis
free and clear of the Bank One Liens.
5.16 Except as set forth on Schedule 5.9 or Exhibit A to the Second Contract
Assignment, (a) there are no have been no amendments or modifications to the
Additional Industrial Sale Contracts; and (b) there are no breaches or defaults
under the Additional Industrial Sale Contracts by Denbury or any counterparty to
the Additional Industrial Sale Contracts which would reasonably be expected to
prevent the practical realization by Genesis of the benefits intended to be
provided to Genesis under the Additional Industrial Sale Contracts.
5.17 Upon due execution and delivery by Denbury of the Second Assignment, under
Mississippi law, (i) the Second Assignment will constitute the legal, valid, and
binding conveyance of the Second Production Payment and will constitute a burden
upon all of the CO2 production from the Subject Interests, and (ii) the Second
Production Payment will constitute real property.
5.18 Except with respect to the First Master Documents, the contracts assigned
pursuant to the First Contract Assignment, the Additional Industrial Sale
Contracts and/or as set forth in Schedule 5.18, (i) neither the Subject
Interests, the CO2 attributable thereto nor the Denbury Pipeline are subject,
committed, or dedicated to any contract, agreement, or arrangement regarding the
transportation or sale of CO2 production; (ii) no third party has any call,
right of first refusal or preferential right to purchase or transport any such
CO2 that has not been waived or the time for giving such consents or waivers has
expired in accordance with the terms of such call or rights; and (iii) no third
party has any purchase option with respect to any such CO2 or the Denbury
Pipeline.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GENESIS
Genesis hereby represents and warrants to Denbury as follows:
6.1 Genesis is a limited partnership duly formed and validly existing under the
laws of the State of Delaware. Genesis possesses the legal right, power and
authority, and qualifications to conduct its business and own its properties,
except where the failure to so possess would not, individually or collectively,
have a Material Adverse Effect. Genesis has the legal right, power and authority
to execute and deliver this Second Agreement, the Second Assignment and the
other Second Master Documents and to perform all of its obligations hereunder
and thereunder, including unanimous approval of the transactions by the audit
committee of Genesis Energy, Inc., the general partner of Genesis, such audit
committee consisting solely of independent directors (the "Audit Committee").
6.2 The execution, delivery and performance by Genesis of this Second Agreement
and the other Second Master Documents are within its powers and authority, have
been duly authorized by all necessary board of director action on the part of
Genesis Energy, Inc. (in its capacity as general partner of Genesis), and by the
Audit Committee and do not and will not (i) violate any Governmental Requirement
currently in effect having applicability to Genesis, other than violations which
would not, individually or collectively, cause a Material Adverse Effect, or
(ii) violate Genesis' limited partnership agreement or other governing
documents, or (iii) result in a breach of or constitute a default (excluding
breaches or defaults which, individually or collectively, would not have a
Material Adverse Effect) under any indenture, bank loan, or credit agreement or
farm-out agreement, program agreement or operating agreement, or any other
agreement or instrument to which Genesis is a party or by which Genesis or its
properties may be currently bound or affected.
6.3 Genesis is not in default under any Governmental Requirement, indenture,
agreement, or instrument that would reasonably be expected to cause a Material
Adverse Effect nor does any fact or condition exist at this time that would
reasonably be expected to cause a Material Adverse Effect now or in the future
under any Governmental Requirement, indenture, agreement or instrument; and all
consents or approvals under such indentures, agreements, and instruments
necessary to permit the valid execution, delivery, and performance by Genesis of
the Second Master Documents have been obtained.
6.4 This Second Agreement and the other Second Master Documents have been duly
executed and delivered by Genesis, and this Second Agreement and the Second
Master Documents constitute the legal, valid, and binding acts and obligations
of Genesis enforceable against Genesis in accordance with their terms, subject,
however, to bankruptcy, insolvency, reorganization, and other laws affecting
creditors' rights generally and general principles of equity. There are no
bankruptcy, insolvency, reorganization, receivership or arrangement proceedings
pending, being contemplated by or, to the knowledge of Genesis, threatened
against Genesis.
6.5 All authorizations, consents, approvals, licenses, and exemptions of, and
filings or registrations with, any Governmental Authority, that are required for
the valid execution and delivery by Genesis of, or the performance by Genesis of
its obligations under, this Second Agreement or the other Second Master
Documents have been obtained or performed or the period for objection thereto
expired, other than those which, if not obtained or performed, would not
individually or collectively have a Material Adverse Effect; and no consent or
vote of the limited partners of Genesis is required for the execution, delivery
or performance by Genesis of this Second Agreement and the other Second Master
Documents under Genesis' limited partnership agreement or other documents to
which Genesis is a party.
6.6 There are no suits or proceedings pending or, to Genesis' knowledge,
threatened against Genesis before any Governmental Authority, that if decided
adversely to the interest of Genesis would reasonably be expected to have a
Material Adverse Effect.
6.7 The Second Production Payment to be acquired by Genesis pursuant to this
Second Agreement is being acquired for Genesis' own account and for investment
and not for distribution in violation of applicable securities laws.
ARTICLE VII
PAYMENT TO DENBURY
7.1 As consideration for the sale of the Second Production Payment to Genesis
and the assignment of the Assigned Contract Interests to Genesis by Denbury,
Genesis shall pay to Denbury at the Second Closing, $4,800,000 in cash.
ARTICLE VIII
DISCLAIMER OF WARRANTIES
8.1 Denbury has allowed Genesis the opportunity to review the title to the
Subject Interests, to satisfy itself as to all matters pertaining to the
transactions contemplated by this Second Agreement, including but not limited to
the sufficiency of CO2 reserves attributable to the Subject Interests to satisfy
the CO2 delivery requirements under the Assigned Contract Interests, and to
conduct other due diligence with respect to the Second Production Payment, the
Subjects Interests, the Subject Lands, the Denbury Pipeline, the Applicable
Plants, and the Additional Industrial Sale Contracts as Genesis deems necessary
to consummate the transactions contemplated by this Second Agreement.
8.2 OTHER THAN THE EXPRESS REPRESENTATIONS AND WARRANTIES PROVIDED BY DENBURY
HEREIN AND IN THE OTHER SECOND MASTER DOCUMENTS, DENBURY MAKES NO WARRANTIES AS
TO (i) THE PRESENCE, QUALITY AND QUANTITY OF CO2 RESERVES ATTRIBUTABLE TO THE
SUBJECT INTERESTS, (ii) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME OR
DELIVERABILITY OF ANY CO2 OR CO2 RESERVES IN, UNDER OR ATTRIBUTABLE TO THE
SUBJECT LANDS, (iii) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE SUBJECT
LANDS, (iv) THE ABILITY OF THE SUBJECT LANDS TO PRODUCE CO2, INCLUDING WITHOUT
LIMITATION, PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES, (v)
ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, (vi) THE ACCURACY,
COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
GENESIS IN CONNECTION WITH THE SUBJECT INTERESTS, SUBJECT LANDS, THE DENBURY
PIPELINE AND THE APPLICABLE PLANTS, INCLUDING INFORMATION CONTAINED IN ANY
EXHIBIT of this Second Agreement, ANY SEISMIC DATA AND DENBURY's INTERPRETATION
OR ANALYSIS of same, OR (vii) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY
INFORMATION OR MATERIAL FURNISHED TO GENESIS BY DENBURY. ANY DATA, INFORMATION
OR OTHER RECORDS FURNISHED BY DENBURY ARE PROVIDED TO GENESIS AS A CONVENIENCE
AND GENESIS' RELIANCE ON OR USE OF THE SAME IS AT GENESIS' SOLE RISK.
ARTICLE IX
INDEMNITY
9.1 Denbury hereby indemnifies Genesis and its successors and assigns and
affiliates (each a "Genesis Indemnified Party") against, and agrees to defend
and hold each Genesis Indemnified Party harmless from and against, any and all
obligations, liabilities, claims, demands, suits, debts, accounts, liens or
encumbrances, and all costs and expenses, including reasonable attorneys' fees
relating thereto (collectively, "Claims"), that any Genesis Indemnified Party
may suffer or incur and that result from (a) the ownership or operation of the
Subject Interests, (b) the ownership of the Additional Industrial Sale Contracts
prior to the Effective Date, (c) any inaccuracy of any representation or
warranty of Denbury contained in this Second Agreement or in any other Second
Master Document, (d) any breach of any covenant or agreement of Denbury
contained in this Second Agreement or in any other Second Master Document,
including but not limited to the covenants relating to the Retained Obligations;
provided, however, that such indemnification shall not be construed to cover or
include any of the matters identified in Section 8.2 (including but not limited
to disclaimers of warranties relating to CO2 reserves or production) or any
Claims to the extent, but only to the extent, such Claims are determined to be
not payable because they fall within the scope of the force majeure provisions
contained in the Second Master Documents or the Additional Industrial Sale
Contracts.
9.2 Genesis hereby indemnifies Denbury and its successors and assigns and
Affiliates (each a "Denbury Indemnified Party") against, and agrees to defend
and hold each Denbury Indemnified Party harmless from and against, any and all
Claims that each Denbury Indemnified Party may suffer or incur and that result
from (a) except to the extent of any Claims arising solely as a result of
Denbury's execution of the Second Assignment, the ownership or operation of the
Second Production Payment, (b) except to the extent of any Claims arising as a
result of Denbury's failure to comply with the Retained Obligations, the
ownership of the Additional Industrial Sale Contracts after the Effective Date,
(c) any inaccuracy of any representation or warranty of Genesis contained in
this Second Agreement or any other Second Master Document, or (d) any breach of
any covenant or agreement of Genesis contained in this Second Agreement or any
other Second Master Document; provided, however, that such indemnification shall
not be construed to cover or include any Claims to the extent, but only to the
extent, such Claims are determined to be not payable because they fall within
the scope of the force majeure provisions contained in the Second Master
Documents or the Additional Industrial Sale Contracts.
9.3 No person entitled to indemnification hereunder or otherwise to damages in
connection with or with respect to the transactions contemplated in the
Agreement and the other Second Master Documents shall settle, compromise or take
any other action with respect to any Claim that could prejudice or otherwise
adversely impact the ability of the person providing such indemnification or
potentially liable for such damages to defend or otherwise settle or compromise
with respect to such Claim.
9.4 Each Party entitled to indemnification hereunder or otherwise to damages in
connection with the transactions contemplated in Agreement or the other Second
Master Documents shall take all reasonable steps to mitigate all losses, costs,
expenses and damages after becoming aware of any event or circumstance that
could reasonably be expected to give rise to any losses, costs, expenses and
damages that are indemnifiable or recoverable hereunder or in connection
herewith.
9.5 The indemnification provisions provided for in this Second Agreement shall
be applicable whether or not the losses, costs, expenses and damages in question
arose solely or in part from the gross, active, passive or concurrent
negligence, strict liability or other fault of Genesis or Denbury, as
applicable. The parties acknowledge that this statement complies with the
express negligence rule and is conspicuous.
ARTICLE X
SECOND CLOSING
10.1 Unless the Parties otherwise agree in writing, the closing of the
transactions contemplated by this Second Agreement (the "Second Closing") will
occur on the date this Second Agreement is executed as first set forth above
(the "Second Closing Date")
10.2 At the Second Closing, the following events shall occur, each being a
condition precedent to the others and each being deemed to have occurred
simultaneously with the others:
(a) Genesis shall deliver to Denbury the cash consideration described in
Section 7.1 by wire transferring immediately available funds to the
account of Denbury pursuant to wiring instructions furnished by Denbury
to Genesis prior to the Second Closing Date;
(b) The Parties shall execute, acknowledge and deliver the Second
Assignment and the Second Contract Assignment;
(c) The Parties shall execute and deliver the Second T&P Agreement;
(d) Denbury shall obtain and deliver to Genesis multiple executed originals
of the Second Agreement with Lenders executed by the holders of the
Bank One Liens;
(e) Denbury shall obtain and deliver to Genesis multiple executed originals
of an acceptable release of liens with respect to the Bank One Liens
encumbering the Subject Interests conveyed to Genesis pursuant to the
Second Assignment; and
(f) The Parties shall execute and deliver any other documents or
instruments necessary or appropriate to effect or support the
transactions contemplated in this Second Agreement, including but not
limited to any amendments or other modifications of the First Master
Documents that may be necessary or appropriate due to the execution and
delivery of the Second Master Documents.
10.3 Promptly following the Second Closing, Genesis will cause counterparts of
the Second Assignment, a mutually agreeable Memorandum of Second T&P Agreement,
Second Agreement with Lenders and financing statements to be filed for record in
all appropriate records in appropriate filing locations. Genesis will pay for
all documentary, filing and recording fees required in connection with the
filing and recording of the Second Master Documents.
ARTICLE XI
COVENANTS AND AGREEMENTS OF DENBURY
During the Term, and unless Genesis otherwise agrees in writing, Denbury
covenants as follows, and agrees and undertakes, to perform each and all of the
following covenants at Denbury's sole and entire cost and expense:
11.1 Denbury will (without regard to the burden of the Second Production
Payment) conduct and carry on the development, maintenance and operation of the
Subject Interests with reasonable and prudent business judgment and in
accordance with good oil and gas field practices and all applicable Governmental
Requirements, and will drill such wells as a reasonably prudent operator would
drill from time to time in order to develop the Subject Interests and to protect
them from drainage. Nothing contained in this Section, however, shall be deemed
to prevent or restrict Denbury from electing not to participate in any operation
that is to be conducted under the terms of any operating agreement, unit
operating agreement, contract for development or similar instrument affecting or
pertaining to the Subject Interests (or any portion thereof) and allowing
consenting parties to conduct nonconsent operations thereon, if such election is
made by Denbury in good faith and in conformity with sound field practices.
After the date of this Second Agreement, Denbury shall not enter into any
transaction(s) or agree to any arrangements which, after taking into account
then current required third party sales (including sales under the Additional
Industrial Sale Contracts) and Denbury's and its affiliates' usage, would result
or be reasonably anticipated to result in an inability of Denbury to deliver the
Scheduled Delivery Volumes to Genesis.
11.2 Denbury shall not voluntarily abandon any well heretofore or hereafter
completed for production of CO2 on any of the Subject Lands or surrender,
abandon or release any Subject Interest or any part thereof; provided however,
that nothing in this Second Agreement shall obligate Denbury to continue to
operate any well or to operate or maintain in force or attempt to maintain in
force any Lease when, in Denbury's reasonable opinion, exercised in good faith
and as would a prudent operator not burdened by the Second Production Payment,
such well or Lease ceases to produce or is not capable of producing in paying
quantities (without regard to the burden of the Second Production Payment) and
it would not be economically practical, in Denbury's reasonable judgment
(determined without regard to the burden of the Second Production Payment), to
restore the productivity of such well by reworking, reconditioning, deepening,
or plugging back such well. The expiration of a Lease in accordance with its
terms and conditions shall not be considered to be a voluntary surrender or
abandonment of such lease.
11.3 With respect to all oil, gas and mineral leases included in the Subject
Interests, Denbury will in all material respects comply with, or cause to be
complied with, all pertinent Governmental Requirements that from time to time
are promulgated to regulate the production and sale or production or sale of
CO2.
11.4 Certain of the Subject Interests may have been heretofore pooled and
unitized for the production of CO2. Such Subject Interests are and shall be
subject to the terms and provisions of such pooling and unitization agreements,
and the Second Production Payment shall apply to and affect only that portion of
the production from such units that accrues to such Subject Interests as
burdened, encumbered or otherwise affected by any and all applicable pooling and
unitization agreements. Denbury shall have the right and power to pool and
unitize any of the Subject Interests and to alter, change or amend or terminate
any pooling or unitization agreements heretofore or hereafter entered into, as
to all or any part of the Subject Lands, upon such terms and provisions as
Denbury shall in its sole discretion determine. If and whenever through the
exercise of such right and power, or pursuant to any Governmental Requirement
hereafter enacted, any of the Subject Interests are pooled or unitized in any
manner, the Second Production Payment, insofar as it affects such pooled or
unitized Subject Interests shall also be pooled and unitized, and in any such
event such Second Production Payment shall apply to and affect only the
production that accrues to such Subject Interests, as burdened, encumbered or
otherwise affected by such pooling and unitization.
11.5 Denbury shall pay, or cause to be paid, before delinquent, all Taxes,
except Taxes being contested in good faith. In the event that after the
expiration of the Term, additional Taxes should be charged against Genesis which
are attributable to Second Production Payment Gas produced during the Term and
delivered to Genesis at the Receipt Point(s), Denbury shall be obligated to pay
such Taxes.
11.6 Subject to the provisions of Section 2.4 hereof and Section 2.8 of the
Second T&P Agreement, Denbury will at all times maintain, preserve and keep all
Personal Property, the in good repair, working order and condition in all
material respects, and promptly make all necessary and proper repairs, renewals,
replacements and substitutions, to the end that the value of such Personal
Property, shall in all material respects be fully preserved and kept in such
condition as at all times to permit the most efficient and economical use and
operation thereof.
11.7 Denbury will (i) use all commercially reasonable efforts to promptly pay,
or cause to be paid, as and when due and payable all material rentals and
royalties payable in respect of the Subject Interests or the production
therefrom, and all material costs, expenses and liabilities for labor and
material to the extent that the same are attributable to the Subject Interests,
the Personal Property, the Denbury Pipeline, or the Applicable Plants, (ii)
never permit any lien (other than Permitted Liens) to be affixed or burden the
Subject Interests or Personal Property, even though inferior to the Second
Production Payment, for any such bills which may be legally due and payable
(other than Permitted Liens or liens which, individually or collectively, could
not have a Material Adverse Effect), and (iii) never permit to be created or to
exist in respect to any of the Subject Interests or the Personal Property, any
other or additional lien on a parity with or superior to the Second Production
Payment, except for Permitted Liens or other than liens which, individually or
collectively, could not have a Material Adverse Effect.
11.8 Denbury shall not resign as operator of any Subject Interest operated by
Denbury until and unless the successor operator has been approved in writing by
Genesis, such approval not to be unreasonably withheld or delayed.
11.9 Denbury agrees to furnish Genesis, upon request, with copies of all
electrical logs, core analyses, and completion reports relating to any well now
or hereafter drilled upon the Subject Lands. Denbury agrees to furnish Genesis,
upon request, with full information regarding the condition of the wells and the
lease operations relating to the Subject Interests. The reasonable cost of
copying any data and information described in this Section shall be paid by
Genesis. Furthermore, Denbury's disclosure of the data and information described
in this Section is subject to and may be limited by any confidentiality
obligations or other restrictions to which Denbury may be subject.
11.10 In the event that any Lease or other interest that constitutes a part of
the Subject Interests should expire or terminate for any reason (a "Lost
Interest"), and within one (1) year from date of such expiration or termination
of such Lost Interest, Denbury should reacquire such Lost Interest, then such
Lost Interest shall be charged and burdened with the Second Production Payment
to the same extent that the Lost Interest was charged and burdened with the
Second Production Payment, and Denbury agrees to execute such documents and
agreements as may be necessary or appropriate to effect the intent and purpose
of this section.
11.11 Airgas Obligations. The provisions of Section 11.11(b) and (c) of the
First Purchase and Sale Agreement (along with the definitions of all applicable
defined terms) are hereby incorporated herein by reference for all purposes as
if stated herein in full.
11.12 Denbury acknowledges that, pursuant to this Second Agreement and the
Second Contract Assignment, Genesis is acquiring all of Denbury's rights,
interest and obligations in the Additional Industrial Sale Contracts.
Notwithstanding such acquisition, there are certain covenants and obligations
under the Additional Industrial Sale Contracts that must be satisfied by the
owner or operator of the Subject Interests. Accordingly, Denbury covenants that,
until the termination of the Additional Industrial Sale Contracts and subject to
the applicable force majeure provisions in the Additional Industrial Sale
Contracts, Denbury will fully and timely perform each and every covenant and
agreement in the Additional Industrial Sale Contracts which must be performed by
the Seller (as defined in the Additional Industrial Sale Contracts) and which
relates to the ownership and operations of Seller's Reserves, the production of
carbon dioxide from Seller's Reserves, and/or the measurement, metering, testing
and other transportation services related thereto, including but not limited to
the obligations and covenants in Sections 3.1, 4.5, 5.2, 6.6, 7.2, 7.3, 7.4, and
8.1 of the BOC-Sandhill Contract and Sections 3.1, 3.2, 4.2, 4.5, 5.1(c), 5.3,
6.3, 6.6, 7.2, 7.3, 7.4, and 8.1 of the Magna Carta Contract. The covenants and
agreements of Denbury described in this section are collectively referred to
herein as the "Retained Obligations".
11.13 Denbury shall not sell CO2 to any Buyer (as such term is defined in each
of the Additional Industrial Sale Contracts), unless each Buyer has purchased
from Genesis, pursuant to each of the Additional Industrial Sale Contracts, the
Dedicated Contract Quantity applicable to such Additional Industrial Sale
Contracts.
11.14 For so long as the Additional Industrial Sale Contracts are in force and
effect, the Second Production Payment Gas delivered by Denbury to Genesis shall
meet the minimum quality specifications set forth in the Additional Industrial
Sale Contracts.
ARTICLE XII
EXCHANGE OF INFORMATION; AUDIT RIGHTS
12.1 After the Second Closing, (a) Denbury will keep Genesis advised of
Denbury's activities in the fields encompassing the Subject Lands insofar as
such activities relate to the terms and provisions of this Second Agreement, (b)
each Party shall promptly give, or cause to be given to the other Party, written
notice of any event or circumstance, including, but not limited to every adverse
claim or demand made by any Person or any Governmental Authority, that could
reasonably be expected to have a Material Adverse Effect, (c) each Party shall
give or cause to be given to the other Party written notice of every default
under the Additional Industrial Sale Contracts and every adverse claim or demand
made by any Person or any Governmental Authority related to the Additional
Industrial Sale Contracts, promptly upon obtaining knowledge of such default,
claim or demand and shall include in such notice a description in reasonable
detail of the default, claim or demand and if such Party obtained knowledge of
such default, claim or demand as a result of the receipt of a written notice, a
copy of such written notice, and (d) each Party shall also provide information
to the other Party as needed to confirm compliance with each Party's obligations
under this Second Agreement and the other Second Master Documents, to keep the
other Party updated as to matters relating to this Second Agreement and the
other Second Master Documents, from time to time, and in response to reasonable
inquiries by the other Party.
12.2 After the Second Closing, each Party, by notice in writing to the other
Party, shall have the right to audit the other Party's accounts and records
relating to the Second Production Payment, the Additional Industrial Sale
Contracts, and compliance with this Second Agreement and the other Second Master
Documents. Audit rights pertaining to the Second T&P Agreement are subject to
the terms and provisions with respect to auditing as set forth in the Second T&P
Agreement. Audit rights otherwise pertaining to the Second Production Payment,
the Additional Industrial Sale Contracts, or other compliance issues under this
Second Agreement and the other Second Master Documents are subject to the terms
of Section 12.3.
12.3 Audits shall not be conducted more than twice each year without prior
approval of the Party whose records are being audited (the "Audited Party"), and
shall be made at the expense of the Party conducting the audit. The Audited
Party shall reply in writing to an audit report within thirty (30) days after
receipt of such report. The Parties will endeavor to agree upon and make any
adjustments revealed to be necessary by any audit reports submitted by the
Audited Party pursuant to the provisions of this Section. If the Parties cannot
agree on any adjustment, the disputed adjustment will not be made, and such
disputed adjustment shall be resolved in accordance with the dispute resolution
provisions described in Section 14.1.
ARTICLE XIII
NOTICES
13.1 All notices under this Second Agreement must be in writing. Any notice with
respect solely to the matters in the Second T&P Agreement shall be in accordance
with the provisions pertaining to notices set forth in the Second T&P Agreement.
Any other notice under this Second Agreement may be given by personal delivery,
facsimile or email transmission, U.S. mail (postage prepaid), or commercial
delivery service, and will be deemed duly given when received by the Party
charged with such notice and addressed as follows:
If to Denbury: Denbury Onshore, LLC
5100 Tennyson Parkway, Suite 3000
Plano, TX 75024
Attn: Ray Dubuisson
Telephone: 972-673-2044
Fax: 972-672-2299
email: rayd@denbury.com
----------------
If to Genesis: Genesis Crude Oil, L.P.
500 Dallas, Suite 2500
Houston, TX 77002
Attn: Mark Gorman
Telephone: (713) 860-2500
Fax: (713) 860-2640
email: mgorman@genesiscrudeoil.com
---------------------------
13.2 Either Party, by written notice to the other, may change the address or the
individual to which or to whom notices are to be sent under this Second
Agreement.
ARTICLE XIV
DISPUTE RESOLUTION
14.1 Except as may be otherwise specifically provided herein, all disputes
arising under or in connection with this Second Agreement shall be resolved in
accordance with the procedures described in Exhibit E attached hereto and
incorporated herein by reference for all purposes.
ARTICLE XV
curtailments and interruptions
15.1 The provisions of Section 15.1 of the First Purchase and Sale Agreement
(along with the definitions of all applicable defined terms) are hereby
incorporated herein by reference for all purposes if as if stated herein in
full.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 This Second Agreement and the other Second Master Documents constitute the
entire understanding between the Parties relating to the subject matter hereof,
and supersede all prior negotiations, discussions, agreements and understandings
between the Parties, whether written or oral, regarding the subject matter of
this Second Agreement.
16.2 This Second Agreement may be amended, modified, and supplemented only by
written instrument executed by both Parties and explicitly referred to as an
amendment to this Second Agreement.
16.3 The waiver by either Party of any breach of the provisions of this Second
Agreement shall not constitute a continuing waiver of other breaches of the same
or other provisions of this Second Agreement.
16.4 Neither Party shall be liable to the other for any special, indirect,
consequential or punitive damages of any nature, or for attorneys' fees.
16.5 The interests of the Parties in this Second Agreement, and the interests
acquired by virtue of this Second Agreement and the interests retained by
Denbury in the Subject Lands, may not be subsequently assigned, either in whole
or in part, unless (i) any such assignee expressly agrees in writing to assume
and perform all of the assignor's obligations under this Second Agreement and
the other Second Master Documents, and (ii) such assignment is made and accepted
expressly subject and subordinate to this Second Agreement and the other Second
Master Documents. Further, any subsequent assignment, either in whole or in
part, to an entity that is not as financially creditworthy at the time of the
assignment as the assignor shall require the consent of the other party hereto,
which consent may not be unreasonably withheld or delayed. Subject to the
compliance with the terms of clauses (i) and (ii) above, either Party may
encumber or pledge its respective interests in connection with a financing
without the consent of the other Party. Any purported assignment, sale,
conveyance or other transfer in contravention of the foregoing terms shall be
null and void. Subject to the foregoing, this Second Agreement binds and inures
to the benefit of the Parties and their respective permitted successors and
assigns, and nothing contained in this Second Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights, or
remedies.
16.6 If any provision of this Second Agreement is found by a court of competent
jurisdiction to be invalid or unenforceable, that provision will be deemed
modified to the extent necessary to make it valid and enforceable, and if it
cannot be so modified, it shall be deemed deleted and the remainder of the
Agreement shall continue and remain in full force and effect.
16.7 This Second Agreement shall be governed by and construed according to the
laws of the State of Texas, excluding any conflicts-of-law rule or principle
that might apply the law of another jurisdiction. Venue for any arbitration,
lawsuit or other legal action in any way pertaining to this Second Agreement or
any other Second Master Document shall be in Dallas, Dallas County, Texas.
16.8 The Parties agree to do, execute, acknowledge and deliver all further acts,
conveyances and instruments as may be reasonably necessary or appropriate to
carry out the provisions of this Second Agreement.
16.9 The omission of certain provisions of this Second Agreement from the Second
Assignment does not constitute a conflict or inconsistency between this Second
Agreement and the Second Assignment, and will not effect a merger of the omitted
provisions. To the fullest extent permitted by law, all provisions of this
Second Agreement are hereby deemed incorporated into the Second Assignment by
reference. The headings and titles in this Second Agreement are for convenience
only and shall have no significance in interpreting or otherwise affect the
meaning of this Second Agreement.
16.10 This Second Agreement may be executed in counterparts, each of which shall
constitute an original and all of which shall constitute one document.
16.11 This Second Agreement may be circulated and executed by facsimile
transmission, and in such event, the signatures of the Parties on facsimiles
shall be considered as original and self-proving for all purposes.
16.12 Genesis and Denbury agree to treat the Second Production Payment as a
"production payment" under Section 636(a) of the Code. Both Genesis and Denbury
agree (i) to file all federal income tax and state income tax returns consistent
with this Section 16.12, and (ii) to use a comparable yield of 7.5% for purpose
of Treasury Regulation Section 1.1275-4(b).
[SIGNATURE PAGE FOLLOWS]
This Second Agreement is executed as of the date set out in the first
paragraph of this Second Agreement, but shall be effective as of the Effective
Date.
DENBURY:
DENBURY ONSHORE, LLC
By: Phil Rykhoek
--------------------------------------
Phil Rykhoek
Senior Vice President and
Chief Financial Officer
GENESIS:
GENESIS CRUDE OIL, L.P.
By: Genesis Energy, Inc.,
Its General Partner
By: Mark J. Gorman
-------------------------------------
Mark J. Gorman
President