PURCHASE AND SALE AGREEMENT
(PHASE I)
BETWEEN
TEXSTAR PETROLEUM, INC.
"Seller"
and
SHELL CAPITAL INC.
"Buyer"
DECEMBER 23, 1998
TABLE OF CONTENTS
Article I
DEFINITIONS
1.01. Certain Definitions . . . . . . . . . . . . . . . . . 1
1.02. Other Definitions . . . . . . . . . . . . . . . . . . 6
Article II
TRANSACTIONS
2.01. Purchase and Sale . . . . . . . . . . . . . . . . . . 6
Article III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.01. Representations and Warranties of Seller . . . . . . . 6
Article IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.01. Representations and Warranties of Buyer . . . . . . . . 12
Article V
CONDITIONS TO CLOSING
5.01. Conditions to Obligation of Seller . . . . . . . . . . 13
5.02. Conditions to Obligations of Buyer . . . . . . . . . . 13
Article VI
PRE-CLOSING; CLOSING; POST CLOSING
6.01. Pre-Closing Date and Place. . . . . . . . . . . . . . . 16
6.02. Documents to Be Executed at Pre-Closing . . . . . . . . 16
6.03. Recording . . . . . . . . . . . . . . . . . . . . . . . 17
6.04. Title Report. . . . . . . . . . . . . . . . . . . . . . 17
6.05. Closing . . . . . . . . . . . . . . . . . . . . . . . . 17
6.06. Closing Recordings and Legal Opinions . . . . . . . . . 18
-i-
6.07. No Duty on Buyer . . . . . . . . . . . . . . . . . . . 18
6.08. Failure to Close . . . . . . . . . . . . . . . . . . . 18
Article VII
MISCELLANEOUS
7.01. Announcements . . . . . . . . . . . . . . . . . . . . 18
7.02. Further Assurances . . . . . . . . . . . . . . . . . . 18
7.03. Survival . . . . . . . . . . . . . . . . . . . . . . . 18
7.04. Expenses . . . . . . . . . . . . . . . . . . . . . . . 18
7.05. Confidentiality . . . . . . . . . . . . . . . . . . . . 19
7.06. Certain References . . . . . . . . . . . . . . . . . . 19
7.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . 19
7.08. Indemnification . . . . . . . . . . . . . . . . . . . . 20
7.09. Governing Law . . . . . . . . . . . . . . . . . . . . . 21
7.10. Successors and Assigns . . . . . . . . . . . . . . . . 21
7.11. Schedules and Exhibits . . . . . . . . . . . . . . . . 21
7.12. Entire Agreement; Amendments; Waivers . . . . . . . . . 21
7.13. Headings . . . . . . . . . . . . . . . . . . . . . . . 22
7.14. Counterparts . . . . . . . . . . . . . . . . . . . . . 22
7.15. Assistance . . . . . . . . . . . . . . . . . . . . . . 22
7.16. Arbitration . . . . . . . . . . . . . . . . . . . . . . 22
EXHIBITS
Exhibit A -- Subject Interests
Exhibit B -- Seller's Disclosure Statement
Exhibit C -- Prior Liens to be Assigned on or Before Closing
Exhibit D-1 -- Conveyance of Overriding Royalty Interest (Permanent)
Exhibit D-2 -- Conveyance of Overriding Royalty Interest (Terminable)
Exhibit E -- Mortgage
Exhibit F -- Texstar Gas Purchase Contract
Exhibit G -- Legal Opinions
Exhibit H -- Operations Agreement
-ii-
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and entered
into this 23rd day of December, 1998, by and between TEXSTAR PETROLEUM, INC., a
Texas corporation, ("Seller"), and SHELL CAPITAL INC., a Delaware corporation,
herein referred to as "Buyer".
W I T N E S S E T H:
WHEREAS, Seller desires to sell and Buyer desires to purchase two separate
overriding royalty interests in certain oil and gas leases, record title to
which is owned by Seller;
NOW, THEREFORE, in consideration of the mutual benefits and obligations of
the parties contained herein, Buyer and Seller agree as follows:
ARTICLE I
DEFINITIONS
1.01. CERTAIN DEFINITIONS. As used herein, the following terms shall
have the meanings set forth below, except as otherwise expressly provided:
"Acceptable Title" means such record and beneficial title that (i) entitles
the party named to receive from its ownership of record in each Lease, a
percentage of all Hydrocarbons produced, saved and marketed from each well
located on each Lease, not less than the net revenue interest set forth in
Exhibit A for the respective Subject Interest pertaining to that Lease, without
reduction, suspension or termination for the respective productive life of such
well; (ii) obligates the party named to bear a percentage of the costs and
expenses relating to operations on and the maintenance and development of each
Lease and each well located on each Lease not greater than the leasehold
interest or operating rights interest percentage set forth in Exhibit A for the
respective Lease without increase for the respective productive life of each
such well unless there is a corresponding and proportionate increase in the net
revenue interest as set forth in Exhibit A associated therewith; (iii) entitles
the party named to a share of the working interest or operating rights in each
Lease which is not less than the leasehold interest or operating rights
interest percentage set forth in Exhibit A for the respective Lease; and (iv) is
free and clear of any encumbrances, liens, mortgages, or pledges, preferential
purchase rights or requirements for consents to assignment applicable to or
exercisable as a result of the Conveyances, and any other defects that would
materially adversely affect or interfere with the operation, use, possession,
ownership or value thereof, except for Permitted Encumbrances, or would impair,
impede or prohibit the granting of the Overriding Royalty Interests to Buyer or
any other transaction contemplated herein.
"Affiliate" shall mean any entity which either directly or indirectly
controls or manages, is controlled or managed by or under common control or
management with the party. For purposes hereof, "control" means the right or
power to direct the policies of another through management authority, stock
ownership, delegated authority, voting rights or otherwise.
"Assets" or "Asset" means, collectively or singularly, (i) the Subject
Interests, together with all rights, titles, interests, appurtenances,
benefits and privileges of Seller attributable to each Subject Interest; (ii)
all of the real, immovable, personal and mixed property of Seller (whether
located on or off the Subject Interests) used in connection with or
attributable in any way to the exploration or development of the Subject
Interests for Hydrocarbons or the operation of the Subject Interests for
producing, treating, storing or transporting of production from the Subject
Interests; (iii) all rights of Seller with respect to all contracts,
agreements, instruments, governmental orders, and contractual rights which
cover or relate in any way whatsoever to the Subject Interests; (iv) all
rights of Seller with respect to all easements, rights-of-ways, rights,
permits, licenses and servitudes which are used or held in connection with
the exploration, development or operation of the Subject Interests or the
transportation of production therefrom; and (v) all files, records, data and
documentation of Seller pertaining or related to the Subject Interests and/or
assets described in clauses (i) through (iv).
"Basic Data" means the written information, reports and other data
furnished to Buyer by Seller relating to the Assets or in connection with the
transactions contemplated in this Agreement.
"British Thermal Unit" or "Btu" means the amount of energy required to
raise the temperature of one (1) pound of pure water one degree Fahrenheit (1F.)
from fifty-nine degrees Fahrenheit (59F.) to sixty degrees Fahrenheit (60F.)
under a constant pressure of 14.73 pounds per square inch absolute.
"Casualty Defect" means, with respect to all or any material portion of an
Asset, any destruction by fire, blowout, leak, explosion or other casualty
(above or below ground) or any taking, or pending or threatened taking, in
condemnation or under the right of eminent domain, of any Asset or portion
thereof.
"Central Time" means Central Standard Time or Central Daylight Savings
Time in effect on the date in question.
"Closing" means the consummation of the transactions contemplated hereby
as provided in Article VI.
"Closing Date" means the date of Closing pursuant to Article VI.
"Closing Documents" means, collectively, the Conveyances, the Operations
Agreement, the Texstar Gas Purchase Contract, the Mortgage, and any other
documents executed or delivered at or in connection with the Pre-Closing or
Closing.
-2-
"Confidential Information" is defined in Section 7.05.
"Conveyances" means collectively, (i) the Permanent Conveyance and (ii)
the Terminable Conveyance.
"Coral" means Coral Energy Resources, L.P., a Delaware limited partnership.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Seller would be deemed to be a "single
employer" within the meaning of Section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of Section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043
of ERISA and the regulations issued thereunder, (ii) the withdrawal of the
Seller or any ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC or (v) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan.
"Hydrocarbons" means all oil, condensate, gas and other liquid and gaseous
hydrocarbon substances.
"Indemnified Parties" is defined in Section 7.08.
"Lease" means an oil and gas lease described, referred to or identified in
Exhibit A attached hereto and made a part hereof for all purposes, as to all
lands (or waterbottoms) and depths described in such lease (or the applicable
part or portion thereof if specifically limited in depth and/or areal extent in
Exhibit A), together with any renewal or extension of such lease (as to all or
any part or portion thereof), and any replacement lease taken upon or in
anticipation of expiration or termination of such lease (if executed and
delivered during the term of or within one (1) year after expiration of the
predecessor lease), as to all lands (or waterbottoms) and depths described in
the predecessor lease (unless the predecessor lease is specifically limited in
depth or areal extent in Exhibit A in which event only such portion of such
lease shall be considered a renewal or extension or a replacement lease and
subject to the terms of this Agreement), and all renewals and extensions of
such replacement leases.
"Legal Requirement" means any requirement imposed pursuant to any statute,
rule, regulation, order, permit or license of any applicable governmental
authority or by any applicable court order.
-3-
"MMBtu" means 1,000,000 British Thermal Units.
"Mortgage" means the Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement created by Seller for the benefit
of Buyer in the form of Exhibit E as the same may be amended, modified or
restated from time to time.
"Operations Agreement" means the Operations Agreement by and between
Seller and Buyer in the form of Exhibit H as the same may be amended,
modified or restated from time to time.
"Overriding Royalty Interests" means collectively, (i) the Terminable
Overriding Royalty Interest and (ii) the Permanent Overriding Royalty
Interest.
"Permanent Conveyance" means the Conveyance of Overriding Royalty
Interest (Permanent) from Seller to Buyer covering the Leases in the form
attached hereto as Exhibit D-1, as the same may be amended from time to time.
"Permanent Overriding Royalty Interest" means the overriding royalty
interest in and to the Subject Interests that is more particularly described
in the Permanent Conveyance.
"Permitted Encumbrances" means the following:
(a) the agreements, contracts and other documents described in Exhibit A
(to the extent the same are valid and enforceable and burden the
Subject Interests) and valid and subsisting lessors' royalties,
overriding royalties, reversionary interests and similar burdens
which affect the Subject Interests, to the extent the foregoing
taken in the aggregate (i) do not reduce Seller's net revenue
interest in Hydrocarbons produced from any Lease to less than the
net revenue interest set forth in Exhibit A for the Subject
Interest pertaining to that Lease and (ii) do not increase Seller's
portion of costs and expenses relating to operation and development
of any Lease to a portion greater than the leasehold interest or
operating rights interest percentage for that Lease shown in
Exhibit A;
(b) division orders and sales contracts terminable without penalty upon
no more than thirty (30) days' notice to the purchaser;
(c) liens for taxes or assessments not yet delinquent;
(d) materialman's, mechanic's, repairman's, employee's, contractor's,
operator's and other similar liens or charges arising in the
ordinary course of business, to the extent the same secure amounts
not yet due and payable or which are being contested in good faith
by appropriate proceedings diligently conducted;
-4-
(e) easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations, to the extent the
same do not materially interfere with operations on, or the
operation, value or use of, any Lease or any Subject Interest;
(f) other valid and enforceable liens, charges, encumbrances, contracts,
agreements, obligations, defects and irregularities affecting the
Subject Interests which taken in the aggregate and together with
the matters identified in clauses (a) through (e) above: (i) do not
materially interfere with operations on or the operation, value or
use of any Lease or any Subject Interest; (ii) do not prevent
Seller from receiving any proceeds of production from any Lease or
Buyer from receiving Hydrocarbons, or the proceeds thereof, from
any Subject Interest; (iii) do not reduce Seller's net revenue
interest in Hydrocarbons produced from any Subject Lease to less
than the net revenue interest set forth in Exhibit A for the Subject
Interest pertaining to that Lease; (iv) do not increase Seller's
portion of costs and expenses relating to operation and development
of any Lease to a portion greater than the leasehold interest or
operating rights interest percentage shown in Exhibit A for that
Lease; and (v) do not secure an obligation in respect of borrowed
money.
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, trust, estate, business trust,
association, governmental entity or other entity.
"Plan" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (a) is currently or hereafter sponsored,
maintained or contributed to by the Seller, a subsidiary or an ERISA
Affiliate, or (b) was at any time during the six calendar years preceding the
date of this Agreement, sponsored, maintained or contributed to, by the
Seller or a subsidiary or an ERISA Affiliate.
"Pre-Closing" is defined in Section 6.01.
"Reserve Reports" is defined in Section 3.01(a).
"Shell Gas Purchase Contract" means the Master Purchase Agreement between
Buyer and Coral dated effective as of January 1, 1999.
"Subject Interests" means the undivided leasehold and operating rights
interests set forth in Exhibit A in and to the Leases, and any and all
additional right, title, interest or claim of every kind and character of
Seller in and to the Leases and all lands now or hereafter pooled,
communitized or unitized therewith, even though Seller's interest may be
incorrectly or incompletely described in Exhibit A, all as the same shall be
enlarged by the discharge of any burdens, by the reversion of any interest or
by the removal of any charges or encumbrances to which any of the same may be
subject, and any and all renewals and extensions of any of the same, but
expressly excluding any additional interest in the Leases acquired by Seller
after the
-5-
Closing other than by reason of or resulting from discharge of any burden,
the reversion of any interest or the removal of any charge or encumbrance.
"Terminable Conveyance" means the Conveyance of Overriding Royalty
Interest (Terminable) from Seller to Buyer covering the Leases in the form
attached hereto as Exhibit D-2, as the same may be amended from time to time.
"Terminable Overriding Royalty Interest" means the overriding royalty
interest in and to the Subject Interests that is more particularly described
in the Terminable Conveyance.
"Texstar Gas Purchase Contract" means the Gas Purchase Contract between
Seller and Coral in the form attached hereto as Exhibit F as the same may be
amended, modified or restated from time to time.
"Taxes" means all ad valorem, property, occupation, severance, production,
gathering, pipeline, gross production, windfall profit, energy, Btu, excise
and other taxes, governmental charges and assessments imposed on the Assets
or the Overriding Royalty Interests, other than income taxes.
1.02. OTHER DEFINITIONS. Other terms defined elsewhere in this
Agreement shall have the meanings so given them herein.
ARTICLE II
TRANSACTIONS
2.01. PURCHASE AND SALE. Subject to and in accordance with the terms
hereof, Seller agrees to sell and Buyer agrees to purchase the Overriding
Royalty Interests for a purchase price (the "Phase I Purchase Price") of
$7,000,000 U.S. Dollars, and the parties agree to execute and deliver the
Closing Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.01. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Buyer as follows:
(a) All of the Basic Data are accurate and complete in all material
respects; and Seller has not made in any Basic Data any untrue statement of a
material fact, or failed to correct such an untrue statement, or omitted any
material fact which is necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
reserve and cash flow reports prepared by Seller or an Affiliate of Seller
(the "Reserve
-6-
Reports"), were prepared in accordance with customary oil and gas engineering
practices and are based on historical information which is accurate and
complete in all material respects.
(b) The actions of Seller in furnishing information to Buyer in
connection with the transactions described herein do not and will not violate
any duty owed by Seller to any person to which such information relates or
any obligation of Seller under any existing agreement.
(c) In the aggregate Seller owns Acceptable Title to the Assets and the
Subject Interests, except for the liens and production payments described in
Exhibit C which shall be assigned to BOCP Energy Partners, L.P. on or before
Closing.
(d) All Taxes previously imposed or assessed with respect to or
measured by or charged against or attributable to the Subject Interests and
the Assets have been duly paid.
(e) Except as may be set forth on Exhibit B, there are no suits or
proceedings pending or, to the knowledge of Seller, threatened against Seller
or the Assets before any court, or by or before any governmental commission,
bureau or any regulatory authority, that if decided adversely to the interest
of Seller could materially adversely affect Seller, any of the Assets or the
rights of Buyer under the Closing Documents.
(f) The Leases and all other agreements, contracts or instruments
associated with the Assets are in full force and effect and constitute legal,
valid and binding obligations of the Seller and to the Knowledge of Seller
the other Party thereto and neither Seller nor to the knowledge of Seller any
other party thereto is materially in breach or default of their obligations
thereunder; and Seller has complied with the terms of all suspensions of
production granted by any lessor applicable to the Leases and all
governmental orders or directives naming Seller or applicable directly to the
Leases.
(g) All rents and royalties with respect to the Leases have been paid
in a timely manner, and all liabilities of any kind or nature incurred with
respect to the Leases have been paid before delinquent; Seller has not
received any notice of default or claimed default with respect to the Subject
Interests or any Lease or any part thereof; and all wells, facilities and
equipment which constitute part of the Assets are in good repair and working
condition (ordinary wear and tear excepted) and have been designed, installed
and maintained in accordance with good industry standards and all applicable
Legal Requirements.
(h) The natural gas attributable to the Subject Interests is not
currently dedicated or committed to interstate commerce within the meaning of
the Natural Gas Act.
(i) Except as set forth on Exhibit B, neither the Subject Interests nor
the Hydrocarbons attributable thereto are subject, committed or dedicated to
any contract, agreement or arrangement regarding the gathering,
transportation, processing, storing, delivery, sale, use or marketing
thereof; Seller has disclosed to Buyer the effect of all such agreements, the
Btu content of the Hydrocarbons to be produced from the Subject Interests and
the value of such Hydrocarbons; and,
-7-
except as shown on Exhibit B, no third party has any call, right of first
refusal or preferential right to purchase such Hydrocarbons which has not
been waived by such third party or the appropriate time for asserting such
rights has not expired.
(j) Except as set forth on Exhibit B, no owner is a party to or bound
by, and the Subject Interests and the Hydrocarbons attributable thereto are
not encumbered or affected by, any gas balancing, deferred production, gas
banking or similar agreement or arrangement; and except as shown on Exhibit
B, no Owner is in an "overlift," over-produced," or similar status under any
such agreement or arrangement.
(k) Except as shown on Exhibit B, neither the Subject Interests nor the
Hydrocarbons attributed thereto is subject to any contract, agreement or
arrangement (including, without limitation, advance payment agreements,
prepayments, take-or-pay makeup obligations, gas over/short imbalances or
otherwise) whereby the owner of the Hydrocarbons attributed to the Subject
Interests or any part thereof is not entitled to convey the Hydrocarbons
attributed to the Subject Interests or to market the Hydrocarbons attributed
to the Subject Interests and to obtain the full market price or value of the
same.
(l) The Subject Interests have been operated in compliance in all
material respects with all rules and regulations of all governmental
authorities having or asserting jurisdiction relating to the ownership and
operation of the Subject Interests, including the production of Hydrocarbons
attributable thereto, and are not subject to reduced allowances or other
penalties on account of overproduction or otherwise. Seller has obtained all
necessary or appropriate franchises, licenses and permits to own and operate
its properties and to conduct its business as currently being conducted and
in accordance with all rules and regulations of any governmental authorities
and as would be obtained by a prudent operator.
(m) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the Texas; Seller is duly qualified and in
good standing under the laws of the States of Texas and Mississippi; Seller
has the legal right, power and authority, and qualifications to conduct its
business and own its properties (including the Subject Interests); Seller is
qualified to own State oil and gas leases; Seller has the legal right, power
and authority (i) to execute and deliver the Conveyances and to convey to
Buyer the Overriding Royalty Interests and all of the rights and privileges
appurtenant thereto and (ii) to execute and deliver the Mortgage, the
Operations Agreement and the Texstar Gas Purchase Contract; and Seller has
the legal right, power and authority to execute and deliver this Agreement,
and perform all of its obligations under the same.
(n) The making and performance by Seller of the Closing Documents are
within its corporate powers, have been duly authorized by all necessary
corporate action on the part of Seller and do not and will not (i) violate
any provision of law or any rule, regulation, order, writ, judgment, decree,
or determination currently in effect having applicability to Seller or of
Seller's certificate of incorporation or bylaws, (ii) result in a breach of
or constitute a default under any indenture, bank loan, or credit agreement
or farmout agreement, program agreement, operating
-8-
agreement, or any other agreement or instrument to which Seller is a party or
by which Seller or its properties may be currently bound or affected, or
(iii) 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 Seller (including the Subject Interests) under any
such indenture, bank loan, credit agreement, or other agreement or
instrument; and Seller is not in default under any such order, writ,
judgment, decree, determination, indenture, agreement, or instrument in any
way that now or in the future will materially adversely affect the ability of
Seller to perform its obligations under this Agreement or the Closing
Documents; and all consents or approvals under such indentures, agreements,
and instruments necessary to permit valid execution, delivery, and
performance by Seller of the Closing Documents and the conveying of the
Overriding Royalty Interests by Seller to Buyer have been obtained.
(o) This Agreement, the Mortgage, and the Operations Agreement have
been duly executed and delivered by Seller, and as of the Closing, will
constitute, the legal, valid, and binding acts and obligation of Seller
enforceable against Seller in accordance with their terms, subject, however,
to bankruptcy, insolvency, reorganization, and other laws affecting
creditors' rights generally and, with regard to any equitable remedies, to
the discretion of the court before which proceedings to obtain such remedies
may be pending. There are no bankruptcy, insolvency, reorganization,
receivership or arrangement proceedings pending, being contemplated by, or
threatened against Seller.
(p) As of the Closing, the Conveyances will have been duly executed and
delivered by Seller, and will constitute the legal, valid, and binding act
and obligations of Seller enforceable against Seller in accordance with their
terms and the legal, valid, and binding conveyances of the Overriding Royalty
Interests out of the entire Subject Interests.
(q) All consents and waivers of preferential purchase or other rights
necessary to permit the valid conveyance to Buyer of the Overriding Royalty
Interests and execution and delivery of this Agreement and the Closing
Documents have been obtained or the time for giving such consents or waivers
has expired following a written request therefor.
(r) All advance notifications to third parties of the transactions
contemplated herein and in the Closing Documents necessary to permit the
valid conveyance to Buyer of the Overriding Royalty Interests and execution
and delivery of this Agreement and the Closing Documents have been timely and
properly given.
(s) No authorization, consent, approval, license, or exemption of, and
no filing or registration with, any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
is necessary to the valid execution and delivery by Seller of, or the
performance by Seller of its obligations under this Agreement or the Closing
Documents that has not been obtained or performed or the period for objection
thereto expired.
(t) No fire, explosion, accident, earthquake, act of public enemy, or
other casualty (regardless of whether covered by insurance) adversely
affecting any material portion of the
-9-
Subject Interests or the operation thereof, or adversely affecting the
ability of Seller to perform its obligations under this Agreement or the
Closing Documents, has occurred.
(u) Prior to the Pre-Closing, Seller shall have furnished to Buyer true
copies of all of the agreements and other instruments described in paragraph
(a) of the definition of Permitted Encumbrances.
(v) The chief executive offices of Seller and the location where it
keeps all of its records relating to the Subject Interests is located at the
following address: 1000 Louisiana Street, 15th floor, Houston, Texas 77002
and there has been no change in Seller's place of business and chief
executive offices and no change of Seller's name during the four months
immediately preceding the date hereof.
(w) With respect to the Assets operated by Seller, Seller has obtained,
and with respect to Assets operated by third parties, to the best of Seller's
knowledge the third party operator has obtained, all permits, licenses and
other authorizations which are required under federal, state and local laws
with respect to pollution or protection of the environment relating to
Subject Interests, including laws relating to actual or threatened emissions,
discharges or releases of pollutants, raw materials, products, contaminants
or hazardous or toxic materials or wastes into ambient air, surface water,
groundwater or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic materials or wastes, the
failure of which to obtain would materially affect the value, use or
operation of any of the Subject Interests; and Seller (with respect to the
Assets operated by it), and to the best of Seller's knowledge third parties
operating the Assets on behalf of Seller (with respect to the Assets not
operated by Seller) are in compliance in all material respects with all terms
and conditions of such laws, permits, licenses and authorizations, and also
are in compliance in all materials respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder relating to the Assets,
and have all necessary operating or environmental plans required by any law,
permit, license or authorization, the failure with which to comply would
materially affect the value, use or operation of any Subject Interest; and
Seller has not (and to Seller's knowledge and belief no third party operating
the Assets on behalf of Seller has) received notice of any violation of or
investigation relating to any federal, state or local laws with respect to
pollution or protection of the environment relating to the Assets.
(x) The financial statements of Seller dated as of October 31, 1998
furnished to Buyer have been prepared in accordance with generally accepted
accounting principles of the United States, consistently applied, and fairly
and accurately reflect the financial condition of Seller as of such date, and
since such date (i) there has been no change in the assets, liabilities or
financial condition of Seller from that set forth in such latest statement,
other than changes in the ordinary course of business that have not been,
either individually or in the aggregate, materially adverse and (ii) neither
the business, operations or affairs of Seller, nor any of its properties or
assets has
-10-
been materially adversely affected by any occurrence or development regardless
of whether insured against.
(y) Except as expressly identified to the contrary by the terms "Before
Payout" and "After Payout" (or terms of similar import) or by the
abbreviations "BPO" and "APO", each of the interests shown on Exhibit A is a
permanent or "after payout" interest; and in each instance in which a "Before
Payout" or "BPO" or an "After Payout" or "APO" (or terms of similar import)
interest is expressly set forth on Exhibit A, the true and correct
"payout" status for that particular Subject Interest was furnished by Seller
to Buyer for the purpose of the preparation of the Reserve Reports prepared
by such party.
(z) (i) Upon the execution and delivery by Seller of the Permanent
Conveyance, (A) the Permanent Conveyances will constitute the legal, valid
and binding conveyance of the Permanent Overriding Royalty Interest out of
the leasehold interests and operating rights interests described therein, (B)
the Permanent Overriding Royalty Interest will constitute a "real property"
interest, (C) the Permanent Overriding Royalty Interest will qualify as a
Production Payment under Section 101 (42A) of the United States Bankruptcy
Code and (D) the Permanent Conveyance will or does not constitute an
executory contract or unexpired lease within the meaning of Section 365 of
the United States Bankruptcy Code and (ii) Upon the execution and delivery by
Seller of the Terminable Conveyance, (A) the Terminable Conveyances will
constitute the legal, valid and binding conveyance of the Terminable
Overriding Royalty Interest out of the leasehold interests and operating
rights interests described therein, (B) the Terminable Overriding Royalty
Interest will constitute a "real property" interest, (C) the Terminable
Overriding Royalty Interest will qualify as a Production Payment under
Section 101 (42A) of the United States Bankruptcy Code and (D) the Terminable
Conveyance will or does not constitute an executory contract or unexpired
lease within the meaning of Section 365 of the United States Bankruptcy Code.
(aa) (i) The Seller, each Affiliate and each ERISA Affiliate have
complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(ii) Each Plan, if any, is, and has been, maintained in
substantial compliance with ERISA and, where applicable, the Code.
(iii) No act, omission or transaction has occurred which could
result in imposition on the Seller, any Affiliate or any ERISA
Affiliate (whether directly or indirectly) of (i) either a civil
penalty assessed pursuant to Section 502(c) or (i) of ERISA or a
tax imposed by Section 4975 of the Code or (ii) breach of
fiduciary duty liability damages under Section 409 of ERISA.
(iv) No Plan (other than a defined contribution Plan) or any
trust created under any such Plan has been terminated since
September 2, 1974. No liability to the PBGC (other than for the
payment of current premiums which are not past due) by
-11-
the Seller, any Affiliate or any ERISA Affiliate has been or is
expected by the Seller, any Affiliate or any ERISA Affiliate to be
incurred with respect to any Plan. No ERISA Event with respect to
any Plan has occurred.
(v) Full payment has been made of all amounts which the Seller,
any Affiliate or any ERISA Affiliate is required under the terms
of each Plan, if any, or applicable law to have paid as
contributions to such Plan as of the date hereof, and no
accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, exists with
respect to any Plan.
(vi) The actuarial present value of the benefit liabilities under
each Plan, if any, which is subject to Title IV of ERISA does not,
as of the end of the Seller's most recently ended fiscal year, exceed
the current value of the assets (computed on a Plan termination basis
in accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities. The term "actuarial present value of the
benefit liabilities" shall have the meaning specified in Section
4041 of ERISA.
(vii) Neither the Seller nor any Affiliate or ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit
Plan, as defined in Section 3(1) of ERISA, including, without
limitation, any such Plan maintained to provide benefits to former
employees of such entities, that may not be terminated by the
Borrower, such Subsidiary or ERISA Affiliate in its sole
discretion at any time without any material liability.
(viii) Neither the Seller nor any Affiliate or ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the
six-year period preceding the date of this Agreement sponsored,
maintained or contributed to, any Multiemployer Plan.
(ix) Neither the Seller nor any Affiliate or ERISA Affiliate is
required to provide security under Section 401(a)(29) of the Code
due to a Plan amendment that results in an increase in current
liability for the Plan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.01. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller that:
(a) Buyer is a corporation duly organized and validly existing under
the laws of the State of Delaware. The execution, delivery and performance of
this Agreement and the transactions described herein have been duly and
validly authorized by all requisite corporate action on the part of Buyer.
-12-
(b) This Agreement has been and as of the Closing, the Closing
Documents will have been, duly executed and delivered on behalf of Buyer and
this Agreement constitutes, and as of the Closing the Closing Documents will
constitute, the legal, valid and binding obligations of Buyer enforceable
against it in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights
generally and with regard to any equitable remedies, to the discretion of the
court before which proceedings to obtain such remedies may be pending.
ARTICLE V
CONDITIONS TO CLOSING
5.01. CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
proceed with the Closing is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions, any one or more of which may
be waived in whole or in part in writing by Seller:
(a) Buyer shall have performed all covenants and agreements required
to be performed by it hereunder at or prior to the Closing, and each of the
representations and warranties contained in Article IV hereof shall be true
and correct on and as of the Closing Date in all material respects.
(b) Seller shall have received a certificate dated the Closing Date
of an officer of Buyer certifying as to the matters specified in Section
5.01(a); provided, however, such officer shall have no personal liability to
Seller on account of such certificate.
(c) The Closing hereunder shall not violate any order or decree of
any federal or state court or agency having competent jurisdiction, and no
suit, action or other proceeding shall be pending in which there is sought
any remedy to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the transactions contemplated in connection herewith.
(d) This Agreement and the transactions contemplated hereby shall
have been approved by the Board of Directors of Seller.
5.02. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
proceed with the Closing is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions precedent, any one or more of
which may be waived in whole or in part in writing by Buyer:
(a) Seller shall have performed all covenants and agreements required
to be performed by it hereunder at or prior to the Closing, and each of the
representations and warranties contained in Article III hereof shall be true
and correct on and as of the Closing Date in all material respects.
-13-
(b) Buyer shall have received a certificate, dated as of the Closing
Date, of an officer of Seller certifying as to the matters specified in
Section 5.02(a); provided, however, such officer shall have no personal
liability to Buyer on account of such certificate.
(c) The Closing hereunder shall not violate any order or decree of
any federal or state court or agency having competent jurisdiction, and no
suit, action or other proceeding shall be pending in which there is sought
any remedy to restrain, enjoin or otherwise prevent the consummation of this
Agreement or the transactions contemplated in connection herewith or which
may have any material adverse effect on the Assets.
(d) Buyer shall have received opinions in form and substance
satisfactory to Buyer covering the matters outlined on Exhibit G from counsel
to Seller satisfactory to Buyer.
(e) Buyer shall have received verbal updated title reports covering
the Subject Interests as to the filing of the Closing Documents satisfactory
to Buyer, from Brunini, Grantham, Grower & Hewes, PLLC or other counsel
acceptable to Buyer, counsel for Seller.
(f) There shall not exist or have occurred any Casualty Defect that,
in the aggregate, materially adversely affects the value of the Assets or the
Overriding Royalty Interests or the use, possession or operation by Seller of
the Assets or any material part thereof.
(g) Buyer shall have received from the Secretary of Seller certified
copies of resolutions (or written consents) of the Board of Directors of
Seller, authorizing the transactions contemplated hereby and the execution of
the Closing Documents, by the officer or representative signing on behalf of
Seller.
(h) The Reserve Reports shall be acceptable to Buyer, in Buyer's sole
discretion, with respect to the proved reserves attributable to the Subject
Interests.
(i) All applicable Hydrocarbon gathering, transportation, processing
and treating agreements and arrangements, all operating agreements, and all
other agreements and arrangements with all transporting pipelines, joint
interest owners and other third parties shall be acceptable to Buyer, in
Buyer's sole discretion, and must assure to Buyer firm uninterrupted delivery
and transportation of Hydrocarbons on terms acceptable to Buyer, in Buyer's
sole discretion.
(j) Buyer, in Buyer's sole discretion, shall be satisfied with the
results of any review of the Assets which it undertakes, including without
limitation, that the wells associated with the Subject Interests
have been connected to pipelines of a transporter of Hydrocarbons.
(k) Buyer shall have received a Subordination Agreement from EnCap
Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP
Energy Partners, L.L.C., Lasco Energy Partners, L.P., and Energy Capital
Investment Company PLC and any Affiliate of any
-14-
of the preceding (collectively, the "ENCAP ENTITIES") in form and substance
satisfactory to Buyer, in Buyer's, sole discretion.
(l) Buyer shall have received a Consent and Waiver from the relevant
EnCap Entities waiving any breach of covenant provided for in that certain
Purchase and Sale Agreement between Lasco Energy Partners, L.P., Seller, and
Benz Energy, Ltd. related to the purchase of the Lasco Properties which may
occur as a result of the consummation of the transactions contemplated hereby
or in any of the Transaction Documents in form and substance satisfactory to
Buyer, in Buyer's, sole discretion.
(m) Buyer shall have received documentation in form and substance
satisfactory to Buyer, in Buyer's sole discretion that Pioneer's receivables
will be scheduled for payment in equal monthly installments over the first
nine (9) months of 1999 together with appropriate legal opinions from legal
counsel acceptable to Buyer regarding authorization, noncontravention and
enforcement.
(n) Prentis B. Tomlinson, Jr. and the Starbucks Trust in form and
substance satisfactory and any related Affiliate thereto, shall have executed
an agreement whereby such parties shall defer payment of any amounts owing to
such parties from Seller or any of its Affiliates until after the Termination
Date (as such term is defined in the Terminable Conveyance), in form and
substance acceptable to Buyer together with delivery of appropriate
legal opinions regarding authorization, noncontravention and enforceability.
(o) This Agreement and the transactions contemplated hereby shall
have been approved by the Board of Directors of Buyer.
(p) Buyer shall have received drafts of pipeline interconnect
agreements from Transco and TransTexas in form and substance satisfactory to
Buyer reflecting that all wells associated with the Subject Interests have
been connected to a pipeline system permitting the flow of hydrocarbons to a
commercially viable market.
(q) One of the EnCap Entities will have purchased the Notes and
liens related to the Letter Loan Agreement between Bank One, Texas, N.A. and
Seller dated July 17, 1997.
(r) Buyer shall have received certificates from the Secretaries of
State of the States of Texas and Mississippi showing that Seller is a
corporation duly qualified and in good standing under the laws of said states.
ARTICLE VI
PRE-CLOSING; CLOSING; POST CLOSING
-15-
6.01. PRE-CLOSING DATE AND PLACE. The pre-closing ("Pre-Closing") shall
take place at 2:00 p.m. Central Time on December 23, 1998, at the offices of
Vinson & Elkins L.L.P. in Houston, Texas, unless a different time and place
for the Pre-Closing are mutually agreed upon.
6.02. DOCUMENTS TO BE EXECUTED AT PRE-CLOSING. The following actions
shall occur at the Pre-Closing:
(a) Seller and Buyer shall duly execute, acknowledge and deliver the
following instruments:
(i) Counterparts of the Conveyances;
(ii) Counterparts of the Mortgage;
(iii) Counterparts of the Texstar Gas Purchase Contract;
(iv) Counterparts of the Shell Gas Purchase Contract;
(v) Counterparts of the Operations Agreement;
(vi) Letters in lieu of transfer orders addressed to each
purchaser of Hydrocarbons produced from or attributable to
each of the Subject Interests;
(vii) UCC-1 Financing Statements; and
(viii) Such other instruments as are necessary or appropriate to
effectuate the Conveyances to properly reflect the interest
to be acquired by Buyer pursuant hereto.
(b) Seller shall deliver to Buyer certain corporate opinions described
in Section 5.02(d);
(c) Seller shall deliver to Buyer certified resolutions of its Board of
Directors authorizing the execution and delivery of the Closing Documents; and
(d) Buyer and Seller shall exchange the officer's certificates described
in Section 5.01(b) and Section 5.02(b).
6.03. RECORDING. Promptly following the Pre-Closing, Seller will cause
counterparts of the Conveyances, Mortgage and financing statements to be
filed for record in all appropriate recording offices in Texas and
Mississippi; and Seller will pay for all documentary, filing and recording
fees required in connection with the filing and recording of such Closing
Documents.
-16-
6.04. TITLE REPORT. As soon as possible following the Pre-Closing,
Seller shall cause its title counsel to report to Buyer (updating the title
opinions previously furnished to Buyer), to the effect that the Closing
Documents have been properly filed for record in accordance with Section 6.03
and that as of the filing of such Closing Documents (a) Seller is the owner
of the Subject Interests, less and except the Overriding Royalty Interests,
which are subject only to the Permitted Encumbrances, the Mortgage and the
Texstar Gas Purchase Contract, (b) Buyer is the owner of the Overriding
Royalty Interests, subject only to the Permitted Encumbrances, (c) all
filings in the recording offices in Texas and Mississippi which are necessary
to perfect Buyer's title to the Overriding Royalty Interests and to give
constructive notice to third parties of Buyer's interest under the Mortgage
and the Texstar Gas Purchase Contract have been made.
6.05. CLOSING. On the first business day following receipt by Buyer of
the title report described in Section 6.04 and the other conditions to
Closing have been achieved to the satisfaction of Buyer (or waived by Buyer
in its sole discretion), the following items in this Section 6.05 shall
occur, provided, however if in Buyer's sole discretion, time permits on the
date Buyer receives the title report and such conditions are satisfied or
waived, then the following items in this Section 6.05 shall occur on the date
of receipt of the title report, the following shall occur:
(a) Seller shall deliver to Buyer the legal opinions described in
Sections 5.02(d) (other than those opinions previously delivered in
accordance with Section 6.02(b));
(b) Buyer shall pay Seller the Phase I Purchase Price by wire transfer
to a Texstar account provided that certain funds related to the payments for
the matters described in Sections 5.02(p) will be held in escrow and remitted
directly to the payees for such costs as set forth on Schedule H to the
Operations Agreement;
(c) Seller shall pay to Buyer the $100,000 fee provided for in the fee
letter between Seller and Buyer dated December 23, 1998; and
(d) The parties shall take such other actions and make such other
deliveries of documents as are necessary or appropriate to effectuate the
conveyance of the Overriding Royalty Interests to Buyer.
The Closing shall be deemed to have occurred on receipt by Seller of the
Phase I Purchase Price as set forth in Section 6.05(b). Each party agrees to
execute such acknowledgment of receipt of funds pursuant to this Section 6.05
as the other party may reasonably request.
6.06. CLOSING RECORDINGS AND LEGAL OPINIONS. Within five (5) business
days following the Closing, Seller shall deliver to Buyer updated title
reports of Brunini, Grantham, Grower & Hews, PLLC or other counsel acceptable
to Buyer, counsel for Seller, in form satisfactory to Buyer, confirming the
matters orally reported to Buyer pursuant to Section 6.04.
-17-
6.07. NO DUTY ON BUYER. Buyer shall pay the Phase I Purchase Price to
Seller as set forth above, but Buyer shall have no duty to any Seller or any
other Person with respect to the proper application of such funds.
6.08. FAILURE TO CLOSE. If all of the conditions to Closing set forth
in Article V have not been satisfied or waived on or before December 31,
1998, (or such later date as hereafter may be mutually agreed upon by the
parties in writing) this Agreement shall terminate automatically, and, except
as provided herein to the contrary, no party hereto shall have any further
obligation or any liability to the other party pursuant to this Agreement.
ARTICLE VII
MISCELLANEOUS
7.01. ANNOUNCEMENTS. Each party covenants and agrees with the other
that, subject to applicable law or stock exchange regulations, each party
shall promptly advise and consult with the other and obtain the other's
written consent before issuing any press release with respect to this
Agreement or the transactions described herein. Provided, however, Seller
shall or shall cause its parent Benz Energy Ltd., to provide Buyer an
opportunity to review and comment on any press release which may be required
to be provided to the Vancouver Stock Exchange at least three days prior to
the date that such notice is required to be delivered.
7.02. FURTHER ASSURANCES. Seller and Buyer agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful to effectuate the conveyance of the
Overriding Royalty Interests and to carry out the purposes of this Agreement
or any of the Closing Documents.
7.03. SURVIVAL. The representations, warranties, covenants, agreements
and indemnities in this Agreement and the Closing Documents shall survive the
Closing and the consummation of the transactions described herein and therein.
7.04. EXPENSES. Whether or not Closing occurs, Seller shall reimburse
Buyer promptly on demand for all reasonable out-of-pocket fees, costs and
expenses incurred by Buyer in connection with the negotiation, documentation
and closing of this Agreement and the Purchase and Sale Agreement (Phase II)
between Buyer and Seller dated as of even date herewith and the Closing
Documents and the transactions contemplated herein and therein, and the
review of matters in connection with such transactions (the "Costs") up to a
maximum of $100,000 (the "Maximum Costs"). Notwithstanding the preceding
sentence, in the event that the Costs exceed the Maximum Costs, Seller shall
be required to reimburse Buyer promptly on demand for one-half of the amount
by which the Costs exceed the Maximum Costs. Seller shall bear and be
responsible for all fees, costs and expenses (including, without limitation,
legal, accounting and engineering expenses) incurred by it with respect to
the negotiation, documentation and consummation of the transactions described
herein, and (ii) indemnify and hold harmless Buyer from and against any and
all liability for any brokers' or finders' fees arising with respect to
-18-
brokers or finders retained or engaged by Seller in respect of the transactions
described herein and Buyer shall indemnify and hold harmless Seller from and
against any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by Buyer in respect of the
transactions described herein.
7.05. CONFIDENTIALITY. It is recognized that in connection with Buyer's
review of the Subject Interests, Seller will furnish to Buyer the Reserve
Reports and other information of Seller dealing with reserves and geology
relating to the Subject Interests (the "Confidential Information"). For a
period of four (4) years from the date hereof Buyer agrees to keep and maintain
confidential the Confidential Information and not to disclose same to any third
party without the consent of Seller, provided that Buyer in the exercise of
good faith may disclose Confidential Information without additional consent of
Seller (a) to representatives, consultants and attorneys reviewing the Subject
Interests on behalf of Buyer, provided such Person agrees to maintain
confidential the Confidential Information so disclosed on the same terms and
conditions as Buyer; (b) to the extent necessary in connection with a bona fide
sale or financing of the Overriding Royalty Interests or "Overriding Royalty
Hydrocarbons" by Buyer, provided such Persons agree to maintain confidential
the Confidential Information so disclosed on the same terms and conditions as
Buyer; (c) to the extent required by contract, by law or in response to
deposition or subpoena, provided Buyer shall give advance notice to Seller of
such disclosure; and (d) to the extent the information is part of the public
domain or public information. In the event Closing does not occur, Buyer will
return to Seller any copies of Confidential Information which Buyer may have in
its possession. Except to the extent required to do so by applicable law or in
connection with any bona fide financing transaction or the requirements of any
stock exchange, Sellers and Buyer agree to hold confidential this Agreement and
the transactions covered hereby.
7.06. CERTAIN REFERENCES. Certain agreements, contracts and other
documents are listed in Exhibit A and included in the definition of Permitted
Encumbrances. References herein or in schedules or exhibits hereto to Permitted
Encumbrances are made solely for the purpose of protecting Seller on Seller's
warranties and representations as to the Subject Interests, and without regard
to whether or not any Permitted Encumbrance is valid, subsisting, legal or
enforceable or affects the Overriding Royalty Interests; and such references
are not intended to constitute and shall not constitute any sort of recognition
or acknowledgment by any party as to the validity, legality or enforceability
of the same or of any term, provision or condition thereof or the applicability
thereof to the Overriding Royalty Interests, and shall not revive or ratify the
same or create any rights in any third Person.
7.07. NOTICES. All notices, requests, demands, instructions and other
communications required or permitted to be given hereunder shall be in writing
and shall be delivered personally or mailed by certified mail, postage prepaid
and return receipt requested or sent by telecopier, as follows:
-19-
If to Seller, addressed to:
Texstar Petroleum, Inc.
1000 Louisiana Street, 15th Floor
Houston, Texas 77002
Attention: Treasurer
Telecopy No. (713) 739-8402
If to Buyer, addressed to:
Shell Capital Inc.
One Shell Plaza
910 Louisiana Street
Houston, Texas 77002
Attention: Mr. M.C. McMurray
Telecopy No. (713) 241-5222
or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notice given by telecopier shall be effective upon
actual receipt if received during recipient's normal business hours or at the
beginning of the next business day after receipt if received after the
recipient's normal business hours. All notices by telecopier shall be confirmed
promptly after transmission, by certified mail or personal delivery.
7.08. INDEMNIFICATION. (a) Seller shall fully defend, protect, indemnify
and hold harmless Buyer and Buyer's successors, assigns and Affiliates (other
than Coral for any losses related to the Texstar Gas Purchase Contract or Shell
Gas Purchase Contract) ("Indemnified Parties") from and against any and all
losses which may be suffered by Indemnified Parties and from and against any
and all claims, demands, suits and causes of action (collectively "Claims") of
every kind and character (together with reasonable attorneys' fees and costs of
defense) of or which may be asserted by any Person (including, without
limitation, Seller, Seller's officers and Affiliates), relating to, arising out
of, or in any way incidental to the breach of any covenant, warranty or
representation made by Seller, regardless of whether Buyer may have known of
such breach or of the condition giving rise to such breach WHETHER OR NOT
ARISING OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF ANY INDEMNIFIED PARTY. THIS INDEMNITY SHALL APPLY, WITHOUT
LIMITATION TO ANY LIABILITY IMPOSED UPON ANY INDEMNIFIED PARTY AS A RESULT OF
ANY STATUTE, RULE, REGULATION OR THEORY OF STRICT LIABILITY.
(b) Without limiting the foregoing, Seller and Buyer agree that upon due
execution and delivery of the Conveyances neither the Conveyances nor any
leasehold interest or operating right interest out of which the Overriding
Royalty Interests is created will or does constitute an
-20-
executory contract or unexpired lease within the meaning of Section 365 of the
United States Bankruptcy Code. If for any reason the foregoing is not true and
correct in all respects and the Conveyances or any leasehold interest or
operating right interest out of which the Overriding Royalty Interests are
created is rejected as an unexpired lease or executory contract pursuant to any
of the provisions of Section 365 of the United States Bankruptcy Code, then
Buyer shall be entitled to the amount of damages suffered by Buyer as a result
of such rejection. Seller acknowledges that the Mortgage secures, among other
things, any damages to which Buyer may be entitled as a result of any such
rejection.
(c) In the event any Claim is asserted against any Indemnified Party by
a third party, the Indemnified party shall with reasonable promptness notify
the Seller of such Claim. Pursuant to its defense obligation provided in the
first sentence of Section 7.08(a), Seller shall employ counsel reasonably
satisfactory to Buyer and shall take such other steps as are reasonably
necessary or appropriate to defend the Indemnified Parties against such Claim.
7.09. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI, EXCEPT TO THE EXTENT THE
LAWS OF ANY OTHER STATE ARE MANDATORILY APPLICABLE.
7.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and,
subject to the following restriction, shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Nothing contained
herein shall in any way limit or restrict the right of Buyer, or Buyer's
successors and assigns, to transfer, assign or pledge its rights or obligations
hereunder in whole or in part; provided, that Buyer shall not transfer or
assign its rights or obligations in and to this Agreement to any person not an
Affiliate of Buyer or of the Royal Dutch Shell Group of Companies unless in
Buyer's judgment prudently exercised such Person is financially responsible and
capable of properly administering this Agreement provided, however, that the
immediately preceding proscriptive provision shall never apply to any mortgage,
pledge, granting of any lien or security interest or conveyance in trust by
Buyer, its successors or assigns or any judicial, trustee's or other sale to
foreclose the same. Seller shall not transfer, assign or pledge its rights or
obligations hereunder without the prior written consent of Buyer.
7.11. SCHEDULES AND EXHIBITS. The Schedules and Exhibits attached hereto
and referred to herein constitute a part of this Agreement.
7.12. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement and the Closing
Documents constitute the entire agreement between the parties hereto with
respect to the transactions described herein, 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 hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver unless otherwise expressly
-21-
provided. Each party acknowledges that it has read and understands the terms
of this Agreement and the Closing Documents and has had the opportunity to
consult with legal, tax and accounting counsel and advisors of its choice
concerning the meaning and legal effect thereof. Neither party has relied
upon the other party or its counsel or advisors with respect to the meaning
or effect of any such agreement or instrument.
7.13. HEADINGS. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.
7.14. COUNTERPARTS. This Agreement may be executed by Buyer and Seller
in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
7.15. ASSISTANCE. Seller agrees that in the event Buyer elects to
enter into a financing arrangement with respect to the Overriding Royalty
Interests it will provide reasonable assistance to Buyer in order to
facilitate Buyer obtaining such financing, including, but not limited to,
attending meetings, providing data related to the Overriding Royalty
Interests and Seller and its Affiliates and making personnel of Seller
available during normal business hours.
7.16. ARBITRATION.
(a) Any and all claims, counterclaims, demands, cause of action,
disputes, controversies, and other matters in question arising out of or
relating to this Agreement, any provision hereof, the alleged breach thereof,
or in any way relating to the subject matter of this Agreement or the
relationship between the parties created by this Agreement, involving the
parties and/or their respective representatives (all of which are referred to
herein as "Claims"), even though some or all of such Claims allegedly are
extra-contractual in nature, whether such Claims sound in contract, tort, or
otherwise, at law or in equity, under State or federal law, whether provided
by statute or the common law, for damages or any other relief, shall be
resolved by binding arbitration.
(b) It is the intention of the parties that the arbitration shall be
conducted pursuant to the Federal Arbitration Act and administered by the
American Arbitration Association in accordance with its then current
Commercial Arbitration Rules, as such Act and Rules are modified by this
arbitration agreement. The validity, construction, and interpretation of this
agreement to arbitrate, and all procedural aspects of the arbitration
conducted pursuant to this agreement to arbitrate, including but not limited
to, the determination of the issues that are subject to arbitration (I.E.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud in
the inducement" to enter into this agreement or this arbitration provision,
allegations of waiver, laches, delay or other defenses to arbitrability, and
the rules governing the conduct of the arbitration (including the time for
filing an answer, the time for the filing of counterclaims, the times for
amending the pleadings, the specificity of the pleadings, the extent and
scope of discovery, the issuance of subpoenas, the times for the designation
of experts, whether the arbitration is to be stayed pending resolution of
related litigation involving third parties not bound by this arbitration
agreement, the receipt of evidence, and the like),
-22-
shall be decided by the Arbitrators. In deciding the substance of the
parties' Claims, the Arbitrators shall refer to the substantive laws of the
State of Mississippi for guidance (excluding Mississippi choice-of-law
principles that might call for the application of some other State's law).
Provided, however, it is expressly agreed that notwithstanding any other
provision in this arbitration agreement to the contrary, the Arbitrators
shall have absolutely no authority to award treble, exemplary or punitive
damages of any type under any circumstances regardless of whether such
damages may be available under Mississippi law, the law of any other State,
or federal law, or under the Federal Arbitration Act, or under the Commercial
Arbitration Rules of the American Arbitration Association, the parties hereby
waiving their right, if any, to recover treble, exemplary or punitive damages
in connection with any such Claims.
(c) The arbitration proceeding shall be conducted in Houston, Texas.
Within thirty days of the notice of initiation of the arbitration procedure,
each party shall select one Arbitrator. The two arbitrators shall select a
third arbitrator, failing agreement on which within ninety days of the
original notice, the parties (or either of them) shall apply to any United
States District Judge for the Southern District of Texas, Houston Division,
who shall appoint the third arbitrator. While the third arbitrator shall be
neutral, the two party-appointed Arbitrators are not required to be neutral
and it shall not be grounds for removal of either of the two party-appointed
Arbitrators or for vacating the arbitrators' award that either of such
arbitrators has past or present minimal relationships with the party that
appointed such arbitrator.
(d) In the event any matter is required to be arbitrated under this
Section 7.16, the party prevailing in such arbitration shall be entitled to
recover its costs and reasonable attorneys' fees in addition to any other
remedy or recovery to which it may be entitled.
[This space intentionally left blank]
-23-
EXECUTED on the date first set forth above.
SELLER:
TEXSTAR PETROLEUM, INC.
By: /s/ Robert S. Herlin
-------------------------------------
Robert S. Herlin
Senior Vice President
BUYER:
SHELL CAPITAL INC.
By: /s/ Michael R. Keener
-------------------------------------
Michael R. Keener
Agent and Attorney-in-Fact
-24-