ASSET
PURCHASE AND SALE AGREEMENT
by and between
DSX ENERGY LIMITED, LLP, KEBO OIL & GAS, INC., et al.,
(Sellers)
and
BASELINE OIL & GAS CORP.
(Purchaser)
dated as of August 7, 2007
TABLE OF CONTENTS
1. PURCHASE AND SALE......................................................6
1.1 Agreement to Sell and Purchase..................................6
1.2 Assets..........................................................7
1.3 Effective Date..................................................9
1.4 Gauging and Strapping..........................................10
1.5 Records........................................................10
1.6 Excluded Assets................................................10
2. SALE AND PURCHASE.....................................................11
2.1 Purchase and Sale..............................................11
2.2 Purchase Price.................................................11
2.3 Performance Deposit............................................12
2.4 Determination of Adjusted Purchase Price.......................12
2.5 Payment of Adjusted Purchase Price.............................14
2.6 Tax Purchase Price Allocations.................................14
3. TITLE MATTERS.........................................................14
3.1 Access to Records and Assets...................................14
3.2 Definitions....................................................15
3.3 Notice of Title Defect.........................................17
3.4 Remedies for Title Defects.....................................18
3.5 Procedure for Resolving Title Defects..........................18
3.6 Value of Defects...............................................19
3.7 Interest Additions.............................................19
3.8 Right to Terminate Agreement...................................20
3.9 Expert Determination...........................................20
3.10 Preferential Purchase Rights and Consents to Assign............21
4. CASUALTY LOSS.........................................................23
4.1 Casualty Loss..................................................23
5. ENVIRONMENTAL CONDITION...............................................24
5.1 Physical Condition of the Assets...............................24
5.2 Environmental Assessment.......................................24
5.3 Environmental Defect Notice....................................25
5.4 Remedies for Environmental Defects.............................25
5.5 Procedure for Resolving Environmental Defects..................25
5.6 Definitions....................................................26
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6. REPRESENTATIONS OF SELLERS............................................28
6.1 Disclaimers....................................................28
6.2 Representations................................................28
6.3 Knowledge......................................................33
7. REPRESENTATIONS OF PURCHASER..........................................33
7.1 Representations................................................33
7.2 Knowledge......................................................35
8. PRE-CLOSING OBLIGATIONS OF SELLERS....................................35
8.1 Operations.....................................................35
8.2 Contracts......................................................35
8.3 Compensation of Sellers........................................35
8.4 Permissions....................................................36
8.5 Efforts........................................................36
8.6 Defaults.......................................................36
8.7 Operatorship...................................................36
8.8 Geological and Geophysical Information.........................36
8.9 Financial Statements...........................................37
8.10 Reserve Report.................................................37
8.11 Exclusive Dealing..............................................38
9. PRE-CLOSING OBLIGATIONS OF PURCHASER..................................38
9.1 Return of Data.................................................38
9.2 Efforts........................................................38
10. CONDITIONS OF SELLERS TO CLOSING......................................38
10.1 Representations................................................38
10.2 Performance....................................................39
10.3 Certificate....................................................39
10.4 Governmental Consents..........................................39
10.5 Pending Matters................................................39
11. CONDITIONS OF PURCHASER TO CLOSING....................................39
11.1 Representations................................................39
11.2 Performance....................................................39
11.3 Officer's Certificate..........................................39
11.4 Governmental Consents..........................................39
11.5 Pending Matters................................................40
11.6 Releases of Liens..............................................40
11.7 Operations.....................................................40
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12. CLOSING ..............................................................40
12.1 Time and Place of the Closing..................................40
12.2 Change of the Closing Date.....................................40
12.3 Calculation of Adjusted Purchase Price.........................40
12.4 Failure to Close...............................................40
12.5 Closing Obligations............................................41
12.6 Conveyance.....................................................42
13. POST-CLOSING OBLIGATIONS..............................................42
13.1 Post-Closing Adjustments.......................................42
13.2 Receipts and Credits...........................................43
13.3 Assumption and Indemnification.................................43
13.4 Disclaimer.....................................................47
13.5 Method of Asserting Claims.....................................47
13.6 Payment........................................................48
13.7 Limitation on Damages..........................................49
13.8 Recording......................................................49
13.9 Cooperation and Further Assurances.............................49
14. TERMINATION...........................................................50
14.1 Right of Termination...........................................50
14.2 Effect of Termination..........................................50
15. TAXES ................................................................51
15.1 Apportionment of Ad Valorem and Property Taxes.................51
15.2 Taxes Paid for Others..........................................52
15.3 Sales Taxes....................................................52
15.4 Other Taxes....................................................52
15.5 Cooperation....................................................52
15.6 Tax Indemnity..................................................52
16. MISCELLANEOUS.........................................................53
16.1 Entire Agreement...............................................53
16.2 Waiver.........................................................53
16.3 Headings.......................................................53
16.4 Assignment.....................................................53
16.5 No Third Party Beneficiaries...................................53
16.6 Governing Law..................................................53
16.7 Notices........................................................54
16.8 Execution in Counterparts......................................54
16.9 Expenses.......................................................54
16.10 Confidentiality................................................54
16.11 Exhibits and Schedules.........................................55
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16.12 Publicity......................................................55
16.13 Use of Sellers' Names..........................................55
16.14 Severability...................................................55
16.15 Affiliate......................................................55
16.16 Attorney's Fees................................................55
16.17 Interest.......................................................56
16.18 Exchange.......................................................56
16.19 Data...........................................................56
16.20 Execution......................................................56
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Schedules
Schedule 1.1.2 Possible Sellers; Allocation Percentages
Schedule 6.2.1 Organization, Qualification, Good Standing of Sellers
Exhibits
Exhibit A - Leases; Interests; Reserved Overriding Royalty Interests
Exhibit B - Wells; WI/NRI; Allocated Values
Exhibit C - Schedule of Contracts
Exhibit D - Preferential Purchase Rights; Required Consents to Assignment
Exhibit E - Intentionally Omitted
Exhibit F - Environmental Claims
Exhibit G - Gas Imbalances
Exhibit H - Effective AFE's
Exhibit I - General Assignment
Exhibit J - Tax Allocations
Exhibit K - Bonds
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Glossary of Terms
"Accounting Firm" means Ernst & Young, 5 Houston Center, Suite 1200, 1401
McKinney Street, Houston, Texas 77010.
"Adjusted Purchase Price" has the meaning given to it in Section 2.4 of the
Agreement.
"Affiliate" has the meaning given to it in Section 16.15 of the Agreement.
"Agreed Rate" has the meaning given to it in Section 13.6.2 of the Agreement.
"Agreement" has the meaning given to it in the introductory paragraph of this
Agreement.
"Allocated Value" has the meaning given to it in Section 3.2.4 of the Agreement.
"Allocation Percentage" has the meaning given to it in Section 1.1.2 of the
Agreement.
"Applicable Laws" has the meaning given to it in Section 5.6.1 of the Agreement.
"Assets" has the meaning given to it in Section 1.2 of the Agreement.
"Assumed Obligations" has the meaning given to it in Section 13.3.4 of the
Agreement.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which commercial banks in Houston, Texas, are required or authorized by
Applicable Laws to be closed.
"Casualty Loss" has the meaning given to it in Section 4.1 of the Agreement.
"Casualty Loss Amount" has the meaning given to it in Section 4.1 of the
Agreement.
"Cawley, Gillespie Reserve Report" has the meaning given to it in Section 8.10
of the Agreement.
"CERCLA" is defined in Section 5.6.3 of the Agreement.
"Claim Notice" has the meaning given to it in Section 13.6.1 of the Agreement.
"Closing" has the meaning given to it in Section 12.1 of the Agreement.
"Closing Adjustment Statement" has the meaning given to it in Section 12.3 of
the Agreement.
"Closing Date" has the meaning given to it in Section 12.1 of the Agreement.
"Confidentiality Agreement" has the meaning given to it in Section 16.1 of the
Agreement.
"Control," "controlled by" and "under common control with" have the meanings
given to them in Section 16.15 of the Agreement.
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"Costs" has the meaning given to it in Section 3.1 of the Agreement.
"Decision Notice" has the meaning given to it in Section 3.9.2 of the Agreement.
"Deductible" has the meaning given to it in Section 3.5.2 of the Agreement.
"Defect Expert" has the meaning given to it in Section 3.9.1 of the Agreement.
"Defect Value" has the meaning given to it in Section 3.3 of the Agreement.
"Due Diligence Period" has the meaning given to it in Section 3.3 of the
Agreement.
"Effective Date" has the meaning given to it in Section 1.3 of the Agreement.
"Environmental Defect" has the meaning given to it in Section 5.6.2 of the
Agreement.
"Environmental Defect Notice" has the meaning given to it in Section 5.3 of the
Agreement.
"Environmental Indemnity Payment" has the meaning given to it in Section 5.4 of
the Agreement.
"Environmental Laws" has the meaning given to it in Section 5.6.3 of the
Agreement.
"Environmental Obligations" has the meaning given to it in Section 13.3.4 of the
Agreement.
"Existing Contracts" has the meaning given to it in Section 1.2.4 of the
Agreement.
"Final Settlement Date" has the meaning given to it in Section 13.1.2 of the
Agreement.
"Finally Determined Casualty Loss" has the meaning given to it in Section 4.1 of
the Agreement.
"Finally Determined Environmental Defect" has the meaning given to it in Section
5.5.1 of the Agreement.
"Finally Determined Title Defect" has the meaning given to it in Section 3.5.1
of the Agreement.
"Financial Statements" has the meaning given to it in Section 8.9 of the
Agreement
"Form 8594" has the meaning given to it in Section 2.6 of the Agreement.
"Full Interest Purchase Price" has the meaning given to it in Section 2.2 of the
Agreement.
"General Assignment" has the meaning given to it in Section 12.5.1 of the
Agreement.
"Governmental Body" has the meaning given to it in Section 5.6.4 of the
Agreement.
"Hazardous Substances" has the meaning given to it in Section 5.6.5 of the
Agreement.
"Hydrocarbons" has the meaning given to it in Section 1.2.3 of the Agreement.
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"Imbalance Engineer" has the meaning given to it in Section 13.1.3 of the
Agreement.
"Indemnified Party" and "Indemnifying Party" have the meanings given to them in
Section 13.6.1 of the Agreement.
"Interest Addition," "Interest Addition Notice," "Interest Addition Rejection
Notice," and "Interest Addition Value" have the meanings given to them in
Section 3.7 of the Agreement.
"Interim Period" has the meaning given to it in Section 8.1 of the Agreement.
"IRC" and "Code" have the meanings given to them in Section 2.6 of the
Agreement.
"Leases" has the meaning given to it in Section 1.2.1 of the Agreement.
"Lenser Reserve Report" has the meaning given to it in Section 3.6.4 of the
Agreement.
"MMCFE" means million cubic feet of gas equivalent.
"Net Revenue Interest" has the meaning given to it in Section 3.2.1 of the
Agreement.
"Non-Third Party Claim" has the meaning given to it in Section 13.6.1 of the
Agreement.
"NORM" has the meaning given to it in Section 5.1 of the Agreement.
"Notice Period" has the meaning given to it in Section 13.6.2 of the Agreement.
"Offset" has the meaning given to it in Section 3.7 of the Agreement.
"Operations Period" has the meaning given to it in Section 8.3 of the Agreement.
"OSHA" has the meaning given to it in Section 5.6.3 of the Agreement.
"Participation Date" has the meaning given to it in Section 1.1.3 of the
Agreement.
"Participation Period" has the meaning given to it in Section 1.1.2 of the
Agreement.
"Party" and "Parties" have the meanings given to them in the introductory
paragraph of the Agreement.
"Performance Deposit" has the meaning given to it in Section 2.3 of the
Agreement.
"Permitted Encumbrances" has the meaning given to it in Section 3.2.2 of the
Agreement.
"Personal Property" has the meaning given to it in Section 1.2.6 of the
Agreement.
"Plugging and Abandonment" has the meaning given to it in Section 13.3.4 of the
Agreement.
"Possible Sellers" has the meaning given to it in Section 1.1.2 of the
Agreement.
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"Post-Closing Adjustment Statement" has the meaning given to it in Section
13.1.1 of the Agreement.
"Preliminary Amount" has the meaning given to it in Section 2.5 of the
Agreement.
"Properties" and "Property" have the meaning given to them in Section 1.2.1 of
the Agreement.
"Property Taxes" has the meaning given to it in Section 15.1 of the Agreement.
"Purchase Price" has the meaning given to it in Section 2.2 of the Agreement.
"Purchaser" has the meaning given to it in the introductory paragraph of this
Agreement.
"Purchaser Group" has the meaning given to it in Section 5.2.2 of the Agreement.
"Purchaser's Environmental Assessment" and "Purchaser's Environmental
Consultant" have the meanings given to them in Section 5.2.1 of the Agreement.
"PV-NRI" has the meaning given to it in Section 3.6.4 of the Agreement.
"RCRA" is defined in Section 5.6.3 of the Agreement.
"Records" has the meaning given to it in Section 1.2.7 of the Agreement.
"Rejection Notice" has the meaning given to it in Section 3.5.1 of the
Agreement.
"Remediation" has the meaning given to it in Section 5.6.6 of the Agreement.
"Remediation Amount" has the meaning given to it in Section 5.6.7 of the
Agreement.
"Report Period" has the meaning given to it in Section 8.10 of the Agreement.
"SARA" is defined in Section 5.6.3 of the Agreement.
"Scheduled Closing Date" has the meaning given to it in Section 12.1 of the
Agreement.
"SEC" has the meaning given to it in Section 8.10 of the Agreement.
"Seller" and "Sellers" have the meanings given to them in the introductory
paragraph of the Agreement.
"Sellers' Group" has the meaning given to it in Section 3.1 of the Agreement.
"Sellers' Title" has the meaning given to it in Section 3.2.1 of the Agreement.
"Survival Date" has the meaning given to it in Section 13.3.3 of the Agreement.
"Technical Data" has the meaning given to it in Section 1.2.8 of the Agreement.
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"Termination Threshold" has the meaning given to it in Section 3.8 of the
Agreement. "Third Party Claim" has the meaning given to it in Section 13.5.1 of
the Agreement.
"Title Defect" has the meaning given to it in Section 3.2.3 of the Agreement.
"Title Defect Notice" has the meaning given to it in Section 3.3 of the
Agreement.
"Title Indemnity Payment" has the meaning given to it in Section 3.4 of the
Agreement.
"Wells" has the meaning given to it in Section 1.2.2 of the Agreement.
"Working Interest" has the meaning given to it in Section 3.2.1 of the
Agreement.
"Work Papers" has the meaning given to it in Section 8.9 of the Agreement.
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ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement (this "Agreement") is made and
entered into as of this 7th day of August, 2007, by and between DSX Energy
Limited, LLP, a Texas limited liability partnership ("DSX"), having as its
address 800 N. Shoreline Blvd., Suite 2570S, Corpus Christi, Texas 78401, KEBO
Oil & Gas, Inc. a Texas corporation ("KEBO") having as its address 607 Railroad
Avenue, Portland, Texas 78371, and the remaining parties identified on the
signature pages to this Agreement under the caption "Sellers" (subject to the
terms of Section 1.1.2, each a "Seller", and collectively, "Sellers"), and
Baseline Oil & Gas Corp., a Nevada corporation, having as its address 11811
North Freeway, Suite 200, Houston, Texas 77060 ("Purchaser"). Sellers and
Purchaser are sometimes collectively referred to in this Agreement as the
"Parties" or individually as a "Party".
W I T N E S S E T H:
WHEREAS, Sellers are the owners of undivided interests in and to the
Assets (as defined below); and
WHEREAS, KEBO is the current operator of record with respect to all of the
Assets; and
WHEREAS, Sellers are willing to sell and deliver to Purchaser, and
Purchaser is willing to purchase and receive from Sellers, all of the rights and
interests of Sellers in and to the Assets upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises of the
Parties contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:
1. PURCHASE AND SALE
1.1 Agreement to Sell and Purchase.
1.1.1 Subject to the terms and conditions of this Agreement, Purchaser agrees
to purchase and receive from Sellers, and Sellers agree to sell, assign,
transfer, convey, and deliver to Purchaser all of Sellers' rights and
interests in and to the Assets, as of the Effective Date (as defined
below).
1.1.2 Schedule 1.1.2 attached hereto identifies the owners of interests in the
Assets in addition to DSX and KEBO ("Possible Sellers") and the
corresponding percentage of the Full Interest Purchase Price (as defined
below) allocable to each Possible Seller based upon its respective
ownership interests in the Assets (in each case, its "Allocation
Percentage"). Immediately following the execution of this Agreement by
DSX, KEBO, and Purchaser, DSX shall circulate this Agreement among the
Possible Sellers for execution. Each Possible Seller shall have until
6:00 p.m., Central Daylight Time, on the third Business Day after the
date on which this Agreement is executed by DSX and Purchaser (the
"Participation Period") within which to evidence its election to
participate in the sale of the Assets contemplated herein by executing
and returning to Purchaser a counterpart of the signature page for this
Agreement prepared for such Possible Seller. The failure of a Possible
Seller to execute and return to Purchaser its signature page for this
Agreement prior to the expiration of the Participation Period shall
constitute an election by such Possible Seller not to sell its interests
in the Assets to Purchaser. Subject to the terms of Sections 1.1.3 and
2.3.1, upon the execution by a Possible Seller and return to Purchaser
of such Possible Seller's signature page for this Agreement in a timely
manner as provided in this Section 1.1.2, the terms of this Agreement
shall become binding on and enforceable against such Possible Seller,
and such Possible Seller shall become a "Seller" for purposes of this
Agreement.
1.1.3 Notwithstanding the execution of this Agreement by DSX and one or more
Possible Sellers in accordance with Section 1.1.2, if, prior to the
expiration of the Participation Period, Sellers having, in the
aggregate, Allocation Percentages of less than ninety-two percent (92%)
do not execute and return to Purchaser signature pages for this
Agreement in accordance with Section 1.1.2, Purchaser shall have the
right to terminate this Agreement. If this Agreement is thus terminated
by Purchaser, neither DSX, KEBO, the Possible Sellers who execute and
return to DSX signature pages for this Agreement in accordance with
Section 1.1.2, nor Purchaser shall have any further obligation or
liability to the other Party under this Agreement or otherwise in
connection with the transactions contemplated herein, subject, however
to the terms of Section 14.2. If, prior to the expiration of the
Participation Period, Possible Sellers having, in the aggregate,
Allocation Percentages equal to or greater than ninety-two percent (92%)
execute and return to Purchaser signature pages for this Agreement in
accordance with Section 1.1.2, (i) Purchaser shall become obligated to
tender to Sellers the Performance Deposit in accordance with the terms
of Section 2.3.1, and (ii) Purchaser and Sellers shall execute an
amendment to this Agreement that (w) establishes the Purchase Price (as
defined below) in accordance with Section 2.2, (x) adds to this
Agreement the final version of Exhibit B reflecting the undivided
Working Interests of Sellers in each Well (as defined below) and the
Allocated Value (as defined below) for such Well, (y) adds to this
Agreement the final version of Exhibit J reflecting the allocation of
the Purchase Price among the Assets for federal income tax purposes in
accordance with the terms of Section 2.6, and (z) adds to this Agreement
the final version of Schedule 6.2.1 as contemplated in Section 6.2.1.
For purposes of this Agreement, the Business Day during the
Participation Period on which Purchaser receives from Possible Sellers
the signature pages for this Agreement that cause the aggregate
Allocation Percentages of all Sellers who execute and return to
Purchaser signature pages for this Agreement in accordance with Section
1.1.2 at least to equal ninety-two (92%) shall be referred to herein as
the "Participation Date."
1.2 Assets. The term "Assets" as used herein shall mean all of the following
properties, rights, and interests:
1.2.1 All of Sellers' rights, titles and interests in and to all oil and gas
leasehold interests, record title interests, overriding royalty
interests (not otherwise expressly excluded and reserved herefrom
pursuant to Section 1.6), net profits interests, production payments,
operating rights, carried interests, reversionary interests, conversion
rights and options, and other similar interests of whatever kind or
character, whether legal or equitable, vested or contingent, and
regardless of whether such rights and interests are described on Exhibit
A, in, to, under, and that are otherwise attributable to the oil, gas,
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and mineral leases described in the attached Exhibit A (limited in all
respects to the lands and depths covered thereby, or the applicable part
or portion thereof if limited specifically as to depth or geographic
area, as described in said Exhibit A) and the leasehold estates created
thereby (collectively, the "Leases"), and/or the production of
Hydrocarbons (as defined below) therefrom or allocable thereto, and the
lands included in any units created by pooling, unitization, or
communitization agreements or governmental pooling or unitization orders
in effect with respect to the Leases or the lands covered thereby. All
of the Leases, interests and lands described in this Section 1.2.1 are
hereinafter collectively called the "Properties" and singularly a
"Property."
1.2.2 Subject to the terms of Section 1.1.3, the undivided interests
identified in Exhibit B in and to all producing oil wells and gas wells,
water wells, saltwater disposal wells, injection wells, temporarily
abandoned wells, and plugged and abandoned wells located on the
Properties or on lands pooled, unitized, or communitized therewith,
including, without limitation, the producing oil and/or gas wells, water
wells, saltwater disposal wells, injection wells, and temporarily
abandoned wells listed on Exhibit B (such wells listed on Exhibit B
hereto being called herein the "Wells").
1.2.3 All of the rights, titles, and interests of Sellers in and to all crude
oil, natural gas, condensate, distillate, natural gasoline, natural gas
liquids, plant products, refined petroleum products, other liquid or
gaseous hydrocarbons (including, without limitation, coalbed methane),
sulphur, other gases (including, without limitation, hydrogen and carbon
dioxide), and every other mineral or substance, or any of them, the
right to explore for which, or an interest in which, is granted pursuant
to the Leases (collectively, "Hydrocarbons") (i) produced from or
allocable to the interests of Sellers in the Properties and existing in
pipelines, storage tanks, or other processing or storage facilities
upstream of the delivery points to the relevant purchasers on the
Effective Date, and (ii) produced from or allocable to such interests of
Sellers on and after the Effective Date.
1.2.4 All of the rights, titles, and interests of Sellers in, to, and under
any and all surface leases; rights-of-way and easements; operating
agreements; exploration agreements; Hydrocarbon purchase, sales,
exchange, processing, gathering, storage, treatment, compression,
transportation and balancing agreements; farmout, farmin, and
participation agreements (except to the extent expressly excluded and
reserved herefrom pursuant to Section 1.6); dry hole, bottom hole,
acreage contribution, purchase and acquisition agreements; area of
mutual interest agreements; salt water injection and disposal
agreements; permits; licenses; servitudes; and all other similar
contracts and agreements and any amendments thereto relating to the
Properties (collectively, the "Existing Contracts").
1.2.5 All of the rights, titles, and interests of Sellers in, to, and under
any and all valid Hydrocarbon unitization, pooling, or communitization
agreements and/or orders in effect with respect to the Properties,
including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any Governmental Body having
jurisdiction, voluntary pooling, communitization, and unitization
agreements, designations and/or declarations, and so-called "working
interest units" created under operating agreements or otherwise relating
to the Properties.
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1.2.6 Except as otherwise expressly excluded and reserved herefrom pursuant to
Section 1.6(x), all of the rights, titles, and interests of Sellers in
and to all surface or subsurface machinery, equipment, platforms,
facilities, supplies or other property of whatsoever kind or nature now
or hereafter located on or under any of the Properties and which relate
to or are useful for the production, treatment, storage or
transportation of Hydrocarbons, including, without limitation, all
wellhead equipment, casing, tubing, rods, pumping units and engines,
christmas trees, derricks, separators, compressors, dehydration units,
heater-treaters, boilers, valves, gauges, meters, pumps, generators,
motors, gun barrels, flow lines, tanks and tank batteries, water lines,
gas lines, gas processing plants and other plants, gathering lines,
laterals and trunklines, gas systems (for gathering, treating and
compression), chemicals, solutions, water systems (for treating,
disposal and/or injection), power plants, poles, lines, transformers,
starters, controllers, machine shops, tools, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone and other
communication systems, loading docks, loading racks and shipping
facilities, equipment and facilities, and any and all additions,
accessions to, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto (all such
machinery, equipment, platforms, facilities, supplies and other
property, excluding, however, the Wells, being collectively called the
"Personal Property").
1.2.7 All of the files, records and data directly relating to the items
described in Sections 1.2.1 through 1.2.6 (but including only copies of
the hereinafter described tax and accounting records), including,
without limitation, joint interest billings, check receipts and third
party disbursement records, copies of files and records relating to
Property Taxes and severance, sales, excise, and other
production-related taxes, legal files, land, lease, and contract files,
title records, division order records, production records, operations
records, environmental records, insurance records, regulatory records,
and all other files, records, and information relating to the items
described in Sections 1.2.1 through 1.2.6 in the possession of Sellers
except where the transfer or disclosure of such files, information, or
records is restricted by agreement with third parties or excluded by the
terms of this Agreement (as more fully set forth in Section 1.6)
(collectively, the "Records"); provided, however, that Sellers have the
rights with respect to the Records as provided in Section 1.5 below.
1.2.8 All maps, electric logs, core data, pressure data, decline curves,
graphical production curves, geological, geophysical, reserve
engineering, and other scientific and technical information, reports,
and data (including, without limitation, conventional two-dimensional
and three-dimensional seismic data) that relate exclusively to the
Assets, do not constitute Excluded Assets subject to Section 1.6, and
only in the event and to the extent the transfer or disclosure of which
is not restricted by agreement with third parties (collectively,
"Technical Data").
1.3 Effective Date. Ownership of the Assets shall be transferred from Sellers to
Purchaser at the Closing (as defined below), but shall be effective as provided
in Section 2.4 below as of 7:00 a.m. (local time where the Assets are located)
on June 1, 2007 (the "Effective Date"). Except as may be otherwise specifically
provided herein, Sellers, severally according to their respective ownership
interests in the Assets and not jointly, shall be entitled to any amounts
realized from and accruing to the Assets (including contract rights, gas
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contract settlements, take-or-pay claims, and other claims and causes of action)
for all periods prior to the Effective Date and shall be liable for the payment
of all expenditures relating to the Assets and attributable to all periods prior
to the Effective Date. Except as may be otherwise specifically provided herein,
Purchaser shall be entitled to any amounts realized from and accruing to the
Assets for all periods on and after the Effective Date, and shall be liable for
the payment of all expenses relating to the Assets and attributable to all
periods on and after the Effective Date.
1.4 Gauging and Strapping. Sellers have caused the oil storage facilities on or
utilized in connection with the Properties to be gauged or strapped as of the
Effective Date. Sellers also have caused the gas production meter charts (or if
such do not exist, the sales meter charts) on the pipelines transporting gas
production from the Assets to be read as of the Effective Date. Prior to the
Closing, Purchaser, upon request, shall be provided with access to the records
of the gauging, strapping or chart reading for the purpose of verifying such
records.
1.5 Records. Sellers shall deliver to Purchaser, within thirty (30) days after
the Closing or such later time as Purchaser may request, but in no event later
than three (3) months after the Closing, all Records. Sellers shall have the
right to make and retain such copies of the Records as Sellers may desire prior
to the delivery of the Records to Purchaser. Purchaser, for a period of seven
(7) years after the Closing, shall further make available to Sellers (at the
location of such Records in Purchaser's organization), access to the Records
during normal business hours, upon written request of Sellers, and Sellers shall
have the right to copy, at their own expense, and retain such copies of the
Records. If, however, Purchaser elects to destroy any of the Records, either
before or after the expiration of such seven (7) year period, Purchaser shall
give to Sellers written notice of such intent at least thirty (30) days prior to
such destruction, and Sellers shall have the option, at its expense, of having
such Records delivered to it. SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE ACCURACY OR COMPLETENESS OF THE RECORDS, OR ANY PORTION THEREOF,
AND PURCHASER EXPRESSLY ACKNOWLEDGES SUCH DISCLAIMER AND AGREES TO ASSUME SOLE
RESPONSIBILITY FOR ANY CONSEQUENCES BASED UPON, PURCHASER'S USE OF, OR RELIANCE
UPON, THE RECORDS.
1.6 Excluded Assets. There is expressly excluded from the Assets to be conveyed
pursuant hereto, and each Seller shall except, reserve, and retain to itself,
severally according to its respective ownership thereof and not jointly, the
following properties and assets: (i) all corporate, financial, legal, and tax
records of each Seller; (ii) all deposits, cash, checks in process of
collection, cash equivalents, accounts receivable and funds attributable to the
Assets for the period prior to the Effective Date; (iii) all rights, interests,
and claims that Sellers may have under any policy of insurance or indemnity,
surety bond, or any insurance or condemnation proceeds or recoveries from third
persons relating to property damage or Casualty Loss affecting the Assets
occurring prior to the Effective Date; (iv) all claims, whether in contract, in
tort, or arising by operation of law, and whether asserted or unasserted as of
the Closing Date, that Sellers may have against any person arising out of acts,
omissions, or events, or injury to or death of persons or loss or destruction of
or damage to property, relating in any way to, the Assets that occurred prior to
the Effective Date; provided, however, that no such claim may be settled,
compromised, or otherwise resolved in a manner that results in an obligation
borne by Purchaser or the Assets on and after the Effective Date without the
prior written consent of Purchaser, which shall not to be unreasonably withheld
Page 10
or delayed; (v) all exchange traded futures contracts and over-the-counter
derivative contracts of any Seller as to which such Seller has an open position
as of the Effective Date; (vi) any and all rights to use the names, marks, trade
dress or insignia of any Seller, and all of the intellectual property of each
Seller, including, without limitation, proprietary or licensed computer
software; patents; trade secrets; copyrights; all geological and geophysical
information and data (including, without limitation, conventional
two-dimensional and three-dimensional seismic data) that image, cover, or
otherwise pertain in any way to lands and/or subsurface intervals not included
in the Assets, or Technical Data as to which the sale or disclosure of such data
is restricted or prohibited by agreement with third parties, and Sellers'
proprietary interpretations of any of the foregoing; economic analyses; and
pricing forecasts; (vii) all amounts due or payable to any Seller as adjustments
to insurance premiums related to the Assets for periods prior to the Effective
Date; (viii) all claims of any Seller for any tax refunds and loss
carry-forwards and carry-backs with respect to any taxes relating to the Assets
for periods prior to the Effective Date; (ix) all audit rights and all amounts
due or payable to any Seller as refunds, adjustments, or settlements of disputes
arising under the Properties or the Existing Contracts for periods prior to the
Effective Date; all inventories of pipe, equipment and other Personal Property
not currently in use or allocated for use in connection with the Assets, and the
surface location(s) where such items of property are located; (xi) all rights to
drill future Hydrocarbon wells on and rights to earn additional interests in
lands and subsurface intervals covered by the Leases, as well as other leases
and lands, not included within the Assets under the terms of that certain
Farmout Agreement dated May 5, 1995, as amended and/or extended, by and between
Sue-Ann Production Company and Douglas Sartoris; (xii) the overriding royalty
interests reserved by DSX in Article II of the General Assignment; and (xiii)
all other interests, rights, property, and assets of Sellers not located on or
used in connection with the Assets or otherwise specifically included in the
definition of the Assets.
2. SALE AND PURCHASE
2.1 Purchase and Sale. At the Closing, Sellers shall sell, assign, transfer, and
convey to Purchaser, and Purchaser shall purchase and pay for, the Assets, and
Purchaser shall also assume the Assumed Obligations as set forth in Section
13.3.4.
2.2 Purchase Price. The purchase price to be paid by Purchaser to Sellers with
respect to the Assets (the "Purchase Price") shall equal the product obtained by
multiplying (i) the aggregate Allocation Percentages of DSX, KEBO, and those
Possible Sellers who execute and return to Purchaser signature pages for this
Agreement in a timely manner in accordance with Section 1.1.2, by (ii) ONE
HUNDRED MILLION AND NO/100 Dollars U.S. ($100,000,000.00) (the "Full Interest
Purchase Price"). If all Possible Sellers execute and return to Purchaser
signature pages for this Agreement in a timely manner in accordance with Section
1.1.2, the Purchase Price shall equal the Full Interest Purchase Price. To the
extent that the Purchase Price is less than the Full Interest Purchase Price,
such shortfall shall not be taken into account in determining whether (y) the
Deductible (as defined below) has been met for purposes of Section 3.5.2 or
Section 5.5.2, or (z) the Termination Threshold (as defined below) has been met
for purposes of Section 3.8. The amount of the Purchase Price is set in
consideration of Purchaser's assumption of the Assumed Obligations as set forth
in Section 13.3.4.
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2.3 Performance Deposit.
2.3.1 If Possible Sellers having, in the aggregate, Allocation Percentages
equal to or greater than ninety-two percent (92%) execute and return to
Purchaser signature pages for this Agreement in accordance with Section
1.1.2, Purchaser, as evidence of Purchaser's good faith intention to
consummate the transactions contemplated hereby, shall tender to DSX, on
behalf of Sellers, no later than 6:00 p.m., Central Daylight Time, on
the second Business Day after the Participation Date, a cash performance
deposit in the amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100
Dollars U.S. ($2,500,000.00) (the "Performance Deposit"). If Purchaser
fails to tender to Sellers the Performance Deposit in a timely manner as
provided in the immediately preceding sentence of this Section 2.3.1,
Sellers shall have the right to terminate this Agreement. If this
Agreement is thus terminated by Sellers, neither Sellers nor Purchaser
shall have any further obligation or liability to the other Party under
this Agreement or otherwise in connection with the transactions
contemplated herein, subject, however, to the terms of Section 14.2.
2.3.2 If Sellers terminate this Agreement in accordance with Section 14.1.2 or
Section 14.1.5 hereof, Sellers shall retain the Performance Deposit as
liquidated damages; provided that nothing contained herein shall
prohibit Purchaser from contesting the basis for Sellers' decision to
terminate and seeking recovery of such Performance Deposit through any
legal means available to it. The Parties agree that the Performance
Deposit is a reasonable sum considering all the circumstances existing
on the date of this Agreement, including the relationship of the sum to
the range of harm to Sellers that reasonably could be anticipated and
the anticipation that proof of actual damages would be costly or
inconvenient. If this Agreement is otherwise terminated for any reason
by either Sellers or Purchaser pursuant to the terms thereof, the
Performance Deposit shall be returned to Purchaser, except to the extent
otherwise provided in Section 8.10. In the event the transactions
contemplated herein close, the Performance Deposit shall be retained by
Sellers and credited against the Purchase Price payable by Purchaser
hereunder.
2.4 Determination of Adjusted Purchase Price. The net purchase price for the
Assets (the "Adjusted Purchase Price") shall be determined as follows:
2.4.1 The Purchase Price;
2.4.2 Plus the amount of the value of all merchantable Hydrocarbons produced
from or allocable to the Properties existing in pipelines, storage
tanks, or other processing or storage facilities (including, without
limitation, unsold inventories of plant products owned by Sellers if
any) upstream of the delivery points to the relevant purchasers as of
the Effective Date, the value to be based on the contract price
applicable to such Hydrocarbons in effect as of the Effective Date (or
the market value, if there is no contract price, in effect as of the
Effective Date), less amounts payable as royalties, overriding
royalties, and other, similar burdens upon such Hydrocarbons;
Page 12
2.4.3 Plus the amount of all actual expenditures made or prepaid by Sellers
that are incurred in connection with the Assets which are attributable
to periods on and after the Effective Date through the Closing Date,
including, without limitation: rentals, shut-in well payments, and other
lease maintenance payments; operating costs; premiums on insurance
policies allocable to the period on and after the Effective Date through
the Closing Date; capital costs (including, without limitation, all
drilling costs, completion costs, acreage expenditures, acquisition
expenditures, seismic expenditures, and waterflood expenditures); and
the direct, overhead, and other charges and expenses (including, without
limitation, the salaries, wages, and personal expenses of technical
employees of Sellers directly employed on the Assets, to the extent that
such charges are permitted as direct charges to the joint account under
the terms of the applicable joint operating agreements) billed to
Sellers by the operator or operators (including, without limitation,
KEBO or its Affiliates) of the Assets under applicable operating
agreements (or if KEBO or its Affiliate is the operator in the absence
of an operating agreement, the charges provided in Section 8.3 hereof),
including, without limitation, unreimbursed expenses paid by Sellers on
behalf of third parties to which Sellers are entitled to reimbursement
under such operating agreements;
2.4.4 Plus an amount equal to upward adjustments for Interest Additions
determined in accordance with Section 3.7, and the amount of any
interest accrued on the Purchase Price pursuant to Section 12.2;
2.4.5 Plus the total amount of any Property Taxes (as defined below) paid by
any Seller for its or another Seller's accounts, relating to the Assets
and attributable to any period of time on and after the Effective Date,
as further provided for in Sections 15.1 and 15.2 and to the extent same
are not included under Section 2.4.3 above;
2.4.6 Less the amount of the actual proceeds received by Sellers in the
ordinary course of business that are attributable to Hydrocarbon
production from the Properties on and after the Effective Date through
the Closing Date (net of any royalties and of any production, severance,
sales, or other taxes actually paid by or on behalf of Sellers),
together with any other monies or credits attributable to the ownership
or operation of the Assets on and after the Effective Date through the
Closing Date;
2.4.7 Less the amount of the Performance Deposit and all other advances and
deposits relating to the Assets that are received by Sellers prior to
the Closing Date and attributable to periods of time on or after the
Effective Date;
2.4.8 Less an amount equal to the aggregate of all Title Indemnity Payments
made in accordance with Article 3;
2.4.9 Less an amount equal to the aggregate of all Environmental Indemnity
Payments made in accordance with Article 5;
2.4.10 Less an amount equal to the Allocated Value of (i) the Assets with
respect to which preferential purchase rights have been exercised prior
to the Closing Date, or (ii) Assets excluded for failure to obtain a
Page 13
required consent prior to the Closing Date, each in accordance with
Section 3.10;
2.4.11 Less the value of any Sellers' prorated shares of all accrued but unpaid
Property Taxes relating to the Assets for the period prior to the
Effective Date in accordance with Sections 15.1 and 15.2;
2.4.12 Less an amount equal to all Casualty Loss Amounts paid in accordance
with Article 4;
2.4.13 Less or plus, as the case may be, an amount necessary to adjust for the
net gas imbalances as determined pursuant to Section 13.1.3; and
2.4.14 Less an amount equal to the net proceeds and receivables related to the
Assets which are payable to third parties and are held in suspense by
any Seller on the Closing Date.
2.5 Payment of Adjusted Purchase Price. At the Closing, Purchaser shall cause to
be delivered by wire transfer to Sellers, or, in the event Sellers so request,
to an escrow agent determined by Sellers, an amount in immediately available
U.S. funds equal to the Purchase Price, plus or minus the adjustments provided
for in Section 2.4 calculated as provided in Section 12.3 (the "Preliminary
Amount"). At the Closing, the Preliminary Amount shall be deposited to the
accounts of Sellers in the amounts and into the accounts set forth in a notice
to be given by Sellers to Purchaser concurrently with Sellers' delivery to
Purchaser of the Closing Adjustment Statement pursuant to Section 12.3. The
Preliminary Amount paid at the Closing shall be subject to later adjustment
pursuant to Section 13.1.
2.6 Tax Purchase Price Allocations. Sellers and Purchaser recognize that
reporting requirements, as imposed by Section 1060 of the Internal Revenue Code
of 1986, as amended (the "IRC" or "Code"), and the regulations thereunder, may
apply to the transaction contemplated by this Agreement. Except as may otherwise
be required by the IRC and regulations thereunder or other Applicable Laws,
Sellers and Purchaser agree (i) that for tax reporting purposes, the Purchase
Price shall be allocated among the Assets as set forth in the final version of
Exhibit J attached to this Agreement pursuant to Section 1.1.3, and such
allocation shall be used in preparing Internal Revenue Service Form 8594 ("Form
8594") pursuant to the regulations under Section 1060 of the Code, and (ii) not
to assert, in connection with any tax return, tax audit, or similar proceeding,
any allocation of the Purchase Price that differs from that set forth in Exhibit
J to this Agreement. In the event of any adjustment of the Purchase Price
pursuant to the terms of this Agreement, Sellers and Purchaser shall adjust the
allocations reflected in Exhibit J accordingly and report such adjustments in
conformity with Section 1060 of the Code and the regulations thereunder.
3. TITLE MATTERS
3.1 Access to Records and Assets. Upon execution of this Agreement and until the
Closing, and thereafter to the extent any Sellers, or any Affiliate thereof,
retains physical possession of any of the Assets and/or Records, Sellers shall
make the Records (including, without limitation, all revenue statements, lease
operating statements, invoices, and regulatory reports necessary to permit
Purchaser to verify the historical and current lease operating statements and
joint interest billings prepared with respect to the Assets) available to
Purchaser at Sellers' designated offices located at the offices of KEBO at 607
Page 14
Railroad Avenue, Portland, Texas, during normal business hours for examination
and copying by Purchaser and shall grant to Purchaser access to such Properties
for inspection. No Seller shall be obligated to perform any title work or
provide abstracts other than those presently in such Seller's possession, nor
will any existing title opinions be made current by any Seller. Sellers will use
reasonable commercial efforts to furnish to Purchaser all other information with
respect to the Assets that Purchaser may from time to time reasonably request,
except to the extent that any Seller determines in good faith that it is
prohibited by agreement with a third party from disclosing the information
covered thereby. Purchaser agrees to conduct its due diligence in a professional
and orderly manner and at its own cost and expense without disruption of any
Seller's normal and usual operations. PURCHASER SHALL INDEMNIFY AND HOLD
HARMLESS EACH SELLER, AND ITS AFFILIATES, TOGETHER WITH THEIR RESPECTIVE
PARTNERS, CO-VENTURERS, SHAREHOLDERS, MEMBERS, OFFICERS, DIRECTORS, TRUSTEES,
EMPLOYEES, AGENTS (INCLUDING, WITHOUT LIMITATION, RICHARDSON BARR SECURITIES,
INC.), AND REPRESENTATIVES (COLLECTIVELY, THE "SELLERS' GROUP"), FROM ANY AND
ALL CLAIMS, DEMANDS, DAMAGES, LOSSES, LIABILITIES, COSTS AND EXPENSES, INCLUDING
COURT COSTS AND REASONABLE ATTORNEY'S FEES (COLLECTIVELY, "COSTS"), ARISING OUT
OF, OR RESULTING FROM PURCHASER'S ACTS OR OMISSIONS IN CONNECTION WITH ITS
ACCESS TO THE ASSETS, REGARDLESS OF WHETHER SUCH COSTS ARE ATTRIBUTABLE, IN
WHOLE OR IN PART, TO THE NEGLIGENCE, SOLE OR CONCURRENT, OF THE SELLERS' GROUP.
3.2 Definitions. For purposes of this Agreement, the following expressions and
terms will have the meanings set forth hereinafter:
3.2.1 "Sellers' Title" shall mean, as to each Well, that (i) Sellers (and upon
Closing, Purchaser), by virtue of their ownership interests therein, are
collectively entitled to receive a fractional decimal interest of not
less than the "Net Revenue Interest" set forth for each Well on Exhibit
B, without reduction, suspension, or termination throughout the
productive life of each Well (unless otherwise shown on Exhibit B); (ii)
Sellers are collectively obligated to bear (and after the Closing,
Purchaser shall be obligated to bear) a fractional decimal interest of
not more than the "Working Interest" set forth for each Well on Exhibit
B of the costs and expenses related to the maintenance, development,
drilling, equipping, testing, completion, sidetracking, reworking and
operation of each such Well, without increase throughout the productive
life thereof (unless otherwise shown on Exhibit B); and (iii) such Well
is free and clear of liens, encumbrances, and other defects or
irregularities in title, except for Permitted Encumbrances.
3.2.2 "Permitted Encumbrances" shall mean:
(a) lessors' royalties, overriding royalties, payments out of
production, reversionary interests, and other similar burdens
affecting the aggregate Net Revenue Interest of all parties
comprising Sellers if the net cumulative effect of such burdens
does not operate to (i) reduce the aggregate Net Revenue Interest
of Sellers in any Well to less than the Net Revenue Interest set
forth for such Well in Exhibit B; or (ii) increase the aggregate
Working Interest of Sellers in any such Well to greater than the
Page 15
Working Interest set forth for such Well in Exhibit B (unless the
aggregate Net Revenue Interest of Sellers therein is increased in
the same proportion);
(b) preferential rights to purchase, required third party consents to
assignment, and similar agreements with respect to which, prior
to the Closing, (i) waivers or consents are obtained from the
appropriate parties; (ii) the appropriate time for asserting such
rights has expired without an exercise of such rights; (iii) with
respect to consents, such consent need not be obtained prior to
assignment, or the failure to obtain such consent will not have a
material adverse effect on the value of the affected Well, or may
not reasonably be expected to subject Purchaser to liability in
favor of any third party;
(c) all rights to consent by, required notices to, filings with, or
other actions by Governmental Bodies in connection with the sale
or conveyance of the Assets if the same are customarily obtained
subsequent to such sale or conveyance;
(d) non-consent penalties applied against the interest of any Sellers
arising under applicable operating agreements which are scheduled
on Exhibit C and taken into account in the calculation of the
interests shown on Exhibit B;
(e) easements, rights-of-way, servitudes, permits, surface leases,
and other rights in respect of surface operations that are not a
part of, but that burden, the Assets;
(f) such Title Defects as Purchaser has waived or released or is
deemed to have waived pursuant to the terms of this Agreement;
(g) the terms and conditions of all Existing Contracts; provided,
however, that the effect of such terms and conditions is
reflected in the calculation of the Working Interests and Net
Revenue Interests set forth for the Wells in Exhibit B;
(h) rights of reassignment, to the extent any exist as of the date of
this Agreement, upon the surrender or expiration of any Lease;
(i) liens for taxes not yet due or not yet delinquent or, if due or
delinquent, that are being contested in good faith;
(j) materialman's, mechanic's, repairman's, employee's, contractor's,
operator's, and other similar liens or charges encumbering the
Assets that arise in the ordinary course of business (i) if they
have not been filed pursuant to Applicable Law, (ii) if filed,
they have not yet become due and payable, or payment is being
withheld as provided by Applicable Law, or (iii) if their
validity is being contested in good faith by appropriate action;
(k) all rights reserved to or vested in any Governmental Body to
control or regulate any of the Assets in any manner, and all
Applicable Laws;
Page 16
(l) all defects and irregularities of title that would not reasonably
be expected to result in claims that would materially and
adversely affect the title of any Seller to, or the ownership,
operation, or value of, the Assets, including, without limitation
(i) defects in the early chain of title consisting of the failure
to recite marital status or the omission of succession or
heirship proceedings; (ii) defects or irregularities arising out
of the lack of a survey (but not defects or irregularities, the
existence of which is demonstrated by a survey); (iii) defects or
irregularities arising out of or relating to the lack of powers
of attorney from corporations to execute and deliver documents on
their behalf or lack of spousal joinder; (iv) defects of title
which result from the failure to file assignments or other
documents in the state or federal records so long as such
assignments or other documents are properly recorded in the
county records; and (v) irregularities cured by possession under
applicable statutes of limitation and statutes relating to
acquisitive (or liberative) prescription; and
(m) all other liens, charges, encumbrances, instruments, obligations,
defects and irregularities affecting the Assets which,
individually or in the aggregate, do not: (i) interfere
materially with the operation, value, or use of any of the Wells;
(ii) do not prevent Purchaser from receiving the proceeds of
production from any of the Wells; (iii) do not reduce the
aggregate interests of all Sellers with respect to Hydrocarbons
produced from any Well below the Net Revenue Interest set forth
for such Well on Exhibit B; or (iv) do not increase the aggregate
share of the costs and expenses that Sellers are obligated to pay
above the Working Interest set forth for such Well in Exhibit B
without a proportionate increase in the Net Revenue Interest for
such Well.
3.2.3 "Title Defect" shall mean any matter: (i) that would cause the title to
any Well fail to be as reflected in Sellers' Title, or that reflects a
failure in Sellers' title to any Property; (ii) has a Defect Value (as
hereinafter defined) which is greater than $25,000; and (iii) as to
which notice is provided to Sellers in a timely manner as provided for
in Section 3.3.
3.2.4 "Allocated Value" means, with respect to each Well, the amount set forth
on the final version of Exhibit B attached to this Agreement pursuant to
Section 1.1.3 under the column styled "Allocated Value" for such Well.
For purposes of this Agreement, Sellers and Purchaser agree and
stipulate that the Allocated Values set forth in Exhibit B have been
established solely for use in calculating adjustments to the Purchase
Price as provided herein, and not for purposes of federal, state, local,
or foreign income taxation, such Allocated Values being solely for the
convenience of the Parties.
3.3 Notice of Title Defect. During the period of time between the execution of
this Agreement and September 21, 2007 (the "Due Diligence Period"), Purchaser
may review title to the Assets and may notify Sellers in writing (the "Title
Defect Notice") of any Title Defect; provided, however, Purchaser shall notify
Sellers of any Title Defect it discovers as soon as reasonably practicable after
its discovery. Any notice provided hereunder shall include appropriate evidence
to substantiate Purchaser's position, including a description of the Title
Defect, the basis for the Title Defect, the portion of the Well or Wells
affected by the Title Defect, the Allocated Value therefore, the amount by which
Purchaser reasonably believes, in accordance with the provisions of Section 3.6,
Page 17
the value of the affected Well or Wells would be reduced if the Title Defect
were uncured (the "Defect Value"), and the computations and information upon
which Purchaser's belief is based. Purchaser will be deemed to have conclusively
waived any matter reflected in the public records of the county where the
Properties are located as of the end of the Due Diligence Period or in any
documents or records made available by Sellers to Purchaser pursuant hereto that
would otherwise qualify as a Title Defect but about which Purchaser fails to
notify Sellers in writing in the manner described above prior to the expiration
of the Due Diligence Period.
3.4 Remedies for Title Defects. For any Title Defect properly asserted by
Purchaser during the Due Diligence Period, subject to the termination rights of
both Parties pursuant to Section 3.8 hereof, Sellers shall have the option, in
their sole discretion, of (i) curing the Title Defect, (ii) contesting the Title
Defect or the Defect Value, or (iii) subject to the terms of Section 3.5.2,
reducing the Purchase Price by the amount of the Defect Value ("Title Indemnity
Payment").
3.5 Procedure for Resolving Title Defects. With respect to Title Defects
properly and timely asserted by Purchaser as provided herein, the following
procedures shall apply.
3.5.1 If Sellers contest the existence of a Title Defect or the Defect Value
applicable thereto, Sellers shall so notify Purchaser in writing on or
before five (5) days after Sellers' receipt of the Title Defect Notice
("Rejection Notice"). The Rejection Notice shall state with reasonable
specificity the basis of Sellers' rejection of the Title Defect or the
Defect Value. No later than five (5) days following Purchaser's receipt
of the Rejection Notice, representatives of Purchaser and Sellers,
knowledgeable in title matters, shall meet and either: (i) agree to
mutually reject the particular Title Defect, or (ii) agree on the
validity of such Title Defect and the Defect Value, in which case
Sellers shall cure such Title Defect at their own expense and to their
reasonable satisfaction and, failing such cure, make the Title Indemnity
Payment therefor, subject to the limitations set forth in Section 3.5.2.
If the Parties cannot agree on either option (i) or (ii) in the
preceding sentence, the Title Defect or the Defect Value subject to the
Rejection Notice shall be submitted to dispute resolution in accordance
with the procedures set forth in Section 3.9. Each Title Defect as to
which Sellers and Purchaser reach agreement hereunder concerning the
validity of such Title Defect and its Defect Value or as to which such
validity and/or Defect Value is finally determined pursuant to Section
3.9 shall be referred to herein as a "Finally Determined Title Defect."
3.5.2 Notwithstanding the provisions of Section 3.5.1, and except as otherwise
provided in Section 3.10, Sellers shall not be obligated to pay any
Title Indemnity Payment, Environmental Indemnity Payment, or Casualty
Loss Amount hereunder unless, and only to the extent that, the sum of
(i) the aggregate Defect Values for all uncured, Finally Determined
Title Defects, plus (ii) the aggregate Remediation Amounts for all
unremedied Finally Determined Environmental Defects, plus (iii) the
aggregate Casualty Loss Amounts for all unrepaired Finally Determined
Casualty Losses, exceeds a deductible of five percent (5.0%) of the
Purchase Price (the "Deductible"). If Purchaser asserts Finally
Determined Title Defects for which Sellers elect to make a Title
Indemnity Payment, and the sum of (x) the aggregate Defect Values for
such uncured Finally Determined Title Defects plus (y) the aggregate
Remediation Amounts for all unremedied Finally Determined Environmental
Page 18
Defects, plus (z) the aggregate Casualty Loss Amounts for all unrepaired
Finally Determined Casualty Losses do not exceed the Deductible, no
Title Indemnity Payment shall be made.
3.6 Value of Defects. The Defect Value for a Title Defect shall be determined as
follows:
3.6.1 If, because of the Title Defect, title to a particular Well fails
completely with the effect that Sellers have no ownership interest in
the relevant Well, the Defect Value shall be the Allocated Value of that
Well.
3.6.2 If the Title Defect consists of a lien, encumbrance or other charge upon
a Well which is liquidated in amount, the Defect Value shall be the
amount necessary to pay the obligee to remove such Title Defect.
3.6.3 If the actual aggregate Net Revenue Interest of Sellers in a Well is
less than the Net Revenue Interest set forth for such Well in Exhibit B
throughout the remaining productive life of such Well, the Defect Value
shall be an amount equal to (i) the ratio of (x) the difference obtained
by subtracting the actual Net Revenue Interest for such Well from the
Net Revenue Interest set forth for such Well on Exhibit B, to (y) the
Net Revenue Interest set forth for such Well on Exhibit B, (ii)
multiplied by the Allocated Value for such Well.
3.6.4 If the actual aggregate Net Revenue Interest of Sellers in a Well is
less than the Net Revenue Interest set forth for such Well in Exhibit B
for less than the remaining productive life of such Well, or if the
actual aggregate Working Interest of Sellers in a Well is greater than
the Working Interest set forth for such Well in Exhibit B without a
proportionate increase in the relevant Net Revenue Interest, then the
Defect Value shall be equal to the Allocated Value for such Well
multiplied by a fraction (i) the numerator of which shall be the net
present value, as of the Effective Date, of the aggregate interests of
Sellers in the future net revenues from such Well set forth in that
certain reserve report dated May 31, 2007, covering the Properties as of
June 1, 2007, prepared by R. A. Lenser & Associates (the "Lenser Reserve
Report"), a copy of which has been previously delivered to Purchaser,
discounted at ten percent (10%) per annum (the "PV-NRI"), minus the net
present value, as of the Effective Date, of the aggregate interests of
Sellers in the future net revenues from such Well calculated based upon
the same production, cost, and assumed future price estimates and such
other methods, techniques and assumptions used in the preparation of the
Lenser Reserve Report but taking into account the Title Defect, and (ii)
the denominator of which shall be the PV-NRI.
3.6.5 If the Title Defect is one other than described in Sections 3.6.1
through 3.6.4, the Defect Value shall be the amount agreed to by Sellers
and Purchaser or, failing such agreement, the Defect Value shall be
determined pursuant to Section 3.9 below.
3.7 Interest Additions. If Sellers discover that the actual aggregate Net
Revenue Interest of Sellers for a Well is greater than the Net Revenue Interest
shown for such Well on Exhibit B, and such Well is otherwise free of Title
Defects (an "Interest Addition"), then Sellers shall, from time to time, have
the right to give Purchaser written notice of such Interest Additions ("Interest
Page 19
Addition Notice"), as soon as practicable but no later than the end of the Due
Diligence Period, stating with reasonable specificity the Well affected, the
particular Interest Addition claimed, and Sellers' good faith estimate of the
amount by which the Additional Interest increases the value of the affected Well
over and above the Allocated Value for such Well ("Interest Addition Value"). If
Purchaser agrees with the existence of the Interest Addition and Sellers' good
faith estimate of the Interest Addition Value, and such Interest Addition Value
exceeds $25,000, then the Interest Addition Value shall be applied as an offset
to any Title Indemnity Payment or Environmental Indemnity Payment required of
Sellers ("Offset"). If Purchaser contests the existence of the Interest Addition
or Sellers' good faith estimate of the Interest Addition Value, then Purchaser
shall so notify Sellers in writing on or before five (5) days after receipt of
the Interest Addition Notice ("Interest Addition Rejection Notice"). The
Interest Addition Rejection Notice shall state with reasonable specificity the
basis of Purchaser's rejection of the Additional Interest or the Interest
Addition Value. No later than five (5) days following delivery of the Interest
Addition Rejection Notice, representatives of Purchaser and Sellers,
knowledgeable in title matters, shall meet and either (i) agree to mutually
reject the Interest Addition, in which case Sellers shall waive the Interest
Addition, or (ii) agree on the validity of such Interest Addition and the
Interest Addition Value, in which case Sellers shall be entitled to an Offset.
If the Parties cannot agree on either option (i) or (ii) in the preceding
sentence, the Interest Addition subject to the Interest Addition Rejection
Notice shall be submitted to dispute resolution in accordance with the
procedures set forth in Section 3.9. If Purchaser fails to timely deliver an
Interest Addition Rejection Notice, Purchaser shall be deemed to have accepted
the validity of the Interest Addition and the Interest Addition Value, and
Sellers shall be entitled to an Offset as described above.
3.8 Right to Terminate Agreement. Notwithstanding anything in Article 3, Article
4 or Article 5, if the sum of (i) the Defect Values for all Finally Determined
Title Defects (which, for purposes of this Section 3.8, shall include
preferential rights to purchase and required third person consents to assignment
that result in the exclusion of one or more Assets from the Closing pursuant to
Section 3.10, but shall exclude liens, encumbrances, or other charges upon a
Well as to which Sellers obtain releases upon Sellers' payment or discharge of
the indebtedness or other obligations secured thereby), plus (ii) the
Remediation Amounts for all Finally Determined Environmental Defects, plus (iii)
the Casualty Loss Amounts for all Finally Determined Casualty Losses that occur
prior to the Closing Date, equals or exceeds, independently of and without
regard to the Deductible, fifteen percent (15%) of the Full Interest Purchase
Price (the "Termination Threshold"), and Sellers elect not, or are unable, to
cure, remedy, or repair such Finally Determined Title Defects, Finally
Determined Environmental Defects, or Finally Determined Casualty Losses, either
Party may elect to terminate this Agreement without liability to the other
Party, in which case Purchaser shall be entitled to a refund of the Performance
Deposit.
3.9 Expert Determination.
3.9.1 If Sellers and Purchaser are unable to agree, as herein provided,
regarding the existence of a Title Defect, Environmental Defect, or
Casualty Loss, the applicable Defect Value, Remediation Amount (as
hereinafter defined), or reduction in value resulting from a Casualty
Loss, or any other matter to be resolved under this Article 3, Article
4, or Article 5, the Parties shall promptly refer the matter for
determination in the manner hereinafter provided to a person selected by
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mutual agreement of the Parties who possesses the requisite knowledge,
skill and experience to determine the issue in question (the "Defect
Expert"). The Defect Expert may enlist the advice of attorneys,
accountants, geologists, landmen, or any petroleum engineer or
environmental consultant mutually agreed upon by the Parties and any
other neutral expert as reasonably necessary.
3.9.2 Upon referral to the Defect Expert, the Parties shall each deliver to
the other and the Defect Expert a notice setting forth in adequate
detail the issues to be determined by the Defect Expert and the decision
(on a word-for-word basis) that such Party wishes the Defect Expert to
make with respect to the issues to be determined (the "Decision
Notice"); provided, however, in preparing their Decision Notice, each
Party (as well as the Defect Expert) shall be bound by the terms of this
Agreement. Within two (2) business days after the giving of the two
Decision Notices, the Parties shall attend a meeting with the Defect
Expert at a mutually acceptable time and place to discuss fully the
content of such Decision Notice and, based thereon, determine whether
either or both wish to modify their Decision Notices in any way. Any
such modifications shall be discussed, so that when each Party finalizes
its Decision Notice, it shall do so with full knowledge of the content
of the other Party's final Decision Notice. The finalization of such
Decision Notices and the delivery of same by each Party to the other
shall occur at the meeting unless the Parties agree to have one or more
additional meetings for such purposes. The Defect Expert shall be
required to adopt the decision set forth in either final Decision Notice
and shall have no power whatsoever to reach any other result. Such
Defect Expert shall adopt the decision that, in his or her judgment, is
the more fair and equitable and in conformity with this Agreement and
industry standards.
3.9.3 The decision, made in writing and signed by the Defect Expert, shall
determine such dispute. Such decision shall be made, signed and
delivered to the Parties at the meeting unless otherwise agreed by the
Parties. The expenses of the Defect Expert and any other expert retained
by the Defect Expert under this Agreement shall be borne by the Party
whose final Decision Notice was not chosen by the Defect Expert, except
that each Party shall bear the compensation and expense of its own
counsel, witnesses and employees. The determination and award of the
Defect Expert shall be final and binding upon the Parties, and judgment
may be entered thereon in any court of competent jurisdiction upon the
application of either Party.
3.10 Preferential Purchase Rights and Consents to Assign.
3.10.1 Within five (5) days after the execution of this Agreement, Sellers
shall send to the holder of each preferential right to purchase
identified on Exhibit D a written notice offering to sell to such
holder, in accordance with the contractual provisions applicable to such
right, the Asset covered by such right on substantially the same terms
as this Agreement and for the Allocated Value applicable to such Asset
as set forth in Exhibit B, subject to adjustments in price in the same
manner that the Purchase Price is adjusted pursuant to Section 2.4 of
this Agreement. Similarly, within five (5) days after the execution of
this Agreement, Sellers shall send to each party identified on Exhibit D
from whom a consent to assignment is required prior to the Closing a
written notice requesting such party to consent to the assignment of the
affected Asset to Purchaser. Both Purchaser and Sellers shall use
Page 21
reasonable efforts to identify additional preferential rights to
purchase and consents to assign and, if any such rights are identified,
Sellers shall notify such holder(s) in accordance with the terms of this
Section 3.10.1 within five (5) days of the identification of such
additional rights.
3.10.2 If an Asset (including, without limitation, an Existing Contract) is
subject to a preferential right to purchase, right of first refusal,
right of first offer, or similar right that is exercised prior to the
Closing, then at Purchaser's option, (i) Sellers shall convey the
affected Asset to Purchaser at the Closing subject to such outstanding
preferential right to purchase or similar right, or (ii) the affected
Asset shall be excluded from the Assets conveyed to Purchaser at the
Closing, the Purchase Price shall be reduced by an amount equal to the
full Allocated Value of the affected Asset without regard to the
existence or status of amounts credited against the Deductible, and
Sellers shall be entitled to retain all proceeds paid for the affected
Asset by the person exercising such preferential right to purchase or
similar right. No reduction of the Purchase Price pursuant to this
Section 3.10.2 shall be taken into account in determining whether the
Deductible has been met. If Purchaser purchases at the Closing an Asset
burdened by a preferential right to purchase or similar right that has
not been exercised as of the Closing Date, regardless of whether the
time period for the exercise of such right has expired, no reduction of
the Adjusted Purchase Price paid at the Closing shall be made with
respect thereto. If, for any reason, such preferential right to purchase
or similar right is successfully exercised by the holder thereof after
the Closing, Purchaser shall be entitled to retain all proceeds paid for
the affected Asset by the holder of the relevant preferential right to
purchase or similar right. If the holder of such a preferential right to
purchase or similar right notifies Sellers that it intends to consummate
the purchase of an Asset to which its preferential purchase right
applies, but the holder of such preferential right fails to consummate
the purchase of the relevant Asset such that the holder's right expires
or is terminated, whether before or after Closing, then Sellers, as
promptly as possible thereafter, but in no event later than one hundred
fifty (150) days after the Closing, shall so notify Purchaser. Within
fifteen (15) days after Purchaser's receipt of such notice from Sellers,
Sellers shall sell to Purchaser, and Purchaser shall purchase from
Sellers, for a price equal to the Allocated Value of such Asset and
subject to and in accordance with the other terms of this Agreement, the
Asset to which such preferential right to purchase or similar right
applies.
3.10.3 If an Asset (including, without limitation, an Existing Contract) is
subject to a third person consent to assignment required to be obtained
before the relevant Asset may be assigned, but the third party holding
such right to consent neglects or refuses to give such consent prior to
the Closing, Sellers will promptly so notify Purchaser and, at
Purchaser's option, (i) Sellers shall convey the affected Asset to
Purchaser at the Closing subject to such outstanding consent, in which
case the Allocated Value applicable to the affected Asset shall be
included in the Purchase Price paid by Purchaser at the Closing, or (ii)
the affected Asset shall be excluded from the Assets conveyed at
Closing, title thereto shall be retained by Sellers subject to the terms
of this Section 3.10.3, and the Purchase Price shall be reduced by an
amount equal to the full Allocated Value of the affected Asset without
regard to the existence or status of amounts credited against the
Deductible. After the Closing, Sellers shall continue to use their
reasonable commercial efforts (which shall in no event include any
obligation to pay money to the owners of such rights or undertake any
Page 22
legal obligation) to obtain all consents to assignment as promptly after
the Closing as is possible. If Sellers obtain the relevant outstanding
consent to assignment, and Purchaser has elected to exclude the affected
Asset from the Assets conveyed at Closing, then within fifteen (15) days
after Sellers' receipt of such consent, Sellers shall convey to
Purchaser, and Purchaser shall purchase from Sellers, for a price equal
to the Allocated Value of such Asset and subject to and in accordance
with the other terms of this Agreement, the Asset to which such consent
requirement applies. If such outstanding consent is not obtained prior
to the expiration of one hundred fifty (150) days after the Closing
Date, and Purchaser has elected to purchase and receive a conveyance of
the affected Asset at the Closing, Purchaser shall have the right and
option to reassign the affected Asset to Sellers, without representation
or warranty as to title except as against those claiming the same by,
through, or under Purchaser and subject only to those matters to which
the Asset was subject at Closing, and Sellers shall refund to Purchaser
the Allocated Value for such Asset subject to adjustment for revenues,
expenses, and other matters attributable to such Asset since the
Effective Date in accordance with Section 2.4. Upon such reassignment,
Sellers shall have no further liability to Purchaser with respect to
such Asset under this Section 3.10.3.
4. CASUALTY LOSS.
4.1 Casualty Loss. If, prior to the Closing, any of the Assets are substantially
damaged or destroyed by fire, explosion, accident, act of the public enemy, act
of God, or other similar event or occurrence ("Casualty Loss"), Sellers shall
notify Purchaser promptly after Sellers learn of such event. Sellers shall have
the right, but not the obligation, to cure any such Casualty Loss by repairing
such damage or, in the case of Personal Property or fixtures, replacing the
damaged Asset with equivalent items no later than the Closing Date. If any
Casualty Loss exists at the Closing, Purchaser shall proceed to purchase the
damaged Assets, and the Purchase Price shall be reduced by the aggregate
reduction in value of all Assets affected by such Casualty Loss ("Casualty Loss
Amount"), as determined by the mutual agreement of the Parties; provided that if
the Parties are unable to agree on such amount prior to the Closing, then such
determination shall be made by the Defect Expert as provided in Section 3.9
above. Each Casualty Loss as to which Sellers and Purchaser reach agreement on
the Casualty Loss Amount prior to the Closing or as to which such Casualty Loss
Amount is finally determined pursuant to Section 3.9 shall be referred to herein
as a "Finally Determined Casualty Loss." Notwithstanding anything to the
contrary contained in this Section 4.1, (i) a reduction of the Purchase Price
attributable to any Casualty Loss shall be made only to the extent permitted
under the provisions of Section 3.5.2, and (ii) if a Casualty Loss does not
result in a reduction of the Purchase Price hereunder, Sellers shall promptly
remit to Purchaser all insurance proceeds and shall take all actions necessary
to permit Purchaser to pursue any claims against third parties, in each case
relating to any such Casualty Loss that is not repaired by Sellers; provided,
however, that if any reduction to the Purchase Price occurs as the result of a
Casualty Loss, Sellers shall be entitled to retain all insurance proceeds and
claims against other parties relating to any such Casualty Loss. For purposes of
this Section 4.1, normal wear and tear shall not be considered a Casualty Loss.
Page 23
5. ENVIRONMENTAL CONDITION
5.1 Physical Condition of the Assets. The Assets have been used for Hydrocarbon
drilling and production operations and various related oil field operations.
Physical changes in or under the Assets or adjacent lands may have occurred as a
result of such uses. The Assets also may contain buried pipelines and other
equipment, whether or not of a similar nature, the locations of which may not
now be known by Sellers or be readily apparent by a physical inspection of the
Assets. Purchaser understands that Sellers do not have the requisite information
with which to determine the exact nature or condition of the Assets or the
effect any such use has had on the physical condition of the Assets. In
addition, Purchaser acknowledges that some oil field production equipment may
contain asbestos and/or naturally occurring radioactive material ("NORM"). In
this regard, Purchaser expressly understands that NORM may affix or attach
itself to the inside of wells, materials, and equipment as scale or in other
forms, and that the wells, materials, and equipment located on the Assets may
contain NORM and that NORM containing materials may be buried or have been
otherwise disposed of on the Assets. Purchaser also expressly understands that
special procedures may be required for the removal and disposal of asbestos and
NORM from the Assets where it may be found.
5.2 Environmental Assessment.
5.2.1 Prior to the Closing, and upon reasonable, prior notice to Sellers,
Purchaser and any third party environmental consulting firm approved by
DSX on behalf of Sellers (which consent shall not be unreasonable
withheld) and retained by Purchaser (the "Purchaser's Environmental
Consultant"), to the same extent Sellers have such right, shall have the
right to enter upon the Assets and all buildings and improvements
thereon, inspect the same, conduct soil and water tests and borings, and
generally conduct such tests, examinations, investigations, and studies
as may be necessary or appropriate for the preparation of appropriate
engineering and other reports, judgments, and environmental assessments
in relation to the Assets, their environmental condition, and the
existence of Environmental Defects (as hereinafter defined) (such
inspection and investigation being called herein "Purchaser's
Environmental Assessment"). Purchaser shall promptly provide to Sellers
a copy of Purchaser's Environmental Assessment, including any reports,
data, and conclusions. Purchaser and Sellers shall keep strictly
confidential any data or information acquired from such examinations and
the results of all analyses of such data and information and shall not
disclose same to any person or Governmental Body without the prior
written approval of the other Party, except such disclosure as may be
required by Applicable Law. This obligation of confidentiality shall
survive the Closing.
5.2.2 WITH RESPECT TO PURCHASER'S ENVIRONMENTAL ASSESSMENT, PURCHASER SHALL
INDEMNIFY AND HOLD HARMLESS THE SELLERS' GROUP FROM ANY AND ALL COSTS
ARISING OUT OF OR RESULTING FROM THE ACTS OR OMISSIONS OF PURCHASER OR
PURCHASER'S ENVIRONMENTAL CONSULTANT IN CONNECTION WITH PURCHASER'S
ENVIRONMENTAL ASSESSMENT, INCLUDING, WITHOUT LIMITATION, COSTS RELATING
TO (I) ANY AND ALL STATUTORY OR COMMON-LAW LIENS OR OTHER ENCUMBRANCES
FOR LABOR OR MATERIALS FURNISHED IN CONNECTION WITH SUCH TESTS,
Page 24
SAMPLINGS, STUDIES, OR SURVEYS AS PURCHASER OR PURCHASER'S ENVIRONMENTAL
CONSULTANT MAY CONDUCT WITH RESPECT TO THE ASSETS AND (II) CLAIMS
ASSERTED BY PURCHASER, ITS AFFILIATES, AND THEIR RESPECTIVE PARTNERS,
SHAREHOLDERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES (COLLECTIVELY, THE "PURCHASER GROUP") FOR INJURY TO OR
DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING THINGS, OR DAMAGE TO OR
LOSS OF PROPERTY, IN EITHER CASE RESULTING FROM, ARISING OUT OF, OR
OCCURRING IN CONNECTION WITH PURCHASER'S ENVIRONMENTAL ASSESSMENT,
REGARDLESS OF WHETHER SUCH COSTS ARE ATTRIBUTABLE, IN WHOLE OR IN PART,
TO THE NEGLIGENCE, SOLE OR CONCURRENT, OF THE SELLERS' GROUP.
5.3 Environmental Defect Notice. If Purchaser reasonably determines, as a result
of Purchaser's Environmental Assessment, that there exists or may exist an
Environmental Defect, Purchaser may notify Sellers thereof in writing as soon as
reasonably practical after its discovery, but in any event before the end of the
Due Diligence Period (the "Environmental Defect Notice"). Any notice provided
hereunder shall include appropriate evidence to substantiate Purchaser's
position, including a description of the Environmental Defect, the Environmental
Law applicable to the Environmental Defect, Purchaser's basis for believing that
Sellers is in violation of such Environmental Law, the Well or Wells affected by
the Environmental Defect, an estimate from Purchaser's Environmental Consultant
outlining the cost for Remediation (as hereinafter defined), which estimate
shall identify the methods and scope of the remediation proposed and all
assumptions relied upon by Purchaser's Environmental Consultant in calculating
the estimated cost of Remediation, and a calculation by Purchaser of the
Remediation Amount (as hereinafter defined) attributable to the Environmental
Defect based upon the estimate of Purchaser's Environmental Consultant.
Purchaser will be deemed to have conclusively waived any Environmental Defect
discovered by Purchaser during the Due Diligence Period about which it fails to
notify Sellers in writing prior to the expiration of the Due Diligence Period.
5.4 Remedies for Environmental Defects. For any Environmental Defect properly
asserted by Purchaser during the Due Diligence Period, subject to the
termination rights of both Parties pursuant to Section 3.8, Sellers shall have
the option, in their sole discretion, of (i) remedying the Environmental Defect,
(ii) contesting the Environmental Defect or the Remediation Amount, or (iii)
subject to the terms of Section 5.5.2, reducing the Purchase Price by an amount
equal to the Remediation Amount ("Environmental Indemnity Payment").
5.5 Procedure for Resolving Environmental Defects. With respect to Environmental
Defects properly and timely asserted by Purchaser as provided herein, the
following procedures shall apply.
5.5.1 If Sellers contest the existence of an Environmental Defect or the
Remediation Amount, Sellers shall provide Purchaser a Rejection Notice
with respect thereto on or before five (5) days after Sellers' receipt
of the Environmental Defect Notice. The Rejection Notice shall state
Page 25
with reasonable specificity the basis of Sellers' rejection of the
Environmental Defect or the Remediation Amount. No later than five (5)
days following Purchaser's receipt of the Rejection Notice,
representatives of Purchaser and Sellers, knowledgeable in environmental
matters, shall meet and either: (i) agree to mutually reject the
particular Environmental Defect, or (ii) agree on the validity of such
Environmental Defect and the Remediation Amount, in which case Sellers
shall remedy such Environmental Defect at their own expense and to the
satisfaction of the appropriate Governmental Body prior to the Closing
or as soon thereafter as is reasonably practicable and, failing such
remedy, make the Environmental Indemnity Payment therefor, subject to
the limitation set forth in Section 5.5.2. If the Parties cannot agree
on either option (i) or (ii) in the preceding sentence, the
Environmental Defect or the Remediation Amount subject to the Rejection
Notice shall be submitted to dispute resolution in accordance with the
procedures set forth in Section 3.9. Each Environmental Defect as to
which Sellers and Purchaser reach agreement hereunder concerning the
validity of such Environmental Defect and its Remediation Amount or as
to which such validity and/or Remediation Amount is finally determined
pursuant to Section 3.9 shall be referred to herein as a "Finally
Determined Environmental Defect."
5.5.2 Notwithstanding the provisions of Section 5.5.1, Sellers shall be
obligated to make an Environmental Indemnity Payment only if, and then
only to the extent, provided in Section 3.5.2. If Purchaser asserts
Finally Determined Environmental Defects for which Sellers elect to make
an Environmental Indemnity Payment, and the sum of the aggregate
Remediation Amounts for such unremedied Finally Determined Environmental
Defects plus (ii) the aggregate Defect Values for all uncured Finally
Determined Title Defects, plus (iii) the aggregate Casualty Loss Amounts
for all unrepaired Finally Determined Casualty Losses do not exceed the
Deductible, no Environmental Indemnity Payment shall be made.
5.6 Definitions. For purposes of this Agreement, the following expressions and
terms will have the meanings set forth hereinafter:
5.6.1 "Applicable Laws" shall mean all laws, statutes, treaties, rules, codes,
ordinances, regulations, certificates, orders, interpretations, licenses
and permits of any Governmental Body, including the common or civil law,
(including, without limitation, those pertaining to occupational health
and safety, consumer product safety, employee benefits, the environment,
securities or zoning) and all judgments, decrees, injunctions, writs,
orders, or like action of any court, arbitrator, or other Governmental
Body of competent jurisdiction.
5.6.2 "Environmental Defect" shall mean a condition that exists prior to the
Effective Date, and only to the extent in existence as of the Effective
Date, with respect to the air, land, soil, surface, subsurface strata,
surface water, ground water or sediments which causes an Asset to be
subject to definitive remediation within a time certain under
Environmental Laws in effect as of the Effective Date, but only to the
extent that (i) the condition was not otherwise known to Purchaser prior
to the execution of this Agreement, and (ii) the Remediation Amount, net
to Purchaser's interest, will exceed the sum of $50,000.
Page 26
5.6.3 "Environmental Laws" shall mean any and all Applicable Laws pertaining
to safety, health or conservation or protection of the environment,
wildlife, or natural reserves in effect in any and all jurisdictions in
which the Assets are located, including, without limitation, the Clean
Air Act, as amended, the Federal Water Pollution Control Act, as
amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended ("SARA"), the Resource Conservation and Recovery Act, as amended
("RCRA"), the Hazardous and Solid Waste Amendments Act of 1984, as
amended, the Toxic Substances Control Act, as amended, the Occupational
Safety and Health Act, as amended ("OSHA"), and any applicable state,
tribal, or local counterparts, but shall not include any Applicable Law
associated with Plugging and Abandonment (as hereinafter defined). The
terms "hazardous substance", "release", and "threatened release" shall
have the meanings specified in CERCLA; provided, however, that to the
extent the laws of the state in which the Assets are located are
applicable and have established a meaning for "hazardous substance",
"release", "threatened release", "solid waste", "hazardous waste", and
"disposal" that is broader than that specified in CERCLA or RCRA, such
broader meaning shall apply with respect to the matters covered by such
laws.
5.6.4 "Governmental Body" shall mean any Federal, state, tribal, county,
parish, municipal, or other federal, state or local governmental
authority or judicial or regulatory agency, board, body, department,
bureau, commission, instrumentality, court, tribunal or
quasi-governmental authority in any jurisdiction (domestic or foreign).
5.6.5 "Hazardous Substances" shall mean shall mean all industrial or solid
waste, hazardous waste, hazardous or toxic substances, chemicals or
pollutants, hydrocarbons (including crude oil, natural gas, natural gas
liquids, or liquefied natural gas) and any wastes associated with the
exploration and production of hydrocarbons, asbestos or any substance
containing asbestos and deemed hazardous, the group of organic compounds
known as polychlorinated biphenyls, flammable explosives, radioactive
materials, effluents, contaminants, emissions or related materials and
any items included in the definition of hazardous, dangerous or toxic
waste, materials or substances under any Environmental Law.
5.6.6 "Remediation" shall mean removal, excavation, capping, or other
environmental remedies to the extent required by Environmental Laws in
effect as of the Effective Date to remedy an Environmental Defect
existing on or with respect to an Asset using the least stringent, most
cost effective standard, but only to the extent such requirement relates
to the continued use and operation of the Asset for Hydrocarbon
exploration, production, and gathering.
5.6.7 "Remediation Amount" shall mean, with respect to any Environmental
Defect, the cost of Remediation with respect thereto.
Page 27
6. REPRESENTATIONS OF SELLERS
6.1 Disclaimers.
6.1.1 Warranty Disclaimers; "As Is, Where Is". EXCEPT AS SPECIFICALLY SET
FORTH IN THIS ARTICLE 6 OR THE GENERAL ASSIGNMENT, SELLERS MAKE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, IN CONNECTION WITH
THE ASSETS. SUBJECT TO THIS SECTION 6.1 AND TO THE PERMITTED
ENCUMBRANCES, SELLERS MAKE THE REPRESENTATIONS AND WARRANTIES SET FORTH
IN SECTION 6.2. TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE
OPERATIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION 6.1 ARE "CONSPICUOUS DISCLAIMERS" FOR PURPOSES OF ANY APPLICABLE
LAW. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION
6.2 AND THE GENERAL ASSIGNMENT, AND SUBJECT TO THE PROCEDURES AND
REMEDIES APPLICABLE TO TITLE DEFECTS UNDER ARTICLE 3, CASUALTY LOSS
UNDER ARTICLE 4, AND ENVIRONMENTAL DEFECTS UNDER ARTICLE 5, PURCHASER
AGREES THAT SELLERS ARE CONVEYING THE ASSETS WITHOUT REPRESENTATION OR
WARRANTY, EITHER EXPRESSED OR IMPLIED AT COMMON LAW, BY STATUTE, OR
OTHERWISE (ALL OF WHICH SELLERS HEREBY DISCLAIM), RELATING TO (i) TITLE,
(ii) OPERATING CONDITION, (iii) MERCHANTABILITY, DESIGN, OR QUALITY,
(iv) FITNESS FOR ANY PARTICULAR PURPOSE, (v) ABSENCE OF LATENT DEFECTS,
(vi) ENVIRONMENTAL CONDITION OF THE ASSETS (INCLUDING THE PRESENCE OR
ABSENCE OF NORM), (vii) VALUE, OR (viii) ANY OTHER MATTER WHATSOEVER, IT
BEING UNDERSTOOD THAT, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT
AND THE GENERAL ASSIGNMENT, SELLERS ARE CONVEYING TO PURCHASER, AND
PURCHASER IS ACCEPTING, THE ASSETS "AS IS," "WHERE IS," "WITH ALL
FAULTS," AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR, AND
PURCHASER IS ASSUMING ALL RISK WITH RESPECT TO THE ASSETS.
6.1.2 Texas DTPA. PURCHASER WAIVES ITS RIGHTS, IF ANY, UNDER THE DECEPTIVE
TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41, ET SEQ., TEXAS
BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS
AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF ITS OWN
SELECTION, PURCHASER VOLUNTARILY CONSENTS TO THIS WAIVER.
6.2 Representations. Each Seller, on its own behalf and not on behalf of any
other Seller, and severally according to its ownership interests in the Assets
and not jointly or collectively, represents and warrants to Purchaser, as of the
date hereof and as of the Closing Date, as follows:
6.2.1 Existence. Except for those Sellers that are individuals, each Seller is
a legal entity of the type identified for such Seller on the final
version of Schedule 6.2.1 attached hereto pursuant to Section 1.1.3 that
Page 28
is (i) duly organized or duly formed, as applicable, under the laws of
the state also identified for such Seller on Schedule 6.2.1; (ii)
validly existing; (iii) if required to pay state franchise or similar
taxes under Applicable Laws, in good standing under the laws of its
state of its organization or formation; and (iv) if organized or formed
under the laws of a state other than Texas, duly qualified to do
business in and, if required to pay state franchise or other taxes under
Texas law, in good standing under the laws of, the State of Texas.
6.2.2 Power. Each Seller has full capacity, power, and authority to carry on
its business as presently conducted, to enter into this Agreement and
any other documents and agreements contemplated hereby, and to perform
its obligations under this Agreement.
6.2.3 Authorization. The execution, delivery, and performance by each Seller
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by all
necessary corporate, partnership, limited liability company, trust, or
other action of each Seller and will not violate or be in conflict with,
or result in a breach, or trigger a default (or an event that, with the
lapse of time or the giving of notice, or both, would constitute a
default) under the provisions of, (i) any material note, bond, mortgage,
indenture, Lease contract (including the Existing Contracts), agreement,
or instrument to which any Seller is a party, or by which any Seller is
bound, or to which any Asset is subject, (ii) the organizational and
governing documents of any Seller, or (iii) any judgment, decree, order,
law, statute, rule, or regulation applicable to any Seller or any Asset,
the non-compliance with which would have a material adverse effect on
Purchaser, its ownership or operation, after the Closing, of any of the
Assets, or the ability of any Seller to consummate the transactions
contemplated herein. This Agreement has been, and the other documents
provided for herein to be executed and delivered by Sellers to Purchaser
at the Closing will be, duly executed and delivered on behalf of each
Seller and constitute or shall constitute the legal, valid, and binding
obligations of each Seller, enforceable in accordance with their
respective terms, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar laws, as well as principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
6.2.4 Brokers. No Seller has incurred any obligation or liability, contingent
or otherwise, for brokers' or finders' fees relating to the matters
provided for in this Agreement which will be the responsibility of
Purchaser. Any such obligation or liability of any Seller shall be the
sole obligation of such Seller.
6.2.5 Certain Tax Matters. Each Seller has filed all tax returns that it was
required to file and has paid all taxes shown thereon as owing or
subsequently assessed with respect thereto. The agreements to which the
Properties are subject do not create, for federal income tax purposes, a
partnership among any of the parties to such agreements for which a
partnership income tax return is required to be filed under Subchapter K
of Chapter 1 of Subtitle A of the IRC (other than a partnership for
which an election is in effect pursuant to the provisions of Section 761
of the IRC and the regulations thereunder to be excluded from such
provisions).
Page 29
6.2.6 Pending Claims and Litigation. There are no suits, actions or other
legal, administrative, or arbitration proceedings that are pending or,
to each Seller's knowledge, threatened in writing against any Seller,
KEBO, or any of the Assets that would, if determined adversely to
Sellers, (i) result in the material impairment or loss of Sellers' title
to the relevant Assets, (ii) materially hinder or impede the operation
of all or any material portion of such Assets, or (iii) that would, if
determined adversely to the Parties, restrain, prohibit, or impose
damages on Purchaser or Sellers with respect to, or otherwise materially
impair Sellers' ability to consummate, the transactions contemplated by
this Agreement.
6.2.7 Preferential Rights; Required Consents. Except as otherwise reflected in
Exhibit D, none of the Leases or Existing Contracts is subject to a
preferential right to purchase, third party consent to assignment
requirement, right of first refusal, or right of first offer.
6.2.8 Governmental Approvals. Except for approvals by Governmental Bodies
customarily obtained after the Closing, no authorization, consent,
approval, exemption, franchise, permit, or license of, or filing with,
any Governmental Body is required to authorize, or is otherwise required
by any Governmental Body in connection with, the valid execution and
delivery by Sellers of this Agreement, the transfer of the Assets by
Sellers to Purchaser, or the performance by Sellers of their other
obligations hereunder.
6.2.9 Leases. To each Seller's knowledge, each Lease is in full force and
effect. Each Seller has, in all material respects, fulfilled all
requirements for filings, certificates, consents, approvals,
disclosures, and similar matters contained in the Leases and Applicable
Law, and each Seller is fully qualified to own, operate, and transfer
the Leases under the terms thereof and Applicable Law. No Seller is in
material breach or material default, and there has occurred no event,
fact, or circumstance that, with the lapse of time or the giving of
notice, or both, would constitute such a material breach or material
default by any Seller, with respect to any terms of any Lease. No lessor
under any Lease has given or, to any Seller's knowledge, threatened to
give notice of any action to terminate, cancel, rescind, repudiate, or
procure a judicial reformation of any Lease or any provision thereof.
6.2.10 Payments Under the Leases. To each Seller's knowledge, such Seller has
correctly made, or caused to be correctly made, all payments, including,
without limitation, royalties, rentals, shut-in well payments, and other
lease maintenance payments, due in respect of the Leases thereunder and
required to be made by such Seller.
6.2.11 Gas Imbalances. Except for those listed on Exhibit G, there exist no
production imbalances or imbalances with respect to any pipeline,
storage, or processing facility or other conditions regarding
Hydrocarbons taken or marketed from the Assets or any portion thereof
which could result in:
(a) a portion of the interest of Sellers in such Hydrocarbon
production being taken or delivered after the Closing without
Purchaser then receiving payment therefor or at the price it
would have received absent such imbalance; or
Page 30
(b) Sellers being obligated to make payment to any person or entity
as a result of such imbalance; or
(c) Sellers being obligated, by virtue or any prepayment arrangement,
take-or-pay agreement, or similar arrangement, to deliver
Hydrocarbons produced from the Assets at some future time without
then receiving full payment therefor.
Notwithstanding anything else to the contrary contained herein, Purchaser's sole
and exclusive remedy with respect to any breach of the representation and
warranty contained in this Section 6.2.11 shall be an adjustment to the Purchase
Price at the Closing.
6.2.12 Existing Contracts. Except for those contracts for the sale of
Hydrocarbons which are terminable within thirty-one (31) days or less,
to Sellers' knowledge, Exhibit C contains a complete list of all
contracts and agreements that constitute the Existing Contracts. With
respect to the Existing Contracts: (i) to each Seller's knowledge, all
Existing Contracts are in full force and effect; (ii) no Seller is in
material breach or material default, and there has occurred no event,
fact, or circumstance that, with the lapse of time or the giving of
notice, or both, would constitute such a material breach or material
default by any Seller, with respect to the terms of any Existing
Contract; (iii) to each Seller's knowledge, no party to an Existing
Contract is in material breach or material default with respect to the
terms of any Existing Contract; and (iv) no Seller or, to each Seller's
knowledge, any other party to an Existing Contract has given or
threatened to give notice of any action to terminate, cancel, rescind,
or procure a judicial reformation of such Existing Contract or any
provision thereof.
6.2.13 Compliance With Applicable Laws. Except as set forth on Exhibit F, each
Seller, to its knowledge, has complied in all material respects with all
Applicable Laws relating to the Assets or the use, ownership, or
operation thereof (other than Environmental Laws, which are governed by
Article 5, and laws related to taxes, as to which Sellers' sole
representations and warranties are set forth in Section 6.2.5). Each
Seller has all governmental permits required in connection with the
ownership and operation of the Assets; has properly made all filings
necessary or appropriate to obtain such governmental permits; and all of
such governmental permits and filings are in full force and effect. No
Seller has received notice from any Governmental Body or other person
that any such Applicable Law, governmental permit, or filing has been
violated or not complied with in any material respect with respect to
the Assets by Sellers.
6.2.14 Wells. As of the date of this Agreement, the Wells described on Exhibit
B are the only wells currently capable of producing Hydrocarbons located
on the Properties. All of such Wells have been, or will be, drilled,
completed, and operated within the boundaries of the relevant Leases or
within the limits otherwise permitted by contract and by Applicable Law
and in compliance with the provisions of the applicable Leases, Existing
Contracts, and all Applicable Laws. The production of Hydrocarbons from
such Wells has not been in excess of the allowable production
established for each Well. All Hydrocarbon wells located on the Leases
that have permanently ceased the production of Hydrocarbons in paying
quantities, as well as all plants, pipelines, personal property, pits,
equipment, materials, appurtenances, and facilities located on or used
in connection with the Properties and that Sellers have abandoned or
Page 31
otherwise permanently ceased to use, have been plugged and/or abandoned,
and all related salvage, site clearance, and surface restoration
operations have been completed, in accordance with Applicable Laws, and
all costs and expenses incurred in connection therewith have been paid
in full. None of the Wells has been plugged and abandoned.
6.2.15 Hydrocarbon Marketing. Except as identified in Exhibit C, there are no
calls on production, options to purchase, or similar rights in effect
with respect to any portion of the Hydrocarbons allocable to the Assets,
and all contracts for the sale of Hydrocarbons produced from the Assets
are terminable without penalty on no more than thirty (30) days' prior
notice. Each Seller is currently receiving the prices provided for under
such sales contracts with respect to the Hydrocarbons. All proceeds from
the sale of Hydrocarbons attributable to the interests in the Assets of
each Seller have been and are being disbursed to such Seller under
appropriate division orders, transfer orders, or similar documents
signed by or otherwise binding on such Seller, and no portion of any
such proceeds is being held in suspense, subject to a claim for refund
by the purchaser, used as an offset or as collateral for other
obligations (whether disputed or undisputed), or otherwise not being
paid to any Seller as it becomes due in the ordinary course of business.
6.2.16 Payment of Expenses; Commitments. Each Seller has paid its respective
proportionate share of all amounts owed by Sellers in connection with
the Assets for which Sellers have received invoices from the operator(s)
thereof, and there are no outstanding calls or payments due from any
Seller under the terms of the Existing Contracts or otherwise with
respect to the Assets. Exhibit H contains a true and complete list and
description, as of the date of execution of this Agreement, of all
authorities for expenditures, plans of exploration and/or development,
and other commitments as to which Sellers have become obligated
regarding drilling, reworking, or other operations or other capital
expenditures on or relating to the Assets which were not completed prior
to the date of this Agreement. There are no express obligations to drill
additional Hydrocarbon wells or engage in other operations on the
Properties that are binding on any Seller, except as identified on
Exhibit H and except for drilling obligations arising under offset well
provisions of, or implied covenants under, the Leases, and operations
proposed under the Existing Contracts that allow the parties thereto to
elect whether to participate. There are no material operations on the
Assets with respect to which any Seller has become a non-consenting
party.
6.2.17 Areas of Mutual Interest, Etc. Except as set forth in any agreement
identified or referred to in Exhibit A or C, the Assets are not subject
to any contract containing an area of mutual interest, maintenance of
uniform interest, "before payout" or "after payout" reversion or
conversion, or other provision under which Sellers or Purchaser may be
obligated to make assignments to third Persons of interests in any Asset
after the Effective Time.
6.2.18 No Bankruptcy. There are no bankruptcy, insolvency, reorganization, or
arrangement proceedings pending, being contemplated by, or, to each
Seller's knowledge, threatened against any Seller or any Affiliate that
controls any Seller.
Page 32
6.2.19 Insurance. Each Seller has paid all premiums required under, and is
otherwise in compliance with, the terms of all insurance policies or
self-insurance programs obtained by Sellers with respect to the Assets,
all of which policies or programs, or renewals thereof, are as of the
date of execution of this Agreement, in full force and effect.
6.3 Knowledge. As used in this Agreement, words "to each Sellers' knowledge,"
"to the knowledge of Sellers," or other words of similar import mean that the
statement so qualified is true to the actual present awareness of the relevant
Seller if an individual, or to the actual present awareness of the responsible
executive officers or trustees of such Seller, if a corporation, partnership,
limited liability company, trust, or other entity.
7. REPRESENTATIONS OF PURCHASER
7.1 Representations. Purchaser represents and warrants to Sellers, as of the
date hereof and as of the Closing Date, as follows:
7.1.1 Existence. Purchaser is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Nevada and will be
duly qualified at the Closing to carry on its business in all states
where the Assets are located.
7.1.2 Power. Purchaser has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement and the
other documents and agreements contemplated hereby, and to perform its
obligations under this Agreement.
7.1.3 Authorization. The execution, delivery, and performance by Purchaser of
this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by all
necessary corporate action of Purchaser and will not violate or be in
conflict with, or result in a breach, or trigger a default (or an event
that, with the lapse of time or notice, would constitute a default)
under the provisions of, (i) any material note, bond, mortgage,
indenture, contract, agreement, or instrument to which Purchaser is a
party, (ii) the organizational and governing documents of Purchaser, or
(iii) any material judgment, decree, order, law, statute, rule, or
regulation applicable to Purchaser, the non-compliance with which would
have a material adverse effect on the ability of Purchaser to consummate
the transactions contemplated herein. This Agreement has been, and the
documents provided for herein to be executed and delivered by Purchaser
to Sellers at the Closing will be, duly executed and delivered on behalf
of Purchaser and constitute or shall constitute the legal, valid and
binding obligations of Purchaser, enforceable in accordance with their
respective terms, subject to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar laws, as well as principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
7.1.4 Brokers. Purchaser has incurred no obligation or liability, contingent
or otherwise, for brokers' or finders' fees relating to the matters
provided for in this Agreement which will be the responsibility of
Sellers. Any such obligation or liability of Purchaser that might exist
shall be the sole obligation of Purchaser.
Page 33
7.1.5 Distribution. Purchaser is an experienced and knowledgeable investor in
the oil, gas and mineral resources industry that has previously expended
substantial amounts in the acquisition and development of oil and gas
properties. Prior to entering into this Agreement, Purchaser has been
advised by its counsel and such other persons as it has deemed
appropriate concerning this Agreement. The Assets to be acquired by
Purchaser pursuant to this Agreement are being acquired by Purchaser for
its own account, for investment, and not with a view to distribution or
resale of securities within the meaning of the Securities Act of 1933,
or any other applicable securities law, rule, regulation, or order that
could impose any liability on Sellers.
7.1.6 Claims and Litigation. There is no claim, legal or administrative
proceeding, or investigation now pending or, to the knowledge of
Purchaser, threatened before any court or any administrative body
against Purchaser or any Affiliate of Purchaser that would, if
determined adversely to Purchaser, restrain, prohibit, or impose damages
on Purchaser or Sellers with respect to, or otherwise materially impair
Purchaser's ability to consummate, the transactions contemplated by this
Agreement.
7.1.7 Financial Ability to Perform. At the Closing, Purchaser shall have
sufficient funds and credit arrangements to consummate the transactions
contemplated by this Agreement.
7.1.8 Bonds. Purchaser has obtained, or will obtain by the Closing, bonds or
sureties equivalent to all of those set forth on the attached Exhibit K.
7.1.9 Non-Reliance. Except with respect to the representations and warranties
of Sellers set forth in Section 6.2, Purchaser has not relied upon any
oral or written statements, representations, or warranties that may have
been made by or on behalf of Sellers, Richardson Barr Securities, Inc.,
or any of their Affiliates concerning the condition, operation,
performance, or prospects of the Assets, or upon any written reports,
financial data, business plans, projections, or forecasts, any audits,
studies, or assessments, or any other written materials, copies of which
may have been furnished to Purchaser or as to which Purchaser may have
been provided access in connection with the transactions contemplated by
this Agreement. EXCEPT AS PROVIDED ELSEWHERE HEREIN TO THE CONTRARY, TO
THE EXTENT THAT PURCHASER HAS BEEN FURNISHED COPIES OF OR PROVIDED
ACCESS TO ANY OF THE FOREGOING, PURCHASER ACKNOWLEDGES THAT NEITHER
SELLERS, NOR ANY OF THEIR RESPECTIVE AFFILIATES, NOR ANY OF SELLERS'
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, NOR RICHARDSON
BARR SECURITIES, INC., HAVE MADE, AND SELLERS HEREBY EXPRESSLY DISCLAIM,
ANY REPRESENTATION OR WARRANTY AS TO THE ACCURACY OR COMPLETENESS OF
SUCH INFORMATION OR ANY OTHER INFORMATION, DATA, OR MATERIALS (WHETHER
WRITTEN OR ORAL) THAT MAY HAVE BEEN FURNISHED TO PURCHASER OR ITS
REPRESENTATIVES, AGENTS OR RICHARDSON BARR SECURITIES, INC., BY OR ON
BEHALF OF SELLERS OR ANY OF THEIR RESPECTIVE AFFILIATES IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT.
Page 34
7.2 Knowledge. As used in this Agreement, words "to the best of Purchaser's
knowledge," "to the knowledge of Purchaser," or other words of similar import
mean that the statement so qualified is true to the actual present awareness of
the responsible officers of Purchaser.
8. PRE-CLOSING OBLIGATIONS OF SELLERS
8.1 Operations. From the date of this Agreement until the Closing Date (the
"Interim Period"), Sellers shall continue to operate the Properties the same as
a reasonable and prudent operator and in accordance with the terms and
conditions of the Leases, the Existing Contracts, and all Applicable Laws.
However, Sellers will have no obligation to operate any portion of the
Properties after the expiration of the Interim Period except as provided for in
Section 8.3. During the Interim Period, Sellers will maintain, or cause to be
maintained, the lease equipment in the same condition, working order, and state
of repair as currently exists, subject to ordinary wear and tear. During the
Interim Period and thereafter until operations are transferred to Purchaser,
without the prior written consent of Purchaser, Sellers will (i) cause the
Properties to be developed, maintained or operated in a manner substantially
consistent with prior operations, (ii) not abandon any part of the Properties,
(iii) not commence any operation on any Property anticipated to cost, as to the
aggregate interests of Sellers in the relevant Property, in excess of
$100,000.00 per operation, except emergency operations, operations required
under presently existing contractual obligations, the on-going commitments under
the AFE's described in Exhibit H, and operations undertaken to avoid any penalty
provision of any Existing Contract or order (with respect to emergency
operations, Sellers shall notify Purchaser of said emergency as soon as
reasonably practical), (iv) timely pay and discharge, or cause to be timely paid
and discharged, when due all costs and expenses incurred in connection with the
Properties and otherwise keep the Properties free of liens and encumbrances that
do not constitute Permitted Encumbrances, and (v) not mortgage, pledge,
encumber, dedicate, sell, convey or dispose of any part of the Assets (other
than the sale of Personal Property replaced with items of comparable or superior
quality and the sale of Hydrocarbons produced from the Properties in the
ordinary course of business).
8.2 Contracts. During the Interim Period, Sellers will not, without the prior
written consent of Purchaser, enter into any agreement amending, modifying, or
terminating any of the Leases or any of the Existing Contracts.
8.3 Compensation of Operator. KEBO shall operate the Properties for the benefit
of Purchaser during the period from the Effective Date through the date(s) after
the Closing when the operation of such Properties is turned over to, and becomes
the responsibility of, Purchaser (the "Operations Period"). In the absence of an
applicable operating agreement, for any such services as operator performed by
KEBO during the Operations Period, KEBO shall be entitled to receive from
Purchaser, in accordance with the 2005 COPAS Onshore Model Accounting Procedure,
which is hereby incorporated by reference, all reasonable and necessary expenses
incurred by KEBO in operating, protecting, and maintaining the Properties, and
an overhead charge of $500.00 per month per operated Well. Any such charges and
expenses shall be recovered by KEBO as part of the Closing or post-Closing
adjustments, as appropriate. KEBO will have no obligation to make capital
expenditures or extraordinary operating expenditures in connection with the
Properties during the Operations Period. Upon the expiration of the Operations
Period, Purchaser will additionally reimburse KEBO for the amounts of any unpaid
Page 35
operating expenses and capital expenditures of other working interest owners
paid by KEBO and attributable to operations during the Operations Period. KEBO
will be entitled to retain any overhead payments received from other working
interest owners and attributable to operations during the Operations Period.
8.4 Permissions. During the Interim Period, Sellers shall use reasonable efforts
to obtain all permissions, approvals, and consents by Federal, state and local
governmental authorities and others as may be required to consummate the
transactions contemplated by this Agreement (excluding governmental permissions,
approvals and consents which are customarily obtained after the assignment of an
oil and gas interest, which shall be the responsibility of Purchaser to obtain).
8.5 Efforts. Sellers will use its reasonable commercial efforts to cause its
representations and warranties set forth in Article 6 to be true and correct on
and as of the Closing Date.
8.6 Defaults. Sellers shall give prompt written notice to Purchaser of any
notice of material default (or written threat of material default, whether
disputed or denied by Sellers) received or given by Sellers subsequent to the
Effective Date under any Lease or Existing Contract.
8.7 Operatorship. On the Closing Date, except as otherwise provided in Section
8.3, Sellers shall cause KEBO to resign as operator of all of the Properties.
With respect to those Properties as to which Sellers own a sufficient share of
the Working Interest to control the selection of the successor operator, at the
Closing, Sellers shall deliver to Purchaser a written notification designating
Purchaser as the successor operator of such Properties, effective as of the
Closing Date. With respect to those Properties (if any) as to which Sellers do
not own a sufficient share of the Working Interest to control the selection of
the successor operator, Sellers will cast their votes, and will use reasonable
commercial efforts to obtain, prior to the Closing, the votes of the other
owners of interests in the relevant Properties, in each case in favor of the
designation of Purchaser as successor operator of such Properties, effective as
of the Closing Date. Within five (5) business days after the later of the
Closing Date or the date on which Purchaser is named successor operator under
the terms of the applicable Existing Contract, Sellers and Purchaser shall make
all necessary filings and take all other actions necessary to cause the
resignation of KEBO as operator and Purchaser's designation as the successor
operator of each Property to be recognized and, if required, approved by all
relevant Governmental Bodies. In each case, Sellers shall use reasonable
commercial efforts to assist Purchaser in assuming the timely operation and
management of the Properties.
8.8 Geological and Geophysical Information. During the Interim Period, with
respect to any right, title, and interest of Sellers in any Technical Data:
8.8.1 Sellers shall use reasonable commercial efforts to determine whether
each item of Technical Data is subject to a contractual restriction on
transfer or confidentiality obligation (including, without limitation,
contacting appropriate parties in cases where Sellers' files are not
clear in this regard).
8.8.2 Sellers shall use reasonable commercial efforts to obtain consents or
waivers of any such contractual restriction on transfer or
confidentiality obligation, but in no event shall Sellers be required to
Page 36
make any payment to the holder(s) of such right to obtain such waiver or
consent.
8.8.3 At the Closing, Sellers shall assign and deliver possession to Purchaser
of all Technical Data for which required waivers or consents have been
obtained.
8.8.4 Sellers shall retain at Closing all Technical Data for which required
waivers or consents have not been obtained.
8.9 Financial Statements. During the Interim Period, Sellers shall promptly
furnish and make available to Purchaser and its auditors all books, records,
invoices, reports and other data pertaining to the Assets (collectively, the
"Work Papers") for (i) the calendar years ended December 31, 2004, 2005, and
2006, and (ii) for the six (6) months ended June 30, 2007. Purchaser and its
auditors shall utilize the Work Papers to prepare, at Purchaser's sole expense,
an audited Statement of Combined Revenues and Direct Lease Operating Expenses
for the years ended December 31, 2004, 2005, and 2006, and an unaudited
Statement of Combined Revenues and Direct Lease Operating Expenses for the six
(6) months ended June 30, 2007 (collectively, the "Financial Statements").
Sellers agrees to make reasonable efforts to assist and cooperate with Purchaser
in the timely preparation of the Financial Statements, provided such assistance
and cooperation do not interfere with Sellers' ongoing business activities nor
cause Sellers to incur any expense related thereto. SELLERS MAKES NO
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF
THE WORK PAPERS OR ANY PORTION THEREOF, AND PURCHASER EXPRESSLY ACKNOWLEDGES
SUCH DISCLAIMER AND AGREES TO ASSUME SOLE RESPONSIBILITY FOR ANY CONSEQUENCES
BASED UPON PURCHASER'S USE OF, OR RELIANCE UPON THE RECORDS.
8.10 Reserve Report. During the time period commencing on the Participation Date
and ending on a date that is ten (10) Business Days thereafter (the "Report
Period"), Purchaser, at Purchaser's sole cost and expense, shall cause Cawley,
Gillespie & Associates, Inc., to prepare a reserve and economic evaluation of
the Properties in accordance with the parameters set forth hereinafter (the
"Cawley, Gillespie Reserve Report") in form and substance satisfactory to
Purchaser in its sole discretion. Purchaser shall obtain from Cawley, Gillespie
& Associates, Inc., an undertaking of confidentiality with respect to the
Properties in form and substance identical to the Confidentiality Agreement
previously executed by Purchaser for the benefit of Sellers and described in
Section 16.1. The Cawley, Gillespie Reserve Report (i) shall be made effective
as of June 1, 2007, (ii) will employ the reserve definitions and follow the
reserve reporting requirements of the Securities Exchange Commission ("SEC")
under applicable securities laws and regulations, and (iii) will employ
SEC-mandated assumptions concerning commodity prices, determined as of December
31, 2006. Sellers have previously provided to Purchaser a full and complete copy
of the Lenser Reserve Report. Promptly after the Participation Period, Sellers
shall make available to Purchaser for review and/or copying all notes,
calculations, pressure data, P/Z curves, decline curves, geological maps,
geophysical data, lease and ownership data, capital expenditure and lease
operating expense data, property tax information, and other data and information
utilized by R. A. Lenser & Associates in the preparation of the Lenser Reserve
Report. Sellers shall also use reasonable commercial efforts to provide
Purchaser with access to the personnel of R. A. Lenser & Associates who
participated in the preparation of the Lenser Reserve Report. If the Cawley,
Page 37
Gillespie Reserve Report is completed within the Report Period, and the
estimated total proved Hydrocarbon reserves assigned to the Properties by the
Cawley, Gillespie Reserve Report are less than 40,000 MMCFE for the Net Revenue
Interest attributable to one hundred percent (100%) of the Working Interest in
the Properties, Purchaser shall have the right, exercisable no later than two
(2) Business Days after Purchaser's receipt of the Cawley, Gillespie Reserve
Report, to terminate this Agreement. For purposes of this Agreement, the time
period from the date of Purchaser's receipt of the Cawley, Gillespie Reserve
Report through the expiration of the second (2nd) Business Day after the date on
which Purchaser receives the Cawley, Gillespie Reserve Report shall be referred
to herein as the "Reserve Option Period." If this Agreement is properly
terminated by Purchaser during the Reserve Option Period pursuant to this
Section 8.10, Purchaser shall be entitled to the return of the Performance
Deposit, less and except the sum of Two Hundred Thousand and No/100's Dollars
($200,000.00) which is to be retained by Sellers, and neither Sellers nor
Purchaser shall have any further obligation or liability to the other Party
under this Agreement or otherwise in connection with the transactions
contemplated herein, subject, however, to the terms of Section 14.2. In such
event, Purchaser agrees to destroy the Cawley, Gillespie Reserve Report (and all
copies of such report in Purchaser's possession), and to refrain from disclosing
such report or any of its contents to any third party.
8.11 Exclusive Dealing. From and after the date Purchaser delivers the
Performance Deposit as contemplated herein, and unless and until the Closing
occurs or this Agreement is terminated, no Seller, and no partner, officer,
director, manager, employee, trustee, agent, or representative of any Seller,
shall directly or indirectly solicit, encourage, or entertain any offers from,
or negotiate with, or in any manner encourage, discuss, accept, or consider, any
proposal of any other person relating to the sale of the Assets. Each Seller
shall immediately disclose to Purchaser any contact between any Seller or its
partners, officers, directors, managers, employees, trustees, agents, or
representatives and any other person regarding any such offer, proposal, or
related inquiry.
9. PRE-CLOSING OBLIGATIONS OF PURCHASER
9.1 Return of Data. If this Agreement is terminated for any reason whatsoever,
Purchaser, at Sellers' request, shall return promptly to Sellers all information
and data furnished to Purchaser, its officers, employees, and representatives in
connection with this Agreement or Purchaser's investigation of the Assets, and
Purchaser shall not retain any copies of such information or data.
9.2 Efforts. Purchaser shall use its reasonable commercial efforts to cause its
representations and warranties under this Agreement to be true and correct on
and as of the Closing Date.
10. CONDITIONS OF SELLERS TO CLOSING
The obligations of Sellers to consummate the transactions contemplated
by this Agreement are subject, at the option of Sellers, to the fulfillment on
or prior to the Closing Date of each of the following conditions:
10.1 Representations. The representations and warranties of Purchaser contained
in this Agreement shall be true and correct in all material respects on the
Closing Date as though made on and as of such date; provided, however, that for
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purposes of this Section 10.1, all qualifications relating to materiality
contained in such representations and warranties shall be disregarded.
10.2 Performance. Purchaser shall have performed in all material respects all
obligations, covenants, and agreements hereunder and shall have complied in all
material respects with all covenants and conditions contained in this Agreement
to be performed or complied with by it at or prior to the Closing.
10.3 Certificate. Purchaser shall have delivered to Sellers a certificate of its
authorized officer, dated as of the Closing Date, certifying on behalf of
Purchaser that, to the best of its knowledge, the conditions set forth in
Sections 10.1 and 10.2 have been fulfilled.
10.4 Governmental Consents. Purchaser shall have received all consents,
authorizations, waivers, and approvals required to be obtained prior to the
Closing by any Governmental Body under any Applicable Law concerning the
transactions contemplated herein, except those approvals, waivers or consents
that are customarily obtained after Closing.
10.5 Pending Matters. No suit, action, or other proceeding by a Governmental
Body or other person shall be pending, or to the best of each Seller's
knowledge, threatened which seeks substantial damages from Sellers in connection
with, or seeks to restrain, enjoin, or otherwise prohibit, the consummation of
the transaction contemplated by this Agreement.
11. CONDITIONS OF PURCHASER TO CLOSING
The obligations of Purchaser to consummate the transaction contemplated
by this Agreement are subject, at the option of Purchaser, to the fulfillment on
or prior to the Closing Date of each of the following conditions:
11.1 Representations. The representations and warranties of Sellers contained in
this Agreement shall be true and correct in all material respects on the Closing
Date as though made on and as of such date; provided, however, that for purposes
of this Section 11.1, all qualifications relating to materiality contained in
such representations and warranties shall be disregarded.
11.2 Performance. Sellers shall have performed in all material respects all
obligations, covenants, and agreements hereunder and shall have complied in all
material respects with all covenants and conditions contained in this Agreement
to be performed or complied with by Sellers at or prior to the Closing.
11.3 Officer's Certificate. Each Seller shall have delivered to Purchaser a
certificate of its authorized officer, dated as of the Closing Date, certifying
on behalf of such Seller that, to the best of its knowledge, the conditions set
forth in Sections 11.1 and 11.2 have been fulfilled.
11.4 Governmental Consents. Sellers shall have received all consents,
authorizations, waivers, and approvals required to be obtained prior to the
Closing by any Governmental Body under any Applicable Law concerning the
transactions contemplated herein, except those approvals, waivers or consents
that are customarily obtained after the Closing.
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11.5 Pending Matters. No suit, action, or other proceeding by a Governmental
Body or other person shall be pending or, to the best of Purchaser's knowledge,
threatened which seeks substantial damages from Purchaser in connection with, or
seeks to restrain, enjoin, or otherwise prohibit, the consummation of the
transactions contemplated by this Agreement.
11.6 Releases of Liens. Sellers shall have delivered to Purchaser releases of
all mortgages, deeds of trust, pledges, security interests, liens, or other
encumbrances of any kind that burden or encumber the Assets and do not
constitute Permitted Encumbrances.
11.7 Operations. Sellers shall have delivered to Purchaser (i) the written
resignation of KEBO as operator of all of the Properties and (ii) written
notification, together with supporting ballots or other evidence reasonably
satisfactory to Purchaser, that Sellers and (if applicable) other owners of
interests in the Properties owning collectively a sufficient share of the
Working Interest therein to control the selection of a successor operator have
elected Purchaser as successor operator of all the Properties.
12. CLOSING
12.1 Time and Place of the Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall occur at 10:00 a.m.,
Central Daylight Time, on or before October 30, 2007 (the "Scheduled Closing
Date"), unless accelerated by agreement of the Parties pursuant to Section 12.2
(the Scheduled Closing Date, as the same may be accelerated pursuant to Section
12.2, being referred to herein as the "Closing Date"). The Closing shall take
place at the offices of Branscomb PC, 802 N. Carancahua, Suite 1900, Corpus
Christi, Texas 78470, or such other place as the Parties may agree upon.
12.2 Change of the Closing Date. The Closing Date may be changed to an earlier
date by mutual agreement of the Parties, with such mutually agreed earlier date
to become the Closing Date.
12.3 Calculation of Adjusted Purchase Price. Sellers shall prepare, in
accordance with the provisions of this Agreement, a statement (the "Closing
Adjustment Statement") setting forth the Preliminary Amount, including each
adjustment to the Purchase Price made, to the best of each Seller's knowledge,
in accordance with the terms of Section 2.4, calculated based on actual
information available on the date such statement is prepared or estimates when
actual information is not available. Sellers shall submit the Closing Adjustment
Statement to Purchaser no later than five (5) Business Days prior to the Closing
Date and shall include, upon Purchaser's request, appropriate supporting
documentation for the Closing Adjustment Statement.
12.4 Failure to Close. If the conditions precedent to the obligation of a Party
to close the transactions contemplated herein have been satisfied or waived on
or before the Closing Date, and such Party nevertheless fails or refuses to
close, the Party failing or refusing to close shall be deemed to have breached
the obligations it has undertaken hereunder to perform at the Closing, and shall
be subject to the provisions of Article 14.
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12.5 Closing Obligations. At the Closing:
12.5.1 Sellers and Purchaser shall execute, acknowledge, and deliver sufficient
counterparts of the Assignment, Bill of Sale and Conveyance in
substantially the form attached hereto as Exhibit I (the "General
Assignment") to enable the recording of a fully executed counterpart of
the General Assignment in each of the counties where the Assets are
located, conveying to Purchaser all of the Assets.
12.5.2 Sellers shall provide to Purchaser a listing showing all net proceeds
and receivables related to production attributable to the Assets which
are currently held in suspense because of lack of identity or address of
owners, title defects, changes of the ownership, or similar reasons.
After the Closing Date, Purchaser shall be responsible for proper
distribution of all the suspended funds to the parties lawfully entitled
thereto, and Purchaser agrees to indemnify and hold Sellers and the
Sellers Group harmless from and against any Costs associated with
Purchaser's receipt and distribution of such suspended funds, but only
to the extent of the funds for which the Purchase Price shall have been
adjusted pursuant to the provisions of Section 2.4.14.
12.5.3 Sellers shall deliver to Purchaser all waivers of preferential rights to
purchase, third party consents to assignment, and similar matters
obtained by Sellers prior to the Closing.
12.5.4 Purchaser shall pay the Adjusted Purchase Price in the manner set forth
in Section 2.5.
12.5.5 Sellers and Purchaser shall execute, acknowledge, and deliver federal,
state, and Indian forms of lease assignments, if necessary or expedient.
12.5.6 Sellers and Purchaser shall execute, acknowledge, and deliver transfer
orders or letters-in-lieu thereof directing all purchasers of production
to make payment to Purchaser of proceeds attributable to production from
the Assets for the period of time on and after the Effective Date.
12.5.7 Except as otherwise provided in this Agreement, Sellers shall deliver to
Purchaser, and Purchaser shall take, possession of the Assets.
12.5.8 Sellers shall deliver to Purchaser the notices and documents required to
be delivered by Sellers pursuant to Section 11.7, and, subject to the
terms of this Agreement and the applicable provisions of the Existing
Contracts, Purchaser shall take over as operator of all of the
Properties.
12.5.9 Each Seller shall deliver to Purchaser the Officer's Certificate
provided for in Section 11.3.
12.5.10 Purchaser shall deliver to Sellers the Officer's Certificate provided
for in Section 10.3.
12.5.11 Each Seller (other than any individual Seller) and Purchaser shall have
delivered to the other Party a certificate of incumbency for the
officers executing this Agreement and each of the documents and
agreements to be delivered at the Closing pursuant hereto.
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12.5.12 Each Seller shall have delivered to Purchaser a non-foreign affidavit
meeting the requirements of Section 1445(b)(2) of the IRC and the
regulations thereunder.
12.5.13 Sellers and Purchaser shall execute such other instruments and take such
other actions as may be necessary to carry out their respective
obligations under this Agreement.
12.6 Conveyance. The General Assignment shall be without representation or
warranty of title, express or implied, except that each Seller, severally
according to its ownership interest in the Wells and not jointly, shall warrant
and agree to defend the title to such Seller's interests in the Wells against
the lawful claims and demands of all persons claiming the same, or any part
thereof, but limited to such claims arising by, through, or under such Seller
and not otherwise, and shall be made subject to and excepting all Permitted
Encumbrances.
13. POST-CLOSING OBLIGATIONS
13.1 Post-Closing Adjustments.
13.1.1 As soon as reasonably practicable after the Closing, but in no event
later than one hundred twenty (120) days after the Closing Date, Sellers
shall prepare, in accordance with this Agreement, and deliver to
Purchaser, a statement setting forth each adjustment to the Purchase
Price made pursuant hereto (the "Post-Closing Adjustment Statement").
The Post-Closing Adjustment Statement will include any adjustments
necessary in connection with any changes in the gas imbalances, as of
the Effective Date, from those set forth in Exhibit G as determined in
accordance with Section 13.1.3, and any other adjustments required under
the provisions of Section 2.4. As soon as reasonably practicable, but in
no event later than thirty (30) days after Purchaser's receipt of the
Post-Closing Adjustment Statement from Sellers, Purchaser shall deliver
to Sellers any objections that Purchaser has to the Post-Closing
Adjustment Statement. If Purchaser fails to object to such Post-Closing
Adjustment Statement within such thirty (30) day time period, the
Post-Closing Adjustment Statement shall be conclusively deemed to be
final and accepted by both Parties. The Parties shall undertake to agree
on the final Adjusted Purchase Price no later than one hundred eighty
(180) days after the Closing. If Purchaser and Sellers are unable to
agree upon the adjustments in the Post-Closing Adjustment Statement
within one hundred eighty (180) days after the Closing, the Accounting
Firm shall conduct an audit of the Post-Closing Adjustment Statement and
determine the post-Closing adjustment amount. The decision of the
Accounting Firm shall be binding upon Sellers and Purchaser, and the
fees and expenses of such Accounting Firm shall be borne one-half by
Sellers and one-half by Purchaser.
13.1.2 The date upon which agreement is reached on the Adjusted Purchase Price
shall be called herein the "Final Settlement Date." Within five (5)
business days after the Final Settlement Date, those credits agreed upon
by Purchaser and Sellers shall be netted, and the final settlement shall
be paid in cash by the Party owing same, via wire transfer as directed
in writing by the receiving Party.
13.1.3 If either Party determines, prior to the delivery of the Post-Closing
Adjustment Statement, that Hydrocarbon production imbalances or
imbalances with respect to any pipeline, storage, or processing facility
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attributable to Wells included in the Assets as of the Effective Date
are other than as set forth in Exhibit G, subject to verification of the
other Party, the Purchase Price shall be adjusted upward or downward in
connection with the Post-Closing Adjustment Statement, depending upon
whether there is a net overproduction or a net underproduction
attributable to such Wells. The amount to be paid by Purchaser to
Sellers with respect to any underproduction, or by Sellers to Purchaser
with respect to any overproduction, shall be the present value of the
net cash flow attributable to all such volumes of gas recoverable
without cash balancing as determined by an independent registered
petroleum engineer mutually selected by DSX and Purchaser (the
"Imbalance Engineer") using (i) an agreed upon pricing index, (ii) an
annual discount rate of ten percent (10%), and (iii) the maximum rate of
recovery permitted under the applicable balancing agreements. Upon the
final determination of the quantity of overproduction and/or
underproduction attributable to a Well as of the Effective Date, the
Parties will submit all relevant information to the Imbalance Engineer
for valuation as described above.
13.2 Receipts and Credits. Except as otherwise provided in this Agreement, all
monies, proceeds, receipts, credits, and income attributable to the Assets for
all periods of time on and after the Effective Date shall be the sole property
of Purchaser, and, to the extent received by Sellers after the Closing, Sellers
shall fully disclose, account for, and transmit the same promptly to Purchaser.
Except as otherwise provided in this Agreement, all monies, proceeds, receipts,
credits, and income attributable to the Assets for all periods of time prior to
the Effective Date shall be the sole property of Sellers, and, to the extent
received by Purchaser after the Closing, Purchaser shall fully disclose, account
for, and transmit the same promptly to Sellers. Except as otherwise provided in
this Agreement, all costs, expenses, and disbursements attributable to the
Assets for periods of time prior to the Effective Date, regardless of when due
or payable, shall be the sole obligations of Sellers, and Sellers shall promptly
pay, or if paid by Purchaser, promptly reimburse Purchaser for, and each Seller,
severally according to its ownership interests in the Assets and not jointly,
shall indemnify and hold Purchaser and its successors and assigns harmless from
and against, the same. Except as otherwise provided in this Agreement, all
costs, expenses, disbursements, obligations, and liabilities attributable to the
Assets for periods of time on and after the Effective Date, regardless of when
due or payable, shall be the sole obligation of Purchaser, and Purchaser shall
promptly pay, or if paid by Sellers, promptly reimburse Sellers for, and
indemnify and hold Sellers and their respective successors and assigns harmless
from and against, the same.
13.3 Assumption and Indemnification.
13.3.1 If the Closing occurs, and except for matters relating to taxes, which
are governed exclusively by Article 15, the indemnities provided by each
Party to the other Party under Section 13.3 hereof (i) shall constitute
the sole and exclusive remedy for such Party with respect to the
inaccuracy in or breach of any representation or warranty made by the
other Party hereunder and (ii) in addition to the indemnities contained
in Sections 3.1, 5.2.2, 12.5.2, 13.2, and 16.8, shall constitute the
sole and exclusive remedy for such Party with respect to the breach or
default in the performance by such other Party of any covenant or
agreement of such other Party under this Agreement, and each Party
hereby waives any claim or cause of action that it may otherwise have
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under common law, any statute, or otherwise against the other Party
arising from or out of any such breach, inaccuracy, or default.
13.3.2 All representations, warranties, covenants, agreements, and indemnities
of Purchaser and Sellers shall survive the Closing and the delivery of
the General Assignment shall not be merged with or into the General
Assignment and shall remain in force and effect as provided in Section
13.3.3. Such survival does not obligate any Party to make any further
representation or warranty after the Closing Date, or to cause any
representation or warranty made hereunder to remain true and correct
after the Closing Date.
13.3.3 Except to the extent otherwise provided in Article 15 with respect to
taxes, neither Purchaser nor Sellers shall be entitled to seek
indemnification from the other Party with respect to the inaccuracy in
or breach of any representation or warranty made by such Party hereunder
unless the Party seeking indemnification gives written notice of the
alleged inaccuracy or breach to the Party from whom indemnification is
sought no later than the 365th day after the Closing Date. Except to the
extent otherwise provided in Article 15 with respect to taxes, and
except as provided hereinafter, neither Purchaser nor Sellers shall be
entitled to seek indemnification from the other Party with respect to
the breach or default in the performance by such Party of any covenant
or agreement of such Party contained in this Agreement unless the Party
seeking indemnification gives written notice of the alleged breach or
default to the Party from whom indemnification is sought no later than
the 365th day after the Closing Date. Except as provided hereinafter,
Purchaser shall not be entitled to seek indemnification from any Seller
under the terms of clause (a) or clause (b) of Section 13.3.6 unless
Purchaser gives written notice of the claim for indemnification to
Sellers no later than the 365th day after the Closing Date.
Notwithstanding the preceding provisions of this Section 13.3.3, there
shall be no time limitation on the right of a Party entitled to
indemnification to assert its claim for indemnification or other rights
arising under Sections 3.1, 5.2.2, 12.5.2, 13.2, or 16.18, or clauses
(a), (b), or (c) of Section 13.3.5, or clause (a)(1) or clause (c) of
Section 13.3.6. The deadlines for asserting claims for indemnification
specified in the preceding two sentences of this Section 13.3.3 shall be
referred to herein as the "Survival Dates." Except as otherwise provided
in this Agreement, the sole and exclusive remedies of Purchaser with
respect to Title Defects, Casualty Losses, and Environmental Defects
shall be as stated in Articles 3, 4, and 5, and in no event shall any
other provision of this Agreement entitle Purchaser to any other remedy
with respect to Title Defects, Casualty Losses, or Environmental
Defects.
13.3.4 If the Closing occurs, Purchaser shall assume and agrees to pay,
perform, and discharge any and all Assumed Obligations (as hereinafter
defined). As used herein, "Assumed Obligations" means all liabilities,
responsibilities, duties, and obligations that arise from or relate to
the ownership, use, or operation of the Assets and the production and
marketing of Hydrocarbons therefrom occurring on or after the Effective
Date (or, where specifically indicated, the Closing Date), including,
without limitation: (i) Plugging and Abandonment (as hereinafter
defined); (ii) any contracts or agreements affecting the Assets in
existence as of the Effective Date and the Closing Date, including, but
not limited to, the Existing Contracts; (iii) the Environmental
Obligations (as hereinafter defined), (iv) ALL CLAIMS AND LIABILITIES
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FOR INJURY TO OR DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING THINGS,
OR LOSS OR DESTRUCTION OF OR DAMAGE TO PROPERTY AFFECTING OR RELATING TO
THE ASSETS, REGARDLESS OF WHETHER SUCH CLAIM OR LIABILITY RESULTS, IN
WHOLE OR IN PART, FROM THE NEGLIGENCE OR STRICT LIABILITY OF SELLERS OR
ANY MEMBER OF THE SELLERS' GROUP, TO THE EXTENT THAT SUCH CLAIM OR
LIABILITY, OR THE ACTS, OMISSIONS, EVENTS, OR CONDITIONS GIVING RISE
THERETO, AROSE, OCCURRED, OR EXISTED ON OR AFTER THE CLOSING DATE; (v)
imbalances due to overproduction of gas by Sellers or the Other Owners
or pipeline imbalances owed by Sellers under transportation agreements,
subject, however, to the provisions of Section 13.1.3 hereof; and (vi)
obligations otherwise assumed by Purchaser under this Agreement. As used
herein, "Environmental Obligations" means, except for any cost or claim
resulting from or arising out of the circumstances described in Section
13.3.6(b), any claim, obligation, or liability relating to the
environmental condition of the Assets, regardless of whether resulting
from acts, omissions, events, or conditions occurring before, on, or
after the Effective Date, including, without limitation: (t) all
Environmental Defects timely and properly asserted by Purchaser pursuant
to Article 5, regardless of whether Purchaser receives an Environmental
Indemnity Payment with respect thereto (it being understood that neither
Purchaser's assumption of responsibility for such Environmental Defect
nor Purchaser's indemnity with respect thereto under Section 13.3.5
shall affect Purchaser's right to receive such an Environmental
Indemnity Payment hereunder); (u) any other environmental pollution or
contamination with respect to the air, land, soil, surface, subsurface
strata, surface water, ground water, or sediments; (v) the failure of
any Asset to be in compliance, or the owner or operator of the Assets to
comply, in all material respects with all applicable Environmental Laws,
or the failure of the owner or the operator of the Assets to obtain and
maintain in full force and effect all governmental permits required
under applicable Environmental Laws with respect to the Assets; (w)
underground injection activities and waste disposal; (x) the presence on
the Properties of Hazardous Substances and /or NORM; (y) the presence on
the Properties of unknown abandoned oil and gas wells, water wells,
sumps, pits, pipelines, and other equipment; and (z) necessary
Remediation, and the cost of such Remediation, or any control,
assessment, or compliance with respect to any pollution or
contamination. As used herein, "Plugging and Abandonment" means all
plugging, replugging, abandonment, removal, disposal or restoration
associated with the Assets, including, but not limited to, all plugging
and abandonment, removal, surface restoration (including, without
limitation, wetlands and marsh restoration), site clearance, and
disposal of the Wells, well collars, structures and Personal Property
located on or associated with the Assets (whether drilled or placed on
an Asset prior to, on, or after the Effective Date), the removal and
capping of all associated flowlines, the restoration of the surface,
site clearance, and any disposal of related waste materials, including,
without limitation, NORM and asbestos, all in accordance with all
Applicable Laws and the terms and conditions of the Leases and Existing
Contracts.
13.3.5 PURCHASER HEREBY INDEMNIFIES AND AGREES TO DEFEND AND HOLD HARMLESS
SELLERS AND THE SELLERS' GROUP FROM AND AGAINST ALL COSTS BASED UPON,
ARISING OUT OF, IN CONNECTION WITH, OR RELATING TO (I) ANY INACCURACY IN
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OR BREACH OF ANY REPRESENTATION OR WARRANTY OF PURCHASER CONTAINED IN
THIS AGREEMENT (PROVIDED, HOWEVER, THAT FOR PURPOSES OF THIS SECTION
13.3.5, ALL QUALIFICATIONS RELATING TO MATERIALITY CONTAINED IN SUCH
REPRESENTATIONS AND WARRANTIES SHALL BE DISREGARDED), AND (II) ANY
BREACH OR DEFAULT IN THE PERFORMANCE BY PURCHASER OF ANY COVENANT OR
AGREEMENT OF PURCHASER CONTAINED IN THIS AGREEMENT. IF THE CLOSING
OCCURS, PURCHASER SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLERS AND
THE SELLERS GROUP FROM AND AGAINST ALL COSTS BASED UPON, ARISING OUT OF,
IN CONNECTION WITH, OR RELATING TO THE FOLLOWING:
(a) THE ENVIRONMENTAL OBLIGATIONS;
(b) THE ASSUMED OBLIGATIONS; AND
(c) ANY TITLE DEFECT FOR WHICH PURCHASER HAS RECEIVED A TITLE
INDEMNITY PAYMENT (OR WHICH HAS BEEN DEEMED WAIVED HEREIN) AND
ANY CASUALTY LOSS FOR WHICH PURCHASER HAS RECEIVED A REDUCTION IN
THE PURCHASE PRICE.
13.3.6 EACH SELLER, SEVERALLY ACCORDING TO ITS OWNERSHIP INTERESTS IN THE
ASSETS AND NOT JOINTLY, HEREBY INDEMNIFIES AND AGREES TO DEFEND AND HOLD
HARMLESS PURCHASER AND THE PURCHASER GROUP FROM AND AGAINST ALL COSTS
BASED UPON, ARISING OUT OF, IN CONNECTION WITH, OR RELATING TO (I) ANY
INACCURACY IN OR BREACH OF ANY REPRESENTATION OR WARRANTY OF SELLERS
CONTAINED IN THIS AGREEMENT (PROVIDED, HOWEVER, THAT FOR PURPOSES OF
THIS SECTION 13.3.6, ALL QUALIFICATIONS RELATING TO MATERIALITY
CONTAINED IN SUCH REPRESENTATIONS AND WARRANTIES SHALL BE DISREGARDED),
AND (II) ANY BREACH OR DEFAULT IN THE PERFORMANCE BY SELLERS OF ANY
COVENANT OR AGREEMENT OF SELLERS CONTAINED IN THIS AGREEMENT. IF THE
CLOSING OCCURS, EACH SELLER, SEVERALLY ACCORDING TO ITS OWNERSHIP
INTERESTS IN THE ASSETS AND NOT JOINTLY, SHALL INDEMNIFY, DEFEND, AND
HOLD HARMLESS PURCHASER AND THE PURCHASER GROUP FROM AND AGAINST ALL
COSTS BASED UPON, ARISING OUT OF, IN CONNECTION WITH, OR RELATING TO THE
FOLLOWING:
(a) EXCEPT FOR ASSUMED OBLIGATIONS AND ENVIRONMENTAL OBLIGATIONS, AND
EXCEPT FOR TITLE DEFECTS, CASUALTY LOSSES, AND ENVIRONMENTAL
DEFECTS FOR WHICH PURCHASER'S SOLE REMEDIES ARE PROVIDED UNDER
ARTICLES 3, 4, AND 5, ALL CLAIMS AND COSTS RELATING TO THE
OWNERSHIP, OPERATION, OR USE OF THE ASSETS FOR THE PERIOD PRIOR
TO THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION, (1) ALL COSTS
AND CLAIMS AGAINST OR SUFFERED BY SELLERS OR THEIR RESPECTIVE
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AFFILIATES THAT RELATE IN ANY WAY TO INJURY TO OR DEATH OF ANY
PERSON, PERSONS, OR OTHER LIVING THINGS, OR LOSS OR DESTRUCTION
OF OR DAMAGE TO PROPERTY AFFECTING OR RELATING TO THE ASSETS, TO
THE EXTENT THAT SUCH CLAIMS OR COSTS, OR THE ACTS OR OMISSIONS
GIVING RISE THERETO, AROSE, OCCURRED, OR EXISTED PRIOR TO THE
CLOSING DATE, (2) ALL CLAIMS AND COSTS RELATING TO THE
NON-PAYMENT OR IMPROPER PAYMENT OF ROYALTIES, OVERRIDING
ROYALTIES, AND OTHER BURDENS ON PRODUCTION FROM THE PROPERTIES
PRIOR TO THE CLOSING DATE, WHETHER BASED ON ALLEGATIONS OF
IMPROPER VALUATION, UNDERPAYMENT, IMPROPER MEASUREMENT, IMPROPER
CALCULATION, OVERPAYMENT, WRONGDOING, OR OTHERWISE, AND (3) ALL
COSTS RELATING TO OR ARISING OUT OF ANY JOINT INTEREST AUDIT OF
ANY OF THE ASSETS TO THE EXTENT ATTRIBUTABLE TO THE PERIOD PRIOR
TO THE EFFECTIVE DATE;
(b) ANY COSTS AND OBLIGATIONS RELATING TO THE OFFSITE DISPOSAL,
DURING THE PERIOD OF THE OWNERSHIP OF THE ASSETS BY SELLERS PRIOR
TO THE CLOSING DATE, OF HAZARDOUS SUBSTANCES USED IN CONNECTION
WITH OR OTHERWISE RELATED TO THE ASSETS, INCLUDING, WITHOUT
LIMITATION, ANY REMEDIATION RELATED THERETO; AND
(c) ALL COSTS, LIABILITIES, OBLIGATIONS, AND CLAIMS ARISING OUT OF OR
RELATED IN ANY WAY TO THE EXCLUDED ASSETS.
13.4 Disclaimer. PURCHASER'S OBLIGATIONS UNDER SECTION 13.3.4 AND THE
OBLIGATIONS OF THE INDEMNIFYING PARTY UNDER SECTIONS 13.3.5 AND 13.3.6 SHALL
APPLY REGARDLESS OF THE FAULT OR NEGLIGENCE (OTHER THAN THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT) OF THE OTHER PARTY, INCLUDING STRICT OR STATUTORY LIABILITY
OF THE OTHER PARTY UNDER ANY APPLICABLE LAW.
13.5 Method of Asserting Claims. All claims for indemnification under this
Agreement shall be asserted and resolved as follows; provided that the
provisions of Sections 13.5 and 13.6 shall be covenants and not conditions to
the defense and indemnity obligations to which they apply:
13.5.1 If any claim is asserted, whether by a third party (a "Third Party
Claim") or by the other Party hereto (a "Non-Third Party Claim"), for
which a Party providing indemnification (the "Indemnifying Party") would
be liable to a Party or any of its officers, directors, employees,
agents or representatives entitled to indemnification hereunder
(collectively, the "Indemnified Party"), the Indemnified Party shall
promptly notify the Indemnifying Party of such claim, specifying the
nature of such claim and the amount or the estimated amount thereof to
the extent then feasible (which estimate shall not be conclusive of the
final amount of such claim) (the "Claim Notice").
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13.5.2 Upon its receipt of a timely Claim Notice for a Third Party Claim, the
Indemnifying Party shall have thirty (30) days from its receipt of such
Claim Notice (the "Notice Period") to notify the Indemnified Party (i)
whether it disputes its liability to the Indemnified Party hereunder
with respect to such Third Party Claim; and (ii) if it does not dispute
such liability, whether it desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim; provided,
however, that the Indemnified Party is hereby authorized, prior to and
during the Notice Period, to file any motion, answer, or other pleading,
submission or document which it shall deem necessary or appropriate to
protect its interests. If the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it does not dispute such
liability and desires to defend against such Third Party Claim, then,
except as hereinafter provided, the Indemnifying Party shall have the
right to defend such Third Party Claim by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted to a final
conclusion, in such a manner as to avoid any risk of the Indemnified
Party becoming subject to liability. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement, it may
do so at its own cost and expense. If the Indemnifying Party disputes
its liability with respect to such Third Party Claim, or elects not to
defend such Third Party Claim, whether by not giving timely notice as
provided above or otherwise, the Indemnified Party shall have the right,
but not the obligation, to defend against such Third Party Claim, and
the amount of any such Third Party Claim, or if the same be contested by
the Indemnifying Party or by the Indemnified Party, then that portion
thereof as to which such defense is unsuccessful, shall be conclusively
deemed to be a liability of the Indemnifying Party hereunder.
13.5.3 Upon receipt of a timely Claim Notice involving a Non-Third Party Claim,
the Indemnified Party and the Indemnifying Parties shall meet and use
their respective best efforts to agree on the validity and the amount of
the Non-Third Party Claim covered by the Claim Notice. If, within thirty
(30) days after the Indemnifying Party's receipt of such Claim Notice,
the Parties cannot agree on the validity and the amount of the Non-Third
Party Claim, the validity and the amount of the Non-Third Party Claim
shall be determined by arbitration as provided below in Section 13.5.4.
13.5.4 All disputes between Sellers and Purchaser with respect to any matter
relating to indemnification under this Agreement shall be determined by
arbitration using the procedure for determining the arbitrator and other
procedures for the arbitration contained in Section 3.9 of this
Agreement, which provisions are incorporated herein mutadis mutandis.
13.6 Payment. Payments under this Article 13 and under any other indemnity
provision of this Agreement shall be made as follows:
13.6.1 If the Indemnifying Party is required to make any payment hereunder, the
Indemnifying Party shall promptly pay the Indemnified Party the amount
so determined. If there should be a dispute as to the amount or manner
of determination of any indemnity obligation owed hereunder, the
Indemnifying Party shall nevertheless pay when due such portion, if any,
of the obligation as shall not be subject to dispute. The difference, if
any, between the amount of the obligation ultimately determined as
properly payable hereunder and the portion, if any, theretofore paid
shall bear interest at the Agreed Rate. Upon the payment in full of any
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claim, the Indemnifying Party shall be subrogated to the rights of the
Indemnified Party against any person or other entity with respect to the
subject matter of this claim.
13.6.2 If all or part of any indemnification obligation under this Agreement is
not paid when due upon resolution of the claim, then the Indemnifying
Party shall pay upon demand to the Indemnified Party interest at the
Agreed Rate on the unpaid amount of the obligation for each day from the
date the amount became due until payment in full. As used herein,
"Agreed Rate" means a rate per annum calculated on a 360-day basis which
is equal to the lesser of (i) a rate which is two percent (2%) above the
prime rate of interest of Chase Manhattan Bank, New York, New York, as
announced or published by such bank from time to time (adjusted from
time to time to reflect any changes in such rate determined hereunder),
or (ii) the maximum rate from time to time permitted by Applicable Law.
13.7 Limitation on Damages. For the breach or non-performance by any Party of
any representation, warranty, covenant, or agreement contained in this
Agreement, the liability of the obligor shall be limited to direct actual
damages only, except to the extent that the obligee is entitled to specific
performance or injunctive relief. AS BETWEEN THE PARTIES, NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER SELLERS NOR PURCHASER SHALL
BE LIABLE TO THE OTHER PARTY AS THE RESULT OF A BREACH OR A VIOLATION OF ANY
REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, OR CONDITION CONTAINED IN THIS
AGREEMENT FOR SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR
INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION DAMAGES, IN TORT,
IN CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY OPERATION OF LAW
(INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY), OR OTHERWISE. WITH RESPECT TO
CLAIMS BY THIRD PERSONS, A PARTY MAY RECOVER FROM THE OTHER PARTY ALL COSTS,
EXPENSES, OR DAMAGES (INCLUDING, WITHOUT LIMITATION, SPECIAL, CONSEQUENTIAL,
INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES), LOST PROFITS, AND OTHER
BUSINESS INTERRUPTION DAMAGES IN ADDITION TO ACTUAL DIRECT DAMAGES PAID OR OWED
TO ANY SUCH THIRD PERSON IN SETTLEMENT OR SATISFACTION OF CLAIMS AS TO WHICH THE
RELEVANT PARTY IS ENTITLED TO INDEMNIFICATION HEREUNDER.
13.8 Recording. As soon as practicable after the Closing, Purchaser shall file
and record all counterparts of the General Assignment in the appropriate
counties and, if necessary, with all relevant Governmental Bodies, and provide
Sellers, at its expense, with copies of all recorded counterparts of the General
Assignment.
13.9 Cooperation and Further Assurances. After the Closing, Sellers and
Purchaser agree to take such further actions and to execute, acknowledge, and
deliver all such further documents as are necessary or useful in carrying out
the purposes of this Agreement or of any document delivered pursuant to this
Agreement, including, but not limited to, the execution of state change of
operator forms and other required state regulatory filings. Each Party also
agrees to cooperate with each other by providing reasonable information which
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may be required by the other Party for the purpose of administering the Assets
and preparing or reviewing the Post-Closing Adjustment Statement.
14. TERMINATION
14.1 Right of Termination. This Agreement may be terminated at any time at or
prior to the Closing only:
14.1.1 by mutual consent of the Parties;
14.1.2 by the Party not in material breach or material default of its
obligations under this Agreement if, prior to the Closing Date, the
other Party is in material breach or material default of its obligations
under this Agreement;
14.1.3 by either Party pursuant to the provisions of Section 3.8, if
applicable;
14.1.4 by Purchaser if the Closing does not occur because (i) any of the
conditions contained in Article 11 hereof is not fulfilled by Sellers or
waived by Purchaser on or before the Closing Date, and (ii) all of the
conditions set forth in Article 10 hereof have been fulfilled on or
before the Closing Date;
14.1.5 by Sellers if the Closing does not occur because (i) any of the
conditions contained in Article 10 hereof is not fulfilled by Purchaser
or waived by Sellers on or before the Closing Date, and (ii) all of the
conditions set forth in Article 11 hereof have been fulfilled on or
before the Closing Date;
14.1.6 by Purchaser pursuant to the terms of Section 1.1.3 or Section 8.10, if
applicable; or
14.1.7 by Sellers pursuant to the terms of Section 2.3.1, if applicable.
14.2 Effect of Termination. If this Agreement is terminated pursuant to Section
14.1 above, this Agreement shall become void and of no further force or effect
(except for the provisions of Sections 9.1, 13.7, 16.10, and this Section 14.2,
which shall continue in full force and effect). If this Agreement is terminated
pursuant to Section 14.1.1, Section 14.1.3, Section 14.1.6, or Section 14.1.7,
neither Party shall have any further liability to the other Party as the result
of such termination. If Sellers terminate this Agreement pursuant to Section
14.1.2 or Section 14.1.5 as the result of Purchaser's failure to fulfill any
condition set forth in Article 10, then in addition to such right of
termination, the sole and exclusive remedy of Sellers with respect to such
breach or default by Purchaser or failure by Purchaser to fulfill such
conditions shall be the right to retain the Performance Deposit in accordance
with Section 2.3 hereof. If Purchaser terminates this Agreement pursuant to
Section 14.1.2 or Section 14.1.4 as the result of Sellers' failure to fulfill
any condition set forth in Article 11, then in addition to such right of
termination and the right to the return of the Performance Deposit under Section
2.3 hereof, Purchaser shall be entitled to pursue any and all remedies available
to Purchaser at law or in equity (but not including specific performance);
provided, however, that any damages recovered by Purchaser from Sellers with
respect to such breach or default by Sellers or such failure by Sellers to
fulfill such conditions shall be limited to direct, actual damages in an amount
not to exceed the amount of the Performance Deposit. Notwithstanding anything to
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the contrary contained in this Agreement, upon any termination of this Agreement
pursuant to Section 14.1, Sellers shall be free immediately to enjoy all rights
of ownership of the Assets and to sell, transfer, encumber, or otherwise dispose
of the Assets to any party without any restriction under this Agreement; and
Purchaser shall be liable for all actual, incidental, and consequential damages
(including, without limitation, lost profits) if it attempts to interfere in any
way with any such enjoyment or action by Sellers; provided that the institution
of a lawsuit for actual, incidental, or consequential damages (including,
without limitation, lost profits) by Purchaser (including, without limitation, a
lawsuit based on a claim that Sellers breached Section 8.11) shall not be deemed
to be an attempt to interfere with such enjoyment or action by Sellers, as long
as Purchaser, upon written request by Sellers, provides reasonable assurances to
any party (as designated by Sellers) contemplating the purchase from Sellers of
the Assets or any portion thereof that Purchaser claims no interest in the
Assets by virtue of a right to enforce specific performance under this Agreement
and shall waive any rights it may have to enjoin the sale of the Assets to such
party and to institute any actions at law against such party with respect to
tortious interference with its rights under this Agreement, unless Purchaser has
reasonable cause to believe that the party in question has tortiously interfered
with its rights under this Agreement.
15. TAXES
15.1 Apportionment of Ad Valorem and Property Taxes. All ad valorem taxes, real
property taxes, Personal Property taxes, and similar tax obligations (the
"Property Taxes") with respect to the Assets for the tax period in which the
Effective Date occurs shall be apportioned, based on the Effective Date, between
Sellers, on the one hand, and Purchaser, on the other hand, and, if already paid
by Sellers, an appropriate increase in the Purchase Price shall be made pursuant
to Section 2.4.5. If such Property Taxes are not already paid, but the tax
liability is known or can be reasonably estimated, Sellers' portion of such
Property Taxes shall be credited to Purchaser's account pursuant to Section
2.4.11. Purchaser shall pay or cause to be paid to the taxing authorities all
Property Taxes of which it has knowledge not already paid relating to the tax
period in which the Effective Date occurs and if appropriate adjustments to the
Purchase Price pursuant to Section 2.4 were not made at the Closing or in
connection with the Post-Closing Adjustment Statement, Purchaser shall invoice
Sellers (with copies of applicable tax bills and assessments to confirm same)
for Sellers' apportioned shares of such Property Taxes, and Sellers shall pay
the same within thirty (30) days of receipt of said notice. Purchaser shall
defend, indemnify, and hold Sellers harmless with respect to the payment of such
Property Taxes of which Purchaser has knowledge and which Purchaser is obligated
to pay to the applicable taxing authorities (including any interest or penalties
assessed thereon), provided Sellers pay their respective shares (as apportioned
hereunder) within thirty (30) days of being properly invoiced (with accompanying
documents to support the invoice) by Purchaser. For the tax period in which the
Effective Date occurs, Sellers agree (i) to forward immediately to Purchaser
copies of all Property Tax reports and returns received by Sellers after the
Closing and (ii) to provide Purchaser with appropriate information which is
necessary for Purchaser to file any required Property Tax reports and returns.
All tax apportionments determined under this Section 15.1 and Section 15.2 shall
be deemed a final settlement of Property Taxes between the Parties.
Notwithstanding the foregoing, Sellers or Purchaser may contest with the
appropriate taxing authority the amount of or liability for any Property Tax
apportioned to it pursuant to this Section 15.1. The Party pursuing the contest
shall indemnify the other Party from and against all Costs incurred by the other
Party in connection with the contest, and upon final settlement or resolution of
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the contest, the economic burden of the contested tax shall be adjusted among
the Parties in a manner consistent with the intent of this Section 15.1.
15.2 Taxes Paid for Others. To the extent Purchaser has a right to do so,
Purchaser agrees to withhold from future income distributions to royalty owners,
overriding royalty interest owners, and other production burden holders as to
the Assets amounts sufficient to reimburse Sellers for various taxes (e.g.,
Property Taxes, severance, environmental excise, etc.) paid by Sellers on behalf
of such interest holders while Sellers owned the Assets (which shall include
withholdings for co-working interest owners when Sellers have paid such owners'
taxes and have not previously collected such taxes through joint interest
billings). Sellers will provide Purchaser with sufficient documentation to allow
Purchaser to confirm amounts to be withheld, and each Seller, severally
according to its ownership interest in the Assets and not jointly, will
indemnify and hold Purchaser harmless from liability for deducting such sums as
directed by Sellers. Purchaser agrees promptly to forward to Sellers such sums
which are withheld pursuant to this Section 15.2.
15.3 Sales Taxes. Purchaser shall pay, or cause to be paid, all sales, use,
transfer, and similar taxes, if any, resulting from the sale and transfer of the
Assets to Purchaser hereunder (including without limitation, all applicable
conveyance, transfer and recording fees, and real estate transfer stamps or
taxes imposed on the transfer of the Assets pursuant to this Agreement), and
shall prepare and file all tax returns required to be filed with respect to such
taxes.
15.4 Other Taxes. All production, severance, excise, and other similar taxes
that are based upon production of, or income or revenues from, Hydrocarbons
attributable to the Assets prior to the Effective Date shall be paid by Sellers,
and all such taxes relating to such production on or after the Effective Date
shall be paid by Purchaser. The Party responsible for payment of such taxes
shall prepare and file all tax returns required to be filed in respect thereof.
This Section 15.4 shall not apply to any tax to the extent specifically
otherwise provided elsewhere in this Agreement.
15.5 Cooperation. Each Party shall cooperate with the other Party and provide
the other Party with all information in its possession or to which it has access
which may be reasonably required by the other Party in connection with the
preparation of any tax return relating to the Assets, the audit or examination
of any such returns by any tax authority, and the determination of or contest of
any tax relating to the Assets. Notwithstanding anything to the contrary in this
Agreement, neither Party shall be required at any time to disclose to the other
Party any tax returns or other confidential tax information except to the extent
required by Applicable Law or court order.
15.6 Tax Indemnity. Each Seller, severally according to its ownership interest
in the Assets and not jointly, shall indemnify and hold harmless Purchaser, and
Purchaser shall indemnify and hold harmless Sellers, in each case with respect
to the payment of any taxes, including any interest or penalties assessed
thereon, for which the indemnifying Party is responsible pursuant to the
provisions of this Article 15.
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16. MISCELLANEOUS
16.1 Entire Agreement. This Agreement, the Confidentiality Agreement dated June
27, 2007, between DSX and Purchaser (the "Confidentiality Agreement"), the
General Assignment, the documents to be executed pursuant to this Agreement, and
the attached Exhibits and Schedules constitute the entire agreement between the
Parties pertaining to the subject matter of this Agreement and supersede all
prior agreements, understandings, negotiations and discussions of the Parties,
whether oral or written, and there are no warranties, representations or other
agreements between the Parties in connection with the subject matter of this
Agreement except as specifically set forth herein or in documents delivered
pursuant hereto. No supplement, amendment, alteration, modification, or waiver
of this Agreement shall be binding unless executed in writing by the Parties.
16.2 Waiver. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions of this Agreement
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
16.3 Headings. The headings of articles and sections used in this Agreement are
for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. References
herein to articles, sections, exhibits, and schedules are to articles, sections,
exhibits, and schedules to this Agreement unless expressly stated otherwise.
16.4 Assignment. Prior to the Closing, no Party shall assign all or any part of
this Agreement, nor shall any Party assign or delegate any of its rights or
duties hereunder, without the prior written consent of the other Party, which
consent shall not be unreasonably witheld or delayed; provided, however, that no
such consent shall be required in the event of an assignment and delegation by a
Party of its rights and duties under this Agreement to an Affiliate of such
Party, or the pledging or assignment of, or the granting of a security interest
in, this Agreement by a Party in connection with obtaining financing. Except as
otherwise provided in the preceding sentence of this Section 16.4, any such
assignment made without such consent shall be void, and such purported assignee
shall have no rights, directly or indirectly, to enforce the rights of its
purported assignor under this Agreement. Except as otherwise provided in this
Section 16.4, this Agreement shall be binding upon and inure to the benefit of
the Parties and their respective permitted successors, assigns, and legal
representatives. No assignment or designation shall relieve the assigning Party
from any obligation hereunder unless expressly so agreed by the other Party.
16.5 No Third Party Beneficiaries. Nothing in this Agreement shall entitle any
party other than Purchaser and Sellers and their duly authorized successors or
assigns (to the extent permitted by Section 16.4) to any claim, cause of action,
remedy, or right of any kind.
16.6 Governing Law. This Agreement, the other documents delivered pursuant
hereto, and the legal relations between the Parties shall be governed and
construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed wholly within the State of Texas. The
validity of the various assignments or conveyances affecting the title to the
Assets (and the warranties of title thereunder) shall be governed by and
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construed in accordance with the laws of the jurisdictions in which the Assets
are located.
16.7 Notices. Any notice, communication, request, instruction or other document
required or permitted by this Agreement shall be given in writing by certified
mail, return receipt requested, postage prepaid, or by prepaid air express, hand
delivery, or facsimile (except that notice given by facsimile shall be effective
upon receipt only if received during normal business hours, and if received
after normal business hours, such notice shall be deemed given at the
commencement of normal business hours on the next business day) as follows:
If to Sellers: If to Purchaser:
c/o DSX Energy Limited, LLP Baseline Oil & Gas Corp.
800 N. Shoreline Blvd., Suite 2570S 11811 North Freeway, Suite 200
Corpus Christi, Texas 78401 Houston, Texas 77060
Attention: Mr. Douglas Sartoris Attention: Mr. Thomas Kaetzer
Telephone: (361) 884-1130 Telephone: (281) 591-6100
Facsimile: (361) 884-1171 Facsimile: (281) 445-5880
with a copy to:
Mr. H Scott Taylor
Branscomb PC
802 N. Carancahua, Suite 1900
Corpus Christi, Texas 78470
Telephone: (361) 888-9261
Facsimile: (361) 888-8504
16.8 Execution in Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but such counterparts together shall constitute for all purposes one
agreement.
16.9 Expenses. Except as otherwise provided in this Agreement, each Party shall
be solely responsible for all expenses incurred by it in connection with the
transaction contemplated herein (including, without limitation, fees and
expenses of its own counsel and accountants) and shall not be entitled to
reimbursement therefor from the other Party.
16.10 Confidentiality.
16.10.1 Sellers' and Purchaser's respective obligations under the
Confidentiality Agreement shall terminate upon the Closing. Purchaser
agrees that if this Agreement is terminated prior to the Closing for any
reason whatsoever, Purchaser's obligations under the Confidentiality
Agreement and Section 9.1 hereof shall continue in accordance with the
terms thereof.
16.10.2 After the Closing, Purchaser agrees not to disclose proprietary or
confidential information other than the Records provided by Sellers to
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Purchaser unless (i) Sellers shall have consented thereto in writing,
(ii) disclosure is required pursuant to a court order or by subpoena or
similar legal process, or (iii) disclosure is made on advice of its
counsel, pursuant to a request by a Governmental Body, pursuant to
Applicable Laws, or to comply with the rules and regulations of any
stock exchange, or (iv) such information has been previously made public
(except as a result of a breach of this Agreement); provided, however,
Purchaser may disclose such information to its representatives, agents,
attorneys, consultants, and auditors as needed, but in such event,
Purchaser shall use reasonable efforts to cause such persons to keep
such information confidential.
16.11 Exhibits and Schedules. All references in this Agreement to Exhibits shall
be deemed to be references to such Exhibits as the same may be amended and
supplemented by mutual agreement of the Parties through and as of the Closing,
and all such Exhibits, as amended and supplemented, are hereby incorporated into
this Agreement by reference.
16.12 Publicity. Prior to making any press or other similar release or public
announcements regarding the transactions contemplated by this Agreement, each
Party shall consult with the other Party regarding the proposed contents
thereof, but no approval thereof shall be required.
16.13 Use of Sellers' Names. Purchaser agrees to use reasonable efforts, as soon
as practicable after the Closing, but in any case no later than one hundred
eighty (180) days after the Closing, to remove or cause to be removed from the
Assets, to the extent it has knowledge of the existence of same, all evidence of
the names and marks used by Sellers and all variations and derivatives thereof
and logos relating thereto, and will not thereafter make any commercial use of
such names, marks and logos.
16.14 Severability. If any term or other provision of this Agreement is invalid,
illegal, or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
contemplated transactions is not affected in any material adverse manner to
either Party. Upon such determination that any term or other provision is
invalid, illegal, or incapable of being enforced, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
contemplated transactions are fulfilled to the extent possible.
16.15 Affiliate. For purposes of this Agreement, the term "Affiliate" (whether
capitalized or not) shall mean, when used with respect to a person or entity,
any other person or entity (i) which directly or indirectly (through one or more
intermediaries) controls, or is controlled by, or is under common control with,
such first mentioned person or entity, or (ii) which beneficially owns, holds,
or controls fifty percent (50%) or more of the interest of such first mentioned
person or entity. The term "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management policies of a person or entity, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or otherwise.
16.16 Attorney's Fees. Any Party successfully pursuing a claim for the
enforcement of any provision of this Agreement, including, without limitation,
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agreements of indemnity contained herein or any of the documents to be delivered
pursuant hereto, shall be entitled to recover from the unsuccessful Party
reasonable attorneys' fees, court costs, and other expenses incurred by the
successful Party in such action.
16.17 Interest. In the event that either Party brings suit to collect any amount
owed by the other Party hereunder, such other Party shall pay the Party bringing
such suit interest on any amount so collected from the date of demand (or, if
earlier, the date due) until the date of payment at the Agreed Rate.
16.18 Exchange. Sellers shall have the right to utilize all or part of the
Assets as part of a tax deferred exchange pursuant to Section 1031 of the IRC
and applicable state and local tax laws. In connection with an exchange, and
notwithstanding the terms of Section 16.4, all or part of the rights of Sellers
under this Agreement may be assigned, without the need for Purchaser's consent,
to an intermediary, escrow agent, trustee, or other exchange accommodation
party, provided that such assignment shall not relieve Sellers of their
obligations to Purchaser hereunder. Purchaser shall cooperate with Sellers in
effecting such an exchange, including, without limitation, the execution of
escrow instructions and other instruments, provided that: (i) the acquisition
and exchange of any exchange property shall not impose upon Purchaser any
additional financial obligation other than as set out in this Agreement; (ii)
Purchaser shall have no obligation to become a holder of record title to any
exchange property; (iii) each Seller, severally according to its ownership
interest in the Assets and not jointly, shall indemnify and hold Purchaser
harmless from any and all Costs which Purchaser incurs or to which Purchaser may
be exposed as a result of Purchaser's participation in the contemplated
exchange, including reasonable attorneys' fees and costs of defense; (iv) the
Closing shall not be delayed or affected by reason of such exchange nor shall
the consummation or accomplishment of such exchange be a condition precedent or
condition subsequent to Sellers' obligations under this Agreement; (v) Purchaser
shall not, by this Agreement or acquiescence to such exchange, have its rights
under this Agreement affected or diminished in any manner; and (vi) Purchaser
shall not, by this Agreement or acquiescence to such exchange, be responsible
for compliance with or deemed to have warranted to Sellers that such exchange in
fact complies with Section 1031 of the IRC or any state or local tax law. If any
exchange contemplated by Sellers should fail to occur, for whatever reason, the
sale of the Assets shall nonetheless be consummated as provided herein.
16.19 Data. With respect to all of its operations on the Properties from and
after the Closing Date, Purchaser agrees to furnish the following information to
Doug Sartoris within five (5) days of Purchaser's receipt of such information:
a) copies of the daily operations reports during drilling, re-working, logging,
testing, completing, re-completing, sidetracking or similar operations on the
Properties; and b) mud logs, logs, well tests, formation tests, directional and
velocity surveys, cores, pressure tests and related information.
16.20 Execution. This Agreement may be executed in multiple counterparts, each
of which shall be considered an original for all purposes. Facsimile signatures
shall be deemed original signatures for purposed of enforcing this Agreement.
[Signature pages follow]
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