Exhibit 10.1
STOCK PURCHASE AGREEMENT
Dated as of October 8, 1999,
but effective as of
July 1, 1999
by and between
TESORO PETROLEUM CORPORATION
and
TESORO GAS RESOURCES COMPANY, INC.
as "Seller"
and
EEX OPERATING LLC
as "Buyer"
and
EEX CORPORATION
for the limited purposes set forth herein
TABLE OF CONTENTS
-----------------
ARTICLE I.
DEFINITIONS 1
-----------
ARTICLE II.
PURCHASE AND SALE 11
2.1 Sale of Common Stock. 11
--------------------
2.2 Effect of Sale 11
--------------
2.3 Partnership 11
-----------
2.4 Operating Assets 12
----------------
2.5 Financial Assets and Liabilities 13
--------------------------------
2.6 Pre-Closing Financial Adjustments 13
---------------------------------
2.7 Adjustment Assets and Liabilities 13
---------------------------------
2.8 Bolivia Transaction 14
-------------------
2.9 Put and Call Options 14
--------------------
ARTICLE III.
PURCHASE PRICE AND SETTLEMENT PRICE 14
-----------------------------------
3.1 Purchase Price 14
--------------
3.2 Settlement Price 14
----------------
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES 15
------------------------------
4.1 Seller's Representations and Warranties 15
---------------------------------------
4.2 Buyer's Representations 27
-----------------------
ARTICLE V.
ACCESS TO INFORMATION AND INSPECTION 29
------------------------------------
5.1 Access to Information 29
---------------------
5.2 Title Files 29
-----------
5.3 Legal Files 30
-----------
5.4 Financial and Accounting Files 30
------------------------------
5.5 Warranties as to Documents 30
--------------------------
5.6 Inspections 30
-----------
ARTICLE VI.
TITLE 30
-----
6.1 Buyer's Title Review 30
--------------------
6.2 Title Defects 31
-------------
6.3 Procedures to Determine Property Value Adjustments
--------------------------------------------------
For Title Defects 34
-----------------
6.4 Property Value Adjustment For Title Defects 36
-------------------------------------------
6.5 Preferential Rights and Consents to Assignment 37
----------------------------------------------
ARTICLE VII.
ENVIRONMENTAL 39
-------------
7.1 Disclosures and Availability of Data to Buyer 39
---------------------------------------------
7.2 NORM 40
----
7.3 Environmental Conditions 40
------------------------
7.4 Responsibilities for Remediation of Contamination 40
-------------------------------------------------
7.5 Environmental Assessment 41
------------------------
7.6 Environmental Condition Value Reduction For
-------------------------------------------
Environmental Conditions 41
------------------------
7.7 Procedures To Determine Environmental Price Adjustment 42
------------------------------------------------------
ARTICLE VIII.
CASUALTY LOSS AND CONDEMNATION 44
------------------------------
8.1 No Termination 44
--------------
8.2 Proceeds and Awards 44
-------------------
8.3 Risks of Other Losses 45
---------------------
ARTICLE IX.
COVENANTS 45
---------
9.1 Pre-Closing Covenants of Seller Regarding the Business 45
------------------------------------------------------
9.2 Pre-Closing Covenants of Seller Regarding the Operating
-------------------------------------------------------
Assets 45
------
9.3 Seller's Covenants Regarding Encumbrances 48
-----------------------------------------
9.4 Covenants Regarding Corporate and Financial Matters 48
---------------------------------------------------
9.5 No Solicitation of Transactions 49
-------------------------------
9.6 Emergencies and Oversights 49
--------------------------
9.7 Buyer's Covenants Regarding Performance and
-------------------------------------------
Continued Existence 49
-------------------
9.8 Buyer's Covenants Regarding Trade Name 49
--------------------------------------
9.9 Buyer's Covenants Regarding Employment 50
--------------------------------------
9.10 Authorizations 51
--------------
9.11 Software and Computer Programs 51
------------------------------
9.12 General 51
-------
9.13 Supplemental Information Regarding Representations
---------------------------------------------------
and Warranties 52
--------------
9.14 Certain Pipeline Assets 54
-----------------------
9.15 Gathering Agreement Extension 54
-----------------------------
ARTICLE X.
PRE-CLOSING PROCEDURES 56
----------------------
10.1 Notice of Settlement Price Adjustments 56
--------------------------------------
10.2 Initial Settlement Statement 56
----------------------------
10.3 Closing Documents 56
-----------------
10.4 Escrow Agent 56
------------
10.5 Wire Transfer Instructions 56
--------------------------
ii
ARTICLE XI.
CLOSING CONDITIONS 56
------------------
11.1 Seller's Closing Conditions 56
---------------------------
11.2 Buyer's Closing Conditions 57
--------------------------
ARTICLE XII.
CLOSING 58
-------
12.1 Closing 58
-------
12.2 Seller's Closing Obligations 58
----------------------------
12.3 Buyer's Closing Obligations 59
---------------------------
12.4 Governmental Filings 59
--------------------
12.5 Closing On Properties With Uncured Title Defects or
---------------------------------------------------
Environmental Conditions 59
------------------------
ARTICLE XIII.
ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS 60
--------------------------------------------------
13.1 Limitations on Liability for Price Adjustments 60
----------------------------------------------
13.2 Settlement Statements 60
---------------------
13.3 Operating Taxes 61
---------------
13.4 Shared Obligations 62
------------------
ARTICLE XIV.
POST-CLOSING PROCEDURES 63
-----------------------
14.1 Delivery of Files 63
-----------------
14.2 Third Party Data 63
----------------
14.3 Cooperation 63
-----------
14.4 Preferential Rights to Purchase and Consents to Assignment 64
----------------------------------------------------------
14.5 Filing and Recording of Documents 64
---------------------------------
14.6 Further Assurances 64
------------------
14.7 Incidental Costs 64
----------------
ARTICLE XV.
SURVIVAL; INDEMNITIES 64
---------------------
15.1 Survival 64
--------
15.2 Buyer's Indemnity 64
-----------------
15.3 Seller's Indemnity 65
------------------
15.4 Procedure for Indemnification 65
-----------------------------
15.5 Exclusivity 66
-----------
15.6 Assignment of Third Person Indemnities 66
--------------------------------------
ARTICLE XVI.
TAX MATTERS 66
-----------
16.1 Indemnification for Taxes 66
-------------------------
16.2 Other Tax Matters 68
-----------------
16.3 Exclusive Remedy for Taxes 71
--------------------------
iii
ARTICLE XVII.
DEFAULT AND REMEDIES.............................................. 71
--------------------
17.1 Liabilities Upon Termination.............................. 71
----------------------------
17.2 Recovery of Costs......................................... 71
-----------------
17.3 Waiver of Extraordinary Damages........................... 71
-------------------------------
17.4 Waiver of Jury Trial...................................... 71
--------------------
17.5 Independent Obligations................................... 71
-----------------------
17.6 Changes of Law............................................ 72
--------------
17.7 Merger.................................................... 72
------
ARTICLE XVIII.
NOTICES........................................................... 72
-------
18.1 Notices................................................... 72
-------
ARTICLE XIX.
CONFIDENTIALITY AND DISCLOSURES................................... 73
-------------------------------
19.1 Non Disclosure of Data.................................... 73
----------------------
19.2 Public Announcements...................................... 73
--------------------
ARTICLE XX.
TERMINATION....................................................... 73
-----------
20.1 Termination............................................... 73
-----------
ARTICLE XXI.
MISCELLANEOUS..................................................... 74
-------------
21.1 Entire Agreement.......................................... 74
----------------
21.2 No Verbal Modifications or Waivers........................ 74
----------------------------------
21.3 Severability.............................................. 74
------------
21.4 Interpretation............................................ 74
--------------
21.5 Counsel................................................... 74
-------
21.6 Governing Law............................................. 74
-------------
21.7 Consents.................................................. 75
--------
21.8 Time of Essence........................................... 75
---------------
21.9 Binding Effect, Assignment............................... 75
---------------------------
21.10 No Relationship........................................... 75
---------------
21.11 No Recordation............................................ 75
--------------
21.12 Exhibits and Schedules.................................... 75
----------------------
21.13 Counterparts.............................................. 75
------------
21.14 No Third Party Beneficiaries.............................. 75
----------------------------
21.15 Joint and Several Liability............................... 76
---------------------------
21.16 Dispute Resolution........................................ 76
------------------
21.17 EEX Corporation Guarantee................................. 76
-------------------------
SCHEDULES
---------
1A HEDGING CONTRACTS
1B PERMITTED ENCUMBRANCES
iv
2.4 EXCEPTIONS TO OPERATING ASSETS
2.6(a) RETAINED LIABILITIES
4.1(b)(iv) NO CONFLICT - SELLER
4.1(b)(v) CONSENTS AND WAIVERS - SELLER
4.1(f)(iii) TITLE TO ASSETS
4.1(g) LITIGATION
4.1(h) LABOR MATTERS
4.1(i) TAXES
4.1(k) ABSENCE OF CERTAIN CHANGES
4.1(m)(iii) PERMITS AND LICENSES
4.1(m)(iv) EXCEPTIONS TO RIGHT TO USE ASSETS
4.1(o) SUSPENSE FUNDS
4.1(p) INSURANCE
4.1(q) CONTRACTS ON PRODUCTION
4.1(s) TAX PARTNERSHIPS
4.1(u) ENVIRONMENTAL CONDITIONS
4.1(v) CONTRACTS
4.1(x) XXXXX
4.1(z) PAYOUT BALANCES
6.2(b) TITLE DEFECTS
6.2(c)(iv) XXX XXXX FIELD ROYALTY POOL
7.3(b)(vii) ENVIRONMENTAL EXCLUSIONS
9.2 EXCEPTIONS TO PRE-CLOSING OPERATING COVENANTS
9.2(f) COMMITTED EXPENDITURES
9.4 EXCEPTIONS TO PRE-CLOSING FINANCIAL COVENANTS
9.9(a) RETAINED EMPLOYEES
9.9(c) RETENTION RELATED SALARY INCREASES
EXHIBITS
--------
A ALLOCATED VALUES
B LEASES AND RELATED PIPELINES
C SUBSIDIARIES AND PARTNERSHIP BALANCE SHEET
v
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is dated October 8, 1999, but effective as of the Effective
Time, between Tesoro Petroleum Corporation, a Delaware corporation, and Tesoro
Gas Resources Company, Inc., a Delaware corporation, collectively as "Seller",
and EEX Operating LLC, a Delaware limited liability company, as "Buyer", and EEX
Corporation, for the limited purposes set forth herein.
WITNESSETH:
-----------
WHEREAS, Tesoro Exploration and Production Company, a Delaware corporation
("Exploration"), has authorized capital stock consisting of 1,000 shares of
$1.00 par value common stock, of which 1,000 shares are issued and outstanding,
all of which are owned by Tesoro Petroleum Corporation; and
WHEREAS, Tesoro Reserves Company, a Delaware corporation ("Reserves"), has
authorized capital stock consisting of 1,000 shares of $1.00 par value common
stock, of which 1,000 shares are issued and outstanding, all of which are owned
by Tesoro Gas Resources Company, Inc.; and
WHEREAS, Exploration and Reserves are the two partners in Tesoro E&P
Company, L.P., a Delaware limited partnership (the "Partnership"), in which
Exploration is the general partner owning a 1% interest and Reserves is the
limited partner owning a 99% interest; and
WHEREAS, the Partnership owns certain assets used in the business of the
exploration, production, gathering, transportation and marketing of oil, natural
gas, condensate and associated hydrocarbons; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller all issued and outstanding Common Stock of Exploration and Reserves, and
all Seller's rights and interests in the Partnership, under the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
-----------
"AAA" shall have the meaning set forth in Section 21.16.
"Accepting Party" shall have the meaning set forth in Section 16.1(e).
"Accounts Receivable" shall have the meaning set forth in Section 13.5.
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Adjustment Assets and Liabilities" shall mean those certain items set
forth in Section 2.7.
"Affiliate" shall have the same meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Agreement" shall mean this Stock Purchase Agreement.
"Allocated Value" shall mean the monetary value allocated to each Property
or group of Properties and the Hedging Contracts on Exhibit A.
"APO" shall mean "after payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If there are multiple
outstanding payouts affecting any particular well or Property, then the APO
interest shall mean the interests after all applicable payouts have occurred. If
at the Effective Time there are no outstanding payout balances affecting any
particular well or Property, then the listed APO interest in such well or
Property shall reflect the Partnership's WI and NRI at the Effective Time.
"Applicable Environmental Laws" means all Applicable Laws in effect
pertaining to (i) pollution, or the protection of the environment, including
those relating to waste materials and/or hazardous substances, (ii) the
protection of Persons or property from actual or potential exposure (or the
effects of exposure) to an actual or potential spill or release of Hazardous
Substances or petroleum or produced brine or (iii) the manufacture, processing,
production, gathering, transportation, use, treatment, storage or disposal of a
Hazardous Substance or petroleum or produced brine.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Authority to
which a specified Person, Operating Asset or property is subject.
"Arbitrator" shall have the meaning set forth in Section 21.16.
"Balance Sheets" shall mean the unaudited combined financial balance sheet
of the Subsidiaries and the Partnership as of June 30, 1999, attached hereto as
Exhibit C.
"Bolivia Transaction" shall have the meaning set forth in Section 2.8.
"Books and Records" shall mean all of the following which pertain to the
conduct of the Business: books, records, manuals and other materials, accounting
books and records, continuing property records for property, plant and
equipment, land and lease files, title opinions, suspense records, production
records, any inventories of equipment and property, well files, engineering
files, maps, surveys, electric logs, seismic records, geological and geophysical
files, and all other technical data, division order files, contract files, other
files, computer tapes, disks, other storage media and records, advertising
matter, correspondence, lists of customers and suppliers, maps, photographs,
production data, sales and promotional materials and records, purchasing
materials and records, work and recent salary history for personnel, credit
records, manufacturing and quality control records and procedures, patent and
trademark files and disclosures, litigation files, leases, oil and gas leases,
deeds, easements and other instruments relating to the Business, any copies of
Tax Returns filed by or with respect to the Subsidiaries or the Partnership,
including copies of all work papers and calculations relating to the
Subsidiaries and the Partnership in
2
support of such Tax Returns, and any comparable information with respect to
predecessors of the Subsidiaries or the Partnership to the extent available, and
copies of any other applicable accounting and tax records of the Seller and the
Partnership pertaining to the Business.
"BPO" shall mean "before payout", as such payout may be established under
the respective farmout agreements, joint operating agreements, participation
interests and similar agreements affecting each Property, including payouts
providing reversionary rights of parties who have elected not to participate in
an operation under a joint operating agreement. If at the Effective Time there
is an outstanding payout balance affecting any particular well or Property, the
listed BPO interest in such well or Property shall reflect the Partnership's WI
and NRI at the Effective Time.
"Business" shall mean the Partnership's business of exploring for,
developing, producing, gathering, transporting and marketing natural gas,
condensate and oil.
"Business Day" shall mean any day exclusive of Saturdays, Sundays and
national holidays.
"Buyer Group" shall have the meaning set forth in Section 15.3.
"Buyer's Group Health Plans" shall have the meaning set forth in Section
9.9(a).
"Buyer's Knowledge" shall mean knowledge of Buyer and management employees
of Buyer's ultimate parent, EEX Corporation, with knowledge of Buyer's
activities, including the negotiation of this Agreement.
"Bylaws" shall mean a corporation's bylaws, code of regulations or
equivalent document.
"Call Option" shall have the meaning set forth in Section 2.9.
"Casualty Price Adjustment" shall have the meaning set forth in Section
13.1(c).
"Charter" shall mean a company's articles of association, articles of
incorporation, certificate of incorporation or equivalent organizational
documents.
"Closing" shall have the meaning set forth in Section 12.1.
"Closing Date" shall have the meaning set forth in Section 12.1.
"Closing Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Seller prior to Closing,
as reflected on the Settlement Statement delivered prior to Closing pursuant to
Article X and Section 13.2(a).
"Code" shall mean the United States Internal Revenue Code of 1986 and any
successor statute thereto, as amended.
"Common Stock" shall mean all issued and outstanding shares of common stock
of Exploration and Reserves, collectively.
3
"Consent to Assignment" shall mean an existing contractual or legal right
of any third party to consent to the Partnership's assignment of a Property to
Buyer under such terms as are set forth in this Agreement.
"Contracts" shall mean all of the contracts that govern or relate to the
ownership or operation of the Operating Assets (including without limitation,
the xxxxx, facilities and equipment associated therewith and the production
therefrom, acreage contribution agreements, assignments, bidding agreements,
bottom-hole agreements, contribution agreements, drilling contracts, dry-hole
agreements, exploration agreements, development agreements, farm-in and farmout
agreements, gas balancing agreements, joint venture agreements, production,
sales, marketing and/or brokerage contracts, gas processing agreements,
operating agreements, participation agreements, service contracts, storage
contracts, gathering agreements, transportation agreements, treating contracts,
water rights agreements and the unitization, unit operating, communitization and
pooling declarations, agreements and orders that create or govern units). To the
extent that Seller, the Subsidiaries or the Partnership have rights of
indemnification or warranty rights with respect to any Operating Asset or any
part of an Operating Asset, the same shall be included in the meaning of
"Contracts."
"Damages" shall mean any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses, expert fees and expenses and court costs), of any nature whatsoever.
"Effective Time" shall mean July 1, 1999, at 12:00 a.m. local time for each
Operating Asset.
"Encumbrance" shall mean any interest (including any security interest),
pledge, mortgage, lien, charge, adverse claim or other right of third Persons.
"Environmental Condition" shall have the meaning set forth in Section 7.3.
"Environmental Condition Value Reduction" shall mean the reduction in value
of an Operating Asset attributable to an Environmental Condition affecting that
Operating Asset, determined as set forth in Section 7.6.
"Environmental Price Adjustment" shall have the meaning set forth in
Section 13.1(b).
"Exploration" shall mean Tesoro Exploration and Production Company, a
Delaware corporation.
"Final Settlement Price" shall mean the Settlement Price calculated in
accordance with the best information available to the Parties during the one
hundred twenty (120) day period after Closing, as reflected on the Final
Statement agreed upon pursuant to Article XIII.
"Final Statement" shall mean the final accounting statement to be agreed
upon by the Parties no later than one hundred twenty (120) days after Closing
pursuant to Section 13.2(c).
"Financial Assets and Liabilities" shall mean the assets, liabilities and
other financial items on the Balance Sheets, effective as of 11:59 p.m. on June
30, 1999, (i) as adjusted for
4
revenues, income, expenses and other assets and liabilities incurred between the
Effective Time and the Closing Date and included within the Adjustment Assets
and Liabilities, and (ii) as adjusted for the Pre-Closing Financial Adjustments
and (iii) as otherwise adjusted as provided herein. The term "Financial Assets"
shall not include any assets, liabilities or other financial items included
within the Operating Assets.
"Forms" shall have the meaning set forth in Section 16.2(j).
"GAAP" shall mean U.S. generally accepted accounting principles, unless
expressly described otherwise.
"Gathering" shall mean Tesoro Gathering Company, a Delaware corporation.
"Governmental Authority" shall mean any international, national, Federal,
state, municipal or local government, governmental authority, regulatory or
administrative agency, governmental commission, department, board, bureau,
agency or instrumentality, court, tribunal, arbitrator or arbitral body.
"Governmental Order" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Substance" means a substance, chemical, pollutant, waste or
other material (i) that consists, wholly or in part, of a substance that is
regulated as toxic or hazardous to human health or the environment under any
Environmental Law or (ii) that exists in a condition or under circumstances that
constitute a violation of any Environmental Law. "Hazardous Substance" includes
without limitation any "hazardous substance" under the Comprehensive
Environmental Response, Compensation and Liability Act, any "hazardous chemical"
under the Occupational Safety and Health Act, any "hazardous material" under the
Hazardous Materials Transportation Act, any "hazardous chemical substance" under
the Federal Water Pollution Control Act and any "hazardous waste" under the
Resource Conservation and Recovery Act.
"Hedging Contracts" shall mean those natural gas derivative pricing
contracts listed on Schedule 0X .
"XXX Xxx" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976.
"Income Taxes" shall mean any Taxes, including franchise taxes, which are
based upon or in respect of income.
"Indemnified Party" shall mean any Party or other Person entitled to an
indemnity under Article XV of this Agreement, with respect to the indemnity so
owed.
"Indemnifying Party" shall mean a Party owing an indemnity to any other
Party or Person under Article XV of this Agreement, with respect to the
indemnity so owed.
"IRS" shall mean the U.S. Internal Revenue Service.
"Lender" shall have the meaning set forth in Section 9.12(c).
5
"Liabilities" shall mean any and all debts, claims, liabilities and
obligations of any nature whatsoever, whether accrued or fixed, absolute or
contingent, mature or unmatured or determined or indeterminable.
"License Agreement" shall mean the agreement to be entered into between the
Partnership and Digicomp, Inc., permitting Digicomp, Inc. and its partners to
use certain geological and geophysical data owned by the Partnership in
connection with the development of technology for the compression and
transmission of such data, for demonstration purposes only and not for
distribution to third parties.
"Material Adverse Effect" shall mean any event with respect to, change in,
or effect on, the Subsidiaries, the Partnership or the Business which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Business, or the financial results of operations, assets
or properties or financial condition of the Subsidiaries and the Partnership,
taken as a whole, but the term "Material Adverse Effect" shall not include any
change in market conditions or other conditions affecting the oil and gas
exploration and production industry generally.
"Natural Gas" shall mean Tesoro Natural Gas Company, a Delaware
corporation.
"NORM" shall have the meaning set forth in Section 7.2.
"NRI" shall mean the decimal net revenue interest in oil and gas production
from a Property.
"Operating Assets" shall mean all property rights and interests of the
Partnership being sold hereunder, as set forth in Section 2.4.
"Other Taxes" shall mean all Taxes other than Income Taxes.
"Parties" shall mean Buyer and Seller, collectively.
"Partnership" shall mean Tesoro E&P Company, L.P., a Delaware limited
partnership.
"Party" shall mean either Buyer or Seller.
"Permitted Encumbrances" shall include any Encumbrance which is: (i) listed
on Schedule 1B, for which a duly executed release in recordable form will be
delivered to Buyer at or before Closing; (ii) a lien securing amounts claimed
for services provided by operators or other oil field contractors which are not
yet due and owing or which are being contested in good faith, through adequate
procedures; (iii) a statutory lien arising for Taxes not yet delinquent or which
are being contested in good faith, through adequate procedures; (iv) a
reservation, exception, limitation, encumbrance or burden expressly included
within a recorded oil and gas lease constituting part of a Property with respect
to which Seller or the Partnership is not in default at Closing which does not
reduce the Partnership's NRI in such Property below the respective decimal
interests set forth in Exhibit A; (v) any royalty, overriding royalty or other
production burden affecting any Property which does not and will not reduce the
Partnership's NRI in such Property below the respective decimal interests set
forth in Exhibit A; (vi) any joint operating agreement containing terms and
conditions reasonable and customary in the industry
6
(other than a Preferential Right to Purchase that is exercised prior to Closing
or a required Consent to Assignment, or a reversionary right that is not
reflected in the BPO and APO interests on Exhibit A); (vii) the right of a third
party under any equipment rental or lease contract, oilfield service contract,
production sales contract or transportation contract affecting any Property,
which either may be terminated by the parties thereto without penalty or does
not extend for a term of more than sixty days after the Closing Date; (viii) any
other easement, operating right, concurrent use right or similar encumbrance
that does not affect the Partnership's rights to a Property or reduce the
production revenues attributable thereto or increase the costs associated with
ownership or operation of that Property; and (ix) a severance tax, production
tax, occupation tax, ad valorem tax or similar tax of general application.
"Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.
"Pipeline" shall meaning Tesoro Pipeline Company, L.P., a Delaware limited
partnership.
"Pipeline Operator" shall have the meaning set forth in Section 1.3 of the
Xxxxx-Xxxxxx Transportation Agreement.
"Pipeline Partners" shall have the meaning set forth in Section 2.10 of the
Xxxxx-Xxxxxx Partnership Agreement or Section 2.12 of the Starr County Joint
Venture Agreement, as applicable.
"Post-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Financial Adjustments" shall mean those certain financial
accounting adjustments and payments set forth in Section 2.6.
"Pre-Closing Period" shall have the meaning set forth in Section 16.2(c).
"Pre-Closing Return" shall have the meaning set forth in Section 16.2(c).
"Preferential Right to Purchase" shall mean the right of any third party
under an existing contract or agreement allowing that third party to purchase
the Partnership's interest in a Property whenever Seller proposes to transfer
its interests in the Partnership under terms such as are set forth in this
Agreement.
"Production" shall mean all oil, natural gas, condensate, natural gas
liquids, and other hydrocarbons or products produced from or attributable to the
Properties.
"Properties" shall mean, collectively, (i) all valid and existing oil and
gas leaseholds and mineral fee rights, and all rights and interests appurtenant
thereto, which are owned by the Partnership in the States of Texas, North
Dakota, New Mexico, Oklahoma, Louisiana, Mississippi, Wyoming, West Virginia,
Montana and Alabama and the province of Alberta, Canada, including without
limitation all oil and gas WIs, NRIs, mineral fee interests, oil, gas and
mineral deeds, leases and/or subleases, royalties, overriding royalties,
leasehold interests, mineral servitudes, production payments and net profits
interests, fee mineral interests, surface estates,
7
fee estates, royalty interests, overriding royalty interests, or other non-
working or carried interests, reversionary rights, farmout and farmin rights,
operating rights, pooled or unitized acreage, and all other rights, privileges
and interests in such oil, gas and other minerals (and the production thereof),
and other mineral rights of every nature now owned by the Partnership, and
specifically including without limitation, all rights, title and interests of
the Partnership in the oil, gas and mineral leases and leasehold estates
described in Exhibit B; (ii) all of the contractual rights to interests
described in (i) above and in all units in which such interests are pooled,
communitized or unitized, and in any other oil, gas and/or mineral leases or
assets arising pursuant to the terms of the oil and gas leases listed on Exhibit
B hereto, and any other rights and agreements or contracts affecting or relating
to interests described in (i) above, or to Production, whether or not listed on
Exhibit B, including any tenements, appurtenances, surface leases, easements,
permits, licenses, servitudes, franchises or rights of way; and (iii) all rights
and interests of the Partnership in the pipelines set forth on Exhibit B,
together with all easements and contract rights.
"Property" shall mean any individual one of the Properties.
"Property Tax Period" shall have the meaning set forth in Section 13.3(a).
"Property Taxes" shall have the meaning set forth in Section 13.3(a).
"Property Value Adjustment" shall have the meaning set forth in Section
6.4.
"Property Value Increase" shall mean, for any Property in which Seller owns
greater than the interest set forth on Exhibit A, an amount equal to the
difference between the Allocated Value of the Property stated in Exhibit A and
the proportionately increased value of such Property with the correct adjusted
interests, determined as set forth in Section 6.4.
"Property Value Reduction" shall mean the reduction in value of a Property
attributable to a Title Defect in that Property, determined as set forth in
Section 6.4.
"Proposed Settlement" shall have the meaning set forth in Section 16.1(e).
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Put Option" shall have the meaning set forth in Section 2.9.
"Record Title" means for each lease affecting a Property or Well, as
applicable, such title that is deducible (i) in the case of fee leases, from a
review of the records of the applicable county, (ii) in the case of federal
leases, from a review of records of the applicable office of the Bureau of Land
Management or Minerals Management Service, (iii) in the case of state leases,
from a review of the records of the applicable state land office or the records
of the applicable county, or (iv) in the case of state-mandated pooling orders,
in the office of the applicable Governmental Authority.
"Refusing Party" shall have the meaning set forth in Section 16.1(e).
"Reserves" shall mean Tesoro Reserves Company, a Delaware corporation.
8
"Retained Employees" shall have the meaning set forth in Section 9.9(a).
"Seller" shall mean, collectively, Tesoro Petroleum Corporation, a Delaware
corporation, and Tesoro Gas Resources Company, Inc., a Delaware corporation.
"Seller Initiated Environmental Defect" shall have the meaning set forth in
Section 9.13.
"Seller Initiated Title Defect" shall have the meaning set forth in Section
9.13.
"Seller's Group Health Plans" shall have the meaning set forth in Section
9.9(a).
"Seller's Knowledge" shall mean actual knowledge of any fact, circumstance
or condition by the officers or management employees (including those with
titles of "Manager", "Vice President" and "President" or those in the internal
legal department of Seller, the Subsidiaries and the Partnership who provide
specific advice related to the operations of the Business) of Seller, the
Subsidiaries and the Partnership involved and knowledge of any fact,
circumstance or condition which such officer or management employee would have
been aware of with the exercise of reasonable diligence and inquiry in the
course of his or her duties.
"Settlement Price" shall have the meaning set forth in Section 3.2.
"Settlement Price Adjustment" shall mean an aggregate reduction in the
Settlement Price for the Operating Assets computed as the sum of (i) Title Price
Adjustments attributable to one or more Title Defects, (ii) Environmental Price
Adjustments attributable to one or more Environmental Conditions and (iii)
Casualty Price Adjustments attributable to one or more casualty losses.
"Settlement Statement" shall mean the accounting statement calculating the
Settlement Price, to be furnished by Seller to Buyer prior to Closing, pursuant
to Article X and Section 13.2(a).
"Starr County Gathering" shall mean the Texas general partnership created
pursuant to and governed by the Starr County Joint Venture Agreement for the
purpose of owning, operating and maintaining the Starr County Gathering System.
"Starr County Gathering Agreement" shall mean the Gas Gathering Contract
dated effective February 1, 1991 by and among Exploration and Coastal Oil and
Gas Corporation, as producers, and Starr County Gathering, as gatherer, as
subsequently amended, supplemented, or otherwise modified to the date hereof or
as consented to by Buyer in accordance with this Agreement.
"Starr County Gathering System" shall mean the pipeline gathering and
transportation system in the vicinity of the Xxx Xxxx Field, Starr County,
Texas, which is owned by Starr County Gathering.
"Starr County Joint Venture Agreement" shall mean that certain Joint
Venture Agreement effective February 1, 1991 by and between Natural Gas and
Coastal States Gas
9
Transmission Company, as subsequently amended, supplemented or otherwise
modified to the date hereof or as consented to by Buyer in accordance with this
Agreement.
"Starr Partnerships" shall mean Starr County Gathering and the Xxxxx-Xxxxxx
Partnership, collectively.
"Xxxxx-Xxxxxx Line" shall have the meaning set forth in Section 1.1 of the
Xxxxx-Xxxxxx Transportation Agreement.
"Xxxxx-Xxxxxx Partnership" shall mean the Texas general partnership created
pursuant to and governed by the Xxxxx-Xxxxxx Partnership Agreement for the
purpose of owning, maintaining and operating the Xxxxx-Xxxxxx Line.
"Xxxxx-Xxxxxx Partnership Agreement" shall mean that certain Partnership
Agreement effective May 13, 1994 by and between Natural Gas and Coastal States
Gas Transmission Company, as subsequently amended, supplemented or otherwise
modified to the date hereof or as consented to by Buyer in accordance with this
Agreement.
"Xxxxx-Xxxxxx Transportation Agreement" shall mean that certain
Transportation Agreement dated February 8, 1994 by and between the Partnership
and Coastal States Gas Transmission Company, as subsequently amended,
supplemented or otherwise modified to the date hereof or as consented to by
Buyer in accordance with this Agreement.
"Straddle Period" shall have the meaning set forth in Section 16.1(e).
"Straddle Return" shall have the meaning set forth in Section 16.2(c).
"Subsidiaries" shall mean Exploration and Reserves, collectively.
"Tax" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, parking, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 50A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, ad valorem,
value added, alternative or add-on minimum, estimated tax, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, including such item for which Liability arises as a transferee
or successor-in-interest.
"Tax Claim" shall have the meaning set forth in Section 16.1(c).
"Tax Return" shall mean any return, declaration, report, claim for refund,
information return or statement relating to Taxes, including any schedules or
attachments thereto, and including any amendment thereof.
"Taxing Authority" shall mean any Governmental Authority responsible for
the imposition or collection of any Tax.
"Tesoro Group" shall have the meaning set forth in Section 4.1(i).
10
"Xxxxxx Xxxx" shall have the meaning set forth in Section 9.8.
"Tesoro Parent" shall have the meaning set forth in Section 4.1(i).
"Title Defect" shall have the meaning set forth in Section 6.2.
"Title Price Adjustment" shall have the meaning set forth in Section
13.1(a).
"Transaction" shall mean the purchase and sale of the Common Stock pursuant
to this Agreement and the related transactions contemplated herein.
"Val Verde Pipeline" shall have the meaning set forth in Section 9.14.
"Well" shall have the meaning set forth in Section 6.2(a)(vi).
"WI" shall mean a working interest under an oil and gas lease or other
Contract affecting a Property which shall reflect the decimal interest for
participation in the decisions, costs and risks concerning operations.
"Working Capital" shall mean, at any time, the difference between (a) the
sum of the amounts on the line items "cash", "accounts receivable",
"inventories" and "prepayment and other" on the Balance Sheet, less (b) the sum
of the amounts on the line items "accounts payable" and "accrued liabilities" on
the Balance Sheet; all as computed in accordance with GAAP and past practice for
the Subsidiaries and the Partnership except as expressly provided herein, and in
a manner as reflected on the Balance Sheets; provided, however, that the amounts
on the line items "prepayment and other", "accounts payable" and "accrued
liabilities" on the Balance Sheet shall not include the impact of any amounts
referred to in the first proviso in Section 3.2(a)(i); and provided further,
that the stated amount of Working Capital shall be reduced by the amount of
inventories that existed as of the Effective Time.
"Working Capital Accounts" shall mean the line items "cash", "accounts
receivable", "inventories", "prepayment and other", "accounts payable" and
"accrued liabilities" on the Balance Sheet, all as computed in accordance with
GAAP and past practice for the Subsidiaries and the Partnership, and in a manner
as reflected on the Balance Sheets; provided, however, that the line items
"prepayment and other", "accounts payable" and "accrued liabilities" shall not
include the impact of any items referred to in the first proviso in Section
3.2(a)(i).
ARTICLE II. PURCHASE AND SALE
2.1 Sale of Common Stock. Subject to the terms and conditions of this
--------------------
Agreement, Seller agrees to sell and assign to Buyer, and Buyer agrees to
purchase and pay for, at Closing, all the Common Stock.
2.2 Effect of Sale. The sale of the Common Stock at Closing shall transfer
--------------
to Buyer all of Seller's rights in the Subsidiaries. On the Closing Date, the
Subsidiaries shall hold certain interests, assets and liabilities, as set forth
in this Article II. Except as otherwise specifically set forth in this
Agreement, the transfer of Seller's rights in the Subsidiaries shall assign to
Buyer all
11
of Seller's beneficial right, title, interest and obligations in and to such
interests, assets and liabilities held by the Subsidiaries.
2.3 Partnership. On the Closing Date, Exploration and Reserves shall
-----------
own all rights and interests in the Partnership. Exploration shall be the one
percent (1%) general partner, and Reserves shall be the ninety-nine percent
(99%) limited partner in the Partnership. The partnership rights and interests
described in this Section 2.3 shall pass to Buyer as an attribute of the sale of
the Common Stock pursuant to this Agreement.
2.4 Operating Assets. On the Closing Date, the Partnership shall own
----------------
the Operating Assets, subject to the Permitted Encumbrances, and excluding the
items set forth on Schedule 2.4 and as otherwise limited herein, as follows:
(a) Exploration and Production Assets.
---------------------------------
(i) the Properties;
(ii) All the interests in oil and gas xxxxx described on Exhibit A,
together with an interest in the production, compression,
treating, dehydration or processing facilities and other real or
tangible personal property appurtenances and fixtures, which are
located on the lands covered by or within the Properties or are
being used by the Partnership in connection with the operations
on the Properties or Production;
(iii) Subject to the license granted under the License Agreement (with
respect to the rights covered thereby), rights and interests in
geological data and records, seismic data, whether in digital or
paper format, well logs, well files, geological data, records
and maps, land and contract files and records, accounting files,
data and records, computer hardware and software and other
materials (whether electronically stored or otherwise) used or
held for use by Seller, the Subsidiaries or the Partnership, or
any of their direct or indirect parents, subsidiaries or other
Affiliates, regarding ownership of the Properties or operations
and Production which relate to the Properties, and other files,
documents and records which relate to the Properties;
(iv) Rights, obligations, title and interests in and to permits,
orders, contracts, abstracts of title, leases, deeds,
unitization agreements, pooling agreements, operating
agreements, farmout agreements, participation agreements,
division of interest statements, division orders, participation
agreements, and other agreements and instruments applicable to
the Properties;
(v) All the rights, obligations, title and interests of Seller in
and to all easements, rights of way, certificates, licenses and
permits and all other rights, privileges, benefits and powers
conferred upon the owner and holder of interests in the
Properties, or concerning software used in conjunction with
ownership or operation of the Properties;
12
(vi) Rights, title, obligations and interests in or concerning any
gas imbalances affecting the Properties; and
(vii) All office equipment, computer equipment, light tables, drafting
tables, drafting equipment, office supplies, facsimile machines,
pool cars and any other equipment or furniture not herein named
which is utilized by the Partnership in its day to day
operations.
(b) Leased Assets. To the extent any of the items of office equipment
-------------
listed in Section 2.4(a) above are leased and not owned, Seller, the
Subsidiaries and the Partnership shall use their best efforts to cause such
leases to be assigned to Buyer at Closing.
2.5 Financial Assets and Liabilities. On the Closing Date, the Partnership
--------------------------------
shall own the Financial Assets and Liabilities. Each of the Subsidiaries shall
be allocated its respective share of the Partnership's respective Financial
Assets and Liabilities in proportion to its ownership of the Partnership. The
Financial Assets and Liabilities at Closing of the Partnership and each partner
in the Partnership shall be computed by Seller in accordance with GAAP. The
Financial Assets and Liabilities shall be adjusted from those set forth on the
Balance Sheet to reflect certain Pre-Closing Financial Adjustments and the
Adjustment Assets and Liabilities, as set forth in Sections 2.6 and 2.7.
2.6 Pre-Closing Financial Adjustments. Prior to the Closing Date,
---------------------------------
Seller shall make certain accounting adjustments and payments regarding the
assets, liabilities and equity of the Partnership and the Subsidiaries, to the
effect that Sellers shall remove all intercompany accounts involving the
Partnership, the Subsidiaries and their Affiliates, and all intercompany
liabilities shall have been removed. At Closing the only assets and liabilities
of the Partnership and the Subsidiaries shall be the Operating Assets and the
Adjustment Assets and Liabilities.
(a) Certain Accounts. Immediately prior to the Closing, Tesoro Petroleum
----------------
Corporation shall take, and shall cause the Subsidiaries and the Partnership to
take, all necessary action deemed appropriate to adjust the Balance Sheets to
account for those items that are to be retained by Seller, as set forth in
Schedule 2.6(a). In doing so, Tesoro Petroleum Corporation shall take, and shall
cause the Subsidiaries and the Partnership to take, all necessary actions deemed
appropriate so that the Balance Sheets as of the Closing Date, as adjusted to
reflect such actions, will show zero for those line items listed in Schedule
2.6(a) as financial items that are to be retained by Seller.
(b) Pre-Closing Cash Distribution. Immediately prior to the Closing,
-----------------------------
Tesoro Petroleum Corporation shall cause Exploration to pay it an amount equal
to the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Exploration as of the Closing Date. Immediately prior to the Closing, Tesoro
Gas Resources Company, Inc. shall cause Reserves to pay to it an amount equal to
the arithmetic mean of Seller's and Buyer's good faith estimates of the
consolidated cash and cash equivalents (other than amounts in suspense accounts)
of Reserves as of the Closing Date.
(c) Changes in Balance Sheets Due to Continuing Operations. Buyer and
------------------------------------------------------
Seller expressly recognize that the assets and liabilities of the Subsidiaries
and the Partnership shall be
13
affected by the effects of ongoing ownership and operation of the Operating
Assets between the Effective Time and the Closing Date. These changes shall be
handled exclusively by adjustments to the Settlement Price as set forth in
Section 3.2 and Article XIII.
2.7 Adjustment Assets and Liabilities. At Closing, the Partnership
---------------------------------
shall retain, to the extent permitted by applicable law and regulations, the
following interests:
(a) All rights, obligations, liabilities, title and interests of Seller
and the Partnership in and to all Hedging Contracts in effect at the Effective
Time or thereafter;
(b) All Working Capital Accounts; and
(c) All rights to future proceeds, defenses and indemnities owed under any
bonds or insurance policies covering the Operating Assets, the Partnership, the
Subsidiaries or the Business for policy periods prior to the Closing Date, for
losses, claims or occurrences, as applicable, arising prior to the Closing Date.
2.8 Bolivia Transaction. Buyer recognizes that Tesoro Petroleum
-------------------
Corporation is separately selling exploration and production subsidiaries or
assets in Bolivia (the "Bolivia Transaction") and that some of the personnel and
facilities used in connection with the operation of the Partnership are also
used in connection with the operation of the Bolivia assets. Buyer and Seller
acknowledge and agree that this Agreement shall not restrict or otherwise affect
the Bolivia Transaction or impose any liabilities or responsibilities arising
from or relating to interests or operations of Tesoro Petroleum Corporation or
its Affiliates in Bolivia.
2.9 Put and Call Options. Seller shall have a put option (the
--------------------
"Put Option") with respect to Seller's interest in the stock of Natural Gas and
Gathering and Buyer shall have a call option (the "Call Option") with respect to
Seller's interest in the stock of Natural Gas and Gathering, both on mutually
agreeable terms to be negotiated in good faith between Seller and Buyer.
ARTICLE III. PURCHASE PRICE AND SETTLEMENT PRICE
-----------------------------------
3.1 Purchase Price. The monetary consideration ("Purchase Price") for
--------------
the sale and conveyance of all the Common Stock to Buyer, effective as of the
date of Closing, is Buyer's payment of two hundred sixteen million Dollars
($216,000,000) in cash.
3.2 Settlement Price. Pursuant to the provisions as described below, the
----------------
Purchase Price to be paid by Seller will be subject to certain adjustments made
at Closing and within one hundred twenty (120) days thereafter, as set forth in
Article XIII, to determine the Settlement Price amount that will actually be
paid by Buyer. The Settlement Price will be calculated as follows:
(a) Increases. The Purchase Price shall be increased by the following
---------
amounts:
(i) An amount equal to the expenses properly accrued in accordance
with GAAP and past practice, and as provided for in Section 13.3,
attributable to the period from the Effective Time to the end of
business on the Closing Date; provided, however, that such
expenses shall exclude all (1) depreciation, depletion and
amortization, (2) income and franchise
14
taxes, (3) one-half of the amount accrued by the Subsidiaries
and the Partnership under incentive compensation arrangements
for the Retained Employees, as provided in Section 9.9(c), and
(4) severance obligations and other amounts accrued under any
employment retention and management stability agreements, as
provided in Section 9.9(b); provided, further, however that
Seller, the Subsidiaries and the Partnership shall be permitted
to accrue no more than $40,000 per month from the close of
business on June 30, 1999 to the Closing Date for corporate
general and administrative expenses;
(ii) An amount equal to the capital expenditures relating to the
Business properly accrued in accordance with GAAP and past
practice attributable to the period from the Effective Time to
the end of business on the Closing Date; and
(iii) The amount of change in Working Capital between the Effective
Time and the end of business on the Closing Date, if the amount
of change is a positive number.
(b) Decreases. The Settlement Price shall be decreased by the following
---------
amounts:
(i) An amount equal to the revenues properly accrued in accordance
with GAAP and past practice attributable to the period from the
Effective Time to the end of business on the Closing Date;
(ii) An amount equal to any Settlement Price Adjustment, subject to
the application of Section 13.1;
(iii) The amount of the Allocated Value of any Properties that third
parties shall have purchased before the Closing through the
exercise of Preferential Rights to Purchase or pursuant to any
other sale permitted by Section 9.2(a); and
(iv) The amount, stated as a positive number, of any change in
Working Capital between the Effective Time and the end of
business on the Closing Date, if and only if, the amount of
change is a negative number.
The Purchase Price as adjusted pursuant to this Section 3.2 is herein called the
"Settlement Price".
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Seller's Representations and Warranties. Seller represents and
---------------------------------------
warrants that:
(a) Disclosure. To Seller's Knowledge, the representations and warranties
----------
set forth in this Agreement, the exhibits to this Agreement, and the
information, documents and Balance Sheets provided under the terms of this
Agreement represent full and fair disclosure as of the date of this Agreement
and the Closing Date and do not contain any untrue statement of any material
fact or omit any material fact necessary in order to make the facts stated not
misleading.
15
(b) Authorization and Enforceability.
--------------------------------
(i) This Agreement and the Transaction have been duly authorized by
each Seller.
(ii) Neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated
hereby, will violate or conflict with, or result in the
acceleration of rights, benefits or obligations under, (1) any
provision of any of Seller's, the Subsidiaries' or the
Partnerships' respective Charters or Bylaws or Partnership
Agreements, or (2) any applicable statute, law, regulation or
Governmental Order to which Seller or the Subsidiaries or the
Partnerships or the assets and properties of such entities,
including without limitation the Operating Assets, are bound or
subject.
(iii) This Agreement has been duly executed and delivered by each
Seller and constitutes the valid and binding obligation of each
Seller, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.1(b)(iv), or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received and all applicable Preferential Rights to
Purchase individual Operating Assets are waived) will not (A) be
in violation of any provisions of any regulation or order that
could reasonably be expected to adversely affect the ownership
or operations of the Operating Asset affected thereby or give
rise to damages, penalties or claims of third parties, or (B)
result in the breach of, or constitute a default under, any
indenture or other material agreement or instrument to which
Seller, the Subsidiaries or the Partnerships are bound, or (C)
cause the recognition of gain for which the Buyer (or, after the
Closing, the Subsidiaries) will be responsible for the tax
thereon or loss for Tax purposes with respect to any Subsidiary
or subject any Subsidiary or its assets to any Tax.
(v) Except for any filings required under the HSR Act, as set forth
on Schedule 4.1(b)(v) or as otherwise specifically provided
herein, no consent, waiver, approval, order or authorization of,
notice to, or registration, declaration, designation,
qualification or filing with, any Governmental Authority or
third Person, domestic or foreign, is or has been or will be
required on the part of Seller in connection with the execution
and delivery of this Agreement or the consummation by Seller of
the transactions contemplated hereby or thereby, other than (A)
consents and Preferential Rights to Purchase affecting
individual Operating Assets or (B) where the failure to obtain
such consents, waivers, approvals, orders or authorizations or
to make or effect such registrations, declarations,
designations, qualifications or filings (1) is not reasonably
16
likely to prevent or materially delay consummation of the
transactions contemplated by this Agreement (2) could reasonably
be expected to adversely affect the Business or (3) could give
rise to damages, penalties or claims of third parties.
(c) Organizational Status.
---------------------
(i) Each Seller: (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require
such qualification, and (3) possesses all requisite authority
and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement and to
perform all of its obligations hereunder. There are no pending
or threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of any Seller.
(ii) Exploration (1) is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, (2) is
duly qualified to transact business in each jurisdiction where
the nature and extent of its business and properties require
such qualification, and (3) possesses all requisite authority
and power to conduct its business. There are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Exploration.
(iii) Reserves (1) is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, (2) is duly
qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require such
qualification, and (3) possesses all requisite authority and
power to conduct its business. There are no pending or
threatened Actions (or basis therefor) for the dissolution,
liquidation, insolvency, or rehabilitation of Reserves.
(iv) The Partnership (1) is a limited partnership duly organized,
validly existing and in good standing under the laws of
Delaware, (2) is duly qualified to transact business in each
jurisdiction where the nature and extent of its business and
properties require such qualification, and (3) possesses all
requisite authority and power to conduct its business. There are
no pending or threatened Actions (or basis therefor) for the
dissolution, liquidation, insolvency, or rehabilitation of the
Partnership.
(d) Subsidiary and Other Equity Interests.
-------------------------------------
(i) Exploration has no subsidiaries and does not own any stock
or other interest in any other corporation, partnership,
joint venture, or other business entity, with the exception
of the Partnership.
17
(ii) Reserves has no subsidiaries and does not own any stock or
other interest in any other corporation, partnership,
joint venture, or other business entity, with the
exception of the Partnership.
(iii) The Partnership has no subsidiaries and does not own any
stock or other interest in any other corporation,
partnership, joint venture, or other business entity.
(e) Common Stock and Partnership Interests. Other than as set
--------------------------------------
forth in Schedule 1B:
(i) Exploration has authorized capital stock consisting of
1,000 shares of $1.00 par value common stock, of which
1,000 shares are issued and outstanding, with all of such
shares owned by Tesoro Petroleum Corporation. The common
stock has been duly authorized by Exploration, and the
shares owned by Tesoro Petroleum Corporation are validly
issued and outstanding, fully paid and nonassessable.
There are no preemptive rights, or authorized or
outstanding subscriptions, options, consents to assignment
or rights of first refusal, convertible securities,
warrants, calls, stock appreciation rights, phantom stock,
profit participation, or other similar rights, or other
agreements or commitments obligating Seller or Exploration
to issue or to transfer (or preventing the transfer of)
any common stock or other equity interest in Exploration.
(ii) Reserves has authorized capital stock consisting of 1,000
shares of $1.00 par value common stock, of which 1,000
shares are issued and outstanding, with all of such shares
owned by Tesoro Gas Resources Company, Inc. The common
stock has been duly authorized by Reserves, and the shares
owned by Tesoro Gas Resources Company, Inc. are validly
issued and outstanding, fully paid and nonassessable.
There are no preemptive rights, subscriptions, options,
consents to assignment or rights of first refusal,
convertible securities, warrants, calls, stock
appreciation rights, phantom stock, profit participation,
or other similar rights, or other agreements or
commitments obligating Seller or Reserves to issue or to
transfer (or preventing the transfer of) any common stock
or other equity interest in Reserves.
(iii) In the Partnership, a 99% limited partnership interest is
held by Reserves, and a 1% general partnership interest is
held by Exploration. Such interests are duly authorized
under the agreement forming the Partnership and are valid.
There are no preemptive rights, or authorized or
outstanding subscriptions, options, consents to assignment
or rights of first refusal, convertible securities,
warrants, calls, appreciation rights, phantom interests,
profit participation, or other similar rights, or other
18
agreements or commitments obligating Seller, the
Partnership, Reserves or Exploration to issue or to
transfer (or preventing the transfer of) any equity
interest in the Partnership.
(iv) Seller has made available and will deliver to Buyer prior
to Closing correct and complete copies of each
Subsidiary's and the Partnership's respective Charter,
Bylaws or Partnership Agreement, as amended to date, and
the minute books of each Subsidiary and the Partnership.
Neither any Subsidiary nor the Partnership is in breach of
any provision of its Charter, Bylaws or Partnership
Agreement.
(f) Title to Stock, Partnership Interests and Assets.
------------------------------------------------
(i) All of the issued and outstanding shares of capital stock of
Exploration and Reserves, which consist only of the Common
Stock, are owned of record and beneficially by Tesoro
Petroleum Corporation and Tesoro Gas Resources Company, Inc.,
respectively, free and clear of any Encumbrance except, prior
to the Closing only, as set forth on Schedule 1B. Upon
delivery to Buyer of the certificates for the Common Stock in
accordance with this Agreement, assuming that Buyer pays the
consideration contemplated by this Agreement and has no
notice of any adverse claim, good and valid title to the
Common Stock represented by such certificate will have been
transferred to Buyer, free and clear of any Encumbrances.
Neither Tesoro Petroleum Corporation nor Tesoro Gas Resources
Company, Inc. has received any notice of any adverse claim to
their respective title to the Common Stock except, prior to
the Closing only, as set forth on Schedule 1B.
(ii) All of the issued and outstanding partnership interests in
the Partnership are owned of record and beneficially with
good and valid title by Reserves and Exploration as described
in Section 4.1(e)(iii), free and clear of any Encumbrance
except, prior to the Closing only, as set forth on Schedule
1B. Neither Reserves nor Exploration has received any notice
of any adverse claim to their respective interests in the
Partnership except, prior to the Closing only, as set forth
on Schedule 1B.
(iii) Except as set forth in Schedule 4.1(f)(iii), the Subsidiaries
and the Partnership have good title to all of the assets and
properties (except the Operating Assets) which they own or
purport to own, including the Financial Assets and
Liabilities reflected on the Balance Sheets, except for
properties sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the Balance
Sheets, free and clear of any Encumbrances other than
Permitted Encumbrances.
(g) Litigation. Except as set forth in Schedule 4.1(g), none of Seller,
----------
the Subsidiaries or the Partnership have been served with and, to Seller's
Knowledge, there are no pending or threatened Actions before any Governmental
Authority against or affecting Seller, the
19
Subsidiaries, the Partnership or the Operating Assets, which, if adversely
determined, either would be reasonably expected to expose the Subsidiaries or
the Partnership to a risk of loss of greater than $100,000 after the Effective
Time or would interfere with Seller's ability or right to execute and deliver
this Agreement or consummate the transactions contemplated by this Agreement.
(h) Labor Matters. Except as set forth on Schedule 4.1(h), there are no
-------------
contracts, agreements, or other arrangements whereby the Subsidiaries or the
Partnership are obligated to compensate or provide health and welfare benefit
plans or retirement benefits to any employees or other persons, except for
employment agreements that are terminable at will, without breach or penalty. To
Sellers' Knowledge, Seller, the Subsidiaries and the Partnership are in
compliance with all federal, state, and local laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours
and are not engaged in any unfair labor practice with regard to those persons
employed in connection with the Subsidiaries' or the Partnership's operations.
No employee of the Subsidiaries is covered under any collective bargaining
agreement. There is no unfair labor practice complaint against the Subsidiaries
pending or, to Seller's Knowledge, threatened before the National Labor
Relations Board or any comparable state or local Governmental Authority. There
is no labor strike, slowdown or work stoppage pending or, to Seller's Knowledge,
threatened against or directly affecting the Subsidiaries, and no grievance or
any Action arising out of or under collective bargaining agreements is pending
or, to Seller's Knowledge, threatened against the Subsidiaries.
(i) Taxes.
-----
(i) Except as set forth in Schedule 4.1(i), Seller, the Subsidiaries
and the Partnership have timely filed or caused to be timely
filed (or will timely file or cause to be timely filed) with the
appropriate Taxing Authorities, all Tax Returns required to be
filed on or prior to the Closing Date by or with respect to the
Subsidiaries and the Partnership (or their respective Operating
Assets) and have timely paid or adequately provided for (or will
timely pay or adequately provide for) all Taxes shown thereon as
owing, except where the failure to file such Tax Returns or pay
any such Taxes would not, or could not reasonably be expected to,
in the aggregate, result in losses or costs or expenses to the
Subsidiaries and the Partnership in excess of $100,000 after the
Closing Date.
(ii) Sellers and the Subsidiaries are members of an affiliated group
of corporations which file consolidated federal income tax
returns ("Tesoro Group") with Tesoro Petroleum Corporation as the
common parent ("Tesoro Parent"). The Tesoro Group has been
subject to normal and routine audits, examinations and
adjustments of Taxes from time to time, but there are no current
audits or audits for which written notification has been received
(in either case, with respect to or which include the
Subsidiaries), other than those set forth in Schedule 4.1(i).
There are no written agreements with any Taxing Authority with
respect to or including the Subsidiaries which will in any way
affect the Subsidiaries' liability for Taxes after the Closing
Date.
20
(iii) Except as set forth in Schedule 4.1(i), no assessment,
deficiency or adjustment for any Taxes has been asserted in
writing or, to the knowledge of Sellers, is proposed with
respect to any Tax Return of, or which includes, the
Subsidiaries.
(iv) Except as set forth in Schedule 4.1(i), there is not in force
any extension of time with respect to the due date for the
filing of any Tax Return of or with respect to or which
includes the Subsidiaries or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of
or with respect to or which includes the Subsidiaries.
(v) Except for Taxes due with respect to Tax Returns that will be
paid by Tesoro Parent (and not subject to reimbursement by the
Subsidiaries), the accounting records of the Subsidiaries will
include immediately prior to the Closing Date adequate
provisions for the payment of all Taxes of the Subsidiaries
for all taxable periods or portions thereof through the
Closing Date.
(vi) All Tax allocation or sharing agreements or arrangements have
been or will be canceled on or prior to the Closing Date. No
payments are or will become due by the Subsidiaries after the
Closing Date pursuant to any such agreement or arrangement.
(vii) Except as set forth on Schedule 4.1(i), none of the Sellers or
the Subsidiaries will, as a result of the transactions
contemplated by this Agreement, be obligated to make a payment
after the Closing Date to an individual that would be a
"parachute payment" as defined in Section 280G of the Code
without regard to whether such payment is reasonable
compensation for personal services performed or to be
performed in the future.
(viii) The Subsidiaries have not participated in or cooperated with
an international boycott within the meaning of Section 999 of
the Code.
(ix) No Subsidiary has filed a consent under Code Section 341(f)
concerning collapsible corporations.
(x) Neither the Subsidiaries nor the Partnership has been a United
States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified
in Code Section 897(c)(1)(A)(ii).
(xi) All monies required to be withheld by either Seller, the
Subsidiaries and the Partnership and paid to Taxing
Authorities for all Taxes have been (i) collected or withheld
and either paid to the respective Taxing Authorities or set
aside in accounts for such purpose or (ii) properly reflected
in the Balance Sheets.
21
(j) Balance Sheets.
--------------
(i) The Balance Sheets have been prepared in accordance with GAAP
applied on a basis consistent with prior periods, except as
described in the notes thereto, which will qualify that the
Partnership and the Subsidiaries have been accounted for as
part of a consolidated financial group with their affiliates
and not as completely separate stand-alone entities.
(ii) The Balance Sheets present fairly, in all material respects,
the financial condition of the combined Partnership and the
Subsidiaries as of June 30, 1999. The books and records of the
Subsidiaries and the Partnership from which the Balance Sheets
were prepared were complete and accurate in all material
respects at the time of such preparation.
(iii) Each Subsidiary and Partnership has no Liabilities, except for
Liabilities (1) reflected in the Balance Sheets, (2) incurred
by the Subsidiaries or the Partnership in the ordinary course
of business and consistent with past practices since the date
of the Balance Sheets, or (3) which are Permitted
Encumbrances, (4) for which the Buyer is being indemnified
hereunder, or (5) which individually amount to a loss or
liability of greater than $100,000 or in the aggregate amount
to a loss or liability of greater than $250,000. As used in
this subparagraph, the term "Liabilities" excludes any
Liabilities not required to be reflected in the Balance Sheets
under GAAP.
(k) Absence of Certain Changes. Except as set forth in Schedule 4.1(k), or
--------------------------
as otherwise contemplated by this Agreement (including without limitation
Sections 2.5 and 2.6), since the close of business on June 30, 1999:
(i) none of the Subsidiaries nor the Partnership has sold, leased,
transferred, or assigned any assets other than surplus
equipment not necessary for operations of the Business having
a value less than $25,000 and for a reasonable consideration;
(ii) the Subsidiaries and Partnership have not incurred, assumed or
become subject to any additional indebtedness for money
borrowed or purchase money indebtedness, including capitalized
leases;
(iii) the Subsidiaries and Partnership have not entered into any
transaction not in the ordinary course of business, except as
contemplated by this Agreement;
(iv) there have been no additional Encumbrances placed on the
assets of the Subsidiaries or the Partnership other than
Permitted Encumbrances;
(v) no event has occurred which constitutes a Material Adverse
Effect;
(vi) none of the Subsidiaries nor the Partnership has made any loan
to, or entered into any contract with (other than severance
agreements for which Seller shall remain responsible), any of
its directors or officers;
22
(vii) no Subsidiary has issued, sold, or otherwise disposed of any
of its interests in the Partnership;
(viii) there has been no change made or authorized to the Charter,
Bylaws or Partnership Agreement of any Subsidiary or the
Partnership;
(ix) none of the Subsidiaries nor the Partnership has canceled,
compromised, waived, or released any debt or Action (or series
of related debts or Actions) involving more than fifty
thousand dollars ($50,000);
(x) none of the Subsidiaries nor the Partnership has delayed or
postponed the payment of accounts payable or other Liabilities
owed either involving more than $50,000 (individually or in
the aggregate), other than amounts which Seller reasonably and
in good faith disputes;
(xi) none of the Subsidiaries nor the Partnership has made any
capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions)
involving more than $50,000, except in connection with
operations conducted pursuant to Section 9.2(f);
(xii) none of the Subsidiaries nor the Partnership has made any
capital expenditure (or series of related capital
expenditures) involving more than $50,000, except in
connection with operations conducted pursuant to Section
9.2(f);
(xiii) none of the Subsidiaries nor the Partnership has entered into
any Contract (or series of related Contracts) involving more
than $50,000 other than (i) to effectuate operations set forth
on Schedule 9.2(f) or (ii) constituting joint operating
agreements or oil and gas leases entered into in the ordinary
course of business or (iii) contracts with officers and
directors for which the Seller shall remain responsible;
(xiv) to Seller's Knowledge, none of the Subsidiaries nor the
Partnership has materially breached any Contract by which it
is bound or to which any of its assets is subject; and
(xv) none of the Subsidiaries nor the Partnership has declared, set
aside, or paid any dividend or made any distribution with
respect to its interests in the Partnership (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any
of its interests in the Partnership, other than in the
ordinary course of business or as contemplated by this
Agreement.
(l) Compliance With Law. Since June 30, 1999, neither the Subsidiaries
-------------------
nor the Partnership has violated any law, statute or regulation which have
subjected them to fines or penalties (nor to Seller's Knowledge have any third
parties violated any Applicable Law for which the Subsidiaries or the
Partnership may have any responsibility) that individually or in the aggregate
exceed $100,000. As of the date of this Agreement, to Seller's Knowledge, the
Subsidiaries and the Partnership are in compliance in all material respects with
all laws, statutes
23
or regulations applicable to the Subsidiaries and the Partnership, except where
the noncompliance with which would not, in the aggregate, result in the
imposition on the Subsidiaries and the Partnership of fines or penalties that
individually or in the aggregate could reasonably be expected to exceed
$100,000.
(m) Operating Assets.
----------------
(i) Seller represents that as of Closing, Seller's and the
Partnership's interests in the Operating Assets shall be free
and clear of any liens other than Permitted Encumbrances.
(ii) To Seller's Knowledge, the Operating Assets are being operated
in compliance in all material respects with all applicable
federal, state or local laws, and the rules and regulations of
any agency or authority having jurisdiction.
(iii) Except as set forth in Schedule 4.1(m)(iii), the Subsidiaries
and the Partnership possess all permits, licenses, orders,
approvals and authorizations required by any applicable law,
statute, regulation or Governmental Order, or by the property
and contract rights of third Persons, reasonably necessary to
permit the operation of the Business in the manner currently
conducted by the Subsidiaries and the Partnership, except
where the failure to possess such permit, license, order,
approval, authorization or rights would not result in losses,
costs or expenses to the Subsidiaries, in the aggregate, in
excess of $100,000. Neither the Subsidiaries nor the
Partnership has received written notice from any Governmental
Authority that any such permit, license, order, approval or
authorization has been, or will be, revoked or terminated.
(iv) Except as set forth in Schedule 4.1(m)(iv), immediately before
the Closing Date, the Subsidiaries and the Partnership will
hold or have the right to use in the Business all of the
assets and properties (including all licenses and agreements)
currently being used (except those disposed of or expiring in
the ordinary course of business or otherwise as contemplated
or permitted by this Agreement) or which are reasonably
necessary to permit the operation of the Business in the
manner currently conducted by the Subsidiaries and the
Partnership. Since June 30, 1999, the Subsidiaries have
conducted no business other than the Business.
(n) No Brokers' Fees. Except for Credit Suisse First Boston, the fees and
----------------
expenses of which will be paid by Seller, neither Seller nor any of its
directors, officers or employees has employed any broker, finder or investment
banker or incurred any Liability for any brokerage fees, commissions, finders'
fees or similar fees in connection with the transactions contemplated by this
Agreement. Buyer shall have no responsibility whatsoever, contingent or
otherwise, for any brokers' or finders' fees incurred by Seller, the
Subsidiaries or the Partnership relating to the Transaction.
24
(o) Suspense Funds. Schedule 4.1(o) is a true and correct list as of
--------------
August 31, 1999 of all amounts held by the Partnership and/or the Subsidiaries
in suspense accounts, or otherwise, related to the Properties for the benefit or
account of any other Person.
(p) Insurance. As listed on Schedule 4.1(p) Seller, the Subsidiaries and
---------
the Partnership maintain insurance on and bonds with respect to the Operating
Assets, as set forth on Schedule 4.1(p), covering such risks and with such
deductible amounts as are consistent with general oil and gas industry practice.
(q) Contracts on Production. Except as set forth on Schedule 4.1(q),
-----------------------
there are no Contracts involving the purchase, marketing, brokering or sale of
Production that require a dedication of Production for a term in excess of three
(3) months that will not be terminable without penalty or other liability at the
sole discretion of the Subsidiaries or the Partnership upon not more than one
(1) month's notice, except for commitments under operating agreements.
(r) Equipment. Since June 30, 1999, neither Seller, the Subsidiaries nor
---------
the Partnership, nor to Seller's Knowledge the operator of any of the Operating
Assets, has removed any of the equipment, facilities or other property from the
Operating Assets except in the ordinary course of business.
(s) Tax Partnerships. Except as disclosed in Schedule 4.1(s), no Property
----------------
is subject to, or considered to be held by, any partnership for federal income
tax purposes, other than tax partnerships under joint operating agreements.
(t) Disclaimer. Except as otherwise expressly set forth in this Article
----------
and elsewhere in this Agreement, Seller and the Affiliates of Seller expressly
disclaim any representations or warranties of any kind or nature, express or
implied, as to the condition, value or quality of the assets or properties
currently or formerly used, operated, owned, leased, controlled, possessed,
occupied or maintained by the Subsidiaries or the Partnership, and Sellers and
all other Tesoro Affiliates specifically disclaim any representation or warranty
of merchantability, usage, suitability or fitness for any particular purpose
with respect to such assets or Properties, or any part thereof, or as to the
workmanship thereof, or the absence of any defects therein, whether latent or
patent, it being understood that such assets and Properties are being acquired
"as is, where is" on the closing date, and in their present condition, with all
faults, and that Buyer shall rely on its own examination and investigation
thereof.
(u) Environmental Matters. Except as set forth on Schedule 4.1(u), to
---------------------
Seller's Knowledge:
(i) There are no underground storage tanks, as defined in
Applicable Environmental Law, on the Properties or any of the
Operating Assets which constitute a violation of Environmental
Law.
(ii) The Operating Assets contain no friable asbestos, mercury or
polychlorinated biphenyls above 50 ppm or other Hazardous
Substances which constitute a violation of Applicable
Environmental Law.
(iii) The Operating Assets have been used solely for oil and gas
operations and related operations. Except for the production,
storage and transportation
25
of oil, gas and other hydrocarbons and the storage and
disposal of brine in the ordinary course of business
consistent with prevailing oil and gas industry practices, the
Properties have not been used to dispose of Hazardous
Substances. No Hazardous Substances have been disposed of that
would cause an adverse material impact to any of the Operating
Assets.
(iv) There have been no spills or releases of any Hazardous
Substance related to the ownership or operation of the
Operating Assets which constitutes a violation of Applicable
Environmental Law, except for matters that have been addressed
and have no continuing adverse consequence to Seller, the
Subsidiaries, the Partnership or the Operating Assets.
(v) There are no Actions pending or threatened against the
Partnership, the Subsidiaries, or either Seller with respect
to any of the Operating Assets relating to the violation of,
liability under, or noncompliance with, any Applicable
Environmental Law; the discharge, disposal or release of a
Hazardous Substance; or the exposure of a Person or property
to a Hazardous Substance. Seller, the Subsidiaries and the
Partnership have no current contingent liability in connection
with the release of Hazardous Substances.
(vi) The Operating Assets have been, and are operating, in material
compliance under all Applicable Environmental Laws.
(vii) Seller, the Subsidiaries and the Partnership have provided (or
within five Business Days from the date hereof will provide)
Buyer all environmental audits, tests, results of
investigations and analyses that have been performed with
respect to the Operating Assets.
(v) Contracts. Except as set forth on Schedule 4.1(v) and in the
---------
Contracts described in Schedule 1B or Section 4.1(q) (other than those set forth
in Schedule 4.1(v)) and in joint operating agreements entered into in the normal
course of business, the Operating Assets are not subject to any instrument,
agreement or other Contract evidencing or related to indebtedness for borrowed
money. All of the existing Contracts between any of the Subsidiaries, the
Partnership and/or either Seller and any of their respective Affiliates with
respect to sales, services or support to any of the Operating Assets or
operations on the Operating Assets shall terminate except for such Contracts
otherwise indicated on Schedule 4.1(v) to survive Closing. Except as set forth
on Schedule 4.1(v) and other than Consents to Assignment or Preferential Rights
to Purchase, to Seller's Knowledge, no Contracts to which Seller, the
Subsidiaries or the Partnership is a party or a successor-in-interest and to
which Buyer will be subject after the Effective Time contain any provision that
prevents Buyer from owning, managing and operating the Operating Assets in
accordance with the Partnership's past practices.
(w) Seismic Information. At Closing, subject to the terms of the License
-------------------
Agreement, neither Seller nor any affiliate of Seller other than the
Subsidiaries and the Partnership shall have
26
any further right to any of the seismic data of the Subsidiaries or the
Partnership which has been assigned or leased to the Subsidiaries, the
Partnership and/or the Buyer.
(x) Xxxxx. Except to the extent set forth on Schedule 4.1(x), to Seller's
-----
Knowledge, no well included in the Properties is subject to material penalties
on allowables because of any overproduction or any other violation of Applicable
Law. Except for the xxxxx included in the Properties and listed in Schedule
4.1(x), there are no xxxxx included in the Properties that Seller, the
Subsidiaries or the Partnership, or to Seller's Knowledge the operator of such
xxxxx, are currently obligated by Applicable Law, Applicable Environmental Law
or order of any Governmental Authority to plug and abandon within a time certain
or that have been shut-in or temporarily abandoned.
(y) Expenditure Obligations. Except as set forth on Schedule 9.2(f), the
-----------------------
Subsidiaries and the Partnership have not executed or are not otherwise
contractually bound by any authority for expenditure with respect to any of the
Operating Assets under any operating agreement, unit operating agreement, or
other similar agreements that will obligate any of the Subsidiaries, the
Partnership or Buyer to pay, after the Effective Time, more than $50,000 for a
single project, operation or expenditure. Except as set forth on Schedule
9.2(f), with respect to authorizations for expenditure relating to any of the
Operating Assets, which obligate any of the Subsidiaries, the Partnership or
Buyer to pay more than $50,000, (i) there are no outstanding calls under such
authorizations for expenditures for payments which are due or which the
Subsidiaries or the Partnership have committed to make which have not been made;
(ii) there are no material operations with respect to which any of the
Subsidiaries and/or the Partnership has become a non-consenting party where the
effect of such non-consent is not disclosed on Exhibit B, and (iii) there are no
commitments for the expenditures of funds for drilling or other capital projects
other than projects with respect to which the operator is not required under the
applicable operating agreement to seek consent.
(z) Payout. To Seller's Knowledge, the payout balances with respect to
------
any of the Properties operated by the Partnership that are subject to future
change on account of reversionary interests, non-consent penalties or similar
agreements or arrangements are set forth on Schedule 4.1(z) and are correct as
of the dates shown on such statements.
(aa) Absence of Certain Changes Regarding Properties. Since June 30, 1999,
-----------------------------------------------
except as listed on Schedule 4.1(k), the Subsidiaries and the Partnership:
(i) have maintained and operated each of the Properties operated
by any of them as a reasonably prudent operator consistent
with prevailing oil and gas industry practice;
(ii) have used reasonable efforts consistent with their past
practices to cause each of the Properties not operated by them
to be maintained and operated in a good and workmanlike manner
and in substantially the same manner as theretofore operated;
27
(iii) have paid timely their share of all costs and expenses
attributable to the Operating Assets, except for such costs
and expenses that they were contesting in good faith by
appropriate action;
(iv) have performed all accounting, royalty disbursement and
reporting requirements, as applicable, related thereto for the
Production; and
(v) have not agreed, whether in writing or otherwise, to take any
action described in this Section 4.1(aa).
(bb) Schedule 1B states all liens and mortgages encumbering the Common
Stock or the Operating Assets securing obligations of Seller, the Subsidiaries
or the Partnership (other than those items listed in clause (ii) through (ix) of
the definition of "Permitted Encumbrances").
4.2 Buyer's Representations. Buyer represents that:
------------------------
(a) Disclosure. To Buyer's Knowledge, the representations and warranties
----------
set forth in this Agreement represent full and fair disclosure as of the date of
this Agreement and the date of Closing and do not contain any untrue statement
of any material fact or omit any material fact necessary in order to make the
facts stated not misleading.
(b) Authorization and Enforceability
--------------------------------
(i) This Agreement and the Transaction have been duly authorized
by Buyer.
(ii) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby or
thereby, will violate or conflict with (1) any provision of
Buyer's Charter or Bylaws, or (2) any applicable statute, law,
regulation or Governmental Order to which Buyer or the assets
or properties of Buyer are bound.
(iii) This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency
or other laws relating to or affecting the enforcement of
creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Except as set forth on Schedule 4.2(b)(iv) or as otherwise
specifically provided herein, the execution, delivery, and
performance of this Agreement (assuming that all applicable
consents are received) will not (A) be in material violation
of any provisions of any regulation, or order or (B) result in
the breach of, or constitute a default under, any material
indenture or other agreement or instrument to which Buyer is
bound.
(v) Except as set forth on Schedule 4.2(b)(v) or as otherwise
specifically provided herein, no consent, waiver, approval,
order or authorization of, notice to, or registration,
declaration, designation, qualification or filing
28
with, any Governmental Authority or third Person, domestic or
foreign, is or has been or will be required on the part of
Buyer in connection with the execution and delivery of this
Agreement or the consummation by Buyer of the transactions
contemplated hereby or thereby, other than where the failure
to obtain such consents, waivers, approvals, orders or
authorizations or to make or effect such registrations,
declarations, designations, qualifications or filings is not
reasonably likely to prevent or materially delay consummation
of the transactions contemplated by this Agreement or prevent
Buyer from performing its obligations under this Agreement.
(c) Organizational Status. Buyer: (i) is a limited liability company duly
---------------------
organized, validly existing and in good standing under the laws of Delaware,
(ii) is duly qualified to transact business in each jurisdiction where the
nature and extent of its business and properties require the same in order for
it to perform its obligations under this Agreement; and (iii) possesses all
requisite authority and power to conduct its business and execute, deliver and
comply with the terms and provisions of this Agreement, to purchase, receive,
and accept conveyance of the Common Stock from Sellers and to perform all of its
obligations hereunder.
(d) Ability to Perform. On the Closing Date, Buyer will have sufficient
------------------
cash, available lines of credit or other sources of immediately available funds
to enable it to make its payment of the Closing Settlement Price at the Closing.
(e) Investment Intent. The Common Stock is being purchased for Buyer's
-----------------
own account and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Buyer understands that the Common Stock has not been registered under the
Securities Act by reason of their issuance in transactions exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) thereof. Buyer is knowledgeable, competent, and experienced in
the oil and gas industry and has independently evaluated and interpreted the
technical data and other information regarding the Operating Assets prior to
entering into this Agreement, understands and is financially able to bear the
risk associated with ownership of the Subsidiaries and the Partnership, and will
independently conduct all the due diligence investigations and reviews of all
matters concerning the Subsidiaries, the Partnership and the Operating Assets as
it deems necessary prior to Closing. Buyer acknowledges that Buyer is not
relying upon any statement or representations made by Seller concerning the
present or future value of, or anticipated income, costs, or profits, if any, to
be derived from, the Subsidiaries, the Partnership or the Operating Assets, and
Buyer has relied solely upon its independent inspections, estimates,
computations, evaluations, reports, studies, knowledge and other information
regarding the Subsidiaries, the Partnership and the Operating Assets.
(f) Litigation. There are no pending or, to Buyer's Knowledge, threatened
------------
suits, actions, proceedings, claims, or investigations that would interfere with
Buyer's ability or right to execute and deliver this Agreement or consummate the
transactions contemplated by this Agreement.
29
(g) No Brokers' Fees. Buyer has incurred no liability, contingent or
----------------
otherwise, for brokers' or finders' fees relating to the Transaction for which
Seller shall have any responsibility whatsoever.
(h) Buyer's Knowledge. To Buyer's Knowledge, on the date hereof, Buyer's
-----------------
representations and warranties made in this Section 4.2 are true and correct in
all material respects.
(i) Tax Matters. Buyer is taxable as a corporation for purposes of
-----------
Federal income tax and is qualified to make an election under Section 338 of the
Code in connection with the transaction.
ARTICLE V. ACCESS TO INFORMATION AND INSPECTION
------------------------------------
5.1 Access to Information. Until the Closing Date, upon reasonable
---------------------
notice, Seller, the Subsidiaries and the Partnership shall (i) afford the
officers, employees and authorized agents and representatives of Buyer
reasonable access during normal business hours to the offices, Operating Assets
and Books and Records and (ii) furnish to the officers, employees and authorized
agents and representatives of Buyer such additional financial and operating data
and other information regarding the assets, Operating Assets and Liabilities of
the Subsidiaries, the Partnership, Pipeline and the Starr Partnerships and the
Business (or legible copies thereof) as Buyer may from time to time reasonably
request, as set forth in this Article V. In addition, Seller shall cause
Pipeline, the Subsidiaries, and the Partnership to each use its reasonable
efforts to obtain for Buyer such access to books and records and other
information regarding the Xxxxx-Xxxxxx Partnership and Starr County Gathering as
Buyer may reasonably request that are not in the possession of the Seller,
Pipeline, the Subsidiaries or the Partnership but in the possession of the third
party partner in the Starr Partnerships.
5.2 Title Files. Promptly after the execution of this Agreement and
-----------
until five Business Days prior to the Closing Date, Seller shall permit Buyer
and its representatives at reasonable times during normal business hours to
examine, in Seller's offices, those title and contract files, permit files,
operating and maintenance files, and related documents, records and materials
concerning the Operating Assets and the assets of Pipeline and the Starr
Partnerships that are now in existence and in the possession of Seller, the
Subsidiaries, the Partnership or Pipeline (except to the extent disclosure of
same is prohibited pursuant to agreements with third parties and with respect to
which Seller has been unable to secure consent to disclose despite its
commercially reasonable efforts to do so), including abstracts of title, title
opinions, title files, ownership maps, lease files, contract files, assignments,
division orders, check vouchers, payout statements and agreements pertaining to
the Operating Assets and the assets of Pipeline and the Starr Partnerships.
Seller shall cooperate with Buyer and provide such assistance as is reasonably
necessary to assist Buyer in determining the validity of the Partnership's title
to the Operating Assets and Pipeline's title to its assets and the assets of the
Starr Partnerships from the information contained in Seller's files.
5.3 Legal Files. Until five Business Days prior to the Closing Date,
-----------
Seller shall make available to Buyer for inspection by Buyer at reasonable times
during normal business hours at their actual location, all legal, evidentiary,
litigation support, records and data in
30
possession of Seller concerning the Subsidiaries, the Partnership, Pipeline or
the Starr Partnerships, except such records or data which Seller the
Subsidiaries, or the Partnership, Pipeline or the Starr Partnerships are
prevented by contractual obligations with third parties from disclosing or which
might be subject to a claim of legal privilege.
5.4 Financial and Accounting Files. Until five Business Days prior to
------------------------------
the Closing Date, Seller shall make available to Buyer for inspection by Buyer
at reasonable times during normal business hours at their actual location, all
financial and accounting records and data in possession of Seller concerning the
Subsidiaries, the Partnership, Pipeline or the Starr Partnerships, except such
records or data which Seller, the Subsidiaries, the Partnership, Pipeline or the
Starr Partnerships are prevented by contractual obligations with third parties
from disclosing or which might be subject to a claim of privilege.
5.5 Warranties As to Documents. Seller shall advise Buyer of the
--------------------------
nature and existence of any confidential documents that might be withheld from
disclosure. Seller does not warrant or represent the accuracy of any materials
that may be made available for Buyer's review, except that Seller does represent
and warrant that it has not and will not conceal or intentionally or willfully
misrepresent or withhold any information, data or materials in its possession
except for confidential information, data or materials, the existence of which
is disclosed as otherwise provided herein.
5.6 Inspections. Promptly after the execution of this Agreement,
-----------
Seller the Subsidiaries and the Partnership, subject to third party operator
approval, shall permit Buyer and its representatives at reasonable times and at
their sole risk, cost and expense, to conduct reasonable inspections of any or
all of the Operating Assets. Buyer shall and does hereby indemnify, release,
defend and hold harmless Seller, the Subsidiaries and the Partnership from and
against any and all losses, costs, damages, obligations, claims, liabilities,
expenses or causes of action relating to personal injuries, death or property
damage arising from Buyer's inspection of the Operating Assets, including claims
and liabilities arising out of Seller's, the Subsidiaries' or the Partnership's
negligence or strict liability.
ARTICLE VI. TITLE
-----
6.1 Buyer's Title Review. Immediately upon execution by both parties
--------------------
hereto of this Agreement, Buyer may, at Buyer's sole cost and expense, pursue
such examination of title to the Operating Assets as Buyer desires. Seller
shall provide reasonable cooperation with Buyer's examination and shall make
files available as provided under Article V. Promptly after completion of
Buyer's title review of any Property, Buyer shall advise Seller of any Title
Defects affecting that Property, to enable Seller to cure any such Title Defects
before Closing, if Seller believes that it is practical to do so. If Seller
should cure any Title Defect during the period of Buyer's review, Seller shall
promptly notify Buyer accordingly and provide Buyer with suitable documentation
of such cure.
6.2 Title Defects. For the purpose of this Agreement, a "Title Defect"
-------------
shall mean (1) any liens, encumbrances, encroachments, defects in or
irregularities in or objections to the Partnership's title to the Properties:
(A) which result in a breach of any warranty or representation made by Seller,
or (B) would result in Buyer receiving less than the NRI stated in
31
Exhibit A for any Property; or (C) would require Buyer to share costs and
expenses with respect to the operation of any Property in amounts greater than
the WI (without a corresponding increase in the NRI) set forth in Exhibit A for
such Property, and (2) other burdens in a category specifically listed in
Section 6.2(a), but not (3) those burdens specifically excluded in Section
6.2(b).
(a) Title Defects shall include the following:
(i) The Partnership's title to any Property, is subject to an
outstanding mortgage, deed of trust, lien or encumbrance or
other adverse claim which is not a Permitted Encumbrance;
(ii) Any Property (or any of the Subsidiaries or the Partnership)
is affected by any suit, action or other proceeding before any
court or government agency which is not listed on Schedule
4.1(g);
(iii) Any Property is subject to any take-or-pay contract, gas
balancing agreement, production payment or other contract or
agreement under which payment in full to the owners of the
Property will not be made for any sales of their NRI share of
future oil or gas production at or about the time such oil or
gas is produced, and which is not listed on Schedule 1B;
(iv) A default of the Partnership or the Subsidiaries exists under
some provision of a lease or other Contract affecting a
Property, which default will not be cured prior to or at the
Closing;
(v) The rights and interests of the Partnership in a Property are
subject to being reduced by virtue of the exercise by a third
party of a reversionary interest, back-in interest,
Preferential Right to Purchase, Consent to Assignment or
similar right or interest, which is not a Permitted
Encumbrance;
(vi) The Partnership's title to any lease affecting a Property or
any well covered by any lease (including any well within any
pooled, unitized or communitized area, covering or including
any lease) (a "Well") is not Record Title;
(vii) Other than as set forth on Schedule 6.2(b), there are no
obligations to engage in continuous development operations to
maintain in force or to retain all rights to the lease
creating the Partnership's working interest in a Well listed
in Exhibit A;
(viii) Other than as set forth on Schedule 6.2(b), the lease or other
Contract affecting a Property has an expiration date which
occurs less than ninety (90) days following the Closing Date;
(ix) The Subsidiaries, the Partnership or the Operating Assets are
subject to a contract or agreement (except contracts
containing terms that are
32
customary in the oil and gas exploration and production
industry) which materially and adversely affects the value of
the interest affected; and
(x) Any matter constituting a Seller Initiated Title Defect under
the provisions of Section 9.13.
(b) For each lease or other similar interest, or other Contract affecting
a Property, a "Title Defect" shall also mean any fact, circumstance, or
occurrence that causes any of the following statements to be untrue in any
material respect:
(i) the lease or Contract affecting a Property is, and has been
maintained, in force and effect according to its terms;
(ii) the Partnership have paid or caused to be paid all royalties,
delay rentals, shut-in royalties, minimum royalties, and other
payments due under the lease or other Contract affecting such
Property;
(iii) no party to the lease or other Contract affecting such
Property is in breach or default of its obligations under the
lease or other Contract;
(iv) no event, fact, or circumstance has occurred that, with the
lapse of time, the giving of notice, or both, would constitute
a breach of the lease or other Contract affecting such
Property;
(v) neither the Partnership nor any other party to the lease or
other Contract affecting a Property has given or threatened to
give notice of a claim or action to terminate, cancel, rescind
or procure a judicial reformation of the lease or other
Contract affecting such Property or any contract to which the
lease or other Contract affecting such Property is subject;
(vi) other than as set forth on Schedule 6.2(b), no provision of
the lease or other Contract affecting a Property or any
contract to which the lease or other Contract affecting such
Property is subject will increase the royalty share of the
lessor;
(vii) In addition, if either of the following statements is untrue
with respect to a lease or other Contract affecting a
Property, Buyer may elect to treat as a Title Defect the fact,
circumstance, or occurrence that causes the statement to be
untrue:
(A) Other than as set forth on Schedule 6.2(b), there has
been substantial compliance with the Applicable Laws of any
Governmental Authority having jurisdiction over the
Properties, such that there is not substantial risk of loss of
any lease or other Contract affecting a Property or the value
thereof; or
(B) Other than as set forth on Schedule 6.2(b) and Schedule
4.1(g), no Action exists that will or reasonably may result in
loss, diminution, or
33
impairment of the Partnership's title to any lease or other
Contract affecting a Property or the use, operation, or value
thereof.
(c) Title Defects shall not include the following:
(i) Any Permitted Encumbrances;
(ii) Any prior oil and gas lease in favor of third parties
affecting a Property which was not released of record, but
which the records of the applicable regulatory agencies
reflect did not continually produce (either directly or on
lands with which such lease has been pooled or unitized) oil
and gas in commercial quantities during any consecutive period
of more than one year after the expiration of its primary
term;
(iii) Any consents of governmental agencies to the assignment of
Properties or permits or licenses that are customarily
obtained by participants in the oil and gas industry after an
assignment, and it is reasonable to believe such consent will
be obtained in the ordinary course of business;
(iv) Any rights of third parties to receive overriding royalty
interests through Seller's Xxx Xxxx Field royalty pool
(described on Schedule 6.2(c)(iv));
(v) Any failure of the Partnership or their predecessors to obtain
affidavits of use and possession, affidavits or heirship or
affidavits of non-production;
(vi) Any failure to obtain division orders or transfer orders from
any co-owner in a Property;
(vii) Any unsubordinated lien encumbering the interest of a lessor
or other predecessor in the Partnership's chain of title to a
Property, unless the obligation secured by such lien is in
default, or the lien otherwise creates a substantial risk of a
loss of the Property;
(viii) Any Preferential Right to Purchase a Property;
(ix) Any rights of third parties to be elected as operator of any
Property under the terms of an existing operating agreement or
related agreement; or
34
(x) Any other minor irregularity for which oil and gas operators
customarily waive requirements in division order title opinions.
6.3 Procedures To Determine Property Value Adjustments For Title Defects.
--------------------------------------------------------------------
(a) Notice Of Title Defects. Not later than ten (10) Business Days prior
-----------------------
to the Closing Date, Buyer will conclude Buyer's title review and provide a
notice to Seller describing all asserted Title Defects. To be effective,
Buyer's written notice must describe each Title Defect, including: (i) the
Property affected by such Title Defect; (ii) a description of the matter
constituting the asserted Title Defect; (iii) supporting documents reasonably
necessary for Seller to verify the existence and nature of such asserted Title
Defect; and (iv) the amount of any Property Value Reduction asserted to be
attributable to such Title Defect. Buyer shall also notify Seller, and Seller
shall notify Buyer, of any increases revealed by Buyer's title review in the
Partnership's NRI stated on Exhibit A for any Property, including: (i) the basis
for such increase in ownership interest; (ii) the amount of the increase in the
Partnership's interest; and (iii) the corresponding increase to the Settlement
Price arising by reason of such increased ownership interest, calculated in the
same manner as decreases are calculated under Section 6.4(a). Subject to
Section 9.13 below, Buyer and Seller shall not be entitled to any adjustment to
the Settlement Price for any matters not described in a written notice of Title
Defect delivered to the other party at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
-----------------
Buyer's notice of Title Defects, Seller shall provide Buyer with Seller's
response to such notice and any increases revealed by Seller's title review in
the Partnership's NRI stated on Exhibit A for any property. If Seller disputes
any asserted Title Defect, Seller's response shall state the basis for Seller's
position that such Title Defect should not be asserted. If Seller intends to
cure a Title Defect before Closing, Seller's response shall so state and
describe the manner by which such Title Defect shall be cured. If Seller
proposes to cure a Title Defect after Closing, Seller's response shall describe
the manner by which such Title Defect shall be cured. If Seller disputes the
amount asserted by Buyer for any Property Value Reduction under Section 6.4,
then Seller's response shall state the basis for such dispute and the amount
that Seller contends should be the correct Property Value Reduction. Seller's
response shall include all supporting information required to substantiate
Seller's positions.
(c) Discussions Between the Parties. The Parties shall negotiate in good
-------------------------------
faith to resolve any disputed issues concerning Title Defects or
Property Value Reductions or Property Value Increases between the xxxx
Xxxxxx delivers its response and the Closing Date, in order to agree
upon the aggregate Title Price Adjustment for all Title Defects. The
Closing Settlement Price shall reflect the terms so negotiated by the
Parties. Without limitation, one or more of the following procedures
may be used with respect to particular outstanding or disputed Title
Defects and corresponding Property Value Reductions or Property Value
Increases:
(i) If any Property is burdened by a Title Defect which may be cured
by Seller after Closing and if there is a Title Price Adjustment,
then Seller may propose to cure such Title Defect at its own
expense after Closing. If the Property Value Reduction to be
paid by Buyer to Seller for such Title
35
Defect is the entire Allocated Value of the Property, then the
Property shall be excluded from the Operating Assets to be owned
by the Subsidiaries and the Partnership at Closing, Buyer may
withhold from the Settlement Price the Allocated Value of the
Property and Seller shall instead, effective as of the day before
the Closing Date, assign that Property to a different subsidiary
of Seller, and (unless and until such Property is reconveyed to
the Partnership pursuant to other provisions herein) Seller shall
indemnify Buyer against any liabilities, costs and expenses of any
kind relating or arising in any fashion from such Property. If
within an agreed upon period not to exceed two (2) months, Seller
cures the Title Defect to Buyer's reasonable satisfaction, Buyer
shall pay Seller the amount withheld from the Settlement Price for
such Title Defect, as determined above, and Seller's subsidiary
shall deliver an assignment of such Property to Buyer. If the
Title Defect is not cured to Buyer's reasonable satisfaction
within such period, the Buyer shall make no further payment for
such Property, and Seller's subsidiary shall not be required to
assign the Property to Buyer. If the Title Defect is partially
cured, then Buyer shall pay Seller the amount withheld from the
Settlement Price, as determined above, allocable to the cured
portion of the Title Defect, Buyer shall retain the remainder of
such proceeds and Seller's subsidiary shall assign to Buyer the
portion of the Property allocable to the cured portion of the
Title Defect.
(ii) If at Closing, the Parties reasonably disagree upon the existence
or amount of a Property Value Reduction attributable to a Title
Defect asserted by Buyer which is not a liquidated amount as set
forth in Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then the Parties may nevertheless mutually elect to
proceed to Closing as scheduled and to resolve the correct amount
of such Property Value Reduction after Closing. In such an
instance, Seller shall deliver to the escrow agent for the escrow
account, instruments executed by the Partnership, dated effective
as of the day before the Closing Date, individually assigning to
another subsidiary of Seller each Property subject to the Title
Defects for which the Parties have agreed to resolve the correct
amount of such Property Value Reduction after Closing, and the
applicable Property Value Reduction used for computing the Closing
Settlement Price shall be the Allocated Value of each such
Property. Such Allocated Value amounts shall instead be paid into
the escrow account. If within an agreed period (not to exceed
sixty (60) days), Seller and Buyer agree upon the correct amount
of a Property Value Reduction, the escrow agent shall be
instructed to deliver the assignment of such Property to Buyer,
and to pay the Buyer the Property Value Reduction agreed upon and
to pay to Seller the remaining portion of the Allocated Value for
such Property. Each Party shall also be entitled to receive its
proportionate part of any earned interest allocable to the amounts
paid by the escrow agent, and they shall bear any escrow fees and
expenses equally. If during such period, the Parties do not agree
upon the correct amount of a Property Value
36
Reduction and neither Party has requested that such value be
determined by Arbitration under Section 21.16, then the escrow
agent shall deliver to Seller the assignment for the Property
burdened by such uncured Title Defect, and shall return to Buyer
the escrowed proceeds, including accrued interest, but deducting
any applicable escrow fees. Such Property shall be excluded from
the sale hereunder shall instead be assigned to Seller's other
subsidiary, and Seller shall indemnify Buyer against any
liabilities, costs and expenses of any kind relating or arising in
any fashion from such Property. If the value has been submitted to
Arbitration under Section 21.16, then promptly after the
Arbitator's ruling, the Parties shall deliver instructions
directing the escrow agent to perform in accordance with such
ruling.
(iii) If the Parties reasonably and in good faith disagree upon the
amount of a Property Value Reduction attributable to a Title
Defect asserted by Buyer, which is not a liquidated amount as set
forth in Section 6.4(a) and (b), and if there is a Title Price
Adjustment, then either Party may elect to have the disagreement
resolved by Arbitration in accordance with Section 21.16.
6.4 Property Value Adjustment For Title Defects. The amount of a Property
-------------------------------------------
Value Adjustment for each Title Defect shall be computed as follows:
(a) If the Title Defect consists of the Partnership owning a lesser NRI
than that set forth on Exhibit A (together with a proportionate
reduction in the WI for the Partnership), and if the Title Defect may
be cured by making a correction to the WI and a proportionate change
to the NRI, then the corresponding Property Value Reduction shall be
computed as an amount equal to the difference between the Allocated
Value of the Property stated in Exhibit A and the proportionately
reduced value of such Property with the correct adjusted interests.
Likewise, if the Parties determine that the Partnership's title to any
Property is greater than that set forth on Exhibit A, a Property Value
Increase shall be computed as an amount equal to the difference
between the Allocated Value of the Property stated in Exhibit A and
the proportionately increased value of such Property with the correct
adjusted interests. Such proportionately reduced or increased value
shall be determined by multiplying the Allocated Value of such
Property stated in Exhibit A by a fraction, the numerator of which is
the NRI in such Property actually owned by the Partnership, and the
denominator of which is the NRI in such Property set forth on Exhibit
A. If the Property, or any well included therein, has different BPO
and APO interests in effect on the Effective Time, and the asserted
Title Defect or Property Value Increase has different effects on the
BPO and APO interests, then the Parties shall in good faith agree upon
an allocation of the proportionately reduced or increased values
between the BPO and APO interests in proportion to the respective
values that should be assigned to the BPO and APO interests in
accordance with recognized reservoir engineering valuation principles.
(b) If a Title Defect concerns a lien, encumbrance, charge or other defect
which is liquidated in amount, then the corresponding Property Value
Reduction shall be
37
based upon the monetary amount needed to pay the obligee to remove the
Title Defect from the Property at Closing.
(c) If any Title Defect is asserted as a result of a claim, demand,
encumbrance or other defect reducing the value of a Property for which
the potential economic detriment to the Partnership is not liquidated,
as provided in subparagraphs (i) or (ii) above, but the appropriate
amount may be estimated with reasonable certainty by the Parties, then
the Parties may mutually agree upon an acceptable amount by which the
Title Defect will reduce the Allocated Value of the interest in the
Property owned by the Partnership, and that agreed upon amount shall
be the Property Value Reduction attributable to such Title Defect.
(d) If any Title Defect other than one described under subparagraphs (i),
(ii) or (iii) above is asserted affecting a Property, then that
Property shall be excluded from the sale hereunder, the Partnership
shall execute an instrument, dated effective as of the day before the
Closing Date, assigning that Property to another subsidiary of Seller,
the Property Value Reduction attributable to such Title Defect shall
be equal to the Allocated Value of such Property stated in Exhibit A,
and Seller shall indemnify and hold the Partnership, the Subsidiaries
and the Buyer harmless against any Damages related to such Property.
(e) The Property Value Reduction with respect to a Title Defect shall
be determined without duplication of any costs or losses included in
another Title Defect hereunder. For example, but without limitation,
if a lien affects more than one Title Defect or the curative work with
respect to one Title Defect results (or is reasonably expected to
result) in the curing of any other Title Defect affecting the same or
another Title Defect, the amount necessary to discharge such lien or
the cost and expense of such curative work shall only be included in
the Property Value Reduction for one Title Defect and only once in
such Property Value Reduction.
(f) The Property Value Reduction attributable to a Title Defect or any
portion thereof shall not exceed the portion of the Purchase Price
allocated to such Title Defect Property Value Reduction. For example,
but without limitation, if the Subsidiaries or the Partnership do not
own fifty percent (50%) of the NRI for a Property and such unowned
fifty percent (50%) interest is also burdened by a lien, the Property
Value Reduction for such Property shall not exceed the portion of the
Purchase Price allocable to such fifty percent (50%) interest,
notwithstanding that it may be affected by multiple Title Defects.
6.5 Preferential Rights and Consents to Assignment.
----------------------------------------------
(a) Preferential Rights to Purchase. Promptly after execution of this
-------------------------------
Agreement, Seller shall cause the Partnership to contact all third Persons who
Seller reasonably believes may hold an enforceable Preferential Right to
Purchase any Property that would be triggered by reason of the Transaction. The
Partnership shall provide such third Persons with the documentation required
under existing agreements and allow them to determine whether or not they should
exercise or waive such Preferential Right to Purchase. Seller shall provide
reasonable
38
advance notice to Buyer of the Properties and interests therein for which third
Persons may be given the opportunity to exercise Preferential Rights to
Purchase, and Seller shall keep Buyer reasonably apprised of the status of
dealings with such third Persons. If Buyer believes that any such third Person
does not hold a valid Preferential Right to Purchase such Property that would be
triggered by the Transaction, Buyer must promptly provide Seller with notice of
Buyer's objection to any proposed exercise of that Preferential Right to
Purchase, and in such case, the Parties shall negotiate in good faith to
determine a mutually acceptable procedure for handling such questioned
Preferential Rights to Purchase. Similarly, without affecting any other right of
Buyer hereunder, if Buyer believes that other valid and enforceable Preferential
Rights to Purchase exist that are not on the notices sent to Buyer by Seller,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Preferential Rights to Purchase. Whenever any third Person elects to
exercise a Preferential Right to Purchase any Property, Seller shall provide
Buyer with prompt notice, listing the interest purchased and the amount received
from such third Person. In such an instance, the interest in any such Property
that is sold to such a third Person before Closing shall be removed from the
Operating Assets, and the Settlement Price shall be reduced by the Allocated
Value attributable to such interest, and in such case Seller shall indemnify the
Partnership, the Subsidiaries and the Buyer against any Liabilities relating to
such Property; if the interest so removed is less than the Partnership's entire
interest in the Property, then the Allocated Value of the Property shall be
proportionately reduced in accordance with the formula set forth in Section
6.4(a). Seller shall use reasonable efforts to cause the Partnership to obtain
the exercise or waiver before Closing of all Preferential Rights to Purchase;
provided however, that if on the Closing Date any valid Preferential Right to
Purchase should exist which shall not have been exercised or waived, and the
time for exercise of which has not yet passed, Buyer shall obtain at Closing
Seller's entire outstanding interest in the Property, subject to such
Preferential Right to Purchase, and Buyer and Seller shall cooperate in good
faith to honor such third Person's rights. In such case, if the holder of such
Preferential Right to Purchase should propose to exercise the same while it
remains valid and enforceable as a result of the Transaction, then Buyer shall
cause the Partnership to assign the affected interest to such third Person and
Buyer, through the Partnerships and the Subsidiaries, shall be entitled to the
proceeds attributable to the sale of such interest to the third Person, and in
such case Seller shall indemnify the Partnership, the Subsidiaries and the Buyer
against any Liabilities relating to such Property, except during the period the
Partnership is owned by Buyer and the Partnership own the Operating Assets.
(b) Consents to Assignment. Promptly after execution of this Agreement,
----------------------
Seller shall cause the Partnership to contact all third Persons who Seller
reasonably believes may hold an enforceable Consent to Assignment affecting a
Property, which would be triggered by reason of the Transaction. Seller shall
cause the Partnership to provide such third Persons with the documentation
required under existing agreements and to use reasonable efforts to persuade
them to consent to the assignment to Buyer of Seller's interest in the
Partnership and the Subsidiaries; provided, however, that Buyer shall not be
required to pay any funds, offer any concessions, amend any existing agreement
or resolve any disputed issues as a requisite of obtaining a consent to any
assignment. Seller shall provide reasonable advance notice to Buyer of the
Properties and interests therein for which third Persons may be requested to
consent to the assignment of the Partnership's interest to Buyer, and Seller
shall keep Buyer reasonably apprised of the status of dealings with such third
Persons. If Buyer believes that any such third Person does not hold a
39
valid and enforceable Consent to Assignment that would be triggered by the
Transaction, Buyer must immediately provide Seller with notice of Buyer's
objection to any proposed request for such third Person's consent to Seller's
assignment to Buyer, and in such case, the Parties shall negotiate in good faith
to determine a mutually acceptable procedure for handling such questioned
Consent to Assignment. Similarly, if Buyer believes that other valid and
enforceable Consents to Assignment exist that are not on the notices sent to
Buyer by Seller, then without limitation of Buyer's other remedies hereunder,
Buyer shall promptly send notice to Seller, and the Parties shall negotiate in
good faith to determine a mutually acceptable procedure for handling such
questioned Consents to Assignment. Seller shall use reasonable efforts to obtain
before Closing all required consents to the assignment of its interests in the
Subsidiaries and the Partnership to Buyer hereunder. Seller shall provide Buyer
with prompt notice whenever any third party consents or refuses to consent to
Seller's assignment of its interest in the Subsidiaries or the Partnership. If
ten (10) days before the Closing Date, Seller has not obtained a required
consent to assignment of its interests in the Subsidiaries or the Partnership
that reduces the value of the Subsidiaries' or the Partnership's interests in a
Property, then Buyer may assert that Consent to Assignment as a Title Defect to
the Property so affected. In determining whether a failure to obtain a required
consent to assignment reduces the value of the Subsidiaries' or the
Partnership's interests in a Property, the following standards shall control:
(i) If the terms of the Consent to Assignment expressly state that
any such assignment shall be invalid or create a reversion to a
prior owner if consent is not obtained, then any failure to
obtain such required consent shall reduce the value of the
Subsidiaries' and the Partnership's interests in the affected
Property, unless such terms also reflect that such required
consent may not be unreasonably withheld or may be withheld only
if Buyer does not meet certain financial or technical standards;
and
(ii) If the terms of the Consent to Assignment do not expressly state
that any failure to obtain the consent shall cause an assignment
to be invalid or create a reversion to a prior owner, then any
failure to obtain such required consent shall be considered to
reduce the value of the Subsidiaries' or the Partnership's
interests in the affected Property only if Buyer, the
Subsidiaries or the Partnership would incur a liability due to
the Parties' failure to obtain such required consent prior to
Closing.
(c) Governmental Consents. After the execution of this Agreement, and upon
---------------------
Closing and thereafter, Buyer and Seller shall cooperate to obtain all routine
or standard governmental consents or waivers necessary to transfer Seller's
rights and interests in the Subsidiaries and the Partnership owning the
Operating Assets to Buyer. Without limiting the foregoing, each Party (i) will
file any Notification and Report Forms and related material that such Party may
be required to file under the HSR Act, (ii) will use their best efforts to
obtain an early termination of the applicable waiting period, (iii) and will
make any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith. Such governmental consents or waivers shall
not form the basis for any Title Defect, unless it is reasonable to believe that
consent will not be obtained in the ordinary course of business.
ARTICLE VII. ENVIRONMENTAL
-------------
40
7.1 Disclosures and Availability of Data to Buyer. The Operating Assets
---------------------------------------------
have been utilized by the Partnership for the purposes of exploration,
development and production of oil and gas, for related oilfield operations and
possibly for the storage and disposal of waste materials or hazardous substances
generated or otherwise used in association with oil and gas exploration and
production activities on the Properties. The Operating Assets also may contain
buried pipelines, the locations of which may not now be known by Seller or
readily apparent by a physical inspection of the Operating Assets. In addition
to providing any environmental audits and studies as per Section 4.1(u), Seller
shall make available to Buyer Seller's historical files regarding the foregoing
operations, to the extent available and to the extent Seller, the Subsidiaries
and the Partnership are authorized to disclose same (excepting documents which
Seller, the Subsidiaries or the Partnership are contractually prohibited from
disclosing or are subject to legal privilege or are in the possession of another
operator, and with respect to which Seller been unable to secure consent to
disclose despite its commercially reasonable efforts to do so).
7.2 NORM. Without affecting Seller's representations and warranties or the
----
provisions of Section 7.3, Buyer acknowledges that some or all of the Operating
Assets may contain naturally occurring radioactive materials ("NORM"), and that
NORM is an anticipated hazard in oil and gas production operations. Certain of
the Operating Assets, including without limitation, pipe and equipment may have
deposits that contain NORM. Buyer agrees that it shall cause the Partnership to
properly handle and dispose of all materials containing NORM in a safe manner in
accordance with all applicable laws and regulations, at their sole risk,
liability and expense.
7.3 Environmental Conditions.
------------------------
(a) Definition. For any Operating Asset, an "Environmental Condition"
----------
shall mean any fact, circumstances or condition present in or with respect to
such Operating Asset as of the Effective Time and the Closing Date (i) that
constitutes a breach of any environmental representation or warranty in Section
4.1(u) of this Agreement or would have been a breach but for being listed on
Schedule 4.1(u) of this Agreement, (ii) that violates any Applicable
Environmental Law, (iii) that results in any liability to any Person, contingent
or otherwise related to pollution or the protection of human health and the
environment under any Applicable Environmental Law or (iv) that results from a
spill or release of any Hazardous Substance, petroleum or brine which spill
constitutes a violation of any Applicable Environmental Law or Contract, as such
Contracts are in effect as of the Closing Date.
(b) Specific Exclusions. Environmental Conditions shall in no event
-------------------
include any of the following conditions:
(i) Basic Sediment and Water (BSW) and similar materials contained
inside storage tanks and tank bottoms;
(ii) Produced substances contained within firewalls surrounding
tanks and equipment, provided that such substances have not
contaminated, or do not pose a potential risk of contamination
of the groundwater;
(iii) Materials in or from pits which have been disposed of and
closed in accordance with all laws and regulations;
41
(iv) Existing tanks, pits, disposal xxxxx, and materials contained
therein which are in compliance with regulatory and permit
requirements;
(v) Plugging and abandonment requirements for any xxxxx which are
in compliance with regulatory and permit requirements;
(vi) Conditions arising from or relating to use of the surface
estate for any purpose other than oil and gas production,
gathering, transportation or processing for which the
Subsidiaries and the Partnership could not have any liability;
or
(vii) Any condition listed on Schedule 7.3(b)(vii).
7.4 Responsibilities for Remediation of Contamination. As between the
-------------------------------------------------
parties hereto, but subject to the provisions of applicable laws, joint
operating agreements, other third party agreements and the indemnities and other
provisions set forth herein, from and after the Closing, the Partnership shall
remain responsible for costs of remediation of all Environmental Conditions
occurring on or arising from any Operating Asset at any time, whether before, on
or after the Effective Time; provided however, that Seller shall fund payment of
any fines or regulatory penalties that might be assessed against the Partnership
by reason of any violation of regulatory or permit requirements before the
Closing Date.
7.5 Environmental Assessment. Before Closing, Buyer may perform an
------------------------
environmental assessment of any of the Operating Assets, at its own risk and
expense. Seller will cooperate with Buyer (and its representatives) to enable
Buyer to gain reasonable access to the Operating Assets to conduct the
environmental assessment; provided that Seller may require Buyer and its
representatives to comply with Seller's, the Subsidiaries, the Partnership
and/or any operator's safety procedures, and may require any inspector to
provide a reasonable access and confidentiality agreement. Buyer shall provide
Seller three (3) days prior notice of a desired date(s) for such assessment, the
proposed locations, and the anticipated scope of any testing or other
activities. Seller shall have the right to be present during any assessment,
and Buyer shall provide Seller with an invoice setting forth the costs incurred
in obtaining such analysis or report. If Seller pays Buyer one-half of such
costs, Buyer shall provide to Seller a copy thereof within three (3) days of
Buyer's receipt of such payment. Seller and Buyer shall treat all information
regarding any Environmental Condition as confidential, whether material or not
(unless such information is disclosed on an anonymous basis), and shall not make
any contact with any Governmental Authority or third party regarding same
without the other Party's written consent, unless required by Applicable Law.
Seller shall have the right to be present during any inspection of the
Properties and shall have the right, at its option and expense, to split samples
with Buyer.
42
7.6 Environmental Condition Value Reduction For Environmental Conditions.
--------------------------------------------------------------------
The amount of an Environmental Condition Value Reduction for each Environmental
Condition, and the aggregate Environmental Price Adjustment for all
Environmental Conditions shall be computed as follows:
(a) If the Environmental Condition may be cured by obtaining a required
permit, which can be reasonably obtained, then the Environmental
Condition Value Reduction shall be based upon a reasonable projection
of the costs attributable to the Partnership's interest that will be
required to obtain such permit, including reasonable design and
consultants fees for obtaining the permit, the costs of any
modifications to the Operating Asset (and any diminution in value of
the affected Operating Asset which may result from such modification)
that are anticipated to be required in order to obtain the permit, and
any fines or penalties that are reasonably anticipated to be owed for
delays until 30 days after the Closing Date in obtaining the permit.
(b) If the Environmental Condition may be cured by an environmental
remediation program, then the Environmental Condition Value Reduction
shall be based upon a reasonable projection of the costs attributable
to the Partnership's interest that will be required to design,
implement and complete a reasonable environmental remediation program,
together with any fines or penalties that are reasonably anticipated
to be owed for delays until 30 days after the Closing Date in
commencing remediation and any other adverse effect on the Property
affected thereby.
(c) If the Environmental Condition may be cured through modifications to
the Operating Asset, then the Environmental Condition Value Reduction
shall be based upon a reasonable projection of the costs attributable
to the Partnership's interest that will be required for such
modifications to the Operating Asset and any other adverse effect on
the property affected thereby.
(d) If any Environmental Condition may not be cured in a manner set forth
in subparagraphs (i), (ii) and (iii) above, then the Environmental
Condition Value Reduction shall be an amount reasonably determined to
reflect the reduction in market value of the Operating Asset by reason
of such Environmental Condition.
7.7 Procedures To Determine Environmental Price Adjustment.
------------------------------------------------------
(a) Buyer's Notice of Environmental Conditions. Not later than ten (10)
------------------------------------------
Business Days prior to the Closing Date, Buyer shall provide a notice to Seller
describing all asserted Environmental Conditions which Buyer deems to be
unacceptable and shall provide evidence thereof. To be effective, Buyer's
written notice must describe each asserted Environmental Condition, including
(i) the Property affected by such asserted Environmental Condition; (ii) a
description of the matter constituting the asserted Environmental Condition;
(iii) supporting documents reasonably necessary for Seller (or an environmental
consultant hired by Seller) to verify generally the existence, extent and nature
of such asserted Environmental Condition; (iv) any requirements asserted by
Buyer as being required to cure such Environmental Condition; (v) the amount of
any Environmental Condition Value Reduction asserted to be attributable to
43
such Environmental Condition; and (vi) the manner by which such Environmental
Condition Value Reduction was determined, together with supporting detail. Buyer
shall not be entitled to any Environmental Price Adjustment to the Settlement
Price for any matters not described in a written notice of Environmental
Conditions delivered to Seller at least ten (10) Business Days prior to the
Closing Date.
(b) Seller's Response. Within five (5) Business Days after receipt of
-----------------
Buyer's notice of Environmental Conditions, Seller shall provide Buyer with
Seller's response to such notice. If Seller disputes any asserted Environmental
Condition, Seller's response shall state the basis for Seller's position that no
such Environmental Condition should be asserted. If Seller intends to cure any
Environmental Condition before Closing at its expense, Seller's response shall
so state and describe the manner by which such Environmental Condition shall be
cured. If Seller disputes the amount asserted by Buyer for any Environmental
Condition Value Reduction, then Seller's response shall state the basis for such
dispute and the amount that Seller contends should be the correct Environmental
Condition Value Reduction. If Seller intends to indemnify Buyer against all
risks associated with such Environmental Condition, Seller's notice shall state
the same. Seller's response shall include all supporting information required
to substantiate Seller's positions.
(c) Discussions Between the Parties. The Parties shall negotiate in good
-------------------------------
faith to resolve any disputed issues concerning Environmental Conditions or
Environmental Condition Value Reductions between the xxxx Xxxxxx delivers its
response and the Closing Date, and to agree upon the aggregate Environmental
Price Adjustment for all Environmental Conditions. The Closing Settlement Price
shall reflect the terms so negotiated by the Parties. Without limitation, the
Parties may agree to one or more of the following procedures with respect to
particular outstanding or disputed Environmental Conditions and corresponding
Environmental Condition Value Reduction:
(i) If any Property is burdened by an Environmental Condition which
may be cured by the Partnership before Closing, then the parties
may mutually agree to allow the Partnership to cure such
Environmental Condition at Seller's expense before Closing. In
such case, no Environmental Condition Value Reduction shall be
asserted for such Environmental Condition, but the costs of such
cure shall not be deducted in computing the Settlement Price.
(ii) If Seller and Buyer agree for Buyer to retain the risks
associated with such Environmental Condition, then Seller and
Buyer may negotiate the terms of a mutually acceptable agreement
to be delivered by Seller to Buyer at Closing, whereby Seller
would indemnify and defend Buyer against any and all risks,
losses, claims and damages that might be incurred by Buyer, the
Subsidiaries or the Partnership as a result of the Environmental
Condition. In such case, no Environmental Condition Value
Reduction shall be asserted for such Environmental Condition.
(iii) If at Closing, there is an Environmental Price Adjustment and
the Parties disagree upon the amount of an Environmental
Condition Value Reduction attributable to an Environmental
Condition asserted by Buyer, for which
44
Seller and Buyer do not agree for Seller to provide an indemnity
to Buyer, then the Parties may nevertheless mutually elect to
proceed to Closing as scheduled and to resolve the correct amount
of such Environmental Condition Value Reduction after Closing. In
such an instance, the Partnership shall execute an instrument,
dated effective as of the day before the Closing Date, assigning
to another subsidiary of Seller each Property subject to the
Environmental Conditions for which the Parties have agreed to
resolve the correct amount of such Environmental Condition, and
Seller shall deliver such instrument(s) to the escrow agent for
the escrow account. In such event, Seller shall indemnify the
Partnership, the Subsidiaries and the Buyer for and against all
Liabilities relating to such Property unless and until such
property is reconveyed to the Partnership pursuant to further
provisions hereof. Further, the Settlement Price paid to Seller
at Closing shall be reduced by the amount of the Allocated Value
of the Property burdened by such Environmental Conditions. Such
amount of the Environmental Price Adjustment amount shall instead
be paid into the escrow account. If within an agreed period (not
to exceed sixty (60) days) Seller and Buyer agree upon the
correct amount of a Environmental Condition Value Reduction, the
escrow agent shall be instructed to deliver the assignment of
such Property to Buyer together with the amount of the agreed
upon Environmental Condition Value Reduction, and to pay to
Seller the remainder of the Allocated Value for such Property,
plus any earned interest, but less any associated escrow fees and
expenses. If during such period, the Parties do not agree upon
the correct amount of an Environmental Condition Value Reduction,
then the escrow agent (1) shall, pursuant to Seller's directions,
either deliver the assignment for the Property burdened by such
uncured Environmental Condition to Seller's subsidiary or destroy
such assignment, and (2) shall return to Buyer the escrowed
proceeds, including accrued interest, but deducting any
applicable escrow fees. If the Seller instructs the escrow agent
to deliver the assignment of the Property to Seller's subsidiary,
such Property shall be excluded from the sale hereunder; if the
Seller instructs the escrow agent to destroy the assignment of
the Property, such Property shall be included in the Operating
Assets of the Partnership that are within the sale hereunder, but
the Settlement Price shall not reflect any amounts allocable to
such Property.
(iv) If at Closing, there is an Environmental Price Adjustment and the
Parties reasonably disagree upon the existence or amount of an
Environmental Condition Value Reduction attributable to an
Environmental Condition asserted by Buyer and if the Parties do
not elect to place proceeds in escrow, then the Parties shall
resolve such disagreement in accordance with Section 21.16.
ARTICLE VIII. CASUALTY LOSS AND CONDEMNATION
------------------------------
45
8.1 No Termination. Except as specifically provided to the contrary
--------------
herein, the Subsidiaries and the Partnership shall retain all risk of loss with
respect to any loss of, reduction in value of or damage to the Operating Assets
from the Effective Time until Closing, and Buyer assumes the risk of loss of
value of the Subsidiaries and the Partnership associated with such matters. If
after the Effective Time and prior to the Closing, any part of the Operating
Assets should be destroyed by fire or other casualty or if any part of the
Operating Assets should be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes should be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof, except as expressly
provided in Article XX.
8.2 Proceeds and Awards. In the event of any loss described in Section
-------------------
8.1, Seller (with Buyer's consent, which shall not be unreasonably withheld)
shall either (a) at the Closing assign to the Partnership all of Seller's rights
in any insurance proceeds, third party damage payments, condemnation awards or
other amounts paid or to be paid by reason of such destruction, less any costs
and expenses incurred by Seller in collecting same, or (b) prior to Closing, use
or have the Partnership apply such sums (less any costs and expenses incurred by
Seller in collecting same) to repair, restore or replace such damaged or taken
Operating Assets. In addition, Seller shall at Closing assign to the
Partnership all of the right, title and interest of Seller in and to any claims
for loss of or damages to the Operating Asset, that might be asserted against
third parties with respect to the event or circumstance causing such loss to and
any unpaid insurance proceeds, condemnation awards or other payments arising out
of such destruction or taking, less any costs and expenses previously incurred
by Seller in collecting same. The Settlement Price shall be reduced by the
Casualty Price Adjustment, if any, attributable to casualty losses that are not
fully covered by insurance. Notwithstanding anything to the contrary in this
Section 8.2, neither Seller, the Subsidiaries nor the Partnership shall be
obligated to carry or maintain, nor shall they have any obligation or liability
to Buyer for their failure to carry or maintain any insurance coverage with
respect to any of the Operating Assets, except as required by Section 9.2.
8.3 Risks Of Other Losses. Except as otherwise set forth in this
---------------------
Agreement, Buyer shall assume all risks of loss with respect to the
Partnership's ownership or operation of the Operating Assets after the Effective
Time, including without limitation, the following risks:
(a) Operations. With respect to each Operating Asset, Buyer shall assume
----------
all risk of loss with respect to any loss of value or change in the condition of
the Operating Asset, and all xxxxx thereon, after the Effective Time, relating
to the production of oil, gas or other hydrocarbons, including without
limitation normal depletion, water encroachment, coning, pressure depletion,
formation changes and sand infiltration. The Partnership shall continue to bear
its proportionate share of the risks allocated under applicable joint operating
agreements and assume their proportionate share of the risks that such
operations may be unsuccessful, and Closing shall not be conditioned upon the
success of any operations.
(b) Market Conditions. With respect to each Operating Asset, Buyer shall
-----------------
assume all risk of loss with respect to any change in market conditions
affecting any Operating Asset or
46
production therefrom after the Effective Time, and this Agreement shall not be
terminated or suspended, nor shall Closing be delayed, due to any such change in
market conditions.
ARTICLE IX. COVENANTS
---------
9.1 Pre-Closing Covenants of Seller Regarding the Business. Sellers
------------------------------------------------------
shall cause the Subsidiaries and the Partnership to operate the Business only in
its usual, regular and ordinary manner and substantially in the same manner as
heretofore conducted, and as set forth in Section 9.2. Sellers shall cause the
Subsidiaries and the Partnership to use commercially reasonable efforts and as
set forth in Section 9.2, to (i) preserve the Business; (ii) keep available to
Buyer the services of the present officers, employees, agents and independent
contractors of the Subsidiaries; and (iii) maintain the assets of the Business
in their current state of repair, order and condition, usual and ordinary wear
and tear excepted and subject to requirements in the ordinary course of
business.
9.2 Pre-Closing Covenants of Seller Regarding the Operating Assets.
--------------------------------------------------------------
Subject to the terms of applicable operating and other existing agreements,
Seller covenants and agrees that between the date of this Agreement and the
Closing Date, except as set forth on Schedule 9.2 or as may be consented to in
writing by Buyer, which consent shall not be unreasonably withheld, Seller shall
manage the Partnership's ownership of the Operating Assets as follows:
(a) Disposal of Operating Assets. The Partnership shall not sell or
----------------------------
otherwise dispose of any of the Operating Assets, except for the sale in the
ordinary course of the Partnership's business of oil, gas, condensate and
products thereof and surplus equipment.
(b) New Third Party Rights. Except for Contracts entered into in
----------------------
furtherance of operations listed on Schedule 9.2 and Schedule 9.2(f), without
Buyer's consent, the Partnership shall not enter into any new or amended
contracts, agreements or relationships (i) granting any Preferential Right to
Purchase or Consent to Assignment affecting any of the Operating Assets
hereunder, (ii) which involve total payments in excess of $50,000, or (iii)
which if in existence as of the date hereof would be a material Contract.
(c) Preservation of Operating Assets. The Partnership shall use reasonable
--------------------------------
efforts to preserve in full force and effect all leases, operating agreements,
easements, rights-of-way, permits, licenses, contracts and other agreements
which relate to the Operating Assets and shall perform the obligations of the
Partnership in or under any such agreement relating to such Operating Assets as
a reasonable and prudent operator, provided however, that the Partnership shall
not be required to conduct any drilling, recompletion or reworking activities to
maintain any lease, farmout agreement or other defeasible interest in force or
to settle any adverse claims, demands or litigation in a manner that Seller
deems inappropriate.
(d) Maintenance of Equipment. The Partnership shall maintain all material
------------------------
and equipment within the Operating Assets in accordance with customary industry
operating practices and procedures.
(e) Insurance. The Partnership shall maintain in full force and effect all
---------
policies of insurance now maintained by Seller and the Partnership covering the
Operating Assets. Seller and Buyer will cooperate in making claims under
Seller's insurance policies prior to the Closing. Seller additionally agrees to
cooperate with Buyer to allow Buyer, the Subsidiaries or the
47
Partnership to obtain, at Buyer's expense, at a reasonable market price an
additional reporting period policy for any of Seller's insurance policies which
are on a claims-made basis.
(f) Operations.
----------
(i) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not propose or conduct for
its own account any operation which might reasonably be expected
to require an expenditure in excess of fifty thousand dollars
($50,000). The Partnership shall have the right to conduct, at
its sole election and discretion, any operations that either (1)
are covered by committed expenditures listed on Schedule 9.2(f),
(2) are required by law or regulations, (3) are required under a
binding existing agreement with a third party, or (4) which the
Partnership reasonably expects to require an expenditure of less
than fifty thousand dollars ($50,000).
(ii) Except for operations covered by committed expenditures listed on
Schedule 9.2(f), the Partnership shall not agree to participate
in any reworking, deepening, drilling, completion, recompletion,
equipping or other operation that is proposed by a co-owner in
any well or other asset, if such operation might reasonably be
expected to require an expenditure by the Partnership in excess
of fifty thousand dollars ($50,000), without Seller having first
provided Buyer written or oral notice thereof as soon as
reasonably practicable after the Partnership receives notice
thereof from the Partnership's co-owner in such Operating Asset.
If Seller provides Buyer with such notice, Buyer and Seller shall
promptly consult about the advisability of participating in such
operations. If Buyer and Seller cannot agree, the following
provisions shall apply:
(1) If Seller should wish to participate in an operation proposed
by a third party and Buyer should object to the operation, then
the Partnership may agree to participate, but Buyer may assert a
Title Defect with respect to the Property affected by such
operation, and in such event such Property shall be excluded from
the sale hereunder and instead shall be assigned to another
subsidiary of Seller prior to Closing and the Purchase Price
shall be reduced by the Allocated Value of the affected Property.
In such event, Seller shall indemnify and defend Buyer against
any and all Damages relating to such operation and such Property.
(2) If Buyer should wish to participate in such operation and
Seller objects to the operation, the Partnership shall not be
obligated to make any such payment or to elect to participate in
such operation unless within a reasonable time prior to the date
when such payment or election is required to be made by the
Partnership, the Partnership receives from Buyer, (A) the written
election and agreement of Buyer to require the Partnership to
take such action and to indemnify Seller therefrom and (B) all
funds necessary for such action.
48
(3) If (A) Buyer advances any funds pursuant to subparagraph (2),
and (B) the Common Stock is not assigned to Buyer at Closing, and
(C) Seller does not reimburse Buyer for all advances made by
Buyer with respect to such Operating Assets pursuant to
subparagraph (2) within thirty (30) days after this Agreement
terminates, then Buyer shall own and be entitled to any right of
the Partnership that would have lapsed but for such payment, and
in the case of operations, Seller shall be entitled to receive
the penalty which the Partnership, as non-consenting party, would
have suffered under the applicable operating agreement with
respect to such operations as if Buyer were a consenting party
thereunder.
(g) Data Restrictions. Seller shall advise Buyer in writing of the
-----------------
identity, nature and existence of any technical or interpretive information or
data that cannot be assigned to Buyer hereunder because of confidentiality
agreements with third parties, identify such third parties, and provide
reasonable cooperation (for before and up to one year after Closing) in
obtaining the agreement of such third parties to the release or assignment of
such information and data to Buyer; provided however, that Seller shall not be
required to expend any material funds or release any rights to allow such
release or assignment.
(h) Operating Assets Operated by Others. To the extent the Partnership is
-----------------------------------
not the operator of any Operating Asset, the obligations of Seller in this
Section 9.2, which have reference to operations or activities which normally are
or pursuant to existing contracts are to be carried out or performed by
operator, shall be construed to require only that the Partnership use reasonable
efforts to request that the operator of such Operating Asset either take such
actions, render such performance or refrain from performance, within the
constraints of the applicable operating agreements, applicable agreements and
applicable law.
9.3 Seller's Covenants Regarding Encumbrances. Seller covenants that
-----------------------------------------
on or before the Closing Date, Seller shall cause the Encumbrances in Schedule
1B to be released, in a form reasonably acceptable to Buyer.
9.4 Covenants Regarding Corporate and Financial Matters. Through the
---------------------------------------------------
Closing Date, except as set forth in Schedule 9.4 or as contemplated by this
Agreement (including without limitation Sections 2.5 and 2.6) or otherwise
consented to or approved by Buyer in writing, which consent or approval shall
not be unreasonably withheld, Seller shall cause the Subsidiaries and the
Partnership not to:
(a) Amend the Charter or Bylaws of any the Subsidiaries or amend the
Partnership Agreements of the Partnership;
(b) Incur, assume or become subject to any additional indebtedness for
money borrowed or purchase money indebtedness, except in the ordinary course of
business and consistent with past practices;
(c) Except as necessary to effect the transactions contemplated herein,
declare or pay any dividend or make any other distribution to any shareholder of
any of the Subsidiaries or any partner of the Partnership;
49
(d) Redeem or otherwise acquire any shares of capital stock of any of the
Subsidiaries or issue any capital stock of any the Subsidiaries or any option,
warrant or right relating thereto or any securities exchangeable for or
convertible into any such shares;
(e) Permit or allow any of the Subsidiaries' assets or properties to be
subject to any additional Encumbrance (other than Permitted Encumbrances) or
sell, transfer, lease or otherwise dispose of any such assets or properties,
other than surplus equipment not necessary for operations of the Business and
sold for a reasonable consideration of less than $25,000;
(f) Make any change in any method of accounting or accounting practice or
policy, other than those required by GAAP;
(g) Engage in any transactions with an Affiliate of Seller, other than
transactions in the ordinary course and consistent with past practices;
(h) Make any changes in the method of selling natural gas, condensate, oil
or products thereof which is not consistent with past practices;
(i) Enter into any new derivative or Hedging Contracts with respect to
natural gas, condensate, oil, products thereof, interest or any other
commodities or other financial instruments; or
(j) Agree, whether in writing or otherwise, to do any of the foregoing.
9.5 No Solicitation of Transactions. Except as otherwise permitted
-------------------------------
herein from the date of this Agreement through the Closing Date, neither Seller
nor any of their representatives, Affiliates, directors, officers, employees,
subsidiaries or agents will (a) solicit, consider, encourage or accept any other
offers to acquire any of the Common Stock or Seller's interests in the
Partnership or (b) solicit, consider, encourage or accept any other offers to
acquire any of the assets or properties of the Partnership (other than as
permitted by this Agreement) or (c) assist any third Person in preparing or
soliciting such an offer. Seller shall not have, and shall cause such
representatives, Affiliates, directors, officers, employees, subsidiaries and
agents not to have any discussions, conversations, negotiations or other
communication with any Person(s) expressing an interest in any such offer.
9.6 Emergencies and Oversights. Notwithstanding the other provisions
--------------------------
of this Article IX, (a) Seller, the Subsidiaries and/or the Partnership may take
any action with respect to the Operating Assets without penalty, if reasonably
necessary under emergency circumstances or if required to protect life, public
safety or the environment, and provided Buyer is notified as soon thereafter as
reasonably practical, and (b) Seller shall have no liability to Buyer for the
loss or reduction of any rights or interests by reason of the nonpayment or
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such payments through mistake or
oversight; provided, however, Buyer shall be permitted to assert the items in
this clause (b) as Title Defects under Article VI.
9.7 Buyer's Covenants Regarding Performance and Continued Existence. Buyer
---------------------------------------------------------------
covenants that between the date of this Agreement and the Closing
Date:
50
(a) Buyer shall take all steps and perform all operations reasonably
necessary to allow Buyer to perform its obligations at Closing;
(b) Buyer shall maintain its existence as a limited liability company in
good standing in Delaware; and
(c) Buyer shall cause the representations and warranties of Buyer to be
true and correct as of the Closing Date.
9.8 Buyer's Covenants Regarding Trade Name. Buyer acknowledges and agrees
--------------------------------------
with Seller that Seller shall have the absolute and exclusive proprietary right
to all names, marks, trade names, trademarks and corporate symbols and logos
incorporating "Tesoro," together with all other names, marks, trade names,
trademarks and corporate symbols and logos owned by any Affiliates of Seller
(collectively, the "Tesoro Marks"), all rights to which and the goodwill
represented thereby and pertaining thereto are being retained by Seller and the
Affiliates of Seller. Within ninety (90) days after the Closing Date, Buyer
shall change the name of the Subsidiaries and the Partnership, to not include
the name "Tesoro", cease using any Xxxxxx Xxxx and shall promptly remove from
all the assets and properties of the Subsidiaries any and all Tesoro Marks, and
change the name on all permits and licenses, to not include the name "Tesoro".
Thereafter, Buyer shall not use any Xxxxxx Xxxx in connection with the conduct
of its business. In the event that Buyer breaches this Section 9.8, Seller shall
be entitled to specific performance of this Section 9.8 and to injunctive relief
against further violations, as well as any other remedies available at law or in
equity.
9.9 Buyer's Covenants Regarding Employment.
--------------------------------------
(a) Schedule 9.9(a) sets forth the employees of Seller or its Affiliates
to whom Buyer (or an Affiliate of Buyer) expects to offer employment after the
Closing. Buyer in its sole discretion will determine the capacity in which the
employees listed on Schedule 9.9(a) who accept employment with Buyer or its
Affiliate (the "Retained Employees") will be employed and with which entity each
of the Retained Employees will be employed after the Closing. After the Closing,
Buyer (or its Affiliates which will employ Retained Employees) will initially
provide to the Retained Employees the same base salary or wages (but not any
retention-related salary increases described in Schedule 9.9(c)) provided to
such employees prior to the Closing, subject to such changes in base salary or
wages as are consistent with the Buyer's compensation structure. Buyer will take
all actions necessary or appropriate to permit the Retained Employees to
participate from and after the Closing in the employee benefit plans or
arrangements of Buyer and/or Affiliates of Buyer customarily provided to new
employees of Buyer and its Affiliates (including, without limitation, the
Employee Stability Plan); provided that Buyer shall, with respect to Buyer's or
its Affiliate's group health and dental plans ("Buyer's Group Health Plans"), to
the extent necessary after the Closing, (i) reimburse such Retained Employees,
for the year during which participation in Buyer's Group Health Plan begins, for
any duplicate deductibles and copayments already incurred during such year under
the group health and dental plans of Seller or its Affiliates ("Seller's Group
Health Plans"), and (ii) waive any preexisting condition limitations applicable
to the Retained Employees (and their eligible dependents) under Buyer's Group
Health Plans to the extent that a Retained Employee's (or dependent's) condition
would not have operated as a preexisting condition under Seller's Group Health
Plans.
51
(b) Buyer (and its Affiliates) will not be required to assume any
obligation to Retained Employees (or any other employees of Seller or its
Affiliates) under Seller's existing severance, retention or management stability
agreements, or similar agreements. As described in Section 9.9(a), from and
after the Closing, the Retained Employees will be permitted to participate in
the employee benefit plans or arrangements of Buyer and/or its Affiliates
customarily provided to new employees of Buyer and its Affiliates (including,
without limitation, the Employee Stability Plan), or other benefits as may be
individually negotiated between Buyer and a Retained Employee.
(c) Buyer (or its Affiliate) will assume half, and Seller and its
Affiliates will remain responsible for half, of the liability to all Retained
Employees for the annual incentive compensation bonuses described on Schedule
9.9(c). Buyer (or its Affiliate) will not assume the liability to certain
Retained Employees for the retention-related salary payment.
(d) Any obligations to employees of Seller and its Affiliates not
specifically assumed by Buyer (or its Affiliates) in this Section 9.9, including
without limitation all such obligations accrued prior to the Closing, will be
the responsibility of the Seller, and Seller will indemnify Buyer with respect
to those obligations.
(e) Buyer agrees to open an office in San Antonio, Texas and to maintain
such office for so long as prudent business practices justify its operation.
52
(f) Schedules 9.9(a) and 9.9(c) shall be supplemented by Buyer within
twenty-five (25) days following the date of this Agreement. During such twenty-
five day period, none of Seller, the Subsidiaries (on behalf of Seller and its
Affiliates) or the Partnership (on behalf of Seller and its Affiliates) shall be
permitted to solicit any of the employees listed on Schedule 9.9(a) for
employment after the Closing Date. If after the Closing Date, Seller or any of
its Affiliates continues to employ any individual listed on the final Schedule
9.9(a), Seller agrees to cooperate with Buyer to make such individual available
to provide services required by Buyer for up to six months after the Closing
Date for transition purposes, with Buyer reimbursing Seller for the actual cost
of such employee's services (including without limitation, salary and benefits).
9.10 Authorizations.
--------------
(a) Each of Buyer and Seller, as promptly as practicable after the
Agreement Date, shall (i) deliver, or cause to be delivered, all notices and
make, or cause to be made, all such declarations, designations, registrations,
filings and submissions under all statutes, laws, regulations and Governmental
Orders applicable to it as may be required for it to consummate the sale of the
Common Stock and the other transactions contemplated hereby in accordance with
the terms of this Agreement; (ii) use commercially reasonable efforts to obtain,
or cause to be obtained, all authorizations, approvals, orders, consents and
waivers from all Persons necessary to consummate the foregoing; and (iii) use
commercially reasonable efforts to take, or cause to be taken, all other actions
necessary, proper or advisable in order for it to fulfill its respective
obligations hereunder and to carry out the intentions of the parties expressed
herein. The preceding sentence notwithstanding, neither party shall have any
obligation to waive any condition herein for its benefit or any performance
hereunder by any other party. Without limiting the foregoing, each Party (i)
will file any Notification and Report Forms and related material that such Party
may be required to file under the HSR Act, (ii) will use their best efforts to
obtain an early termination of the applicable waiting period, (iii) and will
make any further filings pursuant thereto that may be necessary, proper, or
advisable in connection therewith.
(b) Each Party shall use its commercially reasonable efforts to satisfy
the conditions to Closing applicable to it in Article XI as soon as commercially
practicable.
53
9.11 Software and Computer Programs. From the date of this Agreement
------------------------------
through the date which is ninety (90) days after the Closing Date, each Seller,
the Subsidiaries and the Partnership, as applicable, agree to engage in
discussions with the licensors of applicable software and computer programs and
seismic data and processing identified in a written notice provided to Seller by
Buyer on or prior to the Closing Date, the purpose of which discussions shall be
to assist Buyer in its efforts to obtain a license with respect to such software
and/or computer programs and seismic data and processing with terms acceptable
to Buyer. Buyer will pay all fees (including fees agreed to as part of a
settlement) required to transfer or retain such records, programs and data that
Buyer chooses to retain after Closing.
9.12 General.
-------
(a) Each of the Parties will use their reasonable best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article XI).
(b) Buyer agrees to cooperate at no cost or liability to Buyer with Seller
so that Seller's transfer of the Operating Assets to Buyer shall, at Seller's
election, be accomplished in a manner enabling the transfer to qualify as a part
of a like-kind exchange of property by Seller within the meaning of Section 1031
of the Code. If Seller so elects, Buyer shall reasonably cooperate with Seller
to effect such like-kind exchange, which cooperation shall include, without
limitation, taking such actions as Seller reasonably requests in order to pay
the Purchase Price in a manner which enables such transfer to qualify as part of
a like-kind exchange of property within the meaning of Section 1031 of the Code,
and Buyer agrees that Seller may assign its rights (but not its obligations)
under this Agreement to an escrow agent acting as a qualified intermediary under
United States Treasury Regulations, to qualify the transfer of the Purchase
Price as a part of a like-kind exchange of property within the meaning of
Section 1031 of the Code.
(c) If prior to Closing Buyer elects to obtain financing for a portion of
the Purchase Price from a bank or other lender (the "Lender") (whether through
conventional loans or through a production payment or similar off-balance sheet
financing mechanism), Seller shall (and shall cause the Subsidiaries and the
Partnership to) cooperate reasonably with Buyer in Buyer's negotiation and
finalization of any loan or other documents with the Lender, provided that such
cooperation does not result in Seller, the Subsidiaries and the Partnership
incurring material additional expenses. Seller shall (and shall cause the
Subsidiaries and the Partnership to) use its commercially reasonable efforts to
give representatives of the Lender the access to information and right to
inspection provided to Buyer under Article V, subject to the Lender agreeing to
be bound by the terms of the Confidentiality Agreement. This Section 9.12(c)
does not change or modify Buyer's obligation to close the Transactions in
accordance with the other provisions of this Agreement.
9.13 Supplemental Information Regarding Representations and Warranties.
-----------------------------------------------------------------
(a) If at any time prior to the Closing there shall arise any occurrence,
or change in circumstances or development causing a breach of any of the
representations and warranties in
00
xxxxxxxxxx (x)(x), (x), (x), (x), (x), (x), (xx) or (bb) (to the extent such
paragraph (bb) applies to the Operating Assets and not the Common Stock) of
Section 4.1, the Party discovering such occurrence, change or development shall
promptly notify the other Party of the same. Such notice will be deemed to have
qualified the representations and warranties contained in such paragraphs of
Section 4.1 to reflect the information contained in the notice.
(b) Such notices of changes in the representations and warranties under
paragraphs (m)(i), (w), (x), (y), (z) and (bb) (to the extent such paragraph
(bb) applies to the Operating Assets and not the Common Stock) of Section 4.1
will be deemed to constitute a Title Defect (a "Seller Initiated Title Defect")
timely asserted under Sections 6.2 and 6.3 hereof (regardless of when Seller's
notice shall have been given) without any need for any action by Buyer, unless
such changes are within the exclusions for Title Defects set forth in Section
6.2(c). In such event, subject to the provisions of Articles VI and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect shall
be determined in accordance with the provisions of Sections 6.3 and 6.4;
provided, however, that if the Seller Initiated Title Defect would not have
constituted a Title Defect under the provisions of Section 6.2 (other than
Section 6.2(b)(i)), then the Property Value Reduction shall be the adverse
economic effect upon the Subsidiaries or the Partnership which would reasonably
be expected to result from such Seller Initiated Title Defect.
(c) Such notices of changes in the representations and warranties under
paragraph (aa) of Section 4.1 will be deemed to constitute a Seller Initiated
Title Defect, unless such change would be considered an "Environmental
Condition" (as that term is defined hereunder), in which case it shall be deemed
to be an Environmental Condition (a "Seller Initiated Environmental Defect"),
timely asserted under Sections 6.2, 6.3 or 7.3 hereof, as applicable (regardless
of when Seller's notice shall have been given), without any need for any action
by Buyer, unless such changes are within the exclusions for Title Defects set
forth in Section 6.2(c) or Environmental Conditions set forth in Section 7.3(c).
In such event, subject to the provisions of Articles VI, VII and XIII, the
Property Value Reduction resulting from such Seller Initiated Title Defect or
the Environmental Condition Value Reduction resulting from such Environmental
Condition shall be determined in accordance with the provisions of Sections 6.3
and 6.4 or Sections 7.6 and 7.7, as applicable; provided, however, that if the
Seller Initiated Title Defect would have not constituted a Title Defect under
the provisions of Section 6.2 (other than Section 6.2(b)(i)), then the Property
Value Reduction shall be the adverse economic effect upon the Subsidiaries or
the Partnership which would reasonably be expected to result from such Seller
Initiated Title Defect.
(d) Such notices of changes in the representations and warranties under
paragraphs (u) of Section 4.1 will be deemed to constitute a Seller Initiated
Environmental Defect timely asserted under Section 7.3 hereof (regardless of
when Seller's notice shall have been given) without any need for any action by
Buyer, unless such changes are within the exclusions for Environmental
Conditions set forth in Section 7.3(c). In such event, subject to the
provisions of Articles VII and XIII, the Environmental Condition Value Reduction
resulting from such Environmental Condition shall be determined in accordance
with the provisions of Sections 7.6 and 7.7.
(e) Any adjustment to the Purchase Price resulting from any such Seller
Initiated Title Defect or Seller Initiated Environmental Defect shall be
considered for the purposes of
55
Sections 11.2(g), 20.1(b) and (c). The written notice pursuant to this Section
9.13 and the resulting qualification of the applicable representation shall
otherwise be deemed to have cured any misrepresentation or breach of warranty
that otherwise might have existed hereunder because of the development, and the
certificate to be delivered by Seller pursuant to Section 11.1(c) may reflect
the applicable representation as so qualified.
(f) If at any time prior to the Closing, there shall arise any occurrence,
or change in circumstances or development causing a breach of any of the
representations and warranties in paragraphs (g), (l), and subparagraphs
(m)(ii), m(iii), m(iv) and (k)(xiv) of Section 4.1, the Party discovering such
occurrence, change or development shall promptly notify the other Party of the
same, and either (i) the Parties shall negotiate in good faith an adjustment to
the Purchase Price to reflect the Damages caused by such breach, or (ii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), then (A) Seller may elect to retain the Liabilities which caused the
representations and warranties to be inaccurate, and Seller shall indemnify,
defend and hold harmless Buyer against such Liabilities, and (B) to the extent
the Parties agree that the Liabilities which caused the representations and
warranties to be inaccurate relate to a Property, then Seller may elect to have
such Property assigned to a different subsidiary of Seller, and the Purchase
Price shall be reduced by the Allocated Value of such Property; or (iii) if the
Parties are unable to decide on an adjustment to the Purchase Price under clause
(i), and if Seller does not elect to retain the Liabilities which caused the
representations and warranties to be inaccurate and indemnify the Buyer, and if
such breach of the representations and warranties causes the representations and
warranties not to be true and correct in all material respects on the Closing
Date as though made on and as of that date, then the Parties agree that the
condition of the Closing set forth in Section 11.2(a) shall not have been
satisfied, and, unless Buyer waives the satisfaction of such condition to the
Closing, Buyer shall not be obligated to consummate the Transaction. If the
Parties resolve the matters contemplated in this Section 9.13(f) through any of
the options described in clause (i) or (ii) above, the notice delivered
pursuant to the first sentence of this Section 9.13(f) will be deemed to have
qualified the representations and warranties contained in the relevant
paragraphs of Section 4.1 to reflect the information contained in the notice.
9.14 Certain Pipeline Assets. Seller agrees that, prior to the Closing,it
-----------------------
shall cause Tesoro Pipeline Company, L.P. to transfer to the Partnership all
pipeline assets described on Exhibit B (the "Val Verde Pipeline") relating to
Production from the Partnership's Vinegarone East Prospect located in Xxxxxxx
and Xxx Verde Counties, Texas. It is hereby expressly understood, and Seller
acknowledges, that all representations, warranties, covenants and agreements
contained herein are made as if the Val Verde Pipeline were owned by the
Partnership as of the date hereof.
9.15 Gathering Agreement Extension. Seller agrees that, prior to the
-----------------------------
Closing, it shall cause Tesoro Pipeline Company, L.P., as majority owner of the
Starr County Gathering System, to amend the existing gathering agreement between
the Partnership and Starr County Gathering System to extend its term to the date
of the last to expire of the leases for the Xxx Xxxx Royalty Field set forth in
Exhibit B.
56
9.16. Seller's Covenants Concerning the Xxxxx-Xxxxxx Partnership. Seller
----------------------------------------------------------
shall cause Pipeline and Natural Gas, in their capacity as Pipeline Partners
under the Xxxxx-Xxxxxx Partnership Agreement, to vote to keep the Xxxxx-Xxxxxx
Transportation Agreement in full force and effect from and after the Closing
Date and, in connection therewith, refrain from taking any action which would
hinder, diminish or otherwise impair the rights and benefits of the Partnership
under the Xxxxx-Xxxxxx Transportation Agreement. Without limiting the generality
of the foregoing, but without obligating Seller or the Pipeline Partners to make
any future capital expenditures for expansion, repair or replacement of any
pipeline facilities not funded out of Xxxxx-Xxxxxx Partnership's cash flow from
the Effective Date, Seller shall not permit Pipeline or Natural Gas to exercise
their respective voting rights, powers or privileges under the Xxxxx-Xxxxxx
Partnership Agreement to cause, assist or permit the Pipeline Operator to (i)
reject any volume of gas tendered by the Partnership in excess of 100 MMcf per
day pursuant to Section 2.2(b) of the Xxxxx-Xxxxxx Transportation Agreement,
(ii) cease operation of the Xxxxx-Xxxxxx Line pursuant to Section 4.2 of the
Xxxxx-Xxxxxx Transportation Agreement or (iii) reject any gas tendered by the
Partnership on the basis that such gas does not meet the quality specifications
set forth in Section 5.1 of the Xxxxx-Xxxxxx Transportation Agreement, if the
Pipeline Operator accepted gas tendered by the Partnership prior to the Closing
Date with quality specifications similar to those of the gas tendered by the
Partnership from and after the Closing Date. During the time that the Put Option
and Call Option are outstanding, Seller shall not allow Pipeline and Natural
Gas, in their capacity as Pipeline Partners under the Xxxxx-Xxxxxx Partnership
Agreement, to vote to cause the Xxxxx Xxxxxx Partnership or Xxxxx-Xxxxxx Line to
be operated in a manner not in compliance with the covenants contained in
Section 9.1 (except clause (ii), Section 9.2, Paragraphs (a), (b)(i), (b)(ii),
(b)(iii), (c), (d), (e), (f)(i) and (h) (provided with respect to subparagraphs
(b)(ii), (b)(iii) and (f)(i), Seller will obtain the consent of Buyer prior to
taking such actions, which consent shall not be unreasonably withheld), and
Sections 9.4 (provided with respect to Paragraph (e), Seller will obtain the
consent of Buyer prior to taking such actions, which consent shall not be
unreasonably withheld), 9.5, 9.6 and 9.10, as if such covenants applied to the
Xxxxx-Xxxxxx Partnership to the same extent such covenants apply to the
Partnership. Seller, the Subsidiaries and the Partnership agree to provide
access, consistent with the type of access provided in Article V, to books and
records concerning the assets of Natural Gas, Gathering and Pipeline, and to
cooperate with Buyer to provide Buyer access, by appointing Buyer as Seller's
agent, to whatever books and records of the Xxxxx-Xxxxxx Partnership that
Pipeline or Natural Gas would have access to under the Xxxxx-Xxxxxx Partnership
Agreement.
9.17. Seller's Covenants Concerning the Starr County Gathering System.
---------------------------------------------------------------
Seller shall cause Pipeline and Natural Gas, in their capacity as Partners under
the Starr County Joint Venture Agreement, to vote to keep the Starr County
Gathering Agreement in full force and effect from and after the Closing Date
and, in connection therewith, refrain from taking any action which would hinder,
diminish or otherwise impair the rights and benefits of the Partnership under
the Starr County Gathering Agreement . Without limiting the generality of the
foregoing, but without obligating Seller or the Pipeline Partners to make any
future capital expenditures for expansion, repair or replacement of any pipeline
facilities not funded out of Starr County Gathering's cash flow from the
Effective Date, Sellers shall not permit Pipeline or Natural Gas to exercise
their respective voting rights, powers or privileges under the Starr County
Joint Venture Agreement to cause, assist or permit Starr County Gathering to
(i) terminate the Starr County Gathering Agreement pursuant to Article 6.2
thereof or (ii) to cause, assist or permit the Pipeline Operators to reject any
volume of gas tendered by the Partnership
57
from and after the Closing Date under the Starr County Gathering Agreement on
the basis that such gas does not meet the quality specifications set forth in
Article 7.2 of the Starr County Gathering Agreement, if Starr County Gathering
accepted gas tendered by the Partnership prior to the Closing Date with quality
specifications similar to those of the gas tendered by the Partnership from and
after the Closing Date. During the time that the Put Option and Call Option are
outstanding, Seller shall not allow Pipeline and Natural Gas, in their capacity
as Pipeline Partners under the Starr County Joint Venture Agreement, to vote to
cause Starr County Gathering and Starr County Gathering System to be operated in
a manner not in compliance with the covenants contained in Section 9.1 (except
clause (ii)), Section 9.2, Paragraphs (a), (b)(i), (b)(ii), (b)(iii), (c), (d),
(e), (f)(i) and (h), (provided with respect to subparagraphs (b)(ii), (b)(iii)
and (f)(i), Seller will obtain the consent of Buyer prior to taking such
actions, which consent shall not be unreasonably withheld), and Sections 9.4
(provided with respect to Paragraph (e), Seller will obtain the consent of Buyer
prior to taking such actions, which consent shall not be unreasonably withheld),
9.5, 9.6 and 9.10, as if such covenants apply to Starr County Gathering to the
same extent such covenants apply to the Partnership. Seller, the Subsidiaries
and the Partnership agree to provide access, consistent with the type of access
provided in Article V, to books and records concerning the assets of Natural
Gas, Gathering and Pipeline, and to cooperate with Buyer to provide Buyer
access, by appointing Buyer as Seller's agent, to whatever books and records of
Starr County Gathering that Pipeline or Natural Gas would have access to under
the Starr County Joint Venture Agreement.
ARTICLE X.PRE-CLOSING PROCEDURES
----------------------
10.1 Notice of Settlement Price Adjustments. At least ten (10) Business
--------------------------------------
Days prior to Closing, Buyer shall furnish Seller with notices listing all Title
Defects, Environmental Conditions and casualty losses that Buyer asserts as
bases for reducing the Settlement Price. At least five (5) Business Days prior
to the Closing Date, Seller shall advise Buyer whether Seller disputes any such
amounts, whether Seller elects to cure any such amounts, and what other actions
Seller believes is appropriate concerning any such amounts. Buyer and Seller
shall then negotiate in good faith to resolve all disputed issues prior to the
Closing Date.
10.2 Initial Settlement Statement. Eight (8) Business Days before the
----------------------------
Closing Date, Seller shall furnish Buyer with a preliminary draft of the
Settlement Statement, in accordance with Section 13.2. Buyer shall have the
right to audit and request appropriate adjustments to the amounts reflected
therein until four (4) Business Days before the Closing Date. At least four (4)
Business Days before the Closing Date, Buyer shall furnish Seller with any
comments, and adjustments or revisions Buyer believes are appropriate to conform
the Settlement Statement to accurately reflect the best information available at
Closing, and the Parties shall endeavor in good faith to reconcile the
accounting issues and to produce as accurate a Settlement Statement as possible
based upon the information available at Closing. At least two (2) Business Days
before the Closing Date, Seller shall furnish Buyer with the Settlement
Statement, including any appropriate updates, adjustments or revisions, showing
the Closing Settlement Price.
10.3 Closing Documents. At least ten (10) Business Days before the
-----------------
Closing Date, the Parties shall provide each other with preliminary drafts of
all attorneys opinions, certificates, corporate guarantees, assignments and
other instruments to be delivered at Closing. The Parties
58
shall thereafter cooperate to make such revisions as are needed to prepare
mutually acceptable forms of all such instruments.
10.4 Escrow Agent. If the Parties should agree to place any funds into
------------
an escrow account at Closing, then they shall negotiate in good faith to select
a mutually acceptable escrow agent, who is willing and able to perform such
role. In such an instance, at least five (5) Business Days before the Closing
Date, the Parties shall agree upon an escrow agent, and they shall use their
best efforts to negotiate a mutually acceptable Escrow Agreement before the
Closing Date.
10.5 Wire Transfer Instructions. At least two (2) Business Days prior
--------------------------
to the Closing Date, Seller shall provide to Buyer wire transfer instructions
designating a bank account and Federal Reserve ABA designation ID number, at a
bank within the United States of America where the Closing Settlement Price
shall be transferred.
ARTICLE XI.CLOSING CONDITIONS
------------------
11.1 Seller's Closing Conditions. Seller's obligation to consummate
---------------------------
the Transaction is subject to the satisfaction by Buyer or the waiver by Seller,
at or before the Closing, of the following conditions:
(a) Representations. The representations and warranties of Buyer contained
---------------
in Section 4.2 shall be true and correct in all material respects on the Closing
Date as though made on and as of that date.
(b) Performance. Buyer shall have performed in all material respects the
-----------
obligations, covenants and agreements hereunder to be performed by it at or
prior to Closing.
(c) Corporate Certificates and Opinion. Buyer shall have delivered to
----------------------------------
Seller (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of Buyer that the representations set forth in Section 4.2
are true and correct as of the Closing Date; (ii) a certificate of incumbency;
(iii) a certificate of good standing of Buyer as a limited liability company;
(iv) certified resolutions of the members of Buyer, authorizing Buyer to enter
into this Agreement and the Transaction and to perform its obligations at
Closing; (v) certified resolutions of the Board of Directors of EEX Corporation,
authorizing Buyer's parent to perform its obligations under the corporate
guarantee under Section 21.17; and (vi) an opinion of counsel for Buyer,
acceptable to Seller, dated the Closing Date, as to such matters as may
reasonably be requested by Seller and its counsel and are typical for
transactions such as the Transaction.
(d) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Seller in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(e) No Orders. This Closing hereunder shall not violate any order or
---------
decree of any governmental authority having competent jurisdiction over the
Transaction.
59
(f) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
11.2 Buyer's Closing Conditions. Buyer's obligations to consummate the
--------------------------
Transaction is subject to the satisfaction by Seller or the waiver by Buyer, at
or before the Closing, of the following conditions:
(a) Representations. Except as provided otherwise in Section 9.13, the
---------------
representations and warranties of Seller contained in Section 4.1 (other than
with respect to paragraphs (u), (w), (x), (y), (z) and (aa) of Section 4.1)
shall be true and correct in all material respects on the Closing Date as though
made on and as of that date; provided, however, that the accuracy of the
representations and warranties in subparagraphs (k)(i), (ix), (x), (xi), (xii)
and (xiii) of Section 4.1 shall, for purposes of satisfying this condition, not
be affected to the extent of inaccuracies resulting solely from Buyer
unreasonably withholding its prior written consent (after written request by
Seller duly provided to Buyer) to the action taken by (or omission of) Seller,
the Subsidiaries or the Partnership which caused such representations and
warranties to be inaccurate.
(b) Performance. Seller shall have performed, or caused to be performed,
-----------
in all material respects the obligations, covenants and agreements hereunder to
be performed by it, the Subsidiaries and the Partnership at or prior to Closing.
(c) Corporate Certificates and Opinion. Each Seller shall have delivered
----------------------------------
to Buyer, and Seller shall cause each Subsidiary and the Partnership to deliver
to Buyer: (i) a certificate of an executive officer, dated the Closing Date,
certifying on behalf of such Seller that the representations made in Section
4.1, are true and correct as of the Closing Date; (ii) a certificate of
incumbency for each Seller and each of the Subsidiaries, (iii) a certificate of
corporate good standing for the Partnership as a Delaware limited partnership,
and for each Seller and each of the Subsidiaries as Delaware corporations; (iv)
with respect to each Seller only, certified resolutions of the Boards of
Directors of each Seller, authorizing each Seller to enter into this Agreement
and the Transaction and to perform its obligations at Closing; and (v) an
opinion of counsel for the Seller and each of the Subsidiaries and the
Partnership, acceptable to Buyer, dated the Closing Date, as to such matters as
may reasonably be requested by Buyer and its counsel and are typical for
transactions such as the Transaction.
(d) Other Certificates and Documents. Buyer shall have also received the
--------------------------------
certificates and documents described in Section 12.2.
(e) Pending Matters. No suit, action or other legal proceeding by a third
---------------
party or a governmental authority shall be pending which seeks material damages
from Buyer in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the Transaction.
(f) No Orders. The Closing hereunder shall not violate any order or decree
---------
of any governmental authority having competent jurisdiction over the
Transaction.
60
(g) Adjustments. The reduction (if any) to be made at Closing to the
-----------
Purchase Price which results from the application of Articles VI, VII, VIII and
XIII does not exceed fifteen percent (15%) of the Purchase Price.
(h) Liens and Mortgages. Seller shall have secured release of all liens
-------------------
and mortgages listed on Schedule 1B and released all obligations of the
Subsidiaries and the Partnerships under the Seller's credit facility and
provided Buyer evidence of the same.
(i) There shall not have occurred a Material Adverse Effect.
(j) HSR. Any applicable waiting period under the HSR Act shall have
---
expired or been terminated.
ARTICLE XII.CLOSING
-------
12.1 Closing. The closing of the Transaction (the "Closing") shall be
-------
held on November 30, 1999 (the "Closing Date"), at 9:00 a.m. Houston time, at
the office of Seller's counsel, 0000 XxXxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000,
or at such other date or place as the parties may direct; provided, however,
that if all conditions to Closing set forth in Article XI have not been waived
or satisfied prior to November 30, 1999, the Closing Date shall be on the second
Business Day following the waiver or satisfaction of such conditions.
12.2 Seller's Closing Obligations. At Closing, Seller shall deliver to
----------------------------
Buyer the following:
(a) Stock certificates representing all of the Common Stock for each of
the Subsidiaries, duly endorsed in blank or with separate stock powers duly
endorsed in blank;
(b) The stock books, stock ledgers, minute books, and corporate seal for
each of the Subsidiaries;
(c) All books and records of the Partnership;
(d) The resignations of the officers and directors of each of the
Subsidiaries;
(e) Such other documents or authorizations as Buyer may reasonably
request, or as might be reasonably necessary to assign all of Seller's interest
in the Subsidiaries, the Partnership and the Operating Assets to Buyer in
accordance with the provisions hereof;
(f) The certificates of Seller referred to in Section 11.2(c) hereof;
(g) The opinion of counsel referred to in Section 11.2(c) hereof; and
(h) Releases, in a form acceptable to Buyer, of all liens and mortgages
listed on Schedule 1B.
12.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver to
---------------------------
Seller the following:
61
(a) The Closing Settlement Price, paid in immediately available funds, by
wire transfer into the U.S. bank account designated by Seller;
(b) The certificates of Buyer referred to in Section 11.1(c) hereof; and
(c) The opinions of counsel referred to in Section 11.1(c) hereof.
12.4 Governmental Filings. At Closing, the Parties shall execute such
--------------------
guarantees, bonds, forms and other instruments as are needed allow Buyer to
assume all of Seller's existing obligations under governmental permits and
licenses and leases affecting the Operating Assets. Buyer shall diligently file
such instruments and obtain governmental approval of the transfer of all such
rights, obligations and interests.
12.5 Closing On Properties With Uncured Title Defects or Environmental
-----------------------------------------------------------------
Conditions. If the parties should mutually agree to allow an extended cure
----------
period for Title Defects affecting one or more of the Properties, as set forth
in Sections 6.3(c)(i), then at Closing, Buyer and Seller shall execute such
instruments required to effectuate the procedures in such Section. The Parties
shall thereafter perform as set forth in Sections 6.3(c)(i) with respect to the
affected Operating Assets, and the Closing Settlement Price paid at Closing
shall be reduced as set forth in those Sections. For Operating Assets for which
assignments are later delivered, then the effect shall thereafter be the same as
if such Operating Assets were released at Closing. If the parties should
mutually agree to resolve Title Defects or Environmental Conditions using an
escrow agent under Sections 6.3(c)(ii) or 7.7(c), Buyer and Seller shall execute
an escrow agreement together with any other instruments required to effectuate
the procedures in such Section.
ARTICLE XIII.ADJUSTMENT BASKET; PRORATION OF REVENUES AND COSTS
--------------------------------------------------
13.1 Limitations on Liability for Price Adjustments.
----------------------------------------------
(a) Title Price Adjustment. The aggregate Title Price Adjustment for all
----------------------
Title Defects shall be computed as the amount by which the aggregate sum of all
Property Value Reductions for all Title Defects less any applicable Property
Value Increases exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if the aggregate sum of all
Property Value Reductions less Property Value Increases for all Title Defects
does not exceed one million dollars ($1,000,000), then the Title Price
Adjustment shall be deemed to be zero ($0), no adjustments shall be made to the
Settlement Price by reason of any such Property Value Adjustment, and no amounts
shall be deposited into escrow for any Title Defect. If the aggregate sum of
all Property Value Reductions for all Title Defects less any applicable Property
Value Increases does exceed one million dollars ($1,000,000), then the Title
Price Adjustment shall be the aggregate amount of (i) all Property Value
Reduction amounts, (ii) less any applicable Property Value Increases, (iii) less
one million dollars ($1,000,000). If the sum of the Property Value Increases is
greater than the sum of the Property Value Reductions, the Title Price
Adjustment shall be deemed to be zero ($0).
(b) Environmental Price Adjustment. The aggregate Environmental Price
------------------------------
Adjustment for all Environmental Conditions shall be computed as the amount by
which the aggregate sum of all Environmental Condition Value Reductions for all
Environmental Conditions exceeds the amount of one million dollars ($1,000,000).
Notwithstanding anything to the contrary herein, if
62
the aggregate sum of all Environmental Condition Value Reductions for all
Environmental Conditions does not exceed one million dollars ($1,000,000), then
the Environmental Price Adjustment shall be deemed to be zero ($0) and no
adjustments shall be made to the Settlement Price by reason of any such
Environmental Condition Value Reductions. If the aggregate sum of all
Environmental Condition Value Reductions for all Environmental Conditions does
exceed one million dollars ($1,000,000), then the Environmental Price Adjustment
shall be the full amount of all Environmental Condition Value Reduction amounts.
(c) Casualty Price Adjustment. The aggregate Casualty Price Adjustment for
-------------------------
all uninsured casualty losses under Article VIII shall be computed as the amount
by which the aggregate sum of all uninsured casualty losses exceeds the amount
of one million dollars ($1,000,000). Notwithstanding anything to the contrary
herein, if the aggregate sum of all uninsured casualty losses does not exceed
one million dollars ($1,000,000), then the Casualty Price Adjustment shall be
deemed to be zero ($0) and no adjustments shall be made to the Settlement Price
by reason of any uninsured casualty losses. If the aggregate sum of all
uninsured casualty losses does exceed one million dollars ($1,000,000), then the
Casualty Price Adjustment shall be the full amount of all uninsured casualty
losses.
13.2 Settlement Statements.
---------------------
(a) Pre-Closing. At least eight (8) Business Days prior to the Closing
-----------
Date, Seller shall furnish Buyer with a draft Settlement Statement showing the
Settlement Price calculated in reasonable detail with the estimated accounting
adjustments and/or prorations of any amounts described in and subject to
Articles III, VI, VII, VIII and XIII of this Agreement. Buyer shall advise
Seller of any proposed changes or objections to such draft Settlement Statement
no less than four (4) Business Days prior to Closing, and the Parties shall
thereafter diligently attempt to resolve any disputes relating to such estimates
before Closing. The Parties shall then cooperate in good faith to prepare the
Settlement Statement at least two (2) Business Days prior to the Closing Date,
as set forth in Section 10.2.
(b) Settlement Statement Disputes. If matters in the Settlement Statement
-----------------------------
cannot be resolved by the Parties using their best reasonable efforts, any
portion of estimates which have not been resolved shall for purposes of Closing
employ an arithmetic mean of Seller's and Buyer's good faith estimates of such
unresolved amounts. The actual amount of such adjustments shall be computed and
shall be included in the calculation of the Final Settlement Price.
(c) Final Statement. As soon as practicable after the Closing Date, but
---------------
in no event later than one hundred twenty (120) days thereafter, Buyer shall
prepare and submit to Seller a draft Final Statement, which shall show the
calculation of the adjusted Final Settlement Price, based upon the best
information then available. Seller shall have the right to audit such Final
Statement and all supporting data and accountings. As soon as practicable after
receipt of the Final Statement, but in any event within thirty (30) days after
receipt thereof, Seller shall deliver to Buyer a written report containing the
changes, if any, which Seller proposes be made to the Final Statement. If no
response is made by Seller within such thirty (30) day period, it shall be
presumed that Seller concurs with the Final Statement, and such Final Statement
shall be the basis for the Final Settlement Price. If Seller submits a
response, the Parties shall cooperate in good faith to produce not later than
one hundred eighty (180) days after the Closing Date as
63
accurate a Settlement Statement as possible based upon the information then
available. After agreement upon a Final Statement setting forth the Final
Settlement Price, the difference between such Final Settlement Price and the
Closing Settlement Price paid at Closing shall be paid within five (5) Business
Days thereafter by the Party owing the same.
13.3 Operating Taxes.
---------------
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem, real
----------------------------------------------
property taxes and personal property taxes, including interest and penalties
attributable thereto (hereinafter "Property Taxes"), attributable to the
Partnership's ownership and operation of the Operating Assets with respect to
the assessment period ("Property Tax Period") during which the Effective Time
occurs shall be apportioned between Seller and Buyer by multiplying the total
amount of such Property Taxes by a fraction, the numerator of which is the
number of days in the partial period through and including the Effective Time
and the denominator of which is the total number of days in the Property Tax
Period. The Partnership shall file or cause to be filed all required reports
and returns incident to the Property Taxes and shall pay or cause to be paid to
the taxing authorities all Property Taxes relating to the Property Tax Period
during which the Effective Time occurs. If Seller is the owner of the
Partnership on the Property Tax assessment date, then the Settlement Price shall
be increased by the amount of Buyer's portion of Property Taxes owed as set
forth above. If the Property Tax assessment date occurs after Closing, then the
Settlement Price shall be reduced by the estimated amount of Seller's portion of
Property Taxes owed as set forth above. The allocation and payment of ad
valorem taxes shall be handled through adjustments to the Settlement Price.
(b) Other Operating Taxes. With the exception of Income Taxes, all other
---------------------
federal, state, foreign and local Taxes (including interest and penalties
attributable thereto) on the ownership or operation of the Operating Assets
which are imposed upon the Subsidiaries or the Partnership for periods or
portions of periods prior to the Effective Time shall be borne by Seller, and
all such Taxes imposed upon the Partnership for periods or portions of periods
beginning on or after the Effective Time shall be borne by Buyer. Such Taxes
shall be apportioned between Seller and Buyer for the period or portion thereof
up to and including the Effective Time, (i) in the case of a flat minimum dollar
amount of tax, by multiplying the total amount of such Taxes by a fraction, the
numerator of which is the number of days in the partial period through and
including the Effective Time and the denominator of which is the total number of
days in such tax period, and (ii) in the case of all other operating Taxes, on
the basis of actual activities creating such Tax liability of the Subsidiaries
and the Partnership for the partial period through and including the Effective
Time as are determined from their respective Books and Records. To the extent
any such amounts are borne prior to the delivery of the Final Statement by a
Party who is not required to bear them hereunder, they shall be included in the
adjustments to the Settlement Price. The allocation and payment of these Taxes
shall be handled through adjustments to the Settlement Price.
13.4 Shared Obligations. If an invoice or other evidence of an obligation
------------------
is received which under the terms of this Article XIII is partially the
obligation of Seller and partially the obligation of Buyer, then the parties
shall consult with each other, the Partnership shall promptly
64
pay such obligation to the obligee, and Seller shall promptly reimburse Buyer
for Seller's portion so paid.
13.5 Uncollectible Accounts Receivable. Buyer (and, prior to the Closing,
---------------------------------
Seller) shall cause the Subsidiaries and the Partnership to use commercially
reasonable efforts to collect in full, consistent with the past practices of the
Business, all accounts receivable of the Business (the "Accounts Receivable").
If the Accounts Receivable outstanding at the Closing shall not have been fully
collected within 120 days following the Closing Date in an amount equal to the
outstanding unpaid amounts thereof at the Closing, Buyer may require the Seller
to purchase any Accounts Receivable that have not been so fully collected at a
purchase price equal to the original outstanding amount of such Accounts
Receivable at the Closing less net collections thereon from the Closing Date to
the repurchase date; provided, however, that the Seller shall be required to
repurchase such unpaid Accounts Receivable only to the extent that the aggregate
amount of such unpaid Accounts Receivable exceeds the allowance for doubtful
accounts deducted from accounts receivable set forth on the Balance Sheets, and
if such an excess exists, the Seller shall only be required to pay an amount for
such unpaid Accounts Receivable equal to such excess; provided, further, during
such 120-day period, that Buyer may not settle or compromise any Accounts
Receivable without the prior written consent of Seller. As a condition to any
such repurchase, Buyer shall reconvey to the Seller the unpaid Accounts
Receivable to be repurchased and shall provide Seller with sufficient detail
regarding such Accounts Receivable. Buyer shall not transfer or convey such
Accounts Receivable to any other Person. Payment for the repurchase of any
Accounts Receivable shall be made within ten (10) days following the transfer
thereof to Seller. Buyer shall provide to the Seller any documents or
information reasonably requested by the Seller in connection with the Seller's
collection of any Accounts Receivable repurchased from Buyer.
ARTICLE XIV.POST-CLOSING PROCEDURES
-----------------------
14.1 Delivery of Files. Within ten (10) days after Closing, Buyer
-----------------
shall, at Buyer's expense, take delivery at Seller's present offices in San
Antonio, Texas of all of the Partnership's and the Subsidiaries' original land,
lease, revenue and cost accounting, geologic, geophysical, engineering and well
files, data and materials which relate to the Operating Assets. Applicable
legal and litigation files shall be delivered by Seller to Buyer at Seller's
present office location in San Antonio, Texas, subject to the Parties and their
attorneys making mutually acceptable arrangements for preserving the privileged
and confidential nature of protected information. Seller may retain copies of
its accounting and legal files, data and information, as might be needed by
Seller, and Seller shall retain all originals of insurance policies covering
periods prior to the Effective Time. Subject to the License Agreement, Seller
shall not retain originals or copies of any seismic, geological, geophysical or
engineering files, materials, data or interpretations thereof concerning the
Operating Assets sold hereunder, without Buyer's prior written consent; provided
however, that Seller shall not be required to deliver to Buyer, nor shall Buyer
be required to accept delivery of any such data or materials which either Party
reasonably believes to be subject to confidentiality agreements with third
parties that would prevent Buyer from obtaining such data or expose either Party
to a claim for material damages if Buyer were to receive such data or materials.
Notwithstanding the above, Seller shall be permitted to retain original tax and
financial accounting records for the period prior to the Closing, copies of
which will be delivered to Buyer.
65
14.2 Third Party Data. To the extent not obtained or satisfied as of
----------------
Closing, Seller agrees to continue to use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to obtain for Buyer, the Partnership and the
Subsidiaries (i) access to files, records and data relating to the Operating
Assets in the possession of third parties; (ii) access to xxxxx constituting a
part of the Operating Assets operated by third parties for purposes of
inspecting same; and (iii) the waiver of confidentiality or other restrictions
on the review by and/or transfer of seismic, geophysical, engineering or other
data pertaining to the Operating Assets that might be triggered by Seller's
assignment to Buyer of the Partnership and the Subsidiaries.
14.3 Cooperation. After the Closing, each Party shall provide the other
-----------
Party with reasonable access to all relevant documents, data and other
information (other than that which is subject to any attorney-client privilege)
which may be required by the other Party for the purpose of financial reporting,
preparing tax returns, filing refund claims, responding to any audit by any
taxing jurisdiction or replying to any third party or governmental claim or
demand concerning the Partnership, the Subsidiaries or the Operating Assets.
Each Party shall cooperate with all reasonable requests of the other Party made
in connection with contesting the imposition of Taxes. Notwithstanding anything
to the contrary in this Agreement, neither Party shall be required at any time
to disclose to the other Party any Tax Return or other confidential information,
except for Tax Returns concerning Taxes of the Partnership and the Subsidiaries.
Except where disclosure is required by applicable law or judicial order, any
information obtained by a Party pursuant to this Section 14.3 shall be kept
confidential by such Party, except to the extent disclosure is required in
connection with the filing of any Tax Returns or claims for refunds or in
connection with the conduct of an audit, or other proceedings in response to an
audit, by a taxing jurisdiction, or otherwise required by law or binding
judicial order.
14.4 Preferential Rights to Purchase and Consents to Assignment. Before
----------------------------------------------------------
Closing and for up to one year after Closing, the Parties shall continue to
provide reasonable cooperation in obtaining all required Consents to Assignment
and in complying with all enforceable Preferential Rights to Purchase that
remain in force after Closing. Buyer shall be primarily responsible for
handling such matters, shall assume all risks and liabilities in connection with
the rights of the holders thereof, and shall release, indemnify and defend
Seller against any claims, damages, suits, demands or other liabilities
associated with any Consents to Assignment or Preferential Rights to Purchase.
14.5 Filing and Recording of Documents. Buyer shall promptly file all
---------------------------------
appropriate forms, declarations or bonds with governmental agencies relative to
its assumption of ownership of the Subsidiaries, and Seller shall cooperate with
Buyer in connection with such filings. Seller shall not be responsible for any
loss to Buyer because of Buyer's failure to file or record documents correctly
or promptly.
14.6 Further Assurances. After Closing, each of the Parties will
------------------
execute, acknowledge and deliver to the other such further instruments, and take
such other action, as may be reasonably requested in order to more effectively
assure to each Party all of the respective
66
properties, rights, titles, interests, estates, and privileges intended to be
assigned, delivered or to inure to the benefit of such Party in consummation of
the Transaction.
14.7 Incidental Costs. Each party shall bear its own respective
----------------
expenses incurred in connection with the Closing of the Transaction, including
its own consultants' fees, attorney's fees, accountants' fees, and other similar
costs and expenses.
ARTICLE XV.SURVIVAL; INDEMNITIES
---------------------
15.1 Survival. All representations, warranties or covenants made herein,
--------
except for those in Sections 4.1(a), 4.1(e), 4.1(f), 4.1(g), 4.1(i), 4.1(k),
4.1(l), 4.1(m), 4.1(n), 4.1(o), 4.1(q), 4.1(u), 4.1(v), 4.1(w), 4.1(x), 4.1(y),
4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating Assets only), 4.2(e),
4.2(i), Sections 5.6, 7.1, 7.2, 7.3, 7.4, 8.3, 9.1, 9.2(e), 9.9(d), 9.12(b),
9.13, 9.14, 9.15, 9.16 and 9.17, and Articles XV, XVI and XVII, shall survive
for two years from the Closing Date. The covenants made in Section 9.13 shall
survive until the Parties reach agreement on the Final Statement pursuant to
Section 13.2(c). The representations and warranties or covenants made in
Sections 4.1(a), 4.1(g), 4.1(k), 4.1(l), 4.1(m), 4.1(o), 4.1(q), 4.1(u), 4.1(v),
4.1(w), 4.1(x), 4.1(y), 4.1(z), 4.1(aa), 4.1(bb) (with respect to Operating
Assets only) and Section 9.1 shall not survive Closing and shall automatically
expire upon Closing. The representations, releases, covenants, indemnities,
defenses and hold harmless obligations and other obligations referenced in
Sections 4.1(e), 4.1(f), 4.1(i), 4.1(n), 4.2(e), 4.2(i), 5.6, 7.1, 7.2, 7.3,
7.4, 8.3, 9.2(e), 9.9(d), 9.12(b), 9.14, 9.15, 9.16 (including portions of other
covenants set forth in such sections) and 9.17 (including portions of other
covenants set forth in such sections) and this Article XV, and all provisions of
Article XVI and Article XVII, shall each survive Closing, and each shall
continue to remain fully enforceable in accordance with its terms.
15.2 Buyer's Indemnity'. Except as expressly and specifically indicated
------------------
otherwise in this Agreement (including without limitation Sections 9.9(d) and
15.3), after the Closing Date, Buyer shall and hereby does release, defend,
indemnify, save, and hold harmless Seller and their respective officers,
directors, Affiliates, employees, attorneys, contractors and agents, against any
and al Damages which arise out of or in connection with the ownership of,
operation of, production from or accounting by, income of or payments by the
Partnership, the Subsidiaries or the Operating Assets, at any time either before
or after the Effective Time, or which arise out of any Environmental Condition
or other hazardous condition relating to or affecting any Operating Asset at any
time either before or after the Effective Time, including without limitation,
all such costs, claims or liabilities arising out of Seller's negligence or
strict liability.
15.3 Seller's Indemnity. Subject to the terms and conditions of this
------------------
Article XV, Seller shall indemnify, defend and hold harmless Buyer, and its
parent or subsidiary companies, partners and other affiliates (including after
Closing, the Subsidiaries and the Partnership), and their respective officers,
directors, Affiliates, employees, attorneys, contractors and agents
(hereinafter collectively referred to as the "Buyer Group"), from and against
any and all Damages asserted against, resulting to, imposed upon, or incurred by
the Buyer Group, directly or indirectly, by reason of or resulting from or
relating to (i) any breach by Seller (for which Seller shall be responsible) of
its surviving representations, warranties, covenants or agreements contained in
this Agreement, (ii) any Liabilities of the
67
Subsidiaries and the Partnership which are unrelated to the Operating Assets,
(iii) any Liabilities of the Subsidiaries and the Partnership for Income Taxes
prior to Closing, and (iv) any existing Liabilities of the Subsidiaries and the
Partnership owed under federal leases for prior royalties related to the period
of time prior to Closing.
15.4 Procedure for Indemnification.
-----------------------------
(a) Any Indemnified party making a claim for indemnification hereunder
shall notify the indemnifying party or parties of the claim in writing. Subject
to Sections 17.1, 17.2, 17.3 and 17.4, an indemnified party may take any and all
actions against an indemnifying party or parties to enforce its rights to
indemnification under this Agreement.
(b) With respect to third Person claims which are indemnifiable hereunder,
promptly after receipt by an Indemnified Party under Sections 15.2 or 15.3 of
notice of the commencement of any action, such Indemnified Party shall, if a
claim in respect thereof is to be made against an Indemnifying Party under such
Section, give written notice to the Indemnifying Party of the commencement
thereof. The failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party of any liability that it may have to an Indemnified Party
with respect to such action, only to the extent the Indemnifying Party is
prejudiced by the failure to be so notified. In case any such action shall be
brought against an Indemnified Party and the Indemnified Party shall give
written notice to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such Indemnified Party. If the Indemnifying Party elects to
assume the defense of such action, the Indemnified Party shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof. If the Indemnifying Party elects not to assume (or fails to assume)
the defense of such action, the Indemnified Party shall be entitled to assume
the defense of such action with counsel of its own choice, at the expense of the
Indemnifying Party. If the action is asserted against both the Indemnifying
Party and the Indemnified Party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the Indemnifying
Party and the Indemnified Party, the Indemnifying Party shall be responsible for
paying for separate counsel for the Indemnified Party; provided, however, that
if there is more than one Indemnified Party, the Indemnifying Party shall not be
responsible for paying for more than one separate firm of attorneys to represent
the Indemnified Parties, regardless of the number of Indemnified Parties. If
the Indemnifying Party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent (which shall not be unreasonably
withheld) unless the sole relief provided is monetary damages that are paid in
full by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected without
its written consent (which shall not be unreasonably withheld).
15.5 Exclusivity. The parties hereto agree that, in relation to any breach,
-----------
default, or nonperformance of any representation, warranty, covenant, or
agreement made or entered into by a party hereto pursuant to this Agreement or
any certificate, instrument, or document delivered pursuant hereto or arising
out of the transactions contemplated herein or the ownership or operation of the
Operating Assets, the only relief and remedy available to the other party hereto
in respect of said breach, default, or nonperformance shall be:
68
(a) termination, but only if said termination is expressly permitted under
the provisions of Article XX; or
(b) actual damages, but only to the extent properly claimable hereunder
and as limited pursuant to this Article XV or otherwise hereunder; or
(c) specific performance if a court of competent jurisdiction in its
discretion grants the same; or
(d) injunctive or declaratory relief if a court of competent jurisdiction
in its discretion grants the same.
15.6 Assignment of Third Person Indemnities. To the extent the same are
--------------------------------------
assignable by an Indemnified Party, such Indemnified Party does hereby assign to
the Indemnifying Party all rights to defense, contribution and indemnity that
the Indemnified Party may hold with respect to the obligations for which the
Indemnifying Party is indemnifying and defending the Indemnified Party
hereunder, and the Indemnifying Party shall be subrogated to assert the
Indemnified Party's rights to such third-party defense, contribution and
indemnity obligations with respect to the indemnified claims or Actions.
ARTICLE XXX.XXX MATTERS
-----------
16.1 Indemnification for Taxes.
-------------------------
(a) Seller shall be responsible for, and shall indemnify Buyer against,
all (i) Income Taxes imposed on the Subsidiaries and the Partnership, and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive or
other), reasonable attorneys' fees, and expenses arising therefrom, relating to
(A) taxable periods or portions thereof ending on or before the Closing Date,
(B) Income Taxes resulting from the (S)(S) 338(g) and 338(h)(10) elections (or
any comparable elections under foreign, state or local tax law) contemplated by
Section 16.2, (C) Income Taxes resulting from the application of Treas. Reg. (S)
1.1502-6 or any comparable state, local or foreign tax law attributable to
Tesoro Parent, or any corporation or entity which is or has been affiliated with
or been part of a combined, unitary or affiliated group with Tesoro Parent, and
(D) the portion of the Income Taxes for any Straddle Period (as defined in
subsection 16.1(e)) allocable to Sellers with respect to any of the Subsidiaries
or the Partnership under subsection 16.2(f) and (ii) all Other Taxes imposed on
the Subsidiaries and the Partnership relating to the taxable periods or portions
thereof ending on or before the Effective Date (allocated as described in
Section 13.3); provided, Sellers shall not be responsible for, and shall not be
required to indemnify Buyer against, any Taxes to the extent that such Taxes do
not exceed the accrued liability for Taxes on the Balance Sheets which are taken
into account in determining the Working Capital.
(b) Buyer shall be responsible for and shall indemnify Sellers against all
(i) Income Taxes imposed upon the Subsidiaries and the Partnership and all
Liabilities, losses, costs, fines, penalties, damages (actual, punitive, or
other), reasonable attorneys' fees and expenses arising therefrom, relating to
(A) taxable periods beginning after the Closing Date or (B) the portion of the
Income Taxes for any Straddle Period which are allocable to Buyer under
subsection 16.2(f), and (ii) except as provided in Section 13.3 and in this
Article XVI, all Other Taxes imposed upon
69
the Subsidiaries and the Partnership and all Liabilities, losses, costs, fines,
penalties, damages (actual, punitive or other), reasonable attorneys fees and
expenses arising therefrom arising in or relating to taxable periods or portions
thereof beginning after the Effective Date (allocated as described in Section
13.3).
(c) Each Party shall promptly notify the other Party of the commencement
of any demand, claim, audit, examination, Action or other proposed change or
adjustment by any Taxing Authority concerning any Tax which could give rise to a
claim for indemnity pursuant to subsection 16.1(a) or subsection 16.1(b), as the
case may be (each a "Tax Claim"). Such notice shall contain factual information
describing the asserted Tax Claim in reasonable detail and shall include copies
of any notice or other document received from any Taxing Authority in respect of
any such asserted Tax Claim.
(d) Seller, at its own expense, shall have the sole right to represent the
Subsidiaries' and the Partnership's interests in any Tax Claim for Taxes for
which it is indemnifying Buyer against and to employ counsel of its choice.
Buyer shall have the right to participate in such Action at its own expense, but
in the case of Income Taxes, only in the event that any Tax Claim for Income
Taxes impacts a subsidiary for which no Section 338(h)(10) election was filed.
Seller shall not consent to any settlement that reasonably would be expected to
have an adverse effect on the Income Taxes of the Subsidiaries or the
Partnership in any period after the Closing Date without Buyer's consent, which
consent shall not be unreasonably withheld. Buyer's consent shall in no way
reduce any indemnification due to Buyer under subsection 16.1(a). If Seller
elects to control the defense, compromise or settlement of any Tax Claim, Seller
shall keep Buyer informed of the progress and disposition of such Tax Claim.
Buyer shall handle any other Tax Claims of the Subsidiaries and the Partnership
and Buyer shall be entitled to defend, compromise or settle such Tax Claims in
its sole discretion without in any way reducing its rights to indemnification
under subsection 16.1(a), unless any such settlement would give rise to a tax
claim against Seller, and in such event such settlement shall be subject to
Seller's consent, which shall not be unreasonably withheld.
(e) With respect to any taxable period of the Subsidiaries or the
Partnership beginning before and ending after the Closing Date (a "Straddle
Period"), Buyer shall control, and Seller, at its own expense, shall have the
right to participate in, the defense and settlement of any Tax Claim and each
Party shall cooperate with the other Party and there shall be no settlement or
closing or other agreement with respect thereto without the consent of the other
Party, which consent shall not be unreasonably withheld; provided, that if
either Party shall refuse (the "Refusing Party") to consent to any settlement,
closing or other agreement agreed to by the relevant Taxing Authority with
respect to any such Tax Claim that the other party (the "Accepting Party")
proposed to accept (a "Proposed Settlement"), then (i) the Accepting Party's
Liability with respect to the subject matter of the Proposed Settlement shall be
limited to the amount that such Liability would have been if the Proposed
Settlement had been accepted, and (ii) the Refusing Party shall be responsible
for all Liabilities and expenses incurred or imposed thereafter in connection
with the contest of such Tax Claim to the extent that the final settlement is
more than the Proposed Settlement.
70
16.2 Other Tax Matters.
-----------------
(a) All Tax sharing agreements between the Subsidiaries and any other
Person, including without limitation, the Affiliates of Seller, are hereby
terminated as of the Closing Date and all rights and obligations of the
Subsidiaries with respect to Taxes shall be as provided herein.
(b) Any Tax allocation agreement or arrangement in effect shall be
extinguished in full as of the Closing Date.
(c) Tax Returns (each a "Pre-Closing Return") which are required to be
filed with respect to the Subsidiaries or the Partnership on a consolidated,
unitary or other combined basis with the Tesoro Group, or the appropriate parent
for a taxable period which ends on or before the Closing Date (a "Pre-Closing
Period") shall be prepared and filed by (or shall be the responsibility of)
Seller, which shall include the preparation and filing of the consolidated
federal and state income Tax Returns of the Tesoro Group which includes the
Subsidiaries and the Partnership for the period up to and including the Closing
Date. In the case of those jurisdictions which require a short-period Tax Return
ending on or before the Closing Date, Seller shall prepare and file all
appropriate returns required to be filed with respect to Income Taxes
attributable to the operations and the Operating Assets for the pre-Closing
periods. All such Pre-Closing Returns shall be filed on a basis consistent with
prior Tax Returns filed with respect to the Subsidiaries and the Partnership.
Seller or the appropriate parent of the Subsidiaries or the Partnership shall
timely pay or cause to be paid all Taxes shown on such Pre-Closing Returns. All
Tax Returns which (i) are required to be filed by the Subsidiaries or the
Partnership on a separate basis (including the preparation of supporting
schedules, Tax Returns and other Tax information with respect to the
Subsidiaries and the Partnership necessary for completion of the Pre-Closing
Returns) after the Closing Date for a Pre-Closing Period (a "Post-Closing
Return"), and (ii) are required to be filed by or with respect to the
Subsidiaries or the Partnership for a taxable period that ends after the Closing
Date, including any Tax Return (a "Straddle Return") for a Straddle Period,
shall be prepared and filed by Buyer; subject to the rights to indemnification
and other rights under 16.1(a) and subsection 16.2(f), Buyer shall timely pay or
cause to be paid all Taxes shown on such Tax Returns.
(d) Seller agrees to provide Buyer and Buyer agrees to provide Seller with
such cooperation and information as the other shall reasonably request in
connection with the preparation or filing of any Tax Return required under this
Agreement.
(e) Seller shall use its reasonable efforts to cause any partnership or
Tax partnership in which the Subsidiaries or the Partnership are a partner to
make an election under Section 754 of the Code to adjust the basis of the assets
of such partnerships. Seller must amend all internal partnership agreements
accordingly prior to the Closing Date.
(f) With respect to any Straddle Period, to the extent permitted by
applicable law, the Subsidiaries shall elect to treat the Closing Date as the
last day of the taxable period. If applicable law, regulation or Governmental
Order will not permit the Closing Date to be the last day of a period, the
Income Tax attributable to the operations of the Subsidiaries and the
Partnership for the portion of the period up to and including the Closing Date
shall be (i) in the case of a flat minimum dollar amount Tax, the total amount
of such Taxes multiplied by a
71
fraction, the numerator of which is the number of days in the partial period
through and including the Effective Time and the denominator of which is the
total number of days in such Straddle Period, and(ii) in the case of all Income
Taxes, the Tax computed on the basis of the taxable income or loss of the
Subsidiaries or the Partnership for the partial period through and including the
Closing Date as determined from their Books and Records. All Other Taxes
arising with or related to a Straddle Period will be allocated as provided in
Section 13.3.
(g) With respect to any Post-Closing Return or Straddle Return, Buyer shall
deliver, at least 30 days prior to the due date for filing such Tax Return
(including any extension) to Seller a statement setting forth the amount of
Income Tax which Seller owes pursuant to subsection 16.1(a), including the
allocation of Taxes under subsection 16.2(f), and copies of such Tax Return.
Seller shall have the right to review such Tax Returns and the allocation of
Taxes and to suggest to Buyer any reasonable changes to such Tax Returns no
later than 15 days prior to the date for the filing of such Tax Returns. Seller
and Buyer agree to consult and to attempt to resolve in good faith any issue
arising as a result of the review of such Tax Returns and allocation of Taxes
and mutually to consent to the filing as promptly as possible of such Tax
Returns. Not later than 15 days before the due date for the payment of Income
Taxes with respect to such Tax Returns, Seller shall pay to Buyer an amount
equal to the Income Taxes as agreed to by Buyer and Seller as being owed by
Seller, pursuant to subsection 16.1(a). In the event that Buyer and Seller
cannot agree on the amount of Income Taxes owed by Seller, with respect to a
Straddle Return or a Post-Closing Return, Seller shall pay to Buyer the amount
of Income Taxes reasonably determined by Buyer to be owed by them pursuant to
subsection 16.1(a). Within ten (10) days following such payment, Seller and
Buyer shall refer the matter to an independent "Big-Five" accounting firm agreed
to by Buyer and Seller to arbitrate the dispute. Seller and Buyer shall equally
share the fees and expenses of such accounting firm, and its determination as to
the amount owing by Seller, pursuant to Section 16.1(a) with respect to a
Straddle Return or Post-Closing Return shall be binding on both parties. Within
five (5) days of the determination by such accounting firm, if necessary, the
appropriate Party shall pay the other Party any amount which is determined by
such accounting firm to be owed. Seller shall be entitled to reduce its
obligation to pay Taxes with respect to a Straddle Return or a Post-Closing
Return by the amount of any estimated Taxes paid with respect to such Taxes by
or on behalf of the Subsidiaries on or before the Closing Date.
(h) Seller shall have the right to all refunds of Taxes (including interest
thereon), which relate to Taxes of the Subsidiaries for Pre-Closing Periods and
Straddle Periods, to the extent provided in the following sentences. Buyer shall
pay over to Seller any such refunds within ten (10) days of receipt thereof, net
of any Taxes imposed on Buyer or the Subsidiaries by reason of the receipt of
such refund. To the extent any refund of Taxes is made with respect to a Pre-
Closing Period or a Straddle Period, such refund shall be apportioned between
Buyer and Seller, based on the appropriate allocation method set forth in
Section 16.2(f).
(i) Buyer and Seller agree to consult and resolve in good faith any issues
arising in connection with the preparation or review of any Tax Return or the
calculation of any Tax described in this Section 16.2.
(j) Both Seller and Buyer will join in making a timely and effective
election under Section 338(h)(10) of the Code (and any comparable provision of
foreign, state or local law) with respect to the purchase by Buyer of the stock
of Exploration and Reserves hereunder
72
(collectively, together with the elections under Section 338(g) of the Code and
any comparable provision of foreign, state or local law, the "Section 338(h)(10)
Elections"). At the Closing, Seller and Buyer shall execute IRS Form 8023,
completed to the extent reasonably practicable for those Subsidiaries. Seller
and Buyer agree to take all other action and file all other necessary reports to
elect validly pursuant to Section 338(h)(10) of the Code to treat the
Transaction as a sale of assets as opposed to a sale of the stock of Exploration
and Reserves. Within 120 days after the Closing Date, Buyer shall deliver to
Seller any additional information or required schedules thereto and any similar
forms under applicable state or local law (the "Forms") with respect to Taxes
relating to Buyer's purchase of the stock of Exploration and Reserves and their
interests in the Partnership. Provided that the information on such Forms is, in
the reasonable determination of Seller, correct and complete in all material
respects, Seller will consent to the filing of such Forms. Seller and Buyer
shall cooperate fully with each other and make available to each other such Tax
data and other information as may be reasonably required by Seller or Buyer in
order to prepare and timely file the Forms and any other required statements or
schedules. With respect to the Sections 338(h)(10) Elections, the Modified
Aggregate Deemed Sales Price as defined in Treas. Reg. Section 1.338(h)(10)-1
shall be allocated among the stock of Exploration and Reserves pursuant to
Treas. Reg. Section 1.338(h)(10)-1. The Buyer and the Seller shall use their
good faith best efforts to agree upon such allocation. The Seller shall provide
to the Buyer a schedule and supporting material reflecting such allocation for
the Buyer's review and consent, which consent shall not be unreasonably
withheld. The parties shall take no action inconsistent with, or fail to take
any action necessary for the validity of, the Section 338(h)(10) Elections, and
shall adopt and utilize the asset values determined from such allocation for the
purpose of all tax returns filed by them, and shall not voluntarily take any
action inconsistent therewith upon examination of any tax return, in any refund
claim, in any litigation or otherwise with respect to such tax returns. In the
event that Buyer and Seller are unable to resolve any disagreements regarding
the allocation of the "modified aggregate deemed sales price" (as defined under
applicable Treasury Regulations) among the assets or other aspects of the Forms,
Buyer (i) shall be entitled to file the Forms, but only if either the
information not agreed upon is deleted or the Forms reflect that the information
has not been agreed upon; or (ii) if acceptable to Buyer and Seller within 30
days after notice of such disagreement, the matter in dispute shall be resolved
as soon as practicable by a "Big Five" independent accounting firm or, if the
disagreement involves valuation, to a nationally recognized appraisal firm
mutually satisfactory to the parties (but in no event longer than 30 days),
which resolution shall be binding and conclusive upon Buyer and Seller without
further appeal therefrom. Buyer and Seller shall bear equally the fees and
expenses of such firm. Buyer will timely file the Forms, and any required
supplements thereto, in the manner prescribed by Treasury Regulation
1.338(h)(10)-1(d) or the corresponding provisions of applicable foreign, state
or local law, and will provide written evidence to Seller that it has done so.
Buyer and Seller agree that neither of them will take, or permit any of their
Affiliates to take, any action to modify or revoke the elections contained in or
the content of any Forms without the express written consent of the other.
(k) At the Closing, Seller, the Subsidiaries and the Partnership each shall
deliver to Buyer certificates signed under penalties of perjury (i) stating that
it is not a foreign corporation, foreign partnership, foreign trust or foreign
estate, (ii) providing its U.S. Employer Identification Number and (iii)
providing its address, all pursuant to Section 1445 of the Code.
73
16.3 Exclusive Remedy for Taxes. This Article XVI provides the sole and
--------------------------
exclusive remedy for any claim against Seller for indemnification, damages or
breach of any representation or warranty with respect to or relating to Taxes.
ARTICLE XVII.DEFAULT AND REMEDIES
--------------------
17.1 Liabilities Upon Termination. If Closing does not occur due to
----------------------------
Seller's violation of the terms of this Agreement, then Buyer may seek such
legal or equitable remedies as Buyer may desire including, without limitation,
damages for the breach or failure of any representation, warranty, covenant or
agreement contained herein and the right to enforce specific performance of this
Agreement. If Closing does not occur due to Buyer's violation of the terms of
this Agreement, then Seller may seek such legal or equitable remedies as Seller
may desire, including, without limitation, damages for the breach or failure of
any representation, warranty, covenant or agreement contained herein and the
right to enforce specific performance of this Agreement.
17.2 Recovery of Costs. The prevailing Party in any litigation or
-----------------
alternative dispute resolution proceeding between the Parties in a dispute
arising under this Agreement shall be entitled to recover, from the other Party,
reimbursement for reasonable attorneys fees, expert fees, court costs and costs
of discovery and investigation.
17.3 Waiver of Extraordinary Damages. To the full extent allowed by law,
-------------------------------
and except as may be included in third party damages subject to any indemnity
obligation hereunder, the Parties hereby waive and release any rights or claims
to punitive or exemplary damages resulting from a breach of this Agreement . The
parties hereby waive the application of the Texas Deceptive Trade Practices-
Consumer Protection Act to the Transaction.
17.4 Waiver of Jury Trial. Seller and Buyer do hereby irrevocably waive, to
--------------------
the fullest extent permitted by law, any and all right to a trial by jury in any
action, suit or other legal proceeding based upon, arising out of or relating to
this Agreement or the Transaction.
17.5 Independent Obligations. The express release, indemnity, defense and
-----------------------
hold harmless obligations contained herein shall exist separate and independent
from the representations and warranties in this Agreement, and the limitations
of representations and warranties shall not be construed to limit the scope of
the express releases, indemnities, and defense and hold harmless obligations.
17.6 Changes of Law. Sellers do not make any representations and warranties
--------------
and do not assume any responsibilities or liabilities for any Damages to Buyer
arising out of or related to changes in the law or new interpretations of
existing law that may occur after Closing.
74
17.7 Merger. No representations, warranties, indemnities, covenants or
------
other provisions of this Agreement shall merge with provisions of any other
instrument.
ARTICLE XVIII.NOTICES
-------
18.1 Notices. All notices authorized or required by any of the provisions
-------
of this Agreement, unless otherwise specifically provided, shall be in writing
and delivered in person or by United States mail, courier service, telegram, or
telephone facsimile, postage or charges prepaid, and addressed to the Parties at
the respective addresses set forth below:
If to Seller: Tesoro Petroleum Corporation.
0000 Xxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxx, Xx.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
With a copy to: Fulbright & Xxxxxxxx L.L.P.
0000 XxXxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
If to Buyer: EEX Operating L.L.C.
0000 Xxxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
With a copy to: Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
1900 Pennzoil Place--South Tower
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. (Skip) Xxxxx
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
Any Party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
ARTICLE XIX.CONFIDENTIALITY AND DISCLOSURES
-------------------------------
75
19.1 Non Disclosure of Data. To the extent Buyer does not acquire all of
----------------------
the Common Stock for any reason, Buyer shall not directly or indirectly disclose
or use any materials, data or other information provided by or obtained from
Seller, the Subsidiaries or the Partnership, and Buyer and its representatives
shall continue to be bound by the terms of the existing Confidentiality
Agreement dated June 17, 1999, between the Parties.
19.2 Public Announcements. The Parties hereto agree that prior to making
--------------------
any public announcement or statement with respect to the Transaction, the Party
desiring to make such public announcement or statement shall consult with the
other Party and exercise reasonable efforts to obtain the consent of the other
Party to the text of such public announcement or statement. If the Parties
cannot agree upon the text of any such public disclosure, a Party may
nevertheless disclose information with respect to the to the extent required by
applicable law or by any applicable rules, regulations or orders of any
governmental or judicial authority or agency having jurisdiction or to the
extent such disclosure is necessary to comply with requirements of the New York
Stock Exchange.
ARTICLE XX.TERMINATION
-----------
20.1 Termination. Notwithstanding anything herein to the contrary, this
-----------
Agreement and the Transaction may be terminated in the following instances:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By Seller, if the Settlement Price Adjustment exceeds fifteen percent
(15%) of the Purchase Price; or by Buyer, if the sum of the Settlement Price
Adjustment and any reductions to the purchase price as a result of the exercise
by third parties of Preferential Rights to Purchase described in Section 6.5(a)
exceeds fifteen percent (15%) of the Purchase Price;
(c) By Seller or Buyer, if any of the Environmental Price Adjustment,
Casualty Price Adjustment or Title Price Adjustment individually exceeds ten
percent (10%) of the Purchase Price; or
(d) By Buyer or Seller, if Closing has not taken place before December 31,
1999 (which date shall be extended until five Business Days after the resolution
of any disputed matters submitted to arbitration under Section 21.16 to the
extent still pending on December 31, 1999); provided, however, that the Party
seeking to terminate this Agreement pursuant to Section 20.1(d) shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate the
Transaction prior to December 31, 1999.
ARTICLE XXI.MISCELLANEOUS
-------------
21.1 Entire Agreement. This Agreement embodies the entire agreement between
----------------
the Parties (superseding all prior agreements, negotiations, representations,
discussions, arrangements and understandings related to the subject matter
hereof), and may be supplemented, altered, amended, modified or revoked only by
a written instrument signed by each of the Parties; provided, however, the
Confidentiality Agreement dated June 17, 1999, between the Parties shall remain
effective until Closing. If the sale of the Operating Assets to Buyer is not
consummated, then the Confidentiality Agreement shall remain effective as stated
therein.
76
21.2 No Verbal Modifications or Waivers. Any of the terms, provisions,
----------------------------------
covenants, representations, warranties or conditions Waivers hereof may be
supplemented, amended, modified, released or waived only by a written instrument
executed by the Parties. Except as otherwise expressly provided in this
Agreement, the failure of any Party at any time or times to require performance
of any provision hereof shall in no manner affect such Party's right to enforce
the same. No waiver by any Party of any condition, or of the breach of any term,
provision, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
21.3 Severability. If any term or provision of this Agreement is held to
------------
be illegal, invalid or unenforceable, the legality, validity and enforceability
of the remaining terms and provisions of this Agreement shall not be affected
thereby, and in lieu of each such illegal, invalid or unenforceable term or
provision, there shall be added automatically to this Agreement a legal, valid
and enforceable term or provision as similar as possible to the term or
provision declared illegal, invalid or unenforceable.
21.4 Interpretation. Words of any gender used in this Agreement shall be
--------------
held and construed to include any other gender, and words in the singular shall
be held to include the plural, unless the context otherwise requires. None of
the terms or conditions of this Agreement, including any Exhibits or Schedules
hereto, shall be construed for or against any Party hereto on the basis that
such Party did or did not author the same. All terms of this Agreement and the
Exhibits shall be harmonized, but in the event of any conflict between the
definition of a term in Article I and a more complete description or limitation
of such term in a subsequent Article, the subsequent Article shall prevail. The
Article and Section headings are for convenience only and shall have no
significance in the interpretation hereof.
21.5 Counsel. Each Party expressly acknowledges that it was represented by
-------
counsel of its own selection in negotiation and preparation of the terms of the
Agreement and the attached Exhibits and that it is sophisticated and experienced
in transactions of this type and is aware of all terms and conditions contained
herein. Each Party shall be responsible for the costs and expenses of its own
counsel.
21.6 Governing Law. This Agreement and other documents delivered pursuant
-------------
to this Agreement and the legal relations between the Parties shall be governed
and construed and enforced in accordance with the laws of the State of Texas,
without giving effect to principles of conflict of laws.
21.7 Consents. Except as expressly provided otherwise herein, any consent
--------
required of a Party with respect to any matters covered by this Agreement shall
not be unreasonably withheld or action with respect thereto unduly delayed.
21.8 Time of Essence. Time is of the essence in all matters provided for in
---------------
this Agreement.
21.9 Binding Effect, Assignment. All the terms, provisions, covenants,
--------------------------
representations, warranties and conditions of this Agreement shall be binding
upon and inure to
77
the benefit of and be enforceable by the Parties and, except as otherwise
prohibited, their respective successors; however, this Agreement and the rights
and obligations hereunder shall not be assignable or delegable by any Party
without the express written consent of the non-assigning or non-delegating
Parties, which consent may be withheld for any or no reason. Any assignment or
delegation without such consent will be void.
21.10 No Relationship. Nothing contained in this Agreement shall be deemed
---------------
to create a joint venture, partnership, agency or other fiduciary relationship
between the Parties, nor is this Agreement intended to create, nor shall it be
construed to create, any rights in any third party, to create any third party
beneficiaries or to ratify, adopt or confirm any other lease, agreement or other
instrument, whether or not affecting the Subsidiaries, the Partnership or the
Operating Assets. Notwithstanding the above, the Parties acknowledge that the
Transaction shall be subject to the rights of all third parties holding
Preferential Rights to Purchase and Consents to Assignment concerning the
Operating Assets, to the extent that they are valid, in effect and enforceable
by reason of the Transaction, and that such third party rights shall be handled
as set forth herein.
21.11 No Recordation. Without limiting any Party's right to file suit to
--------------
enforce its rights under this Agreement, Buyer and Seller expressly covenant and
agree not to record or place of record this Agreement or any copy or memorandum
hereof, unless required under the Securities Exchange Act of 1934.
21.12 Exhibits and Schedules. All Exhibits and Schedules which are referred
----------------------
to herein are hereby made a part hereof and incorporated herein by reference.
21.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each and every counterpart shall be deemed for all purposes
one agreement.
21.14 No Third Party Beneficiaries. Any agreement contained, expressed or
----------------------------
implied in this Agreement shall be only for the Beneficiaries benefit of the
Parties hereto and the Indemnified Parties specified in Article XV and their
respective legal representatives, successors and assigns. Such agreements shall
not inure to the benefit of any employees of the Subsidiaries or the Partnership
(except in their capacity as Indemnified Parties) or the obligees of any
indebtedness of any Party hereto, it being the intention of the Parties hereto
that no Person shall be deemed a third party beneficiary of this Agreement,
except to the extent a third Person is expressly given rights herein.
21.15 Joint and Several Liability. Tesoro Petroleum Corporation and
---------------------------
Tesoro Gas Resources Company, Inc. agree to be jointly and severally liable for
all of the Seller's duties and obligations hereunder.
21.16 Dispute Resolution. If despite their good faith efforts to do so,
------------------
the Parties are unable to reach agreement (or the matter is not otherwise
resolved pursuant to Section 6.3 or 7.7, as applicable) regarding (i) the
existence of a Title Defect or Environmental Condition, (ii) the value of a
Title Defect or Environmental Condition (and the corresponding Property Value
Reduction or Environmental Condition Value Reduction) or the value of a Property
Value Increase, or (iii) the cure, partial cure or failure to cure of a Title
Defect or Environmental Condition, either Party may elect to refer the matter to
arbitration in accordance with the commercial arbitration rules of the American
Arbitration Association (the "AAA") (expedited
78
procedures). The AAA shall be instructed to choose a neutral arbitrator (the
"Arbitrator") who shall have a minimum of 15 years experience in the oil and gas
industry, such that he or she is considered an expert on the oil and gas matters
in dispute. Notice of a Party's election to submit the matter for arbitration
shall be given promptly to the other Party pursuant to Article XVIII. Upon
receipt by a Party of notice that an Arbitrator has been appointed, such Party
shall have ten (10) days to provide the Arbitrator (and the other Party) with a
statement of its position (with supporting documentation) regarding the matter
or matters in dispute, together with its best and final offer for settlement of
the dispute. The failure to provide a statement of position within this period
shall constitute a waiver of a party's right to have such materials considered
by the Arbitrator. The Arbitrator shall consider the statements of position
submitted by the parties and shall, within ten (10) business days after receipt
of such materials, issue his or her decision adopting the best and final
statement offer for settlement of the dispute provided either by Buyer or
Seller. All determinations made by the Arbitrator shall be final, conclusive and
binding on the Parties. Each Party will pay one-half of the fees of the
Arbitrator and all other arbitration fees and expenses and the fees of their
respective arbitrators (if required).
21.17 EEX Corporation Guarantee. EEX Corporation, Buyer's parent, (a)
--------------------------
agrees to be jointly and severally liable with the Buyer for all of Buyer's
payment obligations under this Agreement and (b) irrevocably and unconditionally
guarantees the performance by Buyer of its indemnity obligations under Article
XV.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
SELLER
------
TESORO PETROLEUM CORPORATION TESORO GAS RESOURCES
COMPANY, INC.
By: /s/ Xxxxx X Xxxxx By: /s/ Xxxxxxx X. Xxxxxx
------------------------------ ------------------------------
Name: Xxxxx X. Xxxxx Name: Xxxxxxx X. Xxxxxx
Title: Chairman of the Board of Directors, Title: President
President and Chief Executive Officer
BUYER
-----
EEX OPERATING LLC
By: EEX CORPORATION
By /s/ T. M Xxxxxxxx
----------------------
79
Name: X. X. Xxxxxxxx
Title: Chairman and President, Chief Executive Officer
EEX CORPORATION
for purposes of Section 21.17
By /s/ T. M Xxxxxxxx
-----------------------------
Name: X. X. Xxxxxxxx
Title: Chairman and President, Chief Executive Officer
80
