Exhibit 10.2
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
QUICKSILVER RESOURCES INC.,
QUICKSILVER ENERGY, L.C.,
MICHIGAN GAS PARTNERS, LIMITED PARTNERSHIP,
MERCURY EXPLORATION COMPANY,
TRUST COMPANY OF THE WEST,
IN THE CAPACITY DESCRIBED ON THE SIGNATURE PAGES HERETO,
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
MARCH 31, 1998
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TABLE OF CONTENTS
ARTICLE I.
THE MERGER; THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certificate of Incorporation and Bylaws of the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Directors and Officers of the Surviving Corporation. . . . . . . . . 2
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Conversion or Cancellation of Interests in the Constituent
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II.
TRANSFER OF ASSETS; PREPAYMENT OF INDEBTEDNESS. . . . . . . . . . . . . . 3
2.1 Transfer of Assets of Mercury. . . . . . . . . . . . . . . . . . . . 3
2.2 Transfer of Assets of QELC . . . . . . . . . . . . . . . . . . . . . 4
2.3 Transfers of Interests of Individuals. . . . . . . . . . . . . . . . 4
2.4 Prepayment Of Indebtedness . . . . . . . . . . . . . . . . . . . . . 4
2.5 Balance Sheet and Adjustments. . . . . . . . . . . . . . . . . . . . 5
2.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . 6
3.1 Representations and Warranties of Mercury, QELC, MGP and QRI . . . . 7
(a) Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) No Conflicts or Violations. . . . . . . . . . . . . . . . . . . 8
(e) Licenses; No Violations . . . . . . . . . . . . . . . . . . . . 9
(f) Governmental Filings and Consents . . . . . . . . . . . . . . . 9
(g) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . 9
(i) Financial Statements and Reserve Reports. . . . . . . . . . . .12
(j) No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . .13
(k) No Material Adverse Change. . . . . . . . . . . . . . . . . . .13
(l) Employee Benefit Matters. . . . . . . . . . . . . . . . . . . .13
(m) Investment Company Act; Public Utility Holding Company Act. . .13
(n) Environmental Matters . . . . . . . . . . . . . . . . . . . . .14
(o) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(p) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(q) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(r) No Restrictions on Affiliates . . . . . . . . . . . . . . . . .17
(s) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .18
(t) Certain Transaction . . . . . . . . . . . . . . . . . . . . . .18
(u) Plugging and Abandonment Obligations. . . . . . . . . . . . . .18
(v) No Material Misstatements or Omission . . . . . . . . . . . . .18
(w) Fees and Commission . . . . . . . . . . . . . . . . . . . . . .19
(x) Preferential Purchase Rights. . . . . . . . . . . . . . . . . .19
(y) Certain Payments. . . . . . . . . . . . . . . . . . . . . . . .19
(z) Imbalances, etc.. . . . . . . . . . . . . . . . . . . . . . . .19
3.2 Representations and Warranties of JEDI . . . . . . . . . . . . . . .20
(a) Organization and Authority. . . . . . . . . . . . . . . . . . .20
(b) No Conflicts or Violations. . . . . . . . . . . . . . . . . . .20
(c) Fees and Commissions. . . . . . . . . . . . . . . . . . . . . .20
(d) Certain Transactions. . . . . . . . . . . . . . . . . . . . . .20
3.3 Representations and Warranties of TCW. . . . . . . . . . . . . . . .20
(a) Organization and Authority. . . . . . . . . . . . . . . . . . .20
(b) No Conflicts or Violations. . . . . . . . . . . . . . . . . . .21
(c) Fees and Commissions. . . . . . . . . . . . . . . . . . . . . .21
(d) Certain Transactions. . . . . . . . . . . . . . . . . . . . . .21
3.4 Representations and Warranties of Mercury and QELC. . . . . . . . .21
ARTICLE IV.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.1 Certain Covenants of QRI, QELC, MGP and Mercury. . . . . . . . . . .22
(a) Interim Operations. . . . . . . . . . . . . . . . . . . . . . .22
(b) Negative Covenants. . . . . . . . . . . . . . . . . . . . . . .22
(c) Other Operational Covenants . . . . . . . . . . . . . . . . . .23
(d) Inspection and Access to Information. . . . . . . . . . . . . .23
4.2 Certain Additional Covenants of the Parties. . . . . . . . . . . . .23
(a) Certain Filings, Consents and Arrangements. . . . . . . . . . .23
(b) Notification of Certain Matters . . . . . . . . . . . . . . . .24
(c) Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . .24
4.3 Additional Covenants of Mercury, QELC, MGP and QRI . . . . . . . . .24
ARTICLE V.
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.1 Conditions to the Closing. . . . . . . . . . . . . . . . . . . . . .25
(a) Representations and Warranties. . . . . . . . . . . . . . . . .25
(b) Pending Litigation. . . . . . . . . . . . . . . . . . . . . . .25
(c) Other Consents and Filings. . . . . . . . . . . . . . . . . . .26
(d) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . .26
-ii-
(e) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . .26
(f) Stockholders Agreement. . . . . . . . . . . . . . . . . . . . .26
(g) Registration Rights Agreement . . . . . . . . . . . . . . . . .26
(h) Stock Transfer Agreement. . . . . . . . . . . . . . . . . . . .26
(i) Management Agreement. . . . . . . . . . . . . . . . . . . . . .26
(j) Letter Agreement. . . . . . . . . . . . . . . . . . . . . . . .26
(k) Assignment and Assumption Documents . . . . . . . . . . . . . .26
(q) Charter Amendment . . . . . . . . . . . . . . . . . . . . . . .28
(s) 3/31/98 Balance Sheet . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VI.
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
6.1 Termination by Mutual Consent. . . . . . . . . . . . . . . . . . . .28
6.2 Termination by Individual Parties. . . . . . . . . . . . . . . . . .28
ARTICLE VII.
MISCELLANEOUS; GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . .28
7.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .28
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .29
(a) Indemnification of JEDI and TCW . . . . . . . . . . . . . . . .29
(b) Indemnification of Mercury, TCW and QRI . . . . . . . . . . . .29
(c) Indemnification of Mercury, JEDI and QRI. . . . . . . . . . . .30
(d) Notice and Defense of Third-Party Claims. . . . . . . . . . . .30
(d) Termination of Indemnification Obligations. . . . . . . . . . .31
7.4 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . .31
7.5 Business Opportunity Matters . . . . . . . . . . . . . . . . . . . .32
7.6 Modification or Amendment. . . . . . . . . . . . . . . . . . . . . .32
7.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
7.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.9 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.10 Schedules and Exhibits; Entire Agreement . . . . . . . . . . . . . .34
7.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
7.12 Titles and Captions. . . . . . . . . . . . . . . . . . . . . . . . .35
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INDEX OF DEFINITIONS
Definition Page
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3/31/98 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Basic Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Calendar First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Constituent Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Defensible Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Final Settlement Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Governmental Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Hydrocarbon Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Hydrocarbons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JEDI Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . .26
XxXxxxx Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Letter Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
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Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Mercury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mercury Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MGP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MGP Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
OPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Put/Call Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
QELC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QELC Holditch Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
QRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QRI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Representatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Royalty Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Stock Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCW Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TCW Registration Rights Agreement. . . . . . . . . . . . . . . . . . . . . . .26
TCW Release Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Third-Party Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
TRLPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-v-
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
dated as of March 31, 1998, is by and among Quicksilver Resources Inc., a
Delaware corporation ("QRI"), Quicksilver Energy, L.C., a Michigan limited
liability company ("QELC"), Michigan Gas Partners, Limited Partnership, a Texas
limited partnership ("MGP"), Mercury Exploration Company, a Texas corporation
("Mercury"), Trust Company of the West, a California trust company, in its
capacity described on the signature pages hereto ("TCW"), and Joint Energy
Development Investments Limited Partnership, a Delaware limited partnership
("JEDI"). QRI and MGP are sometimes collectively referred to herein as the
"Constituent Entities."
R E C I T A L S
WHEREAS, Mercury is the sole general partner and JEDI is the sole limited
partner of MGP, and Mercury and certain affiliates of Mercury own a majority of
the membership interests in QELC; and
WHEREAS, the parties hereto desire to combine certain oil and natural gas
properties owned by MGP, Mercury and QELC by causing MGP to be merged with and
into QRI and by causing certain assets and liabilities of Mercury and QELC to be
transferred to and assumed by QRI; and
WHEREAS, QELC and Mercury have certain indebtedness to TCW and NationsBank
of Texas, N.A. which the parties desire to restructure;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, agreements and conditions specified in this Agreement,
the parties hereto agree as follows:
ARTICLE I.
THE MERGER; THE SURVIVING CORPORATION
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.5), MGP shall be merged with
and into QRI and the separate existence of MGP shall thereupon cease (the
"Merger"). QRI shall be the surviving corporation of the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
be governed by the laws of the State of Delaware, and the separate corporate
existence of QRI shall continue, and QRI shall possess all the rights,
privileges, powers and franchises as well of a public as of a private nature,
and be subject to all the restrictions, disabilities and duties, of each of
the Constituent Entities; and all and singular the rights, privileges, powers
and franchises of each of the Constituent
Entities, and all property, real, personal and mixed, and all debts due to
any of the Constituent Entities on whatever account, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
respective Constituent Entities, and the title to any real estate vested by
deed or otherwise, in any of the Constituent Entities, shall not revert or be
in any way impaired; but all rights of creditors and all liens upon any
property of any of the Constituent Entities shall be preserved unimpaired,
and all debts liabilities and duties of the respective Constituent Entities
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts and liabilities had been
incurred or contracted by it. The Merger shall have the effects specified in
the Delaware General Corporation Law (the "DGCL") and the Texas Revised
Limited Partnership Act (the "TRLPA").
1.2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation and the Bylaws of QRI in effect
at the Effective Time shall be the Certificate of Incorporation and the
Bylaws of the Surviving Corporation until duly amended in accordance with the
terms thereof and the DGCL.
1.3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of QRI shall, from and after the Effective Time, be the
directors and officers of the Surviving Corporation until their respective
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
1.4 CLOSING. The Closing of the Merger and the transactions
contemplated by Article II of this Agreement (the "Closing") shall take place
at such place and time as the parties hereto may agree, on the soonest
practicable date following the fulfillment or, to the extent permissible, the
waiver of all of the conditions to Closing set forth in Article V hereof.
The "Closing Date" shall be the date on which the Closing occurs.
1.5 EFFECTIVE TIME. On the Closing Date, QRI and MGP shall cause a
Certificate or Articles of Merger (the "Articles") effecting the Merger to be
properly executed and filed with the Secretaries of State of the States of
Delaware and Texas in accordance with the DGCL and the TRLPA. The Merger
shall become effective at the time at which the Articles have been duly filed
with the Secretaries of State of the States of Delaware and Texas or at such
time thereafter as provided in the Articles, and such time is herein referred
to as the "Effective Time."
1.6 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its rights, title or interest in, to
or under any of the rights, properties or assets of any of the Constituent
Entities acquired or to be acquired by the Surviving Corporation
-2-
as a result of, or in connection with, the Merger or otherwise to carry out
the purposes of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of the Constituent Entities or otherwise, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and
on behalf of each of the Constituent Entities or otherwise, all such other
actions and things as may be necessary, desirable or proper to vest, perfect
or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
1.7 CONVERSION OR CANCELLATION OF INTERESTS IN THE CONSTITUENT
ENTITIES. At the Effective Time, all of the partnership interests of JEDI in
MGP shall, by virtue of the Merger and without any action on the part of
JEDI, be converted into the right to receive 13,000 shares of common stock,
par value $.01 per share, of QRI ("QRI Common Stock"). At the Closing, QRI
shall cause a certificate or certificates, at JEDI's request, representing
such shares of QRI Common Stock to be issued to JEDI. At the Effective Time,
all of the partnership interests of Mercury in MGP shall be canceled without
payment of any consideration therefor. At the Effective Time, MGP shall be
dissolved, and, notwithstanding any provision of the Agreement of Limited
Partnership of MGP to the contrary, no partner of MGP shall be required to
restore any deficit in its capital account upon such dissolution. At the
Effective Time, all shares of QRI Common Stock outstanding immediately prior
to the Effective Time shall be canceled without payment of any consideration
therefor.
ARTICLE II.
TRANSFER OF ASSETS; PREPAYMENT OF INDEBTEDNESS
2.1 TRANSFER OF ASSETS OF MERCURY. At the Closing, Mercury shall
transfer to QRI (i) effective as of 7:00 a.m. on January 1, 1998 (the
"Effective Date") in the locations of the Oil and Gas Properties, as
hereafter defined, all of its Oil and Gas Properties in the states of
Michigan and Wyoming, and to the extent set forth on Schedule 3.1(h),
Montana, except for the assets listed on SCHEDULE 2.1.1 hereto and (ii)
effective as of the Closing Date, the assets shown on the 3/31/98 Balance
Sheet as hereafter defined (collectively, the "Mercury Properties"). As
consideration therefor, at the Closing, QRI shall (i) assume the Indebtedness
(as defined below) of Mercury, as of the Effective Date, described on
SCHEDULE 2.1.2 hereto (which such assumption shall not include any over
production liabilities from the Mercury Properties) and any other liabilities
that arise on or after January 1, 1998 and relate solely to the Mercury
Properties, and (ii) QRI shall issue 32,257 shares of QRI Common Stock to
Mercury. At the Closing, QRI shall cause a certificate or certificates, at
Mercury's request, representing such shares of QRI Common Stock to be issued
to Mercury.
As used herein, "Indebtedness" means, without duplication, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services, (ii) all obligations
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evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (if the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all capitalized
lease obligations, (v) all indebtedness referred to in clause (i), (ii),
(iii) or (iv) above of other persons, the payment of which is secured by (or
for which the holder of such indebtedness has an existing right, contingent
or otherwise, to be secured by) any lien upon or in property (including,
without limitation, accounts and contract rights) owned, even though such
person has not assumed or become liable for the payment of such indebtedness,
(vi) all guaranteed debt, and (vii) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (i) through (vi) above.
2.2 TRANSFER OF ASSETS OF QELC. At the Closing, QELC shall transfer to
QRI (i) effective as of 7:00 a.m. on the Effective Date in the locations of
the Oil and Gas Properties, as hereafter defined, all of its Oil and Gas
Properties in the states of Michigan, Wyoming and, to the extent set forth on
Schedule 3.1(h), Montana, except for the assets listed on SCHEDULE 2.2.1
hereto and (ii) effective as of the Closing Date the assets shown on the
3/31/98 Balance Sheet (collectively, the "QELC Properties"). As
consideration therefor, at the Closing, QRI shall assume (i) the Indebtedness
of QELC, as of the Effective Date, described on SCHEDULE 2.2.2 hereto (which
such assumption shall not include any over production liabilities from the
QELC Properties) and any other liabilities that arise on or after January 1,
1998 and relate solely to the QELC Properties, and (ii) shall issue 29,395
shares of QRI Common Stock to QELC. At the Closing, QRI shall cause a
certificate or certificates, at QELC's request, representing such shares of
QRI Common Stock to be issued to QELC.
2.3 TRANSFERS OF INTERESTS OF INDIVIDUALS. At the Closing, each of
Xxxxx Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxx Xxxxxx Self, Xxxx Xxxx
and Xxxx X. Xxxxxxx shall transfer to QRI any interest owned by each such
person in any of the assets of Mercury or QELC to be transferred to QRI
pursuant to SECTION 2.1 or SECTION 2.2 hereof, or in any property burdened by
or covered by any Hydrocarbon Interests as of 1/1/98 which constitute Mercury
Properties, QELC Properties and MGP Properties or any other rights or
interests of QRI and its assets, and shall waive any claims that each such
person may have with respect to such assets or any revenues therefrom. As
consideration for such transfer and waiver, at the Closing QRI shall issue
2,356 shares of QRI Common Stock to Xxxxx Xxxxxx, 2,356 share of QRI Common
Stock to Xxxxxx X. Xxxxxx, 2,356 share of QRI Common Stock to Xxxxx X.
Xxxxxx, 2,356 shares of QRI Common Stock to Xxxx Xxxxxx Self, and 2,924
shares of QRI Common Stock to Xxxx X. Xxxxxxx. At the Closing, QRI shall
cause a certificate or certificates, at such person's request, representing
such shares of QRI Common Stock to be issued to each such person.
2.4 PREPAYMENT OF INDEBTEDNESS. At the Closing, as prepayment of and
in full satisfaction of outstanding principal, interest and fees under the
Note (to be assumed at Closing by
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QRI pursuant to Section 2.2 above) under the Credit Agreement (the "TCW
Credit Agreement") dated November 14, 1996 between, among others, QELC and
TCW, QRI shall issue to TCW 13,000 shares of QRI Common Stock and pay to TCW
by wire transfer of immediately available funds cash in the amount of
$17,075,000 plus $6,750 for each day from and after the date hereof to and
including the Closing Date. At the Closing, QRI shall cause a certificate or
certificates, at TCW's request, representing such shares of QRI Common Stock
to be issued to TCW.
2.5 BALANCE SHEET AND ADJUSTMENTS. At Closing, Mercury and QELC shall
deliver a balance sheet of QRI which shows the estimated financial position
of QRI as of March 31, 1998 assuming the consummation of the transactions
contemplated hereby on such date (the "3/31/98 Balance Sheet"). The 3/31/98
Balance Sheet will give effect to the following, using estimates where the
actual amounts are not known as of the date hereof (collectively, the
"Amounts"):
(a) An amount equal to the costs and expenses that are, according
to customary accounting principles used in the oil and gas industry, (i)
attributable to the Mercury Properties, QELC Properties and MGP Properties
for the period from 12:01 a.m. central time on January 1, 1998 through the
close of business on the date hereof (the "Calendar First Quarter"), (ii)
charged to Mercury, QELC or MGP under a Contract and (iii) paid by Mercury,
QELC or MGP, expressly excluding, however, any fines, penalties or other
charges levied, and any costs or expenses incurred due to requirements of any
nature imposed by any Governmental Authority.
(b) An amount equal to the interest of Mercury, QELC or MGP in the
quantity of merchantable oil produced from the Mercury Properties, QELC
Properties and MGP Properties in the tanks above the pipeline connection on
the date hereof multiplied by the posted price for such oil on the date
hereof, net of all applicable taxes.
(c) The amount of all taxes attributable to the Mercury
Properties, QELC Properties and MGP Properties for the Calendar First Quarter.
(d) An amount equal to the proceeds received by Mercury, QELC or
MGP for the sale during the Calendar First Quarter of Hydrocarbons, net of
all applicable taxes not reimbursed to either Mercury, QELC or MGP, as
applicable, by a purchaser of Hydrocarbons.
(e) An amount equal to (i) the proceeds received by Mercury, QELC
or MGP for the disposition during the Calendar First Quarter of any Mercury
Properties, QELC Properties or MGP Properties (other than Hydrocarbons); (ii)
the value for any Mercury Properties, QELC Properties and MGP Properties that
are subject to, or could be subject to, a validly exercised preferential
right; (iii) the diminution in value of any Mercury Properties, QELC
Properties or MGP Properties effected by a casualty loss or, in the
alternative, the insurance proceeds received by Mercury, QELC or MGP for such
loss; and (iv) all other proceeds received by Mercury, QELC or
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MGP from whatever source derived that relate to the Mercury Properties, QELC
Properties or MGP Properties and are attributable to Calendar First Quarter.
(f) An amount equal to payments of principal of and interest
accruing during the Calendar First Quarter on all Indebtedness of Mercury,
QELC or MGP.
As soon as practicable and, in any event, no later than ninety calendar days
after the Closing Date, QRI shall prepare and deliver to each of JEDI and TCW
a statement (the "Final Settlement Statement") setting forth the adjustments
to the 3/31/98 Balance Sheet to (i) give effect to actual numbers for the
Amounts where estimates were used to prepare the 3/31/98 Balance Sheet, (ii)
correct inaccuracies in the statement of financial position of QRI as set
forth in the 3/31/98 Balance Sheet, and (iii) give effect to the Amounts as
such Amounts relate to the time period from 3/31/98 through the Closing Date.
The Final Settlement Statement shall be prepared in accordance with
customary accounting principles used in the oil and gas industry. The Final
Settlement Statement shall show the additions or reductions to each asset or
liability shown on the Balance Sheet. Within thirty calendar days after
JEDI's and TCW's receipt of the Final Settlement Statement (but not earlier
than ninety calendar days after the Closing Date), QRI, JEDI and TCW shall
endeavor to agree on a final cash payment based on the Final Settlement
Statement. Within five business days after the agreement of QRI, JEDI and
TCW on the Final Settlement Statement, QRI on the one hand or Mercury, QELC
or, with respect to MGP, Mercury in its capacity as the general partner of
MGP on the other hand, as the case may be, shall promptly make a cash payment
to the other equal to the sums as may be found to be due in the Final
Settlement Statement. Upon the payment of any amounts due pursuant to the
Final Settlement Statement, none of QRI, Mercury, QELC or, with respect to
MGP, Mercury in its capacity as the general partner of MGP shall have any
further claims based on the accuracy or completeness of the 3/31/98 Balance
Sheet. Mercury represents that no distributions were made by MGP after the
Effective Date which distributions were attributable to production produced
or sold by MGP after the Effective Date.
2.6 FURTHER ASSURANCES. If at any time after the Closing, any further
deeds, bills of sale, assignments, assurances or any other actions or things
are necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in QRI its rights, title or interest in, to or under any of the
assets transferred to QRI pursuant to SECTION 2.1 or SECTION 2.2 or
otherwise to carry out the purposes of this Agreement, each party hereto
shall execute and deliver all such deeds, bills of sale, assignments and
assurances and take and do all such other actions and things as may be
necessary, desirable or proper to vest, perfect or confirm any and all right,
title and interest in, to and under the assets transferred to QRI pursuant to
SECTION 2.1 or SECTION 2.2 in QRI or otherwise to carry out the purposes of
this Agreement.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF MERCURY, QELC, MGP AND QRI.
Mercury, QELC, MGP and QRI hereby jointly and severally represent and warrant
to JEDI and TCW that, as of the date hereof:
(a) ORGANIZATION. QRI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. QRI
has not at any time since its incorporation (i) engaged, directly or through
any subsidiary, in any business or activities of any kind whatsoever, (ii)
owned or acquired any assets other than $1,000 in cash received as payment
for the issuance of currently outstanding shares of QRI Common Stock, (iii)
entered into any agreements with any person or entity or (iv) become subject
to or bound by any obligation or undertaking. SCHEDULE 3.1(a) contains true
and complete copies of the Certificate of Incorporation and Bylaws of QRI in
effect as the date hereof. QELC is limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Michigan. MGP is a limited partnership duly organized and validly existing
under the laws of the state of Texas. Mercury is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas. Each of Mercury, QELC and MGP is, and as of the Closing QRI will
be, duly qualified or licensed and in good standing as a foreign partnership,
limited liability company or corporation, and authorized to do business, in
each jurisdiction in which the ownership or leasing of its respective
properties or the character of its respective operations makes such
qualification necessary, except where the failure to obtain such
qualification, license, authorization or good standing would not have a
material adverse effect on its assets, properties, financial condition,
business operations or prospects or on its ability to timely perform its
obligations under this Agreement and the other Basic Documents (as defined in
Section 5.1(j)) to which it is or will be a party (a "Material Adverse
Effect").
(b) CAPITALIZATION. The authorized capital stock of QRI consists
of 1,000,000 shares of QRI Common Stock. The outstanding capital stock of
QRI as of the date hereof consists of 1,000 issued and outstanding shares of
QRI Common Stock, all of which are owned beneficially and of record by QELC.
SCHEDULE 3.1(b) reflects the ownership of all of the issued and outstanding
capital stock of Mercury and all of the issued and outstanding membership
interests of QELC. Except as contemplated in the Basic Documents, there are,
and have been, no preemptive rights with respect to the issuance of shares of
QRI Common Stock. QRI has no shares reserved for issuance for any purpose
except as contemplated by this Agreement. Except as contemplated in the
Basic Documents, there are no outstanding subscriptions, options, warrants,
rights, convertible securities, or other agreements or commitments (whether
contingent or not) of any character relating to unissued capital stock,
membership interests or other securities of QRI, Mercury or QELC obligating
QRI, Mercury or QELC to issue any shares of or membership or other equity
interests in, or
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securities or rights convertible into or exchangeable for shares of or
membership or other equity interests in, QRI, Mercury or QELC. There are no
agreements or understandings with respect to the voting, sale, transfer or
registration of any shares of capital stock of QRI to which QRI is a party or
to which any holder of capital stock of QRI, or any person who will become a
holder of capital stock of QRI as a result of the transactions contemplated
hereby, is a party. Mercury and JEDI are the only partners in MGP. Except
as contemplated in the Basic Documents, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments (whether contingent or not) of any character
relating to unissued partnership interests or other securities of MGP
obligating MGP to issue any partnership or other interests in, or securities
or rights convertible into or exchangeable for partnership or other interests
in MGP. The shares of QRI Common Stock to be issued pursuant to this
Agreement have been reserved for issuance and, when issued, will be validly
issued, fully paid and nonassessable. SCHEDULE 3.1(b) reflects the ownership
of all of the issued and outstanding capital stock of QRI immediately
following the Closing.
(c) AUTHORITY. Each of QRI, QELC, MGP and Mercury has the full
power and authority to enter into this Agreement and the other Basic
Documents to which it is a party, to consummate the transactions contemplated
hereby and thereby and to carry on its respective business and own its
respective properties. The execution and delivery of this Agreement and, as
applicable, the other Basic Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary actions on the part of QRI, QELC, MGP and
Mercury. This Agreement has been, and upon execution and delivery thereof
the other Basic Documents to which such entity is a party will have been,
duly and validly executed and delivered by each of QRI, QELC, MGP and
Mercury, and this Agreement constitutes, and upon execution and delivery
thereof each of the other Basic Documents to which such entity is a party
will constitute, a legal, valid and binding agreement of each of QRI, QELC,
MGP and Mercury enforceable against each of them in accordance with its terms.
(d) NO CONFLICTS OR VIOLATIONS. Except as disclosed in Schedule
3.1(d), the execution and delivery of this Agreement by each of QRI, QELC,
MGP and Mercury does not, and the consummation by each of them of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the Certificate of Incorporation
or Bylaws of QRI, the Articles of Organization or Operating Agreement of
QELC, the Articles of Incorporation or Bylaws of Mercury or the Agreement of
Limited Partnership of MGP or (ii) a breach or violation of, a default under,
the creation of a right to terminate, the acceleration of, the creation of a
lien, pledge, security interest or other encumbrance on assets or any
additional rights or entitlements to increased, additional, guaranteed or
accelerated payments pursuant to (with or without the giving of notice or the
lapse of time) any provision of any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of QRI, QELC, MGP or
Mercury, or any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which
any of them is subject.
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(e) LICENSES; NO VIOLATIONS. Each of Mercury, QELC and MGP holds,
and as of the Closing QRI will hold, all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities (collectively,
the "Licenses") which are necessary to conduct its businesses and operations
in the manner heretofore conducted except for failures to hold such Licenses
or to comply with such laws, rules and regulations which, in the aggregate,
would not have a Material Adverse Effect. Each of QRI, QELC, Mercury and MGP
is, and as of the Closing QRI will be, in compliance with all federal, state,
local and foreign laws, ordinances, codes, regulations, orders, requirements,
standards and procedures, which are applicable to its business, except for
failures so to comply which would not have a Material Adverse Effect.
(f) GOVERNMENTAL FILINGS AND CONSENTS. No notices, reports or
other filings ("Governmental Filings") are required to be made by QRI, QELC,
Mercury or MGP with, nor are any consents, registrations, approvals, permits
or authorizations ("Governmental Consents") required to be obtained by QRI,
QELC, Mercury or MGP from, any governmental or regulatory authorities of the
United States, the several states or any foreign jurisdiction ("Governmental
Authority") in connection with the execution and delivery of this Agreement
or any other Basic Document by QRI, QELC, Mercury and MGP and the
consummation of the transactions contemplated hereby and thereby, except for
the filing and recordation of the Articles in accordance with the DGCL and
the TRLPA.
(g) LITIGATION. Except as set forth in SCHEDULE 3.1(g) or which
would not have a Material Adverse Effect, there are no actions, suits,
investigations or proceedings pending or, to the knowledge of Mercury, QELC,
MGP or QRI, threatened against QRI, QELC, Mercury or MGP, nor is there any
judgment, decree, injunction, rule or order of any Governmental Authority
outstanding against QRI, QELC, Mercury or MGP.
(h) TITLE TO PROPERTIES. SCHEDULE 3.1(h) hereto identifies all of
the Hydrocarbon Interests included in the Mercury Properties, all of the
Hydrocarbon Interests included in the QELC Properties, and all of the
Hydrocarbon Interests included in the Oil and Gas Properties owned by MGP
(the "MGP Properties"). A certificate of even date herewith shall be
delivered by Mercury and QELC certifying that the title opinions relating to
certain of the Mercury and QELC Properties were delivered to JEDI and TCW
("Delivered Opinions"). Mercury has Defensible Title (as defined below) to
all of the Mercury Properties. QELC has Defensible Title to all of the QELC
Properties. MGP has Defensible Title to all of the MGP Properties. Except as
set forth on SCHEDULE 3.1(h) or with respect to any trade accounts payable or
other accrued current liabilities incurred in the ordinary course of business
not in excess of $150,000 in the aggregate, MGP has no outstanding
Indebtedness. At the Closing, QRI will acquire Defensible Title to the
Mercury Properties, the QELC Properties and the MGP Properties, and will not
be liable for any Indebtedness of Mercury or QELC except for Indebtedness
expressly assumed by QRI pursuant to Section 2.1 or 2.2 hereof. Schedule
3.1(h) part III as attached hereto shall be replaced with the Revised Well
Exhibit (as hereinafter defined) upon its delivery prior to Closing.
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As used herein, the terms defined below have the meanings specified:
"Defensible Title" means that, subject to and except for Permitted
Liens, (i) the title of Mercury, QELC or MGP, as the case may be, to its
assets is free and clear of all liens and encumbrances, of any kind
whatsoever and (ii) as to those Oil and Gas Properties for which a "working
interest" and a "net revenue interest" are set forth in SCHEDULE 3.1(h),
Mercury, QELC or MGP, as the case may be, is, and following the Closing QRI
will be, entitled to receive the percentage of all Hydrocarbons produced,
saved and marketed from such Oil and Gas Properties in an amount not less
than the net revenue interest set forth therein, without reduction,
suspension or termination throughout the duration of the productive life of
such xxxxx (except as set forth in SCHEDULE 3.1(h)), and such party is
obligated to bear the percentage of costs and expenses related to the
maintenance, development and operation of such xxxxx in an amount not greater
than the working interest set forth in SCHEDULE 3.1(h), without increase
throughout the productive life of such xxxxx, except increases that also
result in a proportionate increase in net revenue interest and as set forth
in SCHEDULE 3.1(h).
"Hydrocarbons" means oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products
refined therefrom, together with all minerals (including without limitation
carbon dioxide) produced in association therewith.
"Hydrocarbon Interests" means all rights, titles, leasehold and
other interests and estates in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous Hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserve or residual interest of
whatever nature.
"Oil and Gas Properties" means Hydrocarbon Interests; the
properties now or hereafter pooled or unitized with Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including, but
not limited to, units created under orders, regulations and rules of any
Governmental Authority having jurisdiction) which may affect all or any
portion of the Hydrocarbon Interests; all operating agreements, partnership
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved
or attributable to, and the profits, proceeds, products, revenues and other
incomes from or attributable to, the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining,
belonging, affixed or incidental to the Hydrocarbon Interests, and all
property, real or personal, now owned or hereafter acquired and situated
upon, used, held for use or useful in connection with the operating, working
or development of any of such Hydrocarbon Interests or property (excluding
(i) drilling rigs, automotive equipment or other personal property which may
be on such premises for the purpose of drilling a well or for other similar
temporary uses and (ii) that certain office building and related land located
in Gaylord,
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Michigan) and including any and all oil, gas, carbon dioxide or injection
xxxxx, buildings, structures, fuel separators, liquid extraction plants,
plant compressors, pumps, pumping units, field gathering systems, tanks and
tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing.
"Permitted Liens" means any of the following: (i) any liens for
taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith in the ordinary course of business; (ii) any
obligations or duties to any municipality or public authority with respect to
any franchise, grant, certificate, license or permit, and all applicable
laws; (iii) any easements, rights-of-way, servitudes, permits and other
rights in respect of surface operations, pipelines or the like, and easements
for pipelines, power lines and other similar rights-of-way, and
encroachments, on, over or in respect of any of the Mercury Properties, QELC
Properties or MGP Properties, that do not interfere in any material respect
with the operation of any of the Mercury Properties, QELC Properties or MGP
Properties; (iv) all royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests, calls on
production and other burdens on or deductions from the proceeds of production
that do not operate to (A) reduce the net revenue interest of Mercury, QELC
or MGP, as the case may be, below that set forth in SCHEDULE 3.1(h), or (B)
increase the working interest of Mercury, QELC or MGP, as the case may be,
above that set forth in SCHEDULE 3.1(h), without a proportionate increase in
the net revenue interest of such party; (v) the terms and conditions of all
leases, servitudes, production sales contracts, division orders, contracts
for sale, purchase, exchange, refining or processing of hydrocarbons,
unitization and pooling designations, declarations, orders and agreements,
operating agreements, agreements of development, area of mutual interest
agreements, farmout agreements, gas balancing or deferred production
agreements, processing agreements, plant agreements, pipeline, gathering and
transportation agreements, injection, repressuring and recycling agreements,
carbon dioxide purchase or sale agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other
agreements to the extent that such contracts and agreements do not (A) reduce
the net revenue interest below that set forth in SCHEDULE 3.1(h), or (B)
increase the working interest above that set forth in SCHEDULE 3.1(h), as
applicable, without a proportionate increase in the net revenue interest of
the applicable party; (vi) conventional rights of reassignment prior to
abandonment; (vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges arising in
the ordinary course of business incidental to construction, maintenance or
operation of any of the assets (A) if they have not been filed pursuant to
law, (B) if filed, they have not yet become due and payable or payment is
being withheld as provided by law or (C) if their validity is being contested
in good faith in the ordinary course of business by appropriate action;
(viii) liens securing borrowings under the Credit Agreement dated January 31,
1997 between Mercury and NationsBank of Texas, N.A.; (ix) liens securing
Indebtedness to TCW to be prepaid and satisfied at Closing pursuant to
Section 2.4; (x) liens in favor of MA Gas LLC pursuant to the transactions
contemplated by the Purchase and Sale Agreement
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dated December 1, 1997 between Mercury and MA Gas LLC; (xi) liens in favor of
MGP Gas LLC pursuant to the transactions contemplated by the Purchase and
Sale Agreement dated December 1, 1997 between MGP and MGP Gas LLC; and (xii)
the interests, if any, of Xxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx
X. Xxxxxx and Xxxx Xxxxxx Self in the Mercury Properties and QELC Properties,
which such interests shall be satisfied at Closing pursuant to certain
assignments as such assignments are more fully described in Section 5.1.
(i) FINANCIAL STATEMENTS AND RESERVE REPORTS.
(1) Mercury has delivered to JEDI and TCW the audited financial
statements of MGP and Mercury for the fiscal year ended December 31, 1997
required by Section 10.2 of the Agreement of Limited Partnership of MGP
dated as of November 18, 1993. Such financial statements were prepared in
accordance with such provision and fairly present in all material respects
the consolidated financial position, results of operations and cash flows
of MGP and Mercury as of the dates and throughout the periods therein
specified. Mercury has delivered to JEDI and TCW the audited balance sheet
and statements of income and cash flows of QELC as of and for the fiscal
year ended September 30, 1997 and the unaudited balance sheet and
statements of income and cash flows of QELC as of and for the three months
ended December 31, 1997. Such financial statements of QELC were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as noted therein) and fairly present the financial
position, results of operations and cash flows of QELC as of the dates and
for the periods therein specified.
(2) Mercury has delivered to JEDI and TCW copies of (i) the
reserve report dated as of January 1, 1998 prepared by XxXxxxx Petroleum
Consultants, Ltd., independent petroleum engineers (the "XxXxxxx Report"),
relating to the oil and gas reserves attributable to certain of the Mercury
Properties, (ii) the reserve report dated August 1, 1997 prepared by
Xxxxxxxx & Associates, Inc., independent petroleum engineers (the "Xxxxxxxx
Report"), (iii) the reserve report dated as of January 1, 1998 prepared by
X.X. Xxxxxxxx and Associates, Inc., independent petroleum engineers (the
"QELC Holditch Report"), relating to the oil and gas reserves attributable
to the QELC Properties and (iv) the reserve report dated as of January 1,
1998 prepared by X. X. Xxxxxxxx and Associates, Inc., independent petroleum
engineers (together with the XxXxxxx Report, the Xxxxxxxx Report and the
QELC Holditch Report, the "Reports"), relating to the oil and gas reserves
attributable to the MGP Properties. There are no statements or conclusions
in any of the Reports that are based upon or include misleading information
or fail to take into account material information regarding the matters
reported therein. To the knowledge of Mercury, MGP, QRI and QELC, the
estimates of reserves in the Reports were prepared in accordance with
standard geological and engineering methods generally accepted in the oil
and gas industry. The estimates of the lease operating expenses,
production and ad valorem taxes and capital expenditures in the Reports
reasonably reflect the historical experience of Mercury, MGP, QRI and QELC,
and
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Mercury, MGP, QRI and QELC have no reason to believe that the estimates
will nor reflect future lease operating expenses, production and ad valorem
taxes and capital expenses. The historical factual information supplied by
Mercury to the independent engineering firms in connection with the
preparation of the Reports was, at the time of delivery to such firms, true
and complete in all material respects.
(j) NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheets included in the financial statements described
in Section 2.1(i) or in the notes thereto or as disclosed in SCHEDULE 3.1(j),
there are no Liabilities against, relating to or affecting Mercury, QELC, MGP
or QRI or any of their subsidiaries or any of their respective assets, other
than Liabilities (i) incurred in the ordinary course of business consistent
with commercially reasonable business practice and (ii) which, individually
or in the aggregate, are not material to the business or condition of
Mercury, QELC, MGP or QRI. As of 1/1/98, there are no over production
liabilities for the MGP Properties. "Liabilities" means all Indebtedness,
obligations and other liabilities of a person (whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due).
(k) NO MATERIAL ADVERSE CHANGE. Subsequent to December 31, 1997,
except as disclosed in SCHEDULE 3.1(k), there has been (a) (i) no material
adverse change and (ii) no development which reasonably would be expected to
result in (individually or in the aggregate) a material adverse change, in
either case, in the financial condition, properties, assets, business or
results of operations or future business prospects (a "Material Adverse
Change") of Mercury, MGP or QELC, (b) no material obligation or other
material Liability (contingent or other) incurred by Mercury, MGP or QELC
other than obligations and other Liabilities incurred in the ordinary course
of business, (c) no lien (other than Permitted Liens) placed on any of the
properties of Mercury, MGP or QELC which remains in existence on the date
hereof and (d) no acquisition or disposition of any material asset by
Mercury, MGP or QELC or any contract or arrangement therefor, otherwise than
for fair value in the ordinary course of business.
(l) EMPLOYEE BENEFIT MATTERS. SCHEDULE 3.1(l) sets forth a
complete and accurate list of all employee benefit plans (including any stock
option, stock purchase or ownership plan) with respect to which QRI or MGP is
a sponsor. QRI and MGP are in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and published interpretations thereunder with respect to all
employee benefit plans which are subject to ERISA, and there are no defaults
or undisclosed Liabilities with respect to such employee benefit plans.
Neither Mercury nor QELC is a sponsor of any employee benefit plan under
which any obligation or Liability could be imposed on QRI after the Closing.
(m) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
QRI is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940
or a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of
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a "holding company" or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935.
(n) ENVIRONMENTAL MATTERS.
(1) Neither any property of Mercury, QELC or MGP nor the
operations conducted thereon violate any applicable order of any court or
Governmental Authority or Environmental Laws, which violation could
reasonably be expected to have a Material Adverse Effect on Mercury, MGP,
QELC or QRI or which could reasonably be expected to result in remedial
obligations having a Material Adverse Effect on Mercury, MGP, QELC or QRI,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.
(2) Without limitation of Section 3.1(n)(1) above, no property
of Mercury, QELC or MGP nor the operations currently conducted thereon or
by any prior owner or operator of such property or operation, are in
violation of or subject to any existing, pending or, to the knowledge of
Mercury, MGP, QELC or QRI threatened action by or before any Governmental
Authority or to any remedial obligations under Environmental Laws.
(3) All material notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by QRI, QELC,
Mercury or MGP in connection with the operation or use of any and all
property of QELC or MGP, including but not limited to past or present
treatment, storage, disposal or release of a hazardous substance or solid
waste into the environment, have been duly obtained or filed.
(4) All hazardous substances or solid waste generated at any and
all property of the Mercury, QELC or MGP have in the past been transported,
treated and disposed of only by carriers maintaining valid permits under
any Environmental Law, except to the extent the failure to have such
substances or waste transported, treated or disposed by such carriers could
not reasonably be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP, and only at treatment, storage and disposal facilities
maintaining valid permits under any Environmental Law, which carriers and
facilities have been and are operating in compliance with such permits,
except to the extent the failure to have such substances or waste treated,
stored or disposed at such facilities, or the failure of such carriers or
facilities to so operate, could not reasonably be expected to have a
Material Adverse Effect on QRI, QELC, Mercury or MGP or which could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect on QRI, QELC, Mercury and MGP, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
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(5) Mercury, QELC and MGP have taken all commercially reasonable
steps necessary to determine and have determined that no hazardous
substances or solid waste have been disposed of or otherwise released and
there has been no threatened release of any hazardous substances on or to
any property of Mercury, QELC or MGP except in compliance with
Environmental Laws, except to the extent the failure to do so could not
reasonably be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP or which could reasonably be expected to result in remedial
obligations having a Material Adverse Effect on QRI, QELC, Mercury or MGP,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.
(6) QRI, QELC, Mercury and MGP have complied with all applicable
design, operation and equipment requirements imposed by OPA or scheduled to
be imposed by OPA, and QRI, QELC, MGP and Mercury do not have reason to
believe that, following the Merger, QRI will not be able to maintain such
compliance with OPA requirements in the future, other than violations that
have not had and could not reasonably be expected to have a Material
Adverse Effect on QRI, QELC, Mercury or MGP.
(7) Mercury, QELC and MGP have no material contingent liability
in connection with any release or threatened release of any hazardous
substance or solid waste into the environment, other than (i) contingent
liabilities that, individually and in the aggregate, could not reasonably
be expected to exceed applicable insurance coverage or (ii) contingent
liabilities for which adequate reserves for the payment thereof as required
by generally accepted accounting principles have been provided.
(8) As used herein, "Environmental Laws" means any and all laws,
statutes, ordinances, rules, regulations, orders, or determinations of any
Governmental Authority pertaining to health or the environment in effect in
any and all jurisdictions in which QRI, QELC, Mercury or MGP is conducting
or at any time have conducted business, or where any property of the QRI,
QELC, Mercury or MGP is located, or where any hazardous substances
generated by or disposed of by the QRI, QELC, Mercury or MGP are located,
including but not limited to the Oil Pollution Act of 1990, as amended
("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"),
the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The term "oil" has the
meaning specified in OPA; the terms "hazardous substance," "release" and
"threatened release" have the meanings specified in CERCLA, and the terms
"solid waste," "disposal" and "disposed" have the meanings
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specified in RCRA; provided, however, if either CERCLA, RCRA or OPA is
amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date of such
amendment, and provided, further, that, to the extent the laws of the
state in which any property of QRI, QELC, Mercury or MGP is located
establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA,
CERCLA or RCRA, such broader meaning shall apply with respect to such
property.
(o) TAXES. Mercury, MGP and QELC have timely and properly prepared
and filed all necessary federal, state, local and foreign tax returns with
respect to Mercury, MGP and QELC which are required to be filed (taking into
consideration any extension periods) and have paid all taxes shown to be due
thereon and have paid, or made adequate provision (in accordance with generally
accepted accounting principles) for the payment of, all other taxes and
assessments with respect to Mercury, MGP and QELC to the extent that the same
shall have become due (taking into consideration any extension periods), except
where the failure to file such returns or to pay, or make provision for the
payment of, such taxes and assessments would not have a Material Adverse Effect
on QRI, QELC, Mercury or MGP. Mercury, QELC, MGP and QRI have no knowledge of
any tax deficiency which has been asserted against Mercury, QELC or MGP which
reasonably would be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP.
(p) INSURANCE. Mercury, QELC and MGP maintain, and as of the Closing
QRI will have, property, casualty, general liability and other insurance
policies with coverage limits in amounts and with carriers as in each case are
customary in accordance with sound business practices and which Mercury, QELC,
MGP and QRI believe are adequate in the circumstances.
(q) CONTRACTS. All agreements, personal property and fixture leases,
real property leases, contracts, notes, mortgages, indentures, arrangements or
other obligations that are included in the Mercury Properties, the QELC
Properties or the MGP Properties or that will impose any obligation on QRI (the
"Contracts") are valid, binding and enforceable in accordance with their terms
except to the extent limited by bankruptcy or other laws affecting creditors'
rights generally. All of the Contracts between Mercury, QELC, MGP or QRI and
any of their respective Affiliates (as defined in Section 3.1(r)) are identified
as such on SCHEDULE 3.1(q), and the terms of all of such Contracts are no less
favorable to Mercury, QELC, MGP or QRI, as the case may be, than terms that
would be available in contracts negotiated at arms' length with unaffiliated
third parties. True, correct and complete copies of all Contracts have been
made available to JEDI and TCW. No default by Mercury, MGP or QELC under any
Contract has occurred and is continuing, except for any default which would not
give another person the right, with or without giving of notice or lapse of
time, or both, to terminate or materially modify the terms of such contract and
except for terminations and modifications which would not have a Material
Adverse Effect. Mercury, QELC, MGP and QRI have no knowledge of any material
default or claimed, threatened or alleged material default by any other party
under any term or provision of any Contract. There are no developments
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known to Mercury, QELC, MGP or QRI materially affecting any Contract that
might prevent Mercury, QELC or MGP from realizing the benefits of any such
Contract or that might prevent QRI from realizing such benefits after the
Closing. Except for the Basic Documents or as disclosed in SCHEDULE 3.1(q),
QRI and MGP and (except to the extent that such contracts or agreements could
not have any effect on the Mercury Properties or QELC Properties or the
operation thereof or impose any obligation on QRI) Mercury and QELC have no
(i) employment, management or consulting contract, (ii) capital redemption or
purchase agreements; (iii) agreements providing for the indemnification of
other parties for such parties' negligence or other fault or the sharing of
the tax liability of other parties; (iv) collective bargaining agreements;
(v) gas sales or purchase contract, gas marketing agreement or transportation
agreement under which Mercury, QELC, MGP or QRI is the seller, which
agreement is not terminable without penalty on thirty days' notice or less,
and which provides for a price less than fair market value; (vi) agreement
for capital expenditures, the acquisition of commodities, equipment or
material or the construction of fixed assets which individually are expected
to require aggregate future payments by Mercury, QELC, MGP or QRI in excess
of $50,000 and all which in the aggregate would be expected to require future
payments in excess of $500,000; (vii) agreement for, or that contemplates,
the sale of any interest in oil or gas leases which involves payment
(including property received in exchange or other non-cash consideration) to
Mercury, QELC, MGP or QRI in excess of $50,000 in the aggregate; (viii)
agreement which requires future payments by MGP, QELC, Mercury or QRI in
excess of $50,000 (and not included in clauses (vi) or (vii)) which is not
otherwise specifically disclosed herein; (ix) agreements containing covenants
limiting or restricting the freedom of Mercury, QELC, MGP or QRI to compete
in any line of business or territory or with any person or entity, (x) area
of mutual interest agreements binding Mercury, QELC, MGP or QRI; (xi)
futures, hedge, swaps, collars, puts, calls, floors, caps, options or other
contracts that are intended to benefit from or reduce or eliminate the risk
of fluctuations in the price of commodities, including Hydrocarbons; (xii)
indentures, mortgages, promissory notes, loan agreements, guaranties or other
agreements or commitments for the borrowing of money or any related security
agreements (other than relating to Indebtedness described in SCHEDULE 2.1.2,
SCHEDULE 2.2.2 or SCHEDULE 3.1(h)); (xiii) voting trust or other agreement or
understanding with respect to the voting of its capital stock or (xiv)
agreement with respect to any of its securities which grants registration
rights to any person.
(r) NO RESTRICTIONS ON AFFILIATES. None of QRI, Mercury, QELC or MGP
is a party to any agreement that would purport to impose restrictions or
limitations on JEDI or TCW or any of their respective Affiliates. As used
herein, "Affiliate" of any person means any other person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person. For purposes of this definition, "control," when used with respect to
any person, means the power to direct the management and policies of such
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have correlative
meanings.
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(s) SUBSIDIARIES. QRI and MGP do not own any subsidiaries and do not
own, directly or indirectly, any interest or investment in any person, other
than interests under any joint operating agreement of oil and gas property that
expressly provides the relationship of the parties created by such agreement is
not intended to render the parties thereto liable as partners.
(t) CERTAIN TRANSACTION. Except as set forth on SCHEDULE 3.1(t) and
except, in the case of Mercury and QELC, for any Indebtedness, relationships or
interests that are not being assumed by or assigned to QRI pursuant hereto or
that could not have any effect on the Mercury Properties or the QELC Properties
or the operation thereof (a) none of QRI, QELC, Mercury or MGP is indebted
directly or indirectly to any of its officers, directors, stockholders, members,
partners or to their respective spouses or children in any amount whatsoever,
(b) none of such officers, directors or stockholders, partners or members or any
members of their immediate families, are indebted to QRI, QELC, Mercury or MGP
or have any direct or indirect ownership interest in any person with which QRI,
QELC, Mercury or MGP has a business relationship (other than ownership interests
of less than 5% in a publicly traded company) or any person that competes with
QRI, QELC, Mercury or MGP (other than ownership interests of less than 5% in a
publicly traded competitor), and (c) no officer, director or 10% stockholder,
partner or member or member of his immediate family, has a direct or material
indirect financial interest in any material contract with QRI, QELC, Mercury or
MGP other than, in the case of QELC, Mercury or MGP, employment arrangements and
benefit plans.
(u) PLUGGING AND ABANDONMENT OBLIGATIONS. Except as would not have a
Material Adverse Effect on QRI, QELC, Mercury or MGP, there is no well located
upon any property owned by Mercury, QELC or MGP that Mercury, QELC or MGP is
currently obligated by law or contract to plug and abandon.
(v) NO MATERIAL MISSTATEMENTS OR OMISSION. This Agreement, the other
Basic Documents and the other certificates and documents contemplated hereby do
not, or will not when executed and delivered, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
herein or therein not misleading, in view of the circumstances in which they
were made. To the knowledge of Mercury, QRI, MGP and QELC, there is no fact or
information relating to the business, prospects, condition (financial or
otherwise), affairs, operations, or assets of QRI, Mercury, QELC or MGP that has
not been disclosed to JEDI and TCW in writing by Mercury, QRI, MGP and QELC
which could result in a Material Adverse Effect on QRI, QELC, Mercury or MGP.
The financial statements and other related financial data (excluding all
projections and pro forma financial data) and reserve reports furnished to JEDI
and TCW by or at the direction of Mercury, QRI, MGP or QELC in connection with
the negotiation of this Agreement do not contain any material misstatement of
fact and, when considered with all other written statements furnished to JEDI
and TCW in that connection, such financial statements, related financial data
(excluding all projections and pro forma financial data) and reserve reports do
not omit to state a material fact or any fact necessary to make the statement
contained therein not misleading. The
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circumstances and events that are not required to be identified on the
schedules hereto by reason of the materiality qualifications contained in the
representations and warranties in this Article III, or which are otherwise
within such qualifications, in the aggregate do not have, and could not
reasonably be expected to have, a Material Adverse Effect on QRI, Mercury,
QELC or MGP.
(w) FEES AND COMMISSION. Except for a $75,000 prepayment fee
included in the cash to be paid to TCW pursuant to Section 2.4 hereof, Mercury,
QRI, QELC and MGP have not retained, nor are any fees due from any of them to,
any finder, broker, agent, financial advisor or other intermediary in connection
with the transactions contemplated by this Agreement.
(x) PREFERENTIAL PURCHASE RIGHTS. Except as disclosed on SCHEDULE
3.1(x), none of the Mercury Properties, QELC Properties and MGP Properties is
subject to preferential purchase rights in favor of a third party or
restrictions on assignment requiring the consent of a third party.
(y) CERTAIN PAYMENTS. All rentals, royalties, excess royalty,
overriding royalty interests and other payments due under or with respect to the
Mercury Properties, QELC Properties and MGP Properties have been properly and
timely paid. All ad valorem, property, production, severance and other taxes
based on or measured by the ownership of the Mercury Properties, QELC Properties
and MGP Properties or the production of Hydrocarbons from the Mercury
Properties, QELC Properties and MGP Properties have been properly and timely
paid. All expenses payable under the terms of the Contracts have been properly
and timely paid except for such expenses as are being currently paid prior to
delinquency in the ordinary course of business. All of the proceeds from the
sale of Hydrocarbons are being properly and timely paid to MEC, QELC and MGP by
the purchasers of production without suspension or indemnity other than standard
division order indemnities.
(z) IMBALANCES, ETC. On the Effective Date, (1) none of the
purchasers under any production sales contracts is entitled to "make-up" or
otherwise receive deliveries of Hydrocarbons without paying at the time of such
deliveries the full contract price therefor by reason of payments made prior to
the date hereof; (2) none of the purchasers under any production sales contracts
has exercised any economic out provision; (3) none of the purchasers under any
production sales contracts has curtailed its takes of natural gas in violation
of such contracts; (4) none of the purchasers under any production sales
contracts has given notice that it desires to amend the production sales
contracts with respect to price or quantity of deliveries under take-or-pay
provisions or otherwise; (5) MGP is not entitled to receive any portion of the
interest of QRI in any Hydrocarbons or to receive cash or other payments to
"balance" any disproportionate allocation of Hydrocarbons under any operating
agreement, gas balancing and storage agreement, gas processing or dehydration
agreement, gas transportation or other similar agreements; and (6) QRI is not
obligated to pay any penalties or other payments under any gas transportation or
other agreement as a result of the delivery of quantities of gas from the
Mercury Properties, QELC Properties and MGP Properties in excess of the contract
requirements.
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3.2 REPRESENTATIONS AND WARRANTIES OF JEDI. JEDI represents and warrants
to Mercury, QRI, QELC and TCW that:
(a) ORGANIZATION AND AUTHORITY. JEDI is a limited partnership duly
organized and validly existing under the laws of the State of Delaware. JEDI
has the requisite power and authority and has taken all action necessary in
order to execute and deliver this Agreement and the other Basic Documents to
which it is a party and to consummate the transactions contemplated hereby and
thereby. This Agreement and, upon execution and delivery thereof, each of the
other Basic Documents to which JEDI is a party has been or will have been duly
and validly executed and delivered by JEDI and constitutes or will constitute a
legal, valid and binding agreement of JEDI enforceable against it in accordance
with its terms.
(b) NO CONFLICTS OR VIOLATIONS. The execution and delivery of
this Agreement and the other Basic Documents to which it is a party by JEDI
do not, and the consummation by JEDI of the transactions contemplated hereby
and thereby will not, constitute or result in (i) a breach or violation of,
or a default under, the Agreement of Limited Partnership of JEDI or (ii) a
breach or violation of, a default under, the creation of a right to
terminate, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets pursuant to (with or without the
giving of notice or the lapse of time), any provision of any agreement,
lease, contract, note, mortgage, indenture, arrangement or other obligation
of JEDI or any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it is
subject except, in the case of clause (ii) above, for such breaches,
violations, defaults, accelerations or liens which, alone or in the
aggregate, would not have a Material Adverse Effect on the consummation of
the transactions contemplated by this Agreement.
(c) FEES AND COMMISSIONS. JEDI has not retained, nor are any fees
due from JEDI to, any finder, broker, agent, financial advisor or other
intermediary in connection with the transactions contemplated by this Agreement.
(d) CERTAIN TRANSACTIONS. Upon consummation of the transactions
contemplated hereby, except as contemplated in this Agreement and the other
Basic Documents, JEDI will not have any indebtedness to, or any indebtedness
owed to it from, any business relationship with or any direct financial interest
in any contract with QRI.
3.3 REPRESENTATIONS AND WARRANTIES OF TCW. TCW represents and warrants to
Mercury, QRI, QELC and JEDI that:
(a) ORGANIZATION AND AUTHORITY. TCW is a trust company duly
organized and validly existing under the laws of the State of California. TCW
has the requisite power and authority and has taken all action necessary in
order to execute and deliver this Agreement and the other Basic Documents to
which it is a party, and to consummate the transactions contemplated hereby and
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thereby. This Agreement and, upon execution and delivery thereof, each of the
other Basic Documents to which TCW is a party has been or will have been duly
and validly executed and delivered by TCW and constitutes or will constitute a
legal, valid and binding agreement of TCW enforceable against it in accordance
with its terms.
(b) NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by TCW do not, and the consummation by TCW of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, the organizational documents of TCW or (ii) a breach or
violation of, a default under, the creation of a right to terminate, the
acceleration of or the creation of a lien, pledge, security interest or other
encumbrance on assets pursuant to (with or without the giving of notice or the
lapse of time), any provision of any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of TCW or any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-governmental
permit or license to which it is subject except, in the case of clause (ii)
above, for such breaches, violations, defaults, accelerations or liens which,
alone or in the aggregate, would not have a Material Adverse Effect on the
consummation of the transactions contemplated by this Agreement.
(c) FEES AND COMMISSIONS. TCW has not retained, nor are any fees due
from TCW to, any finder, broker, agent, financial advisor or other intermediary
in connection with the transactions contemplated by this Agreement.
(d) CERTAIN TRANSACTIONS. Upon consummation of the transactions
contemplated hereby, except as contemplated in this Agreement and the other
Basic Documents, TCW will not have any indebtedness to, or any indebtedness owed
to it from, any business relationship with or any direct financial interest in
any contract with QRI.
3.4 REPRESENTATIONS AND WARRANTIES OF MERCURY AND QELC. Each of Mercury
and QELC represents and warrants to TCW that:
(a) The Transaction Documents (as defined in the TCW Credit
Agreement) constitute, and with respect to QRI will constitute upon QRI's
execution and delivery of the TCW Assumption Agreement (as defined in SECTION
5.1(k), hereof, the legal, valid and binding contracts, obligations and
agreements of Mercury, QELC and QRI enforceable against Mercury, QELC and QRI in
accordance with their terms and the terms of the TCW Assumption Agreement.
Neither Mercury nor QELC is in violation or breach of any of the provisions or
agreements contained in the Transaction Documents and there is no Default or
Event of Default (as such terms are defined in the TCW Credit Agreement) that
has occurred which is continuing.
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ARTICLE IV.
COVENANTS
4.1 CERTAIN COVENANTS OF QRI, QELC, MGP AND MERCURY.
(a) INTERIM OPERATIONS. From and after the date hereof and prior to
the Effective Time (unless JEDI and TCW shall otherwise agree in writing and
except as otherwise contemplated by this Agreement), QRI, QELC, Mercury and MGP
shall, and Mercury shall cause QRI, QELC and MGP to (1) carry on its businesses
diligently and in the ordinary and usual course, consistent with past practice;
(2) take all action necessary to comply with and maintain all of its Licenses
and otherwise preserve its rights to conduct its business in the areas in which
it has the right to conduct its business as of the date of this Agreement; and
(3) use all reasonable efforts to preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees and
business associates.
(b) NEGATIVE COVENANTS. From and after the date hereof and prior
to the Effective Time (unless JEDI and TCW shall otherwise agree in writing
and except as otherwise contemplated by this Agreement), QRI, QELC, Mercury
and MGP shall not, and Mercury shall cause QRI, QELC and MGP not to (1) sell
or pledge or agree to sell or pledge any of its stock, in the case of QRI and
Mercury, or membership interests, in the case of QELC, or partnership
interests, in the case of MGP; (2) amend its Certificate of Incorporation or
Bylaws, in the case of QRI, or its Articles of Organization and Operating
Agreement, in the case of QELC, or its partnership agreement, in the case of
MGP; (3) split, combine or reclassify the outstanding shares of QRI Common
Stock or partnership interests in MGP; (4) declare, set aside or pay any
dividend payable in cash, securities or other property with respect to shares
of QRI Common Stock or partnership interests in MGP; (5) issue, sell, pledge,
dispose of or encumber any shares of capital stock of QRI or Mercury or
membership interests in QELC or partnership interests in MGP, or securities
convertible or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire any shares of capital stock of
QRI or Mercury or membership interests in QELC or partnership interests in
MGP; (6) transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any assets other than in the ordinary course of business; (7) incur,
amend the terms of or modify any Indebtedness or other liability other than
current liabilities incurred in the ordinary and usual course of business;
(8) extend other than on a month-to-month basis or otherwise modify or amend,
or waive any rights under, any lease of real property; (9) acquire directly
or indirectly by redemption or otherwise any shares of capital stock of QRI
or Mercury or membership interests in QELC or partnership interests in MGP or
any options, warrants, calls, commitments or rights to acquire the same; (10)
acquire, by merger, reorganization, consolidation or purchase, substantially
all of the assets of, or otherwise acquire, any business or any organization
or division thereof; (11) merge with, liquidate into or otherwise combine
with any other person, corporation, partnership or other entity; (12) enter
into any agreement or make any commitment to do any of the foregoing;
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(13) change its application of accounting principles in any material respect
except if such change is required by generally accepted accounting principles
to be made at such time; or (14) take any action that is intended or may
reasonably be expected to result in (a) any of their representations and
warranties contained in this Agreement being or becoming untrue in any
material respect, or (b) any of the conditions to the Closing set forth in
Article V not being satisfied, or (c) a violation of any provision of this
Agreement.
(c) OTHER OPERATIONAL COVENANTS. Between the date hereof and the
Effective Time, unless JEDI and TCW shall otherwise agree in writing, QRI, QELC,
Mercury and MGP shall, and Mercury shall cause QRI, QELC and MGP to (1) perform
in all material respects all of its obligations under all Contracts (except
those being contested in good faith and disclosed to JEDI and TCW in writing and
which are not, individually or in the aggregate, material to the business of
QRI, QELC, Mercury or MGP) and not enter into, assume or amend any contracts
except (x) contracts which are in the ordinary course of business involving the
payment by QRI, QELC, Mercury or MGP of less than $10,000 individually or
(y) contracts which are not in the ordinary course of business involving the
payment by QRI, QELC, Mercury or MGP of less than $5,000 individually; (2)
maintain in full force and effect policies of insurance comparable in scope of
coverage to that now maintained by QRI, QELC, Mercury and MGP and use reasonable
efforts to cause its material properties and equipment to be kept in good
repair, working order and condition, ordinary wear and tear excepted, in
accordance with its customary policies and past practices; and (3) prepare and
timely file, or obtain extensions of time in which to file, all federal, state,
local and foreign returns for taxes and other tax reports, filings and
amendments thereto required to be filed by it.
(d) INSPECTION AND ACCESS TO INFORMATION. QRI, QELC, MGP and Mercury
shall allow each of JEDI and TCW and its authorized employees, representatives
and designees (collectively, the "Representatives") reasonable access during
normal business hours to all of QRI's, QELC's, Mercury's and MGP's properties
and records, officers, employees, counsel and tax accountants and shall make
available to JEDI and TCW and the Representatives such information concerning
QRI's, QELC's, Mercury's and MGP's affairs as JEDI and TCW may reasonably
request.
4.2 CERTAIN ADDITIONAL COVENANTS OF THE PARTIES.
(a) CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Mercury, QELC, QRI,
MGP, TCW and JEDI shall cooperate with one another (1) in promptly determining
whether any filings are reasonably required to be or should be made, or any
consents, approvals, permits or authorizations are required to be or should be
obtained, under any federal, state or local law or regulation or whether any
consents, approvals or waivers are required to be or should be obtained from
other parties to loan agreements or other Contracts in connection with the
consummation of the transactions contemplated hereby, and (2) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, permits, authorizations, approvals
or waivers.
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(b) NOTIFICATION OF CERTAIN MATTERS. Each of Mercury, QELC, QRI,
MGP, TCW and JEDI shall give prompt notice to the other of (1) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it subsequent to the
date of this Agreement and prior to the Effective Time, under any Contract, or
(2) any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
(c) REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement on
or before April 30, 1998. Nothing in this paragraph (c) shall impose any
obligation on any party hereto to approve any matter to the extent that this
Agreement provides that such party's approval is at such party's sole
discretion, including matters set forth in Section 5.1(d).
4.3 ADDITIONAL COVENANTS OF MERCURY, QELC, MGP AND QRI.
(a) Each of Mercury and QELC, jointly and severally, agree to pay all
taxes (other than Federal, state or local income taxes) which may be payable in
connection with the execution, delivery and performance of this Agreement or any
other Basic Document to which it is a party, the Merger, the transfer and
assumption of the QELC Properties and the Mercury Properties and related
Indebtedness, the issuance of the QRI Common Stock hereunder, any payments to
TCW provided for herein, the execution and delivery of this Agreement and the
other Basic Documents or the consummation of the transactions contemplated
hereby and thereby and will save QRI, JEDI and TCW harmless without limitation
as to time against any and all Liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes. The obligations of Mercury and
QELC under this Section shall survive any redemption, repurchase or acquisition
of the shares of QRI Common Stock issued hereunder for any reason and the
termination of this Agreement.
(b) Each of Mercury, QELC, MGP and QRI, jointly and severally, agrees
that none of Mercury, QELC, MGP or QRI or anyone acting on their behalf will
offer QRI Common Stock or any similar securities for issue or sale to, or will
solicit any offer to acquire any of the same from, anyone so as to make the
issuance of shares of QRI Common Stock pursuant to this Agreement not exempt
from the provisions of Section 5 of the Securities Act of 1933, as amended.
(c) Within three days after the Closing Date, Mercury, QELC and QRI,
jointly and severally, agree to file each of the Royalty Documents (as defined
in SECTION 5.1(l)) in the same filing offices that the original royalty
agreements were filed and all other appropriate filing offices.
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ARTICLE V.
CONDITIONS TO CLOSING
5.1 CONDITIONS TO THE CLOSING. The Closing shall not occur unless at or
prior to the Effective Time each of the following conditions, any or all of
which may be waived in whole or in part by mutual agreement of all of the
parties hereto to the extent allowed by applicable law, are satisfied.
(a) REPRESENTATIONS AND WARRANTIES. Except for representations and
warranties specifically stated to be made only as of a specified date, the
representations and warranties of Mercury, QRI, QELC and MGP set forth in this
Agreement shall be true and correct at and as of the Effective Time with the
same force and effect as though the same had been made at and as of the
Effective Time (except for such changes therein expressly permitted by this
Agreement or in writing by JEDI and TCW), Mercury, QRI, QELC and MGP shall have
performed in all material respects all of its obligations under this Agreement
theretofore to be performed, and JEDI and TCW shall have received at the
Effective Time a certificate to that effect (and addressing such other matters
as JEDI or TCW may request) dated the Closing Date and executed by an authorized
executive officer of each of Mercury, QRI, MGP and QELC. Except for
representations and warranties specifically stated to be made only as of a
specified date, the representations and warranties of JEDI set forth in this
Agreement shall be true and correct at and as of the Effective Time with the
same force and effect as though the same had been made at and as of the
Effective Time (except for such changes therein expressly permitted by this
Agreement or in writing by Mercury and TCW), JEDI shall have performed in all
material respects all of its obligations under this Agreement theretofore to be
performed, and Mercury, QRI, QELC and TCW shall have received at the Effective
Time a certificate to that effect (and addressing such other matters as Mercury,
QRI, QELC or TCW may request) dated the Closing Date and executed by an
authorized representative of JEDI. Except for representations and warranties
specifically stated to be made only as of a specified date, the representations
and warranties of TCW set forth in this Agreement shall be true and correct at
and as of the Effective Time with the same force and effect as though the same
had been made at and as of the Effective Time (except for such changes therein
expressly permitted by this Agreement or in writing by Mercury and JEDI), TCW
shall have performed in all material respects all of its obligations under this
Agreement theretofore to be performed, and Mercury, QRI, QELC and JEDI shall
have received at the Effective Time a certificate to that effect (and addressing
such other matters as Mercury, QRI, QELC or JEDI may request) dated the Closing
Date and executed by an authorized representative of TCW.
(b) PENDING LITIGATION. There shall not be any litigation or other
proceeding pending or threatened to restrain or invalidate any of the
transactions contemplated by this Agreement, which would reasonably be expected
to make the consummation of the transactions contemplated hereby imprudent in
light of applicable law.
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(c) OTHER CONSENTS AND FILINGS. All Governmental Consents and
Governmental Filings (other than the filing provided for in Section 1.5), all
consents, approvals, permits, authorizations, waivers and filings referred to
in Section 4.2(a) (except for any such which, in the aggregate, would not
have a Material Adverse Effect) and all other consents or approvals of any
other person determined to be required to permit the consummation of the
transactions contemplated hereby, including without limitation consents of
parties to Contracts, shall have been obtained or made to the reasonable
satisfaction of JEDI and TCW.
(d) DUE DILIGENCE. JEDI and TCW shall have completed a due
diligence examination of (i) QRI, QELC, Mercury and MGP, and (ii) the
properties, assets and liabilities of each parties listed in clause (i), and
TCW and JEDI have approved all matters and information contained or referred
to in any Exhibit or Schedule hereto, and the results of such due diligence
examination shall be satisfactory to JEDI and TCW in JEDI's and TCW's, as
applicable, sole discretion.
(e) LEGAL OPINION. JEDI and TCW shall have received the legal
opinion of Xxxxxx & Hanger as to such matters as JEDI and TCW may reasonably
request.
(f) STOCKHOLDERS AGREEMENT. Each of the parties hereto other than
MGP shall have entered into a Stockholders Agreement (the "Stockholders
Agreement") substantially in the form of EXHIBIT A hereto.
(g) REGISTRATION RIGHTS AGREEMENT. QRI shall have entered into a
Registration Rights Agreement with JEDI (the "JEDI Registration Rights
Agreement") in a form mutually acceptable to JEDI and Mercury, and shall have
entered into a Registration Rights Agreement with TCW (the "TCW Registration
Rights Agreement") in a form mutually acceptable to TCW and Mercury.
(h) STOCK TRANSFER AGREEMENT. JEDI and Mercury shall have entered
into a Stock Transfer Agreement (the "Stock Transfer Agreement")
substantially in the form of EXHIBIT D hereto.
(i) MANAGEMENT AGREEMENT. QRI and Mercury shall have entered into
a Management Agreement (the "Management Agreement") substantially in the form
of EXHIBIT E hereto.
(j) LETTER AGREEMENT. JEDI or one of its Affiliates and QRI shall
have entered into a Letter Agreement (the "Letter Agreement") substantially
in the form of EXHIBIT F hereto.
(k) ASSIGNMENT AND ASSUMPTION DOCUMENTS. Mercury, QELC, Xxxxx
Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxx Xxxxxx Self, Xxxx Xxxx and
Xxxx X. Xxxxxxx shall have executed and delivered assignment documents in
such forms as are requested by TCW and JEDI,
-26-
each in its sole discretion, which assignments shall vest in QRI the assets
to be transferred to QRI pursuant to Section 2.1 and Section 2.2 hereof and
shall release any and all claims of such persons relating to such assets and
any revenue produced therefrom. Xxxxx Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx X.
Xxxxxx, and Xxxx Xxxxxx Self shall execute and deliver an assignment in the
form of EXHIBIT G. Xxxx X. Xxxxxxx shall execute and deliver the assignment
and termination in the form of EXHIBIT H. Xxxx Xxxx shall execute and
deliver the Share Conveyance Agreement in the form of EXHIBIT I. Each of
such individuals shall execute a document containing securities law
representations satisfactory to the parties hereto. QRI shall have executed
and delivered assumption agreements in such forms as requested by TCW and
JEDI, each in its sole discretion, assuming the indebtedness to be assumed by
QRI pursuant to Sections 2.1 and 2.2 hereof, including without limitation an
Assumption Agreement (the "TCW Assumption Agreement") in a form satisfactory
to TCW and QRI, each in its sole discretion.
(l) ROYALTY DOCUMENTS. An Amendment to Royalty Agreement, an
Amendment to Royalty Conveyance and an Amendment to Royalty Subordination
Agreement (the "Royalty Documents") shall have been executed and delivered by
the parties thereto in forms satisfactory to TCW and QRI, each in its sole
discretion.
(m) PUT/CALL AGREEMENT. A Put/Call Agreement (the "Put/Call
Agreement") shall have been executed and delivered by the parties thereto in
a form satisfactory to Mercury and TCW, each in its sole discretion.
(n) LETTER OF CREDIT. TCW shall have received a letter of credit
(the "Letter of Credit") supporting the obligations of Mercury under the
Put/Call Agreement in the amount of $10,000,000 expiring at the earlier of
the date the MSR Merger (as defined in the Put/Call Agreement) is consummated
and December 31, 1998, from such issuing bank and on such other terms as are
requested by TCW in its sole discretion.
(o) TCW RELEASE DOCUMENTS. TCW shall have executed and delivered
such documents (the "TCW Release Documents") as are necessary to (i)
terminate and release all mortgages, financial statements, pledge agreements
and all other security documents relating to the TCW Credit Agreement and
(ii) evidence the payment in full of all outstanding principal, interest and
fees under the Note under the TCW Credit Agreement. This Agreement, the
Stockholders Agreement, the JEDI Registration Rights Agreements, the TCW
Registration Rights Agreement, the Stock Transfer Agreement, the Management
Agreement, the Letter Agreement, the assignment and assumption documents
referred to in SECTION 5.1(k), the Royalty Documents, the Put/Call Agreement,
the Letter of Credit and the TCW Release Documents are referred to
collectively herein as the "Basic Documents".
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(p) CREDIT AGREEMENT. QRI shall have obtained a new credit
facility with NationsBank of Texas, N.A. on substantially the terms set forth
on the term sheet attached hereto as EXHIBIT K and under documents acceptable
to JEDI and TCW, each in its sole discretion.
(q) CHARTER AMENDMENT. The Certificate of Incorporation and
Bylaws of QRI shall be in a form reasonably acceptable to JEDI and TCW.
(r) SCHEDULE 3.1(h). Mercury, QELC and MGP shall deliver to JEDI
and TCW a schedule in such form as is satisfactory to JEDI and TCW (the
"Revised Well Exhibit") setting forth all xxxxx on the Mercury Properties,
QELC Properties and the MGP Properties and the working interests and net
revenue interests therein.
(s) 3/31/98 BALANCE SHEET. Mercury and QELC shall have delivered
the 3/31/98 Balance Sheet.
ARTICLE VI.
TERMINATION
6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the transaction contemplated hereby may be abandoned at any time before
the Closing by the mutual consent of each of the parties hereto.
6.2 TERMINATION BY INDIVIDUAL PARTIES. This Agreement may be
terminated and the transaction contemplated hereby may be abandoned by action
of any of the parties hereto if (a) the Closing shall not have occurred on or
before April 30, 1998 or such later date as may be mutually agreed to by the
parties hereto, provided that the party taking action to terminate this
Agreement is not otherwise in breach in any material respect of any of its
obligations hereunder or (b) any court of competent jurisdiction or other
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the consummation
of transactions contemplated hereby and such order, decree, ruling or other
action shall have become final and nonappealable; PROVIDED, HOWEVER, that the
provisions of Section 7.1 shall survive the termination of this Agreement.
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ARTICLE VII.
MISCELLANEOUS; GENERAL
7.1 FEES AND EXPENSES. Whether or not the Closing shall occur, each
party hereto shall pay its own expenses incident to preparing for, entering
into or carrying out this Agreement and the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that Mercury shall pay one-half of
the legal fees and expenses incurred by JEDI incident to preparing for,
entering into or carrying out this Agreement and the consummation of the
transactions contemplated hereby; PROVIDED, FURTHER, that, regardless of
whether the Closing occurs, Mercury shall: (a) pay, or reimburse TCW for,
all of the third party engineering, legal, accounting and other professional
costs and expenses incurred by TCW incident to the transactions contemplated
hereby, with such payments to be made not later than the Effective Time with
respect to all invoices submitted on or before the Closing and not later than
15 days after receipt thereof with respect to all other invoices; and (b) pay
to TCW $25,000 for all other out-of-pocket costs incurred or anticipated to
be incurred by TCW, with such payment to be made not later than the earlier
to occur of the Effective Time and five days after the date hereof.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations or
warranties contained in this Agreement shall survive the Effective Time for a
period of three years.
7.3 INDEMNIFICATION.
(a) INDEMNIFICATION OF JEDI AND TCW. From and after the Effective
Time, Mercury and QRI jointly and severally shall defend, indemnify, save,
hold harmless, discharge and release JEDI and TCW and their respective
Affiliates and their successors and permitted assigns from and against any
and all damages (including exemplary damages, interest and penalties),
losses, deficiencies, costs, expenses, obligations, fines, expenditures,
assessments, charges, claims and liabilities, including attorneys' fees,
court costs and expenses of investigating, defending and prosecuting
litigation (collectively, the "Damages"), caused by, arising from, based on,
or in any way relating to (i) any inaccuracy in any representation or
warranty made by Mercury, QRI, MGP or QELC in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, and (ii) any breach of any
agreement or covenant in this Agreement, any of the other Basic Documents or
any other document or instrument furnished or to be furnished in connection
with this Agreement to be performed by Mercury, QRI, QELC or MGP prior to, at
or subsequent to the Effective Time. Notwithstanding anything herein to the
contrary, Mercury shall not be entitled to seek contribution from QRI for any
portion of any Damages for which Mercury is required to provide
indemnification pursuant to this Section 7.3(a).
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(b) INDEMNIFICATION OF MERCURY, TCW AND QRI. From and after the
Effective Time, JEDI shall defend, indemnify, save, hold harmless, discharge
and release Mercury, TCW and QRI from and against any and all Damages caused
by, arising from, based on, or in any way relating to (i) any inaccuracy in
any representation or warranty made by JEDI in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, or (ii) any breach of any
agreement or covenant on the part of JEDI in this Agreement, any of the other
Basic Documents or any other document or instrument furnished to or to be
furnished in connection with this Agreement.
(c) INDEMNIFICATION OF MERCURY, JEDI AND QRI. From and after the
Effective Time, TCW shall defend, indemnify, save, hold harmless, discharge
and release Mercury, JEDI and QRI from and against any and all Damages caused
by, arising from, based on, or in any way relating to (i) any inaccuracy in
any representation or warranty made by TCW in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, or (ii) any breach of any
agreement or covenant on the part of TCW in this Agreement, any of the other
Basic Documents or any other document or instrument furnished to or to be
furnished in connection with this Agreement.
(d) NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. The obligations and
liabilities of an indemnifying person with respect to Damages resulting from
the assertion of liability by third parties (each, a "Third-Party Claim")
shall be subject to the following terms and conditions:
(1) The indemnified persons shall promptly give written
notice to the indemnifying parties of any Third-Party Claim
(including, without limitation, any threat of a Third-Party Claim,
such as an audit or investigation) which might give rise to any
Damages by the indemnified persons, stating the nature and basis of
such Third-Party Claim and the amount thereof to the extent known;
provided, however, that no delay on the part of the indemnified
persons in notifying any indemnifying party shall relieve the
indemnifying party from any liability or obligation hereunder unless
(and then solely to the extent) the indemnifying party thereby is
prejudiced by the delay. Such notice shall be accompanied by copies
of all relevant documentation with respect to such Third-Party Claim,
including, but not limited to, any summons, complaint or other
pleading which may have been served, any written demand or any other
document or instrument.
(2) If the indemnifying parties shall acknowledge in a
writing delivered to the indemnified persons that the indemnifying
parties shall be obligated under the terms of their indemnification
obligations hereunder in connection with such Third-Party Claim, then
the indemnifying parties shall have the right to assume the defense
of any Third-Party Claim at their own expense and by their own
counsel, which counsel shall be reasonably
-30-
satisfactory to the indemnified persons; provided, however, that the
indemnifying parties shall not have the right to assume the defense of
any Third-Party Claim, notwithstanding the giving of such written
acknowledgment, if (i) the indemnified persons shall have been advised
by counsel that there are one or more legal or equitable defenses
available to them which are different from or in addition to those
available to the indemnifying parties, and, in the reasonable opinion of
the indemnified persons, counsel for the indemnifying parties could not
adequately represent the interests of the indemnified parties because
such interests could be in conflict with those of the indemnifying
parties, (ii) such action or proceeding involves, or could have a
material effect on, any material matter beyond the scope of the
indemnification obligation of the indemnifying parties or (iii) the
indemnifying parties shall not have assumed the defense of the
Third-Party Claim in a timely fashion.
(3) If the indemnifying parties shall assume the defense
of a Third-Party Claim (under circumstances in which the proviso to
Section 7.3(d)(2) is not applicable), the indemnifying parties shall
not be responsible for any legal or other defense costs subsequently
incurred by the indemnified persons in connection with the defense
thereof. If the indemnifying parties do not exercise their right to
assume the defense of a Third-Party Claim by giving the written
acknowledgment referred to in Section 7.3(d)(2), or are otherwise
restricted from so assuming by the proviso to Section 7.3(d)(2), the
indemnifying parties shall nevertheless be entitled to participate in
such defense with their own counsel and at their own expense; and in
any such case, the indemnified persons may assume the defense of the
Third-Party Claim at the indemnifying parties' expense, with counsel
which shall be reasonably satisfactory to the indemnifying parties
and shall act reasonably and in accordance with their good faith
business judgment and shall not effect any settlement without the
consent of the indemnifying parties, which consent shall not
unreasonably be withheld or delayed.
(4) If the indemnifying parties exercise their right to
assume the defense of a Third-Party Claim, they shall not make any
settlement of any claims without the prior written consent of the
indemnified persons, which consent shall not be unreasonably withheld
or delayed.
(d) TERMINATION OF INDEMNIFICATION OBLIGATIONS. Notwithstanding
the foregoing, no party shall be required to provide indemnification pursuant
to this Section 7.3 in respect of any claim for indemnification for a breach
of a representation or warranty contained herein unless the party seeking
indemnification provides notice of the indemnification claim to the party
from whom indemnification is sought within three years after the Effective
Time.
7.4 DISPUTE RESOLUTION. Any controversy, dispute or claim arising out
of or relating to this Agreement or any of the other Basic Documents or the
transactions contemplated hereby or thereby (a "Dispute") shall be resolved
by arbitration administered by the American Arbitration
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Association (the "AAA") in accordance with the terms of this Section 7.4, the
Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United Stated Arbitration Act. Judgment on any matter
rendered by arbitrators may be entered in any court having jurisdiction. Any
arbitration shall be conducted before three arbitrators. The arbitrators
shall be individuals knowledgeable in the subject matter of the Dispute.
Each party shall select one arbitrator and the two arbitrators so selected
shall select the third arbitrator. If the third arbitrator is not selected
within 30 days after the request for an arbitration, then any party may
request the AAA to select the third arbitrator. The arbitrators may engage
engineers, accountants or other consultants they deem necessary to render a
conclusion in the arbitration proceeding. To the maximum extent practicable,
an arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrators shall make specific
written findings of fact and conclusions of law. The arbitrators shall have
the power to award recovery of all costs and fees to the prevailing party.
All fees of the arbitrators and any engineer, accountant or other consultant
engaged by the arbitrators, shall be shared equally unless otherwise awarded
by the arbitrators.
7.5 BUSINESS OPPORTUNITY MATTERS. To the fullest extent permitted by law,
(a) QRI, Mercury, TCW and JEDI acknowledge and agree that neither JEDI, TCW nor
any of their respective Affiliates shall be expressly or implicitly restricted
or proscribed pursuant to this Agreement or the relationship that exists between
JEDI or TCW and QRI or otherwise, from engaging in any type of business activity
or owning an interest in any type of business entity, regardless of whether such
business activity is (or such business entity engages in businesses that are) in
direct or indirect competition with the businesses or activities of QRI or any
of its Affiliates. Without limiting the foregoing and to the fullest extent
permitted by law, JEDI, QRI, TCW and Mercury acknowledge and agree that
(i) neither QRI nor its Affiliates nor any other person shall have any rights,
by virtue of this Agreement and the other Basic Documents, the relationship that
exists between JEDI or TCW and QRI or otherwise, in any business venture or
business opportunity of JEDI or TCW or any of their respective Affiliates, and
neither JEDI or TCW nor their respective Affiliates shall have any obligation to
offer any interest in any such business venture or business opportunity to QRI
or any Affiliate of QRI or any other person or otherwise account to any of such
persons in respect of any such business ventures, (ii) the activities of JEDI,
TCW or any of their respective Affiliates that are in direct or indirect
competition with the activities of QRI or any of its Affiliates are hereby
approved by QRI and Mercury, and (iii) by virtue of this Agreement and the other
documents contemplated hereby, it shall not be deemed a breach of any fiduciary
or other duties, if any and whether express or implied, that may be owed by
JEDI, TCW or their respective Affiliates to QRI or its Affiliates for JEDI or
TCW to permit itself or one of its respective Affiliates to engage in a business
opportunity in preference or to the exclusion of QRI, its Affiliates or any
other person.
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7.6 MODIFICATION OR AMENDMENT. Subject to the applicable provisions of
the DGCL and the TRLPA, at any time prior to the Effective Time, this Agreement
may be modified or amended only by the mutual written consent of each of the
parties hereto.
7.7 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
7.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflict of laws thereof.
7.9 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight delivery, or five
calendar days after the same is sent, if sent by registered or certified mail,
return receipt requested, postage prepaid, as set forth below, or to such other
persons or addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to Mercury, QELC, QRI or MGP, to such party at:
0000 Xxxxxxxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxx
Telecopier: (000) 000-0000
If to JEDI:
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Telecopier: (000) 000-0000
with copies to:
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Xxxxx Xxxxxxx & Trade Resources
Corp. Legal Department
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx St. Clair and Xxxxxx X. Xxxxxxxx
Telecopier: (000) 000-0000
Enron Capital & Trade Resources
Compliance Department
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxx
Telecopier: (000) 000-0000 or (000) 000-0000
If to TCW:
Trust Company of the West
000 Xxxxx Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
and
TCW Asset Management Company
2175 First Interstate Bank Plaza
0000 Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Telecopier: (000) 000-0000
with copies to:
Milbank, Tweed, Xxxxxx & XxXxxx
000 Xxxxx Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxx
Telecopier: (000) 000-0000
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7.10 SCHEDULES AND EXHIBITS; ENTIRE AGREEMENT. All schedules and exhibits
to this Agreement are hereby incorporated into this Agreement and are hereby
made a part hereof as if set out in full in this Agreement. This Agreement
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and constitutes the
entire agreement among the parties hereto.
7.11 ASSIGNMENT. Prior to the Effective Time, this Agreement and the
rights and obligations of the parties hereto shall not be assignable, by
operation of law or otherwise, or delegable.
7.12 TITLES AND CAPTIONS. The titles, captions and table of contents
contained in this Agreement are inserted herein only as a matter of convenience
and for reference and in no way deem, limit, extend or describe the scope of
this Agreement or the intent of any provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto.
QUICKSILVER RESOURCES INC.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
--------------------------
Title: Vice President
-------------------------
QUICKSILVER ENERGY, L.C.
By: /s/ Xxxxx Xxxxxx
-----------------------------
Name: Xxxxx Xxxxxx
--------------------------
Title: Administrative Manager
-------------------------
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MICHIGAN GAS PARTNERS,
LIMITED PARTNERSHIP
By: Mercury Exploration Company,
Managing General Partner
By: /s/ Xxxxx Xxxxxx
--------------------------------
Name: Xxxxx Xxxxxx
-----------------------------
Title: Vice President
----------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Xxxxx Xxxxxx
--------------------------------
Name: Xxxxx Xxxxxx
-----------------------------
Title: Vice President
----------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
-----------------------------
Title: Agent and Attorney-in-Fact
----------------------------
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TRUST COMPANY OF THE WEST,
a California trust company, as
Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as
Investment Manager under that
certain Agreement dated as of
June 13, 1994, between TCW Asset
Management Company and Xxxxxx
Xxxxxxx Group, Inc.
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxx
--------------------------
Title: Managing Director
-------------------------
By: /s/ Xxxx X. XxxXxxxx
-----------------------------
Name: Xxxx X. XxxXxxxx
--------------------------
Title: Senior Vice President
-------------------------
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