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EXHIBIT (10)(nn)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this 22nd day
of September, 1999, by and among Xxxxxx Drilling, Inc., a Texas corporation
(hereinafter called "Seller") and South Texas Drilling & Exploration, Inc., a
Texas corporation (hereinafter called "Purchaser").
WITNESSETH:
WHEREAS, Seller owns two drilling rigs (designated as Rig 1 and Rig 2)
and is engaged in the land contract drilling business (the "Drilling Business");
and
WHEREAS, Purchaser is desirous of purchasing from the Seller the assets
of Seller used in Seller's Drilling Business, including Rig 1 and Rig 2.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, Seller shall sell, transfer and assign to
Purchaser and Purchaser shall purchase and acquire from Seller on the Closing
Date (as hereinafter defined), all of Seller's right, title, interest and
benefit in and to the assets, properties, and rights used in connection with the
operation of Seller's Drilling Business which are described below (the
"Assets"), free and clear and expressly excluding all debts, liabilities,
obligations, taxes, liens and encumbrances of any kind, character or
description:
(a) All of the Seller's drilling rigs and related equipment
(the "Drilling Equipment") (the Drilling Equipment described on
Schedule 1(a) are designated appropriately as either Rig 1 Assets or
Rig 2 Assets, as the case may be), inventory and supplies of Seller
(the "Inventory"), Seller's equipment ordinarily kept in its yard in
Halletsville, Texas ("Yard Equipment"), Seller's vehicles relating to
the Drilling Business ("Vehicles"), and the separator which is
currently leased by Seller but which will be purchased by Seller prior
to the Closing (as hereinafter defined), all of which are described on
Schedule 1(a);
(b) Seller's office equipment related to the Drilling
Business, and all support, maintenance, warranty, and similar
agreements relating to such personal property (the "Office Equipment")
described on Schedule 1(b);
(c) Only those contracts, agreements and commitments of Seller
under which Seller has agreed or hereafter agrees (as set forth in
Section 8(c) below) to perform land contract drilling for any third
party which are set forth on Schedule 1(c) and which have not been
performed, in whole or in part, as of the Closing (the "Drilling
Contracts"), all of which shall be expressly assumed by Purchaser by
written instrument at the Closing. In the event (i) of any adverse
change with respect to any Drilling Contract which occurs at
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any time before Closing or (ii) any Drilling Contract entered into
after the date hereof and added to Schedule 1(c) pursuant to Section
8(e) shall contain terms and conditions, taken as a whole, that are not
as favorable in any material respect as those contained in the other
Drilling Contracts listed in Schedule 1(c) as reasonably determined by
Purchaser, then Purchaser shall have the right to terminate this
Agreement by giving written notice to such effect to Seller.
Notwithstanding the foregoing provisions of this Section 1(c), if
Seller commences performance under any such Drilling Contract prior to
the Closing, such Drilling Contract shall be deemed to have been
deleted from Schedule 1(c), shall not be assigned to or assumed by
Purchaser and shall be performed by Sellers, for its own account,
pursuant to the Lease Agreement (as hereinafter defined);
(d) Those contracts, agreements and commitments of Seller set
forth on Schedule 1(d) (the "Ancillary Agreements"), all of which shall
be expressly assumed by Purchaser by written instrument at Closing;
(e) Seller's business records which relate to the Drilling
Business as conducted by Seller during the past four years, including
but not limited to personnel records, manuals, drilling files, well
files, insurance files, bit record files, customer lists, drilling
reports, maintenance records and supplier lists (collectively,
"Business Records"); provided, however, Seller shall have the right to
reasonable access to, and to copy, such records for a period of four
years following the Closing Date; and, provided further, however, that
such business records shall not include records, reports or other
information relating to Seller's drilling activities in the
Halletsville Field.
(f) All personal property acquired after the date of this
Agreement but prior to Closing by Seller relating to the Drilling
Business, all of which shall be included in the appropriate Schedules
at the time of acquisition.
The term "Assets" does not include, and Seller is not selling to
Purchaser, any cash or cash equivalents, deposits, accounts receivable,
trademarks, service marks or tradenames of Seller, any interests of Seller in
oil and gas properties or any other property or assets of Seller not described
above.
2. Assumption of Liabilities. Except for (i) the obligations and
liabilities arising after Closing under the Drilling Contracts and the Ancillary
Agreements and (ii) property taxes relating to the Assets after taking into
account appropriate prorations thereof as provided in Section 11(a) hereof,
(collectively, the "Assumed Liabilities"), Purchaser does not and shall not
assume or be responsible for any obligation or liability of Seller whatsoever.
3. Consideration.
(a) Based on the representations, warranties and agreements
contained herein and subject to the terms and conditions set forth
herein, Purchaser shall purchase, and Seller agrees to sell, assign,
transfer and vest in Purchaser, the Assets for a total cash
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consideration of Two Million Five Hundred Thousand Dollars
($2,500,000.00) (the "Purchase Price").
(b) As additional consideration for the Assets, at the Closing
Purchaser and Seller shall execute and deliver the Assignment and
Assumption Agreement in the form attached hereto as Exhibit "A" under
the terms of which Purchaser shall assume the Assumed Liabilities.
(c) The Purchase Price paid by Purchaser for the Assets shall
be allocated to the Assets shall be allocated to the Assets on the
basis of the relative values set forth in the appraisal dated August
16, 1999, conducted by X. X. X. Valuations, Inc. The parties agree that
such allocation shall be reported on Internal Revenue Service Form
8594.
4. Closing. In the event that Purchaser and Seller satisfy those
conditions set forth in this Agreement, or the conditions unsatisfied are waived
in writing, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at 10:00 A.M., local time on or before
September 30, 1999, or such other date as the parties mutually agree, and the
parties shall endeavor to effect the Closing on a date when both Rig 1 and Rig 2
will have completed drilling operations and have not yet started new drilling
operations. The time and date of the Closing shall be referred to herein as the
"Closing Date." The Closing shall take place at the offices of Xxxxxxxx &
Xxxxxxxxx, P.C., 000 X. Xx. Xxxx'x Xxxxxx, Xxx Xxxxxxx, Xxxxx, or such other
time and place as the parties mutually agree. In the event that either Rig 1 or
Rig 2 (including drill pipe and collars) is in use at the time of Closing,
notwithstanding the parties' efforts to schedule the Closing at a time when both
the Rig 1 Assets and Rig 2 Assets are not in use, Seller shall lease either the
Rig 1 Assets or Rig 2 Assets (including drill pipe and collars), as the case may
be, to complete for its own account the drilling operations which are in
progress at the time of Closing, pursuant to the terms of the Lease Agreement
attached as Exhibit "B" to this Agreement (the "Lease Agreement"). The
appropriate Rig Assets (including drill pipe and collars) shall be designated on
Exhibit A to the Lease Agreement and the drilling contract which the Seller is
performing at such time shall be appropriately referenced on Exhibit B to the
Lease Agreement.
(a) Seller's Obligations at Closing. At the Closing, Seller
agrees to deliver to Purchaser the following:
(i) To the Purchaser, executed bills of sale, assignments,
certificates of title for motor vehicles, and such other
instruments satisfactory in form and substance to Purchaser
pursuant to which Seller shall convey the Assets to Purchaser;
(ii) To the Purchaser, certificates as to the existence and
good standing of Seller (as of the date not earlier than ten
days prior to the Closing) in the State of Texas;
(iii) To the Purchaser, resolutions evidencing the
authorization of the execution, delivery and performance of
this Agreement by Seller and the
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consummation of the transactions contemplated hereby,
certified by the Secretary of Seller;
(iv) To the Purchaser, a certificate dated as of the Closing
Date and signed by the President of Seller to the effect that
the representations and warranties of Seller set forth in this
Agreement, as of the date of this Agreement and as of the
Closing, are true and correct in all material respects and
that all covenants, agreements and conditions required by this
Agreement to be performed or complied with prior to or at the
Closing have been so performed or complied with;
(v) To the Purchaser, a certificate of No Tax Due issued by
the Comptroller of the State of Texas indicating that no sales
tax, motor vehicle tax, employment tax, or other tax is due
and owing to the State of Texas;
(vi) To the Purchaser, a certified search of the UCC records
of the Secretary of State of the State of Texas and the
applicable counties where Seller resides, showing that the
Assets are free and clear of any liens or encumbrances, or
executed UCC-3 termination statements releasing any security
interest are reflected in such search;
(vii) To the Purchaser, such additional certificates,
proceedings, instruments and other documents as Purchaser may
reasonably request to evidence compliance by Seller with this
Agreement and applicable legal requirements and the
performance and satisfaction by Seller, at or prior to the
time of Closing, of all agreements then to be performed and
all conditions then to be satisfied by Seller;
(viii) To the Purchaser, the Assignment and Assumption
Agreement in the form attached as Exhibit "A" executed by
Seller and Purchaser under which the Seller assigns all of its
rights under the Drilling Contracts and the Ancillary
Agreements;
(ix) If, at the time of Closing, the Assets designated as Rig
1 Assets on Schedule 1(a) or the Assets designated as Rig 2
Assets on Schedule 1(a) are being operated by Seller, the
Seller shall deliver the Lease Agreement attached hereto as
Exhibit B executed by the Purchaser and the Seller, with
respect to either the Rig 1 Assets or Rig 2 Assets, whichever
are in use at the time of the Closing; and
(x) To the Purchaser, to the extent that any Ancillary
Agreement or any contract or commitment is not freely
assignable by the Seller, and if the Seller shall have
obtained the same through its reasonable best efforts, the
Seller shall provide written consents by the parties to such
agreements, authorizing the assignment by the Seller to the
Purchaser.
(b) Purchaser's Obligations at Closing. At the Closing,
Purchaser agrees to deliver to Seller, the following:
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(i) To the Seller, $2,500,000.00 by wire transfer, to an
account in San Antonio, Texas designated by Seller at or prior
to the Closing;
(ii) To the Seller, the fully executed Assignment and
Assumption Agreement in the form attached as Exhibit "A" under
which the Purchaser assumes the Assumed Liabilities;
(iii) If, at the time of Closing, the Assets designated as Rig
1 Assets on Schedule 1(a) or the Assets designated as Rig 2
Assets on Schedule 1(a) are being operated by Seller, the
Purchaser shall deliver the Lease Agreement attached hereto as
Exhibit 3 executed by the Purchaser and the Seller, with
respect to either the Rig 1 Assets or Rig 2 Assets, whichever
are in use at the time of the Closing;
(iv) To the Seller, resolutions evidencing the authorization
of the execution, delivery and performance of this Agreement
by Purchaser and the consummation of the transactions
contemplated hereby, certified by the Secretary of Purchaser;
(v) To the Seller, a certificate dated as of the Closing Date
and signed by the President of Purchaser to the effect that
the representations and warranties of Purchaser set forth in
this Agreement, as of the date of this Agreement and as of the
Closing, are true and correct in all material respects and
that all covenants, agreements and conditions required by this
Agreement to be performed or complied with prior to or at the
Closing have been so performed or complied with; and
(vi) To the Seller, such additional certificates, proceedings,
instruments and other documents as Seller may reasonably
request to evidence compliance by Purchaser with this
Agreement and applicable legal requirements and the
performance and satisfaction by Purchaser, at or prior to the
time of Closing, of all agreements then to be performed and
all conditions then to be satisfied by Purchaser.
(c) In addition, at Closing, Purchaser shall offer to employ
X. X. Xxxxx pursuant to the terms of the Employment Agreement attached
as Exhibit "C".
5. Delivery of Assets. At the Closing, Seller shall deliver and
transfer title to the Assets to Purchaser free, clear and discharged of and from
any and all liens, charges, equities, security interests, encumbrances, claims
and demands of every kind and character whatsoever. The Drilling Equipment shall
be rigged down at the locations of the last completed drilling contracts and
delivery of the Drilling Equipment and Inventory shall be deemed to occur at
Closing at such locations. The Office Equipment and Business Records shall be
appropriately boxed and packaged for pick-up by Purchaser at Seller's office in
San Antonio, Texas and delivery shall be deemed to occur at Closing at such
location. Delivery of the Yard Equipment shall occur at Closing at Seller's Yard
in Halletsville, Texas. Purchaser shall have 30 days to pick-up the Yard
Equipment after Closing, with no charge to Purchaser for storage. The
certificates of title
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to the Vehicles shall be delivered at Closing at Purchaser's offices in San
Antonio, Texas. The above notwithstanding, to the extent that at Closing the Rig
1 Assets or Rig 2 Assets are being used to perform a drilling contract on behalf
of Seller, such assets shall not be rigged down, but shall be deemed delivered
to the Purchaser at the Closing, and shall continue in possession of the Seller
pursuant to the terms and conditions of the Lease Agreement until termination of
the Lease Agreement.
(a) Risk of Loss. It is expressly agreed that the title to, and the
risk of loss of, all of the Assets shall pass to the Purchaser at
Closing. After Closing, to the extent that Seller continues to possess
the Rig 1 Assets or Rig 2 Assets under the Lease Agreement, Seller
agrees to maintain all insurance on such Rig 1 Assets or Rig 2 Assets,
as required by the Lease Agreement. All such policies shall name the
Purchaser as the named insured and sole loss payee. In addition,
Purchaser shall be named as an insured on all general liability
policies of the Seller during the term of the Lease Agreement.
6. Covenants, Representations and Warranties of Seller. Seller
covenants, represents and warrants to Purchaser as follows and acknowledge that
Purchaser is relying upon such representations and warranties in entering into
this Agreement:
(a) Due Incorporation. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Texas and has the corporate power to carry on its business as now being
conducted. Seller is not qualified as a foreign corporation in any
jurisdiction.
(b) Corporate Authority. The execution, delivery and
performance of this Agreement, and the obligations undertaken by Seller
herein, have been, or prior to the Closing will be, duly authorized and
approved by the Board of Directors of Seller and by the shareholders of
Seller.
(c) No Violation of Agreements, Etc. This Agreement
constitutes a valid and binding obligation of Seller enforceable
against Seller in accordance with its terms, and this Agreement and all
transactions contemplated hereby will not result in the violation of
any terms of the Articles of Incorporation or By-Laws of Seller or any
law applicable to the Drilling Business or, except for the requirement
for any consent or approval set forth in Schedule 6(g), any agreement
to which Seller is a party or by which it is bound.
(d) Title to Assets. Seller presently owns all of the Assets,
free and clear of all liens, charges, equities, pledges, mortgages,
leases, options, assessments, security interests, restrictions and
other encumbrances of any kind whatsoever ("Liens"), other than those
disclosed in Schedule 6(d) (the "Existing Liens"), and Seller has, and
on the Closing Date will have, full right, power, title and authority
to sell, transfer and convey the Assets to Purchaser, free and clear of
all Liens, including the Existing Liens.
(e) No Litigation. Except as described on Schedule 6(e), there
presently exists no litigation, proceeding, action, claim, arbitration,
or investigations at law, in equity or
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otherwise, pending or threatened against Seller which relates to the
Drilling Business, and Seller has no knowledge of any facts or
circumstances that would indicate that any such claim exists. Seller is
not subject to any notice, writ, injunction, order, or decree of any
court, agency, or other governmental authority affecting the Drilling
Business and in which it is a named party. Seller has not been served
with process or otherwise received formal notice with respect to, nor,
to Seller's knowledge, has Seller been threatened with, any litigation
or judicial, administrative, arbitration or other proceeding affecting
the Drilling Business or the Assets.
(f) Brokers. If Seller has retained any broker in connection
with the transactions contemplated by this Agreement, Seller shall be
solely responsible for the payment of any compensation due such broker
by Seller.
(g) Contracts/Assignments. Other than those agreements set
forth on Schedule 6(g), the lists of contracts and agreements
identified on Schedules 1 (b), (c) and (d) are complete and accurate
lists of all contracts and agreements between Seller and any other
person related to the Drilling Business. Each of the Drilling Contracts
and Ancillary Agreements described or referred to in Schedules 1(c) and
1(d) are valid and binding obligations of Seller and, to the knowledge
of Seller, the party or parties thereto. None of the parties to any of
such contracts or agreements has terminated, canceled, or modified any
of such contracts or agreements and neither Seller nor, to the
knowledge of Seller, any other party is in default thereunder. Each of
the Drilling Contracts and Ancillary Agreements may be freely assigned
by Seller to Purchaser without the requirement of any consent or
approval, except as set forth in Schedule 6(g). True and complete
copies of the Drilling Contracts and the Ancillary Agreements have been
provided to Purchaser and true and complete copies of any Drilling
Contracts entered into after the date hereof will be provided to
Purchaser when executed and delivered by Seller.
(h) Personal Property. Seller owns all of the Assets free and
clear of any Liens, other than those Existing Liens set forth in
Schedule 6(d) which will be released prior to or contemporaneously with
the Closing. The Assets described in Schedules 1(a)-1(f) are a fill
and complete list of all tangible and intangible personal property of
Seller used in connection with the Drilling Business, and such property
constitutes all of the assets necessary for the conduct of the Drilling
Business as presently conducted. Seller has delivered or will deliver
at Closing all support, maintenance, warranty, and similar agreements
related to such property. Each of such assets is in good operating
condition and at the time the Assets are delivered to Purchaser at the
Closing, each of the Assets will be in good operating condition,
subject to reasonable wear and tear. In order to ensure that the Assets
are in good operating condition, immediately prior to Closing, the
Seller and Purchaser shall conduct a joint inspection of the Assets. In
addition, at all times prior to Closing, the Seller shall provide
Purchaser with accurate daily drilling reports which shall specify any
loss or damage to any of the Assets. It is understood and agreed that
ALL ASSETS BEING PURCHASED FROM SELLER HEREUNDER ARE BEING PURCHASED
AND SOLD "AS IS" AND "WHERE IS", WITH NO WARRANTY, EXPRESSED OR
IMPLIED, OF ANY KIND, INCLUDING NO WARRANTY AS
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TO FITNESS, CONDITION OR SUITABILITY FOR ANY INTENDED PURPOSE. The
Drilling Business constitutes a separate and identifiable business of
Seller and the income and expenses attributable to the Drilling
Business could be separately established from the books of account or
records of Seller. The Assets constitute the entire operating assets of
the Drilling Business.
(i) Permits and Approvals. Except as set forth in Schedule
6(i), Seller has no permits, approvals, authorizations, licenses,
consents, certifications, qualifications or clearances held, used, or
required in the conduct of the Drilling Business, and none (other than
those set forth in Schedule 6(i)) are required to be held by Seller.
(j) Compliance with Laws. To Seller's knowledge, the Drilling
Business has been conducted in compliance with all statutes,
ordinances, codes, restrictions, regulations, and other governmental
requirements, including all Environmental Laws (as hereafter defined),
except where the failure to so comply would not have a material adverse
effect on the Drilling Business or the Assets.
(k) Taxes. The Assets are not in any manner encumbered by any
liens arising out of unpaid taxes except for liens for current taxes
not yet due and payable.
(l) True and Correct Copies. Seller has delivered or made
available to Purchaser, but subject to the provisions of the
Confidentiality Agreement (as hereinafter defined), true, correct, and
complete copies of all contracts, agreements and documents referred to
in this Agreement or material to the Drilling Business, together with
all modifications thereof and amendments thereto, and all customer
lists, supplier lists, maintenance records and daily drilling reports
with respect to the Drilling Business and all other materials
constituting the Business Records (as herein defined).
(m) Insurance. Schedule 6(m) contains a list of the policies
and contracts (including insurer, named insured, type of coverage,
limits of insurance, required deductibles or co-payments, annual
premiums and expiration date) for fire, casualty, liability and other
forms of insurance maintained by, or for the benefit of Seller, in
connection with the Drilling Business. All such policies are in full
force and effect. Seller has not received any notice of cancellation or
non-renewal or of significant premium increases with respect to any
policy. All premiums due prior to the date hereof for the period prior
to the date hereof with respect to such policies have been timely paid,
and all premiums due before the Closing Date for periods between the
date hereof and the Closing Date will be timely paid.
7. Covenants, Representations and Warranties of Purchaser. Purchaser
covenants, represents and warrants to Seller as follows and acknowledges that
Seller is relying upon such representations and warranties in entering into this
Agreement:
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(a) Corporate Existence. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
Texas and has the corporate power to carry on its business as now being
conducted.
(b) Corporate Authority. The execution, delivery and
performance of this Agreement, and the obligations undertaken by the
Purchaser herein, have been duly authorized by all necessary corporate
action by and on behalf of the Purchaser.
(c) No Violation of Agreements. This Agreement constitutes a
valid and binding obligation of Purchaser enforceable against Purchaser
in accordance with its terms, and this Agreement and all transactions
contemplated hereby will not result in the violation of any terms of
the Articles of Incorporation or By-Laws of Purchaser or any law or
agreement to which Purchaser is a party or by which it is bound.
(d) Brokers. If Purchaser has retained any broker in
connection with the transactions contemplated by this Agreement,
Purchaser shall be solely responsible for the payment of any
compensation due such broker by Purchaser.
8. Actions before Closing.
(a) Access. Between the date hereof and the Closing Date,
Seller shall afford Purchaser and its counsel and other representatives
reasonable access during normal business hours to Seller's contracts,
properties and facilities which form a part of the Drilling Business,
and Seller shall instruct its officers, employees, accountants and
agents to fully cooperate with Purchaser and its counsel, accountants,
lenders and other representatives in its investigation and to furnish
such additional information as Purchaser and its counsel and other
representatives may from time to time reasonably request. Seller
specifically covenants that Seller will permit Purchaser to conduct
such tests and investigations of the Assets as Purchaser may reasonably
request. In addition, but subject to the provisions of the
Confidentiality Agreement, Purchaser shall be permitted to make
abstracts from, or take copies of, such documentation relating to the
Assets as may be reasonably required by Purchaser.
(b) Interim Conduct of the Drilling Business. Seller hereby
covenants to Purchaser that, from the date hereof to the Closing,
Seller will conduct the Drilling Business only in the ordinary and
usual course, consistent with past practices. Without limiting the
generality of the foregoing, Seller hereby covenants to Purchaser that,
insofar as the Drilling Business is concerned, Seller will use its
reasonable best efforts to:
(i) preserve the Drilling Business and Seller's relationships
with suppliers, customers, employees, creditors, and others
having business dealings with the Drilling Business;
(ii) maintain in full force and effect its existing policies
of insurance listed on Schedule 6(m);
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(iii) maintain the Assets in good operating condition and
repair, subject to reasonable wear and tear;
(iv) continue performance in the ordinary course of its
obligations under the Drilling Contracts and Ancillary
Agreements; and
(v) subject to reasonable advance notice to Seller and
cooperation in scheduling the same, permit employees or other
representatives of Purchaser to consult with Seller's
employees who are employed in the Drilling Business in the
performance of their jobs for a period of not more than two
weeks prior to the Closing Date, provided that any such
discussions will be performed in a manner that will not
disrupt the operation of the Drilling Business.
(c) Purchaser's Approval of Certain Transactions. Seller
hereby covenants to Purchaser that from the date hereof to the Closing,
Seller shall not do any of the following acts without the prior written
consent of Purchaser:
(i) sell, transfer, encumber or assign any of the Assets
(except to Purchaser in accordance with this Agreement or in
connection with the replacement of such Assets in the ordinary
course of business); or
(ii) enter into any transaction, contract or commitment
outside of the ordinary course of business.
(d) Consent to Assignment. Seller hereby covenants to
Purchaser that Purchaser will use its reasonable best efforts to
obtain, prior to the Closing, the consents and approvals which are
necessary to assign the Drilling Contracts and Ancillary Agreements.
Any and all such approvals and consents shall be in writing, signed by
the person entitled to consent or approve, and shall be delivered to
Purchaser at Closing.
(e) Schedule Updates. Seller and Purchaser shall update by
amendment or supplement each of the Schedules referred to herein and
any other disclosure in writing from either party required by this
Agreement to be disclosed by Seller or Purchaser promptly upon any
change in the information set forth in such Schedules or other
disclosures, and each party hereby represents and warrants to the other
that such Schedules and such written disclosures, as so amended or
supplemented by them, shall be true and correct as of the dates
thereof; provided however, that the inclusion of any information in any
such amendment or supplement, not included in the original Schedule or
other disclosure at or prior to the date of this Agreement, shall not
limit or impair any right that either party might otherwise have
respecting the representations and warranties of Purchaser contained in
this Agreement.
(f) Reports. On a daily basis, Seller shall provide Purchaser,
via telefax, with the daily drilling reports pertaining to the
operation of the Drilling Equipment. In addition,
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as situations occur, Seller shall promptly notify Purchaser in writing
with respect to any material damage to the Assets.
9. Conditions Precedent to Closing by Purchaser. Except as expressly
waived in writing by the Purchaser, the obligation of Purchaser to purchase the
Assets is subject to the following conditions:
(a) Approvals. All corporate and other proceedings or actions
to be taken by Seller in connection with the transactions contemplated
by this Agreement and all documents incidental thereto shall be
satisfactory in form and substance to Purchaser and Purchaser's
counsel. All consents set forth in Schedule 6(g) which must be obtained
to assign the Drilling Contracts and Ancillary Agreements shall have
been obtained.
(b) Title. Transfer of title on the Closing Date, by Seller to
Purchaser, of the Assets, free and clear of all Liens, including the
Existing Liens, and delivery of the Assets on the Closing Date (except
to the extent delivery of the Rig 1 or Rig 2 Assets is made subject to
the Lease Agreement), free and clear of all Liens, including the
Existing Liens.
(c) Covenants. The fulfillment and/or performance of all
agreements, conditions and covenants of Seller contained herein on or
prior to the Closing Date.
(d) Representations. The representations and warranties of
Seller shall be true, accurate, and complete in all material respects
as of the date hereof and as of Closing.
(e) Documents. Delivery on the Closing Date, by Seller to
Purchaser, of all such instruments of transfer, bills of sale,
endorsements, assignments, and other instruments of transfer and
conveyance, in form and substance reasonably satisfactory to Purchaser,
as are necessary to vest in Purchaser good and indefeasible title to
the Assets free and clear of all Liens, including Existing Liens.
(f) Tax Certificate. Purchaser shall have received, in
accordance with Section 111.020(c) of the Texas Tax Code, a certificate
stating that no taxes are due by Seller.
(g) Damage to Assets. In the event that any of the Assets are
materially damaged or destroyed before the Closing Date, Purchaser may,
at its option and as its sole remedy, terminate this Agreement or close
the transactions contemplated by this Agreement, in which latter event
Purchaser shall receive all of the insurance proceeds resulting from
such damage or destruction.
(h) Litigation. There shall not have been issued and in effect
any injunction or similar legal order prohibiting or restraining
consummation of any of the actions herein contemplated and no legal
action or governmental investigation which might reasonably be expected
to result in any such injunction or order shall be pending or
threatened;
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(i) Deliveries Required by Seller. Seller shall have delivered
to Purchaser all of the items enumerated in Section 4(a).
10. Conditions Precedent to Closing by Seller. The obligation of Seller
to sell the Assets is subject to the following conditions:
(a) Deliveries Required by Purchaser. Purchaser shall have
delivered to Seller all items enumerated in Section 4(b).
(b) Seller shall have obtained the requisite approval of this
Agreement and the transactions contemplated hereby from its
shareholders.
11. Additional Covenants.
(a) Proration of Taxes and Other Items. All personal property
taxes applicable to the Assets shall be prorated to the Closing Date,
and after giving effect to such proration adjustments Purchaser shall
assume the obligation to pay such taxes for the current tax year. All
motor vehicle transfer fees and taxes necessary to effect the transfer
of the titles to the Vehicles from Seller to Purchaser shall be borne
by Purchaser.
(b) Transfer and Liability. Seller has the sole responsibility
for any employment rights or benefits which any of its employees may
have. Purchaser has no obligation whatsoever to employ any such
employees or to pay any benefits which any employee has or claims to
have by virtue of an employment relationship with Seller. Purchaser
shall have the right to interview all of the employees of Seller. If
Purchaser elects to hire an employee of Seller, Seller agrees to
cooperate and not to interfere with such employee becoming an employee
of Purchaser. However, Purchaser shall not employ any employee of
Seller while they are assigned to Rig 1 or Rig 2, as the case may be,
until the termination of the Lease Agreement. Seller shall be solely
responsible for any salary, wages, bonuses, commissions, accrued
vacation time, sick leave time, profit sharing or pension benefits and
any other compensation or benefits as well as any actions or causes of
action, including, but not limited to, unemployment compensation claims
and workers compensation claims which may be asserted by and determined
by a court or appropriate agency ruling to be due to any of its
employees which are not hired by Purchaser or by any of its employees
which are hired by Purchaser if the claims of such hired employee
relate to or arise from employment with Seller or termination of
employment by Seller.
(c) Trading in Stock. Until the Closing, Seller will not trade
(and Seller shall advise its employees, shareholders, officers and
directors who have knowledge of this Agreement, not to trade) in any of
the stock of the Purchaser and acknowledge that any such trading may be
a violation of law and subject Seller to substantial liabilities. In
order to protect against such unlawful trading in the Purchaser's
stock, until the Closing, Seller agrees to keep the existence of this
Agreement and the terms thereof confidential and only to disclose the
existence of this Agreement and its terms, on an as needed basis.
Purchaser acknowledges that Seller is required to disclose the
existence of this Agreement and the
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terms hereof to its shareholders for purposes of obtaining their
consideration and approval of this Agreement.
(d) Survival of Covenants. Except with respect to (i) the
representations and warranties of Seller set forth in Section 6(d)
hereof and in the last two sentences of Section 6(h) hereof and (ii)
the agreement of Purchaser to assume and perform the Assumed
Liabilities, which representations and warranties of Seller and
agreement of Purchaser shall survive indefinitely, and except for the
Employment Agreement described in Section 4(c), the warranties,
covenants, promises, undertakings, and obligations of each of the
parties hereto, whether set forth in this Agreement, or in any
document, exhibit or schedule delivered in connection with this
Agreement shall survive the Closing for a period of one year following
the Closing Date and then expire and, in the event of the dissolution
and liquidation of Seller or Purchaser, survive such dissolution and
liquidation and continue, notwithstanding such dissolution and
liquidation, to be performable by, and actionable and enforceable
against, any person, or persons, to whom, or to which, any of the
assets of and property of Seller or Purchaser, shall have been
distributed as a result of such dissolution and liquidation, but the
liability of any such person on account thereof shall be limited to the
assets and property received by any such person in any such
distribution.
(e) Further Consents and Conveyances. After the Closing, Seller
shall, without further cost or expense to Purchaser, execute and
deliver to Purchaser, such additional instruments of conveyance, and
take such other and further actions to more completely sell, transfer,
and assign to Purchaser, the Assets. In addition, to the extent that
any consent or approval was not obtained prior to Closing and Purchaser
nevertheless elected to proceed with Closing, Seller shall continue to
use its reasonable best efforts to obtain from such person or persons
any such consents or approvals.
(f) Books and Records. If, in the reasonable opinion of
Xxxxxxxx & Xxxxxxxxx, P.C., acting as counsel to Purchaser, it is
necessary to do so in order for Purchaser to comply with the
requirements of the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, during the two-year period
following the Closing, Purchaser shall have the right to conduct an
audit of Seller's Drilling Business operations, in which event Seller
will fully cooperate with Purchaser and allow access to such books and
records as is necessary to conduct such audit, but at no expense to
Seller. As such, the books and records of Seller relating to the
Drilling Business shall be maintained by Seller for a period of two
years from the date of Closing.
(g) Non-competition. Seller agrees that for a period of five
years from the Closing, it will not engage in the Drilling Business
anywhere in the State of Texas, whether as an owner, partner,
shareholder, consultant or in any other capacity whatsoever. The
parties agree that $5,000.00 of the Purchase Price shall be allocated
to this covenant not to compete. The foregoing provisions of this
Section 11(g) shall not apply to the ownership, directly or indirectly,
in shares of stock or other securities of a corporation traded on a
national securities exchange or on the national over-the-counter market
that
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constitute less than 5% of the class of such stock or other securities
of such corporation issued and outstanding at the time of the
acquisition thereof.
(h) Confidentiality. Seller and Purchaser have heretofore
entered into that certain Confidentiality Agreement dated August 4,
1999 and accepted by Purchaser on August 5, 1999 (the "Confidentiality
Agreement"), and Seller and Purchaser hereby ratify and confirm the
Confidentiality Agreement and agree that the provisions thereof are
incorporated herein by reference and, that if the Closing hereunder
shall not occur, the Confidentiality Agreement and the provisions
thereof shall survive for a period of one year from the date hereof.
12. Indemnification.
(a) EACH PARTY, WHETHER THE SELLER OR THE PURCHASER
("INDEMNIFYING PARTY"), SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS THE
OTHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS, AND
ITS SUCCESSORS AND ASSIGNS (THE "INDEMNIFIED PARTIES") FROM AND AGAINST
ANY AND ALL COSTS, LOSSES, CLAIMS, LIABILITIES, FINES, EXPENSES,
PENALTIES, AND DAMAGES (INCLUDING INTEREST, REASONABLE LEGAL AND
ACCOUNTING FEES, COURT COSTS AND FEES AND COSTS ON APPEAL, COSTS OF
ARBITRATION AND DISBURSEMENTS OF COUNSEL) ("DAMAGES") SUFFERED BY AN
INDEMNIFIED PARTY AS A PROXIMATE RESULT OF:
(i) ANY BREACH, VIOLATION, FALSIFICATION, FAILURE TO
SATISFY, OR OTHER DEFAULT IN ANY RESPECT OF ANY WARRANTY,
COVENANT OR REPRESENTATION PROVIDED HEREIN BY THE INDEMNIFYING
PARTY.
(ii) ANY LIABILITY ARISING OUT OF THE OWNERSHIP, USE OR
OPERATION BY THE INDEMNIFYING PARTY OF THE ASSETS OR DRILLING
BUSINESS, INCLUDING, WITHOUT LIMITATION, THE VIOLATION OF ANY
ENVIRONMENTAL LAW, RULE OR REGULATION, AND INCLUDING ANY
LIABILITY ARISING OUT OF OR ATTRIBUTABLE TO ACTS OR OMISSIONS
WITH RESPECT TO THE DRILLING CONTRACTS AND THE ANCILLARY
AGREEMENTS.
(iii) THE PRESENCE, MANAGEMENT, PRODUCTION, REFINEMENT,
MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, SALE,
STORAGE, DISPOSAL, TRANSPORTATION OR HANDLING, OR THE EMISSION,
DISCHARGE, RELEASE, OR THREATENED RELEASE OF ANY HAZARDOUS
SUBSTANCES BY THE INDEMNIFYING PARTY; ANY DEATH, PERSONAL
INJURY OR PROPERTY DAMAGE (REAL OR PERSONAL) ARISING OUT OF OR
RELATED TO SUCH HAZARDOUS SUBSTANCES; ANY ACTION, SUIT,
PROCEEDING OR INVESTIGATION BROUGHT OR THREATENED, SETTLEMENT
REACHED OR GOVERNMENTAL ORDER RELATING TO SUCH HAZARDOUS
SUBSTANCES; AND ANY VIOLATION OF ANY ENVIRONMENTAL LAW BY THE
INDEMNIFYING PARTY OR ITS OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES OR REPRESENTATIVES.
(b) THE FOLLOWING TERMS USED IN THIS SECTION 12 HAVE THE
MEANINGS SET FORTH BELOW:
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"ENVIRONMENTAL LAWS" SHALL MEAN ALL FEDERAL, STATE, COUNTY,
MUNICIPAL AND LOCAL, FOREIGN AND OTHER STATUTES, LAWS, REGULATIONS AND
ORDINANCES WHICH RELATE TO OR DEAL WITH PROTECTION OF HUMAN HEALTH OR
THE ENVIRONMENT, ALL AS MAY BE FROM TIME TO TIME AMENDED.
"HAZARDOUS SUBSTANCE(S)" SHALL MEAN (i) ANY FLAMMABLE
SUBSTANCES, EXPLOSIVES, RADIOACTIVE MATERIALS, HAZARDOUS SUBSTANCES,
HAZARDOUS WASTES, TOXIC SUBSTANCES, POLLUTANTS, CONTAMINANTS OR ANY
RELATED MATERIALS OR SUBSTANCES IDENTIFIED IN OR REGULATED BY ANY OF
THE ENVIRONMENTAL LAWS, AND (ii) ASBESTOS, POLYCHLORINATED BIPHEYLS,
UREA FORMALDEHYDE, NUCLEAR FUEL OR MATERIAL, CHEMICAL WASTE,
EXPLOSIVES, KNOWN CARCINOGENS, PETROLEUM PRODUCTS AND BY-PRODUCTS
(INCLUDING ANY FRACTION THEREOF) AND RADON.
(c) THE INDEMNIFIED PARTIES SHALL GIVE NOTICE TO THE
INDEMNIFYING PARTY OF AN EVENT GIVING RISE TO THE OBLIGATION TO
INDEMNIFY, ALLOW THE INDEMNIFYING PARTY TO ASSUME AND CONDUCT THE
DEFENSE OF THE CLAIM OR ACTION, AND SHALL COOPERATE WITH THE
INDEMNIFYING PARTY IN THE DEFENSE THEREOF. AN INDEMNIFIED PARTY SHALL
NOT ENTER INTO A SETTLEMENT OF ANY CLAIM OR ACTION SUBJECT TO
INDEMNIFICATION WITHOUT THE CONSENT OF THE INDEMNIFYING PARTY, WHICH
CONSENT SHALL NOT UNREASONABLY BE WITHHELD.
(d) IF THE CLOSING HEREUNDER OCCURS, EXCEPT WITH RESPECT TO (i)
THE REPRESENTATIONS AND WARRANTIES OF SELLER SET FORTH IN SECTION 6(d)
HEREOF AND IN THE LAST TWO SENTENCES OF SECTION 6(h), AND (ii) THE
AGREEMENT OF PURCHASER TO ASSUME AND PERFORM THE ASSUMED LIABILITIES,
WHICH REPRESENTATION AND WARRANTIES OF SELLER AND AGREEMENT OF
PURCHASER SHALL SURVIVE INDEFINITELY, THE INDEMNIFYING PARTY WILL HAVE
NO LIABILITY WITH RESPECT TO ANY REPRESENTATION OR WARRANTY OR ANY
COVENANT OR AGREEMENT TO BE PERFORMED OR COMPLIED WITH AT OR PRIOR TO
THE CLOSING, UNLESS ON OR BEFORE THE FIRST ANNIVERSARY OF THE CLOSING
DATE THE INDEMNIFIED PARTIES NOTIFY THE INDEMNIFYING PARTY OF A CLAIM
SPECIFYING THE FACTUAL BASIS OF THAT CLAIM IN REASONABLE DETAIL TO THE
EXTENT THEN KNOWN BY THE INDEMNIFIED PARTIES.
(e) NOTWITHSTANDING ANY PROVISIONS CONTAINED IN THIS SECTION 12
TO THE CONTRARY, THE INDEMNIFYING PARTY SHALL NOT HAVE THE OBLIGATION
TO INDEMNIFY THE INDEMNIFIED PARTIES WITH RESPECT TO AN INDEMNIFIABLE
CLAIM UNTIL THE INDEMNIFIED PARTIES HAVE SUFFERED DAMAGES IN EXCESS OF
$25,000, AFTER WHICH THE INDEMNIFYING PARTY SHALL BE OBLIGATED ONLY TO
INDEMNIFY THE INDEMNIFIED PARTIES AGAINST FURTHER DAMAGES IN EXCESS
THEREOF, BUT IN NO EVENT SHALL THE INDEMNIFYING PARTY'S INDEMNIFICATION
OBLIGATIONS HEREUNDER EXCEED THE AGGREGATE AMOUNT OF $1,000,000;
PROVIDED, HOWEVER, THESE LIMITS SHALL NOT APPLY TO CLAIMS AND
LIABILITIES RELATING TO (i) THE REPRESENTATIONS AND WARRANTIES OF
SELLER SET FORTH IN SECTION 6(d) AND (ii) THE AGREEMENT OF PURCHASER TO
ASSUME AND PERFORM THE ASSUMED LIABILITIES.
(f) SUBJECT TO THE RIGHT OF THE PARTIES TO PURSUE INJUNCTIVE
RELIEF WITH RESPECT TO SECTION 11(f) CONCERNING NON-COMPETITION AND
SECTION 11(g) CONCERNING
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CONFIDENTIALITY, SELLER AND PURCHASER AGREE THAT THE INDEMNIFICATION PROVISIONS
OF THIS SECTION 12 SHALL BE THE EXCLUSIVE REMEDY OF SELLER AND PURCHASER AND
ALL OF THE OTHER INDEMNIFIED PARTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT.
13. Arbitration. All disputes, controversies or claims that may arise
among the parties hereto including, without limitation, any dispute,
controversy or claim arising out of this Agreement, or any other document
described or referred to herein, or the breach, termination or invalidity
thereof, shall be submitted to and determined by binding arbitration. Such
arbitration shall be conducted pursuant to the rules of the American
Arbitration Association then in effect. The arbitration shall be conducted
by a single neutral arbitrator and, unless otherwise agreed by all of the
parties, shall be selected pursuant to such rules of the American Arbitration
Association. The prevailing party in any such arbitration shall be entitled to
recover such party's reasonable attorney's fees, costs and expenses incurred
in connection with the arbitration. Any award pursuant to such arbitration
shall be final and binding upon the parties, and judgment on the award may be
entered in any federal state court having jurisdiction. Any such arbitration
shall be conducted in San Antonio, Bexar County, Texas.
14. Miscellaneous.
(a) Entire Agreement and Amendment. This Agreement and the
attached exhibits, schedules and other documents delivered hereunder
contain the entire agreement between the parties with respect to the
matters described herein and are a completely integrated and exclusive
statement as to the terms thereof and supersede all previous
agreements. This Agreement may not be altered or modified except by a
writing signed by the parties hereto.
(b) Notices. Any notice, demand or other writing of any kind
whatsoever which may or shall be given pursuant to this Agreement shall
be deemed given if personally delivered or on the third succeeding
business day after being mailed by registered or certified mail,
postage prepaid and return receipt requested, addressed as follows (or
at such address as shall be specified by notice given hereunder):
If to Seller: Xx. Xxxxxx X. Xxxxx
Xxxxxx Drilling, Inc.
0000 XXXX Xxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxx 00000-0000
with copy to: Xxx X. Xxxxxxx, III
Xxx & Xxxxx Incorporated
000 X. Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxx 00000
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If to Purchaser: Mr. Wm. Xxxxx Xxxxx
South Texas Drilling & Exploration, Inc.
0000 Xxxxxxxx, Xxxxxxxx 0
Xxx Xxxxxxx, Xxxxx 00000
with copy to: Xxxxxx X. Xxxxx
Xxxxxxxx & Xxxxxxxxx, P.C.
000 X. Xx. Xxxx'x Xx. Xxxxx 000
Xxx Xxxxxxx, Xxxxx 00000
(c) Headings. The Background section and all Section and
paragraph headings contained herein are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement.
(d) Assignment. No party shall assign, transfer, pledge,
hypothecate or encumber this Agreement, or any interest herein or
hereunder, without the prior written consent of the other party.
(e) Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(f) Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the parties named herein and their
respective heirs, beneficiaries, legal representatives, successors and
assigns, provided that any assignment of this Agreement or the rights
hereunder by any party hereto, except as permitted hereunder, without
the written consent of the other shall be void.
(g) Waiver. The failure of any party at any time to require
performance by any other party of any provision of this Agreement shall
not be deemed a continuing waiver of that provision or a waiver of any
other provision of this Agreement and shall in no way affect the full
right to require such performance from the other party at any time
thereafter.
(h) Payment of Expenses. Except as specifically described
herein, each of the parties shall pay all of the costs which each
incurs incident to the preparation, execution and delivery of this
Agreement and the performance of the obligations hereunder, including,
without limitation, the fees and disbursements of counsel, accountants
and consultants, whether or not the transactions contemplated by this
Agreement shall be consummated; provided, however, if Purchaser shall
not purchase the Assets pursuant to and in accordance with this
Agreement for any reason other than the exercise of a termination right
expressly provided for herein or the failure of Seller to satisfy the
conditions set forth in Section 9, then Purchaser shall pay to Seller,
as liquidated damages, an amount equal to the fees and disbursements of
counsel, accountants and consultants incurred by Seller in connection
with the negotiation, preparation, execution and delivery
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of this Agreement and the performance thereof up to an aggregate of
$20,000, but not more.
(i) Invalidity. The invalidity of any provision of this
Agreement shall not affect the validity of the remainder of any such
provision or the remaining provisions of this Agreement.
(j) Severability. This Agreement and the transactions
contemplated herein constitute one sale and shall not be divisible in
any manner. A breach of any portion of this Agreement shall be deemed a
breach of the whole Agreement.
(k) Governing Law and Choice of Forum. Texas law shall govern
the construction and enforceability of this Agreement. Subject to the
provisions of Section 13 hereof, any and all actions concerning any
dispute arising hereunder shall be filed and maintained only in a court
sitting in San Antonio, Bexar County, Texas.
(l) Further Assurances. Seller and Purchaser each agree that
they shall execute and deliver any and all additional writings,
instruments and other documents contemplated hereby or referred to
herein and shall take such further action as shall be reasonably
required in order to effectuate the terms and conditions of this
Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Seller:
XXXXXX DRILLING, INC., a Texas corporation
By: [ILLEGIBLE]
-------------------------------------
Its: Chairman of the Board
By: [ILLEGIBLE]
-------------------------------------
Its: President
Purchaser:
SOUTH TEXAS DRILLING & EXPLORATION,
INC., a Texas corporation
By: [ILLEGIBLE]
-------------------------------------
Its: Chairman & CEO
------------------------------
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