EXHIBIT 10.32
AGREEMENT OF SALE AND PURCHASE
This Agreement dated April ______, 2000, by and between C.W. Resources,
Inc., Xxxxxxxxx Royalty, Inc., and Xxxx X. Xxxxxxxxx (herein collectively called
SELLER) and 3TEC Energy Corporation (herein called BUYER);
W I T N E S S E T H:
1. PROPERTY TO BE SOLD AND PURCHASED. Seller agrees to sell and Buyer
agrees to purchase, for the consideration hereinafter set forth, and subject to
the terms and provisions herein contained, the following described properties,
rights and interests:
(a) All right, title and interest of Seller (i) in and to the oil, gas
and/or mineral leases described on Part One of Exhibit A hereto insofar as
such leases cover depths below the base of the Woodbine Formation
underlying the lands described in such Part One of Exhibit A and (ii) in
and to all of the oil, gas and/or mineral leases described on Part Two or
Part Three of Exhibit A insofar as such leases cover depths between the
base of the Woodbine Formation and the base of the Cotton Valley Sand
Formation underlying the lands described in such Part Two or Part Three of
Exhibit A; SAVE AND EXCEPT all right, title and interest of Seller in and
to the oil, gas and mineral leases described in Part Four of Exhibit A
hereto insofar as such leases cover the lands and depths described in such
Part Four of Exhibit A; and
(b) All rights, titles and interests of Seller in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations
and/or orders (including, without limitation, all units formed under
orders, rules, regulations, or other official acts of any federal, state,
or other authority having jurisdiction, and voluntary unitization
agreements, designations and/or declarations) relating to the properties
described in subsection (a) above, to the extent and only to the extent
such rights, titles and interests are attributable to the properties
described in subsection (a) above; and
(c) All rights, titles and interests of Seller in and to all presently
existing and valid production sales contracts, operating agreements, right
of way easements, seismic data agreements (to the extent transferable and
subject to the limitations set forth below), and other agreements and
contracts which relate to any of the properties described in subsections
(a) and (b) above, to the extent and only to the extent such rights, titles
and interests are attributable to the properties described in subsections
(a) and (b) above; and
(d) All rights, titles and interests of Seller in and to all xxxxx,
wellhead equipment, flowlines, tanks, injection facilities, saltwater
disposal facilities, compression facilities, gathering systems, and other
equipment located on the properties described in subsections (a) and (b)
above and currently in use in connection with the operation of such
properties; and
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(e) An undivided one-half (2) interest in and to all right, title and
interest of Seller in and to the oil, gas and/or mineral leases described
on Part Two of Exhibit A insofar as such leases cover depths below the base
of the Cotton Valley Sand Formation underlying the lands described in such
Part Two of Exhibit A; and
(f) An undivided one-half (2) interest in and to all rights, titles and
interests of Seller in and to, or otherwise derived from, all presently
existing and valid oil, gas and/or mineral unitization, pooling, and/or
communitization agreements, declarations and/or orders (including, without
limitation, all units formed under orders, rules, regulations, or other
official acts of any federal, state, or other authority having
jurisdiction, and voluntary unitization agreements, designations and/or
declarations) relating to the properties described in subsection (e) above,
to the extent and only to the extent such rights, titles and interests are
attributable to the properties described in subsection (e) above; and
(g) An undivided one-half (2) interest in and to all rights, titles and
interests of Seller in and to all presently existing and valid production
sales contracts, operating agreements, right of way easements, seismic data
agreements (to the extent transferable, and subject to the limitations set
forth below), and other agreements and contracts which relate to any of the
properties described in subsections (e) and (f) above, to the extent and
only to the extent such rights, titles and interests are attributable to
the properties described in subsections (e) and (f) above.
The properties, rights and interests specified in the foregoing subsections
(a), (b), (e) and (f) are herein sometimes collectively called the "OIL AND GAS
PROPERTIES," and the properties, rights and interests specified in the foregoing
subsections (a) through (g), inclusive, are herein sometimes collectively called
the "PROPERTIES." Without limitation, it is understood that the Properties do
not include, and there is retained by Seller, (i) any seismic data covering
lands or depths not covered by the Oil and Gas Properties, any seismic data not
owned by Seller and any seismic data which is not transferable, (ii) any field
inventory and/or warehouse stocks, (iii) any surface owned in fee and (iv) any
buildings and surface rights to the tracts on which such buildings are located.
2. PURCHASE PRICE.
(a) Base Purchase Price. The purchase price for the Properties shall be
Fifty-Five Million Dollars ($55,000,000) (such amount, adjusted as provided
in subsection (b) below, but unadjusted by any other adjustments provided
for in this Agreement or agreed to by the parties, being herein called the
"BASE PURCHASE PRICE"). Such Base Purchase Price may be adjusted as
provided in Sections 8 and 11(b)(ii) hereof (the Base Purchase
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Price, as so adjusted, and as the same may otherwise be adjusted by mutual
agreement of the parties, being herein called the "PURCHASE PRICE"). Except
as may be provided in Sections 11(a)(ii) and 11(b)(ii) with respect to
payment of the Operations Adjustment portion of the Base Purchase Price
under certain circumstances, the Purchase Price shall be paid in readily
available funds at the Closing as hereinafter provided.
(b) ROYALTY AND ORRI ADJUSTMENT. The parties recognize that the Oil and
Gas Properties include royalties and overriding royalties which were not
considered by Buyer in establishing the $55,000,000 amount set forth above.
The parties, therefore, agree that such amount will be adjusted upward as
follows: (i) for each well or PUD location listed on Schedule I that shows
a "RI" or "ORRI" decimal net revenue interest on such schedule, the total
of such "RI" and "ORRI" interests will be divided by the average of the
decimal net revenue interest shown for "BPO NRI" and "APO NRI" for such
well or PUD location on such Schedule (or the "APO NRI" where no "BPO NRI"
is shown) and multiplying such result by the allocated value shown for such
well or PUD location on Schedule I and (ii) adding the total of the amounts
computed under clause (i) to such $55,000,000 amount as set forth above.
3. DEPOSIT. Contemporaneously with the execution of this Agreement, Buyer,
Seller and Bank One Texas, N.A. ("ESCROW AGENT") shall execute an escrow
agreement in the form of Exhibit B attached hereto (the "ESCROW AGREEMENT").
Pursuant to the terms of the Escrow Agreement, Buyer shall deliver to the Escrow
Agent Five Million Two Hundred Thousand Dollars ($5,200,000) (such amount, plus
any interest earned thereon, being herein called the "DEPOSIT"). The costs
associated with such escrow shall be split equally between Buyer and Seller. In
the event the transaction contemplated hereby is consummated in accordance with
the terms hereof, the Deposit shall be applied to the Purchase Price to be paid
by Buyer at the Closing. In the event the transaction contemplated hereby fails
to close on the Closing Date as a result of a material breach of this Agreement
by Seller which occurs in the absence of a material breach of this Agreement by
Buyer, or in the event this Agreement is terminated by Buyer in accordance with
Section 9 below or is terminated by Seller in accordance with any subsection of
Section 10 below other than subsections 10(a) and 10(b), the Deposit shall be
returned to Buyer. If the transaction contemplated hereby otherwise fails to
close on the Closing Date, Seller shall retain the Deposit. THE PARTIES HEREBY
ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED BY THE FAILURE OF
THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO
ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE
OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY AND
SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY.
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4. REPRESENTATIONS OF SELLER.
(a) REPRESENTATIONS. Each Seller represents and warrants to Buyer
that:
(i) ORGANIZATION AND QUALIFICATION. Each of C.W. Resources, Inc. and
Xxxxxxxxx Royalty, Inc., is a corporation duly organized and legally
existing and in good standing under the laws of the State of Texas.
(ii) DUE AUTHORIZATION. Each Seller has full power to enter into and
perform its obligations under this Agreement and has taken all proper
action to authorize entering into this Agreement and performance of its
obligations hereunder.
(iii) APPROVALS. Other than requirements (if any) that there be
obtained consents to assignment from third parties (any material contracts
containing such consent requirements being disclosed under section 4(a)(x)
below) and except for approvals ("ROUTINE GOVERNMENTAL APPROVALS") required
to be obtained from governmental entities who are lessors under leases
forming a part of the Oil and Gas Properties (or who administer such leases
on behalf of such lessors) which are customarily obtained post-closing, and
except for the requirements of any maintenance of uniform interest
provisions contained in any operating or other agreements, to Seller's
knowledge, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Seller is a party or by which the Properties are bound,
or violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or to the Properties. Seller's "knowledge," or
"received" by Seller (except as used in connection with payment receipts),
as used in this Agreement, shall mean to the actual knowledge of, or
actually received by, Xxxx X. Xxxxxxxxx, Xxxx X. Xxxxxxx, Xxxx X. Xxxxxxx,
Xxxxx Xxxxxxx, Xxxxx Xxxx or Xxxxxxxx Xxxx.
(iv) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes (and
the Conveyance provided for herein to be delivered at Closing will, when
executed and delivered, constitute) the legal, valid and binding obligation
of Seller, enforceable in accordance with its terms, except as limited by
bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(v) LITIGATION. Except as disclosed on the Disclosure Schedule (herein
called the "DISCLOSURE SCHEDULE") attached hereto as Schedule II, there are
no pending suits, actions, or other proceedings in which Seller is a party
(or to Seller's knowledge, which have been threatened to be instituted)
which affect the Properties (including, without limitation, any actions
challenging or pertaining to Seller's title to any of the Properties), or
affect the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(vi) TITLE. Seller is the owner of the Oil and Gas Properties, free and
clear of
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all liens, burdens, encumbrances and defects in title arising by, through
or under Seller. It is expressly understood and agreed that such
representation does not cover matters arising other than by, through or
under Seller, and it is further expressly understood and agreed that,
without limitation, matters arising by, through or under Seller do not
include maintenance of leases in force or pooling and/or unitization
matters.
(vii) ENVIRONMENTAL. Except as disclosed on the Disclosure Schedule,
to Seller's knowledge, there are no pending or threatened actions, suits,
orders, claims, notices or proceedings, made or instituted by applicable
governmental authorities, regarding the Properties alleging a violation or
non-compliance with applicable environmental laws, or with respect to the
disposal, discharge or release from the Properties of hazardous materials
or constituents in a manner which is not in compliance with such laws.
(viii) GAS IMBALANCES AND PREPAYMENT. Seller is not obligated, by
virtue of any prepayment arrangement, a "take or pay" arrangement, gas
balancing agreement, a production payment or any other arrangement entered
into by it (or, to Seller's knowledge, entered into by any other party and
binding on the Oil and Gas Properties), to deliver hydrocarbons produced
from the Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
(ix) PROCEEDS IN SUSPENSE. Proceeds from the sale of hydrocarbons
produced from the Oil and Gas Properties are being received by Seller in a
timely manner and are not being held in suspense by the purchaser of said
hydrocarbons for any reason, other than amounts held in suspense by such
purchaser in the ordinary course of business which are individually or in
the aggregate not in excess of $100,000.
(x) MATERIAL CONTRACTS; PREFERENTIAL RIGHTS. The Disclosure Schedule
sets forth a complete and accurate description of every material agreement
entered into by Seller (or, to Seller's knowledge, entered into by any
other party and binding on the Oil and Gas Properties), and relating to the
Oil and Gas Properties, and no written claim has been received by Seller
that it is in default under any such agreement. No hydrocarbons produced
from the Oil and Gas Properties are subject to a sales contract or other
arrangement entered into by Seller and relating to the production,
gathering, transporting, processing, treating or marketing of hydrocarbons
(other than a contract disclosed on the Disclosure Schedule), and, except
as included in agreements set forth on the Disclosure Schedule, no person
has any preferential right to purchase any Oil and Gas Property and no
person has any call upon, option to purchase, preferential right to
purchase or similar rights granted by Seller with respect to production
from the Oil and Gas Properties and none of the persons so listed on the
Disclosure Schedule have exercised any such rights.
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(xi) RECEIPT OF PROCEEDS; PAYMENT OF EXPENSES. With respect to each
existing well identified on Schedule I, Seller is currently receiving from
all purchasers of production from the Oil and Gas Properties at least the
"Net Revenue Interests" set forth on such Schedule I without suspense.
With respect to each existing well listed on Schedule I, Seller is
currently paying the operators of the Oil and Gas Properties for the
development and operation thereof no more than the Operating Interests set
forth on such Schedule I, and Seller is current for all costs and expenses
pertaining to the development and operation of the Oil and Gas Properties,
except for those being contested in good faith.
(xii) PAYMENT OF ROYALTIES. Except for the Xxxx Xxxxxx Xxxxxxxx et al
vs. C.W. Resources et al. case disclosed on the Disclosure Schedule, Seller
has received no claims that royalties and other payments due by it under
the leases have not been properly and timely paid, or that any conditions
necessary to keep the leases in force have not been fully performed.
(xiii) COMPLIANCE WITH LAWS. Seller has received no claims, orders,
notices or other written communications from applicable governmental
authorities that the operation of the Oil and Gas Properties has not been
conducted in accordance with all laws, rules, regulations, ordinances and
orders (including without limitation, those pertaining to the environment)
of all local, state and federal governmental bodies, authorities and
agencies having jurisdiction of the Oil and Gas Properties.
(xiv) TAXES. Ad valorem, property, production, severance, excise and
similar taxes and assessments based on or measured by ownership of property
or the production of hydrocarbons or the receipt of proceeds therefrom on
the Oil and Gas Properties that have become due and payable have been
properly and timely paid, except for those being contested in good faith.
For purposes of this Agreement, taxes based on or measured by production
shall be deemed attributable to the period in which the production
occurred, regardless of the fact that such taxes may not be assessed or
payable until some subsequent period.
(b) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN SECTION 4(a) ABOVE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AND, WITHOUT LIMITATION ON THE EXPRESS REPRESENTATIONS AND WARRANTIES
CONTAINED IN SECTION 4(a) ABOVE, SELLER EXPRESSLY DISCLAIMS ANY AND ALL
OTHER REPRESENTATIONS AND WARRANTIES (WITHOUT LIMITATION, EXCEPT FOR THE
EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 4(a) ABOVE, THE
PROPERTIES SHALL BE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR
REPRESENTATION WHETHER EXPRESS,
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IMPLIED, STATUTORY OR OTHERWISE, RELATING TO THE CONDITION, QUANTITY,
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT FOR ITS FITNESS
FOR ANY PURPOSE). UPON CLOSING, BUYER SHALL HAVE INSPECTED, OR WAIVED ITS
RIGHT TO INSPECT, THE PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS
TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE,
INCLUDING BUT NOT LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE
PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES,
ASBESTOS AND OTHER MAN MADE FIBERS, OR NATURALLY OCCURRING RADIOACTIVE
MATERIALS ("NORM"). BUYER IS RELYING UPON ITS OWN INSPECTION OF THE
PROPERTIES, AND BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE
IS" CONDITION.
5. REPRESENTATIONS OF BUYER. Buyer represents to Seller that:
(a) ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized and legally existing and in good standing under the laws of its
state of incorporation and is qualified to do business and in good standing
in the State of Texas. Buyer is also qualified to own and operate oil and
gas properties with all applicable governmental agencies having
jurisdiction over the Properties, to the extent such qualification is
necessary or appropriate or will be necessary or appropriate upon
consummation of the transactions contemplated hereby (including, without
limitation, Buyer has met all bonding requirements of such agencies).
(b) DUE AUTHORIZATION. Buyer has full power to enter into and perform
its obligations under this Agreement and has taken all proper action to
authorize entering into this Agreement and performance of its obligations
hereunder.
(c) APPROVALS. Other than requirements (if any) that there be obtained
consents to assignment (or waivers of preferential rights to purchase) from
third parties, and except for Routine Governmental Approvals, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, nor the compliance with the terms hereof,
will result in any default under any agreement or instrument to which Buyer
is a party, or violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Buyer.
(d) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes (and the
Conveyance provided for herein to be delivered at Closing will, when
executed and delivered, constitute) the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms, except as limited by
bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(e) NO LITIGATION. There are no pending suits, actions, or other
proceedings in
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which Buyer is a party (or, to Buyer's knowledge, which have been
threatened to be instituted against Buyer) which affect the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(f) KNOWLEDGEABLE BUYER, NO DISTRIBUTION. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to
make a distribution in violation of the Securities Act of 1933 as amended
(and the rules and regulations pertaining thereto) or in violation of any
other applicable securities laws, rules or regulations.
6. CERTAIN COVENANTS OF SELLER PENDING CLOSING. Between the date of this
Agreement and the Closing Date:
(a) ACCESS BY BUYER.
(i) RECORDS. Seller will give Buyer, or Buyer's authorized
representatives, at Seller's office and at all reasonable times before the
Closing Date, access to Seller's records pertaining to the ownership and/or
operation of the Properties (including, without limitation, title files,
division order files, well files, and production, severance and ad valorem
tax records), for the purpose of conducting due diligence reviews
contemplated by Section 7 below. Buyer may make copies of such records, at
its expense, but shall, if Seller so requests, return all copies so made if
the Closing does not occur; all costs of copying such items shall be borne
by Buyer. Seller shall not be obligated to provide Buyer with access to
any records or data which Seller believes that Seller cannot provide to
Buyer without, in Seller's reasonable opinion, breaching, or risking a
breach of, agreements with other parties, or waiving, or risking waiving,
legal privilege. Notwithstanding the foregoing sentence, Seller shall
provide Buyer a list of all records or data which Seller is withholding
pursuant to such sentence including a general description of such records'
contents and the specific reason claimed by Seller for such withholding.
(ii) PHYSICAL INSPECTION. Seller shall make a good faith effort to give
Buyer, or Buyer's authorized representatives, at all reasonable times
before the Closing Date and upon adequate notice to Seller, physical access
to the Properties for the purpose of inspecting same. Buyer recognizes
that some or all of the Properties may be operated by parties other than
Seller and that Seller's ability to obtain access to such properties, and
the manner and extent of such access, is subject to such third parties.
Buyer agrees to comply fully with the rules, regulations and instructions
issued by Seller (and, where Properties are operated by other parties, such
other parties) regarding the actions of Buyer while upon, entering or
leaving the Properties.
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(iii) EXCULPATION AND INDEMNIFICATION. If Buyer exercises rights of
access under this Section or otherwise, or conducts examinations or
inspections under this Section or otherwise, then (a) such access,
examination and inspection shall be at Buyer's sole risk, cost and expense
and Buyer waives and releases all claims against Seller (and the respective
affiliates of the parties constituting Seller and the respective directors,
officers, employees, attorneys, contractors and agents of such parties and
such affiliates) arising in any way therefrom or in any way connected
therewith or arising in connection with the conduct of its directors,
officers, employees, attorneys, contractors and agents in connection
therewith and (b) Buyer shall indemnify, defend and hold harmless Seller
(and the respective affiliates of the parties constituting Seller and the
respective officers, directors, employees, attorneys, contractors and
agents of such parties and such affiliates)from any and all claims,
actions, causes of action liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys' fees), or liens
or encumbrances for labor or materials, arising out of or in any way
connected with Buyer's examinations or inspections.
(b) INTERIM OPERATION. Seller will continue the operation of the
Properties in the ordinary course of its business (or, where Seller is not
the operator of a Property, will continue its actions as a non-operator in
the ordinary course of its business), and will not sell or otherwise
dispose of any of the Properties, provided that Seller may make sales or
other dispositions of oil, gas and other minerals in the ordinary course of
business after production (but, in doing so, will not enter into any new
marketing arrangements unless the same terminate, or can be terminated, (in
either case without penalty or other detriment) in 31 days or less), and
may make sales or other dispositions of equipment and other personal
property or fixtures in the ordinary course of business where the same has
become obsolete and is no longer necessary for the operation of the
Properties, or is replaced by an item or items of at least equal
suitability and value. Except for those disclosed on the Disclosure
Schedule (with respect to which Seller may take the actions described on
the Disclosure Schedule) Seller will not, without Buyer's written consent,
commit to or propose the drilling of any additional xxxxx, commit to or
propose the deepening, plugging back or reworking of any existing xxxxx, or
commit to or propose the conducting of any other operations which require
consent under the applicable operating agreement. Except for those
disclosed on the Disclosure Schedule (with respect to which Seller may take
the actions described on the Disclosure Schedule) Seller will advise Buyer
of any such proposals made by other parties, and will consult with Buyer
concerning such proposals, but any decisions with respect to such proposals
shall be made by Seller in its own discretion, so long as the decisions are
made in the ordinary course of business; provided that, if the period for
responding to such a proposal extends beyond the Closing Date, Seller will
not respond to such proposal unless the Closing does not occur prior to the
next to last day allowed to respond (in which case Seller may respond).
Without expanding any obligations which Seller may have to Buyer, it is
expressly agreed that Seller shall never have any liability to Buyer with
respect to
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operation of a Property greater than that which it might have as the
operator to a non-operator under the applicable operating agreement (or, in
the absence of such an agreement, under the AAPL 610 (1989 Revision) form
Operating Agreement), IT BEING RECOGNIZED THAT, UNDER SUCH AGREEMENTS AND
SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN NEGLIGENCE, AND HAS
NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT.
7. DUE DILIGENCE REVIEWS.
(a) REVIEW BY BUYER. Buyer may conduct, at its sole cost, such title
examination or investigation, and other examinations and investigations, as
it may in its sole discretion choose to conduct with respect to the
Properties in order to determine whether Defects (as below defined) exist.
Should, as a result of such examinations and investigations, or otherwise,
one or more matters come to Buyer's attention which would constitute a
Defect (as below defined), and should there be one or more of such Defects
which Buyer is unwilling to waive and close the transaction contemplated
hereby notwithstanding the fact that such Defects exist, Buyer shall notify
Seller in writing of such Defects as soon as the same are identified by
Buyer, but in no event no later than May 24, 2000, (such Defects of which
Buyer so provides notice are herein called "ASSERTED DEFECTS"). Such
notification shall include, for each Asserted Defect, (i) a description of
the Asserted Defect and the xxxxx and/or units listed on Schedule I to
which it relates, (i) the Defect is a Defect described in Section 7(b)(i)
below, (ii) for each applicable well or unit, the size of any variance from
"Net Revenue Interest" or "Working Interest" which does or could result
from such Asserted Defect and (iii) the amount by which Buyer would propose
to adjust the Purchase Price. All access to Sellers records and the
Properties in connection with such due diligence shall be subject and
pursuant to Section 6(a) (including, without limitation, the exculpation
and indemnification provisions contained in Section 6(a)(iii)).
(b) NATURE OF DEFECTS. The term "DEFECT" as used in this Section shall
mean the following:
(i) NRI OR WI VARIANCES. Seller's ownership of the Properties is such
that, with respect to a well or PUD location listed on Schedule I hereto,
it clearly (A) entitles Seller to receive a decimal share of the oil, gas
and other hydrocarbons produced from currently producing completions in
such well (or, in the case of a PUD location, from the Cotton Valley Sand
Formation), which is less than the decimal share set forth on Schedule I in
connection with such well or PUD location in the column headed "Net Revenue
Interest" or (B) causes Seller to be obligated to bear a decimal share of
the cost of operation of such well (as to such completions) or PUD location
(as to such formation) greater than the decimal share set forth on Schedule
I in connection with such well or PUD location in the column headed
"Working Interest" (without at least a proportionate increase in the share
of
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production to which Seller is entitled to receive from such well or PUD
location).
(ii) LIENS. Seller's ownership of an Oil and Gas Property is subject to
a lien other than (A) a lien for taxes which are not yet delinquent or (B)
a mechanic's or materialmen's lien (or other similar lien), or a lien under
an operating agreement or similar agreement, to the extent the same relates
to expenses incurred which are not yet delinquent or (C) liens which will
be released at or before Closing.
(iii) PREFERENTIAL RIGHTS AND CONSENTS. Seller's ownership of an Oil
and Gas Property is subject to a Preferential Right or a requirement that
Consent to assignment be obtained, unless a waiver of such Preferential
Right or Consent has been obtained with respect to the transaction
contemplated hereby, or (in the case of a Preferential Right) an
appropriate tender of the applicable interest has been made to all parties
holding such right and, with respect to each such party, the period of time
required for such party to exercise such right has expired without such
party exercising such right.
(iv) IMPERFECTIONS IN TITLE. Seller's ownership of an Oil and Gas
Property is subject to an imperfection in title which, if asserted, would
cause a Defect, as defined in subparagraph (i) above, to exist, and such
imperfection in title is not such as would normally be waived by persons
engaged in the oil and gas business when purchasing producing properties.
(v) PRODUCTION SALES CONTRACTS. An Oil and Gas Property is subject to a
production sales contract (other than a contract disclosed on the
Disclosure Schedule or a contract which provides market sensitive pricing)
which does not terminate by its terms on or before 185 days after the
Closing Date and which cannot be terminated on or before 185 days after the
Closing Date without penalty.
(vi) ENVIRONMENTAL MATTERS. An Oil and Gas Property is in violation of
(whether or not Seller has been cited for such violation) applicable
environmental laws (below defined) in any material respect ("applicable
environmental laws" shall mean all federal, state or local laws, rules,
orders or regulations pertaining to health or the environment, including
those relating to waste materials and/or hazardous substances) or there is
present upon or under such property a condition which requires or with the
passage of time is likely to require remediation under applicable
environmental law and such matter is not such as would normally be accepted
by persons engaged in the oil and gas business when purchasing producing
properties.
(vii) LITIGATION. A matter which should have been disclosed on the
Disclosure Schedule pursuant to Section 4(a)(v), but was not so disclosed.
Notwithstanding anything in the foregoing which may appear to the contrary,
unleased
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interests or non pooled, or ineffectively pooled, interests in a tract on
which no well (or a drillsite for a PUD location) included in the
Properties is located shall not constitute a "Defect." Similarly, in some
cases where an "APO NRI" net revenue interest is shown for a well or PUD
location on Schedule I one or more third parties have elections at payout
(which do not have to be exercised until then) to take one of two or more
possible interests, and such net revenue interest shown on Schedule I
assumes one of such interests would be elected; notwithstanding anything in
the foregoing which appears to the contrary, the fact that a third party
may make a different election at payout than that assumed in computing the
net revenue interest shown on Schedule I will not constitute a "Defect."
The presence of naturally occurring radioactive materials ("NORM") in
circumstances where, under current Texas Railroad Commission rules and
regulations, remediation is not currently required will not constitute a
"Defect."
(c) PUD LOCATIONS. Buyer and Seller have identified certain PUD
locations at which additional xxxxx might be drilled to the Cotton Valley
Sand Formation, which locations are identified on Exhibit C hereto. Such
locations are included on Schedule I hereto (and have amounts allocated to
them as do existing xxxxx), and are subject to the procedures relating to
Defects and Asserted Defects set forth above in this Section 7, and to the
curative and purchase price adjustment procedures set forth below in this
Section 7 and Section 8. With respect to such locations, and such
procedures, Buyer and Seller additionally agree as follows:
(i) ADJUST LOCATION, SUBSTITUTE PUD. If an Asserted Defect is
identified with the tract on which such location is located, Buyer will use
its best efforts to identify a reasonably acceptable alternative location
for such PUD, on a tract not so affected, in order to eliminate such
Defect. Alternatively, if Seller can identify an additional PUD location
on the Oil and Gas Properties which is not included in the PUD locations
shown on Exhibit C, Buyer will review such location (and any supporting
data furnished by Seller) in a good faith, and, should Buyer determine that
such location is a reasonably acceptable alternative location, such
location shall be substituted for the PUD location having the Asserted
Defect, and such Asserted Defect will be eliminated.
(ii) MINIMAL DEFECTS, INCOMPLETE POOLING. Asserted Defects relating to
a PUD location must affect at least 5% of Leasehold interest of the
drillsite tract for such PUD for the same to be considered Defects subject
to price adjustment procedures provided for below. If Asserted Defects for
a PUD location affect interests which exceed such amount, the price
adjustment procedure provided for below will be followed for the interest
affected in excess of such amount; if the interest affected do not exceed
such amount, no price adjustment for Asserted Defects will be made. The
absence of complete pooling authority for all interests held by Seller in a
PUD location will not constitute a Defect.
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(iii) OFFSETS. Should Seller have an interest in a PUD location that
is more than 105% of that projected on Schedule I, such excess (with the
amount attributable to such excess to be determined in the same manner as
provided below for price adjustments) may be used to offset purchase price
reductions otherwise applicable to other PUD locations due to Defects
thereon.
(iv) CONTINUING CURATIVE. If an Asserted Defect is identified with
respect to such a location, and the same cannot be cured before Closing (or
resolved as provided in (i) above), Seller may elect to continue curative
efforts past Closing. In such case, the amount determined, as provided in
Section 8 below, to be attributable to such Defect will be left in escrow
under the Escrow Agreement and will be disbursed (A) if such Defect is
cured within one year after Closing, to Seller when such curative is
completed (with interest earned on such amount up to Closing being
disbursed to Buyer, and all other interest earned on such amount being
disbursed to Seller) or (B) otherwise, to Buyer as promptly as possible
after such one year period (together with all interest earned on such
amount). If the amount to be so left in escrow exceeds $1,000,000, the
amount so left in escrow may, at Buyer's option, be limited to not less
than $1,000,000, and any additional amounts will be paid directly by Buyer;
provided that payments on account of curative by Seller shall be first paid
from the amount left in escrow (until the amount so left in escrow is
depleted), and then paid by Buyer; and provided further that any such
amounts to be paid directly by Buyer shall be (A) when and if curative is
done with respect to Asserted Defects, paid to Seller in the same manner as
provided for escrow funds above (but without interest), or (B) to the
extent curative does not occur within such period, retained by Buyer.
(d) SELLER'S RESPONSE. In the event that Buyer notifies Seller of
Asserted Defects:
(i) CURE. Seller may (but shall have no obligation to) attempt to cure,
prior to Closing, one or more Asserted Defects.
(ii) POSTPONE CLOSING. Whether or not Seller has then begun to, or ever
begins to, cure one or more Asserted Defects (and whether or not Seller has
elected options (iii) or (iv) below with respect to one or more Asserted
Defects), Seller may postpone the Closing by designating a new Closing Date
not later than June 15, 2000. Notwithstanding any such election to
postpone Closing, Seller shall still have no obligation to cure Asserted
Defects.
(iii) INDEMNIFICATION. At any time, and from time to time, prior to
Closing, and regardless of whether or not Seller has then elected any other
option or options under this Section as to such Asserted Defect or any
other Asserted Defect (including without limitation regardless of whether
the procedure under Section 8 is ongoing as to such Asserted Defect),
Seller may (but shall have no obligation to) elect, with respect to any
Asserted Defect, to indemnify and hold Buyer harmless
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from and against any actual damages or loss (but specifically excluding
consequential, special or similar damages) Buyer may suffer as a result of
a third party claim based on such Asserted Defect. If and when such
election is made as to an Asserted Defect, such Asserted Defect will be
treated under this Agreement as if cured.
(iv) ADJUSTMENT. Notwithstanding any other election made under this
Section (without limitation, it being expressly recognized that Seller may
attempt to cure Asserted Defects while acting under this election), Seller
may elect to have one or more Asserted Defects handled under Section 8
below.
8. CERTAIN PRICE ADJUSTMENTS.
(a) PROCEDURES. In the event that, as a part of the due diligence
reviews provided for in Section 7 above, Asserted Defects are presented to
Seller and Seller is unable (or unwilling) to cure such Asserted Defects
prior to Closing, or in the event that Buyer or Seller has elected
(pursuant to Section 15) to treat an Oil and Gas Property affected by a
casualty loss as if it was an Oil and Gas Property affected by an Asserted
Defect, then:
(i) AGREE UPON ADJUSTMENT. Buyer and Seller shall, with respect to each
Property affected by such matters, attempt to agree upon an appropriate
downward adjustment of the Purchase Price to account for such matters; and
(ii) EXCLUDE PROPERTY. With respect to each well or PUD location listed
on Schedule I as to which Buyer and Seller are unable to agree upon
appropriate adjustment with respect to all such matters affecting such well
or PUD location, such well or PUD location (together with such related
rights in any unit including the same, and other rights, as may be
necessary or appropriate to own, operate and produce the same) will be
excluded from the transaction contemplated hereby, and a downward
adjustment of the Purchase Price will be made by the amount attributed on
Schedule I to such well or PUD location.
(b) CERTAIN ADJUSTMENTS. In the event that Buyer raises as an Asserted
Defect one of the following types of Defects, Seller may (but shall not be
obligated to) propose the adjustment of the Purchase Price set forth below
in connection with such Defect:
(i) NRI VARIANCE/PROPORTIONATE PRICE REDUCTIONS. If the Asserted Defect
is (I) a Defect described in clause (A) of Section 7(b)(i) or (II) a Defect
which otherwise affects a portion of Seller's interest in a well or PUD
location listed on Schedule I: a downward adjustment equal to the amount
determined by multiplying the amount set forth for such well or PUD
location on Schedule I by a fraction (A) the numerator of which is an
amount equal to the "Net Revenue Interest" shown on Schedule I for such
well or PUD location less the decimal share to which Seller
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would be entitled to as a result of its ownership interest in such well or
PUD location which is unaffected by such Defect and (B) the denominator of
which is the "Net Revenue Interest" shown for such well or PUD location on
Schedule I. Notwithstanding subsection (ii) below, a Defect to which such
subsection is applicable may, at Seller's election, be treated as a Defect
under this subsection.
(ii) LIENS/PAYOFF AMOUNT. If the Asserted Defect is a Defect described
in Section 7(b)(ii): a downward adjustment equal to the amount of the debt
secured by such lien.
If Seller proposes such an adjustment, such adjustment will be deemed an
adjustment agreed to under Section 8(a)(i) above.
(c) LIMITATIONS ON ADJUSTMENTS. If the Purchase Price reduction (or
increase) with respect to a particular Asserted Defect which would result
from the above provided for procedure does not exceed $25,000, no
adjustment shall be made for such Asserted Defect. If the Purchase Price
reduction which would result from the above provided for procedure, as
applied to all Asserted Defects for which an adjustment is to be made, does
not exceed $250,000, then no adjustment of the Purchase Price shall occur,
and none of the Properties which would be excluded by such procedure shall
be excluded. If the Purchase Price reduction which would result from the
above provided for procedure, as applied to all Asserted Defects for which
an adjustment is to be made exceeds $250,000, the Purchase Price shall be
adjusted by the amount by which such reduction exceeds $250,000.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are subject to each of the following conditions being
met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation of
Seller under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time of
Closing be true and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by Buyer.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Seller shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Buyer) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Seller prior to or at the Closing.
(c) PRICE ADJUSTMENT LIMITATIONS. The aggregate downward adjustment (if
any) of the Purchase Price which results from the procedures set forth in
Section 8 does not exceed $2,600,000.
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(d) LITIGATION. No suit, action or other proceedings shall, on the date
of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement.
(e) CONSENTS. Seller shall have obtained all consents of third parties
as required pursuant to the terms of the contracts identified in Paragraph
4(a)(x) or the Disclosure Schedule.
If any such condition on the obligations of Buyer under this Agreement is
not met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Buyer is not in material breach of
its obligations hereunder in the absence of Seller being in material breach of
its obligations hereunder, this Agreement may, at the option of Buyer, be
terminated. In the event such a termination by Buyer occurs the parties shall
have no further obligations to one another hereunder (other than the obligations
under Sections 3, 6(a)(iii) and 14 hereof all of which will survive such
termination).
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of
Seller under this Agreement are subject to the each of the following conditions
being met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation of
Buyer under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time of
Closing be true and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by Seller.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Buyer shall have
performed and complied in all material respects with (or compliance
therewith shall have been waived by Seller) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing.
(c) PRICE ADJUSTMENT LIMITATIONS. The aggregate downward adjustment (if
any) of the Purchase Price which results from the procedures set forth in
Section 8 does not exceed $2,600,000.
(d) LITIGATION. No suit, action or other proceedings shall, on the date
of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement.
If any such condition on the obligations of Seller under this Agreement is
not met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and
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(in either case) Seller is not in material breach of its obligations hereunder
in the absence of Buyer being in material breach of its obligations hereunder,
this Agreement may, at the option of Seller, be terminated, in which case the
parties shall have no further obligations to one another hereunder (other than
the obligations under Sections 3, 6(a)(iii) and 14 hereof, all of which will
survive such termination).
11. CLOSING.
(a) ACTIONS AT CLOSING. The closing (herein called the "CLOSING") of
the transaction contemplated hereby shall take place in the offices of
Xxxxxxxx & Xxxxxx LLP at 0000 Xxxxxxx Xxxxxx, Xxxxxx, Xxxxx 00000, on or
before May 31, 2000, at 10 a.m. Central Daylight Time, or at such other
date and time (i) as the Buyer and Seller may mutually agree upon or (ii)
to which Seller may postpone the Closing pursuant to Section 7 hereof (such
date and time, as changed pursuant to clauses (i) and (ii), being herein
called the "CLOSING DATE"). At the Closing:
(i) DELIVERY OF CONVEYANCE. Seller shall execute, acknowledge and
deliver to Buyer a conveyance of the Properties (the "CONVEYANCE"), in the
form attached hereto as Schedule III (and with Exhibit A hereto, with such
modifications as may be mutually agreed to by Buyer and Seller, being
attached thereto), effective as to runs of oil and deliveries of gas and
for all other purposes as of 7 o'clock a.m., local time at the locations of
the Properties, respectively, on January 1, 2000 (herein called the
"EFFECTIVE DATE").
(ii) PAYMENT TO SELLER. Buyer shall deliver to the C.W. Resources,
Inc., by wire transfer of immediately available funds to an account
designated by C.W. Resources, Inc. in a bank located in the United States,
an amount equal to (A) the Purchase Price, plus (B) interest at the rate of
8% per annum on an amount equal to the Base Purchase Price, as adjusted by
any adjustments made under Section 8, from March 15, 2000 to (i) if Seller
exercises its right under Section 7 to extend the Closing Date, May 31,
2000, or (ii) otherwise, the Closing Date, less or plus (as the case may
be) (C) any adjustments under Section 12 which are to be made at Closing,
less (D) the Deposit. Unless Seller has, at or before Closing, obtained
the agreements contemplated by the fourth sentence of Section 11(b)(ii),
the Operations Adjustment portion of the Purchase Price will not be
required to be paid at Closing, and such payment to Seller will also be
reduced by the amount of the Operations Adjustment plus any interest under
clause (B) above attributable to that portion of the Purchase Price. C.W.
Resources, Inc. shall receive such amount on behalf of all parties
constituting Seller, and Buyer, having so paid such amount, shall have no
responsibility for the proper division of such amount among the parties
constituting Seller.
17
(iii) TURN OVER POSSESSION. Seller shall, to the extent Seller can do
so, turn over possession of the Properties.
(iv) SUCCESSION BY BUYER. Buyer shall (A) furnish to Seller such
evidence (including, without limitation, evidence of satisfaction of all
applicable bonding requirements) as Seller may require that Buyer is
qualified with the applicable authorities to succeed Seller as the owner
and, where applicable, operator of the Properties, (B) with respect to
properties operated by Seller where Buyer is to succeed Seller as operator,
execute and deliver to Seller appropriate evidence reflecting change of
operator as required by applicable authorities (including, without
limitation, Form P-4 for filing with the Railroad Commission of Texas), and
(C) execute and deliver to Seller such forms as Seller may reasonably
request for filing with the applicable authorities to reflect Buyer's
assumption of plugging and abandonment liabilities with respect to the
xxxxx located on the Properties or on units in which the Properties
participate.
(v) NON-FOREIGN STATUS TAX AFFIDAVIT. If Buyer so requests, Seller will
execute and deliver to Buyer an affidavit or other certification (as
permitted by such code) that Seller is not a "foreign person" within the
meaning of Section 1445 (or similar provisions) of the Internal Revenue
Code of 1986 as amended (i.e., Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as those
terms are defined in such code and regulations promulgated thereunder).
(vi) FEDERAL AND STATE CONVEYANCE FORMS. Seller shall, where
appropriate, prepare, execute (and, where required, acknowledge) and
deliver to Buyer forms of conveyance or assignment as required by the
applicable authorities for transfers of interests in state and federal
leases included in the Oil and Gas Properties.
(vii) LETTERS IN LIEU. Seller shall, if requested by Buyer, prepare,
execute and deliver to Buyer letters in lieu of transfer orders (or similar
documentation), in form acceptable to both parties.
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(b) POST CLOSING ACTIONS.
(i) TRANSFER OF FILES. Seller will use its best efforts to deliver to
Buyer, at Buyer's expense, and within 15 days after Closing, all of
Seller's lease files, abstracts and title opinions, division order files,
production records, well files, accounting records (but not including
general financial accounting or tax accounting records), and other similar
files and records which directly relate to the Properties, provided that
Seller shall not be obligated to turn over to Buyer any records or data
which Seller believes that Seller cannot provide to Buyer without, in
Seller's reasonable opinion, breaching, or risking a breach of, agreements
with other parties, or waiving, or risking waiving, legal privilege.
Notwithstanding the foregoing sentence, Seller shall provide Buyer a list
of all records or data which Seller is withholding pursuant to such
sentence to Buyer including a general description of such records' contents
and the specific reason claimed by for Seller's for such withholding.
(ii) BUYER AS SUCCESSOR OPERATOR. Buyer desires to become successor
operator with respect to as many of the Oil and Gas Properties operated by
Seller as it can, other than the Oil and Gas Properties described in
subsection 1(e) above. IT IS RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN
BY SELLER THAT BUYER SHALL SUCCEED SELLER AS OPERATOR OF ANY PROPERTY WHERE
OTHER PARTIES OWN INTERESTS IN THE XXXXX LOCATED THEREON. Buyer and Seller
agree to undertake reasonable efforts to cooperate toward accomplishing
such goal. If, despite its best efforts undertaken in good faith, Buyer is
unable to obtain, on or before a date which is 120 days after Closing
occurs, necessary agreements such that it will become such successor
operator with respect to xxxxx and units identified on Schedule I
representing at least 90% of the value (determined based on the allocated
amounts shown on Schedule I) of the xxxxx and units identified on such
Schedule I which are operated by Seller, then the Purchase Price will be
reduced by an amount equal to $3,000,000 (the "OPERATIONS ADJUSTMENT");
otherwise any portion of the Operations Adjustment not paid at Closing due
to the next to last sentence of Section 11(a)(ii) (together with interest
thereon at the rate of 8% per annum from March 15, 2000 until such payment
is made) shall be paid to C.W. Resources, Inc. (in the same manner as
payments under Section 11(a)(ii)) promptly after the agreements
contemplated above are obtained and in any event not later than 125 days
after Closing.
(iii) OPERATIONAL TRANSITION. For a reasonable period of time after
Closing, Buyer and Seller shall undertake reasonable efforts to cooperate
with respect to transition activities as to Properties where Buyer succeeds
Seller as operator. To the extent Seller remains an operator after Closing
(which it shall have no obligation to do), it shall serve as operator under
the applicable operating agreement in the manner provided by such agreement
and, to the extent Seller so operates any Property after Closing and/or
provides disbursement services under subsection (iv)
19
below, its obligations to Buyer with respect thereto shall be no greater
than those which it would have to a non-operator under the applicable
operating agreement (and, in the absence of an operating agreement, under
the AAPL 610 (1989 Revision) form Operating Agreement), IT BEING RECOGNIZED
THAT, UNDER SUCH AGREEMENTS AND SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE
FOR ITS OWN NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS
NEGLIGENCE OR WILFUL MISCONDUCT.
(iv) TRANSITION OF CERTAIN ACCOUNTING MATTERS. With respect to each Oil
and Gas Property as to which Buyer becomes successor operator and with
respect to which Seller is disbursing proceeds of production attributable
to other parties entitled thereto, (i) Seller shall continue to receive
such proceeds of production up to the Closing and, to the extent it
actually receives such proceeds, shall be responsible for making
disbursements, in accordance with its normal procedures (and at normal
times), of such proceeds of production to the parties entitled to same,
with any such proceeds of production after the Closing received by Seller
to be promptly forwarded to Buyer (who shall thereafter account for same to
the parties entitled thereto) and Seller shall, as promptly as possible
after Closing, deliver to Buyer a copy of its "pay list" for each such
property (which list shall include the names of all parties for whom it is
holding in suspense proceeds of production). Seller will retain all
suspense funds, and responsibility therefor, and such suspense funds, and
Seller's handling thereof, shall be included in the matters which Seller
indemnifies Buyer with respect to, under Section 13 below. Following
delivery of the materials referred to above, Buyer shall become responsible
for all disbursements of proceeds of production from such properties and
such disbursement activities shall be included in the matters which Buyer
assumes, and indemnifies Seller with respect to, under Section 13 below.
12. CERTAIN ACCOUNTING ADJUSTMENTS.
(a) ADJUSTMENTS FOR REVENUES AND EXPENSES. Appropriate adjustments
shall be made between Buyer and Seller so that (i) Buyer will bear all
expenses which are incurred in the operation of the Properties after the
Effective Date (including, without limitation, all drilling costs, all
capital expenditures, all overhead charges under applicable operating
agreements (regardless of whether such operating agreements are with third
parties or related entities and regardless of whether Seller is the
operator or a non-operator)), and all other overhead charges actually
charged by Seller (and for which Seller bills third parties for their
respective shares) or charged to Seller by third parties, and operating
expenses), and Buyer will receive all proceeds (net of applicable
production, severance, and similar taxes) from sales of oil, gas and/or
other minerals which are produced from (or attributable to) the Properties
and which are produced after the Effective Date, and (ii) Seller will bear
all expenses which are incurred in the
20
operation of the Properties before the Effective Date and Seller will
receive all proceeds (net of applicable production, severance, and similar
taxes) from the sale of oil, gas and/or other minerals which were produced
from (or attributable to) the Properties and which were produced before the
Effective Date. It is agreed that, in making such adjustments: (i) oil
which was produced from the Oil and Gas Properties and which was, on the
Effective Date, stored in tanks located on the Oil and Gas Properties (or
located elsewhere but used by Seller to store oil produced from, or
attributable to, the Oil and Gas Properties prior to delivery to oil
purchasers) and above pipeline connections shall be deemed to have been
produced before the Effective Date, (ii) ad valorem and similar taxes
assessed for periods prior to the Effective Date shall be borne by Seller
and ad valorem taxes assessed for periods on or after the Effective Date
shall be borne by Buyer, (iii) ad valorem and similar taxes assessed with
respect to a period which the Effective Date splits shall be prorated based
on the number of days in such period which fall on each side of the
Effective Date (with the day on which the Effective Date falls being
counted in the period after the Effective Date), (iv) casualty losses shall
be handled in accordance with Section 15, and (v) no consideration shall be
given to the local, state or federal income tax liabilities of any party.
(b) INITIAL ADJUSTMENT AT CLOSING. At least 5 days before the Closing
Date, Seller shall provide to Buyer a statement showing its computations of
the amount of the adjustments provided for in subsection (a) above based on
amounts which prior to such time have actually been paid or received by
Seller. Buyer and Seller shall attempt to agree upon such adjustments
prior to Closing, provided that if agreement is not reached, Seller's
computation shall be used at Closing, subject to further adjustment under
subsection (c) below. If the amount of adjustments so determined which
would result in a credit to Buyer exceed the amount of adjustments so
determined which would result in a credit to Seller, Buyer shall receive a
credit at Closing for the amount of such excess, and if the converse is
true, then the amount to be paid by Buyer to Seller at Closing shall be
increased by the amount of such excess.
(c) ADJUSTMENT POST CLOSING. On or before 120 days after Closing,
Seller shall provide to Buyer a statement showing its computations
regarding any information which may then be available pertaining to the
adjustments provided for in subsection (a) above, and Buyer shall review
such statement. Buyer and Seller shall determine if Seller's statement
accurately reflects any additional adjustments that should be made beyond
those made at Closing (whether the same be made to account for expenses or
revenues not considered in making the adjustments made at Closing, or to
correct errors made in the adjustments made at Closing), and shall make any
such adjustments by appropriate payments from Seller to Buyer or from Buyer
to Seller. After such adjustments are made, no further adjustments shall
be made under this Section 12.
13. ASSUMPTION AND INDEMNIFICATION. Except as provided in Section 18(b)
below with respect to the JW Litigation (below defined), and except for matters
which would constitute
21
breaches of the express representations and warranties of Seller set forth in
Section 4(a) above, Buyer shall, on the date of Closing, agree (and, upon the
delivery to Buyer of the Conveyance, shall be deemed to have agreed) (a) to
assume, and to timely pay and perform, all duties, obligations and liabilities
relating to the ownership and/or operation of the Properties after the Effective
Date (including, without limitation, those arising under the contracts and
agreements described in Section 1(c) above), and (b) to indemnify and hold
Seller (and the respective affiliates of the parties constituting Seller, and
the respective directors, officers, employees, attorneys, contractors and agents
of such affiliates and such parties) harmless from and against any and all
claims, actions, causes of action, liabilities, damages, losses, costs or
expenses (including, without limitation, court costs and attorneys' fees) of any
kind or character arising out of or otherwise relating to either (A) the
ownership and/or operation of the Properties after the Effective Date or (B) a
breach of Buyer's express representations and warranties set forth in Section 5
above. In connection with (but not in limitation of) the foregoing, it is
specifically understood and agreed that such duties, obligations and liabilities
arising out or otherwise relating to the ownership and/or operation of the
Properties after the Effective Date (other than matters which should have been
disclosed under Section 4(a)(vii) above, but were not) shall (notwithstanding
anything herein appearing to be to the contrary) be deemed to include all
matters arising out of the condition of the Properties on the Effective Date
(including, without limitation, within such matters all obligations to properly
plug and abandon, or replug and re-abandon, xxxxx located on the Properties, to
restore the surface of the Properties and to comply with, or to bring the
Properties into compliance with, applicable environmental laws, rules,
regulations and orders, including conducting any remediation activities which
may be required on or otherwise in connection with activities on the
Properties), regardless of whether such condition or the events giving rise to
such condition arose or occurred before or after the Effective Date, and the
assumptions and indemnifications by Buyer provided for in the first sentence of
this section shall expressly cover and include such matters. Seller shall, on
the date of Closing, agree (and, upon the delivery to Buyer of the Conveyance
shall be deemed to have agreed) to indemnify and hold Buyer (and its affiliates,
and the respective directors, officers, employees, attorneys, contractors and
agents of such parties) harmless from and against any and all claims, actions,
causes of action, liabilities, damages, losses, costs or expenses (including,
without limitation, court costs and attorneys' fees) of any kind or character
arising out of or otherwise relating to either (A) the ownership and/or
operation of the Properties prior to the Effective Date, except to the extent
the same arise out of the condition of the Properties (such matters having been
provided for above), and except to the extent the same arise out of any matter
disclosed on the Disclosure Schedule (other than the litigation for which Seller
retains responsibility under Section 18(b) below, which is covered by such
Section 18(b)), or out of any matter made the subject of an Asserted Defect
pursuant to Section 7 above or (B) a breach of Seller's express representations
and warranties set forth in Section 4(a) above. In the event of any conflict
which may appear to exist between this Section and Section 12 above, this
Section shall control. THE FOREGOING ASSUMPTIONS AND INDEMNIFICATIONS SHALL
APPLY WHETHER OR NOT SUCH DUTIES, OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS,
ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE
OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE
22
NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY
NOT INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT
LIABILITY.
14. NO COMMISSIONS OWED. Seller agrees to indemnify and hold Buyer (and
its affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of Buyer and such parties) harmless from and against any
and all claims, actions, causes of action, liabilities, damages, losses, costs
or expenses (including, without limitation, court costs and attorneys' fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Seller with any broker or finder in connection with this Agreement or the
transaction contemplated hereby. Buyer agrees to indemnify and hold Seller (and
the respective affiliates of the parties constituting Seller, and the respective
officers, directors, employees, attorneys, contractors and agents of such
affiliates and such parties) harmless from and against any and all claims,
actions, causes of action, liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys' fees) of any kind or
character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Buyer with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby.
15. CASUALTY LOSS. In the event of damage by fire or other casualty to
the Properties prior to the Closing, this Agreement shall remain in full force
and effect, and in such event:
(a) OIL AND GAS PROPERTIES. As to each such Property so damaged which
is an Oil and Gas Property, then (unless Seller elects to repair such
damage, which Seller shall have no obligation to do, in which case all
rights to insurance proceeds related thereto shall belong to Seller), (i)
at the election of either Buyer of Seller, such Property shall be treated
as if it had an Asserted Defect associated with it and the procedure
provided for in Section 8 shall be applicable thereto (in which case,
unless Buyer and Seller agree to the contrary, all rights to insurance
proceeds related thereto shall belong to Seller), or, (ii) if no such
election is made by Buyer or Seller, the Purchase Price will not be
adjusted, and Seller shall, at Seller's election, either collect (and when
collected pay over to Buyer) any insurance claims related to such damage,
or assign to Buyer such insurance claims, and, in either event, Buyer shall
take title to the Property affected by such loss without reduction of the
Purchase Price.
(b) OTHER PROPERTIES. As to each such Property so damaged which is
other than an Oil and Gas Property, Seller shall, at Seller's election,
either (i) repair such damage or replace such Property, (ii) collect (and
when collected pay over to Buyer) any insurance claims related to such
damage, or (iii) assign to Buyer any insurance claims related to such
damage, and Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.
Seller has no obligation to carry insurance coverage, or to carry any particular
types or amounts
23
of coverage, and, in the event of a loss which is not covered by insurance,
Seller shall have no obligation to Buyer with respect thereto.
16. NOTICES. All notices and other communications required under this
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by telecopier (with receipt acknowledged), or
by registered or certified mail (postage prepaid), at the following addresses:
If to Buyer: 3TEC Energy Corporation
Two Shell Plaza
777 Xxxxxx, Suite 2400
Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxx
With a copy to:
Xxxxxx Xxxxxxx Law Firm L.L.C.
000 X. Xxxx, Xxxxx 0000
Xxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx
If to Seller: Xxxx X. Xxxxxxxxx
X.X. Xxx 0000
0000 Xxxx Xxxxxxxx
Xxxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
With a copy to:
Xxxxxx X. Xxxx
000 Xxxxx Xxxxxxx Xxxx
Xxxxx Xx, Xxx Xxxxxx 00000
Fax: (000) 000-0000
and shall be considered delivered on the date of receipt. Either Buyer or
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
17. SURVIVAL OF PROVISIONS. All representations and warranties made
herein by Buyer and Seller shall be continuing and shall be true and correct on
and as of the date of Closing with
24
the same force and effect as if made at that time (and shall inure to the
benefit of the respective successors and assigns of Buyer and Seller), and all
of such representations and warranties shall, survive the Closing and the
delivery of the Conveyance indefinitely, except that other than those set forth
in Section 4(a)(i) through 4(a)(v) above, representations and warranties of
Seller shall terminate six months after the Closing Date. The provisions of
Section 11 (to the extent the same are, by mutual agreement, not performed at
Closing), and Sections 12, 14, 16 and 18 shall (subject to any limitations set
forth therein) survive the Closing and delivery of the conveyance indefinitely.
The obligations of Buyer under Section 13 shall survive the Closing and the
delivery of the Conveyance indefinitely, and the obligations of Seller under
Section 13 shall also survive the Closing and the delivery of the Conveyance,
but (i) except as provided in subsections (ii) and (iii) below, shall terminate
one year after the Closing Date, and (ii) as to breaches of Seller's
representations and warranties, shall terminate when such representations and
warranties terminate (as provided above), and (iii) as to proper payment of
royalties due with respect to the Oil and Gas Properties under leases (interests
in which are included in the Oil and Gas Properties), or any matter that should
have been disclosed in connection with Section 4(a)(v), but was not, or any
matter that should have been disclosed in connection with Section 4(a)(vii), but
was not, shall terminate two years after the Closing Date.
18. MISCELLANEOUS MATTERS.
(a) FURTHER ASSURANCES. After the Closing, Seller shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time
to time, such further instruments, notices, division orders, transfer
orders and other documents, and do such other and further acts and things,
as may be reasonably necessary to more fully and effectively grant, convey
and assign the Properties to Buyer.
(b) JW LITIGATION, OTHER LITIGATION. The parties acknowledge the
existence of that certain lawsuit styled Xxxxxx & Xxxxx, Ltd. vs. H.G.,
Xxxxxxxxx vs. C.W. Resources, Inc., et al. (Cause No 41,534), 000xx
Xxxxxxxx Xxxxxxxx Xxxxx, Xxxxxxx Xxxxxx, Xxxxx (the "JW LITIGATION") and
agree that the existence of the JW Litigation shall in no way interfere
with the consummation of the transaction contemplated hereby. Seller shall
retain full responsibility, and full control, over such JW Litigation,
handling it (including, without limitation, decisions on litigation
strategy, decisions to settle (and settlement terms) or prosecute the same
and/or decisions to appeal or not appeal any judgment) in its sole,
unfettered discretion, and at its sole cost (including cost of settlement
or payment of judgment, if any) and with it having sole right to any
amounts (including any settlement or judgment amounts) paid by other
parties thereto. Seller shall indemnify and hold Buyer (and its
affiliates, and the respective officers, directors, employees, attorneys,
contractors and agents of Buyer and such affiliates) harmless from and
against any and all claims, actions, causes of action, liabilities,
damages, losses, costs or expenses (including court costs and attorneys'
fees, except attorneys' fees, and costs, for attorneys, if any, employed by
Buyer) of any kind arising out of or resulting from such JW Litigation.
25
Notwithstanding anything in the foregoing appearing to the contrary, if, as
a result of a settlement of such JW Litigation, or a final nonappealable
judgment with respect thereto, title to any portion of the Properties
conveyed to Buyer pursuant to this agreement is lost, Seller's liability
for such loss shall be an amount computed in the same manner as if such
loss had been Defects handled under Section 8(b)(i), and such amount (which
shall be paid to Buyer promptly after such settlement or judgment is
finalized) shall be deemed to fully compensate Buyer for such loss; Buyer
recognizes such risk of title loss, and, in the event the same occurs,
agrees to relinquish the lost interest and account for revenues received
(less expenses paid) by it with respect thereto. Seller shall also retain
responsibility, and full control, over those certain lawsuits styled Xxxx
Xxxxxx Xxxxxxxx, et al vs. C.W. Resources, et al, Xxxxxxx X. XxXxxxx vs.
Xxxxxxxx X. Xxxxxx dba CNS Energy, et al, vs. Procom Energy, Inc., X. X.
Xxxxx, et al vs. Amoco Production Company, et al (each disclosed on the
Disclosure Schedule) (the "CERTAIN LITIGATION"), in the same manner, and on
the same terms, as provided above for the JW Litigation. Buyer will assume
full responsibility for, and control over, all litigation disclosed on the
Disclosure Schedule other than the JW Litigation and the Certain
Litigation, with such assumption of responsibility and control to be on the
same basis as provided above for Seller's responsibility for, and control
over, the JW Litigation (except that, of course, the language providing for
certain matters in the event of a loss of title by Buyer will be
inapplicable). The party having responsibility for and control of a
litigation matter shall be entitled to receive, from the other party, and
it is agreed that the other party shall give, its cooperation in the
handling of such litigation (for example, and without limitation, Seller
agrees to make its employees available for depositions, if any, and for
testimony at any trial); similarly, the party handling a litigation matter
will cooperate with the other party so as to minimize the impact on the
other party's business operations to the extent reasonably possible. It is
agreed that the total out-of-pocket cost (including attorneys' fees, any
settlement payments and payment of any judgement) to Buyer of handling the
C.W. Resources, Inc. et al. vs. Valence Operating Company matter
(identified on the Disclosure Schedule) shall be limited to $200,000 and
that Seller will bear all out-of-pocket costs in excess of such amount;
provided that Seller may, at any time, elect (by notice in writing to
Buyer) to take over responsibility for, and control of, such matter (on the
same basis as provided above for Seller's responsibility for, and control
over, the JW Litigation), and Buyer shall have no further obligation for
out-of-pocket costs incurred after Seller actually takes over such matter.
(c) SHALLOW COMPLETION IN HAYNESVILLE WELL. Should a well drilled to
the Haynesville Formation under the Oil and Gas Properties described in
Section 1(e) above not be completed in such formation, it is recognized
that Buyer, as the owner of rights to depths above such formation, may take
over Seller's interest in such well prior to its abandonment, but if Buyer
elects to do so, it shall reimburse Seller for its portion of the cost of
drilling such well which would be attributable to drilling such well to a
depth sufficient to attempt a Cotton Valley Sand Formation completion.
26
(d) DECEPTIVE TRADE PRACTICES WAIVER. TO THE EXTENT APPLICABLE TO THE
TRANSACTION CONTEMPLATED HEREBY OR ANY PORTION THEREOF, BUYER WAIVES
BUYER'S RIGHTS UNDER THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES
- CONSUMER PROTECTION ACT, SECTIONS 17.41 ET. SEQ. OF THE TEXAS BUSINESS
AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS, AND ANY COMPARABLE ACT IN ANY OTHER STATE IN WHICH THE
PROPERTIES ARE LOCATED. BUYER STATES THAT, AFTER CONSULTATION WITH AN
ATTORNEY OF BUYER'S SELECTION, BUYER VOLUNTARILY CONSENTS TO THIS WAIVER.
(e) PARTIES BEAR OWN EXPENSES/NO SPECIAL DAMAGES. Each party shall bear
and pay all expenses (including, without limitation, legal fees) incurred
by it in connection with the transaction contemplated by this Agreement.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY NEITHER PARTY SHALL HAVE
ANY OBLIGATIONS WITH RESPECT TO THIS AGREEMENT, OR OTHERWISE IN CONNECTION
HEREWITH, FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.
(f) NO SALES TAXES. No sales, transfer or similar tax will be collected
at Closing from Buyer in connection with this transaction. If, however,
this transaction is later deemed to be subject to sales, transfer or
similar tax, for any reason, Buyer agrees to be solely responsible, and
shall indemnify and hold Seller (and its affiliates, and its and their
directors, officers, employees, attorneys, contractors and agents)
harmless, for any and all sales, transfer or other similar taxes (including
related penalty, interest or legal costs) due by virtue of this transaction
on the Properties transferred pursuant hereto and the Buyer shall remit
such taxes at that time. Seller and Buyer agree to cooperate with each
other in demonstrating that the requirements for exemptions from such taxes
have been met.
(g) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto with respect to subject matter hereof and supersedes
all prior agreements, understandings, negotiations, and discussions among
the parties with respect to such subject matter; provided that any
Confidentiality Agreement executed by Buyer and Seller, or any
representative of Seller, in connection with the transaction contemplated
hereby remains in full force and effect and is not superseded or modified
by this Agreement.
(h) AMENDMENTS, WAIVERS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the party against whom
enforcement of the amendment, modification, supplement, restatement or
discharge (or waiver) is sought.
(i) CHOICE OF LAW. Without regard to principles of conflicts of law,
this Agreement shall be construed and enforced in accordance with and
governed by the laws of the state of Texas applicable to contracts made and
to be performed entirely within such state and the laws of the United
States of America, except that, to the extent that the law of a state in
which a portion of the Properties is located (or which is otherwise
27
applicable to a portion of the Properties) necessary governs, the law of
such state shall apply as to that portion of the property located in (or
otherwise subject to the laws of) such state.
(j) HEADINGS, TIME OF ESSENCE, ETC. The descriptive headings contained
in this Agreement are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement. Within
this Agreement words of any gender shall be held and construed to cover any
other gender, and words in the singular shall be held and construed to
cover the plural, unless the context otherwise requires. Time is of the
essence in this Agreement.
(k) NO ASSIGNMENT. Prior to Closing, neither party shall have the right
to assign its rights under this Agreement, without the prior written
consent of the other party first having been obtained.
(l) LIKE KIND EXCHANGE. Seller may elect to structure this transaction
as a like-kind exchange pursuant to Section 1031 of the Internal Revenue
Code of 1986, as amended, and the regulations promulgated thereunder, with
respect to any or all of the Properties (a "Like-Kind Exchange") at any
time prior to the date of Closing. In order to effect a Like-Kind
Exchange, Buyer shall cooperate and do all acts as may be reasonably
required or requested by Seller with regard to effecting the Like-Kind
Exchange, including, but not limited to, permitting Seller to assign its
rights under this Agreement to a qualified intermediary of Seller's choice
in accordance with Treasury Regulation 1.1031(k)-1(g)(4) or executing
additional escrow instructions, documents, agreements or instruments to
effect an exchange; provided, however, Buyer shall incur no expense in
connection with such Like-Kind Exchange, Buyer shall not be required to
take title to any property other than the Properties in connection with the
Like-Kind Exchange, and Buyer's possession of the Properties will not be
delayed by reason of any such Like-Kind Exchange.
(m) SUCCESSORS AND ASSIGNS. Subject to the limitation on assignment
contained in subsection (k) above, the Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors
and assigns.
(n) COUNTERPART EXECUTION. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one
and the same instrument. It shall not be necessary for Buyer and Seller to
sign the same counterpart.
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
C.W. RESOURCES, INC.
By:
------------------------------
Xxxx X. Xxxxxxxxx, President
XXXXXXXXX ROYALTY, INC.
By:
------------------------------
Xxxxx X. Xxxxxxx, President
---------------------------------
Xxxx X. Xxxxxxxxx
3TEC ENERGY CORPORATION
By:
------------------------------
Xxxxx X. Xxxxxx
President and Chief Executive Officer
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LIST OF SCHEDULES AND EXHIBITS
Schedules - I Xxxxx and Units with WI & NRI and allocated price
II Disclosure Schedule
III Conveyance Form
Exhibits - A Property Descriptions
B Escrow Agreement
C PUD Locations Map
