EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") dated effective as of the
1st day of August, 2003, is by and among XXXXXX XXXX XXXXX, an unmarried man
("Xxxxx"), XXXXXX XXXX XXXXX, L.L.C., a privately-held limited liability
company organized and existing under the laws of the State of Nevada ("Xxxxx
LLC") (collectively, Xxxxx and Xxxxx LLC are the "Seller"), and DELTA
PETROLEUM CORPORATION, a publicly-held corporation organized and existing
under the laws of the State of Colorado ("Buyer"). Seller and Buyer are
referred to herein individually as a "Party" and collectively as the
"Parties."
In consideration of the mutual promises contained herein, the benefits to
be derived by each Party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller
agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey and Buyer agrees to purchase and
pay for all of Seller's right, title and interest in and to the Interests.
1.2 Interests. All of the following shall be referred to in this
Agreement collectively as the "Interests" and individually as an "Interest":
(a) All Seller's working interest in the oil, gas and mineral
leases described on Exhibit "A" attached hereto (collectively, the "Leases"),
which includes all leases owned by Seller within the Colorado AMI and the
Trailblazer AMI, as those terms are defined in Section 2.5 below, excluding
those interests reserved to Seller elsewhere in this Agreement, e.g. Reserved
Interest set forth in Section 1.3, any working interests not transferred,
overrides and the like.
(b) The oil and gas xxxxx described on Exhibit "A"
(individually, a "Well," and collectively, the "Xxxxx"), together with all
oil, natural gas, casinghead gas, drip gasoline, natural gas liquids,
condensate and other minerals produced from such Xxxxx.
(c) All unitization, communitization, pooling, agreements,
working interest units created by operating agreements, partnership agreements
and orders covering the Leases and Lands as defined in 1.2 (e) below, or any
portion thereof, and the units and pooled or communitized areas created
thereby (collectively, the "Units") insofar as they pertain to the interests
to be assigned to Buyer pursuant to this Agreement.
(d) The tangible personal property, tools, machinery, materials,
pipelines, plants, gathering systems, equipment, facilities, fixtures and
improvements currently used on the Xxxxx and associated tank batteries, but
excluding equipment located on or near the Leases not currently used on such
facilities, including but not limited to tubing, pipe, vehicles, an 8' x 10'
parts house containing fittings and other associated parts, trailers,
generators and the gas pipeline connected to the well described as the
"Section 20 Well" in Exhibit "A" to this Agreement . (collectively, the
"Equipment"). Seller shall not charge Buyer any fee for use of Seller's
pipeline for transportation of gas produced from the Section 20 Well. Buyer's
inventory indicates the Equipment consists of the equipment listed in Exhibit
"D" to this Agreement, although the intent of this Agreement is to convey the
tangible personal property, tools, machinery, materials, plants, gathering
systems, equipment, facilities, fixtures and improvements currently used on
the Xxxxx and associated tank batteries.
(e) The licenses, permits, contracts, agreements and other
instruments owned by Seller (other than bonds posted by Seller) which concern
and relate to any of the Leases, the lands covered by the Leases (the
"Lands"), Xxxxx, Units and/or Equipment, INSOFAR AND ONLY INSOFAR as same
concern or relate to the Leases, Lands, Xxxxx, Units and/or Equipment, or the
operation thereof; including, without limitation, oil, gas and condensate
purchase and sale contracts; permits; rights-of-way; easements; licenses;
servitudes; estates; surface leases; farmin and farmout agreements; division
orders and transfer orders; bottomhole agreements; dry hole agreements;
area-of-mutual interest agreements; salt water disposal agreements; acreage
contribution agreements; operating agreements; balancing agreements and unit
agreements; pooling agreements; pooling orders; communitization agreements;
processing, gathering, compression and transportation agreements; facilities
or equipment leases relating thereto or used or held for use in connection
with the ownership or operation thereof or with the production, treatment,
sale or disposal of hydrocarbons; and all other contracts and agreements
related to the Leases, Lands, Xxxxx, Units and/or Equipment.
(f) Subject to Section 1.3 below, originals or copies of all computer
tapes and discs, files, records, information or data relating to the Interests
in the possession of Seller, including, without limitation, title records
(including abstracts of title, title opinions, certificates of title and title
curative documents), production records and files, contracts, correspondence,
production records, electric logs, core data, pressure data, decline curves,
graphical production curves, drilling reports, well completion reports, drill
stem test charts and reports, regulatory reports, and all related materials,
INSOFAR AND ONLY INSOFAR as the foregoing items constitute materials that may
be lawfully conveyed to Buyer (i.e., the materials are not subject to a
proprietary agreement precluding their transfer to Buyer), and, to the extent
transferable, all other contract rights, intangible rights (excluding Seller's
trademarks and service marks), inchoate rights, choses in action, rights under
warranties made by prior owners, manufacturers, vendors or other third
parties, and rights accruing under applicable statutes of limitation or
prescription, attributable to the Interests.
(g) All payments, and all rights to receive payments, with
respect to the ownership of the production of hydrocarbons from or the conduct
of operations on the Interests accruing after the Effective Time.
1.3 Reserved Interests. Notwithstanding any provision of this
Agreement to the contrary, Seller reserves and retains unto Seller (i)
Seller's corporate, financial, tax and legal records and other business
records; (ii) cash, bank accounts, letters of credit, travel letter accounts
and prepaid insurance; (iii) the management information systems, accounting
software and other intellectual property rights of Seller used by Seller in
the management and administration of its business; (iv) all claims that Seller
may have under any policy of insurance, indemnity or bond maintained by Seller
other than claims relating to property damage or casualty loss affecting the
Interests occurring between the Effective Time and Closing (which claims shall
be included in the Interests); (v) all accounts receivable, trade credits or
notes receivable relating to transactions processed by Seller prior to the
Effective Time; (vi) any files or records that Seller is contractually or
otherwise obligated not to disclose to Buyer; (vii) all claims and causes of
action arising from acts, omissions or events, or damage or destruction of
property occurring prior to the Effective Time; (viii) engineering studies or
reserve reports relating to the Interests; and; (ix) all interests and rights
not included in the definition of the Interests, including but not limited to
overriding royalty interests, royalty interests and mineral interests,
provided, however, all mineral interests owned or hereafter acquired by Seller
shall be subject to an oil and gas lease as described in Section 2.5(c)(i) of
this Agreement; (x) with respect to the Section 12 Field, a one-time option
to acquire up to a proportionate 75% of the working interest in the oil and
gas field as defined as the "Section 12 Field" in Exhibit "A" to this
Agreement (the "Reversionary Interest") conveyed to Buyer under this Agreement
after a total of 593,000 barrels of oil has been produced from the Section 12
Field after the Effective Time, subject to its proportionate share of costs,
and together with the option to take over operation of the Section 12 Field,
which option must be exercised when the option to acquire the working interest
is exercised; (xi) non-exclusive license rights to all seismic data covering
the Interests, whether now or hereafter acquired by Seller or Buyer; and (xii)
rights in computer tapes and disks, files, records, information, data,
contracts and agreements attributable to the interests retained by or earned
by Seller (collectively (i) through (xii) are the "Reserved Interests").
1.4 Effective Time. The purchase and sale of the Interests shall be
effective as of August 1, 2003, at 12:01 a.m., Mountain Daylight Time (herein
called the "Effective Time").
1.5 Closing Date. The purchase and sale of the Interests pursuant to
this Agreement and receipt of the required wire transfer of the Initial
Purchase Price by Seller ("Closing") shall be on or before 5:00 p.m. Mountain
Daylight Savings Time, September 19, 2003 ("Closing Date") unless a different
date is agreed to in writing by both Parties.
1.6 Ownership of the Interests. Upon Closing, (a) Seller shall be
entitled to all of the rights of ownership (including, without limitation, the
right to all production, proceeds of production and other proceeds), including
the right to pledge, mortgage or otherwise encumber the Reserved Interests or
any Reversionary Interests, and shall be subject to the duties and obligations
of such ownership attributable to the Interests for the period of time prior
to the Effective Time and (b) Buyer shall be entitled to all of the rights of
ownership (including, without limitation, the right to all production,
proceeds of production and other proceeds) including the right to pledge,
mortgage or otherwise encumber the Interests, and shall be subject to the
duties and obligations of such ownership attributable to the Interests for the
period of time from and after the Effective Time. All expenses and costs
including, without limitation, all ad valorem, property, production,
severance, and similar taxes and assessments based upon or measured by the
ownership of the Interests, the production of hydrocarbons, or the receipt of
proceeds therefrom) attributable to the Interests, shall be: (i) allocated to
Seller if incurred or accruing with respect to operations conducted prior to
the Effective Time; or (ii) allocated to Buyer if incurred or accruing with
respect to operations conducted from and after the Effective Time. All
hydrocarbons in storage facilities above or upstream from the pipeline
connection to each storage facility, or downstream of delivery point sales
meters on gas pipelines, as of the Effective Time, shall belong to Seller.
All of the hydrocarbons placed in such storage facilities or upstream of the
aforesaid meters on pipelines after the Effective Time shall accrue to the
benefit of Buyer and shall become a part of the Interests. In order to
accomplish the foregoing allocation of production, the Parties shall rely upon
the records maintained by the operator of the relevant Interest, unless such
records are demonstrated to be inaccurate.
1.7 Risk of Loss. Buyer shall assume all risk of loss with respect
to the Interests from and after the Effective Time to Closing and thereafter
should Closing occur. Except as specifically set forth in Section 11.1 with
respect to any damages caused by Buyer's environmental inspection of the
Interests, Seller shall retain all risk of loss with respect to the Interests
at all times should Closing not occur.
ARTICLE 2
PURCHASE PRICE
2.1 Initial Purchase Price. The initial purchase price for the
Interests shall be comprised of Eight Million Dollars ($8,000,000) paid by
bank wire transfer (the "Money Payment") and One Million (1,000,000) shares of
Buyer's Common Stock (the "Initial Stock Payment"). The Money Payment shall
be consideration for the Section 12 Field, as described in Exhibit "A" to this
Agreement. Nine Hundred Thousand (900,000) shares of the Initial Stock
Payment shall be consideration for the Colorado AMI, except the oil and gas
field described as the "Section 22 Field" in Exhibit A to this Agreement and
the Section 20 Well, as described in Exhibit "A" to this Agreement. The
remaining One Hundred Thousand (100,000) shares shall be consideration for the
Trailblazer AMI, as described in Exhibit "A" to this Agreement. The Money
Payment and the Initial Stock Payment shall collectively be herein called the
"Initial Purchase Price." In addition, in consideration for Seller's
conveyance of interests in the Section 22 Field and the Section 20 Well Buyer
shall assume all Seller's liabilities and obligations in the Section 22 Field
and the Section 20 Well regardless of whether such liabilities and obligations
accrue before or after the Effective Time. At Closing, the Money Payment of
the Initial Purchase Price shall be adjusted as set forth in Section 2.2
below.
2.2 Adjustments to Initial Purchase Price. The Initial Purchase
Price shall be adjusted as follows and the resulting amount shall be referred
to herein as the "Adjusted Purchase Price":
(a) The Initial Purchase Price shall be adjusted upward by the
following:
(i) Upon execution of this Agreement Buyer shall pay Seller
the amount of all actual operating or capital expenditures or prepaid expenses
attributable to the Interests paid or payable by or on behalf of Seller in
connection with the operation of the Interests between the Effective Time and
the time this Agreement is executed. Such expenditures and expenses shall
include, without limitation, normal field operation costs, lease acquisition
costs, lease broker costs, seismic costs, royalties, rentals and other
charges; ad valorem, property, excise, and any other taxes based upon or
measured by the ownership of the Interests, the production of hydrocarbons or
the receipt of proceeds therefrom; and expenses payable to a third person
under applicable joint operating agreements, including, without limitation,
overhead charges at normal company overhead labor rates and royalty
disbursement fees payable to operator, or similar payments to third party
operators, or, in the absence of any joint operating agreement, those items
customarily billed under such an agreement. Such expenditures and expenses
shall also include costs for lease sight drafts and seismic permitting
incurred prior to the Effective Time but not yet paid prior to execution of
this Agreement. The invoices for these costs and expenses shall be provided
to Buyer as soon as possible. The costs actually paid by Buyer prior to
Closing pursuant to subsections 2.2(a)(i) and (ii) of this Agreement shall be
limited to Three Hundred Thousand Dollars ($300,000) excluding seismic costs.
Further, Buyer shall not be required to reimburse Seller for discretionary
expenditures (excluding leasehold bonuses) in excess of twenty five thousand
dollars ($25,000.00) in the aggregate unless such expenditures are approved by
Buyer prior to commitment of such sums by Seller.
(ii) At Closing, to the extent not previously paid, the
amount of all actual operating or capital expenditures or prepaid expenses
attributable to the Interests paid or payable by or on behalf of Seller in
connection with the operation of the Interests between the Effective Time and
the Closing. Such expenditures and expenses shall include, without
limitation, lease acquisition costs, broker costs, seismic costs, royalties,
rentals and other charges; ad valorem, property, excise, and any other taxes
based upon or measured by the ownership of the Interests, the production of
hydrocarbons or the receipt of proceeds therefrom; and expenses payable to a
third person under applicable joint operating agreements, including, without
limitation, overhead charges at normal company overhead labor rates and
royalty disbursement fees payable to operator, or similar payments to third
party operators, or, in the absence of any joint operating agreement, those
items customarily billed under such an agreement. Buyer shall not be required
to reimburse Seller for discretionary expenditures (excluding leasehold
bonuses) in excess of twenty five thousand dollars ($25,000.00) in the
aggregate unless such expenditures are approved by Buyer prior to commitment
of such sums by Seller.
(iii) At Closing the value, less taxes (other than taxes on
net income), of all hydrocarbons in storage facilities above or upstream from
the pipeline connection in each storage facility, or downstream of delivery
point, sales meters on gas pipelines, as of the Effective Time, at the
prevailing market value at the time of sale in the area, adjusted for grade
and gravity.
(iv) At and after Closing $50,000.00 per month for a period
of three months with the first $50,000.00 due at Closing and the two
subsequent $50,000.00 due October 19, 2003 and November 19, 2003,
respectively, as a flat fee, for services provided by Seller's technical staff
in Seller's Denver office under the direction of Seller, pursuant to the terms
of 2.5(a) of this Agreement.
(v) Any other amounts agreed upon in writing by Seller and
Buyer.
(b) The Initial Purchase Price shall be adjusted downward by the
following:
(i) The gross proceeds received by Seller, net of
applicable severance and production taxes and compression and transportation
charges, and derived from the sale of hydrocarbons attributable to the
Interests to the extent owned by Buyer between the Effective Time and the
Closing Date, pursuant to the provisions of Section 1.6 above.
(ii) XXXXX revenues received by Seller between the
Effective Time and Closing Date.
(iii) Any other amounts agreed upon in writing by Seller
and Buyer.
(c) Upward and downward adjustments to the Initial Purchase
Price pursuant to Section 2.3 shall be made only to the Money Payment.
(d) All costs advanced to Seller by Buyer prior to Closing
pursuant to subsection 2.2(a)(i) and (ii) of this Agreement shall be
refundable in the event fraud or material misrepresentation by Seller.
2.3 Allocation of Initial Purchase Price. The Initial Purchase Price
shall be allocated among the Interests as set forth in Exhibit "B" attached
hereto (the "Allocated Values").
2.4 Preliminary Settlement Statement. Seller shall prepare and
deliver to Buyer at least five (5) "Business Days" (which term shall mean any
day except a Saturday, Sunday or other day on which commercial banks in
Denver, Colorado are required or authorized by law to be closed) prior to the
Closing Date, Seller's estimate of the Adjusted Purchase Price to be paid at
Closing, together with a statement setting forth Seller's estimate of the
amount of each adjustment to the Purchase Price to be made pursuant to Section
2.2 (the "Preliminary Settlement Statement"). The parties shall negotiate in
good faith and attempt to agree on such estimated adjustments prior to
Closing. In the event any estimated adjustment amounts are not agreed upon
prior to Closing, the Adjusted Purchase Price for purposes of Closing shall be
calculated based on Seller's and Buyer's agreed upon estimated adjustments and
Seller's good faith estimation of any disputed amounts, which estimate shall
be subject to adjustment in the Final Settlement Statement pursuant to Section
9.1.
2.5 Additional Purchase Price and AMI Terms. In addition to the Initial
Purchase Price, Buyer and Seller agree to an additional purchase price related
to the Lease portions of the Interests within the Colorado AMI and the
Trailblazer AMI, as both are defined in Exhibit A.
(a) Colorado AMI. In order to assist in identification of
drillable prospects, Buyer agrees to assume Seller's geophysical contract in
the Colorado AMI at the time this Agreement is signed and immediately bear all
costs of seismic, permitting, acquisition and interpretation invoiced after
the Effective Time. A copy of such geophysical contract, with all amendments
thereto, is attached hereto as Schedule 2.5(a). As consideration for the
$50,000.00 per month payment described in Section 2.2(a)(iv) of this
Agreement, Seller shall for a period of 90 days, beginning at Closing, make
Seller's technical staff in Seller's Denver office under the direction of
Seller available at reasonable times to assist Buyer in development of the
Colorado AMI. The costs of any outside consultants retained by Buyer shall be
the obligation of Buyer.
In the event Buyer and Seller determine valid drillable prospects for the
discovery and production of hydrocarbons exist on Leases, or land pooled
therewith, within the Colorado AMI and any such prospect either (1) is
identified in the Niobrara, D-Sand or J-Sand formations by seismic survey and
volumetrics prior to drilling to contain from those formations at least one
million barrels of recoverable oil or six billion cubic feet of recoverable
gas or a combination of oil or gas equal to or exceeding one million barrels
of oil equivalent using a 6 mcf :1 barrel gas-to-oil ratio, or (2) is
identified during or after drilling to contain from all formations at least
one million barrels of recoverable oil or six billion cubic feet of
recoverable gas or a combination of oil or gas equal to or exceeding one
million barrels of oil equivalent using a 6 mcf :1 barrel gas-to-oil ratio,
then such acreage shall be designated by Buyer as a "Bonus Prospect."
In the event Buyer and Seller, prior to drilling, are unable to agree
that any drillable prospect should be designated as a Bonus Prospect, Buyer
and Seller shall, after completion of such well, utilize all data acquired
through drilling and again seek to determine whether such prospect qualifies
as a Bonus Prospect. If the parties are unable to agree within thirty (30)
days of completion, all seismic and well data shall be submitted for such
determination to Malkewicz, Xxxxx Associates of Golden, Colorado, consulting
engineers, or such other consulting engineers as Buyer and Seller may agree.
Costs of the consulting engineers shall be borne by the Party whose assessment
of the prospect does not agree with the conclusion of the consulting
engineers. Regardless of the determination of the consulting engineers, the
prospect may later be designated as a Bonus Prospect if it is identified
during or after drilling to contain from all formations at least one million
barrels of recoverable oil or six billion cubic feet of recoverable gas or a
combination of oil or gas equal to or exceeding one million barrels of oil
equivalent using a 6 mcf :1 barrel gas-to-oil ratio.
Within seven (7) days of a Bonus Prospect designation, Buyer shall issue
to Seller as additional purchase price, up to 190,000 shares of Buyer's common
stock which may contain a restrictive legend ("Additional Shares") (or such
lesser amount such that the value of such stock based upon the average closing
price of the stock for the immediately preceding 30-day period may equal but
does not exceed $950,000.00) for each Bonus Prospect (a "Bonus"). In no event
shall Buyer ever be obligated to issue Seller more than 190,000 Additional
Shares per Bonus Prospect nor issue a cumulative total of more than 1,900,000
Additional Shares of Buyer's common stock regardless of the number of
designated Bonus Prospects and Lease acres contained therein, and in no event
shall Buyer ever be obligated to pay Seller a Bonus for any portion of the
Colorado AMI that is not deemed to be a Bonus Prospect.
Buyer shall drill not less than ten prospects during every twelve month
period following the Effective Time (the "Agreement Year") and as to each
successful prospect well Buyer shall continuously drill additional xxxxx to
fully develop each discovery as a result of such drilling with the goal of
establishing ten-acre spacing for each such oil discovery. The Agreement
Year ten prospect drilling program is a cumulative program to the end that all
prospects drilled in excess of ten per Agreement Year will be credited to
future Agreement Year drilling programs (example: year one, 12 prospects
drilled; year two, only eight prospects need be drilled).
If at any time Buyer fails, but for reasons of acts of God or lack of
availability of a drilling rig, to honor the Agreement Year drilling program,
Buyer shall reassign to Seller all Lease acreage in the Colorado AMI not held
by production. Buyer shall have no other liability to Seller or any other
party for failure to drill.
Buyer agrees to drill all xxxxx to the base of the J-Sand Formation or
the top of the Skull Creek Formation. Buyer agrees to drill five (5) feet
into each bench of each zone and circulate up samples and immediately test by
drill stem testing all legitimate oil and gas shows at that time from the "D"
Sand to the total depth of the well. The wellsite geologist will notify both
Buyer and Seller simultaneously prior to drilling into each five foot zone of
interest and prior to any test. Buyer agrees to notify Seller and or his
designee(s) before proposed operations occur. After logging, any potentially
productive zones not tested while drilling will then be tested.
Seller shall at its option receive a proportionate fifty percent (50%)
after payout working interest in each well. Payout (as hereinafter defined)
shall be calculated on a well-by-well basis.
For purposes hereof, "Payout" is defined on a well-by-well basis as that
point in time when Buyer has recovered production sales revenue from the
subject well in an amount equal to Buyer's cost to drill, test, complete and
operate the well, such costs to include costs of insurance, production,
severance, ad valorem and other similar taxes, and royalty and other leasehold
burdens. Proceeds shall be valued at the amounts actually received by Buyer
or its affiliate after deduction of third party charges for marketing and
transportation.
Additionally, subject to paragraph 2.2(a)(i) above, Buyer shall be
responsible for and, to the extent not then paid by Seller, shall pay
leasehold bonus and rentals due after the Effective Time, immediately upon
receipt of invoice by Buyer. Not withstanding the foregoing, Buyer is not
obligated to maintain any Lease in force and may release, allow to expire, or
fail or refuse to pay rental on any leasehold without obligation to Seller.
If Buyer elects to release, allow to expire, or fail or refuse to pay rental
on a Lease or any part thereof, Buyer will offer reassignment to Seller at
least 45 days prior to the next ensuing rental date and at least six (6)
months prior to expiration of such Lease or any part thereof.
In order for Seller to be entitled to the full reversionary working
interest provided for above, the prospect Lease interest assigned from Seller
to Buyer or acquired by Buyer pursuant to this Agreement must have a net
revenue interest of 75% based upon a 100% working interest. In the event such
net revenue interest is less than a proportionate 75%, Seller's after payout
working interest shall be reduced proportionately.
Beginning one year after Closing, Seller may propose the drilling of test
xxxxx on portions of the Colorado AMI not then designated by Buyer as Bonus
Prospects (an "Additional Prospect"). Such drilling may be proposed no more
than three Additional Prospects at a time, with proposals for Additional
Prospects being made no sooner than thirty (30) days after the last proposed
Additional Prospect well is completed as a producer or plugged and abandoned
as a dry hole. On an Additional Prospect -by- Additional Prospect basis,
Buyer may elect to drill such xxxxx. In the event Buyer elects to drill an
Additional Prospect proposed by Seller hereunder, Buyer shall use its best
efforts to commence the first well in such Additional Prospect as soon as
Seller or Buyer can make a rig available for drilling a proposed well.
In the event Buyer elects not to drill an Additional Prospect proposed
hereunder by Seller, Buyer shall reassign to the Seller sufficient Lease
acreage to comprise the proposed Additional Prospect. Such assignment shall
contain not more than 640 acres, be shaped as nearly as possible to match the
geologic prospect utilizing governmental quarter-quarter sections. If Seller
has not commenced actual drilling of the reassigned Additional Prospect, but
for reasons of acts of God, within 120 days from the date of Buyer's election
not to drill, Seller shall reassign such acreage back to Buyer, unencumbered
by actions of Seller during the period it held title and at no cost to Buyer.
In the event one of the parties acquires working interests in existing
or shut-in production in the Colorado AMI, Buyer shall pay for and be entitled
to 100% of the working interest acquired at a proportionate 75% net revenue
interest until Production Acquisition Payout (as hereinafter defined). Seller
shall be entitled to any net revenue interest above said 75%. At Production
Acquisition Payout, Seller shall have the option to back in for a
proportionate 25% working interest. The working interests of Seller and Buyer
shall be at a proportionate 75% net revenue interest, with Seller being
entitled to any net revenue interest above said 75%. In the event Buyer's net
revenue interest is less than a proportionate 75%, Seller's after payout
working interest shall be reduced proportionately.
For purposes hereof, "Production Acquisition Payout" is defined as that
point in time when Buyer has recovered production sales revenue from the
subject acquisition, on a field by field basis, in an amount equal to Buyer's
cost to acquire and operate the field, such costs to include costs of
insurance, production, severance, ad valorem and other similar taxes, and
royalty and other leasehold burdens. Proceeds shall be valued at the amounts
actually received by Buyer or its affiliate after deduction of third party
charges for marketing and transportation.
Except for the Section 12 Field, which is subject to the Reversionary
Interest, with respect to any new xxxxx drilled (or the re-entry or
recompletion of xxxxx not producing at the time of the acquisition) in the
Colorado AMI, including but not limited to xxxxx drilled on non-producing
acreage acquired together with producing acreage, Buyer shall be entitled to
100% of the working interest acquired at a proportionate 75% net revenue
interest until Payout (as defined in Section 2.5(a) of this Agreement).
Seller shall be entitled to any net revenue interest above such 75%. At
Payout, Seller shall back in for a proportionate 50% working interest. The
after payout working interests of Seller and Buyer shall be at a proportionate
75% net revenue interest, with Seller being entitled to any net revenue
interest above such 75%. In the event Buyer's net revenue interest is less
than a proportionate 75%, Seller's after payout working interest shall be
reduced proportionately.
(b) Trailblazer AMI. The Trailblazer Prospect is defined as
19,200 acres, more or less, with approximately 16,000 mineral Lease acres
already owned by Seller, as more completely described on Exhibit "A", attached
hereto. Such prospect is surrounded by an area of mutual interest containing
approximately 42,880 acres (the "Kachina AMI"). The Kachina AMI is subject to
an agreement with Kachina Energy, which agreement is attached hereto as
Schedule 2.5(b). The Trailblazer Prospect and the Kachina AMI comprise the
"Trailblazer AMI", which is subject to an Area of Mutual Interest Agreement
between the Parties and includes those lands identified as the Trailblazer AMI
in Exhibit "A" to this Agreement.
Seller represents that the approximately 16,000 acres carry an average
net revenue interest of not less than 80%; provided, however, the
representation contained in this sentence shall survive only until December
31, 2003.
Buyer agrees to drill the Initial Well (located at the location
identified in Exhibit A to this Agreement) and all xxxxx drilled by Buyer
within the Trailblazer AMI vertically to the base of the J-Sand Formation or
to the top of the Skull Creek Formation and log the well, then plug back to
the Niobrara Formation, set 7" casing and horizontally drill from the NENE of
the section to the furthest point in the SWSW of the section allowable by the
State Oil and Gas Conservation Commission.
Further, Buyer agrees to core the J-Sand Formation in the Initial Well,
log all vertical xxxxx and test all legitimate oil and or gas shows in all
xxxxx. Any sand fracturing shall be done by Halliburton using Halliburton's
recommendation.
Further, Buyer shall drill seven xxxxx during every twelve month period
after Closing (the "Agreement Year") on the Trailblazer Prospect.
The Agreement Year seven well drilling program is a cumulative program to
the end that all xxxxx drilled in excess of seven per Agreement Year will be
credited to future Agreement Year drilling programs (example: year one, 8
xxxxx drilled; year two, only 6 xxxxx need be drilled).
If at any time Buyer fails, but for reasons of acts of God or lack of
availability of a drilling rig, to honor the Agreement Year drilling program,
Buyer shall reassign to Seller all acreage in the Trailblazer AMI not held by
production. Buyer shall have no other liability to Seller or any other party
for failure to drill.
In each well drilled by Buyer, Buyer shall pay for and be entitled to one
hundred percent (100%) of the working interest at a proportionate seventy
percent (70%) net revenue interest until Payout. Seller shall be entitled to
any net revenue interest above said seventy percent (70%). After Payout Buyer
shall be entitled to its seventy percent (70%) working interest at a
proportionate eighty percent (80%) net revenue interest, and Seller shall have
the option to receive a proportionate thirty percent (30%) working interest at
a proportionate eighty percent (80%) net revenue interest together with any
net revenue interest above said eighty percent (80%). Payout (as hereinafter
defined) shall be calculated on a well-by-well basis. If a Trailblazer AMI
well produces, on a gross basis, sales volume of 140,000 barrels of oil
equivalent based on a 6 mcf :1 barrel gas-to-oil ratio, Seller's proportionate
30% after payout working interest for that well shall increase to a
proportionate fifty percent (50%) working interest for all subsequent
production in that well.
For purposes hereof, Payout is defined on a well-by-well basis as that
point in time when Buyer has recovered production sales revenue from the
subject well in an amount equal to Buyer's cost to drill, test, complete and
operate the well, such costs to include costs of insurance, production,
severance, ad valorem and other similar taxes and royalty and other leasehold
burdens. Proceeds shall be valued at the amounts actually received by Buyer
after deduction of third party charges for marketing and transportation.
In order for Seller to be entitled to the full reversionary working
interest provided for above, the prospect Lease interest assigned from Seller
to Buyer pursuant to this Agreement and/or the leasehold acquired under this
AMI must have an average net revenue interest of 70% (proportionately reduced)
before payout and 80% (proportionately reduced) after payout. In the event
such net revenue interest in a well is less than such 70% before payout and
such 80% after payout, Seller's after payout working interest shall be reduced
proportionately.
(c) Additional AMI Terms.
(i) The Colorado AMI shall be effective August 1, 2003
and shall terminate at 11:59:59 p.m. Mountain Daylight Savings Time July 31,
2006. The Trailblazer AMI shall be effective August 1, 2003 and shall
terminate at 11:59:59 p.m. Mountain Daylight Savings Time July 31, 2006. The
Colorado AMI and the Trailblazer AMI shall include all working interests
acquired through lease extensions and renewals. The Colorado AMI and the
Trailblazer AMI shall exclude all overriding royalty interests, royalty
interests and mineral interests; provided, however, all mineral interests
owned or hereafter acquired by Buyer or Seller shall be subject to an oil and
gas lease in the form attached hereto as Exhibit "H-1" with respect to
minerals owned by Seller and located in the Section 12 Field, and in the form
attached as Exhibit "H-2" with respect to minerals owned by Seller in all
other lands within the Colorado AMI and the Trailblazer AMI except the Section
12 Field, with the mineral owner as lessor and the other Party as lessee.
Neither Party shall pay a bonus for the other Party's mineral interest leased
from the other Party. All such leases shall have a royalty equal to the
before payout net revenue interest Seller receives pursuant to this Agreement,
and shall terminate either after five years or when Buyer fails but for
reasons of acts of God or lack of availability of a drilling rig to fulfill
the Agreement Year Drilling obligation pursuant to the terms of this
Agreement, whichever is sooner.
(ii) Subject to the expenditure limitations of paragraph
2.2(a)(i) above, Buyer agrees to pay for the acquisition of any lease located
in the Colorado AMI and the Trailblazer AMI acquired by Seller from and after
the Effective Time through the first year following the Effective Time,
provided Buyer may but shall not be obligated to acquire any lease which costs
more than $25 per mineral acre. Payment of all lease drafts shall be the
obligation of Buyer. In no event shall the price per acre throughout the
Colorado AMI and the Trailblazer AMI exceed $25 without the prior consent of
the Buyer.
(iii) Buyer also agrees to pay for 100% of the
acquisition of any producing property in which it participates located in the
Colorado AMI from the Effective Time through the first year following the
Effective Time. Buyer may but shall not be obligated to participate in any
such acquisition. If Buyer elects not to participate in the acquisition of
any producing property, however, Seller has the right to purchase that
producing property for its own account. Subject to the limitations set forth
in this section, all expenditures and expenses, including but not limited to,
lease acquisition costs, broker costs and outside consultants shall be the
sole obligation of Buyer. Buyer shall pay all such costs directly to the
third parties.
(iv) After the first year following the Effective Time,
if Seller desires to acquire an interest within either AMI, it shall notify
Buyer in writing of such acquisition (the "Subject Interest"), providing
pertinent information, such as a complete description of the proposed
acquisition, the number of gross/net oil and gas mineral acres affected, the
cost and expenses incurred in making such acquisition (including expenses
relating to title), and the amount of any royalties or overriding royalties or
other burdens affecting the Subject Interest or other obligations required to
earn the Subject Interest. With such notice, Seller shall also furnish copies
of the leases, contracts, title materials and related documents in its
possession pertaining to the Subject Interest.
Within ten (10) calendar days from the date of its receipt
of notice from Seller, Buyer shall give written notice of its election
regarding the Subject Interest. Buyer shall respond if it elects to acquire
the Subject Interest by providing notice accompanied by a check for the costs
of acquiring the Subject Interest within the ten (10) calendar day period.
Buyer's failure to respond including payment for the Subject Interest shall
constitute a conclusive relinquishment of the right to acquire the Subject
Interest.
If the proposed acquisition is located partially within and
partially outside of an AMI, then the acquiring party shall have the option of
offering all of the acquisition to the non-acquiring party or limiting said
offer to only that portion located within the AMI. In the event only a
portion of the acquisition is offered hereunder, then the costs or obligations
attributable to said acquisition shall be proportionately reduced by the
percentage of the total net acreage situated outside the AMI and excluded from
the offer. Seller shall be entitled to its proportionate share but shall not
pay for any interests located within the AMI in accordance with the terms of
this Agreement.
(v) After Closing, the Parties shall keep each other
informed on all matters within the AMI's and shall provide each other with all
data as soon as it is acquired, including, but not limited to, daily and
monthly production reports, leases, contracts, drilling reports, cores, tests,
completions, stimulations, engineering reports, geophysical reports,
geological reports, environmental reports, reservoir simulation studies, and
any kind of geophysical surveys including raw data, processed data and
interpreted data in its possession.
(vi) All joint operations shall be governed by a joint
operating agreement in the form attached hereto as Exhibit "E". In the event
of a conflict between this Agreement and the Operating Agreement, the terms of
this Agreement shall control. Buyer has requested Seller to obtain drilling
rigs to develop the Properties. If Seller obtains drilling rigs, then Buyer
shall use the drilling rigs at competitive costs for the area to drill the
prospects on the Lands. For federal tax purposes, Buyer and Seller elect to
treat operations under this Agreement as a tax partnership. All leases
acquired under the terms of this Agreement may be acquired by Buyer or Seller
but will be held in the name of Buyer for the benefit of the tax partnership.
All the tax benefits and tax burdens shall be allocated to the cash
contributing or cash receiving party.
(vii) Buyer, as operator, will call Xxxxxx Xxxx Xxxxx at
000-000-0000 day or night, any day of the year, or his designee, whenever a
decision is being made to complete or plug and abandon a well. At that point,
Seller may elect to take over the well if Buyer wants to plug and abandon.
Buyer agrees to use Schlumberger Well Services, a division
of Schlumberger, to provide logging and perforating services for all xxxxx.
The minimum open hole log suite run will be the Array Induction Tool and the
Litho Density Tool/Compensated Neutron Log. Buyer should also run sonic logs
as needed to assist with the integration of seismic data. Cased hole logging
requires the Cement Bond Log run on all completed xxxxx. Either party may
obtain additional logs at its sole cost.
For all new xxxxx drilled, the parties shall use Xxxx
Xxxxxxx of Xxxxxxx Brothers & Associates, Inc. as the wellsite geologist. If
Xxxx Xxxxxxx refuses or is unable to serve as wellsite geologist, then the
parties shall mutually choose another wellsite geologist.
(viii) Additionally, subject to paragraph 2.2(a)(i), Buyer
shall be responsible for and pay leasehold bonus and rentals due from and
after the Effective Time. Not withstanding the foregoing, Buyer is not
obligated to maintain any lease in force and may release, allow to expire or
fail or refuse to pay rental on any leasehold without obligation to Seller,
provided that Buyer shall, at least 45 days prior to the next ensuing rental
date and at least 6 months prior to leasehold expiration, reassign to Seller
all Leases or any part thereof not held by production, unitization or pooling.
(ix) With respect to each interest acquired by Buyer and
subject to this Agreement ("Acquired Interest") Buyer shall execute and
deliver to Seller an assignment of Seller's interest in such Acquired Interest
and record such assignment at the same time Buyer receives the instrument
through which Buyer obtains such Acquired Interest.
(x) All interests assigned between Buyer and Seller shall
have the same interests as received, with no additional burdens, except as
otherwise permitted under the terms of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer the following:
(a) XXXXXX XXXX XXXXX, L.L.C. is a privately-held limited
liability company that is duly organized, validly existing and in good
standing under the laws of the State of Nevada. Colorado and Wyoming are the
only states in which any of the Interests are located and Seller is duly
authorized to transact business as a foreign limited liability company in each
state.
(b) Seller has all requisite power and authority to carry on its
business as presently conducted and to enter into this Agreement and to
perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement
and the transactions contemplated herein have been duly and validly authorized
by Seller.
(d) This Agreement has been duly executed and delivered on
behalf of Seller, and all documents and instruments required hereunder to be
executed and delivered by Seller at or prior to Closing shall have been duly
executed and delivered. This Agreement does, and such documents and
instruments shall, constitute legal, valid and binding obligations of Seller
enforceable in accordance with their terms.
(e) Other than as set forth in Exhibit "C" attached hereto and
made a part hereof, there are no outstanding authorizations for expenditures
("AFEs") in excess of $25,000 each that (i) require the drilling of xxxxx or
other material development operations in order to earn or to continue to hold
all or any portion of the Interests, or (ii) obligate Seller to make payments
of any amounts in connection with drilling of xxxxx or other material capital
expenditures affecting the Interests.
(f) Seller's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its articles of organization, or other
governing documents; (ii) result in the breach of any material term or
condition of, or constitute a default or cause the acceleration of any
material obligation under any agreement or instrument to which it is a party
or by which it is bound; or (iii) violate or conflict with any applicable
judgment, decree, order, permit, law, rule, or regulation.
(g) There are no consents required of any other party required
to consummate the transactions contemplated hereby.
(h) Seller is not party to any forward sales, hedging or other
similar agreement relating to the sale of oil, gas or other minerals from the
Interests and is not otherwise obligated to deliver hydrocarbons produced from
the Interests at some future time without then or thereafter receiving full
payment for the production attributable to Seller's ownership in and to the
Interests by virtue of: (i) a prepayment arrangement under any contract for
the sale of hydrocarbons and containing a "take or pay," or similar
provisions, (ii) a production payment, or (iii) any other arrangement.
(i) Except for those taxes and assessments for which a Purchase
Price adjustment is made under this Agreement, during the period of Seller's
ownership of the Interests, Seller has properly paid all ad valorem, property,
production, severance, excise and similar taxes and assessments based on or
measured by the ownership of property or the production of hydrocarbons or the
receipt of proceeds therefrom on the Interests that have become due and
payable before the Effective Time.
(j) Except for broker's fees incurred in the acquisition of
Leases subject to this Agreement, Seller has incurred no liability, contingent
or otherwise, for broker's or finder's fees or commissions relating to the
transactions contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever.
(k) No suit, action, claim, or other proceeding is pending or,
to the best of Seller's knowledge, threatened before any court, arbitration
panel or governmental agency which relates to the Interests and which might
result in a material loss of Seller's title to any portion of the Interests,
or a material diminution of the value of any of the Interests, or that might
materially hinder or impede the operation of the Leases.
(l) As used in this Agreement, the term, "Existing Documents"
shall mean all of the oil, gas and other mineral leases, assignments or other
instruments or agreements that comprise the Interests, and all contractually
binding arrangements to which the Interests may be subject and which will be
binding on the Interests or Buyer after Closing (including, without
limitation, oil, gas and other mineral leases, overriding royalty assignments,
farm-out and farm-in agreements, option agreements, force pooling orders,
assignments of production payments, partnership agreements, unit agreements,
unit operating agreements, joint operating agreements, balancing agreements,
unit operating agreements, production contracts, processing contracts, gas
sales contracts, marketing and transportation contracts and division orders).
To the best of Seller's knowledge, (i) all material Existing Documents are in
full force and effect and are the valid and legally binding obligations of the
parties thereto and are enforceable in accordance with their respective terms
(subject to the effects of bankruptcy, insolvency, reorganization, moratorium
and similar laws); (ii) the Existing Documents contain terms standard in the
oil and gas industry and shall be made available to Buyer after execution of
this Agreement; (iii) Seller is not in material breach or default with respect
to any of its obligations pursuant to any such Existing Documents; and (iv)
all payments (including, without limitation, royalties, delay rentals, shut-in
royalties and valid calls under unit or operating agreements) due thereunder
have been timely paid and Seller has received no notice of default under any
of the Existing Documents.
(m) To the best of Seller's knowledge, all of the Equipment
Seller requires to operate the Interests has been maintained in a state of
repair so as to be adequate for normal operations.
(n) To the best of Seller's knowledge, all of the Xxxxx that
have been drilled and completed have been so drilled and completed within the
boundaries and limits permitted by contract, pooling or unit agreement, and by
law; and all drilling, completion, and other operations on or affecting the
Leases have been conducted in compliance with all applicable laws, ordinances,
rules, regulations and permits, and judgments, orders and decrees of any court
or governmental body or agency. To the best of Seller's knowledge, no Well is
subject to penalties or allowables as of the date hereof because of any
over-production or any other violation of applicable laws, rules, regulations
or permits or judgments, orders or decrees of any court or governmental body
or agency.
(o) To the best of Seller's knowledge, except as set forth in
this Agreement:
(i) Seller's operations and activities with respect to
the Interests comply in all material respects with all applicable governmental
laws, including, without limitation, health and safety statutes and
regulations and all Environmental Laws, including any provisions requiring
notice to government agencies under Environmental Laws.
(ii) There is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter ("Environmental Proceeding") known to
Seller pending or threatened against Seller or any of the Interests relating
in any way to the Environmental Laws.
(iii) To the best of Seller's knowledge, no person has
released, placed, stored, buried or dumped any Hazardous Substances, Oils,
Pollutants or Contaminants or any other wastes on, beneath, or adjacent to the
Leases operated by Seller, except for inventories of such substances to be
used in the ordinary course of business of Seller (which inventories and
wastes, if any, were and are stored or disposed of in accordance with
applicable laws and regulations).
(iv) To the best of Seller's knowledge, except for the
notice issued to previous owners to clean up the tank battery and discharge
from water disposal pits for the Section 22 Field, Seller has not received any
notice or order from any governmental or other public agency advising it that
Seller is responsible for or potentially responsible for Cleanup or paying for
the cost of Cleanup of any Hazardous Substances, Oils, Pollutants, or
Contaminants or any other waste or substance affecting the Interests. Seller
is not aware of any facts which might reasonably give rise to any such notice
or order. Seller has assumed the obligation to clean up the tank battery and
discharge from water disposal pits for the Section 22 Field, which shall
become an obligation of Buyer at Closing.
(v) The term "Cleanup" shall mean all actions required
to cleanup, remove, treat or remediate Hazardous Substances, Oils, Pollutants
or Contaminants.
(vi) The term "Environmental Laws" shall mean all
Federal, state and local laws, regulations, rules and ordinances relating to
polluting or protection of the environment, including, without limitation,
laws relating to Releases or threatened Releases of Hazardous Substances, Oil,
Pollutants or Contaminants into the indoor or outdoor environment (including,
without limitation, ambient air, surface water, groundwater, land, surface and
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, transport or handling of
Hazardous Substances, Oil, Pollutants or Contaminants, and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Substances, Oils, Pollutants or
Contaminants.
(vii) The term "Hazardous Substances, Oils, Pollutants or
Contaminants" shall mean all substances defined as such in the National Oil
and Hazardous Substances Pollution Contingency Plan, or defined as such by, or
regulated as such under, any Environmental Law.
(viii) The term "Release" or "Releases" means any release,
spill, emission, discharge, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, and surface or subsurface strata) or into or out of any property
in violation of any Environmental Law, including the movement of Hazardous
Substances, Oils, Pollutants or Contaminants through or in the air, soil,
surface water, groundwater or property in violation of any Environmental Law.
THE REPRESENTATIONS CONTAINED IN SUBSECTIONS 3.1 M, N AND O ARE LIMITED TO THE
ACTUAL KNOWLEDGE OF XXXXXX XXXX XXXXX. ALL PERSONAL PROPERTY AND EQUIPMENT
SOLD HEREUNDER SHALL BE CONVEYED "AS IS, WHERE IS" AND WITHOUT WARRANTY OF
MERCHANTABILITY, CONDITION OR FITNESS FOR A PARTICULAR PURPOSE, EITHER EXPRESS
OR IMPLIED. FURTHER, SELLER MAKES NO WARRANTY OR REPRESENTATION AS TO ACTUAL
CONDITIONS OF THE MATTERS DESCRIBED IN SUBSECTIONS 3.1 M, N AND O, OR AS TO
THE ACCURACY OR COMPLETENESS OF THE REPRESENTATIONS CONTAINED IN SUBSECTIONS
3.1 M, N OR O. BUYER SHALL RELY SOLELY UPON ITS OWN INVESTIGATION OF THE
INTERESTS WITH RESPECT TO THESE MATTERS.
(p) Xxxxxx Xxxx Xxxxx is the sole owner of Xxxxxx Xxxx Xxxxx,
L.L.C. and is an "Accredited Investor" as that term is defined in Rule 501(a)
of Regulation D promulgated under the Securities Act of 1933, as amended.
Xxxxxx Xxxx Xxxxx is an experienced and knowledgeable investor in the equity
securities of oil and gas companies and is familiar with the risks and
uncertainties involved. An investment in the Buyer's Common stock is a
suitable investment for Xxxxxx Xxxx Xxxxx. Xxxxxx Xxxx Xxxxx has received
copies of, has reviewed and understands Buyer's Annual Report on Form 10-K for
its fiscal year ended June 30, 2002, Buyer's proxy materials for its annual
meeting of shareholders held on December 17, 2002, Buyer's Quarterly Reports
on Form 10-Q for its quarters ended September 30, 2002, December 31, 2002 and
March 31, 2003, Buyer's Current Report on Form 8-K dated May 12, 2003 and such
other information as Xxxxxx Xxxx Xxxxx has deemed to be necessary to make an
informed investment decision with respect to its investment in the Buyer's
Common Stock. Xxxxxx Xxxx Xxxxx is acquiring the Stock Payment for his own
account and not with a view to, or for offer of resale in connection with, a
distribution thereof, within the meaning of the Securities Act of 1933, as
amended, or any other rules, regulations, or laws pertaining to the
distribution of securities.
3.2 Representations and Warranties of Buyer. Buyer represents and
warrants to Seller the following:
(a) Buyer is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Colorado. Buyer is or will be
prior to Closing duly qualified to conduct business in the State of Wyoming.
(b) Buyer has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement, and to purchase
the Interests on the terms described in this Agreement and perform its other
obligations under this Agreement.
(c) The execution, delivery and performance of this Agreement
and the transactions contemplated hereby have been duly and validly
authorized.
(d) This Agreement has been duly executed and delivered by or on
behalf of Buyer; all documents and instruments required hereunder to be
executed and delivered by Buyer at or prior to Closing shall have been duly
executed and delivered; and this Agreement does, and such documents and
instruments shall, constitute legal, valid and binding obligations of Buyer
enforceable in accordance with their terms.
(e) All shares of the Common Stock of Buyer issued to Seller
pursuant to this Agreement shall be duly authorized and when issued shall be
fully paid, non-assessable shares of the Common Stock of Buyer and shall carry
all of the same rights and privileges as all other issues of the Common Stock
of Buyer, provided, however that the Parties acknowledge that such shares will
not be registered stock until such shares are registered pursuant to Section
9.5.
(f) Buyer has incurred no liability, contingent or otherwise,
for broker's or finder's fees or commissions relating to the transactions
contemplated by this Agreement for which Seller shall has any responsibility
whatsoever.
(g) Prior to Closing, Buyer will have inspected the Interests,
the public records and Seller's files for all purposes, including, but not
limited to, detecting the presence and concentration of naturally-occurring
radioactive materials and satisfying itself as to the physical condition and
environmental condition of the Interests, both surface and subsurface. In
entering into this Agreement, Buyer has relied solely on its independent
investigation of, and judgment with respect to, the Interests and the advice
of its own legal, tax, economic, environmental, engineering, geological and
geophysical advisors, and not on any comments or statements of any
representatives of, or consultants or advisors engaged by Seller.
(h) At Closing, Buyer will meet the bonding and other
requirements required by all governmental authorities with respect to the
Interests (and Seller agrees to provide Buyer, prior to Closing, with a list
of such requirements) and, after Closing, Buyer anticipates that it will
continue to meet such bonding requirements. Buyer is, and after the Closing
will be qualified to own the Interests. The consummation of the transactions
contemplated hereby will not cause Buyer to be disqualified to be an owner of
oil, gas, and mineral leases or to exceed any acreage limitation imposed by
law, statute, rule or regulation. Buyer is not aware of any fact that could
reasonably be expected to cause the appropriate governmental authorities to
fail to unconditionally approve the assignment of the Interests to Buyer.
(i) Buyer is an experienced and knowledgeable investor and
operator in the oil and gas business. Buyer is acquiring the Interests for
its own account and not with a view to, or for offer of resale in connection
with, a distribution thereof, within the meaning of the Securities Act of
1933, as amended, or any other rules, regulations, or laws pertaining to the
distribution of securities.
(j) Buyer has arranged or will have arranged to have available by
the Closing Date sufficient funds to enable the payment to Seller, by wire
transfer, of the Adjusted Purchase Price in accordance with Section 2.3 and to
otherwise perform Buyer's obligations under this Agreement.
(k) Buyer's inspection of the Property shall be coordinated with
Seller to avoid disclosure of this Agreement to third parties. Buyer shall
contact Seller prior to any onsite inspections and comply with any reasonable
requests by Seller to avoid disclosing any evidence of the proposed
transaction to any third party.
ARTICLE 4
CERTAIN AGREEMENTS OF SELLER
4.1 Agreements Between Execution of Agreement and Closing. During
the period between the execution of this Agreement and the Closing Date,
Seller shall not, without the prior written consent of Buyer, (i) sell,
convey, assign, transfer or encumber any of the Interests; (ii) sell oil, gas
or other minerals from the Interests except sales made in the ordinary course
of business; (iii) enter into any forward sales, hedging or similar agreements
relating to the sale of oil, gas or other minerals from the Interests; (iv)
enter into any agreement amending, modifying or terminating any of the Leases;
or (v) take any other action with respect to any of the Interests that would
cause a material diminution in the value thereof or that would materially and
adversely affect the use and enjoyment thereof. In the event Seller desires
to make any expenditure exceeding $25,000.00, net to Seller's interest, except
for obligations under existing contracts, expenditures necessary to maintain
the Interests, or in the event of any emergency as to which Seller has
notified Buyer, then Buyer shall not be obligated to reimburse such
expenditures and will not benefit from such expenditures unless it consents
thereto.
4.2 Access to Records. Following the execution of this Agreement by
the Parties, Seller shall afford to Buyer and its authorized representatives,
during normal business hours, reasonable access to well and land files, title,
contract and legal materials and operating data and information in Seller's
possession or to which it has access affecting the Interests.
4.3 Notification of Additional Proceedings. Seller shall promptly
notify Buyer of any new suits, actions, claims or other proceedings threatened
or pending before, or required to be filed with, any court, arbitrator or
governmental agency which relate to the Interests.
4.4 Consents. Seller shall use its best efforts to obtain any
consents necessary to transfer the Interests to Buyer.
4.5 Trading in Buyer's Stock. Neither Seller nor its affiliates,
insiders, agents and brokers shall be permitted to buy or sell shares,
options, etc., in the common stock of Buyer until after Closing.
ARTICLE 5
CERTAIN AGREEMENTS OF BUYER
5.1 Cooperation. Buyer shall cooperate with Seller to assist Seller
in carrying out the agreements of Seller hereunder.
5.2 Change of Operations. Buyer will diligently pursue the filing
and other requirements to assume operations, where applicable, and ownership
of the Interests, including without limitation, well testing, bonding and
other requirements from all governmental authorities with respect to the
Interests such that Seller can withdraw as operator of the Interests, where
applicable, as soon as possible after Closing.
5.3 Bank and NASDAQ Approvals. Buyer shall use its best efforts to
obtain the written consent of the Bank of its senior lending banks, Bank of
Oklahoma, N.A. and Local Oklahoma Bank to consummate the transactions
contemplated by this Agreement, and after closing, use its best efforts to
obtain approval from NASDAQ of its listing application for the Initial Stock
Payment and the Additional Shares to be issued to Seller pursuant to this
Agreement.
ARTICLE 6
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the transactions provided for
herein are subject, at the option of Buyer, to the fulfillment on or prior to
Closing of each of the following conditions:
6.1 Representations. The representations and warranties by Seller
set forth in Section 3.1 above shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, except
as modified with the written consent of Buyer.
6.2 Changes. There shall have been no material adverse change in the
physical condition of the Interests, except depletion through normal
production within authorized allowables and rates of production, depreciation
of equipment through ordinary wear and tear, and other transactions permitted
under this Agreement or approved in writing by Buyer.
5.3 Performance. Seller shall have performed and complied in all
material respects with all agreements and covenants required by this
Agreement.
6.4 No Legal Proceedings. No suit, action or other proceeding shall
be pending or threatened before any court, arbitration panel or governmental
agency seeking to restrain, prohibit or declare illegal, or seeking
substantial damages in connection with the purchase and sale contemplated by
this Agreement, or which might result in a material loss of any portion of the
Interests, a material diminution in the value of any of the Interests, or
materially interfere with the use or enjoyment of the Interests, except (i)
matters that are disclosed in this Agreement or (ii) any suit or proceeding
affecting only a portion of the Interests, which portion could be treated as
subject to a Title Defect in accordance with Article 10.
ARTICLE 7
SELLER'S CONDITIONS TO CLOSING
The obligations of Seller to consummate the transactions provided for
herein are subject, at the option of Seller, to the fulfillment on or prior to
Closing of each of the following conditions:
7.1 Representations. The representations and warranties by Buyer
set forth in Section 3.2 above shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date except as
modified with the written consent of Seller.
7.2 Performance. Buyer shall have timely performed and complied in
all material respects with all agreements and covenants required by this
Agreement.
7.3 No Legal Proceedings. No suit or other proceeding shall be
pending before any court or governmental agency seeking to restrain, prohibit
or declare illegal, or seeking substantial damages in connection with, the
sale contemplated by this Agreement, except (i) matters with respect to which
Seller has been adequately indemnified by Buyer or (ii) any suit or other
proceeding affecting only a portion of the Interests, which portion could be
treated as subject to a Title Defect in accordance with Article 10.
7.4 Bank and NSDAQ Approvals. Prior to the Closing Date Buyer shall
have obtained the written consent of the Bank of its senior lending banks,
Bank of Oklahoma, N.A. and Local Oklahoma Bank to consummate the transactions
contemplated by this Agreement
7.5 Bonds. Where applicable, Buyer shall have furnished evidence
satisfactory to Seller that Buyer has obtained or has capacity to obtain any
requisite plugging bonds and other assurances required by governmental
authorities including, where applicable, qualification to assume operatorship.
ARTICLE 8
CLOSING
8.1 Closing Date. Subject to the conditions stated in this
Agreement, Closing shall occur on the date set forth in Section 1.5 or on such
other date and time as Buyer and Seller may agree (the "Closing Date").
8.2 Place of Closing. The Closing shall be held at the Las Vegas,
Nevada offices of Seller as set forth in Section 15.2; provided, however, the
Parties may agree to close via facsimile or overnight mail.
8.3 Closing Obligations. At the Closing, the following documents
shall be delivered and the following events shall occur, each event being a
condition precedent to the others and each being deemed to have occurred
simultaneously with the others:
(a) Seller shall execute and deliver: (1) an Assignment, Xxxx
of Sale and Conveyance with special warranty of title only, in the form
attached hereto and made a part hereof as Exhibit "F" (the "Assignment") (in
sufficient counterparts to facilitate recording) conveying the Interests,
subject to the Permitted Encumbrances; and (2) such other instruments as may
be required to convey the Interests to Buyer and otherwise effectuate the
transactions contemplated by this Agreement; including, but not limited to,
appropriate change of operator forms.
(b) Seller and Buyer shall execute and deliver the Preliminary
Settlement Statement.
(c) Buyer shall deliver the Money Payment of the Adjusted
Purchase Price by bank wire transfer to the account of Xxxxxx Xxxx Xxxxx,
Account No. 750027054, at the Bank of America, X.X. Xxx 00000, Xxx Xxxxx
Xxxxxx 00000, telephone number (000) 000-0000, Bank Routing Number 000000000,
which transfer shall be initiated no later than 10:00 a.m. Mountain Daylight
Savings Time, the morning it is due, and also shall deliver to Seller the
Stock Payment.
(d) Seller shall deliver on forms supplied by Buyer transfer
orders or letters in lieu thereof, directing the operator or purchaser to make
payment of proceeds attributable to production from the Interests after the
Effective Time to Buyer.
(e) Buyer and Seller shall execute and deliver the Registration
Rights Agreement, as defined in Section 9.5 below.
8.4 Records. In addition to the obligations set forth under Sections
4.2 and 8.3 above, within sixty (60) days after Closing, Seller shall deliver
to Buyer all original well and land files in its possession or to which it has
access. Buyer shall be entitled to all original records affecting the
Interests assigned to Buyer pursuant to the terms of this Agreement. Seller
shall be entitled to keep a copy of such records for its files. Buyer agrees
to preserve and maintain such records for at least five (5) years after the
Closing Date and to provide Seller access to such records during normal
business hours during such period.
ARTICLE 9
POST-CLOSING MATTERS
9.1 Final Settlement Statement.
(a) As soon as practicable after the Closing, but in no event
later than ninety (90) days after Closing, Seller shall prepare and deliver to
Buyer, in accordance with this Agreement and generally accepted accounting
principles, a statement ("Final Settlement Statement") setting forth each
adjustment (other than adjustments for Title Defects) finally determined as of
Closing and showing the calculation of such adjustments. Within thirty (30)
days after receipt of the Final Settlement Statement, Buyer shall deliver to
Seller a written report containing any changes that Buyer proposes be made in
good faith to resolve any questions with respect to the amounts due pursuant
to such Final Settlement Statement no later than one hundred twenty (120) days
after the Closing. The Parties shall employ that degree of effort as would
prudent business persons engaged in ongoing business relationships to reach
agreement as to the amounts due pursuant to such Final Settlement Statement no
later than thirty (30) days after the submission to Seller of proposed changes
to the Final Settlement Statement.
(b) Should the Parties not reach agreement as to the amounts
due pursuant to such Final Settlement Statement, the disputed items shall be
submitted to KPMG, LLP for resolution. The decision of KPMG, LLP shall be
considered final as between the Parties. Cost for KPMG, LLP and resolution of
the dispute will be apportioned between Seller and Buyer in proportion to the
award by KPMG.
(c) The date upon which such agreement or resolution is reached
shall be called the "Settlement Date." On the Settlement Date, should one
party be obligated to the other by reason of the Final Settlement Statement,
the indebted party shall pay to the other party, by bank wire transfer, those
monies determined to be due under the Final Settlement Statement. Until paid,
all past due amounts hereunder shall bear interest from the Settlement Date at
the lesser of prime plus two percent, as established by Bank of Oklahoma,
N.A., in Oklahoma City, Oklahoma (computed based on a 360 day year) or the
maximum lawful rate permitted by applicable law (the "Interest Rate").
9.2 Unpaid Third Party Funds. At such time as Buyer and Seller agree
on a Final Settlement Statement, Seller will transfer to Buyer all funds held
by Seller in suspense for any third party owners of royalty, overriding
royalty, working interests, mineral interests or other similar interests,
attributable to the Interests, except for ad valorem taxes and severance taxes
attributable to production obtained prior to the Effective Time and not yet
paid, and will deliver all records in Seller's possession, including a
schedule of such funds listing the owners thereof, which may be used to
determine proper disbursement. Buyer shall thereafter be responsible for
determining the proper payment of such amounts and shall indemnify and hold
harmless Seller from and against any and all cost, loss or expense of whatever
kind, including attorneys' fees, arising from or in connection with the claim
of any person, up to the amount listed on the schedule provided by Seller with
respect thereto, with respect to the funds transferred to Buyer pursuant to
this Section 9.2.
9.3 Further Assurances. After Closing, Seller and Buyer shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
Exhibit, document, certificate or other instrument delivered pursuant hereto.
9.4 Survival. Except as expressly provided herein, it is intended
that the covenants, representations and warranties of Articles 3, 6, 7, 8, 10
and 11 shall survive until December 31, 2003. Except as expressly provided
herein the covenants, representations and warranties of the other Articles
shall survive Closing.
9.5 Buyer's Stock.
(a) At Buyer's sole expense, Buyer shall file a registration
statement registering all shares of Buyer common stock to be issued to Seller
hereunder within thirty (30) days of Closing under terms more specifically set
out in the Registration Rights Agreement attached here to and made a part
hereof as Exhibit "G" (the "Registration Rights Agreement").
(b) Unless otherwise agreed to in writing by the Parties, with
respect to all Additional Shares, at Buyer's sole expense, Buyer shall file a
registration statement registering all shares of Buyer common stock to be
issued to Seller hereunder within thirty (30) days of issuing Additional
Shares under terms more specifically set out in the Registration Rights
Agreement attached hereto and made a part hereof as Exhibit "G" (the
"Registration Rights Agreement")
9.6 Tax Allocation. The parties agree that the Purchase Price shall
be allocated as set forth on Exhibit "B" for Federal Income Tax purposes.
Each party shall use such allocations in filing Form 8594 (Asset Acquisition
Statement) with the IRS. Seller shall be responsible for paying ad valorem,
severance and other taxes on production attributable to the period of time
prior to the Effective Time. Buyer shall be responsible for paying ad
valorem, severance and other taxes on production attributable to the period of
time after to the Effective Time. Seller shall keep the total amount of all
such taxes in a separate account designated solely for the payment of such
taxes. Upon receipt Buyer shall place the total amount of all such taxes in
Treasury bills to be held in a separate non-hypothecable escrow account
designated solely for the payment of such taxes. Buyer shall provide Seller
with a copy of the escrow agreement and the monthly bank statement of all such
accounts. Buyer and Seller agree to timely pay such taxes. Interest on any
Treasury Bills shall be distributed 50/50 between Buyer and Seller.
9.7 Access to Records. Seller shall provide Buyer and Buyer's agents
and accountants full and complete access to all of Seller's records that are
reasonably necessary or convenient for Buyer to cause an audit of Seller's
operation of the Interests to be conducted to the extent necessary to enable
Buyer to fully comply with its public disclosure obligations under applicable
securities laws and regulations, including, without limitation, Buyer's
disclosure obligations under Section 13(d) of the Securities Exchange Act of
1934 and Regulation S-X promulgated thereunder.
9.8 Take in Kind and Payment of Proceeds. Each party may take its
production in kind. The parties, however, shall use reasonable efforts to
sell production to a single, mutually acceptable purchaser. Oil purchasers
shall send Seller's share of all payments to Seller under this Agreement or
pursuant to the operating agreements covering the Interests directly to Seller
by wire transfer. Gas purchasers shall send Seller's share of all payments to
Seller under this Agreement or pursuant to the operating agreements covering
the Interests shall be sent directly to Seller by Federal Express or wire
transfer. If it becomes impossible to send any payments directly to Seller,
then the operator or other entity receiving payments shall send such payments
to Seller by Federal Express or wire transfer not later than one business day
after receipt of such payments by such operator or other entity.
ARTICLE 10
TITLE MATTERS
10.1 Access to Title and Other Documents.
(a) After the date hereof, Seller will make available to Buyer
and to its representatives (such representatives to include employees,
consultants, independent contractors, attorneys and other advisors of Buyer)
for Buyer's copying and/or inspection (at Buyer's cost and expense), at
Seller's offices during normal business hours the following documents in
Seller's possession or under its control:
(i) All abstracts of title, title opinions, title
curative materials, ownership reports, division orders, bills of sale, other
documents evidencing transfers of title, tax receipts, and licenses and
registrations pertaining to the Interests.
(ii) All of the lease records, lease files, leases,
conveyances and assignments of interest in the Leases; unitization, unit,
pooling and operating agreements; division orders; contracts; transfer orders;
orders of the applicable regulatory authorities or administrative agencies;
mortgages, deeds of trust, security agreements, and financing statements; and
all other contracts, agreements and documents affecting the Interests.
(iii) Instruments and documents concerning proper payment
of all general and special assessments, ad valorem and property taxes, and
production, severance and similar taxes and assessments based on or measured
by the ownership of the Interests, the production of hydrocarbons, or the
receipt of proceeds therefrom for 2002 and years prior for which the
applicable statute of limitations has not expired.
(iv) All geological maps, geophysical surveys, ownership
maps, seismic surveys, logs, core studies, and surveys relating to the
Interests.
(v) All production records; transportation agreements;
contracts for the purchase of gas, oil, casinghead gas, distillate, gas
condensate or other hydrocarbons; processing agreements; all correspondence
relating to the Interests; and data sheets relating to the Interests and to
bonuses, rentals and royalties payable with respect thereto.
(vi) All agreements relating to the purchase, sale,
processing, and transportation of production from the Xxxxx.
(vii) All bonds, leases, permits, easements, licenses,
orders, saltwater disposal agreements, agreements with pumpers and other
agreements in any way relating to the Interests or the operation thereof.
Reliance on such information shall be at the sole risk of the Buyer. Seller
makes no guaranty, warranty or representation express or implied as to the
accuracy or completeness of such data, except as otherwise provided in this
Agreement.
Seller shall authorize Buyer and its representatives to consult with
attorneys, abstract companies and other consultants or independent contractors
of Seller (whether utilized in the past or present) concerning title related
matters. Reliance on such information of such third parties shall be at the
sole risk of the Buyer. Seller makes no guaranty, warranty or representation
express or implied as to the accuracy or completeness of such data.
10.2 Permitted Encumbrances. As used in this Agreement, the term
"Permitted Encumbrances" shall mean the following, provided that the same
shall not operate to reduce the net revenue interest or increase the gross
working interest of a Well beyond that shown on Exhibit "A":
(a) Lessors' royalties, non-participating royalties, overriding
royalties, division orders, reversionary interests, and similar burdens.
(b) Liens for taxes or assessments not yet due or delinquent or,
if delinquent, that are being contested in good faith in the normal course of
business.
(c) All rights to consent by, required notices to, filing with,
or other actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests therein, if the same are
customarily obtained subsequent to such sale or conveyance and neither Seller
nor Buyer has no reason to believe they cannot be obtained.
(d) Such Title Defects as Buyer may have waived in writing.
(e) Rights reserved to or vested in any governmental authority.
(f) Rights of a common owner of any Interest in rights-of-way or
easements currently held by Seller and such common owner as tenants in common
or through common ownership.
(g) Easements, conditions, covenants, restrictions, servitudes,
permits, rights-of-way, surface leases and other rights in the Interests for
the purpose of surface operations, roads, alleys, highways, railways,
pipelines, transmission lines, transportation lines, distribution lines, power
lines, telephone lines, and removal of timber, grazing, logging operations,
canals, ditches, reservoirs and other like purposes, or for the joint or
common use of real estate, rights-of-way, facilities and equipment which do
not materially impair the rights held by Buyer or the use and enjoyment of the
Interests.
(h) Defects, irregularities and deficiencies in title to any
rights-of-way, easements, surface leases or other rights which in the
aggregate do not materially impair the use of such right-of-way, easements,
surface leases or other rights for the purpose of which such rights will be
held by Buyer.
(i) Zoning, planning and environmental laws and ordinances and
municipal regulations.
(j) Vendors, carriers, warehousemen, repairmen, mechanics,
workmen, materialmen, construction or other like liens arising by operation of
law in the ordinary course of business or incident to the construction or
improvement of any property in respect of obligations which are not yet due,
or which are being contested in good faith by appropriate proceedings by or on
behalf of Seller.
(k) Liens created under operating agreements in respect of
obligations that are not yet due or that are being contested in good faith by
appropriate proceedings by or on behalf of Seller.
(l) The terms and provisions of the Existing Documents.
(m) (1) the existing agreement with Xxxxxxxx Energy Management,
Inc. dated effective July 9, 2002, covering interests in the Section 12 Field;
(2) the existing agreement with Vista Energy covering Niobrara rights in
approximately 1200 acres in the Colorado AMI; and (3) the existing agreement
between Contex Energy and S&S Services, Inc., dated January 24, 2003, all of
which agreements are attached as Schedule 10.2(l) of this Agreement.
(n) Conventional rights of reassignment requiring notice to
holders of such rights prior to abandonment of the Leases or Xxxxx.
Preferential rights to purchase and required third party consents to
assignments and similar agreements known or disclosed to Buyer, with respect
to which, prior to closing (i) waivers or consents are obtained from the
appropriate parties, (ii) the appropriate time period for asserting such
rights has expired without an exercise of such rights, or (iii) arrangements
acceptable to Buyer and Seller to allow Buyer to receive substantially the
same economic benefits as if all such waivers and consents to assign have been
obtained are as follows: None.
Calls or preferential rights to purchase production held by parties other
than Seller are as follows: None.
10.3 Good and Defensible Title. For the purposes of this Article 10,
the term "Good and Defensible Title" shall mean, with respect to each of the
Xxxxx or Units described on Exhibit "A," that title of Seller which, subject
to and except for Permitted Encumbrances:
(a) Entitles Seller, throughout the lifetime of the relevant
Well or if the duration of the interest in a Unit, to receive from such Well
or Unit (free and clear of all royalties, overriding royalties,
non-participating royalties, net profits interests, or other burdens on or
measured by production of hydrocarbons) not less than the interest shown as
the net revenue interest on Exhibit "A" in all hydrocarbons produced, saved
and marketed from the Well or Unit and in the case of a Well, of all
hydrocarbons produced, saved, and marketed from any unit of which the Well is
a part and which is allocated to such Well; all without reduction, suspension,
or termination of the interest in such Well or Unit.
(b) Obligates Seller to bear the percentage of the costs and
expenses relating to the maintenance and development of, and operations
relating to, the Well or Unit not greater than the gross working interest
shown on Exhibit "A" without increase throughout the lifetime of the relevant
Well or of the duration of the interest in a Unit.
(c) Is free and clear of liens, encumbrances and defects.
(d) All irregularities of title that would not reasonably be
expected to result in claims that would materially and adversely affect
Seller's title to the underlying Interest shall not be considered a Title
Defect, including but not limited to (i) defects in the chain of title
consisting of failure to recite marital status or the omission of succession
or heirship proceedings; (ii) defects or irregularities arising out of prior
oil and gas leases which, on their face, expired more than three (3) years
prior to the Effective Time, and which have not been released of record; (iii)
defects or irregularities arising out of acknowledgments, questions of
identity, trusts or trustees, executors and personal representatives, and the
manner in which they executed documents or were identified thereon; (iv)
defects or irregularities arising out of mortgages or deeds of trust which, by
their terms, matured more than six (6) years prior to the Effective Time but
which remain unreleased of record; (v) defects or irregularities arising out
of the lack of survey of specific land or lease description; (vi) defects or
irregularities arising out of the lack of recorded powers of attorneys from
corporations, banks, trusts or personal representatives to execute and deliver
documents on their behalf or on behalf of others; and (vii) defects or
irregularities cured by possession under applicable statutes of limitation and
statutes relating to prescription.
10.4 Notice of Title Defect. Except for Permitted Encumbrances, any
defect in title, lien, encumbrance, or defect that would cause Seller's title
to any Interest underlying a Well or Unit described on Exhibit "A" not to be
Good and Defensible Title shall be a title defect ("Title Defect"). Not later
than five (5) days before the Closing Date (the "Warranty Claim Date"), Buyer
must notify Seller in writing of any matter that Buyer considers to be a Title
Defect ("Notice of Title Defect"), which notice shall include (i) a specific
description of the matter Buyer asserts as a Title Defect, (ii) a specific
description of the Well or Unit or the portion of the Interest underlying the
Well or Unit that is affected by the Title Defect, (iii) Buyer's calculation
of the amount ("Title Defect Amount") that the value of the Well or Unit
should be reduced because of the Title Defect based on the Allocated Value
shown on Exhibit "B," and (iv) appropriate supporting documentation.
Notwithstanding anything to the contrary in this Agreement, the Buyer
shall be deemed to have waived any Title Defect which the Buyer has not
specifically asserted in its Notice of Title Defect presented before the
Warranty Claim Date.
10.5 Title Failure. Seller shall have the right but not the
obligation to cure any Title Defect. Any item that Seller acknowledges is a
Title Defect but that Seller is unwilling to cure shall be deemed a title
failure ("Title Failure") unless, in Seller's reasonable judgment, it is
unlikely that material losses, costs, expenses and liabilities will be
experienced with respect to such Title Defect and Seller agrees to indemnify
Buyer with respect thereto.
10.6 Defect Notice; Seller's Opportunity to Cure. To the extent that
Seller disputes that any item described in the Notice of Title Defect actually
constitutes a Title Defect or disputes the Title Defect Amount assigned by
Buyer to any such Title Defect ("Contested Defect"), Seller shall deliver to
Buyer a notice so stating ("Defect Notice"). If Seller fails to cure a Title
Defect within ninety (90) days after Closing, it shall be deemed a Title
Failure.
10.7 Termination Amount. Notwithstanding any provision hereof to the
contrary, in the event the aggregate adjustments for Title Defects pertaining
to the Section 12 Field amount to five percent (5%) or more of that portion of
the Adjusted Purchase Price allocated to the Section 12 Field (the "Section 12
Field Termination Amount"), either Party shall have the option to terminate
this Agreement insofar and only insofar as it applies to the Section 12 Field,
without any liability, upon written notice to the other Party.
Notwithstanding any provision hereof to the contrary, in the event the
aggregate adjustments for Title Defects pertaining to the Property described
in Exhibit A located in the Colorado AMI other than the Section 12 Field,
Section 22 Field and Section 20 Well amount to ten percent (10%) or more of
that portion of the Adjusted Purchase Price allocated to the Colorado AMI (the
"Colorado Termination Amount"), either Party shall have the option to
terminate this Agreement insofar and only insofar as it applies to the
Property located in Colorado, excluding the Section 12 Field, Section 22 Field
and Section 20 Well, without any liability, upon written notice to the other
Party.
Notwithstanding any provision hereof to the contrary, in the event the
aggregate adjustments for Title Defects pertaining to the Property described
in Exhibit A located in the Trailblazer Prospect amount to ten percent (10%)
or more of that portion of the Adjusted Purchase Price allocated to the
Trailblazer AMI (the "Trailblazer Prospect Termination Amount"), either Party
shall have the option to terminate this Agreement insofar and only insofar as
it applies to that portion of the Property located in the Trailblazer
Prospect, without any liability, upon written notice to the other Party
Seller shall reimburse Buyer for all actual costs paid by Buyer pursuant
to subsections 2.2(a)(i) and (ii) if this Agreement terminates because of a
Title Failure pursuant to Section 10.7 and Seller can not cure the title
failure sufficient to bring the value of the Title Defects below the
applicable threshold within forty-five (45) days after Seller receives Buyer's
notice of Title Defects, or such longer period to which Buyer and Seller
agree. If only a portion of this Agreement is terminated, Seller's refund
obligation shall apply only to such terminated portion.
ARTICLE 11
ENVIRONMENTAL
11.1 Inspection; Indemnity. Buyer and its authorized
representatives, at Buyer's sole risk and expense and after notice to Seller
and compliance with the provisions of Section 3.2(l) of this Agreement, shall
have the right to enter upon and inspect the real and personal properties
comprising the Interests, and to conduct such well, environmental and other
tests and assessments as Buyer shall deem appropriate, subject to the approval
of the operator in the case of non-operated properties. Buyer shall repair
any damages to the Interests resulting from its inspection and shall defend
and hold Seller harmless from and against any and all losses, damages, claims,
obligations, liabilities, expenses (including court costs and attorneys' fees)
or causes of action directly resulting from damages caused by Buyer's
inspection of the Interests.
11.2 Environmental Assessment. As part of its inspection of the
Interests, Buyer and its authorized representatives shall have the right to
conduct soil and water tests and borings, and generally to conduct such tests,
examinations, investigations and studies as may be necessary or appropriate in
Buyer's sole judgment to make an environmental assessment of the Interests.
Buyer shall keep any data or information acquired through such examination and
the results of all analyses of such data and information strictly confidential
and shall not disclose the same to any person or agency without the prior
written approval of Seller unless such disclosure is required by law. Buyer
shall take all steps necessary to ensure that Buyer's authorized
representatives comply with the provisions of this Article 11. If Buyer has
discovered in its environmental assessment circumstances which require
remediation, control or other response under environmental laws, rules or
regulations then in effect (an "Environmental Defect"), Buyer shall notify
Seller of such circumstances as soon as practicable, but in no event less than
ten (10) days prior to Closing. No condition or circumstance in the Section
22 field or the Section 20 Well shall be considered an Environmental Defect.
Notwithstanding anything to the contrary in this Agreement, Buyer shall be
deemed to have waived any Environmental Defect Buyer has not specifically
asserted in its notice presented after such deadline.
11.3 Environmental Defects. If Buyer properly notifies Seller of an
Environmental Defect related to an Interest, Buyer may (i) waive the
Environmental Defect and Close, or (ii) request Seller to cure or indemnify
Buyer against any Environmental Defect. If Buyer asks Seller to cure or
indemnify Buyer against an Environmental Defect, and if the aggregate cost to
remediate all Environmental Defects contained in Buyer's notice and not so
cured or indemnified against by Seller exceeds five percent (5%) of the
Adjusted Purchase Price, then Buyer may (a) waive the Environmental Defects
and Close or (b) terminate this Agreement. Seller shall reimburse Buyer for
all actual costs paid by Buyer pursuant to subsections 2.2(a)(i) and (ii) if
this Agreement terminates because of an Environmental Defect pursuant to
Section 11.3 and Seller refuses to substantially cure such Environmental
Defects or indemnify Seller against such Environmental Defects such that the
resulting aggregate costs to Buyer of such Environmental Defects does not
exceed five percent (5%) of the Adjusted Purchase Price.
ARTICLE 12
TERMINATION, DEFAULT AND REMEDIES
12.1 Right of Termination. This Agreement and the transactions
contemplated herein may be terminated in writing at any time at or prior to
Closing by the written agreement of both Parties whereupon neither Party
hereto shall be liable to the other for damages of any kind.
12.2 Termination by Buyer or Seller. Seller, at its option, may
terminate this Agreement and keep all amounts paid by Buyer pursuant to
subsections 2.2(a)(i) and (ii) of this Agreement in the event any of the
conditions set forth in Article 7 have not been satisfied. Buyer, at its
option, may terminate this Agreement and receive a refund of all amounts paid
by Buyer pursuant to subsections 2.2(a)(i) and (ii) of this Agreement in the
event any of the conditions set forth in Article 6 have not been satisfied.
In no event shall any defect, condition, representation, covenant or
warranty pertaining to the Section 20 Well or the Section 22 Field be the
basis for terminating all or part of this Agreement. At or before Closing
Buyer shall elect whether or not to include the Section 20 Well and the
Section 22 Field as part of the Interests. If Buyer elects to include the
Section 20 Well and the Section 22 Field, then those properties shall be
included as part of the Interests. If Buyer elects to exclude the Section 20
Well or the Section 22 Field, then those properties shall be excluded from the
Interests and the Colorado AMI and Buyer shall have not right, title or
interest in them.
12.3 Return of Documentation. Upon termination of this Agreement,
within thirty (30) days Buyer shall return to Seller all title, geological
data, reports, contracts, and maps and other information furnished by Seller
to Buyer and all copies thereof. Plus copies of all findings, data and
reports generated by or for Buyer.
12.4 Survival of Confidentiality. Upon termination of this Agreement
for any reason, the Parties agree that the confidentiality provisions of
Section 15.14 shall survive.
ARTICLE 13
DISPUTE RESOLUTION
13.1 Dispute Resolution. If the Parties disagree as to any matter
under this Agreement, including without limitation any dispute as to the
termination, construction, validity, interpretation, enforceability or breach
of the Agreement, they will first attempt to resolve such disagreement through
a meeting, to be held within ten (10) days of such termination, of senior
executives of each Party.
13.2 Arbitration. If such meeting of senior executives of each Party
fails to resolve the matter within thirty (30) days of the date of such
meeting, then thereafter any such dispute, controversy or claim arising out of
or in relation to or in connection with the Agreement or the operations
carried out under this Agreement shall be exclusively and finally settled by
arbitration in accordance with this Section 13.2. Either Party may submit
such dispute, controversy or claim to arbitration by notice to the other
Party.
(a) The arbitration shall be heard and determined by three (3)
arbitrators. Each side shall appoint an arbitrator of its choice within
thirty (30) Days of the submission of a notice of arbitration. The
Party-appointed arbitrators shall in turn appoint a presiding arbitrator of
the tribunal within thirty (30) days following the appointment of both
Party-appointed arbitrators. If the Party-appointed arbitrators cannot reach
agreement on a presiding arbitrator of the tribunal and/or one Party refuses
to appoint its Party-appointed arbitrator within said thirty (30) day period,
the appointing authority for the implementation of such procedure shall be the
Denver District Court in the City and County of Denver, Colorado, who shall
appoint an independent arbitrator who does not have any financial interest in
the dispute, controversy or claim. If the Denver District Court refuses or
fails to act as the appointing authority within ninety (90) Days after being
requested to do so, then the appointing authority shall be the Presiding Judge
of any other District in the State of Colorado mutually agreed upon by the
Parties who shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. All decisions and
awards by the arbitration tribunal shall be made by majority vote.
(b) Unless otherwise expressly agreed in writing by the Parties
to the arbitration proceedings:
(i) The arbitration proceedings shall be held in Denver,
Colorado;
(ii) The arbitrator(s) shall be and remain at all times
wholly independent and impartial;
(iii) Any procedural issues shall be determined by the
applicable laws of the State of Colorado, other than those laws which would
refer the matter to another jurisdiction;
(iv) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner determined by the
arbitrator(s);
(v) The decision of the sole arbitrator or a majority of
the arbitrators, as the case may be, shall be reduced to writing; final and
binding without the right of appeal; the sole and exclusive remedy regarding
any claims, counterclaims, issues or accountings presented to the arbitrator;
made and promptly paid in U.S. dollars free of any deduction or offset, as
decided by the arbitrators; and any costs or fees incident to enforcing the
award, shall to the maximum extent permitted by law be charged against the
Party resisting such enforcement;
(vi) Consequential, punitive or other similar damages
shall not be allowed except those payable to third parties for which liability
is allocated among the Parties by the arbitral award;
(vii) The award shall include interest from the date of
any breach or violation of this Agreement, as determined by the arbitral
award, and from the date of the award until paid in full, at the Interest
Rate;
(viii) Judgment upon the award may be entered in any court
having jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial acceptance of
the award and an order of enforcement, as the case may be;
(ix) The arbitration shall proceed in the absence of a
Party who, after due notice, fails to answer or appear. An Award shall not be
made solely on the default of a Party, but the arbitrator(s) shall require the
Party who is present to submit such evidence as the arbitrator(s) may
determine is reasonably required to make an award; and
(x) If an arbitrator should die, withdraw or otherwise
become incapable of serving, or refuse to serve, a successor arbitrator shall
be selected and appointed in the same manner as the original arbitrator.
ARTICLE 14
ASSUMPTION OF OBLIGATIONS
14.1 Assumption of Obligations. At Closing, Buyer shall assume (a)
the obligation to (i) plug and abandon or remove and dispose of all Xxxxx
(regardless of whether drilled or existing prior to or after closing and
whether then producing or temporarily or permanently abandoned), flow lines,
pipelines, and the other equipment now or hereafter located on the Interests;
(ii) cap and bury all flow lines and (iii) dispose of other pipelines now or
hereafter located on the Interests, and all other pollutants, wastes,
contaminants, or hazardous, extremely hazardous, or toxic materials,
substances, chemicals or wastes now or hereafter located on the Interests; (b)
all obligations and liabilities arising from or in connection with any oil or
gas production, pipeline, storage, processing or other imbalance attributable
to substances produced from the Interests on or after the Effective Time; and
(c) all other costs, obligations and liabilities that relate to the Interests
and, in each case, arise from or relate to events occurring on or after the
Effective Time. Notwithstanding the foregoing, to the extent Seller backs in
for a reversionary working interest, Seller shall then be obligated for its
proportionate share of such costs, obligations and liabilities. All such
plugging, replugging, abandonment, removal, disposal, and restoration
operations shall be in compliance with applicable laws and regulations and
contracts, and shall be conducted in a good and workmanlike manner.
ARTICLE 15
MISCELLANEOUS
15.1 Fees and Taxes. Except as otherwise specifically provided, all
fees, costs and expenses incurred by Buyer or Seller in negotiating this
Agreement or in consummating the transactions contemplated by this Agreement
shall be paid by the Party incurring the same, including, without limitation,
legal and accounting fees, costs and expenses. All required documentary,
filing and recording fees for the assignments, conveyance or other instruments
required to convey title to the Interests to Buyer shall be borne by Buyer.
In addition, the liability for any sales, use, transfer or similar tax
associated with the sale and/or transfer of the Interests shall be the
liability of, and for the account of, the Buyer and such liability shall not
be subject to proration as provided in Section 2.3.
15.2 Notices. All notices and communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
made when actually delivered, including delivery by courier, facsimile,
telecopy, or other electronic medium, or if mailed by registered or certified
mail, postage prepaid, addressed as follows:
SELLER:
XXXXXX XXXX XXXXX, an unmarried man and XXXXXX XXXX XXXXX, L.L.C.
000 Xxxxxx Xxxxxx
Xxx Xxxxx, Xxxxxx 00000
Attn: Mr. Xxxxxx Xxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-Mail: xxx000@xxxxxxx.xxx
And
000 00xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Mr. Xxxxxx Xxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-Mail: xxxxx@xxxxxx.xxx
With a Copy to:
Law Offices of Xxxxxxx Xxxxxxxx Xxxx & Xxxxxx, P.C.
000 00xx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-Mail: xxxxxxxxx@xxxxxxx.xxx
BUYER:
DELTA PETROLEUM CORPORATION
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx, President and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-Mail: xxxxx@xxxxxxxxxx.xxx
With a Copy To:
Xxxx Xxxxx, P.C.
000 00xx Xxxxxx, Xxxxx 0000, Xxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
E-Mail: xxxxxxxxx@xxxxxxxxx.xxx
Either Party may, by written notice so delivered to the other, change the
address, telephone number, facsimile number or e-mail address to which
delivery shall thereafter be made.
15.3 Amendments. This Agreement may not be amended except by an
instrument in writing signed by Buyer and Seller.
15.4 Preparation of Agreement. Both Seller and Buyer and their
respective counsel participated in the preparation of this Agreement. In the
event of any ambiguity in this Agreement, no presumption shall arise based on
the identity of the draftsman of this Agreement.
15.5 Headings. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not
limit or otherwise affect any of the terms or provisions of this Agreement.
15.6 Counterparts. This Agreement may be executed by Buyer and
Seller in counterparts, each of which shall be deemed an original instrument,
but both of which together shall constitute but one and the same instrument.
15.7 References. References made in this Agreement, including use of
a pronoun, shall be deemed to include, where applicable, masculine, feminine,
singular or plural, individuals or corporations. As used in this Agreement,
"person" shall mean any natural person, corporation, partnership, trust,
estate or other entity.
15.8 Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of Colorado without giving effect to the conflicts of law rules thereof.
Any disputes concerning this Agreement or the subject matter hereof shall be
brought in a court of competent jurisdiction of the State of Colorado.
15.9 Entire Agreement. This Agreement (including the Exhibits
hereto) constitutes the entire understanding between the Parties with respect
to the subject matter hereof, superseding all negotiations, prior discussions
and prior agreements and understandings relating to such subject matter.
15.10 Assignment; Parties in Interest. Neither Party shall assign
interests in this Agreement without the other Party's prior written consent.
Either party may assign its interests in the Lands and no party shall have any
preferential right to purchase Seller's interests. Subject to the foregoing,
this Agreement shall be binding upon, and shall inure to the benefit of, the
Parties and their respective successors and assigns.
15.11 Further Cooperation. After the Closing, Buyer and Seller shall
execute and deliver, or shall caused to be executed and delivered from time to
time, such further instruments of conveyance and transfer and shall take such
other action as any Party may reasonably request to convey and deliver the
Interests to Buyer, to accomplish the orderly transfer of the Interests to
Buyer, or to otherwise effectuate the transactions contemplated by this
Agreement. Seller will cooperate and will assist Buyer relating to the
preparation and presentation of documents relating to changes in ownership
and/or operatorship of the Interests. If either Party hereto receives monies
belonging to the other, such amount shall immediately be paid over to the
proper Party. If an invoice or other evidence of an obligation is received by
a Party, which is partially an obligation of both Seller and Buyer, then the
Parties shall consult with each other and each shall promptly pay its portion
of such obligation to the obligee.
15.12 Press Release. Neither Party shall make any press release or
other announcement in connection with the execution of this Agreement or the
Closing without first consulting with the other Party. Following such
consultation and good faith attempt to make reasonable accommodations, either
Party may make any announcement or press release that it believes is either
required by applicable law or the rules of any stock exchange, or is advisable
in connection with such Party's obligation to provide public disclosure
regarding its activities. This provision shall not apply to any filing with
any governmental body or stock exchange required by law, rule or regulation.
15.13 Subrogation. Buyer shall be subrogated to all rights, actions
and warranties that Seller may have with respect to Seller's
predecessors-in-interest as to the Interests.
15.14 Confidentiality. Seller and Buyer agree that, until Buyer
either (a) issues a press release after Closing, or (b) files an 8K disclosing
this Agreement, they will keep confidential and will not, except with the
other's prior written consent or as required by applicable law, regulation or
legal process, disclose (i) the existence or terms of this Agreement or the
discussions hereunder; or (ii) any information which they obtain about the
other during due diligence investigations and the negotiation of the
transaction, and will not use any of such information for any reason or
purpose other than to evaluate the transaction; provided, however, that each
of Seller and Buyer may reveal such information to its respective accounting,
legal and other representatives, and to Buyer's potential sources of financing
for the transaction, who need to know such information for the purpose of
evaluating the transaction and who agree to keep such information
confidential. In the event either Party is requested pursuant to or required
by applicable law, regulation or legal process to disclose any information
required to be kept confidential hereunder, the Party requested or required to
make such disclosure shall promptly notify the other Party so that such other
Party may seek a protective order or other appropriate remedy. In addition,
if either Seller or Buyer determines not to proceed with the transaction, each
will promptly return to the other all written information in such Party and
such Party's representatives' possession, including without limitation all
internal notes and analyses prepared in connection with the transaction,
provided information was provided in connection with this transaction, or
promptly destroy all such information and confirm such destruction to the
other in writing. Information to be returned shall not include information
concerning Buyer that Seller possesses or shall possess in the future in its
capacity as a shareholder of Buyer. Notwithstanding anything in this
paragraph to the contrary, neither Seller nor Buyer will be required to keep
confidential any information which (a) is available to the public at the time
of its disclosure to the other party or becomes publicly available after such
disclosure other than by a breach of this letter, (b) becomes available to the
party receiving the information on a non-confidential basis from a source
which is not under any obligation to maintain its confidential basis or (c) is
known by the party receiving the information prior to its disclosure and such
knowledge can be demonstrated by written evidence.
15.15 Third Parties. Except as otherwise provided in this Agreement,
no term or provision of this Agreement is intended to be or shall be for the
benefit of any person or entity not a party hereto, and no such other person
or entity shall have any right or cause of action hereunder.
15.16 Exhibits. All Exhibits to this Agreement are incorporated in
this Agreement as if fully set forth.
15.17 Counterparts and Facsimile. This Agreement may be executed in
counterparts, each of which shall be binding upon the party executing it when
executed by said party. Receipt of a signed copy by facsimile shall
constitute notice of acceptance of the terms of this Contract by the party who
signed the facsimile copy.
EXECUTED in duplicate as of the date first above stated, but made
effective as of the Effective Time.
SELLER:
XXXXXX XXXX XXXXX, L.L.C.
/s/ Xxxxxx Xxxx Xxxxx
---------------------------------------
By: Xxxxxx Xxxx Xxxxx, Manager
and
XXXXXX XXXX XXXXX, an unmarried man
/s/ Xxxxxx Xxxx Xxxxx
---------------------------------------
BUYER:
DELTA PETROLEUM CORPORATION
/s/ Xxxxx X. Xxxxxx
---------------------------------------
By: Xxxxx X. Xxxxxx
President and Chief Executive Officer
LIST OF EXHIBITS
EXHIBIT A
INTERESTS
EXHIBIT B
PURCHASE PRICE ALLOCATION FOR FEDERAL INCOME TAX PURPOSES
EXHIBIT C
LIST OF PENDING COSTS
EXHIBIT D
EQUIPMENT
EXHIBIT E
OPERATING AGREEMENTS
EXHIBIT F
FORM OF ASSIGNMENT, XXXX OF SALE AND CONVEYANCE
EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT H
FORM OF OIL AND GAS LEASE
Schedule 2.5(a) (Seismic agreement)
Schedule 2.5(b) (Kachina Energy agreement)
Schedule 10.2(l) (Xxxxxxxx, Vista and S&S agreements)
