PURCHASE AND SALE AGREEMENT
This
Purchase and Sale Agreement (“Agreement”)
is made
and entered into this 19th
day of
June, 2007, by and between Plymouth Resource Group II, Inc., a Louisiana
corporation, (“Seller”),
and
Affiliated Holdings, Inc., a Texas corporation (“Purchaser”)
(sometimes herein Seller and Purchaser are collectively called the “Parties”
and,
individually, called a “Party”).
RECITALS
Seller
desires to sell to Purchaser, and Purchaser desires to purchase from Seller,
certain oil and gas properties and related assets on the terms and conditions
set forth in this Agreement.
NOW,
THEREFORE, for and in consideration of the premises and of the mutual covenants
and agreements contained herein, Seller and Purchaser hereby agree as
follows:
ARTICLE
1
PURCHASE
AND SALE
1.1 Purchase
and Sale of Assets.
On
the
Closing Date, but effective as of 7 a.m. Central Standard Time on the
1st
day of
June, 2007 (the Effective
Time”),
subject to the terms and conditions of this Agreement, Seller agrees to sell
and
convey to Purchaser, and Purchaser agrees to purchase and pay for, the following
assets:
(a) (1)
100%
of the oil, gas and mineral lease described on Exhibit
A-1
as the
“North
American Land Company Lease”;
and
(2) an undivided 50% expense-bearing interest and 50% of a 75% net revenue
interest in and to the oil, gas and mineral leases and other mineral rights
and
interests described in Exhibit
A-l,
together with all of Seller’s rights in respect of any pooled, communitized or
unitized acreage of which any such interest described in this Section 1.1(a)(1)
and (2) is a part (collectively, the “Leasehold
Interests”);
(b) All
of
Seller’s right, title, and interest in and to all of the immovable, movable and
mixed property of Seller, or in which Seller owns an interest, that is
attributable or allocable to the Leasehold Interests and used or held for use
in
connection with the exploration, development, operation or maintenance of any
of
the Leasehold Interests or the production, treatment, measurement, storage,
gathering, transportation or marketing of oil, gas or other hydrocarbons
attributable to the Leasehold Interests (or the interests of others therein),
including, without limitation: (i) all xxxxx, platforms, equipment and
facilities that, as of the Effective Time were used or held for use in
connection with the exploration, development, operation or maintenance of any
Leasehold Interests or the production, treatment, measurement, storage,
gathering, transportation or marketing of oil, gas or other hydrocarbons
attributable to the Leasehold Interests, including, without limitation, the
xxxxx described in Exhibit
A-2,
any
other xxxxx (including saltwater disposal xxxxx), well equipment, casing, tanks,
gas separation and field processing units, portable and permanent well test
equipment, buildings, tubing, pumps, motors, fixtures, machinery, materials,
supplies, inventory, telephone and communication equipment, computing equipment
and other equipment, pipelines, gathering systems, power lines, telephone and
telegraph lines, roads, vehicles, gas processing plants and other property
used
in the operation thereof: (ii) all oil and gas and other hydrocarbon volumes
produced on or after the Effective Time; and (iii) all other rights, privileges,
benefits, powers, tenements, hereditaments and appurtenances conferred upon
Seller or the owner and holder of the Leasehold Interests, including, without
limitation, all rights, privileges, benefits and powers of Seller with respect
to the use and occupation of the surface of, and subsurface depths under, the
land covered by each Leasehold Interest, which may be necessary, convenient
or
incidental to the possession and enjoyment of such Leasehold Interest (SAVE
AND
EXCEPT Seller’s undivided interest in the Empire No. 5/5-D well, as such
reserved interest is more fully described in Section 9.15 of this Agreement)
(collectively, the “Related
Property”);
(c) All
of
Seller’s right, title, and interest in and to all original files, records, data,
information and documentation of Seller (or if originals are not available,
copies of such items) pertaining to or evidencing Seller’s use, ownership or
operation of any of the assets, or the maintenance or operation thereof, or
to
any units in which any of the Leasehold Interests may be included or to the
producing, treating, measuring, processing, storing, gathering, transporting
or
marketing of oil and gas attributable to the Leasehold Interests or such units
and water, brine or other minerals and products produced in association
therewith, including, without limitation, lease files, land files, well files,
production sales agreement files, division order files, title opinions and
abstracts, legal records (excluding any records or information the disclosure
of
which would result in the waiver of an attorney-client privilege), tax records,
financial and accounting records, governmental, tribal and regulatory filings
and permits, environmental records, and, except to the extent the transfer
thereof may not be made without violating applicable contractual restrictions,
geological and geophysical data, seismic records, production reports, maps,
and
computer software (collectively, the “Records”);
and
(e) All
rights of Seller in and to those instruments and agreements listed on
Exhibits
A-l and B
hereto,
the other instruments and agreements under which Seller’s interests in the
Leasehold Interests arise, and all other agreements and contractual rights,
easements, rights-of-way, servitudes, and other rights, privileges, and benefits
to the extent relating to any asset described in clauses (a) through (d) above,
including, without limitation, all rights of Seller in, to and under or derived
from all production sales contracts, operating agreements, pooling, unitization
or communitization agreements, purchase, exchange or processing agreements,
production handling agreements, surface leases, easements or rights-of-way,
farmout or farmin agreements, dry hole or bottom hole contribution agreements,
seismic agreements, permits, licenses, options, orders and all other contracts,
agreements and instruments relating to the exploration for, or the development,
production, storage, gathering, treatment, transportation, processing, or sale
or disposal of oil, gas, other hydrocarbons, other minerals, water, brine or
other substances from any Leasehold Interest or any units of which they are
a
part (collectively, the “Rights”).
The
Leasehold Interests, the Related Property, the Records, and the Rights are
herein collectively called the “Assets.”
ARTICLE
2
PURCHASE
PRICE
2.1 Purchase
Price; Method of Payment.
(a) The
purchase price for the Assets shall be EIGHT HUNDRED THOUSAND AND NO/100
DOLLARS ($800,000) (the “Purchase
Price”),
to
which amount shall be applied a deposit that has been paid by Purchaser to
Seller, the receipt of such deposit and full acquittance therefor are hereby
acknowledged by Seller, in the amount of SEVEN THOUSAND FIVE HUNDRED AND NO/100
DOLLARS ($7,500), with the balance of the Purchase Price in the amount of SEVEN
HUNDRED NINETY TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($792,500) to be
paid in cash at Closing.
(b) All
amounts required under this Article 2 to be paid by any Party hereto to another
Party hereto shall be made by wire transfer of immediately available funds
to an
account designated by the payee thereof, which designation shall be made not
later than two Business Days prior to the date such payment is due.
2.2 Allocation
of Purchase Price.
Seller
and Purchaser agree to the following allocation of the Purchase Price among
the
Assets sold hereunder for federal and state income tax purposes
only:
Interests
relating to leasehold other than tangible
equipment
and facilities and other assets (Leasehold) $784,650
Interests
relating to tangible equipment
and
facilities (Tangibles) $
15,350
Interests
relating to all other assets $
0
Total
Purchase Price $800,000
The
Parties agree not to take a federal or state income tax reporting position
inconsistent with such allocation.
ARTICLE
3
TITLE
MATTERS
3.1 Access
to Assets and Seller’s Employees.
Prior
to the Closing Date, Seller shall grant Purchaser such access to the Assets
(including all Records) and the employees of Seller as is necessary to permit
Purchaser to conduct a thorough due diligence investigation of the Assets and
the operation thereof. The Records shall be made available at their present
location. Such access to the Assets shall include, without limitation, the
right
to conduct a Phase I Environmental Assessment and any additional environmental
assessments which Purchaser subsequently deems necessary on the basis of
environmental liabilities identified in such Phase I Environmental
Assessment.
3.2 Definition
of Marketable Title.
As used
herein, the term “Marketable
Title” shall
mean, in the case of the Leasehold Interests listed on Exhibit
A-1,
such
right, title and interest that, except for Permitted Encumbrances:
(a) entitles
Seller to receive, from its record title ownership in such Leasehold Interests,
not less than the interest set forth in Exhibit
A-2
as the
“Net Revenue Interest” or “NRI” with respect to all of the oil, gas, and
hydrocarbon minerals produced, saved and marketed from each unit or well, as
the
case may be, identified on Exhibit
A-2,
without
reduction, suspension or termination throughout the productive life of such
Leasehold Interests, except as expressly noted on Exhibit
A-2;
(b) obligates
Seller to bear no more than the percentage set forth in Exhibit
A-2
as the
“Working Interest” or “WI” with respect to all of the costs and expenses
relating to the operations on and the maintenance and development of each unit
or well, as the case may be, identified on Exhibit
A-2,
without
increase throughout the productive life of such Leasehold Interests, except
as
expressly noted on Exhibit
A-2;
and
(c) is
free
and clear of all liens, mortgages, pledges, claims, charges, options, calls
on
production, preferential purchase rights, requirements for consent to assignment
which would apply to the transactions contemplated hereby and other encumbrances
and title defects.
3.3 Definition
of Permitted Encumbrances.
As
used
herein, the term “Permitted
Encumbrances” shall
mean:
(a) lessors’
royalties, overriding royalties, reversionary interests and similar burdens
(including calls on production or the right of a lessor to take production
in
kind) affecting a Leasehold Interest if the net cumulative effect of such
burdens does not operate to reduce the interest of Seller with respect to all
oil and gas produced from any units or xxxxx below the “Net Revenue Interest” or
“NRI” set forth in Exhibit
A-2
for such
units or xxxxx;
(b) division
orders and sales contracts terminable without penalty upon no more than 30
days’
notice to the purchaser of production;
(c) preferential
rights to purchase and required consents to assignments and similar agreements
with respect to which waivers or consents are obtained from the appropriate
parties or the appropriate time period for asserting the rights has expired
without an exercise of such rights;
(d) materialman’s,
mechanic’s, repairman’s, employee’s, contractor’s, operator’s, tax, and other
similar liens or charges arising in the ordinary course of business for
obligations that are not yet due; and
(e) easements,
rights-of-way, servitudes, permits, surface leases and other rights of third
parties in respect of surface operations, to the extent same do not have a
material adverse affect on any of the Assets and/or the use and enjoyment
thereof.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES OF SELLER
For
the
purpose of this Agreement, “Knowledge”
means
the actual current awareness by Xxxxxxxx X. X’Xxxxxxx (as to Seller’s knowledge)
of the fact in question at the time in question, and
shall
not
include any imputed, implied or constructive knowledge and awareness. Knowledge
shall be deemed to exist only if there is documentary evidence that the
foregoing definition has been satisfied beyond a reasonable doubt.
Seller
represents and warrants to Purchaser that:
4.1 Existence.
Seller
is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Louisiana and is duly qualified to carry on its business
in
the State of Louisiana.
4.2 Power.
Seller
has the corporate power and authority to enter into this Agreement and perform
this Agreement and the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by Seller, and the consummation of the
transactions contemplated hereby, will not: (a) violate or conflict with
any provision of the articles of incorporation, other organizational documents,
or bylaws of Seller; (b) violate or conflict with any material agreement or
instrument to which Seller is a party or by which Seller or any of the Leasehold
Interests are bound; (c) violate or conflict with any judgment, order, ruling,
or decree applicable to Seller as a party in interest; (d) violate or conflict
with any law, rule or regulation applicable to Seller; or (e) result in the
creation or imposition of any lien, charge or other encumbrance upon the
Assets.
4.3 Authorization.
The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Seller. This Agreement has been duly executed
and delivered on behalf of Seller, and at Closing all documents and instruments
required hereunder to be executed and delivered by Seller 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
against Seller in accordance with their terms, subject, however, to the effect
of bankruptcy, insolvency, reorganization, moratorium and similar laws from
time
to time in effect relating to the rights and remedies of creditors, as well
as
to general principles of equity (regardless of whether such enforceability
is
considered in a proceeding in equity or at law) and the power of a court to
deny
enforcement of remedies generally based upon public policy.
4.4 Brokers.
Seller
has incurred no obligation or liability, contingent or otherwise, for brokers’
or finders’ fees in respect of the matters provided for in this Agreement that
will be the responsibility of Purchaser; and any such obligation or liability
that might exist shall be the sole obligation of Seller.
4.5 Foreign
Person.
Seller
is
not a “foreign person” within the meaning of the Internal Revenue Code of 1986,
as amended, (hereinafter called the “Code”),
Section
1445 and 7701 (i.e., Seller is not a nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms are defined
in the Code and any regulations promulgated thereunder).
4.6 Litigation.
To
the
best of Seller’s Knowledge, except as set forth in Exhibit
4.6:
(a) there
is
no suit, action, investigation, or other proceeding pending or threatened
against Seller or otherwise involving the Assets (except for suits, actions,
investigations or proceeding relating to the oil and gas industry generally
to
which Seller is not a named party), that could reasonably be expected to
adversely affect any of the Assets, including, without limitation, Seller’s
title thereto, the value thereof, operations thereon, or the marketing of
production therefrom;
(b) there
is
no suit, action, investigation, or other proceeding pending or threatened
against Seller that could reasonably be expected to adversely affect the ability
of Seller to perform its obligations under this Agreement or that could
reasonably be expected to prevent, delay or hinder the consummation of the
transactions contemplated hereby; and
(c) Seller
has not received any notice that it has been charged with any violation of,
or
threatened with a charge of a violation of, any Legal Requirement (as defined
below), which violation might reasonably be expected to adversely affect any
of
the Assets, and to the knowledge of Seller, no third party has been charged
with
any violation of any Legal Requirement which violation might reasonably be
expected to adversely affect the Assets.
As
used
in this Agreement, “Legal
Requirement” shall
mean any law, statute, ordinance, decree, requirement, order, judgment, rule
or
regulation of, including the terms of any license, permit or authorization
issued by, any federal, state, local or tribal authority, agency, or regulatory
authority with jurisdiction over the Assets or the Parties.
4.7 Basic
Documents.
To the
best of Seller’s Knowledge, the documents and instruments creating or giving
rise to the Leasehold Interests and all agreements, contracts, easements,
rights-of-way and other surface use rights, and all governmental and tribal
licenses, permits, approvals and other authorizations necessary to own, maintain
and operate the Assets in compliance with applicable laws and in the manner
in
which they have historically been owned, maintained and operated (all such
documents and instruments being herein referred to as the “Basic
Documents”), are
in
full force and effect and no breach or default exists thereunder. Except as
set
forth on Exhibit
4.7,
the
Basic Documents: (a) do not subject all or any portion of the Assets to any
tax
partnership or to any obligation requiring a partnership income tax return
to be
filed under the application of Subchapter K of Chapter 1 of Subtitle A of the
Code, or any similar state statute, and Seller has complied with all conditions
necessary to maintain a valid election to be excluded from said Subchapter
K:
and (b) if assumed by Purchaser at Closing, would not subject Purchaser to
any
area of mutual interest, non-competition or similar provision restricting
Purchaser from independently conducting operations in any geographic area.
Except as set forth in Exhibit
4.7,
neither
Seller nor, to the best of Seller’s knowledge, any other party to the Basic
Documents: (i) is in breach or default, or with the lapse of time or the giving
of notice, or both, would be in breach or default, with respect to any of its
obligations thereunder; or (ii) has given or threatened to give notice of any
default under, has made or threatened inquiry into any possible default under,
or begun or threatened action to alter, terminate, rescind or procure a judicial
reformation of, any Basic Document or any provision thereof. There are no
amounts claimed to be due to Seller in respect of the Assets that are being
held
in suspense because of a dispute as to title to such Assets or for any other
reason, and Seller is currently being paid its Net Revenue Interest specified
on
Exhibit
A-2
for each
unit or well listed thereon without indemnity or guarantee other than those
customarily found in division orders and other similar agreements and
documents.
4.8 Compliance
with Laws.
To
the
best of Seller’s Knowledge, except as set forth in Exhibit
4.8,
all
operations (including, without limitation, the exploration and development
of
all leases, the drilling, completion and production of all xxxxx thereon, and
the marketing of all production therefrom) relating to the Leasehold Interests
have been conducted in compliance with, and all items of tangible personal
property and fixtures constituting part of the Assets conform with, all Legal
Requirements, including, but not limited to the following (herein called
“Environmental
Laws”):
any
and all laws, statutes, ordinances, rules, regulations, orders or determinations
of any tribal authority or other governmental authority pertaining to health
or
the environment, including, without limitation, the Clean Air Act, as amended,
the Comprehensive Environmental, Response, Compensation, and Liability Act
of
1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Hazardous & Solid Waste Amendments Act of 1984, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, any state laws pertaining to the
handling of oil and gas exploration or production wasted or the use, maintenance
and closure of pits and impoundments, and other environmental conservation
or
protection laws. For purposes of this Agreement, the terms “hazardous substance”
and “release” (or “threatened release”) have the meanings specified in CERCLA,
and the terms “solid waste” and “disposal” (or “disposed”) have the meanings
specified in RCRA; provided, however, that: (i) to the extent the laws of the
jurisdiction wherein the Assets are located establish a meaning for “hazardous
substance,” “release,” “solid waste” or “disposal” that is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply; and (ii)
the terms “hazardous substance” and “solid waste” shall include all oil and gas
exploration and production wastes that may present an endangerment to public
health or welfare or the environment, even if such wastes are specifically
exempt from classification as hazardous substances or solid wastes pursuant
to
CERCLA or RCRA or the state analogues to those statutes. For purposes of this
Agreement, the term “governmental
authority”
includes
the United States, the state, county, parish, city, tribal and political
subdivisions in which the Assets are located or which exercises jurisdiction
over any of the Assets, and any agency, department, commission, board, bureau
or
instrumentality, or any of them, that exercises jurisdiction over any of the
Assets. The Parties acknowledge that the representations and warranties
contained in this Section 4.8 are subject to and limited by the provisions
of
Section 9.1.1
of
this Agreement.
4.9 Governmental
Licenses.
To the
best of Seller’s Knowledge, except as set forth in Exhibit
4.9,
Seller
has obtained all governmental and tribal permits, licenses and other
authorizations required by any governmental authority to own and operate the
Assets; all such authorizations are in full force and effect; and no violations
exist thereunder. No proceeding is pending or threatened relating to the
challenging, revocation or limitation of any such license or
authorization.
4.10 Lease
Obligations.
To the
best of Seller’s Knowledge, except as set forth in Exhibit
4.10:
(a)
with respect to the oil, gas and other mineral leases included on Exhibit
A-1,
there
are no royalty provisions (other than those allowing a lessor the right to
take
in kind and other than royalties due to governmental entities) requiring the
payment of royalty on any basis other than proceeds actually received by the
lessee; (b) there are no Leasehold Interests which are subject to a fixed term
of duration; and (c) there are no unfulfilled drilling obligations affecting
the
Leasehold Interests, other than provisions requiring optional drilling as a
condition of maintaining or earning all or a portion of a lease, and all
royalties, rentals and other payments due in respect of the Leasehold Interests
have been timely paid and all other conditions necessary to keep such properties
and interests in full force and effect during their primary term, and thereafter
if commercial production has been established thereon or on lands unitized
or
pooled therewith, have been fully performed.
4.11 Obligations
Relating to Operations.
With
respect to operations relating to the Assets, except as set forth on
Exhibit
4.11:
(a)
there are no gas production, processing, sales, transportation or other
imbalances as of the Effective Time between Seller and any third party; (b)
there are no material non-consent operations with respect to any Leasehold
Interest which have resulted or will result in a temporary or permanent increase
or decrease in Seller’s interest in such Leasehold Interest from that set forth
on Exhibit
A-2
for the
applicable unit or well; (c) there are no binding commitments with respect
to
the Assets that will result in Purchaser incurring after the Closing Date
capital expenditures with respect to any one unit or well in excess of $5,000,
or $25,000 with respect to the Assets in the aggregate.
4.12 Operations
Since the Effective Time.
Except
as set forth in Exhibit
4.12,
since
the Effective Time:
(a) Seller
has caused the Assets to be developed, maintained and operated in a good and
prudent manner and in substantially the same manner as the Assets were
developed, maintained and operated prior to the Effective Time;
(b) Seller
has not sold, assigned, transferred, farmed out, conveyed or otherwise disposed
of any of the Assets, except for the sale of hydrocarbons in the ordinary course
of business;
(c) Seller
has not, to the extent related to the Assets, made any major change in the
character of its business or operations or otherwise conducted its business
and
operations other than in accordance with standard industry
practices;
(d) Seller
has not permitted any leases or material rights with respect to the Assets
to
expire, or waived any material rights with respect to the Assets;
(e) Seller
has not entered into any agreement or made any commitment (other than this
Agreement) to take any of the actions referred to in clauses (a) through (d)
above; and
(f) there
have been no fires, blow-outs or other casualties (above or below the surface
of
the ground) which affected any of the Assets.
4.13 Marketing
of Production; Suspended Funds.
(a)
Except as set forth in Exhibit 4.13:
(i)
Seller has not received, as of the Effective Time, any advance, “take-or-pay,”
or other similar payments under production sales contracts that entitle the
purchasers to “make-up” or otherwise receive deliveries of hydrocarbons at any
time after the Effective Time without paying at such time the full market price
therefor, nor has Seller received any payments with respect to, or in lieu
of or
in satisfaction for any take-or-pay obligations of purchasers of Seller’s
hydrocarbons deliverable under any contracts covering any of the Leasehold
Interests on or after the Effective Time;
(ii)
Seller has not received prior to the Effective Time payments for production
which are currently subject to refund;
(iii)
none of the Leasehold Interests are subject to any: (A) dedication under
production sales contracts with terms in excess of 31 days; (B) production
gathering agreements not terminable without cause on 30 days advance written
notice; or (C) calls on, or preferential rights to purchase, hydrocarbons
produced therefrom.
(b) Exhibit
4.13
sets
forth a list of all funds held in suspense by Seller on the date hereof that
are
attributable to the Leasehold Interests, a description of the source of such
funds and the reason they are being held in suspense, the agreement or
agreements under which such funds are being held and the name or names of the
parties claiming such funds or to whom such funds are owed.
4.14 Taxes.
Except
as set forth in Exhibit
4.14,
all ad
valorem, property, production, severance, sales, use, and similar taxes and
assessments based on or measured by the ownership of the Assets or the
production of hydrocarbons or the receipt of proceeds therefrom that have become
due and payable with respect to the Assets (collectively, “Taxes”)
have
been, or will be, paid timely and all tax and information returns to tax
authorities required to be filed with respect to the Assets have been, or will
be, filed timely. Seller shall be responsible for paying all Taxes prorated
through May 31, 2007, based upon all assessments up to and including calendar
year 2007, regardless of when: (i) the 2007 assessment is issued; and (ii)
Taxes
for 2007 are paid. Exhibit
4.14
identifies all audits or examinations pending or presently being conducted
by
any taxing jurisdiction or regulatory authority and a summary of the likely
outcomes of any such audit or examination. Seller
and Purchaser shall cooperate fully, as and to the extent reasonably requested,
in connection with the filing of any tax returns relating to Taxes and any
audit, litigation or other proceeding with respect to such tax
returns.
4.15 Preferential
Rights and Restrictions on Assignment.
To the
best of Seller’s Knowledge, except as set forth in Exhibit
4.15,
none of
the Leasehold Interests are subject to any preferential rights to purchase
or
restrictions on assignment, including, but not limited to, contractual or
statutory requirements for consents from third parties, including, but not
limited to, any governmental authority, to any assignment.
4.16 Improvements,
Personalty, Equipment and Fixtures.
Except
as set forth in Exhibit
4.16,
all
xxxxx, platforms, fixtures, facilities, improvements, pipelines, personal
property and equipment constituting a part of the Assets: (a) are in a good
and
operable state of repair so as to be adequate for normal operations in
accordance with standard industry practice in the areas in which they are
operated; (b) are adequate together with all related Assets to comply with
the
requirements of all applicable contracts, including sales contracts; and (c)
meet and comply with all applicable Legal Requirements.
4.17 Xxxxx.
To the
best of Seller’s Knowledge, all of the xxxxx in which Seller has an interest by
virtue of its ownership of the Leasehold Interests have been drilled and
completed within the boundaries of such Leasehold Interests or within the limits
otherwise permitted by contract, pooling or unit agreement, and by law; and,
except as set forth on Exhibit
4.17,
no such
well is subject to penalties on allowables because of any over production or
any
other violation of applicable Legal Requirements that would prevent such well
from being entitled to its full legal and regular allowable from and after
the
Effective Time as prescribed by any governmental authority. Exhibit
4.17
also
sets forth the current production and allowable for each unit or well comprising
a part of the Assets.
4.18 Environmental
Matters.
To the
best of Seller’s Knowledge, except as set forth in Exhibit
4.18:
(a) the
Assets do not violate any order or requirement of any governmental authority
or
any Environmental Laws, nor are there any agreements or contracts covering
any
of the Assets or conditions existing on or resulting from the operations of
the
Assets that may give rise to any on-site or off-site surface restoration or
remedial obligations under any Environmental Laws or any such agreements or
contracts;
(b) without
limitation of clause (a) above, the Assets are not in violation of or subject
to
any existing, pending or threatened action, suit, investigation, inquiry or
proceeding by or before any court, any applicable tribal authority or any other
governmental authority;
(c) during
the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
of Seller), all notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the Assets, including,
without limitation, those relating to the past or present treatment, storage,
disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and Seller is in compliance
with
the terms and conditions of all such notices, permits, licenses and similar
authorizations;
(d) during
the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
of Seller), and since the effective date of the relevant requirements of RCRA,
all hazardous substances or solid waste generated at or as a result of the
Assets has been transported, treated and disposed of only by carriers
maintaining valid authorizations under RCRA and any other Environmental Laws
and
only at treatment, storage and disposal facilities maintaining valid
authorizations under RCRA and any other Environmental Law; and
(e) during
the term of Seller’s ownership of the Assets (and prior thereto to the knowledge
of Seller), no hazardous substance or solid waste has been disposed of or
otherwise released (including, without limitation, discharges or releases into
pits) and there has been no threatened release of any hazardous substances
or
solid waste on, to or as a result of the Assets (including the land covered
by
the Assets or on which any of the Assets are situated) except in compliance
with
Environmental Laws, and there are no storage tanks or other containers on or
under any of the Assets from which hazardous substances, petroleum products
or
other contaminants may be released into the surrounding
environment.
The
Parties acknowledge that the representations and warranties contained in this
Section 4.18 are subject to and limited by the provisions of Section 9.1.1
of
this Agreement.
ARTICLE
5
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
represents and warrants to Seller that:
5.1 Existence.
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas, and is duly qualified to carry
on
its business in the jurisdiction where the Assets are located.
5.2 Power.
Purchaser has the corporate power and authority to enter into and perform this
Agreement and the transactions contemplated hereby. The execution, delivery
and
performance of this Agreement by Purchaser, and the consummation of the
transactions contemplated hereby, will not violate or conflict with: (a) any
provision of the articles of incorporation, other organizational documents,
or
bylaws of Purchaser; (b) any material agreement or instrument to which Purchaser
is a party or by which Purchaser is bound; (c) any judgment, order, ruling,
or
decree applicable to Purchaser as a party in interest; or (d) any law, rule,
or
regulation applicable to Purchaser.
5.3 Authorization.
The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Purchaser. This Agreement has been duly executed
and delivered on behalf of Purchaser, and at Closing all documents and
instruments required hereunder to be executed and delivered by Purchaser shall
have been duly executed and delivered. This Agreement does, and such documents
and instruments shall, constitute legal, valid and binding obligations of
Purchaser enforceable against Purchaser in accordance with their terms, subject,
however, to the effect of bankruptcy, insolvency, reorganization, moratorium
and
similar laws from time to time in effect relating to the rights and remedies
of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law) and
the
power of a court to deny enforcement of remedies generally based upon public
policy.
5.4 Brokers.
Purchaser has incurred no obligation or liability, contingent or otherwise,
for
brokers’ or finders’ fees in respect of the matters provided for in this
Agreement which will be the responsibility of Seller; and any such obligation
or
liability that might exist shall be the sole obligation of Purchaser.
5.5 Due
Diligence.
Purchaser represents that it: (i) it has had and pursuant to this Agreement
will
have prior to Closing access to the Assets and the employees of Seller; (ii)
in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Buyer has relied solely on the basis of its own independent
investigation of the Assets; (iii) except for the indemnity obligation of Seller
contained in Section 9.1.1 of this Agreement, it is relying solely on its own
examination and inspection of the Assets for title, environmental and all other
purposes.
5.6 State
Leases.
Purchaser is
registered with the Department of Natural Resources, Office of Mineral Resources
of the State of Louisiana (the “State
Mineral Board”)
and is
properly qualified to own leases of the State of Louisiana and to obtain
approval by the State Mineral Board of transfer of State Lease 13994 pursuant
to
the Conveyance.
ARTICLE
6
SELLER’S
CONDITIONS OF CLOSING
Seller’s
obligation to consummate the transactions provided for herein is subject to
the
satisfaction or waiver on or before the Closing Date of the following
conditions:
6.1 Representations
and Warranties.
The
representations and warranties of Purchaser contained in Article
5
shall be
true and correct in all material respects on the date of Closing as though
made
on and as of that date.
6.2 Performance.
Purchaser shall have performed in all material respects the obligations,
covenants and agreements required hereunder to be performed by it at or prior
to
the Closing.
6.3 Officer’s
Certificate.
Purchaser shall have delivered to Seller a certificate of a corporate officer,
dated the date of Closing, certifying on behalf of Purchaser that the conditions
set forth in Sections
6.1
and
6.2
have
been fulfilled.
6.4 Pending
Matters.
No suit,
action or other proceeding by a non-affiliated third party or a governmental
authority shall be pending or threatened which seeks substantial damages from
Seller in connection with, or seeks to restrain, enjoin or otherwise prohibit,
the consummation of the transactions contemplated by this Agreement.
ARTICLE
7
PURCHASER’S
CONDITIONS OF CLOSING
Purchaser’s
obligation to consummate the transactions provided for herein is subject to
me
satisfaction or waiver on or before the Closing Date of the following
conditions:
7.1 Representations
and Warranties.
The
representations and warranties of Seller contained in Article
4
shall be
true and correct in all material respects on the date of Closing as though
made
on and as of that date.
7.2 Performance.
Seller
shall have performed in all material respects the obligations, covenants and
agreements required hereunder to be performed by it at or prior to the
Closing.
7.3 Officer’s
Certificate.
Seller
shall have delivered to Purchaser a certificate of a corporate officer, dated
the date of Closing, certifying on behalf of Seller that the conditions set
forth in Sections
7.1 and 7.2
have
been fulfilled.
7.4 Pending
Matters.
No
suit, action or other proceeding by a non-affiliated third party or a
governmental authority shall be pending or threatened which seeks substantial
damages from Purchaser in connection with, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated by this
Agreement.
7.5 Operatorship.
Purchaser shall be satisfied in its sole discretion that it will succeed to
or
will become operator of all units and xxxxx comprising a part of the Assets
that
were being operated by Seller at the Effective Time.
7.6 No
Material Adverse Change.
Since
the date of this Agreement, there shall have been no material adverse change
in
the value of the Assets and no event shall have occurred that has had, or is
reasonably likely to have, a material adverse effect on the ability of Purchaser
to own and operate the Assets, and enjoy the benefits associated therewith,
in
the same fashion as Seller has prior to the date hereof.
7.7 Satisfaction
With Due Diligence.
Purchaser shall be satisfied in its sole discretion with the results of its
due
diligence investigation of the Assets, including, but not limited to: (a) the
operational and environmental condition of the Assets; and (b) title to the
Assets.
7.8 Conveyance
by Seller.
Pursuant to the terms of this Agreement, at Closing, Seller shall sell, assign,
transfer, and convey the Assets pursuant to the Conveyance, as such term is
hereinafter defined, to Purchaser.
ARTICLE
8
CLOSING
8.1 Time
and Place of Closing.
Subject
to the conditions stated in this Agreement and unless the Parties agree
otherwise, the consummation of the transactions contemplated hereby (the
“Closing”)
shall
occur no later than 10:00 a.m. on June 19, 2007; provided, however, that if
all
of the conditions to Closing set forth in Articles
6 and 7
have not
been satisfied or waived by such date or any extended date for Closing, the
Party whose obligation to close is subject to the conditions that have not
been
satisfied or waived shall have the right to extend the date of Closing for
successive periods of up to five Business Days each until such conditions shall
have been satisfied or waived or until this Agreement shall have been terminated
pursuant to Section
10.1.
The
date Closing actually occurs is herein called the “Closing
Date.”
The
Closing shall be held at Purchaser’s offices located at 0000 Xxxxxxxxxx, Xxxxx
000, Xxxxxxx, Xxxxx, or at such other location as may be mutually agreed upon
by
Seller and Purchaser.
8.2 Closing
Obligations.
At the
Closing, the following events shall occur:
(a) Seller
and Purchaser shall execute, acknowledge and deliver to each other the
Assignment, Xxxx of Sale, and Conveyance in the form of Exhibit
8.2(a)
conveying the Assets to Purchaser (the “Conveyance”).
In the
Conveyance contemplated hereby, Seller shall bind itself and its respective
successors and assigns to warrant title to the Assets unto Purchaser, its
successors and assigns, against every person whomsoever lawfully claiming or
to
claim the same or any part thereof by, through and under Seller, but not
otherwise, and with full substitution and subrogation of Purchaser in and to
all
warranties of title heretofore made by Seller’s predecessors in title in respect
of the Assets. Further, in the Conveyance, any movable or tangible property
situated on and comprising a portion of the Assets shall be sold on an
“AS
IS, WHERE IS”
basis
without any warranty, either express or implied, as to title, value, quality,
condition or fitness for any purpose and with all defects.
(b) Seller
and Purchaser shall execute, acknowledge and deliver to each other letters
in
lieu of transfer orders directing all parties paying for production to make
payment to Purchaser of proceeds attributable to production from the Leasehold
Interests after the Effective Time (to the extent such proceeds have not
previously been disbursed to Seller);
(c) Purchaser
shall make the payment described in Section
2.3;
(d) Seller
and Purchaser shall exchange the certificates described in Sections
6.3 and 7.3;
(e) Seller
shall execute such other instruments and take such other action as may be
necessary to carry out its obligations under this Agreement; and
(f) Purchaser
shall execute such other instruments and take such other action as may be
necessary to carry out its obligations under this Agreement.
ARTICLE
9
ADDITIONAL
AGREEMENTS
9.1 Receipts
and Credits.
Subject
to the terms hereof, all monies, proceeds, receipts, credits and income
attributable to the Assets: (a) for all periods of time subsequent to the
Effective Time (but only if Closing occurs) shall be the sole property and
entitlement of Purchaser, and, to the extent received by Seller, Seller shall
fully disclose, account for and transmit same to Purchaser promptly: and (b)
for
all periods of time prior to the Effective Time, shall be the sole property
and
entitlement of Seller and, to the extent received by Purchaser, Purchaser shall
fully disclose, account for and transmit same to Seller promptly. Subject to
the
terms hereof, all costs, expenses, disbursements, obligations and liabilities
attributable to the Assets: (i) for periods of time prior to the Effective
Time,
regardless of when due or payable, shall be the sole obligation of Seller and
Seller shall promptly pay, or if inadvertently paid by Purchaser and not
contested by Seller, promptly reimburse Purchaser for and hold Purchaser
harmless from and against same; and (ii) for periods of time subsequent to
the
Effective Time (but only if Closing occurs), regardless of when due or payable,
shall be the sole obligation of Purchaser and Purchaser shall promptly pay,
or
if inadvertently paid by Seller and not contested by Purchaser, promptly
reimburse Seller for and hold Seller harmless from and against same.
9.1.1 Allocation
of Liability.
If a
governmental authority issues a citation or compliance order to Seller or
Purchaser or commences any action concerning the environmental condition of
Assets prior to September 29, 2007 at 11:59 p.m. Central Standard Time (the
“Response
Date”),
Seller shall be liable for all claims, liabilities, losses, costs and expenses
of remedying the violations or failures to comply but only to a maximum
obligation of $50,000. If, prior to the Response Date, no citations or
compliance orders are issued or if Seller has expended the equivalent of $50,000
remedying any violations or failures to comply, in such event and, in all
instances subsequent to the Response Date, Purchaser shall be solely responsible
for all claims, liabilities, losses, costs and expenses related to the
environmental condition of the Assets. Except as provided in this Section 9.1.1
and Section 12.12 of this Agreement and in the Conveyance, from and after the
Response Date, Seller shall have no further liabilities for the
Assets.
9.2 Cross
Indemnity.
If the
Closing occurs, Seller and Purchaser agree as follows:
(a) Subject
to the terms of Article
11,
which
shall control with respect to the tax matters covered thereby, Purchaser agrees
to indemnify, defend and hold harmless Seller and its directors, officers,
employees, agents and representatives (the “Seller
Group”)
from
and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, court costs and reasonable attorneys’ fees, but
excluding any amounts reimbursed from third party insurance) (collectively,
“Losses”)
that
are attributable to: (i) a breach by Purchaser of its representations,
warranties, covenants and agreements hereunder; (ii) the ownership or operation
of the Assets after the Closing Date; or (iii) all claims, liabilities, losses,
costs and expenses related to the
environmental condition of the Assets from and after the Response
Date.
(b) Subject
to the terms of Article
11,
which
shall control with respect to the tax matters covered thereby, Seller agrees
to
indemnify, defend and hold harmless Purchaser and its directors, officers,
employees, agents and representatives from and against any and all Losses that
are attributable to: (i) a breach by Seller of its representations, warranties,
covenants and agreements hereunder; (ii) the ownership or operation of the
Assets prior to the Closing Date; or (iii) all claims, liabilities, losses,
costs and expenses related to the
environmental condition of the Assets prior to the Response Date.
(c) The
indemnity, defense and hold harmless obligations set forth in Sections
9.2(a) and (b)
above:
(i) shall not limit or otherwise affect the scope of any indemnities given
by
Purchaser to Seller, or Seller to Purchaser, pursuant to the terms of this
Agreement; (ii) shall not apply to either Party’s costs and expenses with
respect to the negotiation and consummation of this Agreement and the
transactions contemplated hereby; and (iii) are independent of and in addition
to the rights and remedies that the Parties may have at law or in equity or
otherwise for any default.
(d) In
the
event a Party receives written notice of the commencement of any action or
proceeding, the assertion of any claim by a third party or the imposition of
any
penalty or assessment for which indemnity may be sought pursuant to this
Agreement, and such Party intends to seek indemnity from the other Party
pursuant to this Agreement, within reasonable time after notice (or such earlier
time as might be required to avoid prejudicing the indemnifying Party's
position) after receipt of such notice, such Party (the “Indemnified
Party”)
shall
provide the other Party (the “Indemnifying
Party”)
with
written notice of such action, proceeding, claim, penalty or assessment with
respect to which such indemnity has been invoked, together with a copy of such
claim, process or other legal pleading, and the Indemnified Party will fully
cooperate with the Indemnifying Party in connection therewith. In the event
that
the Indemnifying Party, by the thirtieth day after receipt of notice of any
such
claim (or, if earlier, by the tenth day preceding the day on which an answer
or
other pleading must be served in order to prevent judgment by default in favor
of the person asserting such claim), does not elect to defend against such
claim, the Indemnified Party will (upon further notice to the Indemnifying
Party) have the right to undertake the defense, compromise or settlement of
such
claim on behalf of and for the account and risk of the Indemnifying Party and
at
the Indemnifying Party’s expense, subject to the right of the Indemnifying Party
to assume the defense of such claims at any time prior to settlement, compromise
or final determination thereof. If the Indemnifying Party chooses to assume
the
entire defense of such claim or action (with counsel selected by it which is
reasonably satisfactory to the Indemnified Party or person), the Indemnifying
Party shall bear the entire cost of defending such claim or action. The
Indemnifying Party shall not have the right to settle any such claim or action
without the written consent of the Indemnified Party, which consent shall not
be
unreasonably withheld. In the event of the assumption of the defense by the
Indemnifying Party, the Indemnifying Party shall not be liable for any further
legal or other expenses subsequently incurred by the Indemnified Party or person
in connection with such defense unless otherwise agreed in writing by the
Parties or as herein provided; provided, however, the Indemnified Party shall
have the right to participate in such defense, at its own cost. During any
period when the Indemnifying Party is contesting any claim in good faith on
behalf of the Indemnified Party, the Indemnified Party shall not pay, compromise
or settle such claim without the Indemnifying Party's consent (which shall
not
be unreasonably withheld or delayed); provided, that the Indemnified Party
may
nonetheless pay, compromise or settle the claim without consent during such
period, in which event it shall, automatically and without any further action
on
its part, waive any right (whether or not pursuant to this Agreement) to
indemnity in respect of all liabilities relating to the claim. Failure of a
Party to give prompt notice of a claim for indemnification hereunder shall
not
affect such Party’s right to indemnification hereunder except to the extent that
the Indemnifying Party shall have been materially prejudiced as a result of
such
failure.
9.3 Plugging
and Abandonment Matters.
If
Closing occurs, Purchaser agrees as follows:
(a) as
security for the plugging and abandonment obligations all xxxxx described on
Exhibit
A-2,
to
deliver a certificate of deposit to Seller at Closing in the amount of EIGHTY
THOUSAND AND NO/100 DOLLARS ($80,000) made payable to Purchaser (the
“Certificate
of Deposit”);
(b) in
replacement of the security identified in subpart (a) of this Section for the
plugging and abandonment obligations all xxxxx described on Exhibit
A-2,
to
deliver a letter of credit satisfactory to Seller (the “Letter
of Credit”);
and
(c)
to
assume responsibility for plugging and abandonment of all xxxxx described as
“Xxxxx
to be Conveyed”
on
Exhibit
A-2
and to
indemnify, defend, and hold harmless the Seller Group from and against any
Losses attributable thereto.
If
the
Letter of Credit is not provided to Seller within four (4) months of the Closing
Date, Purchaser will endorse the Certificate of Deposit payable to Seller and
Seller shall be entitled to the proceeds of the Certificate of
Deposit.
Seller
shall retain ownership and liability for all xxxxx described as “Xxxxx
Not Conveyed”
and
“Equipment
Not Conveyed”
on
Exhibit A-2.
9.4 Further
Assurances.
After
Closing, Seller and Purchaser agree to take such further actions and to execute,
acknowledge and deliver such additional documents and instruments as may be
necessary or useful in carrying out the purposes of this Agreement or of any
document delivered pursuant hereto.
9.5 Records.
As soon
as possible following Closing, but in any event prior to the 30th day following
Closing, Seller shall make all Records available for delivery to Purchaser
at
Seller’s offices in Houston, Texas. Prior to the expiration of such thirty (30)
day period, Seller shall give Purchaser full and complete access to such
Records, except to the extent same have been sent off-site by Seller for
copying.
9.6 Cooperation
Regarding Operatorship.
Prior
to and following Closing, Seller agrees to use its best efforts to assist and
cooperate with Purchaser in connection with its efforts to secure operatorship
of the xxxxx and units constituting a part of the Assets.
9.7 Empire
No. 5 Well.
If
Closing occurs, Seller and Purchaser agree that, upon receipt by Seller (from
the proceeds of production from sales of hydrocarbon production from the Empire
No. 5 well) of reimbursement for all costs and expenses actually incurred by
Seller as a result of any and all recompletion attempts conducted on the Empire
No. 5 well (such reimbursement out of production is sometimes herein called
the
“Empire
No. 5 Recoupment”),
Seller shall assign to Purchaser a 50% expense-bearing interest and 50% of
a 75%
net revenue interest in the Empire No. 5 well pursuant to an instrument
substantially in the form of Exhibit
8.2(a).
In such
instrument, Seller shall bind itself and its respective successors and assigns
to warrant title to such undivided interests in the Empire No. 5 Well unto
Purchaser, its successors and assigns, against every person whomsoever lawfully
claiming or to claim the same or any part thereof by, through and under Seller,
but not otherwise, and with full substitution and subrogation of Purchaser
in
and to all warranties of title heretofore made by Seller’s predecessors in title
in respect thereof. On or before the fifteenth (15th)
day of
each January, April, July, and October until the Empire No. 5 Recoupment has
occurred, Seller agrees to provide Purchaser with statements in form and
substance and with appropriate supporting documentation acceptable to Purchaser
reporting: (i) the proceeds from sales of hydrocarbon production from the Empire
No. 5 well received by Seller; and (ii) all costs and expenses actually incurred
by Seller as a result of any and all recompletion attempts conducted on Empire
No. 5 well. Furthermore, Purchaser agrees that Seller may dispose of all
produced water from the Empire No. 5 well into the salt water disposal system
to
be established and operated by Purchaser on the lands on which the Assets are
situated provided that: (i) any such disposal of produced water from the Empire
No. 5 well does not limit the ability of Purchaser to dispose of its produced
water from any of the Assets; and (ii) Seller reimburses Purchaser for any
extraordinary repairs that may be required on its salt water disposal system
in
proportion to the produced water of Seller from the Empire No. 5 well disposed
of by means of such system.
9.8 Certain
Costs.
If
Closing occurs, in connection with the N.E. Welsh prospect, the X. Xxxxx
Prospect, and the X.X. Xxxxx prospects more particularly described on Exhibit
A-1, Seller and Purchaser agree that, on the Closing Date, upon delivery to
Purchaser by Seller of appropriate supporting documentation acceptable to
Purchaser concerning all costs and expenses actually incurred by Seller in
connection with: (i) acquiring leases; (ii) actual invoices paid to brokers;
(iii) costs of acquiring rights-of-way; and (iii) actual payments to unrelated
third parties for crop damages, Purchaser shall reimburse Seller for such costs
and expenses in the aggregate amount not to exceed SEVENTY FIVE THOUSAND AND
NO/100 DOLLARS ($75,000).
9.9 N.E.
Welsh Prospect.
Seller
shall own a 25% working interest in all Assets associated with the N.E. Welsh
prospect but shall not be responsible for any costs until such time as the
initial well is put on production. Purchaser shall pay 100% of all costs
associated with recompleting the initial well in the N.E. Welsh prospect and
putting such well on production. After the initial well is put on production,
Seller shall be responsible for its 25% working interest share of all subsequent
costs associated with the N.E. Welsh prospect.
9.10 X.
Xxxxx Prospect.
Seller
shall own a 25% working interest in all Assets associated with the X. Xxxxx
prospect but shall not be responsible for any costs until such time as the
initial well reaches casing point or is plugged and abandoned. Purchaser shall
pay 100% of all costs associated with logging or plugging and abandonment of
the
initial well in the X. Xxxxx prospect. After the initial well is logged, Seller
shall be responsible for its 25% working interest share of all subsequent costs
associated with the X. Xxxxx prospect.
9.11 X.X.
Xxxxx Prospect.
If
drilled, Seller shall own a 25% working interest in all Assets associated with
the X.X. Xxxxx prospect but shall not be responsible for any costs until such
time as the initial well reaches casing point or is plugged and abandoned.
Purchaser shall pay 100% of all costs associated with logging or plugging and
abandonment of the initial well in the X.X. Xxxxx prospect. After the initial
well is logged, Seller shall be responsible for its 25% working interest share
of all subsequent costs associated with the X.X. Xxxxx prospect.
9.12 Letter
Agreement with Xxxxxxx Xxxxx.
Purchaser acknowledges that the Oil, Gas and Mineral Lease dated February 28,
2006, by Xxxxxxx Xxxxx, as lessor, to Seller, as lessee, is assigned pursuant
to
this Agreement by Seller subject to the terms of that certain letter agreement
dated April 1, 2006, a copy of which is attached as Exhibit 9.12.
9.13 Disclaimer
of Certain Warranties.
Except
as to the limited warranty of title described in Section 8.2(a) and set forth
in
the Conveyance, the Assets shall be sold without warranty of title, either
express or implied, as to description, title, condition, quality, fitness for
purpose, merchantability or completeness or otherwise, and with full
substitution and subrogation in and to all rights and actions of warranty which
Seller has or may have against all preceding owners and vendors. Further, any
movable or tangible property situated on and comprising a portion of the Assets
is sold on an “AS
IS, WHERE IS”
basis
without any warranty, either express or implied, as to title, value, quality,
condition or fitness for any purpose and with all defects.
9.14 Arbitration.
The
Parties will attempt in good faith to resolve any controversy or dispute arising
out of or relating to this Agreement and all existing contracts between the
parties promptly by negotiations between themselves. The negotiation process
may
be started by the giving of written notice by any Party to the other Party
in
accordance with the terms of the notice provision of this Agreement, and the
Parties agree to negotiate in good faith, and select an independent mediator
to
facilitate the negotiations and conduct up to eight consecutive hours of
mediated negotiations in Houston, Texas within thirty (30) days after the notice
is first sent. If, within ten (10) days after the initial notice, the Parties
are not able to agree upon a mediator, the Parties shall immediately proceed
to
arbitration. Fees and expenses of the mediator shall be borne equally by the
Parties.
No
litigation or other proceeding may ever be instituted at any time in any court
for any purpose, except as may be set forth in Section 9.14(f)
hereof.
(a)
If a
controversy or dispute is not resolved after completion of the negotiation
process described above, then, upon notice by any Party to the other Party
(an
“Arbitration
Notice”)
and to
the American Arbitration Association (the “AAA”),
the
controversy or dispute arising under or relating to this Agreement and all
existing contracts between the Parties shall be submitted to an arbitration
panel for binding arbitration in Houston, Texas, in accordance with the AAA’s
Commercial Arbitration Rules (the “Rules”).
The
Parties agree that they will faithfully observe this Agreement and the Rules
and
that they will abide by and perform any award rendered by the arbitration panel.
The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16. The award or judgment of the arbitration panel shall be final
and
binding on all Parties and judgment upon the award or judgment of the
arbitration panel may be entered and enforced by any court having jurisdiction.
If any Party becomes the subject of a bankruptcy, receivership or other similar
proceeding under the laws of the United States of America, any state or
commonwealth or any other nation or political subdivision thereof, then, to
the
extent permitted or not prohibited by applicable law, any factual or substantive
legal issues arising in or during the pendency of any such proceeding shall
be
subject to all of the foregoing mandatory mediation and arbitration provisions
and shall be resolved in accordance therewith. The agreements contained herein
have been given for valuable consideration, are coupled with an interest and
are
not intended to be executory contracts. The fees and expenses of the arbitration
panel will be shared by all Parties engaged in the dispute or controversy on
a
basis determined to be fair and equitable by the arbitrators, taking into
account the relative fault of each Party, the relative credibility and merit
of
all claims and defenses made by each Party and the cooperation, speed and
efficiency of each Party in conducting the arbitration proceeding and complying
with the Rules and with orders and requests of the arbitrators.
(b)
Promptly after the Arbitration Notice is given, each Party will select an
arbitrator and the arbitrators so selected will in turn select an independent
and impartial third arbitrator. If the arbitrators selected by the Parties
are
unable to agree on a third arbitrator, then one of the Parties shall notify
the
AAA and the AAA shall select the third arbitrator. Such third arbitrator
selected in such manner shall not be entitled to compensation in excess of
compensation paid to either of the other two arbitrators. The decision of the
AAA with respect to the selection of the third arbitrator will be final and
binding in such case. Such three arbitrators will constitute the arbitration
panel.
(c)
Within 10 days after the selection of the arbitration panel, the Parties and
their counsel will appear before the arbitration panel at a place and time
in
Houston, Texas, as may be designated by the arbitration panel for the purpose
of
each Party making a one hour or less presentation and summary of the case.
Thereafter, the arbitration panel will set dates and times for additional
hearings until the proceeding is concluded. The desire and goal of the Parties
is, and the arbitration panel will be advised that its goal should be, to
conduct and conclude the arbitration proceeding as expeditiously as possible.
(d)
Any
arbitral award may be enforced in a District Court of the State of Texas sitting
in Houston, Texas or in the United States District for the Southern District
of
Texas, Houston Division, and, by execution and delivery of this Agreement,
the
Parties hereby accept for themselves and in respect of their property, generally
and unconditionally, the nonexclusive jurisdiction of the aforesaid courts
for
said purpose and the Parties hereby irrevocably waive to the fullest extent
permitted by law any objection, including, without limitation, any objection
to
the laying of venue or any objection based on the grounds of forum non
conveniens, which they may now or hereafter have to the bringing of any such
action or proceeding in such respective jurisdictions.
(e)
The
arbitration panel will have no authority to award punitive or other damages
not
measured by the prevailing Party’s actual damages and may not, in any event,
make any ruling, finding, or award that does not conform to the terms and
conditions of this Agreement. This
limitation of damages shall apply to any arbitration no matter when the
proceeding is initiated and shall survive the termination of this Agreement
without limit.
(f)
The
provisions of this Section 9.14 relating to arbitration of disputes shall not
apply to litigation that is instituted for the sole purpose of either: (i)
compelling a Party to submit to arbitration in accordance with the provisions
of
this Section 9.14; or (ii) obtaining enforcement of any award or judgment of
the
arbitrator(s) issued pursuant to this Section 9.14.
9.15 Empire
No. 5/5-D Well.
The
Parties acknowledge that the Empire No. 5/5-D Well, Serial Nos. 217298 and
217558, (the “Empire
No. 5/5-D Well”)
and
all xxxxx, equipment, and facilities associated with the Empire No. 5/5-D Well
have been retained by Seller and excluded from this transaction. If Seller
institutes a hearing before the Commissioner of Conservation of the State of
Louisiana and is authorized to produce hydrocarbons from the Empire No. 5/5-D
Well, Affiliated agrees to and shall assign to Seller all of its right, title
and interest in the Leasehold Interests as are necessary for Seller to own
100%
of the working interest attributable to the Empire No. 5/5-D Well and be
entitled to receive 100% of the working interest production from the Empire
No.
5/5-D Well. If a unit is formed for the Empire No. 5/5-D Well, the acreage
surrounding the wellbore to be assigned by Purchaser to Seller shall be limited
to a maximum of thirteen (13) acres within the unit and nearest to the
wellbore.
ARTICLE
10
TERMINATION
10.1 Right
of Termination.
This
Agreement and the transactions contemplated hereby may be
terminated:
(a) At
any
time at or prior to Closing by mutual consent of Seller and Purchaser;
or
(b) At
any
time at or after June 30, 2007, by Seller or Purchaser, by the delivery of
written notice to the other Party, if the Closing shall not have occurred by
such date;
provided,
however no such Party may exercise any right of termination pursuant to this
Section
10.1
if the
event giving rise to such termination right shall be due to the willful failure
of such Party to perform or observe in any material respect any of the covenants
or agreements set forth herein to be performed or observed by such
Party.
10.2 Effect
of Termination.
If this
Agreement is terminated pursuant to Section
10.1,
this
Agreement shall become void and of no further force or effect (except for the
provisions of Sections
4.4, 5.4, 9.14, 10.3, 12.1 through 12.13,
which
shall survive such termination and continue in full force and effect); provided,
however, that, if either Party is in default of its obligations under this
Agreement at the time this Agreement is so terminated, such defaulting Party
shall continue to be liable to the other Party for damages (but in no event
for
specific performance) in respect of such default and such liability shall not
be
affected by such termination.
10.3 Return
of Data.
Purchaser agrees that if this Agreement is terminated for any reason whatsoever,
Purchaser shall use its good faith efforts to identify and promptly return
to
Seller all information furnished by or on behalf of Seller to Purchaser, its
officers, employees, and representatives in connection with this Agreement
or
Purchaser’s investigation of the Assets, together with all copies, extracts or
excerpts of such information.
ARTICLE
11
TAXES
11.1 Apportionment
of Ad Valorem and Property Taxes.
All ad
valorem taxes, real property taxes, personal property taxes and similar
obligations (“Property
Taxes”)
attributable to the Assets shall be apportioned as of the Effective Time between
Seller and Purchaser; provided, however, that any such taxes which are
calculated based on the value or amount of production during a given period
shall be apportioned to the period during which such production occurred,
regardless of the date on which such taxes are assessed and/or payable. The
owner of record on the assessment date shall file or cause to be filed all
required reports and returns incident to the Property Taxes and shall pay or
cause to be paid to the taxing authorities all Property Taxes relating to the
tax periods during which the Effective Time occurs.
11.2 Transfer
Taxes.
Purchaser shall be liable for all Transfer Taxes (as defined below) required
to
be paid in connection with the sale of the Assets pursuant to this Agreement.
If
the transfer of the Assets pursuant to this Agreement is exempt from applicable
Transfer Taxes, Purchaser shall, at Closing, provide Seller with proof thereof.
As used herein, the term “Transfer
Taxes” means
any
sales, use and excise taxes.
11.3 Other
Taxes.
All
taxes (other than franchise and income taxes and taxes covered by Sections
11.1 and 11.2)
attributable to the Assets that are imposed on or with respect to the production
of oil, natural gas or other hydrocarbons or minerals or the receipt of proceeds
therefrom (including but not limited to severance, production, and excise taxes)
shall be apportioned between the parties based upon the respective shares of
production taken by the parties. All such taxes that have accrued with respect
to the period prior to the Closing Date have been or will be properly paid
by or
on behalf of Seller and Seller shall be responsible for filing or causing to
be
filed all statements, returns, and documents incident thereto. Purchaser shall
be responsible for paying or withholding or causing to be paid or withheld
all
such taxes which have accrued after the Closing Date and for filing all
statements, returns, and documents incident thereto.
11.4 Cooperation.
Each
Party to this Agreement shall provide the other Party with reasonable access
to
all relevant documents, data and other information (other than that which is
subject to an attorney-client privilege) which may be required by the other
Party for the purpose of preparing tax returns, filing refund claims and
responding to any audit by any taxing jurisdiction. Each Party to this Agreement
shall cooperate with all reasonable requests of the other Party made in
connection with contesting the imposition of taxes. Notwithstanding anything
to
the contrary in this Agreement, neither Party to this Agreement shall be
required at any time to disclose to the other Party any tax return or other
confidential tax information. Except where disclosure is required by applicable
law or judicial order, any information obtained by a Party pursuant to this
Section
11.4
shall be
kept confidential by such Party, except to the extent disclosure is required
in
connection with the filing of any tax returns or claims for refund or in
connection with the conduct of an audit, or other proceedings in response to
an
audit, by a taxing jurisdiction.
11.5 Indemnification
for Tax.
(a) Subject
to the provisions of Section
11.5(b),
Seller
shall indemnify Purchaser from all liabilities for foreign, federal, state,
local and Indian Tribal taxes in respect of the ownership or operation of the
Assets prior to the Effective Time, together with penalties and interest thereon
(provided such penalties and interest do not result from the negligence, late
filing, fraud or acts of misfeasance or malfeasance of Purchaser). Seller shall
be entitled to all refunds or rebates of taxes paid in respect of the ownership
or operation of the Assets prior to the Effective Time. Subject to the
provisions of Section
11.5(b),
Purchaser shall indemnify Seller from all liabilities which are assessed for
foreign, federal, state, local and Indian Tribal taxes, together with penalties
and interest thereon (provided such penalties and interest do not result from
the negligence, late filing, fraud or acts of misfeasance or malfeasance of
Seller), to the extent such liabilities relate to the ownership or operation
of
the Assets from and after the Effective Time; provided, however, that such
indemnity shall not apply to: (i) income taxes arising out of the ownership
of
the Assets between the Effective Time and the Closing Date; (ii) Property Taxes
apportioned to Seller pursuant to Section
11.1;
and
(iii) other taxes imposed on or after the Effective Time.
(b) In
order
for Seller or Purchaser (“Claimant”) to
make a
claim against the other (“Indemnitor”) under
this Article
11,
Claimant shall give prompt notice to Indemnitor of any liability for which
Claimant would claim indemnification under this Article
11,
which
notice shall include the circumstances surrounding such liability. Indemnitor
shall then have the right but not the obligation, to contest such liability
at
its sole cost and expense by giving written notice to Claimant of such election
within 30 days after Indemnitor receives Claimant’s notice. Should Indemnitor
fail to notify Claimant within such 30-day period, Indemnitor shall be deemed
to
have elected not to contest such liability. Should Indemnitor elect (or be
deemed to have elected) not to contest such liability, Indemnitor shall pay
the
full amount due under Section
11.5(a)
in
respect of such liability to Claimant in cash within 30 days after Indemnitor
elects (or is deemed to have elected) not to contest such liability. Except
as
specifically provided in this Section
11.5
with
respect to certain tax issues which must be combined or joined with other tax
issues, if Indemnitor elects to contest any such liability, Claimant shall
give
Indemnitor full authority to defend, adjust, compromise or settle such liability
and any action, suit, or proceeding in which Indemnitor contests such liability,
in the name of Claimant or otherwise as Indemnitor shall elect. In any
administrative or legal proceeding, Indemnitor shall employ counsel selected
by
it and reasonably acceptable to Claimant. With respect to tax issues incident
to
any such liability that must be combined or joined with one or more other tax
issues which Claimant desires to contest, Claimant and Indemnitor shall
cooperate fully, and control of any administrative legal proceeding shall rest
with the Party having the greater ultimate liability (including liability under
Section
11.5(a))
for the
taxes in dispute. The Party in control may not adjust, compromise or settle
taxes which are contested by or on behalf of the other Party without the consent
of the other Party. With respect to any liability contested by Indemnitor under
the terms of this Section
11.5(b),
Indemnitor shall pay the full amount due under Section
11.5(a)
in
respect of such liability to Claimant in cash within 30 days after the liability
is finally determined either by settlement or pursuant to the final unappealable
judgment of a court of competent jurisdiction.
ARTICLE
12
MISCELLANEOUS
12.1 Governing
Law.
THIS
AGREEMENT AND ALL INSTRUMENTS EXECUTED IN ACCORDANCE WITH IT SHALL BE GOVERNED
BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA,
WITHOUT REGARD TO CONFLICT OF LAW RULES THAT WOULD DIRECT APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION, EXCEPT TO THE EXTENT THAT IT IS MANDATORY THAT
THE
LAW OF SOME OTHER JURISDICTION, WHEREIN THE ASSETS ARE LOCATED, SHALL
APPLY.
The laws
of the state wherein the Leasehold Interests are located shall control as to
all
matters pertaining to title and to the evaluation of encumbrances placed upon
such Leasehold Interests pursuant to Section
3.3
herein.
12.2 Entire
Agreement.
This
Agreement, including all Exhibits attached hereto and made a part hereof
constitute the entire agreement between the Parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties with
respect to same (including, without limitation, the Binding Letter of Intent
executed by the Parties and dated April 3, 2007). No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto.
12.3 Waiver.
No
waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
12.4 Captions.
The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of
this
Agreement.
12.5 Assignment.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
12.6 Notices.
Any
notice provided or permitted to be given under this Agreement shall be in
writing, and may be served by personal delivery or by depositing same in the
mail, addressed to the Party to be notified, postage prepaid, and registered
or
certified with a return receipt requested. Notice deposited in the mail in
the
manner hereinabove described shall be deemed to have been given and received
on
the date of the delivery as shown on the return receipt. Notice served in any
other manner shall be deemed to have been given and received only if and when
actually received by the addressee (except that notice given by telecopier
shall
be deemed given and received upon receipt only if received during normal
business hours and if received other than during normal business hours shall
be
deemed received as of the opening of business on the next Business Day). For
purposes of notice, the addresses of the Parties shall be as
follows:
For
Seller
Plymouth
Resource Group II, Inc.
000
Xxxxx
Xxxxx Xxxxx
Xxxxxxxxxx,
Xxxxxxxxx 00000
Attn:
Xxxxxxxx X. X’Xxxxxxx, President
Telecopy
No.: 985/871-5199
For
Purchaser
Affiliated
Holdings, Inc.
0000
Xxxxxxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Attn:
Xxxxx Xxxxx, President
Telecopy
No.: 713/402-6799
Each
Party shall have the right, upon giving 10 days’ prior notice to the other in
the manner hereinabove provided, to change its address for purposes of
notice.
12.7 Expenses;
Joint and Several Liability.
Except
as otherwise provided herein, each Party shall be solely responsible for all
of
its expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, fees and expenses of its
own
counsel and consultants).
12.8 Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced under any rule of law, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the
economic or legal substance of the transactions contemplated hereby is not
affected in a materially adverse manner with respect to either
Party.
12.9 Publicity.
With
regard to all publicity and other releases issued at or prior to the Closing
concerning this Agreement and the transactions contemplated hereby, neither
Party shall issue any publicity or other release without the prior written
consent of the other Party, except as required by applicable law or the
applicable rules or regulations of any governmental body or stock
exchange.
12.10 No
Third-Party Beneficiary.
Except
as expressly provided herein, this Agreement is not intended to create, nor
shall it be construed to create, any rights in any third party under doctrines
concerning third-party beneficiaries.
12.11 Limitation
of Damages.
Notwithstanding any other provision of this Agreement (or any other agreement
related hereto) to the contrary, in no event shall either Party be liable to
the
other or entitled to recover incidental, consequential, special, indirect,
multiple, statutory, exemplary or punitive damages.
12.12 Survival.
The
warranties, covenants and obligations of the Parties under this Agreement shall
survive the Closing. The representations of the Parties made in this Agreement
shall survive the Closing except that: (i) those certain representations of
Seller set forth and contained in Sections 4.7, 4.10 (except to the extent
covered by the warranty of title in Sections 8.2(a)), 4.11 and 4.13 shall
terminate at Closing, and those certain representations of Seller set forth
and
contained in Sections 4.6(c), 4.9, 4.12, 4.14, 4.15, 4.16, and 4.17 shall
survive Closing but thereafter terminate at the expiration of four (4) years
after Closing; and (ii) those
certain representations and warranties of Seller contained in Sections 4.8
and
4.18 terminate on the Response Date. The limitation of damages contained in
Section 9.14 and in Section 12.11 shall survive Closing or termination of this
Agreement and shall not expire.
12.13 Counterparts;
Exhibits.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. All Exhibits attached hereto are hereby made a part of this
Agreement and incorporated herein by this reference.
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
year
first set forth above.
SELLER:
Plymouth
Resource Group II, Inc.
By:
/s/ Xxxxxxxx X. X'Xxxxxxx
Xxxxxxxx
X. X’Xxxxxxx,
President
PURCHASER:
Affiliated
Holdings, Inc.
By:
/s/ Xxxxx Xxxxx
Xxxxx
Xxxxx,
President
