NATIONAL ENERGY GROUP, INC.
1400 One Energy Square
0000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
March 31, 1998
Fortune Natural Resources Corporation
One Commerce Green
000 X. Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Re: Asset Sale
East Bayou Sorrel
Iberville Parish, Louisiana
Gentlemen:
National Energy Group, Inc. ("National") and Fortune Natural Resources
Corporation ("Fortune") have agreed to the sale by Fortune and purchase by
National of 100% of Fortune's right, title, and interest in and to the East
Bayou Sorrel prospect (the "Assets") pursuant to the terms and conditions of
this agreement (the "Agreement") and an assignment and bill of sale.
1. Purchase and Sale of the Assets.
Upon the terms and subject to the conditions set forth in this Agreement,
at the Closing on March 31, 1998, Fortune shall sell, transfer, convey and
assign to National all of Fortune's right, title and interest in and to the
Assets more particularly described on the assignment and bill of sale attached
hereto as Exhibit "A" and comprising the lands and leases within the Contract
Area, as such term is defined in that certain Operating Agreement among Fortune,
National et al. dated December 15, 1995, as amended ("JOA"), incorporated by
reference herein.
2. Purchase Price; Post Closing Adjustment.
Fortune and National agree that the purchase price for the Assets shall be
an amount equal to Four Million Six Hundred Ninety-Five Thousand Dollars
($4,695,000), subject to the adjustments set forth on the final post-closing
adjustment statement (the "Closing Adjustment Statement") which shall provide
credits to National for (a) any revenues received by Fortune and attributable to
periods subsequent to April 1, 1998 (the "Effective Date"), (b) all advances and
deposits relating to Fortune's interests in the Assets and received by Fortune
for the applicable periods after the Effective Date, and (c) Fortune's prorated
share of any accrued
1
but unpaid property and severance taxes relating to the Assets for any period
prior to the Effective Date.
The Closing Adjustment Statement shall also provide credits to Fortune for
(x) its interest in the value of all oil or natural gas liquids produced or in
storage or downstream of the pipeline connection constituting the point of sale
at the Effective Date, (y) all deposits and expenses paid by Fortune and
relating to any of the Assets for any period of time after the Effective Date,
and (z) the value of any severance or property taxes paid by Fortune and
relating to the Assets for any period after the Effective Date.
Notwithstanding the foregoing, the parties desire to reach a preliminary
accord with respect to the adjustments which are expected to be included in the
Closing Adjustment Statement. For purposes of such preliminary accord only, and
not by way of limitation on the line items to be included in the final Closing
Adjustment Statement or the size of such items, the parties have detailed on
Exhibit "B", attached hereto, certain preliminary adjustment amounts. Other
items consistent with the foregoing shall be included in the final Closing
Adjustment Statement as appropriate and shall be applied to the purchase price
as credits or debits, as the case may be.
If the preliminary adjustment amounts described on Exhibit "B" reflect a
balance owing to Fortune, such balance owing shall be delivered in cash at the
Closing. If the preliminary adjustment amounts reflect a balance owing to
National, such balance owing shall be an adjustment to the purchase price at
Closing. Within sixty (60) days following the Closing, National shall provide
Fortune with the final Closing Adjustment Statement.
The final Closing Adjustment Statement shall be conclusively deemed to be
accurate and shall be binding unless written notice to the contrary is delivered
by Fortune to National within thirty (30) days of its receipt. The parties shall
undertake to agree on all adjustments to the purchase price as contained in the
final Closing Adjustment Statement (the "Final Adjustments") no later than
ninety (90) days after the Closing. Following such agreement to the Final
Adjustments (a) all monies, proceeds, receipts, credits, and income attributable
to Fortune's interest in the Assets for all periods of time subsequent to the
Effective Date shall be the sole property and entitlement of National, and, to
the extent received by Fortune, shall be fully disclosed, accounted for, and
transmitted promptly to National, and (b) all monies, proceeds, receipts and
income attributable to Fortune's interest in the Assets for all periods of time
prior to the Effective Date shall be the sole property and entitlement of
Fortune, and, to the extent received by National shall be fully disclosed,
accounted for, and transmitted promptly to Fortune. All costs, expenses,
disbursements, obligations, and liabilities attributable to Fortune's interest
in the Assets for any period of time prior to the Effective Date, regardless of
when due or payable, shall be the sole obligation of Fortune and Fortune shall
promptly pay and hold National harmless from and against the same. All costs,
expenses, disbursements, obligations, and liabilities attributable to Fortune's
interest in the Assets for periods of time on or subsequent to the Effective
Date, regardless of when due or payable, shall be the sole obligation of
National, and National shall promptly reimburse Fortune for and hold Fortune
harmless from and against the same.
Within five (5) days following the parties' agreement to the Final
Statement, the party owing any balance pursuant thereto shall remit in cash to
the other party such balance owing; provided, however, in the event (i)
severance tax abatement adjustments or (ii) audit adjustments as described in
Paragraph 6, below (collectively (i) and (ii) referred to herein as the
"Contingent Liabilities") are not finalized and included on the Final Statement,
or not
2
otherwise resolved by the parties hereto within the ninety (90) day period
following the Closing; payment with respect to outstanding balances, if any,
attributable to either or both Contingent Liabilities shall be made within five
(5) days following a final resolution of each.
3. Warranty.
The purchase and sale of the Assets described herein is made by Fortune and
accepted by National without any express or implied warranty or representation
as to the merchantability of fitness for any purpose and without any other
express or implied warranty or representation whatsoever. National accepts the
Assets in their "as is, where is" condition; provided that Fortune transfers to
National at the Closing all substitution and subrogation rights and actions of
warranty that Fortune has or may have against predecessors in title or any third
party claiming rights thereto.
4. Relationship Following Closing; Non-Compete.
Fortune and National, for themselves and on behalf of their successors and
assigns, agree to use their best efforts and cooperate with the other to
consummate the transactions contemplated herein that each may attain the
benefits of its bargain with the other. Accordingly, it is acknowledged and
agreed that although not foreseen or contemplated as of the date hereof, either
or both at the reasonable request of the other shall do, execute, acknowledge
and deliver or cause to be delivered or done any such further acts, deeds,
assignment, transfers, conveyances, powers of attorney, and assurance as may be
necessary to carry out the terms and intent of the Agreement (including
cooperation in any litigation with respect to the Assets brought by any party
not a party to this Agreement). Xxxxxxx further agrees that in order for
National to obtain the benefits provided in this Agreement, it will not directly
or indirectly, for itself or on behalf of any third party, for a period of three
(3) years following the Closing acquire any interest in lands or leases within
the Contract Area without the express written consent of National.
5. Confidentiality.
Xxxxxxx acknowledges and agrees that as a party to the JOA it has been
afforded access to and is in possession of certain non-public confidential
information concerning the Assets and the Contract Area (the "Confidential
Information") and the dissemination of which to unauthorized parties could
result in irreparable harm to National. Therefore, Xxxxxxx agrees that such
Confidential Information shall not be disclosed to any third party without the
express written consent of National; provided that this provision shall become
inoperative as to any such portion of the Confidential Information which (a)
becomes generally available to the public other than as a result of a disclosure
by Fortune or its representatives; (b) was available on a non-confidential basis
prior to its disclosure; (c) become available on a non-confidential basis from a
source other than National when Fortune reasonably believes such source is
entitled to make the disclosure; (d) is developed by or for Fortune independent
of Confidential Information made available by National; (e) is subject to
disclosure pursuant to the rules promulgated by the Securities and Exchange
Commission of the United States, the respective stock exchanges upon which the
parties are listed or other regulatory agency having lawful jurisdiction, or (f)
in the written opinion of counsel is required to be disclosed. Except as
provided for above, the obligation under this Agreement to preserve the
confidentiality of the Confidential Information shall terminate three (3) years
following the Closing.
3
6. Miscellaneous.
Nothing contained herein shall be construed so as to alter or diminish the
rights of Fortune or National as set forth in the JOA between the parties
including, but not limited to, the right to audit the production, revenue, or
joint interest billing records of operations conducted on the Assets prior to
the Effective Date. The parties intend, and do hereby affirm, that such rights
are to remain in Fortune and National for a period of ninety (90) days following
the Closing of the transaction contemplated hereby; provided that the parties
acknowledge and agree to extend such ninety (90) day period for an additional
period which shall end ninety (90) days after the later of (a) the determination
of the severance tax abatement adjustments referred to in Paragraph 2 above, or
(b) the submission to National and Fortune of the report of recommended audit
adjustments concerning that certain audit pertaining to the Assets to be
conducted by certain of the current working interest owners pursuant to the
terms and conditions of the JOA. Nothing contained herein, however, shall be
interpreted to alter or affect the rights of either party hereto to recover from
the other at any time any amounts due as a result of adjustments to severance
tax or the audit referred to in subparagraphs (a) and (b) above.
This Agreement, including the attached Exhibits, contains the entire
understanding of the parties hereto and supersedes all prior agreements between
the parties with respect to the subject matter hereof. This Agreement may be
amended or modified only by a written instrument duly executed by Xxxxxxx and
National. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL BE GOVERNED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS.
In the event of a dispute between the parties to this Agreement, the
parties agree not to file any action or petition in any court of law or equity
for any relief, but to participate in good faith in a minimum of four (4) hours
of mediation in Dallas, Texas with an attorney-mediator who has a minimum of
twenty (20) years of experience in the oil and gas industry and who is trained
and certified by the American Arbitration Association, the United States
Arbitration and Mediation Service, or any comparable organization, and to abide
by the mediation procedures and decision of such organization. The parties agree
to equally bear the costs of the mediation and to proceed as expeditiously as
allowed by the rules of such organization chosen to provide mediation services.
In the event the parties cannot resolve their dispute through mediation as
described herein, the parties agree to participate in binding arbitration and to
proceed as expeditiously as allowed pursuant to the rules of the American
Arbitration Association or mutually agreeable similar organization with an
arbitrator or arbitrators having a minimum of twenty (20) years experience in
the oil and gas industry. Such arbitration shall be held in Dallas, Texas, shall
be binding and nonappealable and a judgment on the award to the prevailing party
(inclusive of reasonable attorney's fees and costs) may be entered in any court
having competent jurisdiction.
4
If the foregoing accurately reflects your understanding of our agreement,
please date and sign one copy of this Agreement and return it to the
undersigned.
Very truly yours,
National Energy Group, Inc.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Xxxxx X. Xxxxxx
President and Chief Executive Officer
Accepted and Agreed
this 31st day of March, 1998.
Fortune National Resources Corporation
By: /s/ Xxxxxx X. Xxxxxxxxx
----------------------------------
Xxxxxx X. Xxxxxxxxx
President and Chief Executive Officer
