Exhibit 10d(1)
PURCHASE AGREEMENT
BY AND BETWEEN
WINCHESTER PRODUCTION COMPANY, LTD.
TGG PIPELINE, LTD.
PROGRESS FUELS CORPORATION
AND
ENCANA OIL & GAS (USA), INC.
November 18, 2004
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.......................................................1
1.1. Action.........................................................1
1.2. Agreement......................................................1
1.3. Allocated Value................................................1
1.4. Assignment.....................................................1
1.5. Assumption Agreement...........................................2
1.6. Assets.........................................................2
1.7. Assumed Liabilities............................................2
1.8. Base Purchase Price............................................2
1.9. Basket.........................................................3
1.10. Xxxx Lease.....................................................3
1.11. Books and Records..............................................3
1.12. Burdened Leases................................................3
1.13. Business Day...................................................3
1.14. Buyer..........................................................3
1.15. Buyer Claim....................................................3
1.16. Buyer Indemnified Party........................................3
1.17. Buyer's Schedule of Allocated Values...........................3
1.18. Closing........................................................3
1.19. Closing Date...................................................3
1.20. Code...........................................................3
1.21. Easements......................................................4
1.22. Effective Time.................................................4
1.23. Environmental Laws.............................................4
1.24. Xxxxx Lease....................................................4
1.25. Excluded Assets................................................4
1.26. Governmental Authority.........................................4
1.27. Hazardous Substances...........................................4
1.28. Knowledge of Seller............................................5
1.29. Laws...........................................................5
1.30. Lease..........................................................5
1.31. Lease Burdens..................................................5
1.32. Losses.........................................................5
1.33. Material Adverse Effect........................................5
1.34. Maximum Indemnity Amount.......................................5
1.35. Net Revenue Interest...........................................5
1.36. Office Leases..................................................5
1.37. Permits........................................................5
1.38. Permitted Encumbrances.........................................6
1.39. Personal Property..............................................6
1.40. PFC............................................................6
1.41. Prime Rate.....................................................6
(i)
1.42. Production.....................................................6
1.43. Production Payment.............................................7
1.44. Production Payment Liquidation Amount..........................7
1.45. Properties.....................................................7
1.46. Property Agreements............................................7
1.47. Purchase Price.................................................7
1.48. Referral Firm..................................................7
1.49. REI............................................................7
1.50. Retained Liabilities...........................................7
1.51. Seller.........................................................7
1.52. Seller Claim...................................................7
1.53. Seller Indemnified Party.......................................7
1.54. Taxes..........................................................7
1.55. Tax Returns....................................................8
1.56. TGG Assets.....................................................8
1.57. Title Defect...................................................8
1.58. Title Defect Mechanism.........................................8
1.59. Xxxxx..........................................................8
1.60. Working Interest...............................................8
ARTICLE II PURCHASE AND SALE................................................8
2.1. Purchase and Sale..............................................8
2.2. Purchase Price.................................................9
2.3. Adjustments to Base Purchase Price.............................9
2.4. Determination of Purchase Price...............................11
2.5. Allocation of Purchase Price..................................12
2.6. No Assumption of Retained Liabilities.........................12
2.7. Effective Time................................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.......................13
3.1. Organization..................................................13
3.2. Due Authorization.............................................13
3.3. No Violation or Conflict; Consents; Preferential Rights.......13
3.4. Title.........................................................13
3.5. Contracts.....................................................14
3.6. Lease Provisions..............................................15
3.7. Compliance with Law...........................................15
3.8. Litigation....................................................15
3.9. Taxes.........................................................15
3.10. Environmental Matters.........................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER.....................16
4.1. Organization..................................................16
4.2. Authorization.................................................16
(ii)
4.3. Noncontravention..............................................16
4.4. No Reliance...................................................16
4.5. Purchase for Investment.......................................17
4.6. Financing.....................................................17
ARTICLE V COVENANTS........................................................17
5.1. Conduct of Business...........................................17
5.2. Access to Information.........................................17
5.3. Further Assurances; Consents; Waiver of Notices...............17
5.4. Publicity.....................................................18
5.5. Environmental Investigation...................................18
5.6. Buyer's Schedule of Allocated Values..........................19
5.7. Amendment of Schedules........................................20
ARTICLE VI CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING; CLOSING....20
6.1. Conditions Precedent to Each Party's Obligations to Close.....20
6.2. Conditions Precedent to Obligations of the Buyer..............21
6.3. Conditions Precedent to Obligations of Seller.................21
6.4. The Closing...................................................22
ARTICLE VII ADDITIONAL COVENANTS...........................................23
7.1. Access to Books and Records...................................23
7.2. Tax Matters...................................................23
7.3. Surety Bonds..................................................24
7.4. Casualty......................................................24
7.5. Consents and Preferential Rights..............................24
7.6. Employee Matters..............................................25
7.7. Non-Solicitation..............................................25
7.8. Transition Services Agreement.................................25
7.9. Leased Equipment and Licensed Software........................25
7.10. Xxxx Lease....................................................25
7.11. Xxxxx Lease...................................................25
ARTICLE VIII SURVIVAL; INDEMNIFICATION.....................................26
8.1. Limitation on and Survival of Representations and Warranties..26
8.2. Indemnification by Seller.....................................26
8.3. Indemnification by Buyer......................................27
8.4. Limitation of Liability.......................................29
8.5. Exclusive Remedy..............................................29
8.6. Title Defects.................................................29
8.7. Disclaimer of Other Warranties................................29
(iii)
ARTICLE IX TERMINATION.....................................................30
9.1. Termination...................................................30
9.2. Effect of Termination.........................................31
9.3. Amendment.....................................................31
9.4. Extension; Waiver.............................................31
ARTICLE X MISCELLANEOUS....................................................31
10.1. Entire Agreement..............................................31
10.2. Expenses......................................................31
10.3. Governing Law.................................................32
10.4. Assignment....................................................32
10.5. Notices.......................................................32
10.6. Counterparts; Headings........................................33
10.7. Specific Performance..........................................33
10.8. Interpretation................................................33
10.9. Severability..................................................33
10.10. No Third-Party Reliance.......................................33
SCHEDULES
Exhibit A Procedure for Claiming Title Defects and Adjusting
the Base Purchase Price
Exhibit B Form of Assignment, Conveyance and Xxxx of Sale
Exhibit C Form of Assumption Agreement
Exhibit D Form of FIRPTA Affidavit
Exhibit E TGG Asset Assignment
Exhibit F Buyer's Initial Schedule of Allocated Values
Schedule 1.25 Excluded Leases
Schedule 2.1 TGG Assets
Schedule 2.3(a)(v) Condensate in Stock as of October 31, 2004
Schedule 2.3(b) Accrued Suspense Funds
Schedule 2.5 Allocation of Purchase Price (Tax)
Schedule 3.3 Conflicts
Schedule 3.4(a) Personal Property
Schedule 3.4(b) Leases
Schedule 3.4(c) Rights of Way and Surface Damage Agreements
Schedule 3.5(a) Property Agreements
Schedule 3.5(b) Exceptions to Contracts
Schedule 3.6 Exceptions to Lease Provisions
Schedule 3.7 Exceptions to Compliance with Law
Schedule 3.8 Litigation
(iv)
Schedule 3.9 Tax Partnerships
Schedule 3.10 Environmental Matters
Schedule 5.1 Expected Capital Expenditures
Schedule 5.5 Environmental Investigation
Schedule 5.6 Buyer's Schedule of Allocated Values
Schedule 7.3 Surety Bonds
Schedule 7.5 Consents and Preferential Rights
Schedule 7.6 Employees
(v)
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is made as of November 18, 2004, by
and between WINCHESTER PRODUCTION COMPANY, LTD., a Texas limited partnership
("Winchester" or, alternatively the "Seller"), TGG PIPELINE LTD., a Texas
limited partnership ("TGG"), solely for the purposes set forth below, Progress
Fuels Corporation, a Florida corporation solely for the purposes set forth below
("PFC") and ENCANA OIL & GAS (USA), INC. a Delaware corporation (the "Buyer").
RECITALS
A. Seller is the owner of certain oil and gas leases and xxxxx located in
the Denton, Tarrant, Wise and Hood Counties, Texas (all as further defined
below, the "Assets").
B. Seller desires to sell and Buyer desires to acquire the Assets on the
terms and under the conditions set forth in this Agreement.
C. TGG is joining this Agreement solely for the purposes of conveying
certain gathering lines and related easements.
D. PFC is joining this Agreement solely for the purpose of supporting
Seller's Indemnity Obligations set forth in Article VIII.
AGREEMENT
The parties, in consideration of the premises and of the mutual
representations, warranties, covenants, conditions and agreements set forth
herein and intending to be bound, agree as set forth below:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1. Action. "Action" means any action, claim, suit, litigation,
arbitration or governmental investigation.
1.2. Agreement. "Agreement" means this Agreement, together with the
Exhibits and Schedules attached hereto, as the same may be amended from time to
time in accordance with the terms hereof.
1.3. Allocated Value. "Allocated Value" means the monetary amount, for each
Lease, set forth on Exhibit F, as mutually agreed, for purposes of the Title
Defect Mechanism set forth on Exhibit A.
1.4. Assignment. The term "Assignment" means the Assignment, Conveyance and
Xxxx of Sale in the form of Exhibit B attached hereto. The Assignment may be
executed in multiple counterparts for recording in the various jurisdictions
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wherein the Assets are located. Interests in Leases that are federal leases will
also be transferred by means of federal government forms 3000-3 and 3000-3a, as
appropriate.
1.5. Assumption Agreement. The term "Assumption Agreement" means the
Assumption Agreement concerning the Assumed Liabilities, in the form of Exhibit
C attached hereto.
1.6. Assets. The term "Assets" means the following:
(a) The Property Agreements, including, without limitation, the
Leases;
(b) The Personal Property;
(c) The Production; and
(d) The Books and Records.
1.7. Assumed Liabilities. "Assumed Liabilities" means:
(a) any liability or obligation arising out of or resulting from
performance due on or after the Effective Time under any Property Agreement,
including but not limited to the Leases;
(b) any liability or obligation for Taxes due after the Effective Time
or assessed on the Assets from and after the Effective Time;
(c) any liability or obligation for properly plugging and abandoning
all of the Xxxxx and restoring the surface areas associated with the Xxxxx in
accordance and compliance with the rules and regulations of Governmental
Authorities having jurisdiction and the terms of the Leases;
(d) any liability or obligation relating to the accrued suspense funds
set forth on Schedule 2.3(b);
(e) any liability or losses attributable to a Title Defect for which
the Base Purchase Price is decreased pursuant to Section 2.3(b)(iv);
(f) if transferred subject to Section 7.5, the Production Payment;
(g) except as it may arise from a breach of the representation set
forth in Section 3.10, any matter relating to the environmental condition of the
Properties including, without limitation, any Environmental Defects for which
the Base Purchase Price is adjusted at Closing; and
(h) the Office Leases.
1.8. Base Purchase Price. "Base Purchase Price" has the meaning it is given
in Section 2.2.
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1.9. Basket. "Basket" has the meaning given in Section 8.4.
1.10. Xxxx Lease. "Xxxx Lease" means that certain oil, gas and mineral
lease covering approximately 1000.30 acres in Xxxxxx County, Texas, dated June
30, 2003, by and between B Oil Investments, Ltd., as lessor, and Star of Texas
Energy Services, Inc., as lessee, as the same may have been amended or
supplemented from time to time, and a memorandum of which is recorded at Volume
365, Page 7465, of the Real Property Records of Xxxxxx County, Texas.
1.11. Books and Records. The term "Books and Records" means, in whatever
form or media expressed, all books, records, files or copies thereof, in
Seller's possession relating directly to the Assets, including, without
limitation, geological, plats, surveys, maps, cross-sections, production
records, electric logs, cuttings, cores, core data, pressure data, decline and
production curves, well files and all related matters, division of interest
records, division orders, lease files, title opinions, abstracts, lease
operating statements and all other accounting information, marketing reports,
statements, gas balancing information and all other marketing information, all
geophysical and seismic records except to the extent that the transfer of such
geophysical or seismic records would violate existing licensing or other
contractual restrictions on such transfer, but excluding all Tax Returns.
1.12. Burdened Leases. "Burdened Leases" means those Leases that are
subject to the Production Payment, as set forth on Exhibit A to the Production
Payment.
1.13. Business Day. "Business Day" means any day other than (i) a Saturday
or Sunday; or (ii) a day on which commercial banks in New York, New York or
Dallas, Texas, are closed.
1.14. Buyer. "Buyer" is defined in the opening paragraph.
1.15. Buyer Claim. "Buyer Claim" means a claim for indemnification by Buyer
pursuant to Section 8.2.
1.16. Buyer Indemnified Party. "Buyer Indemnified Party" is defined in
Section 8.2(a).
1.17. Buyer's Schedule of Allocated Values. "Buyer's Schedule of Allocated
Values" is defined in Section 5.6.
1.18. Closing. "Closing" means the conference held at 10:00 a.m., local
time, on the Closing Date, at the offices of Hunton & Xxxxxxxx LLP, Energy
Plaza, 30th Floor, 0000 Xxxxx Xxxxxx, Xxxxxx, Xxxxx 00000-0000.
1.19. Closing Date. "Closing Date" means the latter of: (i) December 17,
2004, or (ii) the first Business Day following the date that the last of the
conditions to Closing set forth in Section 6.1, 6.2 and 6.3 are fulfilled; or
(iii) such other date as the parties may mutually agree in writing.
1.20. Code. "Code" means the Internal Revenue Code of 1986, as amended.
3
1.21. Easements. "Easements" means all rights of way, easements, surface
leases and other rights of surface use held by Seller.
1.22. Effective Time. "Effective Time" is defined in Section 2.7.
1.23. Environmental Laws. "Environmental Laws" means any and all Laws,
regulations, guidance, or other requirements relating to public health, or to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
including, without limitation, the Clean Air Act, the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Toxic Substances Control Act
("TSCA"), the Clean Water Act, the Safe Drinking Water Act, the Hazardous
Materials Transportation Act ("HMTA"), the Oil Pollution Act of 1990, all as
amended, and any state laws implementing or analogous to the foregoing federal
laws, and all other laws relating to or regulating emissions, discharges,
releases, or cleanup of pollutants, contaminants, chemicals, polychlorinated
biphenyls ("PCBs"), oil and gas exploration and production wastes, brine, solid
wastes, or toxic or Hazardous Substances or wastes.
1.24. Xxxxx Lease. "Xxxxx Lease" means that certain oil, gas and mineral
lease, dated August 1, 2002, by and between Xxxxx Enterprises LP, as lessor, and
Republic Energy, Inc., as lessee, as amended and extended from time to time,
recorded at Volume 4935, Page 2741, of the Real Property Records of Xxxxxx
County, Texas.
1.25. Excluded Assets. "Excluded Assets" means:
(a) the oil and gas leases excluded due to title or other issues, as
set forth on Schedule 1.25;
(b) a copy of the Books and Records; and
(c) any production xxxxxx or other derivatives related to the Assets.
1.26. Governmental Authority. "Governmental Authority" means any federal,
state, provincial, municipal, local or other governmental department,
commission, board, bureau, agency or instrumentality, or any court, in each case
whether of the United States, any of its possessions or territories, or of any
foreign nation.
1.27. Hazardous Substances. "Hazardous Substances" means any substance or
material which, if present in the environment would, under applicable law,
require assessment, remediation, or corrective action including, without
limitation, chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products which are classified as hazardous, toxic,
radioactive, dangerous, or otherwise regulated by, or form the basis for
liability under, any Environmental Laws including but not limited to any
Polluting Substances, hazardous wastes under RCRA, hazardous substances under
CERCLA, toxic substances under TSCA, hazardous materials under HMTA, or
comparable materials or classification under any other of the Environmental
Laws.
4
1.28. Knowledge of Seller. "Knowledge of Seller" means the actual knowledge
of the following officers of Seller: (i) the Senior Vice President, Gas
Operation; (ii) the Vice President of the North Texas business unit; (iii) the
Operations Manager, Engineering Manager and Land Manager of the North Texas
business unit.
1.29. Laws. "Laws" means any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder, all of the foregoing as in effect on the date hereof.
1.30. Lease. "Lease" (individually) and "Leases" (collectively) means the
oil, gas, and/or mineral leases (including federal leases) owned by Winchester
in Denton, Tarrant, Wise and Hood Counties, Texas, including, but not limited to
leaseholds, record title and operating rights, royalty or overriding royalty
interests owned by Winchester in such leases. Schedule 3.4(b) sets forth a list
of the Leases, together with a description of Winchester's Net Revenue Interest
and Working Interest therein and the Allocated Value associated therewith, and a
list of the Xxxxx associated with such Leases.
1.31. Lease Burdens. "Lease Burdens" means the royalties, overriding
royalties, production payments (other than the Production Payment), net profit
interests, and all similar interests burdening the Leases or production
therefrom, that are legally binding and enforceable at law or in equity.
1.32. Losses. "Losses" is defined in Section 8.2(a).
1.33. Material Adverse Effect. "Material Adverse Effect" or "Material
Adverse Change" means a material adverse effect on or change in (or any
development that, insofar as reasonably can be foreseen, is reasonably likely to
have a material adverse effect on or change in) the Assets, other than any
change, circumstance or effect (i) relating to the economy or securities markets
in general, (ii) affecting the oil and gas or energy industry generally, such as
fluctuations in the price of oil or gas, or (iii) resulting from the execution
or performance of this Agreement or the announcement thereof.
1.34. Maximum Indemnity Amount. "Maximum Indemnity Amount" is defined in
Section 8.4.
1.35. Net Revenue Interest. "Net Revenue Interest" means the decimal
ownership of the lessee in production from a Lease, after deducting all
applicable Lease Burdens.
1.36. Office Leases. "Office Leases" means: (i) that certain lease
agreement between PFC, as tenant, and TIAA Realty, Inc., as landlord, dated May
23, 2003, regarding the lease of Winchester's office space in Irving, Texas; and
(ii) that certain lease agreement between Progress Fuels North Texas Gas, L.P.,
as tenant, and the Xxxxx X. Xxxxx Non-Exempt Trust, as successor in interest to
the Estate of L.E. Grace, as landlord, dated September 1, 2003, regarding the
lease of Winchester's office space in Bridgeport, Texas.
1.37. Permits. "Permits" means all written permits, licenses and
governmental authorizations, registrations and approvals required, as of the
date hereof, for the conduct of Seller's business.
5
1.38. Permitted Encumbrances. "Permitted Encumbrances" means: (A) liens,
charges, encumbrances, contracts, agreements, instruments, obligations, defects
and irregularities of title and restrictions of right or interest of any nature
affecting any Lease that will be discharged at Closing; (B) lessors' royalties,
overriding royalties, and similar burdens that do not operate to reduce the Net
Revenue Interest of Winchester in any Lease; (C) division orders and sales
contracts relating to hydrocarbons that are terminable, without material
penalty, upon no more than 90 days notice to the purchaser under such division
orders or sales contract (subject to applicable governmental regulations); (D)
all rights to consent by, required notices to, and filings with or other actions
by governmental authorities, if any, in connection with the change of ownership
or control of an interest in any Lease; (E) any required third-party consent to
change of ownership or control of the Leases or similar agreements; (F)
materialmen's, mechanics', repairmen's, employees', contractors', operators',
tax and other similar liens or charges arising pursuant to operations or in the
ordinary course of business incidental to construction, maintenance, or
operation of the Leases (i) if they have not been filed pursuant to law, or (ii)
if filed, payment is being withheld as provided by law, or (iii) if their
validity is being contested in good faith by appropriate action; or (iv) if due
and payable, now or in the future, provision has been made by Winchester for the
payment thereof; (G) easements in respect of surface operations, pipelines, or
the like and easements on, over or in respect of the Leases that are not such as
to interfere materially with the operation or use of the Leases; (H) all other
inchoate liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects and irregularities, including Title Defects, affecting any
of the Leases that individually or in the aggregate are customary in the
industry and are not such as to interfere materially with the operation, value
or use of any of the Leases, and which do not reduce the Net Revenue Interest of
the Leases to less than the applicable Net Revenue Interest set forth in
Schedule 3.4(b) and do not obligate Winchester to bear costs and expenses
relating to the maintenance, development and operation of any of the Leases in
an amount greater than the applicable Working Interest set forth in Schedule
3.4(b); (I) all applicable Laws, rules and orders of any governmental authority;
and (J) inchoate liens for Taxes not due and payable before the Closing Date.
1.39. Personal Property. The term "Personal Property" means all of Seller's
interest in all of the tangible personal property, fixtures and improvements now
and as of the Effective Time on, appurtenant to or used solely in connection
with the Assets or with the production, treatment, storage, sale or disposal of
hydrocarbons, water or other minerals or substances produced from the Leases,
including, without limitation, all Xxxxx, wellhead equipment, fixtures, casing
and tubing, all production, storage, treating, compression, dehydration,
delivering, salt water disposal and pipeline fixtures, and other facilities of
every kind, character and description, used or usable solely in connection with
the production, treatment, storage, delivery, sale or disposal of hydrocarbons,
water or other minerals or substances produced from the Assets, including but
not limited to those identified on Schedule 3.4(a).
1.40. PFC. The term "PFC" is defined in the introductory paragraph.
1.41. Prime Rate. "Prime Rate" means the prime rate as published from time
to time in the Wall Street Journal.
6
1.42. Production. The term "Production" means all of Seller's right, title
and interest in the oil, gas, casinghead gas, condensate, distillate and other
liquid and gaseous hydrocarbons produced from the Leases, products refined and
manufactured therefrom and the accounts and proceeds from the sale thereof to
the extent the Production has been produced, or accrued, or is held on the
Leases or in the tanks from and after the Effective Time.
1.43. Production Payment. "Production Payment" means the interest in
production from the Burdened Leases that is attributable to the interest of REI,
as set forth in that certain Memorandum of Production Payment between Progress
Fuels North Texas Gas, L.P. and REI, dated February 24, 2003 and recorded in the
Official Records of Denton, Tarrant and Wise Counties, Texas.
1.44. Production Payment Liquidation Amount. "Production Payment
Liquidation Amount is defined in Section 7.5(b).
1.45. Properties. "Properties" means the lands associated with and subject
to the Leases, to the extent, and only to the extent, that Seller has made use
of such lands in connection with the exploration or drilling for, or production
of, hydrocarbons under the terms of the Leases.
1.46. Property Agreements. The term "Property Agreements" means the Leases,
pooling and unitization agreements, hydrocarbon purchase and sale contracts,
leases, permits, rights-of-way, easements, servitudes, licenses, farmouts,
options, surface leases, surface fee interests, orders and other contracts or
agreements: (i) to the extent relating to any Well or to the other Assets; or
(ii) to the extent relating to the production, storage, treatment,
transportation, processing, sale or disposal of hydrocarbons, water or other
minerals or substances produced therefrom or attributable thereto, including but
not limited to those identified on Schedule 3.5(a).
1.47. Purchase Price. "Purchase Price" means the amount specified in
Section 2.2 hereof.
1.48. Referral Firm. "Referral Firm" is defined in Section 2.4(d)(ii).
1.49. REI. "REI" means Republic Energy, Inc.
1.50. Retained Liabilities. "Retained Liabilities" means all liabilities
and obligations of the Seller, whether such liabilities or obligations relate to
payment, performance or otherwise, other than the Assumed Liabilities.
1.51. Seller. "Seller" means Winchester Production, Company, Ltd, a Texas
limited partnership.
1.52. Seller Claim. "Seller Claim" means a claim to indemnification by
Seller pursuant to Section 8.3.
1.53. Seller Indemnified Party. "Seller Indemnified Party" is defined in
Section 8.3.
1.54. Taxes. "Taxes" means any and all taxes, levies, imposts, duties,
assessments, charges and withholdings imposed or required to be collected by or
paid over to any Governmental Authority, including any interest, penalties,
fines, assessments or additions imposed with respect to the foregoing.
7
1.55. Tax Returns. "Tax Returns" means any report, return, information
statement, payee statement or other information required to be provided to any
Governmental Authority, with respect to Taxes, including any return of an
affiliated, combined or unitary group, and any and all work papers relating to
any Tax Return.
1.56. TGG Assets. "TGG Assets" is defined in Section 2.1(d).
1.57. Title Defect. "Title Defects" means any condition other than a
Permitted Encumbrance that now or in the future: (A) reduces Seller's Net
Revenue Interest in any of the Leases to less than the amount as shown on
Schedule 3.4(b) for each Lease; (B) increases Seller's Working Interest as set
forth on Schedule 3.4(b) for each Lease (other than increases that would result
in the Net Revenue Interest in such Lease or Well being proportionately
increased); or (C) imposes, on any of the Leases any lien, charge, encumbrance,
claim, easement, servitude, right, burden or defect that is not a Permitted
Encumbrance hereunder. It is expressly understood that Permitted Encumbrances
and the Production Payment do not constitute Title Defects.
1.58. Title Defect Mechanism. "Title Defect Mechanism" means the procedure
whereby the Purchase Price is adjusted to compensate for variations in the
Allocated Values caused by Title Defects. The Title Defect Mechanism is set
forth in Exhibit A.
1.59. Xxxxx. "Xxxxx" means any of the oil or gas xxxxx specifically
identified on Schedules 3.4(b).
1.60. Working Interest. "Working Interest" means that interest which bears
a share of all costs and expenses proportionate to the interest owned,
associated with the exploration, development and operation of a Lease and the
Xxxxx associated therewith, that the owner of a Lease is required to bear and
pay by reason of such ownership, expressed as a decimal.
ARTICLE II
PURCHASE AND SALE
2.1. Purchase and Sale.
(a) At the Closing, Seller shall sell, assign, convey, transfer and
deliver to the Buyer, and Buyer shall purchase and accept from Seller, all of
Seller's right, title and interest in and to the Assets; provided, however, the
Excluded Assets will not be conveyed or purchased hereunder, but will be
excluded from this transaction.
(b) At the Closing, Buyer shall assume and become obligated to pay,
perform, or otherwise discharge the Assumed Liabilities.
(c) Notwithstanding anything herein to the contrary, Buyer shall not
acquire any right or interest in any properties of Seller other than the Assets
or in any proceeds of production produced and sold from the Assets prior to the
Effective Time or in any payments due Seller for production from the Assets
prior to the Effective Time.
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(d) At Closing, TGG shall sell, assign, convey, transfer and deliver
to Buyer, and Buyer shall purchase and accept from TGG, all of TGG's right,
title and interest in and to the gathering lines and easements set forth in
Schedule 2.1(d) (the "TGG Assets"). At the Closing, Buyer shall assume and
become obligated to pay, perform, or otherwise discharge any liabilities or
obligation arising from or related to the TGG Assets.
2.2. Purchase Price. The purchase price for the Assets, including the TGG
assets, will be Two Hundred Fifty-Five Million United States Dollars
($255,000,000.00 US)(the "Base Purchase Price"), adjusted as provided in this
Article II (the Base Purchase Price as so adjusted, being herein called the
"Purchase Price"). At the Closing, Buyer shall pay Seller the Purchase Price in
immediately available funds.
2.3. Adjustments to Base Purchase Price.
(a) To determine the Purchase Price, the Base Purchase Price shall be
increased by the following amounts:
(i) the amount of all (1) ad valorem, property or similar Taxes
paid by Seller and relating to the Assets for periods from and after the
Effective Time, calculated in a similar fashion as set forth in Section
2.3(b)(i), and (2) any other expenses paid by Seller and relating to the
Assets for periods from and after the Effective Time;
(ii) the aggregate amount of any and all operating costs paid by
Seller that relate to the Assets for periods from and after the Effective
Time (excluding amounts for which the Base Purchase Price is increased
pursuant to Section 2.3(a)(i) above), including, but not limited to, lease
operating expenses, transportation and marketing expenses, lease payments,
severance taxes and producing overhead rates;
(iii) the aggregate amount of any and all capital expenditures
actually made by Seller or on Seller's behalf that relate to the Assets for
periods from and after the Effective Time;
(iv) an amount of money equal to the sum of the daily salaries of
all Winchester personnel directly employed in the operation and
administration of the Xxxxx, multiplied by the number of days between the
Effective Time and the Closing Date, but not to exceed $200,000;
(v) an amount of money equal to the value of oil or condensate
held on the Leases in the tanks above the load line, as measured and
recorded by Seller in the ordinary course of business as of October 31,
2004, (as set forth on Schedule 2.3(a)(v)) at a price per barrel of oil or
condensate as established in that certain crude purchase contract between
Seller and Sunoco for the month of October, 2004 (decreased by the amount
of severance taxes attributable to such oil or condensate);
(vi) an amount equal to interest on the Purchase Price paid at
Closing from the date of execution of this Agreement until the Closing Date
at the Prime Rate plus 2% (but in no event will this amount exceed
$500,000); and
9
(vii) the value of any imbalances of natural gas owed by Seller
to third parties and attributable to the Assets as of the Effective Time,
such value to be $4.50 per MMBtu, less applicable royalties and taxes; and.
(viii) any other amount agreed upon by the parties in writing.
(b) To determine the Purchase Price, the Base Purchase Price shall be
decreased by the following amounts:
(i) the amount of all of Seller's unpaid ad valorem, production,
severance, property or similar Taxes relating to the Assets, to the extent
that such unpaid Taxes relate to periods of time before the Effective Time
(to the extent that any such amount has not been finally determined by
Closing or any other date of determination, such amount will be estimated
based upon the amount paid for the previous year for the same asset or
assets). Such Taxes with respect to a period which the Effective Time
splits shall be prorated based on the number of days in such period which
fall on each side of the Effective Time; provided however, to the extent
that such Taxes are computed based on the production from the Assets, such
Taxes shall be prorated between the parties based on the period in which
such production which is the basis for such calculation occurs, in the same
manner as the parties are entitled to receive (or be credited with) such
production pursuant to the terms hereof;
(ii) amounts equal to all revenues (net of royalty, overriding
royalty payments and similar such payments) collected by Seller that are
attributable to production of oil or gas from the Assets (but not taking
into account any xxxxxx) and relating to periods of time from and after the
Effective Time;
(iii) an amount equal to the amount of accrued suspense funds set
forth on Schedule 2.3(b);
(iv) an amount, calculated in accordance with the procedures of
Exhibit A for Title Defects, equal to the agreed value of any Title Defect
that is asserted prior to Closing, agreed to by Seller, and remains uncured
by Seller at Closing; provided that Title Defects for which there is no
agreement prior to Closing shall be addressed in accordance with procedures
of Exhibit A;
(v) an amount calculated pursuant to Section 5.5 for
Environmental Defects;
(vi) if the Production Payment is transferred pursuant to Section
7.5, the Production Payment Liquidation Amount;
(vii) the value of any imbalances of natural gas owed by third
parties to Seller and attributable to the Assets as of the Effective Time,
such value to be $4.50 per MMBtu, less applicable royalties and taxes;
(viii) any other amount agreed upon by the parties in writing;
and
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(ix) an amount of money equal to the Allocated Value of any
Leases set forth on Schedule 7.5 that are removed from the purchase and
sale under this Agreement by reason of the exercise of a preferential right
to purchase by the holder of such right prior to Closing.
2.4. Determination of Purchase Price.
(a) The amount to be paid by Buyer to Seller at Closing in
consideration of the sale and delivery of the Assets to Buyer in accordance with
this Agreement shall be determined by adding to or subtracting from the Base
Purchase Price, as applicable, each adjustment to be made to the Base Purchase
Price at Closing pursuant to Sections 2.3(a) and (b), as proposed by Seller and
not disputed by Buyer in accordance with this Section 2.4.
(b) Seller shall prepare and deliver to Buyer at least five (5)
Business Days before the Closing Date a statement (the "Preliminary Settlement
Statement") setting forth Seller's good faith estimate of each adjustment to be
made in accordance with Sections 2.3(a) and (b). Buyer may dispute in good faith
Seller's estimate of the amount of such adjustments by delivery to Seller by
written notice thereof within three (3) Business Days after receipt of such
estimate. Buyer and Seller shall use commercially reasonable efforts to resolve
any such dispute prior to Closing; provided, that any and all amounts so
disputed or other adjustments claimed by Seller and not resolved by mutual
agreement of Buyer and Seller prior to Closing shall be resolved in accordance
with Section 2.4(d) and the Closing shall occur with payment of the Base
Purchase Price less the amount of the disputed items, notwithstanding any such
dispute; provided, however Title Defects and Environmental Defects shall be
addressed as set forth in Sections 2.3(b)(iv) and 2.3(b)(v).
(c) After the Closing, the Purchase Price shall be subject to further
adjustment pursuant to Section 2.4(d) of this Agreement, and neither Seller's
delivery of an estimate of adjustments pursuant to this Section 2.4, the
delivery of a dispute notice by Buyer pursuant to this Section 2.4, nor the
failure to deliver any such dispute notice shall bar any such further
adjustments.
(d) (i) On or before the ninetieth (90th) day after the Closing,
Seller shall prepare and deliver to Buyer in accordance with this Agreement, a
statement (the "Final Settlement Statement") setting forth Seller's calculation
of the final adjustments and showing the calculation of such adjustments. Within
thirty (30) days after receipt of the Final Settlement Statement, Buyer shall
deliver to Seller a written report containing any changes that Buyer proposes be
made to the Final Settlement Statement and the reasons for those changes. The
parties shall attempt to agree to the amounts due pursuant to such adjustments,
including any amounts disputed under Section 2.4(b), no later than ninety (90)
days after Buyer's receipt of the Final Settlement Statement. The date upon
which such agreement is reached shall be herein called the "Final Settlement
Date". Within five (5) Business Days from the Final Settlement Date, the party
owing any amount for additional adjustments shall pay such amount, in
immediately available funds.
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(ii) If Seller and Buyer are unable to agree upon the Final
Settlement Statement by the ninetieth (90th) day after Buyer's receipt of same,
KPMG LLP (or, if such firm is unable or unwilling to act, such other nationally
recognized independent public accounting firm as shall be agreed upon by Buyer
and Seller in writing) (the "Referral Firm") shall review Seller's Final
Settlement Statement and the records relating to the Leases and determine the
final adjustments, other then adjustments determined under the mechanism
regarding Title Defects set forth in Exhibit A. With respect to any matters
under this Agreement to be resolved by the Referral Firm, neither the Referral
Firm nor any person employed by the Referral Firm will interpret the provisions
of this Agreement unless otherwise agreed by Seller and Buyer. With respect to
any matters for which interpretation of this Agreement is required, and for
which Buyer and Seller cannot agree on such interpretation, such matter shall be
submitted to arbitration in a similar manner as set forth in Exhibit A,
paragraph 6 regarding Title Defect disputes and the Referral Firm shall decide
all other matters specified in this Section 2.4(d)(ii). The decision of the
Referral Firm shall be binding on Buyer and Seller, and the fees and expenses of
the Referral Firm shall be borne one-half each by Buyer and Seller. The Referral
Firm shall deliver its final calculation of the Purchase Price in writing to
Buyer and Seller as soon as is practicable, and the parties shall pay and
receive the final adjustment amount, no later than the fifth (5th) business day
following the paying person's receipt from the Referral Firm of the final
Purchase Price determination.
(e) The parties will, and will cause their representatives to,
cooperate and assist in the preparation of the Final Settlement Statement and
the conduct of the reviews and audits referred to in this Section 2.4, including
but not limited to making available books, records and personnel as required.
2.5. Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets as provided in Schedule 2.5, which shall be prepared by Buyer
prior to Closing, and in a form that is acceptable to Seller. Schedule 2.5 will
make an initial allocation based upon the Allocated Values and will provide for
adjusting the allocation as necessary to reflect adjustments to the Base
Purchase Price. Such allocation is intended to comply with the allocation method
required by Section 1060 of the Code and the regulations thereunder, and the
parties shall cooperate to comply with all procedural requirements of Section
1060 and such regulations. Buyer and Seller agree that they will not take nor
will they permit any affiliated person to take any tax position inconsistent
with the allocation made pursuant to Schedule 2.5; provided, however, that (i)
Buyer's cost for the Assets may differ from the total amount allocated
thereunder to reflect Buyer's capitalized transaction costs not included in the
amount allocated, and (ii) Seller's amount realized on the sale of the Assets
may differ from the total amount so allocated to reflect Seller's transaction
costs that reduce the amount realized.
2.6. No Assumption of Retained Liabilities. Except as specifically set
forth herein with respect to the Assumed Liabilities, the Buyer does not and
will not assume any liability or obligation of Seller, or any obligation
relating to the business or the use of the Assets or the performance under the
Property Agreements whether absolute or contingent, asserted or unasserted,
known or unknown, disclosed pursuant to this Agreement or otherwise. All of the
Retained Liabilities shall remain the sole responsibility of and shall be
retained, paid, performed and discharged solely by the Seller.
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2.7. Effective Time. For all purposes of this Agreement, the "Effective
Time" shall mean 12:01 a.m. Central Standard Time on November 1, 2004.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
3.1. Organization. Seller is duly organized, validly existing and in good
standing under the laws of the State of Texas. Seller has full power and
authority to conduct its business as it is now being conducted and to own the
Assets (or to lease those Assets leased by it). Seller is duly qualified to do
business as a limited partnership and is in good standing in each jurisdiction
in which such qualification is necessary under applicable law as a result of the
conduct of its business or the ownership of the Assets.
3.2. Due Authorization. The execution, delivery and performance of this
Agreement have been authorized by all necessary action on the part of Seller,
and no further actions on the part of Seller are necessary to authorize the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement, and all of the other documents
or instruments required to be executed and delivered by Seller at Closing have
been, or at Closing will be, duly executed and delivered by Seller and (assuming
the due authorization, execution and delivery hereof and thereof by Buyer) are
valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms (except to the extent that enforcement may be
affected by applicable bankruptcy, reorganization, insolvency and similar laws
affecting creditors' rights and remedies generally and by general principles of
equity (regardless of whether enforcement is sought at law or in equity)).
3.3. No Violation or Conflict; Consents; Preferential Rights. Except as set
forth on Schedule 3.3, the execution, delivery and performance of this Agreement
and all of the other documents and instruments contemplated hereby to which
Seller is a party does not and will not (a) conflict with, violate or breach any
Laws, judgment, order or decree binding on Seller, the articles of organization
or operating agreement of Seller, or any material contract to which Seller is a
party or by which it is bound, or (b) give any party to any of the Property
Agreements to which Seller is a party or by which they are bound any right of
termination, breach, cancellation, acceleration or modification thereunder.
3.4. Title.
(a) To the Knowledge of Seller, Schedule 3.4(a) contains a list of all
the material items of Personal Property. Subject to ordinary wear and tear and
to scheduled or necessary repairs in the ordinary course of business, all
material items of Personal Property are in reasonably good and serviceable
condition and repair and there are no necessary material repairs, improvements,
restoration or other service work necessary to make any of such assets
serviceable, except as specifically identified on Schedule 3.4(a). All leases
covering any and all Personal Property are identified on Schedule 3.4(a). Except
as set forth on Schedule 3.4(a), Seller owns the Personal Property free and
clear of any claim, lien, right, or encumbrance, except for Permitted
Encumbrances.
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(b) Set forth on Schedule 3.4(b) is a true, correct and complete
description of each of the Leases, together with a description of the Seller's
Net Revenue Interest and Working Interest therein, and the Allocated Value
associated therewith, and a list of the Xxxxx located on the lands associated
with and subject to the Leases.
(c) Schedule 3.4(c) contains a list of all rights of way and surface
damage agreements associated therewith that are held by Seller.
(d) Exhibit A sets forth the procedure for adjustment of the Base
Purchase Price to account for Title Defects.
3.5. Contracts.
(a) Schedule 3.5(a) lists the material Property Agreements. Prior to
the date hereof, Seller has provided Buyer with access to true and correct
copies of all Property Agreements. Except as set forth on Schedule 3.5(b): (i)
each Property Agreement is a valid and binding agreement of Seller, enforceable
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, or other laws affecting creditors' rights generally
or equitable principles; (ii) Seller has performed, and to the Knowledge of
Seller every other party has performed, each material term, covenant and
condition of each of the Property Agreements to which Seller is a party that is
to be performed by Seller or such other party at or before the date hereof;
(iii) to the Knowledge of Seller no event has occurred that would, with the
passage of time or compliance with any applicable notice requirements or both,
constitute a default by Seller or any other party, under any of the Property
Agreements to which Seller is a party, except for such defaults that
individually or in the aggregate are not reasonably expected to have a Material
Adverse Effect on any of the Property Agreements; and (iv) Seller does not
intend, and Seller has not received notice that any other party to a Property
Agreement intends, to cancel or terminate any of such Property Agreements on or
before the Closing Date.
(b) Except as set forth on Schedule 3.5(b) there are no on-going
renegotiations of, or attempts to renegotiate, any amounts paid or payable to
Seller under any of the Property Agreements and no party has made written demand
for such renegotiations. Except as set forth on Schedule 3.5(b), there are no
commissions due (or to become due) to any broker or other party as a result of
the purchase or sale of hydrocarbons under any of the Property Agreements.
Except as set forth on Schedule 3.5(b), Seller has not, with respect to the
Property Agreements: (i) received any quantity of natural gas or liquids,
condensate or crude oil to be paid for thereafter other than in the normal cycle
of billing; or (ii) received prepayments, advance payments or loans which will
require the performance of services or provision of natural gas or liquids,
condensate or crude oil under such Property Agreements on or after the Effective
Time without being currently paid therefore other than in the normal cycle of
billing. Except as set forth on Schedule 3.5(b), Seller is not obligated, by
virtue of prepayment arrangement, make up right under production sales contract
containing a "take or pay" or similar provision, gas balancing agreement,
production payment or any other arrangement to deliver hydrocarbons, or proceeds
from the sale thereof, attributable to the Leases at some future time without
then or thereafter receiving the full contract price therefore. Except as set
forth on Schedule 3.5(b) or in any Property Agreement, there is no call upon,
option to purchase or similar right to obtain hydrocarbons from the Leases in
favor of any person or entity other than pursuant to renewal rights or automatic
renewal provisions contained in existing contracts for the sale for
hydrocarbons.
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3.6. Lease Provisions. All Leases are in force and effect and are
maintained by their terms. Accurate and timely payment of delay rentals have
been made to maintain in force and effect all Leases within the primary term on
which drilling operations were not timely commenced. All other Leases are
validly preserved beyond the primary term by production in paying quantities or
the accurate and timely payment of shut-in royalty payments or otherwise. Except
as set forth on Schedule 3.6, all rentals, royalties, overriding royalty
interests and other payments due under each of the Leases have been timely and
accurately paid, except amounts that are being held in suspense as a result of
title issues in circumstances that do not provide any third party a right to
terminate any such Lease. Schedule 2.3(b) lists the accrued suspense funds by
Well.
3.7. Compliance with Law. Except as set forth on Schedule 3.7:
(a) All material filings and notices relating to the Leases, or the
ownership or operation thereof, required to be made by Seller with all
applicable state and federal agencies have been made by or on behalf of Seller.
Seller is not in violation of any Law with respect to the Assets, except for
such violations as are not, individually or in the aggregate, reasonably
expected to have a Material Adverse Effect on the Leases as a whole.
(b) Seller holds all of the Permits necessary for the operation of
Seller's business as currently conducted, other than Permits for which the
failure to hold is not, individually or in the aggregate, reasonably expected to
have a Material Adverse Effect on Seller. There are no proceedings pending or,
to the Knowledge of Seller, threatened that are reasonably expected to result in
the revocation, cancellation, suspension or modification of the Permits. There
are no proceedings pending or, to the Knowledge of Seller, threatened (x) with
respect to any alleged failure to have all Permits required in connection with
the operation of Seller's business as currently conducted, or (y) with respect
to any valid requirement to plug or abandon any Well in which Seller owns an
interest or that is located on any of the Leases.
3.8. Litigation. Except as set forth on Schedule 3.8 or Schedule 3.10,
there is no claim, legal action, suit, litigation, arbitration, dispute or
investigation, judicial, administrative or otherwise, or any order, decree or
judgment, now pending or in effect, or, to the Knowledge of Seller, threatened
or contemplated, that, if adversely determined, would have a Material Adverse
Effect on the Assets or the transactions contemplated by this Agreement.
3.9. Taxes. There are no liens for Taxes on the Assets, except for Taxes
not yet due, and (subject to Section 7.2(a)) there is no unpaid Tax payable by
Seller for which Buyer would become liable by reason of purchasing the Assets
hereunder. Seller has filed or will file all federal, state, local and other tax
reports and returns required to be filed by Seller in connection with its
ownership or operation of the Assets. Schedule 3.9 sets forth a list of joint
operating agreements to which Seller is a party and for which there has not been
made a valid election out of Subchapter K of the Code. Except as set forth on
Schedule 3.9, to the Knowledge of Seller, none of the Assets is subject to any
tax partnership as defined in Section 761 of the Code.
3.10. Environmental Matters. The Seller represents and warrants that as to
the Properties, there are no pending or, to the Knowledge of Seller, threatened
(1) lawsuits, (2) notices of violation or notices of deficiency, (3) civil or
criminal penalties, or (4) other unresolved orders based on any noncompliance
15
with Environmental Laws. The Seller also represents and warrants that as to
Seller's Knowledge, there are no material adverse environmental conditions
existing on any of the Properties, except as disclosed in Schedule 3.10. SECTION
3.10 CONSTITUTES SELLER'S SOLE REPRESENTATION AND WARRANTY WITH RESPECT TO
ENVIRONMENTAL LAWS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer hereby represents and warrants to Seller:
4.1. Organization. The Buyer is a corporation, duly formed, validly
existing and in good standing under the laws of Delaware. The Buyer is duly
qualified as a foreign corporation in good standing in each jurisdiction in
which the conduct of its business requires such qualification, except where the
failure to be so qualified would not prevent, materially delay or affect
consummation of the transactions contemplated hereby.
4.2. Authorization. The Buyer has full power and authority to execute,
deliver and perform this Agreement and each agreement or instrument (to which it
is a party) executed in connection herewith or delivered pursuant hereto and to
consummate the transactions contemplated hereby. The Buyer's execution, delivery
and performance of this Agreement and all agreements and instruments executed in
connection herewith or delivered pursuant hereto and the transactions
contemplated hereby have been duly authorized by all requisite action. This
Agreement and all agreements or instruments executed by the Buyer in connection
herewith or delivered by the Buyer pursuant hereto have been or will be duly
executed and delivered by the Buyer, and this Agreement and all agreements and
instruments executed by the Buyer in connection herewith or delivered by the
Buyer pursuant hereto constitute and will constitute the legal, valid and
binding obligations of the Buyer, enforceable in accordance with their
respective terms.
4.3. Noncontravention. The execution, delivery and performance by the Buyer
of this Agreement and each agreement or instrument executed in connection
herewith or delivered pursuant hereto and the consummation of the transactions
contemplated herein will not, with or without the giving of notice or the
passage of time, or both, (i) conflict with, or result in a violation or breach
of, or a default, right to accelerate or loss of rights under, or result in the
creation of any Lien under or pursuant to, any provision of the Buyer's articles
of incorporation or bylaws or any Laws, or any finding, order, judgment, writ,
injunction or decree to which the Buyer is a party or by which the Buyer or its
assets may be bound or affected; or (ii) require the approval, consent or
authorization of, or prior notice to, filing with or registration with, any
Governmental Authority, or any other person or entity.
4.4. No Reliance. With respect to the transactions contemplated herein,
Buyer acknowledges that it (i) has been granted access to all the Books and
Records and materials to conduct all necessary due diligence, and (ii) has been
afforded the opportunity to ask questions of, and receive answers from, Seller.
Buyer acknowledges that it has not relied on any oral or written statements,
16
representations, warranties, or assurances from Seller or its officers,
directors, employees, agents, or consultants, except those in Article III
hereof. Buyer is sophisticated in the evaluation, purchase, ownership and
operation of oil and gas properties and related facilities. In making its
decision to enter into this Agreement and to consummate the transaction
contemplated herein, subject to the express representations of Seller set forth
in this Agreement, Buyer (a) has relied or shall rely solely on its own
independent investigation and evaluation of the assets and the express
provisions of this Agreement and (b) has satisfied or shall satisfy itself as to
the environmental and physical condition of and contractual arrangements
affecting the assets. Buyer has no knowledge of any fact that results in the
breach of any representation, warranty or covenant of Seller given hereunder.
4.5. Purchase for Investment. The Buyer is acquiring the Assets for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
4.6. Financing.
(a) Buyer has, or will have by Closing, unencumbered cash or
marketable securities sufficient to fully satisfy its obligations to pay the
Purchase Price to Seller, as and when due.
(b) Buyer has sufficient financial resources to fulfill the surety
bonding requirements of the State of Texas and/or the United States Government
in connection with the Leases.
ARTICLE V
COVENANTS
5.1. Conduct of Business. Except as provided in this Agreement, until the
earlier of Closing or the termination of this Agreement in accordance with its
terms, Seller will use commercially reasonable efforts to operate and maintain
the Assets consistent with past practices. Other than capital expenditures for
the various projects set forth on Schedule 5.1, Seller will not undertake any
capital expenditures in excess of $20,000.00 or any contractual commitment in
excess of thirty (30) days without the approval of the Buyer, except in cases of
emergency which could, in the opinion of Seller, result in material damage or
injury to persons, property or any of the Assets.
5.2. Access to Information. At Buyer's sole cost and expense, the Buyer and
its authorized agents, officers and representatives shall have reasonable access
to the Assets, including the Books and Records, in order to conduct such
examinations and investigations of the Assets as the Buyer deems necessary;
provided, however, that such examinations and investigations: (a) shall be
conducted during the normal business hours of Seller, (b) shall not unreasonably
interfere with the operations and activities of Seller, and (c) shall be subject
to the prior approval of Seller.
5.3. Further Assurances; Consents; Waiver of Notices. Each of the parties
hereto hereby agrees to use commercially reasonable efforts (a) to obtain, any
and all approvals of Governmental Authorities and third party consents,
approvals, notations and authorizations required in connection with the
consummation of the transactions contemplated by this Agreement, (b) to comply
17
with all conditions and covenants applicable or related to it as contemplated by
this Agreement, and (c) to take all such other commercially reasonable actions
as are necessary or advisable in order to cause the consummation of the
transactions contemplated hereby.
5.4. Publicity. All general notices, releases, statements and
communications to suppliers, distributors and customers of Seller or Buyer and
to the general public and the press relating to the transactions contemplated by
this Agreement shall be made only at such times and in such manner as may be
agreed upon in advance by Seller and Buyer; provided, however, that any party
hereto or its affiliates shall be entitled to make a public announcement of the
foregoing if, in the opinion of its legal counsel, such announcement is required
to comply with Laws or any listing agreement with any national securities
exchange or inter-dealer quotation system and if it first gives prior written
notice to the other parties hereto of its intention to make such public
announcement and provides the opportunity to review the content of such
disclosure.
5.5. Environmental Investigation.
(a) Upon execution of and pursuant to the terms of this Agreement,
Buyer shall have the right, at reasonable times during normal business hours, to
conduct its investigation into the status of the physical and environmental
condition of the Properties. If, in the course of conducting such investigation,
Buyer discovers that: (i) any Property or the ownership, record keeping,
construction, maintenance, repair or operation thereof or with respect thereto
is in violation of any statute, rule, regulation or order of any governmental
agency having jurisdiction over the Assets or Seller and pertaining to health,
safety or the environment such that the Asset could be subject to a Material
Environmental Obligation or Liability; or (ii) any condition or circumstance
exists with respect to any Property or the ownership, record keeping,
construction, maintenance, repair or operation thereof or with respect thereto
which has resulted in or given rise to, or could (with notice or the lapse of
time or both) result in or give rise to, any Material Environmental Obligations
or Liabilities, Buyer may raise such violation, condition or circumstance as an
Environmental Defect in the manner set forth hereafter. For purposes of this
Section 5.5 only, the term "Material Environmental Obligations or Liabilities"
shall mean that, with respect to any individual Lease or pooled unit, the
Environmental Obligations or Liabilities with respect to any single
Environmental Defect exceeds $10,000 or that the aggregate Environmental
Obligations or Liabilities with respect to all claimed Environmental Defects
with respect to any individual Lease or pooled unit which have a value, cost or
loss of less than $10,000 each, is $50,000. A series of related violations,
conditions or circumstances arising out of similar facts and circumstances shall
be considered a single Environmental Defect for purposes of applying this
Section. No later than noon central standard time on December 13th (the
"Environmental Defect Notice Date"), Buyer shall notify Seller in writing
specifying such Environmental Defects, if any, the Lease or unit affected
thereby, and Buyer's good faith estimate of the net reduction in value of the
Lease or unit affected by such Environmental Defects.
(b) If Buyer fails to notify Seller prior to or on the Environmental
Defect Notice Date, of any Environmental Defect, such Environmental Defect will
be deemed waived, Seller shall be released from any liability to Buyer
therefore, the Parties shall proceed with Closing, and Seller shall be under no
18
obligation to Buyer to correct such Environmental Defects or to indemnify Seller
with respect thereto. Seller may, but shall be under no obligation to, correct
at its own cost and expense such waived Environmental Defects to Buyer's
reasonable satisfaction on or before the Closing Date.
(c) In the event that Buyer provides Seller with a timely
Environmental Defect Notice with respect to an Environmental Defect, Seller
shall either: (i) cure or remediate such Environmental Defect to Buyer's
reasonable satisfaction; or (ii) the Base Purchase Price shall be reduced by an
amount equal to the net reduction in value of the Assets affected by any uncured
or unremediated Environmental Defects (the "Environmental Defect Value"),
subject to Buyer's and Seller's right to terminate this Agreement as provided in
Section 9.1 or elsewhere in this Agreement; or (iii) dispute the existence of
the Environmental Defect or the Environmental Defect Value. If Buyer and Seller
have not agreed upon the Environmental Defect Value attributable to any
Environmental Defect by the Closing Date, then for purposes of Closing and
determining any adjustment to the Base Purchase Price under this Section 5.5,
the Environmental Defect Value shall be the amount identified by Buyer in its
notice given pursuant to this Section 5.5. Any disputed reduction(s) in the Base
Purchase Price pursuant to this Section 5.5 shall be paid by Buyer into a
mutually acceptable escrow account at a national banking institution, and such
escrowed amount shall be subsequently paid by the escrow agent to Buyer or
Seller upon resolution of the dispute.
(d) Buyer acknowledges that it has received the environmental reports
listed in Schedule 5.5, has had full opportunity to examine the Assets and the
information contained in those reports, and, as further stated in Article VIII,
accepts the Assets with those conditions.
5.6. Buyer's Schedule of Allocated Values.
(a) Buyer must prepare, and forward Schedule 5.6 "Buyer's Schedule of
Allocated Values" to Seller not later than 16 Business Days prior to Closing.
Buyer will use its best efforts to forward Schedule 5.6 to Seller no later than
November 22, 2004.
(b) Buyer's Schedule of Allocated Values must set forth:
(i) a complete listing of the Burdened Leases; and
(ii) the value allocated by Buyer to each Burdened Lease:
1. taking into account the effect of the Production Payment,
but reduced by the amount of money attributable to production
from the Burdened Leases after December 31, 2024; and
2. assuming that the Burdened Leases are acquired by Buyer
free and clear of the Production Payment, but reduced by the
amount of money attributable to production from the Burdened
Leases after December 31, 2024.
(c) Notwithstanding any other provisions of this Agreement, Seller
shall fully indemnify and hold harmless Buyer from and against any and all
Losses that may occur related to i) any dispute by the holders of the Production
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Payment of the Allocated Values determined by Buyer for purposes of this
Agreement; ii) any payment made by Seller to the holders of the Production
Payment; or, iii) any other matter related to the Production Payment arising
prior to the assumption of the Burdened Leases by Buyer.
5.7. Amendment of Schedules. Buyer and Seller will, promptly upon becoming
aware of any fact, matter, circumstance or event, which fact, matter,
circumstance or event arose either (i) on or prior to the date hereof or (ii)
after the date hereof but prior to the Closing, in any case, requiring
supplementation or amendment of the schedules provided by the parties attached
hereto, supplement or amend such schedules to this Agreement to reflect any
fact, matter, circumstance or event, which, if existing, occurring or known on
the date of this Agreement, would have been required to be set forth or
described in such schedules which were or have been rendered inaccurate thereby.
If Closing occurs, all supplements and amendments to the schedules provided by
the parties are effective for all purposes, including to (i) amend or supplement
the representations and warranties (and corresponding schedules) made as of the
date hereof, and (ii) for the purpose of determining (A) satisfaction of the
conditions set forth in Sections 6.1, 6.2 or 6.3 hereof, and (B) compliance by
the parties with their respective covenants and agreements set forth herein.
Notwithstanding the above, in the opinion of the non-amending or supplementing
party, should any such supplement or amendment result in a Material Adverse
Change, then the parties shall agree to a reasonable extension of the Closing
Date (which shall not be later than December 30, 2004) to investigate such
Material Adverse Change or otherwise agree to an appropriate adjustment in the
Purchase Price.
ARTICLE VI
CONDITIONS PRECEDENT TO CONSUMMATION OF THE CLOSING; CLOSING
6.1. Conditions Precedent to Each Party's Obligations to Close. The
respective obligations of each party to consummate the transactions contemplated
by this Agreement on the Closing Date are subject to the satisfaction or waiver
at or prior to the Closing of the following conditions precedent:
(a) no order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any United States court of competent jurisdiction or
any United States governmental authority that prohibits the consummation of the
transactions contemplated by this Agreement; provided, however, that the parties
hereto shall use their commercially reasonable efforts to have any such order,
decree or injunction vacated or reversed; and
(b) all consents, authorizations, orders, permits and approvals for
(or registrations, declarations or filings with) any Governmental Authority
required in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby shall have been obtained or
made, and except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration may not reasonably be
expected to have a Material Adverse Effect on Buyer or Seller following the
Closing Date.
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(c) Buyer has furnished Buyer's Schedule of Allocated Values and
fifteen (15) Business Days have elapsed since Seller furnished Buyer's Schedule
of Allocated Values to REI.
6.2. Conditions Precedent to Obligations of the Buyer. The obligation of
the Buyer to consummate the transactions contemplated by this Agreement on the
Closing Date is subject to the satisfaction or waiver at or prior to the Closing
of the following conditions precedent:
(a) the representations and warranties of Seller contained in Article
III shall be true and correct in all material respects (when read without
exception for materiality or Material Adverse Effect) at and as of the Closing
Date with the same force and effect as if those representations and warranties
had been made at and as of such time (with such exceptions, if any, necessary to
give effect to events or transactions expressly permitted herein);
(b) Seller shall have performed, in all material respects, all
obligations and complied with all covenants contained herein that are necessary
to be performed or complied with by it at or before Closing;
(c) Seller shall have delivered, or caused to be delivered, to Buyer
at Closing, all closing deliveries described in Section 6.4(a); and
(d) all actions, corporate or other, to be taken by Seller in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to the Buyer and the Buyer's counsel.
6.3. Conditions Precedent to Obligations of Seller. The obligation of
Seller to consummate the transactions contemplated by this Agreement on the
Closing Date is subject to the satisfaction or waiver at or prior to the Closing
of the following conditions precedent:
(a) the representations and warranties of the Buyer contained in
Article IV shall be true and correct in all material respects (when read without
exception for materiality or Material Adverse Effect) at and as of the Closing
Date with the same force and effect as if those representations and warranties
had been made at and as of such time (with such exceptions, if any, necessary to
give effect to events or transactions expressly permitted herein);
(b) the Buyer shall have performed, in all material respects, all
obligations and complied with all covenants contemplated herein that are
necessary to be performed or complied with by it at or before Closing;
(c) Buyer shall have delivered, or caused to be delivered, to Seller
at Closing, the closing deliveries described in Section 6.4(b);
(d) all actions, corporate or other, to be taken by the Buyer in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Seller and its counsel; and
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6.4. The Closing. The following provisions shall be applicable with respect
to the Closing:
(a) At Closing, Seller shall, as a condition precedent to Buyer's
obligations hereunder:
(i) execute and deliver the Assignment and the Assumption
Agreements to Buyer;
(ii) deliver a certificate of Seller, signed by an authorized
officer of Seller, certifying that the conditions set forth in Section 6.2
have been satisfied;
(iii) execute and deliver a FIRPTA Affidavit in the form attached
as Exhibit D;
(iv) execute and deliver to Buyer letters in lieu of transfer or
division orders;
(v) for Xxxxx of which Seller is the designated operator, execute
and deliver to Buyer: (1) a validly executed blanket transfer of P-4's
designating Buyer as operator of the Xxxxx with the Texas Railroad
Commission; and (2) any other forms or documents required to designate
Buyer as operator of Xxxxx with the Bureau of Land Management, if
necessary;
(vi) execute and deliver to Buyer any other forms required by any
Governmental Authority relating to the assignment of the Assets and
relating to the assumption of operations by Buyer;
(vii) execute and deliver to Buyer Assignments of Record Title
and Transfers of Operating Rights on Bureau of Land Management forms 3003-3
and 3000-3a, as applicable;
(viii) deliver to Buyer such of the Books and Records as Seller
determines to be feasible and thereafter deliver the remainder of the Books
and Records to Buyer as soon after Closing as is reasonably possible; and
(ix) deliver possession of the Assets to Buyer.
(b) At Closing, and as a condition precedent to Seller's obligations
hereunder, Buyer shall:
(i) pay and deliver to Seller the Purchase Price, as may be
adjusted in accordance with the terms of this Agreement, by wire transfer
to a bank to be designated by Seller at least two Business Days prior to
Closing;
(ii) execute and deliver the Assumption Agreement to Seller;
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(iii) deliver a certificate of Buyer, signed by an authorized
officer of Buyer, certifying that the conditions set forth in Section 6.3
have been satisfied; and
(iv) execute and deliver to Seller any and all other instruments,
documents and other items reasonably necessary to effectuate the terms of
this Agreement, as may be reasonably requested by Seller.
(c) At Closing, TGG shall execute and deliver and Buyer shall execute
and accept, an instrument of conveyance and assumption of liabilities regarding
the TGG Assets, in the form attached hereto as Exhibit E.
ARTICLE VII
ADDITIONAL COVENANTS
7.1. Access to Books and Records. At its expense, Seller and its affiliates
and its and their authorized agents, officers and representatives shall have
reasonable access after the Closing Date to the Books and Records for any
reasonable business purpose, including, but not limited to, matters relating to
Taxes; provided, however, that such access by Seller and its affiliates, and its
and their authorized agents, officers and representatives (a) shall be conducted
during the normal business hours of Buyer, and (b) shall not unreasonably
interfere with the operations and activities of Buyer. The Buyer shall cooperate
in all reasonable respects with Seller's review of such information, including,
without limitation, retaining all such information until Seller has notified the
Buyer in writing that all tax years (including any portion of a tax year) prior
to and including the Closing Date have been closed or for seven (7) years,
whichever is longer.
7.2. Tax Matters.
(a) Buyer shall be responsible, and agrees to hold harmless and
indemnify the Seller Indemnified Parties, for any and all sales, transfer,
recordation, or similar Taxes payable by virtue of this transaction, excluding,
however, Seller's income taxes. Buyer and Seller shall cooperate to timely
prepare and file all Tax Returns for such Taxes.
(b) Seller shall be responsible, and agrees to hold harmless and
indemnify the Buyer Indemnified Parties, for all oil and gas production,
severance, ad valorem and other similar Taxes with respect to the Assets for
periods (or any portion thereof) or production prior to the Effective Time, in
each case to the extent not taken into account under Section 2.3(b). Buyer shall
be responsible, and agrees to hold harmless and indemnify the Seller Indemnified
Parties, for all oil and gas production, severance, ad valorem and other similar
Taxes with respect to the Assets for periods (or any portion thereof) or
production after the Effective Time, in each case to the extent not taken into
account under Section 2.3(a) but including the items described in Section
2.3(b).
(c) The parties agree to cooperate with each other as reasonably
required after the Closing Date in connection with audits and other proceedings
with respect to any Taxes relating to the Assets.
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(d) Notwithstanding any other provision of this Agreement, the
covenants and obligations set forth in this Section 7.2 shall survive until, and
any claim for indemnification with respect thereto must be made prior to, the
expiration of the applicable statute of limitations with respect to the
underlying Tax claim (including any valid extensions).
7.3. Surety Bonds. Buyer shall have surety bonds in place prior to or
immediately following the Closing Date sufficient to replace Seller's surety
bonds set forth on Schedule 7.3. Buyer shall release or cause Seller's surety
bonds to be released as soon as reasonably practicable following the Closing
Date.
7.4. Casualty. If any Asset shall be damaged or destroyed by fire or other
casualty before the Closing, either party may, at its option, and upon written
notice prior to Closing to the other party elect to exclude such Asset from this
Agreement. In the event that the Asset to be excluded pursuant to this Section
7.4 is the entirety of a Lease, the Base Purchase Price shall be reduced by the
Allocated Value of the Lease to be excluded. In the event that the Asset sought
to be excluded is less than the entirety of a Lease, the Base Purchase Price
shall be reduced by a mutually agreed upon amount. If neither party elects to
delete such Asset from this Agreement as aforesaid, Seller shall pay the
deductible due under any insurance policy or policies insuring the same and
deliver to Buyer, at the Closing, any insurance proceeds actually received by it
by reason of such casualty, and assign to Buyer all of its right, title and
interest in any claim under any applicable insurance policies in respect of such
casualty.
7.5. Consents and Preferential Rights.
(a) Any consents other than consents customarily obtained after
Closing, such as, for example, consents to assign federal leases, arising under
any of the Property Agreements and unresolved at Closing (either by time
constraints or by refusal to consent), shall be considered agreed-upon Title
Defects under Exhibit A, until satisfied. If on the Closing Date, the holder of
a preferential right has not indicated whether or not it will exercise its right
and the time period within which it must timely respond has not lapsed, then the
parties shall proceed to Closing on those Assets affected by the preferential
right and Buyer shall assume responsibility for conveying the Assets to the
holder of the preferential right should it timely exercise, in return for
payment by the holder to Buyer of the Allocated Value of the affected Assets.
(b) It is recognized that the Burdened Leases are subject to the
Production Payment and that not later than 15 Business Days prior to Closing,
Seller must notify REI of the impending sale, and furnish Buyer's Schedule of
Allocated Values and certain other information to REI. It is also recognized
that REI will have 10 Business Days in which to decide whether it will liquidate
the Production Payment for an amount determined under a procedure set forth in
the Production Payment (the "Production Payment Liquidation Amount"). If REI
liquidates the Production Payment, then: (i) Seller will pay the Production
Payment Liquidation Amount to REI at Closing; and (ii) Buyer will take the
Burdened Leases free and clear of the Production Payment. If REI does not
liquidate the Production Payment, the Production Payment will be an Assumed
Liability and the Base Purchase Price will be reduced at Closing by the
Production Payment Liquidation Amount.
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7.6. Employee Matters. Attached hereto as Schedule 7.6 is a listing of
field and office employees that Buyer may consider for employment. Buyer may, at
is sole discretion, offer employment to any or all of such employees. Any such
offers of employment shall be at a base salary or hourly wage, and come with
such other benefits as are commensurate with similar positions with Buyer.
7.7. Non-Solicitation. For one (1) year from the date of this Agreement,
Buyer may not solicit the employment of any employees of Seller that are
assigned, temporarily or permanently, to Seller's Shreveport office.
Solicitation for employment does not include general advertising for employment
opportunities.
7.8. Transition Services Agreement. If requested by Buyer, Seller will
provide administrative services with respect to the Assets for the period of
time between the Closing Date and January 31, 2005.
7.9. Leased Equipment and Licensed Software. Seller will exercise
commercially reasonable efforts to provide for the transfer of leased office
equipment and licensed software that is used by Seller in its Irving, Texas and
Bridgeport, Texas, offices, the leases and licenses with respect to which are
not owned by Winchester.
7.10. Xxxx Lease. Until Closing, Seller will continue to use commercially
reasonable efforts to negotiate with the lessors under the Xxxx Lease to allow
for the expansion of the pad sites.
7.11. Xxxxx Lease.
(a) Buyer and Seller acknowledge that the Xxxxx Lease expires on
December 31, 2004. It is also recognized that Buyer and Seller have engaged in
negotiations with the lessor under the Xxxxx Lease, Xx. Xxxxxx Xxxxx, with the
objective of renewing or extending the Xxxxx Lease. Seller commits to continue
to assist in such negotiations following Closing until December 31, 2005 or
until the lease or other agreement is secured, whichever comes first.
(b) At Closing, Buyer will pay Seller the entire value allocated by
Buyer to the Xxxxx Lease, as set forth on Buyer's Schedule of Allocated Values.
From the date this Agreement is executed through December 31, 2005, Buyer agrees
to exercise commercially reasonable efforts to negotiate a new or revised lease
on the lands covered by the Xxxxx Lease (a "Replacement Lease"). The term
"Replacement Lease" means a new lease or an extension of the Xxxxx Lease or
other agreement that allows Buyer to achieve the development program for the
Xxxxx Lease set forth on Exhibit F. Seller will have the right to participate in
all negotiations with Xx. Xxxxx. If the terms of the Replacement Lease require
the payment of a bonus to Xx. Xxxxx, Seller will pay the first four hundred
thousand dollars (US $400,000.00) of such bonus.
(c) If Buyer, after the exercise of commercially reasonable efforts,
exercised in good faith, does not, by December 31, 2005, acquire a lease or
other agreement that qualifies as a Replacement Lease, Seller will refund to
Buyer, upon the later of: (i) December 31, 2005; or (ii) the date that is the
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end of the primary term or the end of any allowable period of drilling allowed
by any lease or other agreement acquired by Buyer covering lands covered by the
Xxxxx Lease, an amount of money equal to five million dollars (US $5,000,000.00)
minus US $294,118 times the number of xxxxx that Buyer has drilled or has the
right to drill under the new agreement, if any.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1. Limitation on and Survival of Representations and Warranties.
(a) The Buyer and Seller acknowledge and agree that no representations
or warranties have been made by Buyer or Seller in connection with the
transactions contemplated by this Agreement, except for those representations
and warranties made in Article III and Article IV hereof.
(b) Subject to paragraph (a) of this Section 8.1, all representations
and warranties contained in this Agreement, or in any agreements or instruments
executed in connection herewith or delivered pursuant hereto, shall survive the
Closing for a period of six months beginning on the Closing Date; provided,
however, that the representations set forth in Section 3.10 shall survive the
Closing for a period of one year. Such representations and warranties shall only
be effective with respect to any breach or claim when notice of such breach or
claim shall have been given in writing to the other party in breach or against
whom indemnification is sought within such period. Any claim for indemnification
for which notice has been given within the prescribed period may be prosecuted
to conclusion notwithstanding the subsequent expiration of such period. No party
to this Agreement shall be entitled to pursue any remedy for the breach of any
representation or warranty: (i) to the extent such party was given written
notice of such breach; or (ii) to the extent that such matter was set forth in
any documents provided to Buyer prior to Closing and would reasonably give rise
to the conclusion that such matter was a breach, prior to the Closing Date and
such party proceeds with the Closing.
8.2. Indemnification by Seller.
(a) Subject to the limitations set forth in Sections 8.1, 8.4, and
7.2, Seller and PFC (the "Seller Indemnifying Parties") hereby agree to
indemnify and hold the Buyer and its employees, officers, directors and
affiliates (each a "Buyer Indemnified Party") harmless from and against any and
all claims, demands, suits, proceedings, judgments, losses, liabilities,
damages, costs and expenses (including, but not limited to, reasonable
attorneys' fees) (collectively, "Losses") imposed upon or incurred by any Buyer
Indemnified Party as a result of or in connection with any of the following:
(i) Any breach of a representation or warranty made by Seller in
Article III of this Agreement; provided, that for purposes of this
provision, a breach of a representation or warranty that is qualified by
materiality or Material Adverse Effect shall be deemed to occur if there
would have been a breach of such representation or warranty absent such
qualification; or
(ii) The breach of, or default in the performance by Seller of,
any covenant, agreement or obligation to be performed by Seller pursuant to
this Agreement or any agreement or instrument executed in connection
herewith or pursuant hereto.
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(b) Within thirty (30) days after receipt by a Buyer Indemnified Party
of notice of an Action or other event giving rise to a buyer claim (a "Buyer
Claim") with respect to which a Buyer Indemnified Party may be entitled to
indemnification under this Section 8.2, the party receiving such notice shall
notify (the "Buyer Claim Notice") the Seller Indemnifying Parties in writing of
the commencement of such Action or the assertion of such Buyer Claim; provided,
however, that failure to give such notice shall not affect the right to
indemnification hereunder except to the extent of actual prejudice to the Seller
Indemnifying Parties. The Seller Indemnifying Parties shall have the option, and
shall notify the Buyer Indemnified Party in writing within ten (10) business
days after the date of the Buyer Claim Notice of their election, either: (A) to
participate (at the expense of the Seller Indemnifying Parties) in the defense
of such Action or Buyer Claim (in which case the defense of such Action or Buyer
Claim shall be controlled by the Buyer Indemnified Party) or (B) to take charge
of and control the defense of such Action or Buyer Claim (at the expense of the
Seller Indemnifying Parties). If the Seller Indemnifying Parties elect to
control the defense, it will not compromise or settle the Action or Buyer Claim
if (X) the amount to be paid in settlement exceeds the Maximum Indemnity Amount
or (Y) the settlement does not include a provision releasing the Buyer
Indemnified Party from all liabilities with respect thereto. If the Seller
Indemnifying Parties fail to notify the Buyer Indemnified Party of their
election within the applicable response period, then the Seller Indemnifying
Parties shall be deemed to have elected not to control the defense of such
Action or Buyer Claim. If the Seller Indemnifying Parties elect to control the
defense of any Action or Buyer Claim, the Buyer Indemnified Party shall have the
right to employ separate counsel and participate in the defense of such Action
or Buyer Claim, but the fees and expenses of such counsel shall be at the
expense of the Buyer Indemnified Party unless: (1) the named parties in such
Action or Buyer Claim (including any impleaded parties) include both the Buyer
Indemnified Party and an indemnifying party and the Buyer Indemnified Party
shall have been advised by such counsel that there may be one or more legal
defenses available to it that are different from or additional to those
available to the indemnifying party, or (2) the Buyer Indemnified Party has
reasonably determined that Losses that may be incurred may exceed either
individually, or when aggregated with other Buyer Claims, the Maximum Indemnity
Amount (in which case, the Seller Indemnifying Parties shall not have the right
to control the defense of such Action or Buyer Claim on behalf of the Buyer
Indemnified Party, it being understood, however, that the Seller Indemnifying
Parties shall not, in connection with such Action or Buyer Claim, be liable for
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) and that all such fees and expenses shall be reimbursed as
they are incurred).
(c) If the Seller Indemnifying Parties do not control the defense of
any Action or Buyer Claim, then the Buyer Indemnified Party may settle such
Action or Buyer Claim with the prior written consent of Seller Indemnifying
Party (not to be unreasonably withheld).
8.3. Indemnification by Buyer.
(a) Subject to the limitations set forth in Section 8.4, the Buyer
hereby agrees to indemnify and hold Seller and its employees, officers,
managers, members, and affiliates (each a "Seller Indemnified Party") harmless
from and against any and all Losses imposed upon or incurred by any Seller
Indemnified Party (any of such Losses by Seller, a "Seller Claim") as a result
of or in connection with any of the following:
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(i) Any breach of a representation or warranty made by the Buyer
in this Agreement or in any agreement or instrument executed in connection
herewith or pursuant hereto; provided, that for purposes of this provision,
a breach of a representation or warranty that is qualified by materiality
or Material Adverse Effect shall be deemed to occur if there would have
been a breach of such representation or warranty absent such qualification;
(ii) The breach of or default in the performance by the Buyer of
any covenant, agreement or obligation to be performed by the Buyer pursuant
to this Agreement or any agreement or instrument executed in connection
herewith or pursuant hereto; or
(iii) The ownership or operation of the Assets from and after the
Closing Date.
(b) Within thirty (30) days after receipt by a Seller Indemnified
Party of notice of the commencement of an Action or other event giving rise to a
seller claim (a "Seller Claim") with respect to which a Seller Indemnified Party
may be entitled to indemnification, the party receiving such notice shall notify
(the "Seller Claim Notice") Buyer in writing of the commencement of such Action
or the assertion of such Seller Claim; provided, however, that failure to give
such notice shall not affect the right to indemnification hereunder except to
the extent of actual prejudice to Buyer. Buyer shall have the option, and shall
notify each indemnified party in writing within ten business days after the date
of the Seller Claim of its election, either: (A) to participate (at its own
expense) in the defense of the Action or Seller Claim (in which case the defense
of such Action or Seller Claim shall be controlled by the Seller Indemnified
Party) or (B) to take charge of and control defense of such Action or Seller
Claim (at its own expense). If Buyer fails to notify the Seller Indemnified
Party of its election within the applicable response period, then Buyer shall be
deemed to have elected not to control the defense of such Action or Seller
Claim. If Buyer elects to control the defense of any Action or Seller Claim,
each Seller Indemnified Party shall have the right to employ separate counsel
and participate in the defense of any such Action or Seller Claim, but the fees
and expenses of such counsel shall be at the expense of the Seller Indemnified
Party unless: (1) the named parties in such Action or Seller Claim (including
any impleaded parties) include both the Seller Indemnified Party and Buyer and
the Seller Indemnified Party shall have been advised by such counsel that there
may be one or more legal defenses available to it that are different from or
additional to those available to Buyer, or (2) Seller has reasonably determined
that Losses that may be incurred may exceed either individually, or when
aggregated with other Seller Claims, the Maximum Indemnity Amount (in which
case, Buyer shall not have the right to assume the defense of such Action or
Seller Claim on behalf of the Seller Indemnified Party, it being understood,
however, that Buyer shall not, in connection with such Action or Seller Claim be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) and that such fees and expenses shall be
reimbursed as they are incurred).
(c) If Buyer does not control the defense of any Action or Seller
Claim, then the Seller Indemnified Party or parties may settle such Action or
Seller Claim with the prior written consent of Buyer (not to be unreasonably
withheld).
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8.4. Limitation of Liability. Notwithstanding the foregoing, (i) the Seller
Indemnifying Parties shall not be obligated to indemnify the Buyer Indemnified
Parties, and Buyer shall not be obligated to indemnify the Seller Indemnified
Parties pursuant to this Article VIII unless and until the amount of all Losses
incurred by Buyer, or by Seller, as the case may be, exceeds one million dollars
($1,000,000.00) in the aggregate (the "Basket"), in which event the party
seeking indemnity may recover all Losses incurred in excess of the Basket from
the first dollar above the Basket, and (ii) the Seller Indemnifying Parties
maximum liability for Losses under Section 8.2 and Buyer's maximum liability for
Losses under Section 8.3 shall be, in each case, fifteen percent (15%) of the
Purchase Price (the "Maximum Indemnity Amount").
8.5. Exclusive Remedy. Except as provided in Section 7.2 or Section 8.6,
after the Closing, the parties' sole and exclusive recourse against each other
for any Loss or claim of Losses arising out of or relating to this Agreement
shall be expressly limited to the provisions of this Article VIII.
8.6. Title Defects. Buyer's sole and exclusive remedy with respect to Title
Defects, or Losses arising thereunder, shall be as provided in Exhibit A.
8.7. Disclaimer of Other Warranties.
(a) The express representations and warranties of Seller contained in
this Agreement are exclusive and are in lieu of all other representations and
warranties, express, implied, or statutory. SELLER HAS NOT MADE, AND SELLER
HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (A) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, GAS BALANCING INFORMATION OR THE QUALITY, QUANTITY, OR VOLUME OF THE
RESERVES OF HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE ASSETS, (B) THE ACCURACY,
COMPLETENESS OR MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN
OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF
SELLER, (C) THE ENVIRONMENTAL CONDITION OF THE PROPERTIES, (D) ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY, (E) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (F) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (G) ANY RIGHTS OF PURCHASERS UNDER
APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, AND (H) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW; IT BEING THE EXPRESS INTENTION
OF BOTH BUYER AND SELLER THAT SUBJECT TO AND WITHOUT LIMITING SELLER'S EXPRESS
REPRESENTATION AND WARRANTIES CONTAINED HEREIN, THE PERSONAL PROPERTY, EQUIPMENT
AND FIXTURES INCLUDED WITHIN THE PROPERTIES ARE TO BE CONVEYED TO BUYER IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, AND THAT BUYER HAS MADE OR CAUSED TO BE
MADE SUCH INSPECTIONS AS BUYER DEEMS APPROPRIATE. SELLER AND BUYER AGREE THAT,
TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF
CERTAIN WARRANTIES CONTAINED IN THIS SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR
THE PURPOSES OF ANY APPLICABLE LAW, RULE OR ORDER.
29
(b) Buyer is aware that the Properties have been used for exploration,
development, production, handling, transporting and/or processing of oil and gas
and that there may be petroleum, produced water, wastes, or other materials
located on or under the Properties or associated with the premises. Some
equipment and sites included in the Properties may contain asbestos, Hazardous
Substances, or naturally occurring radioactive material ("NORM"). NORM may affix
or attach itself to the inside of xxxxx, materials, and equipment as scale, or
in other forms; the xxxxx, materials, and equipment located on the Properties or
included in the Properties may contain NORM and other materials or Hazardous
Substances; and NORM-containing material and other materials or Hazardous
Substances may have been buried, come in contact with the soil or water, or
otherwise been disposed of on the Properties. Special procedures may be required
for the remediation, removal, transportation, or disposal of materials,
asbestos, Hazardous Substances, and NORM from the Properties. Buyer will assume
all liability for the assessment, remediation, removal, transportation, and
disposal of these materials and associated activities and will conduct these
activities in accordance with all applicable laws and regulations, including
applicable environmental laws.
(c) Buyer understands that operation of the Leases is subject to
requirements of the governmental authorities having jurisdiction. It will be the
obligation of Buyer to ensure that, as of the Closing, or as soon thereafter as
reasonably practicable, Buyer will meet the qualifications of the governmental
authorities having jurisdiction, in order to become record operator of the
Leases.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time, prior to the
Closing only as follows:
(a) by mutual written consent of the Buyer and Seller;
(b) by the Buyer or Seller if the Closing shall not have occurred on
or before December 30, 2004 (provided that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or has
resulted in, the failure of the Closing to occur on or before such date); or
(c) by the Buyer or Seller, if any court of competent jurisdiction in
the United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such order,
decree, ruling or other action shall have become final and non-appealable.
30
(d) by the Buyer or Seller, if the aggregate of the Title Defect
Values and Environmental Defect Values asserted by Buyer total more than ten
percent (10%) of the Base Purchase Price.
9.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1 and the transactions contemplated by this Agreement are not
consummated, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the
other; provided, however, the obligations contained in this Section 9.2 and
Section 10.2 of this Agreement shall survive any such termination. Nothing
contained in this Section 9.2 shall relieve any party from liability for any
breach of this Agreement.
9.3. Amendment. This Agreement may not be amended except by an instrument
in writing signed by all of the parties.
9.4. Extension; Waiver. At any time prior to the Closing, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document, certificate or writing
delivered pursuant hereto, or (c) waive compliance with any of the covenants,
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X
MISCELLANEOUS
10.1. Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
10.2. Expenses.
(a) Whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of their
respective counsel, investment bankers, financial advisors, accountants and
other experts and the other expenses incident to the negotiation and preparation
of this Agreement and consummation of the transactions contemplated hereby.
(b) Buyer shall be solely responsible for all filings and recording of
assignments and other documents which transfer any of the Assets to Buyer or
which designate Buyer as the operator of the Assets and for all fees connected
with such filing or recording. Upon request, Buyer shall advise Seller of the
pertinent recording data. Seller shall not be responsible for any loss to Buyer
because of Buyer's failure to file or record any such documents correctly or
promptly
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10.3. Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of Texas without regard to the conflicts of
law rules thereof.
10.4. Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other parties.
10.5. Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given when delivered personally or by messenger or by overnight delivery
service, or when mailed by registered or certified United States mail, postage
prepaid, return receipt requested, or when received via telecopy, telex or other
electronic transmission, in all cases addressed to the person for whom it is
intended at his address set forth below or to such other address as a party
shall have designated by notice in writing to the other party in the manner
provided by this Section 10.5:
If to Seller, TGG or Progress Fuels Progress Fuels Corporation
Corporation: X.X. Xxx 0000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Senior Vice President,
Gas Operations
Telecopy: 000-000-0000
With a copy to: Hunton & Xxxxxxxx LLP
000 Xxxxxxxxxxxx Xxxxxx Xxxx,
Xxxxx 0000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: 000-000-0000
And
Xxxxx X. Xxxxxxxx
Deputy General Counsel
Progress Energy Service Company, LLC
Mail Code PEB 17B2
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Telecopy: (000) 000-0000
32
If to the Buyer: EnCana Oil & Gas (USA), Inc.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx, President
Telecopy: (000) 000-0000
With a copy to:
Mr. Xxxx Xxxxxxx
00000 X. Xxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
10.6. Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
10.7. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
10.8. Interpretation. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders. All references to
contracts, agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.
10.9. Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
10.10. No Third-Party Reliance. No third party is entitled to rely on any
of the representations, warranties and agreements contained in this Agreement,
and Seller and the Buyer assume no liability to any third party because of any
reliance on the representations, warranties and agreements of Seller and the
Buyer contained in this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Purchase Agreement to be
duly executed as of the day and year first above written.
WINCHESTER PRODUCTION
COMPANY, LTD.
By: Xxxxxxx Holding Company, LLC,
its general partner
By: /s/Xxxxxx X. Xxxxx
-------------------------------
Name: Xxxxxx X. Xxxxx
Title: Senior Vice President
TGG PIPELINE, LTD.,
solely for the purpose of conveying
the TGG Assets
By: Xxxxxxx Holding Company, LLC,
its general partner
By: /s/Xxxxxx X. Xxxxx
-------------------------------
Name: Xxxxxx X. Xxxxx
Title: Senior Vice President
PROGRESS FUELS CORPORATION,
solely for the purpose of supporting
the obligations of Seller set forth in
Article VIII
By: /s/Xxxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
ENCANA OIL & GAS (USA) INC.
By: /s/Xxxxx Xxxxxxx
-------------------------------
Name: Xxxxx Xxxxxxx
Title: President
