Exhibit 99.2 - Purchase and Sale Agreement
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated as of September 25, 2007 and
effective as of September 1, 2007, is made by and between DIVERSITY PETROLEUM,
LP, a Texas limited partnership, XXXXX X. XXXXXX, an individual resident of San
Diego County, California, HILL & HILL PETROLEUM, LLC, a Georgia limited
liability company, XXXXXX INVESTMENTS, LLC, a Texas limited liability company,
COETAS RESOURCE DEV., L.P., a Texas limited partnership, XXXXXXX X. XXXXX, an
individual resident of Xxxx County, Illinois, BGK INVESTMENTS, L.P., a Texas
limited partnership, XXXXX X. XXXXXX, an individual resident of Dallas County,
Texas, XXXXX X. XXXXXX, an individual resident of Xxxxxxx County, Florida,
XXXXXX XXXXXX, an individual resident of Rockwall County, Texas, XXXXX XXXXXX,
an individual resident of Rockwall County, Texas, XXXXX X. XXXXXX REVOCABLE
TRUST, a revocable trust organized under the laws of Oklahoma, XXXXXX X.
XXXXXXX, an individual resident of Laramie County, Wyoming and XXXXX XXX
XXXXXXX, an individual resident of Laramie County, Wyoming (each a "Seller,"
and collectively, "Sellers") and STO PROPERTIES LLC, a Texas limited liability
company ("Buyer").
WITNESETH:
WHEREAS, Sellers desire to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept, certain oil and gas properties and related
assets located in the State of Texas;
WHEREAS, Sellers and Buyer deem it in their mutual best interests to
execute and deliver this Agreement; and
WHEREAS, Diversity is acting as Agent and Attorney-in-Fact for all other
Sellers.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Sellers and Buyer do hereby agree as
follows:
ARTICLE I
DEFINITIONS AND REFERENCES
1.1 Certain Defined Terms. When used in this Agreement, the following
terms shall have the respective meanings assigned to them in this Section 1.1
or in the section, subsections or other subdivisions referred to below:
"Agreement" shall mean this Agreement, as hereafter changed, amended
or modified in accordance with the terms hereof.
"Claim Notice" shall have the meaning assigned to such term in
Section 8.2.
"Closing" and "Closing Date" shall have the meanings assigned to
such terms in Section 6.1.
"Code" shall mean the Internal Revenue Code, of 1986, as amended
from time to time, and any successor statute thereto.
"Common Stock" shall mean the membership interest of the Buyer.
"Controlling Party" shall have the meaning assigned to such term in Section
8.3(c).
"Conveyance" shall have the meaning assigned to such term in Section
6.2(a).
"Diversity" shall mean Diversity Petroleum, LP, a Texas limited
partnership, whether acting for its own account and/or as the Agent and
Attorney-in-Fact for all other Sellers herein.
"Effective Date" shall have the meaning assigned to such term in Section
6.2(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations under such act.
"Indemnification Period" shall have the meaning assigned to such term in
Section
11.1.
"Indemnified Party" shall have the meaning assigned to such term in Section
8.2.
"Indemnifying Party" shall have the meaning assigned to such term in Section
8.2.
"Initial Cash Purchase Price" shall have the meaning assigned to such
term in Article III.
"Laws" shall mean any and all applicable laws, statutes, codes,
ordinances, rules, regulations, decrees, orders, judgments, permits, licenses,
or other authority issued or enacted by any governmental entity or authority
with jurisdiction over the Properties and the Parties.
"Noncontrolling Party" shall have the meaning assigned to such term in Section
8.3(c).
"Oil and Gas Properties" shall have the meaning assigned to such term in
Article II.
"Parent" shall mean South Texas Oil Company, a Nevada corporation.
"Parent Common Stock" shall mean shares of common stock, par value $.001
per share, of Parent.
"Promissory Note" shall have the meaning assigned to such term in
Article III. "Properties" shall have the meaning assigned to such term
in Article II.
"Property Obligations" shall have the meaning assigned to such term in Section
7.1.
"Purchase Price" shall have the meaning assigned to such term in
Article III. "Restricted Stock" shall have the meaning assigned to
such term in Article III. "SEC" shall mean the United States
Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such act.
1.2References, Titles and Construction.
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise;
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions;
(c) The words "this Agreement," "this instrument," "herein," "hereof,"
"hereby," "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited;
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender;
(e) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection
shall be construed to authorize such renewal, extension, modification,
amendment or restatement;
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions;
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement;
(i)All references herein to "$" or "dollars" shall refer to U.S. Dollars;
and
(j) The Exhibits listed on page (iii) are attached hereto. Each
such Exhibit is incorporated herein by reference for all purposes and
references to this Agreement shall also include such Exhibit unless the
context in which used shall otherwise require.
ARTICLE II
PROPERTY TO BE SOLD AND PURCHASED
Sellers agree to sell and Buyer agrees to purchase, for the consideration
hereinafter set forth, and subject to the terms and provisions herein
contained, the following described properties, rights and interests:
(a) The properties described in Exhibit I attached hereto and
made a part hereof for all purposes;
(b) Without limitation of the foregoing, all other right, title
and interest (of whatever kind or character, whether legal or equitable,
and whether vested or contingent) of each Seller in and to the oil, gas
and other minerals in and under or that may be produced from the lands
and xxxxx described in Exhibit I hereto (including interests in oil, gas
and/or mineral leases covering such lands and xxxxx, overriding
royalties, production payments and net profits interests in such lands,
such leases and xxxxx, and fee mineral interests, fee royalty interests
and other interests in such oil, gas and other minerals), whether such
lands be described in a description set forth in such Exhibit I or be
described in such Exhibit I by reference to another instrument (and
without limitation by any depth limitations that may be set forth in such
Exhibit I or in any such instrument so referred to for description), even
though such Seller's interest in such oil, gas and other minerals may be
incorrectly described in, or omitted from, such Exhibit I;
(c) All rights, titles and interests of each Seller in and to, or
otherwise derived from, all presently existing and valid oil, gas and/or
mineral unitization, pooling, and/or communitization agreements,
declarations and/or orders which are set forth on Exhibit I and in and
to the properties covered and the units created thereby (including all
units formed under orders, rules, regulations, or other official acts of
any federal, state, or other authority having jurisdiction, voluntary
unitization agreements, designations and/or declarations) relating to the
properties described in paragraphs (a) and (b) above;
(d) All rights, titles and interests of Sellers in and to all
presently existing and valid production sales (and sales related)
contracts, operating agreements, and other agreements and contracts which
are set forth on Exhibit I and which relate to any of the properties
described in paragraphs (a), (b) and (c) above, or which relate to the
exploration, development, operation, or maintenance thereof or the
treatment, storage, transportation or marketing of production therefrom
(or allocated thereto);
(e) All rights, titles and interests of each Seller in and to all
materials, supplies, machinery, equipment, improvements and other real,
personal, or mixed property and fixtures (including but not by way of
limitation, all xxxxx, wellhead equipment, pumping units, pipe, tubing,
flow lines, tanks, buildings, injection xxxxx and related facilities,
saltwater xxxxx and related disposal facilities, compression facilities,
separation, heating, treating and dehydration facilities, gathering
systems, and other equipment), and all easements, rights of way, surface
leases and other surface rights, all permits and licenses, and all other
appurtenances being used or held for use in connection with, or otherwise
related to, the exploration, development, operation or maintenance of any
of the properties described in paragraphs (a), (b) and (c) above, or the
gathering, treatment, storage, transportation or marketing of production
therefrom (or allocated thereto); and
(f) All of Sellers' lease files, abstracts and title opinions,
production records, well files, accounting records (but not including
general financial accounting records), seismic records and surveys,
gravity and other maps, electric and other logs, technical, geological or
geophysical data and records, federal, state and local governmental
filings with any governmental authority and other files, documents and
records of every kind and description which relate to the properties
described above.
The properties and interests specified in the foregoing paragraphs (a), (b) and
(c) are herein sometimes collectively called the "Oil and Gas Properties," and
the properties and interests specified in the foregoing paragraphs (a), (b),
(c), (d), (e) and (f) are herein sometimes collectively called the
"Properties."
ARTICLE III
PURCHASE PRICE
In consideration of the sale of the Properties by Sellers to Buyer, Buyer
shall pay to Sellers the following: (a) cash in the amount of $7,500,000 (the
"Initial Cash Purchase Price") to be paid by wire transfer on the Closing Date
pursuant to the wiring instructions set forth on Exhibit III, (b)cash in the
total amount of $1,500,000 to be paid in immediately available funds in twenty-
four monthly installments in the amount of $62,500 each beginning thirty days
after the Closing Date, the obligations of which are captured in a promissory
note, the form of which is attached hereto as Exhibit VI (the "Promissory
Note"), and (c) 105,820 shares of Parent Common Stock as of the Effective Date
representing an aggregate value of $1,000,000 (the "Restricted Stock") which
shares shall be subject to a restriction on sale or transfer (collectively, the
"Purchase Price").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller jointly represents and warrants to Buyer that, as of the date
of this Agreement, the statements set forth in this Article IV are true and
correct in all material respects, except to the extent any representation and
warranty speaks as of any other specific date, in which case such
representation and warranty will have been true and correct in all material
respects as of such date; provided, however, each Seller shall only be liable
for such representations and warranties to the extent of such Seller's
ownership interest in such Properties. Each of the entities comprising any
Seller shall not be deemed to make, and shall not have any liability or
obligations hereunder with respect to, any agreement, indemnity, representation
or warranty made by any Seller that does not relate to such entity or to any of
the Properties in which such entity owns an interest. The Sellers further
acknowledge that the Buyer
has entered into this Agreement upon the basis of and in reliance upon the
statements in this Agreement, in particular this Article IV:
4.1 Organization and Good Standing. As applicable, each Seller is duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its formation and has all requisite power and authority to own,
lease and operate its properties and assets and to conduct its business as
presently conducted and as planned to be conducted by such Seller. As
applicable, each Seller is duly qualified or licensed to do business and, where
applicable as a legal concept, is in good standing as a foreign entity in each
jurisdiction in which the character of the properties it owns, operates or
leases or the nature of its activities makes such qualification or licensure
necessary.
4.2 Power and Authority. Each Seller has the requisite power and
authority to execute, deliver, and perform this Agreement and each other
agreement, instrument, or document executed or to be executed by such Seller in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Sellers of this Agreement and each other
agreement, instrument, or document executed or to be executed by Sellers in
connection with the transactions contemplated hereby to which they are a party,
and the consummation by them of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary action of such Sellers.
4.3 Valid and Binding Agreement. This Agreement has been duly executed
and delivered by each Seller and constitutes, and each other agreement,
instrument, or document executed or to be executed by Sellers in connection
with the transactions contemplated hereby to which they are a party has been,
or when executed will be, duly executed and delivered by Sellers and
constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of Sellers, enforceable against them in accordance
with their respective terms, except that such enforceability may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar
Laws affecting creditors' rights generally and (b) equitable principles which
may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
4.4 Non-Contravention. Neither the execution, delivery, and performance
by Sellers of this Agreement and each other agreement, instrument, or document
executed or to be executed by Sellers in connection with the transactions
contemplated hereby to which they are a party nor the consummation by them of
the transactions contemplated hereby and thereby do and will (a) conflict with
or result in a violation of any provision of the charter, bylaws or other
governing instruments of any Seller, (b) conflict with or result in a violation
of any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage or
indenture, or any material lease, contract, agreement, or other instrument or
obligation to which any Seller is a party or by which any Seller or any of
their properties may be bound, (c) result in the creation or imposition of any
lien or other encumbrance upon the properties of any Seller, or (d) violate any
applicable Law, rule or regulation binding upon any Seller or the Properties.
4.5 Approvals. No consent, approval, order, or authorization of, or
declaration, filing, or registration with, any court or governmental agency or
of any third party is required to be obtained or made by any Seller in
connection with the execution, delivery, or performance by Sellers of this
Agreement, each other agreement, instrument, or document executed or to be
executed by Sellers in connection with the transactions contemplated hereby to
which they are a party or the consummation by them of the transactions
contemplated hereby and thereby.
4.6 Pending Litigation. There are no pending suits, actions, or other
proceedings in which any Seller is a party that would prevent or otherwise
adversely affect the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby, or the performance of obligations
contemplated hereby.
4.7 Compliance with Laws, Judgments and Governmental Authorizations. As
it relates to the Properties, none of the Sellers have received at any time in
the last five years any written communication from any governmental authority
regarding any actual, alleged or potential violation of, or failure to comply
with, any Law, judgment or governmental authorization, or any actual, alleged
or potential obligation on the part of the Sellers to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
4.8 Solvency. None of the Sellers are insolvent, and none will be
rendered insolvent by any of the transactions contemplated by this Agreement.
As used in this section, "insolvent" means that the sum of the debts and other
probable liabilities of any Seller exceeds the present fair saleable value of
such Seller's assets. The cash available to each Seller, after taking into
account all other anticipated uses of the cash, will be sufficient to pay all
its liabilities and judgments promptly in accordance with their terms.
4.9 Special Limited Warranty of Title. Each Seller does hereby bind
itself, and its successors and assigns, to warrant and forever defend title to
the Properties unto Buyer, and its successors and assigns, against every claim
to, and every person claiming an interest in, the Oil and Gas Properties and to
any other Properties or any part thereof by, through and under such Seller, but
not otherwise. Pursuant to this special limited warranty of title, each Seller
represents that the working interest and net revenue interest for each of the
Oil and Gas Properties conveyed hereunder shall be the same as the working
interest and net revenue interest attributable to such Seller as set forth in
Exhibit I hereto.
4.10 Shares Restricted. Each Seller understands, acknowledges and agrees
that that the shares of Parent Common Stock delivered by Parent pursuant to
Article III are "restricted securities" under applicable federal securities
laws and that the Securities Act and the rules of the SEC provide in substance
that Sellers may dispose of the Restricted Stock only pursuant to an effective
registration statement under the Securities Act or an exemption therefrom. Each
Seller acknowledges that Parent does not intend to file a registration
statement with the SEC. The certificates evidencing the Restricted Stock will
bear a legend which clearly sets forth this restriction. Each Seller
understands that it may not at any time demand the purchase by Parent of any of
such Seller's shares of Restricted Stock. The Restricted Stock shall bear the
following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SOUTH TEXAS OIL COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
The foregoing legend will also be placed on any certificate representing
securities issued subsequent to the original issuance of the Restricted Stock
as a result of any transfer of such shares or any stock dividend, stock split,
or other recapitalization as long as the Restricted Stock have not been
transferred in such manner to justify the removal of the legend therefrom:
"THE HOLDER OF THIS SHARE ACKNOWLEDGES AND AGREES THAT PART OF THE
CONSIDERATION PAID TO SUCH HOLDER AS PART OF THE PURCHASE PRICE PAID PURSUANT
TO THE TERMS OF THAT CERTAIN PURCHASE AND SALE AGREEMENT DATED AS OF SEPTEMBER
25, 2007 (THE "PURCHASE AGREEMENT") SHALL CONSIST OF RESTRICTED STOCK AND,
ACCORDINGLY: (1) THAT SELLER WILL NOT SELL, ASSIGN, PLEDGE, GIVE, TRANSFER OR
OTHERWISE DISPOSE OF THE SHARES OR ANY INTEREST THEREIN, OR MAKE ANY OFFER OR
ATTEMPT TO DO ANY OF THE FOREGOING, EXCEPT PURSUANT TO A REGISTRATION OF THE
SHARES UNDER THE ACT AND ALL APPLICABLE SECURITIES LAWS OR IN A TRANSACTION
WHICH IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT AND ALL APPLICABLE
SECURITIES LAWS; AND (2) THAT SOUTH TEXAS OIL COMPANY AND ANY TRANSFER AGENT
FOR THE SHARES SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY PURPORTED TRANSFER
OF ANY OF THE SHARES EXCEPT UPON COMPLIANCE WITH THE FOREGOING RESTRICTIONS AND
NOT BEFORE A PERIOD OF EIGHTEEN (18) MONTHS FROM THE CLOSING DATE (AS DEFINED
IN THE PURCHASE AGREEMENT)."
4.11 Bastrop II Leases. Each Seller hereby declares that it has no right,
title or interest in or to the oil and gas leasehold interests and other oil
and gas interests of any kind, whether legal, contractual, or equitable, actual
or contingent, in and to the Properties listed on Exhibit IV attached hereto
or made a part hereof. In the event it is established that any Seller currently
has or previously had existing right, title or interest in any of the oil and
gas leasehold interests of any kind, whether legal, contractual, or equitable,
actual or contingent, in and to the Properties listed on Exhibit IV, such
Seller acknowledges that all these rights, title and interest, if any, have
been transferred to Buyer effective as of the Closing Date by and through
Sellers' execution of the quitclaim deed ("Quitclaim Deed"), a form of which is
attached hereto as Exhibit V.
4.12 Disclaimer of Warranties. THE EXPRESS REPRESENTATIONS AND WARRANTIES
OF EACH SELLER CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF,
AND EACH SELLER EXPRESSLY DISCLAIMS AND NEGATES AND BUYER HEREBY WAIVES, ANY
OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY, QUANTITY OR
VOLUME OF THE
RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS IN OR UNDER THE OIL AND GAS
PROPERTIES; THE ENVIRONMENTAL CONDITION BOTH SURFACE AND SUBSURFACE, OR OTHER
CONDITION OF THE PROPERTIES. SELLERS DO NOT MAKE OR PROVIDE, AND BUYER HEREBY
WAIVES, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE QUALITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO SAMPLES, OR
CONDITION OF ANY OF THE PROPERTIES OR ANY PART THERETO. SELLERS DISCLAIM AND
NEGATE, AND BUYER HEREBY WAIVES, ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT.
THE ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND
APPURTENANCES CONVEYED AS PART OF THE PROPERTIES ARE SOLD, AND BUYER ACCEPTS
SUCH ITEMS "AS IS, WITH ALL FAULTS". THERE ARE NO WARRANTIES THAT EXTEND BEYOND
THE FACE OF THIS AGREEMENT. SELLERS SHALL TRANSFER TO BUYER, TO THE EXTENT
TRANSFERABLE, ANY WARRANTIES OF THIRD PARTIES WITH RESPECT TO THE PROPERTIES.
BUYER ACKNOWLEDGES THAT THIS WAIVER IS CONSPICUOUS.
4.13 Disclosure. The representations and warranties of the Sellers in
this Agreement are true and correct in all material respects. No Seller has
actual knowledge, without due inquiry, of any fact or circumstance that has
specific application to the Properties (other than general economic or industry
conditions) and that constitutes a material adverse effect that has not been
set forth in this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that, as of the date of this
Agreement, the statements set forth in this Article V are true and correct,
except to the extent any representation and warranty speaks as of any other
specific date, in which case such representation and warranty will have been
true and correct in all material respects as of such date, and the Buyer
further acknowledges that each Seller has entered into this Agreement upon the
basis of and in reliance upon the statements in this Agreement, in particular
this Article V:
5.1 Organization and Existence. Buyer is a limited liability company
duly organized, legally existing and in good standing under the laws of its
state of formation, and is qualified to do business in the State of Texas.
5.2 Power and Authority. Buyer has full limited liability company power
and authority to execute, deliver, and perform this Agreement and each other
agreement, instrument, or document executed or to be executed by Buyer in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Buyer of this Agreement and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary limited liability company action of
Buyer.
5.3 Valid and Binding Agreement. This Agreement has been duly executed
and delivered by Buyer and constitutes, and each other agreement, instrument,
or document executed or to be executed by Buyer in connection with the
transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar Laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
5.4 Capital Stock. All of the Buyer's Common Stock is, and all of
Buyer's Common Stock which may be issued and outstanding as of the Effective
Date as permitted under this Agreement shall be, when issued, duly authorized
and validly issued, fully paid and nonassessable and not subject to any
preemptive rights.
5.5 Non-Contravention. The execution, delivery, and performance by Buyer
of this Agreement and each other agreement, instrument, or document executed or
to be executed by Buyer in connection with the transactions contemplated hereby
to which it is a party and the consummation by it of the transactions
contemplated hereby and thereby do not and will not (a) conflict with or result
in a violation of any provision of the limited liability company agreement or
other governing instruments of Buyer, (b) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its properties
may be bound or (c) assuming the accuracy of the Sellers' representations set
forth in Article IV, violate any applicable Law with respect to Buyer.
5.6 Approvals. Except as set forth in Schedule 5.6 and except for any
filings required after the Closing Date in connection with the private
placement of the Restricted Stock on the Closing Date, no consent, approval,
order, or authorization of, or declaration, filing, or registration with, any
court or governmental agency or of any third party is required to be obtained
or made by Buyer in connection with the execution, delivery, or performance by
Buyer of this Agreement and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party or the consummation by it of the
transactions contemplated hereby and thereby.
5.7 Pending Litigation. There are no pending suits, actions, or other
proceedings in which Buyer is a party that would prevent or otherwise adversely
affect the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, or the performance of obligations
contemplated hereby.
5.8 SEC Filings. All of Buyer's Exchange Act filings were true and
correct in all material respects as of the dates on which each were filed with
the SEC, except to the extent such filings were amended prior to the date
hereof. For so long as any Seller holds Common Stock,
Buyer will continue to make all required Exchange Act filings with the SEC in a
timely fashion and such filings will be true and correct in all material
respects when filed.
5.9 Reliance. Prior to executing this Agreement, Buyer has been afforded
an opportunity to (a) examine the Properties and such materials as it has
requested to be provided to it by Sellers, (b) to discuss with representatives
of Sellers such materials and the nature and operation of the Properties and
(c) to investigate the condition, including the surface and subsurface
condition, of the Oil and Gas Properties and the environmental and operating
condition of the Properties and related equipment and facilities. In entering
into this Agreement, Buyer acknowledges and agrees that it has relied solely on
the express representations and covenants of Sellers in this Agreement,
together with its independent investigation of, and judgment with respect to,
the equipment and the other Properties and the advice of its own legal, tax,
economic, environmental, engineering, geological and geophysical advisors and
not on any comments or statements of any representatives of, or consultants or
advisors engaged by Sellers.
ARTICLE VI
CLOSING OF TRANSACTION
6.1 The Closing. The closing (herein called the "Closing") of the
transaction contemplated hereby shall take place in the offices of Xxxxxx &
Xxxxxx, L.L.P., at 0000 Xxxx Xxxxxx, 00xx Xxxxx, Xxxxxxx, Xxxxx, at 10:00 a.m.,
on September 25, 2007, or at such other date and time as the Buyer and Sellers
may mutually agree upon (such date and time of closing being herein called the
"Closing Date").
6.2Sellers' Closing Obligations. At the Closing, Sellers shall:
(a) execute, acknowledge and deliver to Buyer a conveyance of the
Properties (the "Conveyance"), in the form attached hereto as Exhibit II,
effective as to runs of oil and deliveries of gas as of 9 a.m., Central
Daylight Time on September 1, 2007 (the "Effective Date");
(b) acknowledge and accept the Promissory Note executed by the
Buyer;
(c) execute, acknowledge and deliver to Buyer the Quitclaim Deeds
as stated in Section 4.11 in a form reasonably satisfactory to the
Buyer; and
(d) to the extent requested by Buyer, execute and deliver to
Buyer letters in lieu of transfer orders (or similar documentation), in
form acceptable to both parties.
6.3Buyer's Closing Obligations. At the Closing, Buyer shall:
(a) execute, acknowledge and deliver to Sellers a counterpart of
the Conveyance;
(b) deliver to Sellers, by wire transfer to the account
designated by Sellers in Exhibit III, an amount equal to the Initial Cash
Purchase Price;
(c)execute, acknowledge and deliver to Sellers the Promissory Note;
(a) execute, acknowledge and deliver to Sellers the various deeds
of trust as security for the aforementioned Promissory Note, a form of
which is attached hereto as Exhibit VII; and
(b) deliver the Restricted Stock to the Sellers.
6.4 Delivery of Files. No later than five (5) business days after the
Closing, Sellers shall deliver to Buyer such of Sellers' contract files, lease
and other title files, production files, well files and other files pertaining
to the ownership and/or operation of the Properties as Buyer may request.
ARTICLE VII
CERTAIN ACCOUNTING ADJUSTMENTS.
7.1 Adjustments. It is understood and agreed that as of the date of this
Agreement (a) other than lease and operating expenses for periods prior to the
Effective Date and outstanding invoices owed to Leexus Oil and Gas, LLP for
periods prior to the Effective Date, Sellers shall have no further obligations
to pay any further amount whether relating to any outstanding authorizations
for expenditure or any expenses, including all drilling costs, all reworking
costs, all capital expenditures, all completion costs and all overhead charges
under applicable operating agreements, and all other overhead charges actually
charged by third parties with respect to the Properties (collectively,
"Property Obligations") whether incurred before or after the Effective Date and
(b) other than lease and operating expenses for periods prior to the Effective
Date and outstanding invoices owed to Leexus Oil and Gas, LLP for periods prior
to the Effective Date, Buyer shall assume all responsibility for all Property
Obligations whether incurred before or after the Effective Date will be borne
by Buyer. With respect to proceeds, all proceeds (net of applicable production,
severance, and similar taxes) from the sale of oil, gas and/or other minerals
produced from the Oil and Gas Properties after the Effective Date will be owned
by Buyer, and all proceeds (net of applicable production, severance, and
similar taxes) from the sale of oil, gas and/or other minerals produced
therefrom before the Effective Date will be owned by Sellers. It is agreed
that, in making such adjustments: (i) oil which was produced from the Oil and
Gas Properties and which was, on the Effective Date, stored in tanks located on
the Oil and Gas Properties (or located elsewhere but used to store oil produced
from the Oil and Gas Properties prior to delivery to oil purchasers) and above
pipeline connections shall be deemed to have been produced before the Effective
Date and owned by Sellers (it is recognized that such tanks were not gauged on
the Effective Date for the purposes of this Agreement and that determination of
the volume of such oil in storage will be based on the best available data,
which may include estimates), and (ii) ad valorem taxes assessed with respect
to a period which the Effective Date splits shall be prorated based on the
number of days in such period which fall on each side of the Effective Date
(with the day on which the Effective Date falls being counted in the period
after the Effective Date), and (iii) no consideration shall be given to the
local, state or federal income tax liabilities of any party.
7.2 Closing and Post-Closing Accounting Settlements.
(a) At or before Closing, the parties shall determine, based upon
the best
information reasonably available to them, the amount of the
adjustments provided for in
Section 7.1. If the amount of adjustments so determined which would
result in a credit to Buyer exceed the amount of adjustments so
determined which would result in a credit to Sellers, Buyer shall receive
a credit, for the amount of such excess, against the Purchase Price to be
paid at Closing, and, if the converse is true, Buyer shall pay to
Sellers, at Closing (in addition to amounts otherwise then owed), the
amount of such excess.
(b) On or before ninety (90) days after Closing, Buyer and Sellers
shall review any additional information which may then be available
pertaining to the adjustments provided for in Section 7.1, shall
determine if any additional adjustments (whether the same be made to
account for expenses or revenues not considered in making the adjustments
made at Closing, or to correct errors made in such adjustments) should be
made beyond those made at Closing, and shall make any such adjustments by
appropriate payments from Sellers to Buyer or from Buyer to Sellers.
Following such additional adjustments, no further adjustments shall be
made under this Article VII.
ARTICLE VIII
INDEMNIFICATION
8.1Indemnification Obligations.
(a) Sellers shall, on the date of Closing, agree (and, upon
delivery to Buyer of the Conveyance, shall be deemed to have agreed),
subject to the limitations and procedures contained in this Article VIII
and in Section 11.1, following the Closing, to indemnify and hold Buyer
harmless from and against any and all claims, lawsuits, obligations,
actions, liabilities, damages, costs or expenses resulting from any
misrepresentation or breach of any warranty, covenant or agreement of
Sellers contained in this Agreement.
(b) Buyer shall, on the date of Closing, agree (and, upon
delivery to Buyer of the Conveyance, shall be deemed to have agreed),
subject to the limitations and procedures contained in this Article VIII
and in Section 11.1, following the Closing, to indemnify and hold Sellers
harmless from and against any and all claims, lawsuits, obligations,
actions, liabilities, damages, costs or expenses, (i) resulting from any
misrepresentation or breach of any warranty, covenant or agreement of
Buyer contained in this Agreement or any certificate delivered by Buyer
at the Closing, or (ii) arising out of or relating to the ownership or
operation of the Properties after the Effective Date, except those
resulting from any misrepresentation or breach of any warranty, covenant
or agreement of Sellers contained in this Agreement or any certificate or
agreement delivered by Sellers at the Closing.
(c) Nothing in subsections (a) and (b) above shall be construed
as overriding
the adjustment procedure provided for in Article VII.
8.2 Notice of Claim. If indemnification pursuant to Section 8.1(a) or
8.1(b) is sought, the party seeking indemnification (the "Indemnified Party")
shall give written notice (a "Claim Notice") to the party from whom
indemnification is sought (the "Indemnifying Party") of an event giving rise to
the obligation to indemnify, describing in reasonable detail the factual basis
for such claim, and shall allow the Indemnifying Party to assume and conduct
the defense of the claim or action, and cooperate with the Indemnifying Party
in the defense thereof; provided, however, that the omission to give such
notice to the Indemnifying Party shall not relieve the Indemnifying Party from
any liability which it may have to the Indemnified Party, except to the extent
that the Indemnifying Party is prejudiced by the failure to give such notice.
8.3 Third Party Claims.
(a) Without limiting the general application of the other
provisions of this Article VIII, if a person not a party to this
Agreement alleges facts that, if true, would mean that a party has
breached its representations and warranties in this Agreement (or such
representations and warranties were inaccurate) or violated its covenants
hereunder (whether through nonfulfillment, nonperformance or other
breach), the party for whose benefit the representations and warranties
are made will be entitled to indemnity for those allegations and demands
and related losses under and pursuant to this Article VIII. If the
Indemnified Party seeks indemnity under this Article VIII relating to
such claim, then the Indemnified Party will deliver a Claim Notice to the
Indemnifying Party and will include in such Claim Notice (i) notice of
the commencement of any proceeding relating to such claim within 30 days
after the Indemnified Party has received written notice of the
commencement of such proceeding and (ii) the facts constituting the basis
for such proceeding and the amount of the damages claimed by the other
person, in each case to the extent known to the Indemnified Party.
Notwithstanding the foregoing, no delay or deficiency on the part of the
Indemnified Party in so notifying the Indemnifying Party will relieve the
Indemnifying Party of any liability or obligation under this Agreement
except to the extent the Indemnifying Party has suffered actual losses
directly caused by the delay or other deficiency.
(b) Within 30 days after the Indemnified Party's delivery of
notice of the commencement of such proceeding under this Section 8.3, the
Indemnifying Party may assume control of the defense of such proceeding
by giving to the Indemnified Party written notice of the intention to
assume such defense, but if and only if the Indemnifying Party further:
(i) acknowledges in writing to the Indemnified Party that
any losses that may be assessed in connection with such proceeding
constitute losses for which the Indemnified Party will be
indemnified pursuant to this Article VIII without contest or
objection and that the Indemnifying Party will advance all expenses
and costs of defense; and
(ii) furnishes to the Indemnified Party evidence
satisfactory to the Indemnified Party that the Indemnifying Party
has and will have sufficient financial resources to fund on a
current basis the cost of such defense and paying all losses that
may arise under the claim.
(c) If the Indemnifying Party does not, or is not able to, assume
or maintain control of such defense in compliance with Section 8.3(b),
the Indemnified Party will have the right to control such defense. If the
Indemnified Party controls such defense, the
Indemnifying Party agrees to pay to the Indemnified Party promptly upon
demand from time to time all reasonable attorneys' fees and other costs
and expenses of defense. The party not controlling such defense (the
"Noncontrolling Party") may participate therein at its own expense. The
party controlling such defense (the "Controlling Party") will reasonably
advise the Noncontrolling Party of the status of such proceeding and the
defense thereof and the Controlling Party will consider in good faith
recommendations made by the Noncontrolling Party. The Noncontrolling
Party will furnish the Controlling Party with such information as it may
have with respect to such proceeding (including copies of any summons,
complaint or other pleading which may have been served on such party and
any written claim, demand, invoice, billing or other document evidencing
or asserting the same) and will otherwise cooperate with and assist the
Controlling Party in the defense of such proceeding.
(d) If the Indemnified Party is controlling the defense of such
proceeding, the Indemnified Party has the right to agree in good faith to
any compromise or settlement of, or the entry of any judgment arising
from, such proceeding without prior notice to or consent of the
Indemnifying Party. All amounts paid or payable under such settlement or
judgment are losses that the Indemnifying Party owes to the Indemnified
Party under this Article VIII.
ARTICLE IX
NOTICES
All notices and other communications required under this Agreement shall
(unless otherwise specifically provided herein) be in writing and be delivered
personally, by recognized commercial courier or delivery service (which
provides a receipt), by telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
If to a Seller:
Diversity Petroleum, LP
0000 Xxxxx Xxxxxxxx Xxxx., Xxxxx
000 Xxxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Fax No.: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxx, L.L.P.
0000 Xxxx Xxxxxx, 00xx
Xxxxx Xxxxxxx, Xxxxx
00000
Attention: Xxxxxx X.
Xxxxxx Fax No.: (713)
226-6236
If to Buyer:
STO Properties LLC
000 Xxxxxxx 00X
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx
Xxxxxxxx Fax No.: (512)
263-5046
With a copy to:
Xxxxx & XxXxxxxx LLP 000
Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X.
Xxxxxxx Fax No.: (713)
427-5099
and shall be considered delivered on the date of receipt. Either Buyer or
Sellers may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other
party, in the manner provided in this Article IX, at least ten (10) days prior
to the effective date of such change of address.
ARTICLE X
COMMISSIONS
10.1 Commissions.
(a) Sellers agree to indemnify and hold harmless Buyer from and
against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf
of, Sellers with any broker or finder in connection with this Agreement
or the transaction contemplated hereby.
(b) Buyer agrees to indemnify and hold harmless Sellers from and
against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf
of, Buyer with any broker or finder in connection with this Agreement or
the transaction contemplated hereby.
ARTICLE XI
MISCELLANEOUS MATTERS
11.1 Survival of Provisions. Except as otherwise expressly provided
herein, all representations and warranties of Sellers or Buyer contained in
this Agreement shall survive the Closing Date, but any claim for
indemnification for a breach of representation or warranty set forth in Article
IV or Article V must be made within two (2) years after the Closing Date (the
"Indemnification Period"). Notwithstanding the foregoing, the obligation of
each party hereto to indemnify any other party hereto shall continue after the
expiration of the Indemnification Period with respect to any matter of which
the party seeking indemnity hereunder shall have given the other party written
notice as provided herein prior to the expiration of the Indemnification
Period.
11.2 Further Assurances. After the Closing, Sellers shall execute and
deliver, and shall otherwise cause to be executed and delivered, from time to
time, such further instruments, notices, division orders, transfer orders and
other documents, and do such other and further acts and things, as may be
reasonably necessary to more fully and effectively grant, convey and assign the
Properties to Buyer.
11.3 Binding Effect; Successors and Assigns. The Agreement shall be
binding on the parties hereto and their respective successors and permitted
assigns. Neither party shall have the right to assign its rights under this
Agreement, without the prior written consent of the other party first having
been obtained.
11.4 Imbalances. On the date of Closing (and, upon the delivery to Buyer
of the Conveyances), Buyer shall succeed to the position of Sellers with
respect to all gas imbalances. As a result of such succession Buyer shall (a)
be entitled to receive any and all benefits, including payments of proceeds of
production in excess of amounts which it would otherwise be entitled to produce
and receive by virtue of ownership of the Oil and Gas Properties, which Sellers
would have been entitled to receive by virtue of such positions and (b) shall
be obligated to suffer any detriments (whether the same be in the form of
obligations to deliver production which would have otherwise been attributable
to its ownership of the Oil and Gas Properties without receiving full payment
therefor, or be in the form of the obligation to make payment in cash) which
Sellers would have been obligated to suffer by virtue of such positions.
11.5 Expenses. Each party shall bear and pay all expenses incurred by it
in connection with the transaction contemplated by this Agreement, including
without limitation the fees of its attorneys and other professional advisers,
consultants, brokers, or other representatives.
11.6 Time of the Essence. Time is of the essence in the execution and
delivery of this Agreement and performance contemplated hereunder.
11.7 Public Statements. Sellers and Buyer shall consult with each other
with regard to all publicity and other releases at or prior to Closing
concerning this Agreement and the transactions contemplated hereby and, except
as required by applicable Law or the applicable rules or regulations of any
governmental body or stock exchange, neither party shall issue any publicity or
other release without the prior consent of the other party.
11.8 Injunctive Relief. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
11.9 Amendments. This Agreement may be amended, modified, supplemented,
restated or discharged (and provisions hereof may be waived) only by an
instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.
11.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and venue of any dispute arising
hereunder shall be in the federal and state courts of Xxxxxx County, Texas.
11.11 Counterparts. This Agreement may be executed in counterparts, all
of which are identical and all of which constitute one and the same instrument.
It shall not be necessary for Buyer and Sellers to sign the same counterpart.
11.12 Agent and Attorney-in-Fact; Additional Limitations.
(a) Each Seller represents and warrants that is has appointed Xx.
Xxxxxxx X. Xxxxx, in his capacity as President of Diversity, and any
person authorized by Xx. Xxxxxxx X. Xxxxx, in his capacity as President
of Diversity, to act on behalf of any Seller as its agent and attorney-
in-fact for the following express limited purposes and for the duration
of the Indemnification Period (i) to execute this Agreement, (ii) to
execute on behalf of each Seller all instruments to be delivered pursuant
to this Agreement, (iii) to take other all actions and make such
elections and determinations to be taken or made by any Seller hereunder,
and (iv) to respond to and contest, settle, compromise and pay, as Xx.
Xxxxxxx X. Xxxxx, in his capacity as President of Diversity, shall deem
appropriate in his sole discretion, any and all claims or demands made by
Buyer hereunder for breach of representations, warranties or covenants,
for indemnification, and for adjustments to the Purchase Price.
(b) Neither Diversity nor Xx. Xxxxxxx X. Xxxxx, in his capacity
as President of Diversity, shall be obligated or liable to Buyer for any
representations, warranties, agreements or indemnification obligations of
any Seller (other than those relating to Diversity as one of the Sellers)
under this Agreement.
(c) Each of the Sellers shall only be deemed to make such
agreements, indemnities, representations or warranties that relate to
such Seller and the Properties owned by such Seller.
11.13 Guaranty. Parent hereby agrees to fully and unconditionally
guaranty any and all obligations of Buyer set forth in this Agreement,
including the obligations of payment set forth in Article III hereof.
11.14 Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to subject matter hereof and supersedes all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter.
11.15 Severability. If any provision of this Agreement is held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this
Agreement are not affected or impaired in any way and the parties agree to
negotiate in good faith to replace such invalid, illegal and unenforceable
provision with a valid, legal and enforceable provision that achieves, to the
greatest lawful extent under this Agreement, the economic, business and other
purposes of such invalid, illegal or unenforceable provision.
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date set forth above.
SELLERS:
DIVERSITY PETROLEUM, LP, a
Texas limited partnership,
By: Diversity Energy,
LLC,
its general partner
By:___________________________________
Name:_________________________________
Title:________________________________
XXXXX X. XXXXXX
By:___________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
HILL & HILL PETROLEUM, LLC, a
Georgia limited liability company
By:___________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXXX INVESTMENTS, LLC, a Texas
limited liability company
By:___________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
COETAS RESOURCE DEV., L.P., a
Texas limited partnership
By:___________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXXXX X. XXXXX
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
BGK INVESTMENTS, L.P., a Texas limited partnership
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXX X. XXXXXX
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXX X. XXXXXX
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXXX XXXXXX
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXX XXXXXX
By:___________________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXX X. XXXXXX REVOCABLE TRUST, a revocable trust organized under the laws of
Oklahoma
By:____________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXXX X. XXXXXXX
By:____________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
XXXXX XXX XXXXXXX
By:____________________________________________________________________
Name: Xxxxxxx X. Xxxxx
Title: Agent and Attorney-in Fact
BUYER:
STO PROPERTIES LLC,
a Texas limited liability company
By:____________________________________________________________________
Name:__________________________________________________________________
Title:_________________________________________________________________
