1
EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
BETWEEN
OIL FUND 100 LLC
AND
LONE STAR INTERNATIONAL ENERGY, INC.
DATED APRIL 17, 1997
2
TABLE OF CONTENTS
PAGE
ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 THE PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 EXCLUDED PROPERTIES . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 ADJUSTMENTS TO PURCHASE PRICE . . . . . . . . . . . . . . . . 2
2.3 LIKE-KIND EXCHANGE . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 4
3.1 SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 4
3.2 BUYER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 12
ARTICLE IV. TITLE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 DEFENSIBLE TITLE . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 PERMITTED ENCUMBRANCES . . . . . . . . . . . . . . . . . . . . 14
4.3 NOTICE OF TITLE DEFECT . . . . . . . . . . . . . . . . . . . . 15
4.4 REMEDIES FOR TITLE DEFECTS: TITLE INCREASES . . . . . . . . . 15
4.5 VALUE OF LEASEHOLD INTEREST OR TITLE DEFECT . . . . . . . . . 16
4.6 CONSENTS; PREFERENTIAL RIGHTS . . . . . . . . . . . . . . . . 17
4.7 CASUALTY LOSS, CONDEMNATION . . . . . . . . . . . . . . . . . 17
ARTICLE V. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . 18
5.1 NOTICE OF ENVIRONMENTAL DEFECT . . . . . . . . . . . . . . . . 18
5.2 TERMINATION OPTION . . . . . . . . . . . . . . . . . . . . . . 18
5.3 ENVIRONMENTAL LAWS . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI. COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . 19
6.1 ACCESS TO RECORDS . . . . . . . . . . . . . . . . . . . . . . 19
6.2 OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 PERMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 RESIGNATION AS OPERATOR . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII. COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . 20
7.1 RETURN OF DATA . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 INDEMNITY REGARDING ACCESS . . . . . . . . . . . . . . . . . . 20
i
3
ARTICLE VIII. SELLER'S CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . 20
8.1 REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 PENDING MATTERS . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX. BUYER'S CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . 21
9.1 REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 21
9.2 PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.3 PENDING MATTERS . . . . . . . . . . . . . . . . . . . . . . . 21
9.4 RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE X. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1 TIME AND PLACE OF CLOSING . . . . . . . . . . . . . . . . . . 22
10.2 CLOSING OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . 22
10.3 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XI. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 23
11.1 CALCULATION OF ADJUSTED PURCHASE PRICE . . . . . . . . . . . . 23
11.2 SUSPENDED FUNDS . . . . . . . . . . . . . . . . . . . . . . . 23
11.3 RECEIPTS AND CREDITS . . . . . . . . . . . . . . . . . . . . . 23
11.4 RECOVERY OF TAXES PAID ON BEHALF OF OTHER OWNERS . . . . . . . 24
11.5 SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.6 RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.7 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.8 RECORDING DOCUMENTS . . . . . . . . . . . . . . . . . . . . . 25
11.9 RIGHT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . 25
11.10 SALES TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.11 OTHER TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XII. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION . . . . . . . . . . 26
12.1 DEFINITION OF LOSSES . . . . . . . . . . . . . . . . . . . . . 26
12.2 ASSUMPTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . 26
ARTICLE XII. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.1 SELECTION OF ARBITRATORS . . . . . . . . . . . . . . . . . . . 26
13.2 DETERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 26
13.3 DECISION BINDING . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.2 GENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.3 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 27
ii
4
14.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 27
14.5 AMENDMENTS AND SEVERABILITY . . . . . . . . . . . . . . . . . 27
14.6 SURVIVABILITY . . . . . . . . . . . . . . . . . . . . . . . . 27
14.7 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 27
14.8 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . 27
14.9 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 28
14.10 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . 28
iii
5
EXHIBITS
EXHIBIT "A" OIL & GAS LEASES . . . . . . . . . . . . . . . . . 1, 2, 10, 14, 16
EXHIBIT "B" EXCLUDED PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 2
EXHIBIT "C" LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXHIBIT "D" NON-CANCELABLE CONTRACTS . . . . . . . . . . . . . . . . . . . . 5
EXHIBIT "E" ALLOCATED VALUE OF LEASES . . . . . . . . . . . . . . . . . . . 7
EXHIBIT "F" ASSIGNMENT, XXXX OF SALE AND CONVEYANCE . . . . . . . . . . . . 10
EXHIBIT "G" IMBALANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
EXHIBIT "H" EXECUTED ASSIGNMENT, XXXX OF SALE AND CONVEYANCE . . . . . . . . 22
iv
6
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is entered into on the
date shown hereinbelow by and between Oil Fund 100 LLC a Utah limited liability
corporation, herein referred to as "Seller," and Lone Star International
Energy, Inc., a Nevada corporation, herein referred to as "Buyer."
In consideration of the mutual covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 THE PROPERTIES. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase and pay for, as hereinafter provided, effective as of 7:00 a.m.
Central Standard time, April 1, 1997 (the "Effective Time"), all of Seller's
right, title, and interest in and to the following:
(a) The oil, gas and mineral leases and the leasehold estates
created thereby, described in Exhibit "A" attached hereto and made a part
hereof (the "Leases"), insofar as the Leases cover and relate to the land and
depths described in Exhibit "A" (the "Lands"), together with corresponding
interest in and to all the property and rights incident thereto, including all
rights in any pooled or unitized acreage by virtue of the Lands being a part
thereof, all production from the pool or unit allocated to any such Lands, and
all interests in any xxxxx within the pool or unit associated with the Lands;
(b) All producing, nonproducing, shut-in and abandoned oil and
gas xxxxx, salt water disposal xxxxx, injection xxxxx, and water xxxxx located
on the Leases or Lands pooled or unitized therewith, as set forth on Exhibit
"A", and all personal property, equipment, fixtures, facilities, and
improvements located on and appurtenant to the Leases and Lands insofar as they
are used in connection with the operation of the Leases INSOFAR AND ONLY
INSOFAR as they cover the Lands or directly relate to the production,
treatment, sale, or disposal of hydrocarbons or water produced therefrom or
attributable thereto;
(c) To the extent transferable, all contracts, agreements,
rights and interests in or under all contracts, agreements and leases of any
kind, to the extent that same relate to the Leases and Lands described in
Exhibit "A" (the "Contracts");
(d) All rights-of-way, easements, licenses, authorizations,
permits, and similar rights that pertain to the Leases and Lands described in
Exhibit "A;"
(e) All payments, and all rights to receive payments with
respect to oil, condensate, natural gas, natural gas liquids, and other
minerals produced after the Effective Time attributable to Seller's interests
in the Properties;
7
(f) All of Seller's original files, records, information, and
data relating to the Properties in the possession of Seller, including, without
limitation, title records, contracts, correspondence, seismic data and
interpretations, geological data and information (including maps and
interpretations thereof), production records, electric logs, core data,
pressure data, decline curves, graphical production curves, drilling reports,
well completion reports, drill stem test charts and reports, engineering
reports, regulatory reports, and all related materials, insofar and only
insofar as the foregoing items constitute nonproprietary materials that may be
lawfully conveyed to Buyer (the "Records").
All of Seller's right, title, and interest in and to the real and
personal properties described in Subparagraphs (a) through (f) above, subject
to the limitations and terms expressly set forth herein and in Exhibit "A," but
excluding the Excluded Property, are herein collectively referred to as the
"Properties" or, individually, a "Property."
1.2 EXCLUDED PROPERTIES. All trade credits, accounts receivable,
notes receivable, and other receivables attributable to the Properties with
respect to any period or time prior to the Effective Time shall remain the
property of the Seller and shall be excluded from this sale, unless specified
otherwise herein. Furthermore, Seller specifically excludes from this
transaction the properties described in Exhibit "B" attached hereto and made a
part hereof. All of the items described in this Section 1.2 are herein
collectively referred to as the "Excluded Properties."
ARTICLE 2
PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price ("Purchase Price") for the
Properties shall be six hundred thousand Dollars ($600,000), subject to
adjustment as provided herein. At the Closing, the Purchase Price shall be
paid to Seller by delivering two hundred thousand (200,000) fully paid non-
assessable shares of Buyer's $.001 par value common stock ("Common Stock").
2.2 ADJUSTMENTS TO PURCHASE PRICE. Adjustments to the Purchase Price
shall be as follows:
(a) The Purchase Price shall be increased by an amount equal
to the sum of the following amounts (determined without duplication and on an
accrual basis in accordance with generally accepted accounting principles
consistently applied):
(i) The value, less taxes (other than taxes on net
income), of merchantable oil and other liquids in storage in the
tanks (above the pipeline connection, if applicable) as of the
Effective Time that is credited to the Properties, at the
prevailing market value at the time of sale in the area, adjusted
for grade and gravity;
2
8
(ii) The amount of all expenses incurred and paid or to
be paid by or on behalf of Seller, in connection with or
attributable to the ownership or operation of the Properties
during the period from the Effective Time to the Closing Date,
including, but not limited to, royalties, rentals, and other
charges and expenses billed under applicable operating
agreements, or in the absence of an operating agreement, expenses
of the sort customarily billed under such agreements, and
including the customary overhead charges related to the
Properties; and
(iii) An amount equal to all prepaid expenses
attributable to the Properties that are paid or to be paid by or
on behalf of Seller prior to the Closing Date and that are, in
accordance with generally accepted accounting principles,
attributable to the period after the Effective Time, including,
without limitation, prepaid ad valorem, property, production,
severance, and similar taxes (but not including income taxes)
based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom
(any refund of ad valorem tax attributable to the period before
the Effective Time and received by Buyer shall be paid to
Seller).
(iv) Any other amounts required under this Agreement or
otherwise agreed to by Seller and Buyer.
(b) The Purchase Price shall be decreased by an amount equal
to the sum of the following amounts (determined without duplication and on an
accrual basis in accordance with generally accepted accounting principles
consistently applied):
(i) The amount of all proceeds received by Seller prior
to the Closing Date attributable to the Properties and that are
attributable to the time after the Effective Time;
(ii) An amount equal to all unpaid ad valorem, property,
production, severance, and similar taxes and assessments (but not
including income taxes) based upon or measured by the ownership
of property or the production of hydrocarbons or the receipt of
proceeds therefrom accruing to the Properties prior to the
Effective Time, which amount shall be computed based upon such
taxes assessed against the applicable portion of the Properties
for the preceding calendar year or, if such taxes are assessed on
other than a calendar year basis, for the tax-related year last
ended; and
(iii) Any other amounts required under this Agreement or
otherwise agreed to by Seller and Buyer.
3
9
2.3 LIKE-KIND EXCHANGE.
(a) Seller shall have the right at its option, to dispose of
the Properties, or any portion thereof, through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code").
Buyer agrees to cooperate with Seller in effecting a qualifying like-kind
exchange through a trust, escrow, or other means as determined by Seller;
provided, however, that Seller shall hold Buyer harmless from any expense,
obligation, or liability, without limitation, which Buyer may suffer in
connection with or arising out of Buyer's cooperation with Seller's treatment
of the Properties as part of a like-kind exchange. Seller shall have the right
to assign its rights, but not its obligations, under this Agreement, in whole
or in part, to a "qualified intermediary" (as defined under the Code) or as
otherwise necessary or appropriate to effectuate a like-kind exchange and Buyer
agrees to recognize said qualified intermediary. Seller shall be solely
responsible for assuring the effectiveness of the exchange for Seller's tax
purposes and Buyer does not represent to Seller any particular tax treatment
will result to Seller as a result thereof. In no event shall any like-kind
exchange contemplated by this provision cause an extension of the Closing set
forth herein.
(b) Buyer shall have the right at its option, to dispose of
the Properties, or any portion thereof, through a transaction that is
structured to qualify as a like-kind exchange of property within the meaning of
Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code").
Seller agrees to cooperate with Buyer in effecting a qualifying like-kind
exchange through a trust, escrow, or other means as determined by Buyer;
provided, however, that Buyer shall hold Seller harmless from any expense,
obligation, or liability, without limitation, which Seller may suffer in
connection with or arising out of Seller's cooperation with Buyer's treatment
of the Properties as a part of a like-kind exchange. Buyer shall have the
right to assign its rights, but not its obligations, under this Agreement, in
whole or in part, to a "qualified intermediary" (as defined under the Code) or
as otherwise necessary or appropriate to effectuate a like-kind exchange and
Seller agrees to recognize said qualified intermediary. Buyer shall be solely
responsible for assuring the effectiveness of the exchange for Buyer's tax
purposes and Seller does not represent to Buyer any particular tax treatment
will result to Buyer as a result thereof. In no event shall any like-kind
exchange contemplated by this provision cause an extension of the Closing set
forth herein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Buyer:
(a) EXISTENCE. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation, and is duly qualified to do business in the state in which the
Properties are located.
4
10
(b) AUTHORIZATION. Seller has all requisite corporate or
other power and authority, as applicable, to execute and deliver this
Agreement, to consummate the transactions contemplated hereunder and to perform
all of the terms and conditions hereof to be performed by it. The execution
and delivery of this Agreement by Seller, the performance by Seller of all of
the terms and conditions hereof to be performed by it and the consummation of
the transactions contemplated hereunder have been duly authorized and approved
by all necessary corporate action. This Agreement has been duly executed and
delivered by Seller and constitutes the valid and binding obligation of Seller,
enforceable in accordance with its respective terms, except to the extent
enforceability may be affected by bankruptcy, reorganization, insolvency, or
similar laws affecting creditors' rights generally.
(c) POWER. Subject to preferential rights and restrictions on
assignment of the type typically found in the oil and gas industry, and to
rights to consent by, required notices to, and filings with or actions by other
governmental entities, Seller's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its certificate of incorporation, by-laws, or
other governing documents; (ii) result in the breach of any term or condition
of, or constitute a default or cause the acceleration of any obligation under
any agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree, order, permit,
law, rule, or regulation.
(d) BROKERS. Seller has incurred no liability, contingent or
otherwise, for broker's or finder's fee in respect of this transaction, for
which Buyer shall have any responsibility whatsoever.
(e) FOREIGN PERSON. Seller is not a "foreign person" within
the meaning of the Code, Sections 1445 and 7701 (i.e., Seller is not a
nonresident alien, foreign corporation, foreign partnership, foreign trust, or
foreign estate as those terms are defined in the Code and any regulations
promulgated thereunder).
(f) LITIGATION. Except as set forth on Exhibit "C" attached
hereto and made a part hereof, Seller has not received written notice of any
suit, claim, action, or other proceeding pending, or, to the knowledge of
Seller, threatened, before any court or governmental agency as of the date of
this Agreement that relates to the Properties.
(g) NON-CANCELABLE CONTRACTS. To the best of Seller's
knowledge, with the exception of Exhibit "D" attached hereto and made a part
hereof, none of the Properties, or production therefrom, is subject to any
crude oil or gas purchase agreement, transportation, agreement, gathering
agreement, or similar agreement not cancelable on thirty (30) days notice.
(h) NO TAKE-OR-PAY CONTRACTS. To the best of Seller's
knowledge, Seller has not received any material advance, "take-or-pay" or other
similar payments under gas production sales contracts that entitle the
purchasers to "make up" or otherwise receive deliveries of
5
11
production at any time after the Effective Time without paying at such time the
contract price therefor.
(i) NO CASUALTY LOSS. To the best of Seller's knowledge,
since the Effective Time there has not been any material adverse change,
damage, destruction, or other Casualty Loss (defined herein as any and all
loss, damage, or reduction in value resulting from catastrophic occurrences or
acts of God, which are not the result of normal wear and tear or of natural
reservoir changes) of or to the Properties.
(j) NO VIOLATIONS. This Agreement and the execution and
delivery hereof by Seller does not, and the fulfillment and compliance with the
terms and conditions hereof and the consummation of the transactions
contemplated hereby will not:
(i) Conflict with or require the consent of any person
under any of the terms, conditions or provisions of the
certificate of incorporation or bylaws of Seller;
(ii) Violate any provision of, or require any filing,
consent, authorization or approval under any law, statute,
ordinance, decree, requirement, order, judgment, rule,
regulation, license or permit applicable to or binding upon
Seller (assuming receipt of all routine governmental consents
typically received after consummation of transactions of the
nature contemplated by this Agreement);
(iii) Conflict with, result in a breach of, constitute a
default under or constitute an event which, with notice or lapse
of time or both, would constitute a default under, accelerate or
permit the acceleration of the performance required by, or
require any consent, authorization or approval under, (1) any
mortgage, indenture, loan, credit agreement or borrowed money to
which Seller is a party or by which Seller is bound or to which
any of its Properties is subject, (2) any order, judgment or
decree of any governmental authority, or (3) any other agreement,
contract, lease, license or other permit; or
(iv) Result in the creation or imposition of any lien,
charge or other encumbrance upon the Property.
(k) NO DEFAULT; COMPLIANCE WITH LAWS AND REGULATIONS.
(i) Seller is not in default under, and Seller is not
aware of any event that with notice or lapse of time or both
would constitute a default under, (1) any mortgage, indenture,
loan, credit agreement or other agreement or instrument
evidencing indebtedness for borrowed money to which Seller is a
party or by which Seller is bound or to which any of the Property
is subject, (2) any order, judgment or decree of any governmental
authority, or (3) to the best of Seller's
6
12
knowledge, any other agreement, contract, lease, license or other
instrument, which default or potential default might reasonably
be expected to have a material adverse effect on the value or
operation of the Properties; and
(ii) Seller is in compliance with all laws applicable to
its business and operations, noncompliance with which might
reasonably be expected to have a material adverse effect on the
value or operation of the Property.
(l) ABSENCE OF CERTAIN CHANGES. Since the Effective Time
there has not been:
(i) Any sale, lease or other disposition of the
Property, other than the sale of hydrocarbons in the ordinary
course of Seller's business;
(ii) Any mortgage, pledge or grant of a lien or security
interest in any of the Property;
(iii) Any contract or commitment to do any of the
foregoing; or
(iv) Any equipment, facilities, material or other
personal property removed from the Property except for equipment
which was surplus to the operation of the Property.
(m) TAXES. All returns, statements and reports with respect
to taxes based upon, measured by or imposed with respect to the ownership or
operation of the Property which are required to be filed on or before the
Closing have been (or will have been by the Closing) timely filed with the
appropriate governmental authority and all such taxes have been (or will have
been by the Closing) paid or deposited.
(n) STATUS AND OPERATION OF OIL AND GAS PROPERTIES.
(i) Exhibit "E" lists all of the material contracts
pertaining to or affecting the Property.
(ii) The Contracts and Leases affecting the Property are
in full force and effect in accordance with their respective
terms and all applicable laws, and to the best of Seller's
knowledge there exists no default in the performance of any
obligation thereunder.
(iii) Except for funds properly suspended for good cause
in a separate account maintained by Seller, Seller has not
received any proceeds from the sale of any hydrocarbons or other
products produced from the Property which are subject to a
potential refund.
7
13
(iv) To the best of Seller's knowledge, each producing
and shut-in well operated by Seller and located on the Property
(other than saltwater disposal xxxxx) is capable of producing
hydrocarbons, has been and is properly permitted, is in
compliance with all applicable regulations, and production of
hydrocarbons therefrom has not been in excess of the allowable
allocated to such well, all as required by any governmental
authority having jurisdiction thereof.
(v) Seller is being paid, without surety or indemnity
of any kind, except the usual warranties found in division orders
customarily used in the petroleum industry, for its interests in
the proceeds of the sale of any hydrocarbons or other products
produced from the Property.
(vi) All costs incurred in connection with the operation
of the Properties which have been submitted to Seller or of which
Seller otherwise has knowledge, have been fully paid and
discharged except normal expenses incurred in operating the
Properties within the previous sixty (60) days and as to which
Seller has not yet been billed. There are no outstanding AFEs or
similar commitments with respect to the Properties that could
result in Buyer's incurring after the Closing capital
expenditures in excess of $5,000 in the aggregate.
(vii) To the best of Seller's knowledge, as of the
Effective Time all of the Seller operated xxxxx, equipment and
personal property to be conveyed are (1) structurally sound with
no material defects, (2) in good operating condition and repair,
and (3) not in need of maintenance or repairs, except for
ordinary, routine maintenance and repairs.
(o) COMPLIANCE WITH LAWS. The Property is being operated in
compliance with and Seller is not charged with a violation of, or to its
knowledge, threatened with a charge of a violation of, any law relating to the
Property.
(p) ENVIRONMENTAL MATTERS. With respect to the Properties:
(i) Since the dates on which Seller took over
operations of the Properties, they have been used by Seller
solely for oil and gas operations and related operations; at no
time during this period have the Properties been used by Seller,
or, to the knowledge of Seller, by anyone else, for the
generation, storage or disposal of a Hazardous Substance (defined
below) or as a landfill or other waste disposal site. To the
knowledge of Seller, there are no Hazardous Substances currently
on the Lands.
(ii) To the knowledge of Seller, there are no
underground storage tanks on the Lands.
8
14
(iii) To the knowledge of Seller, no improvements owned
or used by Seller on the Lands contain any asbestos.
(iv) To the knowledge of Seller, no lease equipment or
other personal property or improvements contain any
polychlorinated biphenyls.
(v) Seller has not entered into, and, to the knowledge
of Seller, no predecessor to Seller has entered into, or is
subject to, any agreements, consent orders, decrees, judgments,
license or permit conditions, or, to the knowledge of Seller,
other directives of governmental authorities in existence at this
time based on any Environmental Laws that relate to the future
use of any of the Properties or that require any change in the
present conditions of any of the Properties.
(vi) There are no actions, suits, claims or proceedings
seeking money damages, injunctive relief, remedial action or
other remedy, pending or, to the knowledge of Seller, threatened,
against any of the Properties or against Seller arising from its
ownership or operation of the Properties and relating to the
violation of, or noncompliance with, an Environmental Law; the
disposal, discharge, or release of any Hazardous Substance; or
the exposure of any person to any other solid waste, pollutant,
chemical substance, noise or vibration.
(vii) Neither the execution of this Agreement nor the
consummation of the transactions contemplated by this Agreement
will violate any Environmental Law or, to the knowledge of
Seller, require the consent or approval of any agency charged
with enforcing any Environmental Law.
(viii) As of the time of Closing, Seller using its
existing field personnel for the benefit of Purchaser, will cause
a physical inspection (without any testing, sampling or
excavation) to be made of the Properties to confirm, and does
hereby confirm, that the representations and warranties in this
Section 3.1(p) are true and correct as of the Closing Date.
(q) TITLE. Except as disclosed in writing to Buyer prior to
Closing and accepted by Buyer and except for liens and encumbrances that will
be released on or before Closing, Seller has not sold, leased, mortgaged,
pledged, granted a lien or security interest in the Property nor otherwise
disposed of or encumbered the Property and Seller hereby warrants title to the
Property against anyone claiming by, through or under Seller, but not
otherwise.
(r) TAX PARTNERSHIPS. The Properties are not subject to any
partnerships that shall not be liquidated prior to Closing.
9
15
(s) LEASED PROPERTY. Exhibit "F" attached hereto and made a
part hereof is a true and complete list of all personal property located on the
Properties that is either leased by Seller or otherwise not owned by Seller and
is part of the Excluded Properties.
(t) PROPERTIES. It is the intent of Seller to convey, and of
Buyer to receive, all of Seller's interests in those Properties described on
Exhibit "A," including but not limited to, those property interests described
in Section 1.1, excepting only the Excluded Properties. If any interests owned
by Seller in such Properties are omitted or incorrectly described, Seller shall
execute all documents necessary to effect the intent stated herein.
(u) ROYALTIES. To the best of Seller's knowledge all material
royalties (other than royalties held in suspense), rentals and other payments
due under the Leases have been properly and timely paid and all conditions
necessary to keep Seller's Leases in force have been fully performed. No
notices have been received by Seller of any claim to the contrary, to the best
of Seller's knowledge, and all of the Leases are in full force and effect. All
royalties paid by Seller have included any premium payments over and above
posted prices in the area.
(v) IMBALANCES. There is no imbalance in the production,
delivery, and sale of hydrocarbons from the Leases, whether at the wellhead, at
a plant, at a pipeline interconnect, or otherwise. Seller is entitled to share
according to its interest of record in the production, delivery, and sale of
all hydrocarbons produced from the Leases.
(w) SECURITIES MATTERS. As of the date hereof and the
Closing Date:
(i) SPECULATIVE INVESTMENT. Seller acknowledges
that investing in Buyer Common Stock is speculative and involves certain risks
and represents that it is prepared to and can bear the economic risk of such an
investment for an indefinite time.
(ii) RESTRICTED BUYER STOCK. Seller acknowledges
that the Buyer Common Stock that Seller will receive in connection with the
transaction described herein will not have been registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), any other federal
securities laws, or any applicable state securities laws, that such securities
will be characterized as "restricted securities" under the federal securities
laws, and that under such laws and applicable regulations such securities
cannot be sold or otherwise disposed of without registration under the
Securities Act and any applicable state securities law or an exemption
therefrom or an opinion of counsel or other evidence reasonably satisfactory to
counsel to Buyer that such registration is not required. In this connection,
Seller represents that Seller is familiar with Rule 144 promulgated under the
Securities Act, as currently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
(iii) FURTHER RESALE RESTRICTIONS. Seller understands and
agrees that Seller may not transfer any of Buyer's Common Stock prior to the
first anniversary of the
10
16
consummation of the transaction described herein, except in connection with a
merger in which Buyer is not the surviving corporation.
(iv) INVESTMENT INTENT. Seller represents and
warrants that Seller is acquiring the Buyer Common Stock for Seller's own
account, as a principal, for investment, and not with a view to, or for offer
or sale for Buyer or an affiliate of Buyer in connection with, any distribution
of all or part thereof, and Seller is not participating and does not have a
participation in any such distribution or the underwriting of any such
distribution.
(v) FUTURE SEC REGISTRATION NOT ASSURED. Seller
acknowledges that Buyer is under no obligation to register the Buyer Common
Stock issued to Seller pursuant to the Securities Act or any state securities
law.
(vi) LEGEND. Seller acknowledges that the
certificates representing the Buyer Common Stock to be delivered in connection
with the transaction described herein will be stamped or otherwise imprinted
with a legend in such form as Buyer may require with respect to restrictions on
sale or transfer imposed by applicable securities laws, including, without
limitation, a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS
SUCH SHARES ARE FIRST REGISTERED UNDER THAT SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
To insure compliance with the restrictions contained herein, stop transfer
instructions may be issued to the transfer agent for securities of Buyer or a
notation may be made in the appropriate records of Buyer in connection with the
Buyer Common Stock issued in connection with this transaction.
(vii) INDEMNIFICATION. Seller agrees to indemnify
and hold harmless Buyer from and against all liabilities, costs, or expenses
arising out of or in any way connected with any offer, sale, or other transfer
or distribution by Seller in violation of the Securities Act or any applicable
state securities law of any of the Buyer Common Stock acquired by Seller
resulting from Seller's failure to exercise all available rights and
opportunity to conduct a significant due diligence investigation into Buyer.
(viii) RECEIPT OF INFORMATION. Seller hereby
represents and warrants that Seller has been furnished with a copy of and
carefully read all information that Seller considers necessary or appropriate
for deciding whether to enter into this transaction and accept the Buyer Common
Stock to be issued to Seller pursuant to this Agreement. Seller acknowledges
11
17
that Seller has been furnished with Buyer's Annual Report on Form 10-KSB for
1996, each of the Forms 10-QSB for 1996 and all Form 8-Ks filed with the
Securities and Exchange Commission ("SEC')since December 31, 1996. Seller
further represents and warrants that Seller understands that Buyer has not had
substantial operations in the past, that its Common Stock has historically been
infrequently traded, is not traded on NASDAQ or any stock exchange, has
substantial blocks of stock held by a few individuals, the purchase thereof
involves a substantial risk of loss, and that no representation or promises
regarding the future value of the Buyer stock it is to receive has been made.
Seller further represents and warrants that Seller has had an opportunity to
ask questions of and receive answers from the officers of Buyer regarding its
operations and plan of business and the terms and conditions of this Agreement
under which Buyer Common Stock is to be issued, and to obtain such additional
information (to the extent Buyer possesses the same or could acquire it without
unreasonable effort or expense) as Seller deemed necessary to make an informed
investment decision regarding acquisition of the Buyer Common Stock.
(ix) SELLER WHEREWITHAL AND INVESTMENT EXPERIENCE.
Seller represents and warrants: (1) that Seller understands the term
"Accredited Investor" as defined in Rule 501 of Regulation D promulgated under
the Securities Act ("Regulation D"); and (2)it is an Accredited Investor, but,
regardless of whether or not it meets the definition of Accredited Investor,
that Seller is capable of evaluating the merits and risks of Seller's
investment in the Buyer Common Stock to be issued pursuant to this Agreement
and has the capacity to protect its own interests in connection therewith,
based on Seller's own business and financial experience and knowledge or based
on the collective business and financial experience and knowledge of Seller and
Seller's independent financial advisor (i.e., a person who regularly as part of
his business customarily is compensated by persons who rely upon him for
investment advice and decisions and who is not directly or indirectly
affiliated with or in a business relationship with Buyer). Seller acknowledges
that Seller is able in a business transaction such as the one contained in this
Agreement to fend for itself, and that Seller can bear the economic risk of an
investment in the Buyer Common Stock for an indefinite time. Seller further
represents and warrants that Buyer may further attribute Seller's
representations herein to also include Seller's shareholders, management and
other advisors.
(x) INVESTIGATION. Seller represents that it has such
sophistication in business matters that it can evaluate and does understand the
relative business merits and risks of this transaction with Buyer. Seller
represents that it has had sufficient time and opportunity to ask questions of
and receive answers and documents from representatives of Buyer relative to its
business and affairs.
3.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants to Seller as follows:
(a) EXISTENCE. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its
incorporation, and is duly qualified to do business in the state in which the
Properties are located.
12
18
(b) AUTHORIZATION. Buyer has all requisite corporate or other
power and authority, as applicable, to execute and deliver this Agreement, to
consummate the transactions contemplated hereunder and to perform all of the
terms and conditions hereof to be performed by it. The execution and delivery
of this Agreement by Buyer, the performance by Buyer of all of the terms and
conditions hereof to be performed by it and the consummation of the
transactions contemplated hereunder have been duly authorized and approved by
all necessary corporate action. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its respective terms, except to the extent
enforceability may be affected by bankruptcy, reorganization, insolvency, or
similar laws affecting creditors' rights generally.
(c) POWER. Subject to preferential rights and restrictions on
assignment of the type typically found in the oil and gas industry, and to
rights to consent by, required notices to, and filings with or actions by other
governmental entities, Buyer's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its certificate of incorporation, by-laws, or
other governing documents; (ii) result in the breach of any term or condition
of, or constitute a default or cause the acceleration of any obligations under
any agreement or instrument to which it is a party or by which it is bound; or
(iii) violate or conflict with any applicable judgment, decree, order, permit,
law, rule or regulation.
(d) BROKERS. Buyer has not incurred any liability, contingent
or otherwise, for any broker's or finder's fees in respect of this transaction,
for which Seller shall have any responsibility whatsoever.
(e) FURTHER DISTRIBUTION. Buyer (i) is acquiring the
Properties for its own account and without a view to the distribution thereof
within the mean of the Securities Act of 1933, as amended; (ii) has such
knowledge and experience in business, financial, and oil and gas matters that
it is capable of evaluating the merits and risks of entering into and of
carrying out its obligations in connection with the acquisition of the
Properties in the manner contemplated herein; (iii) has received to date all
information concerning the Properties and such other information relating to
this Agreement, which it has requested; and (iv) is able to bear the economic
risk of its investment in the Properties for an indefinite period of time.
Further, Buyer acknowledges that Seller is relying upon the representations
contained in the foregoing sentence and that absent such representations the
proposed sale to Buyer would not be entered into and this Agreement would not
be executed and delivered by Seller.
13
19
ARTICLE 4
TITLE MATTERS
4.1 DEFENSIBLE TITLE. As used herein, the term "Defensible Title"
shall mean as to the Properties, such title held by Seller that, subject to and
except for the Permitted Encumbrances:
(a) entitle Seller to receive not less than the "Net Revenue
Interest" set forth in Exhibit "A" of all oil, gas and associated liquid and
gaseous hydrocarbons produced, saved and marketed from the Properties; and
(b) obligates Seller to bear costs and expenses relating to
the maintenance, development and operation of xxxxx located on the Properties
in an amount not greater than the "Working Interest" set forth in Exhibit "A"
unless there is a corresponding increase in the Net Revenue Interest; and
(c) is free and clear of encumbrances, liens, and defects; and
(d) is free from reasonable doubt to the end that a prudent
person engaged in the business of purchasing and owning, developing and
operating producing oil and gas properties with knowledge of all of the facts
and their legal bearing would be willing to accept the same at the agreed
price.
4.2 PERMITTED ENCUMBRANCES. As used herein, the term "Permitted
Encumbrances" shall mean:
(a) Lessors' royalties, overriding royalties, reversionary
interests and other burdens, if the net cumulative effect of such burdens does
not operate to reduce the Net Revenue Interests of any of the Properties to
less than the Net Revenue Interest set forth in Exhibit "A;"
(b) Preferential rights to purchase and required third party
consents to assignments and similar agreements with respect to which, prior to
Closing, (i) waivers or consents are obtained from the appropriate parties; or
(ii) the appropriate time period for asserting such rights has expired without
an exercise of such rights;
(c) Liens for taxes or assessments not yet due or not yet
delinquent or, if delinquent, that are being contested in good faith in the
normal course of business and disclosed on an Exhibit hereto;
(d) All rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests therein if the same are
customarily obtained subsequent to such sale or conveyance;
14
20
(e) The terms and conditions of the Leases;
(f) Rights of reassignment in the event of intended release or
surrender of any of the Properties;
(g) Easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like; and easements for streets,
alleys, highways, pipelines, telephone lines, power lines, railways and other
easements and rights-of-way, on, over or in respect of any of the Properties;
(h) Rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any of the
Properties in any manner, and all applicable laws, rules and orders of any
governmental authority;
(i) Such Title Defects (defined below) or other defects as
Buyer has waived; and
(j) Liens released at Closing.
4.3 NOTICE OF TITLE DEFECT. Buyer shall notify Seller in writing, as
soon as reasonably practicable after Buyer has knowledge thereof, and in any
event on or before 5:00 p.m. Central Standard Time, on June 15, 1997 (the
"Notification Deadline"), of any Title Defect that would cause Seller's title
to any of the Properties not to be Defensible Title, in each case together with
a detailed explanation of (a) the nature of such Title Defect, (b) the Leases
(or portions thereof) affected thereby, and (c) Buyer's proposed Defect Value
(as hereinafter defined for such Title Defect). Any Title Defect which is not
specifically raised in writing (with the detailed explanation as contemplated
in the immediately preceding sentence) by Buyer prior to the Notification
Deadline shall conclusively be deemed waived by Buyer. As used herein, the
term "Defect Value" shall mean with respect to each Title Defect, the reduction
in the "Allocated Value" of the affected Leases as a result of such Title
Defect, as determined pursuant to Section 4.5.
4.4 REMEDIES FOR TITLE DEFECTS: TITLE INCREASES.
(a) Seller shall have the right, but not the obligation, to
attempt to cure any Title Defect with respect to which it has received notice
from Buyer as contemplated in Section 4.3 prior to the Notification Deadline.
(b) With respect to any Title Defect for which Seller receives
the required notice from Buyer before the Notification Deadline, Seller may,
subject to the terms of the last sentence of this Section 4.4(b), elect at
Closing from among the following options with respect to Title Defects that
remain uncured:
15
21
(i) Seller may elect to exclude the Lease subject to
the Title Defect from the sale hereunder, in which event the
Purchase Price shall be reduced by the Allocated Value (as
defined in Section 4.5) of such Lease; or
(ii) If Seller has not elected the foregoing, the Lease
subject to such Title Defect shall be sold to Buyer hereunder,
and the Purchase Price shall be reduced by the Defect Value for
such Title Defect.
(c) To the extent that same are discovered by either party
prior to the Notification Deadline, Seller and Buyer acknowledge and agree that
the Purchase Price shall be increased (a "Title Increase") by an amount equal
to the value allocated to the following:
(i) any increase in Seller's Net Revenue Interest shown
on Exhibit "A" for a Property without a corresponding increase
for Seller's Working Interest above that shown on Exhibit "A" for
such Property; or
(ii) any decrease in Seller's Working Interest below
that shown on Exhibit "A" for any Property without a
corresponding decrease in the Net Revenue Interest shown on
Exhibit "A" for such Property;
(d) Notwithstanding anything to the contrary contained in this
Agreement:
(i) the existence of a Title Defect shall not result in
Buyer having any right to exclude any Lease from the sale
hereunder or to fail to perform its obligations at Closing;
(ii) there shall be no adjustment of the Purchase Price
as a result of Seller's title to any of the Properties other than
the Leases;
(iii) either Buyer or Seller shall have the option, but
not the obligation, to terminate the entire transaction
contemplated herein in the event that the aggregate value of all
Title Defects and Title Increases exceeds 10% of the Purchase
Price.
4.5 VALUE OF LEASEHOLD INTEREST OR TITLE DEFECT. As used herein, the
term "Allocated Value" shall mean the amount set forth on Exhibit "G" for each
Lease. If Seller does not agree with Buyer's proposed Defect Value or the
parties are unable to agree upon whether a Title Defect exists, the Allocated
Value of a Lease or the value allocated to a Title Increase, in each case for
the purposes of Section 4.4, then the parties shall enter into good faith
negotiations and shall attempt to agree on such matter, and any values to be
agreed upon shall be based upon the Allocated Value for the group of properties
with which such Lease appears on Exhibit "G." If the parties are unable to
reach an agreement on the existence of a Title Defect or the Defect Value of a
Title Defect or the value allocated to any Title Increases, in any such case
within 14 days
16
22
after the commencement of good faith negotiations, at either party's option,
upon notice to the other party, such shall be determined by arbitration as
provided in Article 13. In the event arbitration is not concluded prior to the
Closing Date, the Property affected by the alleged Title Defect shall be
excluded from the sale to Buyer under this Agreement, and the Purchase Price
shall be reduced by the Allocated Value therefor. If the arbitration
determines that there should be an adjustment to the Allocated Value, Seller
will elect among the options in Section 4.4(b) as to the affected Property. If
the arbitration determines that there should be no adjustment to the Allocated
Value, then Seller will convey the Property to Buyer, and Buyer will pay to
Seller the Allocated Value.
4.6 CONSENTS; PREFERENTIAL RIGHTS. If any of the Contracts require a
consent to assignment of any of the Properties, then the sale of the Properties
affected thereby will be subject to Seller obtaining such consent or a waiver
of such consent. Seller shall not be obligated to incur any expenses to obtain
such consent or waiver and shall not be liable to Buyer by reason of any
inability or failure to obtain any such waiver or consent. If any of the
Properties are subject to a preferential right to purchase and, prior to
Closing, any holder of a preferential right to purchase notifies Seller that it
intends to consummate the purchase of the Property to which its preferential
right applies, or if the preferential purchase right has not been waived or
expired, then the affected Property shall be excluded from the sale to Buyer
under this Agreement; provided, however, that if the holder of such
preferential right fails to exercise or consummate the purchase of the Property
covered by such right, then within 60 days following the Closing Date, Seller
shall so notify Buyer, and within 30 days after Buyer's receipt of such notice
from Seller, Seller shall sell to Buyer, and Buyer shall purchase from Seller,
for a price equal to the Allocated Value of such Property (as adjusted pursuant
to the provisions of Section 2.3 above) and upon the other terms of this
Agreement (to the extent applicable), the Property to which the preferential
right applied.
4.7 CASUALTY LOSS, CONDEMNATION. If, prior to the Closing, all or
any portion of the Properties is destroyed by fire or other Casualty Loss or if
any portion of the Properties shall be taken by condemnation or under the right
of eminent domain (all of which are herein called "Pre-Closing Loss" and
limited to property damage or taking only), Buyer must elect in writing to
Seller prior to Closing either (i) to delete that portion of the Properties
which is subject to the Pre-Closing Loss from the Properties, and the Purchase
Price shall be reduced by the mutually agreed upon value of the deleted
portion of the Properties, or (ii) to proceed with the purchase of such
Properties, notwithstanding any such destruction or taking (without reduction
of the Purchase Price) in which case Seller shall pay, at the Closing, to Buyer
all sums paid to Seller by third parties by reason of the destruction or taking
of such Properties and shall assign, transfer and set over unto Buyer all of
the right, title and interest of Seller in and to any claims, causes of action,
unpaid proceeds or other payments from third parties arising out of such
destruction or taking; provided, however, if the mutually agreed upon value of
that portion of the Properties affected by the Pre-Closing Loss exceeds five
percent (5%) of the Purchase Price, Buyer and Seller shall each have the right
to terminate this Agreement upon written notification to the other, and the
transaction shall not Close and thereafter neither Buyer nor Seller shall have
any liability or obligations to the other hereunder. Prior to Closing, Seller
shall not voluntarily compromise,
17
23
settle or adjust any amounts payable by reason of any Pre-Closing Loss without
first obtaining the written consent of Buyer.
ARTICLE 5
ENVIRONMENTAL MATTERS
5.1 NOTICE OF ENVIRONMENTAL DEFECT. Buyer shall notify Seller in
writing on or before April 22, 1997, (the "Environmental Defect Notice
Deadline") of the existence of any environmental condition on any Property, or
any portion thereof, that constitutes a violation of Environmental Laws that
are in effect on the date hereof (any such condition being herein referred to
as "Environmental Defect"). An Environmental Defect(s) shall not be considered
for adjustment of the Purchase Price unless the remediation cost thereof
exceeds $5,000, (as determined utilizing the most cost effective method of
remediation available that is acceptable to the regulatory agency having
jurisdiction in such matters). With respect to any such Environmental Defect,
Seller may, at its sole option, and as to each such Property affected:
(a) include the affected Property and reduce the Purchase
Price by the mutually agreed upon cost to remediate in excess of $5,000 which
latter amount shall be borne by the Buyer; or
(b) exclude the affected Property and reduce the Purchase
Price by the Allocated Value for such Property.
5.2 TERMINATION OPTION. Either Buyer or Seller shall have the
option, but not the obligation, to terminate the entire transaction
contemplated herein in the event that the aggregate value of the Environmental
Defects exceeds 10% of the Purchase Price.
5.3 ENVIRONMENTAL LAWS. As used herein, the term "Environmental
Laws" shall mean any and all laws, statutes, regulations, rules, orders,
ordinances, permits, or determinations of any governmental authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Property is located, including, without limitation, the Clean Air
Act, as amended, the Federal Water Pollution Control Act, as amended, the River
and Harbor Act, Response, Compensation and Liability Act ("CERCLA"), as
amended, the Superfund Amendments and Reauthorization Act of 1986 ("XXXX"), as
amended, the Resource Conservation and Recovery Act ("RCRA"), as amended, the
Hazardous and Solid Waste Occupational Safety and Health Act ("OSHA"), as
amended, and other federal, state, and local laws whose purpose is to conserve
or protect health, the environment, wildlife, or natural resources. The terms
"hazardous substance," "release," and "threatened release" shall have the
meanings specified in CERCLA; provided, however, that (a) to the extent the
laws of the state in which the Property is located are applicable and have
established a meaning for "hazardous substance," "release," "threatened
release," "solid waste," "hazardous waste," and "disposal" that is broader than
that specified in CERCLA or RCRA, such broader meaning shall apply with respect
to the matters
18
24
covered by such laws, and (b) the term "solid waste" shall include all oil and
gas exploration, development, and production wastes, even if such wastes are
specifically exempt from classification as hazardous substances or hazardous
wastes pursuant to CERCLA or RCRA, or the state analogues to those statutes.
ARTICLE 6
COVENANTS OF SELLER
6.1 ACCESS TO RECORDS. Prior to the Closing, Seller shall grant
Buyer access to the Records during Seller's normal business hours upon
reasonable prior notification, subject to any confidentiality agreements
previously signed by Buyer. The Records shall be made available at their
present location together with suitable office facilities for review purposes.
6.2 OPERATIONS. From the date hereof until Closing (the "Interim
Period"), except as otherwise approved by Buyer (which approval shall not be
unreasonably withheld), Seller:
(a) shall permit Buyer to have access to those Properties
operated by Seller and shall use reasonable efforts to provide Buyer access to
those Properties not operated by Seller;
(b) shall operate the Properties for which it is the operator
in a reasonably prudent manner in accordance with all applicable laws and
Contracts; provided, however, except for Seller's gross negligence or willful
misconduct, Seller shall have no liability to Buyer whatsoever as a consequence
of such action;
(c) shall not transfer, sell, hypothecate, encumber, or
otherwise dispose of any of the Properties (other than sale of production in
the ordinary course of business or as required in connection with the exercise
of preferential rights to purchase any of the Properties);
(d) shall not abandon any xxxxx or surrender any Leases (other
than as required by law or governmental order or regulation or in connection
with an emergency);
(e) shall not enter into any production sale, processing, or
treating agreements affecting the Properties not terminable on no more than
thirty (30) days' notice;
(f) shall promptly notify Buyer of any written notice received
by Seller relating to any claims or lawsuits relating to the Properties; and
(g) shall not make any commitments to expend funds in
connection with the ownership or operation of the Properties (other than as
required by law or governmental order or regulation or in connection with an
emergency) in an amount in excess of $1,000. If Buyer fails to respond within
a period of time reasonably requested by Seller (taking into account any time
limitations imposed on Seller) following delivery by Seller of a request for
approval with respect
19
25
to any such proposed action or expenditure, then Buyer shall be deemed to have
agreed with Seller's election or other determination with respect thereto.
6.3 PERMISSIONS. Seller will use reasonable efforts to obtain all
permissions, approvals, and consents of federal, state, and local governmental
authorities and others as may be required to consummate the sale contemplated
hereunder (excluding governmental permissions, approvals, and consents which
are customarily obtained after the consummation of transactions of the type
contemplated hereunder).
6.4 RESIGNATION AS OPERATOR. As to the Properties which are operated
by Seller, Seller will tender its resignation as operator immediately following
Closing and will cooperate with Buyer in seeking to have Buyer selected as
successor operator as soon as is practicable.
ARTICLE 7
COVENANTS OF BUYER
7.1 RETURN OF DATA. Buyer agrees that if this Agreement is
terminated for any reason whatsoever, Buyer shall promptly return to Seller all
information and data furnished by or on behalf of Seller to Buyer, its
officers, employees, and representatives in connection with this Agreement or
Buyer's investigation of the Properties. Buyer shall also deliver to Seller
all copies, extracts, or excerpts of such information and data and all
documents generated by Buyer that contain any portion of such information or
data.
7.2 INDEMNITY REGARDING ACCESS. Buyer agrees to protect, indemnify,
defend, and hold harmless Seller from and against any and all Losses in
connection with the personal injuries, including death, or property damage
arising out of or relating to the access of Buyer, its officers, employees, and
representatives to the Properties, regardless of whether such injuries, death
or damages are caused in whole or part by the sole, partial, concurrent, or
other negligence, strict liability, or other fault of Seller.
ARTICLE 8
SELLER'S CONDITIONS OF CLOSING
The obligation of Seller to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Seller, in whole or in part:
8.1 REPRESENTATIONS. The representations of Buyer under Section 3.2
of this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the time of
the Closing and shall then be true and accurate in all material respects.
20
26
8.2 PERFORMANCE. Buyer shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed
or complied with by it prior to or at Closing.
8.3 PENDING MATTERS. At Closing, no litigation, proceeding,
investigation, or inquiry shall be pending or threatened to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
8.4 BONDS. Where applicable, Buyer shall have furnished evidence
satisfactory to Seller that Buyer has obtained any requisite plugging bonds and
other assurances required by governmental authorities having jurisdiction,
including, where applicable, qualification to assume operatorship.
ARTICLE 9
BUYER'S CONDITIONS OF CLOSING
The obligation of Buyer to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Buyer, in whole or in part:
9.1 REPRESENTATIONS. The representations of Seller under Section 3.1
of this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the time of
the Closing and shall then be true and accurate in all material respects.
9.2 PERFORMANCE. Seller shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed
or complied with by it prior to or at Closing.
9.3 PENDING MATTERS. At Closing, no litigation, proceeding,
investigation, or inquiry shall be pending or threatened to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
9.4 RESOLUTION. Seller shall have furnished Buyer with a certified
copy of Resolutions of the Board of Directors of Seller and the Shareholders of
Seller, authorizing the execution and delivery of this Agreement, the
performance of the transactions provided for in this Agreement, and delivery of
all documents contemplated herein.
21
27
ARTICLE 10
CLOSING
10.1 TIME AND PLACE OF CLOSING. Subject to the conditions stated in
this Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur on April 23, 1997 (the "Closing Date"). The Closing
shall be held at Buyer's office in Weatherford, Texas, or at such other
location as may be mutually agreed upon by Seller and Buyer.
10.2 CLOSING OBLIGATIONS.
(a) At Closing, Seller shall deliver to Buyer the following:
(i) Executed Assignment, Xxxx of Sale and Conveyance of
the Properties, in the form attached hereto as Exhibit "H;"
(ii) An initial settlement statement reflecting
adjustments to the Purchase Price as provided in Section 2.2
above (Seller shall provide Buyer a copy of such statement at
least 3 business days before the Closing Date);
(iii) Resignations of Seller as operator of any of the
Properties of which Seller is operator;
(iv) Letters-in-lieu of transfer orders, directing that
all proceeds of production from the Properties which have
heretofore been paid to Seller shall be paid to the account of
Buyer as of and after the Effective Time; and
(v) Possession of the Properties.
(b) At Closing, Buyer shall:
(i) Deliver to Seller the Purchase Price, as adjusted
pursuant to Section 2.2;
(ii) Execute the Assignment, Xxxx of Sale and Conveyance
delivered by Seller to Buyer at Closing, evidencing Buyer's
acceptance of same and assumption of all obligations thereunder;
(iii) Evidence that Buyer has obtained any requisite
plugging bonds and other assurances required by governmental
authorities having jurisdiction, including, where applicable,
qualification to assume operatorship; and
22
28
(iv) Well transfer permits, the originals of which shall
be retained by Seller for filing.
10.3 FURTHER ASSURANCES. The parties shall execute, acknowledge, and
deliver any other documents and shall take such other actions as may be
necessary to carry out their obligations under this Agreement.
ARTICLE 11
ADDITIONAL AGREEMENTS
11.1 CALCULATION OF ADJUSTED PURCHASE PRICE. Within 90 days after the
Closing, Seller shall prepare, in accordance with this Agreement and with
generally accepted accounting principles consistently applied, and deliver to
Buyer a statement setting forth each adjustment to the Purchase Price required
pursuant to Section 2.3 and showing the calculation of each such adjustment.
Within 15 days after receipt of such statement from Seller, Buyer shall deliver
to Seller a written report containing all changes with explanations and
documentation therefor that Buyer proposes be made to such statement, it being
agreed that Buyer's failure to deliver such report to Seller within such time
period shall constitute acceptance by Buyer of Seller's statement. From and
after the expiration of such 15 day period, no additional changes to the
statement provided by Seller shall be considered by the parties. If Buyer has
timely delivered such written report, the parties shall then undertake to agree
on the items in dispute and the final Adjusted Purchase Price no later than 15
days after the receipt by Seller of Buyer's statement of proposed changes (it
being agreed that any disputes as to adjustments relating to Title Defects
shall be resolved prior to such time pursuant to the provisions of Article 5).
Following the final determination of the Adjusted Purchase Price pursuant to
this Section 11.1, Seller or Buyer, as the case may be, shall make the payment
required within five business days after such final determination. Seller and
Buyer will provide any information reasonably requested by the other in order
to prepare such statement or verify Buyer's written report.
11.2 SUSPENDED FUNDS. As soon as practicable after the Closing,
Seller shall provide to Buyer a listing showing all proceeds from production
attributable to the Properties that are currently held in suspense and shall
transfer to Buyer all such suspended proceeds. Buyer shall be responsible for
proper distribution of all the suspended proceeds to the parties lawfully
entitled to them, and hereby agrees to indemnify, defend, and hold harmless
Seller from and against any and all Losses arising out of or relating to
Buyer's retention or distribution of such suspended proceeds.
11.3 RECEIPTS AND CREDITS. Subject to the terms hereof and except to
the extent same have already been taken into account as an adjustment to the
Purchase Price, all monies, proceeds, receipts, credits, and income
attributable to the Properties (i) for the period prior to the Effective Time
shall be the sole property and entitlement of Seller, and to the extent
received by Buyer, Buyer shall fully disclose, account for, and transmit same
to Seller promptly, and (ii) for the
23
29
period subsequent to the Effective Time, shall be the sole property and
entitlement of Buyer, and, to the extent received by Seller, Seller shall fully
disclose, account for, and transmit same to Buyer. Subject to the terms of
this Agreement and except to the extent same have already been taken into
account as an adjustment to the Purchase Price, all costs, expenses,
disbursements, obligations, and liabilities attributable to the Properties (i)
for the period prior to the Effective Time, regardless of when due or payable,
shall be the sole obligations of Seller and Seller shall promptly pay, or if
paid by Buyer, promptly reimburse Buyer for and indemnify, defend, and hold
Buyer harmless from and against same and (ii) for the period subsequent to the
Effective Time, regardless of when due or payable, shall be the sole obligation
of Buyer and Buyer shall promptly pay, or if paid by Seller, promptly reimburse
Seller for and indemnify, defend, and hold Seller harmless from and against
same.
11.4 RECOVERY OF TAXES PAID ON BEHALF OF OTHER OWNERS. Seller has
paid certain personal property and real property taxes attributable to the
period prior to the Effective Time on behalf of all royalty and working
interest owners in the Properties. Seller has recovered a portion of such
advance payments from the oil purchaser from sales of oil subsequent to the
Effective Time, but has not yet recovered the entirety of the debts due Seller.
Buyer agrees that Buyer will pay to Seller at Closing the remaining balance
attributable to such tax payments, and Buyer will assume the right to recover
such amounts from revenue generated by the Properties subsequent to the
Effective Time.
11.5 SIGNS. Seller shall have the option to remove Seller's name and
signs from the operated Properties. Buyer hereby grants Seller a right of
access to do so. Buyer shall promptly, but no later than required by
applicable rules and regulations or forty-five (45) days thereafter, whichever
is earlier, remove any remaining signs and references to Seller and shall erect
or install all signs complying with any applicable governmental rules and
regulations, including, but not limited to, those showing Buyer as operator of
the Properties if Buyer succeeds Seller as operator.
11.6 RECORDS. Seller will deliver to Buyer at Buyer's office all
Records as soon as practical after Closing but not more than seven (7) days
thereafter. Seller shall at its expense be entitled to retain a copy of the
Records. Buyer agrees to use reasonable efforts to maintain the Records for
seven (7) years after Closing. During said period of time Buyer shall provide
Seller and its representatives reasonable access to and the right to copy the
Records (at Seller's sole expense). If Buyer decides to destroy any Records
prior to the expiration of the seven years, it will so notify Seller, and
Seller shall have the right to obtain such files at its sole expense.
11.7 NOTICES. All notices and other communication shall be deemed to
have been duly made if delivered by (i) hand delivery, (ii) facsimile, (iii)
overnight delivery service, or (iv) three days after being placed in first
class mail, postage prepaid, with return receipt requested to the following
addresses:
SELLER: Oil Fund 100 LLC
4770 South 000 Xxxx
00
00
Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxxx Xxxxxxxx
Facsimile: 000-000-0000
BUYER: Lone Star International Energy, Inc.
000 Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxx 00000
Attention: X.X. Xxxxxxx
Facsimile: 000-000-0000
11.8 RECORDING DOCUMENTS. Buyer shall pay all documentary, filing,
and recording fees incurred in connection with the filing and recording of the
instruments of conveyance. As soon as practicable after Closing, Buyer shall
provide Seller with copies of all recorded documents conveying the Properties
to Buyer.
11.9 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing by
mutual agreement of Buyer and Seller in writing, or by either party due to the
failure of the other party to meet a material condition to Closing. Such
termination shall be without prejudice to the terminating party's other legal
rights. In the event of such termination, and subject to the provisions of
Section 2.2 of this Agreement, Seller shall promptly refund to Buyer the
Deposit. Upon such termination of this Agreement, Seller shall be free
immediately to enjoy all rights of ownership of the Properties and to sell,
transfer, encumber, or otherwise dispose of the Properties to any party without
any restriction under this Agreement; and Buyer shall be liable for all actual,
incidental, and consequential damages (including, without limitation, lost
profits) if it attempts to interfere in any way with any such enjoyment or
action by Seller.
11.10 SALES TAXES. The Purchase Price provided for hereunder excludes
any sales taxes or other taxes in connection with the sale of Properties
pursuant to this Agreement. If a determination is ever made that a sales tax
or other transfer tax applies, Buyer shall pay such tax as well as any
applicable conveyance, transfer, and recording fees, and real estate transfer
stamps or taxes imposed on any transfer of property pursuant to this Agreement.
Buyer shall defend, indemnify, and hold Seller harmless with respect to the
reporting and payment of all such taxes, if any, including any interest or
penalties assessed thereon.
11.11 OTHER TAXES. All ad valorem, severance, or other such production
or property taxes relating to the Properties shall be shared in proportion to
the period of ownership of the Properties. Any ad valorem, severance, or other
such production or property tax relating to the period prior to the Effective
Date, shall be the responsibility of the Seller. Any ad valorem, severance, or
other such production or property tax relating to the period after the
Effective Date and beyond shall be the responsibility of the Buyer. Accounting
for taxes shall be made as provided herein.
25
31
ARTICLE 12
ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
12.1 DEFINITION OF LOSSES. As used in this Agreement, "Losses" means
any liabilities, losses, claims, demands, causes of action, costs and expenses
(including, but not limited to, court costs and reasonable attorneys' fees and
other costs and expenses incident to proceedings or investigations respecting,
or the prosecution or defense of, a claim) of every kind and character.
12.2 ASSUMPTION OF CONTRACTS. The sale of the Properties is and will
be made subject to the Contracts to which the Properties are presently subject.
Buyer assumes and shall be responsible for all obligations accruing under the
Contracts after the Effective Time.
ARTICLE 13
ARBITRATION
13.1 SELECTION OF ARBITRATORS. Any controversy between the parties
hereto arising under this Agreement and not resolved by agreement shall be
determined by a board of arbitration upon notice of submission given by either
party to the other, which notice shall name a qualified, independent
arbitrator. Within ten (10) days after the receipt of such notice, the other
party shall name a qualified, independent arbitrator, or failing to do so, the
party giving notice shall name the second. The two arbitrators so appointed
shall name the third qualified, independent arbitrator, or failing to do so,
the arbitrator may be appointed by the Senior United States District Court
Judge for the Southern District of Texas, acting in his individual capacity.
13.2 DETERMINATION. The arbitrators selected to act hereunder shall
be qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice
of hearing and giving the parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within ninety (90) days
after appointment of the third arbitrator. If within said period a decision is
not rendered by the board, or majority thereof, new arbitrators may be named
and shall act hereunder at the election of either Buyer or Seller in like
manner as if none had been previously named.
13.3 DECISION BINDING. The decision of the arbitrators, or the
majority thereof, made in writing shall be final and binding upon the parties
hereto as to the questions submitted, and Buyer and Seller will abide by and
comply with such decision. The prevailing party shall be entitled to recoup
all of the expenses of arbitration, including reasonable compensation to the
arbitrators, expenses of counsel, witnesses, and employees.
26
32
ARTICLE 14
MISCELLANEOUS
14.1 AMENDMENT. This Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to the party
claiming the benefit of such amendment or waiver.
14.2 GENDER. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships, or corporations. As used in
this Agreement, "person" shall mean any natural person, corporation,
partnership, trust, estate, or other entity.
14.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding among the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions, and prior agreements and
understandings relating to such subject matter.
14.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants, and agreements contained in this Agreement shall survive
the Closing and shall remain in effect without limitation as to time.
14.5 AMENDMENTS AND SEVERABILITY. No alterations, modifications,
amendments, or changes in this Agreement shall be effective or binding unless
the same shall be in writing and signed by Seller and Buyer. The invalidity of
any one or more covenants or provisions of this Agreement shall not affect the
validity of the Agreement as a whole, and in case of any such invalidity, this
Agreement shall be construed as if such invalid provision had not been included
herein.
14.6 SURVIVABILITY. Except as otherwise specifically provided in this
Agreement, all indemnifications, covenants, agreements, representations,
guaranties, and warranties shall survive the execution of the Agreement, the
Closing, and the delivery and recordation of any deeds, assignments, or bills
of sale which convey the Properties from Seller to Buyer.
14.7 GOVERNING LAW. This Agreement shall be governed and construed
under the laws of the State of Texas, and the venue of any action brought by
any party in regard hereto or arising out of the terms and provisions hereof
shall be exclusively in Xxxxxx County, Texas.
14.8 CONFIDENTIALITY. Seller and Buyer agree to keep all information
regarding the terms and provisions of this Agreement and the transactions
contemplated hereby confidential at all times and agree not to disclose any
information which cannot be obtained from public sources, except where required
to do so by law, without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
27
33
14.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each and every counterpart shall be deemed for all purposes as
one and the same agreement.
14.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and except as otherwise
stated herein, nothing contained in this Agreement, or implied here from, is
intended to confer upon any other person or entity any benefits, rights, or
remedies.
Executed on this 30th day of April, 1997.
SELLER:
OIL FUND 100 LLC
OIL FUND, INC. MANAGER
/s/ XXXXXX X. XXXXXXX
------------------------------------
BY: Xxxxxx X. Xxxxxxx
TITLE: President
BUYER:
LONE STAR INTERNATIONAL ENERGY, INC.
/s/ X. X. XXXXXXX
------------------------------------
BY: X. X. Xxxxxxx
TITLE: President
28
34
Exhibit "A"
Leases
35
Exhibit "B"
Excluded Properties
36
Exhibit "C"
Litigation
37
Exhibit "D"
Non-Cancelable Contracts
38
Exhibit "E"
Material Contracts
39
Exhibit "F"
Leased Personal Property
40
Exhibit "G"
Allocated Values
41
Exhibit "H"
Assignment, Xxxx of Sale and Conveyance
