CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement"), executed on ___________
2008 (the "Execution Date"), is between ___________________ a _______
corporation ("Contributor"), and Colony Energy, Inc., a Delaware corporation
("Company"). Contributor and Company are sometimes referred to herein together
as the "Parties", and individually as a "Party".
RECITALS:
WHEREAS, Contributor desires to contribute interests in and to certain oil
and gas properties and related assets to Company in exchange for convertible
preferred stock of Company; and
WHEREAS, Company desires to effect such transactions with Contributor.
NOW THEREFORE, in consideration of the foregoing, the other terms and
conditions set forth in this Agreement, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, Contributor
and Company hereby agree as follows:
ARTICLE 1
DEFINITIONS; REFERENCES
1.1 DEFINITIONS. As used herein:
1.1.1 "Affiliate" means, with respect to any Person, a Person
that directly or indirectly controls, is controlled by or is under common
control with such Person, with control in such context meaning the ability
to direct the management or policies of a Person through ownership of voting
shares or other securities, pursuant to a written agreement, or otherwise. For
purposes of this Agreement, neither Party shall be an Affiliate of the
other.
1.1.2 "Agreed Value" means the "implied equity value" of
Contributor set forth on Exhibit A-1.
1.1.3 "bcfe" mean one billion cubic feet of natural gas
equivalent, with one (1) barrel of crude oil being deemed to be equivalent to 6
mcf (0.000006 bcf) of natural gas.
1.1.4 "Business Day" means each calendar day except Saturdays,
Sundays or a day when banks are closed for business in Houston, Texas.
1.1.5 "Claims" means, unless specifically provided otherwise,
all claims (including those for damage to property, bodily injury and death,
personal injury, illness, disease, maintenance, cure, loss of parental and
spousal consortium, wrongful death, loss of support, and wrongful termination of
employment), damages, liabilities, losses, demands, liens, encumbrances, fines,
penalties, causes of action of any kind (including actions for indirect,
consequential, punitive and exemplary damages), obligations, costs (including
payment of all reasonable attorneys' fees and costs of litigation), judgments,
interest, and awards or amounts, of any kind or character, whether under
judicial proceedings, administrative proceedings, investigation by a
Governmental Authority or otherwise, or conditions in the premises of or
attributable to any Person or Persons or any Party or parties, breach of
representation or warranty (expressed or implied), under any theory of tort,
contract, breach of contract, at law or in equity, under statute, or otherwise,
arising out of, or incident to or in connection with this Agreement or the
ownership or operation of the Assets.
1.1.6 "Closing Date" means the date the Equity Raise
successfully closes.
1.1.7 "Code" means the United States Internal Revenue Code of
1986, as amended from time to time.
1.1.8 "Common Stock" means the Company's authorized common
stock, par value $0.001 per share.
1.1.9 "Defensible Title" means that title of Contributor,
which:
(a) Entitles Contributor to receive throughout
the duration of the productive life of any Unit or Well
(after satisfaction of all royalties, overriding royalties,
nonparticipating royalties, net profits interests and other
similar burdens on or measured by production of Hydrocarbons),
not less than the "net revenue interest" share shown in Exhibit
A-1 of all Hydrocarbons produced, saved and marketed from such
Unit or Well;
(b) Obligates Contributor to bear a percentage of
the costs and expenses for the maintenance and development of, and
operations relating to, any Unit or Well not greater than the
"working interest" shown in Exhibit A-1 without increase throughout
the productive life of such Unit or Well, except as stated in
Exhibit A-1; and
(c) Is free and clear of liens, encumbrances,
obligations or defects, other than Permitted Encumbrances.
1.1.10 "Environmental Laws" means, as the same have been
amended as of the Execution Date, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et seq.; the Clean Air Act, 42
U.S.C. 7401 et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. 1471 et seq.; the Toxic Substances Control Act, 15 U.S.C. 2601
through 2629; the Oil Pollution Act, 33 U.S.C. 2701 et seq.; the Emergency
Planning and Community Right to Xxxx Xxx, 00 X.X.X. 00000 et seq.; and
the Safe Drinking Water Act, 42 U.S.C. 300f through 300j, in each case as
amended as of the Execution Date, and all similar Laws as of the Execution
Date of any Governmental Authority having jurisdiction over the property in
question addressing pollution or protection of the environment or biological
or cultural resources, remediation of contamination, restoration of
environmental quality, Hazardous Substances and all regulations implementing
the foregoing.
1.1.11 "Governmental Authority" means any national, state
and/or local government and/or government of any political subdivision, and
departments, courts, arbitrator, arbitral tribunals, commissions, boards,
bureaus, ministries, agencies or other instrumentalities of any of them.
1.1.12 "Hazardous Substances" shall mean any substance defined
or regulated as a "pollutant," "contaminant," "solid waste," "hazardous
substance," "toxic substance" or "hazardous waste" under any Environmental Laws.
1.1.13 "Hydrocarbons" means oil, gas, condensate and other
gaseous and liquid hydrocarbons or any combination thereof and sulphur extracted
from hydrocarbons.
1.1.14 "Laws" means all laws, statutes, rules, regulations,
ordinances, orders, decrees, requirements, authoritative interpretations,
judgments and codes of Governmental Authorities.
1.1.15 "Permitted Encumbrances" means:
(a) Lessors' royalties and any overriding
royalties, reversionary interests and other burdens to the extent that they
do not, individually or in the aggregate, reduce Contributor's net revenue
interests below those shown in Exhibit A-1 or increase Contributor's working
interests above those shown in Exhibit A-1 without a corresponding increase
in the net revenue interest;
(b) All leases, unit agreements, pooling
agreements, operating agreements, production sales contracts, division orders
and other contracts, agreements and instruments applicable to the Assets to the
extent that they do not, individually or in the aggregate, reduce Contributor's
net revenue interests below that shown in Exhibit A-1 or increase Contributor's
working interests above that shown in Exhibit A-1 without a corresponding
increase in the net revenue interest;
(c) Rights of first refusal, preferential purchase
rights and similar rights with respect to the Assets which have been waived by
the holders thereof prior to the Closing Date;
(d) Third-party consent requirements and similar
restrictions which are not applicable to the contribution of the Assets
contemplated by this Agreement or with respect to which waivers or consents are
obtained from the appropriate Persons prior to the Closing Date or the
appropriate time period for asserting the right has expired or which need not be
satisfied prior to a transfer;
(e) Liens for Taxes or assessments not yet
delinquent;
(f) Materialman's, mechanic's, repairman's,
employee's, contractor's, operator's and other similar liens or charges arising
in the ordinary course of business for amounts not yet delinquent (including any
amounts being withheld as provided by Law);
(g) All rights to consent, by required notices to,
filings with, or other actions by Governmental Authorities in connection with
the sale or conveyance of Hydrocarbon leases or rights or interests therein if
they are customarily obtained subsequent to the sale or conveyance;
(h) Rights of reassignment arising upon final
intention to abandon or release the Assets, or any of them;
(i) Easements, rights-of-way, covenants,
servitudes, permits, surface leases and other rights in respect of surface
operations to the extent they, individually or in the aggregate, neither (i)
reduce Contributor's net revenue interest below that shown on Exhibit A-1 or
increase Contributor's working interest beyond that shown on Exhibit A-1 without
a corresponding increase in net revenue interest nor (ii) detract in any
material respect from the value of, or interfere in any material respect with
the use, ownership or operation of, the Assets subject thereto or affected
thereby (as currently used, owned or operated) and which would be acceptable by
a reasonably prudent operator engaged in the business of owning and operating
Hydrocarbon properties; and
(j) any lien or trust arising in connection with
workers' compensation, unemployment insurance, pension or employment laws or
regulations.
1.1.16 "Persons" means any individual, corporation,
partnership, limited liability company, trust, estate, Governmental Authority
or any other entity.
1.1.17 "Preferred Stock" means that series of the Company's
authorized preferred stock designated as "Convertible Series A Preferred Stock,
$0.01 Par Value" having the preferences, limitations and rights set forth in the
Certificate of Designations attached hereto as Exhibit B, including, without
limitation, that the series has a mandatory conversion feature and ranks pari
passu with the Company's Common Stock with respect to voting and the right to
receive dividends or assets upon liquidation, dissolution or winding up of
Company.
1.1.18 "Property Costs" means all costs attributable to the
ownership and operation of the Assets (including costs of insurance and ad
valorem, property, severance, Hydrocarbon production and similar Taxes based
upon or measured by the ownership or operation of the Assets or the production
of Hydrocarbons therefrom, but excluding any other Taxes) and all royalties and
other payments due to third parties in respect of Hydrocarbon production or the
sale thereof and capital expenditures incurred in the ownership and operation of
the Assets in the ordinary course of business and, where applicable, in
accordance with the relevant operating or unit agreement, if any, and overhead
costs charged to the Assets under the relevant operating agreement or unit
agreement, but excluding without limitation liabilities, losses, costs, and
expenses attributable to: (a) Claims for personal injury or death, property
damage or violation of any Law; (b) obligations to plug xxxxx or dismantle,
abandon and salvage facilities; (c) obligations to remediate any contamination
of environmental media, including groundwater, surface water, surface and
subsurface soil, Equipment or Pipelines under applicable Environmental Laws; and
(d) obligations to pay working interests, royalties, overriding royalties or
other interests held in suspense.
1.1.19 "Property Proceeds" means, with respect to the relevant
time period, all Hydrocarbon production from or attributable to the Leases,
Units and Xxxxx (and all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with respect to the Assets.
1.1.20 "Records" means lease files, land files, well files,
Hydrocarbon sales contract files, gas processing files, division order files,
abstracts, title opinions, land surveys, logs, interpretive data, technical
evaluations and technical outputs, maps, engineering data and reports, and
other books, records, data, files, and accounting and financial records,
including Tax records, in each case to the extent related primarily to the
Assets, or used or held for use primarily in connection with the maintenance or
operation thereof.
1.1.21 "Shares" means __________ shares of Preferred Stock.
1.1.22 "Taxes" means all federal, state, local, and foreign
income, profits, franchise, sales, use, ad valorem, property, severance,
production, excise, stamp, documentary, real property transfer or gain, gross
receipts, goods and services, registration, capital, transfer, or withholding
taxes or other governmental fees or charges imposed by any taxing authority,
including any interest, penalties or additional amounts which may be imposed
with respect thereto.
1.2 REFERENCES. In this Agreement:
1.2.1 References to any gender includes a reference to all other
genders;
1.2.2 References to the singular includes the plural, and vice versa;
1.2.3 Reference to any Article or Section means an Article or
Section of this Agreement;
1.2.4 Reference to any Exhibit or Schedule means an Exhibit or
Schedule to this Agreement, all of which are incorporated into and made a
part of this Agreement;
1.2.5 Unless expressly provided to the contrary, "hereunder",
"hereof", "herein" and words of similar import are references to this
Agreement as a whole and not any particular Section or other provision of
this Agreement;
1.2.6 References to "$" or "dollars" means United States dollars;
and
1.2.7 "Include" and "including" shall mean include or including
without limiting the generality of the description preceding such term.
ARTICLE 2
THE ASSETS; ALLOCATION OF PRODUCTION AND PROPERTY COSTS; CARRIED INTEREST FEE
2.1 THE ASSETS. Subject to the terms of this Agreement, Contributor
shall contribute to Company and Company shall accept all of Contributor's right,
title and interest in and to the following described assets and liabilities, and
all privileges and obligations appurtenant thereto (SAVE and EXCEPT the
Excluded Assets described in Section 2.2), which are hereafter referred to
collectively as the "Assets":
2.1.1 All of the Hydrocarbons leases, subleases, royalties,
overriding royalties, net profits interests, mineral fee interests, carried
interests, farmout rights, options, other rights to Hydrocarbons in place
and other properties and interests described on Exhibit A (collectively, the
"Leases"), together with each and every kind and character of right, title,
claim, and interest that Contributor has in and to the Leases, or the lands
covered thereby or lands currently pooled, unitized, communitized or
consolidated therewith (the "Lands");
2.1.2 All Hydrocarbon, water or injection xxxxx located on the Lands,
whether producing, shut-in, or temporarily abandoned, including the interests in
the xxxxx shown on Exhibit A-1 attached hereto (the "Xxxxx");
2.1.3 All interests of Contributor in or to any currently existing
pools or units which include any Lands or all or a part of any Leases or any
Xxxxx, including those pools or units shown on Exhibit A-1 (the "Units", and
the Units together with the Leases, Lands and Xxxxx, collectively, the
"Properties"), and including all interests of Contributor in production of
Hydrocarbons from any such Unit, whether such Unit production of Hydrocarbons
comes from Xxxxx located on or off of a Lease or the Lands, and all tenements,
hereditaments and appurtenances belonging to the Xxxxx, Leases and Units;
2.1.4 All contracts, agreements and instruments by which the Properties
are bound, or that relate to or are otherwise applicable to the Properties
including operating agreements, unitization, pooling and communitization
agreements, declarations and orders, joint venture agreements, farmin and
farmout agreements, exploration agreements, participation agreements, exchange
agreements, transportation or gathering agreements, agreements for the sale and
purchase of Hydrocarbons or processing agreements to the extent applicable to
the Properties or the production of Hydrocarbons produced in association
therewith from the Properties (hereinafter collectively referred to as
"Contracts"), provided that "Contracts" shall not include the instruments
constituting the Leases;
2.1.5 All easements, permits, licenses, servitudes, rights-of-way,
surface leases and other surface rights ("Surface Contracts") appurtenant to,
and used or held for use primarily in connection with the Properties;
2.1.6 All equipment, machinery, fixtures and other tangible personal
property (including spare parts, owned vehicles and leased vehicles) and
improvements located on the Properties or used or held for use primarily in
connection with the operation of the Properties ("Equipment");
2.1.7 All flow lines, pipelines, gathering systems and appurtenances
thereto located on the Properties or used, or held for use, primarily in
connection with the operation of the Properties ("Pipelines");
2.1.8 All Hydrocarbons produced from or attributable to the Properties
from and after the Effective Time;
2.1.9 All of the Records and all seismic licenses, contracts and data
owned or held for use by Contributor; and
2.2 EXCLUSIONS FROM THE PROPERTY. The Assets do not include the
following, which are reserved by Contributor unto itself and its successors
and assigns (the "Excluded Assets"):
2.2.1 If any, Contributor's proprietary computer software, computer
software licensed from third parties, patents, pending patent applications,
trade secrets, copyrights, names, marks and logos;
2.2.2 If any, concurrent interests in any and all easements,
rights-of-way, licenses, permits, servitudes, surface leases, surface use
agreements, contracts, facilities, equipment, pipelines, and similar rights and
interests relating to rights and interests held by Contributor not included in
the Assets and necessary or convenient to the possession, and full enjoyment of
such reserved rights and interests;
2.2.3 Trade credits and rebates from contractors and vendors, and
adjustments or refunds attributable to Contributor's interest in the Assets that
relate to any period before the Effective Time, including transportation Tax
credits and refunds, tariff refunds, take-or-pay claims, insurance premium
adjustments, and audit adjustments under the Contracts;
2.2.4 Claims of Contributor for refund of or loss carry forwards with
respect to: (a) production, windfall profit, severance, ad valorem or any other
taxes attributable to any period prior to the Effective Time; (b) income or
franchise Taxes; and (c) any Taxes attributable to the excluded items described
in this Section 2.2;
2.2.5 Deposits, cash, checks in process of collection, cash
equivalents, accounts and notes receivable and other funds attributable to any
periods before the Effective Time, and security or other deposits made with
third parties prior to the Effective Time;
2.2.6 All proceeds, benefits, income or revenues with respect to the
Assets attributable to periods prior to the Effective Time;
2.2.7 All Claims arising from acts, omissions or events, or damage to
or destruction of the Assets before the Effective Time, and all related rights,
titles, claims and interests of Contributor: (a) under any policy or agreement
of insurance or indemnity; (b) under any bond or letter of credit; or (c) to any
insurance or condemnation proceeds or awards; and
2.2.8 If any, all swap, futures, or derivative contracts backed by or
related to Hydrocarbons.
2.3 OWNERSHIP OF PRODUCTION FROM THE PROPERTY.
2.3.1 Possession of and title to the Assets shall be transferred
from Contributor to Company at the Closing Date, but certain financial benefits
and burdens of the Assets shall be transferred effective as of 7:00 A.M.,
local time, where the respective Assets are located, on July 1, 2008 (the
"Effective Time"), as described below.
2.3.2 Company shall be entitled to all Property Proceeds from and after
the Effective Time, and shall be responsible for (and entitled to any refunds
with respect to) all Property Costs incurred at and after the Effective Time.
Contributor shall be entitled to all Property Proceeds prior to the Effective
Time, and shall be responsible for (and entitled to any refunds with respect to)
all Property Costs incurred prior to the Effective Time.
2.3.3 For purposes of this Agreement, the terms "earned" and
"incurred", as used in this Agreement, shall be interpreted in accordance with
generally accepted accounting principles and XXXXX standards. For purposes of
this Section 2.3.3, determination of whether Property Costs are attributable to
the period before or after the Effective Time shall be based on when services
are rendered, when the goods are delivered, or when the work is performed. For
clarification, the date an item or work is ordered is not the date of a
pre-Effective Time transaction for settlement purposes, but rather the date on
which the item ordered is delivered to the job site, or the date on which the
work ordered is performed, shall be the relevant date. For purposes of
allocating Hydrocarbon production (and accounts receivable with respect
thereto), under this Section 2.3.3, (a) liquid Hydrocarbons shall be deemed to
be "from or attributable to" the Leases, Units and Xxxxx when they pass through
the pipeline connecting into the storage facilities into which they are run and
(b) gaseous Hydrocarbons shall be deemed to be "from or attributable to" the
Leases, Units and Xxxxx when they pass through the delivery point sales meters
on the pipelines through which they are transported. Contributor has utilized
reasonable interpolative procedures to arrive at an allocation of Hydrocarbon
production when exact meter readings or gauging and strapping data is not
available. Contributor has, prior to the execution of this Agreement, provided
Company all data necessary to support any estimated allocation, for purposes of
establishing the production information necessary to calculate the amount of the
Effective Time Adjustment Payment pursuant to Section 3.2.2. Taxes,
right-of-way fees, insurance premiums and other Property Costs that are paid
periodically shall be prorated based on the number of days in the applicable
period falling before and the number of days in the applicable period falling at
or after the Effective Time, except that Hydrocarbon production, severance and
similar Taxes shall be prorated based on the number of units actually produced,
purchased or sold or proceeds of sale, as applicable, before, and at or after,
the Effective Time. In each case, Company shall be responsible for the portion
allocated to the period at and after the Effective Time and Contributor shall be
responsible for the portion allocated to the period before the Effective Time.
ARTICLE 3
CONTRIBUTION; EXECUTION DATE DELIVERABLES
3.1 CONTRIBUTION. Subject to the terms of this Agreement, Contributor
shall contribute the Assets to Company (the "Contribution") and Company shall
accept the Assets and issue the Shares to Contributor on the Closing Date
simultaneously with the closing of the Equity Raise
3.2 EFFECTIVE TIME ADJUSTMENTS.
3.2.1 Company shall make a cash payment to Contributor (the
"Effective Time Adjustment Payment") to account for certain post-Effective
Time costs and expenses associated with the Assets, after accounting for any
post-Effective Time revenues received by Contributor with respect to the Assets.
The amount of the Effective Time Adjustment Payment shall be as calculated in
Section 3.2.2.
3.2.2 The amount of the Effective Time Adjustment Payment shall
be calculated as follows:
(a) Adding the amount of all Property Costs
incurred with respect to the ownership and operation of the Assets during
the period commencing at the Effective Time and ending on (and including) the
Closing Date (the "Adjustment Period"), except any Property Costs and
other such costs deducted in the determination of proceeds in Section
3.2.2(b); and
(b) Subtracting the aggregate amount of the Property
Proceeds received by Contributor during the Adjustment Period.
3.2.3 The adjustment made pursuant to Section 3.2.2(b)
shall serve to satisfy, up to the amount of the adjustment, Company's
entitlement under Section 2.3.2 to Property Proceeds received by Contributor
during the Adjustment Period, and as such, Company shall not have any separate
rights to receive any Hydrocarbon production or income, proceeds, receipts and
credits to the extent an adjustment has been made. Similarly, the
adjustment described in Section 3.2.2(a) shall serve to satisfy, up to the
amount of the adjustment, Company's obligation under Section 2.3.2 to pay
Property Costs and other costs attributable to the ownership and
operation of the Assets which are incurred during the Adjustment Period, and
as such, Company shall not be separately obligated to pay for any Property
Costs or other such costs to the extent an adjustment has been made.
3.2.4
(a) Immediately prior to the execution of this
Agreement, Contributor prepared and delivered to Company, based upon the best
information available to Contributor, a preliminary statement estimating the
amount of the Effective Time Adjustment Payment after giving effect to
Section 3.2.2. Such estimate shall constitute the amount to be paid by
Company to Contributor pursuant to Section 3.4 in respect of the Effective
Time Adjustment Payment.
(b) As soon as reasonably practicable after the
Execution Date but not later than ninety (90) days thereafter, Contributor shall
prepare and deliver to Company a statement setting forth the final calculation
of the amount of the Effective Time Adjustment Payment and showing the
calculation of such payment, based, to the extent possible, on actual credits,
charges, receipts and other items during the Adjustment Period and taking into
account all adjustments provided for in this Agreement. Contributor shall at
Company's request supply reasonable documentation available to support any
credit, charge, receipt or other item. As soon as reasonably practicable but
not later than the 30th day following receipt of Contributor's statement
hereunder, Company shall deliver to Contributor a written report containing any
changes that Company proposes be made to such statement. The Parties shall
undertake to agree on the final statement of the Effective Time Adjustment
Payment no later than one hundred fifty (150) days after the Execution Date. In
the event that the Parties cannot reach agreement within such period of time,
either Party may refer the remaining matters in dispute to a nationally-
recognized independent accounting firm as may be accepted by the Parties for
review and final determination pursuant to arbitration. The accounting firm
shall conduct the arbitration proceedings in Xxxxxx County, Texas in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
to the extent such rules do not conflict with the terms of this Section
3.2.4(b). The accounting firm's determination shall be made within thirty (30)
days after submission of the matters in dispute and shall be final and binding
on both Parties, without right of appeal. The accounting firm shall act as an
expert for the limited purpose of determining the specific disputed matters
submitted by either Party and may not award damages or penalties to either Party
with respect to any matter. Each Party shall each bear its own legal fees and
other costs of presenting its case, and one-half of the costs and expenses of
the accounting firm. Within ten (10) Business Days after the date on which the
Parties or the accounting firm, as applicable, finally determines the disputed
matters, the Party required to make a payment to the other Party in settlement
of the final amount of the Effective Time Adjustment Payment shall make such
payment.
3.3 OTHER CLOSING DATE DELIVERABLES.
3.3.1 Contributor Deliverables. On the Closing Date,, upon
the terms and subject to the conditions of this Agreement, Contributor shall
deliver or cause to be delivered to Company the following:
(a) A conveyance instrument reasonably acceptable
to Company and Contributor" (the "Conveyance"), in sufficient duplicate
originals to allow recording in all appropriate jurisdictions and offices,
duly executed by Contributor;
(b) Letters-in-lieu of transfer orders covering the
Assets, duly executed by Contributor; and
(c) one (1) original executed statement described in
Treasury Regulation 1.1445-2(b)(2) certifying that Contributor is not a foreign
person within the meaning of the Code, duly executed by Contributor.
3.3.2 Company Deliverables. On the Closing Date, upon the terms
and subject to the conditions of this Agreement, Company shall deliver or
cause to be delivered to Contributor the following:
(a) The Conveyance, in sufficient duplicate originals
to allow recording in all appropriate jurisdictions and offices, duly
executed by Company;
(b) Letters-in-lieu of transfer orders covering the
Assets, duly executed by Company;
(c) The Effective Time Adjustment Payment;
(d) The certificate(s) representing the Shares.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 RECIPROCAL REPRESENTATIONS AND WARRANTIES. By their execution
of this Agreement, Contributor and Company each represent and warrant that
the following statements are true and accurate as to itself, as of the
Execution Date and the Closing Date.
4.1.1 Corporate Authority. It is a corporation or limited
liability company, as applicable, duly organized and in good standing under
the Laws of its state of organization, is duly qualified to carry on its
business in the states where the Assets are located, and has all the requisite
power and authority to enter into and perform this Agreement.
4.1.2 Requisite Approvals. Upon execution of this Agreement, it
will have taken all necessary actions pursuant to its articles of incorporation,
by-laws and other governing documents to fully authorize: (a) the execution and
delivery of this Agreement and any transaction documents related to this
Agreement; and (b) the consummation of the transaction contemplated by this
Agreement.
4.1.3 Validity of Obligation. This Agreement and all other
transaction documents it is to execute and deliver on or before the Closing
Date: (a) have been duly executed by its authorized representatives; (b)
constitute its valid and legally binding obligations; and (c) are enforceable
against it in accordance with their respective terms.
4.1.4 No Violation of Contractual Restrictions. Its execution,
delivery and performance of this Agreement does not conflict with or violate any
agreement or instrument to which it is a party or by which it is bound, except
any provision contained in agreements customary in the oil and gas industry
relating to: (a) the preferential right to purchase all or any portion of the
Assets; (b) required consents to transfer and related provisions; (c)
maintenance of uniform interest provisions; and (d) any other third-party
approvals or consents contemplated in this Agreement.
4.1.5 No Violation of Other Legal Restrictions. Its execution,
delivery and performance of this Agreement and the other transaction documents
related to this Agreement do not violate any Law to which it or the Assets is
subject.
4.1.6 Bankruptcy. There are no bankruptcy, reorganization or
receivership proceedings pending, being contemplated by, or to its actual
knowledge, threatened against it.
4.1.7 Brokers Fees. It has not incurred any obligation for
brokers, finders or similar fees for which the other Party would be liable.
4.1.8 No Restraining Litigation. There is no action, suit,
proceeding, claim or investigation by any person, entity, administrative agency
or Governmental Authority pending or, to its knowledge, threatened, against it
before any Governmental Authority that seeks substantial damages in connection
with, or seeks to restrain, enjoin, materially impair or prohibit the
consummation of all or part of the transaction contemplated in this Agreement.
4.2 CONTRIBUTOR'S REPRESENTATIONS AND WARRANTIES. By its execution
of this Agreement, Contributor represents and warrants to Company that the
following statements are true and accurate, as of the Execution Date and
the Closing Date.
4.2.1 Litigation. Except as set forth in Schedule 4.2.1:
(a) no investigation, proceeding, action, suit, or other legal proceeding of
any kind or nature before any Governmental Authority or arbitrator is
pending or, to Contributor's knowledge, threatened to which Contributor is a
party and which relates to the Assets; and (b) no notice in writing from
any Governmental Authority has been received by Contributor claiming any
material violation of or noncompliance with any Law with respect to the
Assets.
4.2.2 Taxes and Assessments.
(a) With respect to all Taxes related to
Contributor for which a Governmental Authority could hold Company liable
after the Closing Date as a result of Company's receipt of the Assets from
Contributor or for which Company would be required to indemnify any
Contributor Indemnitee: (i) all reports, returns, statements (including
estimated reports, returns or statements), and other similar filings (the
"Tax Returns") required to be filed by Contributor have been timely filed
with the appropriate Governmental Authority in all jurisdictions in
which such Tax Returns are required to be filed; (ii) such Tax Returns are true
and correct in all material respects, and (iii) all Taxes owed by
Contributor have been paid.
(b) Except as set forth on Schedule 4.2.2: (i)
there is not currently in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or collection of any
Taxes related to the Assets; (ii) there are no administrative proceedings or
lawsuits for which a Governmental Authority could hold Company liable after the
Closing Date as a result of Company's acquisition of the Assets from Contributor
that are proposed or pending or, to Contributor's knowledge, threatened against
the Assets or Contributor by any taxing authority; and (iii) there are no Tax
liens on any of the Assets except for liens for Taxes not yet due.
4.2.3 Compliance with Laws. Except as disclosed on
Schedule 4.2.3, the Assets are, and the operation of the Assets is in compliance
with the provisions and requirements of all Laws of all Governmental
Authorities having jurisdiction with respect to the Assets, or the
ownership, operation, development, maintenance, or use of any thereof.
Notwithstanding the foregoing, Contributor makes no representation or warranty,
express or implied, under this Section relating to any Environmental
Liabilities or Environmental Law, which topics are addressed in Section 4.2.4.
4.2.4 Environmental. Except as disclosed on Schedule 4.2.4,
Contributor's ownership and operation of the Assets is in compliance in all
material respects with all applicable Environmental Laws. Except as disclosed
on Schedule 4.2.4, there has been no pollution or contamination of groundwater,
surface water, soil or subsurface strata on the Properties resulting from
Hydrocarbon or related activities on such Properties which was required to be
remediated under applicable Environmental Laws on or before the date of this
Agreement for which the owner of the Assets would be liable but which has not
been remediated. Except as disclosed on Schedule 4.2.4, Contributor has not
received any unresolved written notice from any Person or Governmental Authority
asserting or alleging that the Assets are or may be in violation of
Environmental Laws, are or may be the subject of any investigation pursuant to
Environmental Laws. Except as disclosed on Schedule 4.2.4, Contributor has not
entered into, or is not subject to, any agreements, consents, orders, decrees,
judgments, license or permit conditions, or other directives of any Governmental
Authority based on any Environmental Laws that relate to the future use of any
of the Assets or that require any change in the present condition of the Assets.
4.2.5 Xxxxx. All of the Xxxxx are listed on Exhibit A-1. Except
as set forth on Schedule 4.2.5, there are not any Xxxxx located on the
Properties that: (a) Contributor is obligated by any Law or contract to
currently plug and/or abandon; or (b) to Contributor's knowledge, have been
plugged and/or abandoned in a manner that does not comply with all applicable
Laws in all material respects.
4.2.6 Contracts. Except as disclosed on Schedule 4.2.6, and
except for the Services Agreement, there will be no Contracts to which any
Affiliate of Contributor is a party that will be binding on the Assets at and
after the Closing Date. None of the Contracts consist of, nor are the Assets
subject to any, hedge contracts, futures contracts, swap contracts, option
contracts, or similar derivatives contracts. All of the Contracts and Surface
Contracts (the "Basic Oil and Gas Documents") are in full force and effect in
all material respects and constitute valid and binding obligations of the
parties thereto. All material operating agreements and all unitization, pooling,
and communitization agreements, declarations, designations and orders relating
to the Assets, and all other contracts and agreements which are Basic Oil and
Gas Documents are disclosed on Schedule 4.2.6. Contributor is not in breach or
default (and no situation exists which with the passing of time or giving of
notice would create a breach or default) of its obligations under the Basic Oil
and Gas Documents. All proceeds attributable to the Assets owed to Contributor
are currently being paid in full to Contributor. All payments (including all
delay rentals, royalties, overriding royalties, shut-in royalties, valid calls
for payment or prepayment under operating agreements or other burdens on
production) owing under the Leases and the Basic Oil and Gas Documents have been
and are being made in a timely manner (such timely manner being before such
payments become delinquent) by Contributor in all material respects. For the
purposes of the representations contained in this Section (and without
limitation of such representations), the non-payment of an amount, or
non-performance of an obligation, where such non-payment, or non-performance,
could result in the forfeiture or termination of rights of Contributor under a
Lease or a Basic Oil and Gas Document, shall be considered material.
4.2.7 Title to the Properties.
(a) Contributor represents and warrants to Company
that Contributor has Defensible Title to the Leases shown on Exhibit A and
to the Units and Xxxxx shown on Exhibit A-1.
(b) Contributor is in compliance in all material
respects with the terms and conditions of the Leases, and has received no notice
of default with respect to any of the Leases. All of the Leases are in full
force and effect.
4.2.8 Title/Condition of Equipment. Contributor's title to
all Equipment shall be transferred to Company free and clear of liens and
encumbrances other than Permitted Encumbrances, and all such Equipment is in
an operable state of repair adequate to maintain normal operations in accordance
with past practices, ordinary wear and tear excepted.
4.2.9 Preferential Purchase Rights and Transfer Requirements.
Except as disclosed on Schedule 4.2.9, none of the Assets, or any portion
thereof, is subject to any preferential purchase rights, rights of first refusal
or negotiation or similar rights or third party consents to transfer which may
be applicable to the transactions contemplated by this Agreement.
4.2.10 Outstanding commitments. Except as set forth on
Schedule 4.2.10, (i) Contributor has not incurred expenses, or made commitments
to make expenditures, in connection with (and no other obligations or
liabilities have been incurred which would adversely affect) the ownership or
operation of the Assets after the Closing Date and (ii) no proposals are
currently outstanding (whether made by Contributor or by any other party) to
drill additional xxxxx, or to deepen, plug back, or rework existing xxxxx, or to
conduct other operations for which consent is required under the applicable
operating agreement.
4.2.11 Take or Pay Obligations. Contributor is not obligated,
by virtue of a prepayment arrangement, a "take or pay" arrangement, production
payment or any other arrangement to deliver oil, gas or other hydrocarbons
produced from the Assets at some future time without then receiving full payment
therefor.
4.2.12 Marketing Agreements. Except as set forth on Schedule
4.2.12, the Assets are not subject to any contractual or other arrangement for
the sale, processing or transportation of production, or otherwise relating to
the marketing of production, other than contracts or other arrangements which
will terminate in sixty (60) days or less, or are subject to cancellation on not
more than sixty (60) days' advance, written notice, in each case without penalty
or other detriment. Except as set forth on Schedule 4.2.12, there exist no
calls or other similar rights or options to purchase production from the Assets.
4.2.13 Permits. Contributor has all material governmental
licenses and permits necessary or appropriate to own and operate the Assets, and
such licenses and permits are in full force and effect and there have not been
any material violations with respect to any such licenses or permits.
4.2.14 Imbalances. Except as set forth on Schedule 4.2.14,
there are no currently existing gas or liquid Hydrocarbon imbalances in
connection with any well, facility or pipeline comprising any portion of or
related to the Assets for which Company will have any liability after the
Effective Time.
4.2.15 Accredited Investor. Contributor is an "accredited
investor", as that term is defined in Rule 501 of Regulation D, promulgated
under the Securities Act of 1933, as amended (the "Securities Act"):
4.2.16 Investment Intent. Contributor is acquiring the Shares
for its own account, for investment purposes only, and not for the account of
any other person or entity, and not with a view to distribution, assignment or
resale of the Shares to others or to fractionalization of the Shares in whole or
in part. No other person or entity has or will have a direct or indirect
beneficial interest in the Shares, and Contributor will not sell, hypothecate or
otherwise transfer the Shares, except as permitted hereby.
4.2.17 Advisors. Contributor has carefully considered and has,
to the extent it believed such discussion necessary, discussed with the its
professional legal, tax and financial advisers the suitability of an investment
in Company for Contributor's particular tax and financial situation and has
determined that the Shares will be a suitable investment for Contributor. With
respect to tax and other economic considerations involved in this investment,
Contributor is not relying on Company or any other person or entity acting as an
agent for Company in connection with offering of the Shares.
4.2.18 Suitability. Contributor has no need for liquidity with
respect to its investment in the Shares to satisfy any existing or contemplated
need, undertaking or indebtedness. Contributor is able to bear the economic
risk of its investment in the Shares for an indefinite period, including the
risk of losing all of its investment; and the loss of its entire investment in
the Shares would not materially adversely affect the standard of living of
Contributor and Contributor's family, if any.
4.2.19 Experience. Contributor has participated in the
syndication of other privately placed investments or by reason of Contributor's
knowledge and experience in business and financial matters has acquired the
capacity to protect its own interest in investments of a nature similar to the
Shares.
4.2.20 Access. Company has made available to Contributor all
documents and information relating to an investment in the Shares that
Contributor has requested, and Contributor has had the opportunity to ask
questions of, and receive answers from, Company relating to Contributor's
investment in the Shares.
4.2.21 Private Placement. Contributor is aware that Company, is
issuing the Shares pursuant to Section 4(2) of the Securities Act and Regulation
D, without complying with the registration provisions of the Securities Act and
applicable state securities laws, is relying upon, among other things, the
representations and warranties of Contributor contained herein, including
particularly the status of Contributor as an "accredited investor" under
Regulation D.
4.2.22 Restricted Securities. Contributor understands that the
Shares are "restricted securities" under applicable U.S. federal and state
securities laws and that, pursuant to these laws, Contributor must hold the
Shares indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Contributor
understands that the Shares may not be listed on an exchange and no trading or
other market may exist for the Shares at any time in the future.
4.2.23 No General Solicitation. The Shares were not offered to
Contributor by means of: (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium, or
broadcast over television or radio, (ii) any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, or (iii)
any other form of general solicitation or advertising.
4.2.24 Disclosure. Contributor has made available to Company
all the information reasonably available to Contributor that Company has
requested for deciding whether to acquire the Assets.
4.3 DISCLAIMER OF CONTRIBUTOR WARRANTIES; OTHER LIMITATIONS.
4.3.1 EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS
AGREEMENT, OR IN THE CONVEYANCE, (i) Contributor MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (ii) Contributor EXPRESSLY
DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY,
STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO COMPANY
OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES
(INCLUDING ANY OPINION, INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE
BEEN PROVIDED TO COMPANY BY ANY OFFICER, DIRECTOR, EMPLOYEE, AGENT, CONSULTANT,
REPRESENTATIVE OR ADVISOR OF Contributor OR ANY OF ITS AFFILIATES).
4.3.2 EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN THIS
AGREEMENT OR IN THE CONVEYANCE, AND WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, Contributor (i) EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS, STATUTORY OR IMPLIED, AS TO (I) TITLE TO ANY OF THE ASSETS, (II) THE
CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF
ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR
INTERPRETATION, RELATING TO THE ASSETS, (III) THE QUANTITY, QUALITY OR
RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (IV) ANY ESTIMATES OF THE
VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (V) THE
PRODUCTION OF HYDROCARBONS FROM THE ASSETS, (VI) THE MAINTENANCE, REPAIR,
CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (VII)
THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, REPORTS,
BROCHURE, CHARTS OR STATEMENTS PREPARED BY THIRD PARTIES, (VIII) ANY OTHER
MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
COMPANY OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS,
REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, OR (IX) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT AND
(ii) FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR
IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD
AND AGREED BY THE PARTIES THAT EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
SECTIONS 4.1 AND 4.2 OF THIS AGREEMENT OR IN THE CONVEYANCE, COMPANY SHALL BE
DEEMED TO BE OBTAINING THE ASSETS IN THEIR PRESENT STATUS, CONDITION AND STATE
OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS AND THAT COMPANY HAS MADE OR
CAUSED TO BE MADE SUCH INSPECTIONS AS COMPANY DEEMS APPROPRIATE.
4.3.3 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
Contributor HAS NOT AND WILL NOT MAKE ANY OTHER REPRESENTATION OR WARRANTY
REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS, THE RELEASE
OF MATERIALS INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY,
NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF
THE ASSETS, AND NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS
SUCH A REPRESENTATION OR WARRANTY, AND COMPANY SHALL BE DEEMED TO BE TAKING THE
ASSETS "AS IS" AND "WHERE IS" FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION.
4.3.4 Schedules may include matters not required by the terms of
the Agreement to be listed on the Schedule, which additional matters are
disclosed for purposes of information only, and inclusion of any such matter
does not mean that all such matters are included.
4.4 COMPANY'S REPRESENTATIONS AND WARRANTIES. By its execution of
this Agreement, Company represents and warrants to Contributor that the
following statements are true and accurate, as of the Execution Date.
4.4.1 Capitalization. The authorized equity securities of
Company consist of (a) 50,000,000 shares of Common Stock, of which 6,375,000
shares are issued and outstanding as of the Execution Date (prior to
giving effect to the transactions contemplated under this Agreement) and (b)
10,000,000 shares of Preferred Stock, of which zero (0) shares are issued and
outstanding as of the Execution Date (prior to giving effect to the
transactions contemplated under this Agreement). All of the outstanding equity
securities of Company have been duly authorized and validly issued and are
fully paid and nonassessable. None of the outstanding equity securities or
other securities of Company were issued in violation of the Securities
Act or any other legal requirement.
4.4.2 Valid Issuance of Shares. The Shares, when issued, sold
and delivered in accordance with the terms and for the consideration set forth
in this Agreement, will be validly issued, fully paid and nonassessable and free
of restrictions on transfer other than restrictions on transfer under this
Agreement, applicable state and federal securities laws and liens or
encumbrances created by or imposed by a Contributor. Assuming the accuracy of
the representations of Contributor in Sections 4.1 & 4.2 of this Agreement, the
Shares will be issued in compliance with all applicable federal and state
securities laws.
4.4.3 Independent Investigation. Company is (or its advisors
are) experienced and knowledgeable in the oil and gas business and aware of the
risks of such business. Company acknowledges and affirms that: (a) as of the
Execution Date, it has made all such independent investigation, verification,
analysis and evaluation of the Assets as it deems necessary or appropriate to
enter into this Agreement; and (b) it has made all such reviews and inspections
of the Assets and the business, books and records, results of operations,
conditions (financial or otherwise) and prospects of Contributor as it has
deemed necessary or appropriate to execute and deliver this Agreement. Except
for the representations and warranties expressly made by Contributor in this
Agreement or the Conveyance, Company acknowledges that there are no
representations or warranties, express or implied, as to the Assets and that in
making its decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Company has relied solely upon its own
independent investigation, verification, analysis and evaluation.
4.4.4 Investment Intent. Company is acquiring the Assets for
its own account and not with a view toward or for sale or distribution thereof
in violation of the Securities Act, the rules and regulations thereunder, any
applicable state blue sky Laws, and any other applicable securities Laws.
4.4.5 Qualification. Company is qualified under applicable
Laws to hold Leases, rights of way and other rights issued by all applicable
Governmental Authorities which are included in the Assets.
4.4.6 Books and Records. The books of account, minute books,
stock record books, and other records of Company, all of which have been made
available to Contributor, are complete and correct and have been maintained in
accordance with sound business practices. Company's minute books contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the board of directors, and committees of the board
of directors of Company.
4.4.7 Disclosure. Company has made available to Contributor
all the information reasonably available to Company that Contributor has
requested for deciding whether to acquire the Shares.
ARTICLE 5
TAX MATTERS
5.1 CERTAIN TAX MATTERS. Subject to the provisions of Section
5.2, Contributor shall be responsible for (and entitled to retain any
refunds that Contributor obtains with respect to) all Taxes related to the
Assets (other than ad valorem, property, severance, Hydrocarbon production
and similar Taxes based upon or measured by the ownership or operation of
the Assets or the production of Hydrocarbons therefrom, which are Property Costs
and addressed in Section 2.3.2) attributable to any period of time prior to the
Closing Date, and Company shall be responsible for (and entitled to retain any
refunds that Company obtains with respect to) all such Taxes related to the
Assets attributable to any period of time at and after the Closing Date.
Contributor shall handle payment to the appropriate Governmental Authority of
all Taxes with respect to the Assets which are required to be paid prior
to the Closing Date (and shall file all Tax Returns with respect to such
Taxes).
5.2 Sales or Use Tax Recording Fees and Similar Taxes and Fees.
Company shall bear any sales, use, excise, real property transfer goods
and services, registration, capital, documentary, stamp or transfer Taxes,
recording fees and similar Taxes and fees incurred and imposed upon, or with
respect to, the property transfers or other transactions contemplated hereby.
Contributor will determine, and Company agrees to cooperate with Contributor in
determining, sales Tax, if any, that is due in connection with the contribution
of the Assets to Company and Company agrees to pay any such Tax to Contributor
simultaneously herewith. If such transfers or transactions are exempt from any
such Taxes or fees upon the filing of an appropriate certificate or other
evidence of exemption, Company will timely furnish to Contributor such
certificate or evidence.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES. The
respective obligations of the Parties to consummate the transactions
contemplated by this Agreement are subject to the successful completion (or
waiver by each Party) within one hundred eighty (180) days of the Execution Date
(the "Outside Date") of a private placement of Common Stock by Company for at
least Fifteen Million Dollars ($15,000,000) (the "Equity Raise"). If the Equity
Raise does not occur on or before the Outside Date, any party to this Agreement
may terminate this Agreement with respect to itself.
ARTICLE 7
DUE DILIGENCE REVIEW; DEFECTS
7.1 NATURE OF DEFECTS. For purposes of this Agreement, the term
"Defect" shall mean the following:
7.1.1 Contributor's ownership of the Assets is such that,
with respect to any Unit or Well, it (A) entitles Contributor to receive a
share of the "net revenue interest" share shown on Exhibit A-1 of all
Hydrocarbons produced, saved and marketed from such Unit or Well which is
less than Contributor's Defensible Title therein, or (B) causes Contributor
to be obligated to bear a percentage of the costs and expenses for the
maintenance and development of, and operations relating to, any Unit or Well
greater than the "working interest" shown in Exhibit A-1 without increase
throughout the productive life of such Unit or Well, except as stated in
Exhibit A-1.
7.1.2 Contributor's ownership of the Assets is subject to an
imperfection in title which, if asserted, would cause a Defect, as defined in
Section 7.1.1, to exist, and such imperfection in title is not such as would
normally be waived by persons engaged in the oil and gas business when
purchasing producing properties.
7.2 REVIEW BY COMPANY; ASSERTED DEFECTS. Company may conduct, at
its sole cost, such title examination or investigation as it may, in its
sole discretion, choose to conduct with respect to Contributor's Assets to
determine whether Defects exist. Should one or more matters come to Company's
attention which would constitute a Defect, Company shall notify Contributor in
writing of such Defects as soon as reasonably possible after the same are
identified ("Asserted Defects"). Such notification shall include, for each
Asserted Defect, (a) a description of the Asserted Defect and the Xxxxx
and/or Units to which it relates and all supporting documentation reasonably
necessary to fully describe the basis for the Asserted Defect, (b) for each
applicable Well or Unit, the size of any variance from "net revenue interest"
or "working interest" which does or could result from such Asserted Defect,
and (c) the amount by which Company, in good faith, estimates the change in
the Agreed Value due to the Asserted Defect. Notwithstanding anything to
the contrary contained herein, Company's sole and exclusive rights and remedies
with respect to any matter that constitutes a Defect shall be those set forth
in Section 7.5 below.
7.3 DEFECT EXCEPTIONS. Notwithstanding any other provision in this
Agreement to the contrary, the following matters shall not constitute a Defect
or a breach of any covenant, representation or warranty of Contributor, and
shall not be asserted as such: (a) defects or irregularities arising out of
lack of corporate authorization or a variation in corporate name, unless Company
provides affirmative evidence that such corporate action was not authorized
and results in another person's or entity's superior claim of title to
Contributor's Assets; (b) defects or irregularities in Contributor's Assets
that have been cured or remedied by the passage of time, including, without
limitation, applicable statutes of limitation or statutes for prescription;
(c) defects or irregularities in the chain of title in Contributor's Assets
consisting of the failure to recite marital status in documents or omissions
of heirship proceedings; (d) imperfections in title in Contributor's Assets
which for a period of five (5) years or more have not delayed or prevented
Contributor (or its predecessors) from receiving their "net revenue interest"
share of the proceeds of production or cause them to bear a share of expenses
and costs greater than their "working interest" share from any Unit or
Well; (e) defects or irregularities in Contributor's Assets resulting from
or related to probate proceedings or the lack thereof which defects or
irregularities have been outstanding for five (5) years or more; (f)
conventional rights of reassignment normally actuated by an intent to abandon or
release a lease and requiring notice to the holders of such rights and any
defect or irregularity as would normally be waived by persons or entities
engaged in the oil and gas business when purchasing producing
properties; (g) all rights to consent by, required notices to, filings with, or
other actions by federal, state or local entities in connection with the sale or
conveyance of Contributor's Assets if the same are customarily obtained
subsequent to such sale or conveyance; and (h) all rights to consent and
preferential rights to purchase except as are applicable to, or triggered by,
the transactions contemplated under this Agreement.
7.4 RESPONSE. In the event that Company notifies Contributor of any
Asserted Defect:
7.4.1 Contributor may (but shall have no obligation to)
attempt in good faith to cure any Asserted Defect within thirty (30) days of
receipt of such notification; provided that Contributor gives Company five
(5) Business Days' notice of such election. If Contributor makes such election,
Company agrees to provide Contributor with reasonable accommodations and to
cause Contributor and third parties to take such actions and provide such
support as reasonably requested by Contributor in pursuit of such cure
activities. Contributor shall reimburse Company for any out of pocket and
third party expenses incurred in connection with such actions. As long as
Contributor is attempting in good faith to cure an Asserted Defect, Contributor
shall have the right to extend the cure period for such Asserted Defect by
an additional thirty (30) days.
7.4.2 Any Asserted Defect not cured pursuant to Section 7.4.1
shall be handled under Section 7.5 below.
7.5 REDUCTION IN SHARES
.
7.5.1 If an Asserted Defect is a Defect described in Section
7.1.1(A) or a Defect described in Section 7.1.2: a downward adjustment to the
number of Shares to which Contributor is entitled shall be made equal
to the amount determined by multiplying the "Allocated Share Amount" set forth
for such Well or Unit on Exhibit A-1 by a fraction (i) the numerator of which
is an amount equal to the "net revenue interest" shown on Exhibit A-1 for such
Well or Unit less the "net revenue interest" to which Contributor would be
entitled to as a result of its ownership interest in such Well or Unit which
is unaffected by such Defect and (ii) the denominator of which is the "net
revenue interest" shown for such Well or Unit on Exhibit A-1.
7.5.2 If an Asserted Defect is a Defect described in Section
7.1.1(B): a downward adjustment to the number of Shares to which Contributor is
entitled shall be made equal to the amount determined by multiplying the
"Allocated Share Amount" set forth for such Well or Unit on Exhibit A-1 by a
fraction (i) the numerator of which is an amount equal to the "working interest"
which Contributor would be obligated to bear as a result of its ownership
interest in such Well or Unit which is unaffected by such Defect less an amount
equal to the "working interest" shown on Exhibit A-1 for such Well or Unit and
(ii) the denominator of which is the "working interest" shown for such well or
unit on Exhibit A-1.
7.5.3 The Parties agree that the number of Shares received by
Contributor under this Agreement shall automatically, without any further action
by any Party, be retroactively reduced as a result of any adjustments under this
Article 7 and Contributor shall deliver the certificates representing its Shares
to Company and the Company shall issue replacement certificates to Contributor
for its Shares after giving effect to reductions determined under this Article
7.
ARTICLE 8
POST-EXECUTION DATE OBLIGATIONS; INDEMNIFICATION; LIMITATIONS
8.1 RECEIPTS. Except as otherwise provided in this Agreement, any
Property Proceeds which are not reflected in the Effective Time Adjustment
Payment following the final adjustment pursuant to Section 3.2.4(b) shall be
treated as follows: (a) Property Proceeds to which Company is entitled under
Section 2.3.2 shall be the sole property and entitlement of Company, and,
to the extent received by Contributor, Contributor shall fully disclose, account
for and remit the same promptly to Company; and (b) all Property Proceeds to
which Contributor is entitled under Section 2.3.2 shall be the sole property
and entitlement of Contributor and, to the extent received by Company,
Company shall fully disclose, account for and remit the same promptly
to Contributor.
8.2 EXPENSES. Any Property Costs which are not reflected in the
Effective Time Adjustment Payment following the final adjustment pursuant
to Section 3.2.4(b) shall be treated as follows: (a) all Property Costs
for which Contributor is responsible under Section 2.3.2 shall be the sole
obligation of Contributor and Contributor shall promptly pay, or if paid by
Company, promptly reimburse Company for and hold Company harmless from and
against same; and (b) all Property Costs for which Company is responsible
under Section 2.3.2 shall be the sole obligation of Company and Company shall
promptly pay, or if paid by Contributor, promptly reimburse Contributor for
and hold Contributor harmless from and against same. Contributor is entitled
to resolve all joint interest audits and other audits of Property Costs
covering periods for which Contributor is in whole or in part responsible,
provided that Contributor shall not agree to any adjustments to previously
assessed costs for which Company is liable without the prior written consent
of Company, such consent not to be unreasonably withheld. Contributor shall
provide Company with a copy of all applicable audit reports and written
audit agreements received by Contributor and relating to periods for which
Company is partially responsible.
8.3 ASSUMED OBLIGATIONS. Without limiting Company's rights to
indemnity under Section 7.4, as of the Closing Date, Company shall assume
and hereby agrees to fulfill, perform, pay and discharge (or cause to be
fulfilled, performed, paid or discharged) all of the obligations and
liabilities of Contributor with respect to the Assets arising after the
Closing Date.
8.4 INDEMNITY.
8.4.1 Contributor Indemnity Obligation. Contributor shall be
responsible for and indemnify, defend, release and hold harmless Company from
and against all Claims caused by, arising out of or resulting from:
(a) the ownership, use or operation of the Assets
prior to the Closing Date;
(b) those matters identified on Schedule 4.2.1;
(c) the breach by Contributor of any of its
obligations, representations, warranties or covenants
contained in this Agreement;
EVEN IF SUCH DAMAGES ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER
SOLE, JOINT OR CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY
INDEMNIFIED PERSON, OR A PRE-EXISTING CONDITION).
8.4.2 Company Indemnity Obligation. Company shall be
responsible for and indemnify, release and hold harmless Contributor from
and against all Claims caused by, arising out of or resulting from the breach
by Company of any of its obligations, representations, warranties or covenants
contained in this Agreement.
ARTICLE 9
MISCELLANEOUS
9.1 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original instrument, but all such counterparts
together shall constitute but one agreement.
9.2 NOTICE. All notices which are required or may be given pursuant to
this Agreement shall be sufficient in all respects if given in writing and
delivered personally, by telecopy or by registered or certified mail, postage
prepaid, as follows:
If to Contributor: _____________________________
_____________________________
_____________________________
Attn:
Telephone:
Telecopy:
If to Company: Colony Energy
0000 Xxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Any Party may change its address for notice by notice to the other in the manner
set forth above. All notices shall be deemed to have been duly given at the
time of receipt by the Party to which such notice is addressed.
9.3 FURTHER ASSURANCES. Company and Contributor agree to execute and
deliver from time to time such further instruments and do such other acts
as may be reasonably requested and necessary to effectuate the purposes of this
Agreement, including obtaining all requisite Governmental Authority approvals
with respect to the transactions contemplated herein that are typically
obtained subsequent to a transfer of Hydrocarbon properties.
9.4 REPLACEMENT OF BONDS, LETTER OF CREDIT AND GUARANTEES. The
Parties understand that none of the bonds, letters of credit and guarantees,
if any, described on Schedule 8.4 posted by Contributor with Governmental
Authorities and relating to the Assets are transferable to Company. Prior to
the Closing Date, Company has obtained in the name of Company, replacements for
such bonds, letters of credit and guarantees, to the extent such
replacements are necessary to permit the cancellation of the bonds,
letters of credit and guarantees posted by Contributor or to consummate the
transactions contemplated by this Agreement.
9.5 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN
THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.
9.6 DISPUTE RESOLUTION AND VENUE. In the event of a dispute or
controversy arising out of or related to this Agreement (a "Dispute") each
Party shall, upon receipt of the written request from any Disputing Party (a
"Dispute Notice"), designate a member of its senior management to attempt to
resolve such dispute. The designated senior management members shall use their
reasonable good faith efforts to meet and resolve such Dispute within thirty
days after receipt of the Dispute Notice. Any Dispute which cannot be resolved
by the senior management of the Parties shall be submitted to mediation where
the Disputing Parties will attempt in good faith to resolve such Dispute. If
not resolved through mediation, such Dispute shall be submitted to the exclusive
jurisdiction of the courts of the State of Texas (or any court of the United
States located in the State of Texas). TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, EACH OF THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF OR RELATED TO THIS
AGREEMENT.
9.7 CAPTIONS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
9.8 WAIVERS. Any failure by any Party to comply with any of its or
their obligations, agreements or conditions herein contained may be waived in
writing, but not in any other manner, by the Party to whom such compliance is
owed. No waiver of, or consent to a change in, any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of, or consent to a
change in, other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
9.9 ASSIGNMENT. No Party shall assign all or any part of this Agreement,
nor shall any Party assign or delegate any of its rights or duties hereunder,
without the prior written consent of the other Party and any assignment or
delegation made without such consent shall be void. This Agreement shall be
binding upon and inure to the benefit of the Parties hereto and their respective
successors and permitted assigns.
9.10 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules
attached hereto, and the documents to be executed hereunder constitute the
entire agreement between the Parties pertaining to the subject matter hereof,
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties pertaining to the subject
matter hereof.
9.11 AMENDMENT. This Agreement may be amended or modified only by an
agreement in writing executed by both Parties.
9.12 NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement shall
entitle any Person other than Company and Contributor to any remedy or right of
any kind.
9.13 LIMITATION ON DAMAGES. Notwithstanding any other provision
contained elsewhere in this Agreement to the contrary, the Parties acknowledge
that this Agreement does not authorize one Party to xxx for or collect from the
other Party its own punitive damages, or its own consequential or indirect
damages in connection with this Agreement and the transactions contemplated
hereby and each Party expressly waives for itself and on behalf of its
Affiliates, any and all Claims it may have against the other Party for its own
such damages in connection with this Agreement and the transactions contemplated
hereby.
9.14 CONSPICUOUSNESS. The Parties agree that provisions in this
Agreement in "CAPS" type satisfy any requirements of the "express negligence
rule" and any other requirements at law or in equity that provisions be
conspicuously marked or highlighted.
9.15 SEVERABILITY. If any term or other provisions of this
Agreement is held invalid, illegal or incapable of being enforced under any
rule of law, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in a
materially adverse manner with respect to either Party.
9.16 SURVIVAL. Except as hereinafter provided to the contrary, all of
the obligations, representations, warranties and covenants of the Parties
contained in this Agreement shall survive the Execution Date and the delivery of
the Conveyance indefinitely, subject only to applicable statutes of limitation.
Notwithstanding the foregoing, the representations and warranties of Contributor
in Section 4.2 shall terminate on the date that is five years after the Closing
Date except with respect to any indemnity claims for breach of such
representations or warranties which are made by Company prior to such
termination date.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS THIS PAGE]
IN WITNESS WHEREOF, the authorized representatives of Contributor and Company
execute this Agreement on the Execution Date.
COLONY ENERGY, INC.
By:
Name:
Title:
[CONTRIBUTOR]
By:
Name:
Title:
