1
EXHIBIT 10.12
PURCHASE AND SALE AGREEMENT
BETWEEN
SHELL WESTERN E&P INC.
AND
SHELL ONSHORE VENTURES INC.
AS SELLER
and
ENCORE OPERATING, L.P.
AS PURCHASER
DATED March 12, 1999
WILLISTON BASIN (CEDAR CREEK ANTICLINE)
MONTANA AND NORTH DAKOTA
2
PURCHASE AND SALE AGREEMENT
Index
1. PROPERTY BEING SOLD OR EXCHANGED.............................................................................1
(a) Leases.................................................................................................1
(b) Fee Interests..........................................................................................1
(c) Rights In Production...................................................................................1
(d) Rights; Working Interests..............................................................................1
(e) Easements..............................................................................................2
(f) Permits................................................................................................2
(g) Xxxxx..................................................................................................2
(h) Facilities.............................................................................................2
(i) Equipment..............................................................................................2
(j) Contracts..............................................................................................2
(k) Exclusions.............................................................................................2
2. SALE OR EXCHANGE.............................................................................................3
3. PURCHASE PRICE...............................................................................................3
4. CLOSING AND PERFORMANCE DEPOSIT..............................................................................3
(a) Closing................................................................................................3
(b) Performance Deposit....................................................................................3
(c) Parent Guarantee.......................................................................................4
5. EXCHANGE ELECTION............................................................................................4
(a) Payment................................................................................................4
(b) Conveyance.............................................................................................4
(c) Non-foreign Affidavits.................................................................................4
(d) 3-D Seismic License....................................................................................4
6. SALE ELECTION................................................................................................5
(a) Payment................................................................................................5
(b) Conveyance.............................................................................................5
(c) Non-foreign Affidavits.................................................................................5
(d) 3-D Seismic License....................................................................................5
7. FURTHER ASSURANCES...........................................................................................5
8. CONVEYANCE EFFECTIVE DATE....................................................................................5
9. PRE-ACQUISITION REVIEW.......................................................................................5
(a) Review.................................................................................................5
(b) Conditions to Review...................................................................................6
(c) Review Results.........................................................................................7
11. DISCLAIMERS/ACKNOWLEDGMENTS..............................................................................12
(a) No Warranty, Express or Implied.......................................................................12
(b) Acknowledgments of Purchaser..........................................................................12
(c) Retained Liabilities..................................................................................14
12. INDEPENDENT EVALUATION...................................................................................15
13. CONSENTS; PREFERENTIAL RIGHTS............................................................................16
(a) Condition to Assignment...............................................................................16
(b) Preferential Rights...................................................................................16
(c) Consents..............................................................................................17
14. TITLE....................................................................................................17
(a) Title Examination.....................................................................................17
(b) Significant Title Defect..............................................................................18
(c) Personal Property Inventory List......................................................................20
15. REPRESENTATIONS BY SELLER................................................................................20
16. REPRESENTATIONS OF PURCHASER.............................................................................22
(a) Due Organization......................................................................................22
(b) Partnership Power.....................................................................................22
(c) Duly Executed.........................................................................................22
(d) No Litigation.........................................................................................22
i
3
(e) Securities Laws.......................................................................................23
17. SELLER'S CONDITIONS......................................................................................23
(a) Representations True..................................................................................23
(b) No Pending Suits......................................................................................23
(c) No Act of Termination.................................................................................23
(d) H-S-R.................................................................................................23
18. PURCHASER'S CONDITIONS...................................................................................23
(a) Representations True..................................................................................24
(b) No Pending Suits......................................................................................24
(c) No Act of Termination.................................................................................24
(d) H-S-R.................................................................................................24
19. INTERIM OPERATIONS AND PRODUCTION........................................................................24
(a) Operations Between the Effective Date and Closing.....................................................24
(b) Expenses..............................................................................................24
(c) Allocation of Production and Proceeds.................................................................25
(d) Interim Accounting, Payment and Collection Services...................................................26
(e) Post Closing Settlement...............................................................................26
(f) Audit.................................................................................................27
(g) No Application to Income Taxes........................................................................27
20. TAXES, COSTS AND FEES...................................................................................27
(a) Taxes.................................................................................................27
(b) No Brokers............................................................................................27
21. OPERATIONS BY PURCHASER..................................................................................28
(a) Compliance with Laws..................................................................................28
(b) Assumption of Obligations.............................................................................28
(c) Operatorship..........................................................................................29
(d) Financial Assurances..................................................................................29
22. INDEMNIFICATION..........................................................................................30
(a) General Indemnity by Purchaser........................................................................30
(b) Environmental Indemnity by Purchaser..................................................................31
(c) General Indemnity by Seller...........................................................................31
(d) Environmental Indemnity by Seller.....................................................................32
(e) Retained Liability Indemnity by Seller................................................................33
(f) Limitations...........................................................................................34
(g) Definitions...........................................................................................35
(h) Indemnified Party's Participation.....................................................................38
23. EXISTING CONTRACTS/IMBALANCES/SUSPENSE ACCOUNTS..........................................................39
(a) Assumption of Contracts...............................................................................39
(b) Oil and Gas Imbalances................................................................................40
(c) Suspense Accounts.....................................................................................40
24. NOTICES..................................................................................................40
25. PARTIES IN INTEREST......................................................................................41
26. COMPLETE AGREEMENT.......................................................................................41
27. MANAGEMENT APPROVALS.....................................................................................41
28. APPLICABLE LAW...........................................................................................42
29. MISCELLANEOUS PROVISIONS.................................................................................42
(a) Captions..............................................................................................42
(b) Partial Invalidity....................................................................................42
(c) Modification..........................................................................................42
(d) Assignment............................................................................................42
(e) Counterparts..........................................................................................43
(f) Expenses..............................................................................................43
(g) Signs.................................................................................................43
(h) Press Releases........................................................................................43
(i) No Recording..........................................................................................43
(j) Survival..............................................................................................43
ii
4
(k) Exhibits and Schedules................................................................................44
(l) Time of Essence.......................................................................................44
(m) H-S-R.................................................................................................44
(n) No Partnership........................................................................................44
(o) File Transfers........................................................................................45
(p) Arbitration...........................................................................................48
iii
5
PURCHASE AND SALE AGREEMENT
SHELL WESTERN E&P INC., a Delaware corporation, and SHELL ONSHORE VENTURES
INC., a Delaware corporation, herein referred to collectively as "SELLER," and
Encore Operating, L.P., a Texas limited partnership, herein referred to as
"PURCHASER" enter into this Purchase and Sale Agreement, herein called the
"AGREEMENT", in consideration of SELLER's agreement to sell and PURCHASER's
agreement to buy property described in this AGREEMENT, all pursuant to the terms
and conditions of this AGREEMENT. SELLER and PURCHASER may also be referred to
herein individually as a "Party" or, collectively, as the "Parties."
1. PROPERTY BEING SOLD OR EXCHANGED. Subject to the terms and conditions
set forth hereinafter, SELLER agrees to convey to PURCHASER, without warranty of
title or assignability, the PROPERTY (as defined below) and PURCHASER agrees to
accept the PROPERTY, and tender consideration therefor, in the manner and of the
type and amount as hereinafter required. For purposes of this AGREEMENT,
PROPERTY shall mean all of SELLER's right, title and interest in and to (i) the
property and property interests described in EXHIBIT "A" hereto and (ii) all
property and property interests listed in subsections (a) through (j) of this
section 1, to the extent such property or property interests are a part of,
grant rights in, or with respect to, or are located on the property and property
interests described in EXHIBIT "A"; but excluding the property in subsection
(k).
(a) Leases. Leasehold interests in oil, gas or other minerals,
including working interests, carried working interests, rights of assignment and
reassignment, and other interests under or in oil, gas or mineral leases, and
interests in rights to explore for and produce oil, gas and other minerals.
(b) Fee Interests. Fee interests to the surface and in oil, gas or
other minerals, including rights under mineral deeds, conveyances or
assignments.
(c) Rights In Production. Royalties, overriding royalties, production
payments, net profits interests, rights to take royalties in kind, or other
interests in production of oil, gas or other minerals.
(d) Rights; Working Interests. Rights and interests in or derived from
unit agreements, orders or decisions of state and federal regulatory authorities
establishing units, joint operating agreements, enhanced recovery and injection
agreements, farmout agreements and farmin agreements, options, drilling
1
6
agreements, exploration agreements, assignments of operating rights, working
interests and subleases, except those contracts or agreements described in
subsection (k) below.
(e) Easements. To the extent transferable, rights-of-way, surface or
ground leases, easements, servitudes and franchises located on or granting
rights to the property or property interests described in EXHIBIT "A" hereto and
acquired or used in connection with operations for the exploration, production,
processing and transportation of oil, gas or other minerals with respect to the
properties and interests described in subsections (a) - (d) above.
(f) Permits. To the extent transferable, permits and licenses of any
nature owned, held or operated in connection with operations for the
exploration, production, processing and transportation of oil, gas or other
minerals.
(g) Xxxxx. Producing, non-producing, shut-in, temporarily abandoned,
and abandoned oil and gas xxxxx, salt water disposal xxxxx, injection xxxxx and
water xxxxx located on the property or property interests described in EXHIBIT
"A" hereto and used in connection with the properties or interests described in
subsections (a) - (f) above.
(h) Facilities. All active and inactive facilities, buildings,
improvements, gas conditioning and compression facilities, gathering lines, flow
lines, injection lines and pipelines and appurtenances located on the real
property and on lands included in, or which are related to, the property and
property interests described on EXHIBIT "A".
(i) Equipment. All surface and down-hole equipment, fixtures,
machinery, inventory and personal property located on the property and property
interests described in EXHIBIT "A" hereto, and used in connection with the
properties or interests described in subsections (a) - (h) above.
(j) Contracts. To the extent transferable, all contracts and agreements
to which the property described in (a) - (i) above is subject except those
contracts or agreements described in subsection (k) below.
(k) Exclusions. The PROPERTY shall not include any rights-of-way,
surface or ground leases, easements, franchises, permits, licenses, or other
contracts or agreements which by their own terms are not transferable or which
require consent to assign and such consent is not obtained, Proprietary Data (as
2
7
defined in subsection 29(o)), all property owned by persons other than SELLER,
all rental or leased equipment (but all associated rental and lease agreements
shall be assigned to the extent transferable), all licensed software, all store
stock left on consignment and belonging to third parties, and without limiting
the generality of the foregoing, those items of personal property specifically
listed on SCHEDULE "1(k)" hereto. To the extent permitted by applicable
agreements, SELLER shall provide a non-exclusive license to PURCHASER for the
use of any software used by SELLER in the field for operation of the PROPERTY.
2. SALE OR EXCHANGE. SELLER will elect to effect all or part of the
required conveyances under this AGREEMENT through either a sale of the PROPERTY
to PURCHASER for cash or through an exchange, at no additional cost or expense
to PURCHASER, of all or part of the PROPERTY with a Qualified Intermediary
pursuant to the like-kind exchange provisions of section 1031 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
The term "Qualified Intermediary" shall have the same meaning as prescribed in
Treasury Regulations Section 1.1031(k)-1(g)(4). On or before Closing, SELLER
shall provide PURCHASER written notice of such election, the choice being within
the sole discretion of SELLER.
3. PURCHASE PRICE. As consideration for the PROPERTY, PURCHASER shall pay
to SELLER, or deliver to SELLER's nominees, at Closing, the sum of ONE HUNDRED
SEVENTY-SIX MILLION SEVEN HUNDRED SEVENTY-SEVEN THOUSAND SEVEN HUNDRED
SEVENTY-SEVEN AND NO/100 DOLLARS ($176,777,777.00) (the "Purchase Price").
4. CLOSING AND PERFORMANCE DEPOSIT.
(a) Closing. Closing shall occur on or before June 1, 1999, or at such
later date as may be agreed by the Parties or provided by this AGREEMENT, (the
"Closing Date"), at SELLER's offices in Houston, Texas. PURCHASER shall have the
right to delay Closing to July 1, 1999, at PURCHASER's sole option by giving
written notice to SELLER on or before May 21, 1999. "Closing" shall mean the
consummation of the sale or exchange by transfer of SELLER's ownership in the
PROPERTY, deposit or payment of the Purchase Price, and transfer of the
operation and possession of the PROPERTY.
(b) Performance Deposit. Upon execution of this AGREEMENT, PURCHASER
shall deposit by wire transfer into an account designated by SELLER the sum of
$17,677,777 (10% of Purchase
3
8
Price) as a performance deposit (the "Performance Deposit"), which shall be
held, administered, and disbursed by SELLER in the manner specified by this
AGREEMENT.
(c) Parent Guarantee. As an inducement to SELLER to execute this
AGREEMENT, PURCHASER's parent, Encore Acquisition Partners, Inc., shall execute
and deliver to SELLER, at the time this AGREEMENT is executed, a Guaranty in the
form of EXHIBIT "F" hereto guaranteeing the obligations of PURCHASER under and
in connection with this AGREEMENT.
5. EXCHANGE ELECTION. If on or before the Closing Date SELLER has notified
PURCHASER of its election to effect an exchange of the PROPERTY or portions of
the PROPERTY for properties of a like-kind pursuant to section 1031 of the
Internal Revenue Code of 1986, as amended, then at Closing:
(a) Payment. PURCHASER shall make payment of the Purchase Price less
the Performance Deposit by wire transfer to an account or accounts to be
designated by SELLER. If Closing occurs after July 1, 1999, PURCHASER shall also
pay to SELLER by wire transfer, at Closing, interest calculated on the Purchase
Price less the Performance Deposit and less any net cash flow (revenues less
expenses and capital expenditures) from the PROPERTY from June 30, 1999, to the
Closing Date at a rate equal to the Prime Rate in effect from time to time as
quoted by the Chase Manhattan Bank, NY, NY, compounded monthly.
(b) Conveyance. SELLER will convey the PROPERTY to PURCHASER by
executing and delivering (i) an Assignment and Conveyance and (ii) a Personal
Property Agreement and Xxxx of Sale, in substantially the form attached hereto
as EXHIBITS "B" and "C" respectively, and appropriate forms for state and
federal lease conveyances.
(c) Non-foreign Affidavits. Each SELLER shall execute and deliver to
PURCHASER, its Non-foreign Affidavit in substantially the form attached hereto
as EXHIBIT "D".
(d) 3-D Seismic License. PURCHASER and SELLER shall execute and deliver
a seismic license in the form of EXHIBIT "G" hereto granting PURCHASER the
nonexclusive right to use SELLER's proprietary 3-D seismic data for the
PROPERTY.
4
9
6. SALE ELECTION. If on or before Closing SELLER has notified PURCHASER of
its election to sell the PROPERTY:
(a) Payment. PURCHASER shall make payment of the Purchase Price less
the Performance Deposit by wire transfer to an account or accounts to be
designated by SELLER. If Closing occurs after July 1, 1999, PURCHASER shall also
pay to SELLER by wire transfer, at Closing, interest calculated on the Purchase
Price less the Performance Deposit and less any net cash flow (revenues less
expenses and capital expenditures) from the PROPERTY from June 30, 1999, to the
Closing Date at a rate equal to the Prime Rate in effect from time to time as
quoted by the Chase Manhattan Bank, NY, NY, compounded monthly.
(b) Conveyance. SELLER will convey the PROPERTY to PURCHASER by
executing and delivering (i) an Assignment and Conveyance and (ii) a Personal
Property Agreement and Xxxx of Sale in substantially the forms attached hereto
as EXHIBITS "B" and "C," respectively, and appropriate forms for state and
federal lease conveyances.
(c) Non-foreign Affidavits. Each SELLER shall execute and deliver to
PURCHASER its Non-foreign Affidavit in substantially the form attached hereto as
EXHIBIT "D".
(d) 3-D Seismic License. PURCHASER and SELLER shall execute and deliver
a seismic license in the form of EXHIBIT "G" hereto granting PURCHASER the
nonexclusive right to use SELLER's proprietary 3-D seismic data for the
PROPERTY.
7. FURTHER ASSURANCES. SELLER and PURCHASER each agree to execute and
deliver to the other all other documents necessary to fully vest in PURCHASER
the rights, obligations and benefits acquired pursuant to this AGREEMENT.
8. CONVEYANCE EFFECTIVE DATE. The conveyance from SELLER to PURCHASER shall
be effective as of June 1, 1999, at 7:00 a.m. local time where the PROPERTY is
located, herein called the "Effective Date."
9. PRE-ACQUISITION REVIEW.
(a) Review. Commencing upon satisfaction of the conditions set forth in
subsection 9(b)(1) and (2) and ending fourteen (14) days before the Closing Date
(the "Review Period"), PURCHASER
5
10
and its employees, agents and contractors shall have the right, but not the
obligation, to do the following (the "Pre-Acquisition Review"), at its sole cost
and expense but with the cooperation and assistance of SELLER:
(1) To the extent SELLER has the right to grant such rights to
PURCHASER, and only after notice to any operator of the PROPERTY, to enter all
or any part of the PROPERTY at any reasonable time and from time to time, during
the Review Period, and to inspect, inventory, investigate (including performing
environmental assessments and evaluations), study and examine the same and the
operations conducted thereon subject to the provisions of subsection 9(b) below;
and
(2) To inspect and review at SELLER's offices at reasonable times
and upon reasonable notice, all non-privileged and non-proprietary files,
records, documents and data related to the PROPERTY including, but not limited
to, any of the following which SELLER may have: original well record files on
all xxxxx, regulatory, accounting, environmental, pipeline, maintenance,
transportation, processing, production, engineering, lease and contract files
and records. Non-proprietary files, records, documents and data mean those which
do not constitute Proprietary Data as described in subsection 29(o) below.
(b) Conditions to Review.
(1) The Pre-Acquisition Review shall be conducted in accordance
with the plan attached as EXHIBIT "H" hereto;
(2) Prior to the commencement of the Pre-Acquisition Review,
PURCHASER shall sign and deliver to SELLER an Agreement for Indemnification and
Responsibility for Damages in the form of EXHIBIT "E" attached hereto (the
"Indemnification Agreement");
(3) PURCHASER shall maintain the results of its investigation,
testing, and evaluation and review of files and records, including title
examination reviews and legal opinions, confidential in accordance with the
provisions, terms and conditions of that certain Confidentiality Agreement dated
November 17, 1998 between Shell Western E&P Inc. and Encore Acquisition
Partners, Inc. (the "Confidentiality Agreement"). PURCHASER hereby ratifies and
adopts the Confidentiality Agreement and agrees to become bound as RECIPIENT
thereunder. The obligations of PURCHASER under the Confidentiality Agreement
shall terminate as of Closing as to the PROPERTY transferred to PURCHASER,
6
11
and PURCHASER shall be released from all further liability thereunder as to the
PROPERTY transferred to PURCHASER except for any liability accruing from acts or
omissions or breaches thereof by PURCHASER prior to Closing;
(4) PURCHASER shall provide SELLER a copy of any non-privileged
assessment reports of or about the PROPERTY, including, without limitation, any
non-privileged reports, data and conclusions developed pursuant to the
Pre-Acquisition Review, promptly after such assessment report has been furnished
to or obtained by PURCHASER, and SELLER shall be permitted to discuss the
contents of any such assessment reports with the party who prepared such
reports; and
(5) PURCHASER and its employees, agents and consultants shall
abide by SELLER's (or the operator's with respect to non-SELLER operated
properties) safety rules, regulations and other operating policies applicable to
the PROPERTY while conducting their activities on the PROPERTY.
(c) Review Results.
(1) If, as a result of the Pre-Acquisition Review, PURCHASER
determines in its sole judgment that, as to any portion of the PROPERTY: either
(i) the environmental condition thereof is unacceptable for PURCHASER's
purposes; or (ii) there has been such a substantial deterioration in the
physical condition of the PROPERTY as it existed on October 31, 1998, that
PURCHASER will be unable to continue to possess, operate, use or maintain the
PROPERTY in the same manner and to the same extent possessed, operated, used or
maintained by SELLER on October 31, 1998, (provided, however, a lack of
equipment on the PROPERTY shall not be considered a substantial deterioration in
the physical condition of the PROPERTY for purposes of this subsection unless
the equipment was removed by SELLER from the PROPERTY after October 31, 1998,
without PURCHASER's consent and the lack of such removed equipment will
materially adversely affect PURCHASER's ability to use, operate or maintain the
PROPERTY after Closing); or (iii) the extent of existing, potential or
contingent liabilities pose or create an unacceptable risk; then, PURCHASER may
give written notice to SELLER on or before the last day of the Review Period of
such condition(s). With respect to the matters identified in the report
referenced on Schedule 11(b)(1), PURCHASER's notice may only include conditions
or contaminants which were not specifically identified in the report or which
are incremental to the conditions or types or levels of contaminants included in
the
7
12
report. Such notice shall include PURCHASER's estimated cost to cure or remedy
the listed condition(s) and specify in detail the risk determined to be
unacceptable, with supporting justifications in detail. Any issues that are
vague in the report referenced in Schedule 11(b)(1) will be discussed and
resolved between SELLER and PURCHASER in the due diligence process. FAILURE TO
GIVE ANY SUCH NOTICE WITHIN THE REVIEW PERIOD SHALL FORECLOSE PURCHASER FROM
SECURING THE BENEFITS OF SUBSECTION 9(c)(2), SHALL NOT EXCUSE PURCHASER FOR
FAILING TO CLOSE BECAUSE OF MATTERS ARISING OUT OF SUCH PRE-ACQUISITION REVIEW,
AND EXCEPT WITH RESPECT TO SELLER'S INDEMNIFICATION OBLIGATIONS SPECIFIED IN
SUBSECTIONS 22(c), (d) AND (e) BELOW, SHALL CONSTITUTE A COMPLETE WAIVER AND
RELEASE BY PURCHASER OF ALL CLAIMS AGAINST SELLER WITH RESPECT TO THE PROPERTY,
WHETHER CONTRACT, TORT OR STATUTORY, REGARDLESS OF THE NEGLIGENCE, FAULT OR
STRICT (STATUTORY) LIABILITY OF SELLER.
(2) Upon receipt of such notice, if the aggregate of the conditions
set forth in the notice are Material (as defined in subsection 9(c)(4) below),
the Closing Date shall be automatically extended for thirty (30) days unless
both Parties agree in writing to the contrary. Within the period between the
date of receipt of such notice and the extended Closing Date, SELLER may, at its
option and in its sole discretion, (i) remedy or agree to remedy, to a degree
agreed upon prior to Closing, such condition (in the event current remediation
of such condition is required by a Federal, State or local agency, SELLER and
PURCHASER agree that SELLER shall only be obligated to remedy the condition in
accordance with and to the satisfaction of the appropriate agency's
requirements), (ii) agree with PURCHASER on an adjustment to the Purchase Price
which adjustment shall reflect PURCHASER's cost to remedy such condition(s) (in
the event current remediation of such condition(s) is required by a Federal,
State or local agency, SELLER and PURCHASER agree that the Purchase Price need
only be adjusted to reflect the cost to remedy such condition(s) in accordance
with and to the satisfaction of the appropriate agency's requirements), (iii)
remove the affected portion or portions of the PROPERTY from the PROPERTY to be
conveyed and agree with PURCHASER to adjust the Purchase Price accordingly based
on the agreed values pursuant to EXHIBIT H
8
13
hereto, (iv) obtain PURCHASER's agreement to acquire the affected portion or
portions of the PROPERTY "AS IS" and release SELLER from all claims related
thereto, or (v) indemnify, defend and hold harmless PURCHASER against all
losses, costs, expenses and liabilities with respect to such condition. The
failure to do one of the above prior to the extended Closing Date shall permit
either Party to terminate this AGREEMENT by giving written notice of such
termination to the other Party on or after the extended Closing Date. Upon the
giving of such termination notice, neither Party shall have any further rights
or obligations hereunder except for PURCHASER's obligations and SELLER's rights
under the Confidentiality Agreement and the Indemnification Agreement, and
PURCHASER shall be entitled to a return of any Performance Deposit held by the
SELLER and SELLER shall be entitled to receive the income earned thereon. IN THE
EVENT THE PARTIES AGREE TO REMEDY THE CONDITION OR TO ADJUST THE PURCHASE PRICE
TO COMPENSATE FOR THE CONDITION, THEN PURCHASER SHALL ACQUIRE THE AFFECTED
PORTIONS OF THE PROPERTY "WHERE IS" AND "AS IS" WITH NO RIGHT TO RECOVER ANY
FURTHER AMOUNTS FROM SELLER FOR ANY LIABILITIES, COSTS OR EXPENSES RELATED TO
SUCH CONDITIONS (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CONDITIONS AND
DAMAGES TO NATURAL RESOURCES). WITHOUT LIMITING SELLER'S OBLIGATIONS OF
INDEMNITY SPECIFIED IN SUBSECTIONS 22(c), (d) AND (e) BELOW, ACQUISITION OF THE
PROPERTY CONTAINING SUCH CONDITIONS "WHERE IS" AND "AS IS" SHALL CONSTITUTE
PURCHASER'S WAIVER, GENERAL RELEASE AND AGREEMENT TO DEFEND, INDEMNIFY AND HOLD
SELLER, THEIR AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES HARMLESS FROM ALL LIABILITIES, COSTS OR EXPENSES RELATED TO SUCH
CONDITIONS (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CONDITIONS, CERCLA
LIABILITY AND DAMAGES TO NATURAL RESOURCES), WHETHER CONTRACT, TORT OR
STATUTORY, REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY
OF SELLER.
9
14
(3) If the aggregate of the conditions set forth in the notice
are not Material, notwithstanding anything herein to the contrary, SELLER shall
have the option at its sole discretion to remove the affected portion or
portions of the PROPERTY from the PROPERTY to be conveyed and agree with
PURCHASER to adjust the Purchase Price accordingly based on the agreed values
pursuant to EXHIBIT H hereto. If SELLER elects to remove such affected
portion(s) of the PROPERTY, the failure to agree on an adjustment to the
Purchase Price shall permit either Party to terminate this AGREEMENT by giving
written notice of such termination to the other on or before the Closing Date.
Upon the giving of such termination notice, neither Party shall have any further
rights or obligations hereunder except for PURCHASER's obligations and SELLER's
rights under the Confidentiality Agreement and the Indemnification Agreement,
and PURCHASER shall be entitled to a return of any Performance Deposit held by
the SELLER and SELLER shall be entitled to receive the income earned thereon. If
SELLER does not elect to remove the affected portion or portions of the
PROPERTY, PURCHASER SHALL ACQUIRE THE AFFECTED PORTIONS OF THE PROPERTY "WHERE
IS" AND "AS IS" WITH NO RIGHT TO RECOVER FROM SELLER FOR ANY LIABILITIES, COSTS
OR EXPENSES RELATED TO SUCH CONDITIONS (INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL CONDITIONS AND DAMAGES TO NATURAL RESOURCES). WITHOUT LIMITING
SELLER'S INDEMNIFICATION OBLIGATIONS SPECIFIED IN SUBSECTIONS 22(c), (d) AND (e)
BELOW, ACQUISITION OF THE PROPERTY CONTAINING SUCH NON-MATERIAL CONDITIONS
"WHERE IS" AND "AS IS" SHALL CONSTITUTE PURCHASER'S WAIVER, GENERAL RELEASE AND
AGREEMENT TO DEFEND, INDEMNIFY AND HOLD SELLER, ITS AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES HARMLESS FROM ALL LIABILITIES,
COSTS OR EXPENSES RELATED TO SUCH NON-MATERIAL CONDITIONS (INCLUDING, WITHOUT
LIMITATION, NON-MATERIAL ENVIRONMENTAL CONDITIONS, CERCLA LIABILITY AND DAMAGES
TO NATURAL RESOURCES), WHETHER CONTRACT, TORT OR STATUTORY, REGARDLESS OF THE
NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER.
10
15
(4) For purposes of this subsection 9(c), "Material" shall be
defined as a cost to cure or remedy in excess of FIVE MILLION DOLLARS
($5,000,000.00).
(5) If SELLER agrees to remedy specific adverse condition(s) under
subsections 9(c)(2) or (3) then PURCHASER and SELLER agree that all negotiations
and contacts with state, federal and local agencies for approval and review of
such remedial action shall be made by SELLER, and SELLER shall keep PURCHASER
advised as to the status of those discussions.
10. BASELINE STUDY. PURCHASER and SELLER hereby agree that a
Pre-Acquisition Review assessment report of the PROPERTY by PURCHASER, if made,
shall establish the true and correct condition of the PROPERTY as of the date of
the assessment and such assessment report shall be used as the only
environmental, safety or other baseline study in the event a dispute arises
after Closing concerning the condition of the PROPERTY, unless SELLER gives
notice to PURCHASER within fourteen (14) days after its receipt of the
Pre-Acquisition Review assessment report that it is contesting the results of,
or the conclusions reached in such assessment report, in which case such
Pre-Acquisition Review assessment report shall not be deemed the sole baseline
study. SELLER shall have the right, but not the obligation, at any time to
conduct its own assessment of the PROPERTY. SELLER shall also have the right,
but not the obligation, to have a representative present during the conduct of
any environmental audit, review or testing of the PROPERTY by PURCHASER prior to
Closing and to split samples taken by PURCHASER and to independently test such
samples. If prior to Closing, SELLER determines, either from its own assessment,
PURCHASER's assessment or otherwise, that an adverse environmental condition may
exist on any portion of the PROPERTY, then SELLER may, in its sole discretion,
either (i) remove the affected portion of the PROPERTY from the PROPERTY being
conveyed and agree with PURCHASER to an adjusted Purchase Price based upon the
agreed values pursuant to EXHIBIT H hereto, or (ii) terminate this AGREEMENT by
giving notice of such termination to PURCHASER in writing prior to Closing. The
rights and obligations of the Parties after such notice is given shall be as
specified in the next sentence. If SELLER and PURCHASER cannot agree on the
proper adjustment to the Purchase Price, either Party may give written notice to
the other Party prior to Closing to terminate this AGREEMENT and upon the giving
of such notice, neither Party shall have any further rights or obligations
hereunder except for PURCHASER's
11
16
obligations and SELLER's rights under the Confidentiality Agreement and the
Indemnification Agreement, and PURCHASER shall be entitled to the return of any
Performance Deposit held by SELLER and SELLER shall be entitled to receive the
income earned thereon.
11. DISCLAIMERS/ACKNOWLEDGMENTS
(a) NO WARRANTY, EXPRESS OR IMPLIED. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN SECTION 15 HEREOF, CONVEYANCE OF THE PROPERTY SHALL BE WITHOUT
WARRANTY WHATSOEVER, EXPRESS, STATUTORY, OR IMPLIED AS TO TITLE, DESCRIPTION,
PHYSICAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, THE
ENVIRONMENTAL CONDITION OF THE PROPERTY) QUALITY, VALUE, FITNESS FOR PURPOSE,
MERCHANTABILITY, OR OTHERWISE. PURCHASER shall satisfy itself, prior to the
Closing, as to the type, condition, quality and extent of the property and
property interests which comprise the PROPERTY it is receiving pursuant to this
AGREEMENT and under this sale or exchange. PURCHASER shall have the right of
full substitution and subrogation to any and all rights and actions of which
SELLER has or may have against any and all preceding owners or vendors of the
PROPERTY other than Affiliates of SELLER.
(b) Acknowledgments of Purchaser. By closing on the transaction
provided for in this AGREEMENT, PURCHASER shall be deemed to have acknowledged
and does acknowledge and admit that: (i) PURCHASER has been given the
opportunity to adequately inspect the PROPERTY for all purposes prior to
Closing; (ii) PURCHASER is aware that the PROPERTY has been used for the
exploration, development, production, treating, conditioning and transporting of
oil, gas and other hydrocarbon products and that physical changes may have
occurred as a result of such use and that SELLER has disclosed, and PURCHASER is
further aware, that there exists the possibility that there could exist on the
PROPERTY as a result of such use or uses one or more detrimental environmental
conditions, or that there could have occurred from such use or uses one or more
releases of hazardous substances (as defined in CERCLA or RCRA) or releases of
Chemical Substances (as defined in subsection 22(g)(3) below) into, or other
pollution or contamination of or into, the physical assets, facilities, ambient
air, surface water, ground water, or land surface and subsurface strata of any
real property included in the PROPERTY and of contiguous, or a series
12
17
of contiguous, real properties not associated with the PROPERTY or that as a
result of such uses, asbestos, polychlorinated biphenyls ("PCB's"), chlorides,
mercury and/or naturally occurring radioactive material ("NORM") may be present
in or on the PROPERTY or in or on the physical assets and facilities located on
the PROPERTY; (iii) PURCHASER has entered into this AGREEMENT on the basis of
its own investigation of the physical condition of the PROPERTY and the physical
assets and land related thereto (including the environmental condition of the
PROPERTY); and (iv) PURCHASER WITH FULL KNOWLEDGE OF THE FOREGOING AND AFTER
CONDUCTING THE ABOVE DESCRIBED INVESTIGATION AND EVALUATION IS ACQUIRING THE
PROPERTY ON A "WHERE IS" AND "AS IS" BASIS; AND, EXCEPT WITH RESPECT TO SELLER'S
INDEMNIFICATION OBLIGATIONS SPECIFIED IN SUBSECTIONS 22(c), (d) AND (e) BELOW,
PURCHASER, BY ACQUIRING THE PROPERTY ON A "WHERE IS" AND "AS IS" BASIS WAIVES
ANY CLAIMS OR RIGHTS OF INDEMNIFICATION, CONTRIBUTION OR RECOURSE IT MAY HAVE
AGAINST OR FROM SELLER WITH RESPECT TO THE PROPERTY, INCLUDING, WITHOUT
LIMITATION, THE ENVIRONMENTAL CONDITION OF THE PROPERTY AND DAMAGE TO NATURAL
RESOURCES ASSOCIATED WITH THE PROPERTY (INCLUDING ANY LIABILITY UNDER CERCLA OR
OTHER ENVIRONMENTAL LAWS), WHETHER CONTRACT, TORT OR STATUTORY IN NATURE,
REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER.
BY CLOSING ON THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT, PURCHASER
FURTHER ACKNOWLEDGES AND AGREES THAT IT HAS HAD THE FULL OPPORTUNITY TO REVIEW
AND IS AWARE OF THE MATTERS WITH RESPECT TO THE PROPERTY WHICH ARE IDENTIFIED IN
SCHEDULE "11(b)(1),11(b)(2) AND 11(b)(3)" ATTACHED HERETO. WITH RESPECT TO THOSE
MATTERS INCLUDED IN THE REPORT REFERENCED ON SCHEDULE "11(b)(1)" BUT EXCLUDING
MATTERS INCLUDED IN PURCHASER'S NOTICE AS PERMITTED UNDER SUBSECTION 9(c)(1)
WHICH ARE RESOLVED IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION
13
18
9(c), PURCHASER ASSUMES ALL LIABILITY WITH RESPECT THERETO, INCLUDING ANY
LIABILITY UNDER CERCLA OR OTHER ENVIRONMENTAL LAWS, REGARDLESS OF WHEN SUCH
LIABILITY ARISES (BEFORE, ON, OR AFTER THE EFFECTIVE DATE) AND REGARDLESS OF THE
NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER.
(c) RETAINED LIABILITIES. WITH RESPECT TO NET PROFITS (NET PROCEEDS)
INTERESTS ASSOCIATED WITH THE PROPERTY, EACH SELLER, TO THE EXTENT OF ITS
OWNERSHIP INTERESTS IN THE PROPERTY, RETAINS LIABILITY FOR ANY CLAIMS MADE ON OR
BEFORE JUNE 1, 2009, ARISING FROM INCORRECT PAYMENTS OF NET PROFITS INTERESTS
PRIOR TO THE EFFECTIVE DATE. PURCHASER ASSUMES ALL LIABILITY FOR SUCH NET
PROFITS INTERESTS ARISING FROM AND AFTER THE EFFECTIVE DATE, EVEN IF THE AMOUNTS
OWED WITH RESPECT TO THE NET PROFITS INTERESTS ARE CALCULATED FROM AND AFTER THE
EFFECTIVE DATE IN THE SAME MANNER AS SELLER CALCULATED SUCH AMOUNTS PRIOR TO THE
EFFECTIVE DATE, AND REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY)
LIABILITY OF SELLER.
WITH RESPECT TO THE PENDING LITIGATION AND CLAIMS SET FORTH ON
SCHEDULE 11(b)(3), SELLER SHALL RETAIN LIABILITY AND RESPONSIBILITY FOR THE
PENDING LITIGATION AND CLAIMS SET FORTH ON SCHEDULE 11(b)(3), PROVIDED THAT
SELLER SHALL NOT RETAIN OR ASSUME ANY LIABILITY OR RESPONSIBILITY AS TO THAT
PORTION OF THE LIABILITY, DAMAGES OR CLAIMS ARISING FROM OR RELATED TO ACTIONS,
OMISSIONS, PRODUCTION OR PAYMENTS AFTER THE EFFECTIVE DATE, EVEN IF ATTRIBUTABLE
TO THE CONTINUATION BY PURCHASER, AFTER THE EFFECTIVE DATE, OF THE POLICIES,
PRACTICES, CALCULATIONS OR PROCEDURES EMPLOYED BY SELLER PRIOR TO THE EFFECTIVE
DATE, AND EVEN IF ATTRIBUTABLE TO THE NEGLIGENCE, FAULT OR STRICT (STATUTORY)
LIABILITY OF SELLER.
14
19
EACH SELLER, TO THE EXTENT OF ITS OWNERSHIP INTERESTS IN THE
PROPERTY, RETAINS LIABILITY FOR ANY CLAIMS MADE ON OR BEFORE JUNE 1, 2009,
ARISING FROM INCORRECT PAYMENTS OF ROYALTY PRIOR TO THE EFFECTIVE DATE.
PURCHASER ASSUMES ALL LIABILITY FOR PROPER PAYMENT OF ROYALTY ON AND AFTER THE
EFFECTIVE DATE, EVEN IF THE AMOUNTS PAID BY PURCHASER ARE CALCULATED AND PAID
FROM AND AFTER THE EFFECTIVE DATE IN THE SAME MANNER AS SELLER CALCULATED AND
PAID SUCH AMOUNTS PRIOR TO THE EFFECTIVE DATE, AND REGARDLESS OF THE NEGLIGENCE,
FAULT OR STRICT (STATUTORY) LIABILITY OF SELLER.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE
CONTRARY, PURCHASER DOES NOT ASSUME AND SHALL NOT BE LIABLE FOR THE OBLIGATIONS
SPECIFICALLY RETAINED BY SELLER UNDER THIS SUBSECTION 11(c).
IF SELLER DETERMINES THAT IT HAS MADE OVERPAYMENTS WITH RESPECT
TO THE OBLIGATIONS SPECIFICALLY RETAINED BY SELLER UNDER THIS SUBSECTION 11(c)
PRIOR TO THE EFFECTIVE DATE, WHICH OVERPAYMENTS CAN ONLY BE RECOUPED FROM
PRODUCTION FROM THE PROPERTY AFTER THE EFFECTIVE DATE, THEN UPON SELLER'S
WRITTEN REQUEST PURCHASER SHALL RECOUP SUCH PAYMENTS ON SELLER'S BEHALF FROM
PRODUCTION FROM THE PROPERTY AFTER THE EFFECTIVE DATE AND SELLER SHALL DEFEND,
INDEMNIFY AND SAVE PURCHASER HARMLESS FROM ANY CLAIMS RELATING TO ANY SUCH
RECOUPMENT REQUESTED BY SELLER.
12. INDEPENDENT EVALUATION. PURCHASER has made an independent
evaluation of the PROPERTY and acknowledges that SELLER has made no statements
or representations concerning the present or future value of the anticipated
income, costs, or profits, if any, to be derived from the PROPERTY, the physical
condition of the PROPERTY, the quantity and quality of any oil and gas or other
minerals that may be produced from the PROPERTY, or any other matter with
respect to the PROPERTY and, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION
15 HEREOF, THAT SELLER DOES NOT IMPLICITLY OR EXPRESSLY WARRANT DESCRIPTION,
TITLE,
15
20
VALUE, QUALITY, PHYSICAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT
LIMITATION, THE ENVIRONMENTAL CONDITION OF THE PROPERTY), MERCHANTABILITY, OR
FITNESS FOR PURPOSE OF ANY OF THE PROPERTIES OR THE XXXXX, EQUIPMENT, PIPELINES,
FACILITIES, OR OTHER PROPERTY LOCATED THEREON OR USED IN CONNECTION THEREWITH.
PURCHASER further acknowledges that, in entering into this AGREEMENT, it has
relied solely upon its independent examination of the PROPERTY and public
records relating to the PROPERTY and its independent estimates, computations,
evaluations, reports and studies based thereon and has not relied on any
representation or statement made by SELLER. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN SECTION 15 HEREOF, SELLER MAKES NO WARRANTY OR REPRESENTATION AS TO
THE ACCURACY, COMPLETENESS OR CORRECTNESS OF ANY INFORMATION FURNISHED TO
PURCHASER. ANY RELIANCE PURCHASER MAKES ON SUCH INFORMATION IS AT PURCHASER'S
SOLE RISK AND SELLER SHALL HAVE NO LIABILITY WHATSOEVER TO PURCHASER IN
CONNECTION THEREWITH.
13. CONSENTS; PREFERENTIAL RIGHTS. (a) Condition to Assignment. In the
event any of the interests to be conveyed or transferred to PURCHASER as part of
the PROPERTY (i) are burdened with a preferential right in a Third Party to
purchase such interest or (ii) require the consent or approval of a Third Party
to assign SELLER's interest, then the conveyance or transfer of the interest
subject to such preference, consent, or approval shall be conditioned upon
obtaining the necessary waiver, consent, or approval, and this AGREEMENT shall
not constitute an assignment or attempted assignment thereof without such
consent, approval or waiver., SELLER shall not be liable to PURCHASER by reason
of any inability or failure to obtain any such waiver of preferential rights or
consent or approval to assignment.
(b) Preferential Rights. PURCHASER shall at the request of SELLER
nominate a value to each interest burdened by a preferential right to purchase,
and if such value is agreeable to SELLER, it shall become the price to the
holder of the preferential right. If the preferential right is exercised, or is
not waived prior to Closing, such exercise or failure to waive shall be
considered a Significant Title Defect subject to the provisions of subsection
14(b) hereof unless waived in writing by PURCHASER.
16
21
(c) Consents. In the case of consents and approvals customarily
requested prior to Closing, failure to obtain such consent or approval shall be
considered a Significant Title Defect subject to the provisions of subsection
14(b) hereof unless waived in writing by PURCHASER. In the case of consents and
approvals customarily requested upon or after Closing (including without
limitation state and federal approvals of lease transfers), PURCHASER and SELLER
agree to request such approvals promptly after Closing. Prior to such consents
or approvals being obtained or if such consents and approvals cannot be
obtained, SELLER shall hold title to the affected interests for the benefit of
PURCHASER and PURCHASER shall be entitled to receive all benefits and shall bear
all liabilities, costs and expenses associated with or related to such interests
("Costs") and, subject to SELLER's obligations of indemnity under subsection
22(c), (d) and (e), shall indemnify, defend and hold harmless each SELLER and
the SELLER Indemnified Parties (as defined in subsection 22(a) hereof) from all
Claims (as defined in subsection 22(g)) arising out of or related to the use,
ownership, operation, maintenance, occupation or abandonment of such interest
from and after the Effective Date, EVEN THOUGH SUCH CLAIM MAY HAVE BEEN
CONTRIBUTED TO OR CAUSED BY THE NEGLIGENCE (OF ANY CHARACTER, WHETHER SOLE,
GROSS, JOINT, CONCURRENT, CONTRIBUTORY OR OTHERWISE) OR FAULT OR STRICT OR
STATUTORY LIABILITY OF SELLER UNDER ANY LAW (INCLUDING STATUTORY, REGULATORY AND
CASE LAW), including without limitation liability arising under statute law,
rule, order, equity or court or adjudicatory or arbitral proceeding to SELLER as
holder of title to the interests. For purposes of this AGREEMENT, all consents
and approvals obtained shall be deemed to relate back to the Effective Date
hereof.
14. TITLE.
(a) Title Examination. Except as provided in subsection 22(e),
PURCHASER assumes the risk of description and title to the PROPERTY and agrees
to satisfy itself with respect thereto. During the period commencing on the date
of this AGREEMENT and ending no later than fourteen (14) days before the Closing
Date (the "Title Examination Period"), PURCHASER shall have the right to
examine, at SELLER's offices in Houston, Texas, during normal working hours, all
division order and land files which relate to the PROPERTY except for
Proprietary Data as defined in subsection 29(o). In addition, SELLER
17
22
shall make available to PURCHASER for examination such title opinions and
abstracts with respect to the PROPERTY which are in SELLER's land files. SELLER
MAKES NO WARRANTY OR REPRESENTATION AS TO THE ACCURACY, COMPLETENESS OR
CORRECTNESS OF ANY TITLE INFORMATION OR OPINIONS FURNISHED TO PURCHASER. ANY
RELIANCE PURCHASER MAKES ON SUCH INFORMATION IS AT PURCHASER'S SOLE RISK AND
SELLER SHALL HAVE NO LIABILITY WHATSOEVER TO PURCHASER IN CONNECTION THEREWITH
WITHOUT LIMITING SELLER'S OBLIGATIONS OF INDEMNITY IN SUBSECTIONS 22(c), (d) AND
(e).
(b) Significant Title Defect
(1) As used in this AGREEMENT, the term "Significant Title Defect"
shall include (i) any defect which results or is reasonably likely to result in
a loss of title in SELLER such that SELLER's working interest with respect to an
interest which is part of the PROPERTY is or is reasonably likely to be reduced
below the working interests set forth on Schedule 14(b), or SELLER's royalty
burden with respect to an interest which is part of the PROPERTY is or is
reasonably likely to be increased above the royalty burdens set forth on
Schedule 14(b) as such interests are described to vary in Schedule 14(b), or
SELLER's net profits burden with respect to an interest which is part of the
PROPERTY is or is reasonably likely to be increased above the net profits burden
set forth on Schedule 14(b) as such burdens are described to vary in Schedule
14(b), or SELLER's right to use such interest as an owner, lessee, licensee or
permittee is or is reasonably likely to be extinguished or severely restricted,
(ii) the exercise of a preferential right to purchase, or the inability to
obtain the waiver of a preferential right to purchase, or the inability to
obtain a required consent or approval to assignment of an interest included in
the PROPERTY (other than consents or approvals which are customarily sought
after Closing) or (iii) the existence of any unsatisfied liens on the PROPERTY.
The term "Significant Title Defect" does not include the matters identified on
Schedule 11(b)(2) or retained by SELLER under subsection 11(c), and such matters
may not be included in PURCHASER's notice hereunder; however PURCHASER will
endeavor, as a courtesy and not as an obligation, to notify SELLER of any
defects concerning such matters discovered by PURCHASER during its due diligence
review. PURCHASER shall give SELLER written notice of such Significant Title
Defect at
18
23
least thirty (30) days before the Closing Date, together with full particulars
relating thereto. PURCHASER SHALL BE DEEMED TO HAVE WAIVED ALL TITLE DEFECTS OF
WHICH SELLER HAS NOT BEEN GIVEN WRITTEN NOTICE AT LEAST THIRTY (30) DAYS BEFORE
THE CLOSING DATE. PURCHASER ACKNOWLEDGES AND AGREES THAT SCHEDULE 14(b) IS BEING
PROVIDED SOLELY AS A BASIS FOR CLAIMING SIGNIFICANT TITLE DEFECTS HEREUNDER AND
THAT SELLER DOES NOT REPRESENT OR WARRANT OWNERSHIP OR ASSIGNABILITY OF ANY OF
THE INTERESTS SET FORTH THEREIN.
(2) Significant Title Defects (other than the exercise of, or inability
of SELLER to obtain a waiver of a preferential right to purchase) must, in the
aggregate, amount to a diminishment in value in excess of five million dollars
($5,000,000) (based upon allocated values agreed upon by SELLER and PURCHASER)
before any adjustment is made.
(3) Interests which have Significant Title Defects shall be excluded
from the PROPERTY and the Purchase Price shall be reduced by an amount agreed
upon by SELLER and PURCHASER to account for such interest unless: (i) prior to
Closing, the basis for the Significant Title Defect has been removed (provided,
however, SELLER shall have no obligation to obtain such removal), (ii) PURCHASER
agrees to accept the interest "AS IS", and releases SELLER from all claims
related thereto, (iii) PURCHASER agrees to acquire the PROPERTY, including the
affected interest, with an appropriate and mutually agreed upon reduction in the
Purchase Price, or (iv) SELLER agrees to indemnify, defend and hold harmless
PURCHASER against all losses, costs, expenses and liabilities with respect to
such Significant Title Defect. If no agreed upon reduction in Purchase Price has
been reached and no agreement can otherwise be reached as to the disposition of
an interest burdened by a Significant Title Defect, either Party may give
written notice to the other Party to terminate this AGREEMENT and upon the
giving of such notice, neither Party shall have any further rights or
obligations hereunder, except for PURCHASER's obligations and SELLER's rights
under the Confidentiality Agreement and the Indemnification Agreement and
PURCHASER shall be entitled to a return of any Performance Deposit held by the
SELLER and SELLER shall be entitled to the income earned thereon. The provisions
of this subsection 14(b)(3) shall only apply if
19
24
Significant Title Defects, in the aggregate, amount to a diminishment in value
in excess of five million dollars ($5,000,000).
(c) Personal Property Inventory List. If PURCHASER prepares an
inventory list of the personal property being conveyed or transferred hereunder,
such inventory list, if approved by SELLER, shall be controlling with respect to
the personal property listed therein and shall be attached to any Xxxx of Sale
or other document of conveyance utilized to transfer the personal property from
SELLER to PURCHASER under this AGREEMENT. If PURCHASER does not prepare such an
inventory list, then the Xxxx of Sale or other document of conveyance may omit
an inventory list and recite generally the sale, transfer and conveyance of all
of SELLER's right, title and interest in all specified categories of personal
property located on or associated with the real property and lands subject to
the interests in real property included in the PROPERTY.
15. REPRESENTATIONS BY SELLER. (a) Each SELLER represents to PURCHASER,
each of which representations shall survive Closing, that as of the date of this
AGREEMENT and as of Closing:
(1) Due Organization. It is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware.
(2) Corporate Power. It has all requisite corporate power and
authority to carry on its business as presently conducted, to enter into this
AGREEMENT, and, subject to the provisions of subsection 27(a) below, to perform
its obligations under this AGREEMENT. The consummation of the transactions
contemplated by this AGREEMENT will not violate, nor be in conflict with, (i)
any provision of its charter or bylaws or (ii) any agreement or instrument to
which it is a party or is bound (except for preferential rights to purchase and
required third party consents to assignment, if any).
(3) Duly Executed. The AGREEMENT has been duly executed and
delivered on behalf of it, and at Closing, (if the condition of subsection 27(a)
below has been satisfied) all documents and instruments required hereunder to be
executed and delivered by it shall have been duly executed and delivered.
20
25
(4) No Litigation. There are no pending or, to the best of its
knowledge, threatened claims, lawsuits, administrative proceedings, or
governmental investigations or inquiries involving SELLER's right to consummate
the sale contemplated hereunder except those claims, lawsuits, administrative
proceedings, and governmental investigations and inquiries that SELLER has
disclosed to PURCHASER in writing prior to Closing.
(b) Each SELLER warrants, but does not represent, to PURCHASER, each of
which warranties shall survive Closing, that as of the date of this AGREEMENT:
(1) ERI SA/Labor
(i) SELLER has not established, and does not maintain, participate
in, nor contribute to, any multi-employer plan within the meaning of Section
3(37) of ERISA;
(ii) SELLER has no material unfunded liabilities for benefits
accrued pursuant to any defined benefit plan;
(iii) SELLER is not subject to, and does not expect to be subject
to, a lien pursuant to Sections 4068 or 302(f) of ERISA; and
(iv) SELLER has not entered into any collective bargaining
agreements applicable to the employees assigned to work on the PROPERTY; there
is no labor strike, slowdown or work stoppage pending or threatened by employees
of SELLER against or affecting the PROPERTY; no union organization campaign is
in progress with respect to the PROPERTY; there is no unfair labor practice,
charge or complaint with respect to the employees assigned to work on the
PROPERTY pending against SELLER, or threatened before the National Labor
Relations Board; and SELLER has not received notice of the intent of any
federal, state or local agency responsible for the enforcement of labor or
employment laws to conduct a material investigation with respect to or relating
to any employee assigned to work on the PROPERTY and no such investigation is in
progress.
(2) Net Profits Account Balances. According to the books and records of
SELLER as of the date of this AGREEMENT, as of January 1, 1999, the cumulative
net profits interest loss position for the properties listed on Schedule
15(b)(2) were the amounts shown on Schedule 15(b)(2), within a plus or minus 10%
range of accuracy.
21
26
(3) Notice of Default. Except for any matters included in the pending
litigation and claims set forth on Schedule 11(b)(3) hereof, SELLER is not in
receipt of any pending written notices of default under paragraph 39 of Form 247
Operating Agreements included in the PROPERTY.
16. REPRESENTATIONS OF PURCHASER. PURCHASER represents to SELLER, each of
which representations shall survive Closing, that as of the date of this
AGREEMENT and as of Closing:
(a) Due Organization. PURCHASER is a limited partnership duly
organized, validly existing, and in good standing under the laws of the state of
its formation and prior to Closing will be duly qualified to do business in the
States of Montana and North Dakota and will have satisfied all federal and state
bonding and other security requirements for ownership and operation of the
PROPERTY.
(b) Partnership Power. PURCHASER has all requisite partnership power
and authority to carry on its business as presently conducted, to enter into the
AGREEMENT, and, subject to the provisions of subsection 27(b) below, to purchase
or exchange the PROPERTY on the terms described in the AGREEMENT and to perform
its other obligations under the AGREEMENT. The consummation of the transactions
contemplated by the AGREEMENT will not violate, nor be in conflict with, (i) any
provision of its formation and governing documents or (ii) any agreement or
instrument to which it is a party or is bound.
(c) Duly Executed. The AGREEMENT has been duly executed and delivered
on behalf of PURCHASER, and at Closing, (if the condition of subsection 27(b)
below has been satisfied) all documents and instruments required hereunder to be
executed and delivered by it shall have been duly executed and delivered and the
transactions contemplated hereby shall have been duly and validly authorized by
all requisite partnership action.
(d) No Litigation. There are no pending or, to the best of PURCHASER's
knowledge, threatened claims, lawsuits, administrative proceedings, or
governmental investigations or inquiries involving PURCHASER's right to
consummate the sale contemplated hereunder except those claims, lawsuits,
administrative proceedings, and governmental investigations and inquiries that
PURCHASER has disclosed to SELLER in writing prior to Closing.
22
27
(e) Securities Laws. PURCHASER acknowledges that the solicitation
of an offer for, and the sale of the PROPERTY by SELLER have not been registered
under any securities laws. PURCHASER intends to acquire the PROPERTY for its own
benefit and account and is not acquiring the PROPERTY with the intent of
distributing fractional undivided interests in the PROPERTY or otherwise selling
the PROPERTY in a manner that would be subject to regulation by federal or state
securities laws. If PURCHASER sells, transfers, or otherwise disposes of the
PROPERTY or fractional undivided interests therein in the future, it will do so
in compliance with applicable federal and state laws. PURCHASER represents that
at no time has it been presented with or solicited by or through any public
promotion or other form of advertising in connection with this transaction.
17. SELLER'S CONDITIONS. The obligations of SELLER to be performed at
Closing are subject to the satisfaction at or prior to Closing of the following
conditions, any of which may be waived by SELLER, and the condition specified in
subsection 27(a):
(a) Representations True. All representations of PURCHASER contained in
this AGREEMENT shall be true in all material respects at and as of Closing as if
such representations were made at and as of Closing, and PURCHASER shall have
performed and satisfied in all material respects all obligations required by
this AGREEMENT to be performed and satisfied by it at or prior to Closing.
(b) No Pending Suits. No suit or other proceeding shall be pending or
threatened before any court or governmental agency seeking to restrain, prohibit
or declare illegal, or seeking substantial damages in connection with, the
contemplated purchase or exchange.
(c) No Act of Termination. SELLER shall not have exercised any rights
it may have hereunder to terminate this AGREEMENT.
(d) H-S-R. All applicable waiting periods shall have expired under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act or early termination of such
waiting periods shall have been granted by the appropriate governmental
authorities.
18. PURCHASER'S CONDITIONS. The obligations of PURCHASER to be performed at
Closing are subject to the satisfaction at or prior to Closing of the following
conditions, any of which may be waived by PURCHASER, and the condition specified
in subsection 27(b):
23
28
(a) Representations True. All representations of SELLER contained in
this AGREEMENT shall be true in all material respects at and as of Closing as if
such representations were made at and as of Closing, and SELLER shall have
performed and satisfied in all material respects all agreements required by this
AGREEMENT to be performed and satisfied by it at or prior to the Closing.
(b) No Pending Suits. No suit or other proceeding shall be pending or
threatened before any court or governmental agency seeking to restrain, prohibit
or declare illegal, or seeking substantial damages in connection with, the
contemplated purchase.
(c) No Act of Termination. PURCHASER shall not have exercised any
rights it may have hereunder to terminate this AGREEMENT.
(d) H-S-R. All applicable waiting periods shall have expired under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act or early termination of such
waiting periods shall have been granted by the appropriate governmental
authorities.
19. INTERIM OPERATIONS AND PRODUCTION
(a) Operations Between the Effective Date and Closing. If Closing
occurs subsequent to the Effective Date, SELLER will continue to operate the
PROPERTY, or cause the PROPERTY to be operated, as appropriate, at PURCHASER's
sole risk and for the account of PURCHASER, until Closing. In no event shall
SELLER have any liability to PURCHASER for losses sustained or liabilities
incurred in the conduct of such activities except such as may result from
SELLER's gross negligence or willful misconduct. Upon Closing, PURCHASER shall
assume the risk of any change in the condition of the PROPERTY from the
Effective Date to the Closing Date, except to the extent any change in the
condition is attributable to the gross negligence or willful misconduct of
SELLER. Any casualty loss on or after the Effective Date shall be for the
account of PURCHASER, whether or not the Effective Date occurs prior to Closing.
(b) Expenses. Subject to the provisions of section 22, SELLER shall be
responsible for payment of all Expenses (as defined below) related to the
PROPERTY prior to the Effective Date. PURCHASER shall be responsible for the
payment of all Expenses related to the PROPERTY, and for the cost and expenses
resulting from the assumption of the obligations and implied covenants as
specified in section 21 incurred or accrued from and after the Effective Date
and for payments made by SELLER prior
24
29
to the Effective Date to the extent recouped or recoupable from production after
the Effective Date. "Expenses" as used in this section shall mean any expenses
incurred or accrued in connection with the operation, use, protection,
maintenance or ownership of the PROPERTY including, without limitation, expenses
for or related to all lease rentals, shut-in royalties, minimum royalties,
payments in lieu of production, production royalties (including royalties paid
in kind), overriding royalties, production payments, net profits payments,
contractual payments, operating costs, overhead charges (provided that no
overhead other than outside operated will be charged for the month of June
1999), expenses, fees, vendor and contractor invoices, xxxxxxxx, taxes, charges
(including, without limitation, any charges for overhead provided for in any
operating agreements related to the PROPERTY at the rates specified in such
agreements), rental payments, franchise fees, permits and license fees,
assessments and other indebtedness and obligations due, payable, incurred,
accrued or attributable to the ownership, operation, use, protection or
maintenance of or otherwise relating to or associated with the PROPERTY. From
the date of this AGREEMENT until Closing, SELLER shall consult with PURCHASER
for informational purposes, prior to incurring any single capital expenditure in
connection with the PROPERTY in excess of $50,000 and prior to taking any action
to change the status of a producing well other than to shut-in the well.
If Closing occurs after June 30, 1999, the applicable overhead
charge referenced above for which PURCHASER is responsible, which covers costs
above the field level, shall be $260,000.00 per month after June 30, 1999. Any
reports or information provided to PURCHASER at PURCHASER's request, which are
not routinely generated by SELLER, shall be billed to PURCHASER at SELLER's
actual cost.
(c) Allocation of Production and Proceeds. All production from oil
and/or gas xxxxx, and all proceeds from the sale thereof, including, without
limitation, proceeds from any imbalance and oil in storage above the pipeline
connection, and take-or-pay collections/rights and accounts receivable
attributable to production prior to the Effective Date and all other monetary
payments (including, without limitation, proceeds from the sale of mineral
production, credits, tax refunds, insurance proceeds, salvage payments and
reimbursement of joint operating costs and expenses) attributable to the
ownership, use or operation of the PROPERTY prior to the Effective Date shall be
the property of SELLER. All such production proceeds,
25
30
and other monetary payments attributable to production on and after the
Effective Date shall be the property of PURCHASER.
(d) Interim Accounting, Payment and Collection Services. If Closing
occurs after the Effective Date, then from and after the Effective Date until
Closing, SELLER shall, for the account of PURCHASER, provide all necessary and
appropriate financial accounting services for the PROPERTY and all related
operations and administration of the PROPERTY in the same manner and to the same
extent provided by SELLER prior to the Effective Date, taking into account and
acting consistent with the provisions of subsections 19(b) and 19(c) above.
SELLER shall also, for the account of PURCHASER pay all Expenses (as provided in
subsection 19(b)) which are the obligation of PURCHASER and collect all proceeds
and other monetary payments which are allocated to PURCHASER (as provided in
subsection 19(c)). The cost for these services is included in the overhead
charge referenced in the last paragraph of subsection 19(b) to be charged after
June 30, 1999 until Closing. At PURCHASER's request, after Closing SELLER or its
affiliates shall provide transitional services other than accounting, payment
and collection services for PURCHASER pursuant to the terms of the Transition
Services Agreement attached as EXHIBIT "I" hereto. At PURCHASER's request, after
Closing Shell Services International Inc. may provide transitional accounting,
payment and collection services for PURCHASER on mutually agreeable terms and
conditions.
(e) Post Closing Settlement. Within one hundred twenty (120) days after
Closing, SELLER and PURCHASER shall make a final post-Closing settlement to
account for all production proceeds and other monetary payments collected for
PURCHASER's account by SELLER and all Expenses, other costs and expenses and
taxes paid for PURCHASER's account by SELLER pursuant to this section 19. In
addition, SELLER and PURCHASER shall account for and settle any payments made by
SELLER prior to the Effective Date which are recouped or recoupable from
production after the Effective Date. SELLER shall prepare and submit the
proposed post-Closing settlement statement to PURCHASER for review and approval
within the 120-day period. SELLER and PURCHASER agree to promptly remit any sum
determined from such post-Closing settlement to be owed to the other.
26
31
(f) Audit. Within one (1) year of the Closing, either Party may at its
own expense audit the other Party's books, accounts and records relating to
production proceeds, other monetary payments, Expenses, other costs and expenses
and taxes (other than income taxes) paid or received which may have been
adjusted on account of this transaction. Such audit shall be conducted so as to
cause a minimum of inconvenience to the audited Party.
(g) No Application to Income Taxes. All references in sections 19 and
20 to taxes and tax refunds shall not apply to income taxes and income tax
refunds.
20. TAXES, COSTS AND FEES.
(a) Taxes. PURCHASER shall be responsible for the economic burden and
payment of all taxes relating to the PROPERTY from and after the Effective Date,
regardless of when they are actually assessed. SELLER shall be responsible for
the economic burden and payment of all taxes relating to the PROPERTY prior to
the Effective Date, regardless of when they are actually assessed. PURCHASER
shall pay to SELLER at Closing, in addition to and separate from the Purchase
Price, an amount equal to all state and local taxes payable by SELLER on the
transfer of ownership of any tangible personal property calculated at the
then-current rates. PURCHASER SHALL INDEMNIFY SELLER AND HOLD SELLER HARMLESS
FROM ANY LIABILITY, INCLUDING WITHOUT LIMITATION, PENALTIES, INTEREST AND
ATTORNEY'S FEES, ARISING OUT OF PURCHASER'S FAILURE TO PAY TO SELLER AT CLOSING,
IN ADDITION TO AND SEPARATE FROM THE PURCHASE PRICE THE AMOUNT EQUAL TO ALL
STATE AND LOCAL TAXES PAYABLE BY SELLER ON THE TRANSFER OF OWNERSHIP OF ANY
TANGIBLE PERSONAL PROPERTY. PURCHASER shall pay all costs associated with
documentary transfer taxes, other transfer taxes and any recording costs
assessed by any federal, state, county or other governmental offices or other
transfer fees and SHALL INDEMNIFY AND HOLD SELLER HARMLESS FOR SUCH TRANSFER
TAXES, COSTS AND FEES.
(b) No Brokers. Each Party shall pay and indemnify and hold the other
Party harmless from any commission or brokerage fee it has incurred in
connection with this transaction.
27
32
21. OPERATIONS BY PURCHASER
(a) Compliance with Laws. Upon Closing, PURCHASER shall comply with all
applicable laws, ordinances, rules and regulations, orders, terms of permits and
authorizations of any governmental body which may have jurisdiction with respect
to the PROPERTY to be transferred hereunder (including, without limitation, the
filing with such governmental bodies of any and all compliance reports, notices,
or other compliance documents which are due after the Closing Date regardless of
the period covered by such reports, notices or documents) and shall promptly
obtain and maintain all permits and bonds required by public authorities in
connection with the PROPERTY.
(b) Assumption of Obligations. Upon Closing, PURCHASER shall assume, as
of the Effective Date, and agree to perform, at PURCHASER's sole cost and
expense, (i) all current and future obligations and implied covenants of SELLER
and successor(s) relating to the PROPERTY (whether such obligations and
covenants are to a lessor, a governmental body or any other person or entity),
including, but not limited to, (1) any obligations arising with respect to the
plugging and abandonment of all existing xxxxx (whether or not such xxxxx are
active, inactive idle, or have been previously abandoned or temporarily
abandoned as of the Effective Date), (2) any obligations to file or submit
compliance reports, notices and documents required by governmental bodies, (3)
the removal of related oil and gas and water disposal equipment including,
without limitation, platforms, pipelines, sumps, concrete foundations, vessels,
tanks (above and below ground), and similar items of oil and gas field equipment
and facilities, whether the existence of same is known or unknown to the Parties
at Closing, and (4) the complete and lawful restoration and reclamation of the
lands used in connection with such xxxxx and related equipment, platforms,
pipelines, sumps, concrete foundations, vessels, tanks (above and below ground),
and other similar items of oil and gas field equipment and facilities in
compliance with all federal, state and local laws, rules and regulations; (ii)
all obligations under licenses, permits, franchises, easements, and
rights-of-ways associated with or included in the PROPERTY; (iii) any
obligations with respect to the reabandonment of previously abandoned (whether
permanently or temporarily) xxxxx on lands included in the PROPERTY; and (iv)
remediation and clean-up with respect to those matters identified on SCHEDULE
"11(b)(1)" attached hereto. AS SET FORTH IN SUBSECTIONS 22(a) AND (b), PURCHASER
SHALL DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS WITH RESPECT TO THE PERFORMANCE
OR FAILURE TO
28
33
PERFORM OF PURCHASER'S OBLIGATIONS UNDER THIS SECTION 21. UPON CLOSING,
PURCHASER EXPRESSLY ASSUMES SELLER'S STRICT AND STATUTORY LIABILITY WITH RESPECT
TO THE PROPERTY, INCLUDING ALL LIABILITY UNDER ANY ENVIRONMENTAL LAW, EXCEPT AS
EXPRESSLY PROVIDED OTHERWISE IN SUBSECTIONS 22(c), (d) AND (e) HEREOF, AND
PURCHASER SHALL DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS WITH RESPECT TO THE
PERFORMANCE OR FAILURE TO PERFORM OF PURCHASER'S OBLIGATIONS UNDER THIS SECTION
21, REGARDLESS OF THE NEGLIGENCE, FAULT OR STRICT (STATUTORY) LIABILITY OF
SELLER AS SET FORTH IN SUBSECTIONS 22(a) AND 22(b).
(c) Operatorship. SELLER DOES NOT REPRESENT OR WARRANT THAT PURCHASER
WILL BECOME THE OPERATOR OF ANY PORTION OR PORTIONS OF THE PROPERTY CURRENTLY
OPERATED BY SELLER. At PURCHASER's request, SELLER will assist PURCHASER, to the
extent SELLER deems appropriate, in PURCHASER's efforts to become operator of
any portion or portions of the PROPERTY currently operated by SELLER, but SELLER
shall have no liability to PURCHASER in the event that PURCHASER does not become
the operator of any portion or portions of the PROPERTY.
(d) Financial Assurances. In order to assure the faithful performance
and payment of all of PURCHASER's obligations under this section 21, at Closing
PURCHASER shall pledge for the benefit of SELLER a zero coupon, 25-year U.S.
Treasury bond in a face value at maturity of Two Million Dollars
($2,000,000.00). The pledge shall remain in effect for so long as any
obligations or payments required of or by PURCHASER under this section 21 remain
outstanding, pursuant to the terms of a Pledge Agreement substantially in the
form attached as EXHIBIT "J" hereto unless PURCHASER provides substitute
security satisfactory to SELLER. It is agreed that upon maturity of the above
referenced bond, the cash proceeds thereof will be reinvested in instruments
secured by the full faith and credit of the U. S. Government having a term to
maturity of no more than two years, such instruments to be selected by mutual
agreement of SELLER and PURCHASER and to be subject to the Pledge Agreement as
Collateral thereunder. The
29
34
Collateral under the Pledge Agreement will be held in the manner required to
enable SELLER to perfect its security interest in the Collateral to SELLER's
satisfaction.
22. INDEMNIFICATION. Capitalized terms used in this section 22 which are
not defined elsewhere in this AGREEMENT are defined in subsection 22(g) below.
(a) GENERAL INDEMNITY BY PURCHASER. EXCLUDING MATTERS COVERED IN
SUBSECTION 22(b) OF THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, BUT
NO FURTHER, PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS SELLER, THEIR
AFFILIATES, SUCCESSORS AND ASSIGNS, AND THE RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS OF EACH (THE "SELLER INDEMNIFIED PARTIES"), FROM AND
AGAINST ANY AND ALL CLAIMS WHICH DIRECTLY OR INDIRECTLY ARISE OUT OF, OR ARE
RELATED TO, OR RESULT FROM OR ARE CAUSED BY (i) THE BREACH IN ANY MATERIAL
RESPECT OF ANY REPRESENTATION, WARRANTY OR OBLIGATION OF PURCHASER UNDER THIS
AGREEMENT; (ii) THE PERFORMANCE OR FAILURE TO PERFORM ANY OBLIGATIONS ASSUMED BY
PURCHASER UNDER THIS AGREEMENT; OR (iii) THE USE, OPERATION, MAINTENANCE,
OCCUPATION, OWNERSHIP OR ABANDONMENT OF THE PROPERTY BEFORE, ON OR AFTER THE
EFFECTIVE DATE; EXCEPT THOSE CLAIMS INDEMNIFIED BY SELLER PURSUANT TO SUBSECTION
22(c) OR (e) HEREOF. THE FOREGOING OBLIGATION OF INDEMNITY SHALL APPLY EVEN
THOUGH SUCH CLAIMS MAY HAVE BEEN CONTRIBUTED TO OR CAUSED BY THE NEGLIGENCE (OF
ANY CHARACTER, WHETHER SOLE, GROSS, JOINT, CONCURRENT, CONTRIBUTORY OR
OTHERWISE) OR FAULT, OR THE STRICT OR STATUTORY LIABILITY OF SELLER UNDER ANY
LAW (INCLUDING STATUTORY, REGULATORY AND CASE LAW), REGARDLESS OF WHETHER SUCH
LAW WAS IN EXISTENCE AS OF THE EFFECTIVE DATE. PURCHASER FURTHER COVENANTS AND
AGREES TO DEFEND ANY SUIT(S) OR PROCEEDING(S) BROUGHT AGAINST SELLER INDEMNIFIED
PARTIES ON ACCOUNT OF ANY SUCH CLAIMS INDEMNIFIED HEREUNDER AND TO PAY OR
DISCHARGE THE FULL AMOUNT OR OBLIGATION OF SUCH CLAIMS INCURRED BY, ACCRUING TO
OR IMPOSED ON SELLER INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT(S) OR
PROCEEDING(S) OR ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH
SUIT(S) OR PROCEEDING(S). IN ADDITION, PURCHASER SHALL PAY TO SELLER INDEMNIFIED
PARTIES AS APPLICABLE,
30
35
ALL ATTORNEYS' FEES INCURRED BY SELLER INDEMNIFIED PARTIES AS APPLICABLE, IN
ENFORCING PURCHASER'S INDEMNITY IN THIS SUBSECTION 22(a).
(b) ENVIRONMENTAL INDEMNITY BY PURCHASER. TO THE FULLEST EXTENT
PERMITTED BY LAW, BUT NO FURTHER, PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS
SELLER INDEMNIFIED PARTIES FROM AND AGAINST (i) ANY AND ALL ENVIRONMENTAL CLAIMS
OR ENVIRONMENTAL CLEANUP LIABILITY WHICH ARISES (AS DEFINED IN SUBSECTION 22(g))
DIRECTLY OR INDIRECTLY FROM THE USE, OPERATION, MAINTENANCE, OCCUPATION,
OWNERSHIP OR ABANDONMENT OF THE PROPERTY BEFORE, ON, OR AFTER THE EFFECTIVE
DATE, EXCEPT THOSE ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL LIABILITY INDEMNIFIED
BY SELLER UNDER SUBSECTION 22(d) HEREOF; AND (ii) THE MATTERS DESCRIBED ON
SCHEDULE 11(b)(1) TO THIS AGREEMENT. THE FOREGOING OBLIGATION OF INDEMNITY BY
PURCHASER SHALL APPLY EVEN THOUGH THE ENVIRONMENTAL CLAIM OR ENVIRONMENTAL
CLEANUP LIABILITY IS CONTRIBUTED TO OR CAUSED BY THE NEGLIGENCE (OF ANY
CHARACTER, WHETHER SOLE, GROSS, JOINT, CONCURRENT, CONTRIBUTORY OR OTHERWISE) OR
FAULT, OR THE STRICT OR STATUTORY LIABILITY OF SELLER UNDER ANY LAW (INCLUDING
STATUTORY, REGULATORY AND CASE LAW), REGARDLESS OR WHETHER SUCH LAW WAS IN
EXISTENCE AS OF THE EFFECTIVE DATE. PURCHASER FURTHER COVENANTS AND AGREES TO
DEFEND ANY SUIT(S) OR PROCEEDING(S) BROUGHT AGAINST SELLER INDEMNIFIED PARTIES
ON ACCOUNT OF ANY SUCH ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY
AND TO PAY OR DISCHARGE THE FULL AMOUNT OR OBLIGATION OF SUCH ENVIRONMENTAL
CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY INCURRED BY, ACCRUING TO OR IMPOSED ON
SELLER INDEMNIFIED PARTIES, AS APPLICABLE, RESULTING FROM ANY SUCH SUIT(S) OR
PROCEEDING(S) OR ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH
SUIT(S) OR PROCEEDING(S). IN ADDITION, PURCHASER SHALL PAY TO SELLER INDEMNIFIED
PARTIES, AS APPLICABLE, ALL ATTORNEYS' FEES INCURRED BY SELLER INDEMNIFIED
PARTIES, AS APPLICABLE, IN ENFORCING PURCHASER'S INDEMNITY IN THIS SUBSECTION
22(b).
(c) GENERAL INDEMNITY BY SELLER. EXCLUDING MATTERS COVERED IN
SUBSECTIONS 22(d) AND (e) OF THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY
LAW BUT NO FURTHER AND SUBJECT TO
31
36
THE LIMITATIONS SET FORTH IN SUBSECTION 22(f) BELOW, EACH SELLER, SEVERALLY TO
THE EXTENT OF ITS OWNERSHIP INTEREST, SHALL INDEMNIFY AND HOLD HARMLESS
PURCHASER, ITS AFFILIATES, SUCCESSORS AND ASSIGNS, AND THE RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS OF EACH (THE "PURCHASER INDEMNIFIED PARTIES"),
FROM AND AGAINST ANY THIRD PARTY CLAIM FOR WHICH A CLAIM NOTICE IS DELIVERED TO
SELLER OR PURCHASER WITHIN ONE (1) YEAR AFTER THE CLOSING DATE HEREUNDER AND (i)
WHICH DIRECTLY OR INDIRECTLY ARISES OUT OF OR IS RELATED TO OR RESULTS FROM OR
IS CAUSED BY THE USE, OPERATION, MAINTENANCE, OCCUPATION AND OWNERSHIP OF THE
PROPERTY BY SUCH SELLER PRIOR TO THE EFFECTIVE DATE; (ii) IS BASED ON LAW
(INCLUDING STATUTORY, REGULATORY AND CASE LAW) EXISTING AT THE EFFECTIVE DATE;
AND (iii) WHICH ULTIMATELY RESULTS IN A JUDGMENT OR SETTLEMENT WHICH EXCEEDS
FIVE MILLION DOLLARS ($5,000,000). EACH SELLER, SEVERALLY TO THE EXTENT OF ITS
OWNERSHIP INTEREST, FURTHER COVENANTS AND AGREES TO DEFEND ANY SUIT(S) OR
PROCEEDING(S) BROUGHT AGAINST PURCHASER INDEMNIFIED PARTIES ON ACCOUNT OF ANY
SUCH THIRD PARTY CLAIMS INDEMNIFIED HEREUNDER AND TO PAY OR DISCHARGE THE FULL
AMOUNT OR OBLIGATION OF ANY SUCH THIRD PARTY CLAIMS INCURRED BY, ACCRUING TO OR
IMPOSED ON PURCHASER INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT(S) OR
PROCEEDING(S) OR ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH
SUIT(S) OR PROCEEDING(S). IN ADDITION, EACH SELLER, SEVERALLY TO THE EXTENT OF
ITS OWNERSHIP INTEREST, SHALL PAY TO PURCHASER INDEMNIFIED PARTIES ALL
ATTORNEYS' FEES INCURRED BY PURCHASER INDEMNIFIED PARTIES IN ENFORCING SUCH
SELLER'S INDEMNITY IN THIS SUBSECTION 22(c).
(d) ENVIRONMENTAL INDEMNITY BY SELLER. TO THE FULLEST EXTENT PERMITTED
BY LAW BUT NO FURTHER AND SUBJECT TO THE LIMITATIONS SET FORTH IN SUBSECTION
22(f) BELOW, EACH SELLER, SEVERALLY TO THE EXTENT OF ITS OWNERSHIP INTEREST,
SHALL INDEMNIFY AND HOLD HARMLESS THE PURCHASER INDEMNIFIED PARTIES FROM AND
AGAINST ANY ENVIRONMENTAL CLAIM OR ENVIRONMENTAL CLEANUP LIABILITY FOR WHICH A
CLAIM NOTICE IS DELIVERED TO SUCH SELLER WITHIN ONE (1) YEAR AFTER THE CLOSING
DATE AND (i) WHICH ARISES (AS DEFINED IN SUBSECTION 22(g)(2)) OUT OF THE USE,
OPERATION, MAINTENANCE, OCCUPATION OR OWNERSHIP OF THE PROPERTY BY SUCH SELLER
PRIOR TO THE EFFECTIVE DATE; (ii) WHICH IS BASED ON ENVIRONMENTAL LAW (INCLUDING
STATUTORY, REGULATORY AND CASE LAW) IN EFFECT AT THE EFFECTIVE DATE; AND (iii)
WHICH ULTIMATELY RESULTS IN A JUDGMENT OR SETTLEMENT WHICH
32
37
EXCEEDS FIVE MILLION DOLLARS ($5,000,000). EACH SELLER, SEVERALLY TO THE EXTENT
OF ITS OWNERSHIP INTEREST, FURTHER COVENANTS AND AGREES TO DEFEND ANY SUIT(S) OR
PROCEEDING(S) BROUGHT AGAINST PURCHASER INDEMNIFIED PARTIES ON ACCOUNT OF ANY
SUCH ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEANUP LIABILITY AND TO PAY OR
DISCHARGE THE FULL AMOUNT OR OBLIGATION OF ANY SUCH ENVIRONMENTAL CLAIM OR
ENVIRONMENTAL CLEANUP LIABILITY INCURRED BY, ACCRUING TO OR IMPOSED UPON
PURCHASER INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT(S) OR PROCEEDINGS) OR
ANY AMOUNTS RESULTING FROM THE SETTLEMENT OR RESOLUTION OF SUCH SUIT(S) OR
PROCEEDING(S). IN ADDITION, EACH SELLER, SEVERALLY TO THE EXTENT OF ITS
OWNERSHIP INTEREST, SHALL PAY TO PURCHASER INDEMNIFIED PARTIES ALL ATTORNEYS'
FEES INCURRED BY PURCHASER INDEMNIFIED PARTIES IN ENFORCING SELLER'S INDEMNITY
IN THIS SUBSECTION 22(d).
(e) Retained Liability Indemnity by Seller. To the fullest extent
permitted by law but no further, each SELLER, severally to the extent of its
ownership interest, shall indemnify and hold harmless the PURCHASER Indemnified
Parties from and against any Claims (i) associated with the liabilities
specifically retained by SELLER under subsection 11(c) of this AGREEMENT or (ii)
which directly or indirectly arise out of or are related to, or result from or
caused by the breach of any representation or warranty of SELLER under section
15 of this AGREEMENT. The foregoing obligations of indemnity shall include the
obligation to indemnify the PURCHASER Indemnified Parties against any losses of
title to the PROPERTY to the extent and only to the extent such losses result
from SELLER's acts or omissions with respect to the obligations and liabilities
specifically retained by SELLER in subsection 11(c) of this AGREEMENT.
Each SELLER, severally to the extent of its ownership interest,
further covenants and agrees to defend any suit(s) or proceeding(s) brought
against PURCHASER Indemnified Parties on account of any such Claims and to pay
or discharge the full amount or obligation of any such Claim incurred by,
accruing to or imposed upon PURCHASER Indemnified Parties resulting from any
such suit(s) or proceeding(s) or any amounts resulting from the settlement or
resolution of such suit(s) or proceeding(s). In addition, each SELLER, severally
to the extent of its ownership interest, shall pay to PURCHASER Indemnified
Parties all attorneys' fees incurred by PURCHASER Indemnified Parties in
enforcing SELLER's indemnity in this subsection 22(e).
33
38
SELLER shall not settle any pending litigation on Schedule 11(b)(3) or
any other Claims for which SELLER has retained liability under subsection 11(c)
of this AGREEMENT in a manner that reduces SELLER's working interests in the
PROPERTY below the interests held by SELLER as of the date of this AGREEMENT or
that increases SELLER's net profits burden percentage or SELLER's royalty burden
percentage above those in effect as of the date of this AGREEMENT.
(f) Limitations. The indemnification obligations of SELLER contained in
subsections 22(c), (d) and (e) shall be subject to the limitations and
conditions set forth in (1), (2) (3) and (5) below, and the indemnification
obligations of SELLER contained in subsections 22(c) and (d) (but not subsection
22(e)) shall also be subject to the limitation and condition set forth in (4)
below:
(1) Such indemnification obligations shall not limit the disclaimers of
warranties and acknowledgments of PURCHASER with respect to the PROPERTY as
specified in section 11 above, and except with respect to the indemnities set
forth in subsection 22(e), the indemnities contained herein shall have no
application to matters of description, title (including, without limitation, the
existence or non-existence of easements, licenses, rights-of-way, permits,
franchises, liens, leases, unit agreements or other encumbrances or other
agreements or the failure to procure governmental or necessary Third Party
consents or approvals of assignment of the PROPERTY), quality, value, fitness
for purpose or merchantability of the PROPERTY;
(2) Such indemnification obligations shall not limit PURCHASER's
obligations (including indemnification obligations) under section 21 hereof with
respect to removal and abandonment of facilities and xxxxx located on the
PROPERTY including, without limitation, the plugging and abandoning of xxxxx,
removal of concrete foundations, sumps, pipelines, vessels, tanks and similar
items of oil field equipment and facilities, and restoration of the PROPERTY and
the indemnities by SELLER contained herein shall have no application to any
costs, losses or liabilities incurred by PURCHASER in connection with fulfilling
such removal, abandonment and restoration obligations;
(3) Such indemnification obligations shall not limit the
indemnification and reimbursement obligations of PURCHASER with respect to
Pre-Acquisition Review activities as specified in the Confidentiality Agreement
and the Indemnification Agreement;
34
39
(4) The combined financial obligations of both SELLERs under
subsections 22(c) and (d) shall be limited to and shall never exceed, in the
aggregate, $44,194,444.00 [25% of Purchase Price];
(5) Such indemnification obligations shall be limited to the extent any
costs, losses or liabilities incurred by PURCHASER result from PURCHASER's
acquisition of the PROPERTY from SELLER; accordingly, SELLER shall not indemnify
PURCHASER for any costs, losses or liabilities incurred by PURCHASER on account
of PURCHASERs ownership of an interest in the PROPERTY which PURCHASER acquired
from any other person.
(g) Definitions. For purposes of this Agreement:
(1) "AFFILIATE(S)" shall mean a Party's "Parent Company" and
"Affiliated Companies." "Parent Company," "Affiliated Companies" and
"Controlling Interest" shall have the following meanings:
(i) A Party's "PARENT COMPANY" shall mean an entity having a
direct or indirect "Controlling Interest" in such Party;
(ii) A Party's "AFFILIATED COMPANIES" shall mean any and all
entities in which the Party or the Parent Company of such Party has a direct or
indirect "Controlling Interest;" and (iii) "CONTROLLING INTEREST" shall mean a
legal or beneficial ownership of fifty percent (50%) or more of the voting stock
or other voting rights in an entity.
(2) "ARISES." An Environmental Claim or Environmental Cleanup Liability
shall be deemed to arise upon (i) each discrete, operationally-related Release
of Chemical Substance, as measured on a daily basis, or (ii) each discrete,
operationally-related occurrence of pollution, contamination or migration, as
measured on a daily basis.
(3) "CHEMICAL SUBSTANCES" shall mean any chemical substance, including,
but not limited to, any sort of pollutants, contaminants, chemicals, raw
materials, intermediates, products, industrial, solid, toxic or hazardous
substances, materials, wastes, or petroleum products, including crude oil or any
component thereof, salt water, brine, asbestos, or NORM.
35
40
(4) "CLAIMS" shall mean any and all claims, demands, loss, liability,
liens, demands, judgments, settlements, suits, causes of action, fines,
penalties, compliances, costs, and any costs, expenses and fees associated with
the investigation, defense and resolution of the foregoing, including without
limitation, reasonable attorney's fees. Claims may be based on any theory of
tort, contract, strict liability, statutory liability (including, without
limitation, fines, penalties, obligations or requirements) or any other basis
for liability and shall include, without limitation, any Claims arising,
occurring or resulting from, related to or based on the injury, disease, or
death of any persons (including, without limitation, the indemnifying Party's
employees, agents and representatives) or damage to, loss or destruction of any
property, real or personal (including, without limitation, the indemnifying
Party's property).
(5) "CLAIM NOTICE" shall mean a notice delivered to SELLER, in writing,
that the PURCHASER has received a claim or demand from a Third Party or been
served with process by or on behalf of a Third Party asserting Claims,
Environmental Claims or Environmental Cleanup Liability indemnified hereunder.
(6) "ENVIRONMENTAL CLAIM" shall mean any claim, demand, action, suit or
proceeding for the personal injury, disease or death of any person (including,
without limitation, the indemnifying Party's employees, agents and
representatives), property damage, damage to the environment, or damage to
natural resources made, asserted or prosecuted by or on behalf of any Third
Party (whether based on negligent acts or omissions, statutory liability, or
strict liability without fault or otherwise) arising or alleged to arise under
any Environmental Law. Environmental Claim includes any damages, settlement
amounts, fines and penalties assessed or costs of complying with any orders or
decrees of courts, administrative tribunals or other governmental entities
(other than such compliance costs related to Environmental Cleanup Liability)
associated with resolving such claims, demands, actions, suits or proceedings
and any costs, expenses and fees, including, without limitation, reasonable
attorneys' fees incurred in the investigation, defense and resolution of such
claims, demands, actions, suits and proceedings.
(7) "ENVIRONMENTAL CLEANUP LIABILITY" shall mean any cost or expense of
any nature whatsoever incurred (in order to comply with the provisions of any
Environmental Law or the provisions of any order or decree of any court or
administrative or regulatory tribunal or agency enforcing
36
41
any Environmental Law) to contain, remove, remedy, respond to, clean up, or
xxxxx any Release of Chemical Substances or other contamination or pollution of
the air, surface water, groundwater, land surface or subsurface strata related
to the operation, use, maintenance and ownership of the PROPERTY, whether such
Release, contamination or pollution is located on, within, under or above real
property included in the PROPERTY ("on site") or is located off site, including,
but not limited to, any Release of Chemical Substances or other contamination or
pollution arising out of or resulting from the manufacture, generation,
formulation, processing, labeling, distribution, introduction into commerce, or
on site or off site use, treatment, handling, storage, disposal, or
transportation of any Chemical Substances. Environmental Cleanup Liability
includes, without limitation, any judgments, damages, settlements, costs or
expenses (including, without limitation, attorneys', consultants' and experts'
fees and expenses) incurred with respect to (i) any investigation, study,
assessment, legal representation, cost recovery by a governmental agency or
Third Party, or monitoring or testing in connection therewith, (ii) the PROPERTY
as a result of actions or measures necessary to implement or effectuate any such
containment, removal, remediation, response, cleanup or abatement, and (iii) the
resolution of such liabilities.
(8) "ENVIRONMENTAL LAW" means any statutes, rules, regulations,
controlling judicial decisions or legal requirements relating to or regulating
the pollution, protection or cleanup of the environment or damage to or
remediation of damage to real property and natural resources (including, but not
limited to, ambient air, surface water, groundwater, and land surface or
subsurface strata) including, without limitation, legal requirements contained
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 ET SEQ., as amended (CERCLA); the Resources
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, ET SEQ., as
amended (RCRA); the Superfund Amendments and Reauthorization Act of 1986, Pub.
L. 99-499, as amended (XXXX); the Clean Air Act, 42 U.S.C. Section 7401, ET
SEQ., as amended; Federal Water Pollution Control Act, 33 U.S.C. Section 2601 ET
SEQ., as amended; National Environmental Policy Act, 42 U.S.C. Section 4321, ET
SEQ., as amended (NEPA); and the Safe Drinking Water Act, 42 U.S.C., Section 300
j-1, ET SEQ., as amended; and/or any otHER federal, state or local laws,
statutes, ordinances, rules, regulations or orders (including decisions of any
court or administrative body) relating to the pollution, protection or cleanup
of the environment as specified above. Environmental Law shall also
37
42
mean the Toxic Substance Control Act, 25 U.S.C. Section 1502, ET SEQ., as
amended (TOSCA) and/or any other federal, state (including, without limitation,
laws with respect to trespass, nuisance and other torts or similar legal
theories which may be applied to establish liability or responsibility for
Environmental Cleanup or Environmental Claims) or local laws, statutes,
ordinances, rules, regulations or orders (including decisions of any court or
administrative body) relating to (i) release, containment, removal, remediation,
response, cleanup or abatement of any sort of Chemical Substance, (ii) the
manufacture, generation, formulation, processing, labeling, distribution,
introduction into commerce, use, treatment, handling, storage, disposal or
transportation of any Chemical Substance, (iii) exposure of persons, including
employees of SELLER or PURCHASER, to any Chemical Substance and other
occupational safety or health matters, or (iv) the physical structure or
condition of a building, facility, fixture or other structure, including,
without limitation, those relating to the management, use, storage, disposal,
cleanup or removal of asbestos, asbestos-containing materials, polychlorinated
biphenyls or any other Chemical Substance.
(9) "RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, escaping, leaching, dumping or disposing of any
Chemical Substance into the environment (including, but not limited to, the
ambient air, surface water, groundwater and land surface or subsurface strata)
of any kind whatsoever (including also the abandonment or discarding of barrels,
containers, tanks or other receptacles containing or previously containing any
Chemical Substance).
(10) "THIRD PARTY" shall mean any person (other than a Party or its
Affiliates) including, without limitation, any such natural person, business
entity (corporation, partnership, trust, sole proprietorship or other business
entity), any federal, state or local governmental entity, agency or
administrative body, employee of PURCHASER or of SELLER, former employee of
PURCHASER or of SELLER, or their respective legal representatives, heirs,
beneficiaries or estates.
(h) Indemnified Party's Participation. Any indemnified Party shall have the
right at all times, if it so elects and without relieving the indemnifying Party
of its obligations to defend hereunder, to participate in the preparation for
and conducting of any hearing or trial related to these indemnification
provisions, as well as the right to appear on its own behalf at any such hearing
or trial. Any such participation or appearance by an indemnified Party shall be
at its sole cost and expense.
38
43
An indemnified Party shall not execute a consent order nor accept
any settlement regarding an indemnified matter without the indemnifying Party's
prior written approval. The indemnified Party shall cooperate fully with the
indemnifying Party in the defense of any matter hereunder by the indemnifying
Party and shall take those actions reasonably, within its power to take which
are reasonably necessary to preserve any legal defenses to indemnified matters
hereunder until the indemnifying Party has assumed the defense of the matter.
23. EXISTING CONTRACTS/IMBALANCES/SUSPENSE ACCOUNTS.
(a) Assumption of Contracts. The sale or exchange contemplated
hereunder shall be made subject to any and all existing operating agreements,
unit agreements, unit orders, transportation agreements, gas balancing
agreements, and gas processing or handling agreements, as well as any and all
other agreements, permits, franchises, leases, licenses, easements and
rights-of-way including without limitation, overage/shortage agreements and
exchange agreements to which the PROPERTY is subject. To the extent such
agreements may be assigned and delegated, and provided that Closing is completed
hereunder, SELLER shall be deemed to have assigned and delegated, and does
hereby assign and delegate, such agreements and SELLER's rights under the
confidentiality agreements executed with other potential bidders in connection
with the Bid Solicitation Package for the PROPERTY to PURCHASER, and PURCHASER
shall assume and be responsible for and does hereby assume and agree to be
responsible for all obligations of SELLER accruing under such agreements except
those obligations specifically retained by SELLER in subsection 11(c) of this
AGREEMENT. PURCHASER agrees to seek any necessary consents or approvals for the
assignment and transfer of such agreements from SELLER to PURCHASER. SELLER
shall assist PURCHASER in obtaining all such consents and approvals. If such
agreements may not be assigned or delegated, SELLER may, at its sole discretion,
perform such agreements on behalf of PURCHASER and PURCHASER shall promptly,
upon notice, reimburse SELLER for its respective costs, expenses and obligations
incurred in performing such agreements; provided that if any such agreements are
terminable, PURCHASER shall have the right to require SELLER to terminate such
agreements and PURCHASER shall be responsible for and indemnify SELLER against
any associated termination fees, costs or liabilities.
39
44
(b) Oil and Gas Imbalances. PURCHASER shall accept all gas and oil
imbalances that exist on the PROPERTY as of the Effective Date and shall assume
all responsibility to settle with other interest owners for any over or short
gas or oil imbalances that exist on the PROPERTY. If the gas or oil imbalance on
a particular PROPERTY interest is a net liability, PURCHASER shall indemnify
SELLER for that net liability. On or before Closing, SELLER shall provide to
PURCHASER a schedule of oil and gas imbalances that exist on the PROPERTY as of
the Effective Date.
(c) Suspense Accounts. In the post-Closing settlement described in
subsection 19(e), SELLER shall credit to PURCHASER the amount of funds
associated with the PROPERTY that are held in suspense by SELLER because of a
lack of identity or address of owners, title questions, change of ownership or
similar reasons, and PURCHASER shall assume the obligations of SELLER with
respect to proper disbursement of such suspended funds, provided such assumption
shall not affect SELLER's obligations under subsection 11(c). On or before the
post-Closing settlement, SELLER shall provide to PURCHASER a schedule
identifying the funds held and the reasons therefor.
24. NOTICES. All notices and communications required or permitted under
this AGREEMENT shall be in writing, delivered to or sent by U. S. Mail or
nationally recognized commercial courier service, postage or delivery charges
prepaid, or by telecopy, addressed as follows (or such other address as may be
specified by ten (10) days prior written notice to the other Party):
SELLER
Shell Western E&P Inc.
ATTN: Y. N. Youssef
000 Xxxxx Xxxxx Xxxxxxx
Xxxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
PURCHASER
Xxxxxxx Xxxxx
Vice President Land
Encore Acquisition Partners, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000)000-0000
40
45
Notice shall be deemed to have been duly given when delivered to or sent to the
other Party in the manner prescribed herein and actually received by the Party
to whom the notice is given.
25. PARTIES IN INTEREST. Subject to subsection 29(d) below, this AGREEMENT
shall inure to the benefit of and be binding upon SELLER and PURCHASER and their
respective successors and assigns. However, no assignment by any Party shall
relieve any Party of any duties or obligations under this AGREEMENT.
26. COMPLETE AGREEMENT. When executed by the authorized representatives of
SELLER and PURCHASER, this AGREEMENT, together with the executed copies of the
exhibits hereto and documents referred to herein, shall supersede all prior
written or oral and all contemporaneous oral agreements and understandings
between the Parties, including without limitation, all and any bid solicitation,
bid offer and bid acceptance letters, and shall constitute the complete
agreement between the Parties regarding the purchase and sale, or exchange, of
the PROPERTY.
27. MANAGEMENT APPROVALS. (a) SELLER Corporate Action. Any obligation of
SELLER to close the sale or exchange contemplated hereunder shall be, and is,
conditioned on and subject to each SELLER's Board of Directors having approved
this AGREEMENT. In determining whether or not to approve, each SELLER's Board of
Directors may act with full and unfettered discretion in the exercise of its
independent business judgment and shall not be prejudiced or limited in the
exercise of such discretion and judgment by the prior execution of this
AGREEMENT. If SELLER's Board of Directors fails to approve this AGREEMENT,
whether by action or inaction, prior to Closing, this AGREEMENT shall forthwith
terminate and neither Party shall have any further rights or obligations
hereunder, except for SELLER's rights and PURCHASER's obligations under the
Confidentiality Agreement and the Indemnification Agreement and PURCHASER shall
be entitled to a return of any Performance Deposit held by the SELLER and SELLER
shall be entitled to receive all income earned thereon.
(b) PURCHASER Partnership Action. Any obligation of PURCHASER to close
the sale or exchange contemplated hereunder shall be, and is, conditioned on and
subject to PURCHASER's Management Committee having approved this AGREEMENT. In
determining whether or not to approve, PURCHASER's Management Committee may act
with full and unfettered discretion in the exercise of its
41
46
independent business judgment and shall not be prejudiced or limited in the
exercise of such discretion and judgment by the prior execution of this
AGREEMENT. If PURCHASER's Management Committee fails to approve this AGREEMENT,
whether by action or inaction, prior to Closing, this AGREEMENT shall forthwith
terminate and neither Party shall have any further rights or obligations
hereunder, except for SELLER's rights and PURCHASER's obligations under the
Confidentiality Agreement and the Indemnification Agreement and PURCHASER shall
be entitled to a return of any Performance Deposit held by the SELLER and SELLER
shall be entitled to receive all income earned thereon.
28. APPLICABLE LAW. THIS AGREEMENT, OTHER DOCUMENTS EXECUTED AND DELIVERED
PURSUANT HERETO, AND THE LEGAL RELATIONS BETWEEN THE PARTIES WITH RESPECT TO
THIS AGREEMENT, SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO RULES CONCERNING CONFLICTS OF LAWS;
PROVIDED, THAT THE VALIDITY OF THE VARIOUS CONVEYANCES TRANSFERRING TITLE TO
REAL PROPERTY AND REAL PROPERTY INTERESTS UNDER THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION IN WHICH SUCH
REAL PROPERTY OR REAL PROPERTY INTERESTS ARE LOCATED.
29. MISCELLANEOUS PROVISIONS.
(a) Captions. Captions have been inserted for reference purposes only
and shall not define or limit the terms of this AGREEMENT.
(b) Partial Invalidity. If any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the remaining provisions.
(c) Modification. This AGREEMENT cannot be modified or amended except
by a written instrument duly executed by SELLER and PURCHASER.
(d) Assignment. Neither SELLER nor PURCHASER, without the prior written
consent of the other Party, shall assign any right or obligation under this
AGREEMENT prior to Closing, or attempt to delegate any duty to be performed
under this AGREEMENT, except that SELLER may make
42
47
such an assignment and/or delegation to an Affiliate or to a Qualified
Intermediary without the consent of PURCHASER. Consent to assign shall not be
unreasonably withheld by either Party. Any attempted assignment or delegation
without such consent shall be void and of no effect.
(e) Counterparts. This AGREEMENT may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same instrument.
(f) Expenses. Except as otherwise expressly provided herein, all
expenses incurred by each Party in connection with the transaction contemplated
herein, including, without limitation, attorney's fees, are for the account of
the Party incurring the same and the Party incurring such expenses shall defend,
indemnify and hold harmless the other Party from and against such expenses.
(g) Signs. SELLER shall have the right, but not the obligation, to
remove all of SELLER's signs, placards, notices, or other posted documents or
information and any other like property which refers to SELLER's ownership of
the PROPERTY or responsibility for the operations conducted thereon. In lieu of
removal, PURCHASER may at its option, upon notice to SELLER, replace SELLER's
name with PURCHASER's name in a permanent manner on SELLER's existing signs and
placards and indemnify, defend and hold harmless SELLER against any Claims
arising out of or relating to such replacement.
(h) Press Releases. No information in connection with this sale or
exchange shall be released to the public, including, without limitation, through
press releases, without the express written permission of PURCHASER and SELLER,
unless required by applicable federal, state or local laws.
(i) No Recording. This AGREEMENT shall not be recorded or filed by any
Party or their successors or assigns, in or with any public or governmental
office, officer, agency or records repository without the prior written consent
of the other Party, unless required by applicable federal, state or local laws.
(j) Survival. All representations, indemnifications, covenants,
obligations and promises of the Parties set forth in this AGREEMENT shall
survive Closing. All documents conveying, transferring or assigning the PROPERTY
shall incorporate by reference the terms and conditions of this AGREEMENT.
43
48
(k) Exhibits and Schedules. The Exhibits and Schedules listed below are
attached to this
AGREEMENT:
EXHIBIT "A" Property and Property Interests Subject To This
AGREEMENT
EXHIBIT "B" Assignment and Conveyance
EXHIBIT "C" Personal Property Agreement
EXHIBIT "D" SELLER Non-foreign Affidavit
EXHIBIT "E" Indemnification Agreement
EXHIBIT "F" Guaranty
EXHIBIT "G" 3-D Seismic License
EXHIBIT "H" Pre-Acquisition Review Plan
EXHIBIT "I" Transition Services Agreements
EXHIBIT "J" Pledge Agreement
SCHEDULE "1(k)" Excluded Property
SCHEDULE "11(b)(1)" Disclosed Environmental Matters
SCHEDULE "11(b)(2)" Net Profits Interests
SCHEDULE "11(b)(3)" Pending Litigation and Claims
SCHEDULE "14(b)" Summary of SELLER's Working and Net Revenue
Interests In the Producing Properties
SCHEDULE "15(b)(2)" NPI Account Balances
(l) Time of Essence. Time is of the essence in the performance of this
AGREEMENT.
(m) H-S-R. If either SELLER or PURCHASER determine that the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 is applicable to this
transaction, then the Parties which are required to file shall file with the
Federal Trade Commission and the Department of Justice the required
notifications, reports, and supplemental information to comply in all respects
with the requirements of said Act.
(n) No Partnership. Nothing contained in this AGREEMENT shall be deemed
to create a joint venture, partnership, tax partnership or agency relationship
between the Parties.
44
49
(o) File Transfers. Within a reasonable time after Closing, SELLER will
transfer to PURCHASER, subject to SELLER's continuing right of access as
hereinafter set forth, the following original SELLER files, records, documents
and data relating to the PROPERTY: oil, gas and mineral lease, fee, easement and
right of way, surface lease, operating agreement, farmout, unitization and
pooling and land abstract files and records as well as original well record
files on all xxxxx but save, less and except therefrom all Proprietary Data
which shall include (i) all privileged data and all data subject to
confidentiality agreements, (ii) any interpretive geophysical information which
may reveal the methods used by SELLER in interpreting geophysical information,
economic analysis, and any information or other similar proprietary data which
might reveal SELLER's economic guidelines or other methods or systems by which
SELLER conducts its economic analysis, and (iii) any similar proprietary data.
SELLER retains the right of complete access to the above files
and records, which right of access may be exercised by SELLER at reasonable
times, upon giving PURCHASER reasonable notice and which shall include, at
SELLER's sole cost and expense, the right to copy or duplicate any and all
contents therein, other than confidential information of PURCHASER included
therein after Closing, which SELLER shall be required to hold in confidence.
Should SELLER be required by a governmental rule or order to produce the
original of any document described in this subsection, PURCHASER will, to the
best of its ability, make such access by PURCHASER and PURCHASER's auditors
shall be limited to information covering three complete calendar years prior to
the calendar year in which the request for access is made and the partial
calendar year prior to the date on which the request for access is made. SELLER
shall use reasonable efforts to provide unaudited data for an additional two
prior calendar years as necessary to enable PURCHASER to satisfy any filing or
registration requirements of the Securities and Exchange Commission. PURCHASER
shall only have the right to access such information "AS IS" and "WHERE IS".
SELLER MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE INFORMATION,
INCLUDING WITHOUT LIMITATION, THE ACCURACY OR COMPLETENESS OF THE INFORMATION TO
BE ACCESSED BY PURCHASER AND PURCHASER'S AUDITORS. ANY RELIANCE ON OR USES
PURCHASER MAKES OF SUCH INFORMATION IS AT PURCHASER'S SOLE RISK, AND SELLER
SHALL HAVE NO
45
50
LIABILITY FOR, AND PURCHASER HEREBY RELEASES SELLER FROM, AND AGREES TO
INDEMNIFY, DEFEND AND HOLD SELLER HARMLESS AGAINST, ANY CLAIMS, LIABILITIES, OR
DAMAGES OF ANY NATURE WHATSOEVER ARISING OUT OF SUCH ACCESS OR PURCHASER'S USES
OF SUCH INFORMATION. THE FOREGOING OBLIGATIONS OF RELEASE AND INDEMNITY SHALL
APPLY EVEN THOUGH SUCH CLAIMS, LIABILITIES OR DAMAGES MAY HAVE BEEN CONTRIBUTED
TO OR CAUSED BY THE NEGLIGENCE (OF ANY CHARACTER, WHETHER SOLE, GROSS, JOINT,
CONCURRENT, CONTRIBUTORY OR OTHERWISE) OR FAULT, OR THE STRICT OR STATUTORY
LIABILITY OF SELLER OR ANY SELLER INDEMNIFIED PARTY (AS DEFINED IN SUBSECTION
22(A) OF THIS AGREEMENT). SELLER shall not make document available to enable
SELLER to comply with said rule or order upon receiving proper assurance that
such document will be promptly returned to PURCHASER.
After Closing, SELLER shall grant PURCHASER the right of access to the
following SELLER files, records, documents and data relating to the PROPERTY:
division order, transfer order, letters-in-lieu, regulatory, accounting,
environmental, pipeline, maintenance, transportation, processing, production and
engineering files and records not conveyed and transferred to PURCHASER;
however, this right of access shall not extend to or cover Proprietary Data as
defined above in this subsection 29(o). PURCHASER's right of access may be
exercised at reasonable times, upon giving SELLER reasonable notice and shall
include, at PURCHASER's sole cost and expense, the right to copy any and all
contents therein not otherwise excluded subject to the following: (1) only
division of interest sheets, division orders, transfer orders, letters-in-lieu,
title opinions and title curative material may be copied from division order
files and (2) only gas contracts and amendments or agreements relating thereto
and pertinent outside correspondence may be copied from gas files. Should
PURCHASER be required by a governmental rule or order to produce the original of
any document to which the right of access has been granted by this subsection,
SELLER will, to the best of its ability, make such document available to enable
PURCHASER to comply with said rule or order upon receiving proper assurance that
such document will be promptly returned to SELLER.
46
51
After Closing and until June 1, 2002, PURCHASER shall have the right,
upon request, for PURCHASER and PURCHASER's auditors to access such of SELLER's
accounting books and records relating to the PROPERTY as may be necessary to
enable PURCHASER to satisfy any filing or registration requirements of the
Securities and Exchange Commission. Any access by PURCHASER and PURCHASER's
auditors shall be limited to information covering three complete calendar years
prior to the calendar year in which the request for access is made and the
partial calendar year prior to the date on which the request for access is made.
SELLER shall use reasonable efforts to provide unaudited data for an additional
two prior calendar years as necessary to enable PURCHASER to satisfy any filing
or registration requirements of the Securities and Exchange Commission.
PURCHASER shall only have the right to access such information "AS IS" and
"WHERE IS". SELLER MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER AS TO THE
INFORMATION, INCLUDING WITHOUT LIMITATION, THE ACCURACY OR COMPLETENESS OF THE
INFORMATION TO BE ACCESSED BY PURCHASER AND PURCHASER'S AUDITORS. ANY RELIANCE
ON OR USES PURCHASER MAKES OF SUCH INFORMATION IS AT PURCHASER'S SOLE RISK, AND
SELLER SHALL HAVE NO LIABILITY FOR, AND PURCHASER HEREBY RELEASES SELLER FROM,
AND AGREES TO INDEMNIFY, DEFEND AND HOLD SELLER HARMLESS AGAINST, ANY CLAIMS,
LIABILITIES, OR DAMAGES OF ANY NATURE WHATSOEVER ARISING OUT OF SUCH ACCESS OR
PURCHASER'S USES OF SUCH INFORMATION. THE FOREGOING OBLIGATIONS OF RELEASE AND
INDEMNITY SHALL APPLY EVEN THOUGH SUCH CLAIMS, LIABILITIES OR DAMAGES MAY HAVE
BEEN CONTRIBUTED TO OR CAUSED BY THE NEGLIGENCE (OF ANY CHARACTER, WHETHER SOLE,
GROSS, JOINT, CONCURRENT, CONTRIBUTORY OR OTHERWISE) OR FAULT, OR THE STRICT OR
STATUTORY LIABILITY OF SELLER OR ANY SELLER INDEMNIFIED PARTY (AS DEFINED IN
SUBSECTION 22(a) OF THIS AGREEMENT). SELLER shall not make any representations
or warranties with respect to such information in connection with any uses of
such information by PURCHASER and PURCHASER shall not include SELLER's name in
any uses of such information, unless required by applicable law, rule or
regulation.
47
52
(p) Arbitration. Any controversy or Claim, whether based on contract, tort,
statute or other legal or equitable theory (including but not limited to any
claim of fraud, misrepresentation or fraudulent inducement or any question of
validity or effect of this AGREEMENT including this clause) arising out of or
related to this AGREEMENT (including any amendments or extensions and any
agreements attached as Exhibits hereto), or the breach or termination thereof
shall be settled by arbitration in accordance with the then current CPR
Institute for Dispute Resolution Rules for Non-administered Arbitration of
Business Disputes, and this provision. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Sections 1-16 to the exclusion of any
provision of state law inconsistent therewith or which would produce a different
result, and judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction.
The arbitration shall be held in Houston, Texas, or at some other
location as mutually agreed upon by the Parties.
There shall be three arbitrators. SELLER and PURCHASER shall each
select an arbitrator, and those arbitrators shall select the third arbitrator.
To the extent the Parties' dispute(s) concern matters of (i) oil and gas law,
geology and/or petroleum engineering and/or (ii) environmental law and/or
environmental science, then each arbitrator must be trained and knowledgeable in
such matters.
The arbitrators shall determine the Claims of the Parties and render a
final award in accordance with the substantive law of the state of Texas,
excluding the conflicts provisions of such law. The arbitrators shall set forth
the reasons for the award in writing.
All statutes of limitations and defenses based upon passage of time
applicable to any Claim of a defending Party (including any counterclaim or
set-off) shall be tolled while the arbitration is pending.
The obligation to arbitrate any Claim shall extend to the successors,
assigns and Third Party beneficiaries of the Parties. The Parties shall use
their best efforts to cause the obligation to arbitrate any Claim to extend to
any officer, director, employee, shareholder, agent, trustee, affiliate, or
subsidiary. The terms hereof shall not limit any obligations of a Party to
defend, indemnify or hold harmless
48
53
another Party against court proceedings or other Claims, losses, damages or
expenses, as provided under section 22 herein.
The arbitrators shall order the Parties to promptly exchange copies of
all documents regarding the materials in dispute, potential facts, witness lists
and expert witness lists, and, if requested by a Party, to produce other
relevant documents, to answer up to ten (10) interrogatories (including
subparts), to respond to up to ten (10) requests for admissions (which shall be
deemed admitted if not denied) and to produce for deposition and, if requested,
at the hearing any or all listed witnesses, both fact and expert, within such
Party's control. Any additional discovery shall only occur by agreement of the
Parties or as ordered by the arbitrators upon a finding of good cause.
Each Party shall bear its own costs, expenses and attorney's fees;
provided that if court proceedings to stay litigation or compel arbitration are
necessary, the Party who unsuccessfully opposes such proceedings shall pay all
reasonable associated costs, expenses, and attorney's fees in connection with
such court proceeding.
In order to prevent irreparable harm, the arbitrators shall have the
power to grant temporary or permanent injunctive or other equitable relief.
Prior to the appointment of an arbitrator a party may, notwithstanding any other
provision of this AGREEMENT, seek temporary injunctive relief from any court of
competent jurisdiction; provided that the Party seeking such relief shall (if
arbitration has not already been commenced) simultaneously commence arbitration.
Such court ordered relief shall not continue more than ten (10) days after the
appointment of the arbitrators (or in any event for longer than sixty (60)
days). Except as required by law (and then only after prior notice to the other
Party), no Party shall disclose the facts of the underlying dispute or the
contents or result of the arbitration without the prior consent of all Parties.
If any part of this arbitration provision is held to be unenforceable,
it shall be severed and shall not affect either the duty to arbitrate or any
other part of this provision.
In the event of a lawsuit by a Third Party against one of the Parties,
that Party may implead the other Party or, if there is no impleader, the other
Party may intervene in the lawsuit.
49
54
Nothing in this AGREEMENT shall restrict a Party's right to introduce
all evidence and to make all arguments that a Party believes are appropriate in
representing its defenses against a Third Party's claim.
However, to the extent possible, the Parties shall arbitrate any
dispute between them arising out of a Third Party's lawsuit. Such arbitration
must be commenced between thirty (30) and sixty (60) days after the conclusion
of the Third Party's lawsuit.
All statutes of limitations and defenses based upon the passage of
time, including any such defense based upon the terms of this arbitration
clause, shall be tolled while the Third Party's lawsuit is pending and for sixty
(60) days thereafter.
(q) WAIVER OF CONSUMER RIGHTS (DTPA WAIVER). PURCHASER HEREBY WAIVES, TO
THE EXTENT (IF ANY) APPLICABLE, THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF PURCHASER'S OWN SELECTION, PURCHASER
VOLUNTARILY CONSENTS TO THIS WAIVER.
PURCHASER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE
ESSENTIAL ELEMENTS OF THE BARGAIN WITH SELLER AND THAT, BUT FOR THEM, SELLER
WOULD NOT HAVE ENTERED INTO THIS AGREEMENT. PURCHASER HEREBY REPRESENTS AND
WARRANTS TO SELLER THAT PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION.
PURCHASER SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLER, THEIR
OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS FROM ALL CLAIMS, COSTS, LIABILITIES,
LOSSES AND EXPENSES ARISING OUT OF OR RELATING TO THE BREACH BY PURCHASER OF THE
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS SUBSECTION 29(q).
50
55
(r) SEVERAL OBLIGATIONS. THE OBLIGATIONS AND LIABILITIES OF EACH SELLER
HEREUNDER SHALL BE SEVERAL TO THE EXTENT OF ITS OWNERSHIP INTERESTS IN THE
PROPERTY, AND NOT JOINT OR COLLECTIVE.
EXECUTED by the Parties hereto as indicated below by the signatures of
their respective representatives; however, for identification purposes, this
AGREEMENT shall be deemed dated as of the date the last Party hereto signs this
AGREEMENT.
SHELL WESTERN E&P INC.
By: /s/
------------------------------------
Attorney-in-Fact
Date: 3/12/99
-----------------------------------
SHELL ONSHORE VENTURES INC.
By: /s/
------------------------------------
Attorney-in-Fact
Date: 3/12/99
-----------------------------------
ENCORE OPERATING, L.P.
By: EAP Operating Inc.
General Partner
By: /s/ J. XXX XXXXXXX
-------------------------------------
I. Xxx Xxxxxxx,
Chief Executive Officer
Date: 3/12/99
-----------------------------------
51
