SECOND RESTATEMENT OF AND AMENDMENT
TO
SALE AND PURCHASE AGREEMENT
THIS AGREEMENT has been made and entered into this 8th
day of September, 1995, by and among DEVON ENERGY CORPORATION
(NEVADA), NS GAS PROPERTIES, INC., DEVON ENERGY CORPORATION,
NORFOLK SOUTHERN CORPORATION and NORFOLK SOUTHERN PROPERTIES,
INC. with reference to the following circumstances:
A. The parties entered into a Sale and Purchase
Agreement (the "Sale Agreement") and a Restatement of and Amend-
ment to Sale and Purchase Agreement (the "First Restatement"),
each effective January 1, 1995 (together the "Agreement"). Words
defined in the Agreement shall have the same meaning herein.
B. The transactions provided for under the Sale
Agreement have closed and Buyer is currently the owner of the
Interests. The Purchase Price for the Interests comprised three
components of consideration; namely, (i) a $10,827,145 cash
payment at Closing, (ii) contingent cash payments measured by any
nonconventional fuel income tax credits allowed under Section 29
of the Code with respect to production from the Interests, and
(iii) a Production Payment reserved by Seller.
C. Under the Sale Agreement, the provision concerning
the contingent cash payments measured by Section 29 tax credits
was incorporated into the provisions of the Production Payment
reserved by Seller in the Assignment (Exhibit C to the Agreement)
pursuant to which Seller conveyed the Interests to Buyer. The
parties believed that the credit payments were an economic
component of the value of the gas to be produced from the Inter-
ests and therefore were appropriately included as part of the
Assignment. Nevertheless, the parties intended that the Produc-
tion Payment and the contingent cash payments measured by tax
credits be independent, separate components of the Purchase Price
for the Interests as illustrated by Schedule 6.7(b) to the
Agreement. In order to make this intention clear, the parties
agreed, in the First Restatement, to move the provisions for
contingent cash payments from the Assignment to the Agreement.
In the First Restatement, the parties also agreed to amend the
Management and Agency Agreement in certain respects. For purpos-
es of clarity and continuity, the parties restate herein the
provisions of the First Restatement as amended by the terms
hereof.
D. The parties have agreed to further amend the
provisions of the Agreement, the Assignment, the Management and
Agency Agreement and the Mortgage.
ACCORDINGLY, in order to accomplish the foregoing, the
parties hereby restate and amend the Agreement as of the Effec-
tive Time as follows:
1. Interests Defined. Section 1.2(a) of the Sale
Agreement is stricken in its entirety and the following substi-
tuted therefor:
"(a) The oil, gas and mineral leases and the
operating rights, mineral interests, royalty
interests, overriding royalty interests, pay-
ments out of production and interests in or
under unit agreements described in Exhibit A,
INSOFAR AND ONLY INSOFAR AS THE SAME COVER
AND RELATE TO (i) the lands and depths also
described in Exhibit A, and (ii) production
from the specific xxxxx listed in Exhibit A
(the "Leases");"
Further, the un-numbered paragraph next following Section 1.2(d)
of the Sale Agreement is stricken in its entirety and the follow-
ing substituted therefor:
"EXCEPTING and RESERVING unto Seller, howev-
er, the production payment (the "Production
Payment") and the possibility of reverter
(the "Reversionary Interest") described in
the Assignment, Conveyance and Xxxx of Sale
(the "Assignment") attached as Exhibit C
hereto, together with all interests in the
subject matter of the Assignment, to the
extent the same cover or relate to lands and
depths not described in Exhibit A, or to the
extent the same cover or relate to production
from any well not specifically listed in
Exhibit A."
2. Purchase Price. The first sentence of Section 1.4
of the Agreement is deleted in its entirety, and the following
substituted therefor:
"The purchase price for the Interests ("Pur-
chase Price") shall be the total of (a) the
sum of $10,827,145 (the "Closing Payment"),
plus (b) the sum of (i) all amounts payable
under the Production Payment, which is esti-
mated to have a present value of $89,970,095,
and (ii) the Credit Obligation (defined be-
low), which is estimated to have a present
value of $ 66,017,978."
3. Credit Obligation. There is added the following
new section:
"1.5 Credit Obligation. Buyer's obligation
under this Section 1.5 is herein referred to
as the 'Credit Obligation.'
"(a) Buyer shall pay to Seller Seventy-
Five Percent (75%)of all nonconventional fuel
income tax credits under Section 29 of the
Code allowed with respect to all production
from the Interests from and after the Effec-
tive Date, save and except that production
from the Northeast Xxxxxx Unit No. 479R Well.
"(b) Amounts due under this Section 1.5
shall be determined as follows: not less
than ten (10) days prior to March 31, June
30, September 30 and December 31 of each year
("Payment Dates"), Buyer shall make and pro-
vide to Seller a written estimate of the
total amount of such tax credits attributable
to gas expected to be produced from the In-
terests during the preceding three month
period, beginning initially at the Effective
Date, then thereafter beginning the day after
the applicable one of the Payment Dates.
"(c) Buyer shall, on or before the Pay-
ment Dates, pay to Seller the amounts so
estimated, by wire transfer as directed by
Seller.
"(d) The amount due for any calendar
year will initially be based upon the preced-
ing year's Section 29 credit amount; but
estimated amounts shall be adjusted when
actual production becomes known and the In-
ternal Revenue Service issues the Inflation
Adjustment Factor for the applicable calendar
year (the "Adjustment Date"). Each adjust-
ment to estimated amounts shall be implement-
ed by either Buyer paying the appropriate
additional amount to Seller or Seller refund-
ing the appropriate amount to Buyer, within
ten (10) days after the first date such ad-
justment is capable of being made.
"(e) The present value of the Credit
Obligation is estimated by the parties to be
$66,017,978 (the "Principal Balance"). The
unpaid amount of the Principal Balance shall
bear interest from the Effective Date at a
rate equal to One Hundred Twenty Percent
(120%) of the national Prime Rate of interest
as quoted from day to day in The Wall Street
Journal, compounded monthly. For such pur-
poses, any credit payment received hereunder
shall be applied first to the payment of any
accrued unpaid interest and then to reduction
of the unpaid amount of the Principal Bal-
ance.
"(f) In the event Section 29 tax credits
are repealed for any period, such repeal
shall not affect any amount due hereunder for
production during any calendar year preceding
the calendar year in which such action is
taken; provided, however, a repeal of the
Section 29 tax credits before the Adjustment
Date of a particular calendar year shall
affect all amounts payable hereunder attrib-
utable to production after the later of the
effective date of such repeal or January 1 of
the calendar year preceding the Adjustment
Date; and in such event, all affected amounts
shall be immediately refunded by Seller to
Buyer."
4. Determination of Purchase Price. Section 6.5(b)
(3) is stricken and the following substituted therefor:
"(3) Determination of Purchase Price. The
purchase price under the option shall be
determined with reference to the gas reserve
quantities, adjusted out of first production
to the extent possible for existing gas im-
balances, if any, attributable to the Option
Interests in the Annual Reserve Report (the
"Applicable Report") that is required to be
prepared and furnished to the parties for the
December 31 preceding the date of the Repur-
chase Notice. The fair market value of the
Option Interests, or the applicable part
thereof, as of the date of the Applicable
Report, shall be calculated by using the same
cash flow and discounting procedures as were
used in preparing the Initial Report; howev-
er, the calculation for the Applicable Report
shall use (i) the weighted average price
received for the sale of gas from the Inter-
ests or the applicable part thereof during
the 12-month period ending on the date of the
Applicable Report, (ii) the severance and ad
valorem tax rates in effect on the date of
the Applicable Report, (iii) current operat-
ing expenses, including the "Administration
Fee" payable under the terms of the Manage-
ment and Agency Agreement, (iv) Seller's
reasonable estimate of future capital expen-
ditures and (v) a discount rate equal to 120%
of the national Prime Rate as quoted in The
Wall Street Journal on the effective date of
the Applicable Report. Seller's purchase
price, which shall be paid in cash, for the
Option Interests, or the application portion
thereof, shall be the calculated fair market
value thereof as of the date of the Applica-
ble Report (the "Effective Date Amount"),
reduced by an amount equal to Seller's obli-
gation under Section 6.5(b)(5), if any, but
not exceeding the Effective Date Amount and
adjusted for operations from that date to the
Option Closing Date as follows:
(a) The Effective Date Amount, as so reduced,
shall be further reduced by the amount of any cash received by
Buyer as revenue for production or proceeds resulting from
casualty losses, the sale of surplus equipment and similar events
occurring between the effective date of the Applicable Report and
the Option Closing Date; and
(b) The Effective Date Amount, as so reduced,
shall be increased by any expenses and capital costs paid by
Buyer for maintaining and operating the Interests from the
effective date of the Applicable Report to the Option Closing
Date, including but not limited to normal operating expenses and
ad valorem and severance taxes;"
5. Certain Federal Income Tax Matters. Section
6.6(b) is deleted in its entirety, and the following substituted
therefor:
"(b) Buyer and Seller agree that the issue
price of the Production Payment and the Cred-
it Obligation is determined under Section
1274(b)(3) of the Code and Treasury Regula-
tion Sec. 1.1274-2(b)(3) to be equal to the
excess of the agreed upon market value of the
Interests which is $166,815,218) over the
amount of the Closing Payment (which is $10, 827,145),
or $155,988,073, of which $89,970,095
is attributed to the Production Payment
and $66,017,978 is allocated to the Credit
Obligation, as determined by Schedule 6.6(b)
attached hereto."
6. Annual Engineering Report. There is added the
following new section:
"6.7 Annual Engineering Report. Seller and
Buyer will each require an engineering report
evaluating the gas reserve quantities attrib-
utable to the Interests as of their fiscal
years ending December 31 (the "Annual Reserve
Report"), Seller for the purpose of reporting
the gas reserves attributable to the Produc-
tion Payment and the Reversionary Interest,
if any, in its SEC filings, and Buyer for
reporting cost depletion for income tax pur-
poses. Seller will cause XxXxxxx, Xxxxxxxx &
Associates, or any other independent, quali-
fied petroleum engineering firm acceptable to
Buyer, to prepare the Annual Reserve Report
and to furnish it to both parties as promptly
as possible after the end of each calendar
year. The expense of the Annual Reserve
Report shall be borne by Seller and Buyer
equally."
7. Assignment. Section 9.1 of the Sale Agreement is
stricken in its entirety and the following substituted therefor:
"9.1 Assignment. Seller and Buyer shall
execute, acknowledge and deliver such instru-
ment or instruments which may be necessary to
give effect to the provisions of Exhibit C,
and to vest title to the Interests in Buyer,
and to vest in Seller title to all rights,
titles and interests excepted and reserved
hereunder."
8. Production Payment Obligations. Section 12.15 is
stricken in its entirety and the following substituted therefor:
"12.15 Seller's Use of Facilities and Equip-
ment; Allocation of Costs and Expenses.
Buyer hereby grants, bargains, sells, conveys
and assigns unto Seller full, unrestricted
easements for, access to and concurrent use
of all facilities, equipment and other fix-
tures and personal property in which an in-
terest is either acquired hereunder or which
may be hereafter acquired by Buyer, including
without limitation those of the Interests
described in Section 1.2(c) hereof (except
the xxxxx listed in Exhibit A, while produc-
ing from the Fruitland Coal Formation), and
any extension, replacement or improvement
thereof (individually, a "Buyer Facility," or
together, "Buyer's Facilities"), without cost
to Seller except as hereinafter provided, for
Seller's use in connection with Seller's
production, transportation and marketing
operations relating to the interests of Sell-
er excepted and reserved hereunder. The cost
of acquiring and maintaining any separate
facility, equipment or operation necessary
for Seller's use of Buyer's Facilities shall
be borne solely by Seller. Each month, the
parties shall determine the volumes of gas
attributable to each party's interest which
are served by a particular Buyer Facility,
and the parties shall share routine operating
expenses attributable thereto (including
maintenance costs) proportionate with such
volumes. The capital cost hereafter incurred
by Buyer of any extension to or acquisition,
replacement or improvement of each of Buyer's
Facilities shall be borne by Buyer; however,
applicable costs for a particular Buyer Fa-
cility shall be amortized over the useful
life thereof and, for each month thereafter
in which Seller utilizes such Buyer Facility
for its own interests, Seller shall pay to
Buyer a portion of the amortized costs appli-
cable thereto for such month, determined by
utilizing the allocation method used for
operating expenses above."
9. Exhibit B. Exhibit B is amended by substituting
therefor The Restated Exhibit B attached hereto.
10. Exhibit C. The Assignment, Conveyance and Xxxx of
Sale attached as Exhibit C is amended as follows:
(a) The title of the document is amended to read
"Restated Assignment, Conveyance and Xxxx of Sale" throughout the
document.
(b) Paragraph (a) of the first WHEREAS clause of
the Assignment is amended to read the same as the quoted para-
graph (a) of paragraph 1 above; and the second WHEREAS clause of
the Assignment is amended to insert immediately before the word
"described" appearing in the fifth line of that clause "and the
possibility of reverter (the 'Reversionary Interest')"; the
reservation clause on page 2 of the Assignment is amended by
inserting "and the Reversionary Interest" immediately following
the words "Production Payment" appearing in the second line of
the reservation clause and the heading to Section 1 of the
Assignment is hereby changed to read "Reserved Production Payment
and Reversionary Interest."
(c) In Section 1(b) of the Assignment, the phrase
"167.608 billion cubic feet (Bcf)" is deleted, and the phrase
"143,397,632 Mcf" is substituted therefore, and the phrase
"Ninety Percent (90%)" is deleted and the phrase "Seventy-Seven
Percent (77%)" is substituted therefor. Section 1 of the Assign-
ment is amended to add a paragraph (c) thereto which shall read
as follows:
"(c) The Reversionary Interest excepted and
reserved unto Assignor hereunder shall be an
interest equal to an undivided 75% of the
Interests, which shall automatically revert
to Assignor at Reversionary Payout, as here-
inafter defined. 'Reversionary Payout' shall
mean 7 o'clock a.m., local time, on the day
after the day on which the cumulative amount
of 186,230,691 Mcfs of gas have been produced
from the Interests after the Effective Time.
Promptly following Reversionary Payout,
Assignee shall execute, acknowledge and de-
liver to Assignor an assignment in recordable
form evidencing Reversionary Payout and con-
firming the reversion of the Reversionary
Interest in Assignor. Assignee shall have no
right to pledge, encumber or otherwise burden
the Reversionary Interest and shall warrant
in such assignment that the Reversionary
Interest is free and clear of all liens,
burdens, encumbrances and defects arising by,
through or under Assignee, and shall defend
Assignor against all persons claiming or to
claim any interest in the Reversionary Inter-
est by, through or under Assignee."
(d) In each of Sections 2(b)(i), (ii), (iii),
(iv), (v) and (vi), and in Section 2(c) of the Assignment, the
phrase "Ninety Percent (90%)" is deleted, and the phrase "94.049353%"
substituted therefor. In Section 2(b)(i) the phrase "(the
"Production Payment Gas")" is deleted.
(e) Section 2(b)(vii) is deleted in its entirety.
(f) Section 2(b)(viii) is renumbered as Section
2(b)(vii).
(g) The fourth from the last sentence of Section
4 is deleted in its entirety.
(h) There is added the following to the end of
Section 2(c)(i) of the Assignment:
"provided, however, expenditures
for capital projects not anticipat-
ed in the Initial Report shall
never be charged to the Production
Payment Account."
(i) The $153,463,018 amount set forth in the
third from the last sentence of Section 4 is deleted, and $89,970,095
substituted therefor.
(j) Section 4 is amended by adding at
the end thereof the following:
"The Production Payment shall be payable
solely from production from the gas pro-
duced from or attributable to the Inter-
ests and the proceeds thereof. Accord-
ingly, the amount of any balance in the
Production Payment Account at the end of
a calendar month which cannot be paid
out of the proceeds of production shall
be carried over; however, such balance
shall only be payable from the gas pro-
duced from or attributable to the Inter-
ests and the proceeds thereof, if any."
(k) The Assignment is amended to provide for a
new paragraph 12 that reads, "Any interest created or to be
received by either party thereunder, that has not vested or has
failed to vest in such party within twenty-one years less one day
after the death of the last surviving descendant of Xxxxxx X.
Xxxxxxx (father of past President Xxxx X. Xxxxxxx) living at the
execution hereof, shall terminate."
(l) The Assignment is amended to provide for a
new paragraph 13 that reads the same as the quoted Section 12.15
set forth in paragraph 8 hereof but substituting "Assignor" for
"Seller" and "Assignee" for "Buyer" and substituting "paragraph c
of the first WHEREAS clause" for "Section 1.2(c)."
11. Exhibit D. The Management and Agency Agreement
attached as Exhibit D is amended as follows:
(a) The title of the document is amended to read
"Restated Management and Agency Agreement," throughout the
document.
(b) The second "WHEREAS" Clause is deleted in its
entirety.
(c) The third "WHEREAS" Clause is deleted in its
entirety, and the following substituted therefor:
"WHEREAS, the parties have agreed that the
Company will assist Owner in its administra-
tion of the Interests and its fulfillment of
obligations under the Purchase Agreement and
the Assignment (collectively, the 'Operative
Documents')."
(d) The following phrase is added to the end of
Section 2(a):
"provided, however, that without the specific
written authorization by Owner, the Company
may not obligate Owner for any expenditure
attributable to any one project in excess of
$90,000;"
(e) Sections 2(b), 2(d) and 2(f) are deleted in
their entirety.
(f) The remaining subsections of Section 2, as
amended, are appropriately relettered.
(g) The word "and" is inserted between the words
"allocable" and "paid" in the eleventh line of Section 4(b)(i).
(h) Section 5 is amended by deleting the phrases
"Ninety Percent (90%)" and "Ten Percent (10%)" and substituting
therefor the phrases "94.049353%" and "5.950647," respectively,
and by deleting the phrase "retained or" in the last sentence
thereof.
(i) Section 6 is deleted in its entirety, and the
following substituted therefor:
"6. Term and Termination. Without affecting
the obligations of the parties which accrue
during the term hereof (which shall continue
in effect whether or not this Agreement is
subsequently terminated), this Agreement may
be terminated (a) by Owner, at any time upon
30 days prior written notice, and (b) by the
Company, (i) at any time upon 30 days prior
written notice, if either of the Operative
Documents is terminated or cancelled, (ii) at
any time, if Owner shall fail to pay any
amount due and owing to the Company hereunder
or under either of the Operative Documents,
or (iii) on or after the Production Payment
Termination Date."
(j) Section 8 is amended by adding the phrase ",
but not to exceed the sum of $90,000 during any calendar quarter"
to the end of the third from the last sentence thereof, and by
deleting the last two sentences thereof in their entirety and
substituting the following in their stead:
"Advances may be recovered by the Company as
a first payment when the Operating Account
has a credit or positive balance; however, on
March 31, June 30, September 30 and December
31 of each year, Owner shall repay to the
Company all Advances not so recovered during
the preceding calendar quarter, together with
interest on the average daily balance of the
unrecovered advances during such calendar
quarter at the national Prime Rate of inter-
est quoted day to day in The Wall Street
Journal for such calendar quarter."
(k) Section 10 is stricken in its entirety.
(l) Section 11 is stricken in its entirety, and
the following substituted therefor:
"10. Distribution of revenues. All previous-
ly undistributed revenues in the possession
of the Company, which are attributable to
Owner's interest in the Properties shall be
distributed by the Company to Owner on or
before March 31, June 30, September 30 and
December 31 of each year, to the extent re-
ceived by the Company thirty (30) days or
more prior to the date of distribution."
(m) The remaining sections are appropriately
renumbered.
12. Exhibit F. The Mortgage is amended by striking
Section 4.2 thereof in its entirety.
13. Schedule 6.7(b). Schedule 6.7(b) is amended by
redesignating such schedule as Restated Schedule 6.6(b) and by
substituting therefor the Restated Schedule 6.6(b) attached
hereto.
14. General. Wherever in any Exhibit or Schedule
reference is made to the Agreement, the same is amended to read
"the Agreement, as herein restated and amended."
15. Legal Effect. The changes effected by this
amendment are effective as of the Effective Time and with the
same force and effect as if they had been included in the Agree-
ment from inception. All other provisions of the Agreement shall
remain in effect as previously written.
Executed as of the day and year first above written.
DEVON ENERGY CORPORATION (NEVADA)
By:
Xxxxxxx X. Xxxxxx
Vice President
DEVON ENERGY CORPORATION
By:
Xxxxxxx X. Xxxxxx
Vice President
NORFOLK SOUTHERN CORPORATION
By:
Xxxxx X. Xxxxx
Vice President
NS GAS PROPERTIES, INC.
By:
Xxxxx X. Xxxxx
Vice President
NORFOLK SOUTHERN PROPERTIES, INC.
By:
Xxxxx X. Xxxxx
Vice President
