EXHIBIT 10.46
AGREEMENT FOR EXERCISE OF OPTIONS;
ASSIGNMENT OF OIL AND GAS INTERESTS AND
GRANT OF PRODUCTION PAYMENT
THIS AGREEMENT FOR EXERCISE OF OPTIONS; ASSIGNMENT OF OIL AND GAS INTERESTS
AND GRANT OF PRODUCTION PAYMENT (this "Agreement") is entered into effective as
of April 1, 2001 (the "Option Effective Date") by and between HS RESOURCES,
INC., a Delaware corporation having offices at 0000 Xxxxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxxxxx 00000, for itself and as successor to Wattenberg Resources
Land, L.L.C. and to Orion Acquisition, Inc. ("HSR") and WATTENBERG GAS
INVESTMENTS, LLC, a Delaware limited liability company having offices at 00
Xxxxxxxxxx Xxxxxx, X00X, Xxxxxx, Xxxxxxxxxxxxx 00000 ("WGI").
Recitals
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A. HSR and WGI are parties to various Purchase and Sale Agreements dated
December 1, 1995 (HSR-I), April 25, 1996 (HSR-II), May 21, 1996 (HSR-III), June
14, 1996 (HSR-IV), June 14, 1996 (HSR-V), June 14, 1996 (HSR-VI), June 28, 1996
(HSR-VII), and December 30, 1997 (HSR-XI) (collectively, the "Purchase
Agreements"). Any defined term used in this Agreement but not defined herein
shall have the meaning given to such term in the Purchase Agreements.
B. Pursuant to the Purchase Agreements, WGI purchased certain oil and gas
interests in consideration for the following "Purchase Price" payments to HSR on
the date of the respective transaction, reduced by the payments noted for
partial exercises of the Options described below:
Transaction Purchase Price Partial Option Exercise Payments
----------- -------------- --------------------------------
HSR-I $1,300,000 $37,550 (6-30-98,Rosewood)
$ 182 (5-1-99, SWP)
$ 2,240 (0-0-00, XXX)
HSR-II $ 340,000
HSR-III $ 300,000
HSR-IV $ 110,000
HSR-V $1,110,000 $ 799 (5-1-99, SWP)
HSR-VI $ 230,000 $ 6,220 (9-1-99, POG)
HSR-VII $ 528,000
HSR-XI $ 112,000 $ 290 (9-1-99, POG)
C. Pursuant to the Purchase Agreements, HSR assigned the Subject Interests
to WGI and reserved a production payment of 100% of the Net Profits for a
specific volume of produced Subject Hydrocarbons (the "WGI Production Payments")
in the following documents entitled Wellbore Assignment of Oil and Gas Leases
with Reservation of Production Payment (collectively, the "Assignments"):
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Effective Date Transaction Recording Date Reception # - CO County
-------------- ----------- -------------- ------------------------
12-1-95 HSR-I 12-20-95 2468472 - Weld
12-20-95 132527 - Xxxxx
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
5-15-96 HSR-III 6-12-96 2495974 - Weld
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
6-1-96 HSR-V 7-15-96 2501070 - Weld
7-11-96 193108 - Xxxxx
7-12-96 1624550 - Boulder
6-1-96 HSR-VI 7-15-96 2501073 - Weld
7-11-96 193111 - Xxxxx
7-1-96 HSR-VII 7-24-96 2502578 - Weld
12-15-97 XXX-XX 0-0-00 0000000 - Xxxx
0-0-00 CO369787 - Xxxxx
Each Assignment sets forth the xxxxx and oil and gas leases covered by such
Assignment and such xxxxx are collectively referred to herein as the "Xxxxx" and
such oil and gas leases are collectively referred to herein as the "Leases".
D. Pursuant to the Purchase Agreements, WGI granted to HSR the option to
repurchase all of WGI's oil and gas interests in the various applicable Xxxxx
under the following documents entitled Option to Purchase Oil and Gas Interests
(collectively, the "Options"):
Effective Date Transaction Recording Date Reception # - CO County
-------------- ----------- -------------- ------------------------
12-1-95 HSR-I 12-20-95 2468473 - Weld
12-20-95 132528 - Xxxxx
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
5-15-96 HSR-III 6-12-96 2495975 - Weld
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
6-1-96 HSR-V 7-15-96 2501071 - Weld
7-11-96 193109 - Xxxxx
7-12-96 1624551- Boulder
6-1-96 HSR-VI 7-15-96 2501074 - Weld
7-11-96 193112 - Xxxxx
7-1-96 HSR-VII 7-24-96 2502579 - Weld
12-15-97 XXX-XX 0-0-00 0000000 - Xxxx
0-0-00 CO369788 - Xxxxx
E. Each of the Options set forth terms under which HSR can purchase the
respective oil and gas interests from WGI, including but not limited to the
method to determine the price to exercise the Option and the dates during which
the Option is effective.
F. Pursuant to the Purchase Agreements, WGI and HSR entered into various
Management Agreements for the operation of the Xxxxx, which are evidenced by
instruments entitled Memorandum of Management Agreement and Power of Attorney,
recorded as follows (the "Management Agreements"):
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Effective Date Transaction Recording Date Reception # - CO County
-------------- ----------- -------------- ------------------------
12-1-95 HSR-I 12-20-95 2468474 - Weld
12-20-95 132529 - Xxxxx
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
5-15-96 HSR-III 6-12-96 2495976 - Weld
0-0-00 XXX-XX 0-00-00 0000000 - Xxxx
6-1-96 HSR-V 7-15-96 2501072 - Weld
7-11-96 193110 - Xxxxx
7-12-96 1624552- Boulder
6-1-96 HSR-VI 7-15-96 2501075 - Weld
7-11-96 193113 - Xxxxx
7-1-96 HSR-VII 7-24-96 2502580 - Weld
12-15-97 XXX-XX 0-0-00 0000000 - Xxxx
0-0-00 CO369789 - Xxxxx
G. Pursuant to the Purchase Agreement for the HSR-XI transaction, a
Recourse Promissory Note dated December 30, 1997 was granted by WGI to HSR (the
"Recourse Note").
H. Pursuant to the Purchase Agreements, the members of WGI entered into two
separate Contribution Agreements to contribute funds to WGI to pay the amounts
to be paid by WGI under the Purchase Agreements and Assignments. FMR Corp.
guarantied the payment by its corporate affiliate members of amounts due
pursuant to their Contribution Agreement by that certain Guaranty Agreement -
FMR Corp. dated December 14, 1995 (the "FMR Guaranty"). State Street Boston
Corporation guarantied the payment by its corporate affiliate member of amounts
due pursuant to its Contribution Agreement by that certain Guaranty Agreement -
State Street Boston Corporation dated December 14, 0000 (xxx "Xxxxx Xxxxxx
Guaranty").
I. HSR desires to exercise all of the Options, terminate the WGI Production
Payments, terminate the FMR Guaranty, terminate the State Street Guaranty,
cancel the Recourse Note, and terminate the Management Agreements, all pursuant
to the terms and conditions set forth in this Agreement, and WGI desires to
convey all of its interests in the Xxxxx and Leases to HSR in accordance with
the terms and conditions of this Agreement, subject to the terms of the Option
Exercise Production Payment.
In consideration of the covenants and agreements set forth herein, the
parties hereto agree as follows:
Agreement
---------
I. Assignment
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In consideration of (i) the delivery from HSR to WGI of the Option Exercise
Price Payment (as defined below), (ii) the conveyance of and payments from HSR
to WGI under the Option Exercise Production Payment (as defined below), and
(iii) other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, WGI does hereby GRANT, BARGAIN, SELL, TRANSFER,
ASSIGN and CONVEY to HSR, its successors
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and assigns, as of the Option Effective Date all of the following interests
which WGI obtained in the Assignments (collectively, the "Interests"):
1. All of WGI's right, title and interest (including but not limited
to working interests, royalty interests and overriding royalty interests)
in and to the oil and gas leases and mineral interests described in Exhibit
"A," attached hereto and made a part hereof for all purposes, and the xxxxx
described in Exhibit "B," attached hereto and made a part hereof for all
purposes (the above described interest in such leases and mineral interests
being herein called the "Leases" and the above described interest in such
xxxxx being herein called the "Xxxxx"), subject to any restrictions,
exceptions, reservations, conditions, limitations, burdens, contracts,
agreements and other matters applicable to the Leases and the Xxxxx;
2. All of WGI's right, title and interest in and to, or derived from,
the following insofar and only insofar as same are attributable to the
Leases and the Xxxxx:
(a) All presently existing and valid oil, gas or mineral unitization,
pooling, operating and communitization agreements, declarations and orders
affecting the Leases and Xxxxx, with respect to the properties covered and
the units created thereby (the "Units");
(b) The personal property and fixtures that are appurtenant to the
Leases, the Xxxxx and the Units, including all xxxxx, casing, tubing,
pumps, separators, tanks, lines and other personal property and oil field
equipment on such Leases or Units;
(c) All presently existing and valid gas sales, purchase, gathering
and processing contracts and operating agreements, joint venture
agreements, partnership agreements, rights-of-way, easements, permits and
surface leases and other contracts, agreements, instruments, rights and
claims, only in relevant part to the extent and insofar as the same are
appurtenant to the Leases, Xxxxx and interests conveyed in the Units;
to have and to hold the Interests forever.
WGI and HSR confirm (i) that HSR has given notice to WGI which is sufficient to
satisfy the terms of the notice provisions under the Options, and (ii) that the
consideration delivered and received is in full satisfaction and discharge of
the Option Price with respect to the Interests and any and all payments required
under the Options for the Interests.
This assignment is made without representation or warranty of title to the
Interests except for matters arising by, through or under WGI, but not
otherwise.
II. Payment and Closing
-------------------
1. Penalty Payments. Paragraph 1.a. of each of the Options establishes
certain penalty payments to exercise the Options prior to January 1, 2003
(the "Penalty Payments"). Upon the execution of this Agreement and the
conclusion of the Closing
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contemplated hereunder, HSR shall have no further obligation to WGI for the
Penalty Payments.
2. Option Price. Paragraph 5 of each of the Options establishes the
Option Price to exercise the Option. The Option Price is the estimated
current fair market value of WGI's interest in the Interests (post-WGI
Production Payment tail net of the Reversion Interest) to be purchased. The
parties agree that the current fair market value of WGI's interest in the
Interests as of the Option Effective Date plus the Penalty Payments is
equal to the sum of the value of (i) the Option Exercise Production
Payment, and (ii) the Option Exercise Price Payment (as defined below).
3. Option Exercise Production Payment. HSR hereby grants to WGI a
production payment interest in and to the production of Subject
Hydrocarbons (including, but not limited to, any Subject Hydrocarbons
resulting from hydraulic fracture restimulation of the Xxxxx) from the
Leases, such that, commencing with the calendar quarter which includes the
Option Effective Date, HSR shall make payments to WGI within sixty (60)
days following the end of each calendar quarter in an amount equal to
$0.8385 of each dollar of tax credits available to HSR under Section 29 of
the Internal Revenue Code of 1986, as amended (the "Code") as a result of
the sale of Subject Hydrocarbons produced from the Xxxxx during such
calendar quarter (determined without regard to limitations on HSR's use of
the credits imposed by Section 29(b)(6) of the Code and without regard to
whether HSR has sufficient income to actually use such credits or in fact
actually utilizes such credits), through that calendar quarter which ends
on December 31, 2002 (the "Option Exercise Production Payment"). Payments
from HSR to WGI under the Option Exercise Production Payment shall be
limited to and made only from the proceeds of production from the Subject
Hydrocarbons. HSR shall have no obligation to make payments to WGI on any
tax credits which may be available to HSR after December 31, 2002, even if
the provisions of Section 29 of the Code are extended beyond December 31,
2002. Payments on the Option Exercise Production Payment shall be computed
and made by HSR to WGI in the same manner that WGI was required to make
payments to HSR under the Purchase Agreements. Any outstanding payment
under the Option Exercise Production Payment which is due and owing shall
bear interest at the rate of eighteen percent (18%) per annum, compounded
daily, from the date the payment is due until the date the payment is
received by WGI. The obligation to make payments on the Option Exercise
Production Payment shall survive the Closing of this Agreement and shall
continue until all of the payments due with respect to the production of
Subject Hydrocarbons from the Option Effective Date through and until
December 31, 2002 have been paid to and received by WGI. Upon receipt of
all payments due under the Option Exercise Production Payment, WGI shall
execute and deliver to HSR a recordable instrument evidencing satisfaction
and termination of the Option Exercise Production Payment.
4. Closing and Assignment. The closing of the purchase of the
Interests pursuant to the exercise of the Options shall occur at the
offices of HSR on April 3, 2001 (the "Closing"). Upon full execution and
delivery of this Agreement, HSR will deliver by wire transfer a payment to
WGI (the "Option Exercise Price Payment") in the amount of $7,100,562.00.
For the convenience of the parties hereto, this Agreement and all related
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documents may be signed and transmitted to Xxxxx Xxxxxx & Xxxxxx LLP prior
to April 3, 2001, but shall be held in escrow and deemed not delivered
until the Closing occurs on April 3, 2001.
III. Cancellation of Recourse Note
-----------------------------
HSR hereby cancels and terminates as of the Option Effective Date the
Recourse Note. HSR delivers herewith to WGI the original of the Recourse Note,
marked "CANCELED, PAID IN FULL," evidencing the full and complete satisfaction
of the obligations thereunder by WGI, and the waiver and release hereunder by
HSR of any unsatisfied obligations therein of WGI.
IV. Termination of WGI Production Payment Obligations
-------------------------------------------------
HSR hereby releases WGI of all liability with respect to the WGI Production
Payments due on the production of Subject Hydrocarbons occurring after the
Option Effective Date.
V. Termination of Guaranties
-------------------------
HSR hereby releases FMR Corp. of all liability for its obligations under
the FMR Guaranty, and HSR and WGI hereby terminate the FMR Guaranty as of the
Option Effective Date. HSR hereby releases State Street Boston Corporation and
its successors of all liability for its obligations under the State Street
Guaranty, and HSR and WGI hereby terminate the State Street Guaranty as of the
Option Effective Date.
VI. Termination of Management Agreements
------------------------------------
WGI and HSR hereby terminate the Management Agreements; provided, however,
that all obligations of HSR to maintain insurance which identifies WGI as an
additional insured shall continue through the Option Effective Date, and
provided further, that the obligation of HSR for indemnification of WGI under
the Management Agreements shall survive the termination of the Management
Agreements. HSR hereby waives any and all claims and causes of action it has or
may have against WGI under the Management Agreements and acknowledges that its
authority as Attorney-in-Fact of WGI with respect to the Interests under the
respective Management Agreements is hereby extinguished.
VII. Representations and Covenants.
-----------------------------
1. HSR hereby ratifies and confirms all of its representations and
warranties under each Purchase Agreement regarding the qualification of the
Subject Hydrocarbons for the tax credits available under Section 29 of the
Code. The rights of WGI under the Purchase Agreements shall survive the
Closing, and WGI shall be entitled to enforce all of the remedies under the
Purchase Agreements for any failure of any of the Subject Hydrocarbons to
satisfy any such qualification requirements.
2. Notwithstanding the termination of the Management Agreements, HSR
covenants that for all Subject Hydrocarbons produced during the period from
the Option Effective Date until December 31, 2002, HSR will provide WGI
with reports at the same time
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payments are made on the Option Exercise Production Payment, and such
reports shall be sufficient to support the computation of the payment and
the underlying tax credits available to HSR during such quarter. WGI shall
have the right to audit the books and records (including federal income tax
returns) of HSR with respect to the production and sales of Subject
Hydrocarbons from the Xxxxx and Leases and the tax credits associated
therewith from the effective date of the respective Purchase Agreement
until December 31, 2004.
3. Within sixty (60) days after the Option Effective Date, HSR and WGI
shall reconcile and set off the outstanding amounts due between them on any
and all (i) Prepaid Credit Amounts, (ii) Credit Payment Amounts which have
accrued and are due and owing based on sales of Subject Hydrocarbons
through March 31, 2001, and (iii) overpayments of Credit Payment Amounts
with respect to the Subject Hydrocarbons produced prior to the Option
Effective Date. The reconciliation of such amounts shall be documented by a
written statement signed by both parties, and the resulting net payment
after set off shall occur by wire transfer of immediately available funds
to the party to whom such net payment is due.
4. If at any time following the execution and delivery of this
Agreement but prior to July 1, 2002, HSR determines that it cannot utilize
the tax credits available under Section 29 of the Code with respect to the
sale of Subject Hydrocarbons, HSR and WGI covenant to enter into good faith
negotiations for a period of thirty (30) days following HSR's written
notification to WGI of such determination in an effort to monetize the
value of the tax credits available through December 31, 2002 on terms
substantially similar to those under the Purchase Agreements. Neither HSR
nor WGI shall be bound to enter into any such agreement.
5. HSR represents and warrants that the Interests are not subject to
any preferential right, consent to assignment, or similar limitation on
transfer, except to the extent previously disclosed by HSR to WGI pursuant
to the Purchase Agreements. HSR shall indemnify, defend, save and hold
harmless WGI and its affiliates, officers, directors, successors and
assigns from any claim or cause of action related to or arising from any
preferential right, consent to assignment or similar limitation on transfer
affecting this Agreement and HSR further waives any claim or cause of
action it might have against WGI in any way related to such preferential
right, consent to assignment, or similar limitation on transfer.
VIII. Miscellaneous.
-------------
1. The Credit Payment Amount overpayment provisions set forth in each
Purchase Agreement shall not be amended, waived or limited in any way by
the terms of this Agreement and the rights of WGI under the Purchase
Agreements shall survive the Closing.
2. The parties acknowledge and agree that the conditions precedent to
the Incentive Compensation Agreement dated December 29, 1998 between WGI
and HSR becoming
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effective were not satisfied and that neither party shall have any
obligations or liability thereunder.
3. The parties hereto agree to execute and deliver to each other all
such other and additional instruments, notices and documents and to do all
such other and further acts as may be necessary to more fully effect the
intent of the parties contemplated herein.
4. This Agreement sets forth the full and complete agreement of the
parties hereto with respect to the subject matter hereof, and this
Agreement may not be amended except by written document executed by both
HSR and WGI.
5. This Agreement is binding upon and shall inure to the benefit of
HSR and WGI and their respective successors and assigns; provided, however,
that the Option Exercise Production Payment shall remain as a burden
against the Leases until the production payment obligation is satisfied
thereunder.
6. This Agreement may be executed in multiple counterparts, with each
counterpart being an original, and all counterparts together constituting
the Agreement.
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Attest: HS RESOURCES, INC.
By: /s/ XXXXX X. XXXXXXX By: /s/ XXXXX X. XXXXX
---------------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxx Name: Xxxxx X. Xxxxx
Title: Secretary Title: Chief Financial Officer
WATTENBERG GAS INVESTMENTS, LLC
By its Manager,
Fontenelle, Inc.
By: /s/ XXXX X. XXXXXXXXXX
------------------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Attorney-in-Fact
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