PURCHASE AND SALE AGREEMENT
THIS
PURCHASE AND SALE AGREEMENT (“Agreement”), dated as of September 27, 2006 (the
“Execution Date”), is made and entered into between X. X. XXXXXX OIL & GAS
OPERATIONS, LTD., d/b/a X.X. Xxxxxx Oil & Gas Operations (“WBO”), and ST. JO
PIPELINE, LIMITED, both Texas Limited Partnerships and both located at X.X.
Xxx
0X, Xxx Xxxxxxx, XX 00000, herein collectively called “Seller”, and Ignis
Xxxxxxx Shale, LLC, a Texas limited liability company, 000 Xxxxxxxx Xxxxx,
0xx
Xxxxx,
Xxxxxx, XX 00000, herein called “Buyer”. Seller and Buyer are hereinafter
sometimes individually referred to as a “Party” hereto and together as “Parties”
hereto.
WHEREAS,
Seller owns and WBO operates certain oil and gas producing properties and a
related pipeline facility as more fully described herein; and
WHEREAS,
Buyer desires to purchase and Seller desires to sell, pursuant to the terms
hereof, an undivided interest in such properties and facility owned by Seller;
NOW,
THEREFORE, in consideration of the mutual agreements, covenants, promises,
and
payments for which provision is herein made, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged
by
the Parties hereto, Buyer and Seller hereby agree as follows:
ARTICLE
I
PURCHASE
AND SALE
1.1 PURCHASE
AND SALE.
Seller
agrees to sell and convey, and Buyer agrees to purchase, a forty-five percent
(45%) undivided interest in Seller’s interest in and to the Properties (as
defined in Paragraph 1.2), pursuant to the terms and conditions of this
Agreement.
1.2 PROPERTIES.
The
Properties which are the subject of this Agreement, and in which said forty-five
percent (45%) undivided interest is being herein conveyed, are comprised of
all
of the following (collectively, the “Properties”):
(a) LEASES,
XXXXX, UNITS, AND LANDS.
The
interests described on Exhibit “A”, attached hereto and made a part hereof by
this reference for all purposes, as to all depths and formations, in and to
(i)
the oil, gas and mineral leases listed on Exhibit “A” (collectively, the
“Leases” and any of which, singularly, a “Lease”); (ii) the units, whether
pooled, acreage spacing or proration units, or other allocations of acreage,
and
all rights associated therewith, which are applicable to the Leases and have
been established by, or in accordance with (A) applicable contractual provisions
regarding unitization, communitization, pooling, spacing or proration, or (B)
applicable state or federal law (collectively, the “Units”); and (iii) the oil
and/or gas xxxxx, salt water disposal xxxxx, and water xxxxx (collectively,
the
“Xxxxx”) located on either (A) the lands subject to the Leases or (B) the lands
included within the lateral bounds of any of the Units (all of such lands being
hereinafter called the “Lands”);
(b) PRODUCTION.
For each
of the Leases, the interest set forth on Exhibit “A” corresponding to such Lease
in and to all oil, gas, casinghead gas, condensate, distillate or other liquid
or gaseous hydrocarbons (collectively, the “Hydrocarbons”), and other minerals
which are in, under, upon, or produced from or allocable (or to be produced
from
or allocable) to that portion of the Lands attributable to such Lease (such
Hydrocarbons and other minerals being hereinafter referred to as “Production”),
including without limitation (i) Production constituting “line fill” and
inventory below the pipeline connection in tanks, attributable to such interest
described in Exhibit “A”, and (ii) the proceeds from the sale of such Production
referenced in item (i), immediately above;
(c) CONTRACTS.
All
farmout and farmin agreements, unitization or communitization agreements or
orders, pooling agreements (or applicable governmental regulations or orders),
unit declarations (or applicable governmental regulations or orders), division
orders, transfer orders, gas sales or purchase contracts, crude oil purchase
and
sale agreements, agreements for the transportation of Production, agreements
for
the exchange of Hydrocarbons or Production, operating agreements, licenses
and/or agreements to perform seismic testing, licenses to or agreements granting
rights to the use of seismic data or other intellectual property relating to
the
Leases, the Lands, or both, contract operating agreements, unit operating
agreements, participation agreements, processing agreements, options, or other
agreements and instruments, including all amendments thereto and any agreements
settling claims asserted thereunder) to the extent that the same relate,
appertain, belong or are incidental to the Leases, the Lands, or both
(collectively, the “Contracts”), including without limitation the Surface
Leases, Operating Agreements, Pooling Declarations, Gas Contracts, and
Miscellaneous Agreements (as those terms are defined in Exhibit
“A”);
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BUYER
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SELLER
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(d) FIXTURES,
EQUIPMENT, AND ASSOCIATED PERSONAL PROPERTY.
All
fixtures and equipment attached or appurtenant to the Leases, the Lands, and/or
the Xxxxx, including, but not limited to, any water source xxxxx, water xxxxx,
injection xxxxx, tanks, tank batteries, pipelines, gas plants, disposal
facilities, operating warehouses (including parts, supplies and other inventory
items), buildings, structures, roads, power lines, telephone lines, field
separators and liquid extractors, pumps, pumping units, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, appliances, cables,
wires, towers, casing, tubing and rods, and gathering lines, to the extent
that
the same are used in connection with the ownership or operation of the Leases,
the Xxxxx, or both (collectively, the “Equipment”);
(e) EASEMENTS.
All
lands, tenements, appurtenances, surface leases, easements, permits, licenses,
servitudes and rights-of-way in any way appertaining, belonging, affixed or
incidental to or used in connection with the ownership or operation of the
Leases, the Xxxxx, or both (collectively, the “Easements”), including without
limitation the Pipeline Easements and Roadway Easements (as those terms are
defined in Exhibit “A”);
(f)
FILES.
Copies
of all of the following (collectively, the “Files”): Seller’s lease files, land
files, well files, division order files, transfer order files, abstracts, title
opinions, curative, ownership reports, reports on divisions of interest,
accounting records and other similar documents and records which relate to
the
Leases, the Lands, the Xxxxx, the Units, the Production, the Hydrocarbons,
the
Contracts, the Equipment, the Easements, the Records (as that term is defined
below), and/or the Remaining Interests (as that term is defined below), Buyer
being entitled to inspect and review same during Buyer’s due diligence period as
described hereinbelow, and to make copies of any documents contained therein
as
may be requested by Buyer;
(g) RECORDS.
Copies
of all of the following (collectively, the “Records”): Seller’s geological,
geophysical or seismic prospect maps, electric logs, survey maps, geological
profiles, geological and geophysical interpretative data, production records,
accounting records, engineering data, logs, core data, pressure data, decline
curves and similar data, to the extent that the foregoing relate to the Leases,
the Lands, the Xxxxx, the Units, the Production, and/or the Hydrocarbons;
and
(h) REMAINING
INTERESTS.
Without
limiting the generality of the foregoing, the interest of Seller, whether now
owned or hereafter acquired by operation of law, in any of the above, even
though such interest may be incorrectly described in or omitted from Exhibit
“A”
(collectively, the “Remaining Interests”), including, but not limited to,
interests in or derived from all oil, gas and mineral leases and leaseholds,
fee
and mineral interests, overriding royalties and all other interests of
whatsoever character, insofar as the same cover or relate to the Lands, even
though said interests or Lands may be incorrectly described in or omitted from
Exhibit “A”.
The
term
“Properties” shall not include, and Seller shall retain, all liability for all
Litigation (as defined in Section 4.1[d]), if any, pending or threatened in
writing before any court or governmental agency as of the date of Closing (as
defined in Paragraph 7.1), to the extent it relates to the period of time prior
to the Effective Date (collectively, the “Retained Obligations”).
1.3 EFFECTIVE
DATE.
The
transfer of the Properties shall occur at Closing (as defined in Paragraph
7.1),
effective as of 7:00 a.m. local Texas time, on June 1, 2006 (“Effective
Date”).
1.4 ALLOCATION
OF REVENUES AND EXPENSES:
(a) ALLOCATION
OF REVENUES AND EXPENSES PRIOR TO EFFECTIVE DATE.
Seller
shall receive all proceeds from the sale of Production physically produced
prior
to the Effective Date, and Seller shall be entitled to receive all other
revenues and benefits attributable to the Properties accruing or relating to
all
periods before the Effective Date. Seller alone shall bear and be solely
responsible for all expenses incurred with respect to the Properties relating
to
periods before the Effective Date.
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BUYER
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SELLER
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(b) ALLOCATION
OF REVENUES AND EXPENSES AFTER EFFECTIVE DATE.
Subject
to Paragraph 1.5 (a), (b) and (c) hereof, the working interest share (net
revenue interest) of all proceeds from the sale of Production physically
produced after the Effective Date, and all other revenues and benefits
attributable to the Properties accruing or relating to all periods after the
Effective Date shall be owned and received by Seller and Buyer in the
proportions of Seller - fifty-five percent (55%) and Buyer - forty-five percent
(45%). Likewise, all expenses incurred with respect to the Properties relating
to all periods after the Effective Date shall be borne by Seller and Buyer
in
the same proportions.
(c) AD
VALOREM TAXES.
WBO, as
operator, shall be responsible for the payment of all ad
valorem
property
taxes on the personal property and/or reserves which comprise a portion of
the
Properties. Such taxes shall be allocated between Buyer and Seller, with Seller
being liable for all such taxes attributable to the period ending on the
Effective Date and Buyer being liable for all Buyer’s prorata
forty-five percent (45%) share of such taxes for the period beginning on the
Effective Date, Seller being liable for Seller’s prorata
fifty-five percent (55%) share of such taxes for the period beginning on the
Effective Date. Following payment of said taxes by WBO, Seller shall xxxx Buyer
for its said prorata
share
and Buyer shall promptly remit such payment to Seller. Ad
valorem
taxes
based upon Production shall be allocated on the basis of the time when such
Production physically occurred, without regard to the year in which such taxes
were assessed, Seller being liable for taxes on production occurring prior
to
the Effective Date and each Party being liable for its respective prorata
share
(Seller - 55%, Buyer - 45%) of taxes on production occurring beginning on the
Effective Date.
(d) SURVIVAL.
The
provisions of this Section 1.4 shall survive the Closing.
1.5 OPERATION
OF PROPERTIES AFTER EFFECTIVE DATE:
(a) LEASEHOLD
PROPERTIES ON WHICH SELLER OWNS LESS THAN 100%. Operations
on Properties
with existing Operating Agreements (being those as set forth on Exhibit “A”
attached hereto) and on Properties where Seller owns less than one hundred
percent (100%) working interest and Seller is contracted to enter into a certain
form of Operating Agreement, will continue to be governed by those agreements,
with the Exhibit “A’s” to such agreements revised to include Buyer’s working
interest, Buyer hereby taking such interests in the Properties subject to said
existing Operating Agreements.
(b) LEASEHOLD
PROPERTIES ON WHICH SELLER OWNS 100%. Operations
on Properties where no Operating Agreement currently exists and Seller owns
one
hundred percent (100%) working interest, and on all new leasehold, if any,
acquired jointly by Seller and Buyer will be governed by the form of Operating
Agreement attached hereto as Exhibit “B”, a recordable Notice of which is
attached hereto as Exhibit “B-1”, both exhibits being incorporated herein by
this reference for all purposes.
(c) PIPELINE
PROPERTIES.
Operations
of that portion of the Properties comprising the pipeline and pipeline-related
facilities will be governed by the Joint Ownership Agreement (with the Contract
Operating Agreement attached thereto) attached hereto as Exhibit “C” and made a
part hereof by this reference for all purposes, Buyer hereby taking such
interests in the pipeline and pipeline-related facilities subject to said Joint
Ownership Agreement and Contract Operating Agreement.
ARTICLE
II
PURCHASE
PRICE
2.1 PURCHASE
PRICE AND XXXXXXX MONEY.
(a) XXXXXXX
MONEY.
Contemporaneously with Buyer’s execution and delivery of this Agreement to
Seller, but in no event later than 5:00 PM, September 28, 2006, Buyer shall
deposit with Seller, by wire transfer to Seller’s account (being account number
010181838 in the name of X. X. Xxxxxx Oil and Gas Operations at Frost National
Bank of San Antonio, bank routing number 000000000) the sum of Fifty Thousand
($50,000.00) Dollars in funds immediately available to Seller before the close
of business on September 28, 2006 (the “Xxxxxxx Money”). The Xxxxxxx Money will
be applied to the Purchase Price, as defined in Paragraph 2.1 (b) hereinbelow
if
this transaction is closed as herein provided, and will otherwise be subject
to
the provisions of Section 7.1 and 7.4, below. Seller shall retain, disburse,
apply, or otherwise deal with the Xxxxxxx Money as provided in this
Agreement.
(b) PURCHASE
PRICE.
The
purchase price for said forty-five percent (45%) interest in the Properties
(“Purchase Price”) shall be the sum of Seventeen Million Six Hundred Thousand
($17,600,000.00) Dollars, to be paid by Buyer to Seller at Closing, in
immediately available funds or in another manner acceptable to Seller, subject
to adjustment at Closing as provided in this Paragraph 2.1, plus
the sum
of Eight Hundred Fifty Thousand ($850,000.00) Dollars, payable in thirty-six
(36) monthly installments of Twenty Three Thousand Six Hundred Eleven
($23,611.00) Dollars each, beginning November 1, 2006, which shall be evidenced
by, and further detailed in the Promissory Note attached hereto as Exhibit
“D”
and made a part hereof by this reference for all purposes, plus
the
commitment to fund additional lease acquisitions in the Area Of Mutual Interest,
described in Exhibit “B”, (“AMI”) up to a total of Five Million ($5,000,000.00)
Dollars, to be spent on behalf of both Seller’s and Buyer’s respective working
interests hereunder, for a period of two (2) years, all as further defined,
detailed and set forth in the Operating Agreement attached hereto as Exhibit
“B”, under Article XVI.Q.
(c) The
Seventeen Million Six Hundred Thousand ($17,600,000.00) Dollars to be paid
to
Seller at Closing shall be reduced by the amount of:
(i)
Forty-five
percent (45%) of the revenue received by Seller from the Effective Date to
the
date of Closing (as
defined in Paragraph 7.1) and
attributable to (a) the sale of Production attributable to Seller’s working
interest and (b) fees collected by Seller for gas gathering, treating and
transportation during such period;
(ii) Forty-five
percent (45%) of the Allocated Value of any Defective Interest, as determined
pursuant to Article III;
(iii) any
reduction in value of the Properties resulting from the existence of any
casualty defect occurring prior to Closing.
(d) The
Seventeen Million Six Hundred Thousand ($17,600,000.00) Dollars to be paid
at
Closing shall be increased by the amount of:
(i)
Forty-five
percent (45%) of any capital expenditures which Seller has incurred and paid
from the Effective Date to the date of Closing (as defined in Paragraph 7.1)
with respect to the Properties, including, but not limited to, drilling,
completion, and equipping costs on well(s) spudded after the Effective Date
and
gathering system pipeline extensions or improvements. It is understood and
agreed that on any xxxxx spudded after the Effective Date to the date of Closing
(as defined in Paragraph 7.1), Buyer is considered a consenting party pursuant
to the terms of the governing Operating Agreement.
(ii) Forty-five
percent (45%) of any expenses Seller has incurred and paid from the Effective
Date to the date of Closing (as defined in Paragraph 7.1) with respect to the
Properties, including, but not limited to, lease and pipeline operating
expenses, pipeline right-of-way consideration, damage payments, regulatory
compliance expenses, rig mobilization costs, administrative expenses, overhead
expenses pursuant to applicable operation agreements, and all other costs or
fees.
(e) At
the
Closing, the Purchase Price shall be adjusted in accordance with Paragraph
2.1(c) and (d) above, based upon the best information and estimates then
available. A post-Closing accounting shall thereafter take place, in accordance
with the provisions of Paragraph 8.2, to arrive at a definite settlement of
any
discrepancies between the estimated and actual amounts of the items contained
in
Paragraph 2.1(c) and (d) above. All production of Hydrocarbons from the
Properties and all fees collected for gas gathering, treating and transportation
prior to the Effective Date, and all proceeds from the sale of such production,
shall be the property of Seller. All such production attributable to working
interests after the Effective Date, all proceeds from the sale thereof, and
all
fees collected for gas gathering, treating and transportation shall be the
property of, owned and received by Seller and Buyer in the proportions of Seller
- fifty-five percent (55%) and Buyer - forty-five percent (45%). Such allocation
of production shall be made based upon the most reliable measurement method
or
allocation calculation information available and mutually acceptable to the
Parties. Buyer shall pay Seller for 45% of the Hydrocarbons in inventory,
including “line fill” and inventory below pipeline connections in tanks, at the
Effective Date at Seller’s posted field price for Hydrocarbons of like grade and
gravity in the field at the Effective Date.
ARTICLE
III
INFORMATION
AND ACCESS
3.1 TITLE
INFORMATION
(a) RECORDS
TO BE PROVIDED. From
the
date of this Agreement until Closing, Buyer (and any person designated by Buyer)
shall have reasonable access to the following records relating to the
Properties:
(i)
all
title
opinions, title curative material, title reports, run sheets, title policies
and
abstracts of title in the possession of Seller;
(ii) all
Leases, water rights arrangements, conveyances of interests relating to the
Leases, unit declarations, division and transfer orders, mortgages, deeds of
trust, security agreements, chattel mortgages, financing statements and all
other instruments affecting title to or the operation or value of the Properties
in the possession of Seller;
(iii) all
rentals, royalties, shut-in gas royalty receipts and receipts with respect
to
other payments attributable to the Leases, or other documents or information
relating to or reflecting payment of the foregoing in the possession of
Seller;
(iv) records
reflecting assessment or payment of all ad
valorem,
property, production, severance, or other similar taxes and assessments against
the Properties based on or measured by the ownership of Property or the
production of Hydrocarbons or the receipt of proceeds therefrom in the
possession of Seller;
(v) all
lease
records and data sheets relating to the Leases and to bonuses and rentals
payable thereunder in the possession of Seller;
(vi) all
Contracts and all correspondence or other documents relating to the Properties
in the possession of Seller;
(vii)
all
instruments relating to the Easements in the possession of Seller;
(viii)
all
pleadings, briefs, motions and similar documents filed with any court,
arbitration panel, federal or state government agency, or other tribunal, and
all correspondence related thereto, in connection with any lawsuit, arbitration,
or administrative proceedings affecting either Seller or any of the Properties
in the possession of Seller;
(ix) all
ownership maps, plats, and surveys relating to the Properties in the possession
of Seller;
(x) all
seismic, geological and geophysical, engineering and reserve data in the
possession of Seller;
(xi) an
inventory of all personal property and fixtures included within the Properties
in the possession of Seller;
(xii) all
bonds
and other policies of insurance obtained by Seller relating to the operation
of
the Properties in the possession of Seller;
(xiii)
all
plans
for exploration and development, applications, inspection reports,
environmental impact statements, assessments and studies, permits, licenses,
orders, consents, notices, correspondence, and other statements and instruments
pertaining to environmental matters and requirements that have been filed with
or supplied to or by a local, state or federal body, authority or agency which
relate to the Properties in the possession of Seller; and
(xiv)
all
production records, and all other books, records, information, contracts and
documents (including but not limited to records relating to accounting and
engineering data) relating to the Properties in the possession of
Seller.
(b) OTHER
INFORMATION.
From
date of this Agreement until Closing, Seller shall provide Buyer (and any person
designated by Buyer) with reasonable access, at Buyer’s sole risk, cost and
expense, to the Properties, including but not limited to the Files, the Records,
the Lands, and the Xxxxx.
(c) ACCESS
TO INFORMATION.
Seller’s obligations under Paragraph 3.1 (a) and (b) shall be limited only to
such matters, data and information as are in Seller’s actual possession, or to
which Seller has reasonable access. Seller shall use all reasonable diligence
to
secure copies of any such information to which Seller has access or to which
it
is legally entitled except to the extent that it is prohibited from doing so
by
any agreement or contract to which it is a party; provided that Seller shall
use
all reasonable diligence to obtain the waiver of any such prohibition.
3.2 TITLE
DEFECTS.
Exhibit
“A” contains, among other information, a schedule of the Leases. The Leases are
organized according to the respective portions of the Lands covered thereby.
Each Lease is identified by a serial number. The first four digits in each
serial number are the same for each of the Leases (being “0506”), representing
the general area in Montague County and/or Xxxxx County in which the Lands
are
located. The following three digits represent a distinct parcel out of the
Lands
covered by the Lease. (Note that the first four digits and following three
digits are separated by a hyphen.) In those instances where a serial number
ends
with a capital letter, the capital letter designates a specific Lease in a
group
of Leases that cover a distinct parcel out of the Lands. By way of example,
Lease number 0506-005A is one of two Leases (the other being 0506-005B) which
purport to cover 640 acres of land out of the B.B.B.&C. X.X. Xx. Xxxxxx,
Xxxxxxxx Xx. 00, Xxxxxxxx Xxxxxx, Xxxxx. The digits “005” indicate the distinct
parcel comprised of that 640 acres. For the purposes of this Agreement, the
parcel out of the Lands represented by the three digits following the hyphen
in
each serial number shall be referred to herein generically as a “Parcel”;
provided, however, that with respect to Lease No. 0506-006A, the term “Parcel”
shall refer to each of the specified acreage amounts set forth in the Lease
Interest Table (as that term is defined below) in Exhibit “A”. When there is
only one Lease covering a Parcel, its serial number will not contain a capital
letter, thus indicating that it is the only Lease covering that identified
Parcel. Each group of Leases which covers lands out of the same distinct Parcel
is referred to herein as a “Group” of Leases; provided, however, that (i) when
only one Lease covers a distinct Parcel, it will still be referred to herein
as
a “Group” of the Leases, even though in that instance the “Group” is only
comprised of one Lease, and (ii) Lease Nos. 0506-006A and 0506-006B will each
constitute a separate and distinct “Group”. Following the Schedule of Leases on
Exhibit “A” is a table setting forth the “Net Revenue Interest” and “Working
Interest” covered by and/or attributable to each Group of Leases (the “Lease
Interest Table”)
(a) For
the
purpose of the Agreement, “Defensible Title” shall mean as to the Properties and
each of them, such title which
(i)
is
free
and clear (except for Permitted Encumbrances [as that term is defined below])
of
mortgages, liens, security interests, pledges, charges, encumbrances, claims,
limitations, irregularities, burdens or defects, and (A) is otherwise only
subject to contractually binding arrangements which are conventional and which
are customarily experienced in the oil and gas industry and (B) is not subject
to any matters which will result in a breach of any warranty or representation
made by Seller hereunder;
(ii) as
to
each Group of Leases, entitles Seller to receive (and, but for the transaction
contemplated by this Agreement, continue to receive) not less than the “Net
Revenue Interest” corresponding to such Group (as set forth in the Lease
Interest Table in Exhibit “A”) of all Hydrocarbons produced, saved, and marketed
from, and attributable to, the Parcel covered by such Group, after deducting
all
royalty, overriding royalty and other leasehold burdens;
(iii) as
to
each Group of Leases, obligates Seller to bear costs and expenses relating
to
the maintenance, development and operation of the Parcel covered by such Group
in an amount not greater than the “Working Interest” corresponding to such Group
(as set forth in the Lease Interest Table in Exhibit “A”);
(iv) is
free
of any default by Seller under a material provision of a lease, agreement or
other contract affecting the Properties; and
(v) does
not
represent rights or interests that are subject to being reduced by virtue of
the
exercise by a third party of a reversionary, back-in or similar
right.
(b) For
purposes of this Agreement, “Permitted Encumbrances” shall mean (i) any liens
encumbering the Properties which are required herein to be released by Seller
at
the time of the Closing and (ii) any valid and subsisting contracts for the
purchase of production from the Property;
(c) For
the
purposes of this Agreement, “Title Defect” shall mean any encumbrance,
encroachment, irregularity, defect in, or objection to Seller’s title to any of
the Properties (expressly excluding Permitted Encumbrances), that alone or
in
combination with other defects renders Seller’s title thereto less than
Defensible Title.
(d) “Defective
Interest” shall mean
(i)
that
portion of the Properties affected by a Title Defect;
(ii) that
portion of the Properties materially and adversely affected by Seller’s
noncompliance with the material laws, rules, regulations, ordinances or orders
of any governmental agency or authority having jurisdiction over any portion
of
the Properties;
(iii) that
portion of the Properties with respect to which any preferential right to
purchase is exercised unless Buyer elects to receive the consideration received
from the exercise of such preferential right to purchase;
(iv) that
portion of the Properties affected by any suit, action or other proceeding
before any court or government agency that would result in substantial loss
or
impairment of Seller’s title to any material portion of the Properties, or a
material portion of the value thereof; or
(v) that
portion of the Properties with respect to which Seller has the obligation under
a take-or-pay contract to deliver gas without receiving full payment at the
time
of delivery, or with respect to which Seller has produced more than its share
of
gas thereby creating an imbalance unless Buyer and Seller can agree to an
appropriate adjustment to the Purchase Price.
3.3 NOTICE
AND ALLOCATION OF VALUE REGARDING TITLE DEFECTS:
(a) NOTICE
OF TITLE DEFECT.
Buyer
shall give Seller notice of Defective Interests (a “Defect Notice”) not later
than ten days prior to the date of Closing (as defined in Paragraph 7.1). A
Defect Notice shall be in writing and shall include (i) a description of the
Defective Interest, (ii) a general explanation of the reason Buyer believes
such
portion of the Properties constitutes a Defective Interest, and (iii) the
allocation of that portion of the Purchase Price affected by the Defective
Interest (the “Allocated Value”) such allocation of value being proposed in
accordance with the provisions of Sections 3.3(b) and/or (c) hereinbelow, as
applicable. Buyer shall be deemed to have waived all Defective Interests of
which Seller has not been so given such Defect Notice. On or before the
expiration of five (5) days following Buyer’s delivery of a Defect Notice to
Seller, Seller shall give written counter-notice to Buyer that it (i) intends
to
cure the asserted Defective Interest, (ii) does not intend to cure the Defective
Interest, or (iii) disagrees that either the asserted Defective Interest exists
and/or that the Allocated Value for the Defective Interest set forth in the
Defect Notice is accurate. If Seller gives counter-notice of intent to cure
such
asserted Defective Interest, it shall have a period of thirty (30) days
following delivery of Buyer’s Defect Notice (the “Cure Period”) to cure such
asserted Defective Interest at its own expense; provided, however, that (i)
the
date of Closing (as defined in Paragraph 7.1) will not be extended as a result
of such procedure, or as a result of arbitration with respect to the Allocated
Value of the asserted Defective Interest (if applicable); and (ii) if Seller
is
unable to cure the asserted Defective Interest on or before the expiration
of
the Cure Period, the Allocated Value of the Defective Interest (as set forth
in
the Defect Notice or as determined via arbitration, as applicable) will be
handled in a post-closing adjustment in Buyer’s favor pursuant to Section 8.2
hereinbelow. If Seller gives counter-notice that is does not intend to cure
the
Defective Interest, the Purchase Price shall be adjusted pursuant to Section
2.1(c)(ii), above, by the Allocated Value of the Defective Interest as set
forth
in the Defect Notice. If Seller gives counter-notice that it either disagrees
there is a Defective Interest or disagrees with the Allocated Value set forth
in
the Defect Notice, then the existence and/or the Allocated Value thereof (and
hence the amount of the post-closing adjustment in Buyer’s favor pursuant to
Section 8.2, below, as a result of the Defective Interest ), as the case may
be,
will be determined by arbitration pursuant to Section 3.5, below without any
delay in Closing. The failure of Seller to deliver written counter-notice shall
be deemed to be (i) an admission of the existence of such Defective Interest
and
a waiver of its right to cure such Defective Interest (which waiver shall be
deemed to be an intent to not cure), and (ii) an admission that the Allocated
Value of the Defective Interest, and hence the amount by which the Purchase
Price will be reduced pursuant to Section 2.1(c)(ii) because of the Defective
Interest should Buyer elect to proceed, is the amount stated in Buyer’s Defect
Notice relating thereto.
(b) ALLOCATION
OF VALUE REGARDING TITLE DEFECTS RELATING TO LEASES, XXXXX, LANDS, AND
UNITS.
Each
Lease by its terms covers a specific number of gross acres; and each of the
Xxxxx has a number of acres allocated to such Well pursuant to proration rules
promulgated by the Texas Railroad Commission. Acreage so allocated to a Well
is
considered herein to be Proved Developed Producing acreage (“PDP”). All
remaining acreage is considered herein to be Proved Undeveloped acreage (“PUD”).
With respect to PUD, the Net Acreage (herein so called) in each separate tract
covered by a given Lease shall be equal to the product of (i) the amount of
gross acreage included within the separate tract, multiplied by (ii) the
undivided interest in the mineral fee estate in such tract covered by the Lease,
multiplied by (iii) Seller’s working interest in the Group of Leases of which
the Lease is a part as reflected on Exhibit “A”. With respect to PDP, the
Beneficial Acreage (herein so called) in each separate tract covered by a given
Lease that has been allocated to a Well pursuant to proration rules promulgated
by the Texas Railroad Commission shall be equal to the product of (i) the amount
of gross acreage included within such separate tract, multiplied by (ii) the
undivided interest in the mineral fee estate in such tract covered by the Lease,
multiplied by (iii) Seller’s net revenue interest in the Group of Leases of
which the Lease is a part as reflected on Exhibit “A”. Beneficial Acreage
attributable to a PDP is hereby assigned a value of Five Thousand Four Hundred
and Four ($5,404.00) Dollars per acre, and Net Acreage attributable to a PUD
is
hereby assigned a value of Five Thousand Five Hundred Seventy-Six ($5,576.00)
Dollars per acre. The Allocated Value of a Defective Interest, insofar as it
affects PUD, shall be determined by multiplying the Net Acreage affected by
such
Defective Interest by Five Thousand Five Hundred Seventy-Six ($5,576.00)
Dollars. The Allocated Value of a Defective Interest, insofar as it affects
PDP
shall be determined by multiplying the Beneficial Acreage affected by the
Defective Interest by Five Thousand Four Hundred and Four ($5,404.00) Dollars.
(c) ALLOCATION
OF VALUE REGARDING TITLE DEFECTS RELATING TO PROPERTIES OTHER THAN LEASES,
XXXXX, LANDS, AND UNITS. Notwithstanding
the above, Buyer shall propose the Allocated Value of a Defective Interest
in
the exercise of its reasonable business judgment whenever either (i) a Defective
Interest relates to Properties other than Leases, Xxxxx, Lands, or Units, or
(ii) in the exercise Buyer’s reasonable business judgment, the allocation
formula set forth in Section 3.3(b), above, either cannot be applied accurately
to the Defective Interest in question or results in an allocation of value
to
the Defective Interest which is unfair and/or inaccurate; provided, however,
that prior to proposing the Allocated Value pursuant to this Section 3.3(c)
and
if time permits, Buyer shall use its reasonable business efforts to consult
with
Seller about the Allocated Value to see if a consensus can be reached regarding
its amount.
3.4 REMEDIES
FOR TITLE DEFECTS.
Subject
to Buyer’s termination rights set forth in Section 3.6, below, with respect to
any Defective Interest, the Purchase Price shall be reduced in accordance with
Section 2.1(c)(ii) hereof by an amount equal to the Allocated Value thereof,
determined in accordance with Section 3.3, unless (i) prior to expiration by
the
Cure Period, the basis for treating such Properties as Defective Interests
has
been removed, or (ii) the existence of the Defective Interest and/or the
Allocated Value thereof is being determined by arbitration pursuant to Section
3.5 hereof,
in which case Buyer shall receive a post-closing adjustment pursuant to Section
8.2. If the parties disagree as to whether the basis of an asserted Defective
Interest has been eliminated, the matter shall be submitted to the arbitrator
pursuant to Section 3.5 hereof. In determining which portions of the Properties
are Defective Interests, it is the intent of the parties to include, when
possible, only that portion of the Properties affected by the
defect.
3.5 ARBITRATION
PROCEDURES.
If
any
matter is required to be arbitrated, such arbitration shall be conducted as
set
forth in this Section 3.5.
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(a) The
parties shall jointly select a mutually acceptable person as the sole arbitrator
under this Agreement. If the parties are unable to agree upon the designation
of
a person as arbitrator, then either Seller or Buyer, or both of such parties,
may in writing request the judge of the United States District Court for the
Western District of Texas senior in term of service to appoint a qualified
arbitrator.
(b) Any
arbitration hearing shall be held at a place in San Antonio, Texas, acceptable
to the arbitrator.
(c) The
arbitrator shall settle disputes regarding existence and value of Defective
Interests and Seller’s attempts to cure any Title Defect in accordance with the
Texas General Arbitration Act and the Rules of the American Arbitration
Association, to the extent such rules do not conflict with the terms of such
act
and the terms hereof. Such arbitrator shall hear all arbitration matters arising
hereunder. The decision of the arbitrator shall be binding upon the parties,
and
may be enforced in any court of competent jurisdiction. Seller and Buyer,
respectively, shall bear their own legal fees and other costs incurred in
presenting their respective cases. The charges and expenses of the arbitrator
shall be shared equally by Seller and Buyer.
(d) The
arbitration shall commence within ten days after the arbitrator is selected
as
set forth in Section 3.5(a), above. In fulfilling his duties hereunder, the
arbitrator shall be bound by the terms of this Agreement. In fulfilling any
of
his arbitration duties, the arbitrator may consider such other matters as in
the
opinion of the arbitrator are necessary or helpful to make a proper evaluation.
Additionally, the arbitrator may consult with and engage disinterested third
parties, including without limitation petroleum engineers, attorneys and
consultants, to advise the arbitrator.
(e) If
any
arbitrator selected hereunder (whether selected by Seller and Buyer or the
senior judge) should die, resign or be unable to perform his duties hereunder,
the parties or senior judge (or such judge’s successor selecting such
arbitrator) shall select a replacement arbitrator. The aforesaid procedure
shall
be followed from time to time as necessary.
3.6 TERMINATION
RIGHT.
If
Buyer determines in the exercise of its sole discretion that the Properties
are
unsuitable for its purposes for any reason, or for no reason at all, Buyer
may,
upon written notice to Seller delivered no later than four (4) business days
prior to the date of the Closing, cancel and terminate this Agreement, in which
event this Agreement shall be of no further force and effect, neither party
thereafter having any further claim, obligation, or rights hereunder, provided,
however that (i) Buyer shall still comply with the provisions of Section 10.3,
(ii) Buyer shall remain obligated under the terms of the Confidentiality
Agreement heretofore executed between the parties, and (iii) Seller shall retain
the Xxxxxxx Money as provided in Paragraph 7.4 hereinbelow.
3.7 XXXXX
AND XXXXX TITLE OPINIONS.
Prior
to Closing, Seller shall use its reasonable business efforts to obtain the
following (collectively, the “Pending Title Opinions”) from a licensed attorney
at law: (i) a drilling title opinion or opinions, addressed to both WBO and
Buyer, covering that portion of the Lands covered by the Group of Leases
designated on Exhibit “A” as Group 0506-011 (collectively, the “Xxxxx Title
Opinions”), and (ii) a drilling title opinion or opinions, addressed to both WBO
and Buyer, covering that portion of the Lands covered by the Group of Leases
designated on Exhibit “A” as Group 0506-013 (collectively, the “Xxxxx Title
Opinions”). Buyer agrees to pay Seller 45% of the cost of obtaining the Pending
Title Opinions. If Seller receives an invoice or invoices for the costs of
any
of the Pending Title Opinions prior to the date of Closing, the Purchase Price
shall be adjusted pursuant to Section 2.1(c); and Buyer shall pay its share
of
the cost of any of the Pending Title Opinions for which invoices have not been
received by Seller prior to Closing, pursuant to the provisions of the Model
Form Operating Agreement executed by Buyer and Seller in the form attached
hereto as Exhibit “B”, pursuant to Section 7.3(g), below.
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(a) Buyer
shall have the following review rights for any of the title opinions
constituting the Pending Title Opinions, and these rights may be exercised
by
Buyer from time to time upon its receipt of any of said Pending Title Opinions.
Upon Buyer’s receipt of any of the Pending Title Opinions, Buyer shall have ten
(10) business days to review the title opinion following Buyer’s actual receipt.
Buyer shall give Seller notice of any Defective Interest (any such notice being
referred to herein as a “Post-Closing Defect Notice”) on or before the
expiration of such ten-business-day period. A Post-Closing Defect Notice shall
contain the same information required for a Defect Notice, as discussed in
Section 3.3, above, including the Allocated Value determined in accordance
with
the provisions of Sections 3.3(b) and/or (c), above, as applicable. For each
of
the Pending Title Opinions received by Buyer, Buyer shall be deemed to have
waived all Defective Interests of which Seller has not been so given such
Post-Closing Defect Notice. On or before the expiration of five (5) days
following Buyer’s delivery of a Post-Closing Defect Notice to Seller, Seller
shall give written counter-notice to Buyer that it (i) intends to cure the
asserted Defective Interest, (ii) does not intend to cure the Defective
Interest, or (iii) disagrees that either the asserted Defective Interest exists
and/or that the Allocated Value for the Defective Interest set forth in the
Post-Closing Defect Notice is accurate. If Seller gives counter-notice of intent
to cure such asserted Defective Interest, it shall have a period of thirty
(30)
days following delivery of Buyer’s Post-Closing Defect Notice (the “Post-Closing
Cure Period”) to cure such asserted Defective Interest at its own expense (and
such expense shall not be charged to Buyer’s account in any operating agreement
to which Buyer is a party); provided, however, that, if Seller is unable to
cure
the asserted Defective Interest on or before the expiration of the Post-Closing
Cure Period, the Allocated Value of the Defective Interest (as set forth in
the
Post-Closing Defect Notice or as determined via arbitration, as applicable)
will
be handled in a post-closing adjustment in Buyer’s favor pursuant to Section 8.2
hereinbelow. If Seller gives counter-notice that it does not intend to cure
the
Defective Interest, the Allocated Value of the Defective Interest (as set forth
in the Post-Closing Defect Notice or as determined via arbitration, as
applicable) will be handled in a post-closing adjustment in Buyer’s favor
pursuant to Section 8.2 below. If Seller gives counter-notice that it either
disagrees there is a Defective Interest and/or disagrees with the Allocated
Value set forth in the Post-Closing Defect Notice, then the existence and/or
the
Allocated Value thereof, as the case may be, will be determined by arbitration
pursuant to Section 3.5, above. The failure of Seller to deliver counter-notice
shall be deemed to be (i) an admission of the existence of such Defective
Interest and a waiver of its right to cure such Defective Interest (which waiver
shall be deemed to be an intent to not cure), and (ii) an admission that the
Allocated Value of the Defective Interest is the amount stated in Buyer’s
Post-Closing Defect Notice relating thereto.
(b) The
provisions of this Section 3.7 shall survive the Closing.
3.8 DISCLOSURE
OF EXPENDITURES AND MATERIAL TRANSACTIONS.
Prior
to Closing, Seller shall deliver to Buyer (i) a list of all capital expenditures
and commitments to make capital expenditures in excess of Twenty-Five Thousand
($25,000.00) Dollars individually, or Seventy-Five Thousand ($75,000.00) Dollars
in the aggregate, net to Seller’s interest, with respect to the Properties,
which Seller has made since the Effective Date, and (ii) a list of all material
transactions, contracts, and commitments entered into by Seller with respect
to
the Properties since the Effective Date which are outside the ordinary course
of
business.
3.9 AFFILIATES
OF SELLER.
Buyer
acknowledges that Seller has disclosed to it that all or part of Seller’s
interest in the Properties is owned as nominee for one or more Xxxxxx family
related Affiliates of Seller. On or before the third (3rd) business day prior
to
the date of Closing, Seller shall provide to Buyer (i) documentation
establishing the nature of the relationship between Seller and each Xxxxxx
family related Affiliate which owns any beneficial or equitable interest in
the
Properties, and (ii) an instrument, in such form as Buyer shall approve (which
approval shall not be unreasonably withheld, delayed, or conditioned), in
recordable form, which (A) binds each Xxxxxx family related Affiliate which
owns
any beneficial or equitable interest in the Properties, and (B) acknowledges
that Seller has the right under this Agreement to bind such Affiliate’s interest
in the Properties, and convey such interest, in the sale to Buyer contemplated
by this Agreement and consummated at the Closing.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
4.1 SELLER’S
REPRESENTATIONS AND WARRANTIES.
Seller
represents and warrants to Buyer that:
(a) QUALIFICATION.
Seller
is a legally created business entity and is not subject to any legal incapacity
or limitation to enter into this Agreement and consummate the transactions
contemplated herein.
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(b) AUTHORITY.
Seller
has all requisite power and authority to own the Properties, to carry on its
business as presently conducted, to enter into this Agreement and to perform
its
obligations hereunder. The consummation of the transactions contemplated by
this
Agreement will not violate or conflict with (i) any agreement or instrument
(including but not limited to the Contracts) to which Seller is a party or
is
bound or to which any of the Properties is subject, or (ii) any judgment,
decree, order, statue, rule or regulation applicable to Seller or to any of
the
Properties. No consents of third parties, whether private, judicial, or
governmental, to the sale of any of the Properties are required under any
agreement or instrument (including but not limited to the Contracts) to which
Seller is a party or is bound or to which any of the Properties is subject,
nor
does any person have any call upon, option to purchase, preferential right
to
purchase, or similar rights with respect to the Properties or the
Production.
(c) EXECUTION
OF AGREEMENT AND CLOSING DOCUMENTS.
This
Agreement has been duly authorized, executed, and delivered on behalf of Seller,
and at the Closing all documents and instruments required hereunder to be
executed and delivered by Seller shall have been duly executed and delivered.
This Agreement does, and such documents and instruments shall, constitute legal,
valid and binding obligations of Seller in accordance with their terms, subject,
however, to (i) the effects of bankruptcy, insolvency, reorganization and
similar laws affecting creditors’ rights generally and (ii) general equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
(d) LITIGATION
AND UNDISCLOSED LIABILITIES.
No
demand, claim, suit, action, insolvency case or proceeding, or other proceeding
(collectively, “Litigation”) is pending or, to the best of Seller’s knowledge,
threatened before any court or governmental agency which might (i) result in
impairment or loss of Seller’s title to any part of the Properties or the value
thereof; (ii) hinder or impede the operation of the Properties; or (iii) hinder,
impede, or prevent Seller from being able to consummate the transactions
contemplated by this Agreement.
(e) TITLE
TO THE PROPERTIES.
Seller
has good and Defensible Title to the Properties, free and clear of all liens,
encumbrances and burdens, except for the Permitted Encumbrances.
(f)
LEASES.
The
Leases (i) are in full force and effect and shall continue for so long as
Hydrocarbons are produced from the Lands in commercial quantities, (ii) are
valid and subsisting, and (iii) cover the Lands and the entire estates which
they purport to cover as to all depths. All royalties and other amounts due
and
owing under the Leases (including, but not limited to, shut-in royalties, delay
rentals, and payments in respect of damages to the surface of the Lands) have
been timely paid in full. Seller has complied with the provisions of the Leases,
and there are no defaults thereunder, nor has Seller been advised by any person
of (A) an uncured default under the Lease or, (B) the termination of any lease
(whether because of cessation of production in commercial quantities or
otherwise). Production in commercial quantities is being obtained from all
of
the Hydrocarbon producing Xxxxx, and no Xxxxx have been plugged or
abandoned.
(g) VALIDITY
OF CONTRACTS.
The
Contracts and Easements are in full force and effect, are valid and subsisting
and cover the entire estates or rights that they purport to cover. Seller has
not been advised of a default under any Contract or Easement, and there are
no
joint interest audits being conducted, nor any disputes with any joint interest
owners in any of the Properties pursuant to the terms of any Contract.
(h) PREPAYMENTS
REGARDING PRODUCTION.
Seller
is not obligated, by virtue of a “take or pay” or other prepayment arrangement,
a gas balancing agreement, a gas balancing arrangement, or similar provision
in
any contract for the sale of Hydrocarbons, to deliver Hydrocarbons produced
from
the Properties at some future time without receiving full payment therefor.
Other than line fill, no natural gas included in the Production and physically
produced (but not sold) before the Effective Date is in storage and there are
no
gas imbalances
(i)
NO
OVERCHARGES.
To the
best of Seller’s knowledge and belief, Seller has not charged or received any
proceeds from the sale of Production in excess of the amounts permitted under
applicable laws, rules and regulations of the United States Government or any
state government, including, but not limited to, the rules and regulations
promulgated by the FERC, the Department of Energy (“DOE”) and all predecessor
agencies of the DOE. Seller has no actual or asserted liability, or, to the
best
knowledge of Seller, no potential liability, for the refund of any such amounts
or any interests or penalties thereon.
(j)
PAYMENT
OF TAXES.
Any and
all ad
valorem,
production, severance and similar taxes and assessments based on or measured
by
the ownership of real or personal property, reserves attributable to the
Properties, the production of Hydrocarbons, or the receipt of proceeds therefrom
for all years prior to the year in which this Agreement is executed have been
properly paid, and all such taxes and assessments which become due and payable
prior to the Closing shall be properly paid by Seller. There are no assessed
tax
deficiencies against Seller, the Properties or the Production and no audits
presently being conducted by any federal, state or local authority regarding
taxes allegedly due and owing by the Seller and affecting the Properties or
the
Production.
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(k) BROKERS’
FEES.
Seller
has incurred no liability, contingent or otherwise, for brokers’ or finders’
fees in respect of this transaction for which Buyer shall have any
responsibility whatsoever, and Seller hereby indemnifies and holds Buyer
harmless from and with respect to any such brokers’ or finders’ fees alleged to
have been incurred by Seller.
(l)
REVENUE
AND WORKING INTERESTS.
Each
Group of Leases entitles Seller, and shall entitle Buyer after its purchase,
to
receive not less than forty-five percent (45%) of the Net Revenue Interest,
set
forth for such Group of Leases in the Lease Interest Table on Exhibit “A”, of
all Hydrocarbons produced, saved, and marketed from, and attributable to, the
Parcel covered by such Group, and Seller is currently receiving from all
purchasers of Hydrocarbons produced, saved, and marketed from, and attributable
to, each currently producing Parcel represented in the Lease Interest Table,
no
less than the Net Revenue Interest set forth for the Group of Leases covering
such Parcel, without suspense or indemnity other than the normal division order
(i.e., a division order containing no information other than that allowed by
Section 91.402 of the Texas Natural Resources Code). Each such Net Revenue
Interest is not subject to reduction by virtue of (A) the exercise of any
reversionary, back-in, or other similar rights in favor of third persons, or
(B)
any change in payout status. For each Group of Leases, Seller’s obligation, and
Buyer’s obligation after its purchase, to bear costs and expenses relating to
the development of and operations on, the Leases, Lands and Xxxxx thereon is
not, and through the plugging, abandonment and salvage of such Xxxxx, shall
not,
be greater than the “Working Interest” set forth for such Group of Leases in the
Lease Interest Table in Exhibit “A”. As used in this Agreement, the term “Net
Revenue Interest” shall mean a share of the proceeds of the sale of
Hydrocarbons, expressed as a percentage or decimal fraction, from or allocable
to a Lease and the Lands described therein, or to a Unit, or to a Well, net
of
all landowner’s royalties, overriding royalties, production payments or other
burdens or other non-operating interests attributable thereto. As used in this
Agreement, the term “Working Interest” shall mean the ownership of an interest,
expressed as a percentage or decimal fraction, in a Lease and the Lands
described therein, or in a Unit, or in a Well, that correspondingly expresses
a
share of the costs of operations, development, or production to be borne by
the
owner of such interest. It is understood and agreed, with regard to the Working
Interests and Net Revenue Interests shown in the Schedule of Xxxxx, Working,
Interest, and Net Revenue Interest on Exhibit “A”, that those are the interests
established in the Xxxxx shown on Exhibit “A”, and that in future xxxxx drilled
on currently undeveloped Leases, those interests may vary slightly given the
leasehold involved in future development; however, the Net Revenue Interests
will be calculated based on the leasehold burdens of record existing as of
the
Effective Date.
(m) COMPLIANCE
WITH APPLICABLE LAWS.
To the
best of Seller’s knowledge, Seller has complied with all laws, regulations and
orders of all governmental agencies having jurisdiction over the Properties,
including, but not limited to, all state, federal and local environmental laws,
all applicable permitting procedures for the drilling or operation of oil and
gas xxxxx, and all applicable laws regarding the spacing, completion and
bottoming of xxxxx, the disposal of water therefrom, the prorating of production
therefrom, and all other conservation matters, and Seller will continue to
comply therewith from the date hereof through Closing. Without limiting the
generality of the foregoing, no Well is shut in, curtailed or otherwise subject
to penalties on allowables because of any overproduction which would prevent
the
full legal and regular allowable (including maximum permissible tolerance),
as
prescribed by any court or federal, state or local governmental body or agency,
to be assigned to any such Well.
(n) NO
LIABILITIES.
At the
Closing, Seller shall deliver to Buyer a schedule setting forth all costs and
expenses which Seller has incurred with respect to the Properties between the
Effective Date and the date of Closing (as defined in Paragraph 7.1), along
with
supporting data reasonably satisfactory to Buyer with respect to such costs
and
expenses. However, it is specifically understood and agreed that such schedule
shall not change Buyer’s and Seller’s rights under Paragraph 8.2 (settlement for
Interim Period revenues and liabilities).
(o) TRANSFER
OF PROPERTIES.
Seller
acknowledges that the transfer of the interest in the Properties contemplated
hereby is being made in the ordinary course of its business affairs and
according to ordinary business terms. Such transfer (i) has not been made with
intent to hinder, delay or defraud any entity to which Seller was or shall
be
indebted and (ii) has been made for reasonably equivalent value in exchange
for
the interest.
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(p) EASEMENTS.
The
Properties include all Easements and rights of ingress and egress and other
rights necessary for operations currently conducted on the Leases and for the
production, treating, storing, marketing or transportation of
Hydrocarbons.
(q) SUITABILITY
OF PERSONAL PROPERTY.
Except
as otherwise expressly provided herein, and with respect to the personal
property and equipment described herein which is located on or used in
connection with the Properties, Seller makes no representation, warranty or
covenant, express or implied. With respect to all such personal property and
equipment included in this transaction, any IMPLIED
WARRANTY OF MERCHANTABILITY or IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE ARE HEREBY EXPRESSLY NEGATED.
(r)
CONDEMNATION.
Neither
the whole nor any portion of the Properties has been condemned, requisitioned
or
otherwise taken by any public or private authority and, to the best of Seller’s
knowledge, no such condemnation, requisition or taking is threatened or
contemplated.
(s) INSURANCE.
Any
policies of fire, casualty, liability, burglary, fidelity, workers’ compensation
or other forms of insurance are in amounts adequate to insure the Properties,
all premiums due and payable for such insurance have been duly paid and such
policies or extensions or renewals thereof in such amounts shall be outstanding
and duly in force without interruption from the date of this Agreement to the
date of Closing (as defined in Paragraph 7.1) and thereafter.
(t)
NO
MATERIAL OMISSION.
Seller
has provided Buyer access to Seller’s files, and access to and an opportunity to
review complete and accurate copies of all Contracts and amendments thereto
affecting the Properties. Set forth on Exhibit “A” hereto is a list and
description, complete and accurate in all material respects, of the Lands,
Leases, Xxxxx, Easements and any other Contract materially affecting the
operation or value of each of the Properties, and all other information
contained in such exhibit is complete and accurate in all material respects.
Neither this Agreement, nor any exhibit hereto, nor any information, instrument
or document delivered, or to be delivered, to Buyer, or to be made available
for
its review, contains any untrue statement of a material fact required to be
stated therein, or omits any material fact necessary to make the statements
therein not misleading, at the time such statement was made. For the period
from
the date hereof until the date of Closing there shall not have been any material
adverse change in the condition, business or prospects, financial or otherwise,
of Seller, it being understood and agreed, however, that Seller will continue
to
drill xxxxx and develop the Properties as a prudent Operator, fulfilling the
intent of Buyer and Seller.
(u) NO
AFFILIATE OWNERSHIP.
Except
for affiliations between WBO, any Xxxxxx family related entity which is an
Affiliate (as defined below) of either or both of the parties constituting
Seller, and St. Jo Pipeline, Limited, no Affiliate of Seller and no officer,
director, shareholder, general partner or member of Seller or any of its
Affiliates owns any interest in (i) any of the Properties or (ii) in any of
the
Lands, Leases or Xxxxx described on Exhibit A. As used in this Agreement,
“Affiliate” shall mean, with respect to any party, any individual or entity
which directly or indirectly through one or more intermediaries Controls (as
defined below), is Controlled by or is under common Control with such party.
As
used in this Agreement, “Control” shall mean, with respect to any entity, an
individual or entity which beneficially owns or holds, directly or indirectly,
50% or more of any class of the voting stock or other equity interests of such
entity.
(v) ABSENCE
OF CERTAIN CHANGES OR EVENTS.
Since
the Effective Date the Properties have been operated in the ordinary course
of
business consistent with past practice and there has not been any
(i)
damage,
destruction or loss to any of the Properties in excess of $25,000, whether
or
not covered by insurance;
(ii) material
business interruption in the use or operation of any of the
Properties;
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(iii) disposition,
transfer or abandonment of any of the Properties having a value in excess of
$25,000, other than sales of Hydrocarbons from the Properties in the ordinary
course of business;
(iv) known
waiver or release of any rights of Seller under any of the
Contracts;
(v) material
change in any accounting practice or procedures relating to the
Properties;
(vi) material
change in maintenance practices with respect to any of the
Properties;
(vii)
material
change in purchasing or selling practices with respect to Hydrocarbons produced
from the Properties;
(viii)
mortgage,
pledge or lien or other encumbrance (other than Permitted Encumbrances) on
any
of the Properties;
(ix) material
payment or incurrence of any obligation or liability, absolute or contingent,
with respect to the Properties, other than current liabilities incurred in
the
ordinary course of business; or
(x)
agreement
or commitment of Seller to do any of the foregoing.
(w) XXXXX.
(i) All
of
the Xxxxx have been drilled and completed within the boundaries of the Leases
included in the Properties or within the limits otherwise permitted by the
Contracts, and by law.
(ii) All
drilling and completion of the Xxxxx and all development and operations of
the
Properties have been conducted in compliance, in all material respects, with
all
applicable laws, ordinances, rules, regulations and permits, and judgments,
orders and decrees of any governmental entity.
(iii) To
the
best of Seller’s knowledge and belief, no Well is subject to penalties on
allowable production because of any overproduction or any other violation of
applicable laws, rules, regulations or permits or judgments, orders or decrees
of any governmental entity that would prevent any Well from being entitled
to
its full legal and regular allowable production as prescribed by any
governmental entity.
(x) NO
FUNDS IN SUSPENSE.
All
proceeds from the sale of Hydrocarbons produced from the Properties are
currently being paid to Seller and no portion of such proceeds is currently
being held in suspense by any purchaser thereof or any other party by whom
proceeds are paid except for immaterial amounts.
4.2 BUYER’S
REPRESENTATIONS.
Buyer
represents and warrants to Seller that:
(a) CORPORATE
ORGANIZATION AND QUALIFICATION.
Ignis
Xxxxxxx Shale, LLC is a Texas limited liability company, duly organized, validly
existing and in good standing under the laws of the State of Texas.
(b) AUTHORITY.
Buyer
has all requisite power and authority to carry on its business as presently
conducted, to enter into this Agreement, to purchase an interest in the
Properties on the terms and conditions described in this Agreement and to
perform its other obligations under this Agreement. The consummation of the
transaction contemplated by this Agreement will not violate or conflict with
(i)
any provision of Buyer’s articles of incorporation, charter, bylaws, or other
governing documents, (ii) any loan agreement or any other document related
to
any borrowing or debt of Buyer, or any other agreement or instrument to which
Buyer is a party or is bound, or (iii) any judgment, decree, order, statue,
rule, requirement or regulation applicable to Buyer, including without
limitation any securities or SEC rule requirement or regulation.
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(c) EXECUTION
OF AGREEMENT.
This
Agreement has been duly authorized, executed and delivered on behalf of Buyer,
and at the Closing, all documents and instruments required hereunder to be
executed and delivered by Buyer shall have been duly executed and delivered.
This Agreement does, and such documents and instruments will, constitute legal,
valid and binding obligations of Buyer in accordance with their terms, subject,
however, to (i) the effects of bankruptcy, insolvency, reorganization and
similar laws affecting creditors’ rights generally, and (ii) general equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
(d) BROKERS’
FEES.
Buyer
has incurred no liability, contingent or otherwise, for brokers’ or finders’
fees in respect of this transaction for which Seller shall have any
responsibility whatsoever; and Buyer hereby indemnifies and holds Seller
harmless from and with respect to any such brokers’ or finders’ fees alleged to
have been incurred by Buyer.
ARTICLE
V
COVENANTS
5.1 COVENANTS
OF SELLER.
Seller
covenants and agrees with Buyer that, prior to Closing:
(a) CONTINUING
OPERATION.
Seller
will cause the Properties to be produced, maintained and operated in a good
and
workmanlike manner, will maintain insurance now in force with respect to the
Properties, will pay or cause to be paid all costs and expenses incurred in
connection therewith, will keep the Leases, Contracts and Easements in full
force and effect and will perform and comply with all of the covenants and
conditions contained in the Leases, Contracts and Easements. Seller shall keep
Buyer fully informed of all material operations conducted on the Properties
as
Seller continues its drilling program.
(b) CONTINUING
MANAGEMENT.
Seller
shall carry on its business with respect to the Properties in substantially
the
same manner as Seller has heretofore and shall not introduce any new method
of
management, operation or accounting with respect to the Properties.
(c) LEGAL
PROCEEDINGS.
Seller
shall promptly notify Buyer in writing of any suit, action or other proceeding
before any court or governmental body, authority, or agency and any cause of
action of which Seller has knowledge that (i) relates to the Properties, (ii)
might result in impairment or loss of Seller’s title to any portion of the
Properties or the value thereof, (iii) might prevent or delay consummation
of
the transactions contemplated hereby, or (iv) might otherwise result in a
material breach of Seller’s representations and warranties
hereunder.
(d) CONFIDENTIAL
INFORMATION.
Seller
shall exercise all reasonable diligence in safeguarding and maintaining the
security of all engineering, geological and geophysical data, reports and maps,
and all data in the possession of Seller, relating to the
Properties.
(e) ACCESS
TO PROPERTIES.
Buyer,
the employees and agents of Buyer, and any other persons designated by Buyer,
shall have access to the Properties at reasonable times, and under reasonable
conditions; provided, however, that any damage to any property of Buyer or
its
representatives or any injury or death of any individual representing Buyer
shall be at Buyer’s sole risk, and Buyer shall indemnify and hold Seller
harmless from and with respect to all claims, costs, damages, attorneys fees,
litigation expenses and all other expenses related thereto, unless arising
out
of or related to the gross negligence or willful misconduct of
Seller.
(f)
GENERAL
COMPLIANCE.
Prior
to Closing, Seller shall comply in all material respects with all laws, rules,
regulations, ordinances and orders of all local, tribal, state, federal and
foreign governmental bodies, authorities and agencies having jurisdiction over
the Properties.
(g) CONSUMMATION
OF TRANSACTIONS.
Seller
shall take or cause to be taken all such actions as may be reasonably necessary
and advisable to consummate and make effective the sale of an interest in the
Properties and the other transactions contemplated by this
Agreement.
(h) INABILITY
TO PERFORM.
Seller
shall promptly notify Buyer (i) if any material representation or warranty
of
Seller contained in this Agreement is discovered to be or becomes untrue, (ii)
if Seller becomes aware of any credible statements or claim that, if true,
would
cause any material representation or warranty of Seller contained in this
Agreement to become untrue, or (iii) if Seller fails to perform or comply with
any material covenant or agreement contained in this Agreement, or it is
reasonably anticipated that Seller will be unable to perform or comply with
any
material covenant or agreement contained in this Agreement.
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(i)
CASUALTY
LOSS.
If,
prior to the Closing, all or any material part of the Properties shall be
destroyed by fire or other casualty, or if any material part of the Properties
shall be taken in condemnation or under the right of eminent domain or if
proceedings for such purposes shall be pending or threatened, Buyer may elect
to
terminate this Agreement or proceed to Closing with an appropriate adjustment
to
the Purchase Price. If Buyer elects to terminate this Agreement, neither Party
shall have any further obligation to the other hereunder except for those which
expressly survive the termination hereof. If not so terminated, this Agreement
shall remain in full force and effect notwithstanding any such destruction
or
taking.
5.2 COVENANTS
OF BUYER.
Buyer
covenants and agrees with Seller that, prior to the Closing:
(a) CONSUMMATION
OF TRANSACTIONS.
Buyer
shall take or cause to be taken all such actions as may be reasonably necessary
or advisable to consummate and make effective the purchase of an interest in
the
Properties and the transactions contemplated by this Agreement.
(b) MAINTENANCE
OF INFORMATION.
Buyer
shall exercise all reasonable diligence in safeguarding and maintaining the
security and confidentiality of all engineering, geological, geophysical and
land data, reports and maps, and all other data reviewed and/or in the
possession of Buyer, relating to the Properties, for the purposes hereof and
in
accordance with that certain Confidentiality Agreement between Buyer and Seller,
dated June 29, 2006.
(c) INABILITY
TO PERFORM.
Buyer
shall promptly notify Seller (i) if any representation or warranty of Buyer
contained in this Agreement is discovered to be, or becomes, untrue, (ii) if
Buyer becomes aware of any credible statement or claim that, if true, would
cause any representation or warranty of Buyer contained in this Agreement to
become untrue, or (iii) if Buyer fails to perform or comply with any covenant
or
agreement contained in this Agreement, or it is reasonably anticipated that
buyer will be unable to perform or comply with any covenant or agreement
contained in this Agreement.
ARTICLE
VI
CONDITIONS
TO CLOSING
6.1 CONDITIONS
TO OBLIGATIONS OF SELLER.
The
obligations of Seller to consummate the transactions contemplated by this
Agreement are subject, at the option of Seller, to the satisfaction or waiver
of
the following conditions:
(a) VALIDITY
OF REPRESENTATIONS.
All
representations and warranties of Buyer contained in this Agreement shall be
true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing.
(b) COMPLIANCE
WITH COVENANTS.
Buyer
shall have performed and satisfied in all material respects all agreements
required by this Agreement to be performed and satisfied by Buyer at or prior
to
the Closing.
(c) PENDING
LEGAL PROCEEDINGS.
There
shall not be pending or instituted, threatened or proposed, any action or
proceeding, by any individual or entity other than Seller or an Affiliate or
Seller, by or before any court, administration agency, or other tribunal
challenging or complaining of, or seeking to collect damages or other relief
in
connection with the transactions contemplated by this Agreement.
(d) PROHIBITION
OF TRANSACTIONS.
No
state or federal statue, rule, regulation or action shall exist or shall have
been adopted or taken and no judicial or administrative decision shall have
been
entered (whether on a preliminary or final basis), that would prohibit, restrict
or delay the consummation of the transactions contemplated by this Agreement
or
make illegal the payments due hereunder.
(e) CONVEYANCES.
Exhibits
in form acceptable to Seller shall have been prepared to attach to the
Assignment (defined in Paragraph 7.3(a)) and other conveyancing documents to
be
delivered at Closing, which exhibits shall be in a proper form and legally
sufficient to convey the Properties to Buyer and shall set forth the specific
leasehold interest, and describe the Net Revenue Interest and Working Interest
in accordance with this Agreement on a Well-by-Well, Lease-by-Lease or
Unit-by-Unit basis.
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6.2 CONDITIONS
TO OBLIGATIONS OF BUYER.
The
obligations of Buyer to consummate the transactions contemplated by this
Agreement are subject, at the option of Buyer, to the satisfaction or waiver
of
the following conditions:
(a) [INTENTIONALLY
DELETED].
(b) COMPLIANCE
WITH COVENANTS.
Seller
shall have performed and satisfied in all material respects all agreements
required by this Agreement to be performed and satisfied by Seller at or prior
to the Closing.
(c) PENDING
LEGAL PROCEEDINGS.
There
shall not be pending or instituted, threatened or proposed, any action or
proceeding, by any individual or entity other than Buyer or an Affiliate of
Buyer, by or before any court, administrative agency, or other tribunal
challenging or complaining of, or seeking to collect material damages or other
material relief in connection with the transactions contemplated by this
Agreement.
(d) PROHIBITION
OF TRANSACTIONS.
No
state or federal statue, rule, regulation or action shall exist or shall have
been adopted or taken and no judicial or administrative decision shall have
been
entered (whether on a preliminary or final basis), that would prohibit, restrict
or delay the consummation of the transactions contemplated by this Agreement
or
make illegal the payments due hereunder.
(e) CONVEYANCES.
Exhibits
in form acceptable to Buyer shall have been prepared to attach to the Assignment
and other conveying documents to be delivered at Closing, which exhibits shall
be in a proper form and legally sufficient to convey the Properties to Buyer
and
shall set forth the specific leasehold interest, subject to documents and
encumbrances permitted hereunder and the Net Revenue Interest and Working
Interest in accordance with this Agreement on a Well-by-Well, Lease-by-Lease,
or
Unit-by-Unit basis.
(f)
NO
MATERIAL ADVERSE CHANGE.
There
shall have been no material adverse change in the physical condition of the
Properties, since the date of this Agreement, it being understood that the
current drilling program will continue.
If
the
conditions set forth in this Section 6.2 have not been satisfied as of the
date
of the Closing, Buyer shall have the right to terminate this Agreement by notice
delivered to Seller on the day of the Closing or on the next business day
following the scheduled day of the Closing, in which event the Xxxxxxx Money
shall be returned to Buyer and neither party shall be further obligated to
the
other, except for obligations which expressly survive the termination of this
Agreement. Seller’s obligation to return the Xxxxxxx Money shall survive the
termination of this Agreement.
ARTICLE
VII
CLOSING
7.1 DATE
OF CLOSING.
The
Closing (“Closing”) shall occur at 10:00 a.m., Central Daylight Savings Time (or
Standard Time, as the case may then be) on October 31, 2006; provided, however
that Buyer shall have the right to extend the date of the Closing one time
by up
to an additional fifteen (15) days, by notice delivered to Seller on or before
October 27, 2006, accompanied by Buyer’s deposit with Seller of the additional
amount (i.e., additional to the original amount of $50,000.00 delivered as
Xxxxxxx Money pursuant to Section 2.1[a]) of Fifty Thousand ($50,000.00)
Dollars, which amount shall become part of the Xxxxxxx Money.
7.2 PLACE
OF CLOSING.
The
Closing shall be in the offices of X.
X.
Xxxxxx Oil & Gas Operations, at 0000 X.X. Xxxx 000, Xxxxx 000, Xxx Xxxxxxx,
Xxxxx 00000, or another place mutually agreeable to Buyer and
Seller.
7.3 CLOSING
OBLIGATIONS.
At the
Closing, the following shall occur:
(a) EXECUTION
OF TRANSFER DOCUMENTS.
Seller
shall execute, acknowledge and deliver an Assignment, Xxxx of Sale and
Conveyance (“Assignment”), on the form attached hereto as Exhibit “E”, conveying
title to a forty-five percent (45%) interest in the Properties to Buyer, free
and clear of all liens, encumbrances and burdens except for the Permitted
Encumbrances. The Assignment shall be effective as of the Effective Date, with
no warranty by Seller, either express or implied, as to title or any other
matter.
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(b) DELIVERY
OF FUNDS.
Buyer
shall deliver the Seventeen Million Six Hundred Thousand ($17,600,000.00)
Dollars portion of the Purchase Price (adjusted as set forth herein) to Seller
by either cashier’s check, certified check or wire transfer to an account
designated by Seller or other immediately available funds in the amount of
the
Purchase Price, as adjusted hereunder pursuant to Paragraph 2.1 and Paragraph
3.4.
(c) SCHEDULE
OF LIABILITIES.
Seller
shall deliver to Buyer a Settlement Statement listing the adjustments made
under
Paragraph 7.3 (b).
(d) RELEASE
OF LIENS.
All
liens affecting Buyer’s purchased interest in the Properties and securing unpaid
indebtedness of Seller (if any) shall be released at Seller’s expense by the
execution, acknowledgment and delivery of such instruments as are reasonably
satisfactory to Buyer.
(e) POSSESSION
OF PROPERTIES.
Seller
shall retain possession of the Properties, and continue as Operator pursuant
to
this Agreement and the exhibits hereto.
(f)
COPIES
OF FILES.
Seller
shall deliver to Buyer copies of such documents in Seller’s files and records
relating to the Properties, as may be requested by Buyer.
(g) FURTHER
ASSURANCES.
At the
Closing, the Parties hereto shall execute, acknowledge and deliver such other
instruments, and shall take such other action as may be necessary, to carry
out
the obligations under this Agreement, including, but not limited to, the
instruments attached as Exhibits “B”, “B-1”, “C” and “D”, and Letters In Lieu of
Transfer Orders for revenue payment purposes.
7.4 DEFAULT.
IF THE
PURCHASE AND SALE OF THE PROPERTIES IS NOT COMPLETED AS CONTEMPLATED HEREIN
BY
REASON OF ANY MATERIAL BREACH OR DEFAULT OR FAILURE TO PROCEED BY SELLER, BUYER
SHALL HAVE THE OPTION TO EITHER (i) TERMINATE THIS AGREEMENT AND RECEIVE ALL
XXXXXXX MONEY THERETOFORE DEPOSITED WITH SELLER, OR (ii) ENFORCE SPECIFIC
PERFORMANCE OF THIS AGREEMENT, BUYER
HEREBY WAIVING ALL OTHER REMEDIES WHETHER AT LAW OR IN EQUITY.
IF THE
PURCHASE AND SALE OF THE PROPERTIES IS NOT COMPLETED AS CONTEMPLATED HEREIN
BY
REASON OF ANY MATERIAL BREACH OR DEFAULT OR FAILURE TO PROCEED BY BUYER, SELLER
MAY, AS SELLER’S SOLE REMEDY FOR ANY SUCH BREACH, DEFAULT OR FAILURE TO PROCEED,
TERMINATE THIS AGREEMENT AND RETAIN ALL XXXXXXX MONEY THERETOFORE DEPOSITED
WITH
SELLER AS LIQUIDATED DAMAGES FOR SUCH BREACH, DEFAULT OR FAILURE TO PROCEED,
SELLER HEREBY WAIVING (SUBJECT TO SECTION 7.6, BELOW) ALL OTHER REMEDIES WHETHER
AT LAW OR IN EQUITY. FURTHERMORE, IF BUYER TERMINATES THIS AGREEMENT FOR ANY
REASON OR FOR NO REASON AT ALL, AND IF THIS AGREEMENT DOES NOT GIVE BUYER THE
EXPRESS RIGHT TO A RETURN OF THE XXXXXXX MONEY IN THE EVENT OF SUCH TERMINATION,
SUCH TERMINATION SHALL BE DEEMED A FAILURE TO PROCEED BY BUYER AS SET FORTH
IMMEDIATELY ABOVE AND SELLER MAY RETAIN THE XXXXXXX MONEY AS PROVIDED
BELOW.
7.5 STIPULATION
AS TO LIQUIDATED DAMAGES. Seller
and Buyer stipulate and agree (i) that, due to the unique character of oil
and
gas property, to the volatility of the oil and gas market, to the fluctuating
value of oil and gas, and to other factors, just compensation for the harm
that
would be caused by the Buyer’s default cannot be accurately estimated or would
be very difficult to accurately estimate and that the Xxxxxxx Money is a
reasonable forecast of just compensation to Seller for the harm that would
be
caused by Buyer’s default, (ii) that the reasonable forecast has been made
specific to the transaction contemplated hereby, and (iii) that the liquidated
damages are not, and are not intended as, a penalty. The provisions of this
stipulation and agreement shall survive the termination of this
Agreement.
7.6 SELLER’S
RIGHT TO ASSERT COUNTERCLAIM.
In the
event Buyer exercises its right under Section 7.4, above, to xxx for specific
performance, Seller shall have the right, notwithstanding any other provision
in
this Article VII to the contrary, to bring and assert any counterclaim against
Buyer to recover actual, direct damages (but neither party may assert against
the other party indirect, consequential, multiple, punitive, or exemplary
damages, whether allowed by statute or under the common law) incurred by Seller
and caused by or resulting from Buyer’s default hereunder.
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ARTICLE
VIII
OBLIGATIONS
AFTER CLOSING
8.1 AD
VALOREM TAXES, SALES TAXES AND RECORDING FEES.
(a) AD
VALOREM TAXES.
As
provided in Paragraph 1.4(c) hereinabove, ad
valorem
property
taxes, real property taxes, personal property taxes and similar obligations
with
respect to the Properties for the tax period in which the Effective Date occurs
shall be paid by WBO for the joint account of Buyer and Seller and shall be
apportioned as of the Effective Date between Seller and Buyer WBO also shall
file or cause to be filed all required reports and returns incident to such
taxes, and shall supply Buyer with copies of the filed reports and proof of
payment promptly after filing and paying them. Buyer shall reimburse to Seller,
promptly upon receipt of Seller’s invoice therefor Buyer’s prorata
(forty-five percent 45%) share of such taxes attributable to periods beginning
with the Effective Date, pursuant to Paragraph 1.4(c) hereinabove.
(b) SALES
TAXES.
Buyer
shall be liable for any sales tax or any other transfer tax or fee arising
out
of Buyer’s purchase of the interest in the Properties, including the personalty
contained therein, and Buyer shall indemnify and hold Seller harmless with
respect thereto. If Seller is required by applicable state law to report and
pay
any such taxes and/or fees, Buyer shall, upon Seller’s presentation of an
invoice, promptly pay same to Seller.
(c) RECORDING
FEES.
Seller
shall pay all recording fees required in connection with releasing liens or
other encumbrances on the Properties in accordance with this Agreement. Buyer
shall pay all required documentary, filing and recording fees, taxes, and all
other costs incurred and/or required in connection with the filing and recording
of the Assignment.
8.2 SETTLEMENT
FOR INTERIM PERIOD REVENUES AND LIABILITIES, AND OTHER
ADJUSTMENTS.
To the
extent necessary and within sixty (60) days after the Closing, Seller shall
prepare, in accordance with this Agreement and with standard industry practice,
and deliver to Buyer, a final accounting statement showing the proration of
credits and payment obligations of Buyer and Seller. As soon as reasonably
practicable thereafter, Buyer shall deliver to Seller a written report
containing any changes that Buyer proposes to be made to such statement. The
Parties shall use their best efforts to reach agreement on such final statement
within ninety (90) days after the date of Closing (as defined in Paragraph
7.1),
and to make such payments as may be required pursuant thereto. Furthermore,
any
post-closing adjustments in Buyer’s favor to which Buyer is entitled pursuant to
Article III, above, shall be made from time to time after the Closing as
necessary to ensure compliance with Article III; provided, however, that the
provisions of this Section 8.2 shall not be construed to enlarge the rights
given to Buyer under Article III. Seller shall pay to Buyer, unless Buyer and
Seller make other provisions therefor, the amount of such post-closing
adjustments pursuant to Article III to which Buyer is entitled, and such payment
shall be made by Seller to Buyer within ten (10) days following Buyer’s written
request therefor. The provisions of this Section 8.2 shall survive the Closing.
8.3 FURTHER
ASSURANCES.
After
Closing, Buyer and Seller shall execute, acknowledge and deliver or cause to
be
executed, acknowledged and delivered such instruments and shall take such other
action as may be reasonably necessary or desirable to carry out their respective
obligations under this Agreement and under any exhibit, document, certificate
or
other instrument delivered pursuant hereto. Without limiting the generality
of
the foregoing, (i) should either Seller or Buyer receive revenues to which
the
other is entitled, then such revenues shall be paid over to the appropriate
Party within thirty (30) days of receipt thereof, and (ii) should either Seller
or Buyer pay for costs and expenses for which the other is responsible, then
the
responsible Party shall reimburse the other Party within thirty (30) days of
the
date the responsible Party receives an invoice for such costs and
expenses.
8.4 SURVIVAL.
The
provisions of this Article VIII shall survive the Closing.
ARTICLE
IX
INDEMNITIES
OF SELLER
Seller
shall indemnify, defend and hold Buyer, its members, and their respective
officers, directors, employees, agents, representatives, members, shareholders,
affiliates and subsidiaries harmless from and against, and will pay to Buyer
the
amount of, any damage, loss, liability or expense (including, but not limited
to, reasonable attorneys fees, litigation and court costs, and reasonable costs
of investigating any claim) resulting from, arising out of or relating to the
Retained Obligations. The provisions of this Article IX shall survive the
Closing.
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ARTICLE
X
TERMINATION
OF AGREEMENT
10.1
TERMINATION.
This
Agreement and the transactions contemplated hereby may be terminated in the
following instances:
(a) By
Buyer
in accordance with Paragraph 3.6;
(b) By
Buyer
in accordance with Paragraph 5.1(i);
(c) By
Buyer
if any condition set forth in Paragraph 6.2 shall not have been satisfied or
waived on or before Closing;
(d) By
Seller
if any condition set forth in Paragraph 6.1 shall not have been satisfied or
waived on or before Closing; or
(e) By
the
mutual written agreement of Buyer and Seller.
This
Agreement shall terminate without any further action by Seller or Buyer if
the
Closing has not occurred on or before November 15, 2006, unless the date of
such
Closing shall have been extended by a written agreement of all of the Parties
hereto, provided, however, that the Parties’ remedies for breach of, or failure
to consummate this Agreement shall survive such termination.
10.2
LIABILITIES
UPON TERMINATION.
If this
Agreement is terminated for any reason or is breached, nothing contained herein
shall be construed to limit Buyer’s right to enforce specific performance of
this Agreement.
10.3
RETURN
OF INFORMATION.
If this
Agreement is terminated in accordance with the terms of this Agreement, Buyer
shall return to Seller all information and material provided by Seller to Buyer
pursuant to this Agreement, and Buyer shall exercise all reasonable diligence
in
maintaining the confidentiality of such information. In addition, Buyer shall
provide to Seller, without cost, copies of any analyses or reports obtained
by
Buyer pertaining to any assessment of the Properties.
ARTICLE
XI
MISCELLANEOUS
11.1
SURVIVAL
OF AGREEMENT.
Notwithstanding anything to the contrary contained in this Agreement or in
the
Assignment, Seller and Buyer agree that none of the terms and provisions of
this
Agreement are superseded, diminished or enlarged by any of the terms of the
Assignment.
11.2
NOTICES.
All
communications required or permitted under this Agreement shall be in writing,
and any communication or delivery hereunder shall be deemed to have been duly
made if (i) delivered by messenger or express mail service, (ii) sent by
telecopier, telex, fax, or similar device (with confirmation of receipt by
telecopier sent within thirty minutes of completion of transmission with the
result that if there is no such confirmation of receipt by telecopy, the
original notice sent by telecopier shall not
be
deemed effective notice), (iii) sent by email, or (iv) mailed by registered
mail
or certified mail, return receipt requested, postage prepared and addressed
to
the noticed Party as set forth below:
IF
TO
SELLER:
X.
X.
Xxxxxx Oil & Gas Operations
Attn:
Xx.
Xxx Xxxxxxxx
X.X.
Xxx
0X
Xxx
Xxxxxxx, Xxxxx 00000
FAX:
(000) 000-0000
Email:
xxxx@xxxxxxxx.xxx
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PURCHASE
AND SALE AGREEMENT
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BUYER
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SELLER
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With
a
copy (which shall not
be
deemed to be notice to Seller) to:
X.
X.
Xxxxxx Xxxxxx, P. C.
0000
XX
Xxxx 000, Xxxxx 000
Xxx
Xxxxxxx, Xxxxx 00000
FAX:
(000) 000-0000
Email:
xxxxxxx@xxx.xxx
IF
TO
BUYER:
Ignis
Xxxxxxx Shale, LLC
Attn:
Xxxxxxx X. Xxxxxx
000
Xxxxxxxx Xxxxx, 0xx
Xxxxx
Xxxxxx,
XX 00000
FAX:
(000) 000-0000
Email:
xxx@xxxxxxxxxx.xxx
With
a
copy (which shall not
be
deemed to be notice to Buyer) to:
Xxxxxxx
X. Xxxxxxx
Xxxxxx
& Hanger, L.L.P.
000
Xxxxxx Xxxxxx, Xxxxx 0000
Xxxx
Xxxxx, Xxxxx 00000
FAX:
(000) 000-0000
Email:
xxxxxxxx@xxxxxxxxxxx.xxx
Any
such
notice shall be deemed to have been given by the sending Party upon the receipt
of such notice by the other Party; provided, however, notices mailed in
accordance with this Section 11.2 shall be deemed given on the earlier to occur
of (i) actual receipt or (ii) the third (3rd) day following the day of posting.
Either Party may, by written notice so delivered to the other, change the
address to which delivery shall thereafter be made.
11.3 EXPENSES.
Except
as otherwise specifically provided in this Agreement, all fees, costs and
expenses incurred by Buyer or Seller in negotiating this Agreement or in
consummating the transactions contemplated by this Agreement shall be paid
by
the Party incurring the same, including, but not limited to, legal, accounting
and engineering fees, costs and expenses, and any brokerage or commission
incurred by a Party.
11.4
AMENDMENT.
This
Agreement may not be altered or amended, nor any rights hereunder be waived,
except by an instrument in writing executed by the Party or Parties to be
charged with such amendment or waiver. No waiver of any term, provision or
condition of this Agreement, in any one or more instances, shall be deemed
to
be, or construed as, a further or continuing waiver of any such term, provision
or condition or as a waiver of any other term, provision or condition of this
Agreement.
11.5
ASSIGNMENT.
Neither
Buyer nor Seller may assign its rights or delegate its duties or obligations
under the terms of this Agreement without the prior written consent of the
other
Party; provided, however, Buyer may assign all or any portion of its rights
and
delegate all or any portion of its duties and obligations under this Agreement
to any Affiliate (as defined in Section 11.10 below) of Buyer without obtaining
Seller’s prior written consent, provided that such Affiliate assumes and agrees
to be bound by the provisions of this Agreement. Any such assignee of Buyer
shall execute and acknowledge all instruments to be delivered by Buyer at the
Closing in lieu of Buyer.
11.6
ENTIRE
AGREEMENT.
This
Agreement and the exhibits attached hereto state the entire agreement between
the Parties with respect to the subject matter hereof, superseding all
negotiations, prior discussions and prior letters of intent, amendments and
understandings relating to such subject matter.
11.7
EXECUTION
IN COUNTERPARTS.
This
Agreement may be executed in one or more counterparts with the same effect
as if
all signatures of the Parties hereto were on the same document, but in such
event each counterpart shall constitute an original, and all of such
counterparts shall constitute one Agreement; but in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
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BUYER
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SELLER
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11.8
GOVERNING
LAW.
THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE
LAWS OF THE STATE OF TEXAS.
11.9
INVALID
PROVISIONS.
If any
provision of this Agreement is held to be illegal, invalid or unenforceable
under present or future laws effective during the term hereof, such provision
shall be fully severable; this Agreement shall be construed and enforced as
if
such illegal, invalid or unenforceable provision had never comprised a part
hereof and the remaining provisions of this Agreement shall remain in full
force
and effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement. Furthermore, in lieu of
each
such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
11.10
REFERENCES.
References made in this Agreement, including use of a pronoun, shall be deemed
to include where applicable, masculine, feminine, singular or plural,
individuals, partnerships or corporations. As used in this Agreement, (i)
“Party” shall mean any natural person, corporation partnership, trust estate or
other entity; and (ii) the “Affiliate” of a Party shall mean any partnership,
joint venture, corporation or other entity in which such Party has an interest
or which controls, is controlled by or is under common control with such
Party.
11.1 PARTIES
IN INTEREST.
This
Agreement shall be binding upon, and shall inure to the benefit of, the Parties
hereto and, except as otherwise prohibited, their respective successors and
assigns, and nothing contained in this Agreement, express or implied, is
intended to confer upon any other person or entity any benefits, rights or
remedies.
11.12
CAPTIONS
AND HEADINGS.
All
captions and headings herein are used solely for the reference and convenience
of the Parties and shall not affect the construction of this
Agreement.
ARTICLE
XII
PREFERENTIAL
RIGHT TO PURCHASE
12.1
BUYER’S
PREFERENTIAL RIGHT TO PURCHASE.
Following
Closing, should either of the parties constituting Seller receive an offer
to
purchase all or any part of its interest in the Properties, which offer it
is
prepared to accept, it shall promptly give written notice to Buyer, with full
information concerning the proposed disposition, which shall include the name
and address of the prospective transferee, the purchase price, a legal
description sufficient to identify the interest in the Properties desired to
be
sold, and all other material terms of the offer. Buyer shall have an optional
prior right, for a period of thirty (30) days after the notice is delivered,
to
purchase for the stated consideration on the same terms and conditions the
interest which the other party constituting Seller desires to sell. This
preferential right to purchase shall not apply to (i) a mortgage or a transfer
of title to a mortgagee in lieu of or pursuant to a foreclosure of a mortgage,
or (ii) any transfer to an Affiliate of Seller or by an Affiliate of Seller
to
any other Affiliate of Seller; but the preferential right to purchase
shall
apply to
(A) a disposition of an interest in the proposed transferor by merger,
reorganization, or consolidation, (B) a sale of stock, membership interests,
limited partnership interests, general partnership interests, or other entity
interests in the transferor, and (iii) a transfer of an interest in the
Properties to a subsidiary or parent company or to a subsidiary of a parent
company, or to any company to which the transferor party owns a majority of
the
equity interests. The parties intend that this preferential right shall apply
to
any proposed disposition by either of the parties constituting Seller of all
or
any part of its interest in the Properties, regardless if such disposition
is
intended to be effected as an asset sale, sale of stock, membership interest,
limited partnership interest, general partnership interest, or other entity
interest, or merger, reorganization, or consolidation. Notwithstanding the
above, Buyer’s preferential right shall never apply to any transfer by Seller to
an Affiliate of Seller or by any Affiliate of Seller to any other Affiliate
of
Seller. This right of Buyer shall be reoccurring from time to time as to all
or
any part of the interest in the Properties owned as of the Closing by either
of
the parties constituting Seller. Should Buyer elect to not exercise its
preferential right as to a specific offer, but the transaction contemplated
by
the offer is not consummated, Buyer’s preferential right shall again apply to
any future offers received by either of the parties constituting Seller covering
all or any part of an interest in the Properties.
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SELLER
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12.02
WBO’S
PREFERENTIAL RIGHT TO PURCHASE. Following
Closing, should Buyer receive an offer to purchase all or any part of its
interest in the Properties, which offer it is prepared to accept, it shall
promptly give written notice to WBO, with full information concerning its
proposed disposition, which shall include the name and address of the
prospective transferee, the purchase price, a legal description sufficient
to
identify the interest in the Properties desired to be sold, and all other
material terms of the offer. WBO shall have an optional prior right, for a
period of thirty (30) days after the notice is delivered, to purchase for the
stated consideration on the same terms and conditions the interest which Buyer
desires to sell. This preferential right to purchase shall not apply to (i)
a
mortgage or a transfer of title to a mortgagee in lieu of or pursuant to a
foreclosure of a mortgage, or (ii) any transfer to an Affiliate of Buyer or
by
an Affiliate of Buyer to any other Affiliate of Buyer; but the preferential
right to purchase shall
apply to
(A) a disposition of an interest in the proposed transferor by merger,
reorganization, or consolidation, (B) a sale of stock, membership interests,
limited partnership interests, general partnership interests, or other entity
interests in the transferor, and (iii) a transfer of an interest in the
Properties to a subsidiary, or to any company to which the transferor party
owns
a majority of the equity interests. The parties intend that this preferential
right shall apply to any proposed disposition by Buyer of all or any part of
its
interest in the Properties, regardless if such disposition is intended to be
effected as an asset sale, sale of stock, membership interest, limited
partnership interest, general partnership interest, or other entity interest,
or
merger, reorganization, or consolidation (except for a disposition to a parent
company or to a subsidiary of a parent company). Notwithstanding the above,
Seller’s preferential right shall never apply to any transfer by Buyer to an
Affiliate of Buyer or by any Affiliate of Buyer to any other Affiliate of Buyer.
This right of WBO shall be reoccurring from time to time as to all or any part
of the interest in the Properties owned as of the Closing by Buyer. Should
WBO
elect to not exercise its preferential right as to a specific offer, but the
transaction contemplated by the offer is not consummated, WBO’s preferential
right shall again apply to any future offers received by Buyer covering all
or
any part of an interest in the Properties.
12.03
SURVIVAL.
The
provisions of this Article XII shall survive the Closing.
12.04
CONSTRUCTIVE
NOTICE. At
Closing, Seller and Buyer shall execute in recordable form and thereafter file
for record in the offices of the County Clerks of Montague and Xxxxx Counties,
Texas, a memorandum, in such form as is reasonably acceptable to Seller and
Buyer, placing the public on constructive notice of the preferential rights
granted in this Article XII.
EXECUTED
on the dates set forth below.
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SELLER:
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X.
X. XXXXXX OIL & GAS OPERATIONS, LTD.
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d/b/a
X.X. Xxxxxx Oil & Gas Operations, and
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ST.
JO PIPELINE, LIMITED
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By
WBO III, Inc., their General Partner
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By:
/s/
X.X. Xxxxxx III
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Attest:
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Name:
X. X. Xxxxxx III
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Title:
President
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Date:
9/28/06
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BUYER:
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IGNIS
XXXXXXX SHALE, LLC
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By:
/s/
Xxxxxxx X. Xxxxxx
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Attest:
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Name:
Xxxxxxx X. Xxxxxx
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Title:
President
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Date:
9/27/06
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BUYER
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SELLER
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