EXHIBIT B
DUE DILIGENCE USE AGREEMENT
___________________________
This Due Diligence Use Agreement ("Agreement") is executed
this 28th day of May, 1999, by and between Xxxxxxxx Energy, Inc.
("Xxxxxxxx"), and Prize Energy Corp. ("Prize").
WHEREAS, Xxxxxxxx entered into a Confidentiality Agreement
with Pioneer National Resources USA, Inc. ("Pioneer"), on or about
April 15, 1998 ("Pioneer Confidentiality Agreement") (see Exhibit
"A"), and pursuant thereto performed significant due diligence and
effort, but did not close a transaction with Pioneer,
WHEREAS, Xxxxxxxx has data to support and document Xxxxxxxx'x
due diligence relative to the xxxxx, leases, plants, personal
property and lands listed or described on Exhibit "B" attached
hereto ("Assets"),
WHEREAS, Prize and Pioneer have executed a definitive
agreement for Prize to acquire all or a portion of the Assets and
four (4) million shares of Xxxxxxxx common stock from Pioneer
("Prize Acquisition"),
WHEREAS, in order to facilitate their acquisition from
Pioneer, Prize desires to acquire such due diligence from Xxxxxxxx,
NOW THEREFORE, conditioned on Pioneer's consent to allow such
use of the confidential information provided to Xxxxxxxx under the
Pioneer Confidentiality Agreement, Xxxxxxxx and Prize agree as
follows:
1. Prize shall (1) pay $750,000 cash ("Cash Consideration");
(2) pay Xxxxxxxx'x expenses (as defined herein) in delivering the
Due Diligence (as defined herein); (3) if the Prize Acquisition
closes, deliver to Xxxxxxxx an exploration agreement containing the
terms set forth in Paragraph 4 below ("Exploration Agreement"); (4)
if the Prize Acquisition closes, and Prize receives any shares of
the Xxxxxxxx common stock, vote those shares consistent with the
desires of Xxxxxxxx management as described herein and (5) if the
Prize Acquisition closes, pay Xxxxxxxx the proceeds, net of
reasonable commissions, derived from the sale of 1.5 million shares
of Xxxxxxxx common stock with such sales being made at the time, or
from time to time, in the volumes, and in the manner directed by
Xxxxxxxx and in accordance with applicable law.
2. Upon payment of the Cash Consideration on or before 11:00
a.m. June 1, 1999, the Due Diligence that relates to Assets Prize
acquires directly from Pioneer, shall become the property of Prize.
3. The expenses incurred by Xxxxxxxx for the use of
Xxxxxxxx'x employees, contractors, consultants or agents ("Xxxxxxxx
Agents") to gather, prepare, deliver, or convey the Due Diligence
to Prize, whether in written form or by spoken word ("Expenses"),
shall be reimbursed by Prize within 10 (ten) days following the end
of the month in which Xxxxxxxx bills Prize therefore. Xxxxxxxx
Agents' time will be billed at the rates shown on Exhibit "C"
attached hereto. If and when such expenses reach a total of
$75,000, unless Prize agrees to pay more than $75,000 for expenses,
Xxxxxxxx shall cease incurring out-of-pocket expenses and expending
more than nominal amounts of time to hand over the Due Diligence to
Prize. Other expenses incurred on behalf of Prize shall be billed
directly to Prize (i.e. outside copy charges, consultant,
land broker fees, etc.).
4. Prize shall execute an exploration agreement in favor of
Xxxxxxxx for all of the interest Prize receives from Pioneer in the
Provident City, Xxxxxxx and Graceland Prospects located in Lavaca,
Xxxxxxx and Colorado Counties, Texas, including the xxxxx described
on Exhibit "D" attached hereto, (the "Prospects") on the following
terms:
X. Xxxxxxxx shall have the option to commence the drilling
of a well on each of or any Prospect within 18 months
from closing of the Prize Acquisition ("Test Well"). The
purpose of each Test Well must be to test depths and
formation deeper than those currently producing in
existing xxxxx.
B. Subject to A, E and F herein, production in each Test
Well earns Xxxxxxxx an assignment of Prize's interest in
lands and leases that are within the boundaries
of spacing or proration unit established for each Test
Well.
C. The assignment will be subject only to the burdens of
record against the leases and lands which exist
immediately prior to the date of closing of the Prize
Acquisition.
D. The Exploration Agreement will allow Xxxxxxxx to assign
all or part of its interest thereunder to third parties
provided that all promotion and benefits received by
Xxxxxxxx over and above those granted in the Exploration
Agreement and over and above all costs borne out-of-
pocket by Xxxxxxxx will be shared equally with Prize.
Alternatively, if Prize, in its sole opinion, deems that
such promotion and benefits are insufficiently
profitable, it may retain one-half of its interests for
each Test Well, and either participate or promote such
interest to another third party; however, such retention
shall not prohibit Xxxxxxxx from drilling a Test Well and
enjoying intent of the Exploration Agreement.
E. The drilling of a well on any prospect will serve to
perpetuate the Exploration Agreement as to lands and
leases covered by that prospect for a period of 3
years from completion of the first well drilled on that
prospect. The Exploration Agreement may be perpetuated
beyond the 3 year period by continuously developing the
lands and leases covered by the prospect with no more
than 90 days elapsing between completion of one well and
spudding of the next well on that prospect. The
Exploration Agreement will xxxxx Xxxxxxxx the right to
drill as many xxxxx on each prospect as it chooses so
long as the exploration agreement is in effect.
F. At the time each well is drilled under the Exploration
Agreement, Prize will meet with Xxxxxxxx and endeavor to
enter into an additional agreement to provide to Xxxxxxxx
rights to any zones which are not capable of being
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produced from xxxxx other than those drilled under this
Exploration Agreement existing on the date the test well
is spud.
G. The Exploration Agreement shall provide Xxxxxxxx with
access to any and all seismic, geological and geophysical
data and information ("G&G Data") in the custody, control
or possession of Prize following the Prize Acquisition
that relate to the Prospects. The G&G Data to be
provided to Xxxxxxxx shall include, but not be limited
to, all such data and information Prize acquires from
Pioneer either as a part of the Prize Acquisition or
otherwise.
5. Through November of 2000, Prize shall cast and vote on
all issues presented to the common shareholders of Xxxxxxxx as the
Xxxxxxxx Board of Directors states is the desire of the then
existing Xxxxxxxx Board of Directors.
6. Subject to the prior consent of Pioneer, Xxxxxxxx will
deliver to Prize all Evaluation Material (as defined in the Pioneer
Confidentiality Agreement) and all other information resulting from
the due-diligence conducted by or for the benefit of Xxxxxxxx
(whether prepared, purchased or acquired by Xxxxxxxx) relative to
such Evaluation Material and the Assets ("Due Diligence"),
including, but not limited to, engineering data, environmental
studies and reports, economic runs, land and title due diligence,
title and other legal opinions, interpretations, studies,
memoranda, and analysis. In addition, Xxxxxxxx shall, at the
request of Prize, provide to all professionals, consultants,
agents, or other third parties (collectively, "Representatives")
retained by or for the benefit of Xxxxxxxx in connection with the
Due Diligence, any and all consents, waivers of conflicts of
interest, or other authorizations that may be deemed necessary or
desirable by Prize or such Representative to permit such
Representative to be retained by Prize or any other participant in
the Prize Acquisition or to permit the work product of such
Representative to be delivered and utilized by Prize. Prior to the
delivery of any Due Diligence by Xxxxxxxx, Prize acknowledges and
agrees that it will obtain and provide to Xxxxxxxx the written
consent of Pioneer permitting Xxxxxxxx'x delivery of Evaluation
Material and Due Diligence to Prize pursuant to the terms
contemplated in this Agreement. If the Prize Acquisition does not
close by the terms of the Purchase and Sale Agreement between
Pioneer and Prize relating to the Prize Acquisition, Prize shall
promptly return all Due Diligence to Xxxxxxxx.
7. Prize agrees to reimburse and indemnify and defend
Xxxxxxxx, its officers, directors, employees and representatives
from any and all damages, loss, claims or expenses resulting from
any lawsuit or claim asserted against such parties as a result of
Prize's negligent or wrongful acts related to its use of the Due
Diligence and agrees that any use of the Due Diligence is at
Prize's own risk and subject to the Pioneer
Confidentiality Agreement.
8. This Agreement constitutes the entire agreement of the
parties with respect to the acquisition of the Due Diligence.
9. The Agreement shall be an exclusive agreement between the
parties only as the Due Diligence relates to Assets Prize acquires
prior to August 15, 1999.
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10. The parties specifically agree that all originals of the
Due Diligence materials shall be placed in the office space which
will be subleased from Xxxxxxxx to Prize at a rate of $10 per
square foot per year until the consummation of an acquisition by
Prize from Pioneer. Xxxxxxxx shall have the right to copy and use
the Due Diligence, as Xxxxxxxx deems useful and appropriate.
Further the parties agree that Xxxxxxxx will have access to all Due
Diligence for one year following the consummation of the Prize
Acquisition or any part thereof.
11. The parties specifically agree that any and all Due
Diligence provided to Prize by Xxxxxxxx shall be returned to
Xxxxxxxx by August 19, 1999, as it relates to any portion of the
Assets not acquired from Pioneer by August 15, 1999.
12. As a condition to receiving the Due Diligence, and as a
covenant under this Agreement, Prize agrees that, for one (1) year
subsequent to the date of this Agreement without the prior written
consent of Xxxxxxxx, it will not directly or indirectly, through
its officers, directors, employees, and any subsidiary either (1)
hire, solicit, entice, induce, interfere with, or contract any
current employee of Xxxxxxxx, for the purpose of persuading or
influencing such employee to terminate his employment with
Xxxxxxxx; or (ii) indirectly aid, assist, or abet any other person,
company, or business, in hiring, soliciting, enticing, interfering
with, or contacting any current employee of Xxxxxxxx, for the
purpose of persuading or influencing such employee to terminate his
employment with Xxxxxxxx. In the event that Prize should breach
the terms contained in this paragraph, it is agreed that Xxxxxxxx
will incur certain damages and costs that are not accurately
ascertainable. Therefore, in the event of such a breach, Prize
shall pay to Xxxxxxxx as liquidated damages, a sum equal to two (2)
times the annualized 12 month salary of any employee of Xxxxxxxx
hired in violation of this Agreement.
13. If any confidential information pertaining to a party to
this Agreement, shall be disclosed to the other party in connection
with the performance of this Agreement, the party receiving such
confidential information (the "Recipient") agrees to maintain its
confidentiality during the period from the date hereof until
December 1, 2000, except that, such confidentiality obligation does
not apply to any information (1) which, at the time of disclosure
or thereafter, is generally available to and known by the public,
other than as result of disclosure directly, or indirectly by the
Recipient, (2) which was available to the Recipient on a non-
confidential basis from a source other than the other party to this
agreement, or its employees, agents, advisors or representatives,
provided that the Recipient has no knowledge that such source is
bound by a confidentiality agreement with the disclosing party, (3)
that has been independently acquired or developed by the Recipient
without violating any of its obligations hereunder, or (4) for
which the Recipient has become legally compelled to disclosed (by
deposition, interrogatory, subpoena, civil investigative demand or
similar process); provided, that the undersigned will provide the
disclosing party with prompt written notice thereof.
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XXXXXXXX ENERGY, INC.
000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
By: /s/ Xxxxx X. Xxxxxxxxx
___________________________
Xxxxx X. Xxxxxxxxx
Executive Vice President
and
Chief Operating Officer
PRIZE ENERGY CORP.
00 X. 0xx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
By: /s/ Xxxxxx X. Xxxxx
___________________________
Xxxxxx X. Xxxxx
President
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The following Exhibits to the Due Diligence Agreement have
been omitted, and the Reporting Persons agree to furnish
supplementally a copy of any of the omitted Exhibits to the
Securities and Exchange Commission upon its request:
Exhibit A - Confidentiality Agreement dated
April 15, 1998, between Xxxxxxxx
and Pioneer
Exhibit B - List of Assets
Exhibit C - Billing rates for Xxxxxxxx
Personnel
Exhibit D - List of Prospects
