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Exhibit (10)(vi)
PURCHASE AND SALE AGREEMENT
BETWEEN
KCS RESOURCES, INC., KCS ENERGY SERVICES, INC.,
KCS MICHIGAN RESOURCES, INC. AND
KCS MEDALLION RESOURCES, INC.
"SELLERS"
AND
STAR VPP, LP
"BUYER"
DATED AS OF
FEBRUARY 14, 2001
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
1.01 Certain Definitions.......................................... 1
1.02 Other Definitions............................................ 5
ARTICLE II TRANSACTIONS.................................................. 5
2.01 Purchase and Sale............................................ 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS.................... 6
3.01 Representations and Warranties of Sellers.................... 6
ARTICLE IV REPRESENTATIONS OF BUYER...................................... 10
4.01 Representations of Buyer..................................... 10
ARTICLE V CONDITIONS TO CLOSING.......................................... 11
5.01 Conditions to Obligation of Sellers.......................... 11
5.02 Conditions to Obligations of Buyer........................... 11
ARTICLE VI CLOSING....................................................... 13
6.01 Pre-Closing Date and Place................................... 13
6.02 Documents to Be Executed at Pre-Closing...................... 13
6.03 Recording.................................................... 14
6.04 Closing Title Report......................................... 14
6.05 Closing...................................................... 14
6.06 Closing Title Opinions....................................... 15
6.07 Failure to Close............................................. 15
6.08 Payments..................................................... 15
ARTICLE VII MISCELLANEOUS................................................ 15
7.01 Announcements................................................ 15
7.02 Further Assurances........................................... 16
7.03 Survival..................................................... 16
7.04 Expenses..................................................... 16
7.05 Notices...................................................... 16
7.06 Indemnification.............................................. 17
7.07 Governing Law................................................ 18
7.08 Successors and Assigns....................................... 18
7.09 Schedules and Exhibits....................................... 18
7.10 Entire Agreement; Amendments; Waivers........................ 18
7.11 Headings..................................................... 19
7.12 Counterparts................................................. 19
7.13 Exercise of Option........................................... 19
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7.14 Joint and Several Liability.................................. 19
Attachments
Exhibit A - Conveyance of Overriding Royalty Interest
Exhibit B - Conveyance of Production Payment
Exhibit C - Production and Delivery Agreement
Exhibit D - Production and Delivery Agreement (KCS Medallion)
Exhibit E - Collateral Assignment
Exhibit F - Excess Gas Sales Contract
Exhibit G - Excess Oil Sales Contract
Exhibit H - Title Opinion Law Firms
Exhibit I - Local Counsel Opinions
Exhibit J - Approved Purchasers
Schedule 1 - Allocation of Purchase Price
Schedule 2 - Disclosure Statement
Schedule 3 - Capital Expenditures
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PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made and entered
into as of the 14th day of February, 2001, by and between KCS RESOURCES, INC., a
Delaware corporation, and KCS ENERGY SERVICES, INC., a Delaware corporation,
both of whose address is 0000 Xxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, and
KCS MICHIGAN RESOURCES, INC., a Delaware corporation, and KCS MEDALLION
RESOURCES, INC., a Delaware corporation, both of whose address is 0000 Xxxxx
Xxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxxx 00000 (each such party is referred to
herein individually as a "Seller" and collectively as the "Sellers"), and STAR
VPP, LP, a Delaware limited partnership, whose address is 0000 Xxxxx Xxxxxx,
Xxxxxxx, Xxxxx 00000 ("Buyer").
W I T N E S S E T H:
WHEREAS, Sellers collectively are the owners of the Subject Interests
referred to herein; and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the
Overriding Royalty and the Production Payment provided for herein;
NOW, THEREFORE, in consideration of the mutual benefits and obligations
of the parties contained herein, Buyer and Sellers agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS As used herein, the following terms shall have
the meanings set forth below, except as otherwise expressly provided:
"Affiliate" shall mean with respect to a party, any entity which either
directly or indirectly controls or manages, is controlled or managed by or is
under common control or management with such party. For purposes hereof,
"control" means the right or power to direct the policies of another through
management authority, stock ownership, delegated authority, voting rights or
otherwise.
"Assets" or "Asset" means, collectively or singularly, (i) the Subject
Interests, together with all rights, titles, interests, appurtenances, benefits
and privileges of Sellers attributable to each Subject Interest; (ii) all of the
real, immovable, personal and mixed property of Sellers (whether located on or
off the Subject Interests) used in connection with or attributable in any manner
to the exploration or development of the Subject Interests for Hydrocarbons or
the operation of the Subject Interests for producing, treating, storing or
transporting of production from the Subject Interests; (iii) all rights of
Sellers with respect to all contracts, agreements, instruments, governmental
orders and contractual rights which cover or relate in any manner whatsoever to
the Subject Interests; (iv) all rights of Sellers with respect to all easements,
rights-of-ways, rights, permits, licenses and servitudes which are used or held
in connection with the exploration, development or operation of the Subject
Interests or the transportation of production therefrom; and (v) all files,
records, data and documentation of Sellers pertaining or related to the Subject
Interests and/or assets described in clauses (i) through (iv) preceding.
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"Assignment and Agreement" means that certain Assignment and Agreement
executed April 12, 1996 from Medallion Production Company to InterCoast Global
Management, Inc. and recorded in Volume 288, Page 428 of the Official Public
Records of Xxxxxx County, Texas.
"Bankruptcy Court" means the United States District Court for the
District of Delaware having subject matter jurisdiction over the KCS Bankruptcy
Cases and, to the extent of any reference under section 157 of title 28 of the
United States Code, the Bankruptcy Court unit of such District Court under
section 151 of title 28 of the United States Code.
"Casualty Defect" means, with respect to all or any material portion of
an Asset, any destruction by fire, blowout, leak, explosion or other casualty
(above or below ground) or any taking, or pending or threatened taking, in
condemnation or under the right of eminent domain, of any Asset or portion
thereof.
"Central Time" means Central Standard Time or Central Daylight Savings
Time in effect in Houston, Texas on the date in question.
"CIBC Facilities" means collectively (a) the First Amended and Restated
Credit Agreement dated December 22, 1998, among KCS Resources, Inc., KCS
Michigan Resources, Inc. and KCS Energy Marketing, Inc., as Borrower, Canadian
Imperial Bank of Commerce, New York Agency, as Agent, CIBC Inc., as Collateral
Agent, Bank One, Texas, National Association, as Co-Agent and NationsBank of
Texas, N.A., as Co-Agent, and the Lenders signatory thereto, and (b) the First
Amended and Restated Credit Agreement dated December 22, 1998, among KCS
Medallion Resources, Inc., KCS Energy, Inc., KCS Energy Services, Inc. and
Medallion Gas Services, Inc., as Borrower, Canadian Imperial Bank of Commerce,
New York Agency, as Agent, CIBC Inc., as Collateral Agent, and the Lenders
signatory thereto, and (c) all predecessor loan or credit agreements to the
foregoing by and among the foregoing parties.
"CIBC Liens" means all liens, security interests or the other rights in
collateral arising out of or related to the CIBC Facilities.
"Closing" means the consummation of the transactions contemplated
hereby as provided in Article VI.
"Closing Date" means the date of Closing pursuant to Article VI.
"Closing Documents" means, collectively, the Conveyances, the
Production and Delivery Agreements, the Excess Gas Sales Contract, the Excess
Oil Sales Contract, the Collateral Assignment and any other documents or
instruments executed or delivered at or in connection with the Pre-Closing or
the Closing.
"Collateral Assignment" means the Collateral Assignment of Documents,
Liens and Security Interests substantially in the form attached hereto as
Exhibit E.
"Confirmation Order" means the Order Confirming Debtors' Fourth Amended
Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by
the Bankruptcy Court on January 30, 2001.
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"Conveyances" means (a) the Conveyance of Overriding Royalty from
Sellers to Buyer in the form attached hereto as Exhibit A and (b) the Conveyance
of Production Payment from KCS Medallion Resources, Inc. to Buyer in the form
attached hereto as Exhibit B.
"Debtors" means collectively, KCS Energy, Inc., Proliq, Inc., KCS
Energy Marketing, Inc., KCS Resources, Inc. a/k/a KCS Mountain Resources, Inc.,
KCS Medallion Resources, Inc., Medallion California Properties, Inc., Medallion
Gas Services, Inc., KCS Energy Services, Inc., KCS Michigan Resources, Inc. and
National Enerdrill Corp.
"Excess Gas Sales Contract" means that certain Enfolio Excess Gas
Purchase Agreement (Reserves Committed/Index Pricing) dated as of February 14,
2001 among Sellers and Enron North America Corp., covering certain natural gas
produced from the Leases, in the form attached hereto as Exhibit F.
"Excess Oil Sales Contract" means that certain Excess Oil Sales
Contract dated as of February 14, 2001 among Sellers and Enron Reserve
Acquisition Corp., covering certain oil produced from the Leases, in the form
attached hereto as Exhibit G.
"Final Order" means an order of the Bankruptcy Court or any other court
of competent jurisdiction as to which the time to appeal, petition for
certiorari, or move for reargument or rehearing has expired and as to which no
appeal, petition for certiorari, or other proceedings for reargument, or
rehearing shall then be pending or as to which any right to appeal, petition for
certiorari, reargument, or rehearing shall have been waived in writing in form
and substance satisfactory to Buyer and Sellers, or, if an appeal, writ of
certiorari, or reargument or rehearing thereof has been sought, such order of
the Bankruptcy Court or other court of competent jurisdiction shall have been
determined by the highest court to which such order was appealed, or petition
for certiorari, reargument or rehearing shall have been denied and the time to
take any further appeal, petition for certiorari or motion for reargument or
rehearing shall have expired; provided, however, that the possibility that a
motion under Bankruptcy Rule 59 or Rule 60 of the Federal Rules of Civil
Procedure, or any analogous rule under the Bankruptcy Rules (as defined in the
KCS Bankruptcy Plan) or applicable state court rules of civil procedure, may be
filed with respect to such order shall not cause such order not to be a Final
Order.
"Good and Marketable Title" means (a) with respect to the Xxxx-Xxxxxxx
Production Payment, 100% of the record and beneficial title to the Xxxx-Xxxxxxx
Production Payment, free and clear of any encumbrances, liens, mortgages or
pledges, preferential purchase rights or requirements for consents to assignment
applicable to or exercisable as a result of the Conveyance pertaining thereto,
and any other defects that would materially affect or interfere with the
possession, ownership or value thereof, except for Permitted Encumbrances, (b)
with respect to the Xxxxxx County Production Payment, 100% of the record and
beneficial title to the Xxxxxx County Production Payment, free and clear of any
encumbrances, liens, mortgages or pledges, preferential purchase rights or
requirements for consents to assignment applicable to or exercisable as a result
of the Conveyance pertaining thereto, and any other defects that would
materially affect or interfere with the possession, ownership or value thereof,
except for Permitted Encumbrances, and (c) with respect to all of the Subject
Interests (other than the Xxxx-Xxxxxxx Production Payment and the Xxxxxx County
Production Payment) such record and beneficial title that after giving effect to
the existing unit, communitization and farmout
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agreements described in Part II of Exhibit A to the Conveyance of Overriding
Royalty Interest attached hereto as Exhibit A (i) entitles Sellers to receive,
from their collective ownership of record in each Lease described or referred to
in Exhibit A to the Conveyance of Overriding Royalty Interest attached hereto as
Exhibit A, a percentage of all Hydrocarbons produced, saved and marketed from
each well now or hereafter located on such Lease or lands pooled or communitized
with lands covered by such Lease, not less than the net revenue interest set
forth in Exhibit A to the Conveyance of Overriding Royalty Interest attached
hereto as Exhibit A for the respective well, unit or comunitized area without
reduction, suspension or termination for the productive life of such well; (ii)
obligates Sellers to bear a percentage of the costs and expenses relating to
operations on and the maintenance and development of each well now or hereafter
located on such Lease or lands pooled or communitized with lands covered by such
Lease not greater than the undivided working interests set forth in Exhibit A to
the Conveyance of Overriding Royalty Interest attached hereto as Exhibit A for
each well, unit or communitized area without increase for the productive life of
such well; (iii) entitles Sellers to a share of the working interest or
operating rights in each well now or hereafter located on such Lease or lands
pooled or communitized with lands covered by such Lease which is not less than
the undivided leasehold or working interest set forth in Exhibit A to the
Conveyance of Overriding Royalty Interest attached hereto as Exhibit A for such
well, unit or communitized area; and (iv) is free and clear of any encumbrances,
liens, mortgages or pledges, preferential purchase rights or requirements for
consents to assignment applicable to or exercisable as a result of the
Conveyances, and any other defects that would materially affect or interfere
with the operation, use, possession, ownership or value thereof, except for the
Permitted Encumbrances.
"Xxxx-Xxxxxxx Production Payment" has the meaning set forth in the
Conveyance of Overriding Royalty Interest attached hereto as Exhibit A.
"Hydrocarbons" means all oil, condensate, gas and other liquid and
gaseous hydrocarbon substances.
"KCS Bankruptcy Cases" means the bankruptcy cases of KCS Energy, Inc.,
Sellers and those other subsidiaries and affiliates of KCS Energy, Inc. pending
in the Bankruptcy Court under Case Numbers 00-0028 and 00-0310 through 00-0318,
inclusive.
"KCS Bankruptcy Plan" means Debtor's Fourth Amended Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code dated January 5, 2001 as
modified on January 29, 2001 and approved by the Confirmation Order of the
Bankruptcy Court.
"Indemnified Parties" is defined in Section 7.06.
"Lease" and "Leases" have the meanings set forth in the Conveyances.
"Legal Requirement" means any requirement imposed pursuant to any
statute, rule, regulation, order, permit or license of any applicable
governmental authority or by any applicable court order.
"Option" has the meaning set forth in Part III of the Assignment and
Agreement.
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"Overriding Royalty" means the overriding royalty interest that is more
particularly described in the Conveyance of Overriding Royalty Interest attached
hereto as Exhibit A.
"Permitted Encumbrances" has the meaning set forth in the Conveyances.
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, trust, estate, business trust,
association, governmental entity or other entity.
"Pre-Closing" means the execution and delivery of certain instruments
and other actions to be taken by the parties at the pre-closing described in
Article VI.
"Production and Delivery Agreements" means (a) the Production and
Delivery Agreement to be entered into between Buyer and Sellers in the form of
Exhibit C hereto and (b) the Production and Delivery Agreement between Buyer and
KCS Medallion Resources, Inc. in the form of Exhibit D hereto.
"Production Payment" means the production payment that is more
particularly described in the Conveyance of Production Payment attached hereto
as Exhibit B.
"Reserve Report" means the reserve and cash flow engineering report
covering the Subject Interests dated as of December 31, 2000, prepared by
Netherland, Xxxxxx and Associates.
"Subject Interests" means, collectively, the Subject Interests as
defined in the Conveyances.
"Subject Properties" has the meaning set forth in the Assignment and
Agreement.
"Xxxxxx County Production Payment" has the meaning set forth in the
Conveyance of Production Payment attached hereto as Exhibit B.
"Taxes" means all ad valorem, property, occupation, severance,
production, gathering, pipeline, gross production, windfall profit, energy, Btu,
excise and other taxes, governmental charges and assessments imposed on the
Assets, the Overriding Royalty or the Production Payment, other than income
taxes.
1.02 OTHER DEFINITIONS. Other terms defined elsewhere in this Agreement
shall have the meanings so given them herein.
ARTICLE II
TRANSACTIONS
2.01 PURCHASE AND SALE. Subject to and in accordance with the terms
hereof, Sellers agree to sell and convey to Buyer, and Buyer agrees to purchase,
the Overriding Royalty for an aggregate purchase price of One Hundred
Sixty-Eight Million Two Hundred Fifteen Thousand Dollars (U.S. $168,215,000),
and KCS Medallion Resources, Inc. agrees to sell and convey to Buyer, and Buyer
agrees to purchase, the Production Payment for a purchase price of Nine Million
Six Hundred Ninety-Seven Thousand Dollars (U.S. $9,697,000) (the purchase price
for the Overriding Royalty and the purchase price for the Production Payment are
referred to herein,
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collectively, as the "Purchase Price"), and the parties agree to execute and
deliver the Closing Documents. The Purchase Price shall be allocated among
Sellers as set forth on Schedule 1. The Purchase Price shall be paid by Buyer to
Sellers at the Closing as provided in Section 6.05.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
3.01 REPRESENTATIONS AND WARRANTIES OF SELLERS. As a principal cause
and material inducement to Buyer entering into this Agreement and the Closing
Documents and its consummation of the transactions described herein, Sellers
have made the representations set forth below with the understanding that,
notwithstanding any investigation made by Buyer, Buyer is relying on each of
such representations and would not have entered into the Closing Documents or
have consummated the transactions described herein but for each of such
representations. In view of the foregoing, and with the acknowledgment that
Buyer's reliance on such representations is reasonable, Sellers hereby represent
and warrant to Buyer, jointly and severally, as follows:
(a) All of the information, reports and other data furnished by Sellers
to Buyer in connection with the transactions described herein, including,
without limitation, the Reserve Report, is accurate and complete in all material
respects and none of such information supplied contains an untrue statement of a
material fact or omits to state any material fact which is necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Reserve Report was prepared in accordance with
customary oil and gas engineering practices and is based on historical
information which is accurate and complete in all material respects and nothing
has come to any Seller's attention nor is there any fact or circumstance known
to any Seller that would adversely affect any of the findings, conclusions,
assumptions or projections contained in the Reserve Report.
(b) The actions of Sellers in furnishing information to Buyer in
connection with the transactions described herein do not and will not violate
any duty owed by any Seller to any Person to which such information relates or
any obligation of any Seller under any existing agreement.
(c) Sellers own Good and Marketable Title to the Subject Interests and
own good title to the other Assets, free and clear of any encumbrances, liens or
security interests (other than Permitted Encumbrances).
(d) All Taxes imposed or assessed with respect to or measured by or
charged against or attributable to the Subject Interests and the Assets have
been duly paid, except for Taxes being contested by KCS Energy, Inc. or one or
more of the Sellers in connection with the KCS Bankruptcy Plan.
(e) Except as may be set forth on Schedule 2, there are no suits or
proceedings pending or, to the knowledge of Sellers, threatened against any
Seller or the Assets that, if decided adversely to the interest of Sellers could
materially adversely affect any Seller, any of the Assets or the rights of Buyer
under the Closing Documents.
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(f) The Leases are in full force and effect; and Sellers have complied
with the terms of all governmental orders or directives naming Sellers or
applicable directly to the Subject Interests.
(g) All rents and royalties with respect to the Leases have been paid
in a timely manner, and all liabilities of any kind or nature incurred with
respect to the Leases have been paid before delinquent; Sellers have not
received any notice of default or claimed default with respect to the Subject
Interests or any Lease or any part thereof; and all xxxxx, facilities and
equipment which constitute part of the Assets are in all material respects in
good repair and working condition and to Seller's knowledge have been designed,
installed and maintained in all material respects in accordance with good
industry standards and applicable Legal Requirements.
(h) Except for the Permitted Encumbrances and as set forth in Schedule
2, neither the Subject Interests nor the Hydrocarbons attributable thereto are
subject, committed or dedicated to any contract, agreement or arrangement
regarding the gathering, transportation, processing, storing, delivery, sale,
use or marketing thereof; and no third party has any call, right of first
refusal or preferential right to purchase any such Hydrocarbons. The terms of
the existing gas sales agreements and existing oil sales agreements described on
Schedule 2 do not extend beyond those set forth on Schedule 2.
(i) Except for the Permitted Encumbrances and as set forth in Schedule
2, Sellers are not a party to or bound by, and the Subject Interests and the
Hydrocarbons attributable thereto are not encumbered or affected by, any gas
balancing, deferred production, gas banking or similar agreement or arrangement;
and except as set forth in Schedule 2, Sellers are not in an "overlift,"
"over-produced" or similar status under any such agreement or arrangement.
(j) Except as set forth on Schedule 2, neither the Subject Interests
nor the Hydrocarbons attributable thereto is subject to any contract, agreement
or arrangement (including, without limitation, advance payment agreements,
prepayments, take-or-pay makeup obligations or otherwise) whereby the owner of
the Hydrocarbons or any part thereof is not entitled to convey the Hydrocarbons
or to market the Hydrocarbons and to obtain the full market price or value of
the same.
(k) Since January 1, 2001, the Subject Interests have been operated in
accordance with all laws, rules and regulations of all governmental authorities
having or asserting jurisdiction relating to the ownership and operation of the
Subject Interests, including the production of Hydrocarbons attributable
thereto; the Subject Interests are not currently in violation of any such law,
rule or regulation and are not currently subject to reduced allowances or other
penalties on account of overproduction or otherwise.
(l) Each Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each Seller is
qualified to do business and in good standing in each jurisdiction in which the
Subject Interests are located. Each Seller has the legal right, power and
authority, and qualifications to conduct its business and own its properties
(including the Subject Interests); and each Seller has the legal right, power
and authority (i) to execute and deliver the Conveyances to which it is a party
and to convey to Buyer the Overriding Royalty, the Production Payment and all of
the rights and privileges appurtenant thereto and (ii)
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to execute and deliver this Agreement and the Closing Documents to which it is a
party and perform all of such Seller's obligations under the same.
(m) The making and performance by each Seller of this Agreement and the
Closing Documents to which it is a party are within the corporate power of such
Seller, have been authorized by all necessary corporate action on the part of
such Seller, does not and will not (i) violate any provision of such Sellers'
articles of incorporation, bylaws or other governing documents, (ii) violate any
provision of law or any rule, regulation, order, writ, judgment, decree or
determination currently in effect having applicability to such Seller, (iii)
result in a breach of or constitute a default under any indenture, bank loan,
credit agreement or farmout agreement, program agreement or operating agreement,
or any other agreement or instrument to which any Seller is a party or by which
such Seller or such Seller's properties may be currently bound or affected, or
(iv) result in or require the creation or imposition of any mortgage, lien,
pledge, security interest, charge or other encumbrance upon or of any of the
properties or assets of such Seller (including the Subject Interests) under any
such indenture, bank loan, credit agreement or other agreement or instrument;
and no Seller is in default under any such order, writ, judgment, decree,
determination, indenture, agreement or instrument in any manner that now or in
the future will materially adversely affect the ability of such Seller to
perform such Seller's obligations under this Agreement or the Closing Documents
to which it is a party; and all consents or approvals under such indentures,
agreements and instruments necessary to permit valid execution, delivery and
performance by each Seller of the Closing Documents to which it is a party and
the conveying of the Overriding Royalty and the Production Payment to Buyer have
been obtained.
(n) This Agreement has been duly executed and delivered by each Seller,
and as of the Closing the Closing Documents to which it is a party will have
been duly executed and delivered by such Seller, and this Agreement constitutes,
and as of the Closing, the Closing Documents will constitute, the legal, valid
and binding acts and obligations of such Seller enforceable against such Seller
in accordance with their terms, subject, however, to bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally and, with
regard to any equitable remedies, to the discretion of the court before which
proceedings to obtain such remedies may be pending.
(o) Upon due execution and delivery by each Seller of the Conveyances
to which it is a party, (i) the Conveyances will constitute the legal, valid and
binding conveyance of (A) the Overriding Royalty out of the entire Subject
Interests described in the Conveyance of Overriding Royalty Interest attached
hereto as Exhibit A, and (B) the Production Payment out of the entire Subject
Interests described in the Conveyance of Production Payment attached hereto as
Exhibit B, (ii) the Overriding Royalty will constitute (x) an interest in real
property under the laws of each state (other than Louisiana) in which the
Subject Interests described in the Conveyance of Overriding Royalty Interest are
located, (y) a real right under Louisiana law, and (z) a production payment
under Section 541(b)(4)(B) of the United States Bankruptcy Code, and (iii) the
Production Payment will constitute an interest in real property under Texas law.
(p) All consents and waivers of preferential purchase or other rights
necessary to permit the valid conveyance to Buyer of the Overriding Royalty and
Production Payment and
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execution and delivery of this Agreement and the Closing Documents have been
obtained or the time for giving such consents or waivers has expired following a
written request therefor.
(q) All advance notifications (if any) to third parties of the
transactions contemplated herein and in the Closing Documents necessary to
permit the valid conveyance to Buyer of the Overriding Royalty and Production
Payment and
execution and delivery of this Agreement and the Closing Documents have been
timely and properly given.
(r) Except for approvals by governmental authorities that are
customarily obtained after Closing, no authorization, consent, approval, license
or exemption of, and no filing or registration with, any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is necessary to the valid execution and delivery by Sellers of, or the
performance by Sellers of Sellers' obligations under, this Agreement or the
Closing Documents that has not been obtained or performed or the period for
objection thereto expired.
(s) Since January 1, 2001, no fire, explosion, accident, earthquake,
act of public enemy, or other casualty (regardless of whether covered by
insurance) adversely affecting any material portion of the Subject Interests or
the operation thereof, or adversely affecting the ability of Sellers to perform
Sellers' obligations under this Agreement or the Closing Documents, has
occurred.
(t) Prior to the Pre-Closing, Sellers shall have (i) made available to
Buyer true copies of all of the agreements and other instruments evidencing the
Permitted Encumbrances and (ii) delivered to Buyer true copies of all of the
Existing Sales Contracts (as such term is defined in the Production and Delivery
Agreements).
(u) Each Seller's principal place of business is located at the address
for such Seller set forth in the first paragraph of this Agreement.
(v) Sellers or third parties operating the Assets for Sellers have
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws with respect to pollution or protection of the
environment relating to Subject Interests, including laws relating to actual or
threatened emissions, discharges or releases of pollutants, raw materials,
products, contaminants or hazardous or toxic materials or wastes into ambient
air, surface water, groundwater or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes, the failure of which to obtain would materially affect the
value, use or operation of any of the Subject Interests; and Sellers (with
respect to the Assets operated by any Seller), and to Sellers' knowledge third
parties operating the Assets for Sellers (with respect to the Assets not
operated by any Seller) are in compliance in all material respects with all
terms and conditions of such laws, permits, licenses and authorizations, and
also are in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder relating to the Assets, the failure with
which to comply would materially affect the value, use or operation of any
Subject Interest; and Sellers have not (and to Seller's knowledge and belief no
third party operator has) received notice of any
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violation of or investigation relating to any federal, state or local laws with
respect to pollution or protection of the environment relating to the Assets.
(w) (i) Immediately prior to the Closing Date, on the Closing Date, and
immediately after the Closing and giving effect to the sale of the Overriding
Royalty and Production Payment the fair value of each Seller's assets exceed
each Seller's liabilities, and (ii) each Seller is receiving fair value and
adequate consideration for the transactions contemplated hereby.
(x) As of December 31, 2000, 47.7% of the Required Volumes (as such
term is defined in the Assignment and Agreement) have been produced from the
Subject Properties.
(y) The Affidavit of Xxxxxxxxx Xxxxx, Vice President, Controller and
Secretary of KCS Energy, Inc. delivered at or before the Pre-Closing in
accordance with Section 5.02(o), shall be true and correct as of the Closing
Date.
ARTICLE IV
REPRESENTATIONS OF BUYER
4.01 REPRESENTATIONS OF BUYER. As a principal cause and material
inducement to Sellers entering into this Agreement and the Closing Documents and
Sellers' consummation of the transactions described herein, Buyer has made the
representations set forth below with the understanding that, notwithstanding any
investigation made by Sellers, Sellers are relying on each of such
representations and would not have entered into the Closing Documents or have
consummated the transactions described herein but for each of such
representations. In view of the foregoing, and with the acknowledgment that
Sellers' reliance on such representations is reasonable, Buyer hereby represents
and warrants to Sellers as follows:
(a) Buyer is a limited partnership duly organized and validly existing
under the laws of the State of Delaware. The execution, delivery and performance
of this Agreement and the transactions described herein have been duly and
validly authorized by all necessary partnership action on the part of Buyer.
(b) This Agreement has been and as of the Closing, the Closing
Documents will have been, duly executed and delivered on behalf of Buyer and
this Agreement constitutes, and as of the Closing the Closing Documents will
constitute, the legal, valid and binding obligations of Buyer enforceable
against it in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights generally
and with regard to any equitable remedies, to the discretion of the court before
which proceedings to obtain such remedies may be pending.
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ARTICLE V
CONDITIONS TO CLOSING
5.01 CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers to
proceed with the Closing is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions, any one or more of which may be
waived in whole or in part in writing by Sellers:
(a) Buyer shall have performed all covenants and agreements required to
be performed by it hereunder at or prior to the Closing, and each of the
representations and warranties contained in Article IV hereof shall be true and
correct on and as of the Closing Date in all material respects as if made on
such date.
(b) Sellers shall have received a certificate dated the Closing Date of
Buyer certifying as to the matters specified in Section 5.01(a).
(c) The Closing hereunder shall not violate any order or decree of any
federal or state court or agency having competent jurisdiction, and no suit,
action or other proceeding shall be pending in which there is sought any remedy
to restrain, enjoin or otherwise prevent the consummation of this Agreement or
the transaction contemplated in connection herewith.
(d) The Bankruptcy Court shall have entered the Confirmation Order and
the Confirmation Order shall have become a Final Order.
5.02 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
proceed with the Closing is subject to the satisfaction on or prior to the
Closing Date of all of the following conditions precedent, any one or more of
which may be waived in whole or in part in writing by Buyer:
(a) Sellers shall have performed all covenants and agreements required
to be performed by Sellers hereunder at or prior to the Closing, and each of the
representations and warranties contained in Article III hereof shall be true and
correct on and as of the Closing Date in all material respects as if made on
such date.
(b) Buyer shall have received a certificate, dated as of the Closing
Date, of Sellers certifying as to the matters specified in Section 5.02(a).
(c) The Closing shall not violate any order or decree of any federal or
state court or agency having competent jurisdiction, and no suit, action or
other proceeding shall be pending in which there is sought any remedy to
restrain, enjoin or otherwise prevent the consummation of this Agreement or the
transactions contemplated in connection herewith or which may have any material
effect on the Assets.
(d) Buyer shall have received title opinions through a date no earlier
than January 20, 2001 of each of the counsel listed in Exhibit H hereto, in
their capacity as counsel for Sellers (the "Sellers' Title Counsel"), covering
Sellers' title to certain of the Subject Interests requested by Buyer, which
title opinions shall (i) be in form and substance satisfactory to Buyer, (ii) be
addressed to Buyer and (iii) expressly permit Buyer's Affiliates, lenders and
counsel to rely on the same.
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(e) Buyer shall have received opinions dated as of the Closing Date of
Xxxxxx, Arata, McCollam, Xxxxxxxxx & Xxxxx, L.L.P., Louisiana counsel for
Sellers and each of the counsel listed in Exhibit I hereto, in their capacity as
local counsel for Buyer in each jurisdiction (other than Louisiana and Texas)
wherein any of the Subject Interests is located (the "Buyer's Local Counsel"),
addressing the characterization of the Overriding Royalty and the Production
Payment as a real property interest under applicable state law (or a real right
under Louisiana law) and as a production payment under Section 541(b)(4)(B) of
the United States Bankruptcy Code and otherwise in a form reasonably
satisfactory to Buyer.
(f) Buyer shall have received opinions dated as of the Closing Date of
Mayor, Day, Xxxxxxxx & Xxxxxx, L.L.P., and Orloff, Lowenbach, Xxxxxxxxx &
Xxxxxx, P.A., counsel for Sellers, in forms reasonably satisfactory to Buyer.
(g) There shall not exist or shall have occurred since January 1, 2001
any Casualty Defects that, in the aggregate, adversely affect the value of the
Assets, the Overriding Royalty or the Production Payment or the use, possession
or operation by Sellers of the Assets or any material part thereof.
(h) The Reserve Report shall be acceptable to Buyer, in Buyer's sole
discretion, with respect to the proved reserves attributable to the Subject
Interests.
(i) All applicable Hydrocarbon gathering, transportation, processing
and treating agreements and arrangements, all operating agreements, and all
other agreements and arrangements with all transporting pipelines, joint
interest owners and other third parties shall be acceptable to Buyer, in Buyer's
sole discretion, and must assure to Buyer firm uninterrupted delivery and
transportation of Hydrocarbons on terms acceptable to Buyer, in Buyer's sole
discretion.
(j) Buyer, in Buyer's sole discretion, shall be satisfied with the
results of any review of the Assets which it undertakes.
(k) Buyer shall have received certificates from the applicable public
officials of the State of Delaware showing that each Seller is a corporation
duly organized, validly existing and in good standing under the laws of such
state and from the applicable public officials of each state wherein any of the
Subject Interests is located and in the States of Texas and Oklahoma (the
principal places of business of Sellers) showing that each such Seller is duly
qualified and in good standing as a foreign corporation in such states.
(l) The Bankruptcy Court shall have entered the Confirmation Order and
the Confirmation Order shall have become a Final Order.
(m) All conditions to the effectiveness of the KCS Bankruptcy Plan
shall have been satisfied other than the sale of the Reorganized KCS Convertible
Preferred Stock as contemplated under the KCS Bankruptcy Plan and the
transactions contemplated hereby (the closing of such stock sale and the
transactions contemplated hereby to occur simultaneously) and the Debtors shall
have (i) terminated the CIBC Facilities and repaid in full all indebtedness
thereunder, (ii) terminated all existing interest rate and oil and gas price
xxxxxx (other than with Enron North America Corp.) and paid all amounts owing in
connection therewith (or taken such
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other action with respect to such xxxxxx satisfactory to Buyer), and (iii) made
all other payments (or made arrangements satisfactory to Buyer for such
payments) and taken all other actions contemplated by the KCS Bankruptcy Plan to
be made or taken by the Debtors on or as of the "Effective Date" (as such term
is defined in the KCS Bankruptcy Plan) of the KCS Bankruptcy Plan, and Buyer
shall have received satisfactory evidence thereof.
(n) CIBC Inc. and other appropriate Persons shall have executed and
delivered a sufficient number of counterparts of releases of the CIBC Liens and
Buyer and Seller's Title Counsel shall be satisfied with the form and substance
of such instruments.
(o) Buyers shall have received the executed affidavit of Xxxxxxxxx
Xxxxx, Vice President, Controller, and Secretary of KCS Energy, Inc., in form
and substance satisfactory to Buyer, certifying as to certain matters concerning
the effectiveness of the KCS Bankruptcy Plan.
(p) Buyer shall have received assurances satisfactory to Buyer of the
payment to the "Indenture Trustees" of all amounts required under the KCS
Bankruptcy Plan.
ARTICLE VI
CLOSING
6.01 PRE-CLOSING DATE AND PLACE. The Pre-Closing shall take place at
10:00 a.m. Central Time on February 16, 2001 at the offices of Xxxxxxx & Xxxxx
L.L.P. in Houston, Texas unless a different time and place for the Pre-Closing
are mutually agreed upon.
6.02 DOCUMENTS TO BE EXECUTED AT PRE-CLOSING. At the Pre-Closing
Sellers (or certain of the Sellers, as applicable) and Buyer (or Buyer's
affiliates, as applicable) shall duly execute, acknowledge and deliver the
following instruments:
(i) Counterparts of the Conveyances;
(ii) Counterparts of the Production and Delivery Agreements;
(iii)Counterparts of the Excess Gas Sales Contract;
(iv) Counterparts of the Excess Oil Sales Contract;
(v) Counterparts of the Collateral Assignment;
(vi) Financing statements and assignments of financing
statements in form and substance satisfactory to Buyer as may be
necessary or appropriate to perfect the liens and security interests
granted to Buyer under of the Production and Delivery Agreements and
the Collateral Assignment;
(vii) Letters in lieu of transfer orders addressed in blank
covering Hydrocarbons produced from or attributable to each of the
Subject Interests;
(viii) That certain letter agreement regarding engineering
fees payable by Sellers to Enron North America Corp.;
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(ix) That certain letter agreement between Sellers and Buyer
regarding reimbursement of certain transportation, gathering and other
fees and costs for Gas produced from certain of the Subject Interests;
(x) That certain letter agreement between certain of Sellers
and Buyer regarding certain title curative matters related to the
Subject Interests;
(xi) That certain letter agreement dated February 14, 2001
concerning Sellers' crude oil "first offer" obligations to Enron North
America Corp.; and
(xii) Such other instruments as are necessary or appropriate
to effectuate the conveyance of the Overriding Royalty and the
Production Payment to Buyer.
6.03 RECORDING. Promptly following the Pre-Closing, Sellers will cause
counterparts of the Conveyances and the Production and Delivery Agreements to be
filed for record in all appropriate public records where the Subject Interests
are located and cause the financing statements and assignments of financing
statements to be filed with the Secretary of State of the State of Texas and any
other state in which Buyer determines, in its sole discretion, it is necessary
to protect Buyer's liens and security interests in the Assets. Sellers will pay
for all documentary, filing and recording fees required in connection with the
filing and recording of the Closing Documents.
6.04 CLOSING TITLE REPORT. On the next business day following the
Pre-Closing, Sellers shall cause Sellers' Title Counsel to report to Buyer
(updating the title opinions previously furnished to Buyer), to the effect that
the Conveyances and Production and Delivery Agreements have been properly filed
for record in accordance with Section 6.03 and that as of the filing of such
Closing Documents (a) one or more Seller is the owner of the Subject Interests,
less and except the Overriding Royalty or the Production Payment, (as
applicable), which are subject only to the Permitted Encumbrances and the
Production and Delivery Agreements, (b) Buyer is the owner of the Overriding
Royalty and the Production Payment, subject only to the Permitted Encumbrances,
and (c) all filings in the recording offices in the States in which the Subject
Interests are located which are necessary to perfect Buyer's title to the
Overriding Royalty and the Production Payment and to give constructive notice to
third parties of Buyer's interest under the Production and Delivery Agreements
have been made.
6.05 CLOSING. Concurrently with the receipt by Buyer of the title
report required pursuant to Section 6.04, the following shall occur at the
offices of Xxxxxxx & Xxxxx L.L.P. in Houston, Texas or such other location as
may be agreed to by the parties:
(a) Buyer and Sellers shall exchange the certificates described in
Section 5.01(b) and 5.02(b);
(b) Buyer shall accomplish payment of the Purchase Price to each
Seller, pursuant to the written instructions provided to Buyer on or before the
date of the Pre-Closing, which instructions shall include instructions for the
payment of all indebtedness owing under the CIBC Facilities on behalf of
Sellers;
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(c) Sellers shall pay to ECT Securities Limited Partnership the fees
provided for in that certain letter agreement between Sellers and ECT Securities
Limited Partnership dated December 14, 2001;
(d) Sellers shall pay all of Buyer's attorneys' fees and other
out-of-pocket transaction costs and expenses incurred by Buyer in connection
with the transactions contemplated herewith, for which Sellers have received an
invoice prior to Closing; and (e) the parties shall take such other actions and
make such other deliveries of documents as are necessary or appropriate to
effectuate the conveyance of the Overriding Royalty and the Production Payment
to Buyer.
The Closing shall be deemed to have occurred upon payment of the
Purchase Price and the occurrence of the other actions in accordance with this
Section 6.05. Each party agrees to execute such acknowledgment of receipt of
funds pursuant to this Section 6.05 as the other party may reasonably request.
6.06 CLOSING TITLE OPINIONS. Within 5 business days following the
Closing, Sellers shall deliver to Buyer title opinions of Sellers' Title Counsel
in a form acceptable to Buyer and updating the title opinions previously
provided to Buyer and confirming the matters orally reported to Buyer pursuant
to Section 6.04.
6.07 FAILURE TO CLOSE. If all of the conditions to Closing set forth in
Article V have not been satisfied or waived on or before March 1, 2001 (or such
later date as hereafter may be mutually agreed upon by the parties in writing)
this Agreement shall terminate automatically, and no party hereto shall have any
further obligation or any liability to the other party pursuant to this
Agreement, except (i) as provided in Sections 7.04 and 7.06, and (ii) that
nothing herein shall relieve any party from liability for willful failure to
satisfy any conditions to Closing of the other party required to be satisfied by
it.
6.08 PAYMENTS. Immediately upon Closing, Sellers shall make all
payments and take all action contemplated by the KCS Bankruptcy Plan to be made
or taken by the Debtors on or as of the "Effective Date" (as defined in the KCS
Bankruptcy Plan) of the KCS Bankruptcy Plan, other than the payment of all
indebtedness owing under the CIBC Facilities which shall be made by Buyer out of
the Purchase Price proceeds in accordance with Section 6.05(b).
ARTICLE VII
MISCELLANEOUS
7.01 ANNOUNCEMENTS. Each party covenants and agrees with the other
that, subject to applicable law, each party shall promptly advise and consult
with the other and obtain the other's written consent before issuing any press
release with respect to this Agreement or the transactions described herein.
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7.02 FURTHER ASSURANCES. Sellers and Buyer agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful to effectuate the conveyance of the
Overriding Royalty and the Production Payment and to carry out the purposes of
this Agreement or any of the Closing Documents.
7.03 SURVIVAL. The representations, warranties, covenants, agreements
and indemnities in this Agreement and the Closing Documents shall survive the
Closing and the consummation of the transactions described herein and therein.
7.04 EXPENSES. Whether or not Closing occurs, Sellers shall reimburse
Buyer promptly on demand for all of Buyer's reasonable out-of-pocket legal and
professional fees and expenses and other transaction costs and expenses incurred
by Buyer in connection with the evaluation, negotiation, documentation and
closing of this Agreement, the Closing Documents and the transactions
contemplated herein and therein, and the review of matters in connection with
such transactions. Sellers shall pay and be responsible for the organization fee
provided for in that certain letter agreement dated December 14, 2001, a copy of
which was previously delivered to Buyer. In addition, Sellers shall indemnify
and hold harmless Buyer from and against any and all liability for any brokers'
or finders' fees arising with respect to brokers or finders retained or engaged
by Sellers in respect of the transactions described herein. Buyer shall
indemnify and hold harmless Sellers from and against any and all liability for
any brokers' or finders' fees arising with respect to brokers or finders
retained or engaged by Buyer in respect of the transactions described herein.
7.05 NOTICES. All notices, requests, demands, instructions and other
communications required or permitted to be given hereunder shall be in writing
and shall be delivered personally, mailed by certified mail, postage prepaid and
return receipt requested or sent by telecopier or e-mail, as follows:
If to Sellers or any of them, addressed to:
c/o KCS ENERGY SERVICES, INC.
0000 Xxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxx Xxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxx@xxxxxxxxx.xxx
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With a copy to:
Mayor, Day, Xxxxxxxx & Xxxxxx LLP
Attention: Xxxxxxx X. Xxxx
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxx@xxxx.xxx
If to Buyer, addressed to:
Star VPP, LP
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxxx.xxxxxx@xxxxx.xxx
With a copy to:
Enron Corp.
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Fax No. 000-000-0000
Phone No. 000-000-0000
email: xxxxx.xxxxx@xxxxx.xxx
or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notice given by telecopier or e-mail shall be effective
upon actual receipt if received during recipient's normal business hours or at
the beginning of the next business day after receipt if received after the
recipient's normal business hours.
7.06 INDEMNIFICATION.
(a) Sellers, jointly and severally, shall fully defend, protect,
indemnify and hold harmless Buyer and Buyer's successors, assigns and Affiliates
("Indemnified Parties") from and against any and all losses which may be
suffered by Indemnified Parties and from and against any and all claims,
demands, suits and causes of action (collectively "Claims") of every kind and
character (together with reasonable attorneys' fees, costs of defense and court
costs) of or which may be asserted by any Person (including, without limitation,
Sellers, Sellers' officers and Affiliates), relating to, arising out of, or in
any way incidental to the breach of any warranty or representation contained in
Article III of this Agreement, regardless of whether Buyer may have
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known of such breach or of the condition giving rise to such breach AND EVEN IF
CAUSED OR ALLEGEDLY CAUSED BY THE JOINT OR CONCURRENT NEGLIGENCE OR OTHER LEGAL
FAULT OF ANY INDEMNIFIED PARTY. Without limiting the foregoing, if any
Conveyance or any Subject Interest is rejected as an unexpired lease or
executory contract pursuant to any of the provisions of Xxxxxxx 000 xx xxx
Xxxxxx Xxxxxx Bankruptcy Code, the damages recoverable by Buyer as a result of
such rejection shall equal the value as of the date of rejection of the future
Hydrocarbon (or Hydrocarbon proceeds) delivery and/or payment obligations
remaining under such Conveyance at the time of the rejection determined in a
commercially reasonably manner. Sellers acknowledge that the mortgage, lien and
security interests granted in the Production and Delivery Agreements and the
Collateral Assignment secure, among other things, any amount owed pursuant to
this Section 7.06.
(b) If any Claim is asserted against any Indemnified Party by a third
Person, the Indemnified Party shall with reasonable promptness notify the
Sellers of such Claim. Pursuant to Sellers' defense obligation provided in the
first sentence of Section 7.06(a), Sellers shall employ counsel satisfactory to
Buyer and shall take such other steps as are reasonably necessary or appropriate
to defend the Indemnified Parties against such Claim.
7.07 GOVERNING LAW. EXCEPT TO THE EXTENT THE LAWS OF ANY OTHER STATE
ARE MANDATORILY APPLICABLE, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
7.08 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and,
subject to the following restriction, shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Nothing contained
herein shall in any way limit or restrict the right of Buyer, or Buyer's
successors and assigns to transfer, assign or pledge their respective rights or
obligations hereunder in whole or in part. Sellers shall not transfer, assign or
pledge Sellers' rights or obligations hereunder without the prior written
consent of Buyer.
7.09 SCHEDULES AND EXHIBITS. The Schedules and Exhibits attached hereto
and referred to herein constitute a part of this Agreement.
7.10 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement and the
Closing Documents constitute the entire agreement between the parties hereto
with respect to the transactions described herein, superseding all prior
negotiations, discussions, agreements and understandings, whether oral or
written, relating to such subject matter. This Agreement may not be amended and
no rights hereunder may be waived except by a written document signed by the
party to be charged with such amendment or waiver. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided. Each party
acknowledges that it has read and understands the terms of this Agreement and
the Closing Documents and has had the opportunity to consult with legal, tax and
accounting counsel and advisers of its choice concerning the meaning and effect
thereof. Neither party has relied upon the other party or its counsel or
advisers with respect to the meaning or effect of any such agreement or
instrument.
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7.11 HEADINGS. The headings of the articles and sections of this
Agreement are for guidance and convenience of reference only and shall not limit
or otherwise affect any of the terms or provisions of this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed by Buyer and Sellers
in any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
7.13 EXERCISE OF OPTION. On or before the earlier of (a) seven (7) days
prior to the termination of the Option in accordance with the terms of the
Assignment and Agreement, (b) December 31, 2002, or (c) the date of termination
of the tax credit provided under Section 29 of the Internal Revenue Code of
1986, as amended, KCS Medallion Resources, Inc. shall exercise the Option to
acquire all of the Subject Properties for a term not to expire before December
31, 2008. Within 30 days after the exercise of the Option, KCS Medallion
Resources, Inc. shall take all steps necessary to consummate the purchase of
such properties (the "Option Closing"). Within 15 days after the Option Closing,
KCS Medallion Resources, Inc. shall execute and deliver a new Conveyance of
Overriding Royalty Interest in substantially the form of Exhibit A hereto that
provides for the interest in the Subject Properties acquired by KCS Medallion
Resources, Inc. at the Option Closing to be the Subject Interests thereunder and
the Scheduled Amounts to be delivered thereunder for each Month after the
effective date of such new conveyance to equal the Scheduled Amounts for such
Month under the Conveyance of Production Payment, plus any Adjustment Quantity
for such Month under the Conveyance of Production Payment. In addition, KCS
Medallion Resources, Inc. and Buyer shall amend and supplement the existing
Production and Delivery Agreement related to the Conveyance of Production
Payment to include the interest in the Subject Properties acquired by KCS
Medallion Resources, Inc. at the Option Closing and to be in substantially the
form of the Production and Delivery Agreement attached hereto as Exhibit C.
Simultaneously with the execution and delivery of the new Conveyance of
Overriding Royalty Interest by KCS Medallion Resources, Inc., Buyer and KCS
Medallion Resources, Inc. shall terminate the Production Payment.
7.14 JOINT AND SEVERAL LIABILITY. Each Seller agrees that all
obligations and liabilities of the Sellers under this Agreement shall be joint
and several, and Buyer may, at its election, at any time and from time to time,
look to any or all of the Sellers in satisfaction of same.
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EXECUTED on the date first set forth above.
SELLERS:
KCS RESOURCES, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx, Vice President
KCS ENERGY SERVICES, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx, President
KCS MICHIGAN RESOURCES, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx, Senior Vice President
KCS MEDALLION RESOURCES, INC.
By:
-----------------------------------------
Xxxxx Xxx Xxxxx, Vice President
BUYER:
STAR VPP, LP
BY: KCSE STAR, LLC,
its general partner
By:
-----------------------------------------
C. Xxxx Xxxxxxxx, Vice President
24
EXHIBIT A
CONVEYANCE OF OVERRIDING ROYALTY
Exhibit A Page 1
25
CONVEYANCE OF OVERRIDING ROYALTY INTEREST
FROM
KCS RESOURCES, INC., KCS ENERGY SERVICES, INC.,
KCS MICHIGAN RESOURCES, INC. AND
KCS MEDALLION RESOURCES, INC.
"GRANTORS"
TO
STAR VPP, LP
"GRANTEE"
This document prepared by:
Xxxxxxx X. Xxxxxxx
Xxxxxxx & Xxxxx L.L.P.
0000 Xxxxx Xxxxx, 000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone: 000-000-0000
26
CONVEYANCE OF OVERRIDING ROYALTY INTEREST
This Conveyance of Overriding Royalty Interest (this "Conveyance"), is
from KCS RESOURCES, INC., a Delaware corporation, and KCS ENERGY SERVICES, INC.,
a Delaware corporation, both of whose address is 0000 Xxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000, and KCS MICHIGAN RESOURCES, INC., a Delaware corporation,
and KCS MEDALLION RESOURCES, INC., a Delaware corporation, both of whose address
is 0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxxx 00000 (each such party is
referred to herein individually as a "Grantor" and collectively as the
"Grantors"), to STAR VPP, LP, a Delaware limited partnership, whose address is
0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxx 00000 ("Grantee").
WHEREAS, Grantors in the aggregate are the owners of undivided
interests in and to, or out of or affecting, the oil and gas leases described in
Exhibit A hereto covering certain lands in Texas, Louisiana, Oklahoma, New
Mexico, Michigan and Mississippi, or in waters adjacent to the states of Texas
and Louisiana, and Grantors have agreed to convey to Grantee the following
described overriding royalty interest out of Grantor's interests in such leases;
WHEREAS, capitalized terms as used herein shall have the meanings given
to them in Article II hereof unless otherwise defined herein.
NOW, THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS:
ARTICLE I
CONVEYANCE
Section 1.01. Conveyance. For and in consideration of One Thousand
Dollars ($1000.00) and other good and valuable consideration to Grantors, cash
in hand, paid by Grantee, the receipt and sufficiency of which are hereby
acknowledged, Grantors hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, SET OVER AND
DELIVER unto Grantee, an overriding royalty interest in each of the Subject
Interests and in and to the Hydrocarbons in and under and that may be produced
and saved from the Lease Acreage and attributable to the Subject Interests equal
to the respective Overriding Royalty Percentage applicable to each Subject
Interest (after deduction of the prorata part of the Lease Use Hydrocarbons and
Non-Consent Hydrocarbons attributable to the Subject Interests), but not to
exceed on any Day during any Month the Subject Quantity of the first
Hydrocarbons produced and saved that Day, together with all and singular the
rights and appurtenances thereto in anywise belonging (the "Overriding
Royalty").
TO HAVE AND TO HOLD the Overriding Royalty unto Grantee, its successors
and assigns forever, subject to the following terms, provisions and conditions.
SECTION 1.02. Non-Operating, Non-Expense-Bearing Interest. The
Overriding Royalty conveyed hereby is a non-operating, non-expense-bearing
limited term overriding royalty
27
interest in and to the Subject Interests (being a real property interest and in
the State of Louisiana a real right), free of all cost, risk and expense of
production, operations and delivery to the applicable Delivery Point. In no
event shall Grantee ever be liable or responsible in any way for payment of any
costs, expenses or liabilities attributable to the Subject Interests (or any
part thereof) or incurred in connection with the production, saving or delivery
of Overriding Royalty Hydrocarbons to the applicable Delivery Point. This
Conveyance is an absolute conveyance of a real property interest and in the
State of Louisiana a real right and a "production payment" under Section
541(b)(4)(B) of the Bankruptcy Code.
Section 1.03. Termination. The Overriding Royalty shall remain in full
force and effect until the later of (a) January 31, 2006, or (b) 7:00 a.m.
Central Time on the day following the date when any Basis Adjustment Amount
outstanding as of January 31, 2006 has been reduced to zero (the "Termination
Time"). Upon termination of the Overriding Royalty as above provided, all
rights, titles and interests herein conveyed shall automatically terminate and
vest in Grantors and, upon request by Grantors, Grantee shall promptly execute
and deliver such instrument or instruments (in recordable form) as may be
necessary to evidence the termination of the Overriding Royalty. In the event
any individual Subject Interest (or portion thereof, as applicable) should
terminate before the Termination Time and not be extended, renewed or replaced,
the Overriding Royalty no longer shall apply to that particular Subject Interest
(or such portion thereof, as applicable), but the Overriding Royalty shall
remain in full force and effect and undiminished as to all remaining Subject
Interests (and the remainder portion of such Subject Interest, as applicable),
and neither the Subject Quantity nor the amount described in the initial
sentence of this Section 1.03 shall ever be reduced or diminished by reason of
the termination of a Subject Interest (or the termination of a Subject Interest
as to such portion thereof, as applicable).
SECTION 1.04. Delivery to Grantee. The Overriding Royalty Hydrocarbons
shall be delivered to Grantee, or to the credit of Grantee, into the facilities
of the First Transporter or first purchaser at the applicable Delivery Point. As
between Grantors and Grantee, Grantors shall be in exclusive control and
possession of the Overriding Royalty Hydrocarbons deliverable hereunder and
responsible for any loss, damage or injury caused thereby until the same shall
have been delivered to Grantee at the applicable Delivery Point, after which
delivery Grantee shall be deemed to be in exclusive control and possession
thereof and responsible for any loss, injury or damage caused thereby. To the
extent it has the right to do so, Grantors hereby grant to Grantee, easements
and rights-of-way over and across the Leases and lands pooled, communitized
and/or unitized therewith, together with rights of ingress and egress to go on
or about such lands for purposes of receiving, accepting and taking Overriding
Royalty Hydrocarbons at the applicable Delivery Point and, to the extent
necessary, for the construction, maintenance, operation, repair and removal of
pipelines, metering stations and any and all other facilities and appurtenances
necessary or useful related to the receipt, transportation, measurement,
treatment and marketing of the Overriding Royalty Hydrocarbons.
SECTION 1.05. Certain Limitations. The Overriding Royalty shall be
subject to the following provisions:
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(a) Grantee shall look solely to the Overriding Royalty
Hydrocarbons for satisfaction and discharge of the Overriding Royalty,
and Grantors shall not be personally liable for the payment and
discharge thereof.
(b) There shall not be included in the Overriding Royalty
Hydrocarbons any Lease Use Hydrocarbons or Non-Consent Hydrocarbons.
(c) The occurrence of an event of Force Majeure shall not
suspend the calculation of either the Adjustment Quantity or the Basis
Adjustment Amount hereunder.
Section 1.06. Measurement. Measurement of the volume of Overriding
Royalty Hydrocarbons delivered hereunder shall be made at the existing metering
points. Measurement of the Btu content of Overriding Royalty Gas shall be
determined on a dry basis under the applicable transportation agreement with the
First Transporter. Measurement of Overriding Royalty Oil shall be determined in
accordance with generally accepted industry practices in effect at the time and
place of delivery using the latest American Society for Testing Materials
(A.S.T.M.) or American Petroleum Institute (A.P.I.) test methods. Volume of
Overriding Royalty Oil shall be corrected to 60 degrees Fahrenheit temperature
in accordance with the latest A.S.T.M. test methods and the latest edition of
A.P.I. volume correction tables, and full deductions shall be made for all basic
sediment and water and other impurities.
SECTION 1.07. Royalties; Taxes. The Overriding Royalty shall be free of
(and without deduction therefrom of) any and all royalties and other burdens on
production and shall bear no part of same; the Subject Interests shall be
burdened with, and Grantors shall timely pay, all such royalties and other
burdens on production, and Grantors shall defend, indemnify and hold Grantee
harmless from and against any loss or claim with respect to any such royalties
and other burdens on production or any claim by the owners or holders of such
royalties and other burdens on production. Grantors, as the owners of the
Subject Interests, shall bear and pay all Taxes with respect to the Overriding
Royalty and the Overriding Royalty Hydrocarbons, the Overriding Royalty
Hydrocarbons being free of Taxes and delivered without deduction for Taxes.
SECTION 1.08. Mortgage or Assignment by Grantors. During the term of
the Overriding Royalty, (i) Grantors shall not mortgage, pledge or hypothecate
the Subject Interests or create or allow to remain thereon any lien or security
interest thereon or on any Hydrocarbons produced therefrom, and (ii) Grantors
shall not assign, sell, convey or otherwise transfer the Subject Interests or
any part thereof unless Grantee expressly consents thereto in writing, the
transferee expressly agrees to assume and perform all of Grantors' obligations
under this Conveyance, and such sale, transfer or assignment is made and
accepted expressly subject and subordinate to this Conveyance. Any purported
mortgage, pledge, hypothecation, lien, security interest, assignment, sale,
conveyance or other transfer in contravention of the foregoing terms shall be
null and void. During the term of the Overriding Royalty, Grantors shall not
pool, communitize or unitize the Overriding Royalty or Subject Interests without
the express written consent of Grantee (such consent not to be unreasonably
withheld), and any purported pooling, communitization or unitization in
contravention of the preceding clause shall be null and void as to Grantee and
shall not have the effect of pooling or otherwise affecting the Overriding
Royalty.
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Section 1.09. Title. Grantors warrant and represent that the Leases are
valid and subsisting oil and gas leases covering the lands described in such
leases. Grantors further warrant and represent that (a) with respect to all
Subject Interests other than the Subject Interests comprising the Xxxx-Xxxxxxx
Production Payment, Grantors' ownership of such Subject Interests (i) entitles
Grantors to a share of all Hydrocarbons produced from or attributable to the
applicable Leases and the Subject Xxxxx related thereto, and of the proceeds of
such production, after giving effect to and/or deducting all applicable
royalties, overriding royalties and other burdens or payments out of production
(except the Overriding Royalty) that is not less than the respective Net Revenue
Interests identified on Exhibit A, (ii) obligates Grantors to pay a share of all
costs of operation and development of the Leases and the Subject Xxxxx related
thereto that are not greater than the respective Working Interests identified on
Exhibit A, and (iii) is free and clear of all liens, claims and encumbrances
other than Permitted Encumbrances, (b) KCS Energy Services, Inc. owns all (100%)
of the Xxxx-Xxxxxxx Production Payment, free and clear of all liens, claims and
encumbrances other than Permitted Encumbrances, and (c) with respect to the
Leases subject to the Xxxx-Xxxxxxx Production Payment, HHOC's ownership of such
Leases (i) entitles HHOC to a share of all Hydrocarbons produced from or
attributable to the applicable Leases and the Subject Xxxxx related thereto, and
of the proceeds of such production, after giving effect to and/or deducting all
applicable royalties, overriding royalties and other burdens or payments out of
production (except the Xxxx-Xxxxxxx Production Payment) that is not less than
the respective Net Revenue Interests identified on Exhibit A for the HHOC
Properties, (ii) obligates HHOC to pay a share of all costs of operation and
development of such Leases and the Subject Xxxxx related thereto that is not
greater than the respective Working Interests identified on Exhibit A for the
HHOC Properties, and (iii) is free and clear of all liens, claims and
encumbrances other than Permitted Encumbrances and the "Permitted Encumbrances"
described in the conveyance of the Xxxx-Xxxxxxx Production Payment and the
amendments thereto described in Exhibit A. Grantors hereby bind Grantors and
each Grantor's successors and permitted assigns, to warrant and forever defend
all and singular title to the Overriding Royalty and the Overriding Royalty
Hydrocarbons, subject only to the Permitted Encumbrances, unto Grantee, its
successors and assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof. There is also hereby conveyed to Grantee, by
way of substitution and subrogation, all rights of warranty and contractual
representations or covenants of any kind or nature held by Grantors against any
of Grantors' respective predecessors in title.
SECTION 1.10 Joint and Several Obligations. Each Grantor agrees that
the obligation to deliver Overriding Royalty Hydrocarbons in respect of the
Overriding Royalty, together with all other obligations and liabilities of
Grantors under this Conveyance, are the joint and several obligations of all
Grantors. Without limiting the generality of the foregoing, each Grantor agrees
that, if on any Day for any reason there are insufficient Overriding Royalty
Hydrocarbons produced and delivered from any Property to satisfy the Scheduled
Amount of Overriding Royalty Hydrocarbons for such Property for such Day, any
Basis Adjustment Amount and Adjustment Quantity resulting therefrom may be
satisfied from other Properties whether owned by the same Grantor or another
Grantor.
ARTICLE II
DEFINITIONS
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As used herein and in the exhibits hereto, the following terms shall
have the respective meanings ascribed to them below:
"Adjustment Quantity" for each Property on each Day means the quantity
(expressed in MMBtu) of Gas determined by dividing the Basis Adjustment Amount
as of the commencement of such Day by the Spot Price of Gas for such Property on
such Day. For deliveries occurring prior to the time such Spot Price for any
Property on any Day is known, the price for the immediately preceding Day shall
apply.
"Affiliate" shall mean with respect to a party any entity which either
directly or indirectly controls or manages, is controlled or managed by or is
under common control or management with such party. For purposes hereof,
"control" means the right or power to direct the policies of another through
management authority, stock ownership delegated authority, voting rights or
otherwise.
"Average Daily Deficiency Amount" means as to each Month, if the sum of
the Basis Adjustment Amounts for each Day of such Month is a positive number,
the amount determined by dividing such positive number by the number of Days in
such Month on which the Basis Adjustment Amount exceeded zero (0).
"Bankruptcy Code" means Title 11 of the United States Code, Section
101, et seq, as amended.
"Barrel" means 42 United States standard gallons of 231 cubic inches
per gallon at 60 degrees Fahrenheit.
"Basis Adjustment Amount" means zero (0) as of February 1, 2001. As of
February 2, 2001 and as of each succeeding Day, such term means the Basis
Adjustment Amount as of the commencement of the immediately preceding Day (a)
increased by the amount, if any, of Basis Deficiency for the immediately
preceding Day, and (b) decreased by the amount, if any, of Basis Credit for the
immediately preceding Day, and the amount resulting from such adjustments made
on the first Day of each Month shall be further adjusted by the Monthly
Adjustment Amount.
"Basis Credit" for each Day for each Property means the product
obtained by multiplying (a) the amount, if any, by which the quantity (expressed
in MMBtus or Barrels, as applicable) of Overriding Royalty Hydrocarbons actually
received by, or sold on behalf of, Grantee from such Property exceeds the
Scheduled Amount for such Property for such Day times (b) the Spot Price of Gas
or Oil for such Property, as applicable, for such Day.
"Basis Deficiency" for each Day for each Property means the product
obtained by multiplying (a) the amount, if any, by which the quantity (expressed
in MMBtus or Barrels, as applicable) of Overriding Royalty Gas or Overriding
Royalty Oil from such Property actually received by, or sold on behalf of,
Grantee is less than the Scheduled Amount for such Property for such Day times
(b) the Spot Price of Gas or Oil for such Property, as applicable, for such Day.
"British Thermal Unit" or "Btu" means the amount of energy required to
raise the temperature of one (1) pound of pure water one degree Fahrenheit
(1(degree)F.) from fifty-nine degrees Fahrenheit (59(degree)F.) to sixty degrees
Fahrenheit (60(degree)F.).
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"Business Day" means any day other than a Saturday, a Sunday or a
holiday on which national banking associations in the State of Texas are closed.
"Central Time" means Central Standard Time or Central Daylight Savings
Time in effect on the date in question.
"Closing" means the consummation of the purchase and sale of Overriding
Royalty conveyed hereunder.
"Day" means a period of 24 consecutive hours beginning at the time of
the First Transporter's gas day.
"Delinquent Sales Proceeds" means sales proceeds from Overriding
Royalty Hydrocarbons sold by Grantor on behalf of Grantee that are not received
by Grantee on or before the last LIBOR Day of the Month following the Month in
which such Overriding Royalty Hydrocarbons were produced.
"Delivery Point" means with respect to Gas the point or points set
forth on Exhibit B for each Property and with respect to Oil the point or points
set forth on Exhibit C for each Property, or in each case, such other point or
points mutually agreed to in writing by Grantors and Grantee.
"Effective Time" means 12:01 a.m. on February 1, 2001.
"First Transporter" means the first interstate or intrastate pipeline
downstream of the Delivery Point.
"Fixed Rate" means the annual rate of interest of 12%, calculated on
the basis of a 365 or 366 day year, as the case may be, but not to exceed the
maximum nonusurious rate permitted by applicable law.
"Force Majeure" means acts of God, strikes, lockouts, or other
industrial disturbances, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, arrests and restraints and prohibitions of government,
either federal or state, inability to obtain necessary materials, supplies
(other than Hydrocarbons), or permits due to existing or future rules, order,
laws of governmental authorities (both federal and state), civil disturbances,
explosions, sabotage, breakage or accident to machinery or lines of pipe,
freezing of lines of pipe, interruption or curtailment of firm or interruptible
transportation services provided by third party transporters, and any other
causes whether of the kind herein enumerated or otherwise, which are not
anticipated at the time of execution hereof, which are not within the control of
the party claiming suspension and which by the exercise of due diligence such
party could not have prevented or is unable to overcome. By way of illustration,
the term "Force Majeure" shall not include shutdowns due to routine maintenance,
repairs or workovers (regardless of whether such shutdown is by the operator or
owner); restrictions caused by gas balancing agreements or arrangements; or
depletion of reserves.
"Gas" means natural gas and other gaseous hydrocarbons.
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"Grantor-Marketed Hydrocarbons" means, collectively, all Overriding
Royalty Gas produced from the Properties described on Exhibit D-Part I and all
Overriding Royalty Oil produced from the Properties described on Exhibit D-Part
II.
"Xxxx-Xxxxxxx Production Payment" means the production payment conveyed
by HHOC to KCS Energy Services, Inc. as described in Exhibit A-Part II at pages
A135 through A-138.
"HHOC" means Xxxx-Xxxxxxx Oil Company, a Texas corporation.
"HHOC Properties" means the following Properties described in Exhibit
A: (a) HHOC West Cameron Block 149, (b) HHOC East Cameron Block 160, (c) HHOC
South Xxxxx Xxxxx 00, (x) XXXX Xxxxx Xxxxx Xxxxxx 14 and 15, (e) HHOC Xxxxxxxxx
Xxxxx 000, (x) HHOC Xxxxxxxxx Xxxxx 000, xxx (x) XXXX Xxxx Xxxxxx Xxxxx A-327.
"Hydrocarbons" means Oil and Gas.
"Lease" means an oil and gas lease described, referred to or identified
in Exhibit A hereto as to all lands and depths described in such lease (or the
applicable part or portion thereof if specifically limited in depth and/or areal
extent in Exhibit A), together with any renewal or extension of such lease (as
to all or any part or portion thereof), and any replacement lease taken upon or
in anticipation of expiration or termination of such lease (if executed and
delivered during the term of or within one (1) year after expiration of the
predecessor lease), as to all lands and depths described in the predecessor
lease (unless the predecessor lease is specifically limited in depth or areal
extent in Exhibit A in which event only such portion of such lease shall be
considered a renewal or extension or a replacement lease subject to this
Conveyance), and all such renewals and extensions and replacement leases; and
"Leases" means all such leases.
"Lease Acreage" means all lands described in each oil and gas lease
described, referred to or identified in Exhibit A, as to all depths; provided,
in the case of an oil and gas lease specifically limited in depth and/or areal
extent in Exhibit A, "Lease Acreage" in connection with such oil and gas lease
shall mean the lands described in such lease as so specifically limited in depth
and/or areal extent in Exhibit A.
"Lease Use Hydrocarbons" means any Hydrocarbons which are unavoidably
lost in the production thereof or used by Grantors or the operator on the Leases
or any unit in which the Leases are pooled or unitized for drilling and
production operations conducted prudently and in good faith for the purpose of
producing Hydrocarbons from the Leases or from such unit, but only for so long
as and to the extent such Hydrocarbons are so used.
"LIBOR Day" means any day on which commercial banks are open for
business (including dealings in foreign exchange and foreign currency deposits)
in both London, England and New York, New York.
"MMBtu" means 1,000,000 British Thermal Units.
"MMBtu Equivalent" means (a) with respect to Overriding Royalty Gas,
the quantity of such Gas, measured as provided herein expressed in MMBtus, and
(b) with respect to Overriding Royalty Oil, the number of MMBtus determined by
multiplying the quantity of such Oil
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(expressed in Barrels) by a ratio the numerator of which is the Spot Price of
Oil (expressed in dollars per Barrel) for the Property from which such Oil was
produced for the Day on which such Oil was sold and the denominator of which is
the Spot Price of Gas (expressed in dollars per MMBtu) for the Property from
which such Oil was produced for the Day on which such Oil was sold.
"Month" means a calendar month.
"Monthly Adjustment Amount" means for the first Day of the applicable
Month; provided the calculations in clauses (c), (d) and (e) below shall be made
for the first time on April 1, 2001 and the calculations in clauses (f) and (g)
below shall be made for the first time on May 1, 2001, and in each case then on
the first Day of each succeeding Month:
(a) an amount equal to interest at the Fixed Rate on the
Average Daily Deficiency Amount (if any) for the immediately preceding
Month for the number of Days in such preceding Month on which the Basis
Adjustment Amount exceeded zero; plus,
(b) an amount equal to the amount of any Taxes imposed or
assessed upon the Overriding Royalty or Overriding Royalty Hydrocarbons
which are not paid by Grantor and which Grantee paid during the
immediately preceding Month plus an amount equal to interest on such
amount at the Fixed Rate for the number of Days in such Month after
such payment; plus,
(c) an amount equal to the sum of the following: for each Day
of the second preceding Month (i.e., as to April 1, 2001, the Month of
February 2001), an amount equal to the quantity of Overriding Royalty
Hydrocarbons (expressed in Barrels or MMBtus, as applicable) produced
from any Property and sold by Grantors on behalf of Grantee on such Day
(including, without limitation, Grantor-Marketed Hydrocarbons sold by
Grantors on behalf of Grantee) multiplied by the amount, if any, that
the sales price per MMBtu or Barrel, as applicable, for such Overriding
Royalty Hydrocarbons was less than the Spot Price of Oil or Gas (as
applicable) for such Property for such Day; less,
(d) an amount equal to the sum of the following: for each Day
of the second preceding Month, an amount equal to the quantity of
Overriding Royalty Hydrocarbons (expressed in Barrels or MMBtus, as
applicable) produced from any Property and sold by Grantors on behalf
of Grantee on such Day (including, without limitation, Grantor-Marketed
Hydrocarbons sold by Grantors on behalf of Grantee) multiplied by the
amount, if any, that the sales price per Barrel or MMBtu, as
applicable, for such Overriding Royalty Hydrocarbons was greater than
the Spot Price of Oil or Gas (as applicable) for such Property for such
Day, plus
(e) an amount equal to any Delinquent Sales Proceeds for
Overriding Royalty Hydrocarbons produced during the second preceding
Month (i.e., as to April 1, 2001, Delinquent Sales Proceeds for
Overriding Royalty Hydrocarbons produced during the Month of February
2001) plus an amount equal to interest on such amount at the Fixed Rate
for the number of Days in the immediately preceding month after the
last LIBOR Day of such immediately preceding month; less
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(f) the amount of any Delinquent Sales Proceeds (and any
interest or penalties with respect thereto) received by Grantee during
the immediately preceding Month.
"Net Revenue Interest" means a percentage share of Hydrocarbons
produced from or attributable to a Lease or Subject Well and the Subject
Interests related thereto, and the proceeds of such production.
"Non-Consent Hydrocarbons" means those Hydrocarbons produced from a
well during the applicable period of recoupment or reimbursement pursuant to a
Non-Consent Provision covering that well, which Hydrocarbons have been
relinquished to the consenting party or participating party under the terms of
such Non-Consent Provision as the result of the election by any Grantor not to
participate in the particular operation, provided, such election by such Grantor
has been made in good faith and as a prudent operator.
"Non-Consent Provision" means a contractual provision contained in an
applicable third-party operating agreement, unit agreement, contract for
development or other similar instrument which is a Permitted Encumbrance, which
provision covers so-called non-consent operations or sole benefit operations and
provides for relinquishment of production by non-consenting or non-participating
parties during a period of recoupment or reimbursement of costs and expenses of
the consenting or participating parties.
"Oil" means crude oil, condensate and other liquid hydrocarbons.
"Overriding Royalty" shall have the meaning given such term in Section
1.01 hereof.
"Overriding Royalty Gas" means the portion of the Overriding Royalty
Hydrocarbons which are Gas.
"Overriding Royalty Hydrocarbons" shall mean the Hydrocarbons conveyed
to Grantee pursuant to Section 1.01 hereof.
"Overriding Royalty Oil" means the portion of the Overriding Royalty
Hydrocarbons which are Oil.
"Overriding Royalty Percentage" means with respect to each Subject
Interest (other than the Xxxx-Xxxxxxx Production Payment), 90% of the net
revenue interest specified in Exhibit A, and with respect to the Subject
Interests attributable to the Xxxx-Xxxxxxx Production Payment, 100% of Grantor's
interest in the "Production Payment Hydrocarbons" as defined in the conveyance
of the Xxxx-Xxxxxxx Production Payment and amendments thereto described in
Exhibit A.
"Permitted Encumbrance" means the following:
(a) lessors' royalties, overriding royalties, reversionary
interests and similar burdens of record which do not reduce the net
revenue interests set forth on Exhibit A;
(b) division orders and sales contracts terminable without
penalty upon no more than thirty (30) days' notice to the purchaser;
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(c) liens for taxes or assessments not yet delinquent;
(d) materialman's, mechanic's, repairman's, employee's,
contractor's, operator's and other similar liens or charges arising in
the ordinary course of business securing amounts not yet due and
payable;
(e) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations; and
(f) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the Subject Interests (including the agreements listed in
Exhibit A as Permitted Encumbrances, the Hydrocarbons sales agreements
described in Schedule 2 of the Purchase and Sale Agreement dated as of
February 14, 2001 between Grantors and Grantee and the agreements
described on Schedule 4 to the Production and Delivery Agreement dated
as of February 14, 2001 between Grantors and Grantee) which taken
individually or together: (i) do not secure an obligation in respect of
borrowed money; (ii) do not interfere materially with the operation,
value or use of any of the Subject Interests; (iii) do not prevent
Grantor from receiving the proceeds of production from any of the
Subject Interests or Grantee from receiving Overriding Royalty
Hydrocarbons, or the proceeds thereof; (iv) do not reduce the net
revenue interests set forth in Exhibit A; or (v) do not increase the
portion of the costs and expenses relating to any Leases that Grantor
is obligated to pay above the operating rights or leasehold or working
interest share set forth in Exhibit A.
"Property" means any Subject Interest or group of Subject Interests
identified as a separate Property on Exhibit A. For example, the West Arcadia
Property is comprised of (a) the Subject Interests described on pages A-1
through A-22 of Exhibit A-Part II, and (b) the Subject Xxxxx attributable to
such Subject Interests, including, without limitation, the first six xxxxx
listed on page 1 of Exhibit A-Part I.
"Scheduled Amount" means with respect to each Property for each Day
during each Month the quantity (expressed in MMBtus or Barrels, as applicable),
if any, of Overriding Royalty Gas and/or Overriding Royalty Oil as set forth on
Schedules 1 and 2, respectively.
"Spot Price" means with respect to Gas that price per MMBtu determined
for each Property for each Day as set forth on Schedule 3 and means with respect
to Oil that price per Barrel determined for each Property for each Day as set
forth on Schedule 4.
"Subject Interests" or "Subject Interest" means the respective
undivided interests set forth in Exhibit A in and to the Leases (including,
without limitation, the Xxxx-Xxxxxxx Production Payment), and any and all
additional right, title, interest or claim of every kind and character of each
Grantor in and to the Leases (including, without limitation, oil and gas
leasehold interests, production payments, overriding royalty interests, royalty
interests, net profits interests and other similar interests) and all lands
covered by the Leases and all lands now or hereafter pooled, communitized or
unitized therewith, even though Grantors' interest be incorrectly or
incompletely described in Exhibit A, all as the same shall be enlarged by the
discharge of any burdens or by the removal of any charges or encumbrances to
which any of the same may be
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subject at the Effective Time, and any and all renewals and extensions of any of
the same, but expressly excluding any additional interest in the Leases or the
Xxxx-Xxxxxxx Production Payment (or the leases subject thereto) acquired by
Grantors after the execution and delivery of the Conveyance, other than by
reason of or resulting from the discharge of any burden, the reversion of any
interest or the removal of any charge or encumbrance.
"Subject Quantity" means for each Day the quantity of Hydrocarbons
having the MMBtu Equivalent equal to the sum of (a) the Scheduled Amount for all
Properties for such Day, plus (b) the Adjustment Quantity for such Day.
"Subject Well" or "Subject Xxxxx" means (a) with respect to all Subject
Interests other than the Xxxx-Xxxxxxx Production Payment, any and all xxxxx now
located on the Leases or hereafter drilled on the Leases, and any other xxxxx
now or hereafter located on lands, waterbottoms or leases pooled, communitized
or unitized with the Leases, from the surface to the total depth to which any
such well or xxxxx may be drilled, including, without limitation, the xxxxx
identified on Exhibit A, and (b) with respect to the Xxxx-Xxxxxxx Production
Payment, those xxxxx specified in Exhibit A for the HHOC Properties, and any
subsequently drilled "Xxxxx" under the conveyance of the Xxxx-Xxxxxxx Production
Payment and amendments thereto described in Exhibit A.
"Taxes" means all ad valorem, property, occupation, gathering, pipeline
regulating, windfall profit, severance, gross production, energy, Btu, excise
and other taxes and governmental charges and assessments imposed on the Subject
Interests or the Overriding Royalty, including the Overriding Royalty
Hydrocarbons, other than income taxes.
"Termination Time" is defined in Section 1.03 hereof.
"Working Interest" means the percentage interest in oil and gas
leaseholds, including working interests, operating rights interests or other
expense-bearing interests, and mineral fee or ownership interests.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Protection to Purchasers. No pipeline company or other
person purchasing or taking or processing Overriding Royalty Hydrocarbons shall
be required to take notice of, or to keep informed concerning, termination of
the Overriding Royalty, until actual receipt of written notice from Grantee
advising such company or person of such termination.
SECTION 3.02. Governing Law. THIS CONVEYANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE LAWS OF ANY OTHER STATE ARE MANDATORILY APPLICABLE.
SECTION 3.03. Successors and Assigns. The provisions and conditions
contained in this Conveyance shall run with the land and the respective
interests of Grantors and Grantee and (subject to the foregoing restrictions in
Section 1.08) shall be binding upon and inure to the benefit of Grantors and
Grantee and their respective successors and permitted assigns. All
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references herein to either Grantors or Grantee shall include their respective
successors and permitted assigns.
SECTION 3.04. Counterpart Execution. This Conveyance is executed in
multiple originals all of which shall constitute one and the same Conveyance;
provided, however, in order to facilitate recording of this Conveyance in the
public records of each of the jurisdictions in which the Leases are located or
are deemed to be adjacent, (a) the exhibits (including Parts I and II of Exhibit
A) attached to a counterpart recorded in a single jurisdiction may contain only
those pages (or portions thereof) which apply to Properties which are located in
or are adjacent to such jurisdiction, (b) the cover page has been omitted from
the counterparts filed in Michigan, and (c) the Mississippi acknowledgment forms
have been omitted from all counterparts other than the counterparts filed in
Mississippi and Xxxxxx County, Texas. A complete counterpart of this Conveyance
is recorded in Xxxxxx County, Texas.
Section 3.05. Perpetuities. It is not the intent of Grantor or Grantee
that any provision herein violate any applicable law regarding the rule against
perpetuities, the suspension of the absolute power of alienation, or other rules
regarding the vesting or duration of estates, and this Conveyance shall be
construed as not violating such rule to the extent the same can be so construed
consistent with the intent of the parties. In the event however that any
provision hereof is determined to violate such rule, then such provision shall
nevertheless be effective for the maximum period (but not longer than the
maximum period) permitted by such rule that will result in no violation. To the
extent the maximum period is permitted to be determined by reference to "lives
in being," Grantors and Grantee agree that "lives in being" shall refer to
lifetime of the last to die of the living lineal descendants of the late Xxxxxx
X. Xxxxxxx (father of the late President of the United States of America).
SECTION 3.06. Certain References. Certain agreements, contracts and
other documents are listed in Exhibit A and included in the definition of
Permitted Encumbrances. References herein or in Exhibit A to Permitted
Encumbrances are made solely for the purpose of protecting Grantors with respect
to Grantors' warranties and representations as to the Subject Interests, and
without regard to whether or not any Permitted Encumbrance is valid, subsisting,
legal or enforceable or affects the Overriding Royalty; and such references are
not intended to constitute and shall not constitute any sort of recognition or
acknowledgment by any party as to the validity, legality or enforceability of
the same or of any term, provision or condition thereof or the applicability
thereof to the Overriding Royalty, and shall not revive or ratify the same or
create any rights in any third person. No provision in this Conveyance shall be
construed as an agreement or expression of intent by Grantee to acquire the
Overriding Royalty subject to any unrecorded Permitted Encumbrance; provided,
however, no breach of any warranty of title hereunder shall arise as the result
of any claim made pursuant to any unrecorded Permitted Encumbrance.
SECTION 3.07. Partial Invalidity. Except as otherwise expressly stated
herein, in the event any provision contained in this Conveyance shall for any
reason be held invalid, illegal or unenforceable by a court or regulatory agency
of competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect any of the remaining provisions of this Conveyance, which provisions
shall remain in full force and effect.
-12-
38
This Conveyance is exempt from Michigan State Transfer tax pursuant to
MCL 207.526. This Conveyance is exempt from Michigan county transfer tax
pursuant to MCL 207.505.
[signatures on next page]
-13-
39
EXECUTED in multiple originals effective as of the Effective Time.
GRANTORS:
WITNESSES AS TO ALL SIGNATURES:
KCS RESOURCES, INC.
-------------------------------
Xxxxxxxx Xxxxxx By:
-----------------------------------
Xxxxx Xxx Xxxxx, Vice President
-------------------------------
Xxxxxx Xxxxxxx
KCS ENERGY SERVICES, INC.
By:
-----------------------------------
Xxxxx Xxx Xxxxx, President
KCS MICHIGAN RESOURCES, INC.
By:
-----------------------------------
Xxxxx Xxx Xxxxx,
Senior Vice President
KCS MEDALLION RESOURCES, INC.
By:
-----------------------------------
Xxxxx Xxx Xxxxx, Vice President
GRANTEE:
STAR VPP, LP
BY: KCSE STAR, LLC,
its general partner
By:
-----------------------------------
C. Xxxx Xxxxxxxx, Vice President
40
Exhibits
Exhibit A -- Description of Leases; Subject Interests
(including Parts I and II)
Exhibit B -- Delivery Points -- Gas
Exhibit C -- Delivery Points - Oil
Exhibit D -- Grantor-Marketed Properties
Schedules
Schedule 1 -- Scheduled Amounts of Overriding Royalty Gas
for each Property
Schedule 2 -- Scheduled Amounts of Overriding Royalty Oil
for each Property
Schedule 3 -- Spot Price for Gas for each Property
Schedule 4 -- Spot Price for Oil for each Property
This document prepared by:
Xxxxxxx X. Xxxxxxx
Xxxxxxx & Xxxxx L.L.P.
0000 Xxxxx Xxxxx, 000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone No.: 000-000-0000
-2-
41
EXHIBIT B
CONVEYANCE OF PRODUCTION PAYMENT
Exhibit B Page 1
42
CONVEYANCE OF
PRODUCTION PAYMENT
FROM
KCS MEDALLION RESOURCES, INC.
"GRANTOR"
TO
STAR VPP, LP
"GRANTEE"
43
CONVEYANCE OF
PRODUCTION PAYMENT
This Conveyance of Production Payment (this "Conveyance") is from KCS
MEDALLION RESOURCES, INC., a Delaware corporation, whose address is 0000 Xxxxx
Xxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxxx 00000 ("Grantor"), to STAR VPP, LP, a
Delaware limited partnership, whose address is 0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxx
00000 ("Grantee"). This Conveyance is executed to be effective as of the first
(1st) day of February, 2001 (the "Effective Date"). Capitalized terms used
herein shall have the meanings given to them in Article II hereof unless
otherwise defined herein.
RECITALS
WHEREAS, Grantor is the owner of the Subject Interests (defined below);
and
WHEREAS, Grantor has agreed to convey to Grantee the following
described Production Payment;
NOW, THEREFORE, Grantor and Grantee do hereby agree as follows:
ARTICLE I
CONVEYANCE
Section 1.01 Conveyance. For and in consideration of One Thousand
Dollars ($1,000.00) and other good and valuable consideration to Grantor cash in
hand paid by Grantee, the receipt and sufficiency of which are hereby
acknowledged, Grantor does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, SET OVER
AND DELIVER unto Grantee, a production payment interest in and to the Subject
Interests and the Hydrocarbons in and under and that may be produced and saved
from the Subject Properties necessary to cause Grantee to receive the Monthly PP
Amount each Month (the "Production Payment"), together with all and singular the
rights and appurtenances thereto in anywise belonging.
TO HAVE AND TO HOLD the Production Payment unto Grantee, its successors
and assigns forever, subject to the following terms, provisions and conditions.
SECTION 1.02 Non-Operating, Non-Expense-Bearing Interest. The
Production Payment conveyed hereby is a non-operating, non-expense-bearing
limited term interest in and to the Subject Interests (being a real property
interest), free of all cost, risk, and expense of production and operations. In
no event shall Grantee ever be liable or responsible in any way for payment of
any costs, expenses, or liabilities attributable to the Subject Interests or the
Leases (or any part thereof) or incurred in connection with the production,
treatment, gathering, transportation, or marketing of Hydrocarbons. This
Conveyance is an absolute conveyance of a real property interest.
SECTION 1.03 Termination. The Production Payment shall commence on the
Effective Date and remain in full force and effect until the later of (a) June
30, 2005, or (b) 7:00 a.m. Central Time on the day following the date when any
Payment Deficiency outstanding as of
44
June 30, 2005 has been reduced to zero (the "Termination Time"). Upon
termination of the Production Payment as above provided, all rights, titles, and
interests herein conveyed shall automatically terminate and vest in Grantor and,
upon request by Grantor, Grantee shall execute and deliver such instrument or
instruments (in recordable form) as may be necessary to evidence the termination
of the Production Payment. If a Subject Property (or portion thereof, as
applicable) terminates before the Termination Time and is not extended, renewed
or replaced, the Production Payment no longer shall apply to that particular
Subject Property (or such portion thereof, as applicable), but the Production
Payment shall remain in full force and effect and undiminished as to all
remaining Subject Properties (or the remainder portion of such Subject Property,
as applicable), and the Scheduled Amount shall never be reduced or diminished by
reason of the termination of a Subject Properties (or the termination of a
Subject Property as to such portion thereof, as applicable).
SECTION 1.04 Payment to Grantee. On each Monthly Payment Date, Grantor
shall pay or cause to be paid to Grantee the Monthly PP Amount for the
immediately preceding Month from the Net Proceeds for such immediately preceding
Month.
Section 1.05 Limitation. Grantee shall look solely to the Net Proceeds
for satisfaction and discharge of the Production Payment.
SECTION 1.06 Royalties; Taxes. The Production Payment shall be free of
(and without deduction therefrom of) any and all royalties and other burdens on
production and shall bear no part of same; the Subject Interests and the Subject
Properties shall be burdened with, and Grantor shall timely pay or cause to be
paid by any other person or entity responsible therefor, all such royalties and
other burdens on production, and Grantor shall defend, indemnify and hold
Grantee harmless from and against any loss or claim with respect to any such
royalties and other burdens on production or any claim by the owners or holders
of such royalties and other burdens on production. Grantor shall bear and pay
all Taxes with respect to the Production Payment, the Monthly PP Amount being
free of Taxes and delivered without deduction for Taxes.
SECTION 1.07 Mortgage or Assignment by Grantor. During the term of the
Production Payment, (i) Grantor shall not mortgage, pledge or hypothecate the
Subject Interests or create or allow to remain thereon any lien or security
interest thereon or on any Hydrocarbons produced therefrom, and (ii) Grantor
shall not assign, sell, convey or otherwise transfer the Subject Interests or
any part thereof unless Grantee expressly consents thereto in writing, the
transferee expressly agrees to assume and perform all of Grantor's obligations
under this Conveyance, and such sale, transfer or assignment is made and
accepted expressly subject and subordinate to this Conveyance. Any purported
mortgage, pledge, hypothecation, lien, security interest, assignment, sale,
conveyance or other transfer in contravention of the foregoing terms shall be
null and void. During the term of the Production Payment, Grantor shall not
pool, communitize or unitize the Production Payment or the Subject Properties
without the express written consent of Grantee (such consent not to be
unreasonably withheld), and any purported pooling, communitization or
unitization in contravention of the preceding clause shall be null and void as
to Grantee and shall not have the effect of pooling or otherwise affecting the
Production Payment.
45
Section 1.08 Title. Grantor warrants and represents that the Leases are
valid and subsisting oil and gas leases covering the lands described in such
leases. Grantor further warrants and represents that (a) Grantor owns all (100%)
of the Xxxxxx County Production Payment and the Options, free and clear of all
liens, claims and encumbrances, other than Permitted Encumbrances, and (b)
InterCoast's ownership of the Subject Properties (i) entitles InterCoast to a
share of the proceeds from the sale of Hydrocarbons produced from or
attributable to the Subject Properties (after giving effect to and/or deducting
all applicable royalties, overriding royalties and other burdens or payments out
of production (except the Production Payment and the Xxxxxx County Production
Payment)) that is not less than the respective Net Revenue Interests identified
on Exhibit A, (ii) obligates InterCoast to pay (or bear) a share of all costs of
operation and development of the Subject Properties that is not greater than the
respective Working Interests identified on Exhibit A, and (iii) is free and
clear of all liens, claims and encumbrances, other than Permitted Encumbrances.
Grantor hereby binds Grantor and Grantor's successors and permitted assigns, to
warrant and forever defend all and singular title to the Production Payment,
subject only to the Permitted Encumbrances, unto Grantee, its successors and
assigns, against every person whomsoever lawfully claiming or to claim the same
or any part thereof. There is also hereby conveyed to Grantee, by way of
substitution and subrogation, all rights of warranty and contractual
representations or covenants of any kind or nature held by Grantor against any
of Grantor's predecessors in title.
ARTICLE II
DEFINITIONS
As used herein and in the exhibits hereto, the following terms shall
have the respective meanings ascribed to them below:
"Adjustment Quantity" for each Month means the quantity (expressed in
MMBtus) of Hydrocarbons determined by dividing the Payment Deficiency, if any,
for the immediately preceding Month by the Spot Price for the Month of
determination (i.e., in calculating the Adjustment Quantity for the Month of
April, 2001, the Payment Deficiency for the Month of March, 2001 is divided by
the Spot Price for the Month of April, 2001).
"Affiliate" shall mean any entity which either directly or indirectly
controls or manages, is controlled or managed by or is under common control or
management with the party. For purposes hereof, "control" means the right or
power to direct the policies of another through management authority, stock
ownership delegated authority, voting rights or otherwise.
"Assignment and Agreement" means that certain Assignment and Agreement
executed April 12, 1996 from Medallion Production Company to InterCoast Global
Management, Inc. and recorded in Volume 288, Page 428 of the Official Public
Records of Xxxxxx County, Texas.
"British Thermal Unit" or "Btu" means the amount of energy required to
raise the temperature of one (1) pound of pure water one degree Fahrenheit
(1(degree)F.) from fifty-nine degrees Fahrenheit (59(degree)F.) to sixty degrees
Fahrenheit (60(degree)F.).
46
"Business Day" means any day other than a Saturday, a Sunday or a
holiday on which national banking associations in the State of Texas are closed.
"Day" means a period of twenty-four (24) consecutive hours beginning at
12:00 midnight at the location of the Leases.
"Effective Date" has the meaning set forth in the heading above.
"Fixed Rate" means the annual rate of interest of fifteen percent
(15%), calculated on the basis of a 365 or 366 day year, as the case may be, but
not to exceed the maximum nonusurious rate permitted by applicable law.
"Gas" means natural gas and other gaseous hydrocarbons.
"Hydrocarbons" means Oil and Gas.
"Inside FERC" means the "Index Price" published in Inside F.E.R.C.'s
Gas Market Report in the table entitled "Prices of Spot Gas Delivered to
Pipelines" for the locations described in the definition of Spot Price in the
first-of-the-month issue of such publication for such Month.
"InterCoast" means InterCoast Global Management, Inc., a Delaware
corporation.
"InterCoast Conveyance" means that certain Conveyance of Production
Payment from InterCoast to KCS Medallion Resources, Inc. dated April 18, 2000
and recorded in Volume 308, Page 66 of the Official Public Records of Xxxxxx
County, Texas.
"Lease" means an oil and gas lease described, referred to or identified
in Exhibit A hereto insofar as such lease is part of the Subject Properties,
together with any renewal or extension of such lease (as to the portion thereof
included as part of the Subject Properties), and any replacement lease taken
upon or in anticipation of expiration or termination of such lease (if executed
and delivered during the term of or within one (1) year after expiration of the
predecessor lease), as to all lands and depths included as part of the Subject
Properties, and all such renewals and extensions and replacement leases; and
"Leases" means all such leases.
"LIBOR Day" means any day on which commercial banks are open for
business (including dealings in foreign exchange and foreign currency deposits)
in both London, England and New York, New York.
"Management Agreement" means that certain Management Agreement dated
April 12, 1996 between InterCoast and Medallion Production Company attached as
Exhibit C to the Assignment and Agreement, as amended by that certain Amendment
of Management Agreement dated April 18, 2000 between Grantor and InterCoast.
"MMBtu" means 1,000,000 British Thermal Units.
"Month" means a calendar month.
47
"Monthly Payment Date" means the last LIBOR Day of each Month
commencing March, 2001 and continuing through the Termination Time.
"Monthly PP Amount" means for each Month, the lesser of (a) the product
obtained by multiplying the Subject Quantity for such Month times the Spot Price
for such Month or (b) the Net Proceeds for such Month.
"Net Proceeds" has the meaning set forth in the Assignment and
Agreement and the InterCoast Conveyance, as applicable, and following the
termination of the Xxxxxx County Production Payment or the merger of such
interest with any other interest of Grantor in and to the Subject Properties,
shall have the same meaning as set forth in the Assignment and Agreement.
"Net Revenue Interest" means a percentage share of Hydrocarbons
produced from or attributable to a Lease or Subject Well and the Subject
Interests related thereto, and the proceeds of such production.
"Oil" means crude oil, condensate, and other liquid hydrocarbons.
"Options" means the "Option" granted to Grantor (a) under Part III of
the Assignment and Agreement and (b) under Part III of the InterCoast
Conveyance.
"Payment Deficiency" for each Month means the sum of (a) the amount, if
any, by which the Monthly PP Amount received by Grantee for such Month is less
than the product obtained by multiplying (i) the Subject Quantity for such Month
times (ii) the Spot Price for such Month, together with interest on such amount
calculated at the Fixed Rate commencing on the Day that the Monthly PP Amount is
due, plus (b) the amount of any Taxes imposed or assessed upon the Production
Payment or any Hydrocarbons or proceeds of Hydrocarbons attributable to the
Production Payment that are not paid by Grantor and that are paid by Grantee
during such Month, together with interest on such amount at the Fixed Rate
commencing on the Day of such payment by Grantee.
"Permitted Encumbrances" means the following:
(a) lessors' royalties, overriding royalties, reversionary
interests and similar burdens of record which do not reduce the net
revenue interests set forth on Exhibit A;
(b) division orders and sales contracts terminable without
penalty upon no more than thirty (30) days' notice to the purchaser;
(c) liens for taxes or assessments not yet delinquent;
(d) materialman's, mechanic's, repairman's, employee's,
contractor's, operator's and other similar liens or charges arising in
the ordinary course of business securing amounts not yet due and
payable;
48
(e) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations; and
all other liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects and irregularities affecting the Subject Interests or the
Subject Properties (including the agreements listed in Exhibit A as Permitted
Encumbrances) which taken individually or together: (i) do not secure an
obligation in respect of borrowed money; (ii) do not interfere materially with
the operation, value, or use of any of the Subject Interests or the Subject
Properties; (iii) do not prevent Grantor from receiving the proceeds of
production from the Subject Properties, or (iv) do not reduce the Net Revenue
Interests set forth in Exhibit A.
"Production Payment" has the meaning set forth in Section 1.01 above.
"Scheduled Amount" means with respect to each Month the quantity
(expressed in MMBtus) of Gas as set forth on Schedule 1 attached hereto.
"Spot Price" means (a) for the Month of February 2001, $5.91, (b) for
the Month of March 2001, $5.27, and (c) for each Month thereafter, the simple
average of (i) 95% of Inside FERC - Houston Ship Channel for such Month and (ii)
100% of Inside FERC - PG&E Gas Transmission - Texas [Texas] for such Month.
"Subject Interests" means (a) the Xxxxxx County Production Payment, (b)
the Options, and (c) all other right, title, and interest now owned or hereafter
acquired by Grantor in and to the Subject Properties, including, without
limitation, any right, title or interest in and to the Subject Properties
acquired by Grantor as the result of Grantor's exercise of either of the
Options.
"Subject Quantity" means for each Month the quantity of Hydrocarbons
(expressed in MMBtus) equal to the sum of (a) the Scheduled Amount for such
Month, plus (b) the Adjustment Quantity for such Month.
"Subject Properties" has the meaning set forth in the Assignment and
Agreement.
"Subject Xxxxx" means the Xxxxx defined in the Assignment and
Agreement.
"Xxxxxx County Production Payment" means collectively (a) the
"Production Payment" reserved by Grantor in Part II of the Assignment and
Agreement, and (b) the "Production Payment" conveyed to Grantor in Part II of
the InterCoast Conveyance.
"Taxes" means all ad valorem, property, occupation, gathering, pipeline
regulating, windfall profit, severance, gross production, energy, Btu, excise
and other taxes and governmental charges and assessments imposed on the Subject
Properties, the Subject Interests or the Production Payment, other than income
taxes.
"Termination Time" has the meaning set forth in Section 1.03 above.
49
"Working Interest" means the percentage undivided interest in oil and
gas leaseholds, including working interests, operating rights interests or other
expense-bearing interests and mineral fee or ownership interests.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 Governing Law. THIS CONVEYANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
SECTION 3.02 Successors and Assigns. The provisions and conditions
contained in this Conveyance shall run with the land and the respective
interests of Grantor and Grantee and shall be binding upon and inure to the
benefit of Grantor and Grantee and their respective successors and assigns. All
references herein to either Grantor or Grantee shall include their respective
successors and assigns.
SECTION 3.03 Counterpart Execution. This Conveyance may executed in
multiple originals all of which shall constitute one and the same Conveyance.
Section 3.04 Perpetuities. It is not the intent of Grantor or Grantee
that any provision herein violate any applicable law regarding the rule against
perpetuities, the suspension of the absolute power of alienation, or other rules
regarding the vesting or duration of estates, and this Conveyance shall be
construed as not violating such rule to the extent the same can be so construed
consistent with the intent of the parties. In the event however that any
provision hereof is determined to violate such rule, then such provision shall
nevertheless be effective for the maximum period (but not longer than the
maximum period) permitted by such rule that will result in no violation. To the
extent the maximum period is permitted to be determined by reference to "lives
in being," Grantor and Grantee agree that "lives in being" shall refer to
lifetime of the last to die of the living lineal descendants of the late Xxxxxx
X. Xxxxxxx (father of the late President of the United States of America).
SECTION 3.05 Partial Invalidity. Except as otherwise expressly stated
herein, in the event any provision contained in this Conveyance shall for any
reason be held invalid, illegal, or unenforceable by a court or regulatory
agency of competent jurisdiction, such invalidity, illegality, or
unenforceability shall not affect any of the remaining provisions of this
Conveyance, which provisions shall remain in full force and effect.
50
EXECUTED in multiple originals effective as of the Effective Date.
GRANTOR:
KCS MEDALLION RESOURCES, INC.
By:
---------------------------------------
Xxxxx Xxx Xxxxx, Vice President
GRANTEE:
STAR VPP, LP
BY: KCSE STAR, LLC, its general partner
By:
---------------------------------------
C. Xxxx Xxxxxxxx, Vice President
51
EXHIBIT C
PRODUCTION AND DELIVERY AGREEMENT
Exhibit C Page 1
52
PRODUCTION AND DELIVERY AGREEMENT
BETWEEN
KCS RESOURCES, INC.
KCS ENERGY SERVICES, INC.
KCS MICHIGAN RESOURCES, INC.
AND
KCS MEDALLION RESOURCES, INC.
"GRANTORS"
AND
STAR VPP, LP
"GRANTEE"
This document prepared by:
Xxxxxxx X. Xxxxxxx
Xxxxxxx & Xxxxx L.L.P.
0000 Xxxxx Xxxxx, 000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone No.: 000-000-0000
53
PRODUCTION AND DELIVERY AGREEMENT
This Production and Delivery Agreement ("Agreement") is made and
entered into effective as of the 1st day of February 2001, by and between KCS
RESOURCES, INC., a Delaware corporation, and KCS ENERGY SERVICES, INC., a
Delaware corporation, both of whose address is 0000 Xxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000, and KCS MICHIGAN RESOURCES, INC., a Delaware corporation,
and KCS MEDALLION RESOURCES, INC., a Delaware corporation, both of whose address
is 0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000, Xxxxx, Xxxxxxxx 00000 (each such party is
referred to herein individually as a "Grantor" and collectively as the
"Grantors"), and STAR VPP, LP, a Delaware limited partnership, whose address is
0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxx 00000 ("Grantee").
WHEREAS, by Conveyance of Overriding Royalty Interest of even date
herewith from Grantors to Grantee and recorded contemporaneously herewith in the
public records of the counties and parishes wherein the Subject Interests
described herein are located (the "Conveyance"), Grantee has purchased and
acquired from Grantors, and Grantors have sold and conveyed to Grantee, the
"Overriding Royalty" (as such term is defined in the Conveyance) in and out of
the Subject Interests described herein .
NOW, THEREFORE, as a material inducement to cause Grantee to purchase
the Overriding Royalty and in consideration of the mutual benefits and
obligations of the parties hereunder, Grantee and Grantors have agreed, and
hereby agree, as follows:
1. Definitions.
(a) "Subject Interests" or "Subject Interest" means the
respective undivided interests set forth in Exhibit A in and to the Leases
(including, without limitation, the Xxxx-Xxxxxxx Production Payment as further
defined in the Conveyance), and any and all additional right, title, interest or
claim of every kind and character of each Grantor in and to the Leases
(including, without limitation, oil and gas leasehold interests, production
payments, overriding royalty interests, royalty interests, net profits interests
and other similar interests) and all lands covered by the Leases and all lands
now or hereafter pooled, communitized or unitized therewith, even though
Grantors' interest be incorrectly or incompletely described in Exhibit A, all as
the same shall be enlarged by the discharge of any burdens or by the removal of
any charges or encumbrances to which any of the same may be subject at the
Effective Time, and any and all renewals and extensions of any of the same, but
expressly excluding any additional interest in the Leases or the Xxxx-Xxxxxxx
Production Payment (or the leases subject thereto) acquired by Grantors after
the execution and delivery of the Conveyance, other than by reason of or
resulting from the discharge of any burden, the reversion of any interest or the
removal of any charge or encumbrance.
54
(b) "Lease" means an oil and gas lease described, referred to
or identified in Exhibit A hereto as to all lands and depths described in such
lease (or the applicable part or portion thereof if specifically limited in
depth and/or areal extent in Exhibit A), together with any renewal or extension
of such lease (as to all or any part or portion thereof), and any replacement
lease taken upon or in anticipation of expiration or termination of such lease
(if executed and delivered during the term of or within one (1) year after
expiration of the predecessor lease), as to all lands and depths described in
the predecessor lease (unless the predecessor lease is specifically limited in
depth or areal extent in Exhibit A in which event only such portion of such
lease shall be considered a renewal or extension or a replacement lease subject
to this Agreement), and all such renewals and extensions and replacement leases;
and "Leases" means all such leases.
(c) Each other capitalized term used herein but not defined
herein shall have the meaning given to it in the Conveyance.
2. Taking In Kind; Marketing.
(a) The Overriding Royalty Hydrocarbons shall be delivered to
Grantee in kind or to the credit of Grantee, free of cost, at the applicable
Delivery Point.
(b) If any Overriding Royalty Hydrocarbons are subject to
existing production sales agreements which cannot or will not be terminated at
Closing (the "Existing Sales Contracts"), then during the remaining term of each
Existing Sales Contract, the Overriding Royalty Hydrocarbons which are subject
to such Existing Sales Contracts shall continue to be sold and delivered at the
contract price and terms applicable thereto without deduction for nonperformance
or noncompliance and the proceeds resulting therefrom shall be paid to and owned
by Grantee. Grantors shall perform and administer each Existing Sales Contract,
but shall not amend, extend or renew any of the Existing Sales Contracts without
Grantee's prior written consent, and Grantors shall take such actions as may be
necessary to cause any Existing Sales Contracts that are not with Approved
Purchasers and any other Existing Sales Contracts requested in writing by
Grantee from time to time to expire at the end of their respective terms, or if
permitted under the terms thereof, to terminate prior to the expiration of their
respective terms.
(c) Grantee shall take in kind all Overriding Royalty
Hydrocarbons that are delivered in strict accordance with Schedules 1 and 2 to
the Conveyance, except (i) Overriding Royalty Hydrocarbons which are sold
pursuant to the Existing Sales Contracts, (ii) Overriding Royalty Hydrocarbons
which are produced during February 2001 and March 2001, and (iii)
Grantor-Marketed Hydrocarbons that Grantee has not elected to take in kind under
Section 2(d). Grantee shall have the right, but not the obligation, to take in
kind all Overriding Royalty Hydrocarbons which it is not obligated to take in
kind pursuant to the terms of the preceding sentence; provided, however, Grantee
shall not have the right to take in kind Overriding Royalty Hydrocarbons which
are sold pursuant to the Existing Sales Contracts.
(d) Grantors and Grantee acknowledge that Grantee does not
currently anticipate taking in kind Grantor-Marketed Hydrocarbons; accordingly,
Grantors shall, on behalf of Grantee, market and sell all Grantor-Marketed
Hydrocarbons. Except for sales under Existing
2
55
Sales Contracts, all Grantor-Marketed Hydrocarbons and other Overriding Royalty
Hydrocarbons sold by Grantors on behalf of Grantee shall, unless otherwise
approved by Grantee, be sold pursuant arm's length contracts with Approved
Purchasers, containing provisions negotiated by Grantors as prudent marketers.
Each such contract shall provide for a term period not to exceed three Months or
provide for cancellation or termination upon thirty days (or less) notice to the
other party. Notwithstanding the foregoing, upon prior written notice by Grantee
to Grantors, Grantee shall have the right to take in kind and separately dispose
of all or any portion of the Grantor-Marketed Hydrocarbons, subject to the terms
and restrictions of any such arm's length contracts or Existing Sales Contracts
then in effect.
(e) All Overriding Royalty Gas that Grantee is obligated to
take in kind under Section 2(c) and all other Overriding Royalty Gas which
Grantee elects to take in kind in accordance herewith is referred to herein
collectively as "In Kind Gas". Grantors shall market and sell on behalf of
Grantee all Overriding Royalty Gas other than In Kind Gas in accordance with
Section 2(d). If for any reason Grantee is unable or refuses to receive In Kind
Gas from the Subject Interests, Grantee shall give notice to Grantors as soon as
practicable and Grantors will use reasonable efforts to market such Overriding
Royalty Gas on behalf of Grantee in accordance with Section 2(d).
(f) All Overriding Royalty Oil that Grantee is obligated to
take in kind under Section 2(c) and all other Overriding Royalty Oil which
Grantee elects to take in kind in accordance herewith is referred to herein
collectively as "In Kind Oil". Grantors shall market and sell on behalf of
Grantee all Overriding Royalty Oil other than In Kind Oil in accordance with
Section 2(d). If for any reason Grantee is unable or refuses to receive In Kind
Oil from the Subject Interests, Grantee shall give notice to Grantors as soon as
practicable and Grantors shall use reasonable efforts to market such Overriding
Royalty Oil on behalf of Grantee in accordance with Section 2(d).
(g) As promptly as possible, and in any event within 75 days
of the effective date of this Agreement, Grantors shall use all available means
to cause all purchasers of Overriding Royalty Hydrocarbons sold on behalf
Grantee hereunder to agree in writing with Grantee to pay the sales proceeds
from such Overriding Royalty Hydrocarbons directly to Grantee. If and to the
extent Grantors receives proceeds from the sale of Overriding Royalty
Hydrocarbons (including, without limitation, Grantor-Marketed Hydrocarbons) sold
on behalf of Grantee pursuant to the terms hereof, such proceeds shall be paid
by Grantors by wire transfer to Grantee within two Business Days after receipt
thereof by any Grantor to an account designated by Grantee from time to time.
Prior to such transfer to Grantee, all such proceeds shall be deemed held in
trust by Grantors for Grantee. Grantors will diligently enforce the terms of all
sales agreements under which Overriding Royalty Hydrocarbons are sold on behalf
of Grantee, including full and prompt payment of all amounts due from such
sales. If any sales proceeds from Overriding Royalty Hydrocarbons sold by any
Grantor on behalf of Grantee are not received by Grantee on or before the last
LIBOR Day of the Month following the Month in which such Overriding Royalty
Hydrocarbons were produced, then the Monthly Adjustment Amount shall be
increased by the amount of such sales proceeds not received by Grantee in
accordance with subclause (e) of the definition of Monthly Adjustment Amount in
the Conveyance. Grantee shall have the right at any time Grantee considers
prudent to direct the purchasers of any Overriding Royalty Hydrocarbons to pay
the proceeds thereof directly to Grantee by delivering to such purchasers
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56
the letters in lieu of transfer orders previously executed by Grantors and held
by Grantee (Grantors hereby authorizing Grantee to complete any such letter in
lieu by inserting the relevant purchaser's name and address therein). If Grantee
requests direct payment, Grantors will cooperate in instructing the purchasers
to pay such proceeds directly to Grantee and shall execute such additional
instruments as may be necessary or appropriate in connection therewith. If any
Overriding Royalty Hydrocarbons are sold by Grantors, on behalf of Grantee,
under the terms of any agreement between Grantors and Grantee or between
Grantors and any Affiliate of Grantee, then Grantee shall be entitled to retain
the proceeds of such sale or receive direct payment from its Affiliate.
(h) All Overriding Royalty Hydrocarbons shall be delivered to
Grantee, or to Grantee's credit, into the facilities installed and maintained by
the First Transporter or first purchaser located at the Delivery Points.
(i) For purposes of this Agreement, "Approved Purchasers"
shall mean: (i) each entity listed on the Approved Purchaser List attached as
Exhibit J to the Purchase and Sale Agreement described in Section 16 below, and
(ii) each other entity proposed by Grantors from time to time who (y) has agreed
in writing with Grantee to pay Overriding Royalty Hydrocarbon sales proceeds
directly to Grantee and (z) is approved in writing by Grantee; provided,
however, that upon 3 days written notice from Grantee to Grantors, Grantee may
terminate any such entity under clauses (i) or (ii) above as an Approved
Purchaser.
3. Gathering and Transportation.
(a) Grantors at Grantors' sole cost and expense shall gather
or cause to be gathered all Overriding Royalty Hydrocarbons at the wellheads
where produced and transport the same to the applicable Delivery Point, without
any charge or deduction to Grantee for any costs attributable to preparing Gas
or Oil for delivery or delivering the Overriding Royalty Hydrocarbons to the
applicable Delivery Point.
(b) Grantors shall be in exclusive control and possession of
the Overriding Royalty Hydrocarbons gathered at the wellheads and responsible
for any loss, damage or injury caused thereby until the same shall have been
redelivered to Grantee, or to Grantee's credit, as herein provided.
4. Processing of Gas. It is recognized that as the owner of the
Overriding Royalty Grantee owns the Overriding Royalty Gas in its natural state,
including, without limitation, all liquefiable Hydrocarbons contained therein.
It is recognized that certain of the Subject Interests currently are subject to
those existing processing agreements which are described on Schedule 4 hereto
(the "Processing Agreements"). If as a result of any Processing Agreement any
Grantor elects or is required to process Overriding Royalty Gas, Grantee will
have an interest in all plant products and liquids extracted (the "Plant
Liquids") and all residue gas remaining ("Plant Residue Gas") attributable or
allocable to the Overriding Royalty and the Overriding Royalty Gas under the
terms of the Processing Agreements. It is also recognized that the Plant Residue
Gas probably will have a lower Btu Content than the Overriding Royalty Gas.
Accordingly, Grantors hereby grant Grantee the option to exchange at the
tailgate of each processing plant Grantee's proportionate part of Plant Liquids
from such processing plant during any Month for
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an amount of Plant Residue Gas at the tailgate of such processing plant the Btu
Content of which shall be equal to the amount by which the Btu Content of the
Overriding Royalty Gas delivered to Grantee prior to processing in such
processing plant exceeds the Btu Content of the Plant Residue Gas attributable
to such Overriding Royalty Gas. Grantors agree that they will not exercise any
processing rights if the Plant Residue Gas would not meet the quality
requirements set forth in Section 7.
5. Rate of Production.
(a) Grantors shall prudently operate and produce with respect
to those Subject Interests operated by Grantors, and shall use Grantors' best
efforts to cause to be prudently operated and produced, with respect to the
Subject Interests not operated by Grantors, the Subject Xxxxx in accordance with
good engineering practices and the following requirements: (i) the amount of
Hydrocarbons produced from any Subject Well shall not exceed in any Month the
lower of (x) the maximum amount that the Subject Well is capable of producing at
its maximum efficient rate of flow or (y) the respective allowable rate of flow
under applicable orders, rules, regulations or laws, if any; (ii) the amount of
Hydrocarbons produced from the Subject Xxxxx shall be sufficient to prevent a
net migration of Hydrocarbons from the reservoirs to which proved reserves are
attributed underlying the Subject Interests; and (iii) subject to field rules
established by governmental authorities having or asserting jurisdiction, the
amount of Hydrocarbons produced from the Subject Xxxxx shall be equitable and
ratable, based on factors used in determining such field rules.
(b) Subject to the provisions of Section 5(a), Grantors shall
use Grantors' best efforts to cause each Property to produce each Day that
quantity of Overriding Royalty Hydrocarbons sufficient to allow the delivery to
Grantee of the Scheduled Amount for such Day.
(c) If for any reason at any time, or from time to time, (i)
(w) there has been an acceleration in the rate of production of Hydrocarbons
from any Property for any one Month period that exceeds the rates set forth in
the reserve report (the "Reserve Report") prepared by Netherland, Xxxxxx &
Associates (the "Independent Engineer") dated as of December 31, 2000
attributable to such Month, (x) the State of Louisiana elects to defer taking
its royalty share of hydrocarbons attributable to any of the Subject Interests
(or the proceeds therefrom), (y) any of the capital expenditures referred to in
Section 10 hereof are not made at the time required, or (z) the drilling of any
required replacement well or other operation to be undertaken by Grantors is not
timely performed in accordance with the terms hereof, and (ii) the ratio that
the Tail Reserves bears to the Remaining Reserves is less than the Required
Percentage (as defined in Section 5(f)), then in addition to any other rights or
remedies available to Grantee, Grantee shall have the right, at Grantee's
option, to cause the remaining Scheduled Amounts to be adjusted as provided in
Section 5(d). As used in this Section 5, "Tail Reserves" means, as of the date
of any determination, (i) the Risk Adjusted Proved Reserves of Hydrocarbons
projected to be attributable to the Subject Interests determined by calculating
such Risk Adjusted Proved Reserves for each Subject Interest as of the later of
(x) the end of the last Month for which a Scheduled Amount is set forth on
Schedule 1 or Schedule 2 to the Conveyance for the Property comprised in whole
or in part of such Subject Interest or (y) the date of such determination of
Tail Reserves, and (ii) adding the amounts so calculated for all Subject
Interests. As used in this Section 5, "Remaining Reserves" means, as of the date
of any determination, the Risk Adjusted Proved Reserves of Hydrocarbons
projected to be attributable to the Subject Interests without regard to the
Overriding Royalty. As used in this Section 5, "Risk Adjusted
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58
Proved Reserves" means proved reserves of Hydrocarbons which, after adjustments
by Grantee based on Grantee's assessment of risk, can be estimated with
reasonable certainty to be recoverable under economic conditions existing at the
time of determination. For the purpose of calculating Tail Reserves and
Remaining Reserves, Oil shall be converted to Gas at a ratio of one Barrel of
Oil to six MMBtus of Gas.
(d) Upon Grantee's election to exercise the option set forth
in Section 5(c) above, Grantee shall in good faith generate proposed revised
Schedules 1 and 2 to the Conveyance which result, at the time of Grantee's
exercise of the option, in a ratio of the Tail Reserves to the Remaining
Reserves, greater than, but as near as reasonably possible to, the Required
Percentage. Grantee shall present its proposal to Grantors for review and
verification that the proposed Schedules comply with the requirements of the
foregoing sentence. Grantors and Grantee shall amend the Conveyance to
incorporate the amended Schedules 1 and 2 immediately following the parties'
agreements as to the substance of such Schedules or the determination of the
amended Schedules 1 and 2 by the independent petroleum engineering firm under
Section 5(f), as applicable.
(e) In the event (i) KCS Energy Services, Inc. has notified
Xxxx-Xxxxxxx Oil Company that KCS Energy Services, Inc. has elected to utilize
the alternate Scheduled Amount set forth in the first sentence of paragraph b.
of Schedule 1 of the conveyance of the Xxxx-Xxxxxxx Production Payment, as
amended to date, or (ii) Xxxx-Xxxxxxx Oil Company's Net Revenue Share of Gas (as
defined in the conveyance of the Xxxx-Xxxxxxx Production Payment and the
amendments thereto described in Exhibit A) has for two consecutive months
exceeded the Threshold Quantities (as defined in the conveyance of the
Xxxx-Xxxxxxx Production Payment and the amendments thereto described in Exhibit
A) for such months, then Grantors shall give prompt written notice to Grantee
and the parties shall meet to discuss the reasonably expected future production
of "Production Payment Hydrocarbons" (as such term is defined in the conveyance
of the Xxxx-Xxxxxxx Production Payment and the amendments thereto described in
Exhibit A). In addition to any other rights or remedies available to Grantee, at
Grantee's option, the remaining Scheduled Amounts under the Conveyance
attributable to the HHOC Production Payment shall be adjusted. Any such
adjustment of the Scheduled Amounts pursuant to the preceding sentence shall be
determined by Grantee in good faith, but in any event shall not exceed the
increased "Scheduled Amount" (as such term is defined in the conveyance of the
HHOC Production Payment and the amendments thereto described in Exhibit A).
(f) In the event Grantors and Grantee are not able to agree
upon Grantee's proposed amended Schedules 1 and 2 pursuant to Section 5(d)
above, the parties shall select an independent petroleum engineering firm to
make a determination of the appropriate Schedules. The fees and expenses of such
firm shall be borne equally by Grantors and Grantee. The determination of such
firm shall be binding upon Grantors and Grantee. If within 15 days after either
party notifies the other that it requests a determination by an independent
firm, the parties are unable to agree upon such a firm, each party shall in good
faith prepare a list of four independent petroleum engineering firms. Each list
shall set forth that party's priority order with the highest priority firm
listed first. Each party shall submit its list to the other within five days
after the end of the 15 day period provided above. The list shall be compared
and the first listed
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firm appearing in Grantee's list that also appears in Grantors' list shall be
the firm used to make such determination. If either party fails to provide a
list of that party's recommended firms, such party's list shall not be
considered and the first listing on the other party's list shall be the firm
used to make the determination. If no firm is selected pursuant to the
procedures followed herein, then the firm used shall be selected by Grantee.
(g) The term "Required Percentages" as used in this Section 5
shall mean the percentage set forth on Schedule 3 opposite the applicable month.
(h) In the event of any change in Scheduled Amounts pursuant
to this Section 5, Grantee and Grantors shall execute and acknowledge an
appropriate amendment to the Conveyance changing the affected Scheduled Amounts,
and Grantors, at Grantors' expense, shall cause such amendment to be filed in
all appropriate county and parish records.
6. Scheduling.
(a) Not less than five Business Days prior to the first day of
each Month with respect to Gas, and not less than ten Days prior to the first
day of each Month with respect to Oil, Grantors will notify Grantee of the daily
quantities of Gas and Oil which Grantors expects to be available for delivery in
kind to Grantee as Overriding Royalty Gas and Overriding Royalty Oil at each
Delivery Point during such Month to satisfy the Subject Quantity for such Month.
Grantors will use their best efforts to cause In Kind Gas and In Kind Oil to be
delivered at uniform daily rates throughout each Month at each Delivery Point at
the rates scheduled pursuant to the preceding sentence (it being understood that
Overriding Royalty Gas and Overriding Royalty Oil taken in kind is the first Gas
and Oil produced and saved each day attributable to the Subject Interests).
(b) It is understood that In Kind Gas will be transported for
Grantee by the First Transporter and other third party transporters. Grantors
shall immediately notify Grantee of any change (in excess of tolerances
permitted by the First Transporter) in the rate of delivery of In Kind Gas at
the Delivery Points. Variations in rates of deliveries from those scheduled
which do not exceed the tolerances permitted by the First Transporter without
penalty shall be permitted hereunder. Grantors and Grantee shall cooperate to
ensure that nominations are timely made to transporting pipelines and that such
nominations reflect the actual expected deliveries and receipts. Grantors and
Grantee shall use reasonable efforts to give each other 24 hours prior notice of
any adjustments to be made in quantities delivered or received.
(c) If any charges, penalties, costs or expenses are incurred
or payable to any transporting pipeline, or any other party, as a result of
Grantors' failure to notify Grantee of any increase or decrease in daily
quantities to be delivered at each Delivery Point, then as between the parties
hereto, Grantors shall be liable for and shall hold Grantee harmless from and
against such charges, penalties, costs or expenses. If any charges, penalties,
costs or expenses are incurred or payable to any transporting pipeline, or any
other party, as a result of Grantee's failure to notify Grantors of any increase
or decrease in daily quantities to be received at any Delivery Point, then as
between the parties hereto, Grantee shall be liable for and shall hold Grantors
harmless from and against such charges, penalties, costs or expenses. Each party
shall promptly notify the other of any notice received from any transporting
pipeline, or other party,
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that indicates an imbalance in deliveries exists or is occurring that may give
rise to any such charges, penalties, costs or expenses.
7. Quality Requirements. All Overriding Royalty Hydrocarbons delivered
to Grantee, or to Grantee's credit, shall satisfy the quality requirements and
specifications as set forth in the First Transporter's transportation agreements
and/or published tariffs filed with the FERC for acceptance and transportation
of Gas at each Delivery Point or (as to any Overriding Royalty Oil) as set forth
in the first purchaser's agreements for acceptance and purchase of Oil, all
without penalty or deduction for nonconformity, as the same may be modified from
time to time. All costs and expenses of dehydrating, treating and compressing
Overriding Royalty Hydrocarbons to satisfy such quality requirements shall be
borne and paid by Grantors.
8. Pressure. Grantors shall deliver, or cause to be delivered, the
Overriding Royalty Gas at a pressure sufficient to deliver the same into the
First Transporter's pipeline at each Delivery Point against the operating
pressure of First Transporter's pipeline in existence from time to time.
Promptly upon the request of Grantee, Grantors shall inform Grantee, from time
to time, of the delivery rate and pressure of the Overriding Royalty Gas
delivered to Grantee or to Grantee's credit.
9. Operation of Subject Interests. At all times from the date hereof
until the termination of the Overriding Royalty and whether or not any Grantor
is the operator of the Subject Interests, Grantors, at Grantors' cost and
expense, shall:
(a) Cause, or to the extent a Grantor is not the operator, use
their best efforts to cause, the Subject Interests to be maintained in full
force and effect, and to be developed, protected against drainage, and
continuously operated for the production of Hydrocarbons in a good and
workmanlike manner as would a prudent operator (and without regard to the burden
of the Overriding Royalty), all in accordance with generally accepted industry
practices, applicable operating agreements, and all applicable federal, state
and local laws, rules and regulations, and shall otherwise comply with all
applicable laws, rules and regulations;
(b) Pay, or cause to be paid, promptly as and when due and
payable, all rentals and royalties payable in respect of the Subject Interests
or the production therefrom, and all costs, expenses and liabilities incurred in
or arising from the operation or development of the Subject Interests, or the
producing, treating, gathering, storing, marketing or transporting of
Hydrocarbons therefrom;
(c) Cause, or to the extent a Grantor is not the operator, use
their best efforts to cause, all xxxxx, machinery, equipment and facilities of
any kind now or hereafter located on the Subject Interests, and necessary or
useful in the operation thereof for the production of Hydrocarbons therefrom, to
be provided and to be kept in good and effective operating condition as would a
prudent operator (and without regard to the burden of the Overriding Royalty),
and all repairs, renewals, replacements, additions and improvements thereof or
thereto, useful or needful to such end, to be promptly made;
(d) Give or cause to be given to Grantee written notice of
every adverse claim or demand made by any person affecting the Subject
Interests, the Hydrocarbons produced
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therefrom, the Overriding Royalty and/or the Overriding Royalty Hydrocarbons in
any manner whatsoever, and of any suit or other legal proceeding instituted with
respect thereto, and at Grantors' expense cause all necessary and proper steps
to be taken with reasonable diligence to protect and defend the Subject
Interests, the Hydrocarbons produced therefrom, the Overriding Royalty and/or
the Overriding Royalty Hydrocarbons against any such adverse claim or demand,
including (but not limited to) the employment of counsel for the prosecution or
defense of litigation and the contest, release or discharge of such adverse
claim or demand;
(e) Cause the Subject Interests to be kept free and clear of
liens, charges and encumbrances of every character, other than (i) Taxes
constituting a lien but not due and payable, and (ii) the Permitted
Encumbrances;
(f) Pay all Taxes (except those contested in good faith) when
due and before they become delinquent, and reimburse Grantee for any Taxes paid
by Grantee as a result of the Overriding Royalty or the Overriding Royalty
Hydrocarbons or the production of same;
(g) Pay promptly when due and before they become delinquent
all operating expenses and all xxxxxxxx under applicable joint operating
agreements (except to the extent contested in good faith);
(h) Not resign as operator of any Subject Interests operated
by any Grantor until and unless the successor operator has been approved in
writing by Grantee;
(i) Not conduct any work or operation in any wellbore of a
Subject Well, which work or operation is related to any horizon, zone formation
or interval not included in the Subject Interests without the prior written
consent of Grantee;
(j) Enforce the terms of all agreements related to the
Xxxx-Xxxxxxx Production Payment and exercise all rights and remedies with
respect thereto, all with reasonable diligence; and
(k) Not amend any of the agreements related to the
Xxxx-Xxxxxxx Production Payment that could adversely affect the HHOC Production
Payment or the Overriding Royalty.
10. Capital Expenditures. To the extent Grantors may do so under the
terms of the operating agreements or other agreements pertaining to the Subject
Interests, Grantors agree to make, or cause to be made, the capital expenditures
involved in and to drill, complete and equip for production, or recomplete and
rework, as the case may be, each of the xxxxx, and to conduct each of the other
operations, described or referred to on Schedule 3 of the Purchase and Sale
Agreement described in Section 16 below on or before the respective dates set
forth in such Schedule 3, all of the foregoing to be done as a prudent operator
(and without regard to the burden of the Overriding Royalty); provided, however,
Grantors shall not be required to undertake any operation or make any capital
expenditure with respect to which (a) Grantors can demonstrate to Grantee's
satisfaction is not reasonably necessary to be conducted at such time in order
to cause the Scheduled Amounts of Overriding Royalty Hydrocarbons to be produced
from such Property as set forth in Schedules 1 and 2 to the Conveyance and (b)
Grantee has consented in writing to the delay or elimination thereof.
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11. Insurance; Damage or Loss.
(a) Grantors shall maintain or cause to be maintained, at
Grantors' sole cost and expense and with financially sound and reputable
insurers reasonably satisfactory to Grantee, insurance against such liabilities,
casualties, risks and contingencies, and in such types as is customary in the
case of independent oil companies engaged in operations of similar property,
including, without limitation, insurance of the types and coverages described in
Schedule 1 hereto and with limits of coverage no less than those set out in
Schedule 1. Such insurance shall name Grantee as an additional insured (as to
liability policies) and as a loss payee to the extent of Grantee's interest (as
to property policies). Grantors shall furnish certificates of such insurance to
Grantee and shall obtain endorsements to such policies providing that the
insurer will notify Grantee not less than 30 days prior to the expiration or
termination of such policy of insurance.
(b) In the event of any damage to or loss of any platform,
pipeline, well, equipment or facility on the Leases, Grantors (at no cost to
Grantee) shall promptly redrill, rebuild, reconstruct, repair, restore or
replace such damaged or lost property, unless to do so would not be economically
feasible (without regard to the burden of the Overriding Royalty, but taking
into account insurance proceeds and recoveries).
12. Abandonment of Xxxxx.
(a) Until the termination of the Overriding Royalty, Grantors
shall not, without first obtaining the written consent of Grantee, abandon any
well heretofore or hereafter completed for production of Hydrocarbons on any of
the lands covered by or attributable to the Subject Interests or surrender,
abandon or release any Lease or Subject Interest or any part thereof; provided,
without the consent of Grantee:
(i) If and when, in Grantors' reasonable judgment, exercised
in good faith and as would a prudent operator not burdened by the
Overriding Royalty, a well becomes no longer capable of producing
Hydrocarbons in paying quantities (without regard to the burden of the
Overriding Royalty) and it would not be economically feasible (without
regard to the burden of the Overriding Royalty) to restore the
productivity of such well by reworking, reconditioning, deepening,
plugging back or otherwise, Grantors shall have the right to abandon
such well, subject to the provisions of Section 12(c).
(ii) Subject to the provisions of Section 12(c), Grantors
shall have the right to surrender and release any Subject Interest or
part thereof when, in the reasonable judgment of Grantors exercised in
good faith and as would a prudent operator not burdened by the
Overriding Royalty, there is no well located thereon which is capable
of producing Hydrocarbons in paying quantities and the drilling of an
additional well thereon would not, in Grantors' reasonable opinion, be
economically feasible (without regard to the burden of the Overriding
Royalty).
(iii) Subject to the provisions of Section 12(c), Grantors
shall have the right to abandon or release any Subject Interest or well
related thereto that has a discounted net present value (as determined
by the most recent reserve report delivered by Grantors to Grantee
hereunder) of no more than $50,000; provided, however, that Grantors
shall not
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release or abandon Subject Interests or xxxxx related thereto that have
an aggregate discounted net present value (as determined by the most
recent reserve report delivered by Grantors to Grantee hereunder) in
excess of $500,000 during any calendar year.
(b) For all purposes of this Agreement, (i) a well shall be
deemed to be capable of producing Hydrocarbons "in paying quantities" unless and
until there arises a condition which reasonably appears to be permanent, such
that the aggregate value of the Hydrocarbons which are being produced or which
it reasonably appears will be produced from such well, net of royalties and
Taxes but without regard to the burden of the Overriding Royalty, no longer
exceeds or will not exceed the costs and expenses directly related to the
operation and maintenance of such well (excluding office and management overhead
and similar charges), and (ii) the restoration of the productivity of a well or
the drilling of a well shall be deemed to be "economically feasible" whenever
the aggregate value of the Hydrocarbons which it reasonably appears will be
produced from such well, net of royalties and Taxes but without regard to the
burden of the Overriding Royalty, will exceed the costs and expenses directly
related to such restoration or drilling and the operation and maintenance of
such well (excluding office and management overhead and similar charges).
(c) Before abandoning any well or surrendering or releasing
any Subject Interest or part thereof, Grantors shall offer to assign the same to
Grantee upon Grantee's payment of the net salvage value (if any) attributable to
Grantors' interest therein and assumption of the obligations attributable to
Grantors' interest therein.
(d) Nothing contained herein shall be intended or construed as
amending or superceding Grantors' obligations under any Permitted Encumbrance
applicable to the Subject Interests (including, but not limited to, any joint
operating agreement currently in effect).
13. Drilling of Replacement Xxxxx. Grantors covenant and agree that, in
the event that any well now or hereafter completed for production of
Hydrocarbons on any of the lands and waterbottoms covered by or attributable to
the Subject Interests shall for any reason (other than depletion of the reserves
otherwise recoverable from such well) be no longer capable of producing
Hydrocarbons in paying quantities, Grantors shall promptly drill an oil and gas
well to replace such well, unless in Grantors' reasonable judgment, exercised in
good faith and as would a prudent operator not burdened by the Overriding
Royalty, the drilling of such replacement well would not be economically
feasible.
14. Information.
(a) At all times from the date hereof until the termination of
the Overriding Royalty, Grantors, at Grantors' own expense, shall furnish to
Grantee the following reports and information at the times indicated below.
(i) Quarterly within 50 days after the end of each calendar
quarter, excluding the last calendar quarter of each year, unaudited
combined financial statements of Grantors as of the end of and for such
period, including a balance sheet and statements of income and
cashflows, prepared in accordance with the generally accepted
accounting principles.
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(ii) Annually within 100 days after the end of each year,
Grantors shall furnish Grantors' financial statements as of the end of
and for such period, including a balance sheet and statements of
income, owner's equity and cashflow statements, prepared in accordance
with the generally accepted accounting principles, accompanied by a
report of Grantors' independent certified public accountants stating
that their examination was made in accordance with generally accepted
auditing standards and that in their opinion such financial statements
fairly present Grantors' financial condition, results of operations and
changes in financial position in accordance with the generally accepted
accounting principles, consistently applied.
(iii) Semi-annually on or before March 1 and September 1 of
each year (commencing September 1, 2001), Grantors shall furnish at
Grantor's expense a reserve report satisfactory to Grantee (together
with Grantors' internally prepared summary of such report), as of the
immediately preceding December 31 and June 30, respectively. Each
report dated as of December 31 shall be prepared by the Independent
Engineer, Xxxxxx & Xxxxx, Ltd., Xxxxx Xxxxx Company or Xxxxxx,
Xxxxxxxxx & Associates or other independent petroleum engineering firm
approved by Grantee. Each report shall incorporate all current
information and data available to Grantors pertinent to the estimation
of oil and gas reserves attributable to Subject Interests and set forth
the following:
(A) an estimation of the oil and gas reserves,
classified by appropriate categories, as of such date
attributable to the Subject Interests,
(B) a projection of the rate of production of, and
net revenue from, such reserves,
(C) a calculation of the present worth of such net
revenue discounted at a rate or rates designated from time to
time by Grantee, and
(D) a schedule or complete description of all
assumptions, estimates and projections made or used in the
preparation of such report, including without limitation
estimated future product prices, capital expenditures,
operating expenses and taxes.
Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers,
shall be based on such assumptions as to costs, product prices and
similar factors as Grantee shall designate from time to time. Grantee
shall be furnished a copy of any other reserve report prepared for
Grantors by any independent petroleum engineering firm covering the
Subject Interests.
(iv) Quarterly within 50 days after the end of each calendar
quarter, a certificate executed by an officer of each of Grantors
certifying that to the best of his knowledge, after reasonable
investigation, that all royalties, production taxes and rentals have
been paid in full and in accordance with the terms of the Leases, other
agreements and state regulations and that each of such Grantors is in
compliance in all material
65
respects with the terms of the Conveyance and this Agreement, or if
not, specifying in reasonable detail any exceptions thereto.
(v) Quarterly, no later than 50 days after the end of each
calendar quarter, and at such other time as may be requested by
Grantee, Grantors shall furnish reports concerning any change in
methods of treatment or operation of all or any Subject Xxxxx which are
productive of Hydrocarbons, any new drilling or development, any method
of secondary recovery by repressuring or otherwise, or any other action
with respect to the Subject Interests, the decision as to which may
increase or reduce the quantity of Hydrocarbons ultimately recoverable
from the Subject Interests, or the rate of production therefrom, or
which may shorten or prolong the period of time required for
liquidation of the Overriding Royalty and the current status of all
wellhead gas imbalances by Subject Well or Subject Interest.
(vi) Promptly after becoming available and in any event within
45 days after the end of each month, Grantors shall furnish a report
showing production data related to each Property that is required to be
reported by the state in which production occurs. The data related to
each Property may be reported electronically, if available, or by
copies of the state reports.
(vii) Promptly after becoming available and in any event
within 45 days after the end of each month, Grantors shall furnish
Grantee a lease operating statement showing gross and net volumes of
Hydrocarbons produced and sold from the Subject Interests, average
sales prices, severance taxes, lease operating expenses, capital
expenditures and any other revenues and expenses associated with each
Subject Interest.
(viii) Promptly after receipt and in any event within 15 days
after receipt, Grantors shall furnish Grantee with all reports, data,
notices and other information received by any Grantor in connection
with the HHOC Production Payment, and Grantors shall furnish Grantee
with copies of all notices and other communications sent by any Grantor
to Xxxx-Xxxxxxx Oil Company in connection with the HHOC Production
Payment when such notice or communication is sent.
(ix) Promptly and in any event within 30 days after entering
into any new production sales agreement to sell any Overriding Royalty
Hydrocarbons, Grantors shall furnish Grantee with a detailed summary of
such agreement, which shall include, without limitation, the name and
address of the purchaser, pricing, volumes, properties covered thereby
and the term thereof.
(x) As soon as possible and in any event within 5 days after
any Grantor becomes aware thereof, Grantors shall furnish Grantee with
notice of (A) any breach of this Agreement or the Conveyance, or (B)
any action, event or occurrence that could reasonably be expected to
have an adverse effect on the Overriding Royalty.
(xi) At any time for purposes of making determinations under
Section 5 above and not more than semi-annually for any other purpose,
Grantors shall, upon Grantee's request, provide Grantee with access to
the independent petroleum engineering firm who
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prepared the most recent reserve report delivered hereunder and (if
available) copies of surface maps showing property lines and well
locations, well logs, core analysis data, flow and pressure tests,
natural gas analysis and casing programs and other similar information
related to the Subject Interests, Subject Xxxxx and the production
therefrom.
(xii) In addition to the reserve reports to be delivered to
Grantee under Section 14(a)(iii), upon the request of Grantee, Grantors
shall at Grantors' expense furnish a reserve report to Grantee prepared
by the Independent Engineer, dated as of the last day of the Month
immediately preceding the date of such request and covering the oil and
gas reserves attributable to the Subject Interests; provided that
Grantee shall have the right to request only one reserve report under
this Section 14(a)(xii). If Grantee requests that the reserve report
only update the Reserve Report with new pricing information, then
Grantee shall deliver such reserve report within 10 days of Grantee's
request, otherwise Grantee shall deliver such reserve report within 45
days of Grantee's request. Such reserve report shall be prepared in
accordance with the guidelines set forth in Section 14(a)(iii).
(xiii) Upon request, Grantors shall furnish such other
information as Grantee may reasonably request.
(b) Grantee shall have the right from time to time to audit
the books and records of Grantors with respect to the Subject Interests,
including without limitation, all information with respect to volumes of
Hydrocarbons produced from the Leases, the sales price of Overriding Royalty
Hydrocarbons sold on behalf of Grantee, the calculation of Lease Use
Hydrocarbons and Non-Consent Hydrocarbons, and the payment by Grantors of all
costs and expenses incurred in connection with the Subject Interests. Such
audits shall be conducted by Grantee so as to result in a minimum disruption in
the ongoing business and affairs of Grantors and shall be conducted during
normal business hours at Grantors' offices or at the offices where the Grantors
maintain the records relating to the items set forth above. This right to audit
shall survive the termination of the Overriding Royalty for two years. If, as a
result of any such audit, it is determined that any amount is due Grantee as a
result of the failure of any Grantor or Grantors to properly deliver all
Overriding Royalty Hydrocarbons, or the proceeds thereof, to Grantee in
accordance with the terms of the Conveyance and this Agreement, Grantors shall
pay Grantee the value of the Overriding Royalty Hydrocarbons which such Grantor
or Grantors failed to deliver, or the proceeds which such Grantor or Grantors
failed to remit, together with interest at the Fixed Rate from the date that
such amount should have been delivered or paid in accordance with the terms of
the Conveyance and this Agreement to the date of payment.
15. Access to Subject Interests. To the extent the Grantors have the
right to do so, Grantors shall permit or facilitate the duly authorized
representatives of Grantee, upon Grantors' receiving reasonable prior notice,
but at Grantee's sole risk and expense, to make such inspection of the Subject
Interests and the property, machinery, equipment and facilities used in the
operation thereof (or any records of Grantors related thereto) as such
representatives shall deem proper.
16. Remedies of Grantee; Mortgage and Security Interest. At any time
and from time to time until the termination of the Overriding Royalty, if
Grantors shall fail to perform or observe
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any of the covenants or agreements provided herein or in the following described
Purchase and Sale Agreement to be performed or observed by Grantors, then
Grantee, in addition to Grantee's right to recover damages and all other
remedies available to Grantee at law or in equity, may, if such failure shall
continue unremedied after 15 days following the earlier to occur of (x) written
notice thereof being delivered to Grantors or (y) Grantors first having
knowledge of such failure:
(a) pay, or cause to be paid, any of the costs, expenses,
Taxes (which costs, expenses or Taxes are not being contested in good faith by
the Grantors) or other amounts which Grantors have agreed to pay under the
Conveyance or this Agreement which have become delinquent, and be reimbursed by
Grantors on demand by Grantee for all amounts so paid or incurred, together with
interest at the Fixed Rate from the date of such payment until the date of
reimbursement; and
(b) sell, on behalf and for the account of Grantors, all of
the Hydrocarbons attributable to Grantors' interest in the Subject Interests and
apply the proceeds thereof to any amount owed by Grantors hereunder; and
(c) setoff any amount owed by Grantee or its Affiliates to
Grantors or their Affiliates against any amount owed to Grantee hereunder; and
(d) apply to a court of equity for the specific performance or
observance of any such covenant or condition and in aid of the execution of any
power herein granted and for the appointment of a receiver of the Subject
Interests and the Hydrocarbons produced therefrom; and
(e) replace Grantors or any Affiliate of Grantors that is
serving as the operator of any of the Properties with another Person designated
by Grantee (which other Person may be Grantee or an Affiliate of Grantee), and
Grantors hereby grant to Grantee the power and authority to vote or otherwise
take any action that Grantors could take to effectuate such change as Grantors'
attorney-in-fact; provided, this clause (e) shall only apply if such failure to
perform or observe is of a material covenant or agreement in this Agreement or
in the Purchase and Sale Agreement.
In order to secure payment of all amounts advanced or paid by Grantee
under this Section 16 and to secure performance by Grantors of all of Grantors'
other obligations under this Agreement (including, without limitation, the
letter agreements referred to in Section 19 below) and the Purchase and Sale
Agreement dated February 14, 2001 between Grantors and Grantee, as such
agreements may be modified or amended from time to time (all of such payment and
performance obligations being hereinafter collectively referred to as the
"Obligations"), each Grantor does hereby mortgage, warrant, grant, affect and
hypothecate to Grantee, and grant to Grantee a lien and security interest in,
all of such Grantor's interest in the Subject Interests (all of which Subject
Interests are more fully described in the exhibits attached to this Agreement
and any amendments or modifications to this Agreement executed from time to
time) and all of such Grantor's equipment, fixtures, inventory, goods, accounts,
contracts rights and general intangibles, whether presently existing or to arise
in the future, now owned or hereafter acquired, insofar as the same are (i)
located on the Leases more fully described in the exhibits to this Agreement and
any amendments or modifications to this Agreement executed from time to time,
and any renewals, extensions or replacements of such Leases, or (ii) are used in
connection with,
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or relate to the ownership or operation of, the Leases or Subject Interests, or
(iii) arise out of the sale or other conveyance of oil, gas or other minerals
produced and saved from the Leases relating to the Subject Interests together
with any and all products and proceeds of any of the foregoing (collectively,
the "Mortgaged Properties"); provided, however, that the Mortgaged Properties
shall not include the property described on Exhibit B attached hereto, which
property is expressly reserved and excepted from the mortgage, lien and security
interests granted hereunder. The mortgage, lien and security interest granted
hereby shall be subject only to the Overriding Royalty granted under the
Conveyance and Grantors shall not hereafter create or suffer to exist any
mortgage, lien or security interest superior to those granted hereby, except for
the Permitted Encumbrances. The mortgage, lien and security interest granted
pursuant hereto is granted pursuant to the laws of each state where any of the
Subject Interests are located and Grantee shall be entitled to exercise all of
the rights and remedies of a mortgagee and secured party under such laws of each
such state in the event of any default by Grantors in the performance or payment
(as applicable) of the Obligations.
The maximum amount of the Obligations that may be outstanding at any
time and from time to time that this Agreement secures as a mortgage is One
Hundred Seventy Five Million and No/100 Dollars ($175,000,000).
To the extent the Obligations secured hereby are deemed to be covered
by Section 48-7-4 XXXX 0000, THIS AGREEMENT SHALL CONSTITUTE A "LINE OF CREDIT
MORTGAGE" pursuant thereto. The mortgage lien granted herein shall not exceed at
any one time the maximum amount of One Hundred Seventy Five Million and No/100
Dollars ($175,000,000). In the event of a redemption under a decree of
foreclosure, the redemption period shall be one month in lieu of nine months,
pursuant to Section 39-5-19 XXXX 0000.
Any purchaser of Hydrocarbons from or attributable to the Subject
Interests is authorized and directed to make payment to the Grantee out of the
Hydrocarbons attributable to Grantors' interest in the Subject Interests for any
amount which Grantee shall certify to such purchaser that it has paid and which
Grantors are obligated to pay hereunder. Any insurer is authorized and directed
to make payment to the Grantee of proceeds of insurance described in Section
11(a) hereof for any amount which Grantee shall certify to such insurer that it
has expended in redrilling, rebuilding, reconstructing, repairing, restoring or
replacing damaged or lost property which Grantors have failed or refused to do
promptly pursuant to Section 11(b) hereof. Grantors hereby designate Grantee as
Grantors' agent and attorney in fact to execute any instruments which may be
necessary or appropriate, including without limitation designations of operator,
to enable Grantee to exercise its rights under this Section 16. This designation
and appointment shall be irrevocable as long as the Overriding Royalty remains
in effect.
As a matter of right and without regard to the sufficiency of the
security, and without any showing of insolvency, fraud or mismanagement on the
part of the Grantors, Grantee shall be entitled to the appointment of a receiver
of the Hydrocarbons attributable to Grantors' interest or any part thereof, and
of the income, issues and profits thereof.
With respect to the Mortgaged Properties situated in Oklahoma, Grantors
hereby confer on Grantee the power to sell the Hydrocarbons attributable to
Grantors' interest in the manner
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69
provided in the "Oklahoma Power of Sale Mortgage Foreclosure Act" (46 O.S.
Sections 40-49), as amended from time to time.
This Agreement shall likewise be a security agreement and a financing
statement, and shall be filed for record, among other places, in the real estate
records of each county in which any portion of the Subject Interests described
in Exhibit A is situated, and, when filed in such county shall be effective as a
financing statement covering fixtures located on oil and gas properties, which
oil and gas properties (and accounts arising therefrom) are to be financed at
the wellheads of the xxxxx located on the real property described in Exhibit A
or unitized therewith. For the purposes of this financing statement, the debtors
are the Grantors, whose address is set forth in Section 18 hereof, and the
secured party is the Grantee, whose address is set forth in Section 18 hereof.
17. Force Majeure.
(a) In the event of any party being rendered unable, wholly or
in part, by Force Majeure to carry out its obligations under this Agreement
other than to make payments due hereunder, it is agreed that on such party's
giving notice and full particulars of such Force Majeure in writing or by
telecopy to the other party as soon as possible after the occurrence of the
cause relied on, then the obligations of the party giving such notice, so far as
they are affected by such Force Majeure, shall be suspended during the
continuance of any inability so caused but for no longer period, and such cause
shall as far as possible be remedied with all reasonable dispatch.
(b) For purposes of this Agreement "Force Majeure" means acts
of God, strikes, lockouts, or other industrial disturbances, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and
restraints and prohibitions of government, either federal or state, inability to
obtain necessary materials, supplies (other than Hydrocarbons), or permits due
to existing or future rules, order, laws of governmental authorities (both
federal and state), civil disturbances, explosions, sabotage, breakage or
accident to machinery or lines of pipe, freezing of lines of pipe, interruption
or curtailment of firm or interruptible transportation services provided by
third party transporters, and any other causes whether of the kind herein
enumerated or otherwise, which are not anticipated at the time of execution
hereof, which are not within the control of the party claiming suspension and
which by the exercise of due diligence such party could not have prevented or is
unable to overcome. By way of illustration, the term "Force Majeure" shall not
include shutdowns due to routine maintenance, repairs or workovers (regardless
of whether such shutdown is by the operator or owner); restrictions caused by
gas balancing agreements or arrangements; or depletion of reserves.
18. Notices. All notices, requests, demands, instructions and other
communications required or permitted to be given hereunder shall be in writing
and shall be delivered personally, mailed by certified mail, postage prepaid and
return receipt requested or sent by telecopier or e-mail, as follows:
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70
If to Grantors, addressed to:
c/o KCS ENERGY SERVICES, INC.
0000 Xxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxx Xxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxx@xxxxxxxxx.xxx
With a copy to:
Mayor, Day, Xxxxxxxx & Xxxxxx LLP
Attention: Xxxxxxx X. Xxxx
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxx@xxxx.xxx
If to Grantee, addressed to:
STAR VPP, LP
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxxx.xxxxxx@xxxxx.xxx
With a copy to:
Enron Corp.
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Fax No. 000-000-0000
Phone No. 000-000-0000
email: xxxxx.xxxxx@xxxxx.xxx
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71
or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notice given by telecopier or e-mail shall be effective
upon actual receipt if received during recipient's normal business hours or at
the beginning of the next business day after receipt if received after the
recipient's normal business hours.
19. Performance of Agreements. Grantors shall pay and perform all of
each Grantor's obligations under the letter agreements referred to in Sections
6.02(viii) - (xi) of the Purchase and Sale Agreement described in Section 16
above.
20. Indemnity. It is understood and agreed that under neither this
Agreement nor the Conveyance does Grantee assume or shall Grantee ever be liable
or responsible in any way for the payment of any costs, expenses or liabilities
incurred in connection with developing, exploring, drilling, equipping, testing,
operating, producing, maintaining or abandoning the Subject Interests or any
well or facility thereon or storing, handling, treating or transporting to each
Delivery Point production therefrom. Grantors shall fully defend, protect,
indemnify and hold Grantee, its officers, employees, representatives and agents
harmless from and against any and all claims, demands, suits and causes of
action of every kind and character, including reasonable attorneys' fees and
costs of defense, which may be made or asserted by any third party or
governmental agency or entity, or by Grantors, Grantors' employees, agents,
contractors and subcontractors and their employees and agents, on account of
personal injury, death or property damage (including, without limitation, claims
for pollution and environmental damage), any civil or criminal fines or
penalties and any causes of action alleging statutory liability, relating to,
arising out of, or in any way incidental to the Subject Interests, the xxxxx and
facilities thereon or used in connection therewith, the operation thereof and
the production therefrom (including, without limitation, rentals, royalties and
taxes thereon), WHETHER THROUGH AN ACT OR OMISSION OF GRANTEE OR ANY OTHER PARTY
HERETO OR OTHERWISE, AND WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT OR
CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF GRANTEE OR ANY OTHER PERSON
OR ENTITY INDEMNIFIED HEREUNDER. THIS INDEMNITY SHALL APPLY, WITHOUT LIMITATION,
TO ANY LIABILITY IMPOSED UPON ANY PARTY INDEMNIFIED HEREUNDER AS A RESULT OF ANY
STATUTE, RULE, REGULATION OR THEORY OF STRICT LIABILITY.
21. Successors and Assigns. All the covenants and agreements of
Grantors and Grantee herein contained shall be deemed to be covenants running
with the land and shall be binding upon the successors and assigns of each
Grantor's interest in the Subject Interests and Grantee's interest in the
Overriding Royalty and shall inure to the benefit of each Grantor, Grantee, and
their respective successors and permitted assigns. The foregoing
notwithstanding, nothing herein is intended to modify or shall have the effect
of modifying the restrictions on assignment set forth in the Conveyance
regarding assignments, transfers or pooling of Grantors' interest in the Subject
Interests; and the preceding sentence shall not be deemed to permit any
assignment or other transfer of the interest of Grantors in any of the Subject
Interests that is not specifically permitted by the provisions of the
Conveyance. Nothing contained in this instrument or in the Conveyance shall in
any way limit or restrict the right of Grantee, or Grantee's successors and
assigns, to sell, convey, assign or mortgage the Overriding Royalty or its
rights under this
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Agreement in whole or in part. If Grantee, or Grantee's successors and assigns,
at any time shall execute a mortgage, pledge or deed of trust covering all or
any part of the Overriding Royalty as security for any obligation, the
mortgagee, the pledgee or the trustee therein named or the holder of the
obligation secured thereby shall be entitled, to the extent such mortgage,
pledge or deed of trust so provides and upon the occurrence or existence of the
event or condition therein stated, if so conditioned, to exercise all of the
rights, remedies, powers and privileges herein conferred upon Grantee, and to
give or withhold all consents herein required or permitted to be obtained from
Grantee.
22. Damages. It is recognized that Grantee will look solely to the
Overriding Royalty Hydrocarbons for satisfaction and discharge of the Overriding
Royalty, and that Grantors are not personally liable for the payment and
discharge thereof. However, the foregoing provision shall not relieve Grantors
of any obligations under this Agreement or any obligation to respond in damages
for any breach of any of the provisions hereof or of the Conveyance.
23. Joint and Several Obligations. Each Grantor agrees that all of the
obligations and liabilities of the Grantors under this Agreement shall be joint
and several, and Grantee may, at its election, at any time and from time to
time, look to any or all of the Grantors in satisfaction of same.
24. Cost of Litigation. In the event of a breach of this Agreement, or
if a dispute arising hereunder is not resolved by mutual agreement, and either
party should xxx the other party to enforce its rights hereunder or for breach
hereof, the party prevailing in such litigation shall be entitled to recover its
costs and reasonable attorneys' fees in addition to any other remedy or recovery
to which it may be entitled.
25. Entire Agreement; Amendments; Waiver. This Agreement constitutes
the entire agreement between the parties hereto. This Agreement may not be
amended and no rights hereunder may be waived except by a written document
signed by the duly authorized representatives of the parties. No waiver of any
of the provisions of this Agreement shall be deemed to be or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
26. Headings. The headings of the sections of this Agreement are for
guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
27. Counterpart Execution. This Agreement may be executed by Grantors
and Grantee in any number of counterparts, each of which shall be deemed an
original instrument, but all of which shall constitute but one and the same
Agreement; provided, however, in order to facilitate recording of this Agreement
in the public records of each of the jurisdictions in which the Subject
Interests are located or are deemed to be adjacent, (a) the exhibits (including
Parts I and Parts II of Exhibit A) attached to a counterpart recorded in a
single jurisdiction may contain only those pages (or portions thereof) which
apply to Subject Interests which are located in or are adjacent to such
jurisdiction, (b) the cover page has been omitted from the counterparts filed in
Michigan, and (c) the Mississippi acknowledgment forms have been omitted from
all
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counterparts other than the counterparts filed in Mississippi and Xxxxxx County,
Texas. A complete counterpart of this Conveyance is recorded in Xxxxxx County,
Texas.
28. Partial Invalidity. Except as otherwise expressly stated herein, in
the event any provision contained in this Agreement shall for any reason be held
invalid, illegal or unenforceable by a court or regulatory agency of competent
jurisdiction by reason of a statutory change or enactment, such invalidity,
illegality or unenforceability shall not affect the remaining provisions of this
Agreement.
29. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THAT THE
LAWS OF ANOTHER STATE MANDATORILY GOVERN ANY PROVISION OF THIS AGREEMENT.
This Agreement is exempt from Michigan State Transfer tax pursuant to
MCL 207.526. This Agreement is exempt from Michigan county transfer tax pursuant
to MCL 207.505.
A POWER OF SALE HAS BEEN GRANTED IN THIS AGREEMENT. A POWER OF SALE MAY
ALLOW THE MORTGAGEE (BEING GRANTEE HEREUNDER) TO TAKE THE MORTGAGED PROPERTIES
AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR (BEING GRANTORS HEREUNDER) UNDER THIS AGREEMENT.
[signatures on following page]
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EXECUTED in multiple originals as of the date set forth above.
GRANTORS:
WITNESSES AS TO ALL SIGNATURES:
KCS RESOURCES, INC.
----------------------------------
Xxxxxxxx Xxxxxx By:
--------------------------------------
Xxxxx Xxx Xxxxx, Vice President
----------------------------------
Xxxxxx Xxxxxxx
KCS ENERGY SERVICES, INC.
By:
--------------------------------------
Xxxxx Xxx Xxxxx, President
KCS MICHIGAN RESOURCES, INC.
By:
--------------------------------------
Xxxxx Xxx Xxxxx,
Senior Vice President
KCS MEDALLION RESOURCES, INC.
By:
--------------------------------------
Xxxxx Xxx Xxxxx, Vice President
GRANTEE:
STAR VPP, LP
BY: KCSE STAR, LLC,
its general partner
By:
--------------------------------------
C. Xxxx Xxxxxxxx, Vice President
75
Exhibits:
Exhibit A -- Subject Interests
Exhibit B -- Excluded Property
Schedules:
Schedule 1 -- Insurance Requirements
Schedule 2 -- Intentionally Deleted
Schedule 3 -- Required Percentages Per Month
Schedule 4 -- Processing Agreements
This document prepared by:
Xxxxxxx X. Xxxxxxx
Xxxxxxx & Xxxxx L.L.P.
0000 Xxxxx Xxxxx, 000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Phone No.: 000-000-0000
76
EXHIBIT D
PRODUCTION AND DELIVERY AGREEMENT (KCS MEDALLION)
Exhibit D Page 1
77
PRODUCTION AND DELIVERY AGREEMENT
BETWEEN
KCS MEDALLION RESOURCES, INC.
"GRANTOR"
AND
STAR VPP, LP
"GRANTEE"
78
PRODUCTION AND DELIVERY AGREEMENT
This Production and Delivery Agreement ("Agreement") is made and
entered into effective as of the 1st day of February 2001, by and between KCS
MEDALLION RESOURCES, INC., a Delaware corporation, whose address is 0000 Xxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 ("Grantor"), and STAR VPP, LP, a
Delaware limited partnership, whose address is 0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxx
00000 ("Grantee").
WHEREAS, by Conveyance of Production Payment of even date herewith from
Grantor to Grantee and recorded contemporaneously herewith in the public records
of Xxxxxx County, Texas (the "Conveyance"), Grantee has purchased and acquired
from Grantor, and Grantor has sold and conveyed to Grantee, the Production
Payment described in the Conveyance. The term "Subject Interests" is defined in
the Conveyance and includes (a) the "Production Payment" reserved by Grantor in
Part II of the Assignment and Agreement described in Exhibit A hereto and (b)
the "Production Payment" conveyed to Grantor in Part II of the Conveyance of
Production described in Exhibit A hereto.
NOW, THEREFORE, as a material inducement to cause Grantee to purchase
the Production Payment and in consideration of the mutual benefits and
obligations of the parties hereunder, Grantee and Grantor have agreed, and
hereby agree, as follows:
1. Definitions. Each capitalized term used herein but not defined
herein shall have the meaning given to it in the Conveyance.
2. Marketing; Payment.
(a) If any of the Hydrocarbons attributable to the Subject
Properties are subject to existing production sales agreements which cannot or
will not be terminated at Closing (the "Existing Sales Contracts"), then during
the remaining term of each Existing Sales Contract, the Hydrocarbons which are
subject to such Existing Sales Contracts shall continue to be sold and delivered
at the contract price and terms applicable thereto. Grantor shall perform and
administer each Existing Sales Contract, but shall not amend, extend or renew
any of the Existing Sales Contracts without Grantee's prior written consent, and
upon Grantee's written request, Grantor shall take such actions as may be
necessary to cause the Existing Sales Contracts to expire at the end of their
respective terms, or if permitted under the terms thereof, to terminate prior to
the expiration of their respective terms. With respect to all Hydrocarbons
attributable to the Subject Properties that are not sold under Existing Sales
Contracts, Grantor shall sell, or cause to be sold, such Hydrocarbons pursuant
to arm's length contracts with Approved Purchasers, containing provisions
negotiated by Grantor as a prudent marketer. Each such contract shall provide
for a term period not to exceed three Months or provide for cancellation or
termination upon thirty days (or less) notice to the other party.
(b) On or before each Monthly Payment Date, the Monthly PP
Amount for the immediately preceding Month shall be paid by Grantor by wire
transfer to Grantee to an account designated by Grantee from time to time.
Grantor will diligently enforce the terms of all sales agreements under which
Hydrocarbons attributable to the Subject Properties are sold, including full and
prompt payment of all amounts due from such sales. Grantee shall have the right
at any
79
time Grantee considers prudent to direct the purchasers of any Hydrocarbons
attributable to the Subject Interests to pay the proceeds thereof directly to
Grantee by delivering to such purchasers the letters in lieu of transfer orders
previously executed by Grantor and held by Grantee (Grantor hereby authorizing
Grantee to complete any such letter in lieu by inserting the relevant
purchaser's name and address therein). If Grantee requests direct payment,
Grantor will cooperate in instructing the purchasers to pay such proceeds
directly to Grantee and shall execute such additional instruments as may be
necessary or appropriate in connection therewith. If any Hydrocarbons
attributable to the Subject Interests are sold by Grantor under the terms of any
agreement between Grantor and Grantee or between Grantors and any Affiliate of
Grantee, then Grantee shall be entitled to retain the proceeds of such sale or
receive direct payment from its Affiliate, in each case, to the extent of the
Monthly PP Amounts (and interest accrued thereon, if any) then due and payable
with respect to the Production Payment.
(c) For purposes of this Agreement, "Approved Purchasers"
shall mean: (i) each entity listed on the Approved Purchaser List attached as
Exhibit J to the Purchase and Sale Agreement described in Section 9 below, and
(ii) each other entity proposed by Grantor from time to time who (y) has agreed
in writing with Grantee to pay Overriding Royalty Hydrocarbon sales proceeds
directly to Grantee and (z) is approved in writing by Grantee; provided,
however, that upon 3 days written notice from Grantee to Grantor, Grantee may
terminate any such entity under clauses (i) or (ii) above as an Approved
Purchaser.
3. Rate of Production.
(a) Grantor shall prudently operate and produce with respect
to those Subject Xxxxx operated by Grantor, and shall use Grantor's best efforts
to cause to be prudently operated and produced, with respect to the Subject
Xxxxx not operated by Grantor in accordance with good engineering practices and
the following requirements: (i) the amount of Hydrocarbons produced from any
Subject Well shall not exceed in any Month the lower of (x) the maximum amount
that the Subject Well is capable of producing at its maximum efficient rate of
flow or (y) the respective allowable rate of flow under applicable orders,
rules, regulations or laws, if any; (ii) the amount of Hydrocarbons produced
from the Subject Xxxxx shall be sufficient to prevent a net migration of
Hydrocarbons from the reservoirs to which proved reserves are attributed to the
Subject Properties; and (iii) subject to field rules established by governmental
authorities having or asserting jurisdiction, the amount of Hydrocarbons
produced from the Subject Xxxxx shall be equitable and ratable, based on factors
used in determining such field rules.
(b) Subject to the provisions of Section 3(a), Grantor shall
use Grantor's best efforts to cause the Subject Xxxxx to produce each Month that
quantity of Hydrocarbons sufficient to cause the Monthly PP Amount to equal the
product obtained by multiplying the Subject Quantity for such Month times the
Spot Price for such Month.
(c) If for any reason at any time, or from time to time, (i)
(y) there has been an acceleration in the rate of production of Hydrocarbons
from the Subject Interests for any one Month period that exceeds the rates set
forth in the reserve report prepared by Netherland, Xxxxxx & Associates (the
"Independent Engineer") dated as of December 31, 2000 attributable to such
Month, or (z) any required operation to be undertaken by Grantor is not timely
performed in accordance with the terms hereof, and (ii) the ratio that the Tail
Reserves bears to the Remaining
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Reserves is less than the Required Percentage (as defined in Section 3(f)), then
in addition to any other rights or remedies available to Grantee, then Grantee
shall have the right, at Grantee's option, to cause the remaining Scheduled
Amounts shall be adjusted as provided in Section 3(d). As used in this Section
3, "Tail Reserves" means, as of the date of any determination, the Risk Adjusted
Proved Reserves of Hydrocarbons projected to be attributable to the Subject
Interests determined by calculating such Risk Adjusted Proved Reserves for the
Subject Interests as of the later of (x) the end of the last Month for which a
Scheduled Amount is set forth on Schedule 1 to the Conveyance or (y) the date of
such determination of Tail Reserves. As used in this Section 3, "Remaining
Reserves" means, as of the date of any determination, the Risk Adjusted Proved
Reserves of Hydrocarbons projected to be attributable to the Subject Interests
in Exhibit A without regard to the Production Payment. As used in this Section
3, "Risk Adjusted Proved Reserves" means proved reserves of Hydrocarbons which,
after adjustments by Grantee based on Grantee's assessment of risk, can be
estimated with reasonable certainty to be recoverable under economic conditions
existing at the time of determination.
(d) Upon Grantee's election to exercise the option set forth
in Section 3(c) above, Grantee shall in good faith generate a proposed revised
Schedule 1 to the Conveyance which results, at the time of Grantee's exercise of
the option, in a ratio of the Tail Reserves to the Remaining Reserves, greater
than, but as near as reasonably possible to, the Required Percentage. Grantee
shall present its proposal to Grantor for review and verification that the
proposed Schedule complies with the requirements of the foregoing sentence.
Grantor and Grantee shall amend the Conveyance to incorporate the amended
Schedule 1 immediately following the parties' agreements as to the substance of
such Schedule or the determination of the amended Schedule 1 by the independent
petroleum engineering firm under Section 3(e), as applicable.
(e) In the event Grantor and Grantee are not able to agree
upon Grantee's proposed amended Schedule 1 pursuant to Section 3(d) above, the
parties shall select an independent petroleum engineering firm to make such a
determination of the appropriate Schedules. The fees and expenses of such firm
shall be borne equally by Grantor and Grantee. The determination of such firm
shall be binding upon Grantor and Grantee. If within 15 days after either party
notifies the other that it requests a determination by an independent firm, the
parties are unable to agree upon such a firm, each party shall in good faith
prepare a list of four independent petroleum engineering firms. Each list shall
set forth that party's priority order with the highest priority firm listed
first. Each party shall submit its list to the other within five days after the
end of the 15 day period provided above. The list shall be compared and the
first listed firm appearing in Grantee's list that also appears in Grantor's
list shall be the firm used to make such determination. If either party fails to
provide a list of that party's recommended firms, such party's list shall not be
considered and the first listing on the other party's list shall be the firm
used to make the determination. If no firm is selected pursuant to the
procedures followed herein, then the firm used shall be selected by Grantee.
(f) The term "Required Percentages" as used in this Section 3
shall mean the percentage set forth on Schedule 2 opposite the applicable Month.
(g) In the event of any change in Scheduled Amounts pursuant
to this Section 3, Grantee and Grantor shall execute and acknowledge an
appropriate amendment to the
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Conveyance changing the affected Scheduled Amounts, and Grantor, at Grantor's
expense, shall cause such amendment to be filed in all appropriate county
records.
4. Operation of Subject Properties. At all times from the date hereof
until the termination of the Production Payment and whether or not any Grantor
is the operator of the Subject Properties, Grantor, at Grantor's cost and
expense, shall:
(a) Cause, or to the extent Grantor is not the operator, use
its best efforts to cause, the Subject Properties to be maintained in full force
and effect, and to be developed, protected against drainage, and continuously
operated for the production of Hydrocarbons in a good and workmanlike manner as
would a prudent operator (and without regard to the burden of the Production
Payment), all in accordance with generally accepted industry practices,
applicable operating agreements, and all applicable federal, state and local
laws, rules and regulations, and shall otherwise comply with all applicable
laws, rules and regulations;
(b) Pay, or cause to be paid, promptly as and when due and
payable, all rentals and royalties payable in respect of the Subject Properties
or the production therefrom, and all costs, expenses and liabilities incurred in
or arising from the operation or development of the Subject Properties, or the
producing, treating, gathering, storing, marketing or transporting of
Hydrocarbons therefrom;
(c) Cause, or to the extent a Grantor is not the operator, use
its best efforts to cause, all xxxxx, machinery, equipment and facilities of any
kind now or hereafter located on the Subject Properties, and necessary or useful
in the operation thereof for the production of Hydrocarbons therefrom, to be
provided and to be kept in good and effective operating condition as would a
prudent operator (and without regard to the burden of the Production Payment),
and all repairs, renewals, replacements, additions and improvements thereof or
thereto, useful or needful to such end, to be promptly made;
(d) Give or cause to be given to Grantee written notice of
every adverse claim or demand made by any person affecting the Subject
Properties, the Hydrocarbons produced therefrom, the Subject Interests and/or
the Production Payment in any manner whatsoever, and of any suit or other legal
proceeding instituted with respect thereto, and at Grantor's expense cause all
necessary and proper steps to be taken with reasonable diligence to protect and
defend the Subject Properties, the Hydrocarbons produced therefrom, the Subject
Interests and/or the Production Payment against any such adverse claim or
demand, including (but not limited to) the employment of counsel for the
prosecution or defense of litigation and the contest, release or discharge of
such adverse claim or demand;
(e) Cause the Subject Interests to be kept free and clear of
liens, charges and encumbrances of every character, other than (i) Taxes
constituting a lien but not due and payable, and (ii) the Permitted
Encumbrances;
(f) Pay all Taxes when due and before they become delinquent
(and provide Grantee with proof of such payment), and reimburse Grantee for any
Taxes paid by Grantee as a result of the Production Payment;
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(g) Pay promptly when due and before they become delinquent
all operating expenses and all xxxxxxxx under applicable joint operating
agreements (except to the extent contested in good faith);
(h) Not resign as manager of the Subject Properties under the
Management Agreement unless approved in writing by Grantee;
(i) Comply with all of Grantor's obligations under the
Management Agreement;
(j) Enforce the terms of the Management Agreement and all
other agreements related to the Subject Interests and exercise all rights and
remedies with respect thereto, all with reasonable diligence;
(k) Not amend the Management Agreement, the Assignment and
Agreement, the InterCoast Conveyance, or the Existing Sales Contracts;
(l) Not amend any other agreement related to the Subject
Interests that could adversely affect the Subject Interests or the Production
Payment;
(m) Not charge any overhead costs or other similar amounts
that would be included in the definition of "Costs" (as such term is defined in
the Assignment and Agreement and the InterCoast Conveyance) in excess of those
allowed under the operating agreements currently in effect with respect to the
Subject Properties;
(n) Not enter into any contract or transaction related in any
way to the Subject Properties with any affiliate of Grantor on terms less
favorable to Grantor than could be obtained in an arm's length transaction with
a person or entity that is not an affiliate of Grantor; and
(o) Not charge any fee for marketing Hydrocarbons produced
from the Subject Properties.
5. Insurance; Damage or Loss.
(a) Grantor shall maintain or cause to be maintained, at
Grantor's sole cost and expense and with financially sound and reputable
insurers reasonably satisfactory to Grantee, insurance against such liabilities,
casualties, risks and contingencies, and in such types as is customary in the
case of independent oil companies engaged in operations of similar property,
including, without limitation, insurance of the types and coverages described in
Schedule 1 hereto and with limits of coverage no less than those set out in
Schedule 1. Such insurance shall name Grantee as an additional insured (as to
liability policies) and as a loss payee to the extent of Grantee's interest (as
to property policies). Grantor shall furnish certificates of such insurance to
Grantee and shall obtain endorsements to such policies providing that the
insurer will notify Grantee not less than 30 days prior to the expiration or
termination of such policy of insurance.
(b) In the event of any damage to or loss of any platform,
pipeline, well, equipment or facility on the Subject Properties, Grantor (at no
cost to Grantee) shall promptly
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redrill, rebuild, reconstruct, repair, restore or replace such damaged or lost
property, unless to do so would not be economically feasible (without regard to
the burden of the Production Payment, but taking into account insurance proceeds
and recoveries).
6. Abandonment of Xxxxx.
(a) Until the termination of the Production Payment, Grantor
shall not, without first obtaining the written consent of Grantee, abandon any
Subject Well or surrender, abandon or release any of the Subject Properties or
Subject Interests or any part thereof; provided, without the consent of Grantee:
(i) If and when, in Grantor's reasonable judgment, exercised
in good faith and as would a prudent operator not burdened by the
Production Payment, a Subject Well becomes no longer capable of
producing Hydrocarbons in paying quantities (without regard to the
burden of the Production Payment) and it would not be economically
feasible (without regard to the burden of the Production Payment) to
restore the productivity of such well by reworking, reconditioning,
deepening, plugging back or otherwise, Grantor shall have the right to
abandon such well, subject to the provisions of Section 6(c).
(ii) Subject to the provisions of Section 6(c), Grantor shall
have the right to surrender and release any Subject Property or part
thereof when, in the reasonable judgment of Grantor exercised in good
faith and as would a prudent operator not burdened by the Production
Payment, there is no well located thereon which is capable of producing
Hydrocarbons in paying quantities and the drilling of an additional
well thereon would not, in Grantor's reasonable opinion, be
economically feasible (without regard to the burden of the Production
Payment).
(b) For all purposes of this Agreement, (i) a Subject Well
shall be deemed to be capable of producing Hydrocarbons "in paying quantities"
unless and until there arises a condition which reasonably appears to be
permanent, such that the aggregate value of the Hydrocarbons which are being
produced or which it reasonably appears will be produced from such well, net of
royalties and Taxes but without regard to the burden of the Production Payment,
no longer exceeds or will not exceed the costs and expenses directly related to
the operation and maintenance of such well (excluding office and management
overhead and similar charges), and (ii) the restoration of the productivity of a
Subject Well shall be deemed to be "economically feasible" whenever the
aggregate value of the Hydrocarbons which it reasonably appears will be produced
from such well, net of royalties and Taxes but without regard to the burden of
the Production Payment, will exceed the costs and expenses directly related to
such restoration or drilling and the operation and maintenance of such well
(excluding office and management overhead and similar charges).
(c) Before abandoning any Subject Well or surrendering or
releasing any Subject Property or part thereof, Grantor shall offer to assign
the same to Grantee upon Grantee's payment of the net salvage value (if any)
attributable to Grantor's interest therein and assumption of the obligations
attributable to Grantor's interest therein.
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7. Information.
(a) At all times from the date hereof until the
termination of the Production Payment, Grantor, at Grantor's own expense, shall
furnish to Grantee the following reports and information at the times indicated
below.
(i) Quarterly within 50 days after the end of each calendar
quarter, excluding the last calendar quarter of each year, unaudited
combined financial statements of Grantor as of the end of and for such
period, including a balance sheet and statements of income and
cashflows, prepared in accordance with the generally accepted
accounting principles.
(ii) Annually within 100 days after the end of each year,
Grantor shall furnish Grantor's financial statements as of the end of
and for such period, including a balance sheet and statements of
income, owner's equity and cashflow statements, prepared in accordance
with the generally accepted accounting principles, accompanied by a
report of Grantor's independent certified public accountants stating
that their examination was made in accordance with generally accepted
auditing standards and that in their opinion such financial statements
fairly present Grantor's financial condition, results of operations and
changes in financial position in accordance with the generally accepted
accounting principles, consistently applied.
(iii) Semi-annually on or before March 1 and September 1 of
each year (commencing September 1, 2001), Grantor shall at Grantor's
expense furnish a reserve report satisfactory to Grantee (together with
Grantor's internally prepared summary of such report), as of the
immediately preceding December 31 and June 30, respectively. Each
report dated as of December 31 shall be prepared by the Independent
Engineer, Xxxxxx & Xxxxx, Ltd., Xxxxx Xxxxx Company or Xxxxxx,
Xxxxxxxxx & Associates or other independent petroleum engineering firm
approved by Grantee. Each report shall incorporate all current
information and data available to Grantor pertinent to the estimation
of oil and gas reserves attributable to the Subject Interests and set
forth the following:
(A) an estimation of the oil and gas reserves,
classified by appropriate categories, as of such date
attributable to the Subject Interests,
(B) a projection of the rate of production of, and
net income from, such reserves,
(C) a calculation of the present worth of such net
revenue discounted at a rate or rates designated from time to
time by Grantee, and
(D) a schedule or complete description of all
assumptions, estimates and projections made or used in the
preparation of such report, including without limitation
estimated future product prices, capital expenditures,
operating expenses and taxes.
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Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers,
shall be based on such assumptions as to costs, product prices and
similar factors as Grantee shall designate from time to time. Grantee
shall be furnished a copy of any other reserve report prepared for
Grantor by any independent petroleum engineering firm covering the
Subject Interests.
(iv) Quarterly within 50 days after the end of each calendar
quarter, a certificate executed by an officer of Grantor certifying
that to the best of his knowledge, after reasonable investigation, that
all royalties, production taxes and rentals have been paid in full and
in accordance with the terms of the Leases, other agreements and state
regulations and that Grantor is in compliance in all material respects
with the terms of the Conveyance and this Agreement, or if not,
specifying in reasonable detail any exceptions thereto.
(v) Quarterly, no later than 45 days after the end of each
calendar quarter, and at such other time as may be requested by
Grantee, Grantor shall furnish reports concerning the expediency of any
change in methods of treatment or operation of all or any Subject Xxxxx
and productive of Hydrocarbons, any new drilling or development, any
method of secondary recovery by repressuring or otherwise, or any other
action with respect to the Subject Interests, the decision as to which
may increase or reduce the quantity of Hydrocarbons ultimately
recoverable from the Subject Interests, or the rate of production
therefrom, or which may shorten or prolong the period of time required
for liquidation of the Production Payment and the current status of all
wellhead gas imbalances for the Subject Interests.
(vi) Promptly after becoming available and in any event within
45 days after the end of each Month, Grantor shall furnish a report
showing: (A) production data related to the Subject Interests that are
required to be reported by the State of Texas, (B) the calculation of
the Net Proceeds and the Monthly PP Amount for such Month (including,
without limitation, a statement of the Costs and Revenues (as such
terms are defined in the Assignment and Agreement and the InterCoast
Conveyance) for such Month), and (C) the aggregate remaining Required
Volumes (as such term is defined in the Assignment and Agreement and
InterCoast Conveyance) that must be produced from the Subject Xxxxx to
cause the production payments reserved by Grantor under Assignment and
Agreement and conveyed to Grantor under the InterCoast Conveyance to
terminate.
(vii) Promptly after becoming available and in any event
within 45 days after the end of each Month, Grantors shall furnish
Grantee a lease operating statement showing gross and net volumes of
Hydrocarbons produced and sold from the Subject Properties, average
sales prices, severance taxes, lease operating expenses, capital
expenditures and any other revenues and expenses associated with the
Subject Properties.
(viii) Promptly after receipt and in any event within 15 days
after receipt, Grantors shall furnish Grantee with all reports, data,
notices and other information received by Grantor in connection with
the Subject Interests, and Grantor shall furnish
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Grantee with copies of all notices, statements, reports and other
communications prepared or sent by Grantor under the Management
Agreement.
(ix) Promptly and in any event within 30 days after entering
into any new production sales agreement to sell any Hydrocarbons
attributable to the Subject Properties, Grantor shall furnish Grantee
with a detailed summary of such agreement, which shall include, without
limitation, the name and address of the purchaser, pricing, volumes,
properties covered thereby and the term thereof.
(x) As soon as possible and in any event within 5 days after
any Grantor becomes aware thereof, Grantors shall furnish Grantee with
notice of (A) any breach of this Agreement or the Conveyance, or (B)
any action, event or occurrence that could reasonably be expected to
have an adverse effect on the Production Payment.
(xi) Upon request, Grantor shall furnish Grantee copies of (if
available) surface maps showing property lines and well locations, well
logs, core analysis data, flow and pressure tests, natural gas analysis
and casing programs and other similar information related to the
Subject Xxxxx and the production therefrom.
(xii) In addition to the reserve reports to be delivered to
Grantee under Section 7(a)(iii), upon the request of Grantee, Grantor
shall at Grantor's expense furnish a reserve report to Grantee prepared
by the Independent Engineer, dated as of the last day of the Month
immediately preceding the date of such request and covering the oil and
gas reserves attributable to the Subject Interests; provided that
Grantee shall have the right to request only one reserve report under
this Section 7(a)(xii). If Grantee requests that the reserve report
only update the reserve report described in Section 3(c) with new
pricing information, then Grantee shall deliver such reserve report
within 10 days of Grantee's request, otherwise Grantee shall deliver
such reserve report within 45 days of Grantee's request. Such reserve
report shall be prepared in accordance with the guidelines set forth in
Section 7(a)(iii).
(xiii) Upon request, Grantor shall furnish such other
information as Grantee may reasonably request.
(b) Grantee shall have the right from time to time to audit
the books and records of Grantor with respect to the Subject Interests,
including without limitation, all information with respect to volumes of
Hydrocarbons produced from the Subject Properties, the sales price of
Hydrocarbons sold attributable to the Subject Properties, the calculation of Net
Proceeds and Monthly PP Amounts, and the payment by Grantor of all costs and
expenses incurred in connection with the Subject Properties. Such audits shall
be conducted by Grantee so as to result in a minimum disruption in the ongoing
business and affairs of Grantor and shall be conducted during normal business
hours at Grantor's offices or at the offices where the Grantor maintain the
records relating to the items set forth above. This right to audit shall survive
the termination of the Production Payment for two years. If, as a result of any
such audit, it is determined that any amount is due Grantee as a result of the
failure of Grantor to properly pay the Monthly PP Amounts to Grantee in
accordance with the terms of the Conveyance and this Agreement, Grantor shall
pay Grantee the Monthly PP Amounts which Grantor failed to remit,
87
together with interest at the Fixed Rate from the date that such amount should
have been paid in accordance with the terms of the Conveyance and this Agreement
to the date of payment.
8. Access to Subject Interests. To the extent the Grantor has the right
to do so, Grantor shall permit or facilitate the duly authorized representatives
of Grantee, at any reasonable time, but at Grantee's sole risk and expense, to
make such inspection of the Subject Properties and the property, machinery,
equipment and facilities used in the operation thereof (or any records of
Grantors related thereto) as such representatives shall deem proper.
9. Remedies of Grantee; Mortgage and Security Interest. At any time and
from time to time until the termination of the Production Payment, if Grantor
shall fail to perform or observe any of the covenants or agreements provided
herein or in the following described Purchase and Sale Agreement to be performed
or observed by Grantor, then Grantee, in addition to Grantee's right to recover
damages and all other remedies available to Grantee at law or in equity, may, if
such failure shall continue unremedied after 15 days following the earlier to
occur of (x) written notice thereof being delivered to Grantor or (y) Grantor
first having knowledge of such failure:
(a) pay, or cause to be paid, any of the costs, expenses,
Taxes (which Taxes are not being contested in good faith by the Grantor) or
other amounts which Grantor has agreed to pay under the Conveyance or this
Agreement which have become delinquent, and be reimbursed by Grantor on demand
by Grantee for all amounts so paid or incurred, together with interest at the
Fixed Rate from the date of such payment until the date of reimbursement; and
(b) sell, on behalf and for the account of Grantor, all of the
Hydrocarbons attributable to Grantor's interest in the Subject Interests and
apply the proceeds thereof to any amount owed by Grantor hereunder; and
(c) setoff any amount owed to Grantor or its Affiliates by
Grantee or its Affiliates against any amount owed to Grantee hereunder; and
(d) apply to a court of equity for the specific performance or
observance of any such covenant or condition and in aid of the execution of any
power herein granted and for the appointment of a receiver of the Subject
Interests.
In order to secure payment of all amounts advanced or paid by Grantee
under this Section 9 and to secure performance by Grantor of all of Grantor's
other obligations under this Agreement and the Purchase and Sale Agreement dated
February 14, 2001 between Grantor and Grantee, as such agreements may be
modified or amended from time to time (all of such payment and performance
obligations being hereinafter collectively referred to as the "Obligations"),
Grantor does hereby mortgage, grant, affect, assign and hypothecate to Grantee,
and grant to Grantee a lien and security interest in (i) the Subject Interests
whether now owned or hereafter acquired by Grantor, (ii) all of Grantor's
equipment, fixtures, inventory, goods, accounts, contracts rights and general
intangibles, whether presently existing or to arise in the future, now owned or
hereafter acquired, insofar as the same are (x) located on the Leases more fully
described in the exhibits to this Agreement and any amendments or modifications
to this Agreement executed from time to time, and any renewals, extensions or
replacements of such
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Leases, or (y) are used in connection with, or relate to the ownership or
operation of, the Leases or Subject Interests, or (z) arise out of the sale or
other conveyance of oil, gas or other minerals produced and saved from the
Leases, and (iii) all liens and security interests presently existing or
hereafter arising in favor of Grantor to secure the payment and performance of
proceeds and other obligations now or hereafter owing to Grantor with respect to
the Subject Interests, together with any and all products and proceeds of any of
the foregoing (collectively, the "Mortgaged Properties"). The mortgage, lien,
security interest and collateral assignment granted hereby shall be subject only
to the Production Payment granted under the Conveyance and Grantor shall not
hereafter create or suffer to exist any mortgage, lien and security interest
superior to those granted hereby, except for the Permitted Encumbrances. The
mortgage, lien and security interest granted pursuant hereto is granted pursuant
to the laws of the State of Texas and Grantee shall be entitled to exercise all
of the rights and remedies of a mortgagee and secured party under the laws of
such state in the event of any default by Grantor in the performance or payment
(as applicable) of the Obligations.
Any purchaser of Hydrocarbons from or attributable to the Subject
Properties is authorized and directed to make payment to the Grantee out of the
Hydrocarbons attributable to the Subject Properties for any amount which Grantee
shall certify to such purchaser that it has paid and which Grantor is obligated
to pay hereunder. Any insurer is authorized and directed to make payment to the
Grantee of proceeds of insurance described in Section 5(a) hereof for any amount
which Grantee shall certify to such insurer that it has expended in redrilling,
rebuilding, reconstructing, repairing, restoring or replacing damaged or lost
property which Grantor has failed or refused to do promptly pursuant to Section
5(b) hereof. Grantor hereby designates Grantee as Grantor's agent and attorney
in fact to execute any instruments which may be necessary or appropriate,
including without limitation designations of operator, to enable Grantee to
exercise its rights under this Section 9. This designation and appointment shall
be irrevocable as long as the Production Payment remains in effect.
10. Force Majeure.
(a) In the event of any party being rendered unable, wholly or
in part, by Force Majeure to carry out its obligations under this Agreement
other than to make payments due hereunder, it is agreed that on such party's
giving notice and full particulars of such Force Majeure in writing or by
telecopy to the other party as soon as possible after the occurrence of the
cause relied on, then the obligations of the party giving such notice, so far as
they are affected by such Force Majeure, shall be suspended during the
continuance of any inability so caused but for no longer period, and such cause
shall as far as possible be remedied with all reasonable dispatch.
(b) For purposes of this Agreement "Force Majeure" means acts
of God, strikes, lockouts, or other industrial disturbances, epidemics,
landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and
restraints and prohibitions of government, either federal or state, inability to
obtain necessary materials, supplies (other than Hydrocarbons), or permits due
to existing or future rules, order, laws of governmental authorities (both
federal and state), civil disturbances, explosions, sabotage, breakage or
accident to machinery or lines of pipe, freezing of lines of pipe, interruption
or curtailment of firm or interruptible transportation services provided by
third party transporters, and any other causes whether of the kind herein
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89
enumerated or otherwise, which are not anticipated at the time of execution
hereof, which are not within the control of the party claiming suspension and
which by the exercise of due diligence such party could not have prevented or is
unable to overcome. By way of illustration, the term "Force Majeure" shall not
include shutdowns due to routine maintenance, repairs or workovers (regardless
of whether such shutdown is by the operator or owner); restrictions caused by
gas balancing agreements or arrangements; or depletion of reserves.
11. Operator. For purposes of this Agreement, Grantor shall be deemed
the operator of the Subject Properties for so long as Grantor remains the
manager under the Management Agreement, regardless of whether (a) Grantor is the
operator of record with the Texas Railroad Commission or (b) Grantor is the
named operator under any applicable operating agreement, except to the extent
that another working interest owner (other than InterCoast) is the operator of
record or named operator as the case may be.
12. Notices. All notices, requests, demands, instructions and other
communications required or permitted to be given hereunder shall be in writing
and shall be delivered personally, mailed by certified mail, postage prepaid and
return receipt requested or sent by telecopier or e-mail, as follows:
If to Grantor, addressed to:
KCS MEDALLION RESOURCES, INC.
0000 Xxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxx Xxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxx@xxxxxxxxx.xxx
With a copy to:
Mayor, Day, Xxxxxxxx & Xxxxxx LLP
Attention: Xxxxxxx X. Xxxx
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxx@xxxx.xxx
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If to Grantee, addressed to:
Star VPP, LP
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
email: xxxxxx.xxxxxx@xxxxx.xxx
With a copy to:
Enron Corp.
0000 Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Fax No. 000-000-0000
Phone No. 000-000-0000
email: xxxxx.xxxxx@xxxxx.xxx
or to such other place within the United States of America as either party may
designate as to itself by written notice to the other. All notices given by
personal delivery or mail shall be effective on the date of actual receipt at
the appropriate address. Notice given by telecopier or e-mail shall be effective
upon actual receipt if received during recipient's normal business hours or at
the beginning of the next business day after receipt if received after the
recipient's normal business hours.
13. Indemnity. It is understood and agreed that under neither this
Agreement nor the Conveyance does Grantee assume or shall Grantee ever be liable
or responsible in any way for the payment of any costs, expenses or liabilities
incurred in connection with developing, exploring, drilling, equipping, testing,
operating, producing, maintaining or abandoning the Subject Interests or any
well or facility thereon or storing, handling, treating or transporting
production therefrom. Grantor shall fully defend, protect, indemnify and hold
Grantee, its officers, employees, representatives and agents harmless from and
against any and all claims, demands, suits and causes of action of every kind
and character, including reasonable attorneys' fees and costs of defense, which
may be made or asserted by any third party or governmental agency or entity, or
by Grantor, Grantor's employees, agents, contractors and subcontractors and
their employees and agents, on account of personal injury, death or property
damage (including, without limitation, claims for pollution and environmental
damage), any civil or criminal fines or penalties and any causes of action
alleging statutory liability, relating to, arising out of, or in any way
incidental to the Subject Interests, the xxxxx and facilities thereon or used in
connection therewith, the operation thereof and the production therefrom
(including, without limitation, rentals, royalties and taxes thereon), WHETHER
THROUGH AN ACT OR OMISSION OF GRANTEE OR ANY OTHER PARTY HERETO OR OTHERWISE,
AND WHETHER OR NOT ARISING OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE,
FAULT OR STRICT LIABILITY OF GRANTEE OR ANY OTHER PERSON OR
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ENTITY INDEMNIFIED HEREUNDER. THIS INDEMNITY SHALL APPLY, WITHOUT LIMITATION, TO
ANY LIABILITY IMPOSED UPON ANY PARTY INDEMNIFIED HEREUNDER AS A RESULT OF ANY
STATUTE, RULE, REGULATION OR THEORY OF STRICT LIABILITY.
14. Successors and Assigns. All the covenants and agreements of Grantor
and Grantee herein contained shall be deemed to be covenants running with the
land and shall be binding upon the successors and assigns of Grantor's interest
in the Subject Interests and Grantee's interest in the Production Payment and
shall inure to the benefit of Grantor, Grantee, and their respective successors
and permitted assigns. The foregoing notwithstanding, nothing herein is intended
to modify or shall have the effect of modifying the restrictions on assignment
set forth in the Conveyance regarding assignments, transfers or pooling of
Grantors' interest in the Subject Interests; and the preceding sentence shall
not be deemed to permit any assignment or other transfer of the interest of
Grantor in any of the Subject Interests that is not specifically permitted by
the provisions of the Conveyance. Nothing contained in this instrument or in the
Conveyance shall in any way limit or restrict the right of Grantee, or Grantee's
successors and assigns, to sell, convey, assign or mortgage the Production
Payment or its rights under this Agreement in whole or in part. If Grantee, or
Grantee's successors and assigns, at any time shall execute a mortgage, pledge
or deed of trust covering all or any part of the Production Payment as security
for any obligation, the mortgagee, the pledgee or the trustee therein named or
the holder of the obligation secured thereby shall be entitled, to the extent
such mortgage, pledge or deed of trust so provides and upon the occurrence or
existence of the event or condition therein stated, if so conditioned, to
exercise all of the rights, remedies, powers and privileges herein conferred
upon Grantee, and to give or withhold all consents herein required or permitted
to be obtained from Grantee.
15. Damages. It is recognized that Grantee will look solely to the Net
Proceeds for satisfaction and discharge of the Production Payment, and that
Grantor is not personally liable for the payment and discharge of the Production
Payment, except to the extent of the Net Proceeds received by Grantor. However,
the foregoing provision shall not relieve Grantor of any obligations under this
Agreement or any obligation to respond in damages for any breach of any of the
provisions hereof or of the Conveyance.
16. Cost of Litigation. In the event of a breach of this Agreement, or
if a dispute arising hereunder is not resolved by mutual agreement, and either
party should xxx the other party to enforce its rights hereunder or for breach
hereof, the party prevailing in such litigation shall be entitled to recover its
costs and reasonable attorneys' fees in addition to any other remedy or recovery
to which it may be entitled.
17. Entire Agreement; Amendments; Waiver. This Agreement constitutes
the entire agreement between the parties hereto. This Agreement may not be
amended and no rights hereunder may be waived except by a written document
signed by the duly authorized representatives of the parties. No waiver of any
of the provisions of this Agreement shall be deemed to be or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
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18. Headings. The headings of the sections of this Agreement are for
guidance and convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
19. Counterpart Execution. This Agreement may be executed by Grantor
and Grantee in any number of counterparts, each of which shall be deemed an
original instrument, but all of which shall constitute but one and the same
Agreement.
20. Partial Invalidity. Except as otherwise expressly stated herein, in
the event any provision contained in this Agreement shall for any reason be held
invalid, illegal or unenforceable by a court or regulatory agency of competent
jurisdiction by reason of a statutory change or enactment, such invalidity,
illegality or unenforceability shall not affect the remaining provisions of this
Agreement.
21. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
[signatures on following page]
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EXECUTED in multiple originals as of the date set forth above.
GRANTOR:
KCS MEDALLION RESOURCES, INC.
By:
--------------------------------------
Xxxxx Xxx Xxxxx, Vice President
GRANTEE:
STAR VPP, LP
By: KCSE Star, LLC, its general partner
By:
--------------------------------------
C. Xxxx Xxxxxxxx, Vice President
Exhibits:
Exhibit A -- Subject Interests; Leases
Schedules:
Schedule 1 -- Insurance Requirements
Schedule 2 -- Required Percentages Per Month
Exhibit I Page 1
