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PURCHASE AND SALE AGREEMENT
by and between
LASCO ENERGY PARTNERS, L.P.,
as Seller
and
BENZ ENERGY LTD.,
as Buyer
Dated January 23, 1998
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS, REFERENCES AND CONSTRUCTION............................................................ 1
Section 1.1. Certain Defined Terms..................................................................... 1
Section 1.2. References and Construction............................................................... 7
ARTICLE II PROPERTY TO BE SOLD AND PURCHASED.................................................................. 8
ARTICLE III PURCHASE PRICE.................................................................................... 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER........................................................... 9
Section 4.1. Organization and Existence................................................................ 9
Section 4.2. Power and Authority....................................................................... 9
Section 4.3. Valid and Binding Agreement............................................................... 10
Section 4.4. Non-Contravention......................................................................... 10
Section 4.5. Approvals................................................................................. 10
Section 4.6. Pending Litigation........................................................................ 11
Section 4.7. No AFE Items or Well Abandonments, No P&A Liabilities..................................... 11
Section 4.8. Production Marketing...................................................................... 11
Section 4.9. Compliance with Applicable Laws.......................................................... 11
Section 4.10. Tax Partnerships.......................................................................... 12
Section 4.11. Permits................................................................................... 12
Section 4.12. Condition of Assets....................................................................... 12
Section 4.13. Investment Intent......................................................................... 12
Section 4.14. Investment Experience..................................................................... 12
Section 4.15. Restricted Securities..................................................................... 13
Section 4.16. Legend.................................................................................... 13
Section 4.17. Full Disclosure........................................................................... 13
Section 4.18. Disclaimer of Warranties.................................................................. 14
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................................................. 14
Section 5.1. Organization and Existence................................................................ 14
Section 5.2. Power and Authority....................................................................... 14
Section 5.3. Valid and Binding Agreement............................................................... 15
Section 5.4. Non-Contravention......................................................................... 15
Section 5.5. Approvals................................................................................. 15
Section 5.6. Pending Litigation........................................................................ 15
Section 5.7. Knowledgeable Purchaser................................................................... 16
Section 5.8. Capital Stock............................................................................. 16
Section 5.9. Authorization of the Note................................................................. 16
Section 5.10. Reservation of Shares..................................................................... 16
Section 5.11. Initial Financial Statements.............................................................. 16
Section 5.12. Full Disclosure........................................................................... 16
Section 5.13. Labor Disputes and Acts of God............................................................ 17
Section 5.14. ERISA Plans and Liabilities............................................................... 17
Section 5.15. Environmental and Other Laws.............................................................. 17
Section 5.16. Names and Places of Business.............................................................. 18
Section 5.17. Buyer's Subsidiaries...................................................................... 18
Section 5.18. Title to Properties; Licenses............................................................. 18
Section 5.19. Government Regulation..................................................................... 18
Section 5.20. Officers, Directors and Shareholders...................................................... 19
ARTICLE VI COVENANT RE ACCESS................................................................................. 19
ARTICLE VII DUE DILIGENCE EXAMINATION......................................................................... 19
Section 7.1. Inspection and Assertion of Defects....................................................... 19
Section 7.2. Certain Price Adjustments................................................................. 21
Section 7.3. Waiver.................................................................................... 23
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES; TERMINATION RIGHTS ...................... 23
Section 8.1. Conditions Precedent to the Obligations of Buyer.......................................... 23
Section 8.2. Conditions Precedent to the Obligations of Seller......................................... 24
ARTICLE IX CLOSING OF TRANSACTION............................................................................. 25
Section 9.1. The Closing............................................................................... 25
Section 9.2. Seller's Closing Obligations.............................................................. 25
Section 9.3. Buyer's Closing Obligations............................................................... 25
Section 9.4. Delivery of Files......................................................................... 26
ARTICLE X CERTAIN ACCOUNTING ADJUSTMENTS...................................................................... 26
Section 10.1. Adjustments............................................................................... 26
Section 10.2. Closing and Post-Closing Accounting Settlements........................................... 27
ARTICLE XI ASSUMPTION AND INDEMNIFICATION .................................................................... 27
ARTICLE XII SELLER'S SPECIAL POST-CLOSING INDEMNIFICATION..................................................... 28
Section 12.1. Indemnification for Certain Lawsuits...................................................... 28
Section 12.2. Indemnification for Certain Title Related Items........................................... 28
Section 12.3. Certain Provisions........................................................................ 29
ARTICLE XIII CONVERSION OF NOTE............................................................................... 31
Section 13.1. Shares Issuable Upon Conversion........................................................... 31
Section 13.2. Delivery of Note; Issuance of Shares...................................................... 32
ARTICLE XIV CERTAIN POST-CLOSING AFFIRMATIVE COVENANTS OF BUYER............................................... 32
Section 14.1. Books, Financial Statements and Reports................................................... 32
Section 14.2. Other Information and Inspections......................................................... 33
Section 14.3. Notice of Material Events and Change of Address........................................... 33
Section 14.4. Maintenance of Properties................................................................. 34
Section 14.5. Maintenance of Existence and Qualifications............................................... 34
Section 14.6. Payment of Taxes.......................................................................... 35
Section 14.7. Insurance................................................................................. 35
Section 14.8. Compliance with Agreements and Law........................................................ 35
ARTICLE XV CERTAIN POST-CLOSING NEGATIVE COVENANTS OF BUYER................................................... 35
Section 15.1. Indebtedness.............................................................................. 35
Section 15.2. Limitation on Liens....................................................................... 36
Section 15.3. Limitations on Investments and New Businesses............................................. 36
Section 15.4. Transactions with Affiliates.............................................................. 36
Section 15.5. Limitation on Dividends and Redemptions................................................... 36
Section 15.6. Certain Contracts; Amendments; Multiemployer ERISA Plans.................................. 37
Section 15.7. Coverage Ratio............................................................................ 37
ARTICLE XVI NOTICES........................................................................................... 37
ARTICLE XVII COMMISSIONS...................................................................................... 38
ARTICLE XVIII MISCELLANEOUS MATTERS........................................................................... 38
Section 18.1. Survival of Provisions.................................................................... 38
Section 18.2. Further Assurances........................................................................ 39
Section 18.3. Binding Effect; Successors and Assigns.................................................... 39
Section 18.4. Imbalances................................................................................ 39
Section 18.5. Expenses; Sales Taxes; Filings and Recording Fees......................................... 39
Section 18.6. Entire Agreement.......................................................................... 40
Section 18.7. Public Statements......................................................................... 40
Section 18.8. Injunctive Relief......................................................................... 40
Section 18.9. Deceptive Trade Practices................................................................. 40
Section 18.10. Amendments................................................................................ 41
Section 18.11. Additional Representations, Covenants and Agreements of
Buyer Regarding Vancouver Exchange Acceptance and
Preferred Share Approval.................................................................. 41
Section 18.12. Additional Covenant and Agreement of Seller Regarding Existing and Net Worth.............. 41
Section 18.13. Governing Law............................................................................. 42
Section 18.14. Counterparts.............................................................................. 42
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated January 23, 1998, is made by and
among Lasco Energy Partners, L.P., a Texas limited partnership ("SELLER"), and
Benz Energy Ltd., a corporation existing under the laws of the Yukon Territory,
Canada ("BUYER").
WITNESSETH:
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept from Seller, certain oil and gas properties and
related assets; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to
execute and deliver this Agreement; and
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, Seller and Buyer do hereby
agree as follows:
ARTICLE I
DEFINITIONS, REFERENCES AND CONSTRUCTION
SECTION 1.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 1.1 or in the section, subsections or other subdivisions referred to
below:
"AFFILIATE" shall mean, as to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with, such Person. A
Person shall be deemed to be "controlled by" any other Person if such other
Person possesses, directly or indirectly, power (a) to vote 20% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners; or (b) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"AGREEMENT" shall mean this Agreement, as hereafter changed, amended or
modified in accordance with the terms hereof.
"APPLICABLE NON-ENVIRONMENTAL LAWS" shall mean any statute, law, rule,
ordinance, or regulation or any judgement, order, writ, injunction, or decree of
any governmental entity to which a specified Person or property is subject, but
shall not include any Environmental Law.
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"ASSERTED DEFECT" shall have the meaning assigned to such term in
SECTION 7.1(a).
"ASSIGNMENTS" shall have the meaning assigned to such term in SECTION
9.2(a).
"AVERAGE CLOSING PRICE" shall be equal to U.S. $1.18.
"BASE PURCHASE PRICE" shall have the meaning assigned to such term in
ARTICLE III.
"BUYER" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"CLOSING" and "CLOSING DATE" shall have the meanings assigned to such
terms in SECTION 9.1.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON PORTION OF THE PURCHASE PRICE" shall mean $3,000,000, subject
to adjustment as provided in SECTIONS 7.2(e) and SECTION 10.2.
"COMMON SHARES" shall mean the Common Shares of Buyer, no par value,
and any securities of Buyer for or into which such Common Shares are exchanged,
reclassified or converted.
"CONSOLIDATED" shall refer to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated subsidiaries. References
herein to a Person's Consolidated financial statements, financial position,
financial condition, liabilities, etc. refer to the consolidated financial
statements, financial position, financial condition, liabilities, etc. of such
Person and its properly consolidated subsidiaries.
"DEFECT" shall have the meaning assigned to such term in SECTION
7.1(b).
"EFFECTIVE DATE" shall have the meaning assigned to such term in
SECTION 9.2(a).
"ENVIRONMENTAL LAWS" shall mean any and all laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
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"ERISA AFFILIATE" shall mean Buyer and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Buyer, are treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA PLAN" shall mean any employee pension benefit plan subject to
Title IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.
"FISCAL QUARTER" shall mean a three-month period ending on March 31,
June 30, September 30 or December 31 of any year.
"FISCAL YEAR" shall mean a twelve-month period ending on December 31 of
any year.
"FUND III CREDIT AGREEMENT" shall mean that certain Credit Agreement
dated October 9, 1997, by and among Texstar Petroleum, Inc., Benz Energy Ltd.,
Calibre Energy, L.L.C., and EnCap Energy Capital Fund III, L.P.
"GAAP" shall mean those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Buyer
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements; PROVIDED,
that with respect to Buyer, "GAAP" means such generally accepted accounting
principles and practices as recognized by the Canadian financial accounting
standard board equivalent. If any change in any accounting principle or practice
is required by the Financial Accounting Standards Board or Canadian financial
accounting standards board equivalent (or any such successor) in order for such
principle or practice to continue as a generally accepted accounting principle
or practice, all reports and financial statements required hereunder with
respect to Buyer and its Consolidated subsidiaries may be prepared in accordance
with such change, but all calculations and determinations to be made hereunder
may be made in accordance with such change only after notice of such change is
given to Seller and Seller agrees to such change insofar as it affects the
accounting of Buyer and its Consolidated subsidiaries.
"HAZARDOUS MATERIALS" shall mean any substance regulated under
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"INDEBTEDNESS" of any Person shall mean Liabilities in any of the
following categories: (a) Liabilities for borrowed money, (b) Liabilities
constituting an obligation to pay the deferred purchase price of property or
services, (c) Liabilities evidenced by a bond, debenture, note or similar
instrument, (d) Liabilities which would under GAAP be shown on such Person's
balance sheet as a liability, and is payable more than one year from the date of
creation thereof (other than reserves for taxes and reserves for contingent
obligations), (e) Liabilities arising under
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futures contracts, forward contracts, swap, cap or collar contracts, option
contracts, hedging contracts, other derivative contracts, or similar agreements,
(f) Liabilities constituting principal under leases capitalized in accordance
with GAAP, (g) Liabilities arising under conditional sales or other title
retention agreements, (h) Liabilities owing under direct or indirect guaranties
of Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection, (i) Liabilities (for example, repurchase agreements) consisting of
an obligation to purchase securities or other property, if such Liabilities
arises out of or in connection with the sale of the same or similar securities
or property, (j) Liabilities with respect to letters of credit or applications
or reimbursement agreements therefor, (k) Liabilities with respect to payments
received in consideration of oil, gas, or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment), or (l)
Liabilities with respect to other obligations to deliver goods or services in
consideration of advance payments therefor; provided, however, that the
"Indebtedness" of any Person shall not include Liabilities that were incurred by
such Person on ordinary trade terms to vendors, suppliers, or other Persons
providing goods and services for use by such Person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"INDEMNIFIED ITEM" shall mean a Defect or other item or matter with
respect to which Seller has agreed to provide indemnification under the terms of
ARTICLE XII.
"INITIAL FINANCIAL STATEMENTS" shall mean (a) the audited annual
Consolidated financial statements of Benz Energy, Ltd. f/k/a Benz Equities Ltd.,
dated as of August 31, 1997 and (ii) the unaudited quarterly Consolidated
financial statements of Benz Energy, Ltd. dated as of November 30, 1997.
"LIABILITIES" shall mean, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or unmatured,
liquidated or unliquidated, primary or secondary, direct or indirect, absolute,
fixed or contingent, and whether or not required to be considered pursuant to
GAAP.
"MATERIAL ADVERSE CHANGE" shall mean a material and adverse change,
from the state of affairs presented in the Initial Financial Statements, to (a)
Buyer's or any of its Subsidiaries' financial condition taken on a Consolidated
basis, (b) the operations or properties of Buyer or any of its Subsidiaries
taken on a Consolidated basis, or (c) Buyer's ability to timely pay or perform
the Note or Buyer's obligations with respect to the Preferred Shares issuable
upon conversion of the Note.
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"NOTE" shall have the meaning assigned to such term in SECTION 9.3(a).
"OIL AND GAS PROPERTIES" shall have the meaning assigned to such term
in ARTICLE II.
"PERMITTED ENCUMBRANCES" shall mean any of the following: (a) liens for
taxes not yet delinquent; (b) materialmen's, mechanic's and other similar liens,
or a lien under an operating agreement or similar agreement, to the extent the
same relates to expenses incurred which are not yet due; (c) the terms and
conditions of all contracts and agreements relating to the Oil and Gas
Properties; (d) rights reserved to or vested in any governmental authority to
control or regulate any of the Properties; (e) easements, rights-of-way,
servitudes, permits, and other similar rights granted to or reserved for third
parties on, over or in respect of the Properties, to the extent such matters do
not materially interfere with the operation of the Property burdened thereby;
(f) conventional rights of reassignment arising immediately prior to termination
or expiration of an oil and gas lease or upon a decision or election by the
owner of an oil and gas lease to surrender or abandon all or any portion of
same; (g) preferential rights to purchase and required third party consents to
assignments and similar agreements with respect to which prior to the Closing
(i) waivers or consents are obtained from the appropriate parties or (ii)
required notices have been given to the holders of such rights and the
appropriate time period for asserting such rights has expired without an
exercise of such rights or approvals required to be obtained from governmental
entities who are lessors under leases forming a part of the Oil and Gas
Properties (or who administer such leases on behalf of such lessors) which are
customarily obtained post-closing; and (h) statutory liens securing payment of
the proceeds of production to third parties, to the extent such payments are not
yet delinquent; provided, however, that any encumbrance listed in this
definition shall not be a Permitted Encumbrance if it (A) operates to (x) reduce
the net revenue interest of Seller in a well below the "NRI" for such well set
forth in EXHIBIT 7.1(b)(i) or (y) increase the working interest of Seller in a
well above the "WI" for such well set forth in EXHIBIT 7.1(b)(i) (unless the
share of production from such well to which Seller is entitled is
proportionately larger than the "NRI" for such well on EXHIBIT 7.1(b)(i) or (B)
causes Seller to be in material breach of any representation or warranty made by
it in this Agreement or in the Assignment; provided, further, that an agreement,
document or instrument which provides for terms, conditions, exceptions,
reservations, limitations, or other matters contained in such agreement,
document or instrument which are not customary to currently accepted industry
standards and which materially and adversely restricts or limits Buyer's ability
to produce oil and/or gas from the Properties shall not be a Permitted
Encumbrance.
"PERMITTED LIEN" shall mean, when used with respect to Buyer or any
Subsidiary thereof, a lien permitted under SECTION 7.2 of the Fund III Credit
Agreement.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture, or any
other legally recognizable entity.
"POST-CLOSING EXAMINATION POINT" shall have the meaning assigned to
such term in SECTION 7.1(a).
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"PREFERRED PORTION OF THE PURCHASE PRICE" shall mean $12,000,000,
subject to adjustment as provided in SECTIONS 7.2(e) and SECTION 10.2.
"PREFERRED SHARE APPROVAL" shall have the meaning assigned to it in
SECTION 18.11.
"PREFERRED SHARES" shall mean Preferred Shares of Buyer having the
terms, rights and preferences summarized in EXHIBIT 2.1--PREFERRED SHARES.
"PROPERTIES" shall have the meaning assigned to such term in ARTICLE
II.
"PURCHASE PRICE" shall have the meaning assigned to such term in
ARTICLE III.
"SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as
amended, and all rules and regulations under such Act.
"SELLER" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"SENIOR CREDIT FACILITY" shall mean (a) the credit facilities under
those certain Letter Loan Agreements dated July 17, 1997 between Bank One,
Texas, N.A. and Texstar Petroleum, Inc. and Bank One, Texas, N.A. and Calibre
Energy, L.L.C., each in the maximum principal amount of $10,000,000, or (b) any
credit facility or facilities of Buyer or any Subsidiary in substitution thereof
with respect to senior bank indebtedness.
"SHARES" shall mean the Common Shares and the Preferred Shares.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"TERMINATION EVENT" shall mean (a) the occurrence with respect to any
ERISA Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of
ERISA or (ii) any other reportable event described in Section 4043(b) of ERISA
other than a reportable event not subject to the provision for 30-day notice to
the Pension Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA
Affiliate from an ERISA Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan
amendment as a termination under Section 4041 of ERISA, or (d) the institution
of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
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"VANCOUVER EXCHANGE ACCEPTANCE" shall mean the receipt by Buyer from
the Vancouver Stock Exchange of notice in writing that the transactions
contemplated by this Agreement are acceptable to the Vancouver Stock Exchange.
SECTION 1.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly
provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions
are for convenience only and shall not constitute part of such subdivisions
and shall be disregarded in construing the language contained in such
subdivisions.
(c) The words "this Agreement", "this instrument", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly
so limited.
(d) Words in the singular form shall be construed to include the
plural and VICE VERSA, unless the context otherwise requires. Pronouns in
masculine, feminine and neuter genders shall be construed to include any
other gender.
(e) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments or restatements of such
agreement, instrument or document, provided that nothing contained in this
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is
not limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(i) Unless otherwise indicated, all references herein to "$" or
"dollars" shall refer to U.S. Dollars.
(j) EXHIBITS 2.1--PREFERRED SHARES, II, 4.4, 4.6, 4.8, 5.8, 5.14,
5.16, 5.17, 5.20, 7.1(b)(i), 7.1(b)(v), 8.2(d), 9.2(a), 9.2(d) and 9.3(a) are
attached hereto. Each such Exhibit is incorporated herein by reference for
all purposes and references to this Agreement shall also include such Exhibit
unless the context in which used shall otherwise require.
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ARTICLE II
PROPERTY TO BE SOLD AND PURCHASED
Seller agrees to sell and Buyer agrees to purchase, for the
consideration hereinafter set forth, and subject to the terms and provisions
herein contained, the following described properties, rights and interests:
(a) All right, title and interest of Seller in and to the oil,
gas and/or mineral leases described in EXHIBIT II hereto (and any
ratification and/or amendments to such leases, whether or not such
ratifications or amendments are described on EXHIBIT II) insofar as
such leases (and such ratifications and amendments ) cover the lands
and depths described on such EXHIBIT II; and
(b) Without limiting the foregoing, all other right, title and
interest (of whatever kind or character, whether legal or equitable,
and whether vested or contingent) of Seller in and to the oil, gas and
other minerals in and under or that may be produced from the lands and
depths described on EXHIBIT II (including interests in oil, gas and/or
mineral leases covering such lands and depths, overriding royalties,
production payments and net profits interests in such lands or such
leases, and fee mineral interests, fee royalty interests and all other
interests of any kind or character in such oil, gas and other
minerals); and
(c) All rights, titles and interests of Seller in and to all
permits; licenses; servitudes; easements; rights-of-way; orders;
farm-in and farm-out agreements; bottom hole agreements; crude oil,
condensate and natural gas purchase and sale, gathering, transportation
and marketing agreements; hydrocarbon storage agreements; acreage
contribution agreements; operating agreements; balancing agreements;
pooling agreements; unitization agreements; processing agreements;
saltwater disposal agreements; options; facility ore equipment leases;
and other contracts, agreements, and rights owned by Seller, in whole
or in part, to the extent that they are (i) appurtenant to or affect
the properties described in SUBSECTIONS (a) and (b) above or (ii) used
or held for use in connection with the ownership or operation of the
properties described in SUBSECTIONS (a) and (b) above or the production
or treatment of oil, gas, and other hydrocarbons and associated
products on or produced from the properties described in SUBSECTIONS
(a) and (b) above, or the sale or disposal of water, oil, gas and other
hydrocarbons and associated products; and
(d) All rights, titles and interests of Seller in and to all
materials, supplies, machinery, equipment, improvements and other
personal property and fixtures (including, but not by way of
limitation, all xxxxx, saltwater disposal xxxxx, wellhead equipment,
compression equipment, flow lines, pipelines, gathering systems,
processing and separation systems, and other equipment) whether or not
located on the properties described in SUBSECTIONS (a), (b) and (c)
above and used in connection with the exploration, development,
operation or maintenance thereof and all oil, gas and other
hydrocarbons produced from or allocated thereto; and
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(e) All of the files, records, information, and data, whether
written or electronically stored, relating to the interests of Seller
in the properties described in SUBSECTIONS (a), (b) and (c) above,
including without limitation: (i) land and title records (including
abstracts of title, title opinions, and title curative documents);
(ii) contract files; (iii) correspondence; (iv) operations,
environmental, production and accounting records (but not including
general financial accounting or tax accounting records); (v) facility
and well records; and (vi) geological, geophysical and other
scientific and technical data and information relating to the
properties described in SUBSECTIONS (a), (b) and (c) above that is
nonproprietary and that Seller has the unencumbered right to transfer.
The properties and interests specified in the foregoing SUBSECTIONS (a), (b) and
(c) are herein sometimes collectively called the "OIL AND GAS PROPERTIES," and
the properties and interests specified in the foregoing SUBSECTIONS (a),(b),(c),
(d) and (e) are herein sometimes collectively called the "PROPERTIES". It is the
intention of Seller to sell, and the intention of Buyer to purchase, all
property of every kind and character, whether real, personal or mixed, owned by
Seller and situated in Claiborne Parish, Louisiana, Xxxx County, Texas, or Xxxxx
County, Texas, whether such property is correctly or incorrectly described on,
or was inadvertently omitted from, EXHIBIT II.
ARTICLE III
PURCHASE PRICE
The purchase price for the properties shall equal $15,000,000 (the
"BASE PURCHASE PRICE"). The Base Purchase Price may be adjusted as provided in
SECTION 7.2 (the Base Purchase Price, as so adjusted, and as the same may be
otherwise adjusted by the mutual agreement of the parties, being called the
"PURCHASE PRICE").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 4.1. ORGANIZATION AND EXISTENCE. Seller is a limited
partnership duly formed and validly existing under the laws of the State of
Texas.
SECTION 4.2. POWER AND AUTHORITY. Seller has full partnership power and
partnership authority to execute, deliver, and perform this Agreement and each
other agreement, instrument, or document executed or to be executed by Seller in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Seller of this Agreement and each other agreement,
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instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary partnership action of Seller.
SECTION 4.3. VALID AND BINDING AGREEMENT. This Agreement has been duly
executed and delivered by Seller and constitutes, and each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Seller and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Seller, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
SECTION 4.4. NON-CONTRAVENTION. Other than requirements (if any) that
there be obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, as disclosed in EXHIBIT 4.4, and except for
approvals required to be obtained from governmental entities who are lessors
under leases forming a part of the Oil and Gas Properties (or who administer
such leases on behalf of such lessors) which are customarily obtained
post-closing, neither the execution, delivery, and performance by Seller of this
Agreement and each other agreement, instrument, or document executed or to be
executed by Seller in connection with the transactions contemplated hereby to
which it is a party nor the consummation by it of the transactions contemplated
hereby and thereby do and will (a) conflict with or result in a violation of any
provision of the partnership agreement or other governing instruments of Seller,
(b) conflict with or result in a violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a default
under, or give rise (with or without the giving of notice or the passage of time
or both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller or any of
its properties may be bound, (c) result in the creation or imposition of any
lien or other encumbrance upon the properties of Seller, or (d) violate any
applicable law, rule or regulation binding upon Seller.
SECTION 4.5. APPROVALS. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to purchase)
from third parties, as disclosed in EXHIBIT 4.4, and except for approvals
required to be obtained from governmental entities who are lessors under leases
forming a part of the Oil and Gas Properties (or who administer such leases on
behalf of such lessors) which are customarily obtained post-closing, no consent,
approval, order, or authorization of, or declaration, filing, or registration
with, any court or governmental agency or of any third party is required to be
obtained or made by Seller in connection with the execution, delivery, or
performance by Seller of this Agreement and each other agreement, instrument, or
document executed or to be executed by Seller in connection with the
transactions
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contemplated hereby to which it is a party or the consummation by it of the
transactions contemplated hereby and thereby.
SECTION 4.6. PENDING LITIGATION. Except as otherwise set forth in
EXHIBIT 4.6, there are no pending suits, actions, or other proceedings in which
Seller is a party which affect the Properties in any material respect, or
affecting the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby or that would, if determined adversely to
Seller, (a) result in the impairment or loss of Seller's title to the
Properties, (b) hinder or impede the operation of all or any portion of any
Property or (c) restrain, prohibit or impose damage on Buyer or Seller with
respect to the transactions contemplated hereby.
SECTION 4.7. NO AFE ITEMS OR WELL ABANDONMENTS, NO P&A LIABILITIES.
(a) Seller has incurred no expenses, and has made no commitments to make
expenditures, in connection with (and no other obligations or liabilities
have been incurred which would adversely affect) the ownership or operation
of the Properties after the Effective Date (as defined below), other than
routine expenses incurred in the normal operation of the producing xxxxx
located on Properties which do not in the aggregate exceed U.S. $100,000, (b)
Seller has not abandoned any xxxxx included on the Properties (or removed any
material items of equipment which would be included in the Properties, except
those replaced by items of equal suitability and value) since the Effective
Date, (c) no proposals are currently outstanding (whether made by Seller or
by any other party) to deepen, plug back, rework or abandon any xxxxx
included located on the Properties, to conduct other operations with respect
to the Properties for which consent is required under the applicable
operating agreement, or to conduct any other operations with respect to the
Subject Properties other than routine operation of the producing xxxxx
located on the Subject Properties, and (d) there are no dry holes, or
otherwise inactive xxxxx, located on the Properties, other than xxxxx that
have been properly plugged and abandoned.
SECTION 4.8. PRODUCTION MARKETING. The Properties are not subject to
any contractual or other arrangements for the sale, processing or transportation
of production, or otherwise relating to the marketing of production, other than
contracts or other arrangements which either (a) will terminate in 90 days or
less, or are subject to cancellation on not more than 90 days' notice, in each
case without penalty or other detriment, or (b) are disclosed on EXHIBIT 4.8.
Except as disclosed on EXHIBIT 4.8, there exist no calls or other similar rights
or options to purchase production from the Properties.
SECTION 4.9. COMPLIANCE WITH APPLICABLE LAWS.
(a) The ownership and operation of those Properties operated by Seller
and, to Seller's knowledge, the ownership and operation of Properties not
operated by Seller, has been in conformity in all material respects with all
Applicable Non-Environmental Laws, except for such noncompliance with such
Applicable Non-Environmental Laws which, individually or in the aggregate would
not have a material adverse effect on the ownership or operation of the
Properties.
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(b) (i) To Seller's knowledge, there are no underground storage tanks
on the Properties; (ii) Seller has not entered into, nor to Seller's knowledge,
has any predecessor to Seller entered into, or is subject to, any consent
orders, decrees, or judgments in existence at this time based on any
Environmental Laws that relate to the future use of any of the Properties or
that require any material change in the present condition of any of the
Properties; (iii) there are no actions, suits, claims, or proceedings seeking
money damages, injunctive relief, remedial action or remedy, pending or, to
Seller's knowledge, threatened against Seller or the Properties arising from its
ownership or operation of the Properties and relating to the violation of, or
non-compliance with, any Environmental Laws. Notwithstanding SUBSECTION (a) or
anything else herein to the contrary, the representation and warranty contained
in this SUBSECTION (b) shall be the sole and exclusive representation and
warranty of Seller hereunder with respect to Environmental Laws.
SECTION 4.10. TAX PARTNERSHIPS. None of the Properties is subject to a
tax partnership, including, without limitation, none of such properties are
subject to any operating agreement or other arrangement under which the parties
thereto have not made an effective election pursuant to Section 761 of the
Internal Revenue Code of 1986 (herein called the "INTERNAL REVENUE CODE"), and
the Treasury Regulations promulgated thereunder, to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code.
SECTION 4.11. PERMITS. Seller has all material governmental licenses
and permits necessary or appropriate to own and operate the Properties as
presently being owned and operated, and such licenses and permits are in full
force and effect (and are transferrable to Seller, or are subject to being
routinely replaced by a license or permit issued to Buyer as a successor owner
of the Properties), and Seller has not received written notice of any material
violations in respect of any such licenses or permits.
SECTION 4.12. CONDITION OF ASSETS. The Properties have been maintained
in a state of repair so as to be reasonably adequate for normal operations;
provided, however, and without limiting the last sentence of SECTION 4.9 or
SECTION 4.17, the representation and warranty contained in this SECTION 4.12 is
not, nor shall it be construed to be, a representation and warranty with respect
to Environmental Laws.
SECTION 4.13. INVESTMENT INTENT. Seller is acquiring the Note for its
own account for investment and not with a view to, or for sale or other
disposition in connection with, any distribution of all or any part thereof or
of any Shares issuable upon conversion of the Note, except (i) in an offering
covered by a registration statement filed with the Securities and Exchange
Commission under the Securities Act covering the Note or the Shares, (ii)
pursuant to an applicable exemption under the Securities Act, or (iii) in
compliance with applicable Canadian securities laws.
SECTION 4.14. INVESTMENT EXPERIENCE. Seller acknowledges that it is
able to fend for itself, can bear the economic risk of its investment in the
Note and any Shares issuable upon
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issuable upon conversion of the Note. Seller represents that it has not been
organized for the purpose of acquiring the Note to be acquired by it
hereunder and any Shares issuable upon conversion of the Note. Seller
represents that it is an "accredited investor" as such term is defined in
Regulation D promulgated pursuant to the Securities Act.
SECTION 4.15. RESTRICTED SECURITIES. Seller understands that the
Note and any Shares issuable upon conversion of the Note will not have been
registered pursuant to the Securities Act or any applicable state securities
laws of the United States, that such Note and the Shares issuable upon
conversion of the Note will be characterized as "restricted securities" under
U.S. federal securities laws, and that under such laws and applicable
regulations such Note and the Shares issuable upon conversion of the Note
cannot be sold or otherwise disposed of in the United States without
registration under the Securities Act or an exemption therefrom. Seller also
understands that the Note and any Shares issuable upon conversion of the Note
will be issued pursuant to exemptions from the prospectus and registration
requirements of Canadian securities laws and will be subject to restrictions
on resale including a 12-month hold period during which such securities
cannot be sold except in limited circumstances, and if Seller is a "control
person," as defined under Canadian securities laws, additional onerous resale
restrictions will apply to Seller.
SECTION 4.16. LEGEND. It is agreed and understood by Seller that the
Note and the certificates representing the Shares issuable upon conversion of
the Note shall each conspicuously set forth on the face or back thereof, in
addition to any legends required by applicable law or other agreement, a legend
in substantially the following form:
[THIS NOTE HAS] [THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE] NOT
BEEN REGISTERED PURSUANT TO THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS OF THE UNITED STATES. SUCH [NOTE]
[SHARES] MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES
UNLESS [IT] [THEY] ARE FIRST REGISTERED PURSUANT TO THAT ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A
WRITTEN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY
TO THE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED IN THE UNITED STATES. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL JANUARY 23, 1999, EXCEPT AS PERMITTED BY THE
SECURITIES ACT (BRITISH COLUMBIA) AND THE REGULATIONS AND RULES MADE
THEREUNDER.
SECTION 4.17. FULL DISCLOSURE. To the best knowledge of Seller (after
due inquiry), no certificate, statement or other information delivered herewith
or heretofore by Seller to Buyer in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact known to
Seller (other than industry-wide risks normally associated with the type of
business
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contemplated hereby contains any untrue statement of a material fact or omits
to state any material fact known to Seller (other than industry-wide risks
normally associated with the type of business conducted by Seller) necessary
to make the statements contained herein or therein not misleading as of the
date made or deemed made. There is no fact known to Seller (other than
industry-wide risks normally associated with the type of business conducted
by Seller) that has not been disclosed to Buyer which could materially
adversely affect the Properties.
SECTION 4.18. DISCLAIMER OF WARRANTIES. Other than those expressly set
out in this ARTICLE IV, Seller hereby expressly disclaims any and all
representations or warranties with respect to the Properties or the transaction
contemplated hereby, and Buyer agrees that the Properties are being sold by
Seller "where is" and "as is". Specifically as a part of (but not in limitation
of) the foregoing, Buyer acknowledges that Seller has not made, and Seller
hereby expressly disclaims, any representation or warranty (express, implied,
under common law, by statute or otherwise) (a) except to the limited extent set
forth in SECTION 4.12, as to the condition of the Properties (INCLUDING WITHOUT
LIMITATION, SELLER DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS), (b) except as set forth in SECTION 4.9(b), as to the compliance by
Seller with Environmental Laws, (c) as to the status of title to the Properties,
or (d) as to the extent of oil, gas and/or other mineral reserves, the
recoverability of or the cost of recovering any of such reserves, the value of
reserves, prices (or anticipated prices) at which production has been or will be
sold and the ability to sell oil or gas production from the Properties.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 5.1. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
organized, legally existing and in good standing under the laws of the
jurisdiction of its formation and is qualified to do business in the State of
Texas.
SECTION 5.2. POWER AND AUTHORITY. Except for the Preferred Share
Approval, Buyer has full corporate power and corporate authority to execute,
deliver, and perform this Agreement and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party and to consummate the transactions
contemplated hereby and thereby. Except for the Preferred Share Approval, the
execution, delivery, and performance by Buyer of this Agreement and each other
agreement, instrument, or document executed or to be executed by Buyer in
connection with the transactions contemplated hereby to which it is a party, and
the consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action of Buyer.
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SECTION 5.3. VALID AND BINDING AGREEMENT. This Agreement has been duly
executed and delivered by Buyer and constitutes, and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
SECTION 5.4. NON-CONTRAVENTION. The execution, delivery, and
performance by Buyer of this Agreement and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby do not and will not (a) conflict
with or result in a violation of any provision of the charter or bylaws or other
governing instruments of Buyer (subject, however, to receipt of the Preferred
Share Approval), (b) conflict with or result in a violation of any provision of,
or constitute (with or without the giving of notice or the passage of time or
both) a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement, or other instrument or obligation to which Buyer is a party
or by which Buyer or any of its properties may be bound, (c) result in the
creation or imposition of any lien or other encumbrance upon the properties of
Buyer, or (d) violate any applicable law, rule or regulation binding upon Buyer.
SECTION 5.5. APPROVALS. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any court or governmental
agency or of any third party is required to be obtained or made by Buyer in
connection with the execution, delivery, or performance by Buyer of this
Agreement and each other agreement, instrument, or document executed or to be
executed by Buyer in connection with the transactions contemplated hereby to
which it is a party or the consummation by it of the transactions contemplated
hereby and thereby, other than compliance with any applicable requirements of
the Securities Act and any applicable state securities laws.
SECTION 5.6. PENDING LITIGATION. There are no pending suits, actions,
or other proceedings in which Buyer is a party which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby. Except as disclosed in the Initial Financial Statements, (i) there are
no actions, suits or legal, equitable, arbitrative or administrative proceedings
pending, or to the knowledge of Buyer, threatened, against Buyer or any
Subsidiary thereof, and (ii) there are no outstanding judgments, injunctions,
writs, rulings orders by any tribunal against Buyer's or any Subsidiary's
stockholders, partners, directors or officers which could cause a Material
Adverse Change.
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SECTION 5.7. KNOWLEDGEABLE PURCHASER. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to make a
distribution within the meaning of the Securities Act of 1933 (and the rules and
regulations pertaining thereto) or a distribution thereof in violation of any
other applicable securities laws.
SECTION 5.8. CAPITAL STOCK. The total authorized capital stock of Buyer
consists of an unlimited number of common shares, without par value, of which
(as of January 14, 1998) 30,162,985 have been validly issued and are
outstanding, fully paid and non-assessable. Except as set forth in EXHIBIT 5.8
and as provided in ARTICLE XIII, there are no outstanding warrants, options, or
other rights to subscribe for or purchase any shares of capital stock of Buyer.
SECTION 5.9. AUTHORIZATION OF THE NOTE. The Note has been duly
authorized by all necessary corporate action and, when issued and delivered in
accordance with this Agreement, will constitute the legal, valid and binding
obligation of Buyer enforceable in accordance with its terms (provided, however,
that the Note cannot be converted into Preferred Shares without receipt of the
Preferred Share Approval).
SECTION 5.10. RESERVATION OF SHARES. The (a) Common Shares issuable
upon conversion of the Note have been duly reserved for issuance upon conversion
thereof, (b) the Preferred Shares issuable upon conversion of the Note, upon
receipt of the Preferred Share Approval, will have been duly reserved for
issuance upon conversion thereof, and, when issued upon conversion, will be
validly issued, fully paid and non-assessable. The issuance of the Shares by
Buyer upon conversion of the Note is not subject to any preemptive or similar
rights.
SECTION 5.11. INITIAL FINANCIAL STATEMENTS. Buyer has heretofore
delivered to Seller true, correct and complete copies of the Initial Financial
Statements. The Initial Financial Statements fairly present Buyer's Consolidated
financial position at the respective dates thereof and the Consolidated results
of Buyer's operations and Buyer's Consolidated cash flows for the respective
periods thereof. Since the date of the annual Initial Financial Statements no
Material Adverse Change has occurred. All Initial Financial Statements were
prepared in accordance with GAAP. Neither Buyer nor any Subsidiary thereof has
any outstanding liabilities of any kind (including contingent obligations, tax
assessments, and unusual forward or long-term commitments) which is, in the
aggregate, material to Buyer or such Subsidiary or material with respect to
Buyer's Consolidated financial condition and not shown in the Initial Financial
Statements.
SECTION 5.12. FULL DISCLOSURE. To the best knowledge of Buyer (after
due inquiry), no certificate, statement or other information delivered herewith
or heretofore by Buyer to Seller in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact known to
Buyer (other than industry-wide risks normally associated with the types of
businesses conducted by Buyer and its Subsidiaries) necessary to make the
statements contained
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herein or therein not misleading as of the date made or deemed made. There is no
fact known to Buyer that has not been disclosed to Seller in writing which could
cause a Material Adverse Change.
SECTION 5.13. LABOR DISPUTES AND ACTS OF GOD. Neither the business nor
the properties of Buyer or any Subsidiary thereof has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
SECTION 5.14. ERISA PLANS AND LIABILITIES. All currently existing ERISA
Plans are listed in EXHIBIT 5.14. Except as disclosed in the Initial Financial
Statements or in EXHIBIT 5.14, no Termination Event has occurred with respect to
any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in EXHIBIT 5.14: (i) no
"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended) exists with respect to any ERISA Plan, whether
or not waived by the Secretary of the Treasury or his delegate, and (ii) the
current value of each ERISA Plan's benefits does not exceed the current value of
such ERISA Plan's assets available for the payment of such benefits by more than
$500,000.
SECTION 5.15. ENVIRONMENTAL AND OTHER LAWS. Except as set forth in
EXHIBIT 5.15, (a) to the best of Buyer's knowledge (after due inquiry), Buyer
and its Subsidiaries are conducting their businesses in material compliance with
all applicable laws, including Environmental Laws, and have and are in material
compliance with all licenses and permits required under any such laws; (b) none
of the operations or properties of Buyer or any of its Subsidiaries is the
subject of federal, state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any Hazardous Materials
into the environment or to the improper storage or disposal (including storage
or disposal at offsite locations) of any Hazardous Materials; (c) neither Buyer
nor any Subsidiary thereof has filed any notice under any Law indicating that it
is responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or that
any Hazardous Materials have been improperly released, or are improperly stored
or disposed of, upon any property of Buyer or any Subsidiary thereof; (d) to the
best of Buyer's knowledge, neither Buyer nor any Subsidiary thereof has
transported or arranged for the transportation of any Hazardous Material to any
location which is (i) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, listed for possible inclusion on such National Priorities List by the
Environmental Protection Agency in its Comprehensive Environmental Response,
Compensation and Liability Information System List, or listed on any similar
state list or (ii) the subject of federal, state or local enforcement actions or
other investigations which may lead to material claims against Buyer or any
Subsidiary thereof for clean-up costs, remedial work, damages to natural
resources or for personal injury claims
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(whether under Environmental Laws or otherwise); and (e) neither Buyer nor any
Subsidiary thereof otherwise has any known material contingent liability under
any Environmental Laws or in connection with the release into the environment,
or the storage or disposal, of any Hazardous Materials.
SECTION 5.16. NAMES AND PLACES OF BUSINESS. Neither Buyer nor any
Subsidiary thereof has, during the preceding five years, had, been known by, or
used any other trade or fictitious name, except as disclosed in EXHIBIT 5.16.
Except as otherwise indicated in EXHIBIT 5.16, the chief executive office and
principal place of business of Buyer and each Subsidiary thereof are (and for
the preceding five years have been) located at the address of Buyer set out in
ARTICLE XVI. Except as indicated in EXHIBIT 5.16, neither Buyer nor any
Subsidiary thereof has any other office or place of business.
SECTION 5.17. BUYER'S SUBSIDIARIES. Buyer does not presently have any
Subsidiary or own any stock in any other corporation or association except those
listed in EXHIBIT 5.17. Neither Buyer nor any Subsidiary thereof is a member of
any general or limited partnership, joint venture or association of any type
whatsoever except those listed in EXHIBIT 5.17 and associations, joint ventures
or other relationships (a) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships for purposes
of federal income taxation only, (b) which are not corporations or partnerships
(or subject to the Revised Uniform Partnership Act) under applicable state Law,
and (c) whose businesses are limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned directly by the
parties in such associations, joint ventures or relationships. Buyer owns,
directly or indirectly, the equity interest in each of its Subsidiaries which is
indicated in EXHIBIT 5.17.
SECTION 5.18. TITLE TO PROPERTIES; LICENSES. To the best of Buyer's
knowledge (after due inquiry), Buyer and each of it Subsidiaries has good and
defensible title to all of its material properties and assets, free and clear of
all Liens other than Permitted Liens and of all impediments to the use of such
properties and assets in such Person's business, except that no representation
or warranty is made with respect to any oil, gas or mineral property or interest
to which no proved oil or gas reserves are properly attributed. Buyer and each
of its Subsidiaries possesses all licenses, permits, franchises, patents,
copyrights, trademarks and trade names, and other intellectual property (or
otherwise possesses the right to use such intellectual property without
violation of the rights of any other Person) which are necessary to carry out
its business as presently conducted and as presently proposed to be conducted
hereafter, and neither Buyer nor any Subsidiary thereof is in violation in any
material respect of the terms under which it possesses such intellectual
property or the right to use such intellectual property.
SECTION 5.19. GOVERNMENT REGULATION. Neither Buyer nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Investment Company Act of 1940 (as any
of the preceding acts have been amended) or any other Law which regulates the
incurring by such Person of Indebtedness, including laws
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relating to common contract carriers or the sale of electricity, gas, steam,
water or other public utility services.
SECTION 5.20. OFFICERS, DIRECTORS AND SHAREHOLDERS. Except as disclosed
in EXHIBIT 5.20, the officers and directors of Buyer are those persons disclosed
in the definitive proxy statement prepared by Buyer and filed with the
appropriate Canadian securities authorities in connection with Buyer's most
recent annual meeting, copies of which proxy statement have been previously
furnished in connection with the negotiation hereof.
ARTICLE VI
COVENANT RE ACCESS
From the date hereof until the Post-Closing Examination Point, Seller
will give Buyer, and its attorneys and other representatives, access at all
reasonable times to the Properties and to any contract files, lease or other
title files, production files, well files and other files of Seller pertaining
to the ownership and/or operation of the Properties, and Seller will use its
reasonable best efforts to arrange for Buyer, and its attorneys and other
representatives, to have access to any such files in the office of Seller.
Seller shall not be obligated to provide Buyer with access to any records or
data which Seller cannot provide to Buyer without, in its opinion, breaching
confidentiality agreements with other parties. Buyer recognizes and agrees that
all materials made available to it (whether pursuant to this Section or
otherwise) in connection with the transactions contemplated hereby are made
available to it as an accommodation and without representation or warranty of
any kind as to the accuracy and completeness of such materials.
ARTICLE VII
DUE DILIGENCE EXAMINATION
SECTION 7.1. INSPECTION AND ASSERTION OF DEFECTS.
(a) Buyer may, to the extent it deems appropriate, conduct, at its sole
cost, such title examination or investigation as it may choose to conduct with
respect to the Properties. Should, as a result of such examination and
investigation or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive, Buyer shall notify
Seller in writing of such Defects (in this SECTION 7.1, a "DEFECT NOTICE") as
soon as they are identified by Buyer, but in no event later than April 1, 1998
(the "POST-CLOSING EXAMINATION POINT"). Such Defects of which Buyer so provides
notice are herein called "ASSERTED DEFECTS." All Defects, other than an
Indemnified Item, with respect to which Buyer fails to so give Seller notice
will be deemed waived for all purposes. Each Defect Notice shall specify in
reasonable detail the matter which, in Buyer's opinion, constitutes a Defect.
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(b) The term "DEFECT" as used in this Section shall mean the following:
(i) Seller's ownership of the Properties on or prior to the
Closing Date is such that, with respect to a well listed on EXHIBIT
7.1(b)(i) hereto, it (A) entitles Seller to receive a percentage share
of the oil, gas and other hydrocarbons produced from, or allocated to,
such well which is less than the percentage share set forth on EXHIBIT
7.1(b)(i) in connection with such well in the column headed "NRI" or
(B) causes Seller to be obligated to bear a percentage share of the
cost of operation of such well greater than the percentage share set
forth on EXHIBIT 7.1(b)(i) in connection with such well in the column
headed "WI" (unless the share of production from such well to which
Seller is entitled is proportionately larger than the "NRI" shown for
such well on EXHIBIT 7.1(b)(i)); or
(ii) Seller's ownership of an Oil and Gas Property on or prior
to the Closing Date is subject to a lien other than a Permitted
Encumbrance.
(iii) Seller's ownership of an Oil and Gas Property on or
prior to the Closing Date is subject to a preferential right to
purchase such property or a requirement that consent to assignment of
such property be obtained, unless a waiver of such right has been
obtained with respect to the transaction contemplated hereby or, in the
case of a preferential right to purchase, an appropriate tender of the
applicable interest has been made to the party holding such right and
the period of time required for such party to exercise such right has
expired without such party exercising such right; or
(iv) Seller's ownership of an Oil and Gas Property on or prior
to the Closing Date is subject to an imperfection in title which, if
asserted, would cause a Defect, as defined in CLAUSE (i) above, to
exist, and such imperfection in title is not such as would normally be
waived by Persons engaged in the oil and gas business who are
purchasing producing properties; or
(v) With respect to any well listed on EXHIBIT 7.1(b)(v),
Seller and its predecessors in title to the Properties have as of the
Closing Date collectively taken more gas from such well than the
ownership of the Properties would entitle it them to receive (an
"overproduced position").
(vi) With respect to the Properties as of the Closing Date:
(A) Seller is in violation of, and there exists a current unsatisfied
obligation to perform any cleanup, removal, containment or other
remediation pursuant to, Environmental Laws; (B) there are proceedings
pending relating (whether on-site or off-site) to any of the
Properties under any Environmental Law by any federal, state,
provincial or local environmental agency or third party; (C) there are
written demands, notices or claims pending or threatened relating to
any of the Properties under any Environmental Law, including any
written notices, demand letters or site-specific requests for
information from any federal, state, provincial, or local
environmental agency relating to any liabilities under or
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violations of Environmental Laws; or (D) Seller is in breach of its
representation and warranty set forth in SECTION 4.9(b).
(c) Buyer waives and releases all claims against Seller, its partners
and its and such partners' parent or subsidiary companies or other affiliates,
and its and their respective shareholders, members, owners, directors, officers,
managers, employees and agents, for injury to, or death of, Persons or for
damage to property arising in any way from the conduct of the investigations and
examinations contemplated by this Section (or the exercise of Buyer's rights of
access under ARTICLE VI) or the conduct of its employees, agents or contractors
in connection with such investigations and examinations (or the exercise of such
rights of access). Buyer shall indemnify Seller, its partners and its and such
partners' parent and subsidiary companies and other affiliates, and its and
their respective shareholders, members, owners, directors, officers, managers,
employees and agents from and against any and all claims, actions, liabilities,
losses, damages, costs or expenses (including court costs and attorney fees)
whatsoever arising out of the exercise of such rights of investigation and
examination (or exercise of such rights of access).
SECTION 7.2. CERTAIN PRICE ADJUSTMENTS.
(a) In the event that, as a part of the due diligence review provided
for in SECTION 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects to the reasonable
satisfaction of Buyer prior to September 1, 1998, then Buyer and Seller shall,
with respect to each Oil and Gas Property affected by one or more Defects,
attempt to agree upon an appropriate adjustment to the Base Purchase Price to
account for such Defects. Notwithstanding anything herein to the contrary, Buyer
and Seller shall elect to specify as an appropriate adjustment to the Base
Purchase Price (A) for a Defect of the type which is specified in SECTION
7.1(b)(i) or SECTION 7.1(b)(iv), and which relates to the NRI specified on
EXHIBIT 7.1(b)(i), an amount equal to X multiplied by Y, where "X" is the amount
specified on EXHIBIT 7.1(b)(i) for the Oil and Gas Property to which such Defect
relates, and where "Y" is the proportionate reduction in NRI (e.g., the amount
by which the share of production to which Seller is actually entitled is less
than the NRI specified for such Oil and Gas Property on EXHIBIT 7.1(b)(i),
divided by such NRI specified on EXHIBIT 7.1(b)(i)), (B) for a Defect of the
type specified in SECTION 7.1(b)(ii), the amount required to discharge such
lien, or (C) for a Defect of the type specified in SECTION 7.1(b)(v), the amount
represented by the loss of volumes required to discharge such overproduced
position, which amounts shall be the discounted present value of the volumes
required to discharge such obligation, determined by using a 10% discount rate
and assuming the same would be discharged as promptly as possible (under the
terms of applicable agreements) after the Closing Date assuming production
occurs at the same rate as projected in projections of production furnished by
Buyer as (and represented by Buyer to be) its projections used in making its
decision to purchase (and valuing such production using prices for production
utilized in such projections).
(b) Should Seller determine (or should Buyer, in the course of its due
diligence review contemplated by SECTION 7.1, determine) that (i) the ownership
of the Properties by Seller entitles
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Seller to a share of the production from a well listed on EXHIBIT 7.1(b)(i)
greater than the share shown for such well under the column headed "NRI" on
EXHIBIT 7.1(b)(i), or (ii) with respect to any well listed in EXHIBIT 7.1(b)(v)
Seller and its predecessors in title have taken less gas than their ownership in
such Oil and Gas Property would entitle them to take, or is in an overproduced
position less than that shown on EXHIBIT 7.1(b)(v), then Seller may propose an
upward adjustment to the Base Purchase Price to account for such fact, in which
case such adjustment shall be handled in the same manner as provided above with
respect to adjustments for Asserted Defects.
(c) Any reduction to the Base Purchase Price under this SECTION 7.2
(in this SUBSECTION (c) called the "REDUCTION AMOUNT") shall be effected in
the following manner:
(i) If the Note is still outstanding at the time of the
reduction, the outstanding principal amount of the Note shall be
reduced on a dollar-for-dollar basis in an amount equal to the
Reduction Amount (provided, that in connection therewith (A) first,
the Preferred Portion of the Purchase Price shall be deemed reduced
on a dollar-for-dollar basis; and (B) second, to the extent the
Reduction Amount has not been fully offset pursuant to the
immediately preceding CLAUSE (a), the Common Portion of the Purchase
Price shall be deemed reduced on a dollar-for-dollar basis).
(ii) If the Note has been converted at the time of the
reduction, the number of Seller's Common Shares and Preferred Shares
received hereunder shall be reduced as follows: (A) first, the number
of Preferred Shares shall be reduced on a share-for-share basis in an
amount derived by dividing the Remaining Amount by $1.00; and (B)
second, to the extent the Reduction Amount has not been fully offset
pursuant to the immediately preceding CLAUSE (a) (the amount of the
Reduction Amount not offset being called the "REMAINING AMOUNT") the
number of Common Shares shall be reduced on a share-for-share basis by
the number of shares equal to the lesser of (1) the number of shares
derived by dividing the Remaining Amount by the Average Closing Price
and (2) the number of Common Shares into which the Note was converted
hereunder.
(d) Notwithstanding SUBSECTION (c) above, Seller shall have the right
to transfer and assign to Buyer additional oil and gas properties located in the
same general area as the Oil and Gas Properties (in this Section, "SUBSTITUTE
PROPERTIES"), which transfer and assignment would be in lieu of, or in
conjunction with, an adjustment to the Base Purchase Price under this Section.
If substitute properties are transferred and assigned to Buyer under this
SUBSECTION (d), the Reduction Amount shall be offset by the PV-10 Value (as
defined below) of the substitute properties. Any transfer and assignment by
Seller under this SUBSECTION (d) shall, however, be subject to the Buyer having
(A) concurred in good faith with the PV-10 Value of the substitute properties
and (B) made a good faith determination that (1) Buyer will receive good and
defensible title to the substitute properties, (2) there are no material
environmental or similar liabilities associated with the substitute properties
and (3) there are no other matters or items that a reasonable and prudent
purchaser of oil and gas properties would consider as materially adversely
affecting the value of, or proposed operations on, the substitute properties;
such transfer and
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assignment by Seller shall also be further subject to receipt by Buyer of the
concurrence of its lender under the Senior Credit Facility as to the PV-10
Value of the substitute properties and lender's approval of the substitute
properties as acceptable additional collateral for the Senior Credit
Facility. As used in this SUBSECTION (d), the term "PV-10 VALUE" shall mean,
when used with respect to any substitute properties, the pre-income tax value
of projected net revenues (utilizing a 10% discount factor) from Proved
Reserves (as defined in the definition for Oil and Gas Reserves promulgated
by the Society of Petroleum Engineers, or any generally recognized successor)
attributable to such substitute properties as set forth in an Approved
Reserve Report. As used in this SUBSECTION (d), the term "APPROVED RESERVE
REPORT" shall mean a reserve report prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers, and shall
be based on prices, costs and other assumptions as shall be designated by
Seller and approved by Buyer (which approval shall not be unreasonably
withheld. The petroleum engineer or engineers that prepare an Approved
Reserve Report shall be designated by Seller and approved by Buyer (which
approval shall not be unreasonably withheld).
SECTION 7.3. WAIVER. Without limiting SECTION 7.1 and
notwithstanding anything else herein to the contrary, all Defects (except for
a Defect which is an Indemnified Item) not raised or asserted by Buyer within
the requisite time periods specified in SECTION 7.1 shall be waived by Buyer
for all purposes, and Buyer shall have no right to seek an adjustment to the
Purchase Price, make a claim against Seller or seek indemnification from
Seller with respect thereto (except as otherwise provided (a) in ARTICLE XI,
with respect to claims arising under Environmental Laws, and (b) ARTICLE XII,
with respect to an Indemnified Item). It is not the intent of this SECTION
7.3, however, to waive Buyer's right to enforce the other terms and
conditions of this Agreement with respect to matters other than Defects,
including Seller's representations, warranties, covenants, agreements and
indemnifications insofar as they relate to matters other than Defects.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES; TERMINATION
RIGHTS
SECTION 8.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) Each and every representation of Seller under this Agreement shall
be true and accurate in all material respects as of the date when made and shall
be deemed to have been made again at and as of the time of Closing and shall at
and as of such time of Closing be true and accurate in all respects except as to
changes specifically contemplated by this Agreement or consented to by Buyer.
(b) Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Buyer) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.
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(c) No suit, action or other proceedings shall, on the date of Closing,
be pending or threatened before any court or governmental agency seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
If any such condition on the obligations of Seller under this Agreement is
not met as of the Closing Date, or in the event the Closing does not occur on
or before the Closing Date, and (in either case) Buyer is not in breach of
its obligations hereunder in the absence of Seller also being in breach of its
obligations hereunder, this Agreement may, at the option of Buyer, be
terminated, in which case the parties shall have no further obligations to
one another hereunder (other than the obligations under SECTIONS 6.1 and
7.1(c) and ARTICLE XVII which will survive such termination).
SECTION 8.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The
obligations of Seller under this Agreement are subject to the each of the
following conditions being met:
(a) Each and every representation of Buyer under this Agreement
shall be true and accurate in all material respects as of the date when made
and shall be deemed to have been made again at and as of the time of Closing
and shall at and as of such time of Closing be true and accurate in all
respects except as to changes specifically contemplated by this Agreement or
consented to by Seller.
(b) Buyer shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Seller) each and
every covenant, agreement and condition required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any court or governmental agency
seeking to restrain, prohibit, or obtain damages or other relief in
connection with the consummation of the transactions contemplated by this
Agreement.
(d) Seller shall have received an opinion of counsel or counsels
reasonably acceptable to Seller dated the Closing Date covering the matters
described in EXHIBIT 8.2(d) and in a form reasonably acceptable to Seller.
(e) The letter of intent dated as of November 17, 1997, by and among
Buyer, Calibre Energy, L.L.C., Xxxxxxxx Trust, Starbucks Trust, Xxxx Xxxxxxx,
Xxxxxx Xxxxx and Xxxxxxx X. Xxxxxxxxx, Xx., shall be in full force and
effect, and no party thereunder shall have withdrawn or threatened to
withdraw from participation in the transactions contemplated thereby.
If any such condition on the obligations of Seller under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in
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either case) Seller is not in breach of its obligations hereunder in the
absence of Buyer also being in breach of its obligations hereunder, this
Agreement may, at the option of Seller, be terminated, in which case the
parties shall have no further obligations to one another hereunder (other
than the obligations under SECTIONS 6.1 and 7.1(c) and ARTICLE XVII which
will survive such termination).
ARTICLE IX
CLOSING OF TRANSACTION
SECTION 9.1. THE CLOSING. The closing (herein called the "CLOSING")
of the transaction contemplated hereby shall take place in the offices of
Xxxxxxxx & Knight, P.C., at 1700 Texas Commerce Tower, 000 Xxxxxx Xxxxxx,
Xxxxxxx, Xxxxx, at 10:00 a.m. Central Standard Time, on the date hereof (such
date and time being herein called the "CLOSING DATE").
SECTION 9.2. SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller
shall:
(a) execute, acknowledge and deliver to Buyer Assignments
of the Properties (the "ASSIGNMENTS"), in the form attached hereto
as EXHIBIT 9.2(a), being effective as to runs of oil and deliveries
of gas as of 12:01 o'clock a.m., Central Daylight Time on December
1, 1997 (the "EFFECTIVE DATE");
(b) to the extent requested by Buyer, execute and deliver
to Buyer (i) letters in lieu of transfer orders (or similar
documentation), in form acceptable to both parties;
(c) to the extent requested by Buyer, execute and deliver
an affidavit or other certification (as permitted by such code) that
Seller is not a "foreign Person" within the meaning of Section 1445
(or similar provisions) of the Internal Revenue Code of 1986 as
amended (I.E., Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in such code and regulations promulgated
thereunder); and
(d) execute and deliver that certain Registration Rights
Agreement substantially in the form of the document attached hereto
as EXHIBIT 9.2(d).
SECTION 9.3. BUYER'S CLOSING OBLIGATIONS. At the Closing, Buyer shall:
(a) deliver to the Seller, a convertible promissory note
substantially in the form attached hereto as EXHIBIT 9.3(a) in the
principal amount equal to the Base Purchase Price, as adjusted in
ARTICLE X (the "NOTE");
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(b) (i) furnish to Seller such evidence (including, without
limitation, evidence of satisfaction of all applicable bonding
requirements) as Seller may require that Buyer is qualified with the
applicable authorities to succeed Seller as the owner and, where
applicable, operator of the Properties, (ii) with respect to
properties operated by Seller where Buyer is to succeed Seller as
operator, execute and deliver to Seller appropriate evidence
reflecting change of operator as required by applicable authorities,
and (iii) execute and deliver to Seller such forms as Seller may
reasonably request for filing with the applicable authorities to
reflect Buyer's assumption of plugging and abandonment liabilities
with respect to the xxxxx located on the Properties or on units in
which the Properties participate; and
(c) execute and deliver that certain Registration Rights
Agreement substantially in the form of the document attached hereto
as EXHIBIT 9.2(d).
SECTION 9.4. DELIVERY OF FILES. Within 30 days after the Closing,
Seller shall deliver to Buyer the files and other materials referenced in
SUBSECTION (e) of ARTICLE II. Notwithstanding the foregoing, to the extent
such files or other materials include items which Seller cannot provide to
Buyer without, in the opinion of Seller, breaching confidentiality agreements
with other parties, Seller shall have no obligation to furnish such items.
Seller may retain copies of all or any parts of the files or other materials
so furnished, and all costs of copying such files shall be borne by Seller.
So long as such files or other materials so delivered by Seller to Buyer are
maintained by Buyer, Buyer shall permit Seller and its representatives to
have access to the same; for a period of three years after Closing Buyer
shall advise Seller before it destroys any such files or other materials (and
will, if requested by Seller, deliver to Seller any files or other materials
it intends to destroy).
ARTICLE X
CERTAIN ACCOUNTING ADJUSTMENTS.
SECTION 10.1. ADJUSTMENTS. Appropriate adjustments shall be made
between Buyer and Seller so that (a) all expenses (including, without
limitation, all drilling costs, all capital expenditures, and all overhead
charges under applicable operating agreements, and all other overhead charges
actually charged by third parties) which are incurred in the operation of the
Properties after the Effective Date will be borne by Buyer, and all proceeds
(net of applicable production, severance, and similar taxes) from sale of
oil, gas and/or other minerals produced from the Oil and Gas Properties after
the Effective Date will be received by Buyer, and (b) all expenses which are
incurred in the operation of the Properties before the Effective Date will be
borne by Seller and all proceeds (net of applicable production, severance,
and similar taxes) from the sale of oil, gas and/or other minerals produced
therefrom before the Effective Date will be received by Seller. It is agreed
that, in making such adjustments: (i) oil which was produced from the Oil and
Gas Properties and which was, on the Effective Date, stored in tanks located
on the Oil and Gas Properties (or located elsewhere but used to store oil
produced from the Oil and Gas Properties prior to delivery to oil purchasers)
and above pipeline connections shall be deemed
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to have been produced before the Effective Date (it is recognized that such
tanks were not gauged on the Effective Date for the purposes of this
Agreement and that determination of the volume of such oil in storage will be
based on the best available data, which may include estimates), and (ii) ad
valorem taxes assessed with respect to a period which the Effective Date
splits shall be prorated based on the number of days in such period which
fall on each side of the Effective Date (with the day on which the Effective
Date falls being counted in the period after the Effective Date), and (iii)
no consideration shall be given to the local, state or federal income tax
liabilities of any party.
SECTION 10.2. CLOSING AND POST-CLOSING ACCOUNTING SETTLEMENTS.
(a) At or before Closing, the parties shall determine, based upon
the best information reasonably available to them, the amount of the
adjustments provided for in SECTION 10.1. If the amount of adjustments so
determined which would result in a credit to Buyer exceed the amount of
adjustments so determined which would result in a credit to Seller, Buyer
shall receive a credit, for the amount of such excess, against the Preferred
Portion of the Purchase Price, and, if the converse is true, the Preferred
Portion of the Purchase Price shall be increased by the amount of such
excess. If no adjustment of the type contemplated under this SUBSECTION (a)
is made at or before Closing and Seller should thereafter receive any net
proceeds attributable to oil or gas produced after the Effective Date, Seller
shall promptly remit such net proceeds to Buyer.
(b) On or before 90 days after Closing, Buyer and Seller shall
review any additional information which may then be available pertaining to
the adjustments provided for in SECTION 10.1, shall determine if any
additional adjustments (whether the same be made to account for expenses or
revenues not considered in making the adjustments made at Closing, or to
correct errors made in such adjustments) should be made beyond those made at
Closing, and shall make any such adjustments in the manner provided in
SUBSECTION (a) above. Following such additional adjustments, no further
adjustments shall be made under this ARTICLE X.
ARTICLE XI
ASSUMPTION AND INDEMNIFICATION
Seller agrees, as of the date of Closing (and, upon the execution
and delivery of the Assignments by Seller, Seller shall be deemed to have
agreed), to indemnify, defend and hold Buyer and its shareholders, directors,
officers, employees and agents harmless from and against any and all claims,
actions, liabilities, losses, damages, costs or expenses (including court
costs and attorneys' fees) of any kind or character arising out of or
otherwise relating to the ownership and/or operation of the Properties before
the Effective Date; provided, however, that the Seller's indemnification
obligation under this ARTICLE XI with respect to claims arising under
Environmental Laws shall extend only to conditions as they exist on the
Properties as of the Effective Date and to events giving rise to such
conditions which occurred prior to the Effective Date and shall terminate and
expire on the second anniversary date of this Agreement, except as
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to any such claim made hereunder prior to such date. Buyer agrees, as of the
date of Closing (and, upon the execution and delivery of the Assignments by
Seller, Buyer shall be deemed to have agreed), (a) to assume, and to timely
pay and perform, all duties, obligations and liabilities relating to the
ownership and/or operation of the Properties after the Effective Date
(including, without limitation, those arising under the contracts and
agreements described in ARTICLE II(c) and those discussed in SECTION 18.4),
and (b) to indemnify, defend and hold Seller, its partners and its and such
partners' parent and subsidiary companies and other affiliates, and its and
their respective shareholders, members, owners, directors, officers,
managers, employees and agents harmless from and against any and all claims,
actions, liabilities, losses, damages, costs or expenses (including court
costs and attorneys' fees) of any kind or character arising out of or
otherwise relating to the ownership and/or operation of the Properties after
the Effective Date. In connection with (but not in limitation of) the
foregoing, it is specifically understood and agreed that matters arising out
of or otherwise relating to the ownership and/or operation of the Properties
after the Effective Date shall include all obligations to properly plug and
abandon, or replug and re-abandon, xxxxx located on the Properties and to
restore the surface. The assumption by Buyer of Seller's duties, obligations
and liabilities of a given contract or agreement or provision thereof as
described above shall be subject, however, to (and shall not be a limitation
on) the right of Buyer to assert under SECTION 7.1 that such contract or
agreement is not a Permitted Encumbrance and to the provisions of SECTION 7.2
regarding an adjustment of the Base Purchase Price in respect of a Defect
therefor.
ARTICLE XII
SELLER'S SPECIAL POST-CLOSING INDEMNIFICATION
SECTION 12.1. INDEMNIFICATION FOR CERTAIN LAWSUITS. Subject to
SECTION 12.3 and the other terms and provisions hereof, Seller agrees, as of
the date of Closing (and, upon the execution and delivery of the Assignments
by Seller, Seller shall be deemed to have agreed), to indemnify, defend and
hold Buyer and its shareholders, directors, officers, employees and agents
harmless from and against any and all claims, actions, liabilities, losses,
damages, costs or expenses (including reasonable court costs and attorneys'
fees) of any kind or character arising out of or otherwise relating to the
suits, actions or proceedings set forth in EXHIBIT 4.6.
SECTION 12.2. INDEMNIFICATION FOR CERTAIN TITLE RELATED ITEMS.
Subject to SECTION 12.3 and the other terms and provisions hereof, Seller
agrees, as of the date of Closing (and, upon the execution and delivery of
the Assignments by Seller, Seller shall be deemed to have agreed), to
indemnify, defend and hold Buyer and its shareholders, directors, officers,
employees and agents harmless from and against any and all claims, actions,
liabilities, losses, damages, costs or expenses (including reasonable court
costs and attorneys' fees) of any kind or character arising out of or
otherwise relating to the following:
(a) claims and demands affecting or relating to the interest of
Seller in and to the Lake Cherokee Gas Unit, as described in the Declaration
of Unitization dated December 7, 1983,
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recorded in Volume 1511, page 1 of the Deed Records of Xxxxx County, Texas,
to the extent and only to the extent that such claims and demands arise by,
through or under Goldking Properties Co., a partnership, or any other
Goldking entity other than Goldking Oil and Gas Corp.; and
(b) any Defect of the type described in SECTION 7.1(b)(i) or SECTION
7.1(b)(iv) with respect to that portion of the Property described in item 1
following the heading "Xxxxx and Rusk Counties, Texas" on EXHIBIT II attached
hereto.
SECTION 12.3. CERTAIN PROVISIONS. Notwithstanding SECTION 12.1 or
SECTION 12.2 or anything else herein to the contrary:
(a) In connection with any indemnification under SECTION 12.1, in
no event shall the amount of Seller's indemnification exceed the sum of the
amounts set forth in EXHIBIT 7.1(b)(i) attributable to the Oil and Gas
Properties affected by the suit, action or proceeding for which such
indemnification is given.
(b) In connection with any indemnification under SECTION 12.2:
(i) Buyer and Seller shall attempt to agree upon the
amount of the indemnification;
(ii) If Buyer and Seller are unable to agree upon the
amount of the indemnification, and the Defect with respect to a
given Oil and Gas Property relates to the NRI specified on EXHIBIT
7.1(b)(i) for such Oil and Gas Property, then the amount of the
indemnification shall equal X multiplied by Y, where "X" is the
amount specified on EXHIBIT 7.1(b)(i) for such Oil and Gas Property,
and where "Y" is the proportionate reduction in NRI (e.g., the
amount by which the share of production to which Seller is actually
entitled is less than the NRI specified for such Oil and Gas
Property on EXHIBIT 7.1(b)(i), divided by such NRI specified on
EXHIBIT 7.1(b)(i)); and
(iii) Notwithstanding SUBPARAGRAPHS (i) and (ii) above, in
no event shall the amount of Seller's indemnification with respect
to a given Oil and Gas Property exceed the amount specified on
EXHIBIT 7.1(b)(i) for such Oil and Gas Property.
(c) Any indemnification under this ARTICLE XII shall be effected in
the following manner:
(i) If the Note is still outstanding at the time of the
indemnification, the outstanding principal amount of the Note shall
be reduced on a dollar-for-dollar basis by the amount of the
indemnification obligation (provided, that in connection therewith
(A) first, the Preferred Portion of the Purchase Price shall be
deemed reduced on a dollar-for-dollar basis; and (B) second, to the
extent the indemnification obligation has not been fully
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offset pursuant to the immediately preceding CLAUSE (A), the Common
Portion of the Purchase Price shall be deemed reduced on a
dollar-for-dollar basis).
(ii) If the Note has been converted at the time of the
indemnification obligation, the number of Seller's Common Shares and
Preferred Shares received hereunder shall be reduced as follows: (A)
first, the number of Preferred Shares shall be reduced on a
share-for-share basis in amount derived by dividing the amount of
the indemnification obligation by $1.00 and (B) second, to the
extent the indemnification obligation has not been fully offset
pursuant to the immediately preceding CLAUSE (A) (the amount of the
indemnification obligation not offset being called the "REMAINING
PORTION"), the number of Common Shares shall be reduced on a
share-for-share basis by the number of shares equal to the lesser of
(1) the number of shares derived by dividing the Remaining Amount by
the Average Closing Price and (2) the number of Common Shares into
which the Note was converted hereunder.
(d) Notwithstanding SUBSECTION (c) above, Seller shall have the
right to transfer and assign to Buyer additional oil and gas properties
located in the same general area as the Oil and Gas Properties (in this
Section, "SUBSTITUTE PROPERTIES"), which transfer and assignment would be in
lieu of, or in conjunction with, an adjustment under SUBSECTION (c) above. If
substitute properties are transferred and assigned to Buyer under this
SUBSECTION (d), the amount of the indemnification shall be offset by the
PV-10 Value (as defined below) of the substitute properties. Any transfer and
assignment by Seller under this SUBSECTION (d) shall, however, be subject to
the Buyer having (A) concurred in good faith with the PV-10 Value of the
substitute properties and (B) made a good faith determination that (1) Buyer
will receive good and defensible title to the substitute properties, (2)
there are no material environmental or similar liabilities associated with
the substitute properties and (3) there are no other matters or items that a
reasonable and prudent purchaser of oil and gas properties would consider as
materially adversely affecting the value of, or proposed operations on, the
substitute properties; such transfer and assignment by Seller shall also be
further subject to receipt by Buyer of the concurrence of its lender under
the Senior Credit Facility as to the PV-10 Value of the substitute properties
and lender's approval of the substitute properties as acceptable additional
collateral for the Senior Credit Facility. As used in this SUBSECTION (d),
the term "PV-10 VALUE" shall mean, when used with respect to any substitute
properties, the pre-income tax value of projected net revenues (utilizing a
10% discount factor) from Proved Reserves (as defined in the definition for
Oil and Gas Reserves promulgated by the Society of Petroleum Engineers, or
any generally recognized successor) attributable to such substitute
properties as set forth in an Approved Reserve Report. As used in this
SUBSECTION (d), the term "APPROVED RESERVE REPORT" shall mean a reserve
report prepared in accordance with customary and generally accepted standards
and practices for petroleum engineers, and shall be based on prices, costs
and other assumptions as shall be designated by Seller and approved by Buyer
(which approval shall not be unreasonably withheld. The petroleum engineer or
engineers that prepare an Approved Reserve Report shall be designated by
Seller and approved by Buyer (which approval shall not be unreasonably
withheld).
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(e) In connection with any indemnification under this ARTICLE XII,
the amount of such indemnification insofar as it pertains to a given Oil and
Gas Property, shall be reduced by the amount of the net cash flow received by
Buyer from such Oil and Gas Property from the Effective Date until the date
the indemnification is effected hereunder.
(f) Seller shall retain full and complete control of the defense of
any of the suits, actions or proceeding listed in EXHIBIT 4.6. However,
amounts expended by Seller to date or hereafter in connection with the
defense of a suit, action or proceeding listed in EXHIBIT 4.6 (including
reasonable attorneys' fees and expenses and amounts paid in settlement of
such suit, action or proceeding or arising from a judgment against Seller (or
an affiliate thereof) in respect of such suit, action or proceeding, shall
not be applied against, and shall not be deemed to offset, the maximum amount
of any indemnification owed by Seller to Buyer under this ARTICLE XII in
respect of such suit, action or proceeding.
(g) Seller's indemnification obligation under SECTION 12.2 shall
expire and terminate on the second anniversary date of this Agreement, except
as to any claim for indemnification under such Section made by Buyer prior to
such date. Further, Buyer agrees not to assert any claim for indemnification
under SECTION 12.2 prior to September 1, 1998.
(h) Any claim by Buyer for indemnification under this ARTICLE XII
must be given in writing to Seller and shall specify in reasonable detail the
grounds for indemnification and the amount of indemnification sought.
ARTICLE XIII
CONVERSION OF NOTE
SECTION 13.1. SHARES ISSUABLE UPON CONVERSION. Upon receipt by Buyer
of the Vancouver Exchange Acceptance and the Preferred Share Approval, the
Note shall automatically be converted into a combination of Common Shares and
Preferred Shares determined as set forth below.
(i) The number of Common Shares to be issued upon conversion
of the Note shall be equal to the Common Portion of the Purchase Price
divided by the Average Closing Price.
(ii) The number of Preferred Shares to be issued upon
conversion of the Note shall be equal to the Preferred Portion of the
Purchase Price divided by $1.00.
In connection with the foregoing, it is specifically agreed by the parties
that upon conversion of the Note (A) any accrued but unpaid interest on the
Note existing on the date of conversion (in this Section, "ACCRUED INTEREST")
shall be due and payable by Buyer on the first Quarterly
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Payment Date (as such term is used in EXHIBIT 2.1--PREFERRED SHARES) and (B)
if, on the first Quarterly Payment Date, Buyer has the right to elect to make
a Payment in Kind (as such term is used in EXHIBIT 2.1--PREFERRED SHARES),
Buyer may also include the accrued interest as a part of the Payment in Kind.
SECTION 13.2. DELIVERY OF NOTE; ISSUANCE OF SHARES. Upon the
conversion of the Note into Shares as provided in SECTION 13.1, Seller shall
surrender the Note, duly endorsed to Buyer, or in blank and accompanied by
proper instruments of transfer to Buyer, at its address set forth herein.
Promptly thereafter (and in any event no later five days after receipt by
Buyer of the Note), Buyer shall issue and deliver to Seller certificates for
the number of full Common Shares and full Preferred Shares to which Seller
shall be entitled. Buyer shall not be required to issue fractional shares of
Common Shares upon conversion of the Note. As to any final fraction of a
Common Share which Seller would otherwise be entitled to receive upon
conversion of the Note, Buyer shall pay a cash adjustment in respect of such
final fraction in an amount equal to the same fraction of the Average Closing
Price.
ARTICLE XIV
CERTAIN POST-CLOSING AFFIRMATIVE COVENANTS OF BUYER
To induce Seller to enter into this Agreement and receive the Note
and the Shares issuable upon conversion of the Note, Buyer covenants and
agrees that until Seller no longer holds the Note (except upon conversion of
the Note) or Seller owns less than 25% of the Preferred Shares issuable upon
conversion of the Note:
SECTION 14.1. BOOKS, FINANCIAL STATEMENTS AND REPORTS. Buyer will
maintain and will cause its Subsidiaries to maintain a standard system of
accounting, will maintain its Fiscal Year, and will furnish the following
statements and reports to Seller at Buyer's expense:
(a) As soon as available, and in any event within one
hundred forty (140) days after the end of each Fiscal Year, complete
Consolidated (and, upon the request of Seller, consolidating)
financial statements of Buyer together with all notes thereto,
prepared in reasonable detail in accordance with GAAP, together with
an unqualified opinion, based on an audit using generally accepted
auditing standards, by Dyke and Xxxxxx, Chartered Accountants, or
other independent certified public accountants selected by Buyer and
reasonably acceptable to Seller, stating that such Consolidated
financial statements have been so prepared. These financial
statements shall contain a Consolidated balance sheet as of the end
of such Fiscal Year and Consolidated statements of earnings, of cash
flows, and of changes in owners' equity for such Fiscal Year, each
setting forth in comparative form the corresponding figures for the
preceding Fiscal Year.
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(b) As soon as available, and in any event within
forty-five (45) days after the end of each Fiscal Quarter, Buyer's
Consolidated (and, upon the request of Seller, consolidating)
balance sheet as of the end of such Fiscal Quarter and Consolidated
statements of Buyer's earnings and cash flows for the period from
the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to changes resulting from normal year-end
adjustments.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
Buyer or any of its Subsidiaries to its stockholders and all
registration statements, periodic reports and other statements and
schedules filed by Buyer or any Subsidiary thereof with any
securities exchange, any Canadian securities authority or any
similar governmental authority.
(d) By March 31 of each year, a reserve report, effective
as of December 31 of the prior year, and in the form required to be
delivered under the Fund III Credit Agreement.
(e) As soon as available, and in any event within ninety
(90) days after the end of each Fiscal Year, a business and
financial plan for Buyer (in form reasonably satisfactory to
Seller), prepared by a senior financial officer thereof, setting
forth for the first year thereof, quarterly financial projections
and budgets for Buyer, and thereafter yearly financial projections
and budgets.
SECTION 14.2. OTHER INFORMATION AND INSPECTIONS. Buyer will furnish
to Seller any information reasonably available to Buyer and which can be
obtained by it without undue effort or expense which Seller may from time to
time request in writing concerning any covenant, provision or condition
contained in this ARTICLE XIV or ARTICLE XV or any matter in connection with
Buyer's businesses and operations. Buyer will permit representatives
appointed by Seller (including independent accountants, auditors, agents,
attorneys, appraisers and any other Persons), with reasonable notice, to
visit and inspect during normal business hours any of Buyer's or any
Subsidiary's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra
copies therefrom and photocopies and photographs thereof, and to write down
and record any information such representatives obtain (provided, that the
number of such visits and inspections shall not exceed one per calendar
year), and Buyer shall permit Seller or its representatives to investigate
and verify the accuracy of the information furnished to Seller in connection
with this Agreement and to discuss all such matters with its officers.
SECTION 14.3. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS. Buyer
will promptly notify Seller in writing, stating that such notice is being
given pursuant to this Agreement, of:
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(a) the occurrence of any Material Adverse Change after
the Effective Date,
(b) the occurrence of any material breach by Buyer of any
of its covenants and agreements contained in ARTICLES XIV and XV,
(c) the acceleration of the maturity of any indebtedness
owed by Buyer or any Subsidiary thereof or of any default by Buyer
or any Subsidiary under any indenture, mortgage, agreement, contract
or other instrument to which any of them is a party or by which any
of them or any of their properties is bound, if such acceleration or
default could cause a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $100,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such
amount, or any other material adverse claim asserted against Buyer
or any Subsidiary or with respect to any of their properties, and
(f) the filing of any suit or proceeding against Buyer or
any Subsidiary in which an adverse decision could cause a Material
Adverse Change.
Upon the occurrence of any of the foregoing Buyer will take all necessary or
appropriate steps to remedy promptly any such Material Adverse Change,
Default, acceleration, default or Termination Event, to protect against any
such adverse claim, to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. Buyer will also notify
Seller in writing at least twenty business days prior to the date that Buyer
changes its name or the location of its chief executive office or principal
place of business.
SECTION 14.4. MAINTENANCE OF PROPERTIES. Buyer and each Subsidiary
thereof will maintain, preserve, protect, and keep, and shall cause to be
maintained, preserved, protected and kept, all property used or useful in the
conduct of its business in condition reasonably adequate for normal
operations and in compliance with all applicable laws, and will from time to
time make all repairs, renewals and replacements needed to enable the
business and operations carried on in connection therewith to be promptly and
advantageously conducted at all times.
SECTION 14.5. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Buyer and
each Subsidiary thereof will maintain and preserve its existence and its
rights and franchises in full force and effect and will qualify to do
business in all states or jurisdictions where required by applicable law,
except where the failure so to qualify will not cause a Material Adverse
Change.
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SECTION 14.6. PAYMENT OF TAXES. Buyer and each of its Subsidiaries
will (a) timely file all required tax returns and (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property. Buyer and any Subsidiary may, however, delay
paying or discharging any of the foregoing so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set aside
on its books adequate reserves therefor.
SECTION 14.7. INSURANCE. Buyer and each Subsidiary thereof will keep
or cause to be kept insured by financially sound and reputable insurers its
property in such amounts and against such risks as are reasonably customary
for Persons engaged in the same or similar business of owning or operating
similar properties.
SECTION 14.8. COMPLIANCE WITH AGREEMENTS AND LAW. Buyer and each
Subsidiary thereof will perform all material obligations it is required to
perform under the terms of each indenture, mortgage, deed of trust, security
agreement, lease, franchise, agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound. Buyer and each Subsidiary thereof will conduct its business and
affairs in compliance with all laws applicable thereto.
ARTICLE XV
CERTAIN POST-CLOSING NEGATIVE COVENANTS OF BUYER
To induce Seller to enter into this Agreement and receive the Note
and the Shares issuable upon conversion of the Note, Buyer covenants and
agrees that until Seller no longer holds the Note (except upon conversion of
the Note) or less than 25% of the Preferred Shares issuable upon conversion
of the Note:
SECTION 15.1. INDEBTEDNESS. Neither Buyer nor any Subsidiary thereof
will in any manner owe or be liable for Indebtedness except:
(a) Indebtedness under the Senior Credit Facility;
(b) Indebtedness under the Fund III Credit Agreement;
(c) purchase money Indebtedness and Indebtedness under leases of
Buyer or any Subsidiary thereof as lessee which are capitalized in accordance
with GAAP, provided such purchase money Indebtedness and Indebtedness under
capital leases required to be paid in any Fiscal Year do not in the aggregate
exceed $100,000;
(d) Indebtedness which is non-recourse to Buyer and such Subsidiary
and which is subordinated to the Indebtedness under the Fund III Credit
Agreement on terms and conditions satisfactory to Seller in its sole and
absolute discretion;
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(e) Indebtedness arising from endorsing negotiable instruments for
collection in the ordinary course of business;
(f) Indebtedness constituting deposits to secured the performance of
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds and performance bonds and other
obligations of a like nature that are incurred in the ordinary course of
business;
(g) Indebtedness constituting indemnities under agreements entered
into by Buyer or any Subsidiary thereof arising in the ordinary course of
business.
SECTION 15.2. LIMITATION ON LIENS. Neither Buyer nor any Subsidiary
thereof will create, assume or permit to exist any lien upon any of the
properties or assets which it now owns or hereafter acquires, except:
(a) liens which secure the Indebtedness permitted under SECTION
15.1; and
(b) statutory liens for taxes, statutory mechanics' and
materialmen's liens incurred in the ordinary course of business, and other
similar liens incurred in the ordinary course of business, provided such
liens do not secure Indebtedness and secure only Liabilities which are not
delinquent or which are being contested as provided in SECTION 14.6.
SECTION 15.3. LIMITATIONS ON INVESTMENTS AND NEW BUSINESSES. Neither
Buyer nor any Subsidiary will engage directly or indirectly in any business
other than the oil and gas exploration and development business.
SECTION 15.4. TRANSACTIONS WITH AFFILIATES. Neither Buyer nor any
Subsidiary thereof will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would
have been obtainable at the time in arm's-length dealing with Persons other
than such Affiliates.
SECTION 15.5. LIMITATION ON DIVIDENDS AND REDEMPTIONS. Neither Buyer
nor any of its Subsidiaries will declare or pay dividends on, or make any
other distribution in respect of, any class of its capital stock or any
partnership or other interest in it, nor will Buyer or any Subsidiary
directly or indirectly make any capital contribution to or purchase, redeem,
acquire or retire any shares of the capital stock of or partnership interests
in Buyer or any Subsidiary, or cause or permit any reduction or retirement of
the capital stock of Buyer or any Subsidiary, except as otherwise expressly
provided in this Section. Such dividends, distributions, contributions,
purchases, redemptions, acquisitions, retirements or reductions may be made
by Buyer (a) without limitation to Buyer; (ii) to Subsidiaries of Buyer, to
the extent permitted under SECTION 15.5; and (iii) as required under the
terms of the Preferred Shares. Buyer or any Subsidiary thereof may declare
and pay to any Person dividends payable only in its common stock, so long as
Buyer's interest in any of its Subsidiaries is not thereby reduced.
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SECTION 15.6. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA
PLANS. Neither Buyer nor any Subsidiary thereof will, directly or indirectly,
enter into, create, or otherwise allow to exist any contract or other
consensual restriction on the ability of any Subsidiary of Buyer to: (a) pay
dividends or make other distributions to Buyer, (b) to redeem equity
interests held in it by Buyer, (c) to repay loans and other indebtedness
owing by it to Buyer, or (d) to transfer any of its assets to Buyer. No ERISA
Affiliate will incur any obligation to contribute to any "multiemployer plan"
as defined in Section 4001 of ERISA.
SECTION 15.7. COVERAGE RATIO. The Coverage Ratio will never be less
than 1.4 to 1. As used in this Section, the term "COVERAGE RATIO" shall mean
Tangible Assets of Buyer divided by Long Term Debt of Buyer. As used in this
Section, (a) the term "TANGIBLE ASSETS" shall mean the sum of (i) the present
value (utilizing a 10% discount rate) of the estimated proved reserves, (ii)
cash, (iii) securities and (iv) net book value of unproved properties and
equipment as if Buyer were following the full cost method of property
accounting beginning January 1, 1997, and (b) the term "LONG TERM DEBT" shall
mean long-term debt as the same is defined in Buyer's audited financial
statements. For purposes hereof, the Coverage Ratio will be calculated no
later than April 15 of each year as of December 31 of the previous year using
Buyer's audited fiscal year-end audited financial statements and year end
estimates of proved reserves by Buyer's independent engineers.
ARTICLE XVI
NOTICES
All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service
(which provides a receipt), by telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
IF TO SELLER: Lasco Energy Partners, L.P.
c/o Riverhill Energy Corporation
0000 Xxxxxxxxxx Xxxxx
Xxxxx 000
Xxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxxx
Fax No.: 000-000-0000
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WITH A COPY TO:
EnCap Investments, L.C.
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Fax No.: 000-000-0000
IF TO BUYER: Benz Energy Ltd.
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Fax No.: 000-000-0000
and shall be considered delivered on the date of receipt. Either Buyer, on
the one hand, or Seller, on the other hand, may specify as its proper address
any other post office address within the continental limits of the United
States by giving notice to the other, in the manner provided in this Article,
at least ten (10) days prior to the effective date of such change of address.
ARTICLE XVII
COMMISSIONS
Seller agrees to indemnify and hold harmless Buyer from and against
any and all claims, obligations, actions, liabilities, losses, damages, costs
or expenses (including court costs and attorneys fees) of any kind or
character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Seller with any
broker or finder in connection with this Agreement or the transactions
contemplated hereby. Buyer agrees to indemnify and hold harmless Seller from
and against any and all claims, obligations, actions, liabilities, losses,
damages, costs or expenses (including court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement
or understanding alleged to have been made by, or on behalf of, Buyer with
any broker or finder in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE XVIII
MISCELLANEOUS MATTERS
SECTION 18.1. SURVIVAL OF PROVISIONS. All representations and
warranties made herein by Buyer and Seller shall be continuing and shall be
true and correct on and as of the date of
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Closing with the same force and effect as if made at that time; further,
except as hereinafter provided, all of such representations and warranties
shall survive the Closing and the delivery of the Assignments.
Notwithstanding anything else herein to the contrary, the representations and
warranties contained in the following Sections shall not survive past the
Post-Closing Examination Point: SECTIONS 4.4 through 4.12 and SECTION 4.17.
The provisions of, and the obligations of the parties under, ARTICLE VII,
ARTICLE IX (to the extent the same are, by mutual agreement, not performed at
Closing), and ARTICLES X through XVIII inclusive shall survive the Closing
and the delivery of the Assignments.
SECTION 18.2. FURTHER ASSURANCES. From time to time after the
Closing, at the request of any party hereto and without further
consideration, Seller, on the one hand, and Buyer, on the other hand, shall
execute and deliver to the requesting party such instruments and documents
and take such other action (but without incurring any material financial
obligation) as such requesting party may reasonably request in order to
consummate more fully and effectively the transactions contemplated hereby.
SECTION 18.3. BINDING EFFECT; SUCCESSORS AND ASSIGNS. The Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. No party hereto shall have the right to assign its rights
under this Agreement without the prior written consent of the other party
first having been obtained.
SECTION 18.4. IMBALANCES. On the date of Closing (and, upon the
delivery to Buyer of the Assignments), Buyer shall succeed to the position of
Seller with respect to all gas imbalances. As a result of such succession
Buyer shall (i) be entitled to receive any and all benefits, including
payments of proceeds of production in excess of amounts which it would
otherwise be entitled to produce and receive by virtue of ownership of the
Oil and Gas Properties, which Seller would have been entitled to receive by
virtue of such positions and (ii) shall be obligated to suffer any detriments
(whether the same be in the form of obligations to deliver production which
would have otherwise been attributable to its ownership of the Oil and Gas
Properties without receiving full payment therefor, or be in the form of the
obligation to make payment in cash) which Seller would have been obligated to
suffer by virtue of such positions.
SECTION 18.5. EXPENSES; SALES TAXES; FILINGS AND RECORDING FEES.
(a) Buyer, on the one hand, and Seller, on the other hand, shall
bear and pay all expenses incurred by them or it in connection with the
transaction contemplated by this Agreement, except as otherwise provided in
SECTION 7.4.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will
be collected from Buyer. If, however, this transaction is later deemed to be
other than an occasional sale, Buyer agrees to be solely responsible, and
shall indemnify and hold Seller (and their respective partners, and
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each of their and each such partners' parent and subsidiary companies and
other affiliates, and shareholders, managers, owners, directors, officers,
employees, consultants, and agents, respectively) harmless, from any and all
sales or transfer taxes or fees (including related penalty, interest or legal
costs) due by virtue of this transaction on the Properties transferred
pursuant hereto and Buyer shall remit such sales or transfer taxes at that
time. Seller and Buyer agree to cooperate with each other in demonstrating
that the requirements for an occasional or isolated sale or any other sales
tax exemption have been met.
(c) Buyer shall be solely responsible for all filings and recordings
of assignments and other documents related to the Properties and for all fees
connected therewith, and Buyer shall furnish Seller with pertinent recording
data. Seller shall not be responsible for any loss to Buyer because of
Buyer's failure to file or record documents correctly or promptly.
SECTION 18.6. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and
discussions among the parties with respect to such subject matter. Time is of
the essence in this Agreement.
SECTION 18.7. PUBLIC STATEMENTS. Seller, on the one hand, and Buyer,
on the other hand, shall consult with each other with regard to all publicity
and other releases at or prior to Closing concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any governmental body or stock
exchange, neither Seller, on the one hand, nor Buyer, on the other hand,
shall issue any publicity or other release without the prior consent of the
other.
SECTION 18.8. INJUNCTIVE RELIEF. The parties hereto acknowledge and
agree that irreparable damage would occur in the event any of the provisions
of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement, and shall be entitled to enforce specifically
the provisions of this Agreement, in any court of the United States or any
state thereof having jurisdiction, in addition to any other remedy to which
the parties may be entitled under this Agreement or at law or in equity.
SECTION 18.9. DECEPTIVE TRADE PRACTICES. To the extent applicable to
the transaction contemplated hereby or any portion thereof, BUYER CAN AND
DOES EXPRESSLY WAIVE THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS BUSINESS &
COMMERCE CODE, OTHER THAN SECTION 17.555, WHICH IS NOT WAIVED, AND ALL OTHER
CONSUMER PROTECTION LAWS OF THE STATE OF TEXAS, OR ANY OTHER STATE,
APPLICABLE TO THIS TRANSACTION THAT MAY BE WAIVED BY THE PARTIES. IN
CONNECTION WITH SUCH WAIVER, BUYER HEREBY REPRESENTS TO SELLER THAT IT (a) IS
IN THE BUSINESS OF SEEKING OR ACQUIRING BY PURCHASE OR LEASE, GOODS OR
SERVICES FOR COMMERCIAL OR BUSINESS USE, (b) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLES IT TO EVALUATE THE
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MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED HEREBY, (c) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION AND (d) HAS ASSETS OF $5,000,000
OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS.
SECTION 18.10. AMENDMENTS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the parties hereto.
SECTION 18.11. ADDITIONAL REPRESENTATIONS, COVENANTS AND AGREEMENTS
OF BUYER REGARDING VANCOUVER EXCHANGE ACCEPTANCE AND PREFERRED SHARE
APPROVAL. Buyer hereby represents and warrants to Seller that Buyer has
received Vancouver Exchange Acceptance. Buyer has informed Seller that as of
the date hereof Buyer only has the requisite corporate authority under its
charter documents to issue the Common Shares contemplated hereby upon
conversion of the Note, but not the Preferred Shares. Buyer represents and
warrants to Seller that the only actions necessary for Buyer in connection
with obtaining the approval of the issuance of Preferred Shares to Seller
upon conversion of the Note are (1) to amend the charter documents of Buyer
to authorize the Preferred Shares (which will require approval of both the
board of directors and shareholders of the Company) and (2) to authorize the
issuance of the Preferred Shares upon conversion of the Note (which will
require the approval of the board of directors of Buyer). The actions
described in the immediately preceding sentence are herein called the
"PREFERRED SHARE APPROVAL". Buyer covenants and agrees with Seller that the
Preferred Share Approval, as it relates to the actual terms and conditions of
the Preferred Shares, will be consistent with the terms, rights and
preferences set forth in EXHIBIT 2.1--PREFERRED SHARES and in a form
reasonably acceptable to Seller, and that Buyer will use its best efforts to
obtain the Preferred Share Approval as promptly as possible and, in any
event, no later than February 20, 1998. Buyer further represents and warrants
to Seller that it has no reason to believe that the Preferred Share Approval
will not be obtained by February 20, 1998. After receipt of the Preferred
Share Approval and the Vancouver Exchange Acceptance and upon request of
Seller, Buyer agrees to provide an opinion of legal counsel, which opinion
and legal counsel shall be reasonably acceptable to Seller, substantially to
the effect that the Preferred Share Approval and the Vancouver Exchange
Acceptance have been obtained and that the Common Shares and the Preferred
Shares have been duly authorized and issued and are fully paid and
nonassessable and covering such other matters relating to the authorization
and issuance of such shares as Seller may reasonably request.
SECTION 18.12. ADDITIONAL COVENANT AND AGREEMENT OF SELLER REGARDING
EXISTING AND NET WORTH. Seller covenants and agrees with Buyer (a) to
maintain its existence (and not liquidate and terminate) during the two-year
period commencing on the date hereof and (b) that during the aforementioned
two-year period, it will either (1) retain and not transfer the Note or the
Common Shares and Preferred Shares issuable upon conversion of the Note or
(2) if it sells or otherwise transfers the Note (except upon conversion
thereof) or the Common Shares and Preferred Shares upon conversion of the
Note (or a portion thereof) it will maintain
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a net worth of not less than $2,500,000 (which net worth shall be computed
based on the fair market value of the assets of Seller).
SECTION 18.13. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
SECTION 18.14. COUNTERPARTS. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and
the same instrument. It shall not be necessary for Buyer and Seller to sign
the same counterpart.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto
on the date set forth above.
"SELLER":
LASCO ENERGY PARTNERS, L.P.
By: RIVERHILL ENERGY
CORPORATION, General Partner
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------------
Xxxx X. Xxxxxxx, President
"BUYER":
BENZ ENERGY LTD.
By:
-------------------------------------------
Xxxxxxx X. Xxxxxxxxx, Xx., Chairman
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto
on the date set forth above.
"SELLER":
LASCO ENERGY PARTNERS, L.P.
By: RIVERHILL ENERGY
CORPORATION, General Partner
By:
-------------------------------------------
Xxxx X. Xxxxxxx, President
"BUYER":
BENZ ENERGY LTD.
By: /s/ Xxxxxx X. XxXxxxx
-------------------------------------------
Xxxxxx X. XxXxxxx, President
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