EXHIBIT
2.1
PURCHASE
AND SALE AGREEMENT
This
Purchase and Sale Agreement (this “Agreement”) is made and
entered into this 11TH day of
December,
2007, by and between ST. MARY LAND & EXPLORATION COMPANY, a Delaware
corporation (“St. Mary”), Ralph H. Smith Restated Revocable Trust Dated
8/14/97, Ralph H. Smith Trustee (“Smith”), and Kent J. Harrell, Trustee
of the Kent J. Harrell Revocable Trust Dated January 19, 1995 (“Harrell”)
(who are collectively referred to herein as “Seller”), and
ABRAXAS OPERATING, LLC, a Texas limited liability company
(“Buyer”). Buyer and Seller are collectively referred to
herein as the “Parties”, and are sometimes referred to individually as a
“Party.”
R
E C I T A L S:
WHEREAS,
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
the
Assets (as defined below), all upon the terms and conditions hereinafter set
forth;
NOW,
THEREFORE, in consideration of Ten Dollars ($10.00) cash in hand paid and of
the
mutual benefits derived and to be derived from this Agreement by each Party,
and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Seller and Buyer hereby agree as follows:
ARTICLE
1
ASSETS
Section
1.01
Agreement to Sell and Purchase. Subject to and in accordance
with the terms and conditions of this Agreement, Buyer agrees to purchase the
Assets from Seller, and Seller agrees to sell the Assets to Buyer.
Section
1.02 Assets. Subject
to Section 1.03, the term “Assets” shall mean all of Seller’s
right, title and interest in and to:
(a) The
oil, gas and other mineral leases described on Exhibit A (collectively,
the “Leases” and singularly a “Lease”) and any overriding royalty
interests, royalty interests, non-working or carried interests, mineral fee
interests, operating rights and other rights and interests described in
Exhibit A, together with the lands covered thereby or pooled or unitized
therewith (the “Lands”), together with (i) all right, title and interest
of Seller in and to any other mineral interests of any nature (A) located in,
on, or under the Lands, or (B) which are attributable to the proration unit
or
designated pooled unit for any of the Wells (as hereinafter defined), in each
case whether or not described in or omitted from Exhibit A, but the
Assets shall, except as affected by the provisions of Section 1.02(d),
not include any portion of the Leases regarding lands covered by any such Lease
which lands are not specifically described in Exhibit A hereto, it being
understood that in some instances the Leases cover lands which are not being
sold by Seller to Buyer even though other portions of the Leases are intended
to
be transferred from Seller to Buyer, (ii) all rights with respect to any pooled,
communitized or unitized interest by virtue of any Leases and Lands or the
interests described in clause (i) above being a part thereof, and (iii) all
production of oil, gas, associated liquids and other hydrocarbons (collectively
“Hydrocarbons”) after the Effective Time from the Leases and the Lands,
and from any such pooled, communitized, or unitized interest and allocated
to
any such Leases and Lands or the interests described in clause (i) above (the
Leases, the Lands, and the rights described in clauses (i) and (ii) above,
and
the Hydrocarbons described in clause (iii) above, being collectively referred
to
as the “Subject Interests” or, singularly, a “Subject
Interest”);
(b) all
easements, rights-of-way, servitudes, surface leases, surface use agreements
and
other rights or agreements related to the use of the surface and subsurface
(the
“Surface Agreements”), in each case to the extent used in connection with
the operation of the Subject Interests, including those recorded Surface
Agreements described in Exhibit A, except, that as to any easement or
right-of-way which affects a Lease that includes both the Lands and lands being
retained by Seller, Seller shall grant a use right only with regard to such
easement or right-of-way, which use rights shall be limited to the portion
of
the Lease and the Lands to be transferred to Buyer and any necessary transit
rights to enjoy such use rights;
(c) to
the extent assignable or transferable, all permits, licenses, franchises,
consents, approvals and other similar rights and privileges (the
“Permits”), in each case to the extent used in connection with the
operation of the Subject Interests;
(d) all
equipment, machinery, fixtures, spare parts, inventory and other personal
property (including Seller’s leasehold interests therein subject to any
necessary consents to assignment) used in connection with the operation of
the
Subject Interests or in connection with the production, treatment, compression,
gathering, transportation, sale, or disposal of Hydrocarbons produced from
or
attributable to the Subject Interests (collectively, “Equipment”), and
any water, byproducts or waste produced therefrom or therewith or otherwise
attributable thereto, including all wells (whether producing, shut in or
abandoned, and whether for production, produced water injection or disposal,
or
otherwise) described in Exhibit B (collectively, the “Wells”)
together with all of Seller’s interests within the spacing, producing,
proration, federal exploratory, enhanced recovery, or governmentally prescribed
unit attended to the described Wells, wellhead equipment, pumps, pumping units,
flowlines, gathering systems, pipe, tanks, treatment facilities, injection
facilities, disposal facilities, compression facilities and other materials,
supplies, buildings, trailers and offices used in connection with the Subject
Interests and the other matters described in this definition of Assets (the
“Facilities”);
(e) to
the extent assignable or transferable, (i) all contracts, agreements,
drilling contracts, equipment leases, production sales and marketing contracts,
farm-out and farm-in agreements, operating agreements, service agreements,
unit
agreements, gas gathering and transportation agreements and other contracts,
agreements and arrangements, relating to the Subject Interests and the other
matters described in this definition of Assets, and subject to, and in
accordance with, any limitations set forth in such agreements, and
(ii) equipment leases and rental contracts, service agreements, supply
agreements and other contracts, agreements and arrangements relating to the
Subject Interests and the other matters described in this definition of Assets,
(the agreements identified in clauses (i) and (ii) above being, collectively,
the “Contracts”);
(f) all
files, records and data relating to the items described in
Sections 1.02(a) through (e) maintained by Seller including,
without limitation, the following, if and to the extent that such files exist:
all books, records, reports, manuals, files, title documents, including
correspondence, records of production and maintenance, revenue, sales, expenses,
warranties, lease files, land files, well files, division order files,
abstracts, title opinions, assignments, reports, property records, contract
files, operations files, copies of tax and accounting records (but excluding
Federal and state income tax returns and records) and files, maps, core data,
hydrocarbon analysis, well logs, mud logs, field studies together with other
files, contracts and other records and data including all geologic and
geophysical data and maps, but excluding from the foregoing those files, records
and data subject to written unaffiliated third party contractual restrictions
on
disclosure or transfer (the “Records”). Unless proscribed by the terms of
any existing written unaffiliated third party contract, Seller shall, to the
extent it may do so, grant a perpetual, royalty-free license to Buyer of
Seller’s seismic data that covers the Subject Interests (the “Seismic
License”). To the extent that any of the Records contain
interpretations of Seller, Buyer agrees to rely on such interpretations at
its
sole risk and without any duty on the part of Seller regarding such
interpretations;
(g) all
Production Imbalances, including those set forth on Schedule 1.02(g) as
of the Effective Time; and
(h) all
right, title and interest in and to all surface rights and the plant pertaining
to the Buck Peak property located in Moffat County, Colorado, as well as all
of
Seller’s right, title and interest in that certain North Dakota fee property
both as described on Schedule 1.02(h).
Section
1.03 Excluded
Assets. Notwithstanding the foregoing, the Assets shall not
include, and there is excepted, reserved and excluded from the sale, transfer
and assignment contemplated hereby the following excluded properties, rights
and
interests (collectively, the “Excluded Assets”):
(a) those
assets, interests, rights and properties described in
Exhibit C;
(b) all
trade credits and all accounts, instruments and general intangibles attributable
to the Assets with respect to any period of time prior to the Effective
Time;
(c) except
for those Claims or rights against a third party for which Buyer has agreed
to
indemnify Seller pursuant to the terms of this Agreement, all Claims of
Seller,
(i) arising
from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time,
(ii) arising
under or with respect to any of the Contracts that are attributable to periods
of time prior to the Effective Time (including claims for adjustments or
refunds), or
(iii) with
respect to any of the other Excluded Assets;
(d) all
rights and interests of Seller,
(i) under
any policy or agreement of insurance or indemnity,
(ii) under
any bond, or
(iii) to
any insurance or condemnation proceeds or awards arising in each case from
acts,
omissions or events, or damage to or destruction of property, occurring prior
to
the Effective Time;
(e) all
Hydrocarbons produced from or otherwise attributable to the Subject Interests
with respect to all periods prior to the Effective Time, excluding those
Hydrocarbons referenced in Section 1.02(g) together with all proceeds
from the sale of such Hydrocarbons, and all Tax credits attributable
thereto;
(f) all
Claims of Seller for refunds of or loss carry forwards with respect
to
(i) ad
valorem, severance, production or any other Taxes attributable to any period
prior to the Effective Time,
(ii) income,
gross margin or franchise Taxes,
(iii) any
Taxes attributable to the other Excluded Assets, and such other refunds, and
rights thereto, for amounts paid in connection with the Assets and attributable
to the period prior to the Effective Time, including refunds of amounts paid
under any gas gathering or transportation agreement;
(g) all
amounts due or payable to Seller as adjustments to insurance premiums related
to
the Assets with respect to any period prior to the Effective Time;
(h) all
proceeds, income or revenues (and any security or other deposits made)
attributable to the Assets for any period prior to the Effective Time, or any
other Excluded Assets;
(i) subject
to Section 1.02(f), all of Seller’s proprietary technology and
improvements, computer software, patents, trade secrets, copyrights, names,
trademarks, logos and other intellectual property;
(j) all
documents and instruments of Seller that may be protected by an attorney-client
or other privilege;
(k) data,
information and other property, rights or interests that cannot be disclosed
or
assigned to Buyer as a result of confidentiality or similar
arrangements;
(l) all
audit rights arising under any of the Contracts or otherwise with respect to
any
period prior to the Effective Time or to any of the other Excluded
Assets;
(m) all
computers, printers and other electronic equipment located in any buildings,
offices or trailers that may belong to Seller and that may constitute part
of
the Assets, including, all software and electronic data relating in any way
to
such electronic equipment;
(n) All
corporate, income tax and financial records of Seller not included in the
Records; and
(o) all
agreements providing for options, swaps, floors, caps, collars, forward sales
or
forward purchases involving commodities or commodity prices, or indexes based
on
any of the foregoing and all other similar agreements and
arrangements.
ARTICLE
2
PURCHASE
PRICE
Section
2.01 Purchase
Price. The total consideration for the purchase, sale and
conveyance of the Assets to Buyer and Buyer’s assumption of the Assumed
Obligations and all other liabilities provided for in this Agreement, is Buyer’s
payment to Seller of the sum of One Hundred and Forty Million Dollars
($140,000,000) (the “Purchase Price”), as adjusted in accordance with the
provisions of this Agreement.
Section
2.02 Deposit.
(a) Concurrently
with the execution of this Agreement by Buyer and Seller, Buyer shall deliver
to
Seller in immediately available funds a performance guarantee deposit in an
amount equal to Ten Million Dollars ($10,000,000) (the “Deposit”) in
accordance with wire transfer instructions provided by Seller to
Buyer.
(b) Subject
to the proviso set forth in Section 11.01, if this Agreement is
terminated by Seller pursuant to Section 11.01(b) and Seller does not
waive the non-satisfaction of any conditions to Closing set forth in Article
8, Seller shall retain the Deposit as liquidated damages, which remedy shall
be the sole and exclusive remedy available to Seller for Buyer’s failure to
perform its obligations under this Agreement. Buyer and Seller acknowledge
and
agree that (i) Seller’s actual damages upon the event of such a termination
are difficult to ascertain with any certainty, (ii) the Deposit is a
reasonable estimate of such actual damages, and (iii) such liquidated
damages do not constitute a penalty.
(c) Subject
to the proviso set forth in Section 11.01, if this Agreement is
terminated (i) by Buyer pursuant to Section 11.01(c) and Buyer does not
waive the non-satisfaction of any conditions to Closing set forth in Article
9 or (ii) by Buyer or Seller pursuant to Section 11.01(a), Section
11.01(d), Section 11.01(e), Section 11.01(f), Section
11.01(g), Section 11.01(h) or Section 13.03(c), then Seller
shall promptly return the Deposit to Buyer in immediately available funds
pursuant to wire transfer instructions to be provided timely by Buyer to Seller
within three (3) business days after the event giving rise to such return
obligation. Buyer and Seller shall thereupon have the rights and obligations
set
forth elsewhere herein.
(d) If
all conditions precedent to the obligations of Seller set forth in Article
8 have been met, then notwithstanding any provision in this Section
2.02 to the contrary, if Closing does not occur because Seller wrongfully
fails to tender performance at Closing or otherwise Breaches this Agreement
in
any respect prior to Closing, and Buyer is ready and otherwise able to close,
at
Buyer’s sole election, either (i) Seller shall return the Deposit to Buyer
within three (3) business days after the determination that the Closing will
not
occur, or (ii) Buyer shall have the right to pursue specific performance of
this
Agreement, provided that Buyer must file an action for specific performance
within 21 days of Seller’s Breach. If Buyer elects to pursue specific
performance, Buyer must pursue specific performance as its sole and exclusive
remedy in lieu of all other legal and equitable remedies. If such
action for specific performance is not filed within 21 days of Seller’s Breach
or if Buyer is unsuccessful for any reason other than a Breach of this Agreement
by Buyer, Buyer shall be deemed to have waived all legal and equitable remedies
and its sole remedy for Seller’s Breach of this Agreement shall be limited to
the prompt return of the Deposit.
Section
2.03 Allocated
Values. The Purchase Price is allocated among the Assets
(including the Wells, PUD Locations, PDNP, and Probable and/or Possible
Locations) as set forth in Exhibit D (the “Allocated Values”). In
no event shall the aggregate of the Allocated Values of any Wells, PUD
Locations, PDNP, and Probable and/or Possible Locations exceed the unadjusted
Purchase Price. The term “PUD Locations” means those Proved Undeveloped
potential well locations specifically identified in
Exhibit D. The term “PDNP” means Proved Developed
Not Producing intervals as specifically identified on Exhibit D. The term
“Probable and/or Possible Locations” means those locations
specifically identified and designated as such on Exhibit
D. Seller and Buyer agree that the Allocated Values shall be used
to compute any adjustments to the Purchase Price pursuant to the provisions
of
Article 4. Any adjustment to the Purchase Price hereunder
shall be reflected in the allocation set forth in Exhibit D consistent
with Treasury Regulation Section 1.1060-IT (f). For tax purposes, the
Parties agree to report the transactions contemplated by this Agreement in
a
manner consistent with the terms of this Agreement, including the allocations
set forth above as of the Closing Date, and that neither Party will take any
position inconsistent therewith, including in any tax return, in any refund
claim, in any litigation or arbitration or otherwise.
Section
2.04 Section
1031 Like-Kind Exchange. Seller and
Buyer hereby agree that Seller shall have the right at any time prior to
completion of all the transactions that are to occur at Closing to assign all
or
a portion of its rights under this Agreement to a Qualified Intermediary (as
that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury
Regulations) in order to accomplish the transaction in a manner that will
comply, either in whole or in part, with the requirements of a like-kind
exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended. Likewise, Buyer shall have the right at any time prior to completion
of
all the transactions that are to occur at Closing to assign all or a portion
of
its rights under this Agreement to a Qualified Intermediary for the same
purpose. If Seller assigns all or any of its rights under this Agreement for
this purpose, Buyer agrees to (a) consent to Seller’s assignment of its rights
in this Agreement, which assignment shall be in a form reasonably acceptable
to
Buyer, and (b) pay the Purchase Price (or a designated portion thereof as
specified by Seller) into a qualified escrow or qualified trust account at
Closing as directed in writing. If Buyer assigns all or any of its rights under
this Agreement for this purpose, Seller agrees to (i) consent to Buyer’s
assignment of its rights in this Agreement, which assignment shall be in a
form
reasonably acceptable to Seller, (ii) accept the Purchase Price from the
qualified escrow or qualified trust account at Closing, and (iii) at Closing,
convey and assign directly to Buyer the Assets (or any portion thereof) as
directed by Buyer. Seller and Buyer acknowledge and agree that any assignment
of
this Agreement (or any rights hereunder) to a Qualified Intermediary
shall not release any Party from any of its respective liabilities and
obligations hereunder, and that neither Party represents to the other Party
that
any particular tax treatment will be given to any Party as a result
thereof. The Party electing to assign all or any of its rights under
this Agreement pursuant to this Section 2.04 shall defend, indemnify and
hold harmless the other Party and its Affiliates from all Claims relating to
such election.
ARTICLE
3
EFFECTIVE
TIME
Section
3.01 Ownership
of Assets. If the transactions contemplated hereby are
consummated in accordance with the terms and provisions hereof, the ownership
of
the Assets shall be transferred from Seller to Buyer on the Closing Date, but
effective for all purposes as of 7:00 a.m. local time at the location of the
Assets on December 1, 2007 (the “Effective Time”).
Section
3.02 Production
Imbalances. Upon Closing, Buyer shall assume the positions of
Seller with respect to all gas imbalances and make-up obligations related to
the
Assets regardless of whether such imbalances or make-up obligations arise before
or after the Effective Time, at the wellhead, pipeline, gathering system or
other location, and regardless of whether the same arise under contract or
otherwise (“Production Imbalances”). As a result of such assumption,
Buyer shall (a) be entitled to receive any and all benefits which Seller would
have been entitled to receive by virtue of its position, including rights to
produce and receive volumes of production in excess of volumes which it would
otherwise have been entitled to produce and to receive cash gas balancing by
virtue of ownership of the Assets, (b) be obligated to suffer any detriments
or
losses which Seller would have been obligated to suffer by virtue of such
position, including the obligation to deliver to others production volumes
which
would have otherwise been attributable to its ownership of the Assets, to
deliver production to purchasers thereof without Buyer receiving full payment
therefor, or to make cash balancing payments or to repay any take or pay
payments, and (c) be responsible for any and all royalty obligations and other
burdens with respect to such Production Imbalances; provided however, nothing
in
this subsection (c) of Section 3.02 shall relieve Seller from any
royalty obligation affecting production Seller has actually received, or which
has been credited to Seller’s interest in the Assets.
ARTICLE
4
TITLE
AND ENVIRONMENTAL MATTERS
Section
4.01 Examination
Period. Until 5:00 p.m. MST on the date which is seven (7) days
prior to the Closing Date (the “Examination Period”), Seller shall permit
Buyer and/or its representatives to examine during normal business days and
hours at a location designated by Seller, all abstracts of title, title
opinions, title files, ownership maps, lease, Well and division order files,
assignments, operating and accounting records and all Surface Agreements,
Permits, Contracts and other agreements, data, analyses and information
pertaining to the Assets insofar as same may now be in existence and in the
possession of Seller, subject to such restrictions upon disclosure as may exist
under confidentiality or other agreements binding upon Seller and relating
to
such data.
Section
4.02 Title
Defects. The term “Title Defect” means (a) any encumbrance
on, encroachment on, irregularity in, defect in or objection to Seller’s
ownership of the Assets (excluding Permitted Encumbrances) that causes Seller
not to have Marketable Title to a Well, a PUD Location, a PDNP or a Probable
and/or Possible Location as described in Exhibit D; or (b) any default by
Seller under a lease, farm-out agreement or other contract or agreement that
would (i) have a material and adverse effect on the operation, value or use
of
such Asset, (ii) prevent Seller from receiving the proceeds of production
attributable to Seller’s interest therein, or (iii) result in cancellation of
all or a portion of Seller’s interest therein. The term “Marketable
Title” means such ownership by Seller in the Assets that, subject
to and except for the Permitted Encumbrances:
(a) entitles
Seller to receive not less than the percentage set forth in Exhibit D as
Seller’s Net Revenue Interest of all Hydrocarbons produced, saved and marketed
from such Well, PUD Location, PDNP, or Probable and/or Possible Locations
described in such exhibit, all without reduction, suspension or termination
of
such interest throughout the productive life of such Well, except as
specifically set forth in such exhibit;
(b) obligates
Seller to bear not greater than the percentage set forth in
Exhibit D as Seller’s Working Interest of the costs and expenses
relating to the maintenance, development and operation of such Well, PUD
Location, PDNP, or Probable and/or Possible Locations, all without increase
throughout the productive life of such Well, except as specifically set forth
in
either of such exhibit; and
(c) is
free and clear of all liens, encumbrances and defects in title.
Subject
to the limitations of Section 4.14, Breaches of Seller’s representations
and warranties contained in Section 5.07 through Section 5.24
discovered prior to the Closing shall be treated as Title Defects for purposes
of making pre-Closing adjustments to the Purchase Price.
Section
4.03 Notice
of Title Defects. Buyer shall provide Seller notice of all Title
Defects no later than 5:00 p.m. MST on the date which is seven (7) days prior
to
the Closing Date (the “Title Claim Date”). To be effective, such notice
must (a) be in writing, (b) be received by Seller on or prior to the Title
Claim
Date, (c) describe the Title Defect in reasonable detail (including any alleged
variance in the Net Revenue Interest or Working Interest), (d) identify the
specific Asset or Assets affected by such Title Defect, (e) include the Title
Defect Value, as reasonably determined by Buyer in good faith, and (f) comply
with the limitations and Title Defect Value qualifications set forth in
Section 4.14. Any matters identified by Buyer during the Examination
Period that constitute Title Defects, but of which Seller has not been
specifically notified by Buyer in accordance with the foregoing, shall be deemed
to have been waived by Buyer for all purposes and shall constitute Permitted
Encumbrances and Assumed Obligations hereunder. Upon receipt of notices of
Title
Defects, the Parties shall meet and determine upon which of the Title Defects,
Title Defect Values and methods of cure the Parties have reached agreement.
Upon
the receipt of such notice from Buyer, Seller shall have the option, but not
the
obligation, for a period ending ninety (90) days after the Closing to cure
such
defect. If Seller should not elect to cure a Title Defect, and no aspect of
such
defect is reasonably in dispute, the Purchase Price shall be adjusted for such
defect by the amount of the Title Defect Value.
(a) The
value attributable to each Title Defect (the “Title Defect Value”) that
is asserted by Buyer in the Title Defect notices shall be determined based
upon
the criteria set forth below:
(i) If
the Title Defect is a lien upon any Asset, the Title Defect Value is the amount
necessary to be paid to remove the lien from the affected Asset;
(ii) If
the Title Defect asserted is that the Net Revenue Interest attributable to
any
Well, PUD Location, PDNP, or Probable and/or Possible Locations is less than
that stated in Exhibit D, then the Title Defect Value shall be the
absolute value of the number determined by the following formula:
Title
Defect
Value = A x (1-[B/C])
A = Allocated
Value for the affected Asset
B = Correct
Net Revenue Interest for the affected Asset
C = Net
Revenue Interest for the affected Asset as set forth on Exhibit
D.
(iii) If
the Title Defect represents an obligation, encumbrance, burden or charge upon
the affected Asset (including any increase in Working Interest for which there
is not a proportionate increase in Net Revenue Interest) for which the economic
detriment to Buyer is unliquidated, the amount of the Title Defect Value shall
be determined by taking into account the Allocated Value of the affected Asset,
the portion of the Asset affected by the Title Defect, the legal effect of
the
Title Defect, the potential discounted economic effect of the Title Defect
over
the life of the affected Asset, and the Title Defect Values placed upon the
Title Defect by Buyer and Seller;
(iv) If
a Title Defect is not in effect or does not adversely affect an Asset throughout
the entire post Effective Time productive life of such Asset, such fact shall
be
taken into account in determining the Title Defect Value;
(v) The
Title Defect Value of a Title Defect shall be determined without duplication
of
any costs or losses included in another Title Defect Value
hereunder;
(vi) Notwithstanding
anything herein to the contrary, in no event shall a Title Defect Value exceed
the Allocated Value of the Wells, PUD Locations, PDNP, Probable and/or Possible
Locations, or other Assets affected thereby;
(vii) If
the Title Defect Value of an Asset is equal to the Allocated Value of such
Asset, the affected Asset shall be excluded from the purchase and sale
contemplated by this Agreement, and the Purchase Price shall be adjusted
accordingly;
(viii) Notwithstanding
the provisions of this Section 4.03 to the contrary, the Title Defect
Value of any Title Defect comprising a required consent not obtained (other
than
consents customarily obtained after Closing) shall be determined subject to
any
accommodation implemented pursuant to Section 4.07; and
(ix) Such
other factors as are reasonably necessary to make a proper
evaluation.
(b) The
term Title Defect shall not include:
(i) Defects
based solely on an assertion that Seller’s files lack information, provided that
any missing material information can be obtained by the reasonable efforts
of
Buyer;
(ii) Defects
in the early chain of title consisting of the failure to recite marital status
in a document or omissions of successors of heirship or estate proceedings,
unless Buyer provides a reasonable basis for the assertion that such failure
or
omission has resulted in a third party’s actual and superior claim of title to
the affected Asset;
(iii) Defects
arising out of lack of survey;
(iv) Defects
arising out of lack of corporate or other entity authorization unless Buyer
provides a reasonable basis for the assertion that the action was not authorized
and that such lack of authorization has resulted in a third party’s actual and
superior claim of title to the affected Asset;
(v) Defects
that are defensible by possession under applicable statutes of limitations
for
adverse possession or for prescription; provided that the mere passage of time
in and of itself shall not establish any presumption of the applicability of
the
provisions of this Section 4.03(b)(v);
(vi) Defects
asserting a change in an applicable Working Interest or Net Revenue Interest
based on a change in drilling and spacing units, tract allocation or other
changes in pooling or unit participation occurring after the date of this
Agreement; and
(vii) Title
requirements customarily considered as advisory or which can be waived as a
matter of prudent business judgment.
Section
4.04 Remedies
for Title Defects.
(a) For
any Title Defect noticed pursuant to Section 4.03 that has not been cured
at or prior to Closing, the Purchase Price shall, subject to the provisions
of
Section 4.14, be decreased at Closing by either (i) the amount the
Parties acting reasonably and in good faith agree in lieu of a cure of the
asserted Title Defect, or (ii) with respect to any Title Defect for which the
Parties have not yet agreed as to the validity of the Title Defect, the Title
Defect Value, or the manner of cure, then by the amount of the Title Defect
Value asserted by Buyer for such uncured or unadjusted Title
Defect.
(b) Notwithstanding
anything to the contrary in this Section 4.04, if any Title Defect is in
the nature of a consent to assignment that is not obtained or other restriction
on assignment, the provisions of Section 4.07 shall apply.
(c) If
at the expiration of thirty (30) days after Closing, the Parties have not agreed
upon the validity of any asserted Title Defect, the appropriate cure of the
same, or the Title Defect Value attributable thereto, either Party shall have
the right to elect to have any such dispute determined by an Independent Expert
pursuant to Section 4.13.
(d) Once a
Title Defect is cured by Seller at its sole cost and expense to Buyer’s
reasonable satisfaction, or the existence or value of the Title Defect is
determined with finality either by agreement between the affected Parties or
in
accordance with Section 4.13, Buyer shall promptly pay to Seller (i) in
the case of a Title Defect which is cured, the amount the Purchase Price was
decreased at Closing as a result of this previously uncured Title Defect or
(ii)
in the case of an Asset affected by an unresolved Title Defect and for which
the
validity of the Title Defect or the Title Defect Value is determined with
finality whether by agreement or in accordance with Section 4.13, the
difference, if any, between the amount the Purchase Price was decreased at
Closing as a consequence of such asserted and unresolved Title Defect
and the amount determined with finality.
Section
4.05 Special
Warranty of Title. The documents to be executed and delivered by
Seller to Buyer, transferring title to the Assets as required hereby, including
the Assignment and Bill of Sale the form of which (subject to modification
to
meet state recording statute requirements) is attached hereto as Exhibit
E (the “Assignment”), shall provide for a special warranty of title,
by, through and under Seller severally as to their respective interests in
and
to the Assets and subject to the Permitted Encumbrances and the terms of this
Agreement. The term “Permitted Encumbrances” shall mean any of the
following matters to the extent the same are valid and subsisting and affect
the
Assets:
(a) any
(i) undetermined or inchoate liens or charges constituting or securing the
payment of expenses that were incurred incidental to the maintenance,
development, production or operation of the Assets or for the purpose of
developing, producing or processing Hydrocarbons therefrom or therein, and
(ii)
materialman’s, mechanics’, repairman’s, employees’, contractors’, operators’
liens or other similar liens or charges for liquidated amounts arising in the
ordinary course of business (A) that Seller has agreed to retain or pay pursuant
to the terms hereof, or (B) for which Seller is responsible for paying or
releasing at the Closing;
(b) any
liens for Taxes and assessments not yet delinquent or, if delinquent, that
are
being contested in good faith in the ordinary course of business and for which
Seller has agreed to pay pursuant to the terms hereof or which have been
prorated pursuant to the terms hereof;
(c) the
terms, conditions, restrictions, exceptions, reservations, limitations and
other
matters contained in (including any liens or security interests created by
law
or reserved in oil and gas leases for royalty, bonus or rental, or created
to
secure compliance with the terms of) the Contracts, Surface Agreements, the
Leases and any other agreements, instruments, documents and other matters
described or referred to in any Exhibit or Schedule hereto, or other terms
in
such instruments that create or reserve to Seller its interest in the Assets;
provided, that, such matters do not operate to (i) reduce the Net Revenue
Interest of Seller in any Well, PUD Location, PDNP, or Probable and/or Possible
Locations as reflected in Exhibit D, or (ii) increase the
proportionate share of costs and expenses of leasehold operations attributable
to or to be borne by the Working Interest of Seller with respect to any Well,
PUD Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D, unless there is a proportionate increase in Seller’s
applicable Net Revenue Interest;
(d) any
obligations or duties affecting the Assets to any Governmental Authority with
respect to any franchise, grant, license or permit, and all applicable federal,
state and local laws, rules, regulations, guidances, ordinances, decrees
(“Laws”) and orders of any Governmental Authority;
(e) any
(i) easements, rights-of-way, servitudes, permits, surface leases and other
rights in respect of surface operations, pipelines, grazing, hunting, lodging,
canals, ditches, reservoirs or the like, and (ii) easements for streets, alleys,
highways, pipelines, telephone lines, power lines, railways and other similar
rights-of-way on, over or in respect of property owned or leased by Seller
or
over which Seller owns rights-of-way, easements, permits or
licenses;
(f) all
royalties, overriding royalties, net profits interests, carried interests,
production payments, reversionary interests and other burdens on or deductions
from the proceeds of production created or in existence as of the Effective
Time, whether recorded or unrecorded, that do not (i) reduce the Net Revenue
Interest of Seller in any Well, PUD Location, PDNP, or Probable and/or Possible
Locations and as reflected in Exhibit D, or (ii) increase the
proportionate share of costs and expenses of leasehold operations attributable
to or to be borne by the Working Interest of Seller with respect to any Well,
PUD Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D, unless there is a proportionate increase in Seller’s
applicable Net Revenue Interest;
(g) preferential
rights to purchase or similar agreements (i) with respect to which (A) waivers
or consents are obtained from the appropriate parties for the transaction
contemplated hereby, or (B) required notices have been given for the transaction
contemplated hereby to the holders of such rights and the appropriate period
for
asserting such rights has expired without an exercise of such rights, or (ii)
not exercised prior to Closing, subject to Section 4.06;
(h) required
third party consents to assignments or similar agreements with respect to which
(i) waivers or consents have been obtained from the appropriate parties for
the
transaction contemplated hereby, or (ii) required notices have been given for
the transaction contemplated hereby to the holders of such rights and the
appropriate period for asserting such rights has expired without an exercise
of
such rights;
(i) all
rights to consent by, required notices to, filings with, or other actions by,
Governmental Authorities in connection with the sale, transfer or conveyance
of
the Assets that are customarily obtained subsequent to such sale or
conveyance;
(j) production
sales contracts; division orders; contracts for sale, purchase, exchange,
refining or processing of hydrocarbons; unitization and pooling designations,
declarations, orders and agreements; operating agreements; agreements of
development; area of mutual interest agreements; gas balancing or deferred
production agreements; processing agreements; plant agreements; pipeline,
gathering and transportation agreements; injection, repressuring and recycling
agreements; water or other disposal agreements; seismic or geophysical permits
or agreements; and any and all other agreements that are ordinary and customary
to the oil, gas and other mineral exploration, development, processing or
extraction business or in the business of processing of gas and gas condensate
production for the extraction of products therefrom; provided, that, such
matters do not (i) reduce the Net Revenue Interest of Seller in any Well, PUD
Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D or (ii) increase the proportionate share of costs and
expenses of leasehold operations attributable to or to be borne by the Working
Interest of Seller with respect to any Well, PUD Location, PDNP, or Probable
and/or Possible Locations as reflected in Exhibit D, unless there is
a proportionate increase in Seller’s applicable Net Revenue
Interest;
(k) rights
reserved to or vested in any Governmental Authority to control or regulate
any
of the Wells or units included in the Assets and the applicable laws, rules,
and
regulations of such Governmental Authorities;
(l) all
defects and irregularities affecting the Assets which individually or in the
aggregate do not (i) reduce the Net Revenue Interest of Seller in any Well,
PUD Location, PDNP, or Probable and/or Possible Locations as reflected in
Exhibit D, (ii) increase the proportionate share of costs and
expenses of leasehold operations attributable to or to be borne by the Working
Interests of Seller with respect to any Well, PUD Location, PDNP, or Probable
and/or Possible Locations as reflected on Exhibit D unless there is a
proportionate increase in Seller’s applicable Net Revenue Interest, or
(iii) otherwise result in a material and adverse interference with the
operation, value or use of the Assets;
(m) conventional
rights of reassignment arising upon decision to surrender or abandon an
interest; and
(n) all
deeds of trust and other security interests burdening the Assets granted by
Seller in connection with its credit facilities under which Wachovia Bank serves
as administrative agent (the “Wachovia Liens”), it being understood that
the release of the Wachovia Liens is a condition to the Closing as provided
in
Section 9.04.
Section
4.06 Preferential
Rights to Purchase.
(a) After
consultation with Buyer, Seller shall use its reasonable efforts, but without
any obligation to incur anything but reasonable costs and expenses in connection
therewith, to comply with all preferential right to purchase provisions relative
to any Asset prior to the Closing, including those rights of preferential
purchase identified on Schedule 4.06.
(b) Prior
to the Closing, Seller shall promptly notify Buyer if any of such preferential
purchase rights are exercised or if the requisite period has elapsed without
such rights having been exercised.
(c) If
a third party who has been offered an interest in any Asset pursuant to a
preferential right to purchase elects prior to the Closing to purchase all
or
part of such Assets, and the closing of such transaction does occur on or before
the Closing Date, then the interest or part thereof so affected will be
eliminated from the Assets and the Purchase Price shall be reduced by the
Allocated Value of such Assets. If any such third party has elected to purchase
all or a part of an interest in any Asset subject to a preferential right to
purchase, but has failed to close the transaction by the Closing Date, then
all
of the Assets will be conveyed to Buyer at Closing, without adjustment to the
Purchase Price, and on the Closing Date Buyer shall, as an Assumed Obligation,
assume all duties, obligations and liabilities, of any kind or nature, arising
from, out of, or in connection with, any enforceable preferential right to
purchase that is outstanding, and, if exercised, Buyer shall receive the payment
therefor and shall assign the affected portion of the Assets to the holder
of
such exercised preferential right to purchase. In addition, in the event an
interest is offered by Seller pursuant to a preferential right to purchase
for
which notice has been given but the time period for response by the holder
of
such right extends beyond Closing, such interest shall be conveyed to Buyer
at
the Closing, without reduction to the Purchase Price, and shall be subject
to
such preferential right of purchase.
Section
4.07 Consents
to Assignment. If any Asset is subject to a Title Defect as a
result of a consent to assignment not having been obtained, including those
consents to assignment set forth on Schedule 4.07, or, of the existence
of other restrictions on assignment or conveyance, the following provisions
shall apply:
(a) Buyer
and Seller shall cooperate in any reasonable and lawful arrangement proposed
to
provide Buyer with the benefits of ownership of the affected Asset without
breaching the consent requirement or restriction comprising such Title Defect;
and
(b) If
such arrangement involves Seller retaining actual title with beneficial title
being assigned to Buyer at the Closing, then:
(i) only
such beneficial title shall be assigned to Buyer at the Closing, without any
adjustment to the Purchase Price for such Title Defect; and
(ii) if
such consent is obtained or such restriction eliminated following the Closing,
then Seller shall execute and deliver to Buyer an assignment of Seller’s
retained title and any related obligations consistent with the terms of this
Agreement.
Section
4.08 Remedies
for Title Benefits.
(a) If
Buyer discovers any Title Benefit affecting the Assets, it shall promptly notify
Seller in writing thereof. Subject to Section 4.14, Seller shall be
entitled to an upward adjustment to the Purchase Price with respect to all
Title
Benefits in an amount (the “Title Benefit Value”) determined in
accordance with the formula provided for in this Section
4.08(a). The term
“Title Benefit” shall mean Seller’s Net
Revenue Interest in any Well, PUD Location, PDNP, or Probable and/or Possible
Locations that is greater than or in addition to the Net Revenue Interest set
forth in Exhibit D, or Seller’s Working Interest in any Well, PUD
Location, PDNP, or Probable and/or Possible Locations that is less than the
Working Interest set forth in Exhibit D (without a proportionate
decrease in the Net Revenue Interest). The Title Benefit Value shall be the
absolute value of the number determined by the following formula:
Title
Benefit Value = [A x (B/C)] -
A
A = Allocated
Value for the affected Asset
B = Correct
Net Revenue Interest for the affected Asset
C = Net
Revenue Interest for the affected Asset as set forth on Exhibit
D.
(b) If
the Title Benefit represents a decrease in Working Interest for which there
is
not a proportionate decrease in Net Revenue Interest, the amount of the Title
Benefit Value shall be determined by taking into account the Allocated Value
of
the affected Asset, the portion of the Asset affected by the Title Benefit,
the
legal effect of the Title Benefit, the potential discounted economic effect
of
the Title Benefit over the life of the affected Asset, and the Title Benefit
Values placed upon the Title Benefit by Buyer and Seller.
(c) If
the Parties have not agreed on the amount of the Title Benefit Value of a Title
Benefit by the expiration of thirty (30) days after Closing, Seller or Buyer
shall have the right to elect to have such Title Benefit Value determined by
an
Independent Expert pursuant to Section 4.13. If the Title Benefit Value
is not determined pursuant to this Agreement by the Closing, the Purchase Price
paid at Closing shall be increased, subject to Section 4.14, by the Title
Benefit Value determined by Buyer, acting reasonably and in good faith, and,
subject to Section 4.14. Upon the final determination of Title Benefit
Value either by mutual agreement of the Parties or by the Independent Expert,
(i) Seller shall refund to Buyer the amount, if any, by which the amount so
paid by Buyer at Closing exceeds such Title Benefit Value, or (ii) Buyer
shall pay to Seller the amount, if any, by which such Title Benefit Value
exceeds the amount so paid by Buyer at Closing.
Section
4.09 Environmental
Review. Buyer may conduct an environmental assessment of the
Assets prior to the expiration of the Title Claim Date, subject to the
following:
(a) Buyer
shall have the right to conduct a Phase I (as that term is defined by the
American Society for Testing and Materials) environmental review of the Assets
prior to the expiration of the Examination Period (“Buyer’s Environmental
Review”) and Seller shall provide to Buyer a copy of any environmental
review Seller has in its possession subject to the same terms of confidentiality
subsequently set forth herein;
(i) The
cost and expense of Buyer’s Environmental Review shall be borne solely by
Buyer;
(ii) All
inspections must be coordinated through a designated representative of Seller
who may accompany Buyer during the course of Buyer’s inspection of the
Assets;
(iii) All
environmental assessments shall be conducted by an independent environmental
consultant engaged by Buyer at Buyer’s expense;
(iv) Buyer
shall give Seller notice not more than seven (7) days and not less than forty
eight (48) hours before any visits by Buyer and/or its consultant to the Assets,
and Buyer shall seek and obtain Seller’s prior consent (which shall not be
unreasonably withheld) before either it or its consultant enters the
Assets;
(v) Buyer
shall provide Seller a copy of the Phase I report affecting the Assets promptly
after Buyer’s receipt of the same;
(vi) Buyer
shall give Seller prompt written notice and obtain Seller’s prior written
consent (not to be unreasonably withheld) if Buyer desires to conduct a Phase
II
(as that term is defined by the American Society for Testing and Materials)
study based on the recommendations of Buyer’s independent environmental
consultant (acting reasonably) with respect to the Assets. With
respect to any samples taken in connection with Buyer’s Environmental Review,
Buyer shall take split samples, providing one of each such sample, properly
labeled and identified, to Seller;
(vii) Buyer
and/or its consultant shall perform all such work in a safe and workmanlike
manner, shall not unreasonably interfere with Seller’s operations, and shall
comply with all Laws of applicable Governmental Authorities;
(viii) Buyer
shall be solely responsible for obtaining any third party consents that are
required in order to perform any work comprising Buyer’s Environmental Review,
and Buyer shall consult with Seller prior to requesting each such third party
consent; and
(ix) Buyer
hereby agrees to release and defend, indemnify and hold harmless Seller and
Seller’s Representatives from and against all Claims made by (or attributable to
the acts or omissions of) Buyer or Buyer’s Representatives (INCLUDING
THOSE RESULTING FROM THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF
SELLER OR ANY OF SELLER’S
REPRESENTATIVES) arising out of or
relating to Buyer’s Environmental Review. The release and indemnity provisions
of this Section 4.09 shall survive termination or Closing of this
Agreement notwithstanding anything to the contrary provided for in this
Agreement.
(b) Unless
otherwise required by applicable Laws, Buyer shall treat any matters revealed
by
Buyer’s Environmental Review and any environmental review provided by Seller to
Buyer, including any analyses, compilations, studies, documents, reports or
data
prepared or generated from such review (the “Environmental Information”),
as confidential, and, except as provided below, Buyer shall not disclose any
Environmental Information to any Governmental Authority or other third party
without the prior written consent of Seller. Buyer may use the Environmental
Information only in connection with the transactions contemplated by this
Agreement. The Environmental Information shall be disclosed by Buyer to only
those persons who need to know the Environmental Information for purposes of
evaluating the transaction contemplated by this Agreement, and who agree to
be
bound by the terms of this Section 4.09. If Buyer or any third party to
whom Buyer has provided any Environmental Information is requested, compelled
or
required to disclose any of the Environmental Information, Buyer shall provide
Seller with prompt notice sufficiently prior to any such disclosure so as to
allow Seller to file for any protective order, or seek any other remedy, as
it
deems appropriate under the circumstances. If this Agreement is terminated
prior
to the Closing, upon Seller’s request Buyer shall deliver the Environmental
Information, and all copies thereof and works based thereon, to Seller, which
Environmental Information shall become the sole property of Seller. Upon request
Buyer shall provide copies of the Environmental Information to Seller without
charge. The terms and provisions of this Section 4.09(b) shall survive
any such termination of this Agreement, notwithstanding anything to the
contrary.
Section
4.10 Definitions
Used in Article 4 and in this Agreement.
(a) Environmental
Defects. The term “Environmental Defect” shall mean, with respect to
any given Asset, a violation of Environmental Laws in effect as of the Effective
Time in the jurisdiction in which such Asset is located.
(b) Governmental
Authority. The term “Governmental Authority” shall mean the United
States and any state, county, city and political subdivisions that exercises
jurisdiction, and any agency, department, board, commission or other
instrumentality thereof.
(c) Environmental
Laws. The term “Environmental Laws” shall mean any and all laws,
statutes, ordinances, rules, regulations or orders of any Governmental Authority
pertaining to health and natural resources (but excluding laws, orders, rules,
and regulations that pertain to the prevention of waste or the protection of
correlative rights) and the protection of wildlife or the environment including,
without limitation, the Clean Air Act, as amended, the Clean Water Act, as
amended, the Comprehensive Environmental, Response, Compensation, and Liability
Act of 1980, as amended (“CERCLA”), the Federal Water Pollution Control
Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended
(“RCRA”), the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984,
as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, the Oil
Pollution Act of 1990 (“OPA”), any state laws implementing the foregoing
federal laws, and any state laws pertaining to the handling of oil and gas
exploration and production wastes or the use, maintenance and closure of pits
and impoundments, and all other environmental conservation or protection laws
in
effect as of the date hereof which are applicable to the Assets. For
purposes of this Agreement, the terms “hazardous substance,” “release,” and
“disposal” have the meanings specified in the applicable Environmental Laws as
in effect as of the date hereof.
(d) Environmental
Defect Value. For purposes of this Agreement, the term “Environmental
Defect Value” shall mean, with respect to any Environmental Defect, the
estimated costs and expenses net to Seller’s interest in the affected portion of
the Assets to correct and/or remediate such Environmental Defect in the most
cost effective manner reasonably available, consistent with Environmental Laws,
taking into account that non-permanent remedies (such as, by way of example
but
not by limitation or similarity, mechanisms to contain or stabilize hazardous
materials, including monitoring site conditions, natural attenuation, risk-based
corrective action, institutional controls or other appropriate restrictions
on
the use of property, caps, dikes, encapsulation, leachate collection systems,
etc.) may be the most cost effective manner reasonably available.
Section
4.11 Notice
of Environmental Defects. Buyer shall provide Seller notice of
all Environmental Defects no later than 5:00 p.m. MST on the date which is
seven
(7) days prior to the Closing Date. To be effective, such notice must (a) be
in
writing, (b) be received by Seller prior to the expiration of the Examination
Period, (c) describe the Environmental Defect in reasonable detail, including
the written conclusion of Buyer that an Environmental Defect exists, which
conclusion shall be reasonably substantiated by the factual data gathered in
Buyer’s Environmental Review, (d) identify the specific Assets affected by such
Environmental Defect, (e) set forth the procedures recommended to correct the
Environmental Defect, (f) set forth Buyer’s reasonable good faith estimate of
the Environmental Defect Value, including the basis for such estimate, and
(g)
comply with the Environmental Defect Value provisions of Section 4.14.
Any matters that may otherwise constitute Environmental Defects, but of which
Seller has not been specifically notified by Buyer in accordance with the
foregoing, together with any environmental matter that does not constitute
an
Environmental Defect, shall be deemed to have been waived by Buyer for all
purposes and constitute an Assumed Obligation. Upon receipt of notices of
Environmental Defects, the Parties shall meet and determine upon which of the
Environmental Defects, Environmental Defect Values and methods of correction
the
Parties have reached agreement. Upon the receipt of such effective notice from
Buyer, Seller shall have the option, but not the obligation, to attempt to
correct such Environmental Defect during a period expiring ninety (90) days
after Closing. If Seller should not elect to correct an Environmental Defect,
and no aspect of such defect is in dispute, the Purchase Price shall be adjusted
for such defect by the amount of the Environmental Defect Value.
Section
4.12 Remedies
for Environmental Defects.
(a) If,
as of the Closing Date, the Assets are affected by an uncured or otherwise
unresolved Environmental Defect noticed pursuant to the provisions of Section
4.11, the affected portion of the Assets shall not be sold, transferred or
conveyed to Buyer at Closing, and the Purchase Price shall, subject to the
terms
of Section 4.14, be decreased by the Allocated Value of the portion of
the Assets so affected. Thereafter, Buyer and St. Mary shall act
reasonably and in good faith either (i) to agree (y) as to the manner of cure
for such Environmental Defect or (z) the value of such Environmental Defect
and
adjust the Final Settlement Statement in the amount thereof net of any Purchase
Price adjustment made at Closing, in which event the affected portion of the
Assets shall be conveyed to Buyer; provided that if option (y) is agreed to,
no
assignment of the affected portion of the Assets shall be made as between Seller
and Buyer until such agreed cure is accomplished to Buyer’s reasonable
satisfaction whereupon the Allocated Value previously deducted from the Purchase
Price shall be paid to Seller, or (ii) with respect to any Environmental Defect
as to which the Parties are unable to agree within 30 days of Closing as to
the
validity of the Environmental Defect, the Environmental Defect Value, or the
manner of correction, submit such matter to be determined by an Independent
Expert pursuant to Section 4.13.
(b) With
respect to any Asset which is not sold, transferred or conveyed to Buyer at
the
Closing pursuant to the terms of Section 4.12(a), after the Closing and
at such time as any Environmental Defect Value or the manner of correction
for
an Environmental Defect is determined and, in either event, the amount thereof
is determined to be less than the Allocated Value for the affected portion
of
the Assets, Seller shall have the right (i) in the case of an Environmental
Defect Value determination, to have the Purchase Price reduced by only the
Environmental Defect Value as so determined or (ii) in the case of the cure
determination, to elect to cure the Environmental Defect to Buyer’s reasonable
satisfaction. The consequence of (i) shall be that Buyer will pay to Seller
an amount equal to the Allocated Value for the affected Assets minus the
Environmental Defect Value and the affected portion of the Assets previously
retained by Seller shall be conveyed to Buyer. The consequence of
(ii) shall be that upon achieving Buyer’s written acknowledgement that the
Environmental Defect has been cured to its reasonable satisfaction, the
Allocated Value for such previously retained Asset shall be paid to Seller
and
the affected portion of the Assets shall be conveyed to Buyer. If no
Environmental Defect is determined to exist, Buyer shall pay the Allocated
Value
attributable to the affected portion of the Assets to Seller, and Seller shall
convey the previously retained portion of the Assets to Buyer. If the
Environmental Defect Value or the cost to cure an Environmental Defect is
determined to be greater than the Allocated Value of the affected portion of
the
Assets, Seller shall retain the affected portion of the Assets, and the Purchase
Price shall be reduced by the Allocated Value attributable to such portion
of
the Assets.
Section
4.13 Independent
Experts.
(a) Any
disputes regarding Title Defects, Title Benefits, Environmental Defects, Title
Defect Value, Title Benefit Value, Environmental Defect Value, appropriate
cure
of any Title Defects or correction of any Environmental Defects, and the
calculation of the Statement or the Final Settlement Statement, or revisions
thereto, may, subject to the provisions of Section 4.04, Section
4.12 and Section 4.14, be submitted by a Party, with written notice
to the other Party, to an independent expert (the “Independent Expert”),
who shall serve as the sole and exclusive arbitrator of any such dispute. The
Independent Expert shall be selected by the Parties (acting reasonably and
in
good faith) within fifteen (15) days following the effective date of said
notice. The Independent Expert shall be a person who is independent, impartial,
and knowledgeable in the subject matter and substantive laws
involved. For example, but not by way of limitation, in the case of a
dispute concerning an alleged Environmental Defect, Environmental Defect Value
or cure of the same, the Independent Expert shall have expertise in both the
applicable Environmental Laws and environmental science relating to the oil
and
gas industry.
(b) The
Parties shall determine, acting in good faith, the procedures to be followed
to
facilitate the decision of the Independent Expert. Such procedures shall include
the following scenario:
(i) If
the dispute involves the method or adequacy of cure or correction of a Title
Defect or Environmental Defect, the Independent Expert shall provide in writing
the particulars necessary to cure or correct or to remedy any deficient cure
or
correction, and shall provide Seller sixty (60) days (or such additional time
as
reasonable and necessary under the circumstances, but not to exceed 90 days
unless specifically agreed to in writing by Seller and Buyer) to effect such
cure or correction; and
(ii) In
the event of circumstances described in clause (i) above, Seller at its option
may at any time during the sixty (60) day cure period pursuant to clause (i)
(as
such period may be extended pursuant to such clause) decline to cure or correct
the applicable defect.
(c) If
the Parties fail to select an Independent Expert within the 15-day period
referred to in Section 4.13(a) above, within three (3) days thereafter, each
of
Buyer and Seller shall choose an Independent Expert meeting the qualifications
set forth above, and such experts shall promptly choose a third Independent
Expert (meeting the qualifications provided for herein) who alone shall resolve
the disputes between the Parties. Each Party shall bear its own costs and
expenses incurred in connection with any such proceeding, and one-half (1/2)
of
the costs and expenses of the Independent Expert.
(d) Disputes
to be resolved by an Independent Expert shall be resolved in accordance with
mutually agreed procedures and rules and failing such agreement, in accordance
with the rules and procedures for non-administered arbitration set forth in
the
commercial arbitration rules of the American Arbitration
Association. The Independent Expert shall be instructed by the
Parties to resolve such dispute as soon as reasonably practicable in light
of
the circumstances using the terms and provisions of this Agreement with respect
to title and environmental matters. The decision and award of the Independent
Expert shall be binding upon the Parties and final and nonappealable to the
maximum extent permitted by Laws or Environmental Laws, as applicable, and
judgment thereon may be entered in a court of competent jurisdiction and
enforced by any Party as a final judgment of such court.
(e) All
proceedings under this Section 4.13 shall be conducted at a mutually
agreed location, or if Buyer and Seller acting reasonably do not mutually agree
upon a location for such proceeding, the proceeding shall be conducted in
Denver, Colorado.
Section
4.14 Limitation
of Remedies For Title Benefits, Title Defects and Environmental
Defects. Notwithstanding anything to the contrary contained in
this Agreement,
(a) if
the Title Defect Value for a given Title Defect, or the Title Benefit Value
of a
given Title Benefit, in each case as determined pursuant to this Article
4 does not exceed Twenty Thousand Dollars ($20,000), or if the Environmental
Defect Value for a given Environmental Defect, as determined pursuant to this
Article 4 does not exceed Twenty Thousand Dollars ($20,000), such Title
Defect, Title Benefit, or Environmental Defect shall not qualify for either
a
Purchase Price adjustment, cure, or correction of such defect;
(b) if
the aggregate net value of all Title Defects and Title Benefits does not exceed
Five Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto),
then no adjustment of the Purchase Price shall be made therefor;
(c) if
the aggregate net value of all Title Defects and Title Benefits exceeds Five
Hundred Thousand Dollars ($500,000) (prior to any adjustments thereto), then
the
Purchase Price shall be adjusted by the entire amount of such aggregate net
value, it being understood that this amount is a threshold and not a
deductible;
(d) if
the aggregate value of all Environmental Defects does not exceed Five Hundred
Thousand Dollars ($500,000) (prior to any adjustments thereto), then no
adjustment of the Purchase Price shall be made therefor; and
(e) if
the aggregate value of all Environmental Defects exceeds Five Hundred Thousand
Dollars ($500,000) (prior to any adjustments thereto), then the Purchase Price
shall be adjusted by the entire amount of such aggregate value, it being
understood that this amount is a threshold and not a deductible.
All
Title
Defects and Environmental Defects asserted by Buyer pursuant to this Article
4 after being resolved in accordance with this Article 4 shall
thereafter constitute Permitted Encumbrances and Assumed Obligations, whether
or
not an adjustment to the Purchase Price is made with respect thereto in
accordance with this Article 4.
Section
4.15 DISCLAIMER
AND WAIVER. EXCEPT AS SET FORTH IN THIS
AGREEMENT, SELLER DOES NOT MAKE ANY, AND EXPRESSLY DISCLAIMS ALL REPRESENTATIONS
OR WARRANTIES, AND BUYER EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR
WARRANTIES, AS TO THE ACCURACY OR COMPLETENESS OF ANY FILE AND/OR OTHER
INFORMATION, INCLUDING, PRINTOUTS, EXTRAPOLATIONS, PROJECTIONS, DOCUMENTATION,
MAPS, GRAPHS, CHARTS OR TABLES WHICH REFLECT, DEPICT, PRESENT, PORTRAY OR WHICH
ARE BASED UPON OR DERIVED FROM ANY SUCH INFORMATION AND/OR FILES, INCLUDING
MATTERS OF GEOLOGICAL, GEOPHYSICAL, ENGINEERING OR OTHER SCIENTIFIC INFORMATION
THAT MAY BE PROVIDED TO BUYER BY SELLER OR BY OTHERS ON BEHALF OF SELLER. BUYER
EXPRESSLY AGREES THAT ANY CONCLUSIONS DRAWN FROM REVIEW OF SUCH INFORMATION
AND/OR FILES SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND
JUDGMENT.
ARTICLE
5
REPRESENTATIONS
AND WARRANTIES OF SELLER
Each
Party comprising Seller severally as to its or his respective ownership interest
in the Assets represents and warrants to Buyer that:
Section
5.01 Existence. St.
Mary is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Smith is a trust organized, validly
existing, and in good standing under the laws of the State of
Oklahoma. Harrell is an individual. Each Party comprising Seller has
full legal power, right and authority to carry on its business as such is now
being conducted and as contemplated to be conducted hereby. Each
Party comprising Seller is authorized to do business, and in good standing,
in
the State or States in which the Assets are located with regard to the Assets
in
which any of the Parties comprising Seller has an interest.
Section
5.02 Legal
Power. Seller has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement will not
violate, or be in conflict with:
(a) any
provision of Seller’s articles of incorporation, bylaws, and other governing
documents;
(b) except
for provisions customarily contained in oil and gas agreements relating to
maintenance of uniform interest, preferential purchase rights and consents
to
assignment, any material agreement or instrument to which Seller is a party
or
by which Seller or the Assets are bound; or
(c) any
judgment, order, ruling or decree applicable to Seller as a party in interest
or
any law, rule or regulation applicable to Seller.
Section
5.03 Execution. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite corporate
action on the part of Seller as required under its formation documents. This
Agreement constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms, except as the same may be limited
by
bankruptcy, insolvency or other laws relating to or affecting the rights of
creditors generally, and by general equitable principles.
Section
5.04 Brokers. No
broker or finder is entitled to any brokerage or finder’s fee, or to any
commission, based in any way on agreements, arrangements or understandings
made
by or on behalf of Seller or any affiliate of Seller for which Buyer has or
will
have any liabilities or obligations (contingent or otherwise).
Section
5.05 Bankruptcy. There
are no bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or to the knowledge of Seller threatened against
Seller. Seller is not “insolvent” as such term is defined under the
Federal Bankruptcy Code or any fraudulent transfer or fraudulent conveyance
statute applicable to the transactions contemplated by this
Agreement.
Section
5.06 Suits
and Claims. Except as set forth in Schedule 5.06,
there is no litigation or Claims that have been filed by any person or entity
or
by any administrative agency or Governmental Authority in any legal,
administrative or arbitration proceeding or, to Seller’s knowledge, threatened
against Seller or the Assets that would impede Seller’s ability to consummate
the transactions contemplated herein or would have a material and adverse effect
on the Assets.
Section
5.07 Taxes. During
the period of Seller’s ownership of the Assets up to and including the Effective
Time, Seller has caused to be timely filed all material Tax returns relating
to
the Assets. Seller has paid or caused to be paid all ad valorem,
property, production, severance, mineral documentary and similar Taxes based
upon or measured by its ownership of or the production of Hydrocarbons from
the
Assets. Seller has not received written notice of any pending Claim
against Seller from any applicable taxing authority for assessment of Taxes
with
respect to the Assets. There are no audits of Seller by any
applicable taxing authority with respect to Taxes attributable to the
Assets. Except for statutory liens for property Taxes and ad valorem
Taxes, there are no tax liens on or with respect to the Assets.
Section
5.08 AFEs. Except
as set forth on Schedule 5.08, there are no outstanding authorizations
for expenditures or other capital commitments which are binding on the Assets
and which individually would require the owner of the Assets after the Effective
Time to expend monies in excess of Fifty Thousand Dollars
($50,000).
Section
5.09 Compliance
with Laws. Seller’s operation (i.e., where Seller is
operator of record) of the Assets has been in compliance with Laws where
noncompliance with such Laws would have a Material Adverse Effect on the
Assets.
Section
5.10 Contracts. Seller
is not in Breach of any of the Contracts and to Seller’s knowledge, the
Contracts are in full force and effect in accordance with their terms, and,
to
the knowledge of Seller, no other party to any of the Contracts is in Breach
thereof.
Section
5.11 Production
Imbalances. Except as set forth in Schedule 1.02(g), to
Seller’s knowledge, there are no material Production Imbalances as of the
Effective Time as to any of the Subject Interests.
Section
5.12 Royalties;
Payments for Production. Seller has not been and is not in Breach
of any payment obligations under any of the Leases. Seller is not
obligated by virtue of a take or pay payment, call, advance payment, production
payment or other similar payment or obligation (other than royalties, overriding
royalties and similar arrangements that do not cause Seller’s NRI to be less
than that set forth on Exhibit D), to deliver Hydrocarbons, or proceeds
from the sale thereof, attributable to the Leases at some future time without
receiving payment therefor at or after the time of delivery at the then market
price, and no take or pay credits must be provided before natural gas can be
transported through any interstate carrier under FERC Order 500, et al, and
there are no obligations on the Assets under FERC Order 451.
Section
5.13 Insurance. Seller
maintains, and through the Closing will maintain, with respect to the Assets,
the insurance coverage described on Schedule 5.13.
Section
5.14 Plugging
Obligations. Except for wells listed in Schedule 5.14,
there are no dry holes, or shut in or otherwise inactive wells, located on
the
Assets or lands pooled or unitized therewith that Seller has either the
obligation to plug and abandon in accordance with an applicable operating
agreement or Law or as to Wells for which Seller is not the operator, received
a
written proposal to plug and abandon.
Section
5.15 Personal
Property and Equipment. Seller is the owner of the Equipment free
and clear of all liens and encumbrances other than those to be released at
Closing. Other than in connection with normal and customary prudent
operations, Seller has not removed any personal property, equipment or fixtures
from the Wells, unless it has been replaced with personal property, equipment
or
fixtures of similar grade and utility. Unless removed, repaired or
replaced (a) with personal property, equipment and fixtures of similar grade
and
utility or (b) in connection with normal and customary prudent operations,
the
personal property, equipment and fixtures currently attendant to the Wells
was
the equipment historically used by Seller on the Wells to produce the
Hydrocarbons prior to the execution of this Agreement.
Section
5.16 No
Alienation. Within 120 days of the date hereof, Seller has not
voluntarily or involuntarily sold, assigned, conveyed, or transferred or
contracted to sell, assign, convey or transfer any right or title to, or
interest in, the Assets other than (i) production sold in the ordinary course
of
Seller’s business and (ii) equipment which was worthless, obsolete or replaced
by equipment of equal suitability and value.
Section
5.17 Hydrocarbon
Sales Contracts. Except for the Hydrocarbon Sales Contracts
listed in Schedule 5.17, no Hydrocarbons are subject to a sales contract
(other than division orders or spot sales agreements terminable on no more
than
30 days notice) and no person has any call upon, option to purchase or similar
rights with respect to the production from the Assets. Proceeds from
the sale of oil, condensate, and gas from the Assets are being received in
all
respects by Seller in a timely manner and are not being held in suspense for
any
reason.
Section
5.18 Area
of Mutual Interest and Other Agreements. To Seller’s
knowledge, no Asset is subject to (or has related to it) any area of mutual
interest agreements not disclosed in the Contracts or any farm-out or farm-in
agreement under which any party thereto is entitled to receive assignments
not
yet made, or could earn additional assignments after the Effective Time other
than the Wells listed on Exhibit B as having an after payout
NRI.
Section
5.19 Leases. Seller
has not received a written notice of termination of any of the Leases and Seller
is not in Breach or violation of any of the Leases; provided, however, that
Buyer’s remedy for Seller’s Breach of this representation and warranty shall be
the Title Defect mechanism set forth in Article
4.
Section
5.20 Property
Expenses. In the ordinary course of business, Seller has paid all
property expenses attributable to the period of time prior to the Effective
Time
as such property expenses become due, and such property expenses are being
paid
in a timely manner before the same become delinquent, except such property
expenses as are disputed in good faith by Seller in a timely manner and for
which Seller shall retain responsibility.
Section
5.21 Governmental
Permits. Except as set forth on Schedule 5.21, Seller has
all Permits (including, without limitation, permits, licenses, approval
registrations, notifications, exemptions and any other authorizations pursuant
to Law) necessary or appropriate to own and operate the Assets as presently
being owned and operated. The Permits are in full force and effect
and the Assets have been operated in accordance with the terms thereof in all
material respects. Seller has not received written notice of any
violations in respect of any of the Permits that remain uncured.
Section
5.22 No
Adverse Change. With respect to the Assets for which Seller is
the operator and, to Seller’s knowledge with respect to the Assets for which
Seller is not the operator, since September 1, 2007, the Assets have been
operated in the ordinary course of business consistent with past practices
and
there has been no event or series of events that have either individually or
in
combination had a Material Adverse Effect on the Assets.
Section
5.23 Information. The
information pertaining to revenue and expenses attributable to the Assets that
Seller has furnished to Buyer (the “Information”) is (a) accurate in all
material respects to the extent relating to the period of Seller’s ownership of
the Assets and (b) to the knowledge of Seller, accurate in all material respects
to the extent relating to any period of ownership of the Assets prior to the
time owned by Seller reflected in the Information. Seller has no data
in its possession that it has failed to furnish that would cause the Information
to be materially inaccurate. Except as specifically set forth in this
Section 5.23, Seller makes no representations regarding the accuracy of
any of the Records; provided, however, Seller does represent that (i) all of
the
Records are files, or copies thereof, that Seller has used in the ordinary
course of operating and owning the Assets, (ii) Seller has not intentionally
withheld any material information from the Records, and (iii) Seller has not
knowingly misrepresented any material information in the
Records. Except as set froth in this Section 5.23, no
representation or warranty of any kind is made by Seller as to the Information
or with respect to the Assets to which the Information relates and Buyer
expressly agrees that any conclusions drawn therefrom shall be the result of
its
own independent review and judgment. The representations and
warranties contained in this paragraph shall apply only to matters of fact,
and
shall not apply to any information, data, printouts, extrapolations,
projections, documentation, maps, graphs, charts, or tables which reflect,
depict, present, portray, or represent, or which are based upon or derived
from,
in whole or in part, interpretation of the Information including, but not
limited to, matters of geological, geophysical, engineering, or scientific
interpretation.
Section
5.24 Representations
and Warranties Exclusive. All representations and warranties
contained in this Article 5 are exclusive, and are given in lieu of all
other representations and warranties, express, implied or
statutory.
ARTICLE
6
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer
represents and warrants to Seller that:
Section
6.01 Existence. Buyer
is a limited liability company duly formed, organized, validly existing and
in
good standing under the laws of the state of its formation. Buyer has
full legal power, right and authority to carry on its business as such is now
being conducted. As of the Closing Date, Buyer will be authorized to
do business as a foreign limited liability company and in good standing in
the
State or States in which the Assets are located.
Section
6.02 Legal
Power. Buyer has the legal power and right to enter into and
perform this Agreement and the transactions contemplated hereby. The
consummation of the transactions contemplated by this Agreement does not and
will not violate, or be in conflict with:
(a) any
provision of Buyer’s formation documents or other governing
documents;
(b) any
material agreement or instrument to which Buyer is a party or by which Buyer
or
its assets are bound; or
(c) any
judgment, order, ruling or decree applicable to Buyer as a party in interest
or
any law, rule or regulation applicable to Buyer.
Section
6.03 Execution. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby are duly and validly authorized by all requisite
organizational action on the part of Buyer. This Agreement constitutes the
legal, valid and binding obligation of Buyer enforceable in accordance with
its
terms, except as the same may be limited by bankruptcy, insolvency or other
laws
relating to or affecting the rights of creditors generally, and by general
equitable principles.
Section
6.04 Brokers. No
broker or finder is entitled to any brokerage or finder’s fee, or to any
commission, based in any way on agreements, arrangements or understandings
made
by or on behalf of Buyer or any affiliate of Buyer for which Seller has or
will
have any liabilities or obligations (contingent or otherwise).
Section
6.05 Bankruptcy. There
are no bankruptcy, reorganization or arrangement proceedings pending, being
contemplated by or to the knowledge of Buyer threatened against Buyer or any
affiliate of Buyer.
Section
6.06 Suits
and Claims. There is no Claim by any person or entity or by any
administrative agency or Governmental Authority and no legal, administrative
or
arbitration proceeding pending or, to Buyer’s knowledge, threatened against
Buyer or any affiliate of Buyer that is reasonably likely to have a material
effect on Buyer’s ability to consummate the transactions contemplated
herein.
Section
6.07 Independent
Evaluation. Buyer acknowledges that it is an experienced and
knowledgeable investor in the oil and gas business, and the business of
purchasing, owning, developing and operating oil and gas properties such as
the
Assets. If Closing occurs, Buyer represents, warrants and acknowledges to Seller
that it has had full access to the Assets, the officers, and employees of
Seller, and to the books, records and files of Seller relating to the Assets.
In
making the decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer has relied solely upon the
representations, warranties, covenants and agreements of Buyer and Seller set
forth in this Agreement and Buyer’s own independent due diligence and
investigation of the Assets, and has been advised by and has relied solely
on
its own expertise and its own legal, tax, operations, environmental, reservoir
engineering and other professional counsel and advisors concerning this
transaction, the Assets and the value thereof. In addition, Buyer acknowledges
and agrees that Buyer will be or has been advised by and relies solely on its
own expertise, and its legal counsel and any advisors or experts concerning
matters relating to Title Defects, Title Benefits and Environmental
Defects.
Section
6.08 Qualification. As
of the Closing, the Buyer shall be, and thereafter shall continue to be,
qualified with all applicable Governmental Authorities to own and operate the
Assets, including meeting all bonding requirements.
Section
6.09 Securities
Laws. Buyer is acquiring the Assets for its own account or that
of its affiliates and not with a view to, or for offer of resale in connection
with, a distribution thereof, within the meaning of the Securities Act of 1933,
15 U.S.C. § 77a et seq., and any other rules, regulations, and laws
pertaining to the distribution of securities. Buyer has not sought or solicited,
nor is Buyer participating with, investors, partners or other third parties
other than its lenders in order to fund the Purchase Price and to close this
transaction, and all funds to be used by Buyer in connection with this
transaction are Buyer’s own funds or those borrowed from its
lenders.
Section
6.10 No
Investment Company. Buyer is not (a) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, or (b) subject in any respect to the provisions
of that Act.
Section
6.11 Funds. Buyer
has arranged to have available by the Closing Date immediately available funds
to enable Buyer to pay in full the Purchase Price as herein provided and
otherwise to perform its obligations under this Agreement.
Section
6.12 Notice
of Changes. Promptly upon its discovery or identification of
same, but in any event prior to Closing, Buyer shall provide to Seller written
notice of any matter it so identifies that has a material effect on any of
Seller’s representations or warranties under this Agreement, or rendering any
such warranty or representation untrue or inaccurate.
Section
6.13 Representations
and Warranties Exclusive. All representations and warranties
contained in this Agreement and the documents delivered in connection herewith,
are exclusive, and are given in lieu of all other representations and
warranties, express, implied or statutory.
ARTICLE
7
OPERATION
OF THE ASSETS
Section
7.01 Operation
of the Assets.
(a) From
and after the date of execution of this Agreement, and subject to the provisions
of applicable operating and other agreements, Seller shall (i) use its
reasonable efforts during the period prior to the Closing, to operate and
administer the Assets in a manner consistent with its past practices,
(ii) make payment of all costs and expenses attributable to the ownership
or operation of the Assets and relating to the period prior to the transfer
of
operations to Buyer, and shall carry on its business with respect to the Assets
in substantially the same manner as before execution of this Agreement,
(iii) not, without Buyer’s express written consent, commit to participate
in the drilling of any well, or make or enter into any other commitments
reasonably anticipated to require future capital expenditures by Buyer in excess
of $50,000 net to Seller’s interest for each proposed operation, or terminate,
materially amend, or extend any Contracts affecting the Assets, or enter into
or
commit to enter into any new material contract or agreement relating to the
Assets, or settle, compromise or waive any material right relating to the
Assets, (iv) maintain insurance coverage on the Assets in the amounts and
of the types presently in force, (v) maintain in full force and effect the
Leases, the Surface Agreements and other Assets, and pay all costs and expenses
and perform all material obligations of the owner of the Assets promptly when
due, (vi) maintain all Permits, (vii) not transfer, sell, hypothecate,
encumber, or otherwise dispose of any Assets except for sales and dispositions
of Hydrocarbons made in the ordinary course of business consistent with Seller’s
past practices, (viii) not grant or create any preferential right to
purchase, right of first opportunity or other transfer restriction or
requirement with respect to the Assets except in connection with the renewal
or
extension of Assets after the Effective Time if granting or creating such right
or requirement is a condition of such renewal or extension and then with prompt
written notice of such action to Buyer, (ix) not elect to become a
nonconsenting party in any operation proposed by any other Person with respect
to the Assets unless requested to do so in writing by Buyer, (x) maintain
the Equipment in at least as good a condition as it is on the date hereof,
ordinary wear and tear excepted, (xi) not make any change in any method of
accounting or accounting practice or policy with respect to the Assets, and
(xii) not agree to extend any statute of limitations with respect to Taxes
or any extension of time with respect to a Tax assessment or deficiency for
any
Taxes, or make any change in any Tax elections with respect to the
Assets.
(b) Buyer
acknowledges that Seller owns undivided interests in some or all of the Assets,
and Buyer agrees that the acts or omissions of the other working interests
owners shall not constitute a violation of the provisions of this Article
7, nor shall any action required by a vote of working interest owners
constitute such a violation so long as Seller has voted its interests in a
manner that complies with the provisions of this Article 7. Seller will,
without penalty for the failure to do so except to the extent that the failure
to give Buyer such notice has a Material Adverse Effect, notify Buyer of the
occurrence of such event to the extent of Seller’s knowledge.
(c) Promptly
upon its discovery or identification of same, but in any event prior to Closing,
Seller shall provide Buyer written notice of any matter Seller identifies that
has a material adverse effect on or that constitutes a Breach of Seller’s
representations or warranties under this Agreement.
Section
7.02 Buyer’s
Qualification. At Closing, Buyer shall be qualified and shall
meet all requirements, including bonding requirements, to be designated operator
of that portion of the Assets for which Seller serves as operator.
Section
7.03 Operation
of the Assets after the Closing.
(a) Seller
shall not be obligated to continue operating any of the Assets following the
Closing, and, subject to Seller’s retention of the Retained Liabilities, Buyer
hereby assumes full responsibility for operating (or causing the operation
of)
all Assets following the Closing for which Seller is the operator prior to
the
Closing Date. Seller shall make its employees and contractors available to
Buyer
prior to the Closing as may be reasonably necessary to assist in the transition
if Buyer becomes the operator. Seller does not warrant or guarantee that Buyer
will become the operator of the Assets or any portion thereof, as such matter
will be controlled by the applicable joint operating agreement(s) and other
applicable agreement(s). Without implying any obligation on Seller’s part to
continue operating any Assets after the Closing, if Seller elects, at its sole
option, to continue to operate any Assets following the Closing at the request
of Buyer, or by any third party working interest owner due to constraints of
applicable joint operating agreement(s) and other applicable agreement(s),
failure of a successor operator to take over operations, or for other reasonable
cause, such continued operation by Seller shall be for the account of Buyer,
and
at the sole risk, cost and expense of Buyer. Buyer agrees to release and defend,
indemnify and hold Seller and its Representatives harmless from Claims,
including any Claims of Buyer or its affiliates or successors and assigns
relating in any manner directly or indirectly to the operation of the Assets
after Closing (INCLUDING
THOSE CLAIMS RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT
OF SELLER OR ANY OF SELLER’S
REPRESENTATIVES).
(b) In
consideration of any conduct of operations of the Assets by Seller on behalf
of
Buyer after Closing, Buyer shall pay Seller a fee equal to Two Hundred Dollars
($200.00) per month per Well, including all other wells, such as, by way of
example and not limitation, salt water disposal wells, wells that are
temporarily abandoned and wells that are otherwise inactive, as reimbursement
for all general and administrative overhead (“Overhead Fee”) incurred by
Seller in connection with the conduct of operations of the Assets. In the event
Seller transfers operations to Buyer or its designee between the first and
last
day of a calendar month, Seller shall be paid such amount of the Overhead Fee
prorated over the number of days in which Seller conducted operations for such
month. The amount of the Overhead Fee owing to Seller by Buyer shall be paid
upon the Final Settlement Date.
Section
7.04 Post
Closing Accounting by Seller. In the event Seller agrees to
operate the Assets after Closing, Seller shall perform the following accounting
tasks subject to the limitations provide for herein:
(a) Seller
will continue to pay royalties and severance, production and similar Taxes
for
sales through the production month following the month in which Closing occurs
(“Post-ClosingProduction Month”). If any revenue is received by
Seller for later months, it will be credited to Buyer in the Final Settlement
Statement; provided however, Seller shall not be obligated to and will not
pay
any royalties and severance, production and similar Taxes, if applicable, with
respect to Hydrocarbons produced after the Post-Closing Production
Month.
(b) Seller
will continue to pay or bill joint interest owners for expenses through the
Post-Closing Production Month. All later expenses will be either accumulated
or
charged to Buyer in the Final Settlement Statement, or the invoices will be
returned to the vendor for rebilling to Buyer. Seller will continue
to pay to the operator of any Assets not operated by Seller for joint billings
for the billing month after the month in which Closing occurs. All
subsequent bills will either be returned to the applicable operator for
rebilling to Buyer or forwarded to Buyer for payment, or if already paid by
Seller, will be charged against Buyer in the Final Settlement
Statement. Seller will continue to prepare all regulatory and other
monthly production reports through the Post-Closing Production Month. Copies
of
such reports attributable to the period after the Effective Time will be
provided to Buyer, along with the final ending inventory balance.
(c) Seller
will continue to pay all shut-in royalties, minimum royalties, delay rentals
and
other lease payment obligations through the Post-Closing Production
Month.
(d) Seller
shall market and nominate all Hydrocarbons in the same manner as Seller has
been
marketing and nominating Hydrocarbons.
Section
7.05 Limitations
on Liability of Operator. Notwithstanding anything herein to the
contrary, in the event Seller or an affiliate of Seller should assume any
accounting functions on behalf of Buyer from and after Closing, notwithstanding
anything to the contrary provided herein, Seller shall have no liability to
Buyer for, and Buyer hereby agrees to release and defend, indemnify and hold
harmless Seller and Seller’s Representatives harmless from, the incorrect
payment of expenses, Taxes, billings, delay rentals, royalties, minimum
royalties, payments required by any of the Leases, shut-in royalties or similar
payments, or for any failure to pay any such payments through mistake or
oversight (INCLUDING
THOSE RESULTING FROM THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY OR OTHER LEGAL FAULT OF
SELLER OR ANY OF SELLER’S
REPRESENTATIVES) from and after the
Effective Time, except to the extent of any amounts included in the upward
Purchase Price Allocations and Adjustment made pursuant to Section
10.02. In no event shall Buyer’s remedy for Breach of obligations
by Seller (or any of its Representatives) under this Article 7 exceed the
Allocated Value of the Subject Interest affected by such Breach.
Section
7.06 Public
Announcements. Prior to the Closing, neither Party
shall make any press release or other public announcement regarding the
existence of this Agreement, the contents hereof or the transactions
contemplated hereby other than the Press Releases set forth on Exhibit
F-1 and F-2; provided, however, the foregoing shall not restrict
disclosures by Buyer or Seller which are required by applicable securities
or
other Laws or the applicable rules of any stock exchange having jurisdiction
over the disclosing party or its Affiliates. Following Closing, the
Parties shall issue a Press Release in form and substance to be agreed upon
by
the Parties prior to the Closing.
Section
7.07 Disclosure
Information. Seller agrees (i) to provide Buyer with Disclosure
Information (as defined below) necessary for Buyer to comply with the disclosure
requirements of the Securities Exchange Act of 1934, as amended, and Regulation
S-X under the Securities Act of 1933, as amended, no later than thirty (30)
days
following the Closing Date and (ii) reasonably to cooperate with and assist
Buyer in an audit of the Assets. As used herein, “Disclosure
Information” means, as to the Assets, the net revenues, direct operating
expenses (including production, property and similar Taxes), exploratory and
development costs, production volumes, information necessary for the preparation
of the disclosures required under Statement of Financial Accounting Standards
No. 69, and balance sheet and other income statement data associated directly
with the Assets that Buyer reasonably believes are required to be included
in
any report filed by Buyer or any of its Affiliates with the Securities and
Exchange Commission (“SEC”). If Seller shall fail to furnish
Buyer with a set of the Disclosure Information within the 30 day period set
forth in this Section 7.07 which Seller reasonably believes in its good
faith judgment allows Buyer to substantially comply with the rules and
regulations of the SEC and such compliance reasonably requires Buyer’s reliance
on the Disclosure Information, Seller shall pay to Buyer the sum of
One Hundred Thousand Dollars ($100,000) as liquidated damages for this failure
to provide the Disclosure Information to Buyer as required by this Section
7.07. If Seller shall fail to furnish Buyer with a set of the
Disclosure Information which Seller reasonably believes in its good faith
judgment allows Buyer to substantially comply with the rules and regulations
of
the SEC and such compliance reasonably requires Buyer’s reliance on the
Disclosure Information, for an additional period of 30 days beyond the
previously stated 30-day period, Seller shall pay to Buyer the additional sum
of
Five Hundred Thousand Dollars ($500,000) as liquidated damages for such
Breach. The Parties agree that the damages attributable to any Breach
as described in this Section 7.07 would be difficult, if not impossible
to ascertain, and that the amounts set forth herein are reasonable under the
circumstances and do not constitute a penalty.
The
fact
that the SEC subjects any filing by Buyer to review or supplementation shall
not
create any presumption of a Breach by Seller of its obligations as contained
in
this Section 7.07. Seller shall have no liability to Buyer
whatsoever with regard to either (i) any registration rights agreement or
obligation involving Buyer, or (ii) the pricing, salability, market
response, or any other matter relating to the issuance or sale of any security
by or on behalf of Buyer.
ARTICLE
8
CONDITIONS
TO OBLIGATIONS OF SELLER
The
obligations of Seller to consummate the transactions provided for herein are
subject, at the option of Seller, to the fulfillment on or prior to the Closing
Date of each of the following conditions:
Section
8.01 Representations. The
representations and warranties of Buyer herein contained shall be true and
correct in all material respects on the Closing Date as though made on and
as of
such date;
Section
8.02 Performance. Buyer
shall have performed all material obligations, covenants and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing and shall have taken the actions set forth in Section
10.08; and
Section
8.03 Pending
Matters. No suit, action or other proceeding shall be pending or
threatened that seeks to, or could reasonably result in a judicial order,
judgment or decree that would, restrain, enjoin or otherwise prohibit the
consummation of the transactions contemplated by this Agreement.
ARTICLE
9
CONDITIONS
TO OBLIGATIONS OF BUYER
The
obligations of Buyer to consummate the transaction provided for herein are
subject, at the option of Buyer, to the fulfillment on or prior to the Closing
Date of each of the following conditions:
Section
9.01 Representations. (a)
The representations and warranties of Seller contained in Section 5.02
through Section 5.06, inclusive, shall be true and correct in all
material respects on the Closing Date as though made on and as of such date,
and
(b) no action or omission of Seller or event shall have occurred during the
period of time commencing upon the expiration of the Title Claim Date
and ending on the Closing Date which shall have caused any of the
representations and warranties of Seller contained in Section 5.07
through Section 5.23, inclusive, not to be true and correct in all
material respects on the Closing Date as though made on and as of such
date;
Section
9.02 Performance. Seller
shall have performed all material obligations, covenants and agreements
contained in this Agreement to be performed or complied with by it at or prior
to the Closing and shall have taken the actions set forth in Section
10.07;
Section
9.03 Pending
Matters. No suit, action or other proceeding shall be pending or
threatened that seeks to, or could reasonably result in a judicial order,
judgment or decree that would, restrain, enjoin, or otherwise
prohibit the consummation of the transactions contemplated by this Agreement;
and
Section
9.04 Wachovia
Liens. Seller shall have delivered to Buyer releases of all
Wachovia Liens and any other liens, charges or encumbrances on the Assets other
than Permitted Encumbrances in form suitable for recording or filing (as
applicable) and such releases shall be reasonably satisfactory to
Buyer.
ARTICLE
10
THE
CLOSING
Section
10.01 Time
and Place of the Closing. If the conditions referred to in
Article 8 and Article 9 have been satisfied or waived in writing,
the transactions contemplated by this Agreement (the “Closing”) shall
take place at the offices of Seller at 9:00 a.m. MST on January 31, 2008 (the
“Closing Date”).
Section
10.02 Allocation
of Costs and Expenses and Adjustments to Purchase Price at the
Closing.
(a) At
the Closing, the Purchase Price shall be increased by the following
amounts:
(i) the
amount of all (A) paid ad valorem, property or similar Taxes and assessments
based upon or measured by the ownership of the Assets, insofar as such Taxes
relate to periods of time from and after the Effective Time, and (B) paid
charges, and costs and expenses of any kind or nature that are attributable
to
the Assets and the period from and after Effective Time;
(ii) all
expenses, including operating and capital expenditures, incurred and paid by
or
on behalf of Seller in connection with ownership, operation and use of the
Assets attributable to the period from and after the Effective Time, and
including the costs incurred in connection with the AFEs described on
Schedule 5.08 which costs shall be the responsibility of Buyer
notwithstanding that they may have accrued prior to the Effective
Time;
(iii) all
royalties, rentals, insurance premiums (including property and business
interruption coverage) and other charges attributable to the Assets for the
period of, from and after the Effective Time to the extent paid by or on behalf
of Seller;
(iv) expenses
incurred under applicable operating agreements including any overhead charges
allowable under the applicable operating procedure (COPAS) where Seller is
non-operator attributable to the Assets for the period of from and after the
Effective Time to the extent paid by or on behalf of Seller (the costs and
expenses for which Seller shall receive an upward adjustment to the Purchase
Price pursuant to clauses (i) through (iv) inclusive, shall be referred to
as
the “Interim Operating Expenses”);
(v) all
upward Purchase Price adjustments for Title Benefits determined in accordance
with Article 4;
(vi) the
value of all oil, gas and natural gas liquids in storage or in the pipelines
as
of the Effective Time that is credited to the Assets, such value (A) for
purposes of the Statement, to be the actual price received for such oil, gas
or
natural gas liquids upon the first unaffiliated third party sale thereof, if
available, and upon such estimates as are reasonably agreed upon by the Parties,
to the extent actual amounts are not known at Closing, and (B) for purposes
of the Final Settlement Statement, to be based upon actual amounts;
and
(vii) any
other amount provided for in this Agreement or agreed upon in writing by Buyer
and Seller.
(b) At
the Closing, the Purchase Price shall be decreased by the following
amounts:
(i) the
Deposit;
(ii) an
amount equal to the sales price paid to Seller by the first purchaser of the
Hydrocarbons produced, saved and sold from the Subject Interests from the
Effective Time to the Closing Date (without deductions of any kind or nature,
including, but not limited to, royalties and any Taxes based on production),
which shall (A) for purposes of the Statement, be based upon actual
amounts, if available, and upon such estimates as are reasonably agreed upon
by
the Parties, to the extent actual amounts are not known at Closing, and
(B) for purposes of the Final Settlement Statement, be based upon actual
amounts;
(iii) an
amount equal to all cash in, or attributable to, suspense accounts held by
Seller relating to the Assets for which Buyer has assumed responsibility under
Section 12.01;
(iv) the
Allocated Value of any Asset sold prior to the Closing to the holder of a
preferential right pursuant to Section 4.06;
(v) the
Allocated Value of any Asset excluded from the purchase and sale contemplated
herein pursuant to the provisions of Article 4;
(vi) all
downward Purchase Price Adjustments for Title Defects and Environmental Defects
determined in accordance with Article 4; and
(vii) any
other amount provided for in this Agreement or agreed upon in writing by Buyer
and Seller.
(c) The
allocations of costs and expenses and/or adjustments described in Section
10.02(a) and Section 10.02(b) are referred to herein as the
“Purchase Price Allocations and Adjustments.”
Section
10.03 Closing
Adjustments and Allocations Statement. Not later than three (3)
business days prior to the Closing Date, Seller shall prepare and deliver to
Buyer a statement of the estimated Purchase Price Allocations and Adjustments
with appropriate support (the “Statement”), which Statement shall be
based upon the then most currently available data and information in order
to
make the adjustments as provided in Section 10.02.
Section
10.04 Post-Closing
Allocations and Adjustments to Purchase Price.
(a) On
or before 120 days after the Closing Date, Seller shall prepare and deliver
to
Buyer a revised Statement (“Final Settlement Statement”) setting forth
the actual Purchase Price Allocations and Adjustments. Each Party shall provide
the other such data and information as may be reasonably requested to permit
Seller to prepare the Final Settlement Statement or to permit Buyer to perform
or cause to be performed an audit of the Final Settlement Statement. The Final
Settlement Statement shall become final and binding upon the parties on the
thirtieth (30th) day following receipt thereof by Buyer (the “Final
Settlement Date”) unless Buyer gives written notice of its disagreement (a
“Notice of Disagreement”) to Seller prior to
such date. Any Notice of Disagreement shall specify in reasonable detail the
dollar amount and the nature and basis of any disagreement so asserted. If
a
Notice of Disagreement is received by Seller in a timely manner, then the
Parties shall resolve the dispute evidenced by the Notice of Disagreement by
mutual agreement, or otherwise in accordance with Section
4.13.
(b) If
the amount of the adjusted Purchase Price as set forth on the Final Settlement
Statement exceeds the amount of the estimated Purchase Price paid at the
Closing, then Buyer shall pay in immediately available funds to Seller the
amount by which the Purchase Price as set forth on the Final Settlement
Statement exceeds the amount of the estimated Purchase Price paid at the Closing
within five (5) business days after the Final Settlement Date. If the
amount of the adjusted Purchase Price as set forth on the Final Settlement
Statement is less than the amount of the estimated Purchase Price paid at the
Closing, then Seller shall pay in immediately available funds to Buyer the
amount by which the Purchase Price as set forth on the Final Settlement
Statement is less than the amount of the estimated Purchase Price paid at the
Closing within five (5) business days after the Final Settlement
Date.
(c) Pursuant
to Section 10.02(b), the Purchase Price is to be reduced by the value of
Hydrocarbons produced during the period from the Effective Time to the Closing
Date. If Buyer shall receive any revenues attributable to such Hydrocarbons
for
any reason for which Buyer has received a reduction in the Purchase Price
pursuant to this Section 10.04(c), Buyer shall promptly remit same in
immediately available funds to Seller. Likewise, if Seller shall for any reason
receive any of the proceeds of sale of Hydrocarbons produced and saved from
the
Subject Interests and attributable to the period from and after the Closing
Date
or any other revenues attributable to the ownership or operation of the Assets
from and after the Effective Time, Seller shall promptly remit same in
immediately available funds to Buyer.
(d) Except
as otherwise provided in this Agreement, any costs and expenses, including
Taxes
(other than income taxes) relating to the Assets which are not reflected in
the
Final Settlement Statement shall be treated as follows:
(i) All
costs and expenses relating to the Assets for the period of time prior to the
Effective Time shall be the sole obligation of Seller and Seller shall promptly
pay, or if paid by Buyer, promptly reimburse Buyer in immediately available
funds for and indemnify, defend, and hold Buyer harmless from and against the
same; and
(ii) All
costs and expenses relating to the Assets for which Buyer is responsible (being
those incurred on or after the Effective Time) shall be the sole obligation
of
Buyer and Buyer shall promptly pay, or if paid by Seller, promptly reimburse
Seller in immediately available funds for and indemnify, defend and hold Seller
harmless from and against the same.
(e) Purchase
Price adjustments, if any, with respect to Title Defects or Environmental
Defects the cure or correction of which or a dispute with respect to the same
remains pending on the Final Settlement Date shall be made on a date mutually
agreed by the Parties, both acting reasonably.
Section
10.05 Transfer
Taxes. All sales, use, documentary, recording, stamp, transfer
and other taxes (other than taxes on gross income, net income or gross receipts)
and duties, levies, assessments, fees or other governmental charges incurred
by
or imposed with respect to the property transfers undertaken pursuant to this
Agreement shall be the responsibility of, and shall be paid by,
Buyer. The Parties will reasonably cooperate to eliminate or reduce
the assessment of sales or use taxes to the extent permitted by applicable
Law. If Seller (not Buyer) is required by applicable Law to appeal or
protest the assessment of sales or use taxes, Seller shall protest the
assessment of those taxes if Buyer requests Seller in writing to make such
appeal or protest, and, in such event, Buyer will reimburse Seller all
out-of-pocket expenses authorized by Buyer and incurred by Seller in connection
with such appeal or protest.
Section
10.06 Ad
Valorem and Similar Taxes. All ad valorem, property, production,
severance and similar Taxes attributable to any period prior to the Effective
Time will be paid by the Seller. All ad valorem, property,
production, severance and similar Taxes attributable to any period on or after
the Effective Time shall be paid by Buyer. Notwithstanding anything to the
contrary set forth in this Agreement, for all purposes of this Agreement, Taxes
based on or measured by production of Hydrocarbons or the value thereof shall
be
deemed attributable to the period during which such production occurred
regardless of the year when such Taxes are assessed. Seller shall
provide written evidence to Buyer that it has paid all Taxes for periods prior
to the Effective Time that are payable after the Effective Time including ad
valorem Taxes in the state of Colorado and production Taxes in the state of
Wyoming payable in 2009 provided such Taxes are based on production occurring
prior to the Effective Time.
Section
10.07 Actions
of Seller at the Closing. At the Closing, Seller
shall:
(a) execute,
acknowledge and deliver to Buyer the Assignment in the form of Exhibit E,
effective as of the Effective Time, and such other conveyances, assignments,
transfers, bills of sale and other instruments (in form and substance mutually
agreed upon by Buyer and Seller) as may be necessary or desirable to convey
the
Assets to Buyer;
(b) execute,
acknowledge and deliver to Buyer such letters in lieu of transfer or division
orders as may be reasonably requested by Buyer no less than five (5) business
days prior to the Closing Date directing all purchasers of production from
the
Subject Interests to make payment of proceeds attributable to such production
to
Buyer from and after the later of the Closing Date or the date operations and
accounting functions are transferred to Buyer;
(c) deliver
to Buyer possession of the Assets (excluding the Records);
(d) execute
and deliver to Buyer an affidavit attesting to its non-foreign
status;
(e) execute
and deliver the Seismic License in form and substance reasonably satisfactory
to
Buyer;
(f) execute,
acknowledge and deliver any other agreements provided for herein or necessary
or
desirable to effectuate the transactions contemplated hereby; and
(g) execute
and deliver any documents or instruments required by any Governmental Authority
in order to transfer the operatorship of the Assets being operated by Seller
to
Buyer.
Section
10.08 Actions
of Buyer at the Closing. At the Closing, Buyer
shall:
(a) pay
the Purchase Price (as adjusted pursuant to the provisions hereof) in
immediately available funds pursuant to wire transfer instructions to be
provided by Seller to Buyer;
(b) take
possession of the Assets; and
(c) execute,
acknowledge and deliver the Assignment and any other agreements provided for
herein or necessary or desirable to effectuate the transactions contemplated
hereby.
Section
10.09 Recordation;
Further Assurances.
(a) Promptly
following the Closing, Buyer shall cause the documents identified in Section
9.04 and Section 10.07(a) to be recorded or filed in the appropriate
real property and other applicable records, in the order reasonably agreed
upon
by the Parties, and Buyer shall promptly provide Seller copies of all such
recorded or filed instruments.
(b) Subject
to such additional period of time that Seller reasonably requires to use the
Records in the conduct of operations after Closing, Seller shall make the
Records available to be picked up by Buyer at the offices of Seller during
normal business hours within thirty (30) days after the Closing, to the extent
the Records are in the possession of Seller and are not subject to contractual
restrictions on transferability. Seller shall have the right at its sole expense
to make and retain copies of any of the Records.
(c) After
the Closing Date, each Party, at the request of the other Party and without
additional consideration, shall execute and deliver, or shall cause to be
executed and delivered, from time to time such further instruments of conveyance
and transfer and shall take such other action as the other Party may reasonably
request to convey and deliver the Assets to Buyer and to accomplish the orderly
transfer of the Assets to Buyer in the manner contemplated by this Agreement.
After the Closing, the Parties will cooperate to have all proceeds received
attributable to the Assets to be paid to the proper Party hereunder and to
have
all expenditures to be made with respect to the Assets be made by the proper
Party hereunder.
ARTICLE
11
TERMINATION
Section
11.01 Right
of Termination. This Agreement may be terminated at any time at
or prior to the Closing:
(a) by
mutual written consent of the Parties;
(b) by
Seller on the Closing Date if the conditions set forth in Article 8 have
not been satisfied in all material respects by Buyer or waived by Seller in
writing by the Closing Date;
(c) by
Buyer on the Closing Date if the conditions set forth in Article 9 have
not been satisfied in all material respects by Seller or waived by Buyer in
writing by the Closing Date;
(d) by
either Buyer or St. Mary if the Closing shall not have occurred by February
15, 2008;
(e) by
either Buyer or St. Mary if any Governmental Authority shall have issued a
final
and non-appealable order, judgment or decree or taken any other final and
non-appealable action challenging, restraining, enjoining, prohibiting or
invalidating the consummation of any of the transactions contemplated
herein;
(f) by
either Buyer or St. Mary if (i) the aggregate amount of the Title Defect Values
with respect to all Title Defects asserted by Buyer reasonably and in good
faith
(net of the aggregate amount of the Purchase Price Adjustments for all Title
Benefits) plus (ii) the aggregate amount of the Environmental Defect
Values with respect to all Environmental Defects asserted by Buyer reasonably
and in good faith plus (iii) the aggregate amount of all Casualty
Losses exceeds twenty percent (20%) of the unadjusted Purchase
Price;
(g) by
either Buyer or St. Mary if between execution of this Agreement and Closing,
an
event should occur having a Material Adverse Effect on the ownership, operation
or value of the Assets; or
(h) as
otherwise provided herein.
provided,
however, that no Party shall have the right to terminate this Agreement pursuant
to clause (b), (c), or (d) above if such Party is at such
time in Breach of any provision of this Agreement, or such Party instigates
a
proceeding of the nature described in Section 8.03 or Section
9.03.
Section
11.02 Effect
of Termination. In the event that the Closing does not occur as a
result of any Party exercising its right to terminate pursuant to Section
11.01, then except as set forth in Section 2.02, this Agreement shall
be null and void and no Party shall have any further rights or obligations
under
this Agreement; provided, that, nothing herein shall relieve any Party from
any
liability for any Breach hereof or any liability that has accrued prior to
the
date of such termination, which liability, and the applicable terms and
provisions of this Agreement, shall survive such termination.
Section
11.03 Attorneys’
Fees, Etc. If either Party to this Agreement resorts to legal
proceedings to enforce this Agreement, the prevailing Party in such proceedings
shall be entitled to recover all costs incurred by such Party, including
reasonable attorneys’ fees, in addition to any other relief to which such Party
may be entitled.
ARTICLE
12
ASSUMPTION
AND INDEMNIFICATION
Section
12.01 Buyer’s
Obligations after Closing. Upon and after Closing, except to the
extent reflected in an upward Purchase Price Allocations and Adjustments, Buyer
will assume and perform all the obligations, liabilities and duties relating
or
with respect to the ownership and/or operation of the Assets that are
attributable to periods on or after the Effective Time, together with the
Plugging and Abandonment Obligations, the Environmental Obligations, and all
other obligations assumed by Buyer under this Agreement (collectively, the
“Assumed Obligations”). Without limiting the generality of the foregoing,
the Assumed Obligations shall also specifically include:
(a) Responsibility
for the performance of all express and implied obligations under the instruments
described in Exhibit A, together with all other instruments in the
chain of title to such Assets, the Leases, the Contracts, the Surface
Agreements, the Permits and all other orders, contracts and agreements to which
the Assets are subject, including the payment of royalties and overriding
royalties, in each case to the extent attributable to the periods on or after
the Effective Time;
(b) Responsibility
for payment of all amounts held in suspense accounts by Seller as of the Closing
Date, and for which the Purchase Price is adjusted pursuant to Section
10.02(b), without regard to whether such suspense amounts relate to periods
before or after the Effective Time. Seller covenants and agrees to provide
to
Buyer with the Records, the owner name, number and tax identification number
(if
known by Seller), the reason such amounts are in suspense, the amount of
suspense funds for each such owner making up the total of such funds, and all
other information with respect thereto required to be provided to the owner
or
to the state under the laws, rules and regulations of the affected jurisdiction.
To the extent practicable, Seller shall provide such information in the
electronic or computer sensible form maintained by Seller. Seller shall remain
responsible for the payment of any statutory interest and penalties which may
have accrued prior to the Effective Time with respect to such suspense amounts,
whether payable to the interest owner or to any state agency in connection
with
unclaimed property laws, to the extent such interest and penalties are not
included in the amount deducted from the Purchase Price pursuant to Section
10.02(b);
(c) Responsibility
for compliance with all Laws now or hereafter in effect pertaining to the
Assets, and the procurement and maintenance of all permits, consents and
authorizations of or required by Governmental Authorities in connection with
the
Assets, attributable to periods on or after the Effective Time; and
(d) Responsibility
for all obligations with respect to Production Imbalances attributable to the
Assets, whether attributable to periods before or after the Effective
Time.
Section
12.02 Seller’s
Obligations after Closing. After Closing, each Party comprising
Seller will severally, and not jointly, retain responsibility for (a) the
payment of all operating expenses and capital expenditures related to the Assets
and attributable to Seller’s ownership and/or operation of the Assets prior to
the Effective Time, but not including the AFEs set forth in Schedule
5.08, (b) severance, ad valorem, production, property, personal property and
similar Taxes measured by the value of the Assets or measured by the production
of Hydrocarbons attributable to all periods from and after the effective date
of
Seller’s ownership of the Assets and prior to the Effective Time, (c) the
payment of all broker’s and finder’s fees in connection with the transactions
contemplated by this Agreement, (d) the obligations, liabilities and duties
of
Seller relating or with respect to the ownership and/or operation of the Assets
that are attributable to periods prior to the Effective Time other than the
Plugging and Abandonment Obligations and the Environmental Obligations, and
(e)
Seller’s proportionate share of any third party Claims with respect to payments
of lease royalties in respect of the Leases during Seller’s period of ownership
of such Leases (collectively the “Retained Obligations”).
Section
12.03 Plugging
and Abandonment Obligations.
(a) Buyer’s
Obligations. Provided Closing occurs and to the extent not
otherwise addressed by the express provisions of this Agreement, Buyer assumes
full responsibility and liability for the following plugging and abandonment
obligations related to the Assets (the “Plugging and Abandonment
Obligations”), regardless of whether they are attributable to the ownership
or operation of the Assets before or after the Effective Time:
(i) The
necessary and proper plugging, replugging and abandonment of all wells on the
Assets, whether plugged and abandoned before or after the Effective Time in
compliance with applicable Laws and the terms of the Leases;
(ii) The
necessary and proper decommissioning, removal, abandonment, and disposal of
all
structures, pipelines, facilities, equipment, abandoned Assets, junk and other
personal property located on or comprising any part of the Assets in compliance
with applicable Laws and the terms of the Leases;
(iii) The
necessary and proper capping and burying of all associated flow lines located
on
or comprising any part of the Assets, to the extent required by applicable
Laws,
the Leases, the Contracts, or other agreements;
(iv) The
necessary and proper restoration of the Assets, both surface and subsurface,
in
compliance with any applicable Laws, the Leases, the Surface Agreements, the
Contracts, or any other applicable agreements;
(v) To
the extent not addressed by operation of Article 4, any necessary
clean-up or disposal of any part of the Assets contaminated by NORM, asbestos
containing materials, lead based paint or any other substances or materials
considered to be hazardous under Laws, including Environmental Laws, and Laws
relating to the protection of natural resources;
(vi) All
obligations arising from contractual requirements and demands made by
Governmental Authorities or parties claiming a vested interest in any part
of
the Assets; and
(vii) Obtaining
and maintaining all bonds and securities, including supplemental or additional
bonds or other securities, that may be required by contract or by Governmental
Authorities.
(b) Standard
of Operations. Buyer shall conduct all Plugging and Abandonment Obligations
and all other operations with respect to the Assets in a good and workmanlike
manner and in compliance with all Laws, including Environmental Laws and Laws
(now or hereafter in effect) relating to the protection of natural
resources.
Section
12.04 Environmental
Obligations. Provided Closing occurs and to the extent not
otherwise addressed by the express provisions of this Agreement, Buyer assumes
full responsibility and liability for the following occurrences, events,
conditions and activities on, or related to, or attributable to Seller’s
ownership or operation of the Assets (the “Environmental Obligations”)
regardless of whether arising from Seller’s ownership or operation of, or
relating to, the Assets before or after the Effective Time, and
regardless of whether resulting from any acts or omissions of Seller or its
Representatives(INCLUDING THOSE ARISING FROM THE SOLE, JOINT OR
CONCURRENT NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT
LIABILITY OR OTHER LEGAL FAULT OF SELLER OR ANY OF SELLER’S REPRESENTATIVES)
or the condition, including the environmental condition of the Assets
when acquired:
(a) Environmental
pollution or contamination, including pollution or contamination of the soil,
groundwater or air by Hydrocarbons, drilling fluid and other chemicals, brine,
produced water, NORM, asbestos containing materials, lead based paint, mercury
or any other substance, and any other violation of Environmental Laws or Laws
now or hereafter in effect relating to the protection of natural
resources;
(b) Underground
injection activities and waste disposal;
(c) Clean-up
responses, and the cost of remediation, control, assessment or compliance with
respect to surface and subsurface pollution caused by spills, pits, ponds,
lagoons or storage tanks;
(d) Failure
to comply with applicable land use, surface disturbance, licensing or
notification requirements;
(e) Disposal
on the Assets of any hazardous substances, wastes, materials and products
generated by or used in connection with the ownership, development, operation
or
abandonment of any part of the Assets; and
(f) Non-compliance
with Environmental Laws (now or hereafter in effect).
Section
12.05 Definition
of Claims. Except as expressly provided in Section
4.09(a)(ix) and Section 7.03(a) that specifically operate to include
Buyer, the term “Claims” means any and all direct or indirect, demands,
claims, notices of violation, notices of probable violation, filings,
investigations, administrative proceedings, actions, causes of action, suits,
other legal proceedings, judgments, assessments, damages, deficiencies, Taxes,
penalties, fines, obligations, responsibilities, liabilities, payments, charges,
losses, costs, and expenses (including costs and expenses of operating the
Assets) of any kind or character asserted by a third party (whether or not
asserted prior to Closing, and whether known or unknown, fixed or unfixed,
conditional or unconditional, based on negligence, strict liability or
otherwise, choate or inchoate, liquidated or unliquidated, secured or unsecured,
accrued, absolute, contingent, or other legal theory), including penalties
and
interest on any amount payable as a result of any of the foregoing, any legal
or
other costs and expenses incurred in connection with investigating or defending
any Claim, and all amounts paid in settlement of Claims. Without limiting the
generality of the foregoing, the term “Claims” specifically includes any
and all Claims arising from, attributable to or incurred in connection with
any
(a) breach of contract, (b) loss or damage to property, injury to or death
of
persons, and other tortuous injury and (c) violations of applicable Laws,
including Laws relating to the protection of natural resources, Environmental
Laws (each as now or hereafter in effect) and any other legal right or duty
actionable at law or equity.
Section
12.06 Application
of Indemnities.
(a) All
indemnities set forth in this Agreement extend to the officers, directors,
partners, managers, members, shareholders, agents, contractors, employees and
affiliates of the indemnified party (“Representatives”).
(b) UNLESS
THIS AGREEMENT EXPRESSLY PROVIDES TO THE CONTRARY, THE INDEMNITY AND RELEASE,
AND WAIVER AND ASSUMPTION PROVISIONS SET FORTH IN THIS AGREEMENT APPLY,
REGARDLESS OF WHETHER THE INDEMNIFIED PARTY (OR ITS REPRESENTATIVES) CAUSES,
IN
WHOLE OR PART, AN INDEMNIFIED CLAIM, INCLUDING INDEMNIFIED CLAIMS ARISING OUT
OF
OR RESULTING, IN WHOLE OR IN PART, FROM, OUT OF OR IN CONNECTION WITH THE
CONDITION OF THE ASSETS OR THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE (BUT NOT
SECURITIES FRAUD CLAIMS THAT REQUIRE SCIENTER OR KNOWLEDGE AS ONE ELEMENT OF
THE
CAUSE OF ACTION, GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD BY THE
INDEMNIFIED PARTY), STRICT LIABILITY OR OTHER LEGAL FAULT OF THE
INDEMNIFIED PARTY OR ANY OF ITS REPRESENTATIVES.
(c) NEITHER
BUYER NOR SELLER SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY,
RESPECTIVELY, AND EACH PARTY RELEASES THE OTHER PARTY FROM AND WAIVES, ANY
LOSSES, COSTS, EXPENSES, OR DAMAGES ARISING UNDER THIS AGREEMENT OR IN
CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED IN THIS
AGREEMENT ANY AMOUNT IN EXCESS OF THE ACTUAL COMPENSATORY DAMAGES SUFFERED
BY
SUCH PARTY EXCEPT THAT IF THE DISPUTE BETWEEN SELLER AND BUYER IS BASED ON
A
FAILURE OF THE TRANSACTION CONTEMPLATED HEREBY TO CLOSE, THE SOLE AND EXCLUSIVE
REMEDIES SHALL BE THOSE PROVIDED FOR IN SECTION
2.02. BUYER AND SELLER WAIVE, AND RELEASE EACH OTHER FROM
ANY RIGHT TO RECOVER PUNITIVE, SPECIAL, EXEMPLARY AND CONSEQUENTIAL DAMAGES
ARISING IN CONNECTION WITH OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
IN
THIS AGREEMENT; PROVIDED, HOWEVER, ANY SUCH DAMAGES RECOVERED BY A THIRD PARTY
(OTHER THAN SUBSIDIARIES, AFFILIATES OR PARENTS OF A PARTY) FOR WHICH A PARTY
OWES THE OTHER PARTY AN INDEMNITY UNDER THIS AGREEMENT SHALL NOT BE WAIVED.
BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT IS
CONSPICUOUS.
(d) The
indemnities of the indemnifying Party in this Agreement do not cover or include
any amounts that the indemnified party may legally recoup from other third
party
owners under applicable joint operating agreements or other agreements, and
for
which the indemnified party is reimbursed by any third party. The indemnifying
Party will pay all costs incurred by the indemnified party in obtaining
reimbursement from third parties. There will be no upward or downward adjustment
in the Purchase Price as a result of any matter for which Buyer or Seller is
indemnified under this Agreement.
Section
12.07 Buyer’s
Indemnity. Buyer shall release and indemnify, defend and hold
Seller and its Representatives harmless from and against any and all Claims
caused by, resulting from or incidental to the Assumed Obligations, and any
Claims caused by, resulting from or attributable to (a) any inaccuracy of any
representation or warranty of Buyer set forth in this Agreement, or (b) any
Breach of, or failure to perform or satisfy any of the covenants and obligations
of Buyer hereunder.
Section
12.08 Seller’s
Indemnity. Subject to Section 12.10, Seller shall release
and indemnify, defend and hold Buyer and its Representatives harmless from
and
against any and all Claims caused by, resulting from or incidental to the
Retained Obligations, and any Claims caused by or resulting from or attributable
to (a) the Breach of any representation or warranty of Seller set forth in
Section 5.04 of this Agreement, and (b) any Breach of, or failure to
perform or satisfy, any of the covenants and obligations of Seller
hereunder.
Section
12.09 Notices
and Defense of Indemnified Claims. Each Party shall immediately
notify the other Party of any Claim of which it becomes aware and for which
it
is entitled to indemnification from the other Party under this Agreement. The
indemnifying Party shall be obligated to defend, at the indemnifying Party’s
sole expense, any litigation or other administrative or adversarial proceeding
against the indemnified Party relating to any Claim for which the indemnifying
Party has agreed to release and indemnify and hold the indemnified Party
harmless under this Agreement; provided, however, that the failure to give
such
notice shall not relieve the indemnifying Party from its obligations unless
such
failure to give notice actually prejudices the indemnifying Party and so long
as
the notice is given within the period set forth in Section
12.10. The indemnified Party shall have the right to participate
with the indemnifying Party in the defense of any such Claim at its own
expense.
Section
12.10 Survival. Except
as specifically provided in Section 12.07 and Section 12.08, the
representations, warranties, covenants and agreements of the Parties set forth
herein shall not survive the Closing, and the consummation of the transactions
contemplated hereby, and Buyer and Seller each covenant not to sue the other
based upon any alleged Breach of any such representations or warranties that
do
not survive the Closing. The indemnity of Seller as provided in Section
12.08 shall survive only for a period of twenty-four (24) months after the
Closing. Notwithstanding anything to the contrary, Buyer shall not be entitled
to make, and hereby waives the right to assert, any claim for indemnity pursuant
to the provisions of this Article 12 against Seller unless Buyer seeks
indemnification for such claim by a written notice received by Seller on or
before the date that is twenty-four (24) months after the Closing Date (the
“Expiration Date”). Anything in this Agreement to the contrary
notwithstanding, after the Expiration Date, all of the Retained Liabilities
and
all of Seller’s other liabilities and obligations with respect to the
Assets (and all Claims with respect thereto) shall be deemed and constitute
Assumed Obligations except to the extent of any Claims of which Buyer notifies
Seller on or before the Expiration Date in accordance with this
Agreement.
Section
12.11 Exclusive
Remedy. The terms and provisions of this Article 12 and
those provided in Article 2, Article 4, Article 7,
Article 8, Article 9, Article 10, and Article 11
shall be the sole and exclusive remedy of each of the Parties indemnified
hereunder with respect to the representations, warranties, covenants and
agreements of the Parties set forth in this Agreement and the other documents
executed and delivered hereunder; provided, however, that the terms of this
Section 12.11 shall not be applicable to the extent that a Party has
committed fraud, securities fraud (where one of the elements of the cause of
action is scienter or knowledge), willful misconduct, or gross
negligence.
Section
12.12 Defenses
and Counterclaims. Each Party that is required to assume any
obligation or liability of the other Party pursuant to this Agreement or that
is
required to release and defend, indemnify or hold the other Party harmless
hereunder shall, notwithstanding any other provision hereof to the contrary,
be
entitled to the use and benefit of all defenses (legal and equitable) and
counterclaims of such other Party in defense of third party Claims arising
out
of any such assumption or indemnification.
Section
12.13 Anti-Indemnity
Statute. Buyer and Seller agree that with respect to any
statutory limitations now or hereafter in effect affecting the validity or
enforceability of the indemnities provided for in this Agreement, such
indemnities shall be deemed amended in order to comply with such limitations.
This provision concerning statutory limitations shall not apply to indemnities
for all liabilities of the indemnifying Party which are covered by such Party’s
insurance.
ARTICLE
13
DISCLAIMERS;
CASUALTY LOSS AND CONDEMNATION
Section
13.01 Disclaimers
of Representations and Warranties. The express
representations and warranties of Seller contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express,
implied, at common law or statutory. BUYER ACKNOWLEDGES THAT SELLER HAS NOT
MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY
EXPRESSLY WAIVES, ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON
LAW, BY STATUTE OR OTHERWISE, RELATING TO (a) PRODUCTION RATES, RECOMPLETION
OPPORTUNITIES, DECLINE RATES, INFORMATION IN RESPECT OF PRODUCTION IMBALANCES
OR
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF ANY,
ATTRIBUTABLE TO THE ASSETS, (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OR
SIGNIFICANCE OF ANY INFORMATION, DATA, GEOLOGICAL AND GEOPHYSICAL DATA
(INCLUDING ANY INTERPRETATIONS OR DERIVATIVES BASED THEREON) OR OTHER MATERIALS
(WRITTEN OR ORAL) CONSTITUTING PART OF THE ASSETS, NOW, HERETOFORE OR HEREAFTER
FURNISHED TO BUYER BY OR ON BEHALF OF SELLER, (c) THE CONDITION, INCLUDING,
THE
ENVIRONMENTAL CONDITION OF THE ASSETS AND (d) THE COMPLIANCE OF SELLER’S PAST
PRACTICES WITH THE TERMS AND PROVISIONS OF ANY AGREEMENT IDENTIFIED IN
EXHIBIT A, OR ANY SURFACE
AGREEMENT, PERMIT OR CONTRACT OR APPLICABLE LAWS, INCLUDING ENVIRONMENTAL LAWS
AND LAWS RELATING TO THE PROTECTION OF NATURAL RESOURCES, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN ARTICLE 5.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY
DISCLAIMS AND NEGATES, AND BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES, BUILDINGS, OFFICES, TRAILERS, ROLLING
STOCK, VEHICLES, AND GEOLOGICAL AND GEOPHYSICAL DATA (INCLUDING ANY
INTERPRETATIONS OR DERIVATIVES BASED THEREON) CONSTITUTING A PART OF
THE ASSETS (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY
IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS,
(iv) ANY IMPLIED OR EXPRESS WARRANTY THAT ANY DATA TRANSFERRED PURSUANT HERETO
IS NONINFRINGING, (v) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE STATUTES TO
CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (vi) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN OR UNKNOWN,
(vii) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAWS, AND (viii)
ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, OR LAWS RELATING
TO THE PROTECTION OF THE ENVIRONMENT, HEALTH, SAFETY OR NATURAL RESOURCES OR
RELATING TO THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, INCLUDING ASBESTOS
CONTAINING MATERIAL, LEAD BASED PAINT OR MERCURY AND ANY OTHER HAZARDOUS
SUBSTANCES OR WASTES, IT BEING THE EXPRESS INTENTION OF BUYER AND SELLER THAT
THE ASSETS, INCLUDING ALL PERSONAL PROPERTY, EQUIPMENT, FACILITIES, INVENTORY,
MACHINERY, FIXTURES, BUILDINGS, OFFICES, TRAILERS, VEHICLES AND ROLLING STOCK
INCLUDED IN THE ASSETS, SHALL BE CONVEYED TO BUYER, AND BUYER SHALL ACCEPT
THE
SAME, AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR PRESENT CONDITION AND STATE
OF REPAIR. BUYER REPRESENTS AND WARRANTS TO SELLER THAT BUYER WILL MAKE, OR
CAUSE TO BE MADE SUCH INSPECTIONS WITH RESPECT TO SUCH ASSETS AS BUYER DEEMS
APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAWS (INCLUDING ENVIRONMENTAL LAWS AND LAWS RELATING TO THE PROTECTION OF
NATURAL RESOURCES, HEALTH, SAFETY OR THE ENVIRONMENT) TO BE EFFECTIVE, THE
DISCLAIMERS OF THE WARRANTIES CONTAINED IN THIS SECTION ARE “CONSPICUOUS”
DISCLAIMERS FOR ALL PURPOSES.
Section
13.02 NORM.BUYER
ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT OIL AND GAS PRODUCING FORMATIONS
CAN
CONTAIN NATURALLY OCCURRING RADIOACTIVE MATERIAL
(“NORM”). SCALE FORMATION OR SLUDGE
DEPOSITS CAN CONCENTRATE LOW LEVELS OF NORM ON EQUIPMENT AND OTHER ASSETS.
THE
ASSETS SUBJECT TO THIS AGREEMENT MAY HAVE LEVELS OF NORM ABOVE BACKGROUND
LEVELS, AND A HEALTH HAZARD MAY EXIST IN CONNECTION WITH THE ASSETS BY REASON
THEREOF. THEREFORE, BUYER MAY NEED TO AND SHALL FOLLOW SAFETY PROCEDURES WHEN
HANDLING THE EQUIPMENT AND OTHER ASSETS.
Section
13.03 Casualty
Loss; Condemnation.
(a) Except
as otherwise provided in this Agreement, Buyer shall assume all risk of loss
with respect to, and any change in the condition of, the Assets from and after
the Effective Time, including with respect to the depletion of Hydrocarbons,
the
watering-out of any well, the collapse of casing, sand infiltration of wells,
and the depreciation of personal property.
(b) Prior
to the Closing, there shall not have been a material adverse change in the
Assets taken as a whole caused by an event of casualty (a “Casualty”), including
but not limited to, volcanic eruptions, acts of God, fire, explosion,
earthquake, wind storm, flood, drought, condemnation, the exercise of any right
of eminent domain, confiscation, seizure, but excepting depletion due to normal
production and depreciation or failure of equipment or casing.
(c) If,
prior to the Closing, a Casualty occurs (or Casualties occur) which results
in a
reduction in the value of the Assets in excess of fifteen percent (15%) of
the
Purchase Price (“Casualty Loss”), Buyer or Seller may elect to terminate
this Agreement. If this Agreement is not so terminated, then this
Agreement shall remain in full force and effect notwithstanding any such
Casualty Loss, and, at Buyer’s sole option, (i) Seller shall retain such Asset
subject to such Casualty and such Asset shall be the subject of an adjustment
to
the Purchase Price in the same manner set forth in Section 4.03 hereof,
or (ii) at the Closing, Seller shall pay to Buyer all sums paid to Seller by
reason of such Casualty Loss, provided, however, that the Purchase Price shall
not be adjusted by reason of such payment, and Seller shall assign, transfer
and
set over unto Buyer all of the right, title and interest of Seller in and to
such Asset and any unpaid awards or other payments arising out of such Casualty
Loss.
(d) For
purpose of determining the value of a Casualty Loss, the Parties shall use
the
same methodology as applied in determining the value of a Title Defect as set
forth in Section 4.03(a).
ARTICLE
14
MISCELLANEOUS
Section
14.01 Names. As
soon as reasonably possible after the Closing, but in no event later than 45
days after the Closing, Buyer shall remove the names of Seller and its
affiliates, and all variations thereof, from all of the Assets and make the
requisite filings with, and provide the requisite notices to, the appropriate
Governmental Authorities to place the title or other indicia or responsibility
of ownership, including operation of the Assets, in a name other than the name
of the Seller or any of its affiliates, or any variations thereof.
Section
14.02 Expenses. Each
Party shall be solely responsible for all expenses, including due diligence
expenses, incurred by it in connection with this transaction, and neither Party
shall be entitled to any reimbursement for any such expenses from the other
Party.
Section
14.03 Document
Retention. As used in this Section 14.03, the term
“Documents” shall mean all files, documents, books, records and other
data delivered to Buyer by Seller pursuant to the provisions of this Agreement
(other than those that Seller has retained either the original or a copy of),
including financial and tax accounting records; land, title and division order
files; contracts; engineering and well files; and books and records related
to
the operation of the Assets prior to the Closing Date. Buyer shall retain and
preserve the Documents for a period of no less than seven (7) years following
the Closing Date (or for such longer period as may be required by Laws of any
Governmental Authority), and shall allow Seller or its representatives to
inspect the Documents at reasonable times and upon reasonable notice during
regular business hours during such time period. Seller shall have the right
during such period to make copies of any of the Documents at its
expense.
Section
14.04 Entire
Agreement. This Agreement, the documents to be executed and
delivered hereunder, and the Exhibits, Schedules and Appendices attached hereto
constitute the entire agreement between the Parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties pertaining to the
subject matter hereof; provided, however, that this Agreement does not supersede
that certain Confidentiality Agreement dated October 15, 2007, by and between
the St. Mary and Buyer, which agreement shall not survive the
Closing. No supplement, amendment, alteration, modification or waiver
of this Agreement shall be binding unless executed in writing by each of the
Parties and specifically referencing this Agreement.
Section
14.05 Waiver. No
waiver of any provision of this Agreement shall be deemed or shall constitute
a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly
provided.
Section
14.06 Construction. The
captions in this Agreement are for convenience only and shall not be considered
a part of or affect the construction or interpretation of any provision of
this
Agreement.
Section
14.07 No
Third Party Beneficiaries. Except as provided in Section
12.06(a), nothing in this Agreement shall provide any benefit to any third
party or entitle any third party to any claim, cause of action, remedy or right
of any kind, it being the intent of the Parties that this Agreement shall
otherwise not be construed as a third party beneficiary contract.
Section
14.08 Assignment. Except
as provided in Section 2.04, neither Party may assign or delegate any of
its rights or duties hereunder to any individual or entity other than an
affiliate of such Party without the prior written consent of the other Party
and
any assignment made without such consent shall be void. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Parties and their respective permitted successors, assigns and legal
representatives. Notwithstanding any assignment to an affiliate,
Buyer shall nevertheless remain liable to Seller in accordance with the terms
of
this Agreement.
Section
14.09 Governing
Law; Venue. This Agreement, the other documents delivered
pursuant hereto, and the legal relations between the Parties shall be governed
and construed in accordance with the laws of the State of Colorado. Any
litigation arising out of this Agreement shall be brought before the Federal
courts sitting in the City and County of Denver, Colorado, and the Parties
irrevocably waive any right to choose or request any other
venue.
Section
14.10 Notices. Any
notice, communication, request, instruction or other document required or
permitted hereunder (including notices of Title Defects and Environmental
Defects) shall be given in writing and delivered in person or sent by U.S.
Mail
postage prepaid, return receipt requested, overnight delivery service,
electronically, or facsimile to the addresses of Seller and Buyer set forth
below. Any such notice shall be effective and deemed given only upon
receipt.
|
Seller:
|
ST.
MARY LAND & EXPLORATION COMPANY
1776
Lincoln Street, Suite 770
Denver,
CO 80203
Attention: Jerry
Hertzler
Fax
No.: 303-861-0934
Tel.
No.: 303-863-4348
Email:
jhertzler@stmaryland.com
|
|
With
copy to:
|
ST.
MARY LAND & EXPLORATION COMPANY
1776
Lincoln Street, Suite 770
Denver,
CO 80203
Attention: Milam
Randolph Pharo
Fax
No.: 303-861-0934
Tel.
No.: 303-863-4313
Email:
rpharo@stmaryland.com
|
|
Buyer:
|
ABRAXAS
OPERATING, LLC
500
North Loop 1604 East
Suite
100
San
Antonio, TX 78232
Attention: Barbara
M. Stuckey
Fax
No.: 210-490-8816
Tel.
No.: 210-490-4788
Email: bstuckey@abraxaspetroleum.com
|
|
With
copy to:
|
JACKSON
WALKER L.L.P.
112
East Pecan Street
Suite
2400
San
Antonio, TX 78205
Attention: Steven
R. Jacobs
Fax
No.: 210-978-7790
Tel.
No.: 210-978-7727
Email:
sjacobs@jw.com
|
Either
Party may, by written notice so delivered to the other Party, change its address
for notice purposes hereunder.
Section
14.11 Severability. If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other conditions
and
provisions of this Agreement shall nevertheless remain in full force and effect
and the Parties shall negotiate in good faith to modify this Agreement so as
to
effect their original intent as closely as possible in an acceptable manner
to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
Section
14.12 Interpretation. This
Agreement shall be deemed and considered for all purposes to have been jointly
prepared by the Parties, and shall not be construed against any one Party (nor
shall any inference or presumption be made) on the basis of who drafted this
Agreement or any particular provision hereof, who supplied the form of
Agreement, or any other event of the negotiation, drafting or execution of
this
Agreement. Each Party agrees that this Agreement has been purposefully drawn
and
correctly reflects its understanding of the transaction that it contemplates.
In
construing this Agreement, the following principles will apply:
(a) A
defined term has its defined meaning throughout this Agreement and each Exhibit
and Schedule to this Agreement, regardless of whether it appears before or
after
the place where it is defined.
(b) If
there is any conflict or inconsistency between the provisions of the main body
of this Agreement and the provisions of any Exhibit or Schedule hereto, the
provisions of this Agreement shall take precedence. If there is any conflict
between the provisions of any Assignment or other
transaction documents attached to this Agreement as an Exhibit and the
provisions of any Assignment and other transaction documents actually executed
by the parties, the provisions of the executed Assignment and other executed
transaction documents shall take precedence.
(c) Schedules
and Exhibits referred to herein are hereby incorporated and made a part of
this
Agreement for all purposes by such reference.
(d) The
omission of certain provisions of this Agreement from the
Assignment does not constitute a conflict or inconsistency
between this Agreement and the Assignment, and will not effect a merger of
the
omitted provisions. To the fullest extent permitted by Laws, all provisions
of
this Agreement are hereby deemed incorporated into the Assignment by
reference.
(e) The
words “includes” and “including” and their derivatives means
“includes, but not limited to” or “including, but not limited to,” and
corresponding derivative meanings.
(f) The
Article, Section, Exhibit and Schedules references in this Agreement refer
to
the Articles, Sections, Exhibits and Schedules of this Agreement. The headings
and titles in this Agreement are for convenience only and shall have no
significance in interpreting or otherwise affect the meaning of this
Agreement.
(g) The
terms “knowledge” or “knowingly,” whether or not capitalized,
shall mean the actual knowledge of a Party’s employees who, as of Closing are in
a supervisory capacity responsible for the ownership and operation of the Assets
and any material facts relating thereto, after a due and diligent
inquiry.
(h) The
adjective, “material”, whether or not capitalized, shall mean a
situation, circumstance, consequence or concept whose relevance to the
transactions contemplated by this Agreement as a whole is of significance,
and
would not be considered a small or insignificant deviation from the terms of
this Agreement.
(i) The
term “Material Adverse Effect” shall mean any defect, condition, change
or effect (other than with respect to which an adjustment to the Purchase Price
has been made) that when taken together with all other such defects, conditions,
changes and effects significantly diminishes the value, use, operations or
development of the Assets, taken as a whole. Notwithstanding the foregoing,
the
following shall not be considered in determining whether a Material Adverse
Effect has occurred:
(i) Fluctuations
in commodity prices;
(ii) Changes
in Laws or Environmental Laws; or
(iii) Changes
in the oil and gas industry that do not have a disproportionate impact on the
ownership and operation of the Assets.
(j) “Breach”
shall mean any breach of, or any falsity or inaccuracy in, any representation
or
warranty or any breach of, or failure to perform or comply with, any covenant
or
obligation, in or of this Agreement or any other contract, agreement or
instrument contemplated by this Agreement or any event which with the passing
of
time or the giving or notice, of both, would constitute such a breach,
inaccuracy, or failure; provided that to constitute a Breach, such breach,
inaccuracy, or failure must be material to the subject matter regarding which
the Breach is asserted.
(k) “Tax”
means all taxes and any other assessments, duties, fees, levies or other charges
imposed by a Governmental Authority based on or measured by the value of the
Assets ,the production of Hydrocarbons ,the receipt of proceeds with respect
to
such Assets or Hydrocarbons or otherwise related in any manner or attributable
to the Assets or the production of Hydrocarbons including any production tax,
windfall profits tax, severance tax, personal property tax, real property tax
or
ad valorem tax, together with any interest, fine or penalty thereon, or addition
thereto.
(l) The
plural shall be deemed to include the singular, and vice versa.
Section
14.13 Time
of the Essence. Time shall be of the essence with respect to all
time periods and notice periods set forth in this Agreement.
Section
14.14 Counterpart
Execution. This Agreement may be executed in any number of
counterparts, and each counterpart hereof shall be effective as to each Party
that executes the same whether or not all of such parties execute the same
counterpart. If counterparts of this Agreement are executed, the signature
pages
from various counterparts may be combined into one composite instrument for
all
purposes. All counterparts together shall constitute only one Agreement, but
each counterpart shall be considered an original. In the event that
this Agreement is delivered by facsimile transmission or by e-mail delivery
of a
“.pdf” format date file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, Seller and Buyer have executed and delivered this Agreement
as
of the date first set forth above.
SELLER:
ST.
MARY LAND & EXPLORATION COMPANY
By:
/s/ MILAM RANDOLPH PHARO
Name:
Milam Randolph Pharo
Title: Vice
President – Land and Legal
RALPH
H. SMITH RESTATED REVOCABLE TRUST DATED 8/14/97, RALPH H. SMITH
TRUSTEE
By:
/s/ RALPH H. SMITH
Name:
Ralph H. Smith
Title: Trustee
KENT
J. HARRELL, TRUSTEE OF THE KENT J. HARRELL REVOCABLE TRUST DATED JANUARY 19,
1995
By:
/s/ KENT J. HARRELL
Name:
Kent J. Harrell
Title: Trustee
BUYER:
ABRAXAS
OPERATING, LLC
By:
/s/ BARBARA M. STUCKEY
Name:
Barbara M. Stuckey
Title: President
& Chief Operating Officer
The
following is a list of schedules and exhibits to the Purchase and Sale Agreement
that were omitted from Exhibit 2.1 pursuant to the provisions of Item 601(b)(2)
of Regulation S-K. St. Mary Land & Exploration Company agrees to
furnish supplementally a copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request.
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1.
|
Exhibit
A
|
Subject
Interests and Surface Agreements
|
|
2.
|
Exhibit
B
|
Wells
|
|
3.
|
Exhibit
C
|
Excluded
Assets
|
|
4.
|
Exhibit
D
|
Allocated
Values
|
|
5.
|
Exhibit
E
|
Form
of Assignment and Bill of Sale
|
|
6.
|
Exhibit
F-1
|
Buyer
Press Release
|
|
7.
|
Exhibit
F-2
|
Seller
Press Release
|
|
8.
|
Schedule
1.02(g)
|
Production
Imbalances
|
|
9.
|
Schedule
1.02(h)
|
Fee
Property Description
|
|
10.
|
Schedule
4.06
|
Rights
of Preferential Purchase
|
|
11.
|
Schedule
4.07
|
Consents
to Assignment
|
|
12.
|
Schedule
5.06
|
Litigation
|
|
13.
|
Schedule
5.08
|
Authorizations
for Expenditures
|
|
14.
|
Schedule
5.13
|
Insurance
|
|
15.
|
Schedule
5.14
|
Inactive
Wells
|
|
16.
|
Schedule
5.17
|
Production
Sales Agreements
|
|
17.
|
Schedule
5.21
|
Non-Transferable
Permits
|