PURCHASE AND SALE AGREEMENT BETWEEN ENERGYQUEST RESOURCES, L.P.; OKLAHOMA PROCESSING EQR, LLC;
Exhibit 2.2
PURCHASE AND SALE AGREEMENT
BETWEEN
ENERGYQUEST RESOURCES, L.P.;
OKLAHOMA PROCESSING EQR, LLC;
KANSAS PRODUCTION EQR, LLC;
AND KANSAS PROCESSING EQR, LLC
(AS SELLER)
AND
CONSTELLATION ENERGY PARTNERS LLC
(AS BUYER)
DATED MARCH 8, 2007
TABLE OF CONTENTS
1. Sale and Purchase of Assets | 1 | |
1.1 Assets to be Sold | 1 | |
1.2 Exclusions and Reservations | 3 | |
1.3 Conveyancing Instruments | 4 | |
1.4 Suspended Proceeds | 4 | |
2. Purchase Price and Effective Time | 5 | |
2.1 Purchase Price | 5 | |
2.2 Delivery of Deposit, Indemnity Escrow Amount and Adjusted Purchase Price | 5 | |
2.3 Allocation of Purchase Price | 6 | |
2.4 Adjustments to Purchase Price | 6 | |
2.5 Effective Time of Sale | 8 | |
3. Allocation of Revenues and Costs; Indemnification | 8 | |
3.1 Allocation of Revenues | 8 | |
3.2 Allocation of Costs; Payment of Invoices | 8 | |
3.3 Certain Indemnities | 8 | |
4. Taxes and Payables | 14 | |
4.1 Payment of Taxes | 14 | |
5. Representations, Warranties, Acknowledgments, Disclaimers and Waivers | 14 | |
5.1 Sellers Representations and Warranties | 14 | |
5.2 Buyers Representations and Warranties | 18 | |
5.3 Representations and Warranties Exclusive | 19 | |
5.4 Disclaimers, Waivers and Acknowledgments | 19 | |
6. Title Matters | 20 | |
6.1 Examination Period | 20 | |
6.2 Title Defects | 21 | |
6.3 Permitted Encumbrances | 21 | |
6.4 Notice of Title Defects; Title Defect Valuation | 23 | |
6.5 Remedies for Title Defects | 24 | |
6.6 Title Benefits | 25 | |
6.7 Limitation of Remedies for Title Defects; Title Benefits | 26 | |
6.8 Termination | 26 | |
7. Environmental Matters | 27 | |
7.1 Environmental Review | 27 | |
7.2 Environmental Definitions | 29 | |
7.3 Notice of Environmental Defects | 29 | |
7.4 Remedies for Environmental Defects | 30 | |
7.5 Limitation of Remedies for Environmental Defects | 31 | |
7.6 Termination | 31 | |
7.7 Post-Closing Environmental Indemnification by Buyer | 31 | |
7.8 Condition of the Assets | 32 | |
7.9 Waiver | 33 | |
8. Independent Experts | 33 |
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8.1 Selection of Independent Experts | 33 | |
8.2 Procedures | 33 | |
8.3 Location of Proceeding | 33 | |
9. Additional Covenants | 34 | |
9.1 Operations Prior to Closing | 34 | |
9.2 Preferential Rights to Purchase. | 35 | |
9.3 Third Party Equal or Better Offer | 35 | |
9.4 Successor Operator | 35 | |
9.5 Financial Information. | 36 | |
9.6 Compliance | 36 | |
10. Closing, Termination and Final Adjustments | 36 | |
10.1 Conditions Precedent | 36 | |
10.2 Closing | 38 | |
10.3 Termination | 40 | |
10.4 Final Adjustments | 41 | |
10.5 Escrow Account | 41 | |
11. Disputes | 42 | |
11.1 Arbitration | 42 | |
12. Miscellaneous | 43 | |
12.1 Oil, Gas and End Product Imbalances | 43 | |
12.2 Insurance | 43 | |
12.3 Casualty Loss of Assets | 44 | |
12.4 Books and Records | 44 | |
12.5 Publicity | 44 | |
12.6 Assignment | 44 | |
12.7 Entire Agreement | 45 | |
12.8 Notices | 45 | |
12.9 Governing Law | 45 | |
12.10 Confidentiality | 45 | |
12.11 Survival of Certain Obligations | 46 | |
12.12 Further Cooperation | 46 | |
12.13 Counterparts | 46 | |
12.14 Exhibits and Schedules | 46 | |
12.15 Severability | 46 | |
12.16 Expenses, Post-Closing Consents and Recording | 46 | |
12.17 Removal of Signs and Markers | 47 | |
12.18 CONSPICUOUSNESS/EXPRESS NEGLIGENCE | 47 | |
12.19 Et Al Group Interests | 47 | |
12.20 Waiver of Certain Damages; Limitation on Sellers Indemnity | 48 |
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LIST OF EXHIBITS
Exhibit A | | Lease and Well Descriptions | ||
Exhibit B | | Surface Interests | ||
Exhibit C | | Form of Assignment | ||
Exhibit D | | Form of Escrow Agreement | ||
Exhibit E | | Transition Services Agreement | ||
Exhibit F | | Form of Certificate of Non-Foreign Status | ||
Exhibit G | | Personal Property |
LIST OF SCHEDULES
Schedule 1.1(a)(vi) | | Contracts | ||
Schedule 1.2(k) | | Excluded Assets | ||
Schedule 2.3 | | Allocated Values | ||
Schedule 2.3(A) | | Et Al Interest Allocated Value | ||
Schedule 2.4(a)(ii) | | Reference Prices for Stock Hydrocarbons | ||
Schedule 5.1(e) | | Suits and Claims | ||
Schedule 5.1(g) | | Compliance with Laws | ||
Schedule 5.1(h) | | Permits | ||
Schedule 5.1(j) | | Rights to Production | ||
Schedule 5.1(l) | | Preferential Rights and Required Consents | ||
Schedule 5.1(o) | | Non-Consent Operations | ||
Schedule 5.1(q) | | Plugging and Abandonment Obligations | ||
Schedule 5.1(r) | | AFEs | ||
Schedule 6.3(c) | | Liens | ||
Schedule 9.1 | | Budget | ||
Schedule 10.1(a)(vi) | | Bonds | ||
Schedule 12.1 | | Production and Pipeline Imbalances |
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TABLE OF DEFINED TERMS
AAA | 33 | |
Adjusted Purchase Price | 5 | |
Aggregate Environmental Defect Threshold | 31 | |
Aggregate Indemnification Threshold | 10 | |
Agreement | 1 | |
Allocated Value | 6 | |
Asset | 3 | |
Assets | 3 | |
Assignment | 4 | |
Audit Firm | 36 | |
Business Day | 8 | |
Buyer | 1 | |
Buyer Parties | 9 | |
Buyers Environmental Review | 27 | |
Casualty Loss | 44 | |
Claim Notice | 11 | |
Claims | 9 | |
Closing | 39 | |
Closing Date | 39 | |
Closing Period Termination Date | 10 | |
Closing Statement | 8 | |
Consents | 16 | |
Contracts | 2 | |
Costs and fees | 43 | |
Deposit | 5 | |
Deposit Disbursement Amount | 5 | |
Effective Time | 8 | |
EnergyQuest | 1 | |
Environmental Defect | 29 | |
Environmental Defect Notice | 29 | |
Environmental Defect Value | 29 | |
Environmental Information | 28 | |
Environmental Laws | 29 | |
Escrow Account | 5 | |
Escrow Agent | 5 | |
Escrow Agreement | 5 | |
Escrow Reconciliation Statement | 42 | |
Examination Period | 20 | |
Excluded Assets | 3 | |
Final Settlement Statement | 41 | |
Financial Statements | 36 | |
Governmental Authority | 29 | |
Hydrocarbons | 2 | |
Imbalance | 43 | |
Indemnified Party | 11 | |
Indemnity Amount | 10 | |
Indemnity Escrow Amount | 5 | |
Independent Expert | 33 | |
Individual Indemnification Threshold | 9 | |
Kansas Processing | 1 | |
Kansas Production | 1 | |
Knowledge of Seller | 15 | |
Leases | 1 | |
Marketable Title | 21 | |
Net Revenue Interest | 50 | |
NRI | 50 | |
NRI APO | 50 | |
OK Processing | 1 | |
Party Appointed Arbitrator | 33 | |
Permitted Encumbrances | 21 | |
Personal Property | 2 | |
Preferential Rights | 16 | |
Purchase Price | 5 | |
Records | 2 | |
Representatives | 46 | |
Sale Hydrocarbons | 2 | |
Seller | 1 | |
Seller Parties | 10 | |
Seller Policies | 44 | |
Stock Hydrocarbons | 2 | |
Surface Interests | 2 | |
Suspended Proceeds | 4 | |
Title Benefit | 26 | |
Title Benefit Notice | 25 | |
Title Benefit Value | 25 | |
Title Defect | 21 | |
Title Defect Notice | 23 | |
Title Defect Value | 23 | |
Units | 1 | |
Wells | 1 | |
WI | 50 | |
WI APO | 50 | |
Working Interest | 50 |
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this Agreement), dated March 8, 2007, is by and between ENERGYQUEST RESOURCES, L.P., a Delaware limited partnership (EnergyQuest), OKLAHOMA PROCESSING EQR, LLC, a Delaware limited liability company (OK Processing), KANSAS PRODUCTION EQR, LLC, a Delaware limited liability company (Kansas Production), and KANSAS PROCESSING EQR, LLC, a Delaware limited liability company, whose address is 15425 North Freeway, Suite 230, Houston, Texas 77090 (Kansas Processing and, collectively with EnergyQuest, OK Processing, and Kansas Production, Seller) and CONSTELLATION ENERGY PARTNERS LLC a Delaware limited liability company, whose address is 500 Dallas Street, One Allen Center, Suite 3300, Houston, Texas 77002 (Buyer).
W I T N E S S E T H:
That Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, on the terms set forth in this Agreement those certain oil and gas interests and associated assets described herein. Accordingly, in consideration of the mutual promises contained herein, the mutual benefits to be derived by each party hereunder and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:
1. Sale and Purchase of Assets
1.1 Assets to be Sold.
(a) | Subject to the terms and conditions herein, Seller shall sell, transfer and assign, and Buyer shall purchase, pay for and receive, all of Sellers right, title and interest in and to the following, save and except the Excluded Assets: |
(i) | the oil and gas leases, oil, gas and mineral leases, fee mineral interests, royalty interests, non-working and carried interests, operating rights and other interests in land described or referred to in Exhibit A (collectively, the Leases), together with all oil and gas pooling and unitization agreements, declarations, designations and orders relating to the Leases (such pooled or unitized areas being, collectively, the Units); |
(ii) | any and all oil and gas wells, salt water disposal wells, injection wells and other wells and wellbores, whether abandoned, not abandoned, plugged or unplugged, located on the Leases or within the Units (collectively, the Wells), including, without limitation, those Wells identified on Exhibit A); |
(iii) | all easements, rights-of-way, servitudes, fee lands, surface and subsurface lease agreements, surface use agreements and other rights or agreements related to the use of the surface and |
subsurface, in each case to the extent used in connection with the operation of the Leases, Wells and Units, including without limitation those rights and interests described or referred to in Exhibit B (the Surface Interests);
(iv) | all structures, facilities, wellheads, tanks, pumps, compressors, separators, equipment, machinery, fixtures, flowlines, gathering lines, materials, improvements, vehicles and rolling stock, workover rigs, SCADA hardware and software and any other personal property located on or used in the operation of the Leases, Units or Wells, including, without limitation, the personal property described on Exhibit G (collectively, the Personal Property); |
(v) | all natural gas, casinghead gas, drip gasoline, natural gasoline, natural gas liquids, condensate, products, crude oil and other hydrocarbons, whether gaseous or liquid (the Hydrocarbons), produced and saved from, or allocable to, the Leases and Wells from and after the Effective Time (the Sale Hydrocarbons); |
(vi) | to the extent transferable, all licenses, permits, contracts, pooling, unitization and communitization agreements, operating agreements, processing agreements, division orders, farm-in and farm-out agreements, rental agreements, equipment lease agreements and all other agreements of any kind or nature, whether recorded or unrecorded, including, without limitation, those agreements identified in Schedule 1.1(a)(vi), BUT INSOFAR AND ONLY INSOFAR as the foregoing directly relate to or are attributable to the Leases, Units, Wells, Surface Interests or Personal Property, the ownership or operation thereof, or the production, treatment, sale, transportation, gathering, storage, sale or disposal of Sale Hydrocarbons, water or other substances produced therefrom or associated therewith (the Contracts); |
(vii) | records directly relating to the Leases, Surface Interests, Wells, Sale Hydrocarbons, Contracts, and Personal Property in the possession of Seller (the Records) and; |
(viii) | all Imbalances as of the Effective Time, and all Hydrocarbons produced prior to the Effective Time from the Leases, Units and Wells, but in storage or upstream of the applicable sales meter at the Effective Time (the Stock Hydrocarbons), together with all accounts receivable with respect thereto. |
(ix) | membership interests in the Cotton Valley Compression, L.L.C., a Delaware limited liability company, being 14.286% of the outstanding membership interests therein. |
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All such Leases, Wells, Surface Interests, Personal Property, Sale Hydrocarbons, Contracts, Records and other assets described above are hereinafter collectively referred to as the Assets or, when used individually, an Asset.
(b) | Transfer of Assets. The risk of loss and transfer of possession and control of the Assets shall occur and be made at Closing (as hereinafter defined in Section 10.2), but transfer of ownership and title to the Assets shall be made effective as of the Effective Time. |
1.2 Exclusions and Reservations. Specifically excepted and reserved from this transaction are the following, hereinafter referred to as the Excluded Assets:
(a) | Sellers corporate records, financial and tax records unrelated to the Assets, reserve estimates and reports, economic analyses, computer programs and applications (other than SCADA software, which is expressly included in the Assets), pricing forecasts, legal files, legal opinions, attorney-client communications, and attorney work product (except abstracts of title, title opinions, certificates of title, and title curative documents, which shall be furnished to Buyer), and all other records and documents subject to confidentiality provisions, or other restrictions on access or transfer; provided, however, that Seller will, upon Buyers request and at no cost or expense to Seller, request waivers of such restrictions; |
(b) | All of Sellers intellectual property rights, patents, copyrights, names, marks, logos, proprietary software and derivatives therefrom, geophysical data, data licensing agreements and seismic licenses between Seller and third parties, if any, and any and all geologic/geophysical interpretations and proprietary or licensed raw or processed geophysical data (including magnetic tapes, field notes, seismic lines, analyses and similar data or information) and interpretations therefrom, except to the extent that any such information is specifically licensed to Buyer pursuant to a separate license agreement; |
(c) | Subject to the provisions of Section 12.2, all rights and claims arising, occurring, or existing in favor of Seller prior to the Effective Time, including, but not limited to, any and all contract rights, claims, penalties, receivables, revenues, recoupment rights, recovery rights, accounting adjustments, mispayments, erroneous payments, personal or corporate injury, property damages, royalty and other rights and claims of any nature in favor of Seller relating to any time period prior to the Effective Time; |
(d) | All of Sellers insurance contracts and rights, titles, claims and interests of Seller related to the Assets for all periods prior to the Effective Time (i) under any policy or agreement of insurance or indemnity, (ii) under any bond or letter of credit or other security device, or (iii) to any insurance or condemnation proceeds or awards, together with all amounts due or payable to Seller as adjustments to insurance premiums related to the Assets for all periods prior to the Effective Time; |
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(e) | Claims of Seller for any refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other taxes attributable to the Assets for any period prior to the Effective Time, and (ii) income, occupational or franchise taxes; |
(f) | All monies, proceeds, benefits, receipts, credits, income or revenues (and any security or other deposits made) attributable to the Assets or the ownership or operation thereof prior to the Effective Time, including, without limitation, amounts recoverable from audits under operating agreements and any overpayments of royalties to the extent attributable to the period prior to the Effective Time; |
(g) | All rights, obligations, benefits, awards, judgments, settlements, if any, applicable to any litigation pending in which Seller is a named claimant or plaintiff or holds beneficial rights or interests, to the extent related to periods prior to the Effective Time; |
(h) | All telecommunication and communications equipment and services, WARS control stations and computers, but excluding SCADA hardware and software; and |
(i) | All rights, obligations, benefits, and interests, if any, of Seller in that certain Consulting Agreement by and between EnergyQuest Management, LLC and Fountainhead L.L.C., dated August 31, 2006. |
(j) | All rights, obligations, benefits, and interests, if any, of Seller in that certain Consulting Agreement by and between EnergyQuest Management, LLC and Eakin Exploration, Inc., dated August 31, 2006. |
(k) | any other assets identified as excluded or retained on Schedule 1.2(k). |
1.3 Conveyancing Instruments. The Assets to be conveyed by Seller to Buyer at Closing pursuant to Section 1.1(a) shall be conveyed AS IS, WHERE IS, without warranty of title except against claims of title arising by, through or under Seller, but not otherwise, and subject to the express conditions and limitations contained in this Agreement. The Assets to be transferred to Buyer pursuant to Section 1.1(a) shall be transferred pursuant to an Assignment and Bill of Sale in the form of Exhibit C (the Assignment) and such other necessary instruments as specified in Section 10.2.
1.4 Suspended Proceeds. Seller shall transfer and pay to Buyer at Closing, and Buyer agrees to accept from Seller, all monies representing the value or proceeds of production removed or sold from the Assets and held by Seller at the time of the Closing for accounts from which payment has been suspended, such monies being hereinafter called Suspended Proceeds. Buyer shall be solely responsible for the proper distribution of such Suspended Proceeds to the party or parties which or who are entitled to receive payment of the same, and hereby agrees to indemnify, defend and hold Seller harmless from any Claims therefor, up to the amount of the Suspended Proceeds.
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2. Purchase Price and Effective Time
2.1 Purchase Price. As consideration for the sale of the Assets, Buyer shall pay to Seller One Hundred Eleven Million One Hundred Fifty-Eight Thousand Four Hundred Eighty-Nine Dollars ($111,158,489.00) (the Purchase Price), adjusted as set forth below. The Purchase Price as adjusted in accordance with Section 2.4 shall be referred to as the Adjusted Purchase Price.
(a) | A performance deposit in the amount equal to the lesser of ten percent (10%) of the Purchase Price or Ten Million Dollars ($10,000,000) (the Deposit) shall be paid upon execution of this Agreement by Buyer and Seller to Wells Fargo Bank, National Association (the Escrow Agent) for deposit into an interest bearing escrow account (the Escrow Account) to be governed by an agreement substantially in the form of the agreement attached hereto as Exhibit D (the Escrow Agreement), such Escrow Agreement to be executed by Buyer, Seller and the Escrow Agent on the date hereof. The Deposit, together with earnings on the Deposit while held in the Escrow Account, will be credited to the Purchase Price at Closing, and is not refundable except as provided in this Agreement. The earnings on the Deposit shall become part of the Deposit and shall be paid to the party entitled to the Deposit in accordance with the terms hereof. |
(b) | The Adjusted Purchase Price shall be paid at Closing as provided herein. To the extent that the Deposit is less than five percent (5%) of the Purchase Price (the Indemnity Escrow Amount), at Closing Buyer shall pay to the Escrow Agent at Closing that portion of the Adjusted Purchase Price equal to the difference between the Indemnity Escrow Amount and the Deposit. To the extent that the Deposit is more than the Indemnity Escrow Amount, at Closing Buyer will direct the Escrow Agent in writing to transfer to Seller out of the Escrow Account such amount (the Deposit Disbursement Amount) as will cause the remaining balance of the Escrow Account, determined without regard to amounts to be paid to the Escrow Agent pursuant to the provisions of Section 6 or Section 7, to be equal to the Indemnity Escrow Amount. The earnings on the Indemnity Escrow Amount shall be paid to Seller in accordance with the terms of the Escrow Agreement. Buyer will pay the Adjusted Purchase Price less the Indemnity Escrow Amount paid to the Escrow Agent as provided in this Agreement, if any, to Seller as provided herein. |
2.2 Delivery of Deposit, Indemnity Escrow Amount and Adjusted Purchase Price. The Deposit, the balance of Indemnity Escrow Amount, if any, and the balance of the Adjusted Purchase Price shall be paid by Buyer on the dates provided in Section 2.1 by wire transfer, in immediately available funds, to the accounts below or as otherwise directed in writing by Seller in the Closing Statement:
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Deposit and Indemnity Escrow Amount, if any | ||
Receiving Bank: | Wells Fargo Bank San Francisco, CA | |
ABA: # | 121000248 | |
BNF: | Credit A/C 0001038377 | |
Account: # | 22205200 | |
REFERENCE: | For further credit Constellation / EnergyQuest Escrow | |
Attn: Josie Hixon | (713) 289-3469 | |
Deposit Disbursement Amount and Balance of Adjusted Purchase Price: | ||
As directed by Seller in the Closing Statement |
2.3 Allocation of Purchase Price. Buyer and Seller have agreed upon an allocation of the Purchase Price to individual Assets (each an Allocated Value) as set forth in Schedule 2.3. Buyer represents and warrants to Seller that it has made reasonable allocations, in good faith, and that Seller may rely on the allocations for all purposes, including, without limitation, (a) to notify holders of preferential rights of Buyers offer, (b) as a basis for adjustments to the Purchase Price for defect and casualty loss adjustments and (c) as otherwise provided in this Agreement. Schedule 2.3 also sets forth an allocation for federal tax purposes among intangibles and tangibles comprising the Assets. Buyer and Seller agree to be bound by the allocation of the Purchase Price among tangible and intangible Assets set forth therein for all purposes; to consistently report such allocations for all federal, state and local income tax purposes; and to timely file all reports required by the Internal Revenue Code of 1986, as amended, concerning the Purchase Price allocations.
2.4 Adjustments to Purchase Price. At Closing, the Purchase Price shall be adjusted (without duplication) in accordance with this Section 2.4.
(a) | The Purchase Price shall be increased by the following amounts: |
(i) | the amount of all costs, expenses and charges relating to the Assets, or the ownership, use or operation of the Assets, which are paid by Seller and are attributable to the period of time from and after the Effective Time, including, without limitation, (a) all operating costs and expenses, (b) all capital expenditures, including, without limitation, all drilling, completion, reworking, deepening, side-tracking, plugging and abandoning costs and expenses; (c) all prepaid expenses and land related costs and expenses attributable to the Assets, including, without limitation, all bonus payments, royalty disbursements, delay rental payments, shut-in payments and other similar costs (provided, however, that the Purchase Price shall not be increased by land related expenses incurred by Seller in connection with Title Defect curative), (d) excise, severance and production tax payments, and any other tax |
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payments based upon or measured by the production of Sale Hydrocarbons or the proceeds of sale therefrom, and (e) expenses paid by Seller to any third party under applicable joint operating agreements or other contracts or agreements included in the Assets;
(ii) | an amount equal to the value of all Stock Hydrocarbons (it being understood that such value shall be calculated based on the reference prices set forth in Schedule 2.4(a)(ii) determined as of the Effective Time, less transportation costs, quality adjustment, applicable taxes and royalty payments); |
(iii) | the adjustment amount, if any, due Seller as determined pursuant to Section 12.1 with respect to Imbalances; |
(iv) | if the aggregate Title Benefit Value is greater than the aggregate Title Defect Value, as provided in Section 6, an amount equal to such difference; and |
(v) | any other amount specified herein or otherwise agreed upon by Seller and Buyer in writing. |
(b) | The Purchase Price shall be decreased by the following amounts: |
(i) | an amount equal to the net proceeds (the price at which the Hydrocarbons are sold after the Effective Time, less transportation costs, quality adjustment, if any, applicable taxes and royalty payments) received by Seller from the sale of Sale Hydrocarbons and Stock Hydrocarbons; |
(ii) | the adjustment amount, if any, due Buyer as determined pursuant to Section 12.1 with respect to Imbalances; |
(iii) | if the aggregate Title Defect Value is greater than the aggregate Title Benefit Value, as provided in Section 6, an amount equal to such difference; |
(iv) | reductions due to Environmental Defects as provided in Section 7; |
(v) | reductions due to the exercise of Preferential Rights as provided for in Section 9.2; |
(vi) | reductions due to Casualty Loss as provided in Section 12.3; |
(vii) | Sellers pro rata share of taxes as determined pursuant to Section 4.1; and |
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(viii) | any other amount specified herein or otherwise agreed upon by Seller and Buyer in writing. |
(c) | Closing Statement. Seller shall prepare and deliver to Buyer an accounting statement (the Closing Statement) no later than three (3) Business Days prior to Closing that shall set forth the adjustments to the Purchase Price made in accordance with this Agreement, it being understood and agreed that the Closing Statement shall contain reasonable estimates, if actual amounts are not known at the time, and actual costs and revenues, if known. As used herein, the term Business Day means any day other than Saturday, Sunday, or any day on which the principal commercial banks located in the State of Texas or the State of New York are authorized or obligated to close under the laws of such states. |
2.5 Effective Time of Sale. The effective time of the sale of the Assets shall be as of 7:00 a.m., local time where the Assets are located, on February 1, 2007 (the Effective Time).
3. Allocation of Revenues and Costs; Indemnification
3.1 Allocation of Revenues. Seller shall own and receive (or receive credit in the Closing Statement or the Final Settlement Statement, as applicable, for) all proceeds from the sale of Hydrocarbons physically produced from or allocable to the Assets prior to the Effective Time (excluding Stock Hydrocarbons), and shall also receive (or receive credit in the Closing Statement or the Final Settlement Statement, as applicable, for) and hold the right to receive all other revenues, proceeds and benefits attributable to the Assets relating to all periods before the Effective Time. Buyer shall receive (or receive credit in the Closing Statement or the Final Settlement Statement, as applicable, for) all proceeds from the sale of Sale Hydrocarbons and Stock Hydrocarbons and shall also receive (or receive credit in the Closing Statement or the Final Settlement Statement, as applicable, for) and hold the right to receive all other revenues, proceeds and benefits attributable to the Assets which relate to all periods after the Effective Time.
3.2 Allocation of Costs; Payment of Invoices. After the Closing, Seller shall be responsible for and required to pay only that portion of any charge or invoice received that is applicable to work performed or material received in the period prior to the Effective Time, and other charges and invoices shall be returned to the billing party for rebilling to Buyer. Similarly, after the Closing Buyer shall be responsible for and required to pay only that portion of any charge or invoice received that is applicable to work performed or material received in the period on or subsequent to the Effective Time, and other charges and invoices shall be returned to the billing party for rebilling to Seller.
3.3 Certain Indemnities.
(a) | Definition of Claims. 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, |
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damages, deficiencies, taxes, penalties, fines, obligations, responsibilities, liabilities, payments, charges, costs and expenses (including without limitation costs and expenses of owning and operating the Assets) of any kind or character (whether or not asserted prior to Closing, and whether known or unknown, fixed or unfixed, conditional or unconditional, based on theories, contract, tort, strict liability or otherwise, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or other legal theory), including, without limitation, 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 of or damage to property, injury to or death of persons, and other tortuous injury and (c) violations of applicable laws, rules, regulations, orders or any other legal right or duty actionable at law or in equity.
(b) | Sellers Indemnity. Subject to the further provisions hereof, Seller shall defend, indemnify and hold Buyer, its affiliates, and its/their directors, officers, employees, contractors, and representatives (which additional parties, together with Buyer, are hereinafter collectively referred to as the Buyer Parties) harmless from and against any and all Claims arising from, out of or in connection with, or otherwise relating to: (a) any inaccuracy of any representation or warranty of Seller set forth in this Agreement; (b) the Excluded Assets; (c) to the extent attributable to periods prior to the Effective Time, (i) the payment, underpayment or nonpayment of royalties by Seller on production from or attributable to Sellers interest in the Leases, Units and Wells, or the proper accounting or payment to parties for their interests therein, and (ii) the payment, underpayment or nonpayment by Seller of property, ad valorem or severance taxes relating to the Assets; (d) the ownership or operation of the Assets prior to the Effective Time (other than Claims with respect to royalties and taxes, which are addressed in clause (c) above), expressly excluding, however, matters assumed, indemnified against and waived by Buyer pursuant to Sections 7.7, 7.8 and 7.9 below; and (e) Sellers breach of, or failure to perform or satisfy, any of its covenants and obligations hereunder. |
Seller shall not be liable to the Buyer Parties under clause (a) or (d) of this Section 3.3(b) with respect to any Claim unless (i) the amount of the Claim resulting from any separate fact, condition or event that constitutes a Claim is in excess of $25,000 (the Individual Indemnification Threshold) and (ii) the aggregate amount of all Claims under this Agreement and the LLC Purchase Agreement, is defined herein, meeting the Individual Indemnification Threshold exceeds one and one half percent (1 1/2%) of the sum of the Purchase Price under this Agreement and
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the Purchase Price under the LLC Purchase Agreement (the Aggregate Indemnification Threshold). Once the Aggregate Indemnification Threshold has been met, Seller shall then only be liable for its pro rata portion of those Claims exceeding the Aggregate Indemnification Threshold, excluding such Claims as were aggregated to reach the Aggregate Indemnification Threshold. For purposes of the preceding sentence, Sellers pro rata portion of claims shall mean the amount of all Claims under this Agreement, divided by the sum of the amount of all Claims under both this Agreement and the LLC Purchase Agreement.
Notwithstanding anything herein to the contrary, the cumulative obligation of Seller to Buyer Parties under clause (a) and (d) of this Section 3.3(b) will be limited to ten percent (10%) of the Purchase Price (the Indemnity Amount) and will be payable first from the Escrow Account until the Indemnity Escrow Amount has been exhausted, and thereafter any remaining obligations, not to exceed the Indemnity Amount, shall be paid directly by Seller to Buyer Parties. Sellers obligation to indemnify the Buyer Parties pursuant to clauses (a), (b) and (d) of this Section 3.3(b) will expire with respect to any Claim for which a Buyer Party has not provided notice to Seller as provided in Section 3.3(d) on or prior to 5:00 p.m., Houston, Texas time, on the six (6) month anniversary of the Closing Date (the Closing Period Termination Date); provided, however, that Sellers obligation to indemnify Buyer with respect to breaches of Sellers representations and warranties in Sections 5.1(a) and 5.1(b) shall survive the Closing forever. Sellers obligation to indemnify Buyer pursuant to clauses (c), and (e) of this Section 3.3(b) shall survive for one (1) year. The foregoing will not limit the rights of Buyer Parties to proceed against the Seller as provided herein after the Closing Period Termination Date with respect to Claims for which a Buyer Party has provided notice to Seller as provided in Section 3.3(d).
(c) | Buyers General Indemnification. Subject to Section 3.3(b), Buyer shall defend, protect, indemnify and hold Seller, its affiliates, and its/their partners, members, managers, directors, officers, employees, contractors and representatives (which additional parties, together with Seller, are hereinafter collectively referred to as the Seller Parties) harmless from and against any and all Claims in any way arising from, out of or in connection with, or otherwise relating to: (a) any inaccuracy of any representation or warranty of Buyer set forth in this Agreement; (b) Buyers breach of, or failure to perform or satisfy, any of its covenants and obligations hereunder; and (c) the Assets, including, without limitation, the ownership or operation thereof and performance thereunder, to the extent such Claims accrue or are attributable to periods subsequent to the Effective Time or are attributable to environmental conditions whether or not such conditions existed prior to the Effective Time or arose subsequent to the Effective Time, or THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE (BUT NOT SELLERS GROSS |
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NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY, LIABILITY WITHOUT FAULT, REGULATORY LIABILITY, STATUTORY LIABILITY, BREACH OF CONTRACT, BREACH OF WARRANTY, OR OTHER FAULT OR RESPONSIBILITY OF SELLER OR ANY OTHER PERSON OR PARTY. Notwithstanding anything to the contrary contained herein, Buyers general indemnification shall not cover, and there shall be excluded therefrom, any penalties or fines that may now be or may hereafter become due and owing by Seller now or may hereafter become with respect to the ownership or operation of the Assets prior to the Effective Time. |
(d) | Claims Procedures. Promptly upon a party becoming aware of any Claim with respect to which it believes it is entitled to indemnification hereunder, whether under this Section 3.3, Section 7.7, or the other provisions hereof, such party (an Indemnified Party) shall notify the other party in writing of the existence and nature of such Claim, the identity of any third party claimants and a description of the damages and the amount thereof relating to such Claim (the Claim Notice). The Indemnified Party shall be responsible for the defense of any Claim unless the Indemnifying Party, upon reasonable notice, requests that the defense of a Claim be tendered to the Indemnifying Party. If: |
(i) | the defense of a Claim is so tendered and within ten (10) Business Days thereafter such tender is accepted by the Indemnifying Party; or |
(ii) | within ten (10) Business Days after the date on which the Claim Notice has been given pursuant to this Section 3.3(d), the Indemnifying Party shall acknowledge in writing to the Indemnified Party its obligation to provide an indemnity as provided in this Section 3.3 and assume the defense of the Claim; |
then, except as hereinafter provided, the Indemnified Party shall not, and the Indemnifying Party shall, have the right to contest, defend, litigate or settle such Claim. The Indemnified Party shall have the right to be represented by counsel at the Indemnified Partys expense, subject to the limitations hereof, in any such contest, defense, litigation or settlement conducted by the Indemnifying Party. The Indemnifying Party shall lose its right to defend and settle the Claim if it shall fail to diligently contest and defend the Claim. So long as the Indemnifying Party has not lost its right and/or obligation to contest, defend, litigate and settle as herein provided, the Indemnifying Party shall have the exclusive right to contest, defend and litigate the Claim and shall have the exclusive right, in its discretion exercised in good faith, and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as it deems fair and reasonable; provided, that at
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least five (5) Business Days prior to any such settlement, written notice of its intention to settle shall be given to the Indemnified Party and the Indemnified Party shall have consented thereto, which consent shall not be unreasonably withheld, conditioned or delayed. All expenses (including without limitation attorneys fees) incurred by the Indemnifying Party in connection with the foregoing shall be paid by the Indemnifying Party; provided, that if the Indemnifying Party is the Seller, such expenses shall be paid or reimbursed to the Indemnified Party solely out of the Indemnity Amount and the Seller will have no obligation hereunder in excess of such amount. Notwithstanding the foregoing, in connection with any settlement negotiated by an Indemnifying Party, no Indemnified Party shall be required by an Indemnifying Party to (x) enter into any settlement that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a release from all liability in respect of such claim or litigation, (y) enter into any settlement that attributes by its terms liability or wrongdoing to the Indemnified Party or (z) consent to the entry of any judgment that does not include as a term thereof a full dismissal of the litigation or Proceeding with prejudice. No failure by an Indemnifying Party to acknowledge in writing its indemnification obligations under this Section 3.3 shall relieve it of such obligations to the extent they exist. If the Indemnifying Party fails to accept a tender of, or assume, the defense of a Claim pursuant to this Section 3.3(d), or if, in accordance with the foregoing, the Indemnifying Party shall lose its right to contest, defend, litigate and settle such a Claim or if there is a legal conflict, the Indemnified Party shall have the right, without prejudice to its right of indemnification hereunder, in its discretion exercised in good faith and upon the advice of counsel, to contest, defend and litigate such Claim, and may settle such Claim, either before or after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems fair and reasonable; provided, that, the Indemnified Party will not settle such Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed. If, pursuant to this Section 3.3, the Indemnified Party so contests, defends, litigates or settles a Claim for which it is entitled to indemnification hereunder as hereinabove provided, the Indemnified Party shall be reimbursed by the Indemnifying Party for the reasonable attorneys fees and other expenses of defending, contesting, litigating and/or settling the Claim which are incurred from time to time, forthwith following the presentation to the Indemnifying Party of itemized bills for said attorneys fees and other expenses; provided, that if the Indemnifying Party is the Seller and the matter relates to a matter subject to indemnity by Seller pursuant to clause (a) of Section 3.3(b) (other than a breach of Sections 5.1(a), 5.1(b), 5.1(c) or 5.1(d) hereof), such expenses shall be reimbursable to the Indemnified Party solely out of the Indemnity Amount and the Seller will have no obligation hereunder in excess of such amount.
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(e) | Subrogation. Following full indemnification as provided for hereunder, the Indemnifying Party shall be subrogated to all rights of the Indemnified Party with respect to all parties relating to the matter for which indemnification has been made and the Indemnified Party agrees to fully cooperate with the Indemnifying Party in exercising such subrogation rights. |
(f) | Insured Losses; Recoveries from Third Parties. |
(i) | The amount of any damages for which indemnification is provided under this Section 3.3, Section 7.7, or the other provisions hereof shall be net of any duplicative amounts recovered by the Indemnified Party under insurance policies or from unaffiliated third parties with respect to such damages. If an Indemnified Party receives an amount under insurance coverage or from an unaffiliated third party with respect to damages at any time subsequent to any indemnification provided by an Indemnifying Party pursuant to this Section 3.3, Section 7.7, or the other provisions hereof, then such Indemnified Party shall promptly deliver such amount (up to the amount of the indemnification payment made to such Indemnified Party regarding such matter) to the Indemnifying Party; provided, however, that such Indemnified Party shall be entitled to retain the amount of any payments made or costs or expenses incurred in connection with obtaining such payment. The obligation created by this Section 3.3(f), Section 7.7, or the other provisions hereof is an obligation to make repayment in the event of a recovery from a third party and shall not delay an Indemnified Partys right to repayment from the Indemnifying Party under this Section 3.3, Section 7.7, or the other provisions hereof. |
(ii) | In the event that any amount of indemnification by the Seller under this Section 3.3, Section 7.7, or the other provisions hereof is paid out of the Escrow Account, and any portion of such amount is subsequently recovered by the Seller or any of their affiliates, successors or assigns from a third party prior to the Claim Period Termination Date, the Seller shall immediately deposit the full amount of such recovery into the Escrow Account, and the deposited amount shall be escrow assets available for future satisfaction of claims against the Escrow Account by the Buyer in accordance with this Section 3.3, Section 7.7, or the other provisions hereof and the terms of the Escrow Agreement; provided, however, that such Indemnified Party shall be entitled to retain the amount of any payments made or costs or expenses incurred in connection with obtaining such payments. |
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(g) | Characterization of Indemnification Payments. Buyer and Seller agree to treat any payment made under this Section 3.3, Section 7.7, or the other provisions hereof as an adjustment to the Purchase Price. Any indemnification hereunder will be determined on an after-tax basis (taking into account any actual tax benefits or detriments realized with respect to the damages for which the payment under this Section 3.3, Section 7.7, or the other provisions hereof is being made). |
4. Taxes and Payables
4.1 Payment of Taxes. All real estate, use, ad valorem and personal property taxes and charges upon any of the Assets shall be prorated as of the Effective Time; provided that Buyer shall pay all such taxes attributable to the calendar year in which the Closing Date occurs to the extent due and payable after Closing, and at Closing the Purchase Price will be decreased by Sellers pro rata share of such items for the period prior to the Effective Date. If the actual amount of such items is not known as of the Closing Date and the final reconciliation of the Final Settlement Statement under Section 10.4, then Sellers pro rata share of such items will be determined by using the rates and millages for the most recent year available and the assessed values for the calendar year immediately preceding the calendar year in which the Closing Date occurs, with appropriate adjustments for any known changes thereto. In no event shall the Final Settlement Statement be delayed pending determination of the proration of taxes pursuant to this Section 4.1.
Seller shall be responsible for all oil and gas production taxes, windfall profits taxes, and any other similar taxes applicable to Hydrocarbons produced and saved from or attributable to its interest in the Leases, Wells and Units prior to the Effective Time (excluding Stock Hydrocarbons), and Buyer shall be responsible for all such taxes applicable to the Stock Hydrocarbons and all Hydrocarbons produced and saved from or attributable to the Leases, Wells and Units from and after the Effective Time.
Both parties believe that the sale of the Assets is an occasional sale exempt from sales or use taxes. If any such taxes are assessed against the transaction, both parties will cooperate and use their commercially reasonable efforts (at no cost to Seller) to attempt to eliminate or reduce such taxes. If unsuccessful, Buyer shall be responsible for any such taxes. In that event, Buyer shall pay Seller any such state and local sales or use taxes, and Seller shall remit such amount to the appropriate taxing authority in accordance with applicable law. Any reasonable legal expenses incurred by Seller at Buyers request to reduce or avoid any of the aforementioned taxes attributable to Buyer, shall be paid or reimbursed by Buyer.
5. Representations, Warranties, Acknowledgments, Disclaimers and Waivers
5.1 Sellers Representations and Warranties. Seller represents and warrants to Buyer that, as of the date hereof and as of Closing, the following statements are accurate. (For purposes hereof, the term Knowledge of Seller (and any similar expression, including, the expression
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Sellers Knowledge) shall refer to matters actually known by any officer of any of the entities comprising Seller.
(a) | Formation. Each entity comprising Seller is a limited partnership or limited liability company, as the case may be, duly organized and validly existing, in good standing, under the laws of the State of Delaware. Seller has the limited partnership power and authority to own the Assets and to carry on its business as now conducted and to enter into and to carry out the terms of this Agreement. |
(b) | Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited partnership or limited liability company action, as applicable, on behalf of each Seller and no Seller is subject to any charter, by-law, lien, encumbrance, agreement, instrument, order, or decree of any court or governmental body (other than any governmental approval required) which would prevent consummation of the transactions contemplated by this Agreement. |
(c) | No Brokers. Seller is not a party to any contract or agreement for the payment of any brokers or finders fee in connection with the origin, negotiation, execution or performance of this Agreement for which Buyer will have any liability. |
(d) | Bankruptcy. There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or, to the Knowledge of Seller, threatened against Seller. |
(e) | Suits and Claims. Except as set forth in Schedule 5.1(e), there is no suit or action by any person, entity or Governmental Authority pending in any legal, administrative or arbitration proceeding or, to Sellers Knowledge, threatened against Seller or the Assets that could reasonably be expected to materially affect Sellers ability to consummate the transactions contemplated herein or title to, use of or the value of any of the Assets. |
(f) | Taxes. All ad valorem, property, production, severance, excise and similar taxes and assessments based on or measured by the ownership of the Assets, or the production of Hydrocarbons or the receipt of proceeds therefrom, that have become due and payable have been timely paid. |
(g) | Compliance with Laws. |
(i) | Except as set forth in Schedules 5.1(g) and 5.1(h), the Assets operated by Seller are in material compliance with all laws, rules, regulations and orders applicable to the Assets (other than Environmental Laws, which are separately addressed below). |
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(ii) | Except as set forth in Schedule 5.1(g), to the Knowledge of Seller, the Assets not operated by Seller are in material compliance with all laws, rules, regulations and orders applicable to the Assets. |
(iii) | Except as set forth in Schedules 5.1(g) and 5.1(h), to the Knowledge of Seller, the Assets are in material compliance with applicable Environmental Laws. |
(h) | Permits. Except as set forth in Schedule 5.1(h), with respect to Assets operated by Seller, (a) Seller has obtained all material regulatory or governmental permits, licenses, approvals and consents necessary for the operation of such Asset as currently operated, and (b) is not in material default of its obligations thereunder. There are no proceedings pending or, to Sellers Knowledge threatened, challenging or seeking revocation or limitation of any such permits, licenses, approvals and consents, except as set forth in Schedule 5.1(h). |
(i) | Take-or-Pay Arrangements. Seller has not received any prepayments or buydowns, or entered into any take-or-pay or forward sale arrangements, such that Buyer will be obligated after the Closing to make deliveries of gas without receiving full payment therefor. |
(j) | Rights to Production. Except with respect to Imbalances, or as set forth in Schedule 5.1(j), or to the extent arising under a Contract identified in Schedule 1.1(a)(vi), no person has any call upon, right to purchase, option to purchase or similar rights with respect to any portion of the Sale Hydrocarbons from and after the Closing that is not terminable on 30 days or less notice. |
(k) | Imbalances. To Sellers Knowledge the Imbalances relating to the Assets are as reflected on Schedule 12.1 as of the date shown on such schedule. |
(l) | Preferential Rights and Required Consents. Schedule 5.1(l) contains a list of (a) all rights or agreements that may permit any person to purchase or acquire any of the material Assets arising in connection with the transactions contemplated hereby (Preferential Rights), and (b) all required consents, approvals or authorizations of, or notifications to, any person (excluding any of the foregoing consents, approvals or authorizations customarily obtained following Closing) arising in connection with the transactions contemplated hereby (the Consents). |
(m) | Contracts. Schedule 1.1(a)(vi) sets forth a list of all contracts and agreements material to the ownership and operation of the Assets (other than the Leases and agreements creating Surface Interests), including, without limitation, all partnership, joint venture, area of mutual interest, non-compete, purchase, sale, divestiture, acquisition and material confidentiality agreements of which any terms remain executory, |
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gathering contracts, transportation contracts, disposal or injection contracts and all other material contracts relating to the Assets. All such agreements are in full force and effect and no default or breach (or event that, with notice or lapse of time or both, would become a default or breach) of any such agreements has occurred or is continuing on the part of Seller or, to Sellers Knowledge, any other party thereto. Seller has delivered to Buyer or made available to Buyer true and correct copies thereof the instruments.
(n) | Compliance with Leases. Seller is in compliance in all material respects with the Leases, including all express and implied covenants thereunder. |
(o) | Non-Consent Operations. Except as set forth on Schedule 5.1(o), there are no operations or proposed operations with respect to the Assets as to which Seller has become a non-consenting party under the terms of the applicable operating agreement. |
(p) | Well Locations and Operations. To Sellers Knowledge, each Well has been drilled and completed in a legal location within the boundaries of the appropriate Lease or Unit. No Well is subject to penalties or allowables after the date hereof because of any overproduction or violation of applicable laws, rules, regulations, permits, or judgments, orders or decrees of any court or governmental body or agency which prevents the Well from being entitled to its full legal and regular allowance or share of production from and after the date hereof as prescribed by any court or Governmental Body. To Sellers Knowledge, all of the Units have been validly formed. |
(q) | Well Abandonment. Except for any Wells identified in Schedule 5.1(q), to Sellers Knowledge, no Wells are located on the Leases which are shut-in or incapable of producing for which Seller has any current plugging and abandonment obligation or liability as of the Effective Date. |
(r) | Planned Future Commitments. Except for drilling operations necessary to maintain a Lease beyond the end of its primary term, Schedule 5.1(r) sets forth Sellers obligations to drill additional wells or conduct other material development operations relating to the Assets. As of the date hereof, except as set forth on Schedule 5.1(r), there are no outstanding authorities for expenditures (AFEs) or other commitments to make capital expenditures that are binding on any of the Assets which will require expenditures within ninety (90) days after the Effective Time in excess of $25,000, individually (net to Sellers interest), or $100,000 in the aggregate (net to Sellers interest). Schedule 5.1(r) lists, as of the date hereof, all outstanding AFEs relating to the Assets as to which Seller has not made (or been deemed to have made) an election. |
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5.2 Buyers Representations and Warranties. Buyer represents and warrants to Seller that, as of the date hereof and as of Closing, the following statements are accurate:
(a) | Formation. Buyer is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware and is or will be prior to Closing, duly qualified to carry on its business in each of the states in which it is required to be qualified and has the limited liability company power and authority to own its property and to carry on its business as now conducted and to enter into and to carry out the terms of this Agreement and the transactions contemplated by this Agreement. |
(b) | Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on behalf of Buyer and Buyer is not subject to any charter, by-law, lien, encumbrance, agreement, instrument, order or decree of any court or governmental body which would prevent consummation of the transactions contemplated by this Agreement. |
(c) | No Brokers. Buyer is not a party to any contract or agreement for the payment of any brokers or finders fee in connection with the origin, negotiation, execution, or performance of this Agreement for which Seller will have any liability. |
(d) | Bankruptcy. There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or to the actual and current knowledge of Buyer threatened against Buyer or any affiliate of Buyer. |
(e) | Suits and Claims. There is no suit or action by any person, entity or Governmental Authority pending in any legal, administrative or arbitration proceeding or, to Buyers knowledge, threatened against Buyer or its affiliates that will materially affect Buyers ability to consummate the transactions contemplated herein. |
(f) | 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. In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer has relied solely upon (a) its own independent due diligence investigation of the Assets and (b) the express representations and warranties made by Seller in this Agreement, and the agreements, certificates and other documents to be delivered by Seller at or prior to the Closing, 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. |
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(g) | Qualification. As of the Closing Buyer shall be, and thereafter shall continue to be, qualified with all applicable Governmental Authorities to own and, if applicable, operate the Assets. Without limiting the foregoing, Buyer is, as of the Closing, and thereafter will continue to be, qualified to own and operate any Indian, federal or state oil, gas and mineral leases that constitute part of the Assets, including, without limitation, meeting all bonding requirements. Consummating the transaction contemplated by this Agreement will not cause Buyer to be disqualified or to exceed any acreage limitation imposed by law, statute or regulation. |
(h) | Securities Laws. Buyer is acquiring the Assets for its own account 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. |
(i) | Funds. Buyer has arranged to have available by the Closing Date sufficient funds to enable Buyer to pay in full the Purchase Price as herein provided and to otherwise perform its duties and obligations under this Agreement. |
5.3 Representations and Warranties Exclusive. All representations and warranties contained in this Agreement, the Assignment and the agreements, certificates and other documents to be delivered by Seller at or prior to the Closing, are exclusive, and are given in lieu of all other representations and warranties, express, implied or statutory.
5.4 Disclaimers, Waivers and Acknowledgments.
(a) | Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE ASSIGNMENT, AND THE AGREEMENTS, CERTIFICATES AND OTHER DOCUMENTS TO BE DELIVERED BY SELLER AT OR PRIOR TO THE CLOSING, THE ASSETS ARE TO BE SOLD AND ACCEPTED BY BUYER AT CLOSING AS IS, WHERE IS AND WITH ALL FAULTS. SELLER MAKES NO WARRANTY OR REPRESENTATION OF ANY KIND OR NATURE, EXPRESS OR IMPLIED IN FACT OR BY LAW, WITH RESPECT TO THE ORIGIN, QUANTITY, QUALITY, CONDITION OR SAFETY OF ANY EQUIPMENT OR OTHER PERSONAL PROPERTY, TITLE TO PERSONAL OR MIXED PROPERTY, TITLE TO REAL PROPERTY, COMPLIANCE WITH GOVERNMENTAL REGULATIONS OR LAWS, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSES, CONDITION, QUANTITY, VALUE OR EXISTENCE OF RESERVES OF OIL, GAS OR OTHER MINERALS PRODUCIBLE OR RECOVERABLE FROM THE LEASES, UNITS OR WELLS, OR |
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OTHERWISE. ALL WELLS, PERSONAL OR MIXED PROPERTY, DATA, RECORDS, MACHINERY, EQUIPMENT AND FACILITIES COMPRISING THE ASSETS OR SITUATED THEREON OR APPURTENANT THERETO, ARE TO BE CONVEYED BY SELLER AND ACCEPTED BY BUYER PRECISELY AND ONLY AS IS, WHERE IS AND WITHOUT RECOURSE AGAINST SELLER.
(b) | Acknowledgment. Buyer acknowledges that the Assets have been used for oil and gas drilling and producing operations, transportation or gathering operations, related oil field operations and possibly the storage and disposal of waste materials incidental to or occurring in connection with such operations, and that physical changes in the land may have occurred as a result of such uses and that Buyer has entered into this Agreement on the basis of Buyers own investigation or right to investigate, the physical condition of the Assets, including, without limitation, equipment, surface and subsurface conditions. Except as set forth in this Agreement, the Assignment, and the agreements, certificates and other documents to be delivered by Seller at or prior to the Closing, Buyer is acquiring the Assets precisely and only in an as is and where is condition and assumes the risk that adverse physical conditions including, but not limited to, the presence of unknown abandoned or unproductive oil wells, gas wells, equipment, pits, landfills, flowlines, pipelines, water wells, injection wells and sumps which may or may not have been revealed by Buyers investigation, are located thereon or therein, and whether known or unknown to Buyer as of Closing. Subject to Section 3.3(b), Buyer hereby agrees to assume full responsibility for compliance with all obligations attributable in any way to the Assets, and all laws, orders, rules and regulations concerning all of such conditions, known or unknown. |
6. Title Matters
6.1 Examination Period. Following the execution date of this Agreement until 5:00 p.m. CDT on April 5, 2007 (the Examination Period), Seller shall permit Buyer and its representatives to examine, during normal business hours and such other reasonable times and in Sellers offices, all files, records, information and data relating to the Assets (but expressly excluding information reserved to Seller as part of the Excluded Assets), including, without limitation, all abstracts of title, title opinions, title files, ownership maps, Lease, Unit, Well and division order files, assignments, operating and accounting records and all Contracts and other agreements pertaining to the Assets, insofar as same may now be in existence and in the possession or control of Seller, subject to such restrictions upon disclosure as may exist under confidentiality or other agreements binding upon Seller or such data; provided, however, that Seller shall, at Buyers request and at no cost or expense to Seller, request waivers of such confidentiality restrictions. Seller makes no representations or warranties whatsoever as to the accuracy, completeness or reliability of such information, and Buyer relies and depends on and uses such information exclusively and entirely at its own risk and without recourse to Seller whatsoever. Seller shall not be required to perform any additional title work. No existing
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abstracts and title opinions will be updated and made current by Seller. Should Buyer prepare or update abstracts or title opinions, a copy of such will be made available to Seller, without cost and without warranty of any kind, for Sellers independent examination at least two (2) Business Days prior to Closing or upon the delivery of a notice of alleged Title Defect, whichever is the earlier. Buyer specifically agrees that any conclusions made from any examination done or caused to be done by Buyer from Seller furnished information regarding title have resulted and shall result from its own independent review, skill, knowledge and judgment only.
6.2 Title Defects. The term Title Defect means (a) any lien, burden, encumbrance, irregularity or other defect, excluding Permitted Encumbrances, that causes Seller not to have Marketable Title to any Asset and (b) any default by Seller under a Lease or Contract that would (i) have a material adverse affect on the operation or value of any Asset, (ii) prevent Seller from receiving the proceeds of production attributable to Sellers interest therein or (iii) result in the loss or cancellation of Sellers 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 A as Sellers Net Revenue Interest (as defined in the Preamble to Exhibits and Schedules attached hereto) of all Hydrocarbons produced, saved and marketed from a Lease, Well or Unit, without reduction, suspension or termination of such interest throughout the productive life of such Lease, Well or Unit, except as specifically set forth in such Exhibit; |
(b) | obligates Seller to bear not greater than the percentage set forth in Exhibit A as Sellers Working Interest of the costs and expenses relating to the maintenance, development and operation of a Lease, Well or Unit, all without increase throughout the productive life of such Lease, Well or Unit, except as specifically set forth in such Exhibit; |
(c) | entitles Seller to an ownership interest in the Surface Interests, Personal Property and Contracts which is proportionate to Sellers working interest in the related Lease, Well or Unit; |
(d) | with respect to the gathering systems included in the Assets, entitles Seller to rights or interests in Surface Interests covering all of the lands on which such gathering systems are located sufficient to permit such gathering systems to be located on such lands; and |
(e) | is free and clear of all liens, burdens and encumbrances on title. |
6.3 Permitted Encumbrances. The term Permitted Encumbrances means:
(a) | lessors royalties, non-participating royalties, overriding royalties, division orders, sales, gathering, transportation and transportation-related services contracts containing customary terms and provisions, reversionary interests, and similar burdens if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interest in any Well to an amount less than the Net Revenue Interest set forth on Exhibit A, or increase the Working Interest of any Well from that set forth in Exhibit A without a corresponding increase in the Net Revenue Interest; |
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(b) | the terms, conditions, restrictions, exceptions, reservations, limitations and other matters contained in (including, without limitation, 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 agreements, instruments and documents identified in, and all other matters described or referred to in, any of the Exhibits and Schedules hereto, or that otherwise create or reserve to Seller its interest in the Assets or any of them; |
(c) | liens for taxes or assessments not yet due or delinquent or, if delinquent, are identified on Schedule 6.3(c) and are being contested in good faith in the normal course of business; |
(d) | preferential rights to purchase and required non-governmental third party consents to assignments and similar agreements identified in Schedule 5.1(l) with respect to which prior to Closing (i) waivers or consents are obtained from the appropriate parties or (ii) the appropriate time period for asserting such rights has expired without an exercise of such rights; |
(e) | all rights to consent by, required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of the Assets or interests therein, if the same are customarily obtained subsequent to such sale or conveyance; |
(f) | Title Defects or other deficiencies or irregularities (other than breaches of Sellers special warranty of title) waived by Buyer in writing or not asserted on or before the expiration of the Examination Period; |
(g) | easements, rights-of way, servitudes, permits, surface leases, defects, irregularities, and other burdens, to the extent they do not materially interfere with the value of the Assets or the operation or use of the Assets as currently conducted by Seller; |
(h) | all laws, rules, regulations and orders of Governmental Authority having jurisdiction over the Assets, including, without limitation, rules and regulations governing production rates and allowables; |
(i) | vendors, carriers, warehousemens, repairmens, mechanics, workmens, materialmens, construction or other like liens which have expired as a matter of law or arising by operation of law in the ordinary course of business or incident to the construction or improvement of any property in respect of obligations which are not yet due; |
(j) | any other lien, claim, charge, encumbrance, contract, agreement, instrument, obligation, defect, or irregularity affecting the Assets relating |
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to obligations not yet in default, which is of the nature customarily accepted by prudent purchasers of oil and gas properties and which, individually or in the aggregate does not interfere materially with the value or the use of the Assets, as currently used by Seller, does not prevent Buyer from receiving the proceeds of production from the Assets, does not reduce the Net Revenue Interest of any of the Wells to less than the Net Revenue Interest set forth on Exhibit A and does not obligate Buyer to bear costs and expenses relating to the maintenance, development and operation of any of the Wells in any amount greater than the Working Interest set forth on Exhibit A (unless the Net Revenue Interest for such Well is greater than the Net Revenue Interest set forth in Exhibit A in the same proportion as any increase in such Working Interest).
6.4 Notice of Title Defects; Title Defect Valuation.
(a) | If Buyer discovers any Title Defect affecting an Asset, Buyer shall promptly notify Seller of such alleged Title Defect. To be effective, such notice (a Title Defect Notice) must (i) be in writing, (ii) be received prior to the expiration of the Examination Period, (iii) describe the Title Defect in reasonable detail (including any alleged variance in the Net Revenue Interest or Working Interest), (iv) identify the specific Asset or Assets affected by such Title Defect, and (v) include the Title Defect Value, as reasonably determined by Buyer acting in good faith. Upon receipt of a timely Title Defect Notice, upon request by Seller, Buyer shall promptly deliver to Seller copies of all data, records, title reports, opinions and other information in Buyers possession or control bearing upon or relating to the alleged Title Defect and its determination of the Title Defect Value. |
(b) | The value attributable to each Title Defect (the Title Defect Value) shall be determined based upon the criteria set forth below: |
(i) | If the Title Defect is a lien upon an 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 a Well is less than that stated in Exhibit A (and there is a corresponding and proportionate decrease in Working Interest), then the Title Defect Value is the product of the Allocated Value attributed to such Asset, multiplied by a fraction, the numerator of which is the difference between the Net Revenue Interest applicable thereto set forth in Exhibit A and the actual Net Revenue Interest, and the denominator of which is the applicable Net Revenue Interest stated in Exhibit A. |
(iii) | If the Title Defect represents an obligation, encumbrance, burden or charge upon the affected Asset (including any increase in |
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Working Interest for which there is not a proportionate increase in Net Revenue Interest) and 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, and the potential discounted economic effect of the Title Defect over the life of the affected Asset.
(iv) | If a Title Defect does not adversely affect an Asset throughout the entire 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, Leases and other Assets affected thereby. |
(vii) | Such other factors as are reasonably necessary to make a proper evaluation. |
6.5 Remedies for Title Defects. Subject to Sections 6.7 and 6.8, the following shall be Buyers sole and exclusive remedy with respect to Title Defects:
(a) | Upon the receipt of a Title Defect Notice from Buyer asserting an alleged Title Defect, Seller shall have the option, but not the obligation, to attempt to cure such Title Defect at any time prior to the Closing. |
(b) | With respect to any alleged Title Defect that is not reasonably cured on or before the Closing, and the Title Defect Value for such Asset exceeds the Allocated Value for such Asset, each Party shall have the option, but not the obligation, to exclude the affected Asset from the Assets delivered at Closing and the Purchase Price shall be reduced by the Allocated Value of such affected Asset. |
(c) | With respect to each alleged Title Defect that is not reasonably cured on or before the Closing and the affected Asset has not been excluded from the transaction pursuant to Section 6.5(b), an amount equal to the Title Defect Value agreed upon in writing by Buyer and Seller acting reasonably shall be paid by Buyer at Closing out of the Adjusted Purchase Price to the Escrow Agent for deposit in the Escrow Account and Seller shall, such subject to the further provisions hereof, have up to ninety (90) days following the Closing Date to attempt to cure such Title Defect; provided, that, if the parties have not agreed upon the validity of an alleged Title Defect, or the Title Defect Value attributable thereto, the amount so |
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deposited in the Escrow Account for such alleged Title Defect shall be that reasonably determined by Buyer acting in good faith. If Seller reasonably cures the Title Defect within such ninety-day period, Seller will be entitled to be distributed from the Escrow Account the amount equal to the Title Defect Value, together with any earnings on such amount. If Seller does not reasonably cure the Title Defect within the allotted period, Buyer will be entitled to be distributed from the Escrow Account the amount equal to the Title Defect Value, as finally determined, together with any earnings on such amount, and the Purchase Price hereunder will be deemed to be reduced by the amount of the Title Defect Value. |
(d) | If Buyer and Seller have not agreed (i) on or before Closing upon the validity of an asserted Title Defect, or have not agreed on the Title Defect Value attributable thereto, or (ii) upon whether a Title Defect has been reasonably cured, then either party shall have the right to elect by written notice, delivered before or after Closing, to have the validity of such Title Defect, such Title Defect Value or the sufficiency of Sellers cure determined by an Independent Expert pursuant to Section 8. In no event shall any disbursement from the Escrow Account be made to Seller or Buyer with respect to a Title Defect that is the subject of a dispute pending before the Independent Expert until such dispute is finally resolved as provided in Section 8 hereof, which shall include, without limitation, an award of the escrowed funds attributable to such Title Defect. To the extent the Independent Expert is determining the validity of a Title Defect, Seller shall have ninety (90) days from the date the Independent Expert determines that a Title Defect exists to cure such Title Defect. |
(e) | Any Title Defect cured by Seller or for which Buyer receives a Purchase Price adjustment or payment pursuant to this Section 6.5, shall constitute a Permitted Encumbrance hereunder and under the Assignment. |
6.6 Title Benefits.
(a) | Subject to Section 6.7, Seller shall be entitled to an upward adjustment to the Purchase Price with respect to all Title Benefits of which Seller provides Buyer notice (a Title Benefit Notice) in writing prior to the expiration of the Examination Period in an amount (the Title Benefit Value) mutually agreed upon by the parties determined in accordance with the criteria set forth in the definition of the term Title Defect Value, net of the mutually agreed Title Defect Value. Notwithstanding the foregoing if the Title Defect Value is disputed, no upward adjustment to the Purchase Price shall be made for Title Benefits until the Title Defect Value has been determined in accordance with Section 6.5. A party identifying a Title Benefit affecting the Assets shall promptly deliver such a Title Benefit Notice to the other party. The term Title Benefit shall mean Sellers Net Revenue Interest in any Well that is greater than the Net Revenue Interest set forth in Exhibit A, or Sellers Working Interest in any Well is less than the Working Interest set forth in Exhibit A (without a proportionate decrease in the Net Revenue Interest). |
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(b) | If with respect to an asserted Title Benefit the parties have not agreed on the validity of the Title Benefit or the Title Benefit Value attributable thereto on or before Closing, Seller or Buyer shall have the right to elect by written notice to the other party to have the validity of the Title Benefit and/or the Title Benefit Value determined by an Independent Expert pursuant to Section 8. If the validity of the Title Benefit and/or the Title Benefit Value is not determined pursuant to this Agreement by the Closing, the Title Benefit Value determined by Seller, acting reasonably and in good faith, shall be offset by the aggregate Title Defect Value, and such amount shall be deposited in the Escrow Account at Closing. Upon the final determination of the Title Benefit Value (i) the Escrow Agent shall refund to Buyer the amount, if any, by which the amount so paid by Buyer at Closing exceeds such Title Benefit Value, net of the Title Defect Value and (ii) the Escrow Agent shall pay to Seller the amount, if any, of such Title Benefit Value, net of the Title Defect Value. In no event shall any disbursement from the Escrow Account be made to Seller or Buyer with respect to a Title Benefit that is the subject of a dispute pending before the Independent Expert until such dispute is finally resolved as provided in Section 8 hereof, which shall include, without limitation, an award of the escrowed funds attributable to such Title Benefit. |
6.7 Limitation of Remedies for Title Defects; Title Benefits. Notwithstanding anything to the contrary contained in this Agreement, if (a) the Title Defect Value for a given Title Defect, or the Title Benefit Value of a given Title Benefit, does not exceed $50,000, then no claim or adjustment to the Purchase Price shall be made for such Title Defect or Title Benefit, (b) if the aggregate net value of all uncured Title Defects and Title Benefits does not exceed one and one-half percent (1 1/2%) of the sum of the Purchase Price under this Agreement and the Purchase Price under the LLC Purchase Agreement (the Aggregate Title Threshold), then no adjustment of the Purchase Price shall be made therefor, and (c) if the aggregate net value of all uncured Title Defects and Title Benefits exceeds the Aggregate Title Threshold (prior to any adjustments thereto), then the Purchase Price shall only be adjusted by the amount of such excess. The allocation of the Purchase Price adjustment for Title Defects between this Agreement and the LLC Purchase Agreement shall be determined on a pro rata basis, based upon the contribution of Title Defect Values attributable to each agreement relative to the total value of all Title Defects.
6.8 Termination. Notwithstanding anything to the contrary herein, if on the Closing Date the aggregate Title Defect Values, as finally determined, for all uncured Title Defects (net of Title Benefits) exceeding $50,000 and not waived by Buyer under this Agreement and under the LLC Purchase Agreement exceeds an amount equal to five percent (5%) of the Purchase Price under this Agreement and under the LLC Purchase Agreement (in each case, prior to any adjustments thereto), then either Buyer or Seller shall have the option to terminate this Agreement, without any liability, upon written notice to the other party. If either party exercises its option to terminate this Agreement pursuant to this Section 6.8, this Agreement shall become
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void and have no effect, the Deposit shall be returned to the Buyer as provided in Section 10.3 and neither party shall have any further right or duty to or claim against the other party under this Agreement.
7. Environmental Matters
7.1 Environmental Review.
(a) | Buyer shall have the right to conduct an environmental review of the Assets prior to the expiration of the Examination Period (Buyers Environmental Review). Seller shall provide Buyer such access as it may reasonably request to the Assets (if operated by Seller) and the environmental data in Sellers files for the Assets. With respect to Assets not operated by Seller, Seller agrees, at no cost or expense to Seller, to request that the operator of such Assets grant Buyer such access. Seller makes no representations or warranties whatsoever as to the accuracy, completeness or reliability of any such environmental information, and Buyer relies and depends on and uses any and all such environmental information, review or inspection exclusively and entirely at its own risk and without any recourse to Seller whatsoever. |
(b) | The cost and expense of Buyers Environmental Review shall be borne solely by Buyer. The scope of work comprising Buyers Environmental Review conducted at or upon the Leases, Units and Wells shall be limited to that mutually agreed in writing by Buyer and Seller (acting reasonably) prior to commencement thereof and shall not include any intrusive test or procedure without the prior written consent of Seller; provided, that Buyer may terminate this Agreement if Seller unreasonably withholds such consent. Buyer shall (i) consult with Seller before conducting any work comprising such Buyers Environmental Review, (ii) perform all such work in a safe and workmanlike manner and so as to not unreasonably interfere with Sellers operations, and (iii) comply with all applicable laws, rules, and regulations of applicable Governmental Authority. Buyer shall be responsible for obtaining any third party consents that are required in order to perform any work comprising Buyers Environmental Review. Buyer shall consult with Seller prior to requesting each such third party consent and Seller shall reasonably cooperate with Buyer in connection with obtaining such consent. Seller shall have the right to have a representative or representatives accompany Buyer at all times during Buyers Environmental Review, and Buyer shall give Seller notice not more than seven (7) days and not less than 48 hours before any visits by Buyer to the Assets, and Buyer shall seek and obtain Sellers prior consent (which shall not be unreasonably withheld) before it enters upon the Assets. With respect to any samples taken in connection with Buyers Environmental Review, Buyer shall take split samples, providing one of each such sample, properly labeled and identified, to Seller. Buyer hereby agrees to release, defend, indemnify and hold harmless Seller Parties from |
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and against all Claims arising from, out of or in connection with, or otherwise relating to, Buyers Environmental Review, REGARDLESS OF THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE (BUT NOT ANY SELLER PARTYS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY, REGULATORY LIABILITY, STATUTORY LIABILITY, BREACH OF CONTRACT, BREACH OF WARRANTY, OR OTHER FAULT OR RESPONSIBILITY OF A SELLER PARTY OR ANY OTHER PERSON OR PARTY. Notwithstanding the foregoing and assuming that Buyer complies with the notice requirements of this Article 7, prior to Closing, Buyer shall have no indemnity obligation to Seller with respect to Buyers discovery of information that may lead to Claims arising from the condition of the Assets prior to Buyers Environmental Review.
(c) | Unless otherwise required by applicable law, Buyer shall treat all matters revealed by Buyers Environmental Review, including, without limitation, any analyses, compilations, studies, documents, reports or data prepared or generated from such review (the Environmental Information), as confidential, and Buyer shall not disclose any Environmental Information to any Governmental Authority or other third party without the prior written consent of Seller except as hereafter provided. 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 7.1(c). 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 by a court or other Governmental Authority, or disclosure is otherwise required under applicable law, 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 Sellers request Buyer shall promptly deliver the Environmental Information, and all copies thereof and works based thereon, to Seller, which Environmental Information shall become the sole property of Seller; provided, however, that Buyer may retain copies thereof in the event of a dispute between Buyer and Seller arising from or relating to such termination. Upon request Buyer shall provide copies of the Environmental Information to Seller without charge. The terms and provisions of this Section 7.1(c) shall survive any such termination of this Agreement, notwithstanding anything to the contrary. In no event shall an Environmental Defect be the basis for adjusting the Purchase Price by an amount greater than the Allocated Value of the Asset(s) affected thereby. |
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7.2 Environmental Definitions.
(a) | The term Environmental Defect shall mean, with respect to any given Asset, a material violation of Environmental Laws in effect as of the Effective Time in the jurisdiction in which such Asset is located. |
(b) | The term Governmental Authority shall mean any tribal authority, 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) | The term Environmental Laws shall mean all laws, statutes, ordinances, court decisions, rules and regulations of any Governmental Authority pertaining to the environment as may be interpreted by applicable final, non-appealable court decisions or administrative orders. |
(d) | The term Environmental Defect Value shall mean, with respect to an Environmental Defect, the estimated costs and expenses to correct such Environmental Defect in the most cost effective manner reasonably available, consistent with Environmental Laws, taking into account that non-permanent remedies (such as mechanisms to contain or stabilize hazardous materials, including without limitation 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, together with such other Claims as may reasonably be expected to arise from such Environmental Defect. |
7.3 Notice of Environmental Defects. If Buyer discovers any alleged Environmental Defect affecting the Assets, Buyer shall promptly notify Seller of such alleged Environmental Defect. To be effective, such notice (an Environmental Defect 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 (i) the written conclusion of Buyer that an Environmental Defect exists, and (ii) a citation of the Environmental Laws alleged to be violated and a summary of the related facts that substantiate such violation, (d) identify the specific Assets affected by such Environmental Defect, (e) the procedures recommended to correct the Environmental Defect and (f) Buyers reasonable good faith estimate of the Environmental Defect Value, for which Buyer would agree to adjust the Purchase Price in order to accept such Environmental Defect if Seller elected Section 7.4(c) as the remedy therefor. 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 of Buyer at Closing. Upon receipt of a timely Environmental Defect Notice, upon request by Seller, Buyer shall promptly deliver to Seller copies of all data, records, reports, opinions and other information in Buyers possession or control bearing upon or relating to the alleged Environmental Defect and its determination of the
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Environmental Defect Value, including, without limitation, site plans showing the location of sampling events, boring logs and other field notes describing the sampling methods utilized and the field conditions observed, chain of custody documentation and laboratory reports.
7.4 Remedies for Environmental Defects. Subject to Sections 7.5 and 7.6, the following shall be Buyers sole and exclusive remedy with respect to alleged Environmental Defects:
(a) | Upon the receipt of an Environmental Defect Notice from Buyer asserting an alleged Environmental Defect, Seller shall have the option, but not the obligation, to attempt to cure such Environmental Defect at any time prior to the Closing. |
(b) | With respect to any alleged Environmental Defect that is not reasonably cured on or before the Closing, and the Environmental Defect Value for such Asset exceeds the Allocated Value for such Asset, either Party may have the option, but not the obligation, to exclude the affected Asset from the Assets delivered at Closing and the Purchase Price shall be reduced by the Allocated Value of such affected Asset. |
(c) | With respect to each alleged Environmental Defect that is not reasonably cured on or before the Closing and has not been excluded from the transaction pursuant to Section 7.4(b), an amount equal to the Environmental Defect Value agreed upon in writing by Buyer and Seller acting reasonably shall be paid by Buyer at Closing out of the Adjusted Purchase Price to the Escrow Agent for deposit in the Escrow Account and Seller shall have up to ninety (90) days following the Closing Date to attempt to cure such Environmental Defect; provided, that, if the parties have not agreed upon the validity of the alleged Environmental Defect, or the Environmental Defect Value attributable thereto, the amount so deposited for such alleged Environmental Defect shall be that reasonably determined by Buyer acting in good faith. If Seller reasonably cures the Environmental Defect within such ninety-day period, Seller will be entitled to be distributed from the Escrow Account the amount equal to the Environmental Defect Value, together with any earnings on such amount. If Seller does not cure the Environmental Defect within such sixty-day period, Buyer will be entitled to be distributed from the Escrow Account the amount equal to the Environmental Defect Value, together with any earnings on such amount, and the Purchase Price hereunder will be deemed to be reduced by the amount of the Environmental Defect Value. |
(d) | If Buyer and Seller have not agreed (i) on or before Closing upon the validity of any asserted Environmental Defect, or if the parties have not agreed on the Environmental Defect Value therefor, or (ii) upon whether an alleged Environmental Defect has been reasonably cured, then either party by written notice to the other party, delivered before or after Closing, shall have the right to elect to have the validity of the asserted |
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Environmental Defect, the Environmental Defect Value for such Environmental Defect, or the sufficiency of Sellers cure determined by an Independent Expert pursuant to Section 8. In no event shall any disbursement from the Escrow Account be made to Seller or Buyer with respect to an Environmental Defect that is the subject of a dispute pending before the Independent Expert until such dispute is finally resolved as provided in Section 8 hereof, which shall include, without limitation, an award of the escrowed funds attributable to such Environmental Defect. To the extent the Independent Expert is determining the validity of an Environmental Defect, Seller shall have ninety (90) days from the date the Independent Expert determines that an Environmental Defect exists to cure such Environmental Defect.
7.5 Limitation of Remedies for Environmental Defects. Notwithstanding anything to the contrary contained in this Agreement, (a) if the Environmental Defect Value for a given Environmental Defect does not exceed $50,000, then no adjustment to the Purchase Price shall be made for such Environmental Defect, (b) if the aggregate of all Environmental Defect Values exceeding $50,000 for uncured Environmental Defects not waived by Buyer does not exceed one and one-half percent (1 1/2%) of the sum of the Purchase Price under this Agreement and the Purchase Price under the LLC Purchase Agreement (the Aggregate Environmental Defect Threshold), then no adjustment of the Purchase Price shall be made therefor, and (c) if the aggregate of all Environmental Defect Values exceeding $50,000 for uncured Environmental Defects not waived by Buyer exceeds the Aggregate Environmental Defect Threshold, then the Purchase Price shall only be reduced by the amount of such excess. The allocation of the amount of Purchase Price adjustment for Environmental Defects between this Agreement and the LLC Purchase Agreement shall be determined on a pro rata basis, based upon the contribution of Environmental Defect Values attributable to each agreement relative to the total value of all Environmental Defects.
7.6 Termination. Notwithstanding anything to the contrary herein, if on the Closing Date the aggregate of all Environmental Defect Values exceeding $50,000 for all uncured Environmental Defects not waived by Buyer under this Agreement and under the LLC Purchase Agreement exceeds an amount equal to five percent (5%) of the Purchase Price under this Agreement and under the LLC Purchase Agreement (in each case, prior to any adjustments thereto), then either Seller or Buyer shall be entitled to terminate this Agreement, without any liability, upon written notice to the other party. If either party exercises its option to terminate this Agreement pursuant to this Section 7.6, the Agreement shall become void and have no effect, the Deposit shall be returned to Buyer as provided in Section 10.3, and neither party shall have any further right or duty to or claim against the other party under this Agreement.
7.7 Post-Closing Environmental Indemnification by Buyer. Subject to Section 3.3(b), Buyer shall, with respect to the Assets and without regard to whether same arise or occur prior to or after the Effective Time (except as otherwise expressly provided below) assume and indemnify, defend and hold Seller Parties harmless from and against any and all Claims caused by, resulting from, or relating or incidental to all matters affecting health, safety and the environment (excluding, however, fines and penalties owed by Seller with respect to ownership
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or operation of the Assets prior to the Effective Time) including without limitation Claims relating to:
(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 or any other substance, and other violation of Environmental Laws; |
(b) | underground injection activities; |
(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 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; provided, however, that in no event shall Buyer assume any Claims arising from off-site disposal of such substances occurring prior to the Effective Time; and |
(f) | non-compliance with environmental or land use rules, regulations, demands or orders of appropriate Governmental Authorities, |
REGARDLESS OF THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE (BUT NOT SELLERS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), BREACH OF CONTRACT, BREACH OF WARRANTY, STRICT LIABILITY, REGULATORY LIABILITY, STATUTORY LIABILITY, OR OTHER FAULT OR RESPONSIBILITY OF SELLER OR ANY OTHER PERSON OR PARTY.
7.8 Condition of the Assets. Buyer specifically assumes the risk of the condition of the Assets and shall inspect the Assets prior to Closing, or hereby expressly waives such right, if not exercised. Buyer stipulates that any such inspection, if made, shall cover but not be limited to the physical and environmental condition, both surface and subsurface, of the Assets. It is expressly recognized by Buyer that the lands, along with the facilities and equipment located thereon, having been used in connection with oil, gas and water production, treatment, storage and disposal activities, and may contain NORM, asbestos and other hazardous substances as a result of these operations. The generation, formation, or presence of NORM, asbestos or other hazardous substances in or on the Assets shall be the sole responsibility of Buyer, and Buyer and all future assignees and successors of Buyer shall defend, indemnify and hold Seller Parties harmless from and against any and all Claims in any way arising from, out of or in connection with, or otherwise relating to, the presence of NORM, asbestos or other hazardous substances, without regard to whether such NORM, asbestos or other hazardous substance was in place before or after the Effective Time, and REGARDLESS OF THE SOLE, JOINT,
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CONCURRENT OR COMPARATIVE NEGLIGENCE (BUT NOT SELLERS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), BREACH OF CONTRACT, BREACH OF WARRANTY, STRICT LIABILITY, REGULATORY LIABILITY, STATUTORY LIABILITY, OR OTHER FAULT OR RESPONSIBILITY OF SELLER OR ANY OTHER PERSON OR PARTY.
7.9 Waiver. Buyer, with and upon Closing, waives for all purposes all objections associated with the environmental, physical and other condition of the Assets, unless raised by proper notice within the Examination Period, and Buyer (and on behalf of Buyer Parties and their successors and assigns) irrevocably waives any and all Claims they may have against the Seller Parties associated therewith.
8. Independent Experts
8.1 Selection of Independent Experts. Any disputes regarding Title Defects, Title Benefits, Title Defect Values, Title Benefit Values, Environmental Defects, Environmental Defect Values, the cure of Title Defects or Environmental Defects, any other matter for which Buyer or Seller is indemnified hereunder, and the calculation of the Final Settlement Statement, or revisions thereto, may, as herein provided, 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, with regard to any disputes regarding Title Defect Values, Title Benefit Values, Environmental Defects, Environmental Defect Values, the cure of Title Defects or Environmental Defects, shall be selected upon their field of expertise with the mutual agreement of Buyer and Seller and shall have both knowledge and experience involving properties in the regional area in which the properties are located. If the parties are unable to agree on an Independent Expert, Seller shall appoint an arbitrator of its choice and Buyer shall appoint an arbitrator of its choice (each, a Party Appointed Arbitrator). The two Party Appointed Arbitrators shall in turn appoint a third to be the presiding arbitrator. The arbitration proceedings shall be held in Houston, Texas and shall be conducted pursuant to the then current Commercial Arbitration Rules of the American Arbitration Association (the AAA).
8.2 Procedures. 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 AAA. The Independent Expert shall be instructed by the parties to resolve such dispute as soon as reasonably practicable in light of the circumstances but in any event within ninety (90) days for Title Defects or Title Benefits and within ninety (90) days for Environmental Defects. The decision and award of the Independent Expert shall be binding upon the parties and final and nonappealable to the maximum extent permitted by law, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any party as a final judgment of such court.
8.3 Location of Proceeding. All proceedings under this Section 8 shall be conducted in Houston, Texas.
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9. Additional Covenants
9.1 Operations Prior to Closing. After the date of this Agreement and prior to the Closing, as to any of the Assets operated by Seller, Seller shall use, operate and maintain the Assets in substantially the same manner in which they have been used, operated and maintained prior to this Agreement. During the period from the Effective Time until Closing, Seller shall have no liability to Buyer for Claims sustained or liabilities incurred with respect to the Assets, REGARDLESS OF THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE (BUT NOT SELLERS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), STRICT LIABILITY, REGULATORY LIABILITY, STATUTORY LIABILITY, BREACH OF CONTRACT, BREACH OF WARRANTY, OR OTHER FAULT OR RESPONSIBILITY OF SELLER OR ANY OTHER PERSON OR PARTY. After the date hereof and prior to Closing, Seller may (without Buyers consent) enter into agreements or transactions in relation to the Assets which (a) individually involve a fair market value of less than $25,000, individually, or, in the aggregate exceed the amounts set out in the budget attached as Schedule 9.1 and (b) are entered into in the ordinary course of business, consistent with past practices. With Closing, Seller is relieved of and shall not be obligated for any expenditures attributable to periods after the Effective Time, and shall recover any such charges and expenses as part of the Closing Statement and Final Settlement Statement adjustments, as appropriate. Except with respect to those matters described above, if any material expenditure, contract or agreement is proposed or contemplated, Seller shall submit such proposal to Buyer for concurrence with Sellers recommendation. Buyer will make any required election under its independent evaluation and shall assume the cost and risk of any consequences which arise as a result of Buyers election to participate or Buyers failure to timely elect or election to not participate in or not approve an operation and not pay such expenditure, without regard to whether Closing occurs. Additionally, after the execution of this Agreement and prior to Closing, Seller shall have the right to make any changes, repairs or modifications to the Assets, and incur any related expenditure deemed necessary by Seller, to prevent or react to an emergency involving serious risk of loss of or damage to life, property, or the environment. With regard to the preceding sentence, Seller shall notify Buyer as soon as possible of the emergency and Sellers response thereto and shall have the right to cause or effect such expenditure or action with or without Buyers approval, and recover such costs in the Closing Statement or Final Settlement Statement adjustments, as appropriate. Prior to Closing, Seller shall (i) consult with and advise Buyer regarding all material matters concerning the operation, management, and administration of the Assets; and (ii) obtain Buyers written approval before voting under any operating, unit, joint venture, or similar agreement. Furthermore, Seller will not, without the prior written consent of Buyer, (x) enter into any agreement or arrangement transferring, selling, or encumbering any of the Assets; (y) grant any preferential or other similar right to purchase any of the Assets; or (z) enter into any new production sales contract extending beyond the Closing Date and not terminable on thirty (30) days notice or less. Promptly after execution of this Agreement, Seller shall notify the holders of the Consents of the transactions contemplated herein and request their consent. Buyer shall have the right to review and approve the form of such notices, such approval not to be unreasonably withheld. Buyer and Seller each agree to reasonably cooperate with efforts to obtain such required consents.
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9.2 Preferential Rights to Purchase.
(a) | Notice. Promptly after execution of this Agreement, Seller shall use the Allocated Values set forth on Schedule 2.3 to provide each required Preferential Right notification. |
(b) | Third Party Exercise. If a third party gives valid notice of its exercise of a Preferential Right to purchase any of the Assets, the affected Assets will not be sold to Buyer and the Purchase Price will be adjusted by the Allocated Value of the affected Assets. If Buyer has allocated a positive Allocated Value to the Preferential Right Asset, the Purchase Price will be reduced by the dollar amount of the positive allocation. If Buyer has allocated a negative Allocated Value to the Preferential Right Asset, the Purchase Price will be increased by the absolute value of the negative allocation. Buyer remains obligated to purchase the remainder of the Assets not affected by exercised Preferential Rights without reduction to the Purchase Price in accordance with the terms of this Agreement. |
(c) | Third Party Failure to Purchase. If a third party gives notice of its intent to exercise a Preferential Right any of the Assets, but does not close the purchase for any reason either before or within a reasonable time after Closing, then there shall promptly be an additional Closing between Seller and Buyer for such portion of the Assets pursuant to the terms of this Agreement, by which Seller will transfer the affected portion of the Assets to Buyer and Buyer will pay Seller that portion of the Purchase Price attributable thereto (or in the case of a negative allocation, Seller will refund the absolute value of the negative amount to Buyer) (in each case subject to adjustment in accordance with Section 2.4). |
9.3 Third Party Equal or Better Offer. Certain of the Assets are subject to an Operating Agreement dated May 3, 2006, between Seller and K & E Field Services, Inc., Bullseye Energy, Inc., KRS&K, Inc., Redbird Oil, Wild West Gas, L.L.C., White Hawk Gas, Inc., Purgatory Creek Gas, Inc. and Gashoma, Inc. (the Operating Agreement), that contains a tag along provision specifying that Seller cannot sell its interest in those Assets of related entities without the potential buyer offering to purchase certain Kane Family, as defined therein, interests on equal or better terms (the Tag Along Right). The Kane Family is under no obligation to sell its interest on those or any other terms. Seller will have provided Buyer a copy of the Operating Agreement simultaneously with the execution hereof. Buyer agrees to make an offer to the Kane Family to acquire such assets under terms substantially the same as set forth herein. Seller will reasonably cooperate with Buyer in connection with such offer, but at no expense to Seller.
9.4 Successor Operator. Buyer acknowledges and agrees that Seller cannot and does not covenant or warrant that Buyer shall become successor operator of the Assets or portions thereof which Seller may presently operate, since same may be subject to unit, pooling, communitization or operating agreements or other agreements which control the appointment of a successor operator. Seller agrees, however, that, where it will, in the opinion of Seller, facilitate the appointment of a successor operator, and will, in a prudent manner, resign as operator of the Assets it operates before or after Closing.
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9.5 Financial Information.
(a) | Prior to and following Closing, Seller shall and shall use its reasonable best efforts to cause its accountants, counsel, agents and other third parties to cooperate with Buyer and its representatives in connection with the preparation by Buyer of financial statements and other financial data relating to the Assets (collectively, the Financial Statements) that are required to be included in any filing by Buyer or its affiliates with the Securities and Exchange Commission. |
(b) | Prior to and following Closing, Seller shall give Buyer and its representatives reasonable access during normal business hours to the Assets, Records, and other financial data necessary for the preparation of the Financial Statements. If requested, Seller shall execute and deliver to the external audit firm that audits the Financial Statements (the Audit Firm) such representation letters, in form and substance customary for representation letters provided to external audit firms by management of the company whose financial statements are the subject of an audit or are the subject of a review pursuant to Statement of Accounting Standards 100 (Interim Financial Information), as may be reasonably requested by the Audit Firm, with respect to the Financial Statements, including, as requested, representations regarding internal accounting controls and disclosure controls. As used in this Section 9.6, the term Records means all ledgers, books, records, data, files, and accounting and financial records, in each case to the extent related primarily to the Assets, or used or held for use primarily in connection with the maintenance or operation thereof. |
9.6 Compliance. From and after Closing, Buyer shall comply with contracts, agreements, Leases and applicable laws, ordinances, rules and regulations and shall promptly obtain and maintain all permits required by public authorities in connection with the Assets purchased.
10. Closing, Termination and Final Adjustments
10.1 Conditions Precedent. Each partys obligation to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following:
(a) | 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: |
(i) | The representations and warranties of Buyer herein contained shall be true and correct in all material respects on the Closing Date (except that those representations and warranties of Buyer that are qualified by materiality shall be true and correct in all respects), as though made on and as of such date, except that representations |
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which by their terms are made as of a specified date shall be true and correct as of the date so specified, and Buyer shall have delivered to Seller a certificate, dated as of the Closing Date, to that effect.
(ii) | Buyer shall have performed and complied in all material respects with the duties, obligations and covenants under this Agreement required to be performed or complied with by it at or prior to Closing, and Buyer shall have delivered to Seller a certificate, dated as of the Closing Date, to that effect. |
(iii) | 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, other than an action or proceeding instituted or threatened by Seller or any of its affiliates. |
(iv) | All Consents shall have been made, obtained or waived by the other party or parties thereto, or the time period by which such consents were required to be made, given or withheld have expired without action by the party whose consent is required. |
(v) | All Preferential Rights shall have been waived, exercised, or the time period in which to exercise expired without exercise. |
(vi) | Buyer shall have delivered to Seller either: (A) copies of any bonds covering the Assets required under any laws, rules or regulations of any federal, state or local Governmental Authority having jurisdiction over the Assets, to replace Sellers existing bonds covering the Assets shown on Schedule 10.1(a)(vi); or (B) a commitment by a surety company, satisfactory to Seller, to issue such replacement bonds for Buyer upon Closing. |
(vii) | The aggregate of all adjustments to the Purchase Price for Environmental Defects, Title Defects, Preferential Rights exercised by third parties, and Casualty Losses shall not exceed fifteen percent (15 %) of the Purchase Price. |
(viii) | Closing shall have simultaneously occurred under that certain Purchase and Sale Agreement, of even date herewith, between EnergyQuest and OK Processing, as Seller, and Buyer, as Buyer, of the membership interests of certain limited liability companies (the LLC Purchase Agreement). |
(ix) | The Tag Along Right shall have been exercised or waived in writing by the holders thereof. |
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(b) | The obligations of Buyer to consummate the transactions 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: |
(i) | The representations and warranties of Seller herein contained shall be true and correct in all material respects on the Closing Date (except that those representations and warranties of Seller that are qualified by materiality shall be true and correct in all respects), as though made on and as of such date, except representations that by their terms are made as of a specified date shall be true and correct as of the date so specified and Seller shall have delivered to Buyer a certificate, dated as of the Closing Date, to that effect. |
(ii) | Seller shall have performed and complied in all material respects with the duties, obligations and covenants under this Agreement required to be performed or complied with by it at or prior to Closing, and Seller shall have delivered to Buyer a certificate, dated as of the Closing Date, to that effect. |
(iii) | 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, other than an action or proceeding instituted or threatened by Buyer or any of its affiliates. |
(iv) | All Consents shall have been made, obtained or waived by the other party or parties thereto, or the time period by which such consents were required to be made, given or withheld have expired without action by the party whose consent is required. |
(v) | All Preferential Rights shall have been waived, exercised, or the time period in which to exercise expired without exercise. |
(vi) | The aggregate of all adjustments to the Purchase Price for Environmental Defects, Title Defects, Preferential Rights exercised by third parties, and Casualty Losses shall not exceed fifteen percent (15%) of the Purchase Price. |
(vii) | Closing shall have simultaneously occurred under the LLC Purchase Agreement. |
(viii) | The Tag Along Right shall have been exercised or waived in writing by the holders thereof. |
10.2 Closing. The closing of the transactions contemplated herein and the transfer of the Assets (Closing) shall occur on April 19, 2007 at Sellers office, located at 15425 North Freeway, Suite 230, Houston, Texas 77090 at 10:00 a.m., local time, or on such other date or
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time, or at such other place, as Seller and Buyer may agree in writing (the Closing Date). At Closing, the following shall occur:
(a) | Buyer and Seller shall execute and acknowledge an Assignment and Bill of Sale in substantially the form of Exhibit C; |
(b) | Buyer and Seller shall execute and acknowledge, if appropriate, any such other assignments, bills of sale, deeds, or other instruments as are reasonably necessary to effectuate the transfer, sale or conveyance of the Assets to Buyer, including without limitation and to the extent required, separate assignments of the Assets on officially approved forms in sufficient counterparts to satisfy applicable statutory and regulatory requirements for the transfer of the Assets; |
(c) | To the extent permitted by law or contract, Seller and Buyer shall execute and deliver at Closing the requisite number of change of operator forms or other designation of operator forms and any other necessary forms as may be required by any Governmental Authority; |
(d) | At the Closing, upon and against delivery of the Assignment and other instruments described in this Section 10.2: |
(i) | Buyer shall pay to the Escrow Agent out of the Adjusted Purchase Price, for deposit in the Escrow Account, the Indemnity Escrow Amount; |
(ii) | Buyer shall pay to the Escrow Agent out of the Adjusted Purchase Price, for deposit in the Escrow Account, the amount of any Title Defect Values for any uncured Title Defects as provided in Section 6.5, net of the Title Benefit Values; |
(iii) | Buyer shall pay to the Escrow Agent out of the Adjusted Purchase Price, for deposit in the Escrow Account, the amount of any Environmental Defect Values for any uncured Environmental Defects as provided in Section 7.4; and |
(iv) | Buyer shall pay the Adjusted Purchase Price, less the amounts paid by Buyer to the Escrow Agent pursuant to Sections 10.2(d)(i), 10.2(d)(ii) and 10.2(d)(iii), if any, to Seller by bank wire, as designated in advance by Seller under Section 2.2. |
(e) | On or before Closing, Seller shall, where Buyer is to become operator, supply Buyer with an appropriate governmental form as required by the governmental agency, board or commission having jurisdiction and authority to change the name of operator from Seller to Buyer, for each Seller-operated Well (whether dry, inactive, injector or producing), Lease or any other well or facility or Personal Property, as may be required or defined by said agency, board or commission located on the premises that |
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form a part of the subject matter of this Agreement. All such forms shall be executed by Buyer and/or Seller as may be required prior to or during Closing. Buyer shall be solely responsible for any fee as may be required by such governmental agency, board or commission and, at the parties option, shall either deliver its check payable to the governmental agency, board or commission to Seller at Closing or credit this fee amount to Seller in the Final Settlement Statement. Seller shall mail the completed form and fee to the proper governmental agency, board or commission after Closing;
(f) | Buyer and Seller shall execute and deliver to Buyer letters-in-lieu or transfer orders, and immediately after Closing, Buyer shall notify all pertinent operators, non-operators, oil or gas purchasers, governmental agencies and royalty owners that it has purchased the Assets, and the Effective Time of such acquisition. |
(g) | EnergyQuest shall deliver to Buyer a certificate pursuant to Internal Revenue Code Section 1445, in the form of Exhibit F, certifying that EnergyQuest is not a foreign person. |
(h) | Each Seller shall execute and deliver a clearance certificate or similar document reasonably requested by the Buyer which may be required by any state or local taxing authority in order to relieve the Buyer of any obligation to withhold any portion of the Adjusted Purchase Price. |
(i) | Seller and Buyer shall execute and deliver a Transition Services Agreement substantially in the form of Exhibit E attached hereto. |
10.3 Termination. This Agreement and the transactions contemplated hereby may be terminated in the following instances:
(a) | By Buyer or Seller in accordance with Section 6.8, Section 7.6 or Section 12.3; |
(b) | By Seller if any condition set forth in Section 10.1(a) has not been satisfied or waived by Seller by the Closing Date; provided that Seller is not in material breach of this Agreement; |
(c) | By Buyer if any condition set forth in Section 10.1(b) has not been satisfied or waived by Buyer by the Closing Date; provided that Buyer is not in material breach of this Agreement; |
(d) | By mutual written agreement of Buyer and Seller; or |
(e) | By either Buyer or Seller if Closing has not occurred on or before May 3, 2007, and both Buyer and Seller are in material breach of this Agreement. |
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(f) | If Buyer, through no fault of Seller, fails, refuses, or is unable for any reason not permitted by this Agreement to close the sale pursuant hereto, the Deposit shall, except as otherwise provided herein, be disbursed from the Escrow Account to Seller and Seller may, at its option, either assert its right of specific performance or pursue any other rights or remedies to which it may be entitled, at law or in equity. If Seller, through no fault of Buyer, fails, refuses, or is unable for any reason not permitted by this Agreement to close the sale pursuant hereto, the Deposit shall, except as otherwise provided herein, be disbursed from the Escrow Account to Buyer and Buyer may, at its option, pursue any rights or remedies to which it may be entitled, at law or in equity. Notwithstanding the foregoing, if this Agreement is terminated by either Buyer or Seller under Section 10.3(a), or Section 10.3(f) by Buyer under Section 10.3(c) or by mutual agreement of Buyer and Seller under Section 10.3(d), the Deposit shall be disbursed from the Escrow Account to Buyer and neither party shall have any further liability whatsoever to the other party pursuant to this Agreement. |
10.4 Final Adjustments. Within one hundred twenty (120) days after the date of Closing, Buyer shall prepare, in consultation with Seller, a Final Settlement Statement, acting reasonably and in good faith (the Final Settlement Statement), setting forth (i) the final adjustments to the Purchase Price provided in Section 2.4 and (ii) any other adjustments arising pursuant to this Agreement. Seller may set off any resulting amount due to Buyer against any amount or sum that Buyer may otherwise owe to Seller under the terms of this Agreement. Buyer shall submit the Final Settlement Statement to Seller, along with copies of third party vendor invoices in excess of $10,000.00 each, or other evidence of expenses agreed to by Buyer and Seller. Seller shall respond in writing with objections and proposed corrections within thirty (30) days of receiving the Final Settlement Statement. If Seller does not respond to the Final Settlement Statement by signing or objecting in writing within such thirty (30) day period, the statement will be deemed approved by Seller and final and binding between the parties. After approval of the Final Settlement Statement, Buyer or Seller will send a check or invoice to Seller or Buyer, as the case may be, for the net amount reflected therein as owed by such party. If Buyer and Seller are unable to agree to all adjustments within thirty (30) days after Sellers written objection to the Final Settlement Statement submitted by Buyer, adjustments which are not in dispute shall be paid by Buyer or Seller, as the case may be, at the expiration of such thirty day period and either party may submit such disagreement to an Independent Expert selected in the manner provided in Section 8 for resolution.
10.5 Escrow Account. Within ten days after the Closing Period Termination Date, Buyer shall prepare, in consultation with Seller, a reconciliation statement for the Escrow Account, acting reasonably and in good faith (the Escrow Reconciliation Statement), setting forth (i) a reconciliation of the amount paid to the Escrow Agent pursuant to Section 10.2(d)(i), if any, and amounts disbursed to Buyer by the Escrow Agent as provided in Section 3.3, (ii) a summary of the resolution of any Title Defects or Environmental Defects not cured, and Title Benefits not agreed to, prior to Closing and a reconciliation of all amounts paid to the Escrow Agent pursuant to Sections 10.2(d)(ii), or 10.2(d)(ii) and disbursed to Buyer or Seller by the Escrow Agent as provided in Sections 6.5(c), 6.6(b) and 7.4(c) and (iii) the amount, if any, Buyer
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believes is payable to it from the Escrow Account. Buyer shall submit the Escrow Reconciliation Statement to Seller. Seller shall respond in writing with objections and proposed corrections within thirty (30) days of receiving the Escrow Reconciliation Statement. If Seller does not respond to the Escrow Reconciliation Statement by signing or objecting in writing within such thirty (30) day period, the statement will be deemed approved by Seller and final and binding between the parties. After approval of the Escrow Reconciliation Statement, Buyer and Seller will direct the Escrow Agent to disburse to the Buyer the amount to which Buyer is entitled to hereunder and all remaining amounts in the Escrow Account will be disbursed to Seller. If Buyer and Seller are unable to agree to a final Escrow Reconciliation Statement within thirty (30) days after Sellers written objection to the Escrow Reconciliation Statement submitted by Buyer, amounts which are not in dispute shall be disbursed by the Escrow Agent to Buyer or Seller, as the case may be, at the expiration of such thirty day period and either party may submit the disagreement to an Independent Expert selected in the manner provided in Section 8 for resolution.
11. Disputes
11.1 Arbitration. In case of a dispute, controversy or Claim arising out of, relating to or in connection with this Agreement, including any dispute regarding its validity or termination, but excluding any matters as to which an Independent Expert has been selected, Seller and Buyer shall attempt in good faith to agree upon the rights of the respective parties with respect to each such Claim within forty-five (45) days of receipt of notice of such Claim. If the applicable parties should so agree, a memorandum setting forth such agreement shall be prepared and signed by such parties.
If no such agreement can be reached after good faith negotiation lasting not longer than forty-five (45) days after the receipt of notice of such claim, any of the applicable parties may demand binding arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration. If the amount in dispute is less than Five Million Dollars ($5,000,000) the Arbitration shall be administered by AAA and shall be conducted by one neutral arbitrator. If the amount in dispute is equal to or greater than Five Million Dollars ($5,000,000) the Arbitration shall be administered by AAA and shall be conducted by three neutral arbitrators. The arbitrators, whether one or three, shall be selected jointly by Seller and Buyer from a list of arbitrators provided by the AAA having experience in the area of oil and gas asset acquisitions. If the parties are unable or fail to agree upon an arbitrator or arbitrators, the arbitrator(s) shall be selected by the AAA. The arbitrator(s) shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator(s), to discover relevant information from the opposing parties about the subject matter of the dispute. Any dispute regarding discovery, or the relevance or scope thereof, shall be determined by arbitration and shall be governed by the Federal Rules of Civil Procedure. The decision of the arbitrator(s) as to the validity and amount of any claim shall be made in accordance with the terms of this Agreement and shall be binding and conclusive upon the parties to this Agreement. The award by the arbitrator(s) shall be in writing, shall be signed by the arbitrator(s) and shall include a statement of written findings of fact and conclusions regarding the reasons for the disposition of any claim. In no event shall the arbitration award exceed the maximum amount in dispute, plus Costs and fees.
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Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. Any such arbitration shall be held in Houston, Texas under the Commercial Arbitration Rules then in effect of the AAA. The arbitrator shall designate which party is the prevailing party in the dispute, taking into account, among other factors, the amount in dispute and the amount of the award. The non-prevailing party shall pay all costs and fees associated with the arbitration. In the event there is no prevailing party, then the parties shall share costs and fees equally. Costs and fees for purposes of this subsection mean all reasonable pre-award expenses of the arbitration, including the arbitrators fees, administrative fees, travel expenses, out of pocket expenses such as copying and telephone, witness fees and reasonable attorneys fees.
By agreeing to arbitration, the parties do not intend to deprive any court with jurisdiction of its ability to issue a preliminary injunction, attachment or other form of provisional remedy in aid of the arbitration and a request of such provisional remedies by a party to a court shall not be deemed a waiver of the agreement to arbitrate.
12. Miscellaneous
12.1 Oil, Gas and End Product Imbalances. Regardless of whether Seller is overproduced or underproduced as to its share of total oil, condensate, gas or end product production, any balancing obligation or credit arising from such over or underproduction, and any pipeline imbalance, in each case determined as of the Effective Time (an Imbalance) shall transfer to Buyer as of the Effective Time, and Seller shall have no further liability therefor nor benefit therefrom (whichever the case may be) as of the Effective Time. If Seller is a party to a gas balancing agreement(s) or other reconciliation obligations pursuant to any commingling authority covering all or a portion of the Assets, Buyer shall assume all rights and duties of Seller pursuant thereto. If any of the Assets are not covered by a gas balancing agreement or other reconciliation obligations pursuant to any commingling authority, Buyer shall fulfill its obligations under this provision in accordance with applicable law. Buyer agrees to indemnify, defend and hold Seller and Seller Parties harmless against any and all Claims arising directly or indirectly out of Buyers failure to fulfill its obligation under this provision. Buyer and Seller will settle all Imbalances as between themselves using a settlement price of $7.01 per MMBtu, based on Inside FERC First of the Month Price of the Southern Star Index Price for February 1, 2007.
12.2 Insurance. With regard to any Seller-operated properties:
(a) | Seller and Buyer acknowledge that insurance coverage for the Assets and the operations in which the Assets have been used has been provided, in part, under insurance programs arranged and maintained by Seller for itself and, if applicable, its subsidiaries and affiliates (such policies are herein called Seller Policies). |
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(b) | Seller agrees that during the period between the date of this Agreement and the Closing Date, Seller shall maintain insurance with respect to the Assets with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as are customarily carried by reasonable, prudent operators of similar properties. |
(c) | Seller and Buyer agree that, as of the Closing Date, all of the Seller Policies shall cease to apply to the Assets and the operations in which the Assets are used and that Buyer shall make no claims under the Seller Policies with respect to any matter whatsoever, whether arising before or after the Closing Date. |
(d) | In the event that any Claim is hereafter made under or with respect to any of the Seller Policies by Buyer or any of its affiliates, but not an unrelated third party, Buyer shall indemnify and defend Seller and Seller Parties against and shall hold them harmless from such Claim and all costs and expenses (including, without limitation, attorneys fees and court costs) related thereto. |
12.3 Casualty Loss of Assets. If, prior to Closing, a portion of the Assets is damaged or destroyed by a Casualty Loss, Seller may at its sole option, prior to Closing, repair the damage at its cost or reduce the Purchase Price by the amount of the damage, or if Buyer agrees, withdraw the damaged Asset from the sale and reduce the Purchase Price by the Allocated Value thereof. Should Buyer and Seller not agree as to the amount of such price reduction such dispute shall be submitted to the Independent Expert for determination. If the amount of the damage exceeds five percent (5%) of the Purchase Price, this Agreement may be terminated by either party. The term Casualty Loss shall mean physical damage to an Asset that (a) occurs between execution of this Agreement and Closing, (b) is not the result of normal wear and tear, mechanical failure or gradual structural deterioration of materials, equipment and infrastructure, reservoir changes, or downhole failure (including, without limitation, downhole failure arising or occurring during drilling or completing operations, junked or lost holes or sidetracking or deviating a well); and (c) exceeds Fifty Thousand Dollars ($50,000) in value.
12.4 Books and Records. Seller shall deliver to Buyer at Closing or within a reasonable time thereafter the Records.
12.5 Publicity. Seller and Buyer shall consult with each other with regard to all press releases or other public or private announcements made concerning this Agreement or the transactions contemplated hereby, and except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, neither Buyer nor Seller shall issue any such press release or other publicity without the prior written consent of the other party, which shall not be unreasonably withheld. Except as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange, no such press release shall include any reserve estimates.
12.6 Assignment. Prior to Closing, Buyer may not assign any rights acquired hereunder or delegate any duties assumed hereunder without the prior written consent of Seller
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or its respective successors and assigns; provided, however, that Buyer may assign this Agreement to any wholly owned subsidiary; and any such transfer, assignment, sublease or delegation without Sellers consent shall be null and void, ab initio. Notwithstanding anything herein to the contrary, Buyer shall remain responsible to Seller for all obligations and liabilities under this Agreement and under the Assignment, until expressly released by Seller in writing.
12.7 Entire Agreement. This Agreement constitutes the entire agreement between Seller and Buyer with respect to the transactions contemplated herein, and supersedes all prior oral or written agreements, commitments, and understandings between the parties. No amendment shall be binding unless in writing and signed by both parties. Headings used in this Agreement are only for convenience of reference and shall not be used to define the meaning of any provision. This Agreement is for the benefit of Seller and Buyer and their respective successors, representatives, and assigns and not for the benefit of third parties.
12.8 Notices. All notices and consents to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered either by personal delivery, telex, telecopy or similar facsimile means, by certified or registered mail, return receipt requested, or by courier or delivery service, addressed to the parties hereto at the following addresses:
If to Seller: | If to Buyer: | |
EnergyQuest Resources, LP | Constellation Energy Partners LLC | |
15425 North Freeway, Suite 230 | One Allen Center | |
Houston, Texas 77090 | 500 Dallas Street, Suite 3300 | |
Attention: Mr. Rory L. Aaronson | Houston, Texas 77002 | |
Telephone No.:  ###-###-#### | Attention: Lisa Mellencamp | |
Fax No.: 281 ###-###-#### | Telephone No.: 713 ###-###-#### | |
Fax No.: 713 ###-###-#### |
or at such other address and number as either party shall have previously designated by written notice given to the other party in the manner herein above set forth. Notices shall be deemed given when received, if sent by facsimile (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications); and when delivered and receipted for (or upon the date of attempted delivery where delivery is refused), if either hand-delivered, sent by express courier or delivery service, or sent by certified or registered mail, return receipt requested.
12.9 Governing Law. This Agreement shall be governed by the laws of the State of Texas, without giving effect to any principles of conflicts of law. The validity of the conveyances affecting the title to real property shall be governed by and construed in accordance with the laws of the jurisdiction in which such property is situated. The provisions contained in such conveyances and the remedies available because of a breach of such provisions shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws.
12.10 Confidentiality. Buyer agrees that all information furnished or disclosed by Seller or acquired by Buyer in connection with the sale of the Assets shall remain confidential prior to
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Closing. Buyer may disclose such information only to its subsidiaries or affiliates, agents, advisors, counsel or representatives (herein Representatives) who have agreed, prior to being given access to such information, to maintain the confidentiality thereof In the event that Closing of the transactions contemplated by this Agreement does not occur for any reason, Buyer agrees that all information furnished or disclosed by Seller or acquired by Buyer in connection with the inspection, testing, inventory or sale of the Assets shall remain confidential, with Seller a third party beneficiary of any privilege held by Buyer. Buyer and its Representatives shall promptly return to Seller any and all materials and information furnished or disclosed by Seller relating in any way to the Assets, including any notes, summaries, compilations, analyses or other material derived from the inspection or evaluation of such material and information, without retaining copies thereof and destroy any information relating to the Assets and independently acquired by Buyer. In the event of any conflict between this Section 12.10 and any other confidentiality agreement affecting Buyer and Seller, this Section 12.10 shall control.
12.11 Survival of Certain Obligations. Except as expressly provided otherwise in this Agreement, waivers, disclaimers, releases, representations, warranties and continuing obligations of Buyer, and all obligations of either party for indemnity and defense contained in this Agreement shall survive the execution and delivery of the Assignment and the Closing.
12.12 Further Cooperation. After the Closing, each party shall execute, acknowledge, and deliver all documents, and take all such acts which from time to time may be reasonably requested by the other party in order to carry out the purposes and intent of this Agreement.
12.13 Counterparts. This Agreement may be executed in one or more counterparts with the same effect as if all signatures of the parties hereto were on the same document, but in such event each counterpart shall constitute an original, and all of such counterparts shall constitute one Agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by each party.
12.14 Exhibits and Schedules. All of the Exhibits and Schedules referred to in this Agreement are hereby incorporated into this Agreement by reference and constitute a part of this Agreement.
12.15 Severability. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, all other conditions and provisions of the Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any materially adverse manner to the other party.
12.16 Expenses, Post-Closing Consents and Recording. Notwithstanding other provisions of this Agreement, Buyer shall be responsible for the filing and recording of the Assignment(s), conveyances or other instruments required to convey title to the Assets to Buyer in the appropriate federal, state and local records, and all required documentary, filing and recording fees and expenses incurred in connection therewith. Buyer shall supply Seller with a true and accurate photocopy of all the recorded and filed Assignment(s) within a reasonable period of time after such are available. Buyer shall be responsible for timely obtaining all consents and approvals of Governmental Authorities customarily obtained subsequent to transfer
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of title and all costs and fees associated therewith. Except as otherwise specifically provided, all fees, costs and expenses incurred by Buyer or Seller in negotiating this Agreement or in consummating the transactions contemplated by this Agreement shall be paid by the party incurring the same, including, without limitation, legal and accounting fees, costs and expenses.
12.17 Removal of Signs and Markers. Seller may either remove its name and signs from the Seller-operated Wells, facilities and Personal Property or require Buyer, at Buyers cost, to do so for those Assets that Buyer will operate. If Sellers name or signs remain on the Assets after Seller ceases to be operator and Buyer has become operator, Buyer shall (a) remove any remaining signs and references to Seller within ninety (90) days after Seller ceases to be operator or such earlier time as may be required by applicable regulations, (b) install signs complying with applicable governmental regulations, including signs showing Buyer as operator of the Assets it operates, and (c) upon Sellers request after Closing, notify Seller of the removal and installation. Seller reserves a right of access to the Assets for a period of 120 days after it ceases to be operator to remove its signs and name from all Wells, facilities and Personal Property, or to confirm that Buyer has done so for the Assets operated by Buyer.
12.18 CONSPICUOUSNESS/EXPRESS NEGLIGENCE. THE DEFENSE, INDEMNIFICATION AND HOLD HARMLESS PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE DAMAGES, LOSSES, INJURIES, LIABILITIES, COSTS OR EXPENSES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), OR OTHER FAULT OF ANY INDEMNIFIED PARTY, OR FROM ANY PRE-EXISTING DEFECT, EXCEPT TO THE EXTENT CAUSED BY THE INDEMNIFIED PARTYS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
12.19 Et Al Group Interests. As an accommodation to the Seller and the Buyer certain owners (the Et Al Group) of approximately twenty percent (20%) of all right, title, and interest in and to the Leases and Wells composing the Eakin Field (the Et Al Interest), Seller will acquire the Et Al Interest from the Et Al Group no later than the day before Closing for and in consideration of $1,404,559. (the Et Al Property Allocated Value) and the interest thus acquired shall be included in the transaction contemplated by this Agreement. For convenience, the Et Al Property Allocated Value is inclusive with the Purchase Price set forth Section 2 and the Parties will account for same accordingly. The sale of the Et Al Property will be segregated and separately reported by Seller for Federal income tax purposes, and Seller will neither realize nor recognize gain or loss attributable to the sale thereof. Buyer and Seller each agree to record the Et Al Property transaction in an amount equal to Et Al Property Allocated Value as more particularly set forth on Schedule 2.3(A). In the event of a Title Defect or Environmental Defect with respect to all or a portion of the Et Al Interests, the thresholds and deductibles set forth in Section 7.4 shall not apply. Further, in the event Seller does not acquire any of the Et Al Interests prior to Closing, then the Purchase Price shall be adjusted downward by the Allocated Value thereof.
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12.20 Waiver of Certain Damages; Limitation on Sellers Indemnity. Each party irrevocably waives and agrees not to seek indirect, consequential, punitive or exemplary damages of any kind in connection with any dispute arising out of or related to this Agreement or the breach hereof. For the avoidance of doubt, this Section 12.19 does not diminish or otherwise affect the parties rights and obligations to be indemnified against, and provide indemnity for, indirect, consequential, punitive or exemplary damages awarded to any third party for which indemnification is provided in this Agreement or Sellers right to receive liquidated damages, including the Deposit pursuant to the provisions of Section 10.3.
12.21 Joint and Several Liability. The liabilities and obligations under this Agreement of the entities comprising Seller shall be joint and several.
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EXECUTED as of the date first above written.
SELLER: | ||
EnergyQuest Resources, L.P. by EnergyQuest Management, LLC, its general partner | ||
By: | /s/ Wayne A. Greenwalt | |
Name: | Wayne A. Greenwalt | |
Title: | CEO/President |
Oklahoma Processing EQR, LLC | ||
By: | /s/ Wayne A. Greenwalt | |
Name: Title: | Wayne A. Greenwalt Manager |
Kansas Production EQR, LLC | ||
By: | /s/ Wayne A. Greenwalt | |
Name: Title: | Wayne A. Greenwalt President |
Kansas Processing EQR, LLC | ||
By: | /s/ Wayne A. Greenwalt | |
Name: Title: | Wayne A. Greenwalt President |
BUYER: | ||
Constellation Energy Partners LLC | ||
By: | /s/ Felix J. Dawson | |
Name: | Felix J. Dawson | |
Title: | President and Chief Executive Officer |
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