Exhibit 2.1
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PURCHASE AND SALE AGREEMENT
BETWEEN
DEVON ENERGY PRODUCTION COMPANY, L.P.
and
TALL GRASS GAS SERVICES, L.L.C.
and
QUEST RESOURCE CORPORATION
DATED
December 10, 2003
TABLE OF CONTENTS
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PARAGRAPH # PAGE #
Property or Properties 1. 1
Sale and Purchase 2. 2
Sale Price 3. 2
Xxxxxxx Money 4. 2
Allocated Values 5. 3
Seller's Representations 6. 3
Buyer's Representations 7. 5
Access to Records 8. 6
Defects 9. 6
Notice of Defects 10. 7
Preferential Rights 11. 7
Physical and Environmental Inspection 12. 8
Sale Price Adjustments 13. 8
Effect of Termination 14. 11
Warranty of Title 15. 11
Conditions of Closing by Buyer 16. 12
Conditions of Closing by Seller 17. 12
Preliminary Closing Statement 18. 13
Closing 19. 13
Reservations and Exceptions 20. 14
Assumption of Liabilities and Indemnities 21. 14
Taxes 22. 17
Accounting; Retained Obligations;
Environmental Liabilities 23. 17
Sales Tax 24. 19
Post-Closing Adjustments 25. 19
Notices 26. 20
Further Assurance 27. 20
Disclaimer of Warranties 28. 20
Operations by Seller 29. 21
Securities Laws 30. 23
Due Diligence 31. 23
Material Factor 32. 23
Press Release 33. 23
Entire Agreement 34. 23
Tax Reporting 35. 23
Assignability 36. 23
Survival 37. 24
Tax Deferred Exchange Election 38. 24
Choice of Law 39. 24
Counterpart Execution 40. 24
Severance of Invalid Provisions 41. 24
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SCHEDULE OF EXHIBITS
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Exhibit "A" Oil and Gas Properties
Exhibit "A-2" Allocation of Values
Exhibit "A-3" Gas Imbalance Schedule
Exhibit "A-4" Contracts
Exhibit "B" Form of Deed, Assignment and Xxxx of Sale - Devon Energy
Production Company, L.P.
Exhibit "B-1" Form of Deed, Assignment and Xxxx of Sale - Tall Grass Gas
Services, LLC
Exhibit "C" Non-foreign Affidavit
Schedule 6(c) Lawsuits, Claims or Demands
Schedule 6(e) Payout Status
Schedule 6(k) Authorizated Expenditures
Schedule 6(m) Suspense Amounts
Schedule 6(n) Preferential Rights and Consents
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THIS AGREEMENT, dated as of 10th day of December, 2003, is between DEVON ENERGY
PRODUCTION COMPANY, L.P., an Oklahoma limited partnership, ("DEPCO") AND TALL
GRASS GAS SERVICES, LLC., a limited liability company, ("TGGS") organized under
the laws of Oklahoma, with offices at 00 Xxxxx Xxxxxxxx, Xxxxx 0000, Xxxxxxxx
Xxxx, Xxxxxxxx 00000, (DEPCO and TGGS are hereinafter collectively referred to
as "Seller"), and QUEST RESOURCE CORPORATION, with offices at 0000 X. Xxxxxxx,
Xxxxx 000, Xxxxxxxx Xxxx, Xxxxxxxx 00000 (hereinafter referred to as "Buyer").
THEREFORE, in consideration of the covenants and agreements herein
contained, Seller and Buyer agree as follows:
1. "Property" or "Properties" means Seller's ownership interests in the
properties (real, personal or mixed) and appurtenant rights (contractual or
otherwise) set out below:
a) All of Seller's right, title and interests in, to and under, or
derived from, the oil and gas (the term gas herein deemed to
include coalbed methane gas) leasehold interests, working
interests, royalty interests, overriding royalty interests,
reversionary interests, mineral interests, production payments,
net profits interests, rights to take royalties in-kind, fee
interests and surface interests (including but not limited to
easements, rights-of-way, servitudes, franchise, surface leases,
and subsurface leases) owned or leased by Grantor in Oklahoma and
Kansas that are located in Nowata County, Oklahoma and Labette,
Montgomery, Neosho, Xxxxxx and Xxxxxxx Counties, Kansas,
including, without limitation, those described in Exhibit "A" and
other interests in production of oil, gas or other minerals from
the lands (or lands pooled therewith) owned or leased by Grantor
in Nowata County, Oklahoma and Labette, Montgomery, Neosho,
Xxxxxx, and Xxxxxxx Counties, Kansas, including, without
limitation, those described in and subject to the reservations
expressed in Exhibit "A" (the "Leases");
b) All of Seller's right, title and interests in, to and under, or
derived from, all of the presently existing and valid
unitization, communitization and pooling declarations, orders,
and agreements (including all units formed by voluntary agreement
and those formed under the rules, regulations, orders or other
official acts of any governmental entity or tribal authority
having appropriate jurisdiction) to the extent they relate to any
of the interests which are described in Exhibit "A", or the
production of oil, gas or hydrocarbon and non-hydrocarbon
substances attributable thereto;
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c) All of Seller's right, title and interests in, to and under, or
derived from, all of the presently existing and valid oil sales
contracts, casinghead gas sales contracts, gas sales contracts,
processing contracts, gathering contracts, transportation
contracts, permits or licenses of any nature owned, held or
operated in connection with operations, farm-out contracts,
farm-in contracts, balancing contracts (including but not limited
to gas imbalances), suspense funds, operating agreements, areas
of mutual interest, and other contracts, agreements and
instruments (to the extent said contracts are transferable)
described in Exhibit "A-4" (the forgoing, together with the
instruments described in Paragraph 1(c), being the "Contracts");
d) All of Seller's right, title and interests in, to and under, or
derived from, the personal property, improvements, fixtures,
facilities, xxxxx (whether producing, unplugged, plugged and
abandoned, shut-in, injection, disposal or water supply),
including without limitation those set xxxxx forth on Exhibit "B"
gathering lines, flow lines, injection lines, pipelines, tanks,
boilers, buildings, machinery, equipment (surface and downhole),
inventory, pipelines, utility lines, power lines, telephone
lines, roads and other appurtenances, to the extent the same are
situated upon or used or held for use by Seller solely in
connection with the ownership, operation, maintenance or repair
of the interests which are described in clause (a) above,
including those described in Exhibit "A", or the production,
treating, storing, gathering or marketing of oil, gas or other
hydrocarbon and non-hydrocarbon substances attributable thereto;
e) Records (as defined in Paragraph 19(e) hereof).
2. Sale and Purchase. Subject to and upon all of the terms, conditions,
reservations and exceptions hereinafter set forth, Seller shall sell, transfer,
assign, convey and deliver the Properties to Buyer or its designee, and Buyer
shall purchase, receive, pay for and accept the Properties from Seller,
effective at Closing (the "Effective Time").
3. Sale Price. The sale price for the Properties shall be One Hundred
Twenty Six Million U.S. Dollars $126,000,000.00 ("Sale Price"), subject only to
any applicable price adjustment as provided for hereinbelow.
4. Xxxxxxx Money. Upon execution of this Agreement, Buyer shall pay to
Seller an xxxxxxx money deposit ("Xxxxxxx Money") in the amount of Five Million
Dollars ($5,000,000). At Closing, the Xxxxxxx Money shall be credited against
the Sale Price, as adjusted hereunder.
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5. Allocated Values. Buyer and Seller herein agree upon the allocation of
the Sale Price among the Properties (the "Allocated Value"). Buyer and Seller
agree that such Allocated Value will be used by each for all Tax reporting
purposes. Such Allocated Values are made a part of this Agreement and are shown
on Exhibit "A-2" which is attached hereto. If there is a negative allocation for
any Property, and the negative allocation does not result from a gas imbalance
in favor of Seller as the overproduced party, Seller may withdraw the Property
from this transaction, in which event the Sale Price will be increased by the
absolute value of the negative amount allocated to the Property. Seller and
Buyer agree that this transaction is not subject to the reporting requirement of
Section 1060 of the Internal Revenue Code of 1986, as amended, and that,
therefore, IRS Form 8594, Asset Acquisition statement, is not required to be and
will not be filed for this transaction. In the event the parties mutually agree
that a filing of Form 8594 is required, the parties will confer and cooperate in
the preparation and filing of their respective forms to reflect a consistent
reporting of the agreed upon allocation. Buyer and Seller agree that for
purposes of the allocation of the Sale Price the value of the personal property
is equal to Seller's adjusted tax basis for the previous tax year end plus 2003
capital additions minus dispositions. The remainder of the sales price
represents the value of the non-personal property. On or before Closing, Seller
will provide a schedule reflecting the basis of the personal property as
adjusted in accordance with the above.
6. Seller's Representations. Seller represents and warrants to Buyer that
as of the date hereof and at Closing (as hereinafter defined):
(a) DEPCO is a duly organized limited partnership validly existing and
in good standing under the laws of the State of Oklahoma and TGGS is a duly
organized limited liability company validly existing and in good standing under
the laws of the State of Oklahoma, and each is duly qualified to carry on its
business in the state(s) in which the Properties are located, and has full power
and authority to enter into and perform this Agreement according to its terms
and this Agreement has been duly executed and delivered by Seller and
constitutes a legal, valid, and binding obligation on it, enforceable against it
in accordance with its terms.
(b) Seller's execution, delivery and performance of this Agreement has
been duly authorized by all necessary partnership and limited liability company
action and will not violate or conflict with any agreement, law, rule,
regulation, charter, order, judgment or other instrument governing either
Seller's organization, management or business affairs or to which either Seller
is a party or by which either Seller or any Property is bound.
(c) Except as set forth on Schedule 6(c), no suit, claim, demand,
investigation or other proceeding is pending or, to Seller's knowledge,
threatened: (i) with respect to the Properties or the ownership, operation or
use of any thereof; (ii) that might result in impairment or loss or diminution
of Seller's title to a Property; or (iii) that may otherwise adversely affect
the value of a Property in any material respect. There are no bankruptcy or
reorganization proceedings contemplated by or pending or threatened against
Seller.
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(d) The Contracts and the Leases described on Exhibits A and A-4 hereof
constitute all of the contracts and other instruments which burden or will
burden or encumber or are otherwise material to the ownership, use or operation
of the Property. The Contracts and Leases (other than oil and gas leases): (i)
were entered into in the ordinary course of business; (ii) if executed by
Seller, were duly executed and delivered by Seller and (iii) are in full force
and effect and are enforceable according to their terms. Neither Seller, nor any
other party to Seller's knowledge, is in breach (or with notice or the passage
of time or both may be in breach) of any obligation (other than under the
Leases) which might adversely affect the Property in any material respect.
(e) The Leases are in full force and effect as to the lands described in
Exhibit A hereto. Schedule 6(e) contains a true and accurate list of the status
of the "payout balance" as of the date hereof for each well and Lease that is
subject to a reversion or other adjustment at some level of cost recovery or
payout. All rentals, royalties, shut-in royalties, overriding royalties and
other payments and obligations due pursuant to or with respect to all the
Properties have been properly, fully and timely performed or paid; provided,
however, that Seller does not make any representation or warranty regarding the
method of calculation, valuation or computation of royalties with respect to any
such royalties which accrue after the Effective Time. Neither Seller, nor any
other party (to Seller's knowledge), is in breach (or with notice or the passage
of time or both may be in breach) of any obligation under any of the Leases in
any material respect.
(f) The Properties have been owned, drilled, completed, operated,
developed and produced and are otherwise in compliance with all applicable
Contracts, Leases, decisions, judgments, orders, laws (excluding Environmental
Laws), rules and regulations, and no adverse environmental condition (hereafter
defined) exists with respect to the Properties. All necessary certificates,
consents, preferential right elections, permits, licenses and authorizations
(governmental or otherwise) affecting the Property have been obtained and are in
force, and no violation exists in respect thereof. There are no violations of
any applicable regulations, rules or orders of the Federal Energy Regulatory
Commission, the Department of Energy, the Minerals Management Service or any
other regulatory agency with respect to the Property. No written notice from any
governmental authority or person has been received by Seller claiming any
material violation or any repudiation of any Property or violation of any
decision, judgment, order, law, rule or regulation.
(g) The Properties are not subject to obligations under a take-or-pay or
other arrangement, and Seller is not obligated by virtue of an election to
non-consent or not participate in a past or current operation on the Leases
pursuant to applicable agreements, to produce oil or gas, or allow oil or gas to
be produced, without receiving full payment at the time of delivery in an amount
that corresponds to the net revenue interest described in Exhibit A-2.
(h) All ad valorem, property, production, severance, excise and other
taxes (other than state or federal income taxes and franchise taxes) based on or
measured by the ownership of property, the production or removal of oil or gas
and the receipt of proceeds ("Taxes") which are due and relating to the Property
have been
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properly and timely paid, subject to possible adjustment for volume or price
corrections, and there are no audits or other investigations pending or
threatened with respect thereto.
(i) Seller is timely receiving its share of proceeds from the sale of
oil or gas produced from the Lands (hereafter defined) without suspense,
counterclaim or set-off. There has been no production of oil or gas from the
Lands in excess of the allowable production established pursuant to applicable
state or federal law or regulation that would result in a restriction on
production from the Lands subsequent to the Effective Time.
(j) Seller has incurred no liability for brokers' or finders' fees
related to the transactions contemplated by this Agreement for which Buyer shall
be liable.
(k) Except as disclosed on Schedule 6(k), there are no outstanding
authorities for expenditures or any oral or written commitments or proposals to
conduct operations on the xxxxx or the lands subject to the Leases and other
lands pooled or otherwise combined therewith (the "Lands").
(l) Except as set forth on Exhibit "A-3", as of the Effective Time, no
portion of the Property is over produced, under produced or otherwise subject to
an imbalance in respect of substances produced from the Lands or is otherwise
subject to a pipeline imbalance.
(m) Schedule 6(m) contains an accurate and complete list of amounts held
in suspense by Seller with respect to the Properties (the "Suspense Amounts") as
of the date hereof; and
(n) Schedule 6(n) contains an accurate and complete list of all (i)
preferential rights (hereafter defined) affecting the Properties and (ii)
consents, approvals and authorizations required in connection with the
consummation of the transactions contemplated hereby and the conveyance of the
Properties as herein provided, except governmental consents traditionally
obtained after closing ("consents").
7. Buyer's Representations. Buyer represents and warrants to Seller that as
of the date hereof and at Closing:
(a) Buyer is a duly organized corporation validly existing and in good
standing under the laws of the State of its organization; is duly qualified to
carry on its business in the state(s) in which the Properties are located, and
has full power and authority to enter into and perform this Agreement according
to its terms and this Agreement has been duly executed and delivered by Buyer
and constitutes a legal, valid, and binding obligation on it, enforceable
against it in accordance with its terms;
(b) Buyer's execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate, limited liability company or
partnership action, as applicable, and will not conflict with or violate any
agreement, law, rule, regulation, ordinance, charter, order, judgment or other
instrument governing either Buyer's organization, management or business affairs
or to which Buyer is a party or by which Buyer is bound;
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(c) Buyer represents that by reason of its knowledge and experience in
the evaluation, acquisition, and operation of oil and gas properties, Buyer has
evaluated the merits and risks of purchasing the Properties from Seller and has
formed an opinion based solely on Buyer's knowledge and experience and the
representations and warranties by and covenants of Seller. Buyer represents that
in entering into this Agreement, Buyer has relied solely on the express
representations, warranties and covenants of Seller in this Agreement and the
Assignment (hereafter defined), Buyer's independent investigation of, and
judgment with respect to, the Properties and the advice of its own legal, tax,
economic, environmental, engineering, geological and geophysical advisors and
not on any comments or statements of any representatives of, or consultants or
advisors engaged by Seller. Buyer further represents that it has not relied and
will not rely on any statements or interpretation by Seller or its
Representatives not set forth herein or in the Assignment in making its decision
to enter into this Agreement or to close this transaction; and;
(d) Buyer represents that it is familiar with the provisions of K.S.A.
Section 55-179, including without limitations the provisions in subsection (b)
that a person who is legally responsible for the proper care and control of an
abandoned well shall include "the current or last operator of the lease upon
which such well is located, irrespective of whether such operator plugged or
abandoned such well".
8. Access to Records. After execution of this Agreement, Seller shall give
Buyer and its authorized representatives, during regular business hours, at
Buyer's sole risk, cost and expense, access, with copying privileges, to all raw
geological, geophysical, production, engineering and other technical data and
records, all data, records, assessments and reports relating to the protection
of public health and safety, natural resources or the environment
("Environmental Records") and to all contract, land, title and lease records, to
the extent such data and records are in Seller's possession or control and
relate to the Properties, and to such other information relating to the
Properties as Buyer may reasonably request; provided, however, Seller shall have
no obligation to provide Buyer such access to any data or information to which
access Seller cannot legally provide Buyer because of third-party restrictions
on Seller. Seller agrees to use its best efforts to obtain the consent of any
such third party to furnish and, at Closing, convey such information to Buyer.
To the extent relating to any Properties not purchased at Closing, Buyer shall
keep all materials and data obtained confidential and shall return any and all
such materials and data, and destroy Buyer's notes and work papers relating
thereto.
9. Defects. For the purpose of this Agreement, a "Defect" shall mean any
deficiency in one (or more) of the following respects, to-wit:
(a) Seller's title as to one or more Properties is subject to an
outstanding mortgage, deed of trust, lien or security interest or other material
burden or encumbrance;
(b) Seller owns less than the net revenue interest shown on Exhibit
"A-2" or is obligated to bear a share of the costs of operation greater than the
working interest shown on Exhibit "A-2" without a corresponding increase in net
revenue interest;
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(c) Seller's rights and interests have been or are subject to being
reduced by virtue of the exercise by a third party of a reversionary or back-in
interest, farm-out, or other similar right not reflected on Exhibit "A-2" or at
a point different from that reflected in Schedule 6(e);
(d) Seller is in default under some material provision of a Lease,
farmout agreement, or other contract or agreement affecting any of the
Properties; and
(e) An adverse environmental condition exists with respect to the Lands
or a Property. An "adverse environmental condition" is (i) one in which the
affected Property is not in compliance with laws, rules, regulations, statutes,
ordinances, rulings, decrees, orders, writs, decisions or injunctions relating
to the protection of the environment, natural resources or public health and
safety in effect at the Effective Time ("Environmental Laws") or (ii) a physical
or environmental condition with respect to a Property which could give rise to
an on-site or off-site remedial or other clean-up obligations imposed under
Environmental Laws.
10. Notice of Defects. Upon the discovery of a Defect by Buyer, Buyer shall
promptly notify Seller in writing. Any such notice by Buyer shall include
appropriate evidence and documentation to substantiate its position and shall be
delivered to Seller on or before January 31, 2004. After January 31, 2004, Buyer
shall be deemed to have fully inspected and accepted the Properties "as is" in
their then current physical and environmental condition and the Properties shall
be deemed to be free of Defects (other than with respect to Defects disclosed to
Seller), and any Defect which is not so disclosed to Seller on or before January
31, 2004 shall conclusively be deemed waived by Buyer for all purposes except
for purposes of the enforcement of (i) any breach of any representation,
covenant, or warranty of Seller (subject to and only to the extent it survives
as provided herein), (ii) Buyer's rights under Paragraphs 13, 21 and 23 and
(iii) the special warranty provided by Seller in any deed, assignment and/or
xxxx of sale delivered to Buyer at Closing.
11. Preferential Rights. If any of the Properties are subject to
preferential purchase rights, rights of first refusal, consents to assign,
Lessor's approvals, or similar rights (collectively, "preferential rights"),
Seller shall promptly upon the execution of this Agreement by the parties hereto
seek all consents (as defined in Paragraph 6(n)) and notify all holders of
preferential rights of its intention to sell the Leases affected thereby and of
the corresponding Allocated Values. Seller shall promptly notify Buyer if the
preferential rights are exercised or obtained, or if the requisite period has
elapsed without said rights having been exercised, and when such consents are
obtained or refused.
If any party that elects to exercise a preferential purchase right fails to
consummate the purchase of the properties covered by such right pursuant to the
terms of this Agreement within 30 days after Closing, then Seller shall so
notify Buyer and Buyer shall purchase said Properties from Seller, under the
terms of this Agreement for a price equal to that portion of the Sale Price
previously allocated to it, as adjusted as herein provided.
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All properties for which preferential purchase rights have been waived, or for
which the period to exercise such rights has expired without exercise prior to
Closing, shall be sold to Buyer at Closing pursuant to the provisions of this
Agreement.
12. Physical and Environmental Inspection. After the execution of this
Agreement Buyer and its authorized representatives shall have physical access to
the Property at Buyer's sole cost, risk and expense for the purpose of
inspecting the same, conducting such tests, examination, investigations and
assessments as may be reasonable and necessary or appropriate to evaluate the
environmental and physical condition of the Property, including the
identification of wetlands. For those Properties which are not operated by
Seller, Seller shall obtain permission from the operator to conduct such
inspections. BUYER SHALL DEFEND AND INDEMNIFY SELLER FROM ANY AND ALL LIABILITY,
CLAIMS, CAUSES OF ACTION, INJURY TO BUYER'S EMPLOYEES, AGENTS, CONTRACTORS,
SUBCONTRACTORS OR INVITEES OR TO BUYER'S PROPERTY, AND/OR DAMAGE OR INJURY TO
SELLER'S PROPERTY, EMPLOYEES, AGENTS OR CONTRACTORS WHICH MAY ARISE OUT OF
BUYER'S INSPECTIONS REGARDLESS OF SELLER'S NEGLIGENCE OR FAULT (INCLUDING STRICT
LIABILITY). Buyer agrees to provide to Seller, upon request, a copy of any
environmental assessments, including any reports, data, and conclusions. Prior
to Closing, Buyer and Seller shall keep any and all data or information acquired
by all such examinations and results of all analysis of such data and
information strictly confidential and not disclose same to any person or agency
without the prior written approval of the other party, unless required to do so
by applicable law. The foregoing obligation of confidentiality shall survive
Closing with respect to Seller, and the obligation of confidentiality shall
survive termination of this Agreement without Closing with respect to Buyer.
13. Sale Price Adjustments. Buyer may, in good faith, by delivery of
written notice to Seller of the existence of a Defect pursuant to the terms of
Paragraphs 9 and 10 (a "Defect Notice"), request an adjustment to the Sale Price
for the property affected. Seller may, in good faith, request an adjustment to
the Sale Price by delivery of written notice to Buyer that the net revenue
interest actually owned by Seller therein is greater than that shown on Exhibit
"A-2". Defect Notices submitted by Buyer before Closing shall be delivered no
later than two (2) business days prior to Closing. Either Buyer or Seller may
also provide such a notice seeking a post-Closing Sale Price adjustment if such
notice is delivered to the other party on or before January 31, 2004. The
parties, acting diligently and in good faith, shall use reasonable efforts to
agree on the existence of any asserted Defects, and the value of the asserted
Defects as hereafter provided (the "Defect Value"). With respect to a Defect
Notice submitted by Buyer prior to Closing, Seller shall, by written notice
delivered to Buyer no later than the day before Closing, either (i) elect to
retain the affected Property and the Sale Price shall be reduced by the
Allocated Value thereof, (ii) waive its right to cure such Defect, convey the
affected Property to Buyer in its current condition at Closing and accept a
reduction in the Sale Price in an amount equal to the Defect Value therefore, or
(iii) notify Buyer of its intent to cure such Defect after Closing without
adjustment to the Sale Price at Closing; provided that Seller shall be under no
obligation to affect such post-Closing cure. Seller's failure to timely make
such an election shall be deemed an election to convey the affected Property
under clause (iii) above. Notwithstanding the forgoing, Seller may not
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make (nor be deemed to have made) an election under clause (iii) above with
respect to any Defect not reasonably susceptible to cure within 120 days after
the date of the Defect Notice. With respect to Defects not so susceptible to
cure, the affected Property shall, at Seller's option, either be retained by
Seller or conveyed to Buyer at Closing, and the Sale Price shall be reduced at
Closing by the Allocated Value of such Property or the applicable Defect Value,
as appropriate.
Subject to the forgoing, upon timely delivery of a Defect Notice by Buyer,
whether before or after Closing, Seller, at Seller's option, may attempt to cure
the applicable Defect at Seller's sole risk, cost and expense within one hundred
twenty (120) days after the notice. If within such 120 day period Buyer and
Seller cannot agree upon the existence of a Defect or its Defect Value, or if
Seller is unable to cure the applicable Defect to Buyer's satisfaction with one
hundred twenty (120) days after receipt of notice of such Defect, then Seller
shall have the option to have the subject property(ies) reconveyed to it and, in
such event and concurrently with such reconveyance, shall pay to Buyer the
Allocated Value applicable to the reconveyed Property. If Seller shall fail to
elect to accept a reconveyance, Seller shall pay within two business days after
the expiration of the above-referenced one hundred twenty (120) day period, to
Buyer the Defect Value attributable thereto as asserted by Buyer. In the event
that on or before Closing Buyer notifies Seller of Defects (including without
limitation Defects identified by notice to Seller during the 2-day period before
Closing) and (i) the value of which (as specified in such notice) exceeds 5% of
the Sale Price, Seller may terminate this Agreement and the Xxxxxxx Money shall
promptly be refunded to Buyer or (ii) the value of which (as specified in such
notice) exceeds 15% of the Sale Price, Buyer may terminate this Agreement and
the Xxxxxxx Money shall promptly be refunded to Buyer. ANY REASSIGNMENT
INSTRUMENT SHALL PROVIDE THAT SELLER SHALL DEFEND AND INDEMNIFY BUYER AND ITS
SUCCESSORS AND ASSIGNS FROM ANY AND ALL LIABILITY, CLAIMS, COSTS (INCLUDING,
WITHOUT LIMITATION ATTORNEYS' FEES, COURT COSTS, AND OTHER COSTS OF SUIT,
INVESTIGATION OR ACTION), EXPENSES, DAMAGES, COSTS OF SETTLEMENT, FINES,
PENALTIES, SUITS, CAUSES OF ACTION, INJURY TO PERSONS OR DAMAGE TO PROPERTY
(INCLUDING WITHOUT LIMITATION TO THAT OF SELLER'S AND BUYER'S EMPLOYEES, AGENTS,
CONTRACTORS, SUBCONTRACTORS OR INVITEES) WHICH MAY ARISE DIRECTLY OR INDIRECTLY
FROM OUT OF OR IN CONNECTION WITH SUCH PROPERTY, THE CONDITION THEREOF, OR
BUYER'S OWNERSHIP OR OPERATION THEREOF, AND WITHOUT REGARD TO WHETHER SAME ARISE
FROM OR OUT OF SELLER'S ACTIVITIES ON THE REASSIGNED PROPERTIES.
IF SELLER SHALL ATTEMPT TO CURE ANY DEFECT AFTER CLOSING, SELLER SHALL DEFEND
AND INDEMNIFY BUYER FROM ANY AND ALL LIABILITY, CLAIMS, CAUSES OF ACTION, INJURY
TO SELLER'S EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS OR INVITEES OR TO
SELLER'S PROPERTY, AND/OR DAMAGE OR INJURY TO BUYER'S PROPERTY (INCLUDING
WITHOUT LIMITATION THE PROPERTY AS SUCH TERM IS DEFINED HEREIN), EMPLOYEES,
AGENTS OR CONTRACTORS, WHICH MAY ARISE OUT OF SUCH ACTIVITIES, REGARDLESS OF
BUYER'S NEGLIGENCE OR FAULT (INCLUDING STRICT LIABILITY).
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The Defect Value of Defects shall be determined in good faith and in accordance
with the following guidelines:
(a) If a Sale Price adjustment is based upon Buyer's or Seller's notice
that Seller owns a different net revenue interest or working interest than that
shown on Exhibit "A-2", then the value for the portion of the Properties
affected shall be reduced or increased (as the case may be) to reflect the
changes in the net revenue and working interest from those shown on Exhibit
"A-2", and the Sale Price shall be reduced or increased accordingly.
(b) In the event a third party exercises an applicable preferential
right to purchase, the subject property(ies) shall be removed from the sale and
the Sale Price shall be reduced by the Allocated Value of the affected Property.
(c) In the event a third party fails to give a necessary consent or
approval to assign the subject Lease or well in a form reasonably acceptable to
Seller and Buyer, the subject property(ies) shall be removed from the sale and
the Sale Price shall be reduced by the Allocated Value thereof.
(d) If a Defect is a lien, encumbrance or other charge upon a property
which is liquidated in amount, then the sum necessary to be paid to the obligee
to remove the Defect from the affected property shall be deducted from the Sale
Price. If there is a lien or encumbrance in the form of a judgment secured by a
supersedes bond or other security approved by the court issuing such order, it
shall not be considered a Defect under this Agreement; provided that in such
event Seller hereby covenants and agrees to maintain such bond or security in
full force and effect for all relevant periods.
(e) If the Defect is an adverse environmental condition, the adjustment
shall be, subject to the provisions of subparagraph (f) below and the provisions
of Paragraph 23 below, the cost of remediating the affected property and the
amount of any penalties, fines, or other monetary assessments associated with or
arising from such adverse environmental condition.
(f) The post-Closing Sale Price adjustments under this Paragraph 13
relating to Defects shall not be made: (i) with respect to the Defects described
in subparagraphs 9(a) - 9(d) above (and the Defect Value of which is to be
determined in accordance with subparagraphs (a) - (d) above), unless and until
the aggregate Defect Value for all such Defects exceed $250,000.00, at which
time, to the extent Buyer is otherwise entitled to such adjustments under the
other provisions of this Agreement, Buyer shall be entitled to an adjustment for
the Defect Value for all such Defects, on a dollar-for-dollar basis, including,
without limitation, those constituting the initial $250,000.00 threshold, or
(ii) with respect to Defects described in subparagraph 9(e) above (and the
Defect Value of which is to be determined in accordance with subparagraph (e)
above), unless and until the aggregate Defect Value for all such Defects exceed
$2,000,000.00, at which time, to the extent Buyer is otherwise entitled to such
adjustments under the other provisions of this Agreement, Buyer shall be
entitled to an adjustment for the Defect Value for all such Defects, on a
dollar-for-dollar basis, including, without limitation, those constituting the
initial $2,000,000.00 threshold.
10
14. Termination/Xxxxxxx Money. The following provisions shall apply with
respect to the termination of this Agreement:
(a) This Agreement may be terminated by the mutual agreement of the
parties at any time or by either party pursuant to Paragraph 13.
(b) This Agreement may be terminated by Seller if the Closing has not
occurred on the Closing Date and the failure to consummate the transactions
contemplated hereby on such date did not result from the failure of Seller to
fulfill any undertaking or commitment provided for herein that is required to be
fulfilled by Seller prior to Closing.
(c) This Agreement may be terminated by Buyer if the Closing has not
occurred on the Closing Date and the failure to consummate the transactions
contemplated hereby on such date did not result from the failure of Buyer to
fulfill any undertaking or commitment provided for herein that is required to be
fulfilled by Buyer prior to Closing.
(d) Except with respect to a termination pursuant to Paragraph 13
hereof, if this Agreement is terminated by Seller as herein provided, Seller may
retain the Xxxxxxx Money only if (i) Buyer's Closing conditions set forth in
Paragraphs 16 and 17(d) are satisfied in all respects, (ii) Seller's Closing
conditions set forth in Paragraph 17 are satisfied or waived in writing by
Seller and Seller is otherwise ready, willing and able to close the transactions
contemplated hereby, and (iii) Buyer fails to proceed with Closing in breach of
its obligation hereunder. Except as provided above, upon any other termination
of this Agreement Seller shall immediately refund and pay to Buyer the Xxxxxxx
Money without offset or deduction of any kind. The parties hereby acknowledge
that the extent of damages to Seller occasioned by such breach or default or
failure to proceed by Buyer would be impossible or extremely impractical to
ascertain, that the amount of the Xxxxxxx Money is a fair and reasonable
estimate of such damage and constitute liquidated damages and not a penalty.
Seller's right to retain the Xxxxxxx Money as provided in this Paragraph 14 is
Seller's sole and exclusive remedy in the event of the foregoing occurrence.
(e) Unless otherwise agreed to herein, should this Agreement be
terminated as a result of the failure of Seller to perform its obligations
hereunder, then, and in that event, Seller shall be only liable to Buyer for the
return of the Xxxxxxx Money without interest.
15. Warranty of Title. In all conveyances executed and delivered hereunder,
Seller shall specially warrant to Buyer and its successors and assigns that it
has not previously conveyed the Properties and warrant and defend title to the
Properties against the lawful claims and demands of all persons whomsoever claim
the same or any part thereof by, through or under Seller, but not otherwise.
Seller makes no other warranty or representation as to the quantity or quality
of title to the Properties.
11
16. Conditions of Closing by Buyer. The obligation of Buyer to close is
subject to the satisfaction of the following conditions:
(a) Buyer shall have had reasonable, full and timely access during
normal business hours to all data and records obligated to be provided to Buyer
as provided herein;
(b) Buyer shall have had reasonable, full and timely access to the
Properties to conduct inspections for all purposes, including environmental
condition;
(c) All representations and warranties of Seller contained in this
Agreement shall be true, correct, and not misleading in all material respects
(except that any representation or warranty which by its terms is qualified by
materiality or a similar standard shall be true, correct, and not misleading in
all respects), and Seller shall have performed and satisfied all agreements and
covenants in all material respects required by this Agreement to be performed
and satisfied by Seller;
(d) Seller shall have obtained and delivered to Buyer: (i) reasonable
evidence that all preferential rights (as defined in Paragraph 11) with respect
to the Properties have been obtained (with respect to consents to assign),
exercised or waived, or the time period for the exercise of such preferential
right shall have expired without being exercised, and if exercised Buyer and
Seller shall have removed the affected Properties from this Agreement and
adjusted the Sale Price in accordance with the provisions of Paragraph 13 and
subparagraph 13(b) of this Agreement; and (ii) all necessary consents (as
defined in Paragraph 6(n)) in form and substance reasonably acceptable to the
parties, except those that are traditionally requested or obtained after
Closing;
(e) The aggregate Allocated Value of all Properties removed from this
transaction as herein provided shall not exceed 15% of the Sale Price;
(f) No suit or other proceeding shall be pending or threatened before
any court or governmental agency seeking to restrain or prohibit this
transaction, or to declare the transaction illegal, or to obtain substantial
damages in connection with the transaction contemplated hereby; and
(g) No material adverse change in the condition of the Properties shall
have occurred subsequent to the date hereof, except depletion through normal
production within authorized allowables, ordinary changes in rates of
production, and depreciation of equipment through ordinary wear and tear.
17. Conditions of Closing by Seller/HSR. The obligation of Seller to close
is subject to the satisfaction of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement shall be true, correct, and not misleading in any and all material
respects, and Buyer shall have performed and satisfied all agreements and
covenants in any and all material respects required by this Agreement to be
performed and satisfied by Buyer; and
12
(b) No suit or other proceeding shall be pending or threatened before
any court or governmental agency seeking to restrain or prohibit this
transaction, or to declare this transaction illegal, or to obtain substantial
damages in connection with the transaction contemplated hereby.
(c) The aggregate Allocated Value of all Properties removed from the
transaction as herein provided shall not exceed 5% of the Sale Price.
(d) Neither party shall be obligated to close until all necessary
filings have been made and all waiting periods have expired or approvals
received under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended. The parties agree that each shall prepare its own filing and submit it
to the proper agency promptly after execution of this Agreement and each shall
bear its own cost of filing and any fees or expenses associated therewith.
18. Preliminary Closing Statement. Seller shall prepare and furnish to
Buyer at least three (3) days prior to Closing a preliminary closing statement,
prepared in good faith, setting forth the adjustments to the Sale Price and the
total amount of funds to be paid by Buyer at Closing. Such statement shall
reflect each adjustment and the calculation used to determine such amount. The
adjusted Sale Price shall mean the Sale Price adjusted as provided herein,
including but not limited to a deduction for the Xxxxxxx Money, reductions for
Defects and Properties removed from this transaction, increases for interest
variances, and deductions for Taxes, Suspense Amounts and preferential rights
exercised.
19. Closing. Subject to the other provisions of this Agreement, the closing
("Closing") shall occur on the later of December 22, 2003 at 9:00 a.m. or such
other date or time as the parties may agree in writing (the "Closing Date"), at
the offices of Seller or at such other place as Seller and Buyer may mutually
agree in writing.
At Closing the following shall occur:
(a) Seller shall execute, acknowledge and deliver to Buyer or its
designee those deeds, assignments and bills of sale substantially in the forms
and substance of Xxxxxxxx "X", "X-0" attached hereto, collectively covering all
of the Properties to be sold pursuant hereto (the conveyances are collectively
referred to herein as the "Assignment");
(b) Buyer shall deliver to Seller by wire transfer the total Sale Price
as adjusted hereunder, subject to further adjustment after Closing as provided
for herein;
(c) On or before Closing, Seller shall prepare (in form and substance
reasonably acceptable to the parties), and Seller and Buyer shall execute, all
necessary forms to be filed with the appropriate regulatory authorities
concerning the change of ownership and operatorship of the Properties;
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(d) Seller shall, subject to the terms of any applicable operating
agreements and to the provisions hereof, deliver to Buyer exclusive possession
of the Properties;
(e) Seller shall promptly after Closing provide Buyer with the
following: any maps, reports and other written or electronic material relating
to the Properties, including without limitation Environmental Records, lease
files, property records, contract files, operations files, copies of tax and
accounting records and files, well files, geological and geophysical maps, core
analyses and hydrocarbon analyses, well logs, mud logs, core data and field
studies ("Records"); however, Seller shall have no obligation to furnish Buyer
any data or information which Seller cannot provide Buyer because of third-party
restrictions. Buyer shall keep all original files, maps and other "Records" as
herein set forth at its place of business. Seller shall have the right to access
all of the above listed materials at Buyer's office during normal business hours
for a period of seven (7) years from the closing date of this agreement;
(f) Seller shall prepare and deliver all Change of Operator forms
required by applicable conservation or regulatory agencies and notices to third
party working interest owners of the change of ownership;
(g) In compliance with Section 1445 of the Internal Revenue Code,
Seller shall execute and deliver to Buyer a Nonforeign Affidavit in the form of
Exhibit "C" attached hereto; and
(h) Buyer shall deliver an irrevocable bond or other financial
assurance reasonably satisfactory to Seller in the amount of One Million Dollars
($1,000,000) (the "Bond") to cover Buyer's assumed plugging, abandonment, and
restoration obligations associated with xxxxx existing on the Properties at the
Effective Time. The Bond will provide that it shall be reviewed periodically (no
more than twice in any calendar year) by the parties and be reduced as the
obligations diminish.
20. Reservations and Exceptions. Sale and purchase of the Properties is
made subject to all reservations, exceptions, limitations, contracts and other
burdens or instruments which are stated herein or on Exhibit "A" or which are of
record in Seller's chain of title or of which Buyer has actual notice, including
any matter included or referenced in the materials made available by Seller to
Buyer. In no event does the forgoing serve to revive or otherwise reinstate any
agreement no longer in force or effect.
21. Assumption of Liabilities and Indemnities. As used herein, "Claims"
shall include claims, demands, causes of action, liabilities, damages, penalties
and judgments of any kind or character and all costs and fees in connection
therewith, including attorney's fees. "Seller Group" shall mean Seller, Seller's
general and limited partners, and its and their parents, subsidiaries and
affiliates, officers, directors, agents, contractors, insurers and invitees.
"Buyer Group" shall mean Buyer, Buyer's general and limited partners, members
and/or shareholders, and its and their parents, subsidiaries and affiliates,
officers, directors, agents, contractors, insurers and invitees.
(a) The Properties have been used for exploring, developing, producing,
treating and transporting oil and gas. There is a possibility that there are
currently unknown, abandoned xxxxx, unplugged xxxxx, plugged
14
xxxxx, pipelines and other equipment on or underneath the property subject to
the Properties. Subject to the provisions set forth in (and except as otherwise
set forth in) Paragraphs 13, 21(e), 21(f) and 23 hereof, it is the intent of
Buyer and Seller that all liability associated with the above matters as well as
any liability to plug or replug such xxxxx in accordance with the applicable
rules, regulations and requirements of governmental agencies be passed to the
Buyer at Closing and that Buyer shall assume all liability for such matters and
all Claims related thereto. Additionally, the Properties may contain asbestos or
Naturally Occurring Radioactive Material ("NORM"). NORM may affix or attach
itself to the inside of xxxxx, materials, and equipment as scale or in other
forms; xxxxx, materials and equipment located on the Properties may contain
NORM; and NORM containing material may have been buried or otherwise disposed of
on the Properties. Special procedures may be required for remediating, removing,
transporting and disposing of asbestos and NORM from the Properties, and,
subject to Paragraphs 13, 21(e), 21(f)and 23, Buyer assumes all liability for
any assessment, remediation, removal, transportation, and disposal of these
materials and associated activities in accordance with the applicable rules,
regulations and requirements of governmental agencies.
(b) SPILLS OF WASTE, CRUDE OIL, PRODUCED WATER, HAZARDOUS SUBSTANCES,
AND OTHER MATERIALS MAY HAVE OCCURRED IN THE PAST OR IN THE PROPERTIES. SUBJECT
TO THE PROVISIONS SET FORTH IN (AND EXCEPT AS OTHERWISE SET FORTH IN) PARAGRAPHS
13, 21(e), 21(f) AND 23 HEREOF, BUYER SHALL, AT CLOSING, ASSUME AND BE
RESPONSIBLE FOR AND COMPLY WITH ALL DUTIES AND OBLIGATIONS OF SELLER GROUP,
EXPRESS OR IMPLIED, ARISING BEFORE OR AFTER THE EFFECTIVE TIME, WITH RESPECT TO
THE PROPERTIES, INCLUDING, WITHOUT LIMITATION, THOSE ARISING UNDER OR BY VIRTUE
OF ANY LEASE, CONTRACT, PERMIT, APPLICABLE STATUTE OR RULE (INCLUDING WITHOUT
LIMITATION LIABILITY OF SELLER (IF ANY) UNDER K.S.A. SECTION 55-179), REGULATION
OR ORDER OF ANY GOVERNMENTAL AUTHORITY, (SPECIFICALLY INCLUDING, WITHOUT
LIMITATION, ANY GOVERNMENTAL REQUEST OR REQUIREMENT TO PLUG, RE-PLUG AND/OR
ABANDON ANY WELL OF WHATSOEVER TYPE, STATUS OR CLASSIFICATION, OR TAKE ANY
CLEAN-UP OR OTHER ACTION WITH RESPECT TO THE PROPERTY OR PREMISES, INCLUDING
HAZARDOUS WASTE CLEANUP COSTS UNDER THE RESOURCE AND RECOVERY ACT (RCRA), 42
U.S.C. 6901-6991, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND
LIABILITY ACT (CERCLA), 42 U.S.C. 9601-9675 OR SIMILAR LAWS, RULES OR
REGULATIONS).
(c) SUBJECT TO THE PROVISION SET FORTH IN (AND EXCEPT AS OTHERWISE SET
FORTH IN) PARAGRAPHS 13, 21(e), 21(f), AND 23 HEREOF, AND EXCEPT WITH RESPECT TO
MATTERS PERTAINING TO NONCOMPLIANCE WITH ENVIRONMENTAL LAWS OR OTHERWISE WITH
RESPECT TO HEALTH, SAFETY AND THE ENVIRONMENT, WHICH SHALL BE GOVERNED BY
PARAGRAPHS 21(d), 21(e), AND 23 HEREOF, BUYER SHALL DEFEND, INDEMNIFY AND HOLD
SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS FOR PERSONAL
15
INJURY, DEATH OR DAMAGE TO PROPERTY (SPECIFICALLY EXCLUDING DAMAGE TO THE
ENVIRONMENT), OR FOR ANY OTHER RELIEF, ARISING DIRECTLY OR INDIRECTLY FROM, OR
INCIDENT TO, THE USE, OCCUPATION, OPERATION, MAINTENANCE OR ABANDONMENT OF ANY
OF THE PROPERTIES, OR CONDITION OF THE PROPERTY OR PREMISES, WHETHER LATENT OR
PATENT, AND WHETHER ASSERTED AGAINST BUYER AND/OR SELLER AFTER THE EFFECTIVE
TIME, WHETHER OR NOT ANY SUCH CLAIMS RESULT FROM CONDITIONS, ACTIONS OR
INACTIONS AT OR BEFORE THE EFFECTIVE TIME.
(d) SUBJECT TO THE PROVISION SET FORTH IN (AND EXCEPT AS OTHERWISE SET
FORTH IN) PARAGRAPHS 13, 21(e), 21(f) AND 23 HEREOF, BUYER RELEASES AND FOREVER
DISCHARGES SELLER GROUP, AND BUYER AGREES TO DEFEND, INDEMNIFY AND HOLD SELLER
GROUP HARMLESS FROM ANY AND ALL CLAIMS, WHETHER DIRECT OR INDIRECT, KNOWN OR
UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON ACCOUNT OF OR IN ANY WAY BE
CONNECTED WITH ANY ADVERSE ENVIRONMENTAL CONDITION AFFECTING THE PROPERTIES,
INCLUDING, WITHOUT LIMITATION, THE FAILURE TO COMPLY WITH THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED (42
U.S.C. & 6091 ET. SEQ.), THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 (42
U.S.C. & 6901 ET. SEQ.), THE CLEAN WATER ACT (33 U.S.C. & 466 ET. SEQ.), THE
SAFE DRINKING WATER ACT (14 U.S.C. & 1401 -1450), THE HAZARDOUS MATERIALS
TRANSPORTATION ACT (49 U.S.C. & 1401-7401 ET. SEQ.) AS AMENDED, THE CLEAN AIR
ACT AMENDMENTS OF 1990, AND ANY OTHER APPLICABLE FEDERAL, STATE OR LOCAL LAW,
REGARDLESS WHETHER OR NOT ARISING DURING THE PERIOD OF, OR FROM, OR IN
CONNECTION WITH SELLER'S OWNERSHIP OF THE PROPERTIES OR USE OF THE PROPERTY.
(e) SELLER SHALL DEFEND, INDEMNIFY AND HOLD BUYER GROUP HARMLESS FROM
AND AGAINST ANY AND ALL CLAIMS (i) FOR BREACH OF SELLER'S REPRESENTATIONS,
WARANTIES, AND COVENANTS HEREUNDER (TO THE EXTENT THAT THE CLAIM FOR BREACH
THEREOF IS MADE WHILE THE REPRESENTATIONS AND WARRANTIES SURVIVE AS PROVIDED
HEREIN), (ii) FOR PERSONAL INJURY CLAIMS ASSERTED AGAINST ANY OF BUYER GROUP TO
THE EXTENT SUCH ILLNESS, INJURY OR DEATH OCCURRED OR IS OTHERWISE ATTRIBUTABLE
TO PERIODS PRIOR TO THE EFFECTIVE TIME AND IS PROPERLY ASSERTED WITHIN THE
APPLICABLE STATUTE OF LIMITATIONS RELATING THERETO, (iii) FOR ADVERSE
ENVIRONMENTAL CONDITIONS ASSERTED BY BUYER, ANY THIRD PARTY OR ANY GOVERNMENTAL
AUTHORITY ON OR BEFORE APRIL 30, 2004, AND (iv) FOR OR ARISING WITH RESPECT TO
RETAINED OBLIGATIONS. NOTWITHSTANDING ANY PROVISION HEREOF TO THE CONTRARY BUYER
SHALL NOT ASSUME OR INDEMNITY SELLER GROUP FROM ANY LIABILITY ASSOCIATED WITH
THE DISPOSAL OF MATERIALS (WHETHER OR NOT "HAZARDOUS") OFF SITE OF THE
PROPERTIES PRIOR TO THE EFFECTIVE DATE.
16
(f) Neither Seller nor Buyer shall have any obligation or liability
under this Agreement or in connection with or with respect to the transactions
contemplated in this Agreement for any breach, misrepresentation or
noncompliance with respect to any representation, warranty, covenant or
obligation if such breach, misrepresentation or noncompliance shall have been
waived in writing by the other party. IN NO EVENT SHALL BUYER OR SELLER BE
LIABLE HEREUNDER FOR THE OTHER PARTY'S (AND EACH HEREBY WAIVES ANY RIGHT TO
RECOVER FROM THE OTHER PARTY FOR ITS OWN), EXEMPLARY, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES.
(g) THE INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED FOR
IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE CLAIMS IN QUESTION
AROSE FROM THE GROSS, SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE OF THE
SELLER GROUP, BUYER GROUP OR ANY THIRD PARTY AND REGARDLESS OF WHO MAY BE AT
FAULT OR OTHERWISE RESPONSIBLE UNDER ANY OTHER CONTRACT, OR ANY STATUTE, RULE,
OR THEORY OF LAW, INCLUDING, BUT NOT LIMITED TO, THEORIES OF STRICT LIABILITY.
BUYER AND SELLER ACKNOWLEDGE THAT THE FOREGOING INDEMNITIES TOGETHER WITH THIS
STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.
22. Allocation of Tax Liabilities. All Taxes pertaining to the Properties
are Seller's responsibility where attributable to the period prior to the
Effective Time, and Purchaser's responsibility where attributable to the period
on or after the Effective Time regardless of when assessed on the Properties
("Straddle Period Taxes"). Any ad valorem, real property and personal property
Taxes with respect to the Properties for any taxable period shall be apportioned
on a per diem basis. Buyer and Seller each shall be responsible for its own
state and or federal income taxes or franchise taxes. After the Effective Time,
Buyer and Seller shall supply the other all information and documents reasonably
necessary to comply with tax and financial reporting requirements and audits. At
Closing, the Sale Price shall be reduced by the amount of such Straddle Period
Taxes so apportioned to Seller and Buyer shall pay, and defend and hold Seller
harmless with respect to payment of all such Straddle Period Taxes on the
Properties for the current tax period and thereafter, together with any interest
or penalties assessed thereon; provided, that, if the amount of the apportioned
Straddle Period Taxes is increased, Seller shall reimburse, indemnify and hold
harmless Buyer for Seller's apportioned share of such increase.
23. Accounting; Retained Obligations; Environmental Liabilities. All
proceeds (including receivables held in suspense or escrow for Seller's account,
the right to which will be retained by Seller) from the sale of production
actually sold and delivered by Seller prior to the Effective Time attributable
to the Properties shall belong to Seller and all proceeds from the sale of
production actually sold and delivered after the Effective Time attributable to
the Properties shall belong to Buyer. All oil, condensate or liquid hydrocarbons
and any products (liquid, gas or solid) separated or processed therefrom
(hereinafter in this paragraph called "oil") in storage shall be measured or
gauged and all gas meter charts shall be replaced at the Effective Time. Buyer
shall pay Seller for such
17
oil based on the market price on the Effective Time, provided that Buyer shall
not pay Seller for oil in storage below the level of the tank cut off valve
(tank bottoms). Any gas imbalance shall be accounted for between Buyer and
Seller as follows:
Buyer and Seller agree that the net gas production and pipeline imbalance
attributable to the Properties as of the Effective Time is believed to be that
which is set forth on Exhibit "A-3" (the "Agreed Imbalance"), notwithstanding
that the actual imbalance may be less or greater. At Closing the Sale Price
shall be adjusted, as appropriate, by the product of the Agreed Imbalance and
$4.00 per MCF. Buyer and Seller shall verify the actual net gas imbalance in the
post closing accounting and any imbalance shall be accounted for between the
parties at the price of $4.00 per MCF but only as to those volumes which exceed
or are less than the Agreed Imbalance. Provided that if an applicable operating
or gas balancing agreement requires cash balancing upon conveyance of the
Properties, the adjustment price shall equal the price received in the gas
balancing. Such settlement shall be final and neither party thereafter shall
make claim upon the other concerning the gas imbalances of the Properties. BUYER
ASSUMES ALL RIGHTS AND LIABILITIES RELATING TO GAS IMBALANCES DISCOVERED AFTER
THE POST CLOSING SETTLEMENT INCLUDING ANY REVENUE ADJUSTMENT CAUSED BY SUCH
SUBSEQUENTLY DISCOVERED IMBALANCE AND AGREES TO DEFEND AND INDEMNIFY SELLER FROM
AND AGAINST ANY CLAIM, BY ANYONE, ARISING OUT OF SUCH GAS IMBALANCES REGARDLESS
OF SELLER'S NEGLIGENCE OR FAULT (INCLUDING STRICT LIABILITY).
Notwithstanding anything herein to the contrary, all Claims, costs, expenses and
obligations relating to the Properties which accrue or are otherwise
attributable to the period prior to the Effective Time shall be paid and
discharged by Seller, including without limitation obligations relating to
unpaid royalties and other obligations under or with respect to the Properties,
Taxes and the matters identified on Schedule 6(c), but SAVE and EXCEPT and
subject to (and except as otherwise set forth in) Paragraphs 13, 21(e), and
21(f) hereof Buyer shall be responsible for (a) adverse environmental conditions
located on (but not off) the Leases, subject to the provisions of the
immediately following paragraph, (b) the obligation to plug and abandon xxxxx
situated on the Leases, and (c) restoration of the Lands as is required under
any applicable laws, Leases or Contracts, except to the extent and only to the
extent that such restoration obligation is (i) a Defect, notice of which is
timely given to Seller as provided under paragraph 10 hereof, or (ii) a breach
of Seller's representation or warranty for which a claim is made against Seller
during the survival period thereof, or (iii) an obligation of which Seller is
notified by Buyer on or before April 30, 2004 and for which Seller is obligated
to defend, indemnify or hold harmless Buyer under paragraph 21 hereof
(suchClaims, costs, expenses and obligations to be paid by Seller are herein
collectively referred to as the "Retained Obligations"). All such costs,
expenses and obligations relating to the Properties which are attributable to
the period from and after the Effective Time shall be paid and discharged by
Buyer.
18
It is generally the intent of the parties that the Defect Value, under Paragraph
13, and the indemnification liability of Seller under Paragraph 21(e), be
without any monetary limit or restriction; provided, however, solely with
respect to:
(i) the post-Closing obligation of Seller under Paragraph 13 to reduce
the Sale Price by the Defect Value, or to pay Buyer the Defect Value, for
any Defects attributable to any adverse environmental conditions, as
defined in Paragraph 9(e) (collectively, the "Aggregate Environmental
Defect Value"); and
(ii) the environmental indemnity by Seller:
a) under Paragraph 21(e)(i) (insofar as the same concerns
indemnification relating a breach by Seller of the
representation concerning the existence of an adverse
environmental condition with respect to the Properties set
forth in Paragraph 6(f)), and
b) Paragraph 21(e)(iii) above (collectively, the "Seller
Environmental Indemnities"),
the Aggregate Environmental Defect Value and the liability of Seller with
respect to the Seller Environmental Indemnities shall not exceed, in the
aggregate, $20,000,000.00.
The foregoing adjustments shall be made by debits and credits between the
parties at post-closing, as provided for hereinafter.
24. Sales Tax. The Sale Price provided for hereunder excludes any sales
taxes or other taxes in connection with the sale of property pursuant to this
Agreement. If a determination is ever made that a sales tax or other transfer
tax applies, Buyer shall be liable for such tax as well as any applicable
conveyance, transfer and recording fees, and real estate transfer stamps or
taxes imposed on any transfer of property pursuant to this Agreement. Buyer
shall defend and hold Seller harmless with respect to the payment of all such
taxes, if any, including any interest or penalties assessed thereon.
25. Post-Closing Adjustments. As soon as practicable after Closing, but in
any event on or before 90 days after Closing, Buyer shall in good faith prepare,
in accordance with this Agreement and (where applicable) in accordance with
generally accepted accounting principles consistently applied, a final
settlement statement (herein called the "Final Statement") setting forth each
Sale Price adjustment or payment which was not finally determined as of the
Closing Date, and showing the calculation of the final settlement amount based
on such Final Statement (the "final settlement amount"). Buyer shall submit the
Final Statement to Seller and shall afford Seller access to Buyer's records
pertaining to the computations contained in the Final Statement. As soon as
practicable after receipt of the statement, Seller shall deliver to Buyer a
written report containing any changes which Seller proposes be made to the Final
Statement. The parties shall use their commercially reasonable efforts to agree
with respect to the
19
amounts due pursuant to such post-closing adjustment not later than thirty (30)
days after Seller's receipt of Buyer's Final Statement. The date upon which such
agreement is reached shall be herein called the "Settlement Date." Within two
(2) days after such Settlement Date Buyer shall pay to Seller or Seller shall
pay to Buyer in immediately available funds the net amount due.
26. Notices. All communications required or permitted under this Agreement
shall be in writing and made to the person at his address or fax number set
forth below. Any communication or delivery hereunder shall be deemed to have
been fully made when actually delivered or received at the recipient's address
or fax number, or if mailed by registered or certified mail, postage prepaid, to
the address as set forth below, on the date reflected in the delivery receipt.
The addresses, designated recipients and phone and fax numbers for such persons
may only be changed by notice given to the other party as provided above.
SELLER
DEVON ENERGY PRODUCTION COMPANY, L.P. and TALL GRASS GAS SERVICES, LLC
00 Xxxxx Xxxxxxxx, Xxxxx 0000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
BUYER
QUEST RESOURCE CORPORATION
0000 X. Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx Xxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
27. Further Assurance. After Closing each of the parties shall execute,
acknowledge and deliver to the other such further instruments, and take such
other actions as may be reasonably necessary to carry out the provisions of this
Agreement. However, Buyer shall assume all responsibility for notifying the
purchaser(s) of oil and gas production from the Properties, and such other
designated persons who may be responsible for disbursing payments for the
purchase of such production, of the change of ownership of the Properties. Buyer
and Seller shall promptly take all commercially reasonable actions necessary to
effectuate the transfer of such payments to Buyer. After the Settlement Date,
additional proceeds received by or expenses paid by either Buyer or Seller on
behalf of the other party shall be settled by invoicing such party for expenses
paid or remitting to such other party any proceeds received.
28. DISCLAIMER OF WARRANTIES. EXCEPT AS PROVIDED IN PARAGRAPH 15 HEREOF AND
OTHERWISE IN THIS AGREEMENT AND ANY CONVEYANCES DELIVERED HEREUNDER, ANY
INSTRUMENT OF CONVEYANCE OR SALE EXECUTED PURSUANT HERETO SHALL BE EXECUTED
WITHOUT ANY WARRANTY OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY,
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OR OTHERWISE, WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO
THE MERCHANTABILITY OF ANY OF THE EQUIPMENT OR OTHER PERSONAL PROPERTY INCLUDED
IN THE PROPERTIES OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND WITHOUT ANY
OTHER EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION WHATSOEVER. IN ADDITION,
SELLER AND ITS CONSULTANTS SHALL MAKE NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR
MATERIALS HERETOFORE OR HEREAFTER FURNISHED BUYER IN CONNECTION WITH THE
PROPERTIES, OR AS TO THE QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY)
ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OF THE PROPERTIES TO PRODUCE
HYDROCARBONS. ANY AND ALL SUCH DATA, INFORMATION AND OTHER MATERIALS FURNISHED
BY SELLER IS PROVIDED TO BUYER AS A CONVENIENCE AND ANY RELIANCE ON OR USE OF
THE SAME SHALL BE AT BUYER'S SOLE RISK. BUYER EXPRESSLY WAIVES THE PROVISIONS OF
CHAPTER XVII, SUBCHAPTER E, SECTIONS 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN
SECTION 17.555, WHICH IS NOT WAIVED), VERNON'S TEXAS CODE ANNOTATED, BUSINESS
AND COMMERCE CODE (THE "DECEPTIVE TRADE PRACTICES ACT") ACKNOWLEDGES THAT THIS
EXPRESS WAIVER SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND
THE CONSIDERATION THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO
THE ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY
AND KNOWINGLY CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS AND/OR WARRANTY
AGAINST REDHIBITORY VICES AND DEFECT FOR THE PROPERTIES. BUYER ACKNOWLEDGES THAT
THIS EXPRESS WAIVER SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS
SALE AND THE CONSIDERATION THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN
BROUGHT TO THE ATTENTION OF BUYER AND EXPLAINED IN DETAIL AND THAT BUYER HAS
VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER. ALL INSTRUMENTS OF
CONVEYANCE TO BE DELIVERED BY SELLER AT CLOSING SHALL EXPRESSLY SET FORTH THE
DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS PARAGRAPH.
29. Operations by Seller. Seller will operate the Seller-operated
Properties until the later of Closing, the Effective Time, the time required to
receive MMS or other governmental approval, or the time the applicable operating
agreement or plan of unitization may require. Seller makes no representation
that Buyer will be elected or appointed Operator of any property included within
the Properties.
(a) Risk. The risk of casualty loss relating to the Properties will
pass from Seller to Buyer at Closing.
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(b) Operations after Effective Time. Operations conducted by Seller
after the Effective Time with respect to the Properties will be conducted on
behalf of Buyer, and Buyer will pay Seller for operation, protection and
maintenance of the Properties as follows:
(1) Buyer will pay Seller a fixed monthly rate per active
producing well for operation and maintenance expenses
(excluding workover costs, plugging and abandonment costs,
and major costs). Such fixed monthly rate will be based on
the average cost per active producing well situated on the
Leases on Seller's accounting lease basis for the three
months prior to the Effective Time;
(2) Buyer will reimburse Seller for all workover costs,
plugging, abandoning and reabandoning costs, and other
applicable costs and expenses that Seller incurs after the
Effective Time, on an actual-cost basis; and
(3) Buyer will pay operation and administrative overhead to
Seller at a rate equal to $500.00 per active producing well
per month (prorated for partial months).
These charges will be included in the Final Statement as provided in this
Agreement.
(c) Selection of Operator. Seller may poll the parties to any
applicable operating agreement or plan of unitization before Closing to select a
successor Operator. The poll may stipulate that the parties' selection of a
successor Operator will not be effective unless Closing occurs. If Seller does
not poll, then Buyer will do so. Buyer's selection as Operator is not a
condition to Buyer's performance of its obligations under this Agreement.
(d) Notice of Change of Ownership and Operatorship. Buyer will take
all necessary steps to ensure that Buyer is recognized as the owner and, if
elected, Operator of the Properties by all appropriate parties, including any
regulatory commission, body, or board with jurisdiction. If Seller is the
principal on any financial assurance (including a bond) relating to the
Properties, which financial assurance is required by any law, rule or
regulation, then except as otherwise provided herein Buyer will secure
replacement financial assurance in the required amount and deliver it to the
regulatory body requiring such assurance, to the end that Seller's financial
assurance is released and discharged.
(e) Removal of Signs. Seller may either remove its name and signs from
the Seller-operated Properties or require Buyer to do so. Buyer grants Seller a
right of access to the Properties to remove Seller's signs and name from all
xxxxx, facilities and Properties, or to confirm that Buyer has done so. If
Seller's name or signs remain on the Properties after Closing, Buyer will
promptly, but no later than required by applicable rules and regulations or
forty-five (45) days after Closing, whichever is earlier, remove all remaining
signs and references to Seller and erect or install signs complying with
applicable rules and regulations, including signs showing the Buyer as Operator
of the Properties.
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30. Securities Laws. The solicitation of offers and the sale of the
Properties by Seller have not been registered under any securities laws. Buyer
represents that at no time has it been presented with or solicited by or through
any public promotion or any form of advertising in connection with this
transaction. Buyer represents that it intends to acquire the Properties for its
own benefit and account and that it is not acquiring the Properties with the
intent of distributing fractional, undivided interests that would be subject to
regulation by federal or state securities laws, and that if it sells, transfers,
or otherwise disposes of the Properties or fractional, undivided interests, it
will do so in compliance with applicable federal and state securities laws.
31. Due Diligence. Buyer represents that if Closing occurs it has performed
sufficient review and due diligence with respect to the Properties, which
includes reviewing well-data, title, and other files, and performing necessary
evaluations, assessments, and other tasks involved in evaluating the Properties,
and to enable it to make an informed decision to acquire the Properties under
the terms of this Agreement; provided, however, that nothing herein shall limit,
waive or restrict any right or remedy that Buyer has under this Agreement with
respect to Defects, indemnities or otherwise.
32. Material Factor. Buyer acknowledges that Buyer's representations under
paragraphs 30 and 31 are a material inducement to Seller to enter into this
Agreement with, and close the sale to, Buyer.
33. Press Release. There shall be no press release or public communication
concerning this purchase and sale by either party, except as required by law or
with the written consent of the party not originating said release or
communication. Such consent not to be unreasonably withheld. Parties will
endeavor to consult each other in a timely manner on all press releases required
by law.
34. Entire Agreement. This instrument states the entire agreement between
the parties and may be supplemented, altered, amended, modified or revoked by
writing only, signed by both parties. This Agreement supersedes any prior
agreements between the parties concerning sale of the Properties, except that
any confidentiality agreement shall terminate at Closing. The headings are for
guidance only and shall have no significance in the interpretations of this
Agreement.
35. Tax Reporting. Seller and Buyer agree that this transaction is not
subject to the reporting requirement of Section 1060 of the Internal Revenue
Code of 1986, as amended, and that, therefore, IRS Form 8594, Asset Acquisition
statement, is not required to be and will not be filed for this transaction. In
the event the parties mutually agree that a filing of Form 8594 is required, the
parties will confer and cooperate in the preparation and filing of their
respective forms to reflect a consistent reporting of the agreed upon
allocation.
36. Assignability. This Agreement is for the sole benefit of, and shall
enure to the benefit of Buyer and Seller and their successors and assigns, and
shall be binding upon Buyer and Seller, their successors and assigns, and is not
for the benefit of any other party. However, this Agreement and the rights and
obligations hereunder shall not be assignable or delegable by either party
hereto without the prior written consent of the other party unless such
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assignment occurs by merger, reorganization or sale of all of a party's assets;
provided that Buyer may assign this Agreement, without Seller's consent, to an
entity formed by Quest Resource Corporation and/or ArcLight Capital Partners,
LLC and/or any of their respective affiliates for the purpose of consummating
the transactions contemplated hereby.
37. Survival. Unless expressly limited, all of the representations,
warranties, and agreements of or by the parties hereto shall survive the
execution and delivery of the Deed, Assignment and Xxxx of Sale with the
exception that the representations, warranties and agreements of Seller found in
Sections 6 (c), (d), (e), (f), (i), and (l) shall survive until April 30, 2004,
and no claim may be made for breach thereof or reliance thereupon after such
representation, warranty or agreement has expired.
38. Tax Deferred Exchange Election. Seller may, at or before the Closing,
elect to effect a tax-deferred exchange of the Properties for other qualifying
properties (herein collectively called the "Exchange Property"). Seller may
elect, by notice to Buyer delivered on or before the Closing Date, to have the
Sale Price paid to a qualified intermediary until Seller has designated the
Exchange Property. The Exchange Property shall be designated by Seller and
acquired by the qualified intermediary within the time periods prescribed in
Section 1031(a)(3) of the Internal Revenue Code of 1986, as amended (the Code),
and shall thereupon be conveyed to Seller. In the event Seller fails to
designate and the qualified intermediary fails to acquire the Exchange Property
within such time periods, the agency or trust shall terminate and the proceeds
then held by the qualified intermediary shall be paid immediately to Seller. The
rights and responsibilities of Seller, Buyer and the qualified intermediary
shall be documented with such agreements containing such terms and provisions as
shall be reasonably determined by Seller and Buyer to be necessary to accomplish
a tax free exchange under Section 1031 of the Code; provided, however, if Seller
makes a tax deferred exchange election, Buyer shall not be obligated to pay any
additional costs or incur any additional obligations in the acquisition of the
Properties. Seller agrees to indemnify Buyer against any and all reasonable
costs and expenses Buyer shall incur with respect to cooperating with Seller in
enabling the transactions contemplated herein to qualify in whole or in part as
a tax free exchange under Section 1031 of the Code. Any such tax deferred
exchange election by Seller shall not affect the duties, rights or obligations
of the Seller and Buyer except as expressly set forth in this Section 38.
39. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF OKLAHOMA.
40. Counterpart Execution. This Agreement may be executed in counterparts
and each counterpart shall constitute a binding agreement as if the parties had
executed a single document.
41. Severance of Invalid Provisions. If, for any reason and for so long as,
any clause or provision of this Agreement is held by a court of competent
jurisdiction to be illegal, invalid, unenforceable or unconscionable under any
present or future law (or interpretation thereof), the remainder of this
Agreement shall not be affected by such
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illegality or invalidity. Any such invalid provision shall be deemed severed
from this Agreement as if this Agreement had been executed with the invalid
provision eliminated.
The surviving provisions of this Agreement shall remain in full force and effect
unless the removal of the invalid provision destroys the legitimate purpose of
this Agreement; in which event this Agreement shall be null and void. The
Parties shall negotiate in good faith for any required modifications to this
Agreement.
42. Tax Credits. If an extension of the Internal Revenue Code of 1986, as
amended, Section 29 Credit For Producing Fuel From a Non-Convential Source
("Energy Xxxx") is passed on or before December 31, 2004, Buyer will use its
commercially reasonable efforts to monetize such credits and pay to Seller,
after first deducting its costs and expenses incurred in connection therewith,
an amount equal to 75% of (a) the net cash payments received in connection with
the monetization of such credits and/or (b) the actual tax benefits recognized
with respect to such credits actually recognized by Buyer. Such payment to
Seller shall be made within 90 days of the Buyer's receipt of cash payments in
connection with such monetization or the filing of a tax return in which the tax
benefits with respect to such credits are actually recognized by the Buyer. The
obligation of Buyer to make this payment shall extend only through the period
for which Buyer receives payments for the monetization of the credits or
actually recognizes tax benefits with respect to such credits as extended by the
Energy Xxxx and not for any future periods as extended by future legislation.
EACH BUYER AND SELLER ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT IN ITS
ENTIRETY, AND THAT IT UNDERSTANDS ALL THE PROVISIONS SET FORTH HEREIN,
INCLUDING, BUT NOT LIMITED TO, THOSE PROVISIONS LOCATED HEREIN WHEREIN SUCH
PARTY AGREES TO INDEMNIFY THE OTHER PARTY IN CERTAIN CIRCUMSTANCES EVEN THOUGH
THE LOSSES, COSTS, EXPENSE AND/OR DAMAGES MAY HAVE BEEN CAUSED BY THE GROSS,
SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE OF THE OTHER PARTY, ITS
EMPLOYEES, OR ANY THIRD PARTY AND EVEN THOUGH THE OTHER PARTY MAY BE RESPONSIBLE
FOR SUCH LOSSES, COSTS, EXPENSES AND/OR DAMAGES UNDER ANY THEORY OF LAW,
INCLUDING BUT NOT LIMITED TO STRICT LIABILITY.
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EXECUTED as of the date first above mentioned.
SELLER
------
DEVON ENERGY PRODUCTION COMPANY, TALL GRASS GAS SERVICES, LLC., L.P.
By: /s/ Duke X. Xxxxx By: /s/ Duke X. Xxxxx
--------------------------- -------------------------
Duke X. Xxxxx Duke X. Xxxxx
BUYER
-----
QUEST RESOURCE CORPORATION
By: /s/ Xxxxx Xxxx
---------------------------
Xxxxx X. Xxxx
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