SUMMIT PETROLEUM LLC
Exhibit
10.3
This
Purchase and Sale Agreement
(referred to herein as the “Agreement”) is between SUMMIT PETROLEUM
MANAGEMENT CORPORATION, a Texas corporation whose address is ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, SUMMIT
PETROLEUM LLC, a Texas limited liability corporation whose address is
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (all of which
are collectively referred to herein as the “Seller(s)”) and LEGACY
RESERVES OPERATING LP, a Delaware limited partnership whose address is
303
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, (referred to herein as the “Buyer”)
is made and entered August 28, 2007, to be effective for all intents and
purposes as of the Effective Time designated herein.
Seller
and Buyer for and in
consideration of the mutual promises and covenants under this Agreement,
the
benefits to be derived by each party, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
ARTICLE
1
RECITALS
Seller
desires to sell to Buyer, and
Buyer desires to purchase from Seller, certain oil and gas properties and
related Properties on the terms and conditions set forth in this
Agreement.
Seller
and Buyer for and in
consideration of the mutual promises and covenants under this Agreement,
the
benefits to be derived by each party, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
agree as follows:
ARTICLE
2
PURCHASE
AND SALE
2.1 Purchase
and Sale. Seller agrees to sell and convey all of its right,
title and interest in and to the Property or Properties (as defined in Article
2.2) and Buyer agrees to purchase the Property or Properties (as defined
in
Article 2.2), subject to the terms and conditions of this
Agreement.
2.2 Properties
Defined. The undivided interest described as follows and on
Exhibit “A” (hereafter called the “Property or Properties”), except as excluded
in Article 2.2(e):
|
|
(a)
|
Leases,
Lands, ▇▇▇▇▇ and Pooling and Unitization Agreements. All of
Seller’s right, title, and interest of whatever nature in all leasehold
and other interests in; (i) the oil, gas and mineral leases limited
to
those portions described on Exhibit “A” and including the working and net
revenue interests set forth therein (the “Leases”), insofar and only
insofar as said Leases include and pertain to and cover the lands
and
depths as specifically described herein on attached Exhibit “A” (the
“Lands”); (ii) the oil and gas ▇▇▇▇▇ located on the Leases or on Lands
pooled or unitized therewith (the “▇▇▇▇▇”) including those listed on
Exhibit “A”; and (iii) the units, pooled acreage, spacing or proration
units or other allocation of acreage applicable to the ▇▇▇▇▇ established
by or in accordance with the applicable state, federal or local
law;
|
|
|
(b)
|
Production. Hydrocarbons
produced from or allocable to the ▇▇▇▇▇ for periods on or after
the
Effective Time (as defined in Section 2.3) and the proceeds
therefrom;
|
|
|
(c)
|
Equipment. Personal
property, equipment, fixtures, and improvements appurtenant to
or located
on the Leases or the Lands, or used or obtained in connection with
the
ownership or operation of the Properties,
and
|
|
|
(d)
|
Easements,
Contracts, Land Files and Records. (i) appurtenances,
surface leases, easements, permits, licenses, servitudes and
rights-of-way; (ii) all leases, farmout agreements, unitization
agreements, pooling agreements, unit declarations, division orders,
transfer orders, joint interest ▇▇▇▇▇▇▇▇, accounting, production
payment/payout records, operating contracts, excluding drilling
rig
contracts which are proprietary and non-assignable and any other
applicable agreements and instruments, including to the extent
assignable
all applicable production sales agreements, the existing electric
supply
agreement and water disposal agreements (except as to the ▇▇▇▇▇▇▇
14 (STA)
SWD System will be assigned to Buyer only to the extent that Buyer’s
disposal volume needs are subordinate to Seller’s disposal volume needs on
the ▇▇▇▇▇▇▇ 14 SWD System), and (iii) all Records as are defined
in
Section 7.4 (b); however Seller retains such rights under this
Section
2.2(d) to the extent necessary to enjoy the use and access to its
other
properties, leases and lands.
|
Page
1of 18
|
|
(e)
|
Excluded
Properties. Seller’s interest in these Properties has
been collectively referred to as “Property or Properties”,
provided, however, the Property or Properties shall not include
and there
is excepted, reserved and excluded from this
Agreement the produced water disposal system(s) and its
associated facilities and
equipment.
|
2.3 Effective
Time. The
transfer of the Properties shall occur at Closing, which is defined in Article
7.1, effective as of 12:01 a.m., local time, September 1, 2007, (the “Effective
Time”) on the Properties as described herein.
2.4 Oil
in Storage. All oil in storage at the Effective Time, including
working inventory, belongs to Seller. “Oil in Storage” for purposes
of this Agreement, will mean all oil which was produced from the Properties
and
which was, on the Effective Time, stored in tanks located on the Properties
(or
located elsewhere but used by Seller to store oil produced from the Properties
prior to delivery to oil purchasers) and above pipeline connections shall
be
deemed to have been produced before the Effective Time. Oil inventories will
be
valued based on the realized price received by Seller for oil sales, from
the
Properties on the Effective Date.
ARTICLE
3
PURCHASE
PRICE
3.1 Purchase
Price; Allocations.
|
|
(a)
|
Amount.
|
The
Purchase
Price of the Properties shall be a consideration equal
to FIFTEEN MILLION THREE HUNDRED THOUSAND ($15,300,000)
(Subject to
adjustment only as hereinafter provided).
|
|
|
(b)
|
Allocation. Buyer
has allocated the Purchase Price among the Properties including
the
undeveloped locations and behind pipe intervals, as set forth on
Exhibit
“A-1” attached hereto for the purpose of (1) establishing a basis for
certain taxes, and (2) giving notices of value to the owners of
any
preferential rights to purchase the Properties, (3) determining
the value
of a Title Defect(s) and/or Environmental Defect(s), if any and
(4)
allocation of the Purchase Price to each individual
Seller.
|
|
|
(c)
|
All
amounts required under this Article 3 to be paid by Buyer to Seller
shall
be made by wire transfer of immediately available funds to an account(s)
designated by Seller which designation shall be made on or before
the date
said payment is due. These amounts are subject to further
adjustment after the Closing as provided in this
Agreement. Seller may delay or refuse to proceed with the
Closing should Buyer refuse or fail to comply with payment provisions
as
set forth by Seller. This right on the part of Seller is in
addition to all other rights and remedies Seller may have under
this
Agreement, at law, or in equity.
|
|
|
(d)
|
Buyer
and Seller hereby agree that Seller, in lieu of the sale of the
Properties
to Buyer for the cash consideration provided herein, shall have
the right
at any time prior to the Closing to assign all or a portion of
its rights
under this Agreement to a qualified intermediary, in order to accomplish
the transaction in a manner that will comply, either in whole or
in part
with the requirements of a like kind exchange pursuant to §1031 of the
Internal Revenue Code of 1986, as amended. In the event Seller
does assign its rights under this Agreement pursuant to this Article
3.1(d), Seller agrees to notify Buyer in writing of such assignment
not
less than seven (7) days before Closing. If Seller assigns its
rights under this Agreement, Buyer (i) consents to Seller's assignment
of
its rights in this Agreement, and (ii) deposit the Purchase Price
with the
qualified escrow or qualified trust account at the
Closing.
|
Page
2of 18
|
|
(e)
|
Buyer
has deposited with Seller, and Seller acknowledges receipt of,
a
performance deposit in an amount which represents ten percent (10%)
of the
Purchase Price (the "Deposit"), which amount shall be held by Seller
and
distributed as follows:
|
|
|
(i)
|
if
this Agreement is terminated by mutual consent of the parties as
provided
in Article 8.1, the Deposit shall be returned by Seller to Buyer,
without
interest;
|
|
|
(ii)
|
if
this Agreement is terminated by either party pursuant to the termination
right provided in Article 8.1 and at such time all of Buyer's conditions
to Closing as set forth in Article 7.3 have not been satisfied
(and such
failure is not due to a breach by Buyer of its obligations hereunder),
the
Deposit shall be returned by Seller to Buyer
without interest;
|
|
|
(iii)
|
if
this Agreement is terminated by either party pursuant to the termination
right provided in Article 8.1 and at such time all of Buyer's conditions
to Closing as set forth in Article 7.3 have been satisfied, the
Deposit
shall be retained by Seller, and such shall constitute liquidated
damages
and Seller’s sole damages for any breach by Buyer of this Agreement
causing its termination as set forth in this section;
and
|
|
|
(iv)
|
if
Closing occurs, Seller shall apply the Deposit towards the Purchase
Price.
|
|
|
(v)
|
the
Deposit shall be sent by wire transfer by end of business on August
31,
2007, as instructed by Seller.
|
At
Closing, Buyer shall pay to Seller the total Purchase Price set forth in
Article
3.1(a) less an amount equal to the Deposit set forth in Article 3.1(e) and
less
any adjustments as set forth in Article 7.5
ARTICLE
4
TITLE
& ENVIRONMENTAL
4.1 General
Access. Immediately upon execution of this Agreement and prior to
Closing, Seller will provide Buyer, at Buyer’s sole risk, cost and expense,
access at all reasonable times to the Properties and to the files, records,
contracts, correspondence, maps, data, reports, plats, title opinions and
title
reports and other documents of Seller pertaining to the Properties for purposes
of conducting due diligence to determine the existence of any Title Defects
and/or Environmental Defects.
4.2 Seller’s
Title. Each Seller hereby warrants and represents by through and
under each Seller, but not otherwise, to Buyer that each Seller's title to
the
Properties as of the Effective Time is (and as of the Closing will be) free
of
"Title Defects", as defined below.
4.3 Title
Defect. The term “Title Defect” as used herein shall mean any encumbrance,
encroachment, irregularity, defect in or objection to Seller’s title to the
Properties (except Permitted Encumbrances) that alone or in combination with
other defects renders Seller’s title to the Properties less than Defensible
Title, as defined in Article 5.1(d) below, including; (i) liens securing
unpaid
indebtedness or taxes; (ii) preferential rights, consents to assignment and
similar provisions of the type commonly encountered in the oil and gas industry;
(iii) matters indicating that Buyer, or Buyer's successor could not successfully
defend against a claim by any person or entity that a defect exists as to
any
Property; (iv) differences between the net revenue interest or the working
interest as set out on Exhibit “A-1”, and the net revenue interest and working
interest determined by Buyer pursuant to its review of title; (v) obligations
to
deliver production at a future date without payment for the production; and/or
(vi) a default by Seller under some material provision of a lease, farmout
agreement or agreement affecting any Property.
Page
3of 18
4.4 Permitted
Encumbrances. “Permitted Encumbrances” shall mean: (i) minor
defects in title which do not require the payment of money and otherwise
do not
have a material adverse effect on the value or operation of the affected
portion
of the Properties; (ii) liens for labor, services, materials or supplies
furnished to the Properties which are not delinquent and which will be paid
or
discharged in the ordinary course of business; (iii) liens for taxes or
assessments not yet due and not delinquent; (iv) Lessor’s royalties,
overriding royalties, division orders and similar burdens if the net cumulative
effect of such burdens does not operate to reduce the net revenue interest
from
that set forth on Exhibit “A-1”;and (v) production sale contracts, so long as
the prices payable under the contracts are representative of general arms
length
market prices being paid for similar production in the area, unitization
and
pooling declarations and agreements and any operating agreements, insofar
as
such contracts and agreements do not operate to increase the working interest
or
decrease the net revenue interest of Buyer from that stipulated on Exhibit
“A-1”
attached hereto; (vi) preferential rights to purchase and required third
party
consents to assignments and similar agreements with respect to which, prior
to
Closing, (A) waivers or consents are obtained from the appropriate parties,
(B)
the appropriate time period for asserting such rights has expired without
an
exercise of such rights, or (C) with respect to consent, failure to obtain
consent does not affect the validity of an assignment to Buyer; (vii) all
rights
to consent by, required notices to, filings with, or other actions by
Governmental Bodies in connection with the sale or conveyance of oil and
gas
leases or interests therein if the same are customarily obtained subsequent
to
such sale or conveyance; (viii) rights reserved to or vested in any municipality
or governmental, statutory, or public authority to control or regulate any
of
the Properties in any manner, and all applicable laws, rules and orders of
any
governmental authority; (ix) such Title Defects as Buyer shall have waived;
and
(x) liens released at Closing.
4.5 Notice
of Title Defects. Buyer shall give Seller notice of any Title
Defects as soon as practicable. The notice shall:
|
|
(a)
|
be
in writing;
|
|
|
(b)
|
describe
in sufficient detail the nature of Title Defect and include appropriate
evidence to substantiate the Title
Defect;
|
|
|
(c)
|
describe
the steps and actions (in reasonable detail) which are necessary
in
Buyer’s opinion for the curing of identified Title
Defects;
|
|
|
(d)
|
be
delivered to Seller as soon as possible, but no later than September
24,
2007
|
Buyer
shall be deemed to have waived all Title Defects of which Seller has not
been
given the notice described in this Article 4.5.
4.6 Remedies
for Title Defects. Seller shall have until Closing (after receipt
of Buyer’s notification as to a specific Title Defect) in which to provide Buyer
written evidence that the subject Title Defect has been either cured or
removed. Should Seller fail or be unable to provide evidence of Title
Defect curative or removal then Buyer may at its option:
|
|
(a)
|
waive
such Title Defect; or
|
|
|
(b)
|
In
the event the Seller and Buyer cannot mutually agree on a purchase
price
adjustment for an alleged Title Defect, Buyer shall have the right
to (i)
proceed to Closing and accept the Interest with no purchase price
adjustment, or (ii)terminate this Agreement as to the Properties
affected
by the alleged Title Defect and receive a Purchase Price adjustment
for
such Properties as set forth in the allocation of value set forth
in
Exhibit “A-1”, or , where feasible, the proportionate allocated value;
or.
|
|
|
(c)
|
Buyer
and Seller may proceed to Closing without any adjustment to the
Purchase
Price and Seller will have until the Post-Closing to provide evidence
of
cure of any such Title Defect. If Seller is unable to cure under
this
Section 4.6(c), Buyer shall be entitled to an adjustment at Post-Closing
in accordance with Section 4.6(b).
|
Page
4of 18
If
the reduction in the Purchase Price
from an aggregate total of all Title Defect adjustments does not exceed One
Hundred Thousand Dollars ($100,000), then there shall be no adjustment to
the
Purchase Price. However, if the aggregate total of all Title Defects exceeds
One
Hundred Thousand Dollars ($100,000), then the Purchase Price shall be adjusted
by the total amount of such Title Defects.
Should
Seller be unable to provide
evidence of Title Defect curative or desire to not make adjustment to the
Purchase Price and it is determined by Seller that such Title Defect will
materially and adversely reduce the net value of the Properties affected
by an
amount equal to or greater than ten percent (10%) of the Purchase Price,
either
Seller or Buyer may terminate this Agreement. In such event, the
Deposit shall be promptly returned to Buyer, without interest.
If
Buyer notifies Seller of a Title
Defect, as provided for in Section 4.5 which Buyer desires to have cured
and for
which an adjustment to the Purchase Price has been made in accordance with
the
terms of this Agreement, Seller agrees to cooperate with Buyer prior to or
after
the Closing in endeavoring to cure any such defects (but Seller shall have
no
obligation to pay money or to undertake any legal obligation in this
regard). Buyer agrees to bear the cost of examining the title data
furnished by Seller as curative hereunder, if any, or obtained by
Buyer.
4.7 Environmental
Defects. Buyer is aware that the interests and property have been used for
exploration, development, and production of oil and gas and that there may
be
petroleum, produced water, wastes, or other materials located on or under
the
Property or associated with the interests. Equipment and sites included in
the
interests or property may contain asbestos, hazardous substances, or NORM.
Notwithstanding anything to the contrary in this Agreement (including, without
limitation, the provisions of Section 5.1(r) hereof), (a) this Section 4.7
and
Section 10.3 contains all representations and warranties with regard to any
Environmental Laws (as hereinafter defined) and, except as expressly set
forth
in this Section 4.7 and Section 10.3, SELLER EXPRESSLY DISCLAIMS ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING OR IN ANY WAY RELATING
TO OBLIGATIONS OR LIABILITIES UNDER ANY ENVIRONMENTAL LAWS OR THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES, and (b) it makes no representation or
warranty of any kind whatsoever regarding the presence or absence of any
naturally occurring radioactive materials ("NORMs") on or near any of the
Properties, and Buyer shall not be entitled to any adjustment to the Purchase
Price or any other remedy or settlement of any kind whatsoever except as
provided for in this Section 4.7, and it shall have no obligation or liability
of any kind whatsoever to Buyer or any of its successors or assigns, with
respect to any NORMs. To the best of Seller’s knowledge, (i) neither the
Properties nor the operation thereof are in violation of any Environmental
Laws
in any material respect and (ii) it has not received any notice from any
Governmental Authority (as hereinafter defined) of any violation of any
Environmental Laws. For purposes of this Agreement, the term "Environmental
Laws" shall mean, as to any given Property, all laws, statutes, ordinances,
rules and regulations of any Governmental Authority pertaining to protection
of
the environment in effect as of the Effective Time and as interpreted by
court
decisions or administrative orders as of the Effective Time in the jurisdiction
in which such Property is located. For purposes of this Section 4.7 the term
"Governmental Authority" shall mean, as to any given Property, the United
States
and the state, county, parish, city and political subdivisions in which such
Property is located and which exercises jurisdiction over such Property,
and any
agency, department, board or other instrumentality thereof that exercises
jurisdiction over such Property.
Upon
Closing, Buyer will assume all liability for the assessment, remediation,
removal, transportation, and disposal of wastes, asbestos, hazardous substances,
and NORM from the interests and property and associated activities and will
conduct these activities in accordance with all applicable laws and regulations,
including the Environmental Laws.
Buyer
will have until September 24, 2007 to notify Seller of any material adverse
environmental condition associated with the Property that Buyer finds
unacceptable and that has an estimated cost net to the Property greater than
One
Hundred Thousand Dollars ($100,000) and is documented by third party evidence
of
said condition for which remediation is required under any Environmental
Law.
Upon Seller’s receipt of such notification, Seller will have until two (2) days
before the Closing Date in which to elect to:
Page
5of 18
|
|
(a)
|
proceed
with Closing and either elect to remedy the condition or account
for said
costs for the remediation of the condition contained in Buyer’s
notification as a normal pre-Effective Time operating expense item
in the
Post Closing Adjustment, or
|
|
|
(b)
|
remove
the subject Property from this Agreement and adjust the Purchase
Price
based upon the allocation of value set forth in Exhibit A-1,
or
|
|
|
(c) terminate
this Agreement if the total cost to remediate all Environmental
Matters
will exceed ten percent (10%) of the Purchase
Price.
|
Should
Seller elect to remedy the condition set forth in Section 4.7 (a) above,
Seller
shall remain as operator of the Property and continue remediation of the
condition until the first of the following occur:
|
|
(I)
|
the
appropriate governmental authorities provide written notice to
Seller or
Buyer that no further remediation of the condition is required
to comply
with the applicable Environmental Laws;
or
|
|
|
(II)
|
An
independent third party determines to Seller’s and Buyer’s reasonable
satisfaction that the condition has been remediated to the level
required
by the Environmental Laws or as mutually agreed to by Buyer and
Seller.
|
Upon
the
occurrence of either (I) or (II) above, Seller will notify Buyer that
remediation of the condition is complete and provide a copy of the notification
provided in (I) above, if applicable. Upon delivery of Seller’s notice, Seller
will be released from all liability and have no further obligations under
Section 4.7 and Section 10.3 of this Agreement.
Buyer,
for that period of time for which Buyer is operator of the Properties, Buyer
will store, handle, transport, and dispose of or discharge all materials,
substances, and wastes from the interests and property (including produced
water, drilling fluids, NORM, and other wastes), whether present before or
after
the Effective Time, in accordance with applicable local, state, and federal
laws
and regulations. Buyer will keep records of the types, amounts, and location
of
materials, substances, and wastes that are transported, handled, discharged,
released, or disposed of onsite and offsite.
Notwithstanding
any other provision within this Section 4.7, Buyer shall have the right to
waive
all such Environmental Matters and proceed with Closing.
ARTICLE
5
REPRESENTATIONS
AND WARRANTIES
5.1 Seller’s
Representations and Warranties. Each Seller represents and
warrants, with respect to such Seller, to Buyer as follows:
|
|
(a)
|
Description
and Title. Seller represents and warrants that Exhibit “A”
sets forth a true, complete and legally sufficient description
of the
Properties. It is understood that pursuant to this Agreement,
Seller warrants title to the Properties as set forth on Exhibit
“A” by,
through and under Seller only, but not
otherwise.
|
|
|
(b)
|
Organization,
Standing and Power. To the extent that each Seller is a
corporation, partnership or similar entity, the affected Seller
is validly
existing and in good standing under the laws of the State
of Texas and has all requisite powers and authority to own,
lease, operate, sell and convey the Properties and to carry on
its
business as is now being conducted.
|
|
|
(c)
|
Authority
and Enforceability. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated
hereby,
have been duly and validly authorized by all necessary action on
the part
of each party constituting Seller. This Agreement is the valid
and binding obligation of Seller, enforceable against each Seller
in their
respective proportionate ownership share in accordance with its
terms. Neither the execution and delivery by Seller of this
Agreement nor the consummation of the transactions contemplated
hereby nor
the compliance by Seller with any of the provisions hereof will
conflict
with or result in a breach of any provision of Seller's organization
documents or by-laws. The execution and delivery hereof by
Seller does not, and the fulfillment and compliance with the terms
and
conditions hereof, and the consummation of the transactions contemplated
hereby, will not result in the creation or imposition of any lien,
charge
or other encumbrance on the
Properties.
|
Page
6of 18
|
|
(d) Seller's
Title to Properties. Seller has Defensible Title to the
Properties. The
term “Defensible
Title” shall mean in the case of the leasehold interests listed on Exhibit
“A”, such right, title and interest (owned beneficially or of record)
that, except for Permitted
Encumbrances:
|
|
|
(i)
|
is
free from reasonable doubt that a prudent person engaged in the
business
of purchasing and owning, developing and operating producing oil
and gas
properties with knowledge of all of the facts and their legal effect
would
be willing to accept the title;
|
|
|
(ii)
|
entitles
Seller to receive not less than the interest set forth in Exhibit
“A-1” as
the net revenue interest with respect to all of the oil, gas, and
hydrocarbon minerals produced, saved and marketed from each unit
or well,
as the case may be, that relates to Seller’s producing interval in the
lands and depths included within each property identified in Exhibit
“A-1”;
|
|
|
(iii)
|
obligates
Seller to pay costs and expenses relating to the operations on
and the
maintenance and development of each unit or well, as the case may
be, that
relates to Seller’s producing interval in the lands and depths included
within each property, in an amount not greater than the working
interest
set forth in Exhibit “A-1”;
|
|
|
(iv)
|
is
free and clear of any mortgages, pledges, deeds of trust, hypothecations
and production payments, except for the DML Properties which currently
partially secures a line of Credit between WM. ▇▇▇▇ ▇▇▇▇▇▇▇, Trustee
and
JPMorgan Chase Bank N.A. as Lender and Summit Petroleum LLC, et
al as
borrower (recorded May 14, 2007, INS. No. 101006, Vol. 82, Page
346 in the
Official Public Records of ▇▇▇▇▇▇ County, Texas, which will be
released no
later than 5 days prior to Closing;
|
For
purposes of this Article 5.1(d), “owned beneficially or of record” means
Seller’s ownership interest reflected of record in the office of the county
clerk in the county where the relevant lands are located, ownership interests
reflected with respect to federal or state owned lands, in the office of
the
federal or state agency having jurisdiction, subject to and as impacted by
the
terms and provisions of the Permitted Encumbrances.
|
|
(e)
|
Liability
for Brokers’ Fees. Seller has not incurred any liability,
contingent or otherwise, for brokers’ or finders’ fees relating to this
Transaction for which Buyer shall have any responsibility
whatsoever.
|
|
|
(f)
|
Insurance. Seller
shall maintain through the Closing with respect to the Properties
its
existing insurance coverage.
|
|
|
(g)
|
Compliance
with Law. Seller has not received a written notice of a
material violation of any statute, law, ordinance, regulation,
permit,
rule or order of any federal, state, tribal or local government
or any
other governmental department or agency, or any judgment, decree
or order
of any court, applicable to the Properties or operations on the
Properties, which remains uncured.
|
|
|
(h)
|
Plugging
Obligations. To the best of Seller’s knowledge, except for
the Nordic B No. 4 Well , there are no dry holes or shut-in or
otherwise
inactive ▇▇▇▇▇, located on the Properties on lands pooled or unitized
therewith that Seller has the current obligation to plug and
abandon.
|
Page
7of 18
|
|
(i)
|
Governmental
Permits. To the best of Seller’s knowledge, Seller has all
governmental licenses, filings and permits (including, without
limitation,
permits, licenses, approval registrations, notifications, exemptions
and
any other authorizations pursuant to Law) necessary or appropriate
to own
and operate the Properties as presently being owned and
operated. To the best of Seller’s knowledge, Seller has not
received written notice of any violations in respect of any such
licenses
or permits that remains uncured.
|
|
|
(j)
|
Personal
Property and Equipment. Seller has not removed any personal
property, equipment and fixtures from the ▇▇▇▇▇, unless it has
been
replaced with personal property, equipment and fixtures of similar
grade
and utility. Unless removed, repaired or replaced with personal
property, equipment and fixtures or similar grade and utility,
the
personal property, equipment and fixtures currently attendant to
the ▇▇▇▇▇
was the equipment historically used on the ▇▇▇▇▇ to produce the
Hydrocarbons prior to the execution of this
Agreement.
|
|
|
(k)
|
No
Alienation. Within 120 days of the date hereof, Seller has
not sold, assigned, conveyed, or transferred or contracted to sell,
assign, convey or transfer any right or title to, or interest in,
the
Properties other than (i) production sold in the ordinary course
of
Seller’s business and (ii) equipment which was worthless, obsolete or
replaced by equipment of equal suitability and
value.
|
|
|
(l)
|
Property
Expenses. In the ordinary course of business, Seller has
paid all costs and expenses attributable to the period of time
prior to
the Effective Time as such costs and expenses become due, and such
costs
and expenses are being paid in a timely manner before the same
become
delinquent, except such costs and expenses as are disputed in good
faith
by Seller in a timely manner and for which Seller shall retain
responsibility.
|
|
|
(m)
|
Records. Seller
makes no representations regarding the accuracy of any of the Records;
provided, however, Seller does represent that (i) all of the Records
are
files, or copies thereof, that Seller has used in the ordinary
course of
operating and owning the Properties, (ii) Seller has not intentionally
withheld any material information from the Records or (iii) Seller
has not
intentionally misrepresented any material information in the
Records. Except as set forth in this Section 5.1, no
representation or warranty of any kind is made by Seller as to
the
information or with respect to the Properties to which the information
relates and Buyer expressly agrees that any conclusions drawn therefrom
shall be the result of its own independent review and judgment.
The
representations contained in this paragraph shall apply only to
matters of
fact, and shall not apply to any information, data, printouts,
extrapolations, projections, documentation, maps, graphs, charts,
or
tables which reflect, depict, present, portray, or represent, or
which are
based upon or derived from, in whole or in part, interpretation
of the
information including, but not limited to, matters of geological,
geophysical, engineering, or scientific
interpretation.
|
|
|
(p)
|
Gas
Imbalances. To the best of Seller’s knowledge, no gas
imbalance exists with respect to the
Properties.
|
|
|
(q)
|
Leases. To
the best of Seller's knowledge, the Leases have been maintained
according
to their material terms, in compliance with the agreements to which
the
Leases are subject, and are presently in full force and
effect. To the best of Seller's knowledge, there has not
occurred any event, fact or circumstance which with the lapse of
time or
the giving of notice, or both, would constitute such a material
breach or
default on behalf of Seller under the provisions of the
Leases.
|
|
|
(r)
|
Litigation. To
the best of Seller’s knowledge, there are no actions, suits, claims,
proceedings, agency enforcement actions or investigations pending,
or to
the best knowledge of Seller, threatened against or affecting the
Properties. There is no suit, action, claim, investigation or
inquiry by any person or entity or by any administrative agency
or
governmental body and no legal, administrative or arbitration proceeding
pending, or, to the best knowledge of Seller threatened against
Seller
which has affected or could affect Seller's ability to consummate
the
transaction contemplated by this
Agreement.
|
Page
8of 18
5.2 Buyer’s
Representations and Warranties. Buyer represents and warrants to
Seller as follows:
|
|
(a)
|
Organization,
Standing and Power. Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws
of the
State of Delaware and has all requisite powers and authority to
own, lease
and operate the Properties and to carry on its business as is now
being
conducted in the jurisdictions where the nature of its properties
or
business so requires such
qualification.
|
|
|
(b)
|
Authority
and Enforceability. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated
hereby,
have been duly and validly authorized by all necessary corporate
action on
the part of Buyer. This Agreement is the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with
its
terms. Neither the execution and delivery by Buyer of this
Agreement nor the consummation of the transactions contemplated
hereby nor
the compliance by Buyer with any of the provisions hereof will
conflict
with or result in a breach of any provision of Buyer's articles
and
by-laws. The execution and delivery hereof by Buyer does not,
and the fulfillment and compliance with the terms and conditions
hereof
and the consummation of the transactions contemplated hereby will
not,
result in the creation or imposition of any lien, charge or other
encumbrance on the Properties.
|
|
|
(c)
|
Warranty
Maintenance. Buyer shall cause all the representations and
warranties of Buyer contained in this Agreement to be true and
correct on
and as of the Closing Date.
|
|
|
(d)
|
Buyer
represents that it did not solely rely upon representations or
materials
provided to Buyer by Seller or Seller’s marketing agents in evaluating the
Properties, but rather has also relied upon its individual evaluations
and
due diligence.
|
|
|
(e) Buyer
represents that it has sufficient funds on hand or commitments
from one or
more banking institutions to fund payment of the Purchase Price
at the Closing.
|
5.3 Liability
Regarding Access. In connection with Buyer’s access to the
Properties prior to Closing for due diligence review, Buyer waives and releases
all claims, whether known or unknown, against Seller, Seller’s partners,
Seller’s and each partner’s parent, subsidiary companies or other affiliates,
and directors, officers, employees, consultants or agents of such parties,
respectively, for injury to, or death of persons or for damage to property
suffered by Buyer’s employees, agents, representatives, consultants or
contractors arising in any way from the conduct of Buyer’s investigations and
examinations of the Properties or the exercise of such rights of
access. Buyer shall indemnify Seller, Seller’s partners, Seller’s and
each such partner’s parent and subsidiary companies and other affiliates, and
directors, officers, employees, consultants and agents of such parties,
respectively, from and against any and all claims, actions, liabilities,
losses,
damages, costs or expenses (including, but not limited to court costs and
attorney’s fees) whatsoever suffered or incurred by
Buyer’s employees, agents, representatives, consultants or
contractors arising out of the exercise of such rights of investigation and
examination (or exercise of such right of access).
ARTICLE
6
COVENANTS
6.1 Covered
Area. This Agreement is limited to the Properties.
6.2 Existing
Agreements, Assignments and Conveyances. This Agreement and the
Assignment of Oil and Gas Leases are further subject to the terms and conditions
of all existing agreements, assignments and conveyances.
Page
9of 18
6.3 New
Agreements and Sales. Unless this Agreement is terminated as
provided for herein, Buyer and/or Seller will not, without the prior written
consent of the other: a) enter into any new agreements or commitments with
respect to the Properties which extend beyond the Effective Time; b) except
as
set forth in Schedule 6.3, drill any new ▇▇▇▇▇, abandon any existing ▇▇▇▇▇
or
release or abandon all or any portion of the lands included within any lease
or
modify or terminate any contracts and agreements affecting the Properties
and
sell or otherwise dispose of any of the Properties or any part thereof, other
than personal property and equipment unless it is replaced with personal
property and equipment of equivalent quality and value. From the date
hereof until the Closing, Seller shall maintain the Properties in a good
and
workmanlike manner consistent with past practice.
6.4 Maintenance
of Seller's Business. Seller shall carry on the business of
Seller with respect to the Properties in substantially the same manner as
Seller
has heretofore and shall not introduce any new method of management, operation
or accounting with respect to the Properties.
6.5 Notification
of Breach. Seller shall promptly notify Buyer (i) if any
representation or warranty of Seller contained in this Agreement is discovered
to be or becomes untrue or (ii) if Seller fails to perform or comply with
any
covenant or agreement contained in this Agreement or it is reasonably
anticipated that Seller will be unable to perform or comply with any covenant
or
agreement contained in this Agreement.
ARTICLE
7
CLOSING
7.1 Date
and Place of Closing The purchase by Buyer and the sale by Seller
of the Properties as contemplated by this Agreement (the "Closing") shall
be
held on or before October 1, 2007 (the “Closing Date”), at the offices of
Summit Petroleum LLC in Midland, Texas. However, Buyer may, at its
option and upon approval by Seller, accelerate the date of the Closing upon
giving Seller three (3) business days prior written notice, if, on or before
the
date of such notice, Buyer has also notified Seller of any Title Defects
and any
Environmental Defects as provided for herein. Additionally, the
parties may mutually agree in writing on a different date and place for the
Closing.
7.2 Conditions
of Closing by Seller. 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 all material respects,
and Buyer
shall have performed and satisfied all agreements and covenants
in all
material respects required by this Agreement to be performed and
satisfied
by Buyer; and
|
|
|
(b)
|
No
suit or other proceeding shall be pending or threatened before
any court
or governmental agency seeking to restrain, prohibit, or declare
illegal,
or seeking substantial damages in connection with the transaction
contemplated hereby.
|
|
|
(c)
|
Should
there be downward adjustments to the Purchase Price in excess of
ten
percent (10%) of the Purchase Price, due to asserted Title Defects
and
Environmental Defects; Seller has the option to terminate this
Agreement
with no liability to Buyer other than return of the
Deposit.
|
7.3 Conditions
of Closing by Buyer. The obligation of Buyer to close is subject
to the satisfaction of the following conditions:
|
|
(a)
|
All
representations and warranties of Seller contained in this Agreement
shall
be true, correct, and not misleading in all material 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;
|
Page
10of 18
|
|
(b)
|
No
suit or other proceeding shall be pending or threatened before
any court
or governmental agency seeking to restrain, prohibit, or declare
illegal,
or seeking substantial damages in connection with the transaction
contemplated hereby; and
|
|
|
(c)
|
Should
there be downward adjustments to the Purchase Price in excess of
ten
percent (10%) of the Purchase Price, due to asserted Title Defects
and
Environmental Defects; Buyer has the option to terminate this Agreement
with no liability to Buyer other than return of the
Deposit.
|
|
|
(d)
|
No
material adverse change in the condition of or title to the Properties
shall have occurred subsequent to the Effective Time, except depletion
through normal production within authorized allowables, ordinary
changes
in rates of production, and depreciation of equipment through ordinary
wear and tear.
|
7.4 Closing
Obligations. At the Closing, the following shall
occur:
|
|
(a)
|
Seller
shall execute, acknowledge and deliver to Buyer, the original Assignment
of Oil and Gas Leases and ▇▇▇▇ of Sale attached hereto as Exhibit
“B” (the
“Assignment”), conveying title to the Properties to Buyer, as well as such
certificates or other documents as are required to effect the transfer
of
the Properties.
|
|
|
(b)
|
All
books, records and files in the possession of Seller pertaining
to the Properties, including, without limitation, the following,
if and to
the extent that such files exist: all books, records, reports,
manuals,
files, title documents, including correspondence, records of production
and maintenance, revenue, sales, expenses, warranties, lease files,
land
files, well files, title opinions and title reports, abstracts,
division
order files, assignments, contract files, operations files, copies
of tax
and accounting records (but excluding Federal and state income
tax returns
and records) and files, maps, core data, hydrocarbon analysis,
well logs,
mud logs, field studies together with other files, contracts and
other
records and data including all geological, geophysical (including
any
micro seismic) and engineering information, except for that data
prohibited by third party confidentiality agreements (the “Records”),
shall be made available for delivery to Buyer, at Buyer’s cost, at
Seller’s offices where currently maintained, within fifteen (15) business
days after the Closing. Seller shall have the right to retain
copies of the Records (and receive from Buyer, at Seller’s expense, copies
of Records requested by Seller from Buyer in the future) and to
retain
canceled checks and general ledger, purchasing and other general
accounting records of Seller. Buyer’s reliance on same shall be
at Buyer’s sole risk.
|
(c) Seller
shall deliver to Buyer exclusive possession of the Exhibit “A”
interests.
|
|
(d)
|
Seller
and Buyer shall execute, acknowledge and deliver such transfer
orders or
letters in lieu thereof as Buyer may request, directing all purchasers
of
production to make payment of proceeds attributable to production
from the
Properties after the Effective Time to
Buyer.
|
|
|
(e)
|
Buyer
shall deliver the cash consideration of the total Purchase Price
to Seller
by Wire Transfer on the date of Closing as adjusted to reflect
the Deposit
and matters described in Article 7.5. To the extent that actual
amounts
are not available, the parties will use reasonable estimates of
such
amounts less any adjustments due to Title Defects and/or Environmental
Matters as applicable as set out in Article
4.
|
|
|
(f)
|
Seller
will provide such reasonable assistance to Buyer as Buyer may request
in
order for Buyer to prepare its required SEC
filings.
|
|
|
(g)
|
Seller
will provide Buyer with executed assignments of assignable contracts
which
relate to the Properties.
|
Page
11of 18
7.5 Adjustments
and Accounting. Any adjustments pursuant to this Article will be
made at Closing, utilizing estimates where necessary. Seller will prepare
and
deliver to Buyer not less than three (3) days before Closing a preliminary
Closing settlement Statement reflecting the adjustments called for in this
Article 7.5. The parties shall sign the agreed upon settlement statement
at
Closing. Seller shall prepare a final Post Closing settlement statement
containing adjustments, including but not limited to the following, and will
be
made within, and only within, ninety (90) days of Closing.
(a) Upward
Adjustments. The Purchase Price shall be adjusted upward by the
following:
|
|
(i)
|
The
amount of all direct costs and expenditures chargeable to Seller's
interest incurred and paid by
Seller:
|
|
|
(A)
|
that
are attributable to the drilling, completion, recompletion, reworking,
operation and maintenance of the Properties on and after the Effective
Time;
|
|
|
(B)
|
bonuses,
lease rentals and shut-in payments due after (and expressly excluding
those due before) the Effective
Time;
|
|
|
(C)
|
ad
valorem, property and other taxes that are allocated to the Buyer
pursuant
to Article 7.5(d) herein below; and
|
|
|
(D)
|
amounts
relating to obligations arising under the Contracts relating to
the
Properties with respect to operations or production after the Effective
Time;
|
|
|
(ii)
|
The
value of all Hydrocarbons, which have been produced and are merchantable,
and are in storage and/or credited to the Properties as of the
Effective
Time, net of all severance taxes, and less an appropriate deduction
based
on industry practice for basic sediment, water and other non-merchantable
liquids; and
|
|
|
(iii)
|
Any
other amount agreed upon by Seller and
Buyer
|
(b) Downward
Adjustments. The Purchase Price shall be adjusted downward by the
following:
|
|
(i)
|
The
amount of all proceeds received by Seller that are attributable
to its
ownership and the operation of the Properties on or after the Effective
Time;
|
|
|
(ii)
|
The
following amounts to the extent paid by
Buyer:
|
|
|
(A)
|
all
direct unrelated costs and expenditures chargeable to Seller's
interest
that are attributable to the drilling, completion, recompletion,
reworking, operation and maintenance of the Properties prior to
the
Effective Time;
|
|
|
(B)
|
all
bonuses, lease rentals and shut-in payments due prior to the Effective
Time; and
|
(iii) Those
amounts resulting from Title Defects and/or Environmental Defects, as provided
in Article 4; and
(iv) Any other
amount agreed upon by Seller and Buyer.
(c) Seller
shall be entitled to all proceeds and shall be responsible for all expenses
accruing to the Properties prior to the Effective Time and Buyer shall be
entitled to all proceeds and shall be responsible for all expenses accruing
to
the Properties, including plugging of the ▇▇▇▇▇, after the Effective
Time.
(d) All
taxes, real property taxes and similar obligations for the current year shall
be
prorated based upon the prior year’s tax rates if tax statements for the current
year have not been received by Seller within ninety (90) days following
Closing.
Page
12of 18
The
parties have determined that the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of
1976 does not apply to this transaction.
ARTICLE
8
TERMINATION
8.1 Termination. This
Agreement and the transactions contemplated may be terminated in the following
instances:
|
|
(a)
|
by
Buyer or Seller in accordance with Article 4.6 concerning Remedies
for
Title Defects and Article 4.7 Remedies for Environmental
Defects;
|
|
|
(b)
|
by
Buyer if the conditions set forth in Article 5.1 and/or Article
7.3 are
not satisfied in all
|
material
respects or waived prior to the Closing, and notwithstanding any other
provisions of this Agreement to the contrary, by Buyer if the
Buyer is not in default hereunder and the Closing has not occurred on or
before
October 8, 2007;
|
|
(c)
|
by
Seller if the conditions set forth in Article 5.2 and/or Article
7.2 are
not satisfied in all material respects or waived prior to the Closing
Date, and notwithstanding any other provisions of this Agreement
to the
contrary, by the Seller if the Seller is not in default hereunder
and the
Closing has not occurred on or before October 8, 2007;
or
|
(d) by
the mutual written agreement of Buyer and Seller
8.2 Remedies. If
Closing does not occur on the Closing Date, as that may be extended by Seller
and Buyer hereunder, due to Seller's breach of the terms of this Agreement,
then
Buyer may either declare this Agreement terminated and of no further force
or
effect and receive the prompt return of the Deposit or seek specific performance
of this Agreement. If Closing does not occur due to Buyer's breach of the
terms
of this Agreement, Seller may declare this Agreement terminated and of no
further force or effect and retain the Deposit as liquidated damages and
not as
a penalty for such breach. It is agreed that actual damages would be difficult
to ascertain and that the amount of the liquidated damages is reasonable.
Upon
termination of this Agreement, Seller shall be free immediately to enjoy
all
rights of ownership of the Properties and to sell, transfer, encumber or
otherwise dispose of the Properties to any party without any restriction
under
this Agreement.
ARTICLE
9
DISCLAIMER
ANY
ASSIGNMENT AND ▇▇▇▇ OF SALE EXECUTED PURSUANT HERETO SHALL BE EXECUTED WITHOUT
ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO THE MERCHANTABILITY
OF
ANY OF THE ▇▇▇▇▇ OR EQUIPMENT OR THEIR FITNESS FOR ANY PURPOSE, AND WITHOUT
ANY
OTHER EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION WHATSOEVER EXCEPT AS
EXPRESSLY SET FORTH IN SAID ASSIGNMENT AND ▇▇▇▇ OF SALE. IT IS
UNDERSTOOD AND AGREED THAT BUYER SHALL HAVE INSPECTED THE PROPERTY AND PREMISES
AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH
SURFACE AND SUBSURFACE, AND THAT BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR
“AS
IS, WHERE IS” CONDITION. IN ADDITION NEITHER, SELLER, NOR SELLER’S
REPRESENTATIVE (SUMMIT PETROLEUM LLC), MAKES ANY 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 AND SELLER’S REPRESENTATIVE IS PROVIDED 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”).
Page
13of 18
ARTICLE
10
ASSUMPTIONS
AND INDEMNIFICATION
10.1
BUYER’S ASSUMPTION AND INDEMNIFICATION; POTENTIAL THIRD PARTY
LIABILITIES. EXCEPT AS OTHERWISE PROVIDED IN
THIS AGREEMENT, BUYER AGREES UPON THE OCCURRENCE OF CLOSING (I) TO ASSUME,
AND
TIMELY PAY AND PERFORM, ALL DUTIES, OBLIGATIONS AND LIABILITIES RELATED TO
THE
OWNERSHIP AND/OR OPERATION OF THE PROPERTIES, INSOFAR AND ONLY INSOFAR AS
SUCH
DUTIES, OBLIGATIONS AND LIABILITIES ARISE AND ARE ATTRIBUTABLE TO PERIODS
FROM
AND AFTER THE EFFECTIVE TIME AND LIMITED (AND ATTRIBUTABLE) TO THE INTERESTS
INTHE PROPERTIES ASSIGNED TO BUYER BY SELLER (COLLECTIVELY, THE ASSUMED
LIABILITIES) INCLUDING , WITHOUT LIMITATION, THOSE ARISING UNDER THE CONTRACTS
AND AGREEMENTS DESCRIBED IN ARTICLE 2.2, AND (II) TO INDEMNIFY AND HOLD SELLER,
ITS RELATED ENTITIES AND AFFILIATES, AND THE DIRECTORS, OFFICERS , EMPLOYEES
CONSULTANTS AND AGENTS OF SUCH PARTIES, RESPECTIVELY HARMLESS FROM AND AGAINST
ANY AND ALL CLAIMS, ACTIONS, LIABILITIES, LOSSES, DAMAGES, COSTS OR EXPENSES
(INCLUDING COURT COSTS AND ATTORNEYS’ FEES) OF ANY KIND OR CHARACTER ARISING OUT
OF OR OTHERWISE RELATING TO THE ASSUMED LIABILITIES. IN CONNECTION WITH (BUT
NOT
IN LIMITATION OF) THE FOREGOING, BUT SUBJECT TO THE OTHER PROVISIONS OF THIS
AGREEMENT, IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT ASSUMED LIABILITIES
SHALL INCLUDE ALL OBLIGATIONS TO PROPERLY PLUG AND ABANDON, OR RE-PLUG AND
RE-ABANDON, ANY ▇▇▇▇▇ PRODUCING, SHUT-IN, OR DRILLED ON OR AFTER THE EFFECTIVE
DATE AND LOCATED ON THE PROPERTIES. HOWEVER, EXCEPT FOR BUYER’S OBLIGATIONS SET
FORTH UNDER ARTICLE 10.3, BUYER SHALL NOT INDEMNIFY OR HOLD SELLER HARMLESS
FOR
CLAIMS, COSTS, EXPENSES AND LIABILITIES INCURRED BY SELLER WITH RESPECT TO
THE
SALE OF THE PROPERTIES TO BUYER, OR THE NEGOTIATIONS LEADING TO SUCH SALE,
OR
THOSE THAT RESULT FROM OR ARE ATTRIBUTABLE TO ANY REPRESENTATION OF SELLER
CONTAINED IN THIS AGREEMENT BEING UNTRUE OR A BREACH OF ANY WARRANTY OR COVENANT
OF SELLER CONTAINED IN THIS AGREEMENT.
10.2 LIMITATIONS
ON DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY
EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE OR SPECULATIVE
DAMAGES OF ANY OTHER PARTY ARISING OUT OF OR RELATING TO, IN ANY
MANNER, THIS AGREEMENT, THE TRANSACTION CONTEMPLATED HEREUNDER, OR THE
PROPERTIES; PROVIDED, HOWEVER THAT THIS WAIVER SHALL NOT AFFECT OR RELEASE
ANY
CLAIMS OF THIRD PARTIES (BEING PERSONS, ENTITIES OR GOVERNMENTAL AUTHORITIES
WHO
ARE NOT THE BUYER AND NOT THE SELLER) FOR WHICH A PARTY IS OBLIGATED TO
INDEMNIFY THE OTHER UNDER THIS AGREEMENT.
10.3 Assumption
and Indemnification of Environmental
Matters. Buyer agrees
and acknowledges that (i) it has had, or prior to the
Closing will have access to and the opportunity to inspect the Properties
for
all purposes, including without limitation, for the purposes of detecting
the
presence of hazardous or toxic substances, pollutants or other contaminants,
environmental hazards, naturally occurring radioactive materials (NORM) and
produced water contamination of the surface and/or subsurface, (ii) it has,
or
prior to the Closing will have, satisfied itself as to the physical and
environmental condition of the Properties, both surface and subsurface, and
their method of operation and except as set forth herein, agrees to accept
an
assignment of the Properties at Closing on an “AS IS, WHERE IS” BASIS,
“WITH ALL FAULTS”, and (iii) in making the decision to enter
into this Agreement and consummate the transactions contemplated hereby,
Buyer
has relied solely on the basis of its own independent investigation of the
Properties and the records related thereto.
Page
14of 18
UPON
CLOSING, BUYER HEREBY ASSUMES AND SHALL BE RESPONSIBLE FOR AND AGREES TO
INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FROM AND AGAINST ANY AND ALL CLAIMS,
LIABILITY OR LOSSES, (INCLUDING, WITHOUT LIMITATION, LOSSES FROM DAMAGE TO
PROPERTY, ALLEGED GROUNDWATER CONTAMINATION, INJURY TO OR DEATH OF PERSONS
OR
OTHER LIVING THINGS, NATURAL RESOURCE DAMAGES, CERCLA RESPONSE COSTS,
ENVIRONMENTAL REMEDIATION AND RESTORATION COSTS OR FINES) OR PENALTIES ARISING
OUT OF OR ATTRIBUTABLE TO, IN WHOLE OR IN PART BY A VIOLATION OF, FAILURE
TO
FULFILL DUTIES IMPOSED BY OR INCURRENCE OF LIABILITY UNDER ANY COMMON LAW
RELATING TO HUMAN HEALTH, SAFETY OR THE ENVIRONMENT OR ANY ENVIRONMENTAL
LAWS
(AN “ENVIRONMENTAL MATTER”) OCCURRING AT ANY TIME BEFORE, AT OR AFTER THE
EFFECTIVE TIME WITHOUT REGARD TO THE SOLE, PARTIAL OR CONCURRENT NEGLIGENCE,
STRICT LIABLITY OR OTHER FAULT OF THE SELLER, REGARDLESS OF WHEN THE EVENTS
THAT
CAUSED SUCH CONDITION TO EXIST OR THE OBLIGATION TO ARISE,
PROVIDED, HOWEVER, THAT SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS
THE
BUYER FROM AND AGAINST ANY AND ALL LOSSES RESULTING FROM ANY ENVIRONMENTAL
MATTER OCCURRING AT ANY TIME PRIOR TO THE EFFECTIVE TIME TO THE EXTENT THAT
SUCH
LOSSES RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER OR
THAT
HAVE BEEN ASSERTED IN A THIRD-PARTY LAWSUIT OR ADMINISTRATIVE PROCEEDING
OR
ORDER THAT IS FILED, ISSUED OR COMMENCED AGAINST SELLER OR HAS BEEN DOCUMENTED
BY BUYER TO SELLER IN WRITING ON OR BEFORE THE CLOSING
DATE.
10.4 Occasional
Sale. Since this transaction is an isolated or occasional sale,
no tax will be collected from Buyer. If, however, this transaction is later
deemed to be other than an occasional sale, Buyer agrees to be responsible,
and
shall indemnify and hold Seller harmless, for any and all sales or transfer
taxes or fees (including related penalty, interest or legal costs) due by
virtue
of this transaction on the Properties assigned and conveyed, and the Buyer
shall
remit such sales or transfer taxes at that time. Seller and Buyer agree to
reasonably cooperate with each other in demonstrating that the requirements
for
an occasional or isolated sale or any other sales tax exemption have been
met.
ARTICLE
11
ARBITRATION
AND MEDIATION
In
case
of a disagreement between the Parties to this Agreement as to any right,
obligation, term or provision hereof or involving a total disputed amount
or
claim(s) equal to or greater than $25,000.00, the Parties shall make an ▇▇▇▇▇▇▇
effort to settle such disagreement to their mutual satisfaction. If
any such dispute regarding this Agreement cannot be reconciled by the Parties
to
this Agreement, then any Party may provide notice to the other specifying
with
particularity the items of disagreement and a request that the matter be
resolved by mediation. Such notice shall include the name of a
mediator acceptable to the Party requesting mediation. If the dispute
is not resolved by mediation to the satisfaction of the Parties, or if the
Parties are unable to agree upon a mediator, within thirty (30) days after
receipt of such written notice, then any such dispute shall be settled by
arbitration and the results of such arbitration shall be binding upon all
Parties to this Agreement in all respects as set forth below. Arbitration
may be
initiated by written notice from any Party to this Agreement to the other
that
the previously noticed dispute has not been resolved by mediation and is
being
submitted to arbitration under the terms of this Agreement. A single
arbitrator shall be chosen by the Parties to the dispute by submitting names
of
eleven (11) arbitrators experienced in the area of the dispute from a listing
of
twenty (20) arbitrators supplied by the American Arbitration
Association. Said selection by both Parties shall take place within
ten (10) days after the Parties have received the listing from the American
Arbitration Association. The lists of the Parties shall be compared
and the first name to appear on both lists shall be the arbitrator of the
dispute. Should either Party fail or refuse to submit a list of
eleven arbitrators then the other Party shall select an arbitrator who shall
be
the sole arbitrator and shall resolve the dispute as set out
herein. All arbitrators shall be individuals who have had prior
experience in oil and gas exploration and production and shall function as
independent and neutral arbitrators. In the selection of arbitrators,
the Parties shall take into consideration the nature of the matter submitted
for
arbitration. (Thus, for example, professional engineers should be
selected to arbitrate issues which are primarily engineering in nature and
accountants who are members of the Council of Petroleum Accountants Societies
should be selected to arbitrate matters which are primarily accounting in
nature.) Arbitrations under this paragraph shall be conducted under
the Texas Arbitration Statute (▇▇▇▇▇▇’▇ ▇▇▇. Tex. Civ. St. Arts. 224 to 238-6)
and shall apply Texas law. All matters concerning the conduct of the
arbitrators shall be governed by the provisions of the American Arbitration
Association. No dispute related to this Agreement shall be brought
before any court of law or equity; however, judgment upon the award or decision
rendered by the arbitrators may be entered in any court having
jurisdiction.
Page
15of 18
ARTICLE
12
MISCELLANEOUS
12.1 Notices. All
notices required or permitted under this Agreement shall be in writing, and
any
notice hereunder shall be deemed to have been made when delivered whether
by:
(i) hand; (ii) overnight delivery service; (iii) telecopy; (iv) electronic
or
(v) first class certified mail, postage prepaid, with return receipt requested,
to the address as set forth below. Either party may, by written
notice deliver to the other, change the address to which notices shall be
delivered.
Legacy
Reserves Operating
LP
|
|
▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
|
|
|
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
|
|
|
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
|
Phone:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
|
▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
|
|
|
Attention:
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇
|
|
|
Summit
Petroleum Management Corporation
|
|
|
▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
|
|
|
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
|
|
|
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
|
Phone: (▇▇▇)
▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Attention: ▇▇.
▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇
12.2 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 of record or of which Buyer has actual or
constructive notice, including any matter included or referenced in the
materials made available by Seller to Buyer.
12.3 Entire
Agreement. This instrument states the entire agreement between
Buyer and Seller and supersedes all other agreements, either written or oral,
between Seller and Buyer concerning the sale and purchase of the
Properties. This Agreement may be supplemented, altered, amended,
modified or revoked in writing only, signed by all of the parties. No
material representation, warranty, covenant, agreement, promise, inducement
or
statement, whether oral or written, has been made by Seller or Buyer and
relied
upon by the other that is not set forth in this Agreement or in the instruments
referred to herein, and neither Seller nor Buyer shall be bound by or liable
for
any alleged representation, warranty, covenant, agreement, promise, inducement
or statement not so set forth.
Page
16of 18
12.4 Survival. All
representations, warranties and covenants made herein by Buyer and Seller
shall
be continuing and shall be true and correct on and as of the Closing Date
with
the same force and effect as if made at that time and all such representations,
warranties and covenants shall, subject to the limitations set forth below,
survive the Closing and deliverance of the Assignment for a period of six
(6)
months. Notwithstanding the foregoing, the representations and
warranties of Seller under Article 5.1(d) shall terminate immediately upon
Closing and any liability of Seller (or any party claimed to be liable by,
through or under Seller) for damages, losses or costs alleged to arise from
the
breach, falsity, failure or violation of the representations and warranties
under Article 5 shall be limited to the allocated Purchase Price for the
affected Property or Properties.
12.5 Assignability. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns; provided, however, neither Buyer
or
Seller may, prior to the Closing, assign its rights or delegate its duties
or
obligations under this Agreement without the prior written consent of the
other
party.
12.6 Publicity. Seller
and Buyer shall consult with each other with regard to all publicity and
other
releases at or prior to the Closing concerning this Agreement and the
transaction contemplated hereby and except as required by applicable law
or
other applicable rules or regulations of any governmental body or stock
exchange, neither party shall issue any publicity, public notice concerning
the
Purchase Price or other release without the prior written consent of the
other
party.
12.7 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 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. Seller shall take all actions necessary to effectuate the
transfer of such payments to Buyer as of the Effective Time.
12.8 Destruction. For
a period of five (5) years after the Closing Date (or for such longer period
as
may be required by law or governmental regulation), Buyer shall not
intentionally destroy or give up possession of any original or final copy
of the
documents delivered by Seller to Buyer hereunder without first offering Seller
the opportunity (by delivery of written notice to Seller), at Seller’s expense
(without any payment to Buyer), to obtain such original or final copy or
a copy
thereof.
12.9 Headings. The
headings are for guidance only and shall have no significance in the
interpretations of this Agreement.
12.10 Counterpart
Execution. This Agreement may be executed by Buyer and Seller in
any number of counterparts, no one of which need be executed by all
parties. Each of such counterparts shall be deemed an original
instrument, and all counterparts shall together constitute but one and the
same
instrument. This agreement shall become operative when each party has
executed at least one counterpart. The return of executed documents by facsimile
or electronic transmission shall be effective between the parties and shall
be
followed by the return of executed originals.
12.11 Severance. If
any provision of this Agreement shall be determined void, illegal or
unenforceable, all of the other provisions of this Agreement shall remain
in
full force and effect, and the provision or provisions that are determined
to be
void, illegal or unenforceable shall be limited so that they shall remain
in
effect to the extent permitted by law.
12.12
Relationship of the Parties. This Agreement does
not create and shall not be construed to create a partnership, association,
joint venture or a fiduciary relationship of any kind or character between
any
parties to this Agreement (including one individual Seller to another Seller
or
Seller to Buyer) and shall not be construed to impose any duty, obligation
or
liability arising from such a relationship by or with respect to any party
to
this Agreement.
12.13 No
Third-Party Beneficiaries. This Agreement is not intended to
confer upon any person not a party hereto any rights or remedies hereunder,
and
no person other than the parties hereto is entitled to rely on any
representation, covenant or agreement contained herein.
Page
17of 18
12.14 Governing
Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF TEXAS WITHOUT REFERENCE TO CONFLICT OF LAWS. THE PARTIES
AGREE THAT ANY LITIGATION RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT
MUST
BE BROUGHT BEFORE AND DETERMINED BY A COURT OF COMPETENT JURISDICTION IN
MIDLAND
COUNTY, TEXAS.
12.15 Audit
Rights.
Seller
agrees to make available to Buyer prior to and for a period of twelve months
following Closing any and all existing information and documents in the
possession of Seller that Buyer may reasonably require to comply with Buyer’s
tax and financial reporting requirements and audits. Without limiting
the generality of the foregoing, Seller will use its commercially reasonable
efforts after execution of this Agreement and for twelve months following
Closing to cooperate with the independent auditors chosen by Buyer (“Buyer’s
Auditor”) in connection with their audit of any annual revenue and expenses
statements of the Assets that Buyer or any of its Affiliates requires to
comply
with their tax and financial reporting requirements, and their review of
any
interim quarterly revenue and expense statements of the Assets that Buyer
requires to comply with such reporting requirements. Buyer’s
cooperation will include (i) such reasonable access to Seller’s employees who
were responsible for preparing the revenue and expense statements and work
papers and other supporting documents used in the preparation of such financial
statements as may be required by Buyer’s Auditor to perform an audit in
accordance with generally accepted auditing standards, and (ii) delivery
of one
or more customary representation letters (in substantially the form previously
approved by Seller and Buyer) from Seller to Buyer’s Auditor that are requested
by Buyer to allow such auditors to complete an audit (or review of any interim
quarterly financials), and to issue an opinion that in Buyer’s experience is
acceptable with respect to an audit or review of those revenue and expense
statements required pursuant to this Section. Buyer will reimburse
Seller, within three (3) business days after demand therefore, for any
reasonable out-of-pocket and overhead costs with respect to any costs incurred
by Seller in complying with the provisions of this Section 12.15.
12.16 Board
Approval. This Agreement is expressly
subject to Buyer obtaining approval of the board of directors of its general
partner, which approval shall be obtained on or before August 31, 2007. In
the event Buyer does not notify Seller of such board approval on or before
5:00
pm Central Standard Time, August 31, 2007, this Agreement shall terminate
and be
of no further force and effect.
EXECUTED
this 28th day
of August, 2007.
|
SELLER:
SUMMIT PETROLEUM MANAGEMENT
CORPORATION
|
|||
|
|
By:
|
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
| President & CEO | |||
| SUMMIT PETROLEUM LLC | |||
|
|
By:
|
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
| President & CEO | |||
|
BUYER:
LEGACY RESERVES OPERATING LP,
a
Delaware limited
partnership
BY: Legacy Reserves Operating GP LLC,
its
general partner
By: Legacy Reserves LP, its sole
member
By: Legacy Reserves GP, LLC, its general
partner
|
|||
|
|
By:
|
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |
| ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| Executive Vice President Business Development and Land | |||
Page
18of 18