PURCHASE AND SALE AGREEMENT BY AND BETWEEN KERR-MCGEE OIL & GAS ONSHORE LP D/B/A KMOG ONSHORE LP AND WESTPORT OIL AND GAS COMPANY, L.P. AS SELLER AND THE HOUSTON EXPLORATION COMPANY AS BUYER
Exhibit 99.2
BY AND BETWEEN
XXXX-XXXXX OIL & GAS ONSHORE LP
D/B/A KMOG ONSHORE LP
D/B/A KMOG ONSHORE LP
AND
WESTPORT OIL AND GAS COMPANY, L.P.
AS SELLER
AND
THE HOUSTON EXPLORATION COMPANY
AS BUYER
THIS PURCHASE AND SALE AGREEMENT is made as of this the 21st day of October, 2005, by and
between Xxxx-XxXxx Oil & Gas Onshore LP d/b/a KMOG Onshore LP and Westport Oil and Gas Company,
L.P., hereinafter referred to collectively as “Seller,” and The Houston Exploration Company,
hereinafter referred to as “Buyer.”
RECITALS
Buyer desires to purchase and Seller desires to sell all of Seller’s right, title and interest
in and to the Assets defined herein pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, the benefits to be
derived by each party hereunder and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of Assets. Subject to the terms and conditions of this
Agreement, Seller shall sell and Buyer shall purchase as of the Effective Date (as hereinafter
defined) all of Seller’s right, title and interest in and to the following assets (the “Assets”):
(a) The oil, gas and other mineral leasehold interests described in Exhibit “A” attached
hereto and made a part hereof, together with Seller’s interest in any pooled, communitized, or
unitized acreage derived by virtue of Seller’s ownership of those interests described in Exhibit
“A”.
(b) The xxxxx, equipment and facilities located on and used primarily in connection with the
lands described in Exhibit “A,” including, but not limited to pumps, well equipment (surface and
subsurface), saltwater disposal xxxxx, lines and facilities, sulfur recovery facilities,
compressors, compressor stations, dehydration facilities, treating facilities, pipeline gathering
lines, flow lines, transportation lines (including long lines and laterals), valves, meters,
separators, tanks, tank batteries, and other fixtures;
(c) Oil, condensate, natural gas, and natural gas liquids produced after the Effective Date,
including “line fill” and inventory below the pipeline connection in tanks, attributable to the
interests described in Exhibit “A”;
(d) All contracts and agreements concerning the interests described in Exhibit “A,” including,
but not limited to, unit agreements, pooling agreements, areas of mutual interest, farmout
agreements, farmin agreements, saltwater disposal agreements, water injection agreements, line well
injection agreements, road use agreements, drilling contracts, operating agreements, well
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service contracts, production sales contracts (excluding any spot sales contracts, any other sales
contracts terminable upon thirty (30) days or less notice, and any resale contracts of Seller’s
affiliate(s)), gas balancing agreements, storage or warehouse agreements, supplier contracts,
service contracts, insurance contracts, construction agreements, division orders and transfer
orders, only insofar as such relate solely to the interests described in Exhibit “A” and only to
the extent that such contracts are assignable;
(e) All surface use agreements, easements, rights of way, licenses, authorizations, permits,
and similar rights and interests applicable to, or used exclusively in connection with, any or all
of the interests described in Exhibit “A.” However, Seller expressly retains the right to use such
surface use agreements, easements, rights of way, licenses, authorizations, permits, and similar
rights and interests in the event and to the extent such rights relate to the leasehold or mineral
rights or interests described in Exhibit “A” where Seller retains any rights or interests; and
(f) A license on all proprietary seismic and geophysical data, interpretations and information
relating to the Assets in accordance with the Seismic License Agreement attached hereto as Schedule
1.1(f), and to the extent Buyer agrees to pay any transfer fees, licensed seismic data, relating to
the Assets.
1.2 Excluded Assets. The items listed on Exhibit “B” attached hereto and made a part
hereof and (1) except as provided in Section 1.1(f), any and all geophysical, seismic and other
technical data and interpretations thereof; (2) except as provided in Section 1.1(f), any
confidential or proprietary data owned by Seller; (3) the Xxxxxxx Gas Processing Plant; (4) that
portion of all contracts, agreements, personal property and fixtures that were used in connection
with or adversely affected by such plant; and (5) that portion of the real property described in
Surface Lease for the Xxxxxxx Gas Processing Plant (the “Surface Lease”), which is more fully set
out in an Amendment to Surface Lease executed on May 16, 1986, and recorded in Volume 479, Page 904
of the Deed Records of Xxx Xxxxx County, Texas, covering 6.11 acres, more or less, that is not used
in current operation of the Assets, shall be excluded from this purchase and sale transaction
(collectively, the “Excluded Assets”).
1.3 Purchase Price. The aggregate purchase price for the Assets shall be $162,678,000
(“Purchase Price”), which shall be subject to adjustments as provided for herein and Buyer has
allocated individual property values as shown on Exhibit “C” attached hereto and incorporated
herein for all purposes. Buyer shall pay Seller 10% of the Purchase Price upon execution of this
Agreement (the “Performance Guarantee Deposit”), with the balance of the Purchase Price to be paid
at Closing as hereafter provided. If the transactions contemplated hereby are consummated as
provided in this Agreement, the Performance Guarantee Deposit shall be applied to payment of the
Purchase Price at Closing. If the transaction set forth in this Agreement is not consummated, the
Performance Guarantee Deposit shall be retained or returned by Seller as per Article XII.
1.4 Adjusted Purchase Price. The net price which the Buyer shall pay for the Assets
(“Adjusted Purchase Price”) shall be the Purchase Price as set forth in Section 1.3 above, adjusted
in the following manner:
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(a) Less or plus, as applicable, any amounts determined to be a price adjustment pursuant to
Article III hereof (“Title Examination”);
(b) Less an amount equal to the value of the Assets, determined pursuant to Section 3.4 hereof
(“Preferential Purchase Rights”) with respect to which Preferential Purchase Rights have been
exercised;
(c) Less any amounts determined to be a purchase price adjustment pursuant to Article V hereof
(“Environmental Conditions”);
(d) Less amounts attributable to Casualty Loss as set forth in Section 7.4, if any;
(e) Less the Performance Guarantee Deposit; and
(f) Less or plus any other amounts mutually agreed upon by the parties hereto.
1.5 Effective Date. Only in the event Closing occurs, the conveyance of the Assets
shall be effective as of October 1, 2005, 7:00 a.m. local time where the Assets are located
(“Effective Date”).
1.6 Section 1031 Exchange. Buyer and Seller agree that the other Party (the “1031
Party”) shall have the right at any time prior to Closing to assign all or a portion of its rights
under this Agreement to an Exchange Accommodation Titleholder (as that term is defined in IRS Rev.
Proc. 2000-37) in order to accomplish the transaction in a manner that will comply,
either in whole or in part, with the requirements of a like-kind exchange pursuant to Section 1031
of the Internal Revenue Code of 1986, as amended. If the 1031 Party assigns its rights under this
Agreement for this purpose, Buyer and Seller agree to consent to the 1031 Party’s assignment of
such rights and pay the Purchase Price or transfer the Assets into a qualified escrow or qualified
trust account at Closing, as directed in writing. Seller and Buyer agree that the 1031 Party’s
assignment of its rights under this Agreement, in whole or in part, shall not release either party
from any of their respective liabilities and obligations to each other under this Agreement.
ARTICLE II
REPRESENTATIONS
Buyer and Seller, as applicable, represent and warrant that:
2.1 Existence. They are duly organized, validly existing, and in good standing and
duly qualified at Closing to carry on business in the state(s) where the Assets are located.
2.2 Authorization. Buyer and Seller have all requisite power to enter into and
perform this Agreement and the transactions contemplated hereby. Buyer and Seller have taken all
requisite action to authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and delivered on behalf of
Buyer and
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Seller respectively, and at Closing all documents and instruments required hereunder to be executed
and delivered by Buyer and Seller shall have been fully executed and delivered.
2.3 Brokers. Buyer and Seller have incurred no obligation or liability, contingent or
otherwise, for brokers’ or finders’ fees with respect to the matters provided for in this Agreement
which will be the responsibility of the other party; and such obligation or liability that might
exist shall be the sole obligation of the creating party.
2.4 Further Distribution. Buyer is acquiring the Assets for its own account and not
with the intent to make a distribution thereof within the meaning of the Securities Act of 1933 and
the rules and regulations pertaining to it or distribution thereof in violation of any applicable
state or federal securities laws.
2.5 Proceeding or Litigation; Environmental Condition.
(a) Except as identified in Schedule 2.5(a), Seller represents that there is no legal or
governmental action, claim, arbitration, mediation, suit, litigation, or proceeding pending, nor to
the best of its knowledge, threatened, to which Seller is a party or to which the Assets are
subject.
(b) Except as identified in Schedule 2.5(b), Seller represents that, to the best of its
knowledge, there are no Environmental Conditions (as defined in Article V) or Physical Conditions
(as defined in Article IV) that adversely affect the Assets individually or in the aggregate in a
material way. Seller has not received any notice of any alleged Environmental Conditions or claims
relating thereto.
2.6 Buyer’s Compliance With Laws and Agreements. Buyer represents that prior to
Closing, Buyer shall have met all of the requirements under applicable local, state and federal law
to accept assignment of the Assets, and is not otherwise prevented from having the Assets
transferred to Buyer, and is properly authorized to operate said Assets and to do business in the
state where the Assets are located. These requirements include, but are not limited to, the
acquisition of bonds, letters of credit or other evidence of financial security or any other
requisite of all appropriate regulatory agencies and any leases, operating agreements or other
contractual requirements.
2.7 Seller’s Compliance With Laws and Contracts. Except as identified in Schedules
2.5(a) and 2.5(b), Seller represents that it and the Assets are and have been in material
compliance with all of the requirements and obligations under applicable contracts and local, state
and federal law relating to the Assets.
2.8 Physical and Environmental Matters. Prior to the Defect Deadline, Buyer shall
have inspected the Assets, the public records and Seller’s files for all purposes, including
without limitation for the purpose of detecting the presence of asbestos and the presence and
concentration of naturally-occurring radioactive materials (“NORM”) and satisfied itself as to the
Physical Condition and Environmental Condition of the Assets. Buyer acknowledges that, except as
provided in Sections 2.5 and 2.7 above, no representations have been made by Seller regarding
Environmental Conditions or Physical Conditions, past or present.
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2.9 Buyer’s Qualifications. Buyer is a sophisticated buyer, knowledgeable in the
evaluation and acquisition of oil and gas properties.
2.10 Seller’s Contracts. Exhibit A contains a list of all of the contracts and
agreements that have a material effect on the value, use or operation of the Assets (“Material
Agreements”). The Material Agreements are sufficient for normal exploration, development and
production operations, are in full force and effect and, to Seller’s knowledge, no party is in
material default under any of such agreements. Notwithstanding the foregoing, as long as Seller has
made a reasonably diligent effort to list all such contracts and agreements, Seller shall not be in
violation of this representations if Seller inadvertently fails to list a contract or agreement
unless such contract or agreement has a material adverse effect on the value, use or operation of
the Assets.
2.11 Xxxxx. Except as identified in Schedule 2.11, as of the Closing Date, to the
best of Seller’s knowledge, there are no non-producing xxxxx, shut-in xxxxx, temporarily abandoned
xxxxx, or xxxxx requiring plugging or replugging located on the Assets.
ARTICLE III
TITLE EXAMINATION
3.1 Access to Title Information. After the date of this Agreement and until Closing,
Seller shall make the records and documents in Seller’s possession affecting Seller’s title to the
Assets available to Buyer at Seller’s office located at 00000 Xxxxxxxxxx, Xxxxxxx, Xxxxx 00000, or
such other place as deemed appropriate by Seller, during Seller’s normal business hours for
examination by Buyer. Seller shall not be obligated to perform any additional title work, and any
additional abstracts and title opinions shall not be made current by Seller. NO WARRANTY OF ANY
KIND IS MADE BY SELLER AS TO THE INFORMATION SO SUPPLIED, AND BUYER AGREES THAT ANY CONCLUSIONS
DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.
3.2 Title Defects. The term “Title Defect,” as used herein, subject to Permitted
Encumbrances, shall be limited to a defect in Seller’s title to the Assets which results or could
reasonably be expected to result in (a) a net revenue interest for an Asset less than the net
revenue interest shown for that Asset in Exhibit “C,” or (b) a working interest for an Asset
greater than the working interest shown for that Asset in Exhibit “C” without a corresponding
increase in the net revenue interest or (c) the existence of a lien, agreement or other
encumbrance.
In the event either party notifies the other that Seller owns a greater net revenue interest
than that shown on Exhibit “C,” then the Purchase Price shall be increased based upon the amount
allocated to the affected Asset on Exhibit “C”.
Provided, however, Buyer may not assert a Title Defect for an Asset unless Buyer has allocated
value on Exhibit “C” (an allocation of value to a well or lease shall include that portion of the
other Assets that are necessary for the operation of such well or lease and the production of
hydrocarbons from such well or lease), and unless Buyer reasonably believes that the effect of such
Title Defect on the value of the Asset or on Seller’s stated net revenue interest
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and/or working interest for such Asset would result in a reduction to Buyer’s allocated amount
of the Purchase Price for such Asset, as shown on Exhibit “C,” equal to at least Fifteen Thousand
and No/100 Dollars ($15,000.00) (“Material Title Defect”). In addition, if the total value of all
Material Title Defects, in the aggregate, does not meet or exceed One-Percent (1%) of the Purchase
Price as defined in Section 1.3, then there shall be no adjustment to the Purchase Price or any
other remedy from or obligation of Seller that shall be available to Buyer. Provided further, in
the event the amount attributable to Material Title Defects, in the aggregate, satisfies the
threshold percentage set forth above and a reduction to the Purchase Price is warranted, then the
Purchase Price shall only be reduced to the extent the amount attributable to Material Title
Defects, in the aggregate, exceeds the percentage of the Purchase Price specified above, and all
amounts attributable to Material Title Defects, in the aggregate, that are below such threshold
percentage shall be borne solely by Buyer, and there shall be no adjustment to the Purchase Price
therefor.
In determining whether a Title Defect exists as to any Asset for purposes of this Agreement,
the Parties shall give due consideration to the length of time the affected property has been
producing hydrocarbon substances and whether any omissions, encroachments, encumbrances or other
claimed defects are customarily acceptable to prudent operators and interest owners. Such usual
and customary defects include, without limitation, defects that have been cured by possession under
applicable statutes of limitations, defects in the early chain of title such as failure to recite
marital status in documents, omissions of heirship or succession proceedings, lack of survey or
failure to record releases of lien, production payments or mortgages that have expired by their own
terms.
Notwithstanding the foregoing provisions of this 3.2, none of the following (collectively
“Permitted Encumbrances”) shall constitute a Material Title Defect:
(i) Royalties, overriding royalties, production payments, reversionary interests, convertible
interests, net profits interests, and similar burdens encumbering the Assets to the extent the net
cumulative effect of such burdens do not, as of Closing or any time thereafter during the term of
the applicable Asset, operate to reduce the net revenue interests of such Asset to less than the
net revenue interests for such Asset set forth in Exhibit “C”.
(ii) All rights to consent by, required notices to, filings with, or other actions by
governmental authorities in connection with the sale or conveyance of the Assets;
(iii) Rights reserved to or vested in any governmental entity having appropriate jurisdiction
to control or regulate the Assets in any manner whatsoever, and all laws of any such governmental
entity;
(iv) Easements, rights-of-way, servitudes, surface leases, subsurface leases, pipelines, and
structures on, over and through the Assets;
(v) All of the terms and conditions of the Material Agreements to the extent they do not
result or could not reasonably be expected to result in (a) a net revenue interest for an Asset
less than the net revenue interest shown for that Asset in Exhibit “C,” or (b) a working
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interest for an Asset greater than the working interest shown for that Asset in Exhibit “C”
without a corresponding increase in the net revenue interest;
(vi) Taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being
contested by Seller in good faith in the normal course of business; and
(vii) Liens of operators relating to obligations not yet due or not yet delinquent.
3.3 Notice of and Remedies for Material Title Defects.
(a) In the event Buyer discovers a Material Title Defect that exceeds the threshold
requirements stated above in Section 3.2, then up to five (5) business days (for purposes of this
Agreement, the day after Thanksgiving shall not constitute a business day) before the Closing
(“Defect Deadline”), Buyer shall have the right to notify Seller, in writing, of the nature of the
Material Title Defect. Along with the written notice, Buyer shall furnish Seller with Buyer’s
basis for the assertion of such Material Title Defect and the data in support thereof, and shall
also furnish Seller with the proposed reduction in the Purchase Price attributable to such Material
Title Defect.
(b) Upon receipt of such notice, on or before the Closing, Seller at its discretion shall have
the right to choose one of the following options:
(i) cure the Material Title Defect at Seller’s expense prior to or within 60 days after the
Closing thereby eliminating the need for a reduction in Purchase Price; or
(ii) reduce the Purchase Price by an amount equal to a pro-rata portion of the amount
allocated to the affected Asset on Exhibit “C”; or
(iii) exclude the affected Asset from the sale and reduce the Purchase Price by an amount
equal to the value of the excluded Asset as set forth on Exhibit “C” .
(c) Any Title Defect which is not disclosed to Seller by Buyer prior to the Defect Deadline
shall conclusively be deemed waived by Buyer for all purposes except to the extent it breaches
Seller’s special warranty that Seller has neither conveyed nor encumbered the Assets.
(d) It is recognized that good faith differences of opinion may exist between Buyer and Seller
in connection with an alleged Material Title Defect (s) and other Purchase Price adjustments,
including without limitation, disputes as to: (i) whether or not the alleged defect constitutes a
Material Title Defect within the meaning of this Agreement; (ii) whether or not the magnitude of
the alleged Title Defect(s) is great enough that Buyer is contractually entitled to assert such
Defect(s); (iii) whether or not the alleged Title Defect(s) was properly and timely asserted by
Buyer pursuant to this Agreement; and (iv) the appropriate upward or downward adjustment, if any,
to be made to the Purchase Price on account of the Material Title Defect. Closing shall not be
delayed, postponed or canceled because an alleged Title Defect is not agreed upon prior to the
Closing Date. If any such difference of opinion regarding an alleged Material Title Defect (“Title
Defect Dispute”) is not resolved by mutual agreement of Buyer and Seller
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prior to the Closing Date, the parties shall consummate the transaction subject to the
following provisions of this Section 3.3(d). With respect to any Asset for which Closing occurs
subject to a Title Defect Dispute, the difference between the downward Purchase Price adjustment
for such Asset as asserted by Buyer and the downward Purchase Price adjustment for such Asset as
acceptable to Seller (if any) is hereinafter called the “Title Dispute Adjustment Amount.” At
Closing, the Sale Price shall be calculated using one half (1/2) of Title Dispute Adjustment Amount
for such Asset. Following the Closing, Seller or Buyer shall have the right, exercisable within
six (6) months after the Closing Date, to refer the same for arbitration to an attorney in Houston,
Texas who has devoted his practice for at least the past ten (10) years primarily to oil and gas
title law and has not rendered services to either Buyer or Seller during such period. Such
arbitration shall be conducted in accordance with Exhibit “D”, and the arbitrator shall determine
the amount of the Purchase Price adjustment that should have been made as the result of such Title
Defect Dispute. If the adjustment made at Closing with respect to such Title Defect Dispute was
greater than the adjustment determined by the arbitrator, he shall order that the difference
between the adjustment as determined by him and the adjustment as applied at Closing be paid to
Seller. If the adjustment made at Closing with respect to such Title Defect Dispute was less than
the adjustment determined by the arbitrator, he shall order that the difference between the
adjustment as determined by him and the adjustment as applied at Closing be paid to Buyer. Subject
to the terms of Exhibit “D”, the decision of the arbitrator regarding any Title Defect Dispute
shall be final as between the parties, and shall not be subject to review or dispute in a court of
law or otherwise.
3.4 Preferential Purchase Rights. Seller has not heretofore sent letters to parties
holding preferential purchase rights covering the Assets, requesting a waiver of such rights as
they may apply to the transactions set forth in this Agreement. With respect to each preferential
purchase right covering the Assets or any portion thereof, upon execution of this Agreement Seller
shall make a good faith effort to identify and shall send to the holder of such right a notice
offering to sell to such holder, in accordance with the contractual provisions applicable to such
right, those Assets covered by such right on the same terms hereof and for the portion of the
Purchase Price allocable to such Assets in Exhibit “C,” subject to adjustments in the same manner
as the Purchase Price is adjusted pursuant to Section 1.4 of this Agreement.
If, prior to Closing, any holder of a preferential purchase right notifies Seller that it
intends to consummate the purchase of the Assets to which its preferential purchase right applies,
then those Assets shall be excluded from the Assets to be conveyed to Buyer, and the Purchase Price
shall be reduced by the amount allocated to that Asset on Exhibit “C”; provided however, that if
the holder of such preferential purchase right fails to consummate the purchase of the Assets
covered by such right, then Seller shall so notify Buyer, and within forty-five (45) business days
after Buyer’s receipt of such notice from Seller, Seller shall sell to Buyer, and Buyer shall
purchase from Seller, for a price equal to the portion of the Purchase Price allocable to such
Assets and upon the other terms of this Agreement the Assets to which the preferential purchase
right is applied.
Unless otherwise mutually agreed, all Assets for which a preferential purchase right has not
been asserted prior to Closing shall be sold to Buyer at Closing pursuant to the provisions of this
Agreement. Seller shall make a good faith effort to identify all agreements and contracts that
contain rights of first refusal or preferential right to purchase provisions; however,
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Seller and Buyer acknowledge that due to the age and complexity of the Assets, the possibility
exists that Seller may have inadvertently failed to identify all owners of such right(s) during its
review and therefore failed to include such owners in its solicitation of elections. Seller and
Buyer agree that if a bona fide third party owner or holder of such right(s), asserts said right(s)
after the Closing Date, Buyer shall cooperate fully with Seller to reconcile and resolve said
claims to the extent the interest conveyed to Buyer is affected. If Seller and Buyer agree in good
faith on the validity of such third party’s claim, the reconciliation or resolution with such third
party shall include an assignment, as of the Effective Date, of the affected interest from Buyer to
such third party and a full reimbursement by Seller to Buyer of that portion of the Purchase Price
allocable to the affected interest; and payment to such third party by Buyer of all revenue and
income attributable to such interest which has been collected and received by Buyer from and after
the Effective Date, less all taxes and other expenses incurred by Buyer attributable to such
interest. Seller shall, at its sole cost and expense, negotiate terms with third party owners as
necessary to fully resolve any outstanding issues with such third party relating to the sale of the
affected interest.
3.5 Consents to Assign. Within a reasonable time after the execution of this
Agreement by both parties, Seller shall make a good faith effort to identify and send to each
holder of a right to consent to assignment pertaining to the Assets and the transactions
contemplated hereby a notice seeking such party’s consent to assign. If Seller fails to obtain a
consent prior to the Closing Date and the failure to obtain such consent would (i) cause the
assignment of such Asset to Buyer to be void or voidable, (ii) trigger an express termination or
right of termination of the lease or document underlying the consent, or (iii) trigger an express
monetary penalty, then, and only then, the Asset subject to such failed consent shall be deemed a
Title Defect, and Seller shall have the rights set forth in Section 3.3(b) with respect thereto,
but subject to the materiality conditions therein.
ARTICLE IV
BUYER’S INVESTIGATION OF PHYSICAL CONDITIONS
AND SELLER’S DISCLAIMER
AND SELLER’S DISCLAIMER
4.1 Inspection. At any mutually agreeable time at least ten (10) days prior to
Closing, Buyer shall have the right to enter upon the Assets at its sole cost and risk for the
purpose of an inspection of the Physical Conditions of the Assets. “Physical Condition” as used
herein means the condition of the Assets, including without limitation, the property described in
Section 1.1(b), whether known or unknown by Seller. Prior to such inspection, Buyer shall schedule
an appointment with the party shown in Section 14.7. Provided, however, that at all times Buyer is
present upon the Assets, Buyer shall be accompanied by an individual designated by the party listed
in Section 14.7.
4.2 Investigation. Buyer acknowledges that as of the Closing Date it will have had
access as it requires to the Assets, Seller’s personnel, the books, records and files of Seller
relating to the Assets, and the public records relating to the Assets, and in making the decision
to enter into this Agreement and consummate the transactions contemplated hereby, Buyer shall have
relied solely on the basis of its own independent investigation, analysis and evaluation of the
Assets and the public records relating to the Assets, and upon the express representations,
covenants and disclaimers set
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forth in this Agreement. Seller shall take such actions as are reasonably necessary to provide
Buyer sufficient access so that Buyer’s acknowledgement in this Section 4.2 shall be correct.
4.3 Disclaimer. Except as expressly provided in this Agreement, Seller makes no
representations or warranties whatsoever and disclaims all liability and responsibility for any
other representation, warranty, statement or information made or communicated (orally or in
writing) to Buyer (including, but not limited to, any information contained in the files or any
opinions, information or advice which may have been provided to Buyer by any officer, stockholder,
director, employee, agent, consultant or representative of Seller). Buyer acknowledges that Seller
has not made, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY,
EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE RELATING TO (a) THE CONDITIONS OF THE
ASSETS (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF
FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) ANY
INFRINGEMENT BY SELLER OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD PARTY, AND (c) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO BUYER BY OR ON BEHALF OF SELLER
(INCLUDING WITHOUT LIMITATION, WITH RESPECT TO GEOLOGICAL DATA, THE EXISTENCE OR EXTENT OF OIL, GAS
OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF RECOVERING ANY SUCH RESERVES, THE
VALUE OF SUCH RESERVES, ANY PRODUCT PRICING ASSUMPTIONS, AND THE ABILITY TO SELL OIL OR GAS
PRODUCTION AFTER CLOSING); provided, however, that the foregoing disclaimer and negation of
representations and warranties shall not affect or impair the representations of Seller as set
forth in this Agreement. THE SALE OF THE XXXXX, EQUIPMENT AND FACILITIES HEREUNDER SHALL BE “AS
IS, WHERE IS, WITH ALL FAULTS.”
ARTICLE V
BUYER’S INVESTIGATION OF ENVIRONMENTAL CONDITIONS
5.1 Inspection and Assessment of Environmental Condition(s). Subject to the
conditions set forth herein, Buyer shall have access to the Assets, Seller’s personnel, and the
books, records and files of Seller (subject to the provisions of Section 11.3 below) relating to
the Assets until the Defect Deadline for the purpose of inspecting the Assets and conducting such
tests, examinations, investigations and assessments as may be necessary or appropriate in Buyer’s
opinion to evaluate the Environmental Condition of the Assets; provided, however, that prior to
conducting any tests on the Assets, Buyer shall schedule an appointment with the party shown in
Section 14.7 and Buyer shall be accompanied by a representative of Seller and such representative
shall be available to Buyer during normal business hours and at other reasonable times.
“Environmental Condition” as used herein means any condition relating to the Assets that
contaminates or has contaminated soil, sediment, air, water or groundwater in a manner that
violates any applicable agreement, law, regulation, ordinance, rule or order in effect and as
interpreted and enforced before the Effective Date. Changes in, or changes in interpretation of,
any law, regulation, ordinance, rule, order or permit on or after the Effective Date shall not
provide the basis for an Environmental
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Condition even if such changes are made retroactive. Buyer agrees to share with Seller all
information, including copies of any environmental assessments, and including all reports, data,
and conclusions whether prepared by the third party consultant(s) hired by Buyer or obtained as the
result of Buyer’s sole initiative. Buyer and Seller shall keep any and all data or information
acquired by all such examinations and results of all analyses of such data and information strictly
confidential and not disclose same to any person or agency without prior written approval of the
other. If, however, disclosure of such data or information is required by law or by order of a
court or by an agency, either party may disclose such data or information. It is the sole
responsibility of the Buyer to conduct complete and thorough inspections, investigations and
assessments of Environmental Conditions prior to the Defect Deadline.
5.2 Notice of and Remedies for Material Environmental Condition(s).
(a) Upon discovery of a Material Environmental Condition (as defined below), Buyer shall prior
to the Defect Deadline notify Seller in writing of the nature of the Material Environmental
Condition and shall furnish Seller with Buyer’s basis for the assertion of such Environmental
Condition and data in support thereof. Failure to provide notice shall constitute a waiver and
release of any Environmental Condition (including a Material Environmental Condition). In the
event the Buyer has properly notified Seller of a Material Environmental Condition, Seller shall at
least one (1) day prior to Closing select one of the following options in its sole discretion:
(i) remedy the Material Environmental Condition at its own expense prior to sixty (60) days
after the Closing or as soon thereafter as practicable and agree to indemnify Buyer from and
against all claims, obligations, liabilities and penalties that result from such Material
Environmental Condition; or
(ii) reduce the Purchase Price by an amount mutually agreed upon; or
(iii) exclude the affected Asset from the sale, and reduce the Purchase Price by an amount
equal to the value of the Asset as shown on Exhibit “C” (an allocation of value to a well or lease
shall include that portion of the other Assets that are necessary for the operation of such well or
lease and the production of hydrocarbons from such well or lease); or
(iv) terminate this Agreement and return to Buyer the Performance Guarantee Deposit.
(b) A single Environmental Condition shall be deemed “material” for the purpose of this
Section 5.2 only if the total estimated cost of remediation plus the total reasonably expected cost
of claims, obligations, liabilities and penalties that result from such Material Environmental
Condition exceed, in the aggregate for that Environmental Condition, the amount of Fifteen Thousand
and No/100 Dollars ($15,000.00) (“Material Environmental Conditions”). Provided, however, if the
total value of all Material Environmental Conditions, in the aggregate, do not meet or exceed One
Percent (1%) of the Purchase Price as defined in Section 1.3, then there shall be no adjustment of
the Purchase Price or any other remedy from or obligation of Seller that shall be available to
Buyer. Provided further, in the event the total value of all Material
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Environmental Conditions, in the aggregate, meets or exceeds the percentage of the Purchase Price
set forth immediately above, then the Purchase Price shall only be adjusted to the extent the total
value of all Material Environmental Conditions, in the aggregate, exceeds the percentage of the
Purchase Price specified above, and all amounts attributable to such Material Environmental
Conditions, in the aggregate, that are below the percentage of the Purchase Price specified above
shall be borne solely by Buyer, and no adjustment to the Purchase Price or any other remedy from or
obligation of Seller shall be available to Buyer therefor.
(c) Any Material Environmental Condition which is not disclosed by Buyer to Seller prior to
the Defect Deadline shall conclusively be deemed waived by Buyer for all purposes. Environmental
Conditions that are not considered Material Environmental Conditions shall be the sole
responsibility of Buyer, regardless of when the condition arose, and Buyer shall indemnify and hold
Seller harmless from and against any and all such Environmental Conditions in accordance with the
provisions of Section 6.1 below.
(d) Notification to Seller by Buyer of the presence of naturally occurring radioactive
material (“NORM”) or asbestos in reasonably expected amounts for the area in which the Assets are
located shall not trigger any of the remedies set forth in this Section 5.2.
(e) It is recognized that good faith differences of opinion may exist between Buyer and Seller
in connection with an alleged Material Environmental Condition(s) and other Purchase Price
adjustments, including without limitation, disputes as to: (i) whether or not the alleged condition
constitutes a Material Environmental Condition within the meaning of this Agreement; (ii) whether
or not the magnitude of the alleged Environmental Condition(s) is great enough that Buyer is
contractually entitled to assert such Condition(s); (iii) whether or not the alleged Environmental
Condition(s) was properly and timely asserted by Buyer pursuant to this Agreement; and (iv) the
appropriate downward adjustment, if any, to be made to the Purchase Price on account of such
Material Environmental Condition. Closing shall not be delayed, postponed or canceled because an
alleged Environmental Condition is not agreed upon prior to the Closing Date. If any such
difference of opinion regarding an alleged Environmental Condition (“Environmental Dispute”) is not
resolved by mutual agreement of Buyer and Seller prior to the Closing Date, the parties shall
consummate the transaction subject to the following provisions of this Section 5.2(e). With
respect to any Asset for which Closing occurs subject to an Environmental Dispute, the difference
between the downward Purchase Price adjustment for such Asset as asserted by Buyer and the downward
Purchase Price adjustment for such Asset as acceptable to Seller (if any) is hereinafter called the
“Environmental Dispute Adjustment Amount.” At Closing, the Sale Price shall be calculated using
one half (1/2) of the Environmental Dispute Adjustment Amount for such Asset. Following the
Closing, Seller or Buyer shall have the right, exercisable within six (6) months after the Closing
Date, to refer the same for arbitration to an attorney in Houston, Texas who has devoted his
practice for at least the past ten (10) years primarily to environmental law relating to oil and
gas operations and has not rendered services to either Buyer or Seller during such period. Such
arbitration shall be conducted in accordance with Exhibit “D”, and the arbitrator shall determine
the amount of the Purchase Price adjustment that should have been made as the result of such
Environmental Dispute. If the adjustment made at Closing with respect to such Environmental
Dispute was greater than the adjustment determined by the arbitrator, he shall order that the
difference
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between the adjustment as determined by him and the adjustment as applied at Closing be paid to
Seller. If the adjustment made at Closing with respect to such Environmental Dispute was less than
the adjustment determined by the arbitrator, he shall order that the difference between the
adjustment as determined by him and the adjustment as applied at Closing be paid to Buyer. Subject
to the terms of Exhibit “D”, the decision of the arbitrator regarding any Environmental Dispute
shall be final as between the parties, and shall not be subject to review or dispute in a court of
law or otherwise.
5.3 Condition of the Assets. Buyer and Seller acknowledge that the Assets have been
used for oil and gas drilling, production and/or processing operations and related field
operations. The Assets may also contain buried pipelines, abandoned oil and gas xxxxx, water xxxxx
and sumps which may not now be known by Seller or may not be readily apparent by physical
inspection of the Assets. It is the intention of Seller to sell and of Buyer to purchase all of
such pipelines, xxxxx and sumps to the extent they may be owned by Seller as of the Effective Date,
whether known or unknown.
ARTICLE VI
INDEMNIFICATION AND LITIGATION
6.1 Indemnification. EXCEPT AS MAY BE OTHERWISE SPECIFICIALLY PROVIDED FOR IN THIS
AGREEMENT, AND IN THE EVENT THAT THIS TRANSACTION PROCEEDS TO CLOSING AND IS CLOSED, ON AND AFTER
THE EFFECTIVE DATE, BUYER AGREES TO ASSUME AND BE RESPONSIBLE FOR, IN ADDITION TO ALL OTHER
OBLIGATIONS ASSUMED BY BUYER ELSEWHERE IN THIS AGREEMENT, ALL LIABILITIES AND OBLIGATIONS, IF ANY,
RELATING TO TO:
(A) ANY CONDITION RELATING TO THE ASSETS THAT CONTAMINATES SOIL, SEDIMENT, AIR, WATER OR
GROUNDWATER IN A MANNER THAT VIOLATES OR IS CAUSE FOR REMEDIATION UNDER ANY APPLICABLE LAW,
REGULATION, ORDINANCE, RULE OR ORDER, REGARDLESS OF WHEN THE EVENTS OCCURRED THAT CAUSED SUCH
CONDITION TO EXIST;
(B) NORM OR ASBESTOS, REGARDLESS OF WHEN THE EVENTS OCCURRED THAT CAUSED NORM OR ASBESTOS TO
EXIST; AND
(C) PLUGGING AND ABANDONMENT OF XXXXX, INCLUDING WITHOUT LIMITATION XXXXX WHICH WERE ABANDONED
OR TEMPORARILY ABANDONED PRIOR TO THE EFFECTIVE DATE, WHETHER BY SELLER OR A THIRD PARTY.
ON AND AFTER THE EFFECTIVE DATE, AND IN THE EVENT THAT THIS TRANSACTION PROCEEDS TO CLOSING
AND IS CLOSED, BUYER SHALL COMPLY WITH ALL APPLICABLE LAWS, REGULATIONS, ORDINANCES, RULES, ORDERS,
PERMITS AND CONTRACTS WITH RESPECT TO THE ASSETS. BUYER AGREES TO PROTECT, DEFEND, INDEMNIFY AND
HOLD SELLER, ITS ULTIMATE PARENT AND
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AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, PARTNERS, MEMBERS, MANAGERS, OFFICERS AND
EMPLOYEES FREE AND HARMLESS FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, FINES, PENALTIES, CLAIMS,
LOSSES, LIABILITIES, DEMANDS AND CAUSES OF ACTION OF EVERY KIND AND CHARACTER, INCLUDING BUT NOT
LIMITED TO POLLUTION AND ENVIRONMENTAL CLAIMS, ARISING OUT OF, INCIDENT TO, OR IN CONNECTION WITH
THE ASSETS, WHICH ARE THE RESULT OF (1) OWNERSHIP OR OPERATION OF THE ASSETS ON OR AFTER THE
EFFECTIVE DATE; AND (2) OBLIGATIONS AND LIABILITIES ASSUMED PURSUANT TO (A)-(C) OF THIS SECTION OR
ASSUMED BY BUYER ELSEWHERE IN THIS AGREEMENT. SELLER AGREES TO PROTECT, DEFEND, INDEMNIFY AND HOLD
BUYER, ITS ULTIMATE PARENT AND AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, SHAREHOLDERS, PARTNERS,
MEMBERS, MANAGERS, OFFICERS AND EMPLOYEES FREE AND HARMLESS FROM AND AGAINST ANY AND ALL COSTS,
EXPENSES, FINES, PENALTIES, CLAIMS, LOSSES, LIABILITIES, DEMANDS AND CAUSES OF ACTION OF EVERY KIND
AND CHARACTER, ARISING OUT OF, INCIDENT TO, OR IN CONNECTION WITH THE ASSETS, WHICH ARE THE RESULT
OF (1) OWNERSHIP OR OPERATION OF THE ASSETS PRIOR TO THE EFFECTIVE DATE EXCEPT OBLIGATIONS AND
LIABILITIES ASSUMED BY BUYER PURSUANT TO (A)-(C) OF THIS SECTION OR ELSEWHERE IN THIS AGREEMENT AND
(2) OBLIGATIONS AND LIABILITIES RETAINED BY SELLER ELSEWHERE IN THIS AGREEMENT OR ARISING OUT OF,
INCIDENT TO, OR IN CONNECTION WITH THE EXCLUDED ASSETS.
6.2 Retained and Assumed Litigation. Notwithstanding the provisions of Section 6.1
above, unless otherwise agreed to in writing by the parties (for example, to reflect continuing
joint responsibility), Seller agrees to be responsible for, at its sole cost and expense, the
actions, claims, suits, litigation, and proceedings shown on Schedule 6.2 as being retained by
Seller. Buyer shall assume and be solely responsible and liable for, at its sole cost and expense,
the actions, claims, suits, litigation and proceedings shown on said Schedule 6.2 as being assumed
by Buyer. Provided that, in no event shall Seller have any liability or obligation to Buyer for
the outcome of any matter identified in Schedule 6.2, including by way of illustration and not
limitation, outcomes involving loss of or reduction of Assets or any working interests or net
revenue interests therein, the payment of royalties in amounts or percentages that are in excess of
those amounts or percentages paid as of the Closing Date, loss of or change in any permits or
licenses pertaining to or affecting the Assets or any portion thereof, and obligations affecting
the Assets or any portion thereof that are more onerous than the obligations in existence as of the
Closing Date, all of such items or outcomes to be borne solely by Buyer at its sole cost, risk and
expense.
6.3 Survival. The terms of this Article VI shall survive the Closing.
ARTICLE VII
OPERATIONS AND CASUALTY LOSS
7.1 Operations.
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(a) Seller, as to the portion of the Assets to be conveyed which it now operates, shall from
the date of execution of this Agreement, continue to operate the same until the date set forth in
the agreement between Buyer and Seller as provided in Section 7.3 below.
(b) Buyer shall assume all risk and realize all benefits of any such change in condition of
the Assets from the Effective Date to Closing, including but not limited to change in produced
volumes, equipment failure, and well completions, except to the extent any change in condition is
directly caused by the gross negligence or willful misconduct of Seller or is determined to be a
Casualty Loss as described in Section 7.4 below.
7.2 Successor Operator. While Buyer may represent that it desires to succeed Seller
as operator of the Assets or portions thereof which Seller may presently operate, Buyer
acknowledges and agrees that Seller cannot and does not covenant or warrant that Buyer shall become
successor operator of same, since such Assets are covered by agreements which control the
appointment or election of a successor operator. Seller shall prepare and execute such regulatory
forms that may be required at Closing to effect a change of operator in favor of Buyer unless said
agreements stipulate an alternative methodology.
7.3 Contract Operating, Marketing and Financial Services Agreement. In the event
Buyer cannot take over operations at Closing, Seller agrees to continue to provide Buyer those
services listed in the Contract Operating, Marketing and Financial Services Agreement (COMFS) that
is attached hereto as Exhibit “E” for the term as set forth in the COMFS.
7.4 Casualty Loss. If prior to the Closing Date any facility or equipment included
within the Assets is damaged or destroyed by fire, flood, storm or other casualty (hereinafter
called “Casualty Loss”), Seller shall immediately notify Buyer and the Purchase Price shall be
reduced by an amount estimated by Seller and as agreed to by Buyer, to be equal to the repair or
replacement costs of that Asset. In no event shall the reduction of Purchase Price exceed the
amount allocated to the applicable Asset as set forth on Exhibit “C.” Any insurance proceeds
payable to Seller with respect to the Casualty Loss shall be retained by Seller. In the event
Seller and Buyer are unable to agree upon the value of the estimated damage, then either Seller or
Buyer shall have the right to exclude the affected Asset from this Agreement.
7.5 Right to Market Production. From and after the Effective Date and continuing
during the term specified in the COMFS, Seller shall have the sole right to market the oil, gas and
liquid hydrocarbon production from the Assets as well as any pooled, communitized or unitized
acreage derived by virtue of Seller’s ownership of the Assets. This includes the right to make any
and all necessary scheduling and/or nominations arrangements for such production to implement
marketing arrangements. The revenues realized from the sale of production attributable to the
Assets on and after the Effective Date shall be handled in accordance with Section 13.1 of this
Agreement.
7.6 Xxxx-Xxxxx-Xxxxxx Act. If applicable and as soon as practicable, but no later
than ten (10) business days after the execution hereof, Seller and Buyer shall each prepare and
submit any necessary filings in connection with the transactions contemplated by this Agreement
under the Xxxx-Xxxxx-Xxxxxx Act (“HSR Act”) and the rules and regulations promulgated thereunder.
Each
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party shall request expedited treatment of such filing by the Federal Trade Commission, shall
promptly make any appropriate or necessary subsequent or supplemental filings, and shall furnish to
the other party copies of all filings made under the HSR Act at the same time they are filed with
the government.
ARTICLE VIII
DISPUTE RESOLUTION
8.1 Methods of Resolution. Except as provided in Sections 3.3(d) and 5.2(e), the
parties agree that in the event a dispute concerning or arising out of this Agreement occurs after
execution by both parties, that all such disputes shall first be mediated between the parties
before any action may be filed. It shall be a non-dischargeable condition precedent that a party
wishing to initiate an action concerning or arising out of this Agreement must first give the other
party written notice of the dispute and a written demand to proceed to mediation. Upon receipt of
such written notice, the receiving party shall have five (5) business days to respond in writing
and acknowledge its willingness to submit the dispute to mediation. The parties shall then have an
additional five (5) business days to confer in good faith to mutually agree upon the appointment of
a neutral mediator. In the event that the parties cannot agree on a neutral mediator, each party
shall nominate a mediator of their choice and these two nominees shall confer and agree among
themselves on a third individual who shall then be appointed to mediate the dispute. After
selection of the neutral mediator (who shall be an attorney licensed in the State where the Assets
are located and shall have at least ten (10) years oil and gas experience), the parties shall
proceed to mediation within ten (10) business days thereafter at a neutral site. The parties agree
that a representative of each, with full settlement authority, shall attend and participate in the
mediation. If, after mediating the dispute as set forth herein in good faith, the dispute or claim
remains unresolved, then and only then, may the claiming party file an action in a court of law.
The parties agree that the costs and expenses of mediation shall be equally borne, but that each
party shall bear all costs for its own travel and legal representation, if any. Notwithstanding the
terms of this Section 8.1, Sections 3.3(d) and 5.2(e) provide the exclusive methods for resolving
Title Defect Disputes and Environmental Disputes.
8.2 Waiver of Certain Damages. EACH OF THE PARTIES HEREBY WAIVES, AND AGREES NOT TO
SEEK, ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY OR PUNITIVE DAMAGES WITH RESPECT TO ANY CLAIM
OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH THEREOF. Notwithstanding
the foregoing, neither party hereto waives or shall be deemed to have waived any other rights,
remedies or causes of action it may have under the provisions of this Agreement, or otherwise.
ARTICLE IX
PROCEEDS, ROYALTY OBLIGATIONS, EXPENSES AND TAXES
9.1 Accounting for Production and Proceeds of Production. At Closing, ownership of
all production from the Assets shall pass from Seller to Buyer as of the Effective Date; however,
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Seller shall retain ownership and be entitled to all proceeds from the sale of any oil above the
pipeline connections in tanks attributable to the Assets as of the Effective Date. If Seller
should at any time subsequent to the Closing Date receive from any purchaser of production any
proceeds attributable to any sale of production from the Assets occurring after the Effective Date,
Seller shall remit all such proceeds to Buyer in accordance with Section 13.1. Similarly, if Buyer
should at any time after the Closing Date receive any proceeds attributable to any such sale
occurring prior to the Effective Date, Buyer shall promptly remit the same to Seller.
9.2 Royalty Obligations; Expenses. Seller shall be responsible for the payment of all
royalty obligations, operating expenses and capital expenses attributable to Seller’s interest in
the Assets prior to the Effective Date. Buyer shall be responsible for the payment of all royalty
obligations, operating expenses and capital expenses attributable to Buyer’s interest in the Assets
on and after the Effective Date. Any party which pays any such royalties, operating expenses, or
capital expenditures which are the responsibility of the other shall be entitled to prompt
reimbursement upon issuance to the responsible party of evidence of such payment.
9.3 Sales and Other Transfer Taxes. The Purchase Price and the adjusted Purchase
Price provided for hereunder are exclusive of any sales taxes or other transfer taxes in connection
with the sale of the Assets. Buyer shall bear the cost of all applicable sales taxes, real
property transfer taxes, and other taxes (other than income taxes) payable as a result of the
transfer of the Assets. Sales taxes shall be collected at the Closing and remitted by Seller in
accordance with applicable law, and such other taxes payable as a result of the transfer shall be
paid directly by the Buyer or as otherwise required. If at any time after the Closing, Seller or
any affiliate shall become liable for sales or other taxes for which Buyer is responsible under
this paragraph, Buyer shall promptly reimburse Seller or such affiliate for such taxes and related
costs, including any penalties and interest thereon assessed by any governmental authority relating
thereto. Buyer shall defend, indemnify and hold Seller harmless with respect to the payment of any
of those taxes including any interest or penalties assessed thereon.
9.4 Other Taxes. All other taxes on the ownership or operation of the Assets,
including real estate taxes other than transfer taxes, personal property taxes, ad valorem taxes
and severance or production taxes (but excluding income and franchise taxes), which are imposed for
or with respect to periods or portions of periods prior to the Effective Date shall be the burden
of Seller and all such taxes imposed for or with respect to periods or portions of periods after
the Effective Date shall be the burden of Buyer. Ad valorem taxes shall be prorated between the
parties as of the Effective Date. Any party which pays any such taxes which are the responsibility
of the other party shall be entitled to prompt reimbursement upon issuance to the responsible party
of evidence of such payment.
9.5 Joint Billing Audits, Credits and Advances. Seller shall be responsible for the
conduct and settlement of all joint billing audits which relate to accounting periods prior to the
Effective Date. Buyer shall be responsible for the conduct and settlement of all joint billing
audits which relate to accounting periods after the Effective Date. Any credits or advances
received by Buyer after the Effective Date attributable to expenses paid prior to the Effective
Date shall be reimbursed to Seller by Buyer. Any unapplied credits or advances received by Seller
after the Effective Date attributable to expenses paid after the Effective Date shall be reimbursed
to Buyer by
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Seller. The parties agree to provide reasonable access to records in their possession and control
during normal business hours for the purpose of conducting audits and to reasonably cooperate with
such audit efforts; provided, however, that neither party shall have the authority to extend the
period for conducting any audit that affects the other parties period of ownership.
9.6 Payments on Behalf of Others. In the event Seller makes payments (including but
not limited to payments of taxes) on behalf of royalty owners or joint interest owners for periods
on or after the Effective Date, Buyer shall reimburse Seller for all such payments in accordance
with Section 13.1 and Buyer shall assume the risk of collection of the amount of any such payments
from the appropriate party. In the event Seller has incorrectly made such payments prior to the
Effective Date, Seller shall have the option to request that Buyer collect any such payments on
behalf of Seller and remit such to Seller upon receipt. Buyer hereby agrees to use reasonable
efforts to collect such payments on behalf of Seller.
9.7 Certain Other Tax Matters. To the extent this transaction or any part of the
transaction constitutes an applicable asset acquisition (for purposes of Section 1060 of the
Internal Revenue Code of 1986), Buyer and Seller agree to confer and cooperate in the preparation
and filing of such reports and/or information returns as may be required by law or regulation.
ARTICLE X
CONDITIONS OF CLOSING
Buyer’s and Seller’s obligation to consummate the transactions provided for herein is subject
to the satisfaction or waiver by the other party of the following conditions:
10.1 Representations. The representations of Buyer and Seller contained in Article II
hereof shall be true and correct in all material respects on the date of Closing as though made on
and as of that date.
10.2 Performance. Buyer and Seller shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by them at or prior to Closing.
10.3 Pending Matters. Except as disclosed herein, no suit, action or other proceeding
by a third party or a governmental authority shall be pending or threatened which seeks substantial
damages from Buyer or Seller in connection with the Assets, or seeks to restrain, enjoin or
otherwise prohibit, the consummation of the transactions contemplated by this Agreement. The
Closing shall not violate any order or decree of any court or governmental body having competent
jurisdiction.
10.4 Expiration of HSR Waiting Period. If applicable, the waiting period under the
HSR Act shall have expired or been terminated.
10.5 Evidence of Bonding. Buyer shall deliver to Seller:
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(a) A copy of certificate from Secretary of State evidencing Buyer has the authority to do
business with the state(s) where the Assets are located; and
(b) A copy of Buyer’s existing blanket plugging or performance bond, or evidence of Buyer’s
compliance with applicable state or federal rules and regulations, if any, filed with the
applicable conservation or regulatory agency.
ARTICLE XI
CLOSING
11.1 Date and Place of Closing. The Closing of the purchase and sale of the Assets
shall take place at the offices of the Seller at such time and date as may be agreed upon by Buyer
and Seller (the “Closing Date”), but no later than November 30, 2005; provided that any applicable
waiting period under the HSR Act has expired or been terminated.
11.2 Closing Obligations. At the Closing the following events shall occur, each being
a condition precedent to the others and each being deemed to have occurred simultaneously with the
others:
(a) The Seller shall execute, acknowledge and deliver to Buyer conveyance documents
substantially in the form set forth in Exhibit “F” attached hereto and such other instruments of
transfer and assignment necessary to convey to Buyer the Assets in the manner contemplated by this
Agreement.
(b) The Seller shall deliver to Buyer exclusive possession of the Assets and Buyer shall take
possession of the Assets, as of the Closing Date.
(c) Buyer shall deliver to Seller the Purchase Price, as adjusted in accordance with Section
1.4 hereof including sales taxes, by wire transfer to an account designated by Seller.
(d) The Seller and Buyer shall execute, acknowledge, and deliver transfer orders or letters in
lieu thereof directing all purchasers of production to make payments of proceeds attributable to
production from the Assets to Buyer.
(e) Seller and Buyer shall execute, acknowledge and deliver such other instruments and take
such other action as may be reasonably necessary to carry out their respective obligations under
this Agreement.
(f) Seller and Buyer shall execute and deliver the Closing Statement that shall set forth the
Purchase Price, any adjustment to the Purchase Price in accordance with Section 1.4 hereof, and the
calculations used to determine such adjustment, as set forth on Exhibit “I” attached hereto.
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(g) For Assets in the State of Texas, Buyer shall deliver to Seller evidence of filing showing
compliance with the Texas Railroad Commission (“TRRC”) Statewide Rule 14(b)(2) dealing with the
plugging of any dry or inactive well(s) included in the Assets, along with evidence of the
appropriate bond, surety letter or letter of credit in a form acceptable to the TRRC.
(h) Seller shall execute and deliver to Buyer Seller’s affidavits of non-foreign status. Such
forms are attached hereto as Exhibits “G” and ‘H” and incorporated herein for all purposes.
(i) Buyer shall deliver to Seller evidence satisfactory to Seller which supports Buyer’s
representations in Section 14.8(ii).
11.3 Files. Seller shall, at or as promptly as reasonably possible after Closing,
provide Buyer where possible with scanned or electronic copies and either paper or electronic
originals of relevant oil and gas leases, contracts, amendments and correspondence that are found
in Seller’s land administration files, and the operational, engineering, geological, environmental
and marketing files pertaining to the Assets. Seller shall retain at its option all copies and
shall have no obligation to furnish Buyer any data or information which Seller in its sole judgment
considers proprietary or confidential to it or which Seller cannot provide Buyer because of
third-party restrictions on Seller or which does not directly pertain to the Assets. All
information and data shall be furnished as a matter of convenience only to Buyer and Buyer’s
reliance on same shall be at Buyer’s sole risk.
11.4 Interest on Adjusted Purchase Price. There shall be no interest payable to
Seller on the Adjusted Purchase Price for the period beginning on the Effective Date and ending on
the Closing Date unless Buyer advises Seller that it cannot or will not close the transaction
contemplated in this Agreement on or before the Closing Date. In the event Buyer requests Seller
to agree to a Closing Date that is subsequent to the date specified in Section 11.1 above
(“Extended Closing Date”), and Seller agrees to an Extended Closing Date (notwithstanding Seller’s
right to terminate this Agreement as provided in Article XII below), then at Closing on the
Extended Closing Date, Buyer shall pay to Seller, in addition to all other amounts required to be
paid under this Agreement, interest on the Adjusted Purchase Price calculated from the Effective
Date to the Extended Closing Date. Interest shall be determined at the prime rate in effect as of
the day before the Extended Closing Date at X.X. Xxxxxx Xxxxx plus 1% or the maximum contract rate
permitted by the applicable usury laws of the State of Texas, whichever is the lesser.
ARTICLE XII
TERMINATION OF AGREEMENT
This Agreement may be terminated at any time on or prior to the Closing Date by:
(a) Buyer or Seller, if consummation of the transactions contemplated hereby would violate any
non-appealable final order by any court or governmental body having competent jurisdiction.
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(b) Buyer or Seller, if after the date hereof, any legislation which would have the effect of
prohibiting or making unlawful the acquisition or ownership of the Assets by Buyer or the
conveyance or sale of the Assets by Seller, has been enacted into law.
(c) Buyer or Seller, if any of the representations or warranties of the other party contained
in Article II above are not materially true and correct on and as of the Closing Date or if a
material obligation under this Agreement of the other party has not been met.
(d) In the event of the termination of this Agreement pursuant to the provisions of paragraphs
(a), (b) or (c) of this Article or Section 5.2 (a) (iv), this Agreement shall become void and have
no effect, without any liability on the part of any party or any of its affiliates or its or their
directors, officers, employees or stockholders, except as provided below in this subparagraph (d).
In the event Closing does not occur because of the occurrence of an event as referenced in
paragraphs (a), (b) or (c) of this Article or Section 5.2 (a) (iv), Buyer and Seller shall take
mutually agreed upon actions to place Seller and Buyer in the substantially the same position as
they would have been had they not executed this Agreement and Seller shall return the Performance
Guarantee Deposit to Buyer (without interest), unless this Agreement has been terminated by Seller
because Buyer’s representations or warranties are not materially true and correct on and as of the
Closing Date, in which event Seller shall retain the Performance Guarantee Deposit as liquidated
damages and not as a penalty. IN NO EVENT SHALL SELLER BE LIABLE TO BUYER FOR ANY FEES, COSTS OR
EXPENSES INCURRED BY BUYER UNDER OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING BY WAY OF
ILLUSTRATION AND NOT LIMITATION, FEES, COSTS OR EXPENSES FOR INSPECTIONS, ENVIRONMENTAL REVIEWS OR
REPORTS, LAWYERS, EXPERTS OR CONSULTANTS HIRED BY BUYER, BROKER’S FEES, OR ANY INTERNAL OR EXTERNAL
COPYING OR ADMINISTRATIVE SUPPORT.
(e) If Closing has not occurred by December 15, 2005 (and the Buyer’s conditions to Closing
have been satisfied), due to Buyer’s actions or inactions (including Buyer’s failure to perform
pursuant to Section 11.2 above) or should Buyer default under this Agreement in any material way,
including, but not limited to, Buyer’s absence at the designated time for Closing, unless this
Agreement has been terminated under (a)-(d),above or Section 5.2 (a) (iv), Seller shall have the
right to terminate this Agreement and retain the Performance Guarantee Deposit set forth in Section
1.3 above including any accrued interest, as liquidated damages. Furthermore, Seller shall be free
immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or
otherwise dispose of the Assets to any party without any restriction under this Agreement and Buyer
shall be liable for all damages if it attempts to interfere in any way with such enjoyment or
action by Seller.
ARTICLE XIII
CONTINUING OBLIGATIONS
13.1 Post-Closing Settlement. Within one hundred twenty (120) days after the Closing,
a final settlement statement shall be prepared by Seller and submitted to Buyer showing income and
expenses for the Assets between the Effective Date and Closing Date and other charges and credits
provided in this Agreement and the adjustments to the Purchase Price provided for in this
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Agreement. However, neither party to this Agreement shall be absolved from liability should such
accounting and adjustment not be completed within said one hundred twenty (120) day period.
(a) Seller shall be credited with:
(i) The value of all merchantable oil above the pipeline connections in tanks at the Effective
Date based on either the operator’s gauge report, if available, or regulatory reports furnished by
the operator that is credited to Seller’s net revenue interest in the Assets, such value to be
based on the net contract price in effect as of the Effective Date (or the market value at the
wellhead, if there is no contract price in effect as of such time), less any taxes withheld
properly by the purchaser of such.
(ii) The amount of all costs and expenses paid or incurred by Seller, including, without
limitation, royalties, rentals and other charges, ad valorem, windfall profit, and other taxes
based upon or measured by the ownership of property or the production of hydrocarbons or the
receipt of proceeds therefrom, expenses paid or incurred under applicable operating agreements and,
in the absence of an operating agreement, expenses of the sort customarily billed under such
agreements, not including income taxes paid by Seller, in connection with the operation of the
Assets subsequent to the Effective Date.
(iii) An amount equal to all prepaid expenses (other than insurance) attributable to the
Assets that are paid or incurred by or on behalf of Seller prior to the Closing Date and that are,
in accordance with generally accepted accounting principles, attributable to the period after the
Effective Date, including, without limitation, prepaid ad valorem, property, production, severance,
and similar taxes (but not including income taxes) based upon or measured by the ownership of
property or the production of hydrocarbons or the receipt of proceeds therefrom. Any refund of
windfall profit tax or ad valorem tax attributable to the period before the Effective Date received
by Buyer shall be credited to Seller.
(iv) The amount of any advances paid by Seller to, and held by, the operator of any property
(exclusive of Seller) as a working fund pursuant to the applicable joint operating agreements.
(v) Any increases in the Purchase Price provided for in this Agreement.
(b) Buyer shall be credited with:
(i) Proceeds received by Seller that are, in accordance with generally accepted accounting
principles, attributable to the Assets for the period of time after the Effective Date.
(ii) The amount of all costs and expenses paid by Buyer, including, without limitation,
royalties, rentals and other charges, ad valorem, property, production, excise, severance, windfall
profit, and other taxes based upon or measured by the ownership of property or the production of
hydrocarbons or the receipt of proceeds therefrom, expenses paid under applicable operating
agreements and, in the absence of an operating agreement, expenses of the sort
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customarily billed under such agreements, not including income taxes paid by Buyer, in connection
with the operation of the Assets prior to the Effective Date.
(iii) Any unpaid amount attributable to any reduction under Section 7.4 for a Casualty Loss
which occurs subsequent to the Effective Date and prior to the Closing Date.
(iv) At Seller’s option, all amounts held in suspense. Buyer agrees to indemnify, defend and
hold Seller harmless from, and assume full responsibility for, the proper distribution of all
suspense amounts delivered to Buyer by Seller.
(v) The amount of any advances paid to Seller as Operator and held by Seller as Operator as a
working fund pursuant to the applicable joint operating agreements.
(vi) Any reductions in the Purchase Price provided for in this Agreement.
(c) In addition to the matters mentioned above, the final settlement statement shall include
any other debits and credits, either cash or accrued, but excluding income and franchise taxes,
which under generally accepted accounting principles would be attributable to the transfer of
ownership of the Assets on the Effective Date.
(d) In addition to the above, an appropriate adjustment for differences in gas imbalances as
described in Section 13.3(d).
(e) Buyer shall have the right for a period of sixty (60) days from the date of the final
settlement statement in which to audit the matters covered thereby and respond with objections and
proposed corrections to the final settlement statement.
(f) Within thirty (30) days after Seller’s receipt of Buyer’s modifications to the final
settlement statement, Seller and Buyer may undertake to agree with respect to the adjustments or
payments and the amount due from Buyer or Seller, as the case may be, shall be submitted to the
other party. The final settlement statement shall be deemed conclusive and not subject to further
audit by either party.
(g) In the event Buyer and Seller are unable to mutually agree upon the amount of the
settlement statement, the dispute shall be resolved pursuant to Article VIII above.
13.2 Further Assurances. After Closing, the parties agree to execute and deliver to
each other all such instruments, notices, division or transfer orders, and other documents, and to
do all such other acts not inconsistent with this Agreement as may reasonably be necessary or
advisable to carry out their obligations under this Agreement.
13.3 Gas Imbalance. Seller and Buyer acknowledge and agree to the following regarding
possible gas imbalances on any of the Assets transferred by this Agreement:
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(a) Gas Balance Status: Schedule 13.3(a) sets forth any gas imbalances pertaining to the
Assets. Such Schedule may be revised by either party prior to the parties’ agreement on the final
settlement amount.
(b) Gas Underproduction: In the event Seller is under-produced as to any well(s) located on
the Assets, Buyer agrees not to hold Seller liable for such underproduction. Seller, however,
agrees to assign to Buyer all of its rights to make up such underproduction.
(c) Gas Overproduction: In the event Seller is overproduced as to any well(s) located on the
Assets, Buyer acknowledges and agrees that its share of gas from any such overproduced well(s) on
the Assets may at some point be curtailed by underproduced working interest owners. Seller shall
not be liable to Buyer in the event such curtailment occurs.
(d) Seller and Buyer agree the value associated with the imbalances shown on Schedule 13.3(a)
shall be based on a price that is equal to the closing Houston Ship Channel price as reported in
Inside FERC Gas Daily as of the day before the Closing and shall be treated as a credit to Buyer or
Seller as applicable on the final closing statement.. Buyer shall take the Assets subject to and
be responsible and liable for all rights and obligations associated with any imbalances from and
after the Effective Date.
(e) The provisions of this Section shall survive Closing.
13.4 Recording. Buyer shall, at its own cost, immediately record the Assignment(s)
and Xxxx of Sale in the appropriate office of the state and county in which the lands covered by
the Assignment(s) are located. Buyer shall immediately file for and obtain the approval of any
federal, Indian tribal or state government agencies to the assignment of the Assets. The
assignment(s) of any state, federal or Indian tribal oil and gas leases shall be filed immediately
in the appropriate governmental offices on a form required and in compliance with the applicable
rules of the applicable government agencies. Buyer shall supply Seller with a true and accurate
photocopy of all the recorded and filed assignments within a reasonable period of time after their
recording and filing. Documentary tax stamps, if applicable, shall be the responsibility of
Seller.
13.5 Confidentiality. In the event of the termination of this Agreement, Seller and
Buyer shall, to the extent permitted by law, keep confidential and not use any confidential
information obtained pursuant to this Agreement, unless such information is readily ascertainable
from public or published information or trade sources or is received by Buyer from a third party
having no obligation of confidentiality with respect to such information. Notwithstanding the
above, Seller shall not be precluded from informing its employees of such details of the
transaction as Seller deems necessary.
13.6 Publicity. For a period of one (1) month from and after the Closing Date, Buyer
and Seller shall consult with the other party with regard to all publicity and other releases
concerning this Agreement and the transactions contemplated hereby and, except as required by
applicable law or the applicable rules or regulations of any governmental body or stock exchange,
neither Buyer nor Seller shall issue any publicity or other release without submitting such
publicity or other release to the other party at least twenty-four (24) hours prior to publication.
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13.7 Preservation of Books and Records. For a period of seven (7) years following the
Closing Date, Buyer shall make reasonable commercial efforts to retain the original books, records
and files relating to the Assets and shall make such books, records and files available to the
Seller, upon reasonable notice, for review and copying at Seller’s expense at Buyer’s headquarters
at reasonable times and during regular office hours. Buyer acknowledges that Seller may need to
review and copy such books, records and files in connection with litigation or other business
purposes. However, Seller acknowledges that Buyer shall have no obligation to retain such books,
records and files after its sale of the Assets.
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ARTICLE XIV
MISCELLANEOUS
14.1 Use of Seller’s Name. As soon as practicable after Closing in order to be in
compliance with all applicable laws and regulations, Buyer shall remove or cause to be removed the
names and marks used by Seller and all variations and derivations thereof and logos relating
thereto from the Assets and shall not thereafter make any use whatsoever of those names, marks and
logos.
14.2 Survival. Except as otherwise expressly provided herein, except for obligations
which by their terms are to be performed after Closing, and except for the representations and
warranties contained in this Agreement which shall survive the Closing for eighteen months (18),
the provisions of this Agreement shall terminate at Closing.
14.3 Integrations; Amendment and Modification. Except as expressly set forth
herein, none of the parties makes to the other any representation, whether expressed or implied, of
any kind whatsoever. This Agreement may not be modified, supplemented or changed in any respect
except by a writing duly executed by Seller and Buyer.
14.4 Descriptive Headings. The headings of the paragraphs and subparagraphs of this
Agreement are inserted for convenience only and shall not constitute a part hereof.
14.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF TEXAS EXCEPT FOR MATTERS RELATING TO TITLE TO PROPERTY, WHICH SHALL BE CONSTRUED
IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE JURISDICTION IN WHICH SUCH PROPERTY IS
LOCATED.
14.6 Binding Effect; Assignment. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by each of the parties, and their successors and permitted
assigns. This Agreement and the rights and obligations hereunder shall not be assigned by Buyer,
in whole or in part, without the prior written consent of Seller. This provision pertains to this
Agreement only and does not require Buyer to obtain the consent of Seller prior to selling all or
any part of the Assets after Closing; however, with respect to surface fee acreage only, once it is
no longer used for oil field operations and a third party offers to purchase such acreage from
Buyer, Seller shall have a preferential right to purchase such acreage under the same terms and
conditions as offered by such third party.
14.7 Notices. All notices, disclosures or other communications which are required or
permitted hereunder shall be in writing and shall be delivered as follows:
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If to Buyer:
Attn: Business Development Department
0000 Xxxxxxxxx 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
0000 Xxxxxxxxx 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Seller:
Xxxx-XxXxx Oil & Gas Onshore LLC
Attn: Manager, Business Development
00000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attn: Manager, Business Development
00000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
14.8 DTPA Waiver. To the extent applicable to the Assets or any portion thereof,
Buyer hereby waives the provisions of the Texas Deceptive Trade Practices Act, Chapter 17,
Subchapter E, Sections 17.41 through 17.63 inclusive (other than Section 17.555 which is not
waived), Tex. Bus. & Com. Code. In order to evidence its ability to grant such waiver, Buyer hereby
expressly recognizes and represents to Seller that Buyer is not in a significantly disparate
bargaining position and (i) Buyer is represented by legal counsel in this transaction or (ii) Buyer
is in the business of seeking or acquiring, by purchase or lease, goods or services for commercial
or business use, has assets of Five Million Dollars or more according to its most recent financial
statement prepared in accordance with generally accepted accounting principles, and has knowledge
and experience in financial and business matters that enable it to evaluate the merits and risks of
the transaction contemplated hereby.
14.9 Employment Matters. Buyer shall have no obligation to hire any employee of
Seller and shall not assume any liability to any employee or former employee of Seller by virtue of
Buyer’s employment of any former employee of Seller. Following the execution of this Agreement and
prior to Closing, if, and as to those employees for whom, approval is granted by Seller, Buyer
shall have the option to interview Seller’s employees and Buyer shall advise Seller prior to
Closing which employees Buyer wishes to hire. Seller shall be solely responsible for any severance
payments in connection with any employee of Seller who may be severed from such employment by
reason of the sale of the Assets.
14.10 Counterparts. This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.
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14.11 Invalid Provisions. Should any of the provisions of this Agreement, or portions
thereof, be found to be invalid or unenforceable by any court of competent jurisdiction, the
remainder of this Agreement shall nonetheless remain in full force and effect.
14.12 Complete Agreement. This Agreement together with the Exhibits and Schedules
attached hereto and the agreements and instruments referred to herein and therein set forth the
entire agreement among the parties hereto, and further supersedes any and all prior agreements or
understandings, whether oral or written, among the parties hereto pertaining to the specific
subject matter identified in this Agreement. The provisions hereof are contractual and not mere
recitals. In signing this Agreement, none of the parties has relied upon any statement or
representation which is not expressly contained herein and is not relying upon any oral statement
or representation pertaining to this matter made by any other party or by anyone in privity with or
representing any party. By the signature set forth hereinbelow, the parties to this Agreement
acknowledge that they have read the same, they understand the terms and conditions set forth
herein, and they shall abide by those terms and conditions.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof.
SELLER: | ||||||||
XXXX-XXXXX OIL & GAS ONSHORE LP | ||||||||
D/B/A KMOG ONSHORE LP | ||||||||
By: | XXXX-XXXXX OIL & GAS ONSHORE LP, | |||||||
Its General Partner | ||||||||
By: | /s/ Xxxxx X. Xxxxxxxx | |||||||
Name: | Xxxxx X. Xxxxxxxx | |||||||
Title: | Attorney-in-Fact | |||||||
WESTPORT OIL AND GAS COMPANY, L.P. | ||||||||
By: | /s/ Xxxxx X. Xxxxxxxx | |||||||
Name: | Xxxxx X. Xxxxxxxx | |||||||
Title: | Attorney-in-Fact | |||||||
BUYER: | ||||||||
THE HOUSTON EXPLORATION COMPANY | ||||||||
By: | /s/ Xxxx Xxxxxxxx | |||||||
Name: | Xxxx Xxxxxxxx | |||||||
Title: | Senior Vice President, Corporate Development | |||||||
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