<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
OCTOBER 23, 1998
---------------------------
SHERIDAN ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------------
DELAWARE 1-10201 76-0507664
-------- ------- ----------
(STATE OF (COMMISSION (IRS EMPLOYEE
INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
---------------------------
1000 LOUISIANA
SUITE 800
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(713) 651-7899
---------------------------
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS
1. As previously described in the Registrant's Form 10-K for the year
ended December 31, 1997, the Registrant was a party-defendant to the litigation
entitled Tomcat Exploration, Inc. et al. v. Sheridan Energy, Inc. (Cause No. 96-
61561 in the 215th District Court of Harris County, Texas). In such lawsuit,
Plaintiffs complained that the Registrant had negligently or intentionally
allowed certain down hole tubular equipment in a designated well to deteriorate
by failing to perform a proper corrosion control program. After extensive
discovery, on October 23, 1998, the parties entered into a settlement whereby
the Registrant paid $1.5 million in return for a complete release of all claims
of the Plaintiffs regarding the specific well, other wells in the same field,
and the plant where the gas from such wells were being processed.
2. Letter of Intent with Amerada Hess Corporation.
On November 9, 1998, the Registrant entered into a Letter of Intent to form
a joint venture with Amerada Hess Corporation ("AHC") to explore, develop and
produce from certain designated natural gas properties in the state of
California. The joint venture, will also seek to explore, develop and produce
oil and natural gas from other AHC onshore and offshore properties in the United
States. Pursuant to the letter of intent, the parties contemplate executing a
Definitive Joint Venture Agreement on or about December 15, 1998 and
consummating the transaction on or about January 15, 1999.
If the parties are unable to reach definitive documentation for the Joint
Venture Agreement, the Registrant will proceed with the acquisition of AHC's
California properties for $58 million. Such acquisition is subject to due
diligence, other normal conditions of a transaction of this size and type and is
expected to close on or about January 15, 1999.
In connection with the execution of the Letter of Intent, the Registrant
deposited $2.9 million with AHC and is scheduled to deposit an additional $2.9
million on December 4, 1998. If the Registrant elects not to proceed with the
joint venture and/or the acquisition of the California properties before
closing, AHC's sole recourse is to retain the amount then on deposit.
The Registrant anticipates financing the acquisition or its Joint Venture
contributions through additional bank borrowings, cash flow and third party debt
or equity financing.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits
10.1 Letter of Intent between the Registrant and Amerada Hess Corporation
dated November 9, 1998 and Exhibit 1 (Form of Agreement for Purchase and
Sale) - filed herewith.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHERIDAN ENERGY, INC.
(REGISTRANT)
By: /s/ Michael E. Gerlich
-----------------------
Michael E. Gerlich
Chief Financial Officer
DATED: November 24, 1998
3
<PAGE>
November 9, 1998
Sheridan Energy, Inc.
1000 Louisiana, Suite 800
Houston, Texas 77002
Gentlemen:
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Sheridan Energy, Inc. ("Sheridan") and Amerada Hess
Corporation ("AHC") hereby enter into an agreement to jointly (through the LLC,
as defined below) explore, develop and realize production income from certain
oil & gas properties now owned by AHC (i) in onshore California (the "California
Properties") and (ii) in the Gulf of Mexico and other portions of the United
States (collectively the "U.S. Properties"):
1. Sheridan and AHC shall form a Delaware Limited Liability Company
("LLC") with a term (during which neither party shall have the
right to withdraw) of not less than ten (10) years.
2. Upon formation of the LLC, AHC shall contribute the California
Properties and certain of its U.S. Properties to the LLC.
3. Upon formation of the LLC and subsequent to such formation,
Sheridan, or its designated affiliate, shall contribute cash to
the LLC ("Cash Contribution") equal to the Fair Market Value
("FMV") of the California Properties plus 60% of the "IDC Amount".
The "IDC Amount" is equal to 35% of the Intangible Drilling Costs
("IDCs") scheduled to be incurred by the LLC, during 1999 and
2000, to drill those certain test wells and confirmation wells on
the U.S. Properties that will be specified by AHC, with discounts
if appropriate.
4. AHC and Sheridan agree that the LLC shall incur IDCs to test the
U.S. Properties in 1999 equal to or greater than 50% of the Cash
Contribution. AHC and Sheridan further agree that by the end of
the year 2000, the LLC shall incur such IDCs equal to 100% of the
Cash Contribution plus any interest earned on any portion of the
Cash Contribution prior to its expenditure by the LLC.
<PAGE>
Sheridan Energy, Inc.
November 9, 1998
Page 2
5. AHC and Sheridan agree that pending the approval by AHC of AFEs
for drilling on the US Properties, the Cash Contribution shall be
held in escrow by the LLC and invested in an interest bearing
account or securities, with all interest earned on such funds
added to the principal amount of the Cash Contribution at the end
of each calendar quarter. The Cash Contribution, including such
earned interest, shall be used by the LLC to fund IDCs as provided
in Item 4 above.
6. AHC and Sheridan agree that the FMV of the California Properties
is $58,000,000 as of November 1, 1998 and agree that the FMV of
the U.S. Properties shall be agreed to by AHC and Sheridan on or
before the contribution of those properties to the LLC by AHC.
7. If the parties fail to enter into a mutually acceptable LLC
agreement for exploration, development and production activities
on the California Properties and the U.S. Properties by December
15, 1998, the parties agree that they shall enter into that
certain Agreement for Purchase and Sale attached hereto as
Exhibit 1.
Beginning on November 19, 1998, AHC shall permit Sheridan and its
representatives at reasonable times during normal business hours to examine, in
AHC's offices, all abstracts of title, title opinions, title files, ownership
maps, lease files, assignments, division orders, check vouchers, payout
statements and agreements pertaining to the California Properties insofar as the
same may now be in existence and in the possession of AHC. AHC shall also make
available to Sheridan for inspection by Sheridan at reasonable times during
normal business hours at their actual location, all accounting, revenue,
marketing, transportation, processing, environmental, geological, geophysical,
production and engineering books, records and data in possession of AHC
pertaining to the California Properties, except such records or data which AHC
is prevented by contractual obligations with third parties from disclosing;
provided that in the event AHC is prohibited from making files or records
available because of provisions of third party agreements, then AHC shall inform
Sheridan of the existence of such records, the parties thereto and the subject
matter of such records. All such information made available to Sheridan shall be
maintained confidential by Sheridan as provided in that certain Confidentiality
Agreement dated September 16, 1998, between AHC and Sheridan, the terms of which
are incorporated herein by reference and made a part of this Agreement.
To secure Sheridan's obligations under this letter agreement, Sheridan
shall pay, and AHC shall hold in trust, a cash amount of $5,800,000, one-half to
be paid upon execution hereof and one-half to be paid on December 7, 1998. Upon
the formation of the LLC, said payment plus interest on that payment shall be
contributed into the LLC on Sheridan's behalf as a credit against Sheridan's
agreed contribution to the LLC under the LLC Agreement, or, if the parties fail
to form the LLC as provided hereinabove, shall be released from the trust
account and shall be held directly by AHC as the deposit required under the
above-referenced Agreement for
<PAGE>
Sheridan Energy, Inc.
November 9, 1998
Page 3
Purchase and Sale, to be applied as specified therein. If this letter agreement
is terminated or the transaction contemplated hereby otherwise fails to close
due solely to the breach of this letter agreement by Sheridan, occurring in the
absence of any breach hereof by AHC, then, as AHC's sole and exclusive remedy
for such breach or termination, (i) AHC shall retain only the first half of the
$5,800,000 if such breach or termination occurs before payment of the second
half of said amount, and (ii) AHC shall retain the entire $5,800,000 if such
breach or termination occurs after payment of the second half of said amount to
AHC. All other remedies are expressly waived and released by AHC. If this letter
agreement is terminated or the transaction contemplated hereby fails to close
for any other reason, the entire amount held by AHC shall be returned to
Sheridan. SHERIDAN AND AHC ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO AHC
OCCASIONED BY ANY BREACH OR DEFAULT BY SHERIDIAN WOULD BE IMPOSSIBLE OR
EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNTS SET FORTH ABOVE ARE A FAIR
AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES.
The parties agree that until such time as the parties have executed the LLC
Agreement or the Agreement for Purchase and Sale, there shall be no public
announcements or statements with respect to the proposed transaction without the
consent of both parties.
If the foregoing terms are acceptable to Sheridan, please execute one copy
of this letter in the space provided below, whereupon this will be an agreement
binding upon the parties hereto, their successors and assigns.
Sincerely,
AMERADA HESS CORPORATION
By:
------------------------------
D. G. Stevenson
Accepted and Agreed to this
9th day of November, 1998
SHERIDAN ENERGY, INC.
By:
---------------------------
<PAGE>
EXHIBIT 1
TO THAT CERTAIN LETTER AGREEMENT BETWEEN SHERIDAN ENERGY, INC. AND
AMERADA HESS CORPORATION DATED NOVEMBER 9, 1998
AGREEMENT FOR PURCHASE AND SALE
DATED AS OF _________________, 1998
BY AND BETWEEN
AMERADA HESS CORPORATION
AS SELLER
AND
SHERIDAN ENERGY, INC.
AS BUYER
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
ARTICLE I......................................................................1
DEFINITIONS
ARTICLE II.....................................................................8
SALE AND PURCHASE
ARTICLE III....................................................................8
PURCHASE PRICE AND PAYMENT
ARTICLE IV....................................................................11
SELLER'S REPRESENTATIONS
ARTICLE IV....................................................................14
SELLER'S REPRESENTATIONS
ARTICLE VI....................................................................15
ACCESS TO INFORMATION AND INSPECTION
ARTICLE VII...................................................................16
TITLE
ARTICLE VIII..................................................................18
PREFERENTIAL PURCHASE RIGHTS AND CONSENTS
ARTICLE IX....................................................................19
COVENANTS OF SELLER
ARTICLE X.....................................................................21
CLOSING CONDITIONS
ARTICLE XI....................................................................23
CLOSING
-i-
<PAGE>
ARTICLE XII...................................................................24
EFFECT OF CLOSING
ARTICLE XIII..................................................................26
SETTLEMENT OF PRORATIONS
ARTICLE XIV...................................................................27
ENVIRONMENTAL
ARTICLE XV....................................................................28
CASUALTY LOSS AND CONDEMNATION
ARTICLE XVI...................................................................29
DEFAULT AND REMEDIES
ARTICLE XVII..................................................................30
ARBITRATION
ARTICLE XVIII.................................................................31
MISCELLANEOUS
-ii-
<PAGE>
EXHIBITS
- --------
A - Subject Interests
B - Purchase Price Allocation
C - Preferential Rights and Consents
D - Production Payments and Certain Agreements
E - Litigation and Other Liabilities
F - Assignment, Bill of Sale and Conveyance
G - Advance Payments and Prepayments
H - Overproduction and Underproduction
I - Excluded Assets
J - Oil and Gas Purchase and Processing Agreement
K - Other Material Agreements
L - Tax Liens
M - Environmental Testing and Confidentiality Agreement
-iii-
<PAGE>
AGREEMENT FOR PURCHASE AND SALE
THIS AGREEMENT dated as of the _____ day of ___________, 1998, between
Amerada Hess Corporation, a Delaware corporation (hereinafter referred to as
"Seller"), and Sheridan Energy, Inc., a Delaware corporation (herein referred to
as "Buyer").
WITNESSETH:
WHEREAS, Seller owns certain oil and gas leasehold interests and related
equipment situated in the State of California; and
WHEREAS, Seller desires to sell and Buyer desires to acquire these
interests and related assets on the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
The following terms, as used herein, shall have the following meanings:
1.1 "Agreement" shall mean this Agreement for Purchase and Sale between
Seller and Buyer.
1.2 "Assets" shall mean the following described assets and properties
(except to the extent constituting Excluded Assets):
(a) the Subject Interests;
(b) the Lands;
(c) the Incidental Rights;
(d) the Claims;
(e) the Royalty Accounts; and
(f) all Hydrocarbons produced from or attributable to the Subject
Interests with respect to all periods subsequent to the Effective Time, together
with all proceeds from or of such Hydrocarbons.
1.3 "Assumed Obligations" shall mean (i) all liabilities and obligations
of Seller with respect to the Claims and all liabilities and obligations arising
after Closing from disbursement
-1-
<PAGE>
of the Royalty Accounts, (ii) all liabilities and obligations of Seller arising
or accruing under or with respect to the Assets to the extent attributable to
time periods from and after the Effective Time, including, without limitation,
those arising under any applicable Environmental Law, (iii) all liabilities and
obligations of Seller, whether accrued or not, with respect to plugging and
abandoning any wells, removing equipment and facilities and restoring the
surface (but not including operations required under any Environmental Law
attributable to time periods before the Effective Time) relating to operations
pertaining to the Assets, (iv) all liabilities and obligations of Seller with
respect to the matters disclosed in Exhibits "D", "F", "G", "J" and "K" attached
hereto to the extent attributable to time periods from and after the Effective
Time, (v) pro-rata share of Property Taxes (based on the Effective Time) with
respect to the Assets for the Tax Period in which Closing occurs and all
Transfer Taxes, (vi) all liabilities and obligations of Seller arising or
accruing under or with respect to the Oil and Gas Purchase and Processing
Agreements attributable to time periods from and after the Effective Time, (vii)
all liabilities and obligations under the Basic Documents attributable to time
periods from and after the Effective Time except to the extent that a particular
obligation is otherwise expressly retained by Seller hereunder, and (viii) all
other liabilities and obligations otherwise expressly assumed by Buyer under
this Agreement.
1.4 "Basic Documents" shall mean all contracts, agreements, and other
legally binding rights and obligations to which the Assets may be subject, or
that may relate to the Assets including, without limitation, leases, assignments
in the chain of title, overriding royalty assignments, farmout and farmin
agreements, option agreements, pooling and unitization agreements, operating
agreements, production sales and marketing agreements, processing agreements,
transportation agreements, production purchasing agreements, permits, licenses
and orders.
1.5 "Buyer's Credits" shall be as defined in Section 3.2.
1.6 "Claims" shall mean (i) all claims of Seller against gas purchasers
for "take or pay" obligations with respect to the Assets to the extent such
claims accrue at or after the Effective Time (but not for obligations accruing
prior thereto) and (ii) all obligations and benefits with respect to gas
production, pipeline, transportation or processing imbalances which are to be
assumed or received by Buyer pursuant to this Agreement.
1.7 "Closing" shall be as defined in Section 11.1.
1.8 "Closing Date" shall be as defined in Section 11.1.
1.9 "Defensible Title" shall mean such title to a Subject Interest that,
subject to and except for Permitted Encumbrances, (a) entitles Seller and Buyer,
at Closing and for the production life of the respective unit or well, to own
and receive not less than the net revenue interest of Seller for the well or
unit as set forth in Exhibit "A" of all Hydrocarbons produced, saved and
marketed from or attributable to such well or unit and (b) obligates Seller and
Buyer, at Closing and for the productive life of the respective unit or well, to
bear the costs and expenses relating to the maintenance, development and
operation of such well or unit in an amount not
-2-
<PAGE>
greater than the working interest of Seller for such well or unit as set forth
in Exhibit "A", unless Seller's net revenue interest therein is proportionately
increased, it being understood that the existence of Permitted Encumbrances
affecting any property shall not form the basis for a claim that Seller does not
have Defensible Title to such property.
1.10 "Deposit" shall be as defined in Section 3.1.
1.11 "Environmental Defect" means any event or condition with respect to
air, land, soil, surface, subsurface strata, surface water, ground water, or
sediment which causes a property to become subject to required remediation
under, or not be in compliance with, any Environmental Law.
1.12 "Environmental Laws" shall mean any and all federal, state and local
laws including statutes, regulations, orders, ordinances, judgments, rulings and
common law, relating to hazardous substances, pollution, naturally occurring
radioactive materials or protection of the environment, including laws relating
to actual or threatened emissions, discharges, or releases of pollutants,
contaminants or hazardous substances, or other toxic materials or wastes into
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants of hazardous substances, or
other toxic materials or wastes and specifically including, without limitation,
The Comprehensive Environmental Response, Compensation And Liability Act Of
1980, as amended (42 U.S.C. (S)(S)9601 et. seq.), The Resource Conservation And
Recovery Act Of 1976 (42 U.S.C. (S)6901 et. seq.), The Clean Water Act (33
U.S.C. (S)(S)466 et. seq.), The Safe Drinking Water Act (14 U.S.C. (S)(S)1401-
1450), The Hazardous Materials Transportation Act (49 U.S.C. (S)(S)1801 et.
seq.), The Toxic Substance Control Act (15 U.S.C. (S)(S)2601-2629), The Clean
Air Act (42 U.S.C. (S)7401 et. seq.) as amended, The Clean Air Act Amendments of
1990 and all state and local laws, and any replacement or successor legislation
or regulation thereto.
1.13 "Effective Time" shall mean 7:00 a.m., Pacific Standard Time on
November 1, 1998.
1.14 "Excluded Assets" shall mean the following:
(a) all rights, interests, assets and properties of Seller which are
expressly excluded from this sale under other provisions of this Agreement or
which are set forth in Exhibit "I";
(b) (i) except as provided in Article XV and except to the extent
constituting or attributable to Claims, all trade credits, accounts receivable,
notes receivable and other receivables attributable to Seller's interest in the
Assets with respect to any period of time prior to the Effective Time, and (ii)
except to the extent constituting the Royalty Accounts, all deposits, cash,
checks in process of collection, cash equivalents and funds attributable to
Seller's interest in the Assets with respect to any period of time prior to the
Effective Time;
-3-
<PAGE>
(c) all corporate, financial, tax and legal (other than title) records
of Seller; however, Buyer shall be entitled to receive copies of any financial,
tax (subject to Section 12.2(d) of this Agreement) or legal records which
directly relate to the Subject Interests; provided, however, that Buyer's said
entitlement shall not extend to any records whose disclosure would constitute a
breach of privilege or confidentiality under any agreement or create a claim
against Seller under federal or state laws;
(d) except to the extent constituting Claims and except as otherwise
provided in this Agreement, all claims and causes of action of Seller (i)
arising from acts, omissions or events, or damage to or destruction of property,
occurring prior to the Effective Time, or (ii) with respect to any of the
Excluded Assets;
(e) except as otherwise provided in clause (vi) of the definition of
Incidental Rights or in Article XV hereof, all rights, titles, claims and
interests of Seller (i) under any policy or agreement of insurance or indemnity,
(ii) under any bond or (iii) to any insurance or condemnation proceeds or
awards;
(f) all (i) Hydrocarbons produced from or attributable to the Assets
with respect to all periods prior to the Effective Time, together with all
proceeds from or of such Hydrocarbons, and (ii) Hydrocarbons which, at the
Effective Time, are owned by Seller or to which Seller has title and which are
in storage, within processing plants, or in pipelines;
(g) Seller's share of any and all claims, as well as Seller's claims,
for refund of or loss carry forwards with respect to (i) federal, state and
local, sales and use, ad valorem, property, excise, production, severance, gross
receipts, payroll, withholding or other taxes attributable to any period prior
to the Effective Time; (ii) federal, state and local income or franchise taxes;
or (iii) any taxes attributable to the Excluded Assets;
(h) all amounts due or payable to Seller as adjustments or refunds
under any audit pertaining to periods prior to the Effective Time;
(i) all amounts due or payable to Seller as adjustments or refunds
under any contracts or agreements respecting periods prior to the Effective
Time, other than Claims;
(j) all amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets with respect to any period prior to the Effective
Time;
(k) except to the extent included in the Claims, all proceeds,
benefits, income or revenues accruing (and any security or other deposits made)
with respect to (i) the Assets prior to the Effective Time or (ii) any Excluded
Assets;
(l) any logo, service mark, copyright, trade name or trademark
associated with Seller or any business of Seller;
-4-
<PAGE>
(m) all files, information and data expressly excluded from the
definition of Incidental Rights; and
(n) the rights to use the surface and subsurface of any of the Lands
for access to those leases and contractual rights or portions of leases and
contractual rights which are expressly excluded from Exhibit "A" or to other
properties of Seller, including, without limitation, the right to construct,
maintain, repair, replace, remove, use and operate drilling rigs and facilities,
production platforms and production facilities, roads, pipe lines, tank
batteries and other facilities for exploration, drilling, operating, producing,
treating, transporting and removing oil and gas, and the rights to drill through
depths and formations included within the Assets and to install, maintain,
repair, replace, remove, use and operate therein production facilities in
connection with drilling and exploration operations, reworking operations, and
production operations (including, without limitation, recycling, water flooding
or other pressure maintenance operations) relating to oil and gas in those
depths; provided, that the exercise of such rights will not materially interfere
with Buyer's operation of or the ownership, use or value of the Assets. To the
extent Seller uses such surface, Seller agrees that it will equitably share the
expenses directly related to such use.
1.15 "GAAP" shall mean generally accepted accounting principles,
consistently applied.
1.16 "Hart-Scott-Rodino Act" shall be as defined in Section 18.2.
1.17 "Hydrocarbons" shall mean crude oil, natural gas, casinghead
gas, condensate, sulphur, natural gas liquids and other liquid or gaseous
hydrocarbons (including CO2), and shall also refer to all other minerals of
every kind and character which may be covered by or included in the Subject
Interests.
1.18 "Incidental Rights" shall mean all right, title and interest of
Seller in and to or derived from the following insofar as the same directly
relate to the Subject Interests: (i) all unitization, communitization and
pooling designations, declarations, agreements and orders covering Hydrocarbons
in or under the Lands or any portion thereof and the units and pooled or
communitized areas created thereby; (ii) all easements, rights-of-way, surface
leases, permits, licenses, servitudes or other interests; (iii) all wells
(including abandoned wells), equipment and other personal property, fixtures and
improvements situated upon the Lands or used or held for use in connection with
the exploration, development or operation of the Subject Interests or Lands or
the production, treatment, storage, compression, processing or transportation of
Hydrocarbons from or in the Subject Interests or Lands; (iv) all Hydrocarbon
sales, purchase, exchange and processing contracts and agreements, farmout or
farmin agreements, joint operating agreements and all other contracts and
agreements insofar as the same affect or relate to the Subject Interests or
Lands or any part thereof; (v) all lease files, land files, well files, gas and
oil sales contract files, gas processing files, division order files, abstracts,
title opinions, and all other books, files and records, information and data
(including copies of engineering, geological and geophysical data to the extent
same may be transferred, but subject in all events to any and all consents
concerning ownership and transfer), and all rights thereto, of Seller insofar
-5-
<PAGE>
as the same are directly related to and useful for the realization of value by
Buyer of any of the Subject Interests or Lands and to the extent the transfer
thereof is not prohibited by existing contractual obligations with third
parties; and (vi) to the extent transferable and subject to Article XV hereof,
all interest of Seller in and to all claims and causes of action which Seller
may have against insurance companies and others by reason of injury or damage to
or destruction or loss of all or any part of the Assets by reason of events
occurring subsequent to the Effective Time.
1.19 "Lands" shall mean, except to the extent constituting Excluded Assets,
each and every kind and character of right, title, claim or interest which
Seller has in and to the lands covered by the Subject Interests.
1.20 "Oil and Gas Purchase and Processing Agreements" shall mean all
existing contracts and agreements set forth on Exhibit "J".
1.21 "Permitted Encumbrances" shall mean any of the following matters:
(a) the terms, conditions, restrictions, exceptions, reservations,
limitations and other matters contained in the agreements, instruments and
documents which create or reserve to Seller its interests in any of the Assets
provided they do not operate to reduce the net revenue interest, nor increase
the working interest, unless Seller's net revenue interest therein is
proportionately increased, of Seller in the Subject Interests as reflected in
Exhibit "A" hereto;
(b) any (i) undetermined or inchoate liens or charges constituting or
securing the payment of expenses which were incurred incidental to maintenance,
development, production, or operation of the Assets or for the purpose of
developing, producing or processing Hydrocarbons therefrom or therein and (ii)
materialman's, mechanics', repairman's, employees', contractors', operators' or
other similar liens or charges for liquidated amounts arising in the ordinary
course of business (x) which are not yet due and payable, (y) for which Seller
is responsible for paying or releasing at Closing or (z) for which Buyer has
agreed to assume or pay pursuant to the terms hereof;
(c) any liens for taxes, tax assessments not yet delinquent, or tax
assessments that are being contested in good faith and disclosed on Exhibit "L",
and other assessments not yet delinquent, or if delinquent, that are being
contested in good faith and disclosed on Exhibit "L";
(d) any liens or security interests created by law or reserved in oil
and gas leases for royalty, bonus or rental or for compliance with the terms of
the Subject Interests;
(e) any obligations or duties affecting the Assets to any municipality
or public authority with respect to any franchise, grant, license or permit, and
all applicable laws, rules and orders of governmental authority;
(f) any (i) easements, rights-of-way, servitudes, permits, surface
leases and other rights in respect of surface operations, pipelines, grazing,
hunting, fishing, logging, canals, ditches, reservoirs, or the like, or (ii)
easements for streets, alleys, highways, pipelines, telephone
-6-
<PAGE>
lines, power lines, railways and other similar rights-of-way, on, over, or in
respect of property owned or leased by Seller or over which Seller owns rights-
of-way, easements, permits, or licenses, to the extent such matters,
individually or in the aggregate, do not interfere materially with oil and gas
operations currently conducted on the Subject Interests or the ownership, use or
value thereof;
(g) all lessors' royalties, overriding royalties, net profits
interests, carried interests, reversionary interests and other burdens to the
extent that the net cumulative effect of such burdens does not operate to reduce
the net revenue interest of Seller in any of the Subject Interests to below the
applicable net revenue interest set forth in Exhibit "A" hereto or require the
payment of expenses in an amount greater than the working interest shown on
Exhibit "A" (unless Seller's net revenue interest is increased proportionately);
(h) preferential rights to purchase and required third party consents
to assignments and similar agreements with respect to which waivers or consents
are obtained prior to Closing from the appropriate parties with respect to the
sale contemplated hereunder or the appropriate time period for asserting such
rights has expired prior to Closing without an exercise of such rights with
respect to such sale;
(i) all rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the sale or conveyance
of oil and gas leases or interests therein if the same are customarily obtained
contemporaneously with or subsequent to such sale or conveyance;
(j) any encumbrance, title defect or matter (whether or not
constituting a Title Defect) waived or deemed waived by Buyer pursuant to
Article VII hereof;
(k) the Oil and Gas Purchase and Processing Agreements.
1.22 "Property Taxes" shall be as defined in Section 12.2.
1.23 "Purchase Price" shall be as defined in Section 3.1.
1.24 "Retained Obligations" shall mean (i) all liabilities and obligations
arising prior to Closing from disbursement of the Royalty Accounts, (ii) all
liabilities and obligations of Seller arising or accruing under or with respect
to the Assets to the extent attributable to time periods prior to the Effective
Time, including, without limitation, those arising under any applicable
Environmental Law, (iii) all liabilities and obligations of Seller arising or
accruing with respect to the ownership, use or operation of the Assets for
periods prior to the Effective Time, (iv) all liabilities and obligations of
Seller with respect to the matters disclosed in Exhibits "D", "E", "G", "J" and
"K" attached hereto to the extent attributable to time periods prior to the
Effective Time, (v) pro-rata share of Property Taxes (based on the Effective
Time) with respect to the Assets for the Tax Period in which Closing occurs,
(vi) all liabilities and obligations of Seller arising or accruing under or with
respect to the Oil and Gas Purchase and Processing Agreements attributable to
time periods prior to the Effective Time, (vii) all liabilities and obligations
under
-7-
<PAGE>
the Basic Documents attributable to time periods prior to the Effective Time,
and (viii) all other liabilities and obligations otherwise expressly assumed by
Buyer under this Agreement.
1.25 "Royalty Accounts" shall mean those separately identifiable accounts
of Seller or any third party operator in which Seller or any third party
operator is holding as of the Effective Time monies which (i) are owing to third
party owners of royalty, overriding royalty, working or other interests in
respect of past production of Hydrocarbons attributable to the Assets or (ii)
may be subject to refund by royalty owners or other third parties to purchasers
of past production of Hydrocarbons attributable to the Assets.
1.26 "Seller's Credits" shall be as defined in Section 3.2.
1.27 "Subject Interests" shall mean, except to the extent constituting
Excluded Assets, any and all interests owned by Seller in the State of
California, or which Seller is entitled to receive, in, to or under any and all
oil, gas and/or mineral leases, permits, licenses, concessions, leasehold
estates, fee, royalty, overriding royalty interests and wells to the extent the
beforementioned cover interests located at any place within the State of
California, including, without limitation, those interests described in Exhibit
"A" attached hereto.
1.28 "Tax Period" shall be as defined in Section 12.2.
1.29 "Title Defect" shall be as defined in Section 7.3.
1.30 "Transfer Taxes" shall be as defined in Section 12.2.
ARTICLE II.
SALE AND PURCHASE
-----------------
Subject to the terms and conditions of this Agreement and the Permitted
Encumbrances, Seller agrees to sell and convey to Buyer and Buyer agrees to
purchase and pay for the Assets.
ARTICLE III.
PURCHASE PRICE AND PAYMENT
--------------------------
3.1 Purchase Price. The total consideration for the sale and conveyance of
the Assets to Buyer is Buyer's payment of Fifty-Eight Million Dollars ($U.S.
58,000,000.00) (the "Purchase Price"). The Purchase Price, subject to such
adjustments, if any, as are expressly provided for elsewhere in this Agreement,
shall be paid by Buyer to Seller at Closing by means of a completed Federal
Funds transfer to the account of Chase Manhattan Bank, New York, New York, ABA
No. 021-000-021, Amerada Hess Corporation Account Number 323-019-609. Buyer
shall pay to Seller a deposit in the total amount of $5,800,000 (the "Deposit").
The Deposit shall be paid by Buyer one half on or before the execution hereof,
pursuant to that certain letter agreement dated November 9, 1998 between Buyer
and Seller, and the remaining one half on December 7, 1998.
-8-
<PAGE>
The Deposit will be held by Seller and, upon Closing, the amount thereof
(without interest) shall be credited toward the Purchase Price. In the event
this Agreement is terminated or the transaction contemplated hereby otherwise
fails to close due solely to the breach of this Agreement by Buyer, occurring in
the absence of any breach hereof by Seller, then, as Seller's sole and exclusive
remedy for such breach or termination: (i) Seller shall retain only the first
half of the Deposit if such breach or termination occurs before payment of the
second half of the Deposit; and (ii) Seller shall retain the entire Deposit if
such breach or termination occurs after payment of the second half of the
Deposit. In the event this Agreement is terminated or the transaction
contemplated hereby fails to close for any other reason, the Deposit shall be
returned to Buyer.
3.2 Purchase Price Credits.
(a) With respect to the period commencing at the Effective Time and
ending at 7:00 a.m. (local time for each Asset) on the Closing Date, the parties
shall calculate the revenues from production and other operating sources
(excluding interest income), from or attributable to the Assets for such period
actually received by Seller as of the Closing Date ("Buyer's Credits") and shall
calculate all exploration, production, development, operating, overhead, general
and administrative and other costs paid by Seller with respect to the Assets for
such period charged under applicable operating agreements, or if no operating
agreement is applicable, the amount actually being paid by Seller for such costs
and expenses, but not to exceed the amount due under the most recent COPAS
Accounting Procedure Joint Operations ("Seller's Credits"), excluding interest
expense not paid in connection with matters identified in Exhibit "D" and all
non-cash charges attributable to depletion, depreciation, bad debt losses, lease
abandonment, etc.; provided that with respect to any properties operated by
Seller, the Seller's Credits with respect to the Subject Interests in such
properties shall also include (i) the overhead charges payable to Seller on
account of such Subject Interests under existing operating agreements or (ii) if
no overhead charge is applicable to a Subject Interest under an existing
operating agreement, an overhead charge to such Subject Interest equal to the
Average Producing Well Rates in the area as indicated in the most recent Survey
of Combined Fixed Rate Overhead Charges for Oil and Gas Producers conducted by
Ernst & Young or the prevailing rate in the area if the foregoing survey is not
available. Only items of revenue, cost and expense attributable to the Assets
shall be included in the foregoing calculations. Amounts constituting the
Buyer's Credits shall be retained by Seller. If Seller's Credits exceed Buyer's
Credits, the difference shall be due Seller by Buyer. If Buyer's Credits exceed
Seller's Credits, the difference shall be due Buyer by Seller.
(b) In addition, at Closing, Seller shall, based upon data available
at that time, determine (A) the total amount of overproduction of gas
attributable to Seller's interest (e.g. volumes of gas taken from the wells
comprising a portion of the Subject Interests (the "Wells"), by Seller in excess
of those volumes which Seller's interest would entitle it to receive) and (B)
the total amount of underproduction of gas attributable to Seller's interest
(e.g. volumes of gas not taken from Wells, or on lands unitized therewith, by
Seller despite Seller's interest in and right to receive such volumes). If the
total amount of overproduction (as so determined) exceeds the total amount of
underproduction (as so determined) Buyer shall receive a Buyer's Credit
-9-
<PAGE>
equal to $2.00 per MMBtu times such excess. If the total amount of
underproduction (as so determined) exceeds the total amount of overproduction
(as so determined), Seller shall receive a Seller's Credit equal to $2.00 per
MMBtu times such excess. Regardless of any other provision set forth in this
Agreement, the overproduction set forth on Exhibit "H" with respect to PG&E
shall remain an obligation of Seller's (and thus a Retained Obligation), and no
adjustment shall be made under this Agreement for said overproduction.
(c) Seller and Buyer or representatives of each shall determine the
amount of the Hydrocarbons existing in storage tanks, gathering lines,
pipelines, gasoline plants, and other facilities as of the Effective Date using
the point or points of delivery to Seller's purchasers as a zero reference point
(the "Existing Hydrocarbons"). Seller shall receive a Seller's Credit equal to
the amount of proceeds actually received by Buyer attributable to such Existing
Hydrocarbons.
(d) No later than three (3) days prior to Closing, Seller shall
furnish Buyer with an estimated accounting showing the estimated amount of
Seller's Credits and the estimated amount of Buyer's Credits, subject to being
finally adjusted within one hundred twenty (120) days after the Closing as
hereinafter provided. An estimated credit due Seller shall increase the
Purchase Price paid at Closing by that amount and an estimated credit due Buyer
shall reduce the Purchase Price paid at Closing by that amount. The amount of
the final credit, as adjusted, shall be paid in cash on final adjustment by the
party owing it. If within one hundred twenty (120) days following Closing the
parties are unable to agree as to whether an item of income or expense belongs
in the period before or after the Effective Time, or is properly included in
Seller's Credits or Buyer's Credits, or a dispute exists as to any other matters
related to the existence, propriety or amount of any of such alleged credits,
then such item or matter may be submitted for arbitration pursuant to the
provisions of Article XVII hereof. Final settlement shall be made within
fifteen (15) days following agreement by the Buyer and Seller or final
determination by the arbitrator (which final determination shall be binding upon
Buyer and Seller).
3.3 Purchase Price Allocations.
Seller and Buyer mutually agree to allocate the Purchase Price among
the Assets as set forth in Exhibit "B" attached hereto. Seller and Buyer agree
that said allocation as set forth in Exhibit "B" is the proper allocation of the
Purchase Price in accordance with the fair market value of the Assets, and that
said allocation of the Purchase Price of the Assets as set forth in Exhibit "B"
shall apply for purposes of Sections 755 and 1060 of the Internal Revenue Code
of 1986 (as amended and together with any regulations promulgated thereunder,
the "Code"). Seller and Buyer agree (and each agrees to cause its affiliates)
to report the federal, state and local income and other tax consequences of the
transactions contemplated herein, and in particular to report the information
required under Section 1060(b) of the Code (and any regulations promulgated
thereunder), in a manner consistent with such allocation. Seller and Buyer
further agree (and each agrees to cause its affiliates) to not take any tax
position inconsistent with such allocation in connection with the examination of
any of their tax returns, refund claims or litigation, investigations or other
proceedings involving any of their tax returns. Seller and Buyer each further
agree that they will not take any position inconsistent with this allocation in
-10-
<PAGE>
preparing financial statements, tax returns, reports to shareholders or
government authorities or otherwise.
Buyer and Seller each agree to furnish the other a copy of IRS Form
8594 (Asset Acquisition Statement under Section 1060 of the Code) as filed with
the Internal Revenue Service by such party or any affiliate thereof, pursuant to
Sections 755 and 1060 of the Code, as a result of the consummation of the
transactions contemplated hereby, within thirty (30) days of the filing of such
form with the Internal Revenue Service.
ARTICLE IV.
SELLER'S REPRESENTATIONS
------------------------
4.1 Seller's Representations. Seller represents and warrants to Buyer as
of the date hereof that:
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and Seller is duly
qualified pursuant to any and all applicable laws, statutes and regulations to
own and operate the Assets;
(b) Seller has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement and the other
documents and agreements contemplated hereby, and to perform its obligations
under this Agreement and the other documents and agreements contemplated hereby.
Subject to Sections 8.1, 8.2, 18.1 and 18.2, the consummation of the
transactions contemplated by this Agreement will not violate, nor be in conflict
with, any provision of Seller's charter, by-laws or governing documents or any
material agreement or instrument to which it is a party or by which it is bound,
or any judgment, decree, order, statute, rule or regulation applicable to
Seller;
(c) The execution, delivery and performance of this Agreement and the
transactions contemplated hereunder have been duly and validly authorized by all
requisite corporate action on the part of Seller;
(d) This Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Seller at Closing will
constitute, legal, valid and binding obligations of Seller in accordance with
their respective terms, subject to applicable bankruptcy and other similar laws
of general application with respect to creditors;
(e) There are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by, or to the actual knowledge of the officers of
Seller, threatened against Seller;
(f) No broker or finder has acted for or on behalf of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement, and no broker or finder is
-11-
<PAGE>
entitled to any brokerage or finder's fee or commission in respect thereof based
in any way on agreements, arrangements or understandings made by or on behalf of
Seller;
(g) Except as shown on Exhibit "E" hereto, there is no demand or suit,
action or other proceeding pending in which Seller has been served with process,
or to Seller's knowledge threatened, before any court or governmental agency
which if adversely decided could reasonably be expected to have an adverse
impact on the ability to close the transaction contemplated by this Agreement
or to result in a material impairment or loss of title to any material part of
the Assets taken as a whole or the value thereof taken as a whole or which might
materially hinder or impede the operation of the Assets taken as a whole;
(h) Except as shown on Exhibit "E" and as may be referred to in
Article XIV, Seller, to its knowledge, has not violated, and to Seller's
knowledge there are no alleged violations by Seller of, any applicable rules,
regulations or orders of any governmental agency having jurisdiction over the
Assets which would affect in any material respect the ownership, operation, use
or value of the Assets individually or collectively;
(i) Seller is a United States person within the meaning of Section
7701(a)(30) of the Internal Revenue Code of 1986, as amended;
(j) To the best of Seller's knowledge, Seller is not in and has
received no notice of any default under, and no condition exists that with
notice or lapse of time or both would constitute a default under, any statute,
writ, injunction, order, judgment or decree of any Governmental Authority or any
agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a material adverse effect
on the Assets, their ownership, operation or value;
(k) To the best of Seller's knowledge, all wells located on the Assets
have been drilled and operated, and all products sold in conformity with
applicable Federal, State and local laws or regulatory provisions and Seller has
not been notified of and is not aware of any possible violations thereof which
might reasonably be expected to have a material adverse effect on the Assets.
To the best of its knowledge, Seller has complied in all material respects with
all applicable laws and with all rules, regulations and orders of governmental
agencies while operating the Assets and has obtained all material permits and
governmental licenses and other material authorizations legally required to own
and operate the Assets;
(l) To the best of Seller's knowledge, all ad valorem, property,
production, severance, income, franchise, sales, use or any other type of
assessment or levy ("Taxes") relating to the Assets which are payable by and
billed to Seller through the Effective Time and the Closing have been properly
paid, and there are no tax liens upon, pending against, or, to the knowledge of
Seller, threatened against any Asset sold or to be sold pursuant to this
Agreement, except for those set forth in Exhibit "L";
(m) There has been no material adverse change in: (i) the business or
financial condition of Seller or (ii) the Assets, taken as a whole, and, to
Seller's knowledge, no event has
-12-
<PAGE>
occurred or circumstances arisen which is reasonably expected to give rise to
such a change. There is no fact known to Seller that has specific application to
Seller or the Assets (other than general economic or industry conditions) which
could have a material adverse effect on the Assets, their ownership, value or
operation after the Effective Time that has not been set forth in this
Agreement;
(n) Except for those obligations set forth in Exhibit "G", there are
no obligations or liabilities under outstanding authorities for expenditure or
similar authorization to pay costs or expenses for drilling, completing,
equipping, deepening, side tracking, reworking, plugging and abandonment or
other material costs or expenses with respect to the ownership of the Assets,
nor are there any obligations or commitments presently existing under which
Seller's interest in the Assets will be altered due to the passage of time, the
collection of a specified sum of money (including, for example, non-consent
operations or back-in obligations) or other reason, except for those interests
in the Assets specifically identified on Exhibit "A" as being "BPO" and "APO"
and those obligations under AHC Agreement Nos. 5884, 6671, 6696, 6710, 6741 and
6742 as identified on Exhibit "K";
(o) To the best of Seller's knowledge, the condition, use and
operation of the Assets complies with all Environmental Laws in all material
respects and, to the best of Seller's knowledge, after due inquiry, there
presently exists no condition which may subject the owner of the Assets to
potential liability, whether arising from such condition now or in the future,
under any Environmental Law currently in effect;
(p) Except as shown on Exhibit "H": (i) none of the Assets are subject
to any contract or agreement providing for recoupment of sums paid in respect of
take or pay gas purchase contracts or other similar provision such that the
owner of the Assets will not receive the full amount of revenue from the sale of
production attributable to the ownership interest therein and (ii) there exists
no imbalance regarding production taken or marketed from the Assets or any
portion thereof which could result in (1) a portion of Seller's interest in
production therefrom to be taken or delivered after the Closing without Buyer
receiving payment therefor and at the price it would have received absent such
imbalance; (2) Buyer, after Closing, being obligated to make payment to any
person or entity as a result of such imbalance; or (3) production being shut-in
or curtailed after Closing due to non-compliance with allowables, production
quotas, proration rules or similar orders or regulations of any governmental
authorities;
(q) There are no material contracts, agreements or instruments
affecting the Assets, the transfer of which is restricted by third party
agreement or applicable law. There are no material permits and other
appurtenances affecting the Assets, the transfer of which is restricted by third
party agreements or applicable law;
(r) To Seller's knowledge, except as reflected on Exhibit "C", the
Assets are not subject to any agreements containing preferential purchase rights
or consent to assignment provisions that must be complied with prior to the
assignments of the Assets to Buyer;
-13-
<PAGE>
(s) To Seller's knowledge (i) Seller is not in material default under
any of the terms and provisions of the oil, gas and mineral leases that comprise
the Assets or under any agreement to which the same are subject; and (ii) all
royalties, rentals, and other payments due thereunder by Seller have been timely
and properly paid in full on or before the due dates thereof;
(t) No amount of Seller's Hydrocarbons produced from the properties
and marketed by others is subject to a sales, transportation or processing
contract (except for those contracts identified in Exhibit "J" and except for
contracts terminable without penalty by Seller on not more than 30 days notice),
no person has any call upon, option to purchase or similar rights under any
agreements with respect to the Assets or the production therefrom. Seller has
not in any respect collected, nor will Seller in any respect collect, any
proceeds from the sale of Hydrocarbons produced from the Assets that are subject
to refund by Buyer;
(u) To Seller's knowledge, the only unrecorded agreements materially
affecting the Assets are identified on Exhibit "K" hereto ("Contracts"), and
Seller is not in material breach or default with respect to any of its
obligations under any Contract; and
(v) Except as to the Assets covered by AHC Agreement No. 6710 as
specified on Exhibit "K", none of the Assets are subject to any tax partnership.
ARTICLE V.
BUYER'S REPRESENTATIONS
-----------------------
5.1 Buyer's Representations. Buyer represents and warrants to Seller as of
the date hereof that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and Buyer is or prior to
Closing will be duly qualified pursuant to any and all applicable laws, statutes
and regulations to own and operate the Assets;
(b) It has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the other documents and
agreements contemplated hereby, to purchase the Assets on the terms described in
this Agreement, and to perform its other obligations under this Agreement and
the other documents and agreements contemplated hereby. Subject to Sections
18.1, and 18.2, the consummation of the transactions contemplated by this
Agreement will not violate, nor be in conflict with, any provision of Buyer's
charter, by-laws or governing documents, or any material agreement or instrument
to which Buyer is a party or by which it is bound, or any judgment, decree,
order, statute, rule or regulation applicable to Buyer;
(c) The execution, delivery and performance of this Agreement and the
transactions contemplated hereunder have been duly and validly authorized by all
requisite corporate action on the part of Buyer;
-14-
<PAGE>
(d) This Agreement constitutes, and all documents and instruments
required hereunder to be executed and delivered by Buyer at Closing will
constitute, legal, valid and binding obligations of Buyer in accordance with
their respective terms, subject to bankruptcy and other similar laws of general
application with respect to creditors;
(e) There are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by, or to the actual knowledge of the officers of
Buyer, threatened against Buyer;
(f) No broker or finder has acted for or on behalf of Buyer in
connection with this Agreement or the transactions contemplated by this
Agreement, and no broker or finder is entitled to any brokerage or finder's fee
or commission in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of Buyer;
(g) Buyer is now or prior to Closing will be, and after Closing shall
continue to be, qualified to own Federal and State oil, gas and mineral leases
in all jurisdictions where any such Subject Interests are located, and the
consummation of the transactions contemplated hereby will not cause Buyer to be
disqualified as such an owner or to exceed any acreage limitation imposed by any
law, statute, rule or regulation;
(h) Buyer is directly engaged in the business of exploration and
production of oil, gas or other valuable minerals and derives at least
$5,000,000 of annual gross income from such business. Prior to entering into
this Agreement, Buyer was advised by and has relied solely on its own legal, tax
and other professional counsel concerning this Agreement, the Assets and the
value thereof. Buyer is acquiring the Assets for its own account and not for
distribution or resale in any manner that would violate any state or federal
securities law, rule, regulation or order. Buyer understands and acknowledges
that, if any of the Assets were held to be securities, they would be restricted
securities which must be held indefinitely; and
(i) Buyer has arranged to have available by the Closing Date
sufficient funds to enable the Buyer to pay in full the Purchase Price, together
with all costs and expenses relative thereto, and otherwise to perform its
obligations under this Agreement.
ARTICLE VI.
ACCESS TO INFORMATION AND INSPECTION
------------------------------------
6.1 Title Files. Promptly after the execution of this Agreement and until
the Closing Date, Seller shall permit Buyer and its representatives at
reasonable times during normal business hours to examine, in Seller's offices,
all abstracts of title, title opinions, title files, ownership maps, lease
files, assignments, division orders, check vouchers, payout statements and
agreements pertaining to the Assets insofar as the same may now be in existence
and in the possession of Seller.
-15-
<PAGE>
6.2 Other Files. Prior to Closing, Seller shall make available to Buyer
for inspection by Buyer at reasonable times during normal business hours at
their actual location, all accounting, revenue, marketing, transportation,
processing, environmental, geological, geophysical, production and engineering
books, records and data in possession of Seller, except such records or data
which Seller is prevented by contractual obligations with third parties from
disclosing; provided that in the event Seller is prohibited from making files or
records available because of provisions of third party agreements, then Seller
shall inform Buyer of the existence of such records, the parties thereto and the
subject matter of such records.
6.3 Confidentiality Agreement. All such information made available to
Buyer shall be maintained confidential by Buyer as provided in that certain
Confidentiality Agreement dated September 16, 1998, between Seller and Buyer,
the terms of which are incorporated herein by reference and made a part of this
Agreement. Buyer shall further take whatever reasonable steps may be necessary
to ensure that Buyer's employees, consultants and agents comply with the
provisions of this Article VI and the provisions of said Confidentiality
Agreement.
6.4 Inspections. Promptly after the execution of this Agreement, Seller,
subject to third party operator approval which Seller will seek to obtain, shall
permit Buyer and its representatives at reasonable times and at their sole risk,
cost and expense, to conduct reasonable inspections of the Assets; provided,
however, Buyer shall repair any damage to the Assets resulting from such
inspections and Buyer does hereby indemnify and hold harmless Seller from and
against any and all losses, costs, damages, obligations, claims, liabilities,
expenses or causes of action arising from Buyer's inspection of the Assets,
including, without limitation, claims for personal injuries, property damage and
reasonable attorney's fees and further including claims arising in whole or part
from Seller's negligence.
ARTICLE VII.
TITLE
-----
7.1 No Warranty or Representation. Seller shall convey Seller's interests
in and to the Assets to Buyer subject to the Permitted Encumbrances and without
any warranty of title, express or implied, except for special warranty against
claims arising by, through or under Seller, as provided in the form of
Assignment, Bill of Sale and Conveyance attached as Exhibit "F" hereto. Seller
makes no warranty or representation, express or implied, with respect to the
accuracy or completeness of the information, records and data now, heretofore or
hereafter made available to Buyer in connection with this Agreement (including,
without limitation, any description of the Assets, pricing assumptions,
potential for production of Hydrocarbons from the Subject Interests or any other
matters contained in any other material furnished to Buyer by Seller or by
Seller's agents or representatives).
7.2 Buyer's Title Review.
(a) Immediately upon execution by both parties hereto of this
Agreement Buyer may at Buyer's sole cost and expense commence and diligently
pursue such examination
-16-
<PAGE>
of title to the Subject Interests as Buyer desires. Seller shall fully cooperate
with Buyer and shall make available to Buyer at Seller's offices in Houston,
Texas, all documents, records and material in Seller's possession (except to the
extent disclosure of same is prohibited pursuant to agreements with third
parties; provided that in the event Seller is prohibited from making files or
records available because of provisions of third party agreements, then Seller
shall inform Buyer of the existence of such records, the parties thereto and the
subject matter of such records) and all assistance reasonably necessary to
assist Buyer in determining the validity of Seller's title in and to the Subject
Interests. In no event, however, does Seller warrant or represent the
sufficiency, completeness or accuracy of such documents, records and materials,
and Buyer's reliance thereon shall be at Buyer's sole risk and expense. No later
than five (5) days prior to Closing, Buyer shall notify Seller of any Title
Defects associated with such property in accordance with Section 7.3 below. To
be effective, Buyer's written notice of a Title Defect must include (i) a brief
description of the matter constituting the asserted Title Defect and (ii)
supporting documents reasonably necessary for Seller (or a title attorney or
examiner hired by Seller) to verify the existence of such asserted Title Defect.
Any matters not described in a written notice of Title Defect which is delivered
within the time frame set forth above shall conclusively be deemed to have been
waived and accepted by Buyer, and shall be deemed Permitted Encumbrances
hereunder.
(b) Upon receipt of the notice set forth under Section 7.2(a) Seller
shall have the right, but not the obligation, until the Closing Date to cure all
or any portion of asserted Title Defects, such curative costs to be borne solely
by Seller. If Buyer elects to waive or is deemed to have waived any asserted or
unasserted Title Defects, such waived or unasserted Title Defects shall be
deemed Permitted Encumbrances hereunder. If any Title Defect is not cured prior
to Closing then the portion of the Assets affected by such Title Defect shall be
deleted from the sale contemplated herein, and retained by Seller and the
Purchase Price shall be reduced by the Allocated Value of the portion of the
Assets affected by such Title Defect. Seller shall have 90 days following
Closing within which to cure such Title Defect. If a Title Defect is cured by
Seller during such 90 day period, Seller shall convey the portion of the Assets
affected by such Title Defect to Buyer in consideration of the payment by Buyer
to Seller of the Allocated Value thereof. In the event that any Title Defect is
not cured within the 90 day period, then Seller shall retain the portion of the
Assets affected by the Defect and the parties shall have no other obligation or
liability hereunder with respect thereto. In the event Buyer and Seller are
unable to agree upon the existence of an alleged Title Defect or amount of the
downward adjustment of the Purchase Price attributable to a Title Defect for the
purposes of the foregoing, then the same may be submitted to arbitration
pursuant to the provisions of Article XVII.
7.3 Title Defects. For the purposes of this Agreement, a portion of
the Subject Interests shall be deemed to have a "Title Defect" if any one or
more of the following statements is untrue with respect to such portion of the
Subject Interests as of the Effective Time or the Closing Date:
(i) Seller has Defensible Title thereto.
-17-
<PAGE>
(ii) All royalties, rentals, Pugh clause payments, shut-in gas
payments and other payments due with respect to such portion of the Subject
Interests have been properly and timely paid, except for payments held in
suspense for title or other reasons which are reasonable and customary in the
industry and which will not result in grounds for cancellation of Seller's
rights in such portion of the Subject Interests.
(iii) Except as set forth in any of the Exhibits hereto, Seller is
not in default under the material terms of any of the Basic Documents respecting
such portion of the Subject Interests which could (1) materially interfere with
the ownership, operation, value or use thereof, (2) materially prevent Seller
from receiving its proportionate share of the proceeds of production
attributable to Seller's interest therein, or (3) result in cancellation of
Seller's interest therein.
(iv) There is no lien, charge, encumbrance, defect or objection (other
than a Permitted Encumbrance) against, in or to Seller's title thereto or right
or interest therein. There is no existing fact or circumstance relative to
Seller's title which is of such significance that a reasonable and prudent
person engaged in the business of the ownership, development and operation of
oil and gas properties with knowledge of all the facts and appreciation of their
legal significance would be unwilling to accept and pay for the Subject Interest
or portion thereof which is affected thereby.
7.4 Title Indemnification. Notwithstanding any other provisions of
this Article VII, to the extent that all Title Defects have a cumulative value
of less than 10% of the Purchase Price, then for any uncured Title Defect Seller
shall have the option to execute and deliver to Buyer a title indemnity and, in
such event, the relevant uncured Title Defect shall be deemed to be cured and
removed for the purposes of this Agreement. In the event Seller elects to give
such an indemnity, Seller shall hold harmless and keep Buyer indemnified from
and against any and all liability, loss, costs (including legal fees and costs),
suits, judgments, causes of action, claims or damages suffered by Buyer or
arising or incurred in connection with or resulting from any uncured Title
Defects with the intent that Buyer shall be placed in the same economic and
financial condition as Buyer would have been in had Seller actually cured the
Title Defect. No claim for indemnification of Buyer shall be made or be
enforceable, whether by legal proceedings or otherwise, unless written notice of
the claim, setting out reasonable details thereof is given by Buyer to Seller on
or before January 1, 2004. Any indemnity given pursuant to this section shall
not affect in any way the special warranty of title given by Seller in the
Assignment or the obligations of Seller pursuant thereto.
ARTICLE VIII.
PREFERENTIAL PURCHASE RIGHTS AND CONSENTS
-----------------------------------------
8.1 Purchase Rights. Promptly after the execution hereof, Seller
shall send such notices and other documents as may be required in order to
satisfy the provisions of any agreement giving preferential purchase (or
similar) rights to any third party on account of the execution of this Agreement
or the transaction contemplated hereby. If a third party who has been offered an
interest in a Subject Interest pursuant to a preferential right to purchase,
elects
-18-
<PAGE>
prior to Closing to purchase all or part of such Subject Interest pursuant to
the aforesaid offer, the interest or part thereof so affected will be eliminated
from the Assets and the Purchase Price reduced by the portion of the Purchase
Price allocated to such interest or part thereof under Section 3.3 hereof. If
any preferential right is not exercised or waived or the time to exercise has
not expired prior to Closing, then, at Buyer's election, (i) the Subject
Interest affected thereby shall be removed from the Assets and the Purchase
Price reduced by the Allocated Value thereof or (ii) Buyer shall purchase the
Subject Interest without reduction to the Purchase Price. If Buyer chooses
option (i), Seller shall have 90 days following Closing within which to obtain
the required waiver. If the waiver is obtained by Seller during such 90 day
period, Seller shall convey the portion of the Assets affected by such
preferential right to Buyer in consideration of the payment by Buyer to Seller
of the Allocated Value thereof. In the event that any waiver is not obtained
within the 90 day period, then Seller shall retain the portion of the Assets
affected by the preferential right and the parties shall have no other
obligation or liability hereunder with respect thereto. If Buyer chooses option
(ii), and thereafter a third party elects to purchase all or a part of an
interest in a Subject Interest subject to a preferential right to purchase and
Closing has already occurred (and payment of the Purchase Price made to Seller)
with respect to such interest, Buyer shall be obligated to convey said interest
to such third party and shall be entitled to the consideration for the sale of
such interest or part thereof.
8.2 Consents. Seller shall use reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, to obtain prior
to Closing all consents to assignment applicable to any of the Assets. If a
lessor or other third party who has the right to consent to the assignment of a
portion of the Assets refuses such consent prior to Closing, or if a request for
a consent to assign is outstanding as of Closing, then at the option of Buyer
(i) the interest or part thereof so affected will be eliminated from the Assets
and the Purchase Price reduced by the portion of the Purchase Price allocated to
such interest or part thereof under Section 3.3 hereof or (ii) Buyer shall
accept the assignment thereof. If Buyer chooses option (i), Seller shall have 90
days following Closing within which to obtain the required consent. If the
consent is obtained by Seller during such 90 day period, Seller shall convey the
portion of the Assets affected by such consent requirement to Buyer in
consideration of the payment by Buyer to Seller of the Allocated Value thereof.
In the event that any consent is not obtained within the 90 day period, then
Seller shall retain the portion of the Assets affected by the consent
requirement and the parties shall have no other obligation or liability
hereunder with respect thereto.
ARTICLE IX.
COVENANTS OF SELLER
-------------------
9.1 Covenants of Seller Pending Closing. From and after the Effective Time
of this Agreement and until the Closing, except as otherwise provided in this
Agreement or as consented to by Buyer in writing and subject to Section 9.2
below and the terms of applicable operating and other agreements, Seller shall:
-19-
<PAGE>
(a) Subject to Seller's right to obtain Seller's Credits pursuant to
Section 3.2, continue to operate the Assets in a good and workmanlike manner
consistent with industry standards and past practices;
(b) Maintain in full force and effect all policies of insurance
covering the Assets now maintained by Seller;
(c) Use reasonable efforts to preserve in full force and effect all
material leases, operating agreements, easements, rights-of-way, permits,
licenses, contracts and other material agreements included in the Incidental
Rights which relate to the Assets and perform all material obligations of Seller
in or under any such agreement relating to such Assets;
(d) Use Seller's reasonable efforts to maintain its relationships with
suppliers, customers and others having material business relations with Seller
with respect to the Assets so that they will be preserved for Buyer on and after
the Closing Date;
(e) Not enter into any agreement or arrangement granting any
preferential right to purchase any of the Assets or requiring the consent of any
person to the transfer and assignment of any of the Assets hereunder, except in
connection with the performance by Seller of an obligation or agreement existing
on the date hereof or pursuant to this Agreement, not enter into any material
modification or amendment to any Basic Document and not agree to participate in
any operation for drilling, reworking, deepening, plugging and abandonment or
other capital expenditure the cost of which exceeds $50,000 to the Seller's
interest;
(f) Not dedicate, sell, farm out, encumber or dispose (or enter into
discussions with any third party with respect to any of the foregoing) of any
Assets without Buyer's written consent except sales of oil and gas production
in the ordinary course of business; and
(g) Maintain all material equipment included in the Assets in
accordance with customary industry operating practices and procedures.
Notwithstanding the other provisions of this Article IX, (i) Seller may
take any action with respect to the Assets if reasonably necessary under
emergency circumstances and provided Buyer is notified as soon thereafter as
reasonably practical, (ii) Seller shall have no liability to Buyer for the
incorrect payment of delay rentals, royalties, shut-in royalties or similar
payments or for any failure to pay any such payments through mistake or
oversight (including Seller's negligence but not including Seller's gross
negligence or willful misconduct). Any consent requested of Buyer with respect
to the matters covered by this Article IX shall not be unreasonably withheld or
action with respect thereto unduly delayed.
9.2 Limitations on Seller's Covenants Pending Closing.
(a) To the extent Seller is not the operator of any of the Assets, the
obligations of Seller in Section 9.1 above, which have reference to operations
or activities which normally or pursuant to existing contracts are carried out
or performed by the operator, shall be construed to
-20-
<PAGE>
require only that Seller use reasonable efforts (without being obligated to
incur any expense or institute any cause of action) to cause the operator of
such Assets to take such actions or render such performance within the
constraints of the applicable operating agreements and other applicable
agreements.
(b) Notwithstanding anything to the contrary in this Article IX,
should Seller not wish to pay any lease rental or other payment or participate
in any reworking, deepening, drilling, completion, equipping or other operation
on or with respect to any well or other Asset which may otherwise be required by
Section 9.1 above, Seller shall give Buyer written notice thereof as soon as
reasonably practicable after Seller receives notice thereof from the operator of
such property (or if Seller is the operator, after Seller gives written notice
thereof to the non-operators of such property); and Seller shall not be
obligated to make any such payment or to elect to participate in any such
operation which Seller does not wish to make or participate in unless Seller
receives from Buyer, within a reasonable time prior to the date when such
payment or election is required to be made by Seller, (i) the written election
and agreement of Buyer to require Seller to take such action and to indemnify
Seller therefrom and (ii) all funds necessary for such action. Notwithstanding
the foregoing, Seller shall not be obligated to pay any lease rental or other
payment or to elect to participate in any operation if the third party operator
of the property involved recommends that such action not be taken. If Buyer
advances any funds pursuant to this Section 9.2(b) and the Assets to which such
payments relate are not conveyed to Buyer at Closing, and Seller does not
reimburse Buyer for all advances made by Buyer with respect to such Assets
pursuant to this Section 9.2(b) within thirty (30) days after this Agreement
terminates with respect to such Assets, then (i) Buyer shall own and be entitled
to any right of Seller that would have lapsed but for such payment, and (ii) in
the case of operations, Buyer shall be entitled to receive the penalty which
Seller, as nonconsenting party, would have suffered under the applicable
operating agreement with respect to such operations as if Buyer were a
consenting party thereunder.
ARTICLE X.
CLOSING CONDITIONS
------------------
10.1 Seller's Closing Conditions. The obligations of Seller under this
Agreement are subject, at the option of Seller, to the satisfaction at or prior
to the Closing of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations and warranties were made at and as of the Closing, and
Buyer shall have performed and satisfied all covenants, obligations and
agreements required by this Agreement to be performed and satisfied by Buyer at
or prior to the Closing;
(b) Seller shall have received a certificate dated as of the Closing,
executed by a duly authorized officer of Buyer, to the effect that to such
officer's knowledge the statements made under Article V above are true at and as
of the Closing;
-21-
<PAGE>
(c) Except for approvals covered by Section 18.1 hereof, all necessary
consents of and filings with the Federal Trade Commission and any other state or
federal governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, and the applicable waiting periods prescribed in
connection with the Hart-Scott-Rodino Act shall have elapsed or terminated (by
early termination or otherwise) since the dates of the filings by the parties
with respect thereto; and
(d) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by Seller) shall be pending or threatened
before any court or governmental agency seeking to restrain Seller or prohibit
the Closing or seeking damages against Seller as a result of the consummation of
this Agreement.
10.2 Buyer's Closing Conditions. The obligations of Buyer under this
Agreement are subject, at the option of Buyer, to the satisfaction at or prior
to the Closing of the following conditions:
(a) All representations and warranties of Seller contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations and warranties were made at and as of the Closing, and
Seller shall have performed and satisfied all covenants, obligations and
agreements required by this Agreement to be performed and satisfied by Seller at
or prior to the Closing;
(b) Buyer shall have received a certificate dated as of the Closing,
executed by a duly authorized officer of Seller, to the effect that to such
officer's knowledge the statements made under Article IV above by Seller are
true at and as of the Closing;
(c) Except for approvals covered by Section 18.1 hereof, all necessary
consents and filings with the Federal Trade Commission and any other state or
federal governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, and the applicable waiting periods prescribed in
connection with the Hart-Scott-Rodino Act shall have elapsed or terminated (by
early termination or otherwise) since the dates of the filings by the parties
with respect thereto; and
(d) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by Buyer) shall be pending or threatened
before any court or governmental agency seeking to restrain Buyer or prohibit
the Closing or seeking damages against Buyer as a result of the consummation of
this Agreement.
10.3 Purchase Price Threshold. Either party shall be entitled, at its
option, to terminate this Agreement in the event Purchase Price adjustments
arising from Title Defects, preferential purchase rights, consents to assign,
Environmental Defects, casualty losses or condemnations are greater than twenty
percent (20%) of the Purchase Price.
-22-
<PAGE>
ARTICLE XI.
CLOSING
-------
11.1 Closing. The closing of this transaction (the "Closing") shall be
held at 10:00 a.m., Central Standard Time, at the offices of Seller at One Allen
Center, 500 Dallas Street, Houston, Texas, on January 15, 1999, or at such other
date or place as the parties may agree in writing (herein called "Closing
Date"). Regardless of when the Closing shall occur, Closing shall be effective
with respect to each Asset as of the Effective Time.
11.2 Seller's Closing Obligations. At Closing (except Seller shall have a
period of twenty-one (21) days after the Closing for items e, f and g), Seller
shall deliver to Buyer the following:
(a) The Assignments, Bills of Sale and Conveyances substantially in
the form attached hereto as Exhibit "F" and such other documents as may be
reasonably necessary to convey all Seller's interest in the Assets to Buyer in
accordance with the provisions hereof;
(b) The certificate of Seller referred to in Section 10.2(b) hereof;
(c) Evidence of Seller's compliance with the Hart-Scott-Rodino Act (if
necessary);
(d) Transfer or division orders, or letters-in-lieu thereof, to be
effective at the Effective Time in the form required by the purchasers of the
Hydrocarbons from the producing properties;
(e) All title opinions, abstracts of title, lease records, data
sheets, status and other reports pertaining to the Subject Interests heretofore
received by Seller or to which Seller has access;
(f) All of the Basic Documents, and the files pertaining thereto, and
all other contracts, documents and files affecting title to the Subject
Interests to which Seller has access; and
(g) All lease files, land files, well files, gas and oil sales
contract files, gas processing files, division order files, abstracts, title
opinions, and all other books, files and records information and data, except
insofar as Seller is prevented from transferring same by contractual obligations
to third parties or applicable law.
11.3 Buyer's Closing Obligations. At Closing, Buyer shall deliver to Seller
the following:
-23-
<PAGE>
(a) The Purchase Price subject to such adjustments, if any, as are
expressly provided for in this Agreement) in immediately available funds to
Seller as provided in Section 3.1 hereof (or to such other account within the
continental United States of America designated by Seller to Buyer at least five
(5) days prior to the Closing Date);
(b) The certificate of Buyer referred to in Section 10.1(b) hereof;
and
(c) Evidence of Buyer's compliance with the Hart-Scott-Rodino Act (if
necessary).
ARTICLE XII.
EFFECT OF CLOSING
-----------------
12.1 Revenues. To the extent not included in the reimbursements
under Section 3.2 hereof, all proceeds, accounts receivable, notes receivable,
revenues, monies and other items included in or attributable to the Excluded
Assets and all other Excluded Assets shall belong to and be paid over to Seller
and all other proceeds, accounts receivable, notes receivable, revenues, monies
and other items relating to the period of time after the Effective Time and
included in or attributable to the Assets shall belong to and be paid over to
Buyer.
12.2 Taxes.
-----
(a) Apportionment of Ad Valorem and Property Taxes. All ad valorem,
real property taxes and personal property taxes, including interest and
penalties attributable thereto (hereinafter "Property Taxes"), attributable to
the Assets with respect to the tax assessment period ("Tax Period") during which
the Effective Time occurs shall be apportioned as of the Effective Time between
Seller and Buyer, with Seller paying a fraction thereof based upon the number of
days in the Tax Period prior to the Effective Time and Buyer paying a fraction
thereof based upon the number of days in the Tax Period after the Effective
Time. The owner of record on the assessment date shall file or cause to be
filed all required reports and returns incident to the Property Taxes and shall
pay or cause to be paid to the taxing authorities all Property Taxes relating to
the Tax Period during which the Effective Time occurs. If Seller is the owner
of record on the assessment date, then Buyer shall pay to Seller Buyer's pro
rata portion of Property Taxes within thirty (30) days after receipt of Seller's
invoice therefor, except to the extent taken into account as an adjustment to
the Purchase Price pursuant to Section 3.2. If Buyer is the owner of record as
of the assessment date then Seller shall pay to Buyer Seller's pro rata portion
of Property Taxes within thirty (30) days after receipt of Buyer's invoice
therefor, except to the extent taken into account as an adjustment to the
Purchase Price pursuant to Section 3.2.
(b) Sales Taxes. The Purchase Price provided for hereunder excludes,
and Buyer shall be liable for, any Transfer Taxes (as defined below) required to
be paid in connection with the sale of the Assets pursuant to this Agreement.
To the extent required by applicable law, Seller shall collect and remit any
Transfer Taxes that are required to be paid as a result of the transfer of the
Assets by Seller to the Buyer. If the transfer of the Assets pursuant to this
-24-
<PAGE>
Agreement is exempt from any Transfer Taxes, Buyer shall, at Closing, provide
Seller with properly executed exemption certificates or other documentation
acceptable under applicable law. As used here, the term "Transfer Taxes" shall
mean any sales, use, excise, stock, stamp, document, filing, recording,
registration, authorization and similar taxes, fees and charges.
(c) Other Taxes. With the exception of income and franchise taxes,
all other federal, state and local taxes (including interest and penalties
attributable thereto) on the ownership or operations of the Assets which are
imposed with respect to periods or portions of periods prior to the Effective
Time shall be paid by Seller and all such taxes imposed with respect to periods
or portions of periods beginning on or after the Effective Time shall be paid by
Buyer.
(d) Cooperation. After the Closing, each party to this Agreement
shall provide the other party with reasonable access to all relevant documents,
data and other information (other than that which is subject to any attorney-
client privilege) which may be required by the other party for the purpose of
preparing tax returns, filing refund claims and responding to any audit by any
taxing jurisdiction. Each party to this Agreement shall cooperate with all
reasonable requests of the other party made in connection with contesting the
imposition of taxes. Notwithstanding anything to the contrary in this
Agreement, neither party to this Agreement shall be required at any time to
disclose to the other party any Tax Return or other confidential tax
information. Except where disclosure is required by applicable law or judicial
order, any information obtained by a party pursuant to this Section 12.2(d)
shall be kept confidential by such party, except to the extent disclosure is
required in connection with the filing of any Tax Returns or claims for refund
or in connection with the conduct of an audit, or other proceedings in response
to an audit, by a taxing jurisdiction.
12.3 Expenses. To the extent not included in the reimbursements under
Section 3.2 hereof or in the Assumed Obligations, all accounts payable and other
costs and expenses (other than taxes described in Section 12.2) with respect to
the Seller's interest in the Assets which are attributable under the cash basis
of accounting to the period prior to the Effective Time shall be the obligation
of and be paid by Seller, and those which are attributable under the cash basis
of accounting to the period commencing with the Effective Time, as well as all
Assumed Obligations, shall be the obligation of and be paid by Buyer.
12.4 Shared Obligations. If monies are received by any party hereto which,
under the terms of this Article XII, belong to another party, the same shall
immediately be paid over to the proper party. If an invoice or other evidence of
an obligation is received which under the terms of this Article XII is partially
the obligation of Seller and partially the obligation of Buyer, then the parties
shall consult each other and each shall promptly pay its portion of such
obligation to the obligee, provided that if either party hereto shall fail
promptly to pay its portion of such obligation to the obligee, the other party
hereto shall have the right (but not the obligation) to pay such portion of such
obligation, whereupon the defaulting party shall promptly reimburse such other
party for the defaulting party's portion so paid, plus interest on said amounts
until reimbursed, at a rate equal to the prime rate plus 3%.
-25-
<PAGE>
12.5 Seller Operated Assets. It is expressly understood and agreed that
Seller shall not be obligated to continue operating any of the Assets following
the Closing and Buyer hereby assumes full responsibility for operating (or
causing the operation of) all Assets following the Closing. Seller will assist
Buyer in obtaining the approval of the working interest owners in each
applicable well or unit to the substitution of Buyer as Operator in place of
Seller. Buyer acknowledges and agrees that Seller cannot and does not covenant
or warrant that Buyer shall become successor Operator to Seller since such wells
or units may be subject to operating or other agreements that control the
appointment of a successor operator. Without implying any obligation on Seller's
part to continue operating any Assets after the Closing, if Seller continues to
operate any Assets following the Closing at the request of Buyer or due to
constraints of applicable operating agreements, failure of a successor operator
to take over operations or other reasonable cause, such continued operation by
Seller shall be for the account of Buyer, at the sole risk, cost and expense of
Buyer, and Seller, as part of the Assumed Obligations, is hereby released and
indemnified by Buyer from all claims, losses, damages, costs, expenses, causes
of action and judgments of any kind or character (INCLUDING SELLER'S NEGLIGENCE
BUT NOT INCLUDING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) with respect to such
continued operations by Seller. In connection with any such continued operation
of the Assets by Seller, Seller shall be reimbursed by Buyer for all costs and
expenses incurred by Seller with respect thereto, including a charge for
overhead in the same manner as provided in the calculation of Seller's Credits
for the period prior to the Closing. In the event that Seller continues
operating any Assets after Closing pursuant to this Section 12.5, Buyer and
Seller shall enter into a mutually agreed upon nominee agreement which will
contain the release, indemnification and reimbursement provisions set forth in
this Section 12.5 and will further provide that, with respect to any Assets
affected thereby, Seller shall act as Buyer's nominee but shall be authorized to
act only upon and in accordance with Buyer's specific written instructions and
Seller shall have no authority, responsibility or discretion to perform any
tasks or functions with respect to such Assets other than those which are purely
administrative or ministerial in nature, unless otherwise specifically requested
and authorized by Buyer in writing.
12.6 Royalty Accounts. Seller shall fund and pay over to Buyer at Closing
the Royalty Accounts existing with respect to Seller-operated Subject Interests
or any other Subject Interests as to which Seller is responsible for the
disbursement of the sales proceeds of Hydrocarbon production to the persons
entitled thereto. At Closing, Buyer assumes the obligation to correctly,
properly and timely disburse to the persons entitled thereto all monies
comprising the Royalty Accounts.
ARTICLE XIII.
SETTLEMENT OF PRORATIONS
------------------------
13.1 Accounting. No later than three (3) days prior to Closing, Seller
shall furnish Buyer with an estimated accounting showing in reasonable detail
the prorating of any amounts described in and subject to Article XII of this
Agreement. If pursuant to such estimated accounting either Seller or Buyer shall
owe any obligation to the other which is not included in the reimbursements
under Section 3.2, then the Purchase Price paid at Closing shall be further
-26-
<PAGE>
adjusted to reflect such charges and credits which are necessary to accomplish
such adjustment. Promptly after the Closing Date (but not later than one hundred
twenty (120) days thereafter), Seller shall furnish Buyer with a final
accounting showing in reasonable detail the prorating of any amounts described
in and subject to Article XII hereof.
13.2 Settlement of Disputes. If within thirty (30) days after Seller
furnishes such final accounting to Buyer, Buyer and Seller are unable to agree
on such final accounting or the adjustments provided for in Section 3.2 hereof,
then either Seller or Buyer may submit such proration or allocation dispute to
arbitration pursuant to Article XVII hereof. Final settlement shall be made
within ten (10) business days following agreement by the Buyer and Seller or
final determination by the arbitrator. All determinations and adjustments with
respect to allocating items to the periods before or after the Effective Time
shall be in accordance with GAAP.
ARTICLE XIV.
ENVIRONMENTAL
-------------
14.1 Availability of Data to Buyer; Access to Buyer. Immediately following
the execution hereof, Seller shall make available to Buyer all of Seller's files
regarding the Assets and their environmental condition or compliance with
Environmental Laws, to the extent available and to the extent Seller is
authorized to disclose same (excepting documents subject to confidentiality
restrictions or legal privilege, and also excepting any proprietary
interpretative data). Buyer shall have the right following the execution of this
Agreement by both parties to conduct an environmental assessment of the Assets,
at its own risk and expense.
In connection therewith, Seller will provide Buyer (and its
representatives) with reasonable access to the Assets operated by Seller to
conduct the environmental assessment; provided that Seller may require Buyer and
its representatives to comply with Seller's safety procedures and execute an
Environmental Testing and Confidentiality Agreement in a form attached as
Exhibit "M" prior to performing any such assessment. Buyer shall provide Seller
two (2) days written notice of a desired date(s) for such assessment, the
proposed locations, and the anticipated scope of any testing or other
activities. Seller shall have the right to be present during any assessment
and, if any testing is conducted, Seller may require splitting of all samples.
Buyer shall provide Seller copies of all reports, results, data and analyses in
connection therewith, within three days of Buyer's receipt of same.
14.2 Notice of Environmental Defect. Buyer shall, as soon as possible, but
in no event later than five (5) days prior to Closing (the "Notice Date"), give
written notice to Seller specifying all Environmental Defects, which notice
shall describe the alleged Environmental Defect with particularity and include
all information in the possession of or used by Buyer to determine the existence
of or otherwise related to such alleged Environmental Defect, and shall also
state the alleged Environmental Defect Amount. For purposes hereof "
Environmental Defect Amount" shall mean an estimate of the costs to cure such
Environmental Defect. Failure by Buyer to timely assert an Environmental Defect
shall be deemed an election by Buyer to waive such Environmental
-27-
<PAGE>
Defect and to accept and pay for the Assets notwithstanding the effect of the
uncured Environmental Defect.
14.3 Environmental Defect; Remedy. Seller shall have the right to elect
within its sole discretion whether or not to attempt to cure any asserted
Environmental Defect. If any Environmental Defect is not cured prior to Closing
then Buyer shall have the option, exercisable in its discretion, to: (i) refuse
to accept an assignment of the portion of the Assets affected by such
Environmental Defect or (ii) accept an assignment of the portion of the Assets
affected by such Environmental Defect with a reduction in the Allocated Value
thereof to be paid to Seller by an amount equal to the cost of remediation of
the Environmental Defect, not to exceed, however, the Allocated Value of the
affected portion of the Assets. In the event Buyer refuses to accept an
assignment of the portion of the Assets affected by such Environmental Defect
the portion of the Assets affected by such Environmental Defect shall be deleted
from the sale contemplated herein and retained by Seller and the Purchase Price
reduced by the Allocated Value thereof. Seller shall have 90 days following
Closing within which to cure such Environmental Defect. If an Environmental
Defect is cured by Seller during such 90 day period, Seller shall convey the
portion of the Assets affected by such Environmental Defect to Buyer in
consideration of the payment by Buyer to Seller of the Allocated Value thereof.
In the event that any Environmental Defect is not cured within the 90 day
period, then Seller shall retain the portion of the Assets affected by the
Environmental Defect and the parties shall have no other obligation or liability
hereunder with respect thereto. If any dispute exists as to the validity of any
alleged Environmental Defect or the correctness of any Environmental Defect
Amount or any other related matter, then such disputed item or matter may be
submitted to arbitration pursuant to Article XVII hereof.
ARTICLE XV.
CASUALTY LOSS AND CONDEMNATION
------------------------------
15.1 If after the date of execution hereof and prior to the Closing any
part of the Assets shall be destroyed by fire or other casualty or if any part
of the Assets shall be taken in condemnation or under the right of eminent
domain or if proceedings for such purposes shall be pending or threatened, this
Agreement shall remain in full force and effect notwithstanding any such
destruction, taking or proceeding or the threat thereof.
15.2 Proceeds and Awards. In the event of any loss described in Section
15.1, at the election of Buyer Seller shall either (i) at the Closing pay to
Buyer all sums paid to Seller by reason of such destruction less any
unreimbursed costs and expenses incurred by Seller in collecting same, or (ii)
commit, use, or apply such sums (less any unreimbursed costs and expenses
incurred by Seller in collecting same) to repair, restore or replace such
damaged or taken Assets. To the extent the insurance proceeds, condemnation
awards or other payments are not committed, used or applied by Seller prior to
the Closing Date to repair, restore or replace such damaged or taken Assets,
Seller shall at the Closing pay to Buyer all sums paid to Seller by reason of
such destruction or taking, less any unreimbursed costs and expenses incurred by
Seller in collecting same. In addition and to the extent such proceeds, awards
or payments have not been committed, used or applied by Seller in repair,
restoration or replacement as aforesaid,
-28-
<PAGE>
Seller shall assign, transfer and set over unto Buyer, without recourse against
Seller, all of the right, title and interest of Seller in and to any claims
against third parties with respect to the event or circumstance causing such
loss and any unpaid insurance proceeds, condemnation awards or other payments
arising out of such destruction or taking, less any unreimbursed costs and
expenses incurred by Seller in collecting same. Any such funds which have been
committed by Seller for repair, restoration or replacement as aforesaid shall be
paid by Seller for such purposes or, at Seller's option, delivered to Buyer upon
Seller's receipt from Buyer of adequate assurance and indemnity from Buyer that
Seller shall incur no liability or expense as a result of such commitment.
Notwithstanding anything to the contrary in this Section 15.2, Seller shall not
be obligated to carry or maintain, and shall have no obligation or liability to
Buyer for its failure to carry or maintain, any insurance coverage with respect
to any of the Assets, except as required by Section 9.1(b). Notwithstanding the
foregoing, in the event the proceeds collected under insurance policies or from
third parties is insufficient to reimburse the owner of the damaged portion of
the Assets for the value thereof or to permit repair, replacement or restoration
thereof and the shortfall for all incidents arising under this provision exceeds
$100,000, then Seller shall have the option, to be exercised prior to Closing
within its sole discretion, to pay to Buyer or pay for repair, replacement or
restoration the amount of the shortfall. If Seller elects not to pay such
shortfall, then Buyer shall have the option, to be exercised within its sole
discretion, to refuse to purchase that portion of the Assets adversely impacted
by such casualty event and, in such case, such portion shall be removed from
this transaction and the Purchase Price reduced by the Allocated Value thereof.
ARTICLE XVI.
DEFAULT AND REMEDIES
--------------------
16.1 Seller's Remedies. Upon failure of Buyer to comply herewith by the
Closing Date, as it may be extended in accordance herewith, Seller, at its sole
option, may terminate this Agreement and, subject to the provisions of Section
3.1, retain the portion of the Deposit provided for in Section 3.1, together
with any interest earned on such portion, as liquidated damages, all other
remedies (except as expressly retained in Section 16.3) being expressly waived
and released by Seller. SELLER AND BUYER ACKNOWLEDGE THAT THE EXTENT OF DAMAGES
TO SELLER OCCASIONED BY ANY BREACH OR DEFAULT BY BUYER WOULD BE IMPOSSIBLE OR
EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR
AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES.
16.2 Buyer's Remedies. Upon failure of Seller to comply herewith by the
Closing Date, as it may be extended in accordance herewith, Buyer, at its sole
option, may (i) enforce specific performance; (ii) pursue any claim for damages
(not including, however, any exemplary, punitive, special, indirect,
consequential, remote or speculative damages)); or (iii) terminate this
Agreement and receive back the Deposit together with any interest earned
thereon, all other remedies (except as expressly retained in Section 16.3) being
expressly waived and released by Buyer.
-29-
<PAGE>
16.3 Other Remedies. Notwithstanding the foregoing, termination of this
Agreement shall not prejudice or impair Buyer's obligations under Sections 6.3
(and the Confidentiality Agreement referenced therein), 6.4 and 9.2(b) and such
other portions of this Agreement as are necessary to the enforcement and
construction of Sections 6.3, 6.4 and 9.2(b). The prevailing party in any
proceeding brought under or to enforce this Agreement shall be additionally
entitled to recover costs and reasonable attorney's fees from the non-prevailing
party as determined in the discretion of the arbitrator.
ARTICLE XVII.
ARBITRATION
-----------
17.1 Binding Arbitration. On the request of any Party whether made before
or after the institution of any legal proceeding, any action, dispute, claim or
controversy of any kind now existing or hereafter arising between any of the
Parties in any way arising out of, pertaining to or in connection with this
Agreement (a "Dispute") shall be resolved by binding arbitration in accordance
with the terms hereof. Any Party may, by summary proceedings, bring an action in
court to compel arbitration of any Dispute.
17.2 Governing Rules. Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance with the terms of
this Article XVII, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the Federal Arbitration Act. Judgment on any award
rendered by an arbitrator may be entered in any court having jurisdiction.
17.3 Arbitrators. Any arbitration shall be conducted before one
arbitrator. The arbitrator shall be a person who is knowledgeable in the subject
matter of the Dispute selected by agreement between the Parties. If the Parties
cannot agree on an arbitrator within thirty (30) days after the request for an
arbitration, then either Party may request the AAA to select an arbitrator. The
arbitrator may engage engineers, accountants or other consultants that the
arbitrator deems necessary to render a conclusion in the arbitration proceeding.
17.4 Conduct of Arbitration. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within one hundred eighty
(180) days of the filing of the Dispute with the AAA. Arbitration proceedings
shall be conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrator shall make specific
written findings of fact and conclusions of law. The arbitrator shall have the
power to award recovery of all costs and fees to the prevailing Party. Each
Party agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by applicable law.
-30-
<PAGE>
17.5 Costs of Arbitration. All fees of the arbitrator and any engineer,
accountant or other consultant engaged by the arbitrator, shall be paid by Buyer
and Seller equally unless otherwise awarded by the arbitrator.
ARTICLE XVIII.
MISCELLANEOUS
-------------
18.1 Certain Governmental Consents. At the Closing, Seller shall execute
and deliver to Buyer such assignments of Federal and State leases as require
consent to assignment, on the forms required by the governmental agency having
jurisdiction thereof. Seller and Buyer will use reasonable efforts after Closing
to obtain approval of such assignments.
18.2 Antitrust Laws. This Agreement is subject in all respects to and
conditioned upon compliance by the parties with Title II of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino Act"), and
rules and regulations promulgated pursuant thereto, to the extent that said act,
rules and regulations are applicable to the transaction or transactions
contemplated by this Agreement. Buyer and Seller agree to make such filings with
and provide such information to the Federal Trade Commission and the Department
of Justice with respect to the transactions contemplated by this Agreement as
are required in connection with the Hart-Scott-Rodino Act sufficiently in
advance of the Closing Date to permit the lapse of the normal waiting periods
prescribed in connection with the Hart-Scott-Rodino Act prior to the Closing
Date.
18.3 Public Announcements. The parties hereto agree that prior to making
any public announcement or statement with respect to the transaction
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto and exercise
reasonable efforts to (i) agree upon the text of a joint public announcement or
statement to be made by both of such parties or (ii) obtain approval of the
other party hereto to the text of a public announcement or statement to be made
solely by Seller or Buyer, as the case may be. Nothing contained in this
paragraph shall be construed to require either party to obtain approval of the
other party hereto to disclose information with respect to the transaction
contemplated by this Agreement to any state or federal governmental authority or
agency to the extent required by applicable law or by any applicable rules,
regulations or orders of any governmental authority or agency having
jurisdiction or necessary to comply with disclosure requirements of the New York
Stock Exchange and applicable securities laws.
18.4 Filing and Recording of Assignments, etc. Buyer shall be solely
responsible for all filings and recording of assignments and other documents
related to the Assets and for all fees connected therewith, and upon request
Buyer shall advise Seller of the pertinent recording data. Seller shall not be
responsible for any loss to Buyer because of Buyer's failure to file or record
documents correctly or promptly. Buyer shall promptly file all appropriate
forms, declarations or bonds with Federal, State and Indian agencies relative to
its assumption of operations and Seller shall cooperate with Buyer in connection
with such filings.
-31-
<PAGE>
18.5 Retention and Assumption of Liabilities; Indemnity. Buyer agrees to
assume and pay, perform, fulfill and discharge all Assumed Obligations, and
agrees to release, indemnify, defend and hold Seller its officers, directors,
employees, agents, representatives, affiliates, subsidiaries and successors
harmless from and against any and all claims, losses, damages, costs, expenses,
causes of action or judgments of any kind or character with respect to all
liabilities and obligations or alleged or threatened liabilities and
obligations, including, without limitation, any interest, penalty, reasonable
attorney's fees and other costs and expenses incurred in connection therewith or
the defense thereof, attributable to or arising out of (i) the Assumed
Obligations, or the breach by Buyer of any of its representations and warranties
or covenants or obligations set forth herein. Seller agrees to retain and pay,
perform, fulfill and discharge all Retained Obligations, and agrees to release,
indemnify, defend and hold Buyer its officers, directors, employees, agents,
representatives, affiliates, subsidiaries and successors harmless from and
against any and all claims, losses, damages, costs, expenses, causes of action
or judgments of any kind or character with respect to all liabilities and
obligations or alleged or threatened liabilities and obligations, including,
without limitation, any interest, penalty, reasonable attorney's fees and other
costs and expenses incurred in connection therewith or the defense thereof,
attributable to or arising out of (i) the Retained Obligations, or the breach by
Seller of any of its representations and warranties or covenants or obligations
set forth herein. Each party expressly waives all rights and benefits which it
may have under Civil Code Section 1542 of the State of California as to the
foregoing mutual releases. With respect to operations committed to by Seller and
commenced prior to the Effective Time, but not completed until after the
Effective Time, the costs accruing with respect thereto prior to the Effective
Time shall be the obligation of Seller and the costs accruing with respect
thereto after the Effective Time shall be the obligation of Buyer. Without
limiting the parties' respective representations in Sections 4.1(f) and 5.1(f)
hereof, each party hereby agrees to indemnify and hold the other harmless from
and against any claim for a brokerage or finder's fee or commission in
connection with this Agreement or the transactions contemplated by this
Agreement to the extent such claim arises from or is attributable to the actions
of such indemnifying party, including, without limitation, any and all losses,
damages, attorney's fees, costs and expenses of any kind or character arising
out of or incurred in connection with any such claim or defending against the
same.
18.6 Indemnification Procedures.
--------------------------
(a) Within sixty (60) days (or fifteen (15) days if a Claim involves a
lawsuit) after any Party (the "Indemnified Party") becomes aware of facts giving
rise to a Claim by it for indemnification pursuant to this Article XVIII, and
prior to the expenditure or approval of the expenditure of any funds, such
Indemnified Party will provide notice thereof in writing (a "Claim Notice") to
the Party owing such indemnification (the "Indemnifying Party") specifying the
nature and specific basis for such Claim and a copy of all papers served with
respect to such Claim (if any). For purposes of this Section, receipt by the
Indemnified Party of written notice of any demand, assertion, claim, action or
proceeding (judicial, administrative or otherwise) by or from any person or
entity other than a party to this Agreement or any affiliate thereof which gives
rise to a Claim on behalf of such party shall constitute the discovery of facts
giving rise to a Claim by it and shall require prompt notice of the receipt of
such matter as provided in the first sentence of this Section. Each Claim
Notice shall set forth a reasonable description of the Claim as Seller shall
then
-32-
<PAGE>
have and shall contain a statement to the effect that Seller is making a Claim
pursuant to and formal demand for indemnification under, this Section 18.6. The
Claim Notice must set forth the particular provision in the Agreement pursuant
to which such indemnification Claim is made.
(b) The indemnifications provided by this Agreement are expressly
subject to the following:
(i) In case any legal proceeding or claim, including any
investigatory proceeding, is brought or made against the Indemnified Party in a
manner for which indemnification may be provided, the Indemnified Party shall
promptly notify the Indemnifying Party with the delivery of the Claim Notice.
The Indemnifying Party shall have the right to control and assume the defense of
any such legal proceeding or claim, including the employment of counsel
satisfactory to the Indemnifying Party. If the Indemnifying Party controls and
assumes the defense of any proceeding or claim, the Indemnified Party shall have
the right to employ separate counsel, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless the representation of
both parties by the same counsel would be inappropriate due to any actual or
potential conflicts of interest. The Indemnifying Party shall not be liable for
the fees and expenses of more than one separate firm of attorneys at any one
time for the Indemnified Party in connection with any one legal proceeding or
claim or substantially similar related proceedings and claims.
(ii) Notwithstanding anything of the contrary in Section (i)
above, the Indemnified Party shall be entitled to reasonable compensation of
costs of defense, including reasonable attorneys fees, in the event that (x) the
employment of separate counsel has been authorized by the Indemnifying Party,
(y) the Indemnifying Party has failed to defend diligently any Claims, or (z)
the parties to such action (including any impleaded parties) include the
Indemnified Party and the Indemnifying Party, and the Indemnified Party has been
advised by legal counsel that there may be legal defenses available to it which
are different from, in addition to or inconsistent with, the legal defenses
available to the Indemnifying Party, or that the Indemnified Party's interest
may be adverse in whole or in part to the interest of the Indemnifying Party.
The Indemnifying Party shall not, in the defense of any such Claims, except with
the prior written consent of the Indemnified Party, consent to the entry of any
judgment or enter into any settlement which does not include as an unconditional
term, the release by the claimant or the plaintiff of the Indemnified Party from
all further liability in respect to any such Claims.
(iii) If the Claim is of a sort which requires action on the part
of the owners of the Assets, such as restoration of surface locations, for
example, the party having knowledge or receiving notice of such Claim shall
provide the Indemnifying Party with the appropriate Claim Notice. The
Indemnifying Party shall have the option to respond in such manner as it deems
prudent to such Claim and shall make all decisions and take all action in
response to the Claim. Only if the Indemnifying Party fails to timely and
reasonably respond to such Claim may the Indemnified party take such actions as
are necessary to respond to the Claim.
(c) The indemnification obligations under this Agreement shall not
apply to any settlements effected without the consent of the Indemnifying Party.
The indemnification obligations
-33-
<PAGE>
under this Agreement shall not be deemed to create any rights of subrogation or
other rights in any insurer or third party.
18.7 Further Assurances and Records.
------------------------------
(a) After the Closing, each of the parties will execute, acknowledge
and deliver to the other such further instruments, and take such other action,
as may be reasonably requested in order to more effectively assure to said party
all of the respective properties, rights, titles, interests, estates, and
privileges intended to be assigned, delivered or inuring to the benefit of such
party in consummation of the transactions contemplated hereby.
(b) Buyer agrees to maintain the files and records of Seller that are
acquired pursuant to this Agreement until the seventh (7th) anniversary of the
Closing Date (or for such longer period of time as Seller shall advise Buyer is
necessary in order to have records available with respect to open years for tax
audit purposes), or, if any of such records pertain to any claim or dispute
pending on the seventh (7th) anniversary of the Closing Date, Buyer shall
maintain any of such records designated by Seller until such claim or dispute is
finally resolved and the time for all appeals has been exhausted. Buyer shall
provide Seller and its representatives reasonable access to and the right to
copy such files and records for the purposes of (i) preparing and delivering any
accounting provided for under this Agreement and adjusting, prorating and
settling the charges and credits provided for in this Agreement, (ii) complying
with any law, rule or regulation affecting Seller's interest in the Assets prior
to the Closing Date, (iii) preparing any audit of the books and records of any
third party relating to Seller's interest in the Assets prior to the Closing
Date, or responding to any audit prepared by such third parties, (iv) preparing
tax returns, (v) responding to or disputing any tax audit or (vi) asserting,
defending or otherwise dealing with any claim or dispute under this Agreement.
At any time after two (2) years following Closing, Buyer may give notice to
Seller of Buyer's intent to destroy all or any part of such files and records,
specifying in reasonable detail which files and records will be destroyed.
Seller shall have thirty (30) days from receipt of such notice within which to
respond that Buyer should deliver such files and records to Seller or that Buyer
may destroy such records. If Seller fails to timely respond, Seller shall be
deemed to have consented to the destruction of the files and records described
in such notice. If Seller elects to receive such files and records, Buyer shall
deliver the files and records to Seller within fifteen (15) days of receipt of
Seller's notice of such election.
(c) Buyer agrees that, as soon as practicable after the Closing, it
will remove or cause to be removed the names and marks used by Seller and all
variations and derivatives thereof and logos relating thereto from the Assets
and will not thereafter make any use whatsoever of such names, marks and logos.
(d) To the extent not obtained or satisfied as of Closing, Seller
agrees to continue to use reasonable efforts, but without any obligation to
incur any cost or expense in connection therewith, and to cooperate with Buyer's
efforts to obtain for Buyer (i) access to files, records and data relating to
the Assets in the possession of third parties; (ii) access to wells constituting
a part of the Assets operated by third parties for purposes of inspecting same;
and
-34-
<PAGE>
(iii) the waiver of confidentiality or other restrictions on the review by
and/or transfer to Buyer of seismic, geophysical, engineering or other data
pertaining to the Subject Interests.
18.8 Limitations. The express representations and warranties of Seller
contained in this Agreement are exclusive and are in lieu of all other
representations and warranties, express, implied or statutory, including without
limitation any representation or warranty with respect to title to the Assets or
the quality, quantity or volume of the reserves of oil, gas or other
Hydrocarbons in or under the Subject Interests. The items of personal property,
equipment, fixtures and appurtenances conveyed as part of the Assets are sold
hereunder "AS IS, WHERE IS" and no warranties or representations of any kind or
character, express or implied, including any warranty of quality,
merchantability, fitness for a particular purpose or condition, are given by or
on behalf of Seller. THE WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, AND BUYER
HEREBY WAIVES ALL WARRANTIES OTHER THAN THOSE CONTAINED IN THIS AGREEMENT OR IN
ANY DOCUMENT EXECUTED PURSUANT TO THE TERMS HEREOF, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR CONDITION. BUYER ACKNOWLEDGES THAT EXCEPT AS
SPECIFICALLY SET FORTH IN THIS AGREEMENT SELLER HAS NOT MADE, AND SELLER HEREBY
EXPRESSLY DISCLAIMS AND NEGATES, AND BUYER HEREBY EXPRESSLY WAIVES, ANY
REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (a) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE
RATES, OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF HYDROCARBONS, IF
ANY, ATTRIBUTABLE TO THE ASSETS, AND (b) THE ACCURACY, COMPLETENESS OR
MATERIALITY OF ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) NOW,
HERETOFORE OR HEREAFTER FURNISHED TO BUYER BY OR ON BEHALF OF SELLER.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, SELLER EXPRESSLY
DISCLAIMS AND NEGATES, AND BUYER HEREBY WAIVES, AS TO PERSONAL, MOVABLE
PROPERTY, EQUIPMENT AND FIXTURES CONSTITUTING A PART OF THE ASSETS (i) ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS
WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF
PURCHASERS UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR
RETURN OF THE PURCHASE PRICE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM
FROM VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, AND (vi) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW, IT BEING THE EXPRESS INTENTION OF
BUYER AND SELLER THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN ARTICLE IV)
THE MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL
PROPERTY SHALL BE CONVEYED TO BUYER AS IS AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR, AND BUYER REPRESENTS TO SELLER THAT BUYER HAS MADE OR CAUSED TO
BE MADE SUCH INSPECTIONS
-35-
<PAGE>
WITH RESPECT TO THE MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES
AND PERSONAL PROPERTY AS BUYER DEEMS APPROPRIATE AND BUYER WILL ACCEPT THE
MOVABLE PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL
PROPERTY AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR, IT BEING THE
EXPRESS INTENTION OF BOTH BUYER AND SELLER THAT THE PERSONAL PROPERTY, EQUIPMENT
AND FIXTURES INCLUDED WITHIN THE ASSETS ARE HEREBY CONVEYED TO BUYER IN THEIR
PRESENT CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS" WITH ALL FAULTS,
AND THAT BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS BUYER DEEMS
APPROPRIATE. SELLER AND BUYER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN THIS
SECTION ARE "CONSPICUOUS" DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE LAW,
RULE OR ORDER. To the maximum extent permitted by law, Buyer waives all
provisions of the Texas Deceptive Trade Practices Act, Chapter 17, Texas
Business and Commerce Code (other than Section 17.555 thereof), insofar as the
provisions of such act may be applicable to this Agreement or the transactions
contemplated hereby. To evidence its ability to grant such waiver, Buyer hereby
represents and warrants to Seller that the Buyer (i) is seeking or acquiring, by
purchase or lease, goods or services for commercial or business use, (ii) has
assets of $5 million or more according to its most recent financial statement
prepared in accordance with GAAP, (iii) has knowledge and experience in
financial and business matters that enable it to evaluate the merits and risks
of the transaction contemplated hereby and (iv) is not in a significantly
disparate bargaining position.
18.9 Survival. Except as otherwise specifically provided for in this
Agreement or as hereinafter stated in this Section 18.9, no representation,
warranty, covenant or agreement made herein shall survive Closing. It is
expressly agreed that the terms and provisions of Articles I, III, V, VII, VIII,
XII, XIII, XIV, XV, XVI, XVII and XVIII and Sections 4.1(a) through 4.1(f),
inclusive, 6.3, 6.4 and 11.2 shall survive indefinitely, and that the terms and
conditions of Sections 4.1(g) through 4.1(v), inclusive shall survive Closing
for a period of twelve (12) months. It is understood and agreed that the failure
of any provision to survive the Closing or the survivability of which is
terminated after Closing pursuant to the provisions hereof shall not serve to
release any party from any obligation or liability arising prior to the time at
which such provision is deemed no longer to survive, provided that notice of
such matter has been given to the other party prior to the end of the time
period proscribed above.
18.10 Gas Imbalance: Buyer acknowledges and agrees to the following
regarding gas imbalances as of the Effective Time on any of the Assets to be
transferred pursuant to this Agreement:
(a) Gas Underproduction: In the event Seller is underproduced as to
any wells located on the Lands or if any amounts are owed Seller with respect to
any pipeline, transportation or processing imbalances, Buyer agrees (except as
provided in Section 3.2(b)) not to hold Seller liable for such underproduction
or such amounts. Seller, however, agrees to assign
-36-
<PAGE>
to Buyer all of its contractual rights to make up such underproduction, and to
recover all amounts owed.
(b) Gas Overproduction: In the event Seller is overproduced as to any
wells located on the Lands or if any amounts are due from Seller with respect to
any pipeline, transportation or processing imbalances, Buyer acknowledges and
agrees that its share of gas from any such overproduced wells may at some point
be curtailed by underproduced working interest owners and it may be required to
satisfy, in kind or in value, such third party transporters and processors for
such imbalances. Except as provided in Section 3.2(b) and except for the
overproduction set forth on Exhibit "H" with respect to PG&E which shall remain
an obligation of Seller's (and thus a Retained Obligation), Seller shall not be
liable to Buyer in the event such curtailment occurs or satisfaction is
required.
(c) Future Liability: From and after the Effective Time, any and all
benefits, obligations and liabilities associated with such imbalance accounts
shall accrue to and be the responsibility of Buyer. Buyer shall assume Seller's
overproduced or underproduced position in the Assets as of the Effective Time,
including but not limited to Buyer's responsibility for payment of royalties on
the volume of such gas which Seller took in excess of its entitlement and any
obligation to balance whether in cash or in kind.
18.11 Notices. All notices authorized or required by any of the provisions
of this Agreement, unless otherwise specifically provided, shall be in writing
and shall be deemed given when actually received and may be delivered in person
or by United States mail, courier service, telegram, telex, telecopier, or any
other form of facsimile, postage or charges prepaid, and addressed to the
parties at the addresses set forth below:
If to Seller: Amerada Hess Corporation
One Allen Center, 500 Dallas
Houston, Texas 77002
Attention: D. G. Stevenson
Fax Number: (713) 609-4463
If to Buyer: Sheridan Energy, Inc.
1000 Louisiana, Suite 800
Houston, Texas 77002
Attention: Charles F. Chambers
and
Attention: Jon Wright
with a copy to: Ernest L. Nix, Jr.
509 Market Street, Suite 800
Shreveport, Louisiana 71101
Any party may, by written notice so delivered to the other, change the address
to which delivery shall thereafter be made.
-37-
<PAGE>
18.12 Incidental Expenses. Buyer shall bear and pay (i) any and all
Federal, State or local Transfer Taxes as defined in Section 12.2(b) hereof
incident to the transfer, assignment or other conveyance of the Assets to Buyer,
and (ii) all costs or fees required to obtain consent to assign any Federal,
State or Indian leases included in the Assets. Each party shall bear its own
respective expenses incurred in connection with the Closing of this transaction,
including its own consultants' fees, attorneys' fees, accountants' fees, and
other similar costs and expenses.
18.13 Entire Agreement. Except for the Confidentiality Agreement referenced
in Section 6.3, this Agreement embodies the entire agreement between the parties
(superseding all prior agreements, arrangements and understandings related to
the subject matter hereof), and may be supplemented, altered, amended, modified
or revoked by writing only, signed by all of the parties hereto. No supplement,
amendment, modification, waiver or termination of this Agreement shall be
binding unless in writing and executed by both parties hereto. The headings
herein are for convenience only and shall have no significance in the
interpretation hereof.
18.14 Governing Law. THIS AGREEMENT AND OTHER DOCUMENTS DELIVERED PURSUANT
TO THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OF LAWS.
18.15 Exhibits. All Exhibits and Schedules hereto which are referred to
herein are hereby made a part hereof and incorporated herein by reference. For
the purposes of this Agreement references to Exhibit "A" shall be deemed to
refer to Exhibits "A", "A-1", "A-2" and "A-3", inclusive, and references to
Exhibit "B" shall be deemed to refer to Exhibits "B", "B-1" and "B-2",
inclusive.
18.16 Prime Rate. References to "prime rate" shall mean a rate per annum
equal to the lesser of (a) a varying rate per annum that is equal to the
interest rate publicly quoted by CitiBank, N.A. from time to time as its prime
commercial or similar reference interest rate, with adjustments in that varying
rate to be made on the same date as any change in that rate, and (b) the maximum
rate permitted by applicable law.
18.17 Certain Terms. As used in this Agreement, the term "knowledge" means
actual knowledge of any fact, circumstance or condition by the officers or
management employees of the party involved at a supervisory or higher level, but
does not include (i) knowledge imputed to the party involved by reason of
knowledge of or notice to any person, firm or corporation other than its
officers or employees at a supervisory or higher level or (ii) knowledge deemed
to have been constructively given by reason of any filing, registration or
recording of any document or instrument in any public record or with any
governmental entity. As used in this Agreement, the term "day" means any
calendar day, and the term "business day" means any day exclusive of Saturdays,
Sundays and national holidays.
-38-
<PAGE>
18.18 Counterparts. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one (1) agreement.
18.19 Waiver. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by the party waiving compliance. Except as otherwise expressly provided
in this Agreement, the failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party's right
to enforce the same. No waiver by any party of any condition, or of the breach
of any term, provision, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of any
other term, provision, covenant, representation or warranty.
18.20 Binding Effect; Assignment. All the terms, provisions, covenants,
representations, warranties and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors; but this Agreement and the rights and obligations
hereunder shall not be assignable or delegable by any party without the express
written consent of the non-assigning or non-delegating parties. Any assignment
or delegation without such consent will be void.
18.21 No Recordation. Without limiting any party's right to file suit to
enforce its rights under this Agreement and except as to those portions of this
Agreement set forth in the Assignment, Bill of Sale and Conveyance, Exhibit "F",
Buyer and Seller expressly covenant and agree not to record or place of record
this Agreement or any copy or memorandum hereof.
18.22 Independent Investigation. Buyer represents and acknowledges that it
is knowledgeable of the oil and gas business and of the usual and customary
practices of producers such as Seller and that it has had access to the Assets,
the offices and employees of Seller, and the books, records and files of Seller
relating to the Assets and 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 due diligence investigation of the Assets and
upon the representations and warranties made herein.
18.23 PG&E Contracts.
--------------
(a) Seller is a party to those agreements identified on Exhibit "J" as
AHC Contracts G2149, G2147, G2148 and G2146 (collectively the "PG&E Contracts"),
which provide generally for the purchase, gathering, compression and handling of
Seller's gas produced from the fields identified in Exhibit "J". Seller and
PG&E have been conducting negotiations for the termination of the PG&E Contracts
and settlement of various issues related thereto. As a part of the negotiation
to terminate the PG&E Contracts, Seller and PG&E have discussed entering into an
agreement to provide continuing gathering, compression and related services for
a term ("Compression Agreement"), an agreement for the installation, operation
and maintenance of certain facilities to connect Seller's wells to PG&E's
pipeline ("Interconnect Agreement"),
-39-
<PAGE>
and have also discussed the purchase by Seller from PG&E of an option to
purchase the gathering system and related assets currently owned by PG&E and
used to fulfill its obligations under the PG&E Contracts ("Option Agreement").
Seller has provided drafts of the proposed Compression Agreement and
Interconnect Agreement to Buyer for its review and shall provide a draft of the
proposed Option Agreement to Buyer when same is available.
(b) Except with respect to the Option Agreement, Seller shall have
full and complete discretion concerning the final execution of any agreements
with PG&E, although Seller agrees to keep Buyer informed of the progress of
these negotiations. Notwithstanding any other provision of this Agreement
(including, but not limited to, those set forth in Article IX), Seller shall
have the right to terminate the PG&E Contracts and settle various issues related
thereto (with Seller retaining all the financial consideration resulting
therefrom and any and all liabilities existing or arising under any such
settlement agreement and the PG&E agreements which are terminated as a result of
the settlement) and enter into the Compression Agreement and the Interconnect
Agreement.
(c) In the event Seller has negotiated terms for the Compression
Agreement and the Interconnect Agreement with PG&E which Seller is ready and
willing to accept, then Seller shall so notify Buyer in writing and shall submit
copies of the proposed agreements (except for the agreement to terminate the
PG&E Contracts and settle outstanding disputes) with such notice. In the event
the Compression Agreement and the Interconnect Agreement contain any material
modification, addition or deletion from the drafts of the agreements furnished
to Buyer for its review on or before November 9, which would have a material
adverse effect upon Buyer, then, notwithstanding any provision of this Agreement
to the contrary, Buyer shall have three (3) full business days after receipt of
the notice and the proposed agreements within which to make its election of
whether or not to terminate this Agreement. In the event Buyer elects to
terminate this Agreement, it shall provide written notice thereof to Seller and
Seller shall return the Deposit to Buyer and the parties shall have no further
obligation or liability hereunder.
(d) By 12:00 noon on November 16, 1998, Seller shall advise Buyer of
its progress in negotiating the Option Agreement and give Buyer copies of the
proposed drafts of such agreement which Seller has in its possession. If Buyer,
in its sole discretion, is not satisfied with the terms of the then proposed
Option Agreement, it may elect to terminate this Agreement by giving Seller
notice of such election on or before 12:00 noon on November 18, 1998. In the
event Buyer elects to terminate this Agreement, Seller shall return the Deposit
to Buyer, and the parties shall have no further obligation or liability
hereunder. In the event Buyer fails to give such termination notice, all rights
of Buyer to terminate this Agreement under this subparagraph (d) shall be
relinquished. Seller agrees not to execute the Option Agreement unless Buyer
consents to such execution and further agrees that it will execute such Option
Agreement upon the instruction of Buyer; provided that since the Option
Agreement is being negotiated for the benefit of Buyer, if such Option Agreement
is approved by Buyer and is executed, all benefits and obligations pertaining to
said agreement shall be Buyer's, and Buyer shall reimburse Seller for any
payments it makes under the Option Agreement (it being understood that the
payments Seller will probably make will be through a deduction of the amounts
owed Seller by PG&E),
-40-
<PAGE>
and the obligations assigned by Seller under the Option Agreement shall be
considered Assumed Obligations.
18.24 Access to Seller's Records Post Closing. After Closing Seller shall
provide to Buyer access to Seller's financial, accounting and other files and
records, during Seller's normal business hours, as may be reasonably necessary
or useful to Buyer in connection with filings required pursuant to the rules of
the Securities and Exchange Commission or other governmental authority in
connection with this transaction.
18.25 Like-Kind Exchange: Taxes. Seller desires to exchange for other
property of like-kind and qualifying use within the meaning of Section 1031 of
the Internal Revenue Code of 1986, as amended and the Regulations promulgated
thereunder, the Assets, which are the subject of this Agreement. To effect such
an exchange, Seller reserves the right to assign its rights, but not its
obligations, hereunder to a Qualified Intermediary as provided in Treasury
Regulations Section 1.1031(k)-1(g)(4) on or before Closing, and Buyer hereby
agrees to recognize any such assignment. Buyer agrees to cooperate with Seller
and with the Qualified Intermediary to ensure that the formalities of a like-
kind exchange are accomplished. Buyer shall not be obligated to pay any
additional costs or incur any additional obligations in their acquisition of the
Assets, which are the subject of this Agreement, and Seller shall indemnify
Buyer against all claims, expenses, losses and liabilities, if any, resulting
from Buyer's participation in such an exchange.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
AMERADA HESS CORPORATION
By:
______________________________
Name:
______________________________
Title:
______________________________
"SELLER"
SHERIDAN ENERGY, INC.
By:
______________________________
Name:
______________________________
Title:
______________________________
"BUYER"
-41-
