STOCK PURCHASE AND SALE AGREEMENT
Between
Mike Cantrell,
as Seller,
and
Pontotoc Production, Inc.,
as Buyer
Dated May 9, 2000
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS 1
1.01 Certain Definitions 1
1.02 Certain References 8
1.03 Plurals 9
1.04 Interpretation 9
ARTICLE II REDEMPTION OF REDEEMED SHARES;PURCHASE AND SALE OF
SELLER'S SHARES 9
2.01 Redemption 9
2.02 Consideration for Redemption 9
2.03 The Company's Oil and Gas Properties 9
2.04 Purchase and Sale 9
2.05 Purchase Price 9
2.06 Adjustment Amount 10
2.07 Closing 11
2.08 Deliveries at the Closing 11
2.09 Earnest Money Deposit 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER 12
3.01 Corporate Organization 12
3.02 Capitalization; Seller's Shares; Subsidiaries 12
3.03 Validity and Binding Effect 13
3.04 No Violation 13
3.05 Financial Statements 14
3.06 No Material Adverse Change 14
3.07 Oil and Gas Assets 15
3.08 Equipment and Inventory 16
3.09 Title to Real Property 16
3.10 Compliance with Laws Other than Environmental Laws 16
3.11 Contracts and Commitments 17
3.12 Contracts Not in Default 19
3.13 Insurance 19
3.14 Litigation and Judgments 20
3.15 Brokers and Finders 20
3.16 Labor Matters 20
3.17 Environmental Compliance 20
3.18 No Condemnation or Expropriation 21
3.19 Accounts Receivable 22
3.20 Powers of Attorney; Authorized Signature 22
3.21 Oil and Gas Reserves 22
3.22 Absence of Certain Business Practices 22
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3.23 Books and Records 22
3.24 Employee Benefit Plans 22
3.25 Tax Matters 25
3.26 Redeemed Interests 25
3.27 Exchange and Replacement Properties 26
3.28 Disclosure 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER 26
4.01 Corporate Organization 26
4.02 Authorization; Validity and Binding Effect 26
4.03 No Violation 27
4.04 Brokers and Finders 27
4.05 Investment Representation 27
4.06 Independent Investigation 27
ARTICLE V COVENANTS OF THE PARTIES 27
5.01 Full Access 27
5.02 Approvals and Consents 27
5.03 Filings 28
5.04 Covenants to Satisfy Conditions 28
5.05 Confidentiality; Employees; Negotiations 28
5.06 Publicity 29
5.07 Conduct of the Company's Business Pending the Closing 29
5.08 Further Assurances 30
5.09 Adjustments for Title Defects 31
(a) Access to Records 31
(b) Notice of Asserted Title Defects or
Interest Additions 31
(c) Method of Determination of Defect Amounts
and Purchase Price Adjustments 31
(d) Resolution of Title Defects 32
(e) Resolution of Interest Additions 32
(f) Election to Terminate 32
(g) Curative Actions 33
(h) Exchange Properties 33
5.10 Arbitration 33
5.11 Acquisition of Participant Interests 35
5.12 Release 35
5.13 Certain Operated Properties 35
ARTICLE VI CONDITIONS TO OBLIGATIONS OF SELLER 36
6.01 Representations and Warranties True 36
6.02 Performance 36
6.03 No Injunction 36
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6.04 Certificates 36
ARTICLE VII CONDITIONS TO OBLIGATIONS OF BUYER 36
7.01 Representations and Warranties True 36
7.02 Performance 37
7.03 No Injunction 37
7.04 Certificates 37
7.05 Approvals and Consents 37
7.06 Resignations 37
7.07 FIRPTA Affidavit 37
7.08 Participant Agreements 37
7.09 Opinion of Seller's Counsel 37
7.10 Release of Liens 37
7.11 Redemption Agreement 37
ARTICLE VIII INDEMNIFICATION; SURVIVAL AND LIMITATIONS OF
REPRESENTATIONS AND WARRANTIES 38
8.01 Indemnity by Seller 38
(a) Additional Taxes 38
(b) Certain Liabilities 38
(c) Representations, Warranties, and Covenants 38
(d) Redeemed Interests and Replacement Properties 38
(e) Indemnified Wells 38
(f) Professional Fees 39
8.02 Indemnity by Buyer 39
(a) Representations and Warranties 39
(b) Professional Fees 39
8.03 Investigations, Survival of Representations and Warranties 39
8.04 Defense of Third Party Claims 39
8.05 Limit on Indemnity Obligations 40
ARTICLE IX TERMINATION 40
9.01 Methods of Termination 40
9.02 Procedure Upon Termination 41
ARTICLE X DEFAULT AND REMEDIES 41
ARTICLE XI MISCELLANEOUS PROVISIONS 42
11.01 Amendment and Modification 42
11.02 Waiver of Compliance 42
11.03 Expenses 42
11.04 Notices 42
11.05 Assignment 43
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11.06 Governing Law 43
11.07 Prevailing Party 43
11.08 Counterparts 44
11.09 Entire Agreement 44
11.10 No Third Party Beneficiaries 44
11.11 Severability 44
EXHIBITS
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Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Stock Redemption Agreement
Exhibit C - Form of Purchase and Sale Agreement
Exhibit D - Form of Opinion of Seller's Counsel
Exhibit E - Form of Exchange Agreement
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DISCLOSURE SCHEDULE
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Section 1.01A Replacement Properties
Section 1.01B Exchange Properties
Section 1.01C Operated Wells
Section 2.02 Redeemed Interests
Section 3.02 Ownership of Stock or Other Equity Interests
Section 3.04 No Violation
Section 3.05 Company Financial Statements
Section 3.07 Oil and Gas Asset Matters
Section 3.08 Equipment and Inventory
Section 3.09 Real Property Matters
Section 3.11 Contracts and Commitments
Section 3.13 Insurance
Section 3.14 Litigation and Judgments
Section 3.19 Accounts Receivable
Section 3.20 Powers of Attorney; Bank Accounts; Safe Deposit Boxes
Section 3.21 Description of Reserve Report
Section 3.24 Employee Benefit Plans
Section 3.25 Tax Matters
Section 5.07 Conduct of the Company's Business Pending Closing
Section 5.09 WI, NRI and Value for each Property
Section 5.11 List of Participants, Interests to be Purchased
and Purchase Price
Section 5.13A Oil Center/OBEC Properties
Section 5.13B Oil Center Other Properties
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LOCATIONS OF DEFINITIONS OF
TERMS OUTSIDE OF ARTICLE I
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Section Number
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Agreement Opening Paragraph
Arbitrating Accountants 2.06(b)
Buyer Opening Paragraph
Buyer Indemnified Party 8.01
Buyer Losses 8.01
Casualty 5.07(c)
Closing Statement 2.06(a)
Company Recitals
Company Benefit Program or Agreement 3.24
Company Employee Benefit Plans 3.24
Company ERISA Affiliate 3.24
Company Plan 3.24
CPR Rules 5.10
Deposit 2.09
Exchange Agreement Recitals
Escrow Agent 2.09
Indemnifying Party 8.04
Indemnified Person 8.04
Interest Addition 5.09(b)
Interest Addition Notice 5.09(b)
Objection Period 2.06(b)
OCC 5.13
Oil Center 5.13
Oil Center/OBEC Properties 5.13
Oil Center Other Properties 5.13
Participant 5.11
Participant Agreement 5.11
Parties Recitals
Purchase Price 2.05
Redeemed Shares Recitals
Redemption Agreement 2.02
Redemption Interests 2.02
Release Date 8.03
Reserve Report 3.21
Seller Opening Paragraph
Seller Claims 5.12
Seller Losses 8.02
Seller's Shares Recitals
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Target Adjustment Amount 2.06(a)
Third Party Claim 8.04
Title Defect Notice 5.09(b)
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STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") dated as of May
9, 2000, is by and between Mike Cantrell, an individual residing in Ada,
Oklahoma ("Seller"), and Pontotoc Production, Inc., a Nevada corporation
("Buyer").
W I T N E S S E T H:
WHEREAS, Seller is the owner of all of the issued and outstanding shares
of capital stock of Oklahoma Basic Economy Corporation, an Oklahoma
corporation (the "Company"), consisting of 1,935 shares of common stock, par
value $10.00 per share; and
WHEREAS, the Company is engaged in the ownership and operation of oil and
gas properties; and
WHEREAS, prior to the Closing (as hereinafter defined), Seller desires
that the Company redeem 170 shares of its common stock owned by Seller (the
"Redeemed Shares"), in consideration of the assignment to Seller of certain
assets of the Company unrelated to the oil and gas business; and
WHEREAS, subsequent to the redemption of the Redeemed Shares, Buyer
desires to purchase the remaining 1,765 shares of the Company's common stock
(the "Seller's Shares") from Seller, and Seller desires to sell the Seller's
Shares to Buyer, on the terms and subject to the conditions hereinafter set
forth; and
WHEREAS, subsequent to the Closing, Seller and Buyer desire that the
Company and Seller engage in a transaction intended to qualify as a like-kind
exchange under Section 1031 of the Code (as hereinafter defined) pursuant to
the terms of a letter agreement between Seller and the Company in the form
attached hereto as Exhibit E (the "Exchange Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, Buyer and Seller (the "Parties"), intending
to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
"Adjustment Amount" shall mean Current Assets minus Liabilities at any
given date.
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"Affiliate" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person. The
term "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the actual power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of stock, by contract, credit arrangement or otherwise.
"Balance Sheet Date" shall mean February 29, 2000.
"Best Efforts" shall not include efforts which require the performing
Party (a) to do any act that is commercially unreasonable under the
circumstances, (b) to make any capital contribution not expressly contemplated
hereunder or (c) to amend or waive any rights under this Agreement.
"Business Day" shall mean any day other than a Saturday, Sunday or day on
which banks in Oklahoma are required or permitted by law to be closed.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any successor statutes and any
regulations promulgated thereunder.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List.
"Claim" shall mean any demand, claim, action or cause of action based on
any Loss as to the Company.
"Closing" shall mean the consummation of the purchase and sale of the
Seller's Shares contemplated by this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Employees" shall mean all persons employed by the Company.
"Company Financial Statements" shall mean the balance sheet, statement of
operations, and statement of cash flows, and the notes thereto, of the Company
at September 30, 1999, and February 29, 2000, and for the twelve and five
month periods, respectively, then ended.
"Company's Business" shall mean the business of the Company as currently
conducted and as heretofore conducted, unless otherwise expressly stated.
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"Contracts" shall mean all written or oral contracts, agreements, leases,
purchase orders, instruments, commitments and understandings relating to the
Company's Business to which the Company is a party or by which any of the
assets of the Company is bound or to which the Company's Business is subject.
"Current Assets" shall mean the amount of the Company's cash plus its
accounts receivable which are less than 90 days old (excluding any accounts
receivable which are known by the Company or Seller to be uncollectible) at
any given date.
"Defect Amount" shall mean the amount attributable to a Title Defect,
determined in accordance with Section 5.09(c).
"Defensible Title" shall mean, with respect to the Company's ownership of
a Property, a record title or title established by orders of state regulatory
agencies that (a) entitles the Company to receive, throughout the life of such
Property, not less than the NRI for such Property shown in the Property
Schedule, (b) obligates the Company to bear, throughout the life of such
Property (and the plugging, abandonment and salvage thereof), no greater WI
for such Property than the WI shown therefor in the Property Schedule, except
increases in such WI that result in at least a proportionate increase in the
Company's NRI for such Property, and (c) is free and clear of all Encumbrances
except for Permitted Encumbrances.
"Disclosure Schedule" shall mean the document delivered by Seller and
Buyer simultaneously with the execution of this Agreement containing the
information required to be included therein pursuant to this Agreement.
"Environmental Claims" shall mean Claims alleging or brought in connection
with Environmental Noncompliances which first occurred prior to the Closing
Date, including Claims arising under CERCLA; Claims for personal injury or
property damage or damages to natural resources; and Claims for the recovery
of response costs, or costs in connection with administrative or judicial
orders directing the performance of investigations, response or Remedial
Actions under any Environmental Law.
"Environmental Laws" shall mean all laws governing, regulating or
pertaining to environmental matters or the protection of the environment or
environmentally sensitive areas as in effect prior to the Closing Date
(including CERCLA and RCRA) and the common law related to nuisance.
"Environmental Noncompliance" shall mean any aspect of the Company's
Business that gives rise to liability under or is not in compliance with any
applicable Environmental Laws and arises out of or relates to the operation of
the Company's Business prior to the Closing Date.
"Encumbrance" shall mean any lien (statutory or other), claim, charge,
security interest, mortgage, deed of trust, pledge, hypothecation, assignment,
conditional sale or other title retention agreement, preference, priority or
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other security agreement or preferential arrangement of any kind or nature,
and any easement, encroachment, covenant, restriction, contract right, right
of way, defect in or cloud on title or other encumbrance of any kind.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"Escrow Agreement" shall mean the agreement the form of which is Exhibit A
to this Agreement.
"Exchange Properties" shall mean all of Seller's interests in the
properties described in Section 1.01B of the Disclosure Schedule and other
assets related thereto which are to be transferred to the Company pursuant to
the Exchange Agreement.
"Governmental Entity" shall mean any governmental, regulatory or Indian
authority or instrumentality, or any department or agency thereof, including
any court, administrative agency, commission or central banking authority.
"Hazardous Materials" shall mean (a) hazardous waste, hazardous
substances, hazardous contents, toxic substances or related substances,
whether solids, liquids or gases, defined as "hazardous wastes," "hazardous
substances," "toxic substances," "pollutants," "contaminants," or other
similar designations in, or otherwise subject to, regulations under any
Environmental Law, including asbestos and polychlorinated biphenyls, and (b)
petroleum, refined petroleum products and any such substances in their used or
waste state.
"Hydrocarbons" shall mean oil, condensate, natural gas, natural gas
liquids, casinghead gas and liquid and gaseous hydrocarbons and any
combination or mixture of the foregoing.
"IRS" shall mean the United States Internal Revenue Service.
"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
encumbrance, equity, claim, option, tenancy, right or restriction on transfer
of any nature whatsoever.
"Leases" shall mean all oil, gas and/or mineral leases in which the
Company owns an interest.
"Liabilities" shall mean the current, long-term and other liabilities of
the Company at any given date.
"Loss" shall mean any loss, damage, liability, cost, assessment or expense
including any interest, fine, court cost, reasonable investigation cost,
penalty, reasonable attorneys' and expert witnesses' fees, or reasonable
disbursements and expenses.
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"NRI" shall mean a fractional or percentage interest in and to all
Hydrocarbons produced from or allocated to a Property after deduction of all
lessors' royalties, overriding royalties, and other burdens and payments out
of production that burden such fractional or percentage interest in such
Property.
"Oil and Gas Assets" shall mean collectively the Leases, Wells,
Properties, Systems and Related Facilities.
"Oil and Gas Agreements" shall mean all of the Leases, assignments or
other instruments or agreements that comprise or affect the Oil and Gas Assets
or the ownership or operation thereof by the Company and all contractually
binding arrangements to which the Oil and Gas Assets may be subject (including
oil, gas and other mineral leases; overriding royalty assignments; net profits
interest assignments; farm-out and farming agreements; option agreements;
forced pooling orders; assignments of production payments; unit agreements;
joint operating agreements; unit operating agreements; production, marketing,
gathering, processing, purchase and transportation contracts; and division
orders).
"Operated Wells" shall mean all oil and gas wells for which the Company
acts as operator, a complete list of which is set forth in Section 1.01C of
the Disclosure Schedule.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permit" shall mean any permit, approval, authorization, license, variance
or permission required by a Governmental Entity under any applicable
Environmental Law.
"Permitted Encumbrances" shall mean:
(a) liens for taxes and other governmental charges and
assessments arising in the ordinary course of business which are not yet due
and payable, or, if due, are being challenged in good faith by appropriate
proceedings and as to which adequate reserves have been established on the
Company's Financial Statements;
(b) liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the ordinary course
of business for sums not yet due and payable, and that will be paid or
discharged in the ordinary course of business or, if delinquent, that are
being contested in good faith in the ordinary course of business and as to
which adequate reserves have been established on the Company's Financial
Statements;
(c) Encumbrances under operating agreements, unitization and
pooling arrangements and Hydrocarbon sales contracts that secure payment of
amounts not yet due and payable, or, if due, that are being contested in good
faith in the ordinary course of business, which are of a nature and scope
customary in connection with oil and gas drilling and producing operations and
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as to which adequate reserves have been established on the Company's Financial
Statements;
(d) easements, rights-of-way, servitudes, permits, surface use
limitations, surface leases, and other rights in respect of surface operations
that do not materially interfere with the Company's operations of the portion
of the Properties burdened thereby;
(e) rights reserved to or vested in any Governmental Entity to
control or regulate any of the Properties and all applicable laws, rules,
regulations, and orders of such authorities so long as the same do not (i)
decrease the Company's NRI below the NRI shown in the Property Schedule, or
increase the Company's WI above the WI shown in the Property Schedule, without
at least a proportionate increase in the Company's NRI, or (ii) create any
liens in respect of such Properties;
(f) the terms and conditions of the Contracts relating to the
Properties to the extent such terms and conditions (i) do not decrease the
Company's NRI below the NRI shown in the Property Schedule, or increase the
Company's WI above the WI shown in the Property Schedule, without at least a
proportionate increase in the Company's NRI, (ii) are normal and customary in
the oil and gas industry, and (iii) do not conflict with any other portion of
this definition of Permitted Encumbrances;
(g) royalties, overriding royalties, net profits interests,
production payments, reversionary interests, and similar interests that do not
decrease the Company's NRI below the NRI shown in the Property Schedule, or
increase the Company's WI above the WI shown in the Property Schedule, without
at least a proportionate increase in the Company's NRI;
(h) conventional rights of reassignment requiring the Company
to reassign interests in any Property to a third party, or to give notice to
the holders of such rights, prior to surrendering, abandoning or releasing
such Property;
(i) calls on production exercisable only at prices
substantially equivalent to then-current fair market value;
(j) consents to assignment and preferential rights to purchase
any or all of the Properties other than any such consents or rights which (i)
are applicable to the transactions contemplated by this Agreement or (ii) were
applicable to a previous transaction involving the transfer of all or any
portion of the Properties but were not complied with at the time of the
consummation of such transaction;
(k) all rights to consent by, required notices to, filings
with, or other action by Governmental Entities in connection with the
Properties; and
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(l) mortgages, financing statements and other security
interests or liens in favor of the Citizens Bank of Ada covering any of the
assets or properties of the Company which are to be released or terminated
prior to the Closing.
"Person" shall mean an individual, a partnership, a limited liability
company, a joint venture, a corporation, a trust, an unincorporated
organization, a Governmental Entity or any other entity.
"Properties" shall mean the Exchange Properties and all of the Company's
right, title and interest in: the Leases; fee, mineral, royalty,
nonparticipating royalty and overriding royalty interests; net profits
interests; production payments; other payments out of or pursuant to
production of Hydrocarbons and other rights, including contractual rights to
production, or rights acquired pursuant to regulatory order or rights acquired
pursuant to pooling or unitization.
"Property Schedule" shall mean the Schedule included as Section 5.09 of
the Disclosure Schedule which sets forth the NRI, WI and Value attributed to
each Property.
"RCRA" means the Resource Conservation and Recovery Act, as amended, or
any successor statutes or regulations promulgated thereunder.
"Records" shall mean all books and records of the Company, including title
records, computer records, Contracts, correspondence, microfiche lists,
geological and geophysical records, data and information (including
interpretive information), production records, electric logs, core data,
pressure data, decline curves and graphical production curves and accounting
records.
"Related Facilities" shall mean all property, whether real or personal,
(other than the Leases and the Properties) and other rights of any nature
whatsoever owned by the Company and used in connection with operations
conducted at or incident or related to the Properties or the Leases, whether
located on or off of the Properties or the Leases or on properties pooled or
unitized therewith, including the Systems; all wells, fixtures, casing and
tubing; production, gathering, treating, processing, compression, dehydration,
salt water disposal and pipeline equipment and facilities; tanks, machines,
tools, dyes, vessels, and similar equipment and facilities; and all licenses,
leases, easements, permits, actions and rights-of-way.
"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of any Hazardous
Material or other substance through or in the air, soil, surface water,
groundwater or property.
"Remedial Action" shall mean all actions required by applicable
Environmental Law (whether voluntarily or involuntarily undertaken) to (a)
clean up, remove, treat or in any other way address any Hazardous Material or
other substance in the indoor or outdoor environment; (b) prevent the Release
or threat of Release, or minimize the further Release of any Hazardous
Material so it does not migrate or endanger or threaten to endanger the indoor
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or outdoor environment; or (c) perform pre-remedial studies and investigations
and post-remedial monitoring and care.
"Replacement Properties" shall mean all of the Company's interests in the
properties described in Section 1.01A of the Disclosure Schedule and other
assets related thereto which are to be transferred to Seller pursuant to the
Exchange Agreement.
"Systems" shall mean all gas gathering facilities, pipelines and gas
processing plants in which the Company owns an interest and all licenses,
leases, easements, permits, actions, rights-of-way and all other real and
personal property related thereto.
"Tax Return" shall mean any report, return, declaration or other
information required to be supplied to a Governmental Entity in connection
with Taxes.
"Taxes" shall mean all taxes, levies or other like assessments, charges or
fees, including income, gross receipts, severance, excise, value added, real
or personal property, withholding, asset, sales, use, license, payroll,
transaction, capital, business, corporation, employment, net worth and
franchise taxes, or other governmental taxes imposed by or payable to the
United States of America or any State or foreign Governmental Entity, whether
computed on a separate, consolidated, unitary, combined or any other basis;
and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax.
"Title Defect" shall mean any Encumbrance, irregularity of title or other
condition that causes the Company's title to one or more of the Properties (or
any portion thereof), or the Hydrocarbons attributable thereto, to be less
than Defensible Title.
"Value" shall mean the value allocated to a Property set forth on the
Property Schedule.
"Wells" shall mean all oil and gas wells located on the Properties in
which the Company owns an interest, including plugged and abandoned wells and
wells which require plugging and/or abandonment.
"WI" shall mean a fraction or percentage of the costs and expenses
associated with the maintenance, exploration, development, operation and
abandonment of a Property.
1.02 Certain References. References made to an "Article" or a
"Section," unless otherwise specified, refer to the corresponding Article or
Section of this Agreement. All references to the Company in Seller's
representations and warranties set forth in this Agreement shall be deemed to
include Oil Center Operating, Inc., an Oklahoma corporation, which merged into
the Company on December 31, 1998. References in this Agreement to the
knowledge or belief of Seller mean the actual knowledge or conscious awareness
of Seller. The words "this Agreement," "herein," "hereby," "hereunder" and
"hereof," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words
"this Article," "this Section" and "this subsection," and words of similar
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import, refer only to the Article, Section or subsection hereof in which such
words occur.
1.03 Plurals. As used herein, the plural form of any noun shall
include the singular and the singular shall include the plural, unless the
context otherwise requires. Each of the masculine,
neuter and feminine forms of any pronoun shall include all such forms unless
the context otherwise requires.
1.04 Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, and shall not in any
way affect the meaning or interpretation of this Agreement. The word "or" is
not exclusive, and the word "including" (in its various forms) means including
without limitation.
ARTICLE II
REDEMPTION OF REDEEMED SHARES;
PURCHASE AND SALE OF SELLER'S SHARES
2.01 Redemption. Prior to the Closing, Seller shall transfer, assign
and convey the Redeemed Shares to the Company and the Company shall purchase
and redeem the Redeemed Shares from Seller. The stock certificate(s)
representing the Redeemed Shares shall be delivered by Seller to the Company
prior to the Closing duly endorsed for transfer free and clear of any Liens.
2.02 Consideration for Redemption. The consideration to be given by
the Company to Seller for the Redeemed Shares is set forth at Schedule 2.02 of
the Disclosure Schedule (the "Redemption Interests"). The Redemption
Interests shall be conveyed to Seller by the Company's execution and delivery
of the assignment and bill of sale contemplated by the form of Stock
Redemption Agreement attached hereto as Exhibit B (the "Redemption
Agreement"). Such assignment shall be effective as of the Closing Date and
shall be expressly made without any warranty or representation, express or
implied, as to title, condition or any other matter (but, to the extent
transferable, with subrogation of Seller to all covenants and warranties
theretofore made by any of the Company's predecessors in title).
2.03 The Company's Oil and Gas Properties. The redemption of the
Redeemed Shares shall involve only the Redemption Interests. All oil and gas
properties of the Company and all other assets and properties of the Company
shall remain in the Company.
2.04 Purchase and Sale. At the Closing, Buyer shall purchase from
Seller, and Seller shall sell to Buyer, the Seller's Shares on the terms and
subject to the conditions set forth in this Agreement.
2.05 Purchase Price. In consideration for the purchase of the Shares,
Buyer shall pay to Seller the sum of $8,000,000.00 (the "Purchase Price"),
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subject to adjustment (a) prior to the Closing as set forth in Sections
5.07(c) and 5.09 and (b) after the Closing as set forth in Section 2.06. The
Purchase Price, as so adjusted prior to the Closing, shall be paid to Seller
at the Closing.
2.06 Adjustment Amount.
(a) The Purchase Price was determined based on the assumption
that the Adjustment Amount at the Closing Date would be equal to $0.00 (the
"Target Adjustment Amount"). Within 90 days after the Closing Date, Buyer
will cause the Company to prepare and provide to Buyer and Seller a statement
showing Current Assets, Liabilities and the Adjustment Amount as of the
Closing Date (the "Closing Statement"). Seller shall be provided with
reasonable access to the Company's workpapers and back-up materials relating
to the preparation of the Closing Statement.
(b) If Seller objects to the Company's calculation of the
Adjustment Amount as reflected in the Closing Statement, Seller shall deliver
to Buyer within 30 days after receipt of the Closing Statement (the "Objection
Period"), a written statement describing his objections thereto. In the event
Seller fails to deliver such written statement prior to the expiration of the
Objection Period, the Closing Statement shall be final, conclusive and binding
upon Buyer and Seller. In the event Seller delivers such written statement
prior to the expiration of the Objection Period, Seller and Buyer will use all
reasonable efforts to resolve any dispute. If a final resolution is not
obtained within 30 days after Seller has delivered such written notice, either
Seller or Buyer may submit any remaining disputes for resolution to a
nationally recognized accounting firm mutually agreeable to Seller and Buyer
(such accounting firm shall be referred to herein as the "Arbitrating
Accountants") which firm shall resolve such dispute within 30 days following
its selection. The Arbitrating Accountants' determination of the Adjustment
Amount shall be final, conclusive and binding upon Buyer and Seller.
(c) Seller and Buyer shall cooperate with the Arbitrating
Accountants in all respects, including providing the Arbitrating Accountants
with all work papers and back-up materials used in preparation and review of
their calculations of the Adjustment Amount.
(d) The fees, expenses and costs of the Arbitrating Accountants
shall be borne by the party (Seller or Buyer) whose estimation of the
Adjustment Amount, taking into account any changes made prior to submission to
the Arbitrating Accountants, is farthest from the Adjustment Amount as finally
determined by the Arbitrating Accountants.
(e) Within 10 days after the first to occur of (i) the
expiration of the Objection Period, in the event no objection has been made,
(ii) the mutual resolution of any dispute, in the event an objection has been
made, or (iii) the delivery of the final calculation of the Adjustment Amount
by the Arbitrating Accountants: (x) if the amount of the Adjustment Amount,
as reflected on the Closing Statement, is less than the Target Adjustment
Amount, Seller shall pay to Buyer the amount by which the Adjustment Amount,
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as reflected on the Closing Statement, is less than the Target Adjustment
Amount, with interest from the Closing Date until payment at a rate per annum
equal to 8%, or (y) if the amount of the Adjustment Amount, as reflected on
the Closing Statement, is greater than the Target Adjustment Amount, Buyer
shall pay to Seller the amount by which the Adjustment Amount, as reflected on
the Closing Statement, is greater than the Target Adjustment Amount, with
interest from the Closing Date until payment at a rate per annum equal to 8%.
The amount of such payment shall be treated as an adjustment to the Purchase
Price.
2.07 Closing. Subject to Section 9.01, the Closing shall take place in
the offices of Conner & Winters in Tulsa, Oklahoma, at 10:00 a.m. local time
on June 1, 2000, or at such other place, date and time as the Parties may
mutually agree; provided, however, that Buyer may, upon notice to Seller given
prior to June 1, 2000, delay the Closing Date until June 30, 2000, in the
event Buyer's bank or other financing party has not satisfied itself as to
title or other issues with respect to the Company prior to June 1, 2000.
2.08 Deliveries at the Closing.
(a) At the Closing, Buyer shall deliver the following to
Seller:
(i) the Purchase Price, as the same may be adjusted
pursuant to Sections 5.07(c) and 5.09, less the Deposit, by wire transfer to
an account designated in writing by Seller at least two Business Days prior to
the Closing Date; and
(ii) the written instructions to Escrow Agent
contemplated by Section 2.09(a).
(b) At the Closing, Seller shall deliver the following to
Buyer:
(i) a certificate or certificates evidencing the
Seller's Shares, in negotiable form, duly endorsed in blank or with separate
stock powers executed in blank attached thereto; and
(ii) the written instructions to Escrow Agent
contemplated by Section 2.09(a).
2.09 Earnest Money Deposit. Upon the signing of this Agreement, Buyer
has deposited with Citizens Bank of Ada as escrow agent ("Escrow Agent") Five
Hundred Thousand Dollars ($500,000.00) as an earnest money deposit ("Deposit")
pursuant to the Escrow Agreement. The Deposit shall be invested in an
interest bearing account and any interest earned on the Deposit shall be
considered part of the Deposit. Pursuant to the terms of the Escrow
Agreement:
(a) Escrow Agent will pay the Deposit to Seller in connection
with the Closing upon the Parties' written instructions to Escrow Agent to
such effect; or
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(b) Escrow Agent will pay the Deposit to Seller no earlier than
the fifth Business Day after Seller's notification to Escrow Agent and Buyer
that (i) the Closing failed to occur on or before June 30, 2000 (or any
extension of such date by written agreement signed by Seller and Buyer and
furnished to Escrow Agent) because Buyer failed to make one or more of the
deliveries required of Buyer by Section 2.08(a) and (ii) the conditions to the
obligations of Buyer stated in Article VII have been fulfilled or waived in
writing by Buyer; or
(c) Escrow Agent will return the Deposit to Buyer (i) upon any
termination of this Agreement other than upon Escrow Agent's rightful payment
of the Deposit to Seller pursuant to Section 2.09(b) or (ii) if by 5:00 p.m.,
Central Time, on June 30, 2000 (or any extension of such time and/or date by
written agreement signed by Seller and Buyer and furnished to Escrow Agent)
Escrow Agent has received neither the written instructions specified in
subsection (a) of this Section 2.09 nor the written certification specified in
subsection (b) of this Section 2.09.
Buyer and Seller agree that (x) the amount of actual damages which Seller
would suffer as a result of Buyer's default would be extremely difficult to
determine and (y) the amount of the Deposit is a reasonable estimate of
Seller's damages, is intended to constitute a fixed amount of liquidated
damages in lieu of all other remedies available to Seller, and is not intended
to constitute a penalty.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.01 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Oklahoma. The Company has all requisite corporate authority and power to
own and operate its properties and assets and to conduct its business as such
business is now being conducted by it. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business or the ownership of its properties and
assets requires such qualification or good standing, except where the failure
to be so qualified and in good standing would not have a material adverse
effect on the Company's Business. Copies of the certificate of incorporation
and bylaws of the Company have heretofore been delivered to Buyer, and such
copies are accurate and complete as of the date hereof.
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3.02 Capitalization; Seller's Shares; Subsidiaries. The authorized
capital stock of the Company consists of Eight Thousand (8,000) shares of
common stock, par value $10.00 per share, of which One Thousand Nine Hundred
Thirty-five (1,935) shares are issued and outstanding. The Redeemed Shares
and the Seller's Shares have been duly authorized and validly issued, are
fully paid and non-assessable, and were issued in compliance with all
applicable federal and state securities laws. Seller owns all of the Redeemed
Shares and the Seller's Shares free and clear of all Liens. There are no
outstanding subscriptions, options, warrants, convertible securities, calls,
commitments, agreements or rights (contingent or otherwise) to purchase or
otherwise acquire from the Company or Seller any shares of, or any securities
convertible into, the capital stock of the Company. There are no preemptive
rights with respect to the issuance of any shares of the capital stock of the
Company. The Redeemed Shares and the Seller's Shares are held beneficially
and of record by Seller. The Seller's Shares will be conveyed to Buyer at the
Closing free and clear of any Lien, restriction on transfer (other than any
restrictions under federal and state securities laws), option, warrant,
purchase right or other contract or commitment (other than this Agreement).
The Redeemed Shares and the Seller's Shares are not subject to any proxy,
shareholders agreement, voting trust agreement or other contract, agreement,
arrangement, commitment or understanding restricting or otherwise relating to
the voting, dividend, disposition or other rights with respect to the Redeemed
Shares or the Seller's Shares. Except as set forth on Section 3.02 of the
Disclosure Schedule, the Company has never owned and does not own any stock or
other equity interest (controlling or otherwise) in any Person excluding stock
representing less than 5% of the outstanding stock of a publicly traded
company and excluding any stock included in the Redeemed Interests.
3.03 Validity and Binding Effect. This Agreement has been duly and
validly executed and delivered by Seller and constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except that (a) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3.04 No Violation. Except as set forth in Section 3.04 of the
Disclosure Schedule, none of the execution and delivery of this Agreement, the
performance by Seller of his obligations hereunder or the consummation by
Seller of the transactions contemplated hereby will:
(a) require Seller or the Company to file or register with, or
obtain any permit, authorization, consent or approval of, any Governmental
Entity;
(b) require Seller or the Company to obtain any authorization,
consent or approval of any other Person;
(c) violate any provision of the certificate of incorporation
or bylaws of the Company;
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(d) either itself or with notice or lapse of time or both,
violate or be in conflict with, or constitute a breach or default under, or
result in the termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation pursuant to,
or result in the creation or imposition of any Lien upon any of the Seller's
Shares or any of the properties or assets of the Company under any Contract or
other arrangement to which Seller or the Company is a party or by which Seller
or the Company is bound or to which any of their assets is subject;
(e) violate any statute, law, regulation or rule of any
Governmental Entity applicable to Seller or the Company; or
(f) violate any judgment, decree or order of any Governmental
Entity or any arbitration award applicable to Seller or the Company.
3.05 Financial Statements. Annexed as Section 3.05(a) of the
Disclosure Schedule are the Company Financial Statements. The Company
Financial Statements have been prepared in accordance with the accounting
principles described therein and present fairly in all material respects the
financial condition and results of operations of the Company at the dates
thereof and for the periods then ended. At the Balance Sheet Date, the
Company did not have any indebtedness or liability, fixed or unfixed,
liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise, which were not reflected or reserved against on the
Company Financial Statements or described in the notes thereto.
3.06 No Material Adverse Change. Since the Balance Sheet Date and
except as contemplated by this Agreement (including Section 2.02), the Company
has not
(a) experienced any change in the financial condition or
results of operations of the Company that is materially adverse to the
Company's Business;
(b) suffered any damage, destruction or similar Loss to any of
its properties or assets as a result of flood, fire, explosion or other
casualty (whether or not covered by insurance) in an amount in excess of
$10,000 in the aggregate;
(c) experienced any event or events which in any one case or in
the aggregate has resulted in a material adverse change in the Company's
Business;
(d) paid or declared any dividends or distributions or
purchased, redeemed, acquired or retired any of its indebtedness, stock or
other securities;
(e) except for Permitted Encumbrances, suffered or permitted
any Lien to arise or be granted or created against or upon any of its assets;
(f) amended its certificate of incorporation or bylaws;
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(g) made or permitted any amendment, supplement, modification
or termination of any Contract other than in the ordinary course of business
and consistent with past practice;
(h) sold, leased, transferred, assigned or otherwise disposed
of any assets that, individually or in the aggregate, had a book value at the
time of such lease, transfer, assignment or disposition of $5,000 or more;
provided, however, that this subsection (h) shall not apply to products sold,
leased, transferred, assigned or otherwise disposed of in the ordinary course
of business and consistent with past practice;
(i) made any investment in or contribution, advance or loan to
any Person;
(j) paid, loaned or advanced (other than the payment, advance
or reimbursement of expenses in the ordinary course of business) any amounts
to, or sold, transferred or leased any of its assets to, or entered into any
other transactions with, any of its Affiliates which will remain outstanding
as of the Closing;
(k) made any material change in any of the accounting
principles followed by the Company;
(l) increased benefits or benefit plan costs or changed bonus,
insurance, pension, compensation or other benefit plans or arrangements or
granted any bonus or increase in wages, salary or other compensation or made
any other change in employment terms to any officers, directors or employees
of the Company;
(m) canceled, compromised, waived, or released any right or
claim (or series of related rights and claims) involving more than $5,000,
individually, or $25,000, in the aggregate;
(n) made any loan to, or entered into any other transaction
with, any of its directors, officers, or employees outside the ordinary course
of business which will remain outstanding as of the Closing;
(o) made any capital expenditures in excess of $10,000,
individually, or $25,000, in the aggregate; or
(p) agreed, whether in writing or otherwise, to do any of the
actions set forth in subsections (d) through (o) above.
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3.07 Oil and Gas Assets.
(a) Except as set forth in Section 3.07 of the Disclosure
Schedule, Section 1.01A of the Disclosure Schedule, and the Property Schedule,
the Company does not own any Oil and Gas Assets.
(b) Section 1.01A of the Disclosure Schedule and the Property
Schedule accurately reflects the Oil and Gas Assets as shown on the books and
records of the Company.
(c) For purposes of this Section 3.07, it is understood and
agreed that the sale of the Seller's Shares to Buyer is expressly conditioned
upon Buyer's approval of title to, ownership of, interest in and right to
possess the Properties. Seller's sole warranty with respect to the title to
the Properties is limited to the warranty that there are no Title Defects
thereon created or arising by, through or under the Company (but not
otherwise).
(d) Section 1.01C of the Disclosure Schedule sets forth a
complete list of all Operated Wells.
(e) To Seller's or the Company's knowledge, Section 1.01C of
the Disclosure Schedule sets forth the number of Wells with respect to each
Lease that are currently inactive.
3.08 Equipment and Inventory. The Company has good and valid title,
free and clear of all Liens, to the equipment and inventory listed in Section
3.08 of the Disclosure Schedule. Such equipment and inventory, together with
the Oil and Gas Assets, constitute all the material assets and properties that
are used in or necessary for the Company's Business. All of such equipment
and inventory are in sufficient operating condition and repair for the conduct
of the Company's Business in the ordinary course and consistent with past
practices (except for ordinary wear and tear and obsolescence).
3.09 Title to Real Property. Except for the Oil and Gas Assets and
except as described in Section 3.08 and Section 3.09 of the Disclosure
Schedule and Section 1.01A of the Disclosure Schedule, the Company does not
own or lease any interest in real property. The use and operation of the real
property described in such Section in the conduct of the business of the
Company does not violate in any material respect any instrument of record or
agreement affecting such real property. The Company has good and valid title
to such real property free and clear of all Liens. The existing office lease
between Seller and the Company shall be terminated prior to the Closing and
the Company shall have no further obligations thereunder.
3.10 Compliance with Laws Other than Environmental Laws. Except with
respect to Environmental Laws which are the subject of Section 3.17 to
Seller's or the Company's knowledge:
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(a) the Company's Business and all operations and activities in
connection therewith have been and are conducted and operated in compliance in
all material respects with all laws, ordinances, regulations and orders of all
Governmental Entities;
(b) the Company has all permits, certificates, licenses,
approvals and other authorizations required in connection with the operation
of the Company's Business except those the absence of which will not have a
material adverse effect on the Company's Business; and
(c) no written notice has been received by the Company and, to
Seller's or the Company's knowledge, no investigation or review is pending or
threatened by any Governmental Entity, with respect to (i) any alleged
violation by the Company of any law, ordinance, regulation or order of any
Governmental Entity, or (ii) any alleged failure to have any permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the Company's Business.
3.11 Contracts and Commitments.
(a) Section 3.11 of the Disclosure Schedule sets forth a list
of (x) all non-competition or other agreements preventing or restricting the
Company from carrying on any business, (y) all secrecy and confidentiality
agreements (other than in connection with this Agreement), and (z) all of the
following Contracts with respect to which the aggregate amount that could
reasonably be expected to be paid or received thereunder in the future
exceeds $5,000 per annum or $10,000 in the aggregate:
(i) all leases of personal or real property (other than
the Leases) to which the Company is a party;
(ii) all commodity or other swap, exchange or futures
contracts;
(iii) all marketing agreements;
(iv) all Oil and Gas Agreements (excluding Leases);
(v) all credit agreements, mortgages, security
agreements, letters of credit, pledge agreements, bonds, notes, indentures or
other instruments or agreements of the Company relating to borrowed or loaned
money or the extension of credit which will not be canceled or otherwise
terminated prior to the Closing Date;
(vi) all guarantees and other agreements or instruments
executed by the Company with respect to the obligations of another Person;
(vii) all surety, guarantee or indemnification agreements;
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(viii) employment, consulting, agency, collective
bargaining and other similar contracts, agreements, and other instruments and
arrangements relating to or for the benefit of current, future or former
employees, officers, directors, agents, independent contractors or
consultants;
(ix) brokerage or finder's agreements;
(x) joint venture, partnership and similar contracts
involving a sharing of profits or expenses;
(xi) asset purchase agreements and other acquisition or
divestiture agreements, including any agreements relating to the sale, lease
or disposal of any assets (other than sales of inventory in the ordinary
course of business) or involving continuing indemnity or other obligations;
and
(xii) contracts, agreements or commitments with Seller or
any employee, director, officer, stockholder or Affiliate of the Company.
Seller has delivered to Buyer complete and correct copies of all written
Contracts, together with all amendments thereto, and accurate descriptions of
all material terms of all oral Contracts, set forth or required to be set
forth in Section 3.11 of the Disclosure Schedule.
(b) Except as set forth in Section 3.11 of the Disclosure
Schedule and except those of which Buyer is notified by Seller pursuant to
Section 5.07(d), there are no agreements, authorizations for expenditures or
proposals pending that (i) require, permit or propose the drilling of wells or
other operations in order to earn or to continue to hold all or any portion of
the Properties or (ii) obligate the Company to make payments of any material
amounts in connection with the drilling of wells or other material
expenditures affecting the Properties.
(c) Except as set forth in Section 3.11 of the Disclosure
Schedule, the Company is not obligated by virtue of (i) a prepayment
arrangement under any contract for the sale of Hydrocarbons and containing a
"take or pay" or similar provision, (ii) a production payment or (iii) any
other arrangement to deliver Hydrocarbons or proceeds from the sale thereof
attributable to the Properties at some future time without then or thereafter
receiving full payment therefor.
(d) Except as set forth in Section 3.11 of the Disclosure
Schedule, there exist no gas or transportation imbalances with respect to the
Wells or the Properties.
(e) All ad valorem, property, production, severance, excise and
similar taxes and assessments based on or measured by the ownership of the
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Properties or the production of Hydrocarbons or the receipt of proceeds
therefrom on the Properties that have become due and payable have been
properly paid, including any such taxes or assessments due on Indian leases.
(f) Except for items as to which a bona fide dispute exists
which either are not material in the aggregate or as to which appropriate
reserves have been established by the Company on the Company's Financial
Statements and items held in suspense and as set forth in Section 3.11 of the
Disclosure Schedule, the Company is current on all payments to vendors,
contractors or subcontractors and in its disbursements to royalty owners and
other parties to whom the Company has a duty to pay or disburse, and the
Company shall continue to cause such payment and disbursements to be made
until the Closing Date.
(g) The Company does not maintain suspense accounts. All
suspense accounts relating to production from the Operated Wells are
maintained by the purchasers of such production.
(h) To the Seller's or the Company's knowledge, all payments
(including royalties, delay rentals, shut-in royalties, minimum royalties and
valid calls under unit or operating agreements) due under the Leases and Oil
and Gas Agreements have been made by the Company.
(i) Except for standard and customary provisions of joint
operating agreements and leases which entitle working interest and royalty
owners the right to take production in kind or as set forth in Section 3.11 of
the Disclosure Statement, no Person has any call upon any production for the
Properties, option to purchase any production from the Properties, or similar
rights with respect to any production from the Properties.
3.12 Contracts Not in Default. Neither Seller nor the Company has
received any notice that the Company is in default under any Contract listed
or required to be listed in Section 3.11 of the Disclosure Schedule, and all
of such Contracts are enforceable by the Company in all material respects in
accordance with their terms except that (a) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. There does not exist
under any such Contract any event of default or event or condition that, after
notice or lapse of time or both, would constitute a violation, breach or event
of default thereunder on the part of the Company or, to the knowledge of
Seller or the Company, any other party thereto. No consent of any third party
is required under any such Contract as a result of or in connection with, and
the enforceability of any such Contract will not be affected in any manner by,
the execution, delivery and performance of this Agreement. The rights of the
Company under such Contracts are free of all Liens.
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3.13 Insurance. Section 3.13 of the Disclosure Schedule lists all
policies or binders of insurance and programs of self-insurance relating to
fire, liability, worker's compensation and other forms of insurance currently
in effect covering the Company, the Oil and Gas Assets and the Company's
Business. None of such policies or binders was obtained through the use of
materially false or misleading information or the failure to provide the
insurer with all information requested in order to evaluate the liabilities
and risks insured. There is no material default by the Company with respect
to any provision contained in any such policy or binder, and the Company has
not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. Insofar as such matters are within the
control of the Company, all such policies, binders and programs will be
maintained in force from the date hereof through the Closing Date.
3.14 Litigation and Judgments. Except as set forth in Section 3.14 of
the Disclosure Schedule, there is no action, suit, proceeding or investigation
by or before any Governmental Entity or by or on behalf of any Person pending
or, to Seller's or the Company's knowledge, threatened (i) against or
involving the Company or (ii) against or involving Seller or the Company which
questions or challenges the validity of this Agreement or any action taken or
to be taken pursuant to this Agreement or in connection with the transactions
contemplated hereby. The Company is not subject to any judgment, order or
decree entered in any lawsuit or proceeding.
3.15 Brokers and Finders. Neither Seller nor the Company has retained
any broker, finder or investment banker or incurred any liability for any
brokerage fees, commissions, finders' fees or investment banking fees in
connection with the transactions contemplated by this Agreement.
3.16 Labor Matters. No Company Employees are represented by a labor
organization or covered by a collective bargaining agreement, nor have any
Company Employees made a pending demand for recognition or, to Seller's or the
Company's knowledge, filed a petition seeking a representation proceeding with
the National Labor Relations Board. There are no pending or, to Seller's or
the Company's knowledge, threatened strikes, slowdowns or other stoppages with
respect to Company Employees. To Seller's or the Company's knowledge, there
are no pending employment related complaints or charges with any federal,
state, local or foreign governmental agency or court with respect to any
Company Employee.
3.17 Environmental Compliance. Except as may have been previously
disclosed to Buyer in writing, to Seller's or the Company's knowledge:
(a) there are no Environmental Claims, investigations or
inquiries pending or threatened against the Company (or naming the Company as
a potentially responsible party) based on Environmental Noncompliance at any
of the Properties or any properties formerly owned, leased or operated by the
Company;
(b) all activities of the Company in the conduct of the
Company's Business have been conducted in compliance in all material respects
with all applicable Environmental Laws;
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(c) the Company has not and no other Person has, with respect
to the Company's Business, filed any notice under any Environmental Law
reporting past or present treatment, storage or disposal of a Hazardous
Material or reporting a Release of a Hazardous Material;
(d) no Lien in favor of any Governmental Entity for (i) any
liability under Environmental Laws or (ii) damages arising from or costs
incurred by such Governmental Entity in response to a Release of a Hazardous
Material or other substance into the environment has been filed or is attached
to any property or assets of the Company;
(e) the Company does not have any material contingent liability
in connection with (i) the Release or threatened Release into the environment
at, beneath or on any property now or previously owned or leased by the
Company or (ii) the storage or disposal of any Hazardous Material;
(f) the Company has not received any claim, complaint, notice,
letter of violation, inquiry or request for information involving any matter
which remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding potential liability under any
Environmental Law relating to operations or conditions of any facilities or
property (including off-site storage or disposal of any Hazardous Material
from such facilities or property) currently or formerly owned, leased or
operated by the Company;
(g) no property now or previously owned, leased or operated by
the Company is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as a site requiring
investigation or cleanup;
(h) the Company is not directly transporting, has not directly
transported and is not directly arranging for the transportation of any
Hazardous Material to any location which is listed on the National Priorities
List pursuant to CERCLA, on the CERCLIS, or on any similar federal or state
list or which is the subject of federal, state or local enforcement actions or
other investigations that would reasonably be expected to lead to material
claims against the Company for removal or remedial work, contribution for
removal or remedial work, damage to natural resources or personal injury,
including claims under CERCLA;
(i) there are no sites, locations or operations at which the
Company is currently undertaking, or has completed, any removal, remedial or
response action relating to any such disposal or release, as required by
Environmental Laws;
(j) the Company has obtained all Permits required in connection
with the Company's Business, such Permits are in full force and effect, and
the Company has complied with such Permits in all material respects; and
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(k) the Company does not own or operate any underground storage
tanks, treatment, storage or disposal facilities under RCRA, or solid waste
disposal facilities.
3.18 No Condemnation or Expropriation. Neither the whole nor any
portion of the Properties is subject to any governmental decree or order to be
sold or is being condemned, expropriated or otherwise taken by any
Governmental Entity with or without payment of compensation therefor, nor to
the knowledge of Seller or the Company, has any such condemnation,
expropriation or taking been proposed.
3.19 Accounts Receivable. Except as set forth in Section 3.19 of the
Disclosure Schedule, all accounts receivable of the Company reflected in the
Company Financial Statements represent sales actually made in the ordinary
course of business.
3.20 Powers of Attorney; Authorized Signature. Section 3.20 of the
Disclosure Schedule is a complete and correct list of (a) the names and
addresses of all Persons holding powers of attorney on behalf of the Company
and (b) the account number and names of all banks and other institutions in
which the Company has an account, deposit or safe deposit box, along with the
names and addresses of all Persons to be authorized to draw on such accounts,
deposit or boxes or to have access thereto.
3.21 Oil and Gas Reserves. Seller has furnished to Buyer an estimate
of the Company's oil and gas reserves as of the date of the report described
in Section 3.21 of the Disclosure Schedule (the "Reserve Report"). To
Seller's or the Company's knowledge, the information contained in the Reserve
Report regarding the Properties was reasonable at such date and did not
contain materially untrue statements of fact or omit to state material facts
which if completely and accurately stated would have had a net effect upon the
estimated net recoverable quantities of oil and gas reflected in the Reserve
Report. To Seller's or the Company's knowledge, all lease operating expenses
outlined in the Reserve Report were based upon good faith estimates of such
expenses and are not materially inconsistent with the Company's currently
existing related contractual obligations and currently existing legal
requirements.
3.22 Absence of Certain Business Practices. Neither the Company nor
any of its officers, employees or agents nor any other Person acting on any of
their behalf, has, directly or indirectly, given any gift or similar benefit
(other than with respect to bona fide payments for which adequate
consideration has been given) to any customer, supplier, governmental employee
or other Person who is in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) (a) which would subject the Company to any damage or penalty in
any civil, criminal or governmental litigation or proceeding; (b) which, if
not continued in the future, would have a material adverse effect on the
Company or which would subject the Company to suit or penalty in any private
or governmental litigation or proceeding; or (c) for establishment or
maintenance of any concealed fund or concealed bank account.
3.23 Books and Records. All Records (a) have been prepared, assembled
and maintained in accordance with the Company=s usual and customary policies
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and procedures; and (b) fairly and accurately reflect the ownership, use,
enjoyment and operation by the Company of the Oil and Gas Assets. The minute
book of the Company contains complete and accurate records of material actions
of the stockholders and directors of the Company.
3.24 Employee Benefit Plans. Seller represents and warrants to Buyer
as follows:
(a) Section 3.24 of the Disclosure Schedule sets forth a
complete and accurate list of each of the following which is or has been
sponsored, maintained or contributed to by the Company or any trade or
business, whether or not incorporated (a "Company ERISA Affiliate"), or in
which any employee or co-employee of the Company participates or is covered,
that together with the Company would be considered affiliated with the Company
under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA for the benefit of any person who, as of the Closing, is a current or
former employee or subcontractor of the Company or any Company ERISA
Affiliate: (i) each "employee benefit plan," as such term is defined in
Section 3(3) of ERISA (each, a "Company Plan"); and (ii) each personnel
policy, stock option plan, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy, program or
agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, retiree benefit plan or
arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in Section 3.24(a)(i) (each, a "Company
Benefit Program or Agreement") (such Company Plans and Company Benefit
Programs or Agreements are sometimes collectively referred to in this
Agreement as the "Company Employee Benefit Plans").
(b) True, correct and complete copies of each of the Company
Plans and related trusts, if applicable, including all amendments thereto,
have been furnished or made available to Buyer. There has also been furnished
or made available to Buyer, with respect to each Company Plan required to file
such report and description, the report on Form 5500 for the past three years,
to the extent applicable, and the most recent summary plan description. True,
correct and complete copies or descriptions of all Company Benefit Programs or
Agreements have also been furnished or made available to Buyer.
(c) Except as otherwise set forth on Section 3.24 of the
Disclosure Schedule: (i) neither the Company nor any Company ERISA Affiliate
contributes to or has an obligation to contribute to, nor has at any time
contributed to or had an obligation to contribute to, a multiemployer plan
within the meaning of Section 3(37) of ERISA or any other plan subject to
Title IV of ERISA; (ii) each of the Company and the Company ERISA Affiliates
has performed all obligations, whether arising by operation of law or by
contract, including ERISA and the Code, required to be performed by it in
connection with the Company Employee Benefit Plans, and, to the knowledge of
Seller, there have been no defaults or violations by any other party to the
Company Employee Benefit Plans; (iii) all reports, returns, notices,
disclosures and other documents relating to the Company Plans required to be
filed with or furnished to governmental entities, plan participants or plan
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beneficiaries have been timely filed or furnished in accordance with
applicable law, and each Company Employee Benefit Plan has been administered
in compliance with its governing written documents; (iv) each of the Company
Plans intended to be qualified under Section 401 of the Code satisfies the
requirements of such Section and has received a favorable determination letter
from the Internal Revenue Service regarding such qualified status and has not
been amended, operated or administered in a way which would adversely affect
such qualified status; (v) there are no actions, suits or claims pending
(other than routine claims for benefits) or, to the knowledge of Seller,
contemplated or threatened against, or with respect to, any of the Company
Employee Benefit Plans or their assets; (vi) each trust maintained in
connection with each Company Plan, which is qualified under Section 401 of the
Code, is tax exempt under Section 501 of the Code; (vii) all contributions
required to be made to the Company Employee Benefit Plans have been made
timely; (viii) no accumulated funding deiciency, whether or not waived, within
the meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred, and there has been no termination or partial termination of any
Company Plan within the meaning of Section 411(d)(3) of the Code; (ix) no act,
omission or transaction has occurred which could result in imposition on the
Company or any Company ERISA Affiliate of (A) breach of fiduciary duty
liability damages under Section 409 of ERISA, (B) a civil penalty assessed
pursuant to subsections (c), (i) or (1) of Section 502 of ERISA or (C) a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code; (x) to the knowledge
of Seller, there is no matter pending with respect to any of the Company Plans
before the Internal Revenue Service, the Department of Labor or the Pension
Benefit Guaranty Corporation; (xi) each of the Company Employee Benefit Plans
complies, in form and operation, with the applicable provisions of the Code
and ERISA; (xii) each Company Employee Benefit Plan may be unilaterally
amended or terminated in its entirety without any liability or other
obligation; (xiii) the Company and the Company ERISA Affiliates have no
liabilities or other obligations, whether actual or contingent, under any
Company Employee Benefit Plan for post-employment benefits of any nature
(other than COBRA continuation coverage); and (xiv) neither the Company nor
any of the Company ERISA Affiliate or any present or former director, officer,
employee or other agent of the Company or any of the Company ERISA Affiliates
has made any written or oral representations or promises to any present or
former director, officer, employee or other agent concerning his or her terms,
conditions or benefits of employment, including the tenure of any such
employment or the conditions under which such employment may be terminated by
the Company, any of the Company ERISA Affiliates or Buyer which will be
binding upon or enforceable against Buyer or the Company after the Closing.
(d) Except as otherwise set forth on Section 3.24 of the
Disclosure Schedule, no employee is currently on a leave of absence due to
sickness or disability and no claim is pending or expected to be made by an
employee, former employee or independent contractor for workers' compensation
benefits.
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(e) With respect to the Company Employee Benefit Plans, there
exists no condition or set of circumstances in connection with the Company or
any of the Company ERISA Affiliates that could be expected to result in
liability reasonably likely to have a material adverse effect on the Company
under ERISA, the Code or any other applicable law. With respect to the
Company Employee Benefit Plans, individually and in the aggregate, there are
no unfunded benefit obligations which have not been accounted for by reserves,
or otherwise noted, on the financial statements of the Company, which
obligations are reasonably likely to have a material adverse effect on the
Company.
(f) Except as set forth in Section 3.24 of the Disclosure
Schedule, neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any
payment becoming due to any employee or group of employees of the Company.
3.25 Tax Matters. Seller represents, warrants and covenants to Buyer
that, except as set forth in Section 3.25 of the Disclosure Schedule:
(a) The Company has timely filed, caused to be timely filed,
will timely file or will cause to be timely filed all Tax Returns required to
be filed before the Closing Date with respect to the Company. Such Tax
Returns were or will be properly prepared in all material respects in the
manner required by applicable law and all Taxes shown on such Tax Returns to
be payable by the Company have been paid or will be paid when due. No request
has been made for any extension of time within which to file any Tax Return of
the Company which Tax Return has not been filed as of the date hereof.
(b) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has timely withheld from Company Employee wages and paid over
(and through the Closing Date will timely withhold and pay over) to the proper
Governmental Entities all amounts required to be so withheld and paid over for
all periods under all applicable laws. The Company has timely paid or accrued
all Taxes that are due and payable for which the Company may be liable.
(c) The Company has not been made a party to any pending action
or proceeding by any Governmental Entity for the assessment or collection of
Taxes, nor, to Seller's or the Company's knowledge, has any claim for the
assessment or collection of Taxes been asserted against the Company. The
Company has not been notified that any taxing authority intends to audit a Tax
Return for any period, and no such audit is presently pending. No extension
of a statute of limitations relating to Taxes is in effect with respect to the
Company. There are no Liens on any of the assets of the Company for unpaid
Taxes, other than Liens for Taxes not yet due and payable.
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(d) The Company has not made or become obligated to make, and
will not, as a result of any transaction contemplated herein, make or become
obligated to make, any "excess parachute payment" as defined in section 280G
of the Code (without regard to subsection (b)(4) thereof). The Company has
never been included in an affiliated group of corporations, within the meaning
of Section 1504 of the Code, and the Company is not and has not been a party
to any tax sharing agreement between related corporations.
3.26 Redeemed Interests. As of the Closing the assets and properties
of the Company will consist of the Properties described on the Property
Schedule, the assets and properties described in Sections 1.01A, 3.08, 3.09
and 3.11 of the Disclosure Schedule and all other assets and properties of the
Company owned by the Company as of the Balance Sheet Date and acquired by the
Company after the Balance Sheet Date except for the Redeemed Interests and
those assets and properties disposed of by the Company in the ordinary course
of business after the Balance Sheet Date consistent with past practice. The
redemption contemplated by the Redemption Agreement will not impair the
capital of the Company and will otherwise be lawful under the Oklahoma General
Corporation Act.
3.27 Exchange and Replacement Properties. None of the Exchange
Properties or the Replacement Properties is subject to any preferential right
to purchase by any third party. There are no consents, authorizations or
approvals of third parties required in connection with the transfer of any of
the Exchange Properties or the Replacement Properties pursuant to the Exchange
Agreement.
3.28 Disclosure. There is no fact (other than matters of a general
economic or political nature which do not affect the Company uniquely) known
to Seller or the Company that has not been disclosed to Buyer that might
reasonably be expected to have or result in a material adverse effect upon the
Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.01 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Buyer has all requisite corporate authority and power to own and operate its
properties and assets and to conduct its business as such business is now
being conducted by it.
4.02 Authorization; Validity and Binding Effect. Buyer has all
requisite authority and power to execute and deliver this Agreement, to
perform its obligations hereunder and to carry out the transactions
contemplated hereby. The execution and delivery of this Agreement by Buyer
and the consummation by Buyer of the transactions contemplated hereby have
been duly and validly authorized and no other corporate proceedings are
necessary to authorize the execution and delivery of this Agreement by Buyer,
the performance by Buyer of its obligations hereunder or the consummation by
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Buyer of the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Buyer and constitutes a valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except that (a) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium (whether general or specific) or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
4.03 No Violation. None of the execution and delivery of this
Agreement, the performance by Buyer of its obligations hereunder or the
consummation of the transactions contemplated hereby will (i) require Buyer to
file or register with, or obtain any permit, authorization, consent or
approval of, any Governmental Entity or any other Person, (ii) violate any
provision of the certificate of incorporation or bylaws of Buyer, (iii)
violate any statute, law, regulation or rule of any Governmental Entity or
(iv) violate any judgment, decree, or order of any Governmental Entity or any
arbitration award applicable to Buyer.
4.04 Brokers and Finders. Buyer has not retained any broker, finder or
investment banker or incurred any liability for any brokerage fees,
commissions, finders' fees or investment banker fees in connection with the
transactions contemplated by this Agreement
4.05 Investment Representation. Buyer understands the risks of an
investment in Seller's Shares and is acquiring the Seller's Shares for its own
account, for investment purposes only and not with a view to or for sale in
connection with any distribution thereof in violation of the Securities Act of
1933, as amended.
4.06 Independent Investigation. Buyer has relied upon Seller's
representations, warranties and covenants in this Agreement and Buyer's
independent due diligence investigation and those of its representatives,
including legal, tax, financial, business, and other advisors, in entering
into this Agreement. Buyer and its advisors have been given the opportunity
to examine all relevant documents and to ask questions of and receive answers
from Seller and the Company concerning all aspects of the Company.
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ARTICLE V
COVENANTS OF THE PARTIES
5.01 Full Access. Seller shall cause the Company to afford to Buyer
and its counsel, accountants and other representatives full access, during
regular business hours, to the properties, assets, plants, offices,
warehouses, properties, books and records of the Company in order that Buyer
may have full opportunity to make such investigations as it shall desire to
make of the affairs of the Company and will cause the officers, employees and
accountants of the Company to permit such access as Buyer shall from time to
time reasonably request; provided, however, that any such investigation shall
be conducted in such a manner as not to interfere unreasonably with the
operation of the Company's Business.
5.02 Approvals and Consents. To the extent that the approval, consent
or permission of any Governmental Entity or other Person (a) is necessary for
the consummation by Seller of the transactions contemplated hereby, Seller and
Buyer shall use their Best Efforts to obtain such consent or (b) is necessary
or desirable for Buyer to obtain in connection with the conduct of the
Company's Business after the Closing, including the issuance of such new
permits as may be required for Buyer to conduct said business, or otherwise,
Seller shall reasonably cooperate with Buyer in obtaining all such approvals,
consents or permissions.
5.03 Filings. Promptly after execution of this Agreement, each of
Seller and Buyer shall make or cause to be made any filings and submissions
required to be made under the laws of any jurisdiction to the extent that such
filings are necessary to consummate the transactions contemplated hereby and
each will use its or his Best Efforts to take all other actions necessary to
consummate the transactions contemplated hereby in a manner consistent with
applicable law. Each Party will furnish to the other Party such necessary
information and reasonable assistance as such other Party may request in
connection with the foregoing.
5.04 Covenants to Satisfy Conditions. Upon the terms and subject to
the conditions set forth herein, Seller shall use his Best Efforts to ensure
that the conditions set forth in Article VI are satisfied, insofar as such
matters are within the control of Seller, and Buyer shall use its Best Efforts
to ensure that the conditions set forth in Article VII are satisfied, insofar
as such matters are within the control of Buyer, on or before the applicable
date set forth in Section 2.07, or as promptly as practical thereafter.
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5.05 Confidentiality; Employees; Negotiations.
(a) Until the Closing, each Party shall hold in strict
confidence (unless compelled to disclose by judicial or administrative process
or in making any filings with Governmental Entities with respect to the
transactions contemplated hereby or in connection with the financing thereof
or in connection with obtaining insurance or by requirements of law) all
documents and information concerning the other Party furnished to such Party
by such other Party or such other Party's representatives in connection with
the transactions contemplated by this Agreement (except to the extent that
such information can be shown to have been (i) previously known by the Party
to which it was furnished, (ii) in the public domain through no fault of such
Party, or (iii) later lawfully acquired by the Party to which it was furnished
from other sources not bound by a confidentiality obligation with respect to
such information), and neither Party will release or disclose such information
to any other Person, except its auditors, attorneys, financial advisors,
bankers, insurance brokers and consultants, and other consultants and advisors
who need to know such information in connection with the transactions
contemplated hereby. If the transactions contemplated by this Agreement are
not consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the Party
required to hold it in confidence, or unless such Party is compelled to
disclose such information or documents by judicial or administrative process
or by other requirements of law, and all such documents (including copies
thereof) shall be returned to the other Party immediately upon the written
request of such other Party.
(b) Until termination of this Agreement, Seller will not and
Seller will not permit the Company or any of its directors, officers,
employees, partners, representatives, or agents to (i) facilitate, encourage,
solicit, initiate or continue negotiations or submissions of proposals or
offers in respect of all or any portion of the Company=s Business, by means of
acquisition of stock, assets or otherwise (other than the transactions
contemplated by this Agreement), (ii) furnish or cause to be furnished to any
Person (other than Buyer and its representatives) any information concerning
the Seller's Shares or the operations, properties or assets of the Company in
connection with any proposal to acquire all or a substantial portion of the
Company's Business, by means of an acquisition of stock, assets or otherwise,
or (iii) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any such Person to do or
seek any of the activities set forth in subsections (i) and (ii) above.
(c) The Parties acknowledge and agree that, because of the
nature and subject matter of the provisions of this Section 5.05, it would be
impractical and extremely difficult to determine actual damages in the event
of the breach of any such provisions. Accordingly, if Seller, the Company or
any of the Company's representatives set forth above, on the one hand, or
Buyer, on the other hand, commits a breach, or threatens to commit a breach,
of any matter set forth in this Section 5.05, the nonbreaching Party shall
have the right to have the provisions of this Section 5.05 specifically
enforced by any court having equity jurisdiction, it being further
acknowledged and agreed by the Parties that any such breach or threatened
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breach will cause irreparable injury to the non-breaching Party and its
Affiliates and that an injunction may be issued against the breaching Party to
stop or prevent such breach or threatened breach. If any such action shall be
instituted, the breaching Party agrees to waive, and does hereby waive to the
fullest extent permitted by law, the defense that the non-breaching Party has
an adequate remedy at law and agrees to interpose no opposition, legal or
otherwise, as to the propriety of pursuing specific performance as a remedy.
5.06 Publicity. No Party shall make or issue, or cause to be made or
issued, any announcement or written statement concerning this Agreement or the
transactions contemplated hereby for dissemination to the trade or general
public without the prior consent of the other Party. This provision shall not
apply, however, to any requirement that a copy of this Agreement be attached
as an exhibit to a report on form 10-K or 8-K or to any announcement or
written statement which, in the opinion of counsel to the disclosing Party, is
required to be made by law, the regulations of any Governmental Entity or
NASDAQ rules.
5.07 Conduct of the Company's Business Pending the Closing.
(a) Pending the Closing, and except as otherwise consented to
or approved by Buyer, disclosed in Section 5.07 of the Disclosure Schedule or
otherwise contemplated by this Agreement (including Section 2.02), Seller
agrees that he (i) will cause the Company's Business to be carried on only in
the ordinary course consistent with past practice, (ii) will cause the Company
to operate the Operated Wells as a prudent operator in a good and workmanlike
manner in accordance with the terms of the respective applicable operating
agreements; and as to those affirmative and negative obligations that would
ordinarily be the responsibility and under the direction and control of the
operator of any Properties, Seller shall cause the Company, in those
instances where the Company is not the operator, to utilize its Best Efforts
as a non-operator to insure the operator's compliance with such obligations,
(iii) will cause the Company to maintain and keep the Properties and its other
assets in good condition and working order, (iv) will use Best Efforts
consistent therewith to cause the business organization of the Company to be
preserved intact, the services of the Company Employees to be kept available
and satisfactory relationships with suppliers, customers and others having
commercially beneficial business relationships with the Company to be
maintained, in each case in the ordinary course of Company's Business
consistent with past practice, (v) will not cause or permit the Company to
take any action or fail to take any action which would cause any of Seller's
representations and warranties in this Agreement not to be true and complete
on the Closing Date as though such representations and warranties were made on
the Closing Date, and (vi) will not permit any amendment of the Redemption
Agreement or the Exchange Agreement.
(b) Except as set forth in Section 5.07 of the Disclosure
Schedule or as permitted by subsection (a) of this Section 5.07 or otherwise
contemplated by this Agreement, no contract or commitment of a type that would
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be required to be disclosed in Section 3.11 of the Disclosure Schedule if in
effect on the date hereof shall be entered into by or on behalf of the
Company, or with respect to the Company's Business, except for contracts or
commitments in the ordinary course of the Company's Business consistent with
past practice.
(c) If prior to the Closing any of the assets or properties of
the Company is substantially damaged or destroyed by fire or other casualty
(each such event, a "Casualty"), Seller shall notify Buyer promptly after
Seller has knowledge of such event. If any uncured Casualties exist at the
Closing, the Purchase Price shall be reduced by the aggregate reduction in the
value of the assets or properties of the Company on account of such
Casualties, as determined by the mutual agreement of the Parties.
(d) Seller shall give notice to Buyer of any proposal to drill,
rework, or plug and abandon any Well or Wells, or to sell or exchange any Oil
and Gas Asset, that Seller receives prior to the Closing. Seller will not
consent to any such proposal in excess of $5,000 (net to Seller's interest)
without the prior approval of Buyer. Such approval or Buyer's refusal thereof
shall be due within three Business Days after Buyer's receipt of such notice.
Buyer's failure to respond to any such notice shall be deemed approval of
Seller=s recommendation with respect to such proposal.
5.08 Further Assurances. Upon the terms and subject to the conditions
herein provided, each of the Parties agrees to use such Party's Best Efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations,
to consummate and make effective the transactions contemplated by this
Agreement as expeditiously as practicable. In case, at any time after the
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement, Seller and/or the proper officers and directors of
Buyer shall take or cause to be taken all such necessary action, including the
execution and delivery of such further instruments and documents, as
reasonably may be requested by any Party for such purposes or otherwise to
complete or perfect the transactions contemplated hereby.
5.09 Adjustments for Title Defects. The procedures to be followed with
respect to Buyer's assertion of Title Defects, and the adjustment of the
Purchase Price attributable to such Title Defects, shall be as follows:
(a) Access to Records. Promptly after execution of this
Agreement, Seller shall cause the Company to provide to Buyer and its
consultants and advisors access at all reasonable times to the Company's
accounting, land, production, engineering, and other records regarding the
Properties for the purpose of reviewing title to the Properties. At Buyer's
request, to the extent any such records are in the possession of a co-working
interest owner, partner or other third party and the Company has the right of
access thereto, Seller shall cause the Company to use its Best Efforts to
provide Buyer access to such other records or obtain copies thereof for
Buyer's review.
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(b) Notice of Asserted Title Defects or Interest Additions. As
soon as reasonably practicable after Buyer discovers any Title Defect and in
any event on or before the fifth Business Day prior to the Closing Date, Buyer
shall furnish to Seller written notice specifying in reasonable detail each
matter which Buyer in good faith asserts is a Title Defect hereunder, together
with the Defect Amount estimated in good faith by Buyer for each such asserted
Title Defect and a reasonably detailed explanation of the computation of and
basis for such Defect Amount (each such notice, a "Title Defect Notice"). On
or before the fifth Business Day prior to the Closing Date, Seller may request
an increase in the Purchase Price by notifying Buyer of any NRI owned by
Seller in a Property that is greater than that shown on the Property Schedule
(an "Interest Addition"). Each such notice of an Interest Addition (an
"Interest Addition Notice") shall set forth Seller's basis for the assertion
of such Interest Addition and Seller's proposed Purchase Price adjustment on
account thereof.
(c) Method of Determination of Defect Amounts and Purchase
Price Adjustments. Defect Amounts for each asserted Title Defect shall be
determined as follows:
(i) If the Title Defect relates to failure of title to
the entirety of the Company's title to a Property, the Defect Amount shall be
the Value of such Property.
(ii) If the Title Defect results from a lien, security
interest, pledge or collateral assignment upon one or more Properties (or a
portion thereof) which is liquidated in amount, then the Defect Amount shall
be the amount necessary to remove such lien, security interest, pledge or
collateral assignment from the Company's title to such Properties (or portion
thereof).
(iii) If the Title Defect results from the Company having
a lesser NRI in a Property than the NRI specified therefor in the Property
Schedule, the Defect Amount shall be equal to the product obtained by
multiplying the Value for such Property by a fraction, the numerator of which
is the reduction in the NRI and the denominator of which is the specified NRI
for such Property.
(iv) If the Title Defect results from any matter not
described in subsections (i), (ii), or (iii) above, then the Defect Amount
shall be a portion of the Value for such Property, said portion to be equal to
the difference between the Value of the Company's title to such Property
without such Title Defect and with such Title Defect.
Notwithstanding anything herein to the contrary, the aggregate Defect
Amounts attributable to Title Defects relating to a Property for which Buyer
receives an adjustment to the Purchase Price shall not exceed the Value of
such Property. Purchase Price adjustments for each asserted Interest Addition
shall be equal to the product obtained by multiplying the Value for the
Property affected thereby by a fraction, the numerator of which is the
increase in the NRI and the denominator of which is the specified NRI for such
Property.
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(d) Resolution of Title Defects. Upon timely delivery of a
Title Defect Notice, Buyer and Seller shall meet and use their Best Efforts to
agree on the validity of the Title Defects asserted therein and the Defect
Amounts attributable thereto. If, with respect to a Title Defect so asserted
by Buyer, the Parties cannot agree on the validity thereof and/or the Defect
Amount attributable thereto and if Seller does not cure or elect to attempt to
cure such Title Defect (at Seller's expense) to the reasonable satisfaction of
Buyer as provided in Section 5.09(g), such validity and/or Defect Amount shall
be determined by arbitration as provided in Section 5.10 (without the Closing
being delayed on account thereof). In such event, the Purchase Price to be
paid to Seller at the Closing shall be reduced by the Value of the Property in
question and such portion of the Purchase Price shall be deposited by Buyer
with Escrow Agent at the Closing pursuant to the terms of the Escrow
Agreement. Pursuant to the Escrow Agreement, Escrow Agent shall hold such
funds and disburse them in compliance with the determination of the
arbitrator(s) pursuant to Section 5.10.
(e) Resolution of Interest Additions. Upon timely delivery of
an Interest Addition Notice, Buyer and Seller shall meet and use their Best
Efforts to agree on the validity of the Interest Additions asserted therein
and the adjustments to the Purchase Price attributable thereto. If, with
respect to an Interest Addition so asserted by Seller, the Parties cannot
agree on the validity thereof and/or the amount of the Purchase Price
adjustment attributable thereto, such validity and/or adjustment shall be
determined by arbitration as provided in Section 5.10 (without the Closing
being delayed on account thereof).
(f) Election to Terminate. Notwithstanding anything to the
contrary in this Agreement, if as of the Business Day prior to the Closing
Date (i) the sum of (A) Buyer's good faith estimates of Defect Amounts
attributable to Title Defects which have not been fully cured by Seller, plus
(B) the amount of Purchase Price adjustments pursuant to Section 5.07(c),
exceeds $750,000 or (ii) Seller's good faith estimates of Purchase Price
adjustments attributable to Interest Additions exceeds $750,000, then either
Party may elect to terminate this Agreement prior to the Closing in accordance
with the provisions of Article IX.
(g) Curative Actions. If Seller causes the Company to cure (at
Seller's expense) a Title Defect to the reasonable satisfaction of Buyer prior
to the Closing, no Purchase Price adjustment shall be made on account thereof.
If the Parties agree as to the validity of a Title Defect asserted by Buyer
and the Defect Amount attributable thereto and if Seller believes in good
faith that such Title Defect may be cured within 90 days after the Closing,
Seller may elect, by notice given to Buyer at least one Business Day prior to
the Closing Date, to attempt to cure such Title Defect at Seller's expense
within such 90-day period. In the event Seller makes such an election with
respect to one or more Title Defects, the Purchase Price to be paid to Seller
at the Closing shall be reduced by the aggregate Defect Amounts attributable
to such Title Defects and such aggregate Defect Amounts shall be deposited by
Buyer with Escrow Agent at the Closing pursuant to the terms of the Escrow
Agreement. Pursuant to the Escrow Agreement:
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(i) Within five Business Days after the end of such
90-day period, Escrow Agent will pay to Seller the amount set forth in the
Parties' written instructions to Escrow Agent, which amount shall be equal to
the Defect Amounts attributable to all Title Defects which Seller elected to
cure and which have been cured to Buyer's reasonable satisfaction within such
90-day period; and
(ii) On the tenth Business Day after such 90-day period,
Escrow Agent will return to Buyer all remaining amounts deposited by Buyer
pursuant to this Section 5.09(g) or, if Escrow Agent does not receive the
written instructions contemplated by Section 5.09(g)(i), all amounts so
deposited by Buyer.
(h) Exchange Properties. For purposes of this Section 5.9, (i)
the Company's ownership of a Property shall be deemed to include any
additional ownership interest in such Property that the Company will obtain
upon the closing of the transactions contemplated by the Exchange Agreement
and (ii) it is understood that Buyer may assert Title Defects with respect to
one or more of the Exchange Properties as if the Company owned such Exchange
Properties.
5.10 Arbitration. Any dispute over the validity of a purported Title
Defect, Defect Amount attributable to a Title Defect, Interest Addition or any
Purchase Price adjustment on account of an Interest Addition which is not
resolved prior to the Closing shall be decided by arbitration in accordance
with the CPR Rules for Non-Administered Arbitration in effect on the date
hereof (the "CPR Rules"), by one arbitrator or three arbitrators as
hereinafter provided. The arbitration shall be governed by the Oklahoma
Uniform Arbitration Act, as amended, and the place of the arbitration shall be
Tulsa, Oklahoma. The following shall apply to arbitrations hereunder:
(a) Upon written demand of either Buyer or Seller, Buyer and
Seller shall attempt to agree upon a single arbitrator. If Buyer and Seller
are unable to agree upon a single arbitrator within 10 days after such demand,
Buyer will appoint one arbitrator and Seller will appoint one arbitrator, and
the two arbitrators so appointed will select a third arbitrator. Each
arbitrator must be an attorney-at-law who has practiced law continuously for
more than ten years and is familiar with matters relating to title to oil and
gas properties. If the Parties are unable to agree upon a single arbitrator
and if either Buyer or Seller fails to appoint an arbitrator within ten days
after the expiration of the 10-day period referred to above, or if the two
appointed fail, within 10 days after the appointment of the second, to agree
on the third arbitrator, Buyer or Seller may request that arbitrator(s) to
complete the board of three be appointed in accordance with the CPR Rules.
(b) The dispute or disputes to be decided by the arbitrator(s)
will be submitted in writing by the Party requesting arbitration. The
jurisdiction of the arbitrator(s) will be limited to the dispute or disputes
so stated. The arbitrator(s) will rule on all requests for discovery and
disclosure and the Parties shall complete discovery within 30 days of the
appointment of the single arbitrator or the third arbitrator, as the case may
be. The arbitrator(s) may consider any matter relevant to the subject of the
dispute or disputes. The arbitrator(s) shall not have the authority or power
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to alter, amend, or modify any of the terms and conditions of this Agreement
or any other agreement of the Parties, and the arbitrator(s) may not enter an
award that can alter, amend, or modify any of those terms and conditions in
any manner.
(c) The arbitrator(s) will convene a hearing and issue a final
ruling within 75 days of the appointment of the single arbitrator or the third
arbitrator, as the case may be. Such ruling shall be in writing and shall set
forth the reasoning underlying the ruling. If there is more than one
arbitrator, the decision or award of any two arbitrators will be conclusive
upon the Parties. The decision or award may be enforced in any court of
competent jurisdiction. Any payment called for by any such decision or award
shall be paid by the Party required to pay the same to the other Party within
30 days after the date of such decision or award.
(d) The Parties shall bear their own legal fees and costs
incurred in connection with an arbitration. If there is more than one
arbitrator, the fees and expenses of an arbitrator appointed by or for a Party
shall be paid by the Party so appointing such arbitrator or for whom such
arbitrator was appointed. Other costs, fees and expenses incurred in
connection with an arbitration, including the fees and expenses of the single
or third arbitrator, shall be borne by the non-prevailing Party; provided,
that, if there is a bona fide question as to which Party prevailed, the
arbitrator(s) shall decide who is the prevailing Party, or, if neither Party
prevailed, such costs, fees and expenses shall be shared equally by the
Parties.
5.11 Acquisition of Participant Interests. The Parties acknowledge
that, concurrently with the Closing, Buyer desires to acquire from each Person
listed in Section 5.11 of the Disclosure Schedule (a "Participant") all of
such Participant's working interests in and to the oil and gas properties
referred to in such Section 5.11 for the purchase price set forth in such
Section 5.11 pursuant to a separate Purchase and Sale Agreement, the form of
which is attached hereto as Exhibit B ("Participant Agreement"). Seller shall
use his Best Efforts to cause Participants representing at least 85% of the
aggregate purchase price set forth in Section 5.11 of the Disclosure Schedule
to execute Participant Agreements within five Business Days after the date
hereof, reflecting the terms set forth in Section 5.11 of the Disclosure
Schedule with respect to the applicable Participant. In the event that such
Participants have not executed such a Participant Agreement within five
Business Days after the date hereof, Buyer shall have the right to terminate
this Agreement as provided in Article IX. Seller shall use his Best Efforts
to cause Participants representing at least 95% of the aggregate purchase
price set forth in Section 5.11 of the Disclosure Schedule to execute
Participant Agreements prior to the Closing reflecting the terms set forth in
Section 5.13 of the Disclosure Schedule with respect to the applicable
Participant. In the event that such Participants have not executed such a
Participant Agreement prior to the Closing, Buyer shall have the right to
terminate this Agreement as provided in Article IX.
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5.12 Release. Effective upon the Closing and with respect to periods
prior to the Closing Date, Seller unconditionally releases and forever
discharges the Company from any and all claims, rights, duties, obligations,
contracts, debts, liabilities, damages, injuries, actions and causes of action
(collectively, "Seller Claims") of every kind and nature, whether foreseen or
unforeseen, contingent or actual, liquidated or unliquidated, and whether now
known or hereafter discovered, which Seller has or may hereafter acquire under
any federal, state or local statute or common or other law or otherwise, under
the Company's certificate of incorporation or bylaws or under any agreement to
which Seller and the Company are parties, including Seller Claims with respect
to employment and employee benefit matters and Seller Claims for
indemnification as a former officer, director or employee of the Company;
provided, however, that such release and discharge will not be applicable to
Seller Claims related to oil and gas properties in which both the Company and
Seller own an interest. Seller represents and warrants to Buyer that, to his
knowledge, no Seller Claims exist with respect to such oil and gas properties.
5.13 Certain Operated Properties. The Parties acknowledge that Oil
Center Operating, Inc. ("Oil Center") continues to be listed by the Oklahoma
Corporation Commission ("OCC") as operator of certain properties with respect
to which either the Company should be listed as operator or Oil Center should
be removed as operator. The properties which should be in the name of the
Company as operator are listed at Section 5.13A of the Disclosure Schedule
("Oil Center/OBEC Properties") and the properties with respect to which Oil
Center should be removed as operator are listed at Section 5.13B of the
Disclosure Schedule ("Oil Center Other Properties"). Seller shall undertake
the responsibility of making such filings with the OCC as may be necessary or
required to have the Company listed as operator of the Oil Center/OBEC
Properties and Oil Center removed as operator of the Oil Center Other
Properties. This undertaking of Seller shall continue beyond the Closing
hereof and shall not delay Closing. Buyer agrees to fully cooperate with
Seller, including the execution of filings with the OCC, as may be required in
correcting OCC records to properly reflect the current operator of the
properties.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to effect the transactions contemplated hereby
at the Closing shall be subject to the fulfillment, or written waiver by
Seller, at or prior to the Closing, of each of the following conditions:
6.01 Representations and Warranties True. The representations and
warranties of Buyer contained herein shall be correct and complete as of the
date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date,
except for changes contemplated by the terms of this Agreement.
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6.02 Performance. Buyer shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement
to be performed or complied with by it on or prior to the Closing.
6.03 No Injunction. There shall be no effective injunction, writ,
preliminary restraining order or other order of any nature issued by a court
of competent jurisdiction directing that the transactions provided for at the
Closing not be consummated as so provided, nor shall there be any pending
injunction, writ or order seeking the same result.
6.04 Certificates. Buyer shall have furnished Seller with such
certificates of its officers and others to evidence its compliance with the
conditions set forth in this Article VI as may be reasonably requested by
Seller and delivery thereof shall be deemed to be a representation and
warranty by Buyer for purposes of Section 6.01.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to effect the transactions contemplated hereby at
the Closing shall be subject to the fulfillment, or written waiver by Buyer,
at or prior to the Closing, of each of the following conditions:
7.01 Representations and Warranties True. The representations and
warranties of Seller contained herein shall be correct and complete as of the
date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of the Closing Date, except
for changes contemplated by this Agreement.
7.02 Performance. Seller shall have performed and complied with all
agreements, obligations, covenants and conditions required by this Agreement
to be performed or complied with by Seller on or prior to the Closing.
7.03 No Injunction. There shall be no effective injunction, writ,
preliminary restraining order or other order of any nature issued by a court
of competent jurisdiction directing that the transactions provided for at the
Closing not be consummated as so provided, nor shall there be any pending
injunction, writ or order seeking the same result.
7.04 Certificates. Seller shall have furnished Buyer with such
certificates of Seller and the officers, partners and others of the Company to
evidence compliance with the conditions set forth in this Article VII as may
be reasonably requested by Buyer and delivery thereof shall be deemed to be a
representation and warranty by Seller for purposes of Section 7.01.
7.05 Approvals and Consents. The Parties shall have obtained all
approvals, consents and permissions of any Governmental Entity or other Person
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which are listed in Sections 3.04 and 4.03 of the Disclosure Schedule, and any
approvals, consents, licenses, permits or permissions of any Governmental
Entity or other Person the absence of which would result in the inability of
Buyer to conduct the Company=s Business substantially as it is presently
conducted.
7.06 Resignations. Seller shall have delivered to Buyer at the Closing
the written resignations of each officer and director of the Company,
effective as of the Closing.
7.07 FIRPTA Affidavit. Seller shall have provided to Buyer a
non-foreign affidavit in compliance with United States Treasury Regulation
Section 1.1445-2(b)(2).
7.08 Participant Agreements. The transactions contemplated by each
Participant Agreement executed and delivered pursuant to Section 5.11 shall
have been consummated concurrently with the Closing.
7.09 Opinion of Seller's Counsel. Seller shall have delivered to Buyer
an opinion of Seller's counsel substantially in the form of Exhibit C hereto.
7.10 Release of Liens. Seller shall have delivered to Buyer releases
or terminations of all mortgages, financing statements and other security
interests or liens in favor of the Citizens Bank of Ada covering any of the
assets or properties of the Company.
7.11 Redemption Agreement. The transactions contemplated by the
Redemption Agreement shall have been consummated.
ARTICLE VIII
INDEMNIFICATION; SURVIVAL AND LIMITATIONS
OF REPRESENTATIONS AND WARRANTIES
8.01 Indemnity by Seller. Subject to the limitations set forth in this
Article VIII, Seller hereby indemnifies and agrees to defend and hold harmless
Buyer, any Affiliate of Buyer and any director, officer, employee or agent of
any of them (a "Buyer Indemnified Party") from and against, and agrees to pay
or cause to be paid to Buyer all Losses ("Buyer Losses") equal to the sum of:
(a) Additional Taxes. Any and all Claims against, or Losses
of, the Company or any of its assets for (i) any and all Taxes with respect to
all past fiscal years of the Company and the period ending on the Closing Date
(including any and all Taxes in connection with the transactions contemplated
by the Redemption Agreement), except Taxes reserved for on the Company
Financial Statements, (ii) any and all Taxes (A) in connection with the
transactions contemplated by the Exchange Agreement, (B) in the event such
transactions fail to qualify as a like-kind exchange under Section 1031 of the
Code or (C) in the event Seller disposes of any or all of the Replacement
Properties, and (iii) all deficiencies, interest or penalties in connection
with any such Taxes that may at any time be asserted or assessed against or
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actually paid by the Company or a Buyer Indemnified Party by or to any
Governmental Entity;
(b) Certain Liabilities. Any and all other Losses of the
Company or any of its assets, whether accrued, contingent or otherwise,
arising out of or on account of or with respect to any event, occurrence or
transaction (including employment and employee benefit matters) occurring or
existing at or prior to Closing, that may be asserted or assessed against or
actually paid by the Company, except (i) items reflected or reserved against
in the Company Financial Statements; and (ii) trade obligations incurred in
the ordinary course of business, consistent with past practices, since the
Balance Sheet Date;
(c) Representations, Warranties, and Covenants. Any and all
Losses that a Buyer Indemnified Party may incur or suffer, which arise or
result from or relate to any breach of any of Seller's representations,
warranties, covenants, obligations or agreements in this Agreement, the
Disclosure Schedule or any certificate or other instrument furnished or to be
furnished by Seller under this Agreement;
(d) Redeemed Interests and Replacement Properties. Any and all
Losses that the Company or a Buyer Indemnified Party may incur or suffer,
which arise or result from or relate to any of the Redeemed Interests or any
of the Replacement Properties; and
(e) Indemnified Wells. Any and all Losses that the Company or
a Buyer Indemnified Party may incur or suffer, which arise or result from or
relate to the wells listed in Section 5.13B of the Disclosure Schedule,
including any and all Losses attributable to the designation of Oil Center
Operating, Inc. as the operator of record of any of such wells.
(f) Professional Fees. All reasonable professional fees
(including those of attorneys, accountants, consultants and engineering fees)
and other expenses incurred by the Company or a Buyer Indemnified Party in
connection with any of the aforesaid matters.
8.02 Indemnity by Buyer. Subject to the limitations set forth in this
Article VIII, Buyer hereby indemnifies and agrees to defend and to hold
harmless Seller from and against, and agrees to pay or cause to be paid to
Seller all Losses ("Seller Losses") equal to the sum of:
(a) Representations and Warranties. Any and all Losses that
Seller may incur or suffer, which arise or result from or relate to any breach
of any of Buyer's representations, warranties, covenants, obligations or
agreements in this Agreement, the Disclosure Schedule or any certificate or
other instrument furnished or to be furnished by Buyer under this Agreement;
and
(b) Professional Fees. All reasonable professional fees
(including those of attorneys, accountants, consultants and engineering fees)
and other expenses incurred by Seller in connection with any of the aforesaid
matters.
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8.03 Investigations, Survival of Representations and Warranties. The
respective representations and warranties contained herein or in any
certificates delivered pursuant to this Agreement prior to or at the Closing
shall not be deemed waived or otherwise affected by any investigation made by
any Party. The Parties agree that each and every such representation and
warranty set forth in this Agreement, the representations and warranties
deemed made as provided by Sections 6.04 and 7.04 and the indemnifications set
forth in this Article VIII shall survive the Closing until the date which is
15 months after the Closing Date (the "Release Date"); provided, however, the
rights of the Buyer Indemnified Parties against Seller with respect to Buyer
Losses relating to a breach of a representation or warranty set forth in
Section 3.25 (Tax Matters), and with respect to any Buyer Losses covered by
Section 8.01(a) (Additional Taxes) and Buyer Losses covered by Section 8.01(e)
(Indemnified Wells), shall survive until the expiration of applicable statutes
of limitations (including all waivers and extensions thereof). From and after
the Release Date (except as otherwise set forth in the preceding sentence),
neither Seller nor Buyer shall be under any liability whatsoever with respect
to any such representation or warranty or any obligation or liability based
upon such representation or warranty, except for breaches as to which a Party
shall have given notice (specifying, with reasonable particularity, the facts
establishing such breach and the specific nature and amount of damages sought)
to the other Party prior to the Release Date. This Section 8.03 shall have no
effect upon any other obligation of the Parties, whether to be performed
before or after the Closing Date.
8.04 Defense of Third Party Claims. If a third party shall notify a
party entitled to indemnification pursuant to Section 8.01 or Section 8.02 (an
"Indemnified Person") with respect to any matter (a "Third Party Claim") that
may give rise to a claim for indemnification by a party obligated to provide
indemnification pursuant to Section 8.01or 8.02 (an "Indemnifying Party"), the
Indemnified Person shall, with reasonable promptness, notify the Indemnifying
Party of such Third Party Claim. If the Indemnified Person does not so notify
the Indemnifying Party within 15 days after becoming aware of such Third Party
Claim, then the Indemnifying Party shall, if such delay materially prejudices
the Indemnifying Party with respect to the defense of such Third Party Claim,
be relieved of liability hereunder in respect of such Third Party Claim to the
extent of the damage caused by such delay. In any such proceeding, following
receipt of notice properly given, the Indemnifying Party shall be entitled, at
its sole discretion, to assume the entire defense of such Third Party Claim
(with counsel selected by it which is reasonably satisfactory to the
Indemnified Person or Persons), and the Indemnifying Party shall bear the
entire cost of defending such Third Party Claim. The Indemnifying Party shall
not have the right to settle any such Third Party Claim without the written
consent of the Indemnified Person or Persons, which consent shall not be
unreasonably withheld. In the event of the assumption of the defense by the
Indemnifying Party, the Indemnifying Party shall not be liable for any further
legal or other expenses subsequently incurred by the Indemnified Persons in
connection with such defense unless otherwise agreed to in writing by the
Indemnifying Party or as herein provided; provided, however, the Indemnified
Persons shall have the right to participate in such defense, at their own
cost, and shall have the obligation to cooperate therewith.
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8.05 Limit on Indemnity Obligations.
(a) In the absence of fraud, the total amount of all Buyer
Losses (excluding Losses referred to in Section 8.01(e)) which Buyer or any of
its related persons has the right to assert against Seller under this Article
VIII may not exceed $1,000,000. Losses referred to in Section 8.01(e) shall
not be subject to or count towards any such limitation.
(b) If the total amount of all Losses which a Party has a right
to assert against the other Party under this Article VIII does not exceed
$10,000, then there shall be no obligation to provide indemnification with
respect to such Losses. If the total amount of such Losses exceeds $10,000,
then the Losses for which indemnification may be obtained shall be limited to
the amount by which the aggregate amount of all such Losses exceeds $10,000.
Losses not arising from breaches of representations and warranties under
Article III or Article IV shall not be subject to the limitation of this
Section 8.05(b). Losses referred to in Section 8.01(e) shall also not be
subject to the limitations of this Section 8.05(b).
ARTICLE IX
TERMINATION
9.01 Methods of Termination. This Agreement may be terminated:
(a) at any time prior to the Closing Date by mutual consent of
Buyer and Seller;
(b) by Seller upon notice to Buyer if any of the conditions to
the obligations of Seller shall not have been fulfilled on or before June 30,
2000 (or any extension of such date by written agreement signed by Seller and
Buyer);
(c) by Buyer upon notice to Seller if any of the conditions to
the obligations of Buyer shall not have been fulfilled on or before June 30,
2000 (or any extension of such date by written agreement signed by Seller and
Buyer);
(d) by Buyer upon notice to Seller as provided in Section
5.09(f) or 5.11; or
(e) by Seller upon notice to Buyer as provided in Section
5.09(f).
This Agreement shall be terminated upon Escrow Agent's rightful payment of the
Deposit to Seller as provided in Section 2.09(b).
9.02 Procedure Upon Termination. In the event of termination, pursuant
to and in accordance with Section 9.01, the transactions contemplated by this
Agreement shall be terminated, without further action by Buyer or Seller. If
the transactions contemplated by this Agreement are terminated as provided
herein:
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(a) Each Party will deliver all documents, work papers and
other materials of any other Party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the Party
furnishing the same;
(b) All confidential information received by any Party with
respect to the business, operations, assets or financial condition of the
other Party or its Affiliates shall be treated in accordance with Section
5.05; and
(c) Neither Party shall have any liability or further
obligation to the other Party except as stated in Sections 2.09, 5.05, 5.06
and 11.03 and Article X.
ARTICLE X
DEFAULT AND REMEDIES
If (i) Buyer fails to fulfill its obligation to make the deliveries
required of it pursuant to Section 2.08(a) and (ii) the conditions to the
obligations of Buyer stated in Article VII have been fulfilled or waived in
writing by Buyer, the payment to Seller of the Deposit as liquidated damages
pursuant to Section 2.09 shall constitute the sole and exclusive remedy of
Seller. If Seller fails to fulfill its obligations to make the deliveries
required of him pursuant to Section 2.08(b) or otherwise commits a material
breach of this Agreement and the conditions to the obligations of Seller
stated in Article VI have been fulfilled or waived in writing by Seller,
Buyer, prior to pursuing any remedies, shall make written demand for
performance by Seller. If Seller fails to satisfy such written demand within
ten (10) Business Days of Seller's receipt of such written demand, then Buyer
will have the option to waive the default, demand specific performance or
exercise any other remedy available at law or in equity.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by written agreement of the Parties.
11.02 Waiver of Compliance. Any failure of a Party to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other Party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
11.03 Expenses. Except as otherwise expressly provided herein, whether
or not the transactions contemplated by this Agreement shall be consummated,
Buyer agrees that all fees and expenses incurred by it in connection with this
Agreement and the transactions contemplated herein shall be borne by it, and
Seller agrees that all fees and expenses incurred by Seller or the Company in
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connection with this Agreement and the transactions contemplated herein shall
be borne by Seller.
11.04 Notices. All notices, requests, demands, consents and other
communications required or permitted hereunder shall be in writing and shall
be given or made by fax, delivered personally or mailed by certified mail
(return receipt requested), postage prepaid; provided that any notice
delivered by certified mail shall also be made by fax at the time that it is
mailed. If such fax is sent, notice shall be deemed given upon the
transmission thereof. If the notice is delivered personally, it shall be
deemed given when delivered. All communications hereunder shall be delivered
to the respective Parties at the following addresses (or to such other Person
or at such other address for a Party as shall be specified by like notice,
provided that notices of a change of address shall be effective only upon
receipt thereof):
(a) If to Buyer, to:
Pontotoc Production, Inc.
Attention: James Robson, Jr.
808 East Main
Ada, Oklahoma 74820
And by fax to: (580) 332-6486
with a copy to:
Robert A. Curry, Esq.
Conner & Winters, A Professional Corporation
3700 First Place Tower
15 East 5th Street
Tulsa, Oklahoma 74103
And by fax to: (918) 586-8548
(b) If to Seller, to:
Mike Cantrell
2313 North Broadway
Ada, Oklahoma 74820
And by fax to: (580) 332-4714
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with a copy to:
W. Bland Williamson, Jr., Esq.
Pray, Walker, Jackman, Williamson & Marlar,
A Professional Corporation
900 ONEOK Plaza
100 West 5th Street
Tulsa, Oklahoma 74103
And by fax to: (918) 581-5599
11.05 Assignment. Except as expressly provided herein, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party (whether by operation of law or otherwise) without the
prior written consent of the other Parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.06 Governing Law. This Agreement and the legal relations between
the Parties shall be governed by and construed in accordance with the laws of
the State of Oklahoma applicable to agreements made in such state between
residents thereof and to be wholly performed therein.
11.07 Prevailing Party. Except as otherwise set forth in this
Agreement, the prevailing party in any legal proceeding brought under or to
enforce this Agreement shall be additionally entitled to recover court costs
and reasonable attorneys' fees from the non-prevailing party.
11.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.09 Entire Agreement. This Agreement, including the Disclosure
Schedule and the Exhibits, and all other agreements entered into by the
Parties simultaneously herewith set forth the entire agreement and
understanding of the Parties in respect of the subject matter contained
herein, and supersede all prior agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
Party in respect of such subject matter. There are no restrictions,
representations, warranties, covenants or undertakings between the Parties
other than those expressly set forth or referred to herein.
11.10 No Third Party Beneficiaries. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any Person
other than the Parties and their respective successors or permitted assigns
any rights or remedies under or by reason of this Agreement.
11.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
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rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first above written.
BUYER: PONTOTOC PRODUCTION, INC.
By: /s/ James Robson, Jr.
James Robson, Jr.
President
SELLER:
/s/ Mike Cantrell
Mike Cantrell
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